The European Community and National Subsidy Policies

Abstract

The American position in the current round of trade negotiations for revising GATT Articles VI and XVI includes a proposal for a tripartite differentiation of national subsidies.¹ This so-called ‘traffic light’ or ‘red, green, amber’ system is in many respects quite close to existing European Community (EEC) practices. Since the EEC represents the most far-reaching attempt to liberalize trade among industrialized states, its experience with subsidies, albeit a highly specialized issue, may not only provide useful insights for understanding the American proposal, but also be relevant to efforts to reform the pertinent GATT articles. These include such questions as the extent to which and under what conditions general rules and obligations can be defined which are economically relevant, politically acceptable and enforceable multilaterally among a group of industrialized states; the frame of reference a multilateral organization can develop for evaluating national subsidies; the pressures it can bring to bear on its members; and the limits imposed on policy formulation. In the EEC’s case one limit is a result of the fact that the Community constitutes a suboptimal area from the perspective of the international economy.