Rethinking International Rules on Subsidies
Council Special Report from Renewing America and Greenberg Center for Geoeconomic Studies
Council Special Report from Renewing America and Greenberg Center for Geoeconomic Studies

Rethinking International Rules on Subsidies

The World Trade Organization needs an updated toolbox in the face of rising industrial policies across the globe. 

September 2023 , 51 Pages

Council Special Report
Concise policy briefs that provide timely responses to developing crises or contributions to current policy dilemmas.

“The United States should lead the effort to reshape the global rules to better serve its own interests and the international trading system’s changing realities,” claims a new Council Special Report, Rethinking International Rules on Subsidies. The authors, CFR trade experts Jennifer A. Hillman and Inu Manak, contend that such an effort “would give the United States a powerful tool to address its twin concerns over competition with China and fighting climate change. It would also allow the WTO and the world to come closer to a more equitable, resilient, and sustainable international economic order.”  

Jennifer Hillman Headshot
Jennifer Hillman

Senior Fellow for Trade and International Political Economy

Inu Manak

Fellow for Trade Policy

The report examines the growing reliance of the United States on using domestic subsidies to address global challenges: “the [Joe] Biden administration has maintained and expanded on the [Donald] Trump administration’s tariff policy, defended at the time as helping the United States compete globally against a rising China, by introducing major new subsidy programs. Importantly, the primary motivation for those efforts falls into two buckets—to counter China and to fight climate change.” That adoption of industrial policy “has prompted cries from across the globe that the United States is fostering unfair competition and breaking the rules it helped shape as part of the World Trade Organization (WTO).”  

More on:

Trade

Fisheries Subsidies

International Economics

Industrial Policy

World Trade Organization (WTO)

In the aftermath of simultaneous political and economic crises, “the perception of countries’ urgent need to build up their resiliency in critical goods and services, coupled with the existential threat of climate change, means that moving toward industrial policies and increasing subsidies is warranted and indeed essential,” Hillman and Manak write. “However, the urgency of the problems does not mean abandoning well-founded concerns that industrial policy—done wrong—can stifle innovation, create substantial inefficiencies, exacerbate the concentration of corporate power, waste precious taxpayer funds, and fuel crony capitalism.” 

The authors outline the deficiencies of the current international rules governing subsidies and provide recommendations. In particular, Hillman and Manak highlight the failure of many WTO members to report their subsidies, the ineffective remedies available, and the lack of special recognition by WTO rules of beneficial subsidies aimed at tackling climate or public health challenges, among other issues. 

To lead the charge on reforming the WTO rules, the authors propose that the United States should 

  • “revisit what constitutes good and bad subsidies and propose limiting overall subsidy levels while carving out areas in the common international interest”;
  • “encourage countries to disclose their subsidies, both by using the incentive of a ‘safe harbor’ for subsidies that have been properly notified and enforcing penalties for those that consistently fail to make timely notifications of their subsidies”; and
  • “strengthen the penalties for noncompliance with international subsidies rules.”

“At its core, one of the WTO’s critical roles is to help its members draw the line between protectionist measures and sound industrial policies, while ensuring that wherever that line is drawn, it does not unduly privilege some or harm others,” Hillman and Manak conclude. “To do that in the face of rising industrial policies across the globe, the WTO needs an updated toolbox.” 

More on:

Trade

Fisheries Subsidies

International Economics

Industrial Policy

World Trade Organization (WTO)

Professors: To request an exam copy, contact [email protected]. Please include your university and course name.

Bookstores: To order bulk copies, please contact Ingram. Visit https://ipage.ingramcontent.com, call 800.937.8200, or email [email protected]. Include ISBN: 978-1-64052-998-4.

In the Press

Industrial Policy Could Trigger a Subsidies War. How to Prevent It.

Courtesy of Barron’s

Top Stories on CFR

Daily News Brief

Welcome to the Daily News Brief, CFR’s flagship morning newsletter summarizing the top global news and analysis of the day.  Subscribe to the Daily News Brief to receive it every weekday morning. Top of the Agenda In a surprise result, a centrist defeated a far-right candidate in Romania’s presidential runoff yesterday by an around eight-point margin. Voter participation surged since the first round of the election, in which the far-right candidate ranked first. Meanwhile, Portugal and Poland saw moderate forces narrowly beat out the far right in elections yesterday—although a runoff in Poland could flip the result.  Roller coaster in Romania. Romania’s presidential vote was a do-over after a court annulled its previous iteration in November following accusations of Russian meddling. Pro-Russia candidate Călin Georgescu won that now-cancelled vote. Although he was barred from participating in the redo election, his close ally George Simion ran and led the first round of voting. Voter participation in yesterday’s runoff surged to its highest level in around twenty-five years. Pro-European centrist Nicușor Dan, mayor of Bucharest, earned around 54 percent of votes compared to Simion’s 46 percent.  Portugal’s parliamentary math. In Portugal’s legislative election yesterday, the ruling center-right Democratic Alliance (DA) party won the most seats, while the center-left Socialists and the far-right Chega party roughly tied for second. The DA said it would not govern with Chega. Final vote counts were still trickling in today, but it appears that Chega’s congressional representation jumped from one seat in 2019 to at least fifty-eight seats this year. Round one of two in Poland. Poland held a first-round presidential vote that saw liberal Warsaw Mayor Rafał Trzaskowski come in a close first with around 31 percent to populist right candidate Karol Nawrocki’s roughly 30 percent. There will be a runoff on June 1. Poland’s president is less powerful than the prime minister but still has the power to shape foreign policy. Current nationalist President Andrzej Duda has limited some of the agenda of the country’s pro-European Prime Minister Donald Tusk. “After the 2024 U.S. presidential elections, Europe’s right-wing populists anticipated a wave of support for movements embracing [U.S. President Donald] Trump’s antiestablishment, anti-immigrant rhetoric and policies. Despite initial enthusiasm, Trump’s exceptional unpopularity among the European public has put Europe’s right-wing populists—who usually adopt a nationalistic, U.S.- and NATO-critical view—in a complicated position.” —CFR Fellow Liana Fix and CFR’s Jack Silverman write in this Expert Brief Across the Globe Aid and ground operations in Gaza. Israel will allow a “basic amount of food” into Gaza in order to prevent a starvation crisis, the prime minister’s office said yesterday. The move ends a nearly three-month blockade on aid. Hours earlier, Israel’s military said it began “extensive ground operations” in the territory. More than one hundred people were killed from Saturday night to Sunday morning, hospitals and medics said.   Trump’s calls on war settlement. President Trump said he would make separate phone calls to Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy today in an effort to advance a peace deal. Ukraine yesterday said Russia launched its largest overnight drone attack on the country since the start of the war. Zelenskyy met with U.S. Vice President JD Vance and Secretary of State Marco Rubio over the weekend.   U.S. credit downgrade. On Friday, Moody’s became the third and final major credit rating agency to lower the United States from its top tier. Fitch Ratings did so in 2023 and so did S&P Global in 2011. Moody’s cited a more than decade-long increase in public debt. U.S. Treasury Secretary Scott Bessent called the move “a lagging indicator,” while the White House said it was “focused on fixing [Joe] Biden’s mess.”   China’s satellite support to Pakistan. China helped Pakistan organize its air defense systems and adjust satellite coverage over India during recent cross-border hostilities, the head of a research group under India’s defense ministry told Bloomberg. Indian and Pakistani government bodies did not respond to Bloomberg’s requests for comment; when asked about the report at a press briefing, a Chinese foreign ministry spokesperson did not comment directly.  Bird flu in Brazil. China, the European Union (EU), and South Korea banned the import of Brazilian poultry for sixty days after avian flu was discovered on a commercial bird farm for the first time on Friday. Brazilian authorities said they were isolating the farm in the country’s south and surveilling farms in a six-mile radius. In recent months, bird flu spurred an egg shortage in the United States, while Brazil’s egg exports there increased.  EU-UK reset. The EU and the United Kingdom (UK) committed to new security and trade agreements today in what has been described as the biggest reset in relations since Brexit in 2016. They will jointly procure military equipment, ease permissions for UK travelers and some goods to reach the EU, and extend permission for EU boats to use UK fishing grounds.   El Salvador journalists flee. Three members of the top independent investigative news site in El Salvador fled the country this month amid reports the government might be preparing to arrest them. Their outlet, El Faro, reported on alleged deals between President Nayib Bukele and the country’s gangs. A Salvadoran presidential commissioner for freedom of expression said he did not know if there were arrest warrants against the journalists and that reporters can “say whatever they want” as long as they do not commit crimes. Conflict in northeastern Nigeria. Militant attacks in northeastern Borno state have prompted at least twenty thousand people to flee the town of Marte, the state governor said. Local officials have observed an increase in suspected attacks by Boko Haram and Islamic State West Africa Province militants in 2025; Nigeria’s military had been able to push back against Boko Haram in recent years. What’s Next Today, the World Health Assembly begins in Geneva. Tomorrow, the information technology fair COMPUTEX begins in Taiwan. Tomorrow, the International Booker Prize winner is announced in London. Tomorrow, the Qatar Economic Forum begins in Doha.

Trade

The United States and China narrowly avoided a trade war by agreeing to a ninety-day pause on steep tariffs. The truce is not a bona fide trade deal, but the stage is now set for serious negotiations on a potentially broader and longer-term agreement.

United States

The Trump administration’s efforts to nullify birthright citizenship for millions of U.S.-born children could overturn a nearly 160-year legal precedent.