Safe Harbors: Using Health & Safety Regulations against Undisciplined Subsidies

• In Event: Improving Trade Theory: Innovations in Measurement and Empirical Strategy

Abstract

Government subsidies are among the most commonly cited policy problems in international commercial affairs. To limit these conflicts, subsidies have been subject to strict disciplines at the WTO and the GATT. These agreements authorize offended countries to respond to foreign subsidization with countervailing duties and other forms of temporary protection. However, as is the case generally with agriculture, WTO member states have exempted farm subsidies from these disciplines, leaving governments to fend for themselves. This paper examines the effects of this exemption in the case of European agricultural subsidies and protectionism in destination markets. In particular, I examine the effect that subsidization of products in Europe has on the use of sanitary and phytosanitary barriers to trade in destination markets. To identify the effect of apparently domestically oriented agricultural subsidies on this product level measure of protectionism, this paper develops a fuzzy regression discontinuity design for a panel of NUTS2 regions which qualify and disqualify for EU Objective 1 funds as their GDP rankings fluctuate around a legally defined cutoff. The panel structure of the data allows for within product comparisons, but also raises methodological problems about the persistence of treatment. The analysis of the undisciplined space of agriculture may foreshadow how governments will cope upon losing access to formal dispute settlement at the WTO.

Author

• Robert Gulotty, The University of Chicago