Industrial subsidies
have proliferated in recent years, and existing international rules respecting subsidies
are increasingly viewed as inadequate. This paper surveys the rationale for
subsidization, the international externalities that may result, and the
possible mechanisms for policing those externalities. It then reviews existing
legal rules and considers a range of proposals for reform. Among other things,
it suggests that sector specific rules are preferable to generally applicable
rules for sectors in which subsidization is especially problematic. We also
favour the creation of new ‘safe harbor’ provisions insulating certain types of
subsidies from challenge, and changes to remedial principles to make sanctions
for problematic subsidies more effective. Finally, we address the vexing
problem of designing rules for non-market economies (NME) and stateowned
enterprises.