Revising the GATT Approach to Subsidies: A Canadian View

The issues raised by the widespread recourse to industrial policies illustrate some of the essential weaknesses of the General Agreement on Tariffs and Trade (GATT). The regulatory power of the General Agreement reposed, for the first 25 years of its existence, on a tacit international consensus that the United States should take the lead in, and assume responsibility for, world trade liberalization. Not surprisingly, given the traditional US insistence on the contrast between market and government decision-making, the distinction between the two spheres was endorsed by the GATT. As a result, many GATT articles are based on the premise that governmental activity in the market place leads to discriminatory and unfair competition and, indeed, is abnormal and should be strongly discouraged if not eliminated.