I cannot avoid immediately recalling the title of one chapter in Jackson's seminal book The World Trading System (1997). It was called: ‘The perplexities of subsidies’. Almost 20 years since they were written, these words are still true. The paradox is that we have a very important common policy instrument, which can have a significant impact on trade flows and competitive dynamics, but trade laws still struggle to capture this phenomenon, to properly clarify what a subsidy is, and then to offer clear and sound rules to distinguish good from bad subsidies. At the same time, the system of subsidy control does not seem to be fully efficient in ensuring transparency of subsidies and in creating the conditions for making the work of the Committee on Subsidies more useful. There is nothing revolutionary in what I am saying; rather all these statements reflect common knowledge. Of course, I do not want to dispute the achievement of the Tokyo Round and even more so the Uruguay Round negotiators and their great achievement in introducing, within the political and ideological constraints of that time, a sound set of subsidy disciplines. These negotiators certainly left us with a good framework that has served the system reasonably well for many decades. But, as virtually everything, rules also age with time. Twenty years after these rules were introduced, and many more after they were first discussed and negotiated, the SCM Agreement now badly needs reform. However, if what we need is law reform, it is of the essence to properly prepare for it as well as to analyze issues and options in depth. At this juncture, I return to the concluding words of Professor Jackson's chapter on subsidies: ‘The subject probably merits other efforts of elaboration and definition also.’

Many have heeded this call and have attempted to contribute to the development of the scholarship on subsidies. The book under review is a prime example of this scholarship. Coppens’ book upgrades his Ph.D. One can immediately glean from the cover (indeed from the sub-title!) the main question of the book: ‘Does the World Trade Organization leave appropriate policy space for its members to pursue legitimate objectives, such as the economic development of developing countries, the conversion to a greener economy, or recovery in times of a global economic downturn?’ This is largely a normative question that bodes well for the eager and inquisitive reader. It is the kind of medical check that the system needs, the essential prerequisite for any meaningful discussion of law reform. The book is not only a ‘black-letter’ description of the law and of its rich and sophisticated jurisprudence. Rather, the author has a more ambitious objective.

Three general remarks should be made at the outset. First, the coverage of the book is comprehensive. It deals with virtually every area of subsidy disciplines in the WTO. The result is a tome of more than six hundred pages. Secondly, the legal analysis is enriched by extensive and well-inserted references to the case-law of panels and the Appellate Body. This is what could be called the book's contribution to the ‘positive’ analysis of subsidy laws. Thirdly, the self-professed approach is ‘law and economics’. The author continuously tests the soundness of the legal framework against economic principles. Crucially, it is this reliance on economic analysis that provides the basis (even the standard) for the main ‘normative’ claim of the book, which I will discuss more at length later on.

A bird's eye view now. The book begins with an interesting chapter exploring the various economic or political-economy rationales for subsidization. The author then splits his analysis into three main parts.

Part I delves in detail into the legal disciplines. More than 300 pages are used to offer a brief historical overview (Chapter 2), to explore the scope of the SCM Agreement, focusing on the definition and specificity of the various provisions (Chapter 3), and to examine the actual subsidy disciplines (Chapter 4) and the available remedies (Chapter 5). Chapter 6 is devoted to the ‘special’ treatment for developing countries and for agriculture.

Part II of the book puts forward a case study of the WTO disciplines on export credit support, an area in which the author has demonstrated his expertise in previous publications. More than one hundred pages, covering eight chapters, are used to set out this case-study. The last chapter contains a normative analysis of the disciplines on export credit support. However, it is Part III that is the culmination of the book. It is divided into five chapters, in which the author provides a comprehensive normative analysis of WTO subsidy disciplines, reviewing, one after the other, all key legal provisions and issues. The last chapter briefly focuses on subsidy disciplines in the light of the policy responses to the recent economic crisis.

The reader may rest assured that the whole book is excellent, and each part and chapter are carefully drafted. I need to be highly selective in my comments, since the space allocated does not really allow a systematic commentary on the entirety of the extremely rich analysis contained in the book, which is a genuine treatise on the law (and economics) of subsidies. Therefore, I will provide a few comments on Parts I and II of the book, but subsequently concentrate on the main normative claim set out in Part III.

The ‘positive’ analysis of the law in Part I is extremely comprehensive and readable. The author shows his genuine mastery of the legal intricacies of treaty language and of the accompanying case-law. Where appropriate, he provides his views. The result is a thorough and systematic review of all major legal issues.

In Part II, Coppens introduces a case study on export credits. The insertion of a case study on ‘export credits’ is justified, using the words of the author, by ‘[t]he complexity and particularity of the legal framework as well as the specificity of the rationales for government intervention’ (p. 3). More intriguingly, in the author's assessment, the regulation of export credits seems to reveal a paradox. This paradox arises because the legal disciplines preclude Members from adopting certain practices which, however, were, for example, supported by the WTO Secretariat in the wake of the recent financial and economic crisis (see pp. 438–441).

A little more time is now spent on the main normative claim developed in Part III of the book. I am not convinced by Coppens’ assertion that the current disciplines (and in particular the general disciplines of the SCM Agreement) strike an appropriate balance between policy space and legal constraints. On the one hand, I agree with Coppens’ endorsement of the ‘old traditional approach’. This approach initially captures legitimate subsidies within the scope of the rules, but also makes it possible to subsequently ‘justify’ them due to their desirable policy effects. On the other hand, I cannot agree with Coppens that the current WTO rules are satisfactory in this regard. In particular, Coppens suggests various ways to ensure policy autonomy. However, I do not find his arguments fully convincing.

While I agree with his criticism of the Appellate Body's ruling in the Canada – Renewable Energy/FIT case (including with the assertion that the ruling deviates from the prevailing ‘private market test’) (see pp. 454–468), I have some reservations with respect to his reliance on the specificity and likeness tests as vehicles for conferring greater regulatory autonomy to Members.

Coppens suggests that the specificity test, through the concurrent application of the ‘three principles test’ established by the Appellate Body in US – Large Civil Aircraft, could offer the necessary policy space (see pp. 483–484). These three principles refer to three steps of the specificity analysis whereby what has to be established is whether the measure is de jure specific, whether its eligibility requirements are neutral and horizontal, and, finally, whether it is de facto specific. I am not fully sure that the finding of the Appellate Body settles the issue, against the troubling language of de facto specificity. The issue is that specificity is not clear, and reliance on neutral and objective conditions does not suffice, in my view, to exclude the possibility that, given a predominant effect on certain sectors or industries, the subsidy may end up being specific. At best, it is not known whether and when such measures will be held to be specific. At worst, subsidies of this type will always be specific.

Equally, likeness is not a promising route to follow either. Coppens suggests that panels and the Appellate Body

I have reservations with respect to a broad endorsement of this ‘alternative’ approach to likeness. The case-law under Article III of the GATT (see Philippines – Distilled Spirits) is rightly moving towards a solution to the likeness question, and is doing so by firmly establishing the competitive relationship between the products as the proper benchmark. Other, policy-linked, concerns should not be considered as part of this basic technical assessment. In other words, ‘likeness’ should depend on whether two products compete, not on whether one product is eco-friendly and the other is not.

Most importantly, I am not sure that the ‘point of balance’ of the current disciplines is struck in the right fashion.Footnote ¹ This is what Coppens seems to suggest when, in his discussion of green energy production subsidies, he states:

To say that, to avoid the wrath of subsidy laws, you just need to avoid ‘adverse effects’ may not be good enough (in terms of due recognition of policy space) for both practical and theoretical reasons.

The first part of the argument (which is in its essence a practical one) is that Members need legal security. They need to be sure, if they grant a certain subsidy that is in principle desirable, that this subsidy will not be challenged. Simply relying on the absence of adverse effects does not guarantee this. Two examples can be given. Consider a subsidy provided to a polluting factory to stop emissions. This subsidy is not a production subsidy; however, under the current law, nobody can exclude a successful challenge. Along the same lines, it is sometimes said that an efficient environmental subsidy by definition does not distort. This is fallacious. The practical and, at the same time, theoretical issue here is: How sure can you be that there are no spillovers? It is very difficult, if not impossible, to avoid such spillovers. It should be immediately clear that I am not advocating the unqualified use of production subsidies here (although one should conversely ask whether, in practical and policy terms, less distorting consumer subsidies are a realistic and an equally effective option). My argument is different.

The second part of the argument is more theoretical. More than simply giving legal security, the disciplines could be modified to expressly accept that, even if certain distortions arise by virtue of a subsidy, these distortions should nevertheless be acceptable. I am not suggesting here any normative preference. I am merely saying that the current rules could be modified so as to explicitly expand the degree of policy autonomy that can currently only be implicitly inferred from the current disciplines. It is for Members to decide where they want the balance to be struck. In other words, the first part of the argument is about simply making clear where the point of balance of the disciplines lies; the second part of the argument is about shifting this point of balance in a different direction.

This is what the SCM Agreement did in its initial version. I take the liberty of quoting from a recent piece of mine:

There are other related passages in which Coppens’ argument is not convincing. For instance, Coppens further argues that

There is a fallacy. To suggest bluntly a given interpretation in order to incentivize a certain type of subsidization is going too far. First, it is not the duty of panels or the Appellate Body to act as regulators that are called to execute a certain policy and have in this respect a degree of discretion in giving shape to the law. Instead, they have to apply the law in front of them. Second, exactly because panels and the Appellate Body have to apply the law as it is, any given interpretation of likeness or market definition analysis will be permissible only if it is correct, in both legal and economic terms.

With respect to the market analysis introduced by the Appellate Body, this has already been strongly criticized in the literature. To say the least, the Geneva-based trade court has misinterpreted the role and nature of the definition of the product market. In less benign words, it could be argued that the Appellate Body's approach is a classic example of Hudec's ‘smell test’. The Appellate Body was trying to find an ostensibly technical way to formally justify, ex post, a conclusion that it had already reached and thought desirable. Whatever the approach, the market analysis carried out in the Canada – Renewable Energy/FIT case was wrong, and, as such, should not be followed.

It is time to wrap-up now with a few concluding words. Despite the reservations above, which concern Coppens’ normative claim, the book remains a masterful analysis of subsidy laws and is to be commended for its comprehensiveness and clarity. Abounding with insights and suggestions, the book is a goldmine of analysis that will be useful to scholars and practitioners alike – for a long time.