INTERNATIONAL POLmCAL ECONOMY SERIES General Editor: Timothy M. Shaw, Professor of Political Science and Inter national Development Studies, and Director of the Centre for Foreign Policy Studies, Dalhousie University, Halifax, Nova Scotia, Canada Recent titles include: Pradeep Agrawal, Subir V. Gokam, Veena Mishra, Kirit S. Parikh and Kunal Sen ECONOMIC RES1RUCfURING IN EAST ASIA AND INDIA: Perspectives on Policy Reform Steve Chan (editor) FOREIGN DIRECT INVESTMENT IN A CHANGING GLOBAL POLmCAL ECONOMY Jennifer Clapp ADJUSTMENT AND AGRICULTURE IN AFRICA: Farmers, the State and the World Bank in Guinea Seamus Cleary THE ROLE OF NGOs UNDER AUTHORITARIAN POLITICAL SYSTEMS Edward A. Comor (editor) THE GLOBAL POLmCAL ECONOMY OF COMMUNICATION Robert W. Cox (editor) THE NEW REALISM: Perspectives on Multilateralism and World Order O. P. 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Customer Services Department, Macmillan Distribution Ltd Houndmills, Basingstoke, Hampshire RG21 6XS, England Subsidy Regulation and State Transformation in North America, the GATT and the EU Robert O'Brien Lecturer in International Relations University of Sussex Brighton First published in Great Britain 1997 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 978-1-349-25832-1 ISBN 978-1-349-25830-7 (eBook) DOI 10.1007/978-1-349-25830-7 First published in the United States of America 1997 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y. 10010 ISBN 978-0-312-17513-9 Library of Congress Cataloging-in-Publication Data O'Brien, Robert, 1963- Subsidy regulation and state transformation in North America, the GAIT and the EU / Robert O'Brien. p. cm. - (International political economy series) Includes bibliographical references and index. ISBN 978-0-312-17513-9 (cloth) 1. Subsidies-United States. 2. Subsidies-Canada. 3. General Agreement on Tariffs and Trade (Organization) 4. Subsidies -European Union countries. I. Title. II. Series. HC 110.59027 1997 338.9'22-dc21 97-7120 CIP © Robert O'Brien 1997 Softcover reprint of the hardcover I st edition 1997 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WI P 9HE. Any person who does any unauthorised act in relation to this publication may "be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 6 5 432 1 06 05 04 03 02 01 00 99 98 97 To my parents and Angela Contents Acknowledgements ix Abbreviations x Introduction xi Globalization, the State and Subsidies 1 Globalization 1 The State 12 Subsidies 17 2 The US Trade Law System 21 Trade and Protectionism 21 The CVD Process 31 3 National Origins of Canada-US Subsidy Conflicts 42 Liberal by Degree 42 National Security 46 Regional Development 50 Subnational Economic Policies 54 Culture 57 Social Programs - Health Care 61 Subsidies and the Past 65 4 Subsidies and the Free Trade Agreement 67 Market Access 67 Subsidies in the Negotiations 75 5 North American Subsidies in the 1990s 83 Post-FT A Hurdles 83 NAFTA Subsidy Provisions 95 6 Subsidies at the GATT 102 The General Agreement on Tariffs and Trade 103 The Uruguay Round 115 7 Agriculture and Aerospace 126 Down on the Farm 126 Conflict in the Sky 140 vii viii Contents 8 The Unique European Union Arrangement 147 Policy Evolution 152 More Than a Market 165 9 State Transformation and the Global Political Economy 170 Subsidies, Liberalization and Globalization 170 Transforming the State 173 World Order 178 Notes 185 Bibliography 192 Index 208 Acknowledgments I first became interested in the issue of subsidy conflicts in 1987 while working as a parliamentary intern in the Canadian House of Com mons. Over the past decade numerous people helped me pursue the subject matter, leading to the publication of this book. Members of my PhD committee from York University will recognize large sections of the work. Robert Cox, Daniel Drache and David Ley ton-Brown all took an interest in the project and offered assistance. The Walter Gordon scholarship at York University facilitated my early field research in the United States. In Washington I was able to rely upon the assist ance of Robert Meuser for practical guidance through the trade maze and physical provision during my research trips. Thanks are also due to people in the US, Canadian and EU bureaucracies, interest groups and political parties who took the time to speak to me. The intellec tual atmosphere stimulated by my new colleagues Zdenek Kavan, John MacLean, Jan Aart Scholte and Marc Williams at the University of Sussex helped me look at the same issue in a different light. Angus Cameron kindly assisted in the preparation of the manuscript. Finally, my greatest debts are to my parents and to Angela who provided me with moral support, financial security and the example of a steadfast work ethic. IX Abbreviations AAA Agricultural Adjustment Act ACOA Atlantic Canada Opportunities Agency BCNI Business Council on National Issues CAP Common Agricultural Policy CBC Canadian Broadcasting Corporation CIT Court of International Trade CMA Canadian Manufacturers Association CRTC Canadian Radio and Television Commission CVD Countervailing Duty DOC Department of Commerce DREE Department of Regional Economic Expansion EC European Community ERDA Economic and Regional Development Agreements EU European Union FDI Foreign Direct Investment FTA Canada-United States Free Trade Agreement GATT General Agreement on Tariffs and Trade IMF International Monetary Fund IR&D Independent Research and Development Program ITA International Trade Administration ITC International Trade Commission ITO International Trade Organization MOU Memorandum of Understanding MPEAA Motion Picture Export Association of America NAFTA North American Free Trade Agreement NTBs Non-Tariff Barriers OECD Organization for Economic Cooperation and Development PEl Prince Edward Island R&D Research and Development SOl Strategic Defense Initiative SEA Single European Act TNCs Transnational Corporations UK United Kingdom US United States USTR United States Trade Representative VERs Voluntary Export Restraints WTO World Trade Organization x