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Regular version of the site

Article

The Life and Death of a Non-Recurring Subsidy: the Role of Change in Ownership of Subsidy Recipient

Journal of World Trade. 2019. Vol. 53. No. 2. P. 211-227.
Rovnov Y.

This article is yet another attempt to tackle the issue of subsidy extinguishment, the enduring conundrum of WTO law. Early dispute settlement reports that addressed the matter concluded that privatization of a subsidy recipient at arm’s length and for fair market value terminates a benefit conferred by a subsidy, but were vague on why and how this specifically happens. Academic commentators criticized this outcome as economically irrational, since privatization does not result in a withdrawal of subsidized assets from the subsidy recipient and thus does not, per se, remedy the market distortion created by the subsidy in the first place. This article argues that privatization – or, in fact, any sale of a subsidy recipient – may extinguish a government subsidy if the buyer converts it into a private investment by paying for the subsidized asset the full amount of the government’s financial contribution less depreciation. However, effecting the transaction at arm’s length and for fair market value is not a sufficient condition for this to happen.