Download curbing business subsidy competition: does the european union

CURBING BUSINESS SUBSIDY COMPETITION:
DOES THE EUROPEAN UNION HAVE AN
ANSWER?
WILLIAM SCHWEKE
SEPTEMBER 2000
Working Paper
CURBING BUSINESS SUBSIDY COMPETITION: DOES THE EU HAVE AN
ANSWER?
By William Schweke, CFED
Introduction
The competition between America’s states and cities to recruit new companies or to
retain existing ones has never been more intense. Annually, states and localities across
the country spend hundreds of millions of public dollars on a variety of tax incentives and
spending programs whose use has fueled a virtual incentives “arms race” among these
jurisdictions.
These incentive programs are also highly criticized. In using them, cities and states:
1. Waste public dollars without creating net new jobs in the vast majority of cases;
2. Subsidize the shareholders of these companies for economic actions that they
would have taken anyway;
3. Foster unfair competition by helping some firms and industries and not others;
4. Use tax incentive measures that erode the adequacy, equity and neutrality of
governmental revenue bases; and
5. Divert the attention of policymakers from attending to the actions they need to
take that could lead to net new job creation and a better business climate.
Such criticisms have sparked a growing movement to reform these programs. Maine and
Minnesota, for example, have enacted improved disclosure policies. Others have
imposed tougher performance requirements in return for investing public dollars.1
Increasingly, incentive policy reformers seem to be winning the intellectual war as well.
My reading of the opinions in the print and electronic media and my sense of the
evolution of this issue over the last two decades is that support for the aims of this
accountability movement is high. Many appear to see the escalating costs of
development incentives as a serious issue and both officials and the citizenry want help in
curbing the excesses and holding these policies to a higher standard of public
accountability.
Yet, the tide has not been turned. High priced, new incentive measures continue to
spread from one jurisdiction to another. Almost every mobile company expects an
incentive as a right of doing business in a state or city. Bidding wars between
jurisdictions are still the norm, not the exception. Elected officials feel trapped into
1
For a review of subsidy reform trends, see Greg Leroy, “Counterpoint: We Are Making Progress”
Accountability: The Newsletter of the Business Incentive Reform Clearinghouse, December 1999 and Greg
Leroy, The Policy Shift to Good Jobs, Institute on Taxation and Economic Policy, October 1999.
Corporation for Enterprise Development
2
providing more and more. Competition between countries over big projects is
intensifying as well.
There are lots of reasons for explaining why the incentive reform situation is still so
difficult. But a big part of the puzzle is the fact that the accountability movement’s
greatest strength is also its greatest weakness. To date, the reform agenda is mainly being
pushed from the bottom-up and the policy agenda is too state and local-focused. This
makes sense, because this is where the problem exists. The dilemma for policymakers is
that doing the right thing is difficult if most states and localities do not act in unison.
Thus, we also need top-down action, since it very hard for state and local policymakers to
implement appropriate accountability measures, especially if these reforms are painted by
corporate lobbyists and business prospects as putting the area at a competitive
disadvantage. State and local policymakers would be empowered if the whole playing
field for incentive competition could operate under a better set of overarching rules.
So, how might the federal government motivate state and local reform efforts? How do
we deal with this large problem of intergovernmental competition? How might
international subsidy agreements, such as those created by the World Trade Organization,
mandate more universal transparency standards? Indeed, how might multi-state
compacts overcome the dangers posed by a single state to strike its own deal with
footloose companies and undermine reform efforts? Are there any precedents in these
arenas for the U.S. worthy of study? 2
The rest of this paper will seek to answer these questions by taking a close look at
European Union subsidy guidelines.3 These should be explored for a number of reasons.
First, they have been in effect and evolving for a number of decades. Second, EU
subsidy disciplines have influenced WTO and other multilateral agreements. Third, they
are linked with impressive disclosure requirements and enforced through the European
Commission’s oversight and the European Court of Justice. Fourth, since EU subsidy
codes are an effort to address competition between sovereign nations, they possess some
relevance to a country like the U.S. that has such a strong federalist governance structure.
In short, would American states gain by giving up some of their sovereignty in order to
curb the business subsidy challenge? Lastly, the EU’s approach to subsidy disciplines is
also linked with its views about promoting public goods, such regional equity,
environmental mitigation, and so forth. And this colors how they set standards regarding
acceptable development subsidies.
2
The Ford Foundation provided a grant that financed the authorship of this paper.
This paper is based on library research, plus a study tour to Europe, which was financed by the German
Marshall Fund of the United States. This on-site investigation allowed us to meet with and interview highlevel European Union subsidy discipline staff. Study trip members included: Robert Stumberg, Harrison
Institute for Public Law, Georgetown University; Greg Leroy, Good Jobs First; Paull Mines, Multistate
Commission; Mayor Bev Perry (Brea, CA); Christopher St. John, Maine Center on Economic Policy; Dan
Gerlach, North Carolina Budget and Tax Center; Carl Rist, Corporation for Enterprise Development; and
Bill Schweke, Corporation for Enterprise Development (tour leader).
3
Corporation for Enterprise Development
3
The paper’s goal is to provide ideas for improving subsidy disciplines at the local, state,
federal, and multilateral level. The paper begins with a detailed look at the EU subsidy
guidelines, structure, and process.4 Next, it explores their relevance for American
incentive reformers. Lastly, the paper offers recommendations for action, based on the
European experience.5
The European Union’s Subsidy Disciplines
EU efforts to curb harmful subsidy practices are best approached by answering the
following questions. What is the EU subsidy discipline? When did it start? What is
“state aid?” What are the EU rules? How does a member country comply? How well
does it work? How does it compare to the WTO rules?6
What Is EU Subsidy Discipline?
In many ways, subsidies to business and government functions are virtually synonymous.
After all, almost every government action can be regarded as a subsidy for someone, and
virtually all such actions can affect international and domestic trade. (However, if the
government policy does not affect the state budget, it is not state aid. This is the EU’s
point of view.) Providing goods, services or money to a firm constitute business
subsidies, and so do exemptions from taxes.
The European Community (or European Union) regulates what its member states can and
cannot do in support of their industries.7 This subsidy discipline requires that all
subsidies, above a certain size, be disclosed and that new subsidy programs and large
individual subsidy agreements be approved by the EU. (Particular projects have to be
4
The European Union (EU) is, in a loose sense, a sort of United States of Europe. It is, different, though,
because it is not truly a federalist government, despite the fact that its member states give up some
sovereignty to join. It is, moreover, a unique international organization, whose constituent members are
nation states. It began life with the creation of the European Coal and Steel Community in 1951. The
Treaty of Rome, which created the European Economic Community (EEC), occurred in 1957. The
European Union was signed into law in 1992. This paper uses the terms, Europe Union and European
Community, loosely and largely interchangeably. One more note: The European Commission is based in
Brussels. It is the executive administrative branch of the EU. The Commission is responsible for initiating
the development of new EU laws and policies and for overseeing their implementation.
5
Two full-length books on subsidies were helpful to this research and should be cited: Robert O’Brien,
Subsidy Regulation and State Transformation in North America, the GATT, and the EU (1994); and
Rembod Behboodi, Industrial Subsidies and Friction in World Trade (1994).
6
Detailed publications explaining the EU subsidy disciplines include the following: European Commission,
Community Rules on State Aid: Vade-Mecum (European Union: Regional Policy/Competition Guide, June
1999); UK Department of Trade and Industry, European Community State Aids: Guidance for all
Departments and Agencies (Revised Edition: March 1999); European Commission, Competition Law in the
European Communities: Volume IIA Rules Applicable to State Aid (Situation at 30 June 1998); and
European Commission, Directorate General For Economic and Financial Affairs, European Economy:
State Aid and the Single Market, No. 3, 1999.
7
A recent overview description of EU structures, development policies, and subsidy controls can be found
in: Morris Sweet, Regional Economic Development in the European Union and North America (1999). A
soon to be published book, Competing for Capital, by Kenneth Thomas, also demands careful study.
Corporation for Enterprise Development
4
disclosed only if they are above a certain size or in certain sectors.) In doing so, the
treaty defines what is aid and what types of aid are in the common interest of EU member
countries.8 By doing so, EU policymakers hope to curb certain forms of state aid, cut the
overall costs, increase governmental program transparency, level the playing field
between competing EU countries, and encourage more rational subsidy policies (e.g.,
those that are more appropriate, cost-effective, etc).
When Did It Start?
Since the beginnings of the European Community, its architects recognized the following
propositions. Its member states and regions would adopt policies and create programs to
strengthen the competitiveness of their countries and to expand employment
opportunities in economically disadvantaged areas. Furthermore, measures providing
governmental (or state) aid to individual companies would obviously play an important
role in such efforts. However, European policymakers also saw that such programs
distort competition, because they discriminate between companies that receive assistance
and others that do not. Consequently, they could threaten the operation of the European
“common market” that the EC wanted to create.
Yet, the authors of the EC Treaty that founded the European Community did not want to
impose a total ban on state aid as the way to deal with this risk. The principle that was
then established was that although state aid is incompatible with the common market, it
could be justified and granted in certain circumstances.
The basic rules of the EU subsidy discipline are originally outlined in Articles 92-94 of
the Treaty of Rome and have been further amplified over the years by secondary
legislation and court rulings.9 After the renumbering of the treaty (“Amsterdam Treaty”)
the state aid provisions are now laid down in articles 87-89.
What Is State Aid?
The Treaty of Rome defines the concept of state aid. Article 87.1 of the treaty states that
state aid is, in principle, incompatible with the common market. Article 88 gives the
Commission the task of controlling state aid and requires member countries to inform the
Commission in advance of any plan to grant state aid.
However, the treaty does not require the Commission to monitor and control all types of
measures that could affect companies. Instead, European Community rules apply only to
measures that satisfy all of the criteria listed in Article 87.1, and more in particular:
•
Transfer of state resources. State aid rules apply to measures involving a transfer
of government resources (including national, regional local budget, public banks
8
The interpretation of what is an aid is always subject to control by the Courts of Luxembourg.
In spite of the growth of interest in the topic of government subsidies as the EU approached the single
market deadline in 1992, the legal basis of policy and action has remained substantially unchanged since
the Treaty of Rome. But certain legal additions have changed the numbering from the original Treaty. The
key provisions are now numbered, Articles 87-89.
9
Corporation for Enterprise Development
5
and foundations, etc.). Aid also does not necessarily need to be granted directly
by the state. If a delegated nonprofit or private entity provides the state aid, the
transfer of monies or in-kind help constitutes state aid. Financial transfers can
take a variety of forms: not just grants or interest rate rebates, but also loan
guarantees, accelerated depreciation allowances, capital injections, and so forth.
•
Economic advantage. The aid must provide an economic advantage that the
business undertaking would not have received in the normal course of commerce.
Less obvious examples include the following. A firm buys or rents publicly
owned land at less than the market price. A company sells land to the state at
higher than the market prices. A company enjoys privileged access to
infrastructure without paying a fee. The state provides an enterprise risk capital
on terms that are more favorable than it would obtain from a private investor.
•
Selectivity. State aid must target enterprises and thus change the balance between
firms and their competitors. This selectivity distinguishes state aid from general
measures that apply to all firms in all economic sectors in a member nation.
Selectivity also implies a degree of discretionary power. This criterion also
applies if the program targets only part of the territory of a member state (such as
is the case for all regional and sectoral aid schemes).
•
Effect on competition and trade. State aid must have a potential effect on
competition and trade between member states. But the Commission has taken the
view that small amounts of aid (de minimis aid) do not have a potential effect and
fall outside the scope of Article 87.1. (For more details, see box)
Corporation for Enterprise Development
6
Examples Of Aid As Seen By The European Commission
The obvious
v grants to firms for:
. investment
. research and development (R&D)
. training
v cash injections to public enterprises
The not-so obvious
v loans and guarantees
v consultancy advice
v creation of enterprise zones and agencies for urban renewal
v aid to help companies invest in environmental projects
v deferral of tax, social security or other payments to the State
v writing off operating losses of public enterprises
v provisions to help prepare a public enterprise for privatization
v sale of land/property at discounted rate
v legislation to protect or guarantee market share
v tax exemptions
The surprising
v free advertising on State owned television
v infrastructural projects benefiting identifiable end users
Sources
U.K. Department of Trade and Industry, European Community State Aids: Guidance for
all Department & Agencies, Revised Edition March 1999
What are the EU Rules?
In theory, aid programs that satisfy all the criteria outlined above are incompatible with
the common market. However, this conflict does not constitute a full-scale prohibition.
Articles 87.2 and 87.3 of the Treaty specify a number of cases in which governmental
assistance could be deemed acceptable (the so-called “exemptions”). Especially
important are the clauses that cover “aid to promote the economic development of areas
where the standard of living is abnormally low or where there is serious
underemployment” and “aid to facilitate the development of certain economic activities
or certain economic areas, where such aid does not adversely affect trading conditions
contrary to the common interest.”
Corporation for Enterprise Development
7
The first “derogation” is applied to the most disadvantaged regions of the European
Community.10 The other derogation is applied more widely to aid for promoting research
and development, the growth of small businesses, rescuing and restructuring companies
facing serious financial difficulties, etc. But, in all these cases, it is the Commission,
rather than the member state, that must be convinced that a proposed aid program can
justifiably be exempted under these discretionary headings and is not opposed to the
“common interest.”
The Commission has developed very detailed guidelines and frameworks that apply these
principles.11 Programs are divided into two different areas. (Sometimes regional aid is
placed in its own category.)
There are “horizontal” or cross-industry rules including:
•
Aid for small and medium-sized enterprise;
•
Aid for research and development;
•
Aid for environmental protection;
•
Aid for the rescue and restructuring of firms in difficulty;
•
Aid for employment;
•
Aid for undertakings in deprived urban areas; and
•
Training aids.
In each of these cases, the Commission defines the nature of the program, establishes
eligible activities, and sets spending limits.
Next, the Commission has adopted industry-specific or “sectoral” rules defining its
approach to state aid in particular industries. Here, special rules have been adopted for a
number of sectors, which have experienced particularly severe economic problems, and
they could be characterized as in a state of over-capacity (e.g., producing more steel or
ships than can be profitably sold). And they are often labeled as “sensitive sectors.”
These are: coal and steel sectors, synthetic fibres, motor vehicles, and shipbuilding. For
these sectors, the Commission has adopted state aid rules, that are, in general, more
restrictive than the rules applying in other industries. In most cases, the possibility of aid
for investment leading to increased production capacity is severely limited or even
prohibited. In some cases, aid is only allowed on condition that it is accompanied by
capacity reductions. In almost all of these sectors, additional notification requirements
are imposed on member countries.12
Cutting through all this complexity is a general inclination by the Commission to look
favorably on aid where:
10
A disadvantaged area’s per capita GDP must be below 75% of the EU’s average.
The full rulebook is over 800-pages long. See EC, Competition Law In The European Communities.
12
There are also aid frameworks applying to agriculture, fisheries and aquaculture, which are not going to
be covered in this paper. There are also separate rules for the transport sector.
11
Corporation for Enterprise Development
8
•
Trade within the Community is only affected marginally;
•
The needs of the poorer or specially assisted regions are recognized;
•
Capacity is reduced and investment linked to a clear restructuring program, if in a
sector facing over-capacity and major structural change; and
•
Investment in research development is being promoted;
•
Small and medium-sized businesses (SMEs) are the primary (if not the sole)
beneficiaries.13
The treaty also gives the Commission the powers:
•
To carry out reviews and to issue new guidelines and frameworks to take account
of the developing needs of the Common market;
•
To require member states to abolish or change aid if judged by the Commission to
be incompatible with the Common Market; and
•
To require member states to notify proposed aid in advance for clearance.
How Does A Member Country Comply?
The basic steps are as follows. (The precise process also depends on the member state,
the type of aid, etc. In most cases authorized programs exist already.)14
1. The economic development policymaker develops an idea for a new program, an
aid package for a specific project, or a modification of an existing program.
2. The policymaker checks with her legal counsel (if available) or speaks with the
relevant national agency that deals with EU aid compliance. (In Britain, it is the
UK Department of Trade and Industry – the equivalent of America’s Department
of Commerce.)
3. She explores whether the idea or project is consistent with Community policies,
aims, and law. If not, the idea is either modified or abandoned.
4. A potentially workable program or project idea is then translated into a formal
notification by the appropriate national agency.
5. The Directorate General for Competition of the European Commission then acts
on the notifications within two months (unless a lot of additional information is
required).15 If a full investigation is required, this may take up to 18 months. DG
13
SME’s are defined in terms of their annual turnover, the balance sheet, the ownership structure, and the
number of employees.
14
See Commission recommendation of 3 April 1996 concerning the definition of small and medium-sized
enterprises, OJL 107, 30.4, 1996, p.4.
15
The two months only start when the notification is complete (and the Commission does not need to ask
additional questions). If requests for information are sent, the deadline starts again, running with the
receipt of the information. And within the two months, the Commission can always ask again for more
info and every time the deadline starts again to run with the receipt of it.
Corporation for Enterprise Development
9
Competition may decide that it has no objections to the proposed program or aid.
Or, if it has some doubts about the compatibility of the aid with the common
market, it then could open a formal investigation procedure. The decision to open
the formal investigation is published in the Official Journal and it invites, in
addition to the member state, all third parities (e.g., beneficiaries, competitors,
etc.) to send comments on the aid or aid program. The formal investigation is
closed with a positive, negative or conditional decision. When approved, the
proposed project or program is then widely publicized.
In July 1992, the Commission adopted a simpler, accelerated clearance procedure for all
proposed aid to small and medium-sized enterprises. Less information and a shorter time
frame for making decisions characterizes this process. Later in 1999, there was a block
exemption for SME’s and training aid. Now, participating governments disclose these
annually and “after the fact.”16
The Commission can also make life difficult for states that are not complying with these
rules. First, the Commission can demand that any aid be stopped if it has not been
properly notified in advance. Second, in such cases, the Commission’s normal deadlines
and timescales for approval do not apply, thereby lengthening the process and creating
more uncertainty. Third, when aid has already been inappropriately given, it requires the
aid to be repaid with interest by the recipient company if it finds that the aid is
incompatible with the common market. Fourth, aggrieved competitors also use national
courts and the European Court of Justice to challenge aid which has not been notified or
which has been paid without waiting for approval from the Commission.17
How Well Does It Work?
The EU’s subsidy discipline is a unique policy innovation. For example, the federal
government of the United States has no mechanism for controlling or even coordinating
the aid granted by states and localities, even though such aid is covered by the WTO (and
earlier GATT) subsidy agreements.
Why are subsidy disciplines a good idea?
16
These new block regulations will exempt these types of aid from the obligation of prior notification if
they fulfill the conditions of compatibility defined in the regulation. The conditions are taken over from the
existing horizontal frameworks (the main difference thus being that the Commission will not check these
over and the member state, instead, holds this responsibility). Monitoring rules, such as ex post info
provided to the European Commission, and the possibility of checks (e.g., if there are complaints) should
ensure that controls are not weakened. The main goal of this reform is to simplify disciplines for
straightforward cases where clear criteria are established. This should enable the Commission to
concentrate on the harder, big cases.
17
There are also cases where a business enterprise disagrees with the Competition Directorate’s approval of
an aid package and legally challenges it before it is fully implemented. This scenario is most likely for
large sectoral programs, such as automotive. A lawsuit can then hold up the project, until a full
administrative and court process has occurred.
Corporation for Enterprise Development
10
Controls on state aids can curb the “arms race” between member governments or
competing states. They can terminate wasteful programs. After all, badly designed
subsidies can reduce economic welfare by weakening the incentives for firms to improve
their efficiency and helping the less competitive to survive and expand at the expense of
the more productive. Such disciplines can foster enhanced global commerce, since the
subsidy-induced trade distortions can lead to frictions between national governments and
to retaliatory measures, which may be a source of further inefficiency, protectionism, and
litigation. For these and other reasons, the improved disclosure and regulation of state
aids are desirable policy goals.
How well have EU controls worked?18
•
Compliance is good. Member countries do a fairly decent job of informing the
Commission and the Commission often successfully uncovers unnotified aid.
•
The EU is able to use the notification and other transparency requirements to
develop a quite detailed picture of subsidy trends and costs within the
Community.
•
The state aid controls have suppressed the amounts of money spent on many
programs and curbed the subsidy arms race to a degree (especially, compared to
the U.S.). However, most subsidy experts believe that state aids need to be rolled
back further.19
•
State aid also did not expand after the single market was implemented and tariff
and other trade barriers were lowered.
•
The legal standing of the EU subsidy disciplines have encouraged corporations in
certain sectors (such as autos) to use it in the national and European courts to
challenge “unfair” subsidy practices in other countries.
•
The code is encouraging less money to be spent on sectoral efforts and more on
so-called “horizontal” aid.
•
There are more types of subsidies than in the past. Some of them are more
opaque in terms of their ultimate costs, although there has been some decline in
18
Detailed statistics on EU subsidy trends can be found in European Commission, European Economy:
State Aid and the Single Market, Number 3, 1999. Also helpful in describing European subsidy types and
trends are a series of publications by the Organization for Economic Cooperation and Development:
Industrial Subsidies: A Reporting Manual (1995); Spotlight on Public Support to Industry (1998); and
OECD, STI Review: Special Issue on Public Support to Industry, Number 21, 1998. Furthermore, the best
source for data is the annual survey, which gives information for total aid, breakdowns by member states,
the type of aid, etc. The survey is made by DG Competition and should be on the web. The annual report
on competition policy is also an interesting source for an overview of recent developments, decisions taken,
etc.
19
In some respects, the European Commission does not have the competence and authority to reduce the
volume of aid. It establishes the conditions under which aid will be authorized; so, all aid fulfilling these
conditions, regardless of the number of projects, is allowed. The total volume of aid, thus, depends on the
number of aided projects and on the amount of aid per project (on the latter issue, the Commission can have
controls). Some Commission staff believe that the total volume of aid is not so important as regulating the
types of aid and the big, much more potentially distorting, projects.
Corporation for Enterprise Development
11
the most opaque, such as loan guarantees and capital injections. (For example,
what is the cost of a specific tax expenditure, or an overly liberalized depreciation
schedule?)
•
The expansion of the EU to include much poorer countries, such as Spain and
Greece and the eventual ascension of formerly communist economies, will create
new difficulties in setting an overall subsidy discipline that works for such a
variety of economies, living standards, and governance systems. Some of the
“diversity” difficulties that WTO faces in creating subsidy controls might start to
appear in the EU.
•
The EU has been able to develop detailed guidelines to apply to a host of different
development tools and shape how member countries spend their subsidy dollars.
•
Despite the delays in program or project implementation caused by the
notification process and the restrictive nature of the definitions of acceptable aid,
economic developers are still able to provide assistance to businesses and areas.
Moreover, creativity in new program design has still continued.
•
Most fundamentally, the EU experience demonstrates that if member states want
to truly grapple with interstate subsidy competition, they must give up some
sovereignty and bind themselves to a set of enforceable rules.
How Does EU Subsidy Discipline Compare To The WTO?
The WTO Agreement on Subsidies and Countervailing Measures (SCM) parallels EU
guidelines in a number of respects. It also seeks to curb subsidy use by defining
acceptable and prohibited expenditure programs. The SCM uses a very far-reaching
definition of subsidy, covering any “financial contribution” by a governmental entity,
which confers a benefit to a producer of a subsidized product. These could include:
government grants, loans, equity infusions, loan guarantees, tax credits and abatements,
and even government purchases under especially advantageous terms. The SCM also
tries to tackle so-called indirect subsidies, which could mean subsidies that pass through
private organizations or the use of certain regulatory and purchasing arrangements. And
subsidies singled out for condemnation and termination are those that distort trade.20
The original version of the SCM also tried to clarify the nature of allowable subsidies by
organizing them into three classes:
20
For a detailed treatment of the GATT/WTO law on subsidies, see: John H. Jackson, William Davey, and
Alan Sykes, Legal Problems of International Relations: 1995 Documents Supplement (Third Edition);
Ralph Folsom, Michael Wallace Gordon, and John Spanogle, International Trade and Investment in a
Nutshell (1996); Fione Wishlade, Subsidies and State Aids: The Definition of Acceptable Measures Under
the European Union and World Trade Organization Rules, European Policies Research Centre, University
of Strathclyde, Number 21, September 1996; and Richard Snape, “International Regulation of Subsidies,”
World Economy, Volume 14, No. 2, 1991. Also helpful is the historical and analytic background provided
by the earlier cited books by O’Brien and Rehboodi.
Corporation for Enterprise Development
12
1. “Green light” – These are non-actionable and non-countervailable. They protect
certain types of research and development activities; assistance to disadvantaged
regions; and aid to promote the adaptation of existing facilities to new
environmental requirements.
2. “Red light” – These are prohibited subsidies that cover aid that is tied to export
performance and to requirements for import substitution or domestic content.
3. “Yellow light” – Covering everything else, these are permissible subsidies that are
actionable only if they cause adverse trade effects. Depending on the situation
and the degree of effect on the industry party (e.g., subsidies amounting to more
than 5% of product value, efforts to foregive debt or cover losses, public funds
constituting 15% of the cost of new investment, etc.) retaliation through CVDs
(e.g., countervailing duties) may be permitted under what is called the
presumption of “serious prejudice.” Subsidies in this so-called “dark amber”
territory are presumed to violate the agreement unless they can be proved
otherwise.
The “green” and “dark amber” provisions of the SCM lapsed at the end of 1999. The
differences between the involved parties in the WTO Subsidies Committee were so great
that no affirmative recommendation to maintain the green light guidelines were reached.
As a result, no green light protections still exist. All programs can now, in theory, be
challenged.
The SCM frowns on providing aid to an enterprise or industry or group of enterprises or
industries. Thus, targeting could be challenged if the subsidy has a real impact on a
particular firm or sector. Called “specificity,” it occurs when:
1. Subsidy programs are used by a limited number of certain enterprises;
2. Subsidies are predominantly used by certain enterprises;
3. Disproportionately large amounts of subsidy are granted to certain enterprises; or
4. Partiality has been exercised by the granting authority in the decision to grant a
subsidy.
In the U.S., the key players in this process are: the Subsidy Enforcement Office, the
International Trade Administration, the Department of Commerce; the U.S. Trade
Representative Office (USTR); and Trade Subcommittees of the House Ways and Means
and Senate Finance Committees.
The USTR is charged with developing any American policy position about SCM, which
it must communicate to the WTO Subsidies Committee. The Subsidy Enforcement
Office authors an annual paper describing SCM experiences to date and relays this to
Congress. This office is also charged with disclosing to the WTO Subsidy Committee all
U.S. business subsidies (including non-federal ones), classified by the traffic light
categorization. Ultimately, Congress would have to enact enabling legislation, under
fast-track status, if the earlier agreement was ever revised or renewed by WTO Subsidy
Committee in future negotiations.
Corporation for Enterprise Development
13
So far, SCM is just starting to have an impact. There have been a few big cases that
participating countries have challenged on red light grounds. The most prominent one,
from an American perspective, is the Foreign Sales Corporation program (FSC), which
was created through the U.S. tax code. FSC amounts to $1.8 billion annually; Boeing
saves $130 billion in tax liability per year. The World Trade Organization ruled that
FSCs violate WTO rules against export subsidies. A WTO dispute panel is still trying to
iron out the differences between US-EU points of view and the “jury is out,” regarding
whether the program will be reformed, terminated, or countervailed.
Disclosure has been very inadequate by EU subsidy discipline standards. Few U.S.
programs, especially those at the state and local levels, have been listed. And most other
countries have also tended not to declare any green light exceptions in fear that the
program will become too visible and possibly challenged.
Yet, the importance of SCM should grow over time, and unlike many other areas of
international law, it has some enforcement and sanctioning mechanisms. WTOparticipating countries, for instance, can levy “countervailing” duties above the usual
tariff schedule if they believe that the production or export of an item was aided by unfair
subsidy in the country of origin.
A quick appraisal and comparison of the WTO and EU subsidy disciplines would reach
the following conclusions.21
The starting part of EU law is also different. In some respects, the whole EU approach is
shaped by a view of fostering the competitive health of the overall EU community, while
the WTO is more concerned with counteracting injury to particular businesses and
sectors. This also makes the EU approach inherently more accommodating of subsidies
and government intervention in general. And the “test” for a “bad” subsidy is rather
different.
Similarly, the SCM is, in many respects, a business-driven reform venue.22 It is primarily
concerned with creating a “level playing field” between industries and going after certain
supposedly unfair subsidy practices. It is less well equipped to be an overall business
subsidy reform tool than the EU discipline and largely unconcerned with separating good
incentives from bad ones.
The WTO guidelines are both tougher and weaker than the EU’s. First, especially since
the termination of green light protections, many business subsidies could be challenged
21
Good discussions of the WTO-EU similarities and differences can be found in: Patrick Messerlin,
“External Aspects of State Aids,” in European Commission, European Economy: State Aid and the Single
Market, No. 3, 1999; Fiona Wishlade, Subsidies and State Aids: The Definition of Acceptable Measures
Under the European Union and World Trade Organization Rules, European Policies Research Centre,
University of Strathclyde, Number 21, September 1996; and Kenneth Thomas, “International Control and
Discipline of Subsidies :The EU and WTO Surveillance Exercise,” STI Review, Number 2 (1998), pages
25-42.
22
Indeed, it is more similar to the unfair trade practices code in American trade remedy law.
Corporation for Enterprise Development
14
on red or yellow light grounds. Furthermore, it does not matter to the WTO if the
program has any further policy rationale (e.g., it increases the competitiveness of a given
industry, fosters sustainable development, etc.), or it passes cost-benefit tests for the
nation that runs it. If it distorts trade, it could be a problem.
The EU, on the other hand, is not doctrinaire about regulating subsidies and driving them
all out of existence. EU policymakers see some as serving real common interests,
comparable in importance to goals as lofty as promoting the overall common market. In
fact, some subsidy experts controversially would argue that the EU’s real subsidy reform
policy is along these lines and in this order: (1) develop an overall EU industrial policy
and improve the fit between it and member countries; (2) counter the perverse
redistributive effects of bidding away industry from poorer regions; and (3) eradicate
certain costly and useless state aids.23
EU disciplines, ironically, despite their seemingly greater permissiveness, have more
substance than the WTO’s. They have a longer track record. They obtain more
cooperation from participating countries than the WTO. Disclosure is much better. (In
fact, WTO disclosure is not truly mandatory.) And they have other enforcement tools
than just countervailing duties.24 For example, they can stop a member country from
instituting a new tool and they can make the subsidized business give back its financial
aid, if it had been illegally granted and is incompatible with the common market.
Learning From The EU
The EU experience obviously illustrates the importance and feasibility of balancing a
variety of policy concerns. Governments, after all, have multiple functions and it is
unwise to have one directive, such as economic efficiency, trump all other values.
Subsidy theory, action, research, and evaluation, furthermore, suggest such a conclusion,
since it embodies five different perspectives on the subject.
First, there is the “mercantilist” attitude, which focuses on the effects of foreign subsidies
on the interests of domestic producers and disregards the interests of domestic
consumers. This approach favors countervailing subsidies or duties to retaliate and
discipline foreign subsidies. (And this strategy frequently turns into another form of
outright protectionism.)
Second, the “pure trade theory” approach, on the other hand, tends to emphasize the
benefits that foreign subsidies confer on domestic consumers, the rising costs for foreign
economies and governments, and stresses that subsidies are less distorting than
alternative forms of protection, such as import duties or non-tariff barriers.
23
24
See Behboodi’s discussion.
The uses of countervailing duties are also a much more protectionist policy than most subsidies.
Corporation for Enterprise Development
15
Third, “strategic trade” theory outlines how some countries can use industrial policies to
shift economic rents from one country to another. This means that successful efforts
could conceivable capture the excess profits that occur in oligopolistic market situations.
Fourth, subsidies are further justified by “market failure” identification. The real world
does not correspond to the economics textbook and government action can increase total
welfare if interventions are well designed and implemented. Private markets, after all,
are not perfect institutions. Domestic economic development proponents contend that
there are, in fact, ways that intelligent public investments, coupled with creative
partnerships with the private and nonprofit sectors, can make a difference in the quantity
and quality of new employment opportunities. For instance, as one proponent notes, a
number of possible “market failures might impede private markets from being efficient in
providing enough jobs or sufficiently productive jobs, and thereby might provide some
room for customized business programs to improve economic efficiency.”25 Such factors
include decisions by private financial markets not to fund business projects because of
government regulation, fear that research and training might benefit the competition,
inadequate access to information, etc. But the proponent goes on to say that “because of
involuntary unemployment and underemployment, new jobs provide significant benefits
to those who obtain them: the wage paid will greatly exceed the value of their time. In
addition, getting an unemployed person into a job opportunity may have spill over
benefits for other persons, by reducing crime, strengthening families, and providing role
models to others.”
Customized economic development programs, of course, offer no guarantee against
market failure, but “[t]he benefits of government-sponsored customized assistance must
be compared with the option of doing nothing and the option of more general policies.”26
Fifth, the conservative “political economy” school, however, disagrees and argues that
subsidies should be constrained in the interest of economic efficiency in the country
granting the aids, because they are easily captured by vested interests. And in their view,
government failure is often a bigger problem than market failure.
These varied points of view suggest, in a nutshell, why subsidy reform issues are so
complicated. Each has its strength and its limitations. But together these perspectives
point to a further, more constructive set of conclusions.
To start, subsidies are appropriate governmental activities. They should not be banned
from existence. Moreover, subsidies are like the mythological Greek monster – the
Hydra - and a Hercules is unlikely to appear on the scene. Whenever one subsidy is
killed, two more may appear. Short of abolishing government as we know it, subsidy
elimination is utopian.
25
Timothy Bartik, “What Should The Federal Government Be Doing About Urban Economic
Development,” A Paper Prepared for Regional Growth and Community Development Conference,
sponsored by U.S. Department of Housing and Urban Development, November 1993.
26
Ibid.
Corporation for Enterprise Development
16
Thus, in devising appropriate policies, officials and technical experts must wrestle with a
variety of concerns and face the challenges posed by the economic interests that are
wedded to some of these positions. Subsidy reforms will be messy and arbitrary at times.
It will not always be possible to draw a clean line between worthwhile and worthless
subsidies. Sometimes, good ones will be lost with the bad; and at other times, in an effort
to protect some valid governmental roles, we will continue to waste funds on useless
incentives. Yet, progress can be made in creating better subsidies and terminating some
stupid ones.
The following summary elaborates these findings.
Summary of Lessons From The EU Experience
The EU experience is very instructive.
•
Greater disclosure is feasible.
•
Subsidies can be defined and regulated.
•
Acceptable subsidies can be distinguished from illicit ones and government can
use controls to coax the subsidy field to move in a particular direction.
•
EU subsidy controls curb some practices. They also set limits on how much
money is spent per job created.
•
External subsidy disciplines can give “cover” to domestic reformers and help
them to restrain or terminate certain subsidy approaches.
•
Vigilance is required. You can never under-estimate the creativity of
policymakers to design new incentive programs, or make the actual monetary
costs and benefits of the program obscure to the regulator.
•
We have more options than terminating all subsidies versus allowing an
unrestricted subsidy arms race.
•
Over time, if policymakers want to curb subsidy costs and use, they will be forced
to make much more painful policy tradeoffs.
•
Most importantly, a binding and enforceable subsidy discipline can save states
from themselves and address the problem of interstate subsidy competition.
Yet, is this experience really relevant to the United States?
Detailed EU-style regulation of all types of subsidy by Washington is politically not
feasible for now. No reformer has yet pushed for such an encompassing federal reform
agenda. And before it would have a chance, a great deal of education would be needed.
On the other hand, it would be administratively easier for a state, such as North Carolina,
to employ statewide subsidy controls, akin to those in the European Community.27 But,
here too, the idea has not been advanced and sold to any broad base of interested
27
Designing a 50-state national system is, of course, much more complicated.
Corporation for Enterprise Development
17
policymakers and constituencies. Plus, there is the additional problem, that action on the
state level would expose incentive reformers to the charge that these controls would harm
the state’s business climate and cause them to lose jobs to competing jurisdictions.
Yet, despite these formidable challenges, there are practical options for acting on EU
lessons and experience.
Recommendations
The failure of informal and voluntary interstate incentive compacts, the limitations of
non-federal subsidy reforms in the U.S., and the relative successes of the EU all make the
case for national action.
The EU knows more about its own subsidy picture than the U.S. does. The starting point
for reform is transparency.
Currently, it is very difficult for American policymakers and citizens to know what is a
really spent on-and off-budget, on business subsidies. Only a dozen states have thorough
tax expenditure reporting processes and products. Economic development incentives are
provided by a host of public, quasi-public, nonprofit, and private entities and most state
expenditure reports do not make it easy to track all the monies down. This makes it hard
for policymakers to decide whether we are spending too much or too little. It also makes
it difficult to disclose adequately the types and costs of subsidies on all levels of
government to international bodies like the WTO.
What States Could Do
Unilateral action that reveals the real costs of governmental business incentives is the
place to begin. EU practice, along with the studies by the Corporation for Enterprise
Development, the North Carolina Budget and Tax Center, the California Budget Project,
and the Massachusetts-based Commonwealth Center on Fiscal Policy, have demonstrated
that it is possible to devise a “Unified Development Budget” for a given state.28 This
product organizes all the available information on direct and indirect spending on
economic development. It is a valuable tool for a number of reasons:
•
It shows what is being spent on development subsidies.
•
It clarifies existing commitments and implicit priorities.
•
It enables policymakers to better weigh conflicting imperatives and set more
appropriate policies.
28
See CFED/NC BTC, Managing For Higher Returns (1997); CFED/Commonwealth Center, Increasing
The Visibility and Accountability of Economic Development Spending (1997); and CBP, California Unified
Economic Development Budget (1997).
Corporation for Enterprise Development
18
•
It is a key tool for developing performance-based budgeting, holding program
managers and development initiatives more accountable for results, and ensuring
regular, comprehensive program evaluation.
•
It can help to terminate ineffective subsidies and direct scarce public dollars into
programs that generate better development returns for the state.
•
It helps the public and policymaking community realize that economic
development involves more than business incentives and industrial attraction.
(Indeed, most states support a vast number of development programs, besides
industrial attraction, as well as a range of public services that enhance
development, such as infrastructure, community colleges, and K-12 education.)
•
It could help the U.S. to comply with multilateral agreements, which call for
greater subsidy transparency.
Now, what specifically would a unified development budget consist of? First, the unified
development budget would include only those expenditures whose primary purpose is
economic development and constitute subsidies, along the lines of the EU definition.
Second, a good unified development budget includes economic development programs
that may be based in any number of agencies or organizations. Third, the budget should
count both direct expenditures and tax expenditures. Fourth, other changes in the tax
code to support economic development, such as nexus definitions, income apportionment
formulas, and so forth, should be counted too.
And how is such a budget put together?
•
Organize the types of subsidies into 8-10 understandable categories.29
•
Identify and calculate on-budget economic development expenditures.
•
Add economic development tax “preferences.”
•
Express all historical figures in constant dollars.
•
Calculate the subsidy element in programs, such as loan guarantees.
•
Analyze trends and current picture, comparing types of business subsidies and
other major non-business expenditures.
•
Present findings in clear charts and figures.
•
Release the report before the state budget is completed.
•
Hold hearings on the report.
•
Develop performance measures for all major budget categories (any program
which costs the state more than $1 million).
•
Conduct periodic and independent sunset reviews of major subsidy programs.
29
Ideas for intellectually organizing the multitude of subsidy programs can be gleaned from the three
unified development projects cited earlier, the EU subsidy code experience, and the survey work by the
OECD.
Corporation for Enterprise Development
19
Such an approach is just “good government,” and will not threaten any state’s position to
attract, create, and retain jobs and businesses.
Creative state governments can move beyond this unilateral model of action by exploring
the state compact approach.
To date, American incentive reformers face four large problems. Currently, the federal
government plays no role in curbing subsidies, apart from its unevenly enforced rules
about using federal funds for interstate job piracy. And given the strong anti-federal
sentiment in the country, this situation will be hard to change. Second, the Constitution
limits the power of the federal government to regulate states. It cannot just impose a
mandate or standard by fiat. 30 Instead it can set the rules on states in exchange for
accepting federal funds. It also can provide federal legal power to back a state compact.
Third, current multilateral subsidy agreements do not help much either. The WTO
Agreement on Subsidies and Countervailing Measures does not do enough to protect
good development programs and it is a profoundly undemocratic vehicle for reform,
since it was drafted with no bottom-up representation of state and local interests. It
reflects only corporate goals for subsidy reform. Lastly, unilateral reform on a state-bystate basis will only go so far. Disclosure and other mild accountability measures will
likely be the limit. Worries about what other states will do to improve their competitive
position will constrain the thoroughness of any non-national reform.
But, what if a group of states started to work on a multi-state subsidy compact, akin to the
existing ones on auditing corporate income for tax purposes? Earlier voluntary compacts
collapsed when a single state exited. Could a compact work if it involved a larger
number of states (i.e., half or two-thirds), if it occurred under the auspices of a respected
group such as the Multistate Tax Commission, and if it asked Congress to back up the
agreement? Could they employ both the EU subsidy discipline and the growing number
of state and local reforms of business incentives as precedents to harmonize state
incentive practices? And using the WTO agreement and the better EU model as starting
points, state policymakers could draft a more artful line between best practices and
wasteful subsidies? Such an agreement if defined through a multi-state process of
domestic diplomacy could even be enforced by the courts if Congress approved the
compact under Article I of the Constitution. This is a big idea, but worth exploring,
given its ability to deal comprehensively with the incentive competition problem and its
strong states’ rights approach. 31
30
It is true that the Constitution reserves special powers for Congress to regulate interstate and international
commerce. Likewise, some types of state and local policies may be unconstitutional on these grounds.
(For more on this point of view, see Peter Enrich, “Breaking The Incentive Cycle,” Accountability: The
Newsletter of the Business Incentives Reform Clearinghouse, Corporation for Enterprise Development,
September 1999.) But some federal curbs on states’ rights and economic development incentives also
could go too far and would be unconstitutional as well.
31
For some further ideas on this option, see Robert Stumberg, “Breaking The Incentive Cycle: Will Suing
States Work?” Accountability: The Newsletter of the Business Incentives Reform Clearinghouse,
Corporation for Enterprise Development, November 1999.
Corporation for Enterprise Development
20
What The Federal Government Could Do
Although federal regulation, along EU lines, is not presently in the cards; there are some
national reform avenues that could be pursued. The federal government could consider:
•
Establishing national subsidy disclosure standards. Congress, hence, would
enact a law that would define minimal criteria for state unified development
budgets and reports. And, to avoid the charge of another unfunded mandate, the
federal government could provide full financing for the initial creation of the
reporting system, in exchange for states agreeing to comply with the standards.
•
Creating national job cost standards. Rather than establish every detail of
acceptable economic development programs, the federal government, instead,
could define a maximum level of public spending for particular subsidy
approaches. For example, for whenever federal funds were used in a project, this
condition would apply.
•
Provide positive incentives for reform. The feds could reallocate a portion of
federal development funds to states that take certain reform actions – better
disclosure, restraints on intra-state subsidy competition, improved targeting of
subsidies to more economically disadvantaged areas, and so on. For instance, the
use of federal highways funds has been a very successful carrot in changing state
behavior (e.g., highway speed limits).
•
Outlawing the most harmful subsidy practices. OECD and the EU are also active
on the front of identifying harmful business tax practices of their member
countries, publicizing these, and encouraging them to be dropped. A short list of
the most egregious business subsidy approaches could be developed and these
efforts would be targeted for termination.32 Again, to be constitutionally sound,
the federal government must provide some fiscal incentives as part of its quid pro
quo to regulate.
•
Establish effective rates of assistance. The numbers of international squabbles
over subsidies and the variety of trade measures (e.g., tariffs, duties, voluntary
export restraints, non-tariff barriers to trade, border measures, etc.) are increasing.
Domestic litigants complaining about unfair trade practices never cite the net
impact of all these measures. They point out the foreign subsidies that re
supposedly harming them, but do not count those that they receive. World
commerce and amity would be served if each nation had an independent agency
that would calculate the effective rates of assistance (ERA), by measuring the net
global incentives (e.g., both trade measures and subsidies) faced by industries
producing tradable goods and services.33 Measuring ERA’s would link subsidy
32
For more details, see Sara Lawrence, “Curbing Harmful Tax Practices: Can The OECD and EU Help?”
Accountability, August 2000. See www.cfed.org, click on “Sustainable Economies,” and then locate the
Clearinghouse.
33
Effective rates of assistance (ERAs) are similar to the more familiar notion of effective rates of
protection. The Australian Industry Commission has done some interesting initial work on measuring these
concepts.
Corporation for Enterprise Development
21
reformers with anti-protection advocates and could expand support for fuller
disclosure and for honoring our international subsidy agreements more
completely.
•
Conduct deeper studies of the appropriateness and feasibility of EU type national
subsidy controls. Since this report just scratched the surface, additional research
and discussion would be a very appropriate use of federal research dollars. The
U.S. General Accounting Office or the National Academy of Public
Administration are two places where such work could occur.
How Multilateral Trade and Investment Agreements Could Help
As argued earlier, the WTO subsidy agreement provides no real green light protection of
worthwhile programs. There is no current effort to renew the parts of the agreement that
already lapsed. So, it is not an avenue for reform now.
But multilateral agreements that support good development and subsidy approaches do
make sense.
First, transparency requirements run through all the current agreements and ongoing
negotiations. American incentive reformers should start making the case to the Office of
the U.S. Trade Representative (USTR) that fuller disclosure is the wave of the future and
that they should talk to state and local interests about how it should work and be
implemented. More toughly enforced multilateral disclosure measures would help to
empower local, state, and federal reformers as well. But there is a major workload issue
here and federal funding of some, or all of the disclosure data collection and analysis
must be part of the discussion.
Second, a number of developing countries and international development experts are
increasingly concerned about the growing difficulties posed by the rising costs of
locational incentives that are provided for foreign direct investment. Some are now
arguing that, since developing countries are just too poor to defeat richer nations in such a
competition, they should use the opportunities in further negotiations about trade-related
investment measures (TRIMs) to find allies for tougher curbs on such subsidies and add
location incentives to the list of prohibited programs.34
Third, many countries are pushing for reforms of trade remedy laws, which provide a
safety valve for nations liberalizing their trade barriers and which are used to harass
nations for their presumed unfair trade practices. Reforms of antidumping laws could not
only help to reduce the number of conflicts, equalize the legal playing fields between
wealthy and poor nations, and focus more effectively on truly predatory practices; they
34
For more specifics on such a position, see Theodore Moran, Foreign Direct investment and Development
(1998). TRIMs agreements currently try to prohibit countries from requiring foreign direct investors to
purchase materials locally, to do joint ventures, to develop equity participation agreements, etc.
Corporation for Enterprise Development
22
could also be linked with more progressive and encompassing subsidy reform.35 This
could be another venue for stronger subsidy codes and greater clarity about acceptable
and unacceptable programs.36
Lastly, subsidy reformers should think big and develop their own language for subsidy
rules that support sustainable development and cost-effective subsidy programs.37
Conclusion
Although EU subsidy controls do not constitute an exact model to emulate, they certainly
point a promising way forward for American incentive reformers. By instituting stronger
transparency requirements and setting a few multistate, federal and global rules, the
reform dreams of grassroots advocates can be more fully realized.38
35
For two statements on what such reform should look like, see: Schweke, Dabson, and Rist, Improving
Your Business Climate (Corporation for Enterprise Development, 1996); and David Malin Roodman, The
Natural Wealth of Nations: Harnessing The Market for the Environment (1998).
36
For more details, see Patrick Messerlin, “Antidumping and Safeguards,” in Schott (editor), The WTO
After Seattle (2000).
37
Sustainable development is a “value” word. It refers to achieving a more environmentally compatible
process and form of economic development. This entails a higher standard of living, but one emphasizing
quality of life as well as income. The concept, furthermore, denotes living within the carrying capacity of
the environment. And it has an equity dimension, which emphasizes providing for the needs of the least
advantaged in society and treating fairly future generations. The real question, thus, is: what subsidy rules
and controls genuinely promote sustainable development? This is a more telling issue than the typical
concern with eliminating subsidies that distort trade.
38
I also wanted to thank a number of people who carefully read this paper and gave me helpful comments:
Adinda Sinnaeve, Dave Bucholz, Kenneth Thomas, Robert Stumberg, Ed Feser, Matt Hull, and Sara
Lawrence.
Corporation for Enterprise Development
23
About The Corporation For Enterprise Development
CFED envisions widely shared, sustainable economic well-being. We see an inclusive,
productive economy where everyone is fully engaged and appropriately rewarded. Our
mission is to promote asset-building strategies, primarily in low-income and distressed
communities, bringing together in new and effective ways community practice, public
policy, and private markets.
We provide a range of services including policy design, analysis and advocacy,
demonstration and project management, consulting, technical assistance, training,
research, information, and publication services, to public, private, nonprofit, and
community organizations throughout the United States and Internationally. Our program
areas include Asset-Building Strategies, Development Finance, Economic Development
Policy and Practice; Microenterprise Development; and Sustainable Development. Our
goals are to: (1) Create incentives and systems that encourage and assist all American
individual and families to acquire and hold assets; (2) Identify, preserve, and build
financial, human, social, and environmental assets, especially in low-income
communities across the country; and (3) Advocate economic development policies and
practices that build a dynamic and inclusive economy.
Author
William Schweke
William Schweke is a Senior Program Director at the Corporation for Enterprise
Development in Durham, NC. Mr. Schweke was President of Interchange, a firm
specializing in public policy exchange between the United States and Europe. He leads
CFED's work in the area of business climate, urban policy, and sustainable development.
Mr. Schweke is a specialist in development finance, plant closing, small and community
business, environmentally-compatible development, and local development planning. In
the past, he has written reports on investing pension funds in business development,
operating small business initiatives, designing and running state-wide and local economic
adjustment programs, and launching urban low-income neighborhood development
initiatives. In his technical assistance work, he has advised a variety of state and local
governments, community-based organizations, foundations, trade unions, chamber of
commerce, private utilities, and governmental authorities in the US and Great Britain.
And in the area of training, he has developed courses on rural development, community
economic development, and local development planning. Mr. Schweke's latest
publications have included: a resource book on environmentally compatible development,
another work on state pollution prevention policies and programs, and a primer on urban
policy. He is currently researching the potential impact of global trade and investment
agreements on the future of domestic economic development, managing a website on
business incentive reform, and organizing an equity coalition to support the Sky Trust
initiative (an anti-global warming proposal). He is a graduate of the University of Texas
at Austin and can be contacted at: CFED’s Southern Office at 123 West Main Street, 3rd
Floor, Durham, NC 27701, (919) 688-6444.
Corporation for Enterprise Development
24