Douglas: Granting Tax Incentives? Beware The World Trade Organization

Does the World Trade Organization (WTO) have authority to override state and county incentives to businesses? Apparently so, points out Richard J. Douglas in commentary for – and, in fact, it did so on Monday, the day before Governor Hogan and Maryland House and Senate leadership announced release of a $20 million State loan to Northrop Grumman. (The State already granted Northrop Grumman a $37.5 million tax credit during the 2016 legislative session.)

As previously reported in Conduit Street, in 2013, the Washington State legislature gave the Boeing Company a generous tax credit package widely regarded as the most expensive incentive package in history. Last Monday, a WTO panel directed that those subsidies be “withdrawn” within 90 days, because they constituted a “financial contribution” violating the Agreement on Subsidies and Countervailing Measures, which falls under the WTO umbrella. The Governor’s and General Assembly leadership’s announcement about Northrup Grumman’s loan came the next day. Remarks Douglas:

Given what happened a day earlier at the WTO, it is hard to avoid reading news of this positive Maryland development without also wondering whether a foreign competitor of Northrop will now surface in Geneva with a WTO complaint about the Maryland package.

Who is entitled to evaluate that reasoning and make judgments about the state’s objectives?  State legislatures?  Voters?

On Monday we saw that the WTO thinks it is.  Where will it stop?

In the mid-1990s, did Clinton Administration negotiators or congressional overseers in both parties anticipate WTO dispute resolution reaching into state legislatures?  For its part, the WTO dispute panel stated flatly in its discussion of the case that analysis of domestic law beneath the federal level (why not counties and municipalities too?) is within its purview.  Is that what Bill Clinton, Congress, state legislatures, or voters expected in the mid-1990s?

One wonders.  But the issue is critical for the U.S., where state governments have police powers and authority that are the envy of nominally-federal nations around the world.

Douglas finalizes his comments by suggesting that jurisdictions providing incentives to attract industry and jobs pay “close attention to the WTO enforcement effort involving Washington State.”

His full commentary is available at