Tied Aid: Immunization for Export Subsidies against the Law of the WTO?

The article analyses the practice of tied aid and draws a comparison to export subsidies both in an economic as well as in a legal sense. Tied aid is a form of development aid granted upon the condition that it is spent according to donor preferences. The legal review concentrates on the consistency of tied aid with the Agreement on Subsidies and Countervailing Measures (SCMA) and Article XVII of the General Agreement on Tariffs and Trade (GATT). Here, many potential breaches of the SCMA are revealed, while a violation of the GATT is less apparent due to the unclear concept of State Trading Enterprises. Many variants of tied aid are found to constitute prohibited or at least actionable export subsidies and no regular development aid. Despite the breaches, no trade dispute involving tied aid has been brought before the WTO's dispute settlement system. The final section analyses the practical obstacles to a precedent and argues that the freedom from regulation of development aid cannot be extended to tied aid, which is guided by protectionist motives.