Title: Subsidies, Trade and the WTO
1Subsidies, Trade and the WTO
- World Trade Report 2006
- Presented at WTO Public Forum, 26 September 2006
2World Trade Report 2006
- A comprehensive overview of use and impact of
government subsidies - definitions of subsidies
- predictions of economic theory about the effects
of subsidies - reasons governments give for using subsidies
- incidence of subsidies across countries and
sectors - WTO rules on subsidies
3The legal, statistical and economic definitions
of subsidies differ
- 1. Economic definition may involve
- -budgetary outlays
- -regulatory intervention
- -public provision of good and services at less
than market price - -any government intervention that affects
relative prices - 2. National accounts statistics only include
- - direct payments to resident enterprises
- 3. WTO legal definition
- Broad range of forms of subsidies (direct
payments, tax concessions, provision of goods and
services) - BUT EXCUDES public infrastructure, regulation
- specificity
- Need studies based on legal definition
4Report emphasises need for more and better data
on subsidies
- Data from international sources that allow for
cross-country comparability only exist - at a highly aggregated level
- or are available for a limited number of
- (sub) sectors (agriculture, fisheries, coal)
- instruments (export credit support)
- Very few data exist on services subsidies.
5Lack of transparency on the use of subsidies
- Significant discrepancies exist between value of
subsidies according to - different statistical sources
- (inter)national statistics and WTO notifications
- World Trade Report raises serious questions about
- the completeness of WTO notifications ...
- ... and therefore about the achievements of the
WTO with respect to transparency
6Subsidies (bil., averages 98-02)
National Accounts WTO
Data notifications
Canada 7.7 0.9
EU (15) - total 109.0 96.3
Australia 4.7 0.3
Japan 34.3 4.2
Norway 4.1 2.9
Switzerland 10.8 0.7
United States 43.5 16.3
Brazil 2.0 1.7
India 12.2 ...
Republic of Korea 1.0 1.3
South Africa 0.9 ...
7Fishery subsidies reported to WTO, OECD and APEC
(mil )
Country WTO notifications WTO notifications OECD GFT OECD GFT APEC
Country 1996-99 2000-03 1996-99 2000-03 1997
Canada ... 71.1 490 498 646.1
Mexico ... ... 16 ... 6.9
United States 30.7 79 976 1156 158
EUa 675.9 529.8 1089 1033 ...
Russia ... ... ... ... 633.0
Australia ... ... 21 83 15.9
Japan 35.2 62.4 2720 2526 2165.0
Korea, Rep. of 57.7 62.3 339 463 351.0
Taipei, Chinese 4.8 13.5 ... ... 187.7
8How much do countries subsidize?
- According to national accounts statistics
- 69 countries spent around 300 billion on
subsidies in 2003 - of which 21 developed countries spent 250
billion. - The average ratio of subsidies to GDP was
- 1.4 per cent for developed countries
- 0.6 per cent for developing countries
9How much do countries subsidize at the sectoral
level?
- Large variation in the sectoral distribution
across countries (yet, differences across data
sources in composition by industry and instrument
used) - Agricultural subsidies in OECD countries show a
downward trend - There is no solid information on trends in
industry and services subsidies - There seems to be a tendency to redirect
subsidies towards horizontal objectives - Who benefits from these subsidies?
- Are horizontal subsidies de facto less trade
distortive?
10Stated objectives of governments for using
subsidies
- Governments extend subsidies to ...
- pursue industrial development
- support the creation of new knowledge through RD
- attain distributional objectives
- protect the environment.
- Economic theory Subsidies
- Can be effective instruments to pursue these
objectives - Can distort trade by giving artificial
competitive advantage to beneficiaries
11Subsidies as a policy tool
- Compared to other policy instruments, subsidies
tend to - represent a relatively transparent form of
government intervention at national level - have less undesirable side effects than some
other policies if well-designed - Can be more easily afforded by higher income
countries, a disadvantage for some - But they make governments prone to capture by
recipient groups - Need more empirical studies to assess the
relevance of market failure and the
effectiveness/design of subsidization policies
12The Trade and Welfare Effects of Subsidies
- A systematic analysis of trade and welfare
effects of subsidies has only been carried out in
the economic literature for agricultural
subsidies - Economic simulation models suggest that
agricultural subsidies - create welfare losses ...
- ... that are borne primarily by the major
providers of subsidies, although they still
distort trade - Their removal may hurt net food importers
13Disciplining the Use of Subsidies at the WTO
- The WTO disciplines the use of specific
subsidies, i.e. subsidies that are explicitly
limited to a particular set of beneficiaries. - The WTO thus seeks to ensure that eligibility for
subsidies is based on objective criteria and
neutral conditions (so targeted subsidies may
differ from specific subsidies). - Export subsidies prohibited in manufacturing. In
Agriculture they will be eliminated by 2013 (HK
2005). SD treatment for developing countries. - Question Should developing countries be
permitted to apply export subsidies to
manufacturing?
14WTR 2006 concludes
- More reliable and more comprehensive data sets
that are comparable across countries are
necessary in order to increase transparency on
the use of subsidies
15WTR 2006 concludes
- Need of more studies to answer some questions
- Are market failures relevant to justify
subsidies? - How effectively are subsidies used for
governments stated objectives? - What is the impact of subsidies on income and
welfare? (studies limited to agriculture) - What is the impact of subsidies in developing
countries? - Who are the actual beneficiaries of the
subsidies? (Eg. Approx. 5 recipients receive 50
agriculture subsidies in the EU) - How theoretical predictions and empirical
evidence relate to the legal definition of
subsidies?