Bridges Trade BioRes • Volume 6 • Number 14 • 28th July 2006

World Trade Report: Using Subsidies to Achieve Policy Objectives

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The 2006 World Trade Report, published annually by the WTO, notes that subsidies can often be the most efficient way of pursuing public policy objectives and correcting market failures. The reports cites environmental subsidies among examples of such measures, including subsidies to mitigate negative environmental externalities or to support compliance with environmental regulation. At the same time, however, the report cautions that government grants can distort trade flows if they are used to give an artificial leg up to exporters or import-competing industries. The right mix, the report concludes, will depend on the specific cause of the market failure, a country’s socio-economic level development and the likelihood of government failure.

The report stresses that the impacts of subsidies remain “seriously under-researched” and many WTO Members are yet to fully meet their notification obligations, which is further contributing to the lack of data and transparency. WTO economists estimate that worldwide subsidy grants totalled US$300 billion in 2003. Of this, around US$250 billion was spent in 21 developed countries. The bulk of agricultural domestic support is provided by three Members, the EU (US$96.1 billion between 1995 and 2001), the US (US$ 66.2 billion) and Japan (US$41.8 billion). Fisheries subsidies paid by OECD countries have been estimated at US$6 billion annually, representing 20 percent of the landed value of fish. While rich country farm subsidies have somewhat declined, the level of fisheries subsidies seems to have remained largely unchanged. However, there appears to be a recent shift in the provision of fisheries subsidies towards a greater emphasis on environmental protection, the report concluded.

ICTSD reporting; “WTO World Trade Report focuses on subsidies,” WTO, 24 July 2006.