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Transparency, one of the fundamental norms of the trading system, is increasingly seen as an essential tool in the governance of international trade. Recent initiatives to cope with the trade dimensions of the current global economic crisis have focused on transparency mechanisms to increase understanding of and confidence in governments’ responses to threats of economic meltdown.

This brief examines the nature and use of transparency provisions in the area of subsidies disciplines. 

Subsidies are not going to go away, but their use might be effectively limited with more transparency. However, experience with existing transparency provisions for subsidies in the World Trade Organization (WTO) suggests that this route has promise, but that current notification and surveillance tools require significant reform.

Subsidies are a problem for the trading system. On the one hand, they distort the terms of competition both domestically and in markets to which subsidized products are exported. On the other hand, they can be used to accomplish legitimate policy objectives.

The original approach to subsidies discipline as set out in 1947 in Article XVI of the General Agreement on Tariffs and Trade (GATT) was purely and simply a transparency provision.  Countries maintaining any subsidy were required to notify the extent and nature of the subsidization, the estimated effect of the subsidization on the quantity of the affected product or products imported or exported from its territory and the circumstances making the subsidization necessary. Article VI did authorize the imposition of countervailing duties in specific cases, but only to subsidies affecting imports into a country’s own market. There was, therefore, no disciplining effect on export competition in third markets or domestic competition in the subsidizing country. Only later did GATT signatories agree to impose substantive constraints on their ability to grant subsidies.

It took close to 50 years to agree on a more comprehensive approach to subsidies. The 1995 Agreement on Subsidies and Countervailing Measures (ASCM) expanded the notification obligations of WTO Members with detailed requirements for annual notification of any defined subsidy and a mandate for the WTO Subsidies and Countervailing Measures Committee (SCM) to examine these notifications on a regular basis.

After the entry into force of the ASCM, the SCM committee designed a questionnaire for subsidy notifications and established procedures for annual Committee review of notifications. They don’t work. Some Members face resource constraints, while others face complications of internal government co-ordination and jurisdictional authority—some federations, for example, have never notified subsidies granted by sub-national government entities. Other problems arise from a lack of understanding of some of the key elements of the substantive subsidy disciplines within the ASCM, including the definition of a subsidy and the concept of specificity. The complexity of the questionnaire format in itself is reported to represent an obstacle.

The purpose to be served by the transparency provisions is also a problem. Transparency seems to work best in the trading system where it furthers goals of sharing information and increasing understanding of the intent of trade measures. The agreements on Technical Barriers to Trade and Sanitary and Phytosanitary Measures provide examples of collaborative approaches where information is shared and Committee examination promotes understanding of questions before they transform into trade disputes. In the case of subsidies, the nature and detail of the information required appears to give rise to apprehension of self-incrimination.

As a consequence, the Members’ record of subsidies notification is abysmal both in respect of timeliness and completeness. The Committee’s capacity to conduct real surveillance of the Agreement’s transparency provisions, much less to assess the impact of subsidy practices, is hamstrung. Attempts by the Committee to address these problems have resulted only in cosmetic changes without addressing the underlying issues.

Our gloomy conclusions notwithstanding, we believe that transparency should play a significant and increased role in subsidies’ discipline.

Many Members need help, however, to meet their reporting obligations and to digest subsidy notifications by others. There may be scope for enhancing the WTO Secretariat’s role in this respect, especially with regard to highly detailed and complex notifications. More work is needed on the old chestnuts of defining and measuring subsidies, because transparency works best if providers and users of information can agree on what and how much is to be notified.

The WTO could also expand third-party notification of subsidies. Many international organizations and NGOs have detailed information on subsidies’ practices that would be useful to the SCM Committee.*

Finally, the Committee should pay closer attention to the intended audience. Members should consider how to aggregate information both for internal WTO purposes in the Committee, and for use by other economic actors and the public. Closer co-ordination of notification and surveillance provisions with the Trade Policy Review function might reinforce Members and the Secretariat’s efforts. Providers of information must see how doing so helps them meet their own objectives, but if transparency is to be a force for reform, the information must be analyzed and made widely available for those who can influence governments.

The subsidies domain should represent a model of how transparency contributes to understanding of trade actions, but to do so effectively will require a significant reform of existing commitments and practices.

Terry Collins-Williams is the former Director-General Multilateral Trade Negotiations, and Lead Canadian Negotiator, Non-Agricultural Market Access (NAMA), Department of Foreign Affairs and International Trade.

Robert Wolf is a Professor at the School of Policy Studies, Queen’s University.

Editor's note: In 2008, a comprehensive report on Germany's subsidies published by the Global Subsidies Initiative showed that the German federal government has been reporting perhaps less than 20% of the subsidies that should have been included in its notifications to the WTO.