Date:25/07/2006 URL: http://www.thehindubusinessline.com/2006/07/25/stories/2006072504530900.htm

Back WTO wrings its hands on subsidy figures

G. Srinivasan

Many countries remiss in meeting notification obligations

Shortage of research
A WTO report has noted that the incidence and the impact of subsidies remain under-researched making it impossible to make good policy decisions
The report comes at a time when questions have been raised about farm subsidies and their impact on free trade

New Delhi , July 24

Ahead of a crucial two-day meeting of its General Council beginning on July 27 in Geneva, the World Trade Organization (WTO) on Monday released a report focusing on "the extraordinary paucity of reliable and systematic information on subsidies".

This admission comes at a time when the very survival of the Doha Round of multilateral trade talks hinges on how the bloated farm subsidies being doled out by the rich world is to be brought down substantially to minimise their trade-distorting impact on developing countries.

In its 2006 World Trade Report, the WTO Chief, Mr Pascal Lamy, has lamented that even in the WTO, many Governments are "remiss" in meeting their notification obligations.

"It is simply impossible to make good policy or to forge mutually beneficial international cooperation in the absence of information. This is an issue in pressing need of attention by Governments", Mr Lamy added.

Under-researched

Stating that the incidence and the impact of subsidies remain seriously under-researched, he said many Governments maintain extensive subsidy programmes at the national and sub-national levels and invoke a plethora of objectives to justify the programmes. Even as subsidies could be trade distorting and WTO member Governments must notify the WTO of any such support, few Governments fully comply with their notification obligations. The report reckons that 21 developed countries spent almost $250 billion on subsidies, while all countries spent over $300 billion. The arithmetic average ratio of subsidies to GDP is lower in developing than developed countries, but large variations of the ratio could be discerned in both country groups. For a sample of 31 developing countries, the average ratio of subsidies to GDP was 0.6 per cent, while the comparable figure for a sample for 22 developed countries was 1.4 per cent.

Agricultural subsidies

It said agricultural subsidies in rich countries— both domestic and export subsides— reveal a downtrend. The available evidence suggests industrial subsides are most pervasive in mining, coal, steel, forestry, fishing, shipbuilding and automotive industries. Incomplete evidence suggests support measures are concentrated in the transport, tourism, banking, telecommunications and audiovisual sectors.

Conflicting views

Even as the GATT/WTO rules on subsidies have evolved considerably over the years, the report concedes that conflicting views prevail as to whether he rules are tight enough to limit trade distorting subsidies, or accommodating enough to allow Governments to pursue their legitimate objectives, including development. While Governments have many reasons for subsidies, the report said sometimes they apply subsidies for less defensible reasons, or at least for reasons more likely to disturb economic relations among countries, such as squeezing a strategic advantage out of trading partners.

Trade developments

Taking a glance at trade developments last year, it said a particular feature of the last year, persisting into the present, is the higher prices of many primary commodities, especially oil. Aggregate real merchandise trade grew by 6.5 per cent last year, compared with 9 per cent in 2004. But still the 2005 world trade growth is above the average growth rate over the last decade, which amounted to slightly less than six per cent.

Quota restrictions

The end of quota restrictions on textiles and clothing at the inception of 2005 does not seem to have had a major impact so far on demand or domestic market conditions in the major importers— the United States and the European Union. However, China and India, along with a host of other relatively recent market entrants such as Jordan and Peru have gained market share, while a number of other countries that benefited previously from preferential market access through quotas now account for lower shares.