Quick Win No. 3
Rethink WTO subsidies rules for an equitable green transition
Industrial policy is increasingly the tool of choice for major economies seeking to address pressing global concerns such as fighting climate change, pandemics, or supply-chain vulnerabilities. While some WTO members view current rules as limiting government action, others are concerned that existing rules are insufficient to avoid subsidy wars or trade conflicts. Both are right. There are several ways that rethinking these rules could balance out these competing priorities and ensure a more equitable, resilient, and sustainable trading system.
WTO members should revisit what constitutes good and bad subsidies, put strict limits on overall subsidy levels, and carve out limited space for some subsidies. To do this, members should borrow from the WTO Agreement on Agriculture, and limit financial support for trade-distorting subsidies (the amber box), identify minimally trade-distorting subsidies (the green box), and identify a category of subsidies not subject to a cap on total spending (the blue box).
Green box subsidies should be narrowly defined, and include research and development, and disaster response spending. This is not a novel idea, but rather is modeled on the expired Article 8 provisions of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). Blue box subsidies could include those that advance climate change mitigation and adaptation, such as carbon sequestration and storage, and renewable energy. To ensure developing countries are not left behind, blue box subsidies should require support for a fund that provides technical assistance and ensures some form of technology transfer.
The discussion on what could be included in the green and blue box categories should begin at the technical level within the SCM Committee and take members’ experiences and best-practices into account. To prevent abuse, there should be an overall cap on industrial subsidies, calculated as a percentage of total industrial output, with stricter limits on wealthier countries. There should also be some sub-limits within that cap in those product sectors and supply-chain points with an observable concentration of subsidies. These efforts will also need to be supported by improved subsidy notifications and transparency.
Finally, remedies for violating subsidies rules should be strengthened. This can be achieved through permitting more immediate demands for compensation or retaliation. Essentially, members should not have to wait to take measures that respond to the market imbalances created by unlawful subsidization. In addition, when found in violation, members should be required to repay the full value of those subsidies, thus increasing the costs of violation. At the same time, challenges to green or blue box subsidies should be prohibited for one year after the new rules come into effect to encourage information sharing and coordination.
The recent growth of subsidies adopted as part of a WTO member’s industrial policy threatens to destabilize the balance established by existing rules that draw the line between those subsidies which are acceptable and those which are not. Updating those rules to reflect current realities can ensure the benefits of these investments are shared by WTO members and directed at efforts that genuinely support global needs.
