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Governments worldwide provide economic support and assistance to support business and industry. By covering some of a producer’s costs, a subsidy can provide an artificial competitive advantage.
In international trade, subsidies can give producers from one country an unfair advantage over those from another. This not only distorts trade, but also means that subsidies provided by one country can injure the industry of another.
Subsidies have been the source of international trade friction for many years. In recent years, we have seen a number of cases where the magnitude of government financial support to industry has lead to disputes, including in the agriculture, steel, shipbuilding and aircraft manufacturing sectors.
Governments can resort to countervailing duties to offset the benefit provided by subsidies to producers in the exporting country. Countervailing duties can only be applied when an imported product benefits from a subsidy and the advantage afforded to imports of that product by the subsidy can be shown to be causing injury to the domestic industry.
Countervailing duties are intended to counteract the unfair advantage that a subsidy might provide another country’s industry. However, they do not address the deleterious effect subsidies can have where one country’s exports to a third market are replaced by those of another subsidising country’s.
In order to manage the trade distorting impact of subsidies, WTO Members concluded the Agreement on Subsidies and Countervailing Measures , which applies to all goods (although there are additional rules governing agricultural products in the Agreement on Agriculture ). The Agreement establishes a set of disciplines that constrain the use of trade distorting subsidies, as well as establishing a common set of standards for investigating subsidised imports and then applying countervailing duties.
When launching the Doha Round in 2001 [external link], WTO Ministers mandated negotiations aimed at “clarifying and improving disciplines” under the Agreement on Subsidies and Countervailing Measures (as well as that Antidumping Agreement – see above). In addition, Members were asked to strengthen disciplines on subsidies in the fisheries sector.
When they met in Hong Kong in December 2005 [external link], WTO Ministers took stock of progress in that negotiation. Under consideration, were a range of proposals for improving the Subsidies Agreement, including the definition of a subsidy, prohibited subsidies and establishing where serious prejudice to the interests of another Member exists.
After having debated these core issues since 2001, the Membership is now ready to enter the final stage of negotiations. This final stage will be on the basis of draft negotiating text prepared by the Chair of the Rules Negotiating Group.
New Zealand supports disciplines on trade-distorting subsidies, while also ensuring that governments continue to enjoy necessary flexibilities to employ legitimate programmes designed to encourage economic development.
