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Research - 25.10.2021 - 00:00

Global Trade Alert: Focus on international subsidies

In this seminal report – the first comprehensive inventory of the world’s three largest subsidy regimes – authors Simon J. Evenett and Johannes Fritz from the University of St.Gallen (HSG) and The St.Gallen Endowment for Prosperity through Trade (SGEPT) call for renewed cooperation by trading nations on the issue of subsidies. Evenett and Fritz argue that such dialogue is urgently needed.

25 October 2021. Subsidies are a major source of controversy in the world trading system. More than 62% of global good trade is affected by subsidies and the number of subsidies have tripled in the last decade. While the European Union, Japan, and the United States take exception to the way China uses subsidies, China argues that they are not alone. To date, there is no serious programme at the WTO or other international organisations that deal with subsidies in general. Nor is there any serious attempt to bridge differences between governments over subsidy use. Until now. This Global Trade Alert (GTA) report, through the use of data, shines a light on the pervasiveness of subsidies in global trade and seeks to find common ground on the topic so that nations can no longer ignore the subject.

In this seminal report – the first comprehensive inventory of the world’s three largest subsidy regimes – authors Simon J. Evenett and Johannes Fritz from the University of St.Gallen (HSG) and The St.Gallen Endowment for Prosperity through Trade (SGEPT) call for renewed cooperation by trading nations on the issue of subsidies. Evenett and Fritz argue that such dialogue is urgently needed.

Moreover, subsequent research is likely to reveal a more alarming prognosis, one that would hopefully prompt governments and multilateral bodies to revise current rules and regulations. While this report focuses on the corporate subsidies awarded by the three economic superpowers, many more countries actively hand out thousands of subsidies, all of which distort economic competition.

Again, the damage inflicted by subsidies is not merely economic. Subsidies perpetuate an unsustainable cycle of mimicry and retaliation. According to the report, a set of subsidies by one economy is typically followed six months later by ‘copycat’ subsidies from another economy. If the objective is to find ‘balance’, the opposite results. The challenge to reverse the deficit of trust caused by subsidies is significant.

The authors are available to discuss the report in detail and can provide detailed information on subsidies in individual sectors and the amount of national exports at risk. Other topics of interest in the report include: the ongoing China bashing within global trade, multiple trade tensions between nations, and holier than thou attitude of the Europeans and Americans. The report also touches on the need to retrench public finances post-COVID and the implicit and widely held assumption that transition to the low carbon economy will require lots of subsidies, which could lead to more trade tensions.

Image: Shutterstock / RORONOR

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