Subsidies, spillovers and WTO rules in a value-chain world

Abstract

As tariffs have fallen, subsidies and related policies with similar effect are being used to support local production. This raises the question of whether the existing World Trade Organization (WTO) ‘rules of the game’ are adequate. Assessing the economic effects of subsidies is complicated, given the need to consider linkages within and across supply-chain networks. Many of the policies that affect supply-chain operations are not considered subsidies under the WTO. There are no rules on subsidies for services or investment incentives by local governments. Conversely, some WTO rules may not be appropriate or effective given the increasing prevalence of global value chains. The widespread use of subsidies post-2008 suggests WTO members should launch a process of deliberation to revisit the status quo set of multilateral rules on subsidies. The 2015 Nairobi WTO ministerial declaration has created the necessary window to permit interested countries to do so. A central element of this should involve a concerted effort to collect better data and to analyze how subsidies and policies with equivalent effect impact on value chains, whether negative international spillovers are created and, if so, their magnitude and incidence.