DP14833 Rethinking International Subsidy Rules

Author(s): Bernard Hoekman, Doug R Nelson
Publication Date: May 2020
Keyword(s): G20, international cooperation, Spillovers, Subsidy policies, WTO
JEL(s): E61, F02, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14833

Geo-economic tensions, notably associated with the rise of China, and global collective action problems â?? climate change; the COVID-19 pandemic â?? call for international cooperation to revise and develop rules to guide both the use of domestic subsidies and responses by governments to cross-border competition spillover effects. Current WTO rules dividing all subsidies into prohibited or actionable categories are no longer fit for purpose. Piecemeal efforts in preferential trade agreements and bi- or trilateral configurations offer a basis on which to build but are too narrow in scope. Addressing spillover effects of subsidies could start with G20 countries launching a work program to mobilize an epistemic community concerned with subsidy policies, tasked with building a more solid evidence base on the magnitude, purpose and effects of subsidy policies. The need for such cooperation has become even more pressing by the COVID-19 pandemic and the associated increase in the use of subsidy programs in major economies.