Subsidies are a major source of controversy in the world trading system. The number of subsidy-related trade disputes has increased sharply since 2010, as have investigations launched into subsidised imports. The EU, Japan, and the US have taken exception to a Chinese development model that they view as riddled with “non-market practices”, of which subsidies are a leading example (Wu 2006). China bristles at having its subsidies singled out, arguing that it is not alone. Yet, at present there is no work programme at the WTO on the trade-related aspects of subsidies in general; no serious attempts to find common ground are underway.
Worse, governments face a conundrum. They are mindful that foreign subsidies can erode the market access won in previously negotiated multilateral and regional trade agreements. As far as market access impairment is concerned, state support for exporters is as relevant as subsidies awarded to import-competing local firms. By reducing the benefits of trade deals, foreign subsidies diminish public support for globalisation and give populists a stick with which to attack open trade. On this view, further international trade cooperation – including the elaboration of new trade rules that discipline trading partners’ subsidies – has appeal (Horlick and Clarke 2016).
Yet, evidently, governments want to retain subsidies to tackle pressing national and global concerns, such as the COVID-19 pandemic response, decarbonisation, and the clean energy transition. What one government regards as a good subsidy and a legitimate exercise of national sovereignty can be viewed more negatively by trading partners (Lamy 2006). Doubts that a particular subsidy is the most effective means to attain certain public policy objectives can add to a trading partner’s suspicions. The implications of widespread subsidisation for a jurisdiction’s public finances and on recipient firm performance imply that there may be domestic constituencies that are also critical of extant national subsidy policies.
A new dataset on corporate subsidies
Recriminations have been exacerbated by a lack of comparable and reliable information on subsidy schemes and awards. In an effort to remedy this, we assembled an inventory of 18,137 corporate subsidies awarded by China, the EU, and the US since November 2008. Many types of government subsidy – including welfare state payments to individuals, transfers between different levels of government, and those with no commercial dimension such as of foreign aid – were not included in our inventory.
To obtain the most comprehensive coverage of corporate subsidies possible, we included subsidies that a jurisdiction exempted from state aid rules as well as those subsidies that appear to be subject to no competition law-related discipline. In short, just because a jurisdiction prefers not to treat a state transfer of financial resources as a subsidy cuts no ice here. Throughout, we consistently employed a definition of subsidies that experts in the fields of trade and competition law and policy will recognise.
We do not claim that every subsidy awarded by China, the EU, and the US has been documented here. After all, some subsidies may be hidden and none of the jurisdictions examined here are as transparent about their subsidy payments as they might like to think they are. Still, we know of no database of corporate subsidy schemes and awards by these three jurisdictions that has greater coverage.
Our study should not be read as implying that China, the EU, and the US are the only jurisdictions that award subsidies to organisations engaged in business; the Global Trade Alert database currently contains a total of 5,977 subsidy policy changes and awards implemented by other nations (Evenett and Fritz 2021).
Given the widely acknowledged concerns about the accuracy, completeness, and timeliness of government notifications on subsidies to the WTO, we relied almost exclusively on sources of subsidy information collected from official government sources within China, the EU, and the US. Less than 0.3% of the 18,137 entries in our inventory of corporate subsidies were documented using information that did not come directly from a government source or from a legal obligation on companies to report subsidies received from government.
Each trading power contributed at least 5,000 entries to our inventory of corporate subsidies. We used that inventory to assess, in an even-handed manner, the scale of national and cross-border commerce affected by these trading powers’ subventions, individually and together. We provide detailed breakdowns in the 28th Global Trade Alert report of the types of subsidy policy instruments used, when those interventions came into force, whether conditions of competition in domestic and/or foreign markets are implicated, and whether subnational, national, or supranational public bodies were responsible.
Where evidence allows, we identified the products and sectors that received each subsidy and, using automated routines based on the finest-grained global trade data available, identified affected trade partners and estimated the goods trade covered by subsidy policy interventions. We also examined whether subsidy awards by one of the three jurisdictions examined here were followed soon after by subsidy awards or by import restrictions in the same products by another trading power: a necessary condition for potential tit‑for-tat dynamics.
We have made this inventory of corporate subsidies publicly available, go here for the inventory and here for an explanation of how the inventory is exhibited.
Corporate subsidies cover swathes of global goods trade and predate the pandemic
In this manner, we can assess whether since the Global Financial Crisis the autonomous exercise of subsidy policy by China, the EU, and the US involved trivial shares of world trade. If so, the case could be made that the adverse cross-border spillovers created by autonomous subsidy policy are likely to be limited, that the tension between subsidy policy and market access is more apparent than real, and that existing multilateral rules suffice. Other factual findings would appear to have markedly different implications for the reform of national subsidy policy and for greater inter-governmental cooperation on subsidies. Analysis of our inventory of corporate subsidies revealed the following headline findings:
- Subsidy awards by China, the EU, and the US are not confined to crisis years (specifically, those associated with the COVID-19 pandemic and the Global Financial Crisis). These three jurisdictions made a total of 2,488 subsidy awards and policy changes during 2008–2010, 3,754 such changes during 2020 and 2021, and 11,861 subsidy changes and awards during the intervening years (2011–2019).
- Less than 1.05% of the subsidy policy changes recorded in our inventory involved the elimination of subsidies, termination of a subsidy scheme, or reduction in subsidy payments.
- Subsidy awards by China, the EU, and the US are not confined to agriculture. While 2,171 subsidy changes and awards were in the agricultural sector, a total of 4,564 involved the transfer of state resources to service sector firms, and another 10,814 were received by corporates in manufacturing sectors. (Of the subsidies to service sector firms, 578 involved financial service sector firms. This implies that our inventory is not dominated by bailouts of banks and insurance companies, a feature of financial crises and their wake.)
- National governments are not solely responsible for subsidies awarded by China, the EU, and the US. A total of 677 subsidy awards and policy changes were implemented by subnational government bodies, and a total of 3,446 subsidy changes were made by supranational bodies, in particular by the European Investment Bank.
- A total of 14,104 subsidy policy changes and awards in our inventory were firm-specific, implying that thousands of entries in the inventory were not.
- Since the EU and the US were together responsible for 12,629 entries in our inventory of corporate subsidies, claims that extensive resort to subsidies is found only in state-dominated economic development models should be discounted. Resort to extensive subsidisation is also a common feature of policy in more market-based systems of economic governance.
- The risk of far-reaching impairment to goods market access cannot be ruled out. Such was the frequency of subsidy awards to import-competing firms in the decade before the COVID-19 pandemic and the range of products sold by those firms that:
- In 2019, 84.0% of goods imports into China were in products where subsidies had been received by local rivals.
- In 2019, 85.3% of extra-EU goods imports were in products where subsidies had been awarded to local rivals.
- In 2019, 66.4% of goods imports into the US were in products where subsidies had been awarded to local rivals.
- In 2019, before the COVID-19 pandemic hit, 62% of global goods trade was in products and on trade routes where subsidised American, Chinese, and European firms compete. Bearing in mind that our inventory is unlikely to capture every subsidy change since November 2008, the latter statistic understates the scale of market access at risk from corporate subsidy intervention by these three trading powers. The subsidies awarded by each of the trading powers implicate significant shares of world goods trade:
- Excluding subsidies awarded by China from the calculation reveals that the global goods exposure to the subsidies of the EU and the US is still 28.1%.
- Excluding subsidies awarded by the EU from the calculation reveals that the global goods exposure to the subsidies of China and the US is still 47.5%.
- Excluding subsidies awarded by the United States from the calculation reveals that the global goods exposure to the subsidies of China and the EU is still 57.0%.
- As measured by their respective shares of world trade, exporters of non-agricultural goods face subsidised foreign rivals as often as exports of agricultural products. Any presumption that subsidy-distorted trade is confined to agricultural goods should be set aside.
- State-provided export incentives by China, the EU, and the US were found in trade routes covering 25.3% of the total value of world goods trade in 2019. In addition, their subsidies to import-competing firms in 2019 affect the conditions of competition of 37.6% of world goods trade. Any rethink of subsidy policy ought not be confined to subsidies that affect conditions of competition in markets at home.
- Tit-for-tat subsidy dynamics cannot be ruled out in the years before the COVID-19 pandemic (see Table 1). Each of the three trading powers considered here followed new subsidy interventions by the other two with additional subsidies of their own in the same products more often than was the case of import tariff increases (a benchmark). Within six months of China introducing a subsidy in a product line, 58% of the time the EU awarded a subsidy in the same line of business. Forty-eight percent of Chinese subsidy actions were followed within six months by a subsidy in the same line of business by the US. Within six months, China responded to new EU subsidies 56% of the time and new American subsidies 42% of the time. If the evidence presented in this report is anything to go by, the EU and the US reacted more quickly and more often to each other’s subsidies than to China’s.
Table 1 Pre-pandemic preconditions for tit-for-tat dynamics present
An evidence-driven, technocratic dialogue is urgently needed
Given that trillions of US dollars of trade are likely involved, and with the growing discord between governments over subsidy matters, the time is ripe for deliberation about the nexus between subsidies, market access, and the potential for enhanced international cooperation. Launching formal negotiations at this time would be premature – instead, evidence-informed policy dialogue should commence in 2022.
Deliberation on the global reach of subsidies and what to do about them should be largely technocratic in nature and must include a specific discussion on what first-order specific problems any cooperation needs to address (Bagwell and Staiger 2006, Sykes 2010, Hoekman and Nelson 2020). In the report we outline in Chapter 9 six areas that need particular attention. Even if the appetite for enhanced international cooperation does not materialise, this policy dialogue will afford governments the opportunity to review their own subsidy regimes in light of the experience of trading partners.
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Evenett, S and J Fritz (2021), Subsidies and Market Access Towards an Inventory of Corporate Subsidies by China, the European Union and the United States, The 28th Global Trade Alert Report.
Hoekman, B and D Nelson (2020), “Rethinking International Subsidy Rules”, The World Economy 43(12): 3104-3132.
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Lamy, P (2006), “Foreword”, in World Trade Report 2006. Exploring the links between subsidies, trade and the WTO, World Trade Organization.
Sykes, A (2010), “The Questionable Case for Subsidies Regulation: A Comparative Perspective”, Journal of Legal Analysis 2(2): 473-523.
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