By Professor Peter Draper, Executive Director and Dr Naoise McDonagh, Lecturer, Institute for International Trade, The University of Adelaide
The distorting effects of state-owned enterprises (SOEs) and industrial subsidies on global market competition has become a topic of increasing importance for many World Trade Organization (WTO) members in recent years. There is growing pressure from key actors for WTO reform. The U.S., EU and Japan have jointly outlined a reform agenda for the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM)1 , focusing on market distorting effects of state capitalism. China has offered a different reform agenda that seeks greater recognition of the role of subsidies in pursuing legitimate social and development goals, as outlined in a recent WTO communication. Subsidy usage is therefore a key development issue.
A lack of reform may lead to growing use of subsidies by developed and advanced developing countries with deep pockets in ways that ultimately widen the economic gap between countries. This is because many developing economies will not have the capacity to leverage subsidies to build their industrial bases.Continue reading