The Limited Economic Case for Subsidies Regulation

Abstract

The International Centre for Trade and Sustainable Development has assembled a task force on Rethinking International Subsidy Disciplines. This paper, prepared for the task force, considers the economic case for general disciplines on subsidies by WTO member states. It considers the two principal economic arguments for such disciplines – the possibility that subsidies create negative international externalities for other nations, and the possibility that subsidies disciplines can tie the hands of member governments in a manner that discourages government waste. It concludes that a compelling case can be made for prohibiting new subsidies to import-competing industries that undermine negotiated market access concessions. The economic case for disciplines that go beyond this principle is weak for a variety of theoretical and practical reasons, although industry or sector-specific limits on subsidies may be useful in some instances.