Working Paper: CEPR ID: DP14833
Authors: Bernard Hoekman; Doug R. Nelson
Abstract: Geo-economic tensions, notably associated with the rise of China, and global collective action problems – climate change; the COVID-19 pandemic – 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.
Keywords: subsidy policies; spillovers; international cooperation; G20; WTO
JEL Codes: E61; F02; F15; F42; F68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| National subsidy policies (H20) | increased trade tensions (F19) |
| National subsidy policies (H20) | competitive distortions (L11) |
| competitive distortions (L11) | increased trade tensions (F19) |
| Subsidies intended to achieve public policy goals (H23) | negative spillovers (D62) |
| negative spillovers (D62) | affecting other nations' economic welfare (F69) |
| absence of a coherent international subsidy regime (F69) | escalating trade tensions (F19) |
| Addressing the spillover effects of subsidies (H23) | mitigate trade tensions (F19) |
| Addressing the spillover effects of subsidies (H23) | promote a more stable global trade environment (F13) |