Assessing German subsidiesunder the GSI notificationtemplate proposed for theWTO

Michael Thöne, Stephan Dobroschke

FiFo/ April 2008/ Study, FiFo-Köln p.p. GSI

Abstract
Only approximately one half of World Trade Organization (WTO) Members report their subsidies to the WTO, as required under Article 25 of the Agreement on Subsidies and Countervailing Measures (ASCM). The poor performance of countries in this area undermines the effectiveness of the ASCM and disadvantages WTO Members that do not have the resources to investigate other countries’ potentially trade-distorting subsidies. Those members that fail to notify their subsidy programmes to the WTO are in breach of their international obligations. In 2006, the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) developed a new template for notifying subsidies to the WTO. The template is intended to standardize the format in which WTO Members can report subsidies and thereby increase the quantity and quality of the information that they provide. The present study successfully used the GSI template to develop an alternative notification covering the German federal government and the sixteen Länder (states). Germany was chosen because it has one of the poorest records among large Organisation for Economic Cooperation and Development (OECD) economies of notifying specific subsidies to the WTO. Instead of the 11 subsidies notified for Germany for 2006 (with a total value of € 1.25 billion), the study’s conservative approach identifies 180 specific subsidy programmes that should have been notified (totalling € 10.8 billion). Under-reporting may be attributable to a number of causes and the aim of the study was not to incriminate Germany, but to demonstrate that the current notification system needs to be reformed. The GSI template was found to be an easily accessible and transparent instrument to record specific subsidies as part of the overall notification process. The key change proposed to the template to enhance its usability was the introduction of a unique subsidy identifier, which would help track subsidy programmes that extend over several products or over multiple years. Notification of subsidies would also benefit from separate and more detailed reporting of regional subsidy programmes, which can account for a large proportion of total subsidisation in many countries. Regional specificity is an independent cause for notification and as such, does not require additional information to be provided about which products or industries profit from the subsidies. They can serve as a cloak for subsidies that are also sector-specific. Regional programmes should ideally be notified with additional information on their intended use. However, there is some room for discretion about which subsidies are notified. No WTO Member economy would ever seriously think of notifying all specific subsidies, including those which confer benefits of only a few dollars or euros. So Member states must use their own judgement in formulating a “sensible” notification. The GSI-template includes definitions of subsidies “worthy of notifying.” This might be accomplished with a “white list” (subsidies that do not need to be reported) or a de minimis rule, or both, and a WTO-handbook of specific subsidies and measures to be notified. The template could help reduce the workload of notifying subsidies to the WTO—at least for those countries which are already producing a truly complete notification at present. For countries not delivering full notifications, the conclusion on the workload is necessarily ambiguous. When comparing actual notifications to the WTO with full notifications in the GSI-template, the workload might also increase. However, should these under-reporting countries wish to honour their WTO commitments, the template would provide an effective tool for notifying their subsidies. All the methods to improve transparency and to reduce the workload of making notifications still do not tackle the basic political economy of the ASCM. With increased transparency, the fear of self-incrimination may even rise. The incentive—and the sanctions—problems for notifications remain the same. In this sense, the GSI-template can be seen as a first and necessary step towards a process for improving the current system of subsidy notification in the WTO.