Book Description

Subsidies take many forms, including direct government expenditures, tax incentives, equity injections, soft loans, government provision of goods and services and procurement on favorable terms, and price supports. This is the dual facet of subsidies: while they are important tools for achieving policy goals, they can also create distortions. On the one hand, governments grant subsidies and, on the other hand, they regulate them to tackle such distortions. Subsidies are typically addressed from the perspective of international trade, through multilateral rules defined by the World Trade Organization (WTO), provisions contained in the Agreement on Subsidies and Countervailing Measures (SCM Agreement), in the Agreement on Agriculture (AA), and in the General Agreement on Trade in Services (GATS). There are also provisions in regional trade agreements. Though not establishing binding rules, the Organization for Economic Cooperation and Development (OECD) also have important rules on export credit in its Arrangement for Officially Supported Export Credits. Subsidies from a competition perspective, however, have attracted little attention from authorities and academics over the years. This scenario has started to change. Developments have emerged with the introduction and use of foreign direct investment (FDI) screening mechanisms in the European Union (EU). In addition, on April 22, 2022, the International Monetary Fund (IMF), OECD, World Bank (WB) and WTO published a joint work titled “Subsidies, Trade, and International Cooperation.” This work notes that the growing use of distortive subsidies alters trade and investment flows, detracts from the values of tariff bindings and other market access commitments, and undercuts public support for open trade. It also adds that sharp differences over subsidies are contributing to global trade tensions that are harming growth and living standards, which calls for growing international cooperation between governments and international organizations. One can see that foreign subsidies investigations in the European Union are no longer restricted to the international trade area of the European Commission. Foreign subsidies now also require notification and analysis by the competition authorities.