Guarding against protectionism and tackling subsidies to contribute to Agenda 2030

by María Cristina Hernández-Zermeño, 
June 2016

The fact that the Sustainable Development Goals (SDGs) and the Addis Ababa Action Agenda contain a number of trade-related elements constitutes a recognition that trade is critical to achieving the 2030 Agenda objectives.

It is clear that trade is not a goal in itself. Rather it is an enabler, a catalyzer, a driver for job creation, economic growth and sustainable development. It is also understood that in order for trade to make a contribution to the SDGs, a country requires a coherent policy framework for helping businesses harness trade opportunities, while also putting in place sound social and environmental policies. Ensuring this combination will depend on national polices and institutions.

Nevertheless, it is also possible that the trade system plays an important role in different ways. I will limit myself to two main points:

1) A framework for predictable trade flows

The trade system can help to combat protectionism and to offer a framework for trade policies to provide for more predictable trade flows which, in turn, should boost economic growth and job creation. This is at the heart of target 17.11 (to “promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the WTO, including through the conclusion of negotiations”).

Before the 2008 crisis, world GDP grew at an average annual rate of 6.4%; over the last five years, world GDP grew at a 0.2% rate. According to the WTO and certain think tank reports, protectionism is on the rise since 2012, threatening to extend the economic slowdown. The ratio of trade growth to GDP growth has dropped from an average of 2.2 between 1986 and 2000, to 1.3 from 2001 to 2013. This decline in trade elasticity may be explained by both cyclical and structural factors. It can be argued that the absence of any big trade agreement within the past 15 years is chief among the latter. The WTO Trade Facilitation Agreement concluded in Bali (2013) will help ease trade but will not create new market opportunities.

The WTO should continue fighting protectionism by monitoring restrictive measures applied by its Members, by ensuring that they comply with trade rules and dispute settlement rulings, and by advancing negotiations on remaining Doha issues and addressing 21st century trade issues.

2) Tackling harmful fisheries subsidies

Another straightforward role for the trade system relates to target 14.6 (to “by 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, eliminate subsidies that contribute to illegal, unreported and unregulated fishing and refrain from introducing new such subsidies”). The WTO 10th Ministerial Conference, held in Nairobi in December 2015, almost produced a package of provisions on fisheries subsidies similar to the ones agreed upon in the Trans-Pacific Partnership Agreement (TPP). The TPP contains several environmental provisions, including one that states that no party shall grant or maintain:

  1. Subsidies for fishing that negatively affect fish stocks that are in an overfished condition; and
  2. Subsidies provided to any vessels involved in IUU fishing.

The TPP also includes fisheries subsidy notification obligations and a best endeavor “stand still” provision in relation to subsidies that contribute to overfishing or overcapacity.

No doubt, plurilateral efforts such as this are commendable and welcome. However, much remains to be done with respect to prohibition of the most harmful fisheries subsidies, which include those for construction and renovation; processing and marketing; tax credits and exceptions; and fuel. Huge amounts of subsidies are provided worldwide (around US$ 35 billion per year), contributing to a global fisheries crisis. Hence, dealing with fisheries subsidies can only be done effectively at a multilateral level.

All harmful subsidies, regardless of their level of specificity, should be disciplined or, preferably, prohibited. Considering that the rationale for addressing fisheries subsidies is based, in particular, on their environmental effect (impact on marine resources), it would be absolutely improper and inefficient to exclude horizontal subsidies from future disciplines as all subsidies that enhance revenue, reduce cost, or both lead to a marginal increase in profit, thereby increasing incentives for fishing effort and the build-up of excessive fishing capacity, and eventually leading to the overexploitation of fishery resources. This applies particularly to fuel subsidies.

Fuel subsidies, which actually represent the largest part of fisheries subsidies, shouldn’t need to be specific to be disciplined. Specificity is appropriate when the motivation for addressing the subsidy is its trade distorting character. But it is not appropriate if the motivation is environmental. After all, the fish don’t care whether the subsidy was specific or not; they will in any case be affected.

The greatest limitation to cover this kind of subsidy in future multilateral disciplines arises from the concept of “specificity” under the current Subsidies and Countervailing Measures Agreement (SCMA). According to article 1:2 of the SCMA, only subsidies as defined in article 1:1 – which are deemed to be specific – shall be subject to the provisions of Part II “Prohibited Subsidies”, Part III “Actionable Subsidies” or Part V “Countervailing Measures”. The reason behind this is that the SCMA has its raison d´être, namely, seeking to address the trade-distorting impacts of subsidies.

Any new rules in this area would need to ensure a broader scope so as to cover both specific and horizontal subsidies that contribute to overcapacity and overfishing. This will be an imperative to ensure effectiveness and prevent circumvention.

María Cristina Hernández-Zermeño is Minister, Deputy Permanent Representative at the Mission of Mexico to the WTO.

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