Reform of the WTO Agreement on Subsidies and Countervailing Measures

POSITION | EXTERNAL ECONOMIC POLICY

Reform of the WTO Agreement on Subsidies and Countervailing Measures Assessment of the Proposal of the Trilateral Initiative of the United States, Japan, and EU

June 2020

Recommendations 23. Oktober 2017 ▪

While the rulebook of the WTO contains disciplines on subsidies, there is a lack of coherent and comprehensive rules to effectively address market distortive practices particularly in the area of subsidies (beyond export subsidies). This regulatory gap mus t be addressed quickly und sufficiently.

▪

The EU should pursue multilateral, plurilateral (in the best case, under the WTO) and bilateral efforts (such as in free trade agreements) to develop new disciplines on industrial subsidies and state-owned enterprises.

▪

German industry welcomes the proposals of the Trilateral Initiative (EU – Japan – United States) on appropriate disciplines. It is an important step forward to restore fair competition.

▪

If the WTO Agreement on Subsidies and Countervailing Measures (SCM) cannot be modernized multilaterally, a plurilateral agreement could prove a viable interim step.

▪

The EU should reform its countervailing measures (CVM). The framework for CVMs should be strengthened and its application should be facilitated. In the future, CVMs should be designed in such a way to more fully address the market-distortive effects of foreign SOEs and industrial subsidies.

▪

BDI welcomes parallel investigations of dumping and subsidies, which reflect the reality of the trade distortive effect of industrial subsidies.

▪

In order to direct countervailing measures properly, the monitoring and reporting of industrial subsidies across sectors needs to be improved markedly. German industry supports more stringent disciplines for notifying subsidies at the WTO and a more effective enforcement mechanism.

▪

German industry supports the introduction of new types of subsidies as put forward by the proposal.

▪

German industry recognizes the growing importance and value of trade in services and supports all efforts within the WTO to further the negotiation process on services.

Dr. Stormy-Annika Mildner | Außenwirtschaftspolitik | T: +49 30 2028-1562 | s.mildner@bdi.eu Katherine Tepper | Außenwirtschaftspolitik | T: +49 30 2028-1499 | k.tepper@bdi.eu Eckart von Unger | Außenwirtschaftspolitik | T: +32 279 21020 | e.vonunger@bdi.eu www.bdi.eu

Reform of the WTO Agreement on Subsidies and Countervailing Measures

Background I: Facts and Figures Industrial subsidies are nothing new but have become an increasing threat to fair competition on global markets in recent years. The OECD has gathered evidence on substantial government subsidization in the aluminum, semiconductor, and fossil fuel industries. Between 2014 and 2018, government support to 21 substantial semiconductor firms was estimated at over 55 billion U.S. dollars.1 The OECD approximates government support to the 17 largest companies in the aluminum Total Countervailing Investigations initiated among WTO Members (1995-2019) Diagrammtitel Stocks 600

541 556 486

500

445 411 380

400

*Daten bis Ende Juni 2019

300 200 99 100 33 10 17

117

201 217 176 182 190 168 144 153

335 245 254

279

302

58

0

Source: World Trade Organization, Countervailing Initiations: By Exporting Country 01/01/1995 - 30/06/2019, <https://www.wto.org/english/tratop_e/scm_e/CV_InitiationsByExpCty.pdf> (accessed on 6 March 2020).

value chain between 2013 and 2017 at over 68 billion U.S. dollars. 2 3 In a broader category encompassing oil, gas, coal, and electricity, the International Energy Agency estimated fossil fuel consumption subsidies to have exceeded 400 billion U.S. dollars in 2018. 4 According to the WTO, new countervailing investigations among member-states have increased in recent years, with 55 new investigations initiated in 2018 compared to just nine in 2010. 5 Since the founding of the WTO in 1995, WTO members have introduced 556 countervailing invest igations against one another. In 303 cases (54 %), measures were imposed and countervailing duties collected.6

1

OECD, Measuring Distortions in International Markets: The Semiconductor Value Chain, 2019, <www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=TAD/TC(2019)9/FINAL&docLanguage=En> (accessed 20 March 2020).

2 OECD, Measuring Distortions in international Markets: The Aluminum Value Chain (2019), <https://www.oecd-ilibrary.org/trade/measuring-distortions-in-international-markets-the-aluminium-value-chain_c82911ab-en> (accessed 20 March 2020).

3 Unfortunately, these data exist only for a few specific sectors and in the case of fossil fuels, utilize multiple methodologies, making it more difficult to compile and consistently summarize. The data basis for industrial subsidies needs to be markedly improved, which we touch on in the BDI position.

4 Wataru Matsumura and Zakia Adam, Fossil Fuel Consumption Subsidies Bounced back Strongly in 2018, <https://www.iea.org/commentaries/fossil-fuel-consumption-subsidies-bounced-back-strongly-in-2018> (accessed 20 March 2020).

5 The WTO data is only available until the end of June 2019; in order to compare full years, we have used the data here for 2018.

6 World Trade Organization, Countervailing Measures: Reporting Member vs. Exporting Country 01/01/1995 â&#x20AC;&#x201C; 30/06/2019, <https://www.wto.org/english/tratop_e/scm_e/CV_MeasuresRepMemVsExpCty.pdf> (accessed 6 March 2020).

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

State-owned enterprises constitute another severe challenge for rules-based and open trade, in particular when SOEs themselves grant subsidies. SOEs continue to play a decisive role in major

Value of State-Owned Enterprises in the OECD Countries* plus Argentina, Brazil, China, Colombia, Diagrammtitel Costa Rica, India, Saudi Arabia (2015) by category, in millions of U.S. Dollars 4000000 3500000 3000000 *Dataset did not include Portugal and Luxembourg

2500000

NOTE - in some categories, only market value is 2000000 1500000 1000000 500000 0 -500000

Majorityowned listed entities

Majorityowned nonlisted entities

Statutory corporations + quasicorporations

Minorityowned listed entities

Source: OECD, Dataset on the Size and Sectoral Composition of State-Owned Enterprises (2017), <https://www.oecd.org/publications/the-size-and-sectoral-distribution-of-state-owned-enterprises9789264280663-en.htm> (accessed 26 March 2020).

economies. In the OECD countries, state-owned enterprises valued at over three trillion U.S. dollars in 2012. 7 In China, for instance, the state retains a majority share in all but one of the 100 largest publicly listed companies. 8 In Russia, state-owned enterprises accounted for over 80 percent of the market value, sales and assets of the ten most prominent firms in 2013. 9 Functioning as policy instruments, SOEs and state-owned banks are directed by the Chinese government to provide raw materials and loans in order to foster the development of key industries.

This also has an impact on international competition; China has built up overcapacity in various areas and is using it to penetrate markets of third countries through subsidies and price dumping.

Countervailing duties are one tool to counteract the subsidies that countries provide indirectly through state-owned sectors. However, there are issues, among others with transparency and whether an SOE is a â&#x20AC;&#x153;public bodyâ&#x20AC;? subject to the WTO anti-subsidy regime.

7

OECD, Dataset on the Size and Sectoral Composition of National State-Owned Enterprise Sectors (2012), <www.oecd.org/daf/ca/soemarket.htm> (accessed 6 March 2020).

8 WTO Trade Policy Review of China (WT/TPR/S/375), 6 June 2018, https://www.wto.org/english/tratop_e/tpr_e/s375_e.pdf (accessed 6 March 2020).

9 WTO Trade Policy Review of the Russian Federation (WT/TPR/S/345), 24 August 2016, <https://www.wto.org/english/tratop_e/tpr_e/s345_e.pdf> (accessed 26 March 2020).

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

Reforming the WTO Agreement on SCM: The Trilateral Statement General Aim of the Statement Background On 14 January 2020, the Trilateral Initiative of the European Union, the United States, and Japan issued a joint statement 10 after a meeting in Washington, DC. Among other proposals to combat forced technology transfer and to promote market-oriented conditions and international rule-making on steel overcapacity and e-commerce, the statement dealt with a comprehensive reform of the Agreement on Subsidies and Countervailing Measures (known as the SCM Agreement) of the World Trade Organization (WTO) to more precisely regulate government subsidization of industrial goods and their exports.

The SCM Agreement provides multilateral disciplines regulating the provision of subsidies. It also regulates the use of countervailing measures to offset injury caused by subsidized imports. The Trilateral partners agreed that the SCM Agreement in its current form is “insufficient to tackle market and trade-distorting subsidization” of industrial goods in “certain jurisdictions.”

They identified insufficiencies in several areas for which they provide policy recommendations: the definition and types of subsidies, benchmarking, notification, and conditions for countervailing measures.

The parties lastly reassert their commitment to continue work on: ▪

Identifying the scope of prohibited subsidies as well as additional categories of unconditionally prohibited subsidies,

▪

identifying the scope of harmful provisions as well as additional instances of harmful subsidization,

▪

the provision defining the threat of serious prejudice,

▪

the definition for public body based on their assertion that interpretation of this term for subsidizing entities by the WTO Appellate Body has been inadequate and “undermines the effectiveness of WTO subsidy rules.”

BDI Position Since its founding in 1995, the World Trade Organization (WTO) has served as the guardian of the rules-based, open trading system, providing the stability and predictability that companies need to trade, invest and create jobs. While the rulebook of the WTO contains disciplines on subsidies, there is a lack of coherent and comprehensive rules to effectively address market distortive practices particularly in the area of subsidies (beyond export subsidies) – in particular regarding industrial subsidies – the role of state-owned enterprises (SOEs), and forced technology transfers. The SCM Agreement only vaguely defines subsidies. It also covers only export subsidies and subsidies intended to increase domestic supply or replace imports.

10

Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States and the Euro pean Union, 14. Januar 2020, <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/january/joint-statement-trilateral-meeting-trade-ministers-japan-united-states-and-european-union>.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

Moreover, the hurdles to obtain the authorization for countervailing duties are high: The complainant bears the burden of proof to show the injury that has been suffered and must demonstrate a causal link between the injury and the subsidized imports. Opaque government funding in some countries makes this very difficult. In addition, the notification disciplines under the WTO for subsidies are weak. The WTO has little leeway to sanction those countries which do not fulfill their notification obligations.

This regulatory gap must be addressed quickly und sufficiently. The EU should therefore pursue multilateral, plurilateral (in the best case, under the WTO) and bilateral efforts (such as in free trade agreements) to develop new disciplines on industrial subsidies and SOEs. German industry thus welcomes the proposals of the Trilateral Initiative on appropriate disciplines. It is an important step forward to restore fair competition. If SCM cannot be modernized multilaterally, a plurilateral agreement could prove a viable interim step.

The proposal should be discussed at the next WTO Ministerial Conference. 11 In order to reach consensus on comprehensive reform of the SCM Agreement, the trilateral parties should, in the coming months, ramp up efforts to get other member states, such as the other prominent G7 and G20 states, on board with their proposal. Therefore, the topic should be addressed in the upcoming working group meetings on trade of the G7 and the G20. The proposal should also provide guidance for the ongoing negotiations between the United States and China (Phase Two Economic and Trade Agreement) as well as the EU and China (dialogue on WTO reform).

Meanwhile the EU should reform its countervailing measures (CVM) accordingly. Since the beginning of the 21 st century, the EU has imposed only 35 definite countervailing duties, the bulk of which were directed at India (15 measures) and China (9 measures). These measures are directed at imports from a variety of sectors, including polyethylene terephthalate (6 measures), miscellaneous steel products (5 measures), biodiesel (4 measures), and graphite electrode systems (3).

The framework for CVMs should be strengthened and its application should be facilitated. In the future, CVMs should be designed in such a way to more fully address the market-distortive effects of foreign SOEs and industrial subsidies. This can help to ensure competitive neutrality. 12 BDI welcomes parallel investigations of dumping and subsidies, which reflect the reality of the trade distortive effect of industrial subsidies. Moreover, the Commission announced in its Industrial Strategy of 10 March 2020 that it will adopt a White Paper to address distortive effects caused by foreign subsidies in the Single Market by mid-2020. Furthermore, it announced that the issue related to foreign subsidies will be addressed in a proposal for a legal instrument in 2021.

In order to direct countervailing measures properly, the monitoring and reporting of industrial subsidies across sectors needs to be improved markedly. A central, methodologically consistent database should be compiled through the OECD or WTO of industrial subsidies across various sectors.

Finally, it should be noted that even comprehensive reforms of the SCM agreement and the EUâ&#x20AC;&#x2122;s CVM regulation would mainly tackle the trade side of the issue. The problem of state induced market distortions in domestic competition, competition in third markets, investment (including M&A) or public procurement should also be addressed, if possible, in parallel by the EU. Finally, the EU will have to reassess and reform its state aid instruments to support industry in its transition towards

11

Due to the coronavirus crisis, the 12th Ministerial Conference, originally planned for June 2020 in Kazakhstan, has been cancelled.

12 BDI, alongside BusinessEurope proposes an SOE principle that entails that EU policies are designed in a way to mitigate the impact of government induced market distortions through SMEs. Business Europe, The EU and China. Addressing Systemic Challenge, Brussels 2020,< https://www.businesseurope.eu/sites/buseur/files/media/reports_and_studies/the_eu_and_china_full_february_2020_version_for_screen.pdf>.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

greenhouse gas neutrality and circularity. Therefore, new multilateral or plurilateral rules on subsidies should provide a specific framework for these purposes. International approaches for this necessity are favorable over fragmented national responses.

Definition and Types of Subsidies Background The SCM defines a subsidy as (i) a financial contribution (ii) by the government or any pu blic body within the territorial jurisdiction of a member state and (iii) which confers a benefit. Furthermore, only specific subsidies are subject to the disciplines of the SCM Agreement.

The SCM Agreement creates two basic categories of subsidies: those that are prohibited and those that are actionable (i.e., subject to challenge in the WTO or to countervailing measures). Article 3 of the SCM Agreement prohibits two categories of subsidies: subsidies contingent on export performance (“export subsidies”; a detailed list of export subsidies is annexed to the SCM Agreement) and subsidies contingent upon the use of domestic over imported goods (“local content subsidies”).

The scope of these prohibitions is relatively narrow.

The second category are actionable subsidies. Actionable subsidies are not prohibited but they are subject to challenge in the event that they cause adverse effects (e.g., export displacement) to the interests of another WTO member, either in the market of the subsidizing member or in a th irdcountry market. Accordingly, Article 6.3 of the SCM Agreement identifies instances of such serious prejudice to the interests of another member. This, however, does not include distortion to production capacity.

In addition to limitations regarding the definition of subsidies and the types of subsidies prohibited or actionable, recent findings of the Appellate Body of the WTO further limited the reach of the SCM Agreement. In its March 2011 ruling on Chinese SOEs and the use of anti-dumping and countervailing measures, the Appellate Body issued a very narrow definition of what constitutes a “public body.” The ruling states that a “public body” needs to “possess, exercise, or be vested with governmental authority.” This does not cover SOEs. Summing up, the reach of the SCM Agreement is thus limited. The Agreement scarcely covers state support granted through intermediate state-owned enterprises and semi-private operators. It also insufficiently deals with support granted to establish or invest in new operations in third countries, as well as state guarantees and systemic state support programs.

Recommendation of the Trilateral Partners The trilateral partners find that the definitions in Article 3.1 of the SCM are insufficient to tackle market and trade distorting subsidization existing in certain jurisdictions.

The trilateral proposal thus calls for the addition of four new types of so -called unconditionally prohibited subsidies: ▪

“unlimited guarantees,

▪

subsidies to an insolvent or ailing enterprise in the absence of a credible restructuring plan,

▪

subsidies to enterprises unable to obtain long-term financing or investment from independent commercial sources operating in sectors or industries in overcapacity,

▪

certain direct forgiveness of debt.”

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

In addition, the proposal addresses the adverseness of the following types of subsidies: ▪

“Excessively large subsidies,

▪

subsidies that prop up uncompetitive firms and prevent their exit from the market” (so -called zombie enterprises),

▪

subsidies creating massive manufacturing capacity, without private commercial participation,

▪

subsidies that lower input prices domestically in comparison to prices of the same goods when destined for export.”

The trilateral parties assert that these subsidies should be withdrawn unless members can prove that the measures have been transparently notified and that they result in “no serious negative trade or capacity effects.”

The trilateral partners further criticize that regarding serious prejudice, the listed instances do not refer to situations where the subsidy in question distorts capacity. The trilateral partners recommend that Article 6.3 be amended to include this additional type of serious prejudice.

In addition, the trilateral partners criticize the findings of the WTO’s Appellate Body that subsidizing entities do not successfully meet the definition of a public body and as such, that government support did not qualify as WTO-prohibited subsidies.

BDI Position ▪

The definitions tabled by the Trilateral Initiative constitute a much more stringent discipline than those of the SCM Agreement. German industry supports the introduction of new types of subsidies as put forward by the proposal.

▪

German industry also agrees with the need to extend the definition of serious prejudice.

▪

German industry holds the view that the definition of a public body needs to be modified.

Benchmarking Background The rules of the SCM Agreement are insufficient regarding the determination of a proper benchmark for subsidies consisting of the provision of goods or services or purchase of goods by a government in situations where the domestic market of the subsidizing member is distorted. They do not define the circumstances in which domestic prices can be rejected for the determination of the subsidy.

Recommendation of the Trilateral Partners The trilateral states therefore propose to amend the SCM Agreement to describe the circumstances in which domestic prices can be rejected and how a proper benchmark can be established, including the use of prices outside of the market of the subsidizing member.

BDI Position ▪ ▪

German industry supports the proposal to describe circumstances in which domestic prices can be rejected.

Benchmarks need to be transparent, accountable, and create legal certainty.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

Notification of Subsidies Background Although the SCM Agreement requires members to notify their subsidies, the level of compliance is poor. Many WTO members have provided incomplete notifications. The rules do not provide for incentives for WTO members to notify their subsidies in a sufficie nt and timely manner. This has been problematic in the past given that the number of WTO members making no notification of subsidies has steadily increased since 1995. 13 Moreover, several members have taken serious delay in providing notifications of up to six years in some cases. This distorts WTO statistics and analysis of the severity of government subsidies and, in the worst case, could lead to seriously harmful subsidies not being reported or, as such, withdrawn.

Recommendation of the Trilateral Partners The Trilateral Partners therefore recommend the addition to Article 25 of a stronger incentive to properly notify subsidies and of the proposition, that any non-notified subsidies that were counternotified by other members be considered prohibited unless the subsidizing member timely provides required information in writing.

BDI Position â&#x2013;Ş

â&#x2013;Ş

German industry supports more stringent disciplines for notifying subsidies at the WTO and a more effective enforcement mechanism. An improved process for notifications would be a stepping stone to creating better rules defining the use of legitimate and illegitimate subsidies.

German industry supports the revised proposal of the EU and other WTO members from 201914 to enhance transparency and strengthen notification requirements under WTO agreements.

- The proposal suggests that members failing to notify its subsidies should be required to submit by six months after the relevant deadline and every six months thereafter an explanation for the delay. German industry would, however, recommend shorter intervals (e.g. maximum of 3 months) and that the late submitting only be allowed twice before action is taken, to disincentivize repeated non-compliance. The member should also inform the committee about the anticipated timeframe for its notification, and any elements of a partial notification.

- German industry also encourages the introduction of an enforcement mechanism. If a member fails to fulfill the above obligation, the respective country should be publicly designated as a member with notification delays.

Burden of Proof Background Under the SCM Agreement, WTO members may not impose a countervailing measure unless it determines that there are subsidized imports, injury to a domestic industry, and a causal link

13

World Trade Organization, Subsidies Committee members again cite concerns on lack of transparency, <https://www.wto.org/english/news_e/news19_e/scm_30apr19_e.htm> (accessed on 5 March 2020).

14 Procedures to Enhance Transparency and Strengthen Notification Requirements Under WTO Agreement, Communication from Argentina, Australia, Canada, Costa Rica, the European Union, Japan, New Zealand, Taiwan, Penghu, Kinmen and Matsu, and the United States, 01.04.2019, <https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwi46eyv97DpAhVIsaQKHc4TA6AQFjAAegQIBBAB&url=https%3A%2F%2Fdocs.wto.org%2Fdol2fe%2FPages%2FSS%2Fdirectdoc.aspx%3Ffilename%3Dq%3A%2FJobs%2FGC%2F204R1.pdf&usg=AOvVaw2gDYWktc_fkXTtWXyJp6gA >.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

between the subsidized imports and the injury. Opaque government funding in some countries makes this very difficult. In addition, the notification disciplines under the WTO for subsidies are weak.

Recommendation of the Trilateral Partners The three parties propose to reverse the burden of proof at WTO level by requiring governments to demonstrate that their subsidies do not distort trade or create overcapacity.

BDI Position ▪ ▪ ▪

The German industry supports the reverse burden of proof in the process to implement countervailing measures.

Market distortion and overcapacity through government subsidization should be avoided in all cases.

An exchange of information on Chinese subsidies should be established at EU level. The Commission should undertake more intensive investigations into Chinese subsidies to create the basis for greater application of the EU’s anti-subsidy instruments.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

Looking Forward: Subsidies in Services Trade Background While subsidies and trade in services had not been addressed by the Trilateral Initiative, it merits more attentions with the increasing importance of trade in services for the global economy.

Global trade in services has been growing faster than merchandise trade for the past two decades (5.4% annually, 2005-2017) and was valued at 13.3 trillion dollar in 2017,15 or 13.3 percent of global GDP in 2018.16 In this time, the “recognition of value created, directly or indirectly, by services in the manufacturing, distribution and marketing process of goods” or servicification have increased substantially, most notably due to fewer barriers to services trade and the globalization of global value chains, which show a strong reliance on services that “link and coordinate the activities located in different economies.17 Manufacturing companies have also embraced servicification because of the boosts to their productivity, differentiation of their products in the face of increased competition from abroad and in order to avoid barriers to foreign market entry.18 Moreover, the aforementioned growth of trade in services has increased the share of foreign services in industrial exports.19 The manufacturing sector has become increasingly reliant on services as inputs or outputs, notably in Sweden, Germany and France. One study showed that the share of services in total manufacturing inputs doubled between 1975 and 2005, and when value-added is accounted for, services comprised around half of gross exports of both the EU and the US in 2014.20 According to the OECD, “services are redefining the way companies produce value.” They comprise approximately one-third of manufacturing sales and exports, which increases to 50 percent when accounting for in-house services. Services are increasingly sold “bundled with goods” and contribute to value creation in both the so-called “value network” which connects customers and the “value shop” which solves their problems (for example, R&D or consulting services).21 Unfortunately, although the value created in the manufacturing process of services have been increasingly recognized in the past years, the SCM Agreement only applies to merchandise trade and there are very few WTO regulations on services trade other than the GATS, which does not include disciplines for subsidization within this trade arena. According to Sauve/Soprana (2015), SCM Articles II, XVII and III could be applied to services subsidies. Moreover, they note that any efforts to expand the SCM Agreement to cover subsidization of services could draw on the definition of state aid by the European Union, “any support that is conferred on a selective basis and leads to an advantage.”

According to data from Global Trade Alert, subsidies (including export subsidies) constituted 91.5 percent of all policy measures with a deemed “harmful” effect on commercial services flows. As long as this data has been collected, there has been a steadily increasing curve of harmful measures, hitting its peak in 2018 with 366 interventions. The most policy measures affected the financial services 22,

15

World Trade Organization, Services Trade in Numbers (2019), <https://www.wto.org/english/res_e/booksp_e/03_wtr19_2_e.pdf>.

16 World Bank, Trade in Services (% of GDP), <https://data.worldbank.org/indicator/bg.gsr.nfsv.gd.zs> (accessed on 22 April 2020).

17 UNESCAP (2015), Services in Industrial Value Chains, <https://www.unescap.org/sites/default/files/Chapter%208%20%20GVCs%20and%20Services.pdf> (accessed on 7 May 2020).

18 Magnus Lodefalk (VoxEU, 2015), Tear down the trade-policy silos! Or how the servicification of manufacturing makes divides in trade policymaking irrelevant, < https://voxeu.org/article/servicification-manufacturing-and-trade-policy> (accessed on 7 May 2020).

19 UNESCAP (2015), Services in Industrial Value Chains, <https://www.unescap.org/sites/default/files/Chapter%208%20%20GVCs%20and%20Services.pdf> (accessed on 7 May 2020).

20 Magnus Lodefalk (VoxEU, 2015), Tear down the trade-policy silos! Or how the servicification of manufacturing makes divides in trade policymaking irrelevant, < https://voxeu.org/article/servicification-manufacturing-and-trade-policy> (accessed on 7 May 2020).

21 Sebastien Miroudot (OECD, 2017), The Servicification of Global Value Chains: Evidence and Policy Implications, <https://unctad.org/meetings/en/Presentation/c1mem5_2017_124_S3_Miroudot_2.pdf> (accessed on 7 May 2020).

22 Excepting investment banking, insurance services and pension services.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

local transport and sightseeing, Internet communications, audiovisual, and general construction sectors. Germany was the second-most affected country by these measures, followed by Italy, France, the United Kingdom, the Netherlands, Ireland and the United States.

xInterventions of Policy Instruments with a Harmful Effect on Commercial Services Flows (November 2008 - present)

Instrument unclear; 32 Trade-related investment measures ; 100

Non-automatic licensing, quotas etc.; 7 Government Price-control procurement measures, including restrictions; 28 additional taxes and charges ; 2 Finance measures; 1

Exportrelated measures (incl. export subsidies ); 619

Subsidies (excl. export subsidies); 1191

Source: Global Trade Alert, Total Number of Impemented Interventions since November 2008, <https://www.globaltradealert.org/global_dynamics/area_service> (accessed 7 May 2020).

Interventions of Policy Instruments on Commercial Services Flows Diagrammtitel (November 2008 - present) 400 350 300 250 200 150 All

100

Harmful

Liberalizing

50 0 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Global Trade Alert, Total Number of Impemented Interventions since November 2008, <https://www.globaltradealert.org/global_dynamics/area_service> (accessed 7 May 2020).

Governmental assistance in services can be made in several different ways, includingâ&#x20AC;Ś â&#x2013;Ş

Direct funds (including grants, loans and infusions of equity),

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

▪

Foregone government revenue,

▪

Supply of goods and services, excluding general infrastructure,

▪

Goods purchased,

▪

Income and price support.23

In early discussions under the GATS Article XV mandate, WTO members divided services subsidies into four categories: 1. Production subsidies, which seek to stimulate production, 2. Investment subsidies, which seek to draw more FDI in the country granting the subsidy, 3. Export subsidies, which depend on export performance, and 4. Consumption subsidies, which depend on purchases of these services from national sources.24 There have been numerous challenges in negotiating services trade under GATS Article XV (Subsidies) of the SCM Agreement, although some countries, such as Switzerland and Taiwan, have expressed interest in applying concepts from Annex I of the Agreement to trade in services. Defining subsidies in services is a very complex issue, not least due to the different modes of services delivery,25 26 and members have thus far failed to agree on even a framework for this definition. Services are intangible and more difficult to measure than goods.

Data within the WTO is scarce, given that hardly any members have reported the relevant data under the mandate for Article XV. Moreover, according to Sauve/Soprana (2015), the very creation of these disciplines have been fought by many OECD countries, seen as “an undue constraint on policymaking.”

Exceptions need to be made for government spending on what are considered public services. 27 BDI Position ▪

German industry recognizes the growing importance and value of trade in services and supports all efforts within the WTO to further the negotiation process on services.

•

Disciplines on subsidies in services industries should be included on the reform agenda for the WTO Agreement on Subsidies and Countervailing Measures.

•

At the very least, German industry recommends that the WTO pursue plurilateral negotiations that seek to define subsidies in services.

23

Pierre Sauve and Marta Soprana (E15 Initiative, 2015), Learning by Not Doing: Subsidy Disciplines in Services Trade, <https://e15initiative.org/wp-content/uploads/2015/09/E15-Subsidies-Sauve-and-Soprana-Final.pdf> (accessed on 22 April 2020).

24 Pierre Sauve and Marta Soprana (E15 Initiative, 2015), Learning by Not Doing: Subsidy Disciplines in Services Trade, <https://e15initiative.org/wp-content/uploads/2015/09/E15-Subsidies-Sauve-and-Soprana-Final.pdf> (accessed on 22 April 2020).

25 Massimo Geloso Grosso (OECD, 2008), Analysis of Subsidies for Services: The Case of Export Subsidies, <https://www.oecd-ilibrary.org/docserver/244346861402.pdf?expires=1587541145&id=id&accname=guest&checksum=DC8ACFA630628D01A6017BEAABB24ADF> 26 According to the GATS, there are 4 modes of service supply. Mode 1 indicates services supplied to another country, Mode 2 indicates companies or individual consumers utilizing a service in another country, Mode 3 indicates subsidiaries or branches of a foreign company in another country, and Mode 4 the supplying of services by individuals in another country than their own.

27 Massimo Geloso Grosso (OECD, 2008), Analysis of Subsidies for Services: The Case of Export Subsidies, <https://www.oecd-ilibrary.org/docserver/244346861402.pdf?expires=1587541145&id=id&accname=guest&checksum=DC8ACFA630628D01A6060BEAABB24ADF>.

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Reform of the WTO Agreement on Subsidies and Countervailing Measures

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite StraĂ&#x;e 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Authors Dr. Stormy-Annika Mildner T: +49 30 2028-1562 s.mildner@bdi.eu Katherine Tepper T: +49 30 2028-1499 k.tepper@bdi.eu Eckart von Unger T: +32 279 21020 e.vonunger@bdi.eu

Document number: D 1191

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