Levelling the playing field

trade policy brief

Levelling the Playing Field

February 2019

espite positive momentum over the years, market-distorting measures are still prevalent and D are contributing to rising trade tensions.

ECD analysis helps improve the transparency and measurement of government interventions O that tilt the playing field – from market distorting government support in agriculture, fisheries and industrial sectors, to regulations that restrict services trade. etter data and analysis can help governments identify what needs to be done to ensure a B global level playing field, including to fill gaps in the global trade.

What’s the issue?

Making trade work for all implies that countries maintain policies at home that allow trade to work better for more people. But it also means addressing concerns around the world that competition in the global economy is not ‘fair’, that it is distorted by market barriers and government actions that favour companies and products that are not necessarily the best. A level playing field in global trade means that all countries and firms compete on an equal footing to offer consumers everywhere the widest possible choice and the best value for money.

The rules-based multilateral trading system, embodied in the World Trade Organization (WTO), has underpinned the growth in global trade, allowing more economies and people to benefit from equal access to global markets.

Importantly, WTO rules helped to prevent countries from slipping into a 1930s-style trade war that would have greatly exacerbated the 2008-9 global economic crisis. Yet gaps in the rulebook and unfinished business continue to undermine progress towards a more free, fair, and open trading system.

Where fairness is questioned, the sustainability of open global trade and investment is at risk. Whether it is rules that ensure that private and state-owned firms compete on the same terms, or that countries are not able to subsidise their own firms and farms at the expense of others, governments have an important role to play in negotiating disciplines that level the playing field in global trade and investment. Much more also needs to be done

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to ensure that everyone, from companies to countries, plays by the agreed rules.

How is the OECD supporting a more level playing field?

The OECD work in this area aims to support a more free fair and open international trading system by helping governments to understand the extent and implications of government support. We have a long history and experience in measuring government support measures and related trade distortions across a large range of sectors and countries, including in areas such as: •

Support for agriculture: The OECD has monitored agriculture support for over 30 years. Our most recent findings show that the 51 countries included in the exercise (all OECD and EU countries, plus 10 key emerging economies) provided on average almost USD 620 billion annually to support agricultural producers during the 2015-17 period. Of this, nearly two-thirds is still provided via measures that strongly distort farm business decisions, while only a small share (14%) funds general services like research and development or infrastructure.

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Support for fisheries: In the 33 countries monitored by the OECD, support to fisheries totalled almost USD 13 billion in 2015, or 16% of total landings. Since 2009, proportional support has been decreasing in most countries.

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Levelling the playing field •

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Fossil fuel subsidies: Across the 76 countries monitored by the OECD, total support for fossil fuels (excluding support for electricity) amounted to USD 373 billion in 2015, a decrease from USD 551 billion in 2014, driven in large part by a decline in oil prices. Not only do fossil fuel subsidies undermine global efforts to mitigate climate change, they also aggravate local pollution problems and distort the costs and prices that inform the decisions of many producers, investors, and consumers.

Export restrictions on key raw materials: Some mineral extracting countries try to support their downstream industries by restricting the exports of their natural resources – usually to the detriment of their overall economy and trade ties. The OECD monitors such export restricting policies and studies their effect on markets.

Services trade: This OECD evaluates regulations that affects trade in services in 46 countries across 22 sectors, covering 80% of global services trade. The detailed and quantified analysis in the Services Trade Restrictiveness Index (STRI) helps governments evaluate their own policies, and researchers to study the impact of restrictions.

Industrial goods: More recently, the OECD has started taking a value chain approach to estimate market distortions to industrial goods, starting with the aluminium industry. In a recent study, direct and indirect support to major firms in the aluminium industry was identified along the different stages of the production process, revealing that support to upstream segments had the effect of subsidising, and distorting trade in, downstream sectors. Support was mainly provided in the form of energy subsidies and below-market-cost financing, with state owned or influenced companies both important providers and recipients of support. The estimates show total global support of between USD 20 and 70 billion in the period from 2013 to 2017.

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Further reading • OECD (2017), Services Trade Policies and the Global Economy, OECD Publishing, Paris, https://doi. org/10.1787/9789264275232-en.

• OECD (2018), Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris, https:// doi.org/10.1787/agr_pol-2018-en.

• OECD (2018), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, OECD Publishing, Paris, https://doi. org/10.1787/9789264286061-en.

• OECD (2017), “Support to fisheries: Levels and impacts”, OECD Food, Agriculture and Fisheries Papers, No. 103, OECD Publishing, Paris, https:// doi.org/10.1787/00287855-en.

• OECD (2019), “Measuring distortions in international markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris, https://doi.org/10.1787/ c82911ab-en.

• Korinek, J. and J. Kim (2010), “Export Restrictions on Strategic Raw Materials and Their Impact on Trade”, OECD Trade Policy Papers, No. 95, OECD Publishing, Paris, https://doi. org/10.1787/5kmh8pk441g8-en.

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