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Transparency is the Most Important Governance Issue in the WTO Subsidy Control

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Transparency, one of the basic pillars and fundamental norms of a well-functioning trading system, is increasingly seen as an inevitable tool in the governance of international trade. Without transparency, trade agreements are just words on paper. Transparency allows economic actors and trading partners to see how rules are implanted, reformed and implemented. For subsidy control, one of the most debated and ambivalent areas of international trade, it is more necessary than ever. The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (ASCM) establishes disciplines on its Members’ use of subsidies and provides extensive means for reporting and monitoring. Transparency in subsidization has increased considerably in the last two decades. But the transparency mechanism has been criticized for deficient attention, underperformance and impetus to implementation. Members comply with transparency obligations only half-heartedly. Lack of incentive for notification and sanction for non-compliance, resource constraint, ambiguous notification-template and inherent difficulties of the subsidy regime have been great obstacles for transparency to work. Experiences from the WTO Agreement on Agriculture and the Technical Barriers to Trade show that well-defined provisions, collaborative approach and capacity building for increased domestic reporting are necessary for the system to run smoothly. Civil society and NGO involvement may also contribute positively. For transparency to control subsidy, negotiators must think carefully about the government behaviour they wish to modify using the mechanism. The future of the WTO as a legitimate and effective international organization will depend, in short, on finding a mode of transparency accessible to all its Members.
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[Type text]
Transparency is the Most Important Governance Issue in the
WTO Subsidy Control
Md. Rezaul Karim
2
Table of Contents
1. Introduction .............................................................................................................................................. 5
2. Governance and Governance Issues ......................................................................................................... 6
3. Transparency ............................................................................................................................................. 7
3.1 Meaning of Transparency ................................................................................................................... 7
3.2 Criteria for Transparency .................................................................................................................... 8
3.3 Three Generations of Transparency ................................................................................................... 8
3.4 Purpose of WTO Transparency ........................................................................................................... 9
4. Transparency in WTO Legal Framework ................................................................................................... 9
5. The Goals of Subsidy Control .................................................................................................................. 10
6. Transparency Provisions for Subsidy Control in WTO ............................................................................ 11
6.1 First Generation of Transparency ..................................................................................................... 11
6.1.1 Notifications ............................................................................................................................... 11
6.1.1.1 Nature of Obligations .......................................................................................................... 11
6.1.1.2 Cross and Nil-notification .................................................................................................... 12
6.1.1.3 Encouragement for Notification ......................................................................................... 12
6.1.1.4 Categories of Subsidies to be Notified ................................................................................ 12
6.1.2 Publication of Laws and Obligations .......................................................................................... 13
6.2 Second Generation Transparency ..................................................................................................... 13
6.2.1 Committee on Subsidies and Countervailing Measures (CSCM) ............................................... 13
6.2.2 Trade Policy Review Mechanism (TPRM) ................................................................................... 14
6.2.3 Dispute Settlement (DS) ............................................................................................................. 15
6.3 Third Generation Transparency ........................................................................................................ 15
6.3.1 Internal Transparency ................................................................................................................ 15
6.3.2 External Transparency ............................................................................................................... 16
6.3.3 NGO Involvement ....................................................................................................................... 16
7. Importance of Transparency Provisions in Subsidy Control ................................................................... 17
7.1 Sunlight Best Disinfectant ................................................................................................................. 17
7.2 Most Effective Non-coercive Tool ..................................................................................................... 17
7.3 Increase Sharing of Best Practices and Negotiation Outcome ......................................................... 18
3
7.4 Monitor Compliance ......................................................................................................................... 18
7.5 Reduce Uncertainty and Pressure on Dispute Settlement ............................................................... 18
7.6 Ensure legitimacy of WTO ................................................................................................................. 19
7.7 More Important for Developing Countries ....................................................................................... 19
7.8 Promote Democratic Governance and Efficient Markets ................................................................. 19
7.9 Enhance Reform ................................................................................................................................ 20
7.10 Members Value Transparency ........................................................................................................ 20
8. Are Transparency Provisions Respected ................................................................................................. 20
8.1 Notification Phase ............................................................................................................................. 21
8.1.1 Underreporting .......................................................................................................................... 21
8.1.2 Inconsistency .............................................................................................................................. 21
8.2 Monitoring and Surveillance Phase .................................................................................................. 22
8.2.1 CSCM .......................................................................................................................................... 22
8.2.2 TPRM .......................................................................................................................................... 22
8.2.3 Dispute Settlement .................................................................................................................... 22
9. Barriers to Transparency/Notification .................................................................................................... 23
9.1 Resource Constraint and Lack of Coordination ................................................................................ 23
9.2 Lack of Bureaucratic Capacity ........................................................................................................... 23
9.3 Lack of Sanction for Non-compliance ............................................................................................... 24
9.4 Lack of Domestic Transparency Mechanism ..................................................................................... 24
9.5 Ambiguous Questionnaire and Lack of Understanding .................................................................... 25
9.6 Apprehension of Self-incrimination .................................................................................................. 25
9.7 Glasshouse Problem .......................................................................................................................... 25
9.8 Lack of Incentive ............................................................................................................................... 26
9.9 Underperforming Committee and TPRB ........................................................................................... 26
9.10 Overall Lack of Transparency in WTO ............................................................................................. 26
10. Looking Forward to Functional Transparency ...................................................................................... 27
10.1 Collaborative Approach .................................................................................................................. 27
10.2 Enhanced Role of Secretariat and Assistance to Members ............................................................ 27
10.3 Well-defined Provisions .................................................................................................................. 28
10.4 Third-party Notification .................................................................................................................. 28
10.5 Functional and Participatory CSCM and TPRM ............................................................................... 29
4
10.6 Provision for Motivations and Penalties ......................................................................................... 29
10.7 Improved Notification-template ..................................................................................................... 29
10.8 Increased Domestic Action and Better Co-ordination .................................................................... 30
10.9 Different Subsidy-reporting Targets ............................................................................................... 30
10.10 Naming and Shaming .................................................................................................................... 31
10.11 Doha Round and Way Forward ..................................................................................................... 31
13. Conclusion ............................................................................................................................................. 31
Bibliography ................................................................................................................................................ 33
5
1. Introduction
Transparency, one of the basic pillars and fundamental norms of a well-functioning trading
system, is increasingly seen as an inevitable tool in the governance of international trade.1
Without transparency, trade agreements are just words on paper. Transparency allows economic
actors and trading partners to see how rules are implanted, reformed and implemented.2 For
subsidy control, one of the most debated and ambivalent areas of international trade, it is more
necessary than ever. The World Trade Organization (WTO) Agreement on Subsidies and
Countervailing Measures (ASCM) establishes disciplines on its Members‟ use of subsidies and
provides extensive means for reporting and monitoring. Transparency in subsidization has
increased considerably in the last two decades.3 But the transparency mechanism has been
criticized for lack of attention, underperformance and impetus to implementation. When more
and more transparency techniques are necessary, it is alleged that the existing provisions are not
fairly utilized. This essay will look deep into the different dimensions of WTO subsidy
transparency mechanism, focus on its importance, success and failures as a governance tool and
try to find out some probable solutions for a better and functional transparency regime.
1 Terry Collins-Williams and Robert Wolfe, 'Transparency as a Tool for Subsidy Reform' (Global Subsidy Initiative
14 October 2009)<www.iisd.org/gsi/news/transparency-tool-subsidy-reform>accessed 25 April 2014
2 Robert Wolfe, 'Letting the sun shine in at the WTO: How transparency brings the trading system to life' in
Manuela Moschella and Catherine Weaver (eds) Handbook of Global Economic Governance (Routledge 2013)
3 GSI, Blowing the whistle on poor subsidy notifications at the WTO (IISD 3 July 2008)
<www.iisd.org/gsi/news/blowing-whistle-poor-subsidy-notifications-wto>accessed 25 April 2014
6
2. Governance and Governance Issues
Governance is a highly contextual concept. It determines who has power, who makes decisions,
how other players make their voice heard and how account is rendered.4 Although the idea,
concept and objective of good governance have regularly been used for a good number of years,
its content and contours remain uncertain.5 According to World Bank, it is epitomized by
predictable, open and enlightened policy making‟ where all including the bureaucracy, executive
and civil society are „behaving under the rule of law.‟6 United Nations Economic and Social
Commission for Asia and the Pacific (UNESCAP) identifies the following eight key components
of the broad concept of good governance:
a) Accountability
b) Transparency
c) Responsiveness
d) Equitability
e) Efficiency
f) Rule of law
g) Participatory, and
h) Consensus orientation7
Transparency is one of the most important components of good governance as it significantly
influences the functionality and effectiveness of other components. But good governance as a
concept is scarcely present in the WTO legal framework. A less homogeneous organization of
4 Institute of Governance, „Defining Governance‟<http://iog.ca/defining-governance/>accessed 23 April 2014
5 Friedl Weiss and Silke Steiner, „Transparency as an Element of Good: Governance in the Practice of the EU and
the WTO: Overview and Comparison‟(2006) 30 Fordham International Law Journal 1545
6 World Bank, Governance: The World Bank's Experience (World Bank 1994) vii
7 Weiss and Steiner(n5)
7
159 Members, it has not been very active in adopting measures aiming at the implementation of
the concept.8
3. Transparency
3.1 Meaning of Transparency
It is another distinctly contextual term. Transparency International defines transparency as
openness „in the clear disclosure of information, rules, plans, processes and actions.‟9 In the
context of public policy, transparency refers to the openness and accountability of governments,
particularly regarding expenditure and decision-making.10 For trade policy, the WTO Glossary
defines transparency as the degree to which trade policies and practices, and the processes by
which they are established, are open and predictable11 Transparency about subsidies refers to
information about total government program expenditure or forgone revenue and market
transfers. It means how a regulation or a policy is developed, enforced, implemented and
published.12 The ultimate objective is reducing information asymmetries among governments,
and between the State, economic actors, and citizens.13
8 ibid
9 Transparency Accountability Initiative, 'Definitions'< http://www.transparency-
initiative.org/about/definitions>accessed 23 April 2014
10 Tara Laan, „Gaining Traction: The importance of transparency in accelerating the reform of fossil-fuel subsidies‟
(Global Subsidies Initiative 2010)< http://www.iisd.org/gsi/sites/default/files/transparency_ffs.pdf>accessed 25
April 2014
11 WTO, „Glossary of Terms: Press Brief: An informal press guide to “WTO
speak”‟<http://www.wto.org/english/thewto_e/minist_e/min96_e/glossary.htm>accessed 25 April 23, 2014
12 Collins-Williams and Wolfe, „Transparency as a trade policy tool: the WTO's cloudy windows‟ 9 World Trade
Review 551
13 Wolfe(n2)
8
3.2 Criteria for Transparency
Drawing on works by Bown and Hoekman14 and Weiss,15 Collins-Williams and Wolfe identified
five criteria under which transparency can be a useful policy tool in a given context:
a) a specific policy purpose;
b) clearly-defined scope of the information;
c) targets as to who should disclose what information;
d) evident benefit of information providers; and
e) delivery of information in a form useful to users.16
3.3 Three Generations of Transparency
Transparency has been categorized into three generations considering the evolution, volume and
quality of information made available.17
a) First generation or information transparency: The act of making accurate, useable and
substantial information available to stakeholders.
b) Second generation or participatory transparency: Information is structured as per needs
and inputs to further particular policy objectives.
c) Third generation or collaborative transparency: Combines the first and second
generations allowing stakeholders to reach their own conclusions.
14 Bown and Hoekman, „Developing countries and enforcement of trade agreements: why dispute settlement is not
enough.‟ Policy Research Working Paper No 4450 (World Bank 2007)
15 Weiss, „Public information‟ in LM Salamon, The Tools of Government: A Guide to the New Governance (OUP
2002)
16 Collins-Williams and Wolfe(n12)
17 Fung, Graham and Weil, Full Disclosure: The Perils and Promise of Transparency (CUP 2007); Balkin, „How
Mass Media Simulate Political Transparency‟ (1999) 3 Cultural Values 393
9
3.4 Purpose of WTO Transparency
The main theme of transparency is to ensure delivery of information to stakeholders and to
ensure organizational accountability.18 But for WTO, transparency to the public may be part of
the broader transparency norm, not certainly the main objective.19 The primary aim is to enhance
the effectiveness of the WTO agreements.20
4. Transparency in WTO Legal Framework
References to transparency are ubiquitous within the legal framework of the WTO. The idea of
transparency as a norm for the trading system is recognised by the 1947 General Agreement on
Tariffs and Trade (GATT) in several Articles including Article X (publication of laws and rules)
and Article XVI (subsidy notification) which remain in effect till today.
Transparency provisions has been adopted in the texts of many WTO covered agreements,
including the General Agreement on Trade and Services (GATS),21 Agreement on Technical
Barriers to Trade (TBT),22 Agreement on Sanitary and Phytosanitary (SPS) Measures,23 Import
Licensing Agreement,24 Agreement on Safeguards,25 Anti-dumping Agreement,26 Agreement on
Government Procurement,27 Agreement on Agriculture (AOA),28 Agreement on Trade-Related
18 Potts, Meer and Daitchman, The SSI Review 2010: Sustainability and Transparency (IISD 2010)125
19 Florini and Stiglitz, The Right to Know: Transparency for an Open World(CUP 2007)
20 Williams and Wolfe(n12)
21 Article III
22 Articles 2.9-2.12 (notification and publication), Article 10 (enquiry points)
23 Article 7 & Annex B (publication, enquiry points and notification)
24 Articles 1.4 and 3.3 (publication)
25 Article 3.1 (publication)
26 Article 12
27 Articles V.11 and VIII(a)
28 Article 18
10
Aspects of Intellectual Property Rights (TRIPS)29 and ASCM.30 Transparency provisions are
most of the time expressed as notification obligations.31 There are more than 200 notification
requirements embodied in the various WTO agreements.32
5. The Goals of Subsidy Control
The WTO struggles perennially with disciplines on subsidies. While subsidies have the potential
of creating unfair competitive advantages leading to trade distortions, they are also a useful
governmental instrument to accomplish economic, political and social policy objectives.
Unfortunately, WTO Members do not always agree on which is which.33 It took close to 50 years
for the Members to agree on a more comprehensive approach to subsidies by adopting ASCM.
The area is so controversial that the Members could not agree on the language of a preamble for
ASCM and did not even wish to expressly spell out, even in a general fashion, the goals of the
agreement. On its face, the ASCM is about discouraging subsidies that distort competition. With
the non-actionable subsidies lapsed in 2000, the core balance supporting the ambivalence
rationale and effects of subsidy is now tipped too far towards subsidy aversion.34
29 Article 30
30 Article 25(notification); 26(surveillance)
31 Sijie Chen, „China‟s Compliance with WTO Transparency Requirement: Institution-Related Impediments‟(2012)
4 Amsterdam Law Forum 25
32 BM Hoekman, „The WTO: Functions and Basic Principles in BM Hoekman, Aaditya Mattoo and Philip English,
Development, Trade, and the WTO: A Handbook (World Bank 2002)
33 Casier, Fraser, Halle and Wolfe, „Shining a Light on Fossil Fuel Subsidies At The WTO: How NGOs Can
Contribute To WTO Notification and Surveillance‟ (IISD 2013)
34 Luca Rubini, The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective (OUP 2009)
11
6. Transparency Provisions for Subsidy Control in WTO
6.1 First Generation of Transparency
6.1.1 Notifications
The central right to know device for subsidy is notification, the means of assembling detailed
high quality information on the subsidy and trade policies of WTO Members. WTO Glossary
defined notification as a transparency obligation requiring member governments to report trade
measures to the relevant WTO body if the measures might have an effect on other Members.‟35
6.1.1.1 Nature of Obligations
GATT Article XVI:1 generally requires all Members to notify on the extent, effect and
circumstances of the subsidization. Article 25.2 ASCM supplements this obligation by requiring
Members to notify any „specific‟ subsidy. Though new and full notifications are due every three
years with update notifications in intervening years, currently there is an understanding for
submission every two years.36 Such notifications must be sufficiently detailed to enable other
Members to evaluate the trade effects and to understand the operation of the notified subsidy
programs‟ and must contain form, amount, purpose, time-limit and effects of the subsidy.37
Article 25.11 requires notification for all countervailing actions.
35 WTO(n11)
36 Bossche, The Law and Policy of the World Trade Organization (CUP 2005)561
37 Article 25.3, ASCM
12
6.1.1.2 Cross and Nil-notification
Members are allowed to notify measures that they think a trading partner should have notified.
But these provisions are rarely used. There is also provision for nil-notification when Members
consider that they provide no specific subsidies.38
6.1.1.3 Encouragement for Notification
Article 25.7 ASCM incorporates an encouragement for notification stating that the notification of
a measure does not prejudge the legal status, effect or the nature of the measure itself.
6.1.1.4 Categories of Subsidies to be Notified
As per Article 25.2 ASCM Members shall notify any „specific‟ subsidy granted or maintained
within their territories. Prohibited (export and local content) subsidies are automatically
considered to be specific and must under all circumstances be notified.39 Notification obligation
extends to all specific subsidies related to goods provided by any level of government (eg,
national, regional, state or provincial, local).40 Subsidies to the services industries are not
covered by WTO notification requirements.41
38 Article 25.10 and 25.6, ASCM
39 Collins-Williams and Wolfe(n12)
40 WTO, Subsidies and Countervailing Measures: Overview
<http://www.wto.org/english/tratop_e/scm_e/subs_e.htm>accessed 26 April 2014
41 WTO, 'World Trade Report 2006: Exploring the Links between Subsidies, Trade and the WTO' (WTO 2006)
13
6.1.2 Publication of Laws and Obligations
It is a general WTO obligation. GATT Article X requires prompt publication of trade-related
laws, regulations, judicial decisions and administrative rulings while Article II provides for
publication of all trade-related international obligations of a member states. The inherent
implication is to allow Members or anyone, likely to be affected by governmental measures, a
reasonable opportunity to protect and adjust their activities.42
Table 1: First generation transparency43
Principle
Components
ASCM and General
WTO Provisions
Function
Information
Transparency
Notifications
Article 25 ASCM, GATT
Article XVI:1
Allow Members
to know the
content and
contours of
subsidy.
Publication of laws and
regulations
GATT Article X; Article
32.5 and 32.6 ASCM
Publication of international
obligations
GATT Article II
6.2 Second Generation Transparency
It refers to monitoring and surveillance mechanism.
6.2.1 Committee on Subsidies and Countervailing Measures (CSCM)
It is the primary mechanism for monitoring and surveillance of subsidy measures and ensuring
compliance. As per ASCM Article 26, CSCM examines all new and full notifications at special
sessions held every third. It designed a questionnaire for subsidy notifications and established
42 Sijie Chen(n31)
43 Adapted from Fung et al(n17) and Collins-Williams and Wolfe(n12)
14
procedures for annual Committee review of notifications.44 The ASCM provides for questioning,
peer review and other discussion in the Committee for implementation of the subsidy
obligations.45
6.2.2 Trade Policy Review Mechanism (TPRM)
TPRM is the main transparency mechanism of WTO, the looking glass through which Members
examine each other‟s trade policies and practices.46 Trade Policy Review Body (TPRB), which is
actually the WTO General Council, comprises WTO‟s full membership. All WTO Members are
subject to review. The Annex 3 of Marrakesh Agreement mandates that the four Members with
the largest shares of world trade (currently the EU, USA, Japan and China) be reviewed each two
years, the next sixteen be reviewed each four years, and others be reviewed each six years.47
Monitoring subsidies is only a part of TPRB‟s broader mandate and so the selection of the
content of reports is not driven by subsidy-related issues and the availability of subsidies data in
such reports is known to be highly variable.48
44 CSCM, „Questionnaire Format for Subsidy Notifications under Article 25 of the Agreement on Subsidies and
Countervailing Measures and under Article XVI of GATT 1994‟(WTO 2003)
45 Article 25.8 & 26.1, ASCM
46 Sam Laird, „The WTO‟s Trade Policy Review Mechanism-From through the Looking Glass‟ 22 The World
Economy 741
47 WTO(n40)
48 WTO(n41)110
15
6.2.3 Dispute Settlement (DS)
It is an important part of the process of transparency, shining a spotlight on particular subsidy
issues but adding to the collective wisdom of trading partners.49
Table 2: Second generation transparency50
Principle
Components
Functions
Participatory
Transparency
Peer review
Direct government actions
towards consistency with
WTO transparency norms
and obligations
General clarity
in domestic
trade policy
Third-party
adjudication
6.3 Third Generation Transparency
Third generation transparency policies are the most recent and least developed at WTO.
6.3.1 Internal Transparency
It covers the rules of procedure and practices in the CSCM and TPRB. The main challenge with
it is to create a more inclusive process in Geneva by ensuring that all Members have and can
make use of information, a major issue for developing countries.51
49 Tim Josling, Transparency, Monitoring and Surveillance: Policy Options for the Multilateral Trade System
(ICTSD 2013)
50 Adapted from Collins-Williams and Wolfe(n12) and Fung et al(n17)
51 Collins-Williams and Wolfe(n12)
16
6.3.2 External Transparency
It involves public dissemination of committee and TPRB reports and all necessary information to
enable better policymaking in capitals, engaging both economic actors and citizens.52
6.3.3 NGO Involvement
Unlike many other international organizations, NGO engagement in WTO is limited. With the
exception of annual public forum and amicus curiae briefs in the dispute settlement system,
NGOs have no ability to speak directly in any WTO meeting.53
Table 3: Third generation transparency54
Principle
Components
Example
Functions
Collaborative
Transparency
Internal
transparency
CSCM and TPRB
reports/minutes and rules
of procedure.
Combine first and second
generation results to increase
public understanding and
legitimacy.
External
transparency
Online availability of
documents
Role for Civil
Society and
NGOs
Annual Public Forum;
Amicus Curiae briefs
52 ibid
53 Wolfe(n2)
54 Adapted from Collins-Williams and Wolfe(n12) and Fung et al(n17)
17
7. Importance of Transparency Provisions in Subsidy Control
7.1 Sunlight Best Disinfectant
Former US Supreme Court Justice Louis Brandeis rightly said that 'sunlight is the best
disinfectant'.55 Research by the Global Subsidies Initiative (GSI) found that subsidy programs,
like many areas of government expenditure, are at risk of corruption and fraud that cost
taxpayers millions of dollars.56 Transparency exposes the close relationship between provider
and recipient, thus reducing opportunities for political favouritism, corruption or
misappropriation.57
7.2 Most Effective Non-coercive Tool
Transparency is the most important non-coercive instrument for improving the operation of the
trading system58 Transparency mechanism allows verification by other members that national
law, policy, and implementation achieve the intended objective. As a result of questions and
challenge in the committee, a government may provide more information, change policy, or
pressure other units of government to respond.59
55 Thurston and Mulvad, 'Transparency in farm subsidies: is sunlight the best disinfectant?' (GSI
2006)<www.iisd.org/gsi/news/transparency-farm-subsidies-sunlight-best-disinfectant-0>accessed 25 April 2014
56 GSI, „Policy Brief: Corruption and fraud in agricultural and energy subsidies: Identifying the key issues'(IISD
2010)
57 ibid
58 Wolfe(n2)
59 Casier, Fraser, Halle and Wolfe(n33)
18
7.3 Increase Sharing of Best Practices and Negotiation Outcome
Openness and transparency allow for sharing of best-practice policies, such as those that promote
full disclosure of all subsidies and the harmonization of subsidy-estimation methods and for
appreciating the opportunity to compare their performance and learning from similar countries.60
Transparency reduces asymmetries in knowledge among negotiating partners, thereby improving
outcomes as parties are less likely to be defensive if they are not „negotiating in the dark61
7.4 Monitor Compliance
Transparency is most essential for monitoring and shaping compliance with subsidy obligations,
such as commitments made under the ASCM and other agreements.62
7.5 Reduce Uncertainty and Pressure on Dispute Settlement
Domestic standards and regulations are hard to observe, and they are ambiguous in trade policy
terms. Under conditions of „imperfect information‟, everybody would be better off if partners
reduce their asymmetrical information about each other. 63 A more transparent trading
environment is associated with increased trade. Transparency is also called the antechamber to
dispute settlement. Many potential disputes are defused in informal meetings in Geneva.64
60 Laan(n10)
61 Thomas, „Investment Incentives: Growing use, uncertain benefits, uneven controls‟ (IISD 2007)
62 Laan(n10)
63 Wolfe, Did the protectionist dog bark?: Transparency, accountability, and the WTO during the global financial
crisis' ENTWIND Policy Report-01 (IISD 2011)
64 Wolfe(n2)
19
7.6 Ensure legitimacy of WTO
Transparency is also vital for ensuring „ownership‟ of the WTO as an institutionif citizens do
not know what the organization does, its legitimacy will be eroded. Transparency empowers civil
society to assess the implications of the overall trade policies that are pursued by their
governments.65
7.7 More Important for Developing Countries
Typically, the wealthiest countries have access to greater information about their own and others‟
policies (by having the resources to research the policies of their competitors), meaning that they
are better placed to promote their own aims and objective.66 Notifications provide the only
means for developing countries to examine other countries' subsidies programs in a transparent
way.
7.8 Promote Democratic Governance and Efficient Markets
Democratic governance and efficient markets are both enhanced when participants know the
degree of administrative openness and political interference.67 Many governments understand the
economic, social and environmental problems created by subsidies, but are under political
pressure to maintain them. Transparency can expose those winners and losers created by
subsidies and therefore help to broaden support for actions leading to market efficiency.68
65 Hoekman(n32)
66 Steenblik and Simón, 'A new template for reporting subsidies to the WTO' (GSI, IISD 2007)
67 Wolfe, Regulatory transparency, developing countries and the WTO'(2003) 2 WTR 157
68 Victor 'The politics of fossil-fuel subsidies' (IISD 2009)
20
7.9 Enhance Reform
Transparency, by creating an accurate picture of the level and nature of subsidization, can
influence reform in at least four ways:
a) by institutionalizing public discourse,
b) by compelling actors to tell the truth,
c) by cutting through the flood of information to focus attention on facts, and
d) by compelling actors to comply with their own standards and norms.69
7.10 Members Value Transparency
WTO Members seem to value transparency. The G20 leaders in April 2009 promised to notify
all measures including subsidies taken in response to the global economic crisis and to have their
actions monitored by international organizations including WTO. Many of the countries seem to
have met their commitment to notify trade measures and to allow the international organizations
to publish the results.70
8. Are Transparency Provisions Respected
There is little doubt that transparency has improved in the trade system as a whole in the past two
decades, along with more exhaustive monitoring and surveillance activities. 71 However,
69 Hale, „Transparency, accountability and global governance‟ (2008) 14 Global Governance 73
70 Wolfe(n63)
71 GSI(n3)
21
Members allegedly follow transparency obligations only half-heartedly undermining the
effectiveness of the ASCM.72
8.1 Notification Phase
8.1.1 Underreporting
In practice, a striking number of countries disregard reporting obligation. In most years,
information is available only for less than half of the WTO Membership. As per the World Trade
Report 2006, 29 Members had not submitted any notification pursuant to the ASCM, and many
other countries had not provided it systematically.73
8.1.2 Inconsistency
Submitted notifications are often notoriously incomplete and demonstrably understate the value
of subsidies that should be reported. Subsidies are also reported haphazardly as programmes may
suddenly disappear and re-appear in notifications. The 2006 World Trade Report cites numerous
inconsistencies between data on the value of subsidies gathered from other sources with the data
submitted by Members to the WTO.74
In sum, current notification requirements fail to provide a clear and accurate picture of the
subsidies regime.75
72 Wolfe(n2)
73 WTO(n41)
74 WTO(n41)
75 Collins-Williams and Wolfe(n12)
22
8.2 Monitoring and Surveillance Phase
Subsidy notifications are supposed to be used in the CSCM, TPRM, and DS.
8.2.1 CSCM
A closer look to the minutes from 2006 and 2007 to determine who is asking questions, who is
being questioned, and what answers are being provided shows that the presence of most of the
Members are barely felt and participation is dominated only by a few large Members, most
notably the USA and EU.76
8.2.2 TPRM
Analysis of the most recent TPRM reviews of the largest WTO Members suggests that
substantive reference to the Member‟s subsidy notifications occurred only in a small number of
cases, while most reviews make no reference at all to subsidy notification submissions.77
8.2.3 Dispute Settlement
For the part of DS, Collins-Williams and Wolfe examined 15 recent WTO cases involving
subsidies and countervailing duties only to discover that there is not a single reference to a
76 Collins-Williams and Wolfe(n12)
77 ibid
23
Member‟s subsidy notification.78 Even when transparency is an issue in a dispute, it has been
habitually provided a subsidiary treatment.79
9. Barriers to Transparency/Notification
9.1 Resource Constraint and Lack of Coordination
The resource-intensive and time-consuming nature of calculating and gathering subsidies data is
problematic for most countries, especially so for developing countries that have low budget
transparency or accounting standards.80 Members find it difficult to notify qualitative data on
subsidies offered by myriad of domestic agencies and ministries or by sub-national government
entities. Trade ministry that must submit the notification cannot compel the domestic ministries
responsible to provide the information and may have to work without any central coordination or
oversight.81
9.2 Lack of Bureaucratic Capacity
While the notification obligations apply equally to all Members, the reality is that states are not
all the same.82 Members that do not know how to fill out a notification, or ask and answer
questions in the committees, are not full participants in the evolution of the system, and cannot
78 Collins-Williams and Wolfe(n12)
79 eg Indonesia-Autos, Panel Report, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Adopted on 2 July
1998; BrazilAircraft, Appellate Body Report, WT/DS46/AB/R, Adopted on 2 August 1999
80 Laan(n10)
81 Wolfe(n2)
82 Biersteker, Thomas and Weber, 'The Social Construction of State Sovereignty, 'in Biersteker, Thomas and Weber
(eds), State Sovereignty as Social Construct (CUP 1996)
24
reap full benefits of the mechanism. They also face an uphill task when they need to translate
WTO documents so that officials in capitals can understand them, and then translate back for
reporting.83
9.3 Lack of Sanction for Non-compliance
Notification is a legal obligation, but compliance is voluntary in practice, with no tangible or
coercive penalty for non-compliance.84
9.4 Lack of Domestic Transparency Mechanism
Unlike SPS and TBT measures, there is almost no corresponding domestic institution for keeping
track of subsidy. World Bank recently noted that „the dearth of statistical information on
subsidies is striking in view of their magnitude and economic and social importance‟85 Again,
transparency is straightforward for States where such provisions are a normal part of the
domestic regulatory process, but more difficult for countries that struggle to make information
available at home.86
83 Wolfe(n2)
84 ibid
85 World Bank, „Climate Change and the World Bank Group : Phase One-An Evaluation of World Bank Win-Win
Energy Policy Reforms‟(World Bank 2009)44
86 Wolfe, 'Regulatory Transparency, Developing Countries, and the WTO‟(2003) 2 WTR 157
25
9.5 Ambiguous Questionnaire and Lack of Understanding
The notification questionnaire is argued to be very complicated, ambiguous and burdensome,
warranting uncertainty as to what information should be reported and what left out.87 The
inherent complexity with the definition of subsidy and the concept of specificity add to the
disincentive for notification.88
9.6 Apprehension of Self-incrimination
With the discontinuation of „green light‟ non-actionable subsidies in 2000, all subsidies are now
either prohibited or actionable ie, in the constant danger of being challenged. Against this
background, positive incentives not to notify subsidies due to fear of self-incrimination are rather
strong.89 Unlike EU State aid law, there is no procedure for authorizing acceptable subsidies in
WTO.90
9.7 Glasshouse Problem
An important factor that limits reverse notification is what insiders call the „glass house‟
problem. Members may not want to notify each other‟s subsidies for fear of drawing attention to
their own transgressions. They may also not notify because a regional power is not notifying the
same thing.91
87 Thöne and Dobroschke, „WTO Subsidy Notifications: Assessing German subsidies under the GSI notification
template proposed for the WTO‟ (GSI, IISD 2008)
88 Collins-Williams and Wolfe(n1)
89 Collins-Williams and Wolfe(n12)
90 Thöne and Dobroschke(n87)
91 Wolfe(n2)
26
9.8 Lack of Incentive
Governments must feel that they can benefit from the improved information, thus „buy in‟ to the
transparency process. In fact, a Member has little to gain from making notifications, apart from
burnishing its reputation as a country that fulfils its WTO obligations.92 Governments that
receive political patronage as a result of subsidy policies have a disincentive to improve
transparency.93
9.9 Underperforming Committee and TPRB
The experts from capitals who attend SPS or TBT meetings are the people who provide
notifications, know the issues and are not caught up in other political issues within the WTO that
trouble Geneva delegates. In contrast, CSCM delegates, typically treasury ministry officials and
Geneva staffs, have a very different interest than the subsidy-providing ministries and agencies.94
Moreover, Committee meetings are anything but participatory while TPRB has never given
enough attention to subsidy notifications.95
9.10 Overall Lack of Transparency in WTO
The WTO has been frequently criticized for insufficient transparency and for a lack of
participatory opportunities for private individuals and civic society.96 In Practice, all official
WTO meetings, other than plenary sessions of WTO Ministerial Conferences, are closed to
92 Collins-Williams and Wolfe(n12)
93 Victor(n68)
94 Wolfe(n2)
95 Collins-Williams and Wolfe(n12)
96 eg, Philippe Legrain, Open World: The Truth About Globalisation (Abacus 2002); Lori Wallach & Patrick
Woodall, Whose Trade Organization? A Comprehensive Guide to the WTO (New Press 2004)
27
individuals and NGOs. Except the opportunity to submit unsolicited amicus curie briefs for
NGOs, all oral hearings of the WTO panels and Appellate Body are also closed to the public.97
10. Looking Forward to Functional Transparency
10.1 Collaborative Approach
For transparency to be useful, information users and providers must desire disclosure of the
information and see how such transparency can help meet their objectives.98 The TBT and SPS
Agreements provide examples of such collaborative approaches where information is shared and
Committee examination promotes understanding of questions before they transform into trade
disputes. 99 Some research showed that the more measures are notified and subsequently
discussed, the less likely that they lead to formal disputes.100
10.2 Enhanced Role of Secretariat and Assistance to Members
Tracking subsidies is technically demanding and resource-consuming; many Members need
expert assistance to meet their own reporting obligations and to digest subsidy notifications by
97 Steve Charnovitz, Transparency and Participation in the World Trade Organization(2004) 56 Rutgers Law Review
927
98 Laan(n10)
99 Collins-Williams and Wolfe(n12)
100 Froese, „Between surveillance and transparency: Trade policy review and North American dispute settlement at
the WTO‟(2012)<http://ssrn.com/abstract=2038036 or http://dx.doi.org/10.2139/ssrn.2038036>accessed 25 April
2014
28
others in the early stages of this process.101 There is scope for enhancing the WTO Secretariat‟s
role in this respect, especially with regard to highly detailed and complex notifications.102
10.3 Well-defined Provisions
The clearer and better defined the subject matter of the notification, the more likely WTO
Members have been to notify. The relative success of well-defined agricultural subsidy
notification may provide guidance.103 Given the complexity around the concept of the definition
of subsidy, specificity and effects, Rubini suggested that all subsidies should be notified to the
WTO allowing questions to be asked in the committee.104
10.4 Third-party Notification
The reports of TPRM draw on a wider range of sources, creating an opportunity for NGOs to
provide the missing data from publicly available sources.105 The G-20 countries supported third-
party notification proposals in the agriculture negotiations. As long as such data are subject to
verification by members, third-party notification should not be a problem.106 It can fill the
information gap created by the resource constraint of the Members and offer WTO more
legitimacy.
101 Laan(n10)
102 Collins-Williams and Wolfe(n1)
103 Wolfe, „Who is accountable at the World Trade Organization?'
(2011)<http://www.iisd.org/pdf/2011/wto_who_is_accountable.pdf>accessed 25 April 2014
104 Rubini, „Ain‟t wastin‟ time no more: Subsidies for renewable energy, the SCM Agreement, policy space, and law
Reform‟ (2012) 15 Journal of International Economic Law 525
105 Casier, Fraser, Halle and Wolfe(n33)
106 Collins-Williams and Wolfe(n12)
29
10.5 Functional and Participatory CSCM and TPRM
It is important to ensure that transparency procedures themselves are subject to review in
committees and negotiations. Imaginative use of existing transparency mechanisms, closer
coordination of notification and surveillance provisions with the Committee and TPRM
functions might help. It is urgent to focus on the capacity-building of the developing nations and
to make the proceedings more participatory and effective.107 Subsidies that cover a major part of
the DS deserve better treatment from TPRM.
10.6 Provision for Motivations and Penalties
The motivations, incentives and penalties for reporting depend on the purpose of an agreement
and how it is designed. For example, countries committed to a percentage reduction over time in
their Aggregate Measure of Support (AMS) for trade-distorting agricultural subsidies and
therefore had an incentive to notify all subsidies up-front to ensure they were included in their
AMS. Such innovative mechanism would need to be in place for ASCM subsidies.108
10.7 Improved Notification-template
Given the inadequacies and ambiguities of the notification questionnaire derived from the
ASCM, the poor quality of the data is not surprising.109 The GSI has proposed an alternative
template aiming to reduce the workload of notifications and the uncertainty as to what should be
107 Collins-Williams and Wolfe(n12)
108 Laan(n10)
109 Casier, Fraser, Halle and Wolfe(n33)
30
notified and what not.110 In a project on German subsidies, the template proved to be an
astounding success. As it is fully WTO-consistent and covers more information than the
minimum WTO requirements, the GSI encourages adoption of it for subsidy notification.111
10.8 Increased Domestic Action and Better Co-ordination
Proper subsidy notification and participation in the Committees requires improved national-level
reporting. Governments have an incentive to improve transparency unilaterally, regardless of
international action as many of the benefits of transparency arise at the national level. 112
Members must find ways to better coordinate among different ministries and sub-national
government agencies and consider how to aggregate information both for WTO purposes and for
domestic use.113
10.9 Different Subsidy-reporting Targets
Transparency is really costly and the benefits may not always be proportionate to the efforts
required. One possible option is to begin with different subsidy-reporting targets, expressed
according to a hierarchy of subsidy information, from simplest to more complex depending on
the country‟s available data and ability to report. Simpler notification is better than no
notification.114
110 Steenblik and Simón(n66)
111 Thöne and Dobroschke(n87)
112 Laan(n10)
113 Collins-Williams and Wolfe(n1)
114 Laan(n10)
31
10.10 Naming and Shaming
„Naming and shaming‟ is a popular strategy to enforce international human rights norms and
laws. It may work within WTO using simple metrics about how well countries comply with their
transparency obligations.115
10.11 Doha Round and Way Forward
Transparency is not on the current Doha Development Agenda as such, but consideration of the
notification requirements or other aspects of transparency is found throughout the
negotiations.116 Transparency is central to the Agreement on Trade Facilitation and considerably
present on many other Ministerial Decisions including those on agriculture and development.117
In future negotiations, Members may focus on clarity of subsidy notification regime and well-
defined monitoring and surveillance procedures.
13. Conclusion
Transparency is well-established as a policy tool for subsidy control and its value appears to be
increasingly appreciated. It ensures compliance with obligations, facilitates trade, increases
market efficiency and sharing of best practices, reduces pressure on dispute settlement and
uplifts legitimacy of WTO. The legal system of WTO is full of reference to transparency
provisions and the ASCM has provided extensive guidance on the subsidies transparency
115 Collins-Williams and Wolfe(n12)
116 Collins-Williams and Wolfe(n12)
117 WTO, „Ministerial Declaration and Decisions, Ninth Ministerial Conference‟ (Bali 3-6 December
2013)<http://wto.org/english/thewto_e/minist_e/mc9_e/bali_texts_combined_e.pdf>accessed 23 April 2014
32
mechanism. But the mechanism has not delivered as well as it might.118 Members comply with
transparency obligations only half-heartedly. Lack of incentive for notification and sanction for
non-compliance, resource constraint, ambiguous notification-template and inherent difficulties of
the subsidy regime have been great obstacles for transparency to work. The CSCM and TPRM
have also never functioned up to their full potential. But the WTO‟s windows on its Members
and on the trading system are not equally cloudy. The standards agreements of AOA and TBT
come closer to meeting the hopes for transparency as policy tools.119 They show that well-
defined provisions, collaborative approach and capacity building for increased domestic
reporting are necessary for the system to run smoothly. Civil society and NGO involvement may
also contribute positively. For transparency to control subsidy, negotiators must think carefully
about the government behaviour they wish to modify using the mechanism. The future of the
WTO as a legitimate and effective international organization will depend, in short, on finding a
mode of transparency accessible to all its Members.120
118 Wolfe(n2)
119 ibid
120 Wolfe(n67)
33
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