Trade monitoring
The incidence of subsidies
This Section provides an overview of the use of subsidies both at the global level and at different levels of geographical and sectoral disaggregation. Given the quantity and quality of the available data it is not possible to provide a comprehensive and systematic picture of the incidence of subsidies.
Selected trade developments and issues
The Agreement on Textiles and Clothing (ATC) came to an end on 1 January 2005. Much interest not to mention concern was expressed about the likely impact on production and trade of the removal of quota restrictions. It was apparent to most observers that there would be winners and losers from the additional liberalization. It is too early to say how the market will look beyond the relatively short period upon which we can base our observations but this note looks at what we know so far about the pattern of trade that has emerged since the quantitative restrictions were (largely) removed. A caveat is in order here: there can be little doubt that the termination of the AT C affected the patterns of trade observed in 2005 but we have not developed a rigorous analytical approach to the question of what other factors might also influence the pattern of trade flows.
Foreword
The World Trade Report 2006 is the fourth in a series launched in 2002. As in previous years the present Report has taken up a current issue in trade policy. This year we have looked at subsidies. The contribution we hope to make with these Reports is to aid understanding of complex trade policy issues facing governments. This is not intended primarily as a prescriptive Report but rather as an invitation to deeper reflection and it is aimed not just at policy-makers but also the public they represent and the individuals and organizations that actively seek to influence government policies. In addition to the core topic the Report also takes a brief look at recent developments in trade and discusses some salient features of recent trade developments or a particular aspect of trade. This year the Report looks briefly at trade in textiles and clothing flows of international receipts and payments of royalties and license fees trends in the trade of least-developed countries and the impact of natural disasters and terrorist acts on international trade flows.
Subsidies and the WTO
We have discussed the economic arguments for and against different kinds of subsidization earlier in the Report. Economic analysis tells us that market failures of various kinds can sometimes be addressed efficiently with subsidies. It also tells us that subsidies can distort trade flows if they give an artificial competitive advantage to exporters or import-competing industries. Whether a subsidy is viewed as a desirable intervention for correcting a market failure or as an undesirable trade distortion depends sometimes upon who is making the judgement. But economic analysis ought to be able to help both in determining the desirability of an intervention from a welfare perspective and in assessing the merits of alternative forms of intervention. Governments may however decide to grant certain kinds of subsidies that have little to do with efficiency considerations and in such cases economic analysis based on a simple welfare analysis may be of limited use. Also in these cases the analysis is probably most helpful in ensuring that policy-makers are aware of the costs of pursuing particular objectives and of alternative lesser-cost ways of doing so. We also know that judgements about what to subsidize by how much and for how long are complex technical questions on which governments frequently lack adequate information.
World Trade Report 2006
The annual World Trade Report focuses on trade policy issues - the core topic addressed in 2006 is subsidies. The Report also takes a look at recent trade developments and examines a range of trade topics including trade in textiles and clothing flows of international receipts and payments of royalties and license fees trends in the trade of least-developed countries and the impact of natural disasters and terrorist acts on international trade flows. The World Trade Report is useful for policymakers and for any individuals or groups interested in global trade policy.
Introduction
Subsidies are one of many policy instruments subject to rules in the multilateral trading system but they present more complex issues for policy-makers than many other instruments subject to GATT /WTO rules. One reason for this is that subsidies can be defined in different ways. Another is that that they are used in pursuit of a wide array of objectives. Even where they are not aimed at trade they can affect trade flows. The kinds of subsidies of primary concern to this Report are those that impart an advantage to some domestic producers and thereby affect trade. The challenging task of determining which sorts of subsidies are problematic from the perspective of the trading system and what might be done about them has occupied an important place on the agenda of the WTO /GATT system.
Forecasting Trade
This paper develops a set of time series models to provide short-term forecasts (6 to 18 months ahead) of international trade both at the global level and for selected regions. Our results compare favourably to other forecasts notably by the International Monetary Fund as measured by standard evaluation measures such as the root mean square forecast error. In comparison to other models our approach offers several methodological advantages inter alia a focus on import growth as the core variable the avoidance of certain difficulties affecting the performance of structural models the selection of variables and lags on the basis of theoretical considerations and empirical testing as well as a full documentation of the modelling process.
World trade developments in 2004 and prospects for 2005
The year 2004 witnessed strong economic growth across most major regions providing a solid basis for vigorous global trade expansion. Trade and GDP were particularly buoyant in South and Central America and in the Commonwealth of Independent States (CIS) while North America Asia and to a lesser extent Europe also recorded some acceleration in trade and output growth. A noteworthy feature in 2004 was that the two most populous countries in the world – China and India – recorded outstanding economic growth (9.5 per cent and 7.3 per cent respectively) and trade expansion for the second year in a row.