Subsidy measurement and classification:
developing a common framework
Workshop on Environmentally Harmful Subsidies,
Paris, 7-8 November 2002
Ronald Steenblik
Policy Linkages Division
Trade Directorate, OECD
Starting points
• Governments have committed themselves to reduce, phaseout or “reform” environmentally harmful subsidies.
• That implies not only that one can identify and rank
environmentally harmful subsidies -- or at least the
conditions under which a subsidy becomes
environmentally harmful -- but also that comparable
information is available on the complete set of subsidies
that are potentially harmful.
Starting points
• Many countries do have complete sets of subsidies in the
form of national accounts data. But these data refer only
to gross transfers to producers, and leave out tax
expenditures and non-budgetary subsidies.
• The alternative sources are the sectoral subsidy accounts
prepared in some cases (e.g., Australia) by national
governments, or by institutions like the OECD.
• These accounts are not readily comparable, however,
because of differences in coverage, methods of calculation
and classification.
Do they at least adhere to common
definitions?
• Yes, more or less. Most involved in preparing sectoral
subsidy accounts recognise that subsidies can be provided
through a wide range of policies, and not just budgetary
payments.
• Measurement has also been helped by adoption of an
internationally agreed definition in the Agreement on
Subsidies and Countervailing Measures.
• Important: SCM leaves out subsidies to general
infrastructure and market price support.
Differences in coverage -- some examples
• Production and consumption: OECD’s agricultural subsidy
accounts cover both; most others do not.
• Market price support: generally measured for relatively
homogenous commodities, but not yet for fish or
manufactured products.
• Tax expenditures: coverage is very uneven; but many
problems in defining a benchmark.
• Subnational measures: many include subsidies provided at
the national level only.
• Other issues: resource rents; cross subsidies …
Differences in classification
• target — e.g., outputs, inputs, value-adding factors
• instrument — e.g., grant, tax rebate, loan guarantee
• purpose — e.g., regional development, energy
conservation
• pathway of benefit — e.g., direct, indirect, explicit, implicit
These latter terms, because they are
used so loosely, cause considerable
confusion.
Differences in measurement and
allocation methods
• market price support — adjustments made to varying
degrees
• government expenditure related to infrastructure —
important for irrigation in agriculture, port infrastructure,
hydro-electric dams, and above all transport
• accounting conventions — e.g., treatment of missing data,
revisions
Adopting a
common
framework
Adopting a common organising
framework
• Would be useful if there were a framework that could
serve several purposes for monitoring subsidies
(transparency on government interventions,
competition policy, trade policy) in addition to
analysing environmental and social effects
• If established use, backed by a formal conceptual
framework, count for anything, then there is much to
say for adopting a PSE or ERA framework more
generally.
Elements of a framework
• Effective Rate of Assistance (ERA) is generally
considered the best indicator of the net incentive
effects of support, because it measures returns to value
adding factors.
• Data required to calculate ERA can also be used to
calculate other aggregate indicators, such as the
producer subsidy estimate or producer support
estimate (PSE).
Elements of a framework (2)
• Even if initially impossible to provide all the data needed
to calculate an ERA, using a common framework would at
least make it easier to compare information across sectors
and to understand where the data gaps are.
• With relational databases, one could also include other
classification criteria, such as on the policy instrument.
• Need framework also for consumption subsidies, of
course. Simple approach would be consumer subsidy
equivalent (CSE).
Adding an extra dimension for policy
parameters
• Production and environmental effects often depend crucially on
policies that constrain output levels, input levels or emissions.
• For this reason, several authors and groups have suggested
adding an extra category when classifying subsidies — e.g.,
management regime in fisheries or, in the case of agriculture,
conditionality relating to outputs and inputs.
• Would be interesting to investigate whether similar would make
sense for other sectors.
• However, existence of constraints does not necessarily equate
with optimal environmental protection
Increasing the level of geographic detail
• Most data are collected and reported at
the national level. But environmental
(and social) impacts are typically local.
• Would be desirable — ideally— to
know levels of support in relevant
geographic units, such as watersheds,
coastal zones.
• Data may be available to provide that
detail in some cases, but it may be more
cost-effective to do selective studies.
What would also help
Improve the publicly available
documentation of subsidy data
and methods
Ensure that peer review crosses
disciplines and institutions
What would also help
Create a more formal network
of experts
In general, allow information
to circulate more freely
In conclusion ...
At one time it may have been acceptable to consider the
effects of subsidies from a partial perspective, sector by
sector.
The ideal of sustainable development, however, argues for
taking a more integrated perspective -- one that recognises
the inter-connectedness of policies and their effects.
That perspective can only come in areas where subsidies
significantly alter resource allocation if subsidy accounts
are harmonised.
The End
Thank you!