Transnational Subsidies: Achilles’ Heel for Foreign Investment, Trade, and Competition

In the recent years, the discussion around transnational subsidies is gaining momentum, and there is some debate about of how these government interventions should be regulated. The present article discusses the notion of transnational subsidies, the existing gap in the international regulation, and the initiatives adopted to discipline transnational subsidies to minimize trade and competition distortions.  At the same time, it questions whether these regulatory initiatives lead to increased protectionism and undermine the expansion of trade in low- and middle-income economies.

By Georgiana Pop & Ana Amador^[1]

Since the global financial crisis of 2008, subsidies became the most significant form of government intervention in the global trade arena, having surpassed tariffs and non-tariff measures.^[2] More than half of global trade in goods occurs in products and markets in which at least one subsidized firm operates, according to recent estimates.^[3] Globally, subsidies target agriculture, manufacturing, including motor vehicles, machinery, ships, and electronics as well as R&D and energy.^[4] Grants represent more than half of subsidy programs, followed by tax incentives, and loans.^[5] The European Union (“EU”), the United States (“U.S.”), and China accounted for 75 percent of measures in place across a wide range of countries.^[6] Subsidies by these large economies that are also significant global trade players can have large cross-border effects