Ronald Steenblik Policy Linkages Division Trade Directorate, OECD

1. Subsidy measurement and classification: developing a common frameworkWorkshop on Environmentally Harmful Subsidies, Paris, 7-8 November 2002 Ronald Steenblik Policy Linkages Division Trade Directorate, OECD

2. Governments have committed themselves to reduce, phase-out 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

3. 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. Starting points

4. 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. Do they at least adhere to common definitions?

5. 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 coverage -- some examples

6. 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 Differences in classification These latter terms, because they are used so loosely, cause considerable confusion.

7. 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 Differences in measurement and allocation methods

8. Adopting acommonframework

9. 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. Adopting a common organising framework

10. 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

11. 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). Elements of a framework (2)

12. 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 Adding an extra dimension for policy parameters

13. 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. Increasing the level of geographic detail

14. Improve the publicly available documentation of subsidy data and methods Ensure that peer review crosses disciplines and institutions What would also help

15. Create a more formal network of experts In general, allow information to circulate more freely What would also help

16. 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. In conclusion ...

17. The End Thank you!