Yours is Bigger than Mine! Could an Index Like the Pse Help in Understanding the Comparative Incidence of Industrial Subsidies?

Abstract

State support remains a leading cause of tension in international commercial relations. Governments can see trade distortions that look like they were caused by industrial subsidies, but they lack the data to illuminate that state support. In the 1980s at the height of the farm wars the Organisation for Economic Cooperation and Development (OECD) developed an index that helped countries to see the overall incidence of agricultural subsidies, initially called the Producer Subsidy Equivalent (PSE) and the Consumer Subsidy Equivalent (CSE). Are there lessons for today in the PSE approach? In this paper I try to answer that question from the standpoint of economics: how did the PSE evolve, what is it, is the concept relevant to industrial subsidies? And of politics: how was OECD able to create the tool, and do present conditions permit something similar? The brief answer is that the PSE was a response to a shared perception of crisis, but it was pushed by finance, not trade or agriculture ministers. It drew on wellestablished concepts in the agricultural economics and trade literatures. And it works best in a context where market power is sufficiently diffuse that a price gap between domestic and world prices can be calculated. Only some of those conditions can be met when applying the approach to concentrated industries dominated by large firms that operate in multi-country supply chains.

Informal Learning and WTO Renewal: Using Thematic Sessions to Create More Opportunities for Dialogue

“…An informal briefing on that work might help the SCM committee to think about current notification requirements, which do not pick up all the various forms of support governments give firms in these global value chains. Such a session might also consider whether an index like the OECD Producer Support Estimate (PSE) might be useful for industrial subsidies (Wolfe, 2021). In a similar vein, informal discussion of the nature of state‐owned enterprises (SOEs) in all Members might contribute to learning about how WTO might address the thorny issues in this area (Wolfe, 2017).…”

Rethinking international subsidy rules

“…Wolfe (2020a) discusses the factors that allowed the OECD to calculate and report PSEs for agriculture in the 1980s, noting that key factors were demand by Finance ministers seeking to control agricultural support levels and strong leadership by the US, which wanted to reduce European agricultural protection. Given that subsidies are costly a similar dynamic might emerge today, especially considering the massive subsidy programmes that have been put in place in response to the COVID‐19 pandemic.…”

“…Distinguishing features of the GFSEC were that the exercise had high‐level political support because it was both a G20 initiative and was launched while China held the presidency. Such high‐level demand and support are likely to be a necessary condition for success—one of the lessons that can be drawn from the experience with the PSE (Wolfe, 2020a). The GFSEC case illustrates the importance of both establishing trust among parties and the ability of the parties to trust the intermediary ‘clearing house’ organisation.…”

Subsidies, Spillovers and Multilateral Cooperation

“…A successful example of the type of approach needed is the long-standing effort that commenced in the late 1970s to measure the extent and effects of policies supporting the agricultural sector (see Legg andBlandford, 2019 andWolfe 2020). This resulted in the development of summary indicators such as the Producer Support Estimate (PSE) that have become a core element of monitoring policy in this sector and acted as a focal point for policymakers to reflect on the overall magnitude and incidence of a broad array of policy measures used to support agriculture.…”