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Preserving Policy Space for Sustainable Development:
The Subsidies Agreement at the WTO

By Francisco Aguayo Ayala and Kevin P. Gallagher

This report argues that nations should reserve the right to use subsidies to correct distortions in the world trading system that act against the goal of sustainable development. Such subsidies are justified in economic theory, and can be essential tools for creating economic growth that is socially and environmentally sustainable. The Article 8 “green light” subsidies of the SCM provided interesting cover for such subsidies. However, their potential could not be fully realized before the subsidies expired in 2000. Nonetheless, numerous countries recognized their potential, and have since called for their reinstatement and expansion. Rather than letting green light subsidies expire, they should be expanded so that a larger range of countries can take advantage of them. Indeed, the Doha round leaves ample room to not only reinstate Article 8 subsidies, but to expand on them.

In the Doha declaration, space has been created for the negotiation of subsidies that support “legitimate development goals.” The documents state clearly that such subsidies could include support for regional growth, technology research and development, product diversification, and the development and implementation of environmentally sound methods of production. These categories evoke the green light subsidies, but provide room for them to be expanded in ways that will be even more beneficial for sustainable development.

However, given the vast controversy concerning such issues as agricultural support in the North, services liberalization, and manufacturing tariffs, the SCM has received relatively little attention during the current round of negotiations. This is a mistake. Adjusting the SCM is a relatively easy task, and some of the major players who were against reinstatement have now come around. Both Northern and Southern nations use these subsidies, and more are needed as global economic integration accentuates the many distortions that plague today’s economies and impede progress toward sustainable development.

Policy brief, “Preserving Policy Space in the Subsidies Agreement,” published by the International Institute for Sustainable Development, see:

Full report, “Preserving Policy Space for Sustainable Development: The Subsidies Agreement at the WTO," published by the Trade Knowledge Network see:

For more on GDAE’s Globalization and Sustainable Development Program:


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