Problem

Overuse of industrial subsidies

Other Names:
Illegal state aid to manufacturing
Lemon socialism
Nature:
Firms, whether they are public or private, have an unfair advantage in an open marketplace if they are subsidized by their government. "Lemon socialism" is a term to describe a vast array of subsidies and barriers to trade that protect politically favored technologies, however inefficient or dirty.
Incidence:
Despite an enormous budget deficit, the Italian government spent 9.6 billion ecus a year on industrial aid in 1986-88, more than any other EEC/EU country. This works out at an average subsidy per employee of 3,136 ecus, second only to Greece's 3,545 ecus. France paid out 5.7 billion ecus of aid in the same period, mainly to finance the restructuring of its chemicals industry.

A member company of a European aircraft-making consortium received large subsidies from its national government under the terms of an agreement to cover exchange rate losses. American rivals claim that these were equivalent to an export subsidy of about $2.5 million for every aircraft sold by the consortium in 1990, and took the complaint to GATT. Another illegal subsidy case involving the French car industry almost went to the European Court of Justice for ruling.

In 1996 a UK businessman succeeded in persuading the European Commission to investigate claims that a Spanish competitor had received illegal state aid in defiance of the rules of European competition.

Problem Type:
D: Detailed problems
Date of last update
22.02.2000 – 00:00 CET