There have been many discussions regarding the defi-nition of a subsidy. Drawing from the work of Andrˇ de Moor described in the previous article, two important elements can be identified: a distinction between budget-ary and market transfers and a distinction between produc-tion and consumption subsidies. This principle has been adopted for the most recent working paper of the Institute for Research on Public Expenditure on subsidies devel-opment and trends in Europe. The present paper intends to provide a brief overview of current government subsidies and main policy trends in four European regions: Western Europe (mainly EU countries), Central Europe, Eastern Europe (former Soviet Union to the Ural Mountains), and Central Asia. This regional breakdown corresponds to UNEPÕs forthcoming report "Global Environmental Out-look 2" (GEO-2). The paper is an exploration of existing subsidies and trends in subsidy policies and, hence, high-lights research areas rather than providing solutions for ex-isting problems. Using the Producer Subsidy Equivalent (PSE) and Consumer Subsidy Equivalent (CSE) devel-oped by OECD, this paper measures and analyses subsi-dies in four major sectors: agriculture, energy, transport and industry. Attention is also paid to the description of current policy trends in each region and sector. A brief overview and key policy trends in the sector of agricul-ture, transport and industry are discussed in the text be-low. For more details on the energy sector please refer to the original paper or the opinion article by Andrˇ de Moor included in this Newsletter.In the agriculture sector, the subsidy policy is quite controversial in Western European countries where total transfers in 1996 reached 1.1 percent of GDP in the EU and 2.3 percent of GDP in Switzerland. In CEE the level is dramatically lower. In the Czech Republic, for example, for the same year the level is just 0.2 percent of GDP. The most common subsidy is market price support for producers, which results in surpluses of agricultural products, which can lead to additional subsidies for transportation and storage and export subsidies. Current policy trends aim at reducing market price support and switching to direct payments. Implementation of the trade liberalization measures agreed to in the Uruguay Round and EU enlargement with certain Central and Eastern European countries are also essential aspects of future policies. In contrast to practice in EU countries, most of the subsidies in CEE countries were provided through direct payments. In view of future EU membership, most of them are seeking to re-orient their agricultural policies according to current CAP (Common Agricultural Policy). Privatization of the former state-owned sector is a common policy trend, aiming to turn agriculture toward a free market in the long run. Further reform often focuses on removing price distortions, reducing market price support or de-coupling agricultural support from production in order to introduce more effective direct support without creating an incentive for overproduction. Such an example can be found in Slovakia, Croatia, and the Baltic countries. Reform also includes removing price controls and premiums, as for example in Romania. Most countries of Eastern Europe and Central Asia are in the process of restructuring their agricultural sector. This is likely to continue at different speeds, as countries are in different stages of market reform.
Countries in Central and Eastern Europe and in Cen-tral Asia substantially slashed a massive portion of price subsidies for industry and transport in the early 1990s, not as a result of active policies but as a forced result of the transition process from a centrally-planned to a mar-ket-based economy. Subsidy reduction has progressed primarily through raising prices for industry and transport, but large amounts of subsidies continue to support households. Energy price increases have not realized their full effect, as in many countries price increases have resulted in non-payments - often on a massive scale.
Road transport subsidies seem quite common in Cen-tral and Eastern European countries though further inves-tigation will be required in this area. Compared to lower fuel costs in CEE, high fuel prices and taxes in Western Europe tend to result in a net taxation of road transport (although this outcome changes dramatically when exter-nal costs are included). The main trend in freight transport in Western Europe is to pursue trade liberalization and deregulation as a result of the Uruguay Round and the continuing integration of the European Union. The common policy trend is to internalize costs in road transportation not through general taxes but rather through targeted measures aimed at removing cross subsidies or targeting specific externalities.
As a result of the transition process, subsidies to industry are likely to have declined after 1991 although this may have been a cosmetic change. Industry subsidies may have been replaced with hidden forms of support such as non-payments, low prices for intermediate inputs or cor-ruption.
Cees van Beers, Andrˇ de Moor, Scanning the Subsidies and Policy Trends in Europe and Central Asia. A work-ing paper of IRPE; funded by UNEP, February 1998, pp.29. For copies refer to UNEP/DEIA/TR.98-2 and con-tact United Nations Environment Program, SOER/DEIA, P.O. Box 30552, Nairobi, Kenya.