Terms-of-Trade: A Criterion for Trade Disputes Settlement

The authors argue that current WTO measures like the Producer Subsidy Equivalent (PSE) and Aggregate Measure of Support (AMS) are inadequate because they measure the volume of support rather than trade distortion. They propose a terms-of-trade indicator—the ratio of export price index to import price index—to identify unfair trade practices. The paper includes a taxonomy of subsidies and a two-country model to demonstrate how a deterioration in terms-of-trade (below a base of 100) can signal unjustifiable over-subsidization.

• Current WTO indicators, specifically the Producer Subsidy Equivalent (PSE) and Aggregate Measure of Support (AMS), are insufficient for resolving trade disputes because they quantify the volume of support but cannot measure trade distortion itself.
• The authors propose using terms-of-trade as a superior indicator for detecting trade disputes; a value below 100 serves as a clear signal that trade has been deliberately distorted.
• In the agricultural sector, the EU and U.S. are the primary sources of global distortions. The EU accounts for 56% of world price distortions related to domestic agricultural subsidies and over 90% of global export subsidy expenditures.
• Agricultural subsidies are disproportionately high relative to the sector's economic contribution in Canada, the U.S., and the EU, where the sector's share of GDP averages between 1.8% and 2.5% and employs only about 3% of the labor force.
• Trade-distorting subsidies result in significant negative externalities, including the oversupply of commodities, depressed world prices, and environmental degradation through the excessive use of natural resources.
• The paper introduces a taxonomy of subsidies that distinguishes between on-budget and off-budget support, tradable and non-tradable goods, and inter-industry versus intra-industry trade to better identify areas of conflict.
• A two-country model demonstrates that disturbances in the terms-of-trade are the result of three factors: differential direct impacts of subsidies on output, differential indirect impacts on profits through output, and differential indirect impacts on profits through prices.

APA

Roddy'], [. J. L. '. (2003). Terms-of-Trade: A Criterion for Trade Disputes Settlement. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/trade_terms_of_trade.pdf

Chicago

Roddy'], ['Rosmy Jean Louis', 'Pumulo. Terms-of-Trade: A Criterion for Trade Disputes Settlement. International Institute for Sustainable Development, 2003. https://www.iisd.org/system/files/publications/trade_terms_of_trade.pdf.

Wikipedia

{{cite report |last1=Roddy'] |first1=['Rosmy Jean Louis', 'Pumulo |title=Terms-of-Trade: A Criterion for Trade Disputes Settlement |publisher=International Institute for Sustainable Development |date=December 2003 |url=https://www.iisd.org/system/files/publications/trade_terms_of_trade.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{roddy2003termsoftrade, author = {Roddy'], ['Rosmy Jean Louis', 'Pumulo}, title = {{Terms-of-Trade: A Criterion for Trade Disputes Settlement}}, institution = {International Institute for Sustainable Development}, year = {2003}, month = dec, url = {https://www.iisd.org/system/files/publications/trade_terms_of_trade.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }