Export Subsidies

8 Key excerpts on "Export Subsidies"

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  Handbook of International Food and Agricultural Policies

  (In 3 Volumes)Volume 1: Policies for Agricultural Markets and Rural Economic ActivityVolume 2: Policies for Food Safety and Quality, Improved Nutrition, and Food SecurityVolume 3: International Trade Rules for Food and Agricultural Products

  • William H Meyers, Thomas Johnson, Donna H Roberts, Karl Meilke(Authors)
  • 2017(Publication Date)
  • WSPC

    (Publisher)

  While conceptually an export tax is simply a negative subsidy, the disciplines that the WTO applies with respect to these two trade policy instruments are quite different. WTO Members place a high priority on containing and eliminating the use of Export Subsidies. In contrast, WTO rules do not discipline its Members’ application of export taxes even though this is the instrument that relates directly to the exercise of market power in export markets (Lloyd, 2005). In fact, about one-third of WTO Members impose export duties (Piermartini, 2004).

  Export Subsidies and taxes are both border measures that are conditional upon the product being exported and the agent exporting the product either being subsidized or taxed. Traditionally, more policy and academic attention has been paid to Export Subsidies than to export taxes. However, Croser and Anderson (2011) show that, for the period 2000–2004, export taxes and subsidies contributed almost equally to global agricultural trade distortions. Furthermore, over the 1981–1984 period, Croser and Anderson (2011) demonstrated that on a global basis export taxes were seven times more trade-distorting than Export Subsidies. The reliance on export taxes was reflective of inward looking development policies where developing countries taxed agriculture to promote industrial development (Anderson, 2017). Moreover, a series of commodity price surges beginning in 2007/2008 re-focused concerns about the role that export restrictions played in exacerbating price surges.

  The WTO takes a broad view of the definition of a subsidy as “a financial contribution by a government or any public body within the territory of a Member that confers a benefit” (WTO, 1999). Given this very broad definition, an export subsidy can include direct payments, the granting of tax relief, the granting of low-interest loans, disposal of government stocks at below-market prices, subsidies financed by producers or processors as a result of government actions, marketing subsidies, transportation and freight subsidies, and subsidies for commodities contingent on their incorporation in exported products (ERS, 2003). Despite a WTO prohibition on subsidies that are contingent on export performance (WTO, 1994a, Article 3), these subsidies until very recently persisted in markets for agricultural products and capital goods. Agricultural Export Subsidies got special attention in the WTO because until now there was no outright prohibition on these subsidies although the Agreement on Agriculture put limits on existing Export Subsidies and prohibited the use of new Export Subsidies.

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  WTO Disciplines on Subsidies and Countervailing Measures

  Balancing Policy Space and Legal Constraints

  • Dominic Coppens(Author)
  • 2014(Publication Date)
  • Cambridge University Press

    (Publisher)

  Thus Export Subsidies are seen as more distortive than domestic subsidies, both from the perspective of the subsidiz- ing country (as they also negatively affect domestic consumers) as well as 7 Welfare is commonly defined as the sum of consumer surplus (i.e., the difference between the price consumers have to pay and are willing to pay or their ‘marginal benefit’), producer surplus (i.e., the difference between the price at which producers sell and are willing to sell or their ‘marginal cost’) and government revenue. 8 Terms of trade is defined as the ratio of export prices to import prices. 9 Any displacement of foreign producers in volume terms is also considered too marginal to be noticeable. 10 This is illustrated below in figure 5.2 (Chapter 5, section 5.1.3.2.2), which illustrates the welfare effects of the US production subsidies for cotton that were challenged in the US – Upland Cotton case. A welfare maximizing large country is rather advised to tax exports. A production subsidy to its import-competing industry could, in theory, be welfare- improving for the subsidizing country, but an optimal tariff would be a more direct, and thus efficient, instrument to exploit its terms of trade to maximize its welfare. Y.-H. Yeh, ‘On Subsidies vs. Tariffs’, 38 Southern Economic Journal (1971), 89–92. 11 The are displaced by subsidized exports and have to accept the depressed world price for their remaining sales. rationales for offering subsidies 7 from the perspective of net exporting countries (as they have a more direct effect on the terms of trade). 12 Hence, to understand why countries offer subsidies, the complete and perfectly competitive markets assumption has to be relaxed or subsidi- zation has to be explained by reasons other than maximizing welfare. For the purpose of the present study, four explanations for subsidization are distinguished in which these assumptions are relaxed.

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  Spending to Win

  Political Institutions, Economic Geography, and Government Subsidies

  • Stephanie J. Rickard, Stephanie J. Rickard(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  Measuring Particularistic Economic Policy 65 What Are Subsidies? Disagreement abounds about the precise definition of subsidies. “The word subsidy derives from the Latin word subsidium, which means ‘help, support, or assistance’ and in medieval times referred to a payment made to the king” (Fryde 1983, Steenblik 2017). 2 Today, subsidies cover a wide range of government policies. Subsidies include: cash grants, tax breaks, loans at below-market interest rates, loan guarantees, capital injections, guaranteed excessive rates of profit, below- cost or free inputs including land and power, and purchasing goods from firms at inflated prices. 3 The breadth of possible policy options generates confusion about exactly what constitutes a subsidy. The World Trade Organization provides one of the only internationally agreed upon definitions, which delineates a subsidy as a financial contribution by a government that confers a benefit on its recipients (WTO 2006). I adopt this definition. Just as many definitions of subsidies exist, there is also a striking array of synonyms for subsidies. Frequently used terms include industry assistance, industrial policy, industrial strategy, corporate welfare, and government support programs. The European Union uses the term “state aid” to describe subsidies provided to producers by member state governments. Another increasingly common term is “economic incentive” (e.g. Jensen 2017), which typically refers to subsidies that take the form of a tax incentive. Tax incentives reduce companies’ tax burdens thereby allowing businesses to keep a larger share of their revenue. Quantifying tax incentives is notoriously difficult and few, if any, cross-nationally comparable measures of tax incentives exist. Like tax incentives, many other types of subsidies are also difficult to measure.

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  The Law and Policy of the World Trade Organization

  Text, Cases, and Materials

  • Peter Van den Bossche, Werner Zdouc(Authors)
  • 2021(Publication Date)
  • Cambridge University Press

    (Publisher)

  840 Subsidies 12 1 INTRODUCTION In addition to rules on dumping and anti-dumping measures, WTO law also includes rules on another practice that may or may not be considered unfair, namely, subsidisation. Subsidies are a very sensitive matter in international trade relations. On the one hand, subsidies are evidently used by governments to pursue and promote important and fully legitimate objectives of economic and social policy. On the other hand, subsidies may have adverse effects on the interests of trading partners whose industry may suffer, in its domestic or export markets, from unfair competition with subsidised products. Disputes about subsidies, and in particular subsidies to ‘strategic economic sectors’, have been prominent on the GATT/WTO agenda. Most noteworthy are the long-run- ning disputes initiated by the European Union (EU) and the United States (US) in respect of subsidies to their respective civil aircraft industry. 1 Agricultural subsidies promoting production and export of commodities such as cotton 2 or sugar 3 have also triggered much WTO litigation. As mentioned in Chapter 1, subsidies are subject to an intricate set of rules. Some subsidies, such as export and import substitution subsidies, are, as a rule, prohibited, while other subsidies are not prohibited but are ‘actionable’ (i.e. chal- lengeable) and must be withdrawn (or their adverse effects removed) when they cause adverse effects to the interests of other Members. Furthermore, if a sub- sidy causes or threatens to cause material injury to the domestic industry of a Member, that Member is authorised to impose countervailing duties on the 1 More specifically, the original disputes in EC and certain member States – Large Civil Aircraft (2011) and US – Large Civil Aircraft (2nd complaint) (2012); and the compliance disputes in EC and certain member States – Large Civil Aircraft (Article 21.5 – US) and US – Large Civil Aircraft (2nd complaint) (Article 21.5 – European Union).

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  The Law and Policy of the World Trade Organization

  Text, Cases and Materials

  • Peter Van den Bossche, Werner Zdouc(Authors)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  subsidies contingent, in law or in fact, whether solely or as one of several conditions, upon export performance, including those illustrated in Annex I; b. subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported products. In short, WTO Members may not grant or maintain: (1) Export Subsidies; or (2) import substitution subsidies. 167 These subsidies, which are often referred to as ‘red light’ subsidies, are prohibited because they aim to affect trade and are most likely to cause adverse effects to other Members. 4.1 Export Subsidies As defined in Article 3.1(a) of the SCM Agreement, quoted above, export sub- sidies are subsidies contingent upon export performance. Annex I to the SCM Agreement contains an ‘Illustrative List of Export Subsidies’. This non-exhaus- tive list includes eleven types of export subsidy, including, inter alia: (1) direct Export Subsidies; (2) export retention schemes which involve a bonus on exports; (3) export-related exemption, remission or deferral of direct taxes and social welfare charges; (4) excess exemption or remission, in respect of the production 803 Prohibited Subsidies 168 See Appellate Body Report, Canada – Aircraft (1999), para. 166. See also Panel Report, Australia – Automotive Leather II (1999), para. 9.55. 169 Appellate Body Report, US – FSC (Article 21.5 – EC) (2002), para. 111. 170 Appellate Body Report, US – Upland Cotton (2005), para. 572. 171 Appellate Body Report, Canada – Aircraft (1999), para. 167. 172 See ibid. 173 See e.g. Appellate Body Report, Canada – Autos (2000), para. 100; and Appellate Body Report, US – Upland Cotton (2005), para.

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  Trade Regime and Economic Growth

  • Charles L Chanthunya, Victor Murinde(Authors)
  • 2019(Publication Date)
  • Taylor & Francis

    (Publisher)

  A production subsidy or tax should be used to deal with a production distortion and a consumption subsidy or tax with a consumption distortion, and so on. However, outward-orientation argues for Export Subsidies and against any subsidies for production or consumption in the domestic market. Presumably this is to compensate for what one perceives as existing distortions due to import-substitution measures so as to move relative prices nearer to “free trade” ones in order that exports can be promoted without any hindrance of distortion elements in the home market. Indeed, outward orientation argues that Export Subsidies are welfare-increasing rather than welfare-worsening if properly designed, in contradiction to the prediction of neoclassical trade theory. In the economic literature, Export Subsidies such as export drawbacks have indeed been criticised on the grounds that they generate distortions in the input markets. As the exporter has access to foreign inputs which are exempted from tariffs, the domestic producer o f inputs may be importing his own inputs, further back in the chain of production. As he is not an exporter, the duties paid on those inputs raise his costs, reducing his chances o f competing with the inputs imported directly by the final exporter. Consequently, simple export drawbacks are biased against “indirect exporters”, i.e., the domestic producers of inputs for final exporters. This bias persists even if the input is not internationally tradeable, as the tariff paid by indirect exporters raises the cost and price of the domestically produced input. The result is that simple export 44 drawbacks can promote excessive reliance on foreign inputs and the development of an export sector detached from the domestic economy. Alternatively, simple export drawbacks can promote unnecessary vertical integration between final and indirect exporters.

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  Stuck in the Middle

  Is Fiscal Policy Failing the Middle Class?

  • Antonio Estache, Danny Leipziger, Antonio Estache, Danny Leipziger(Authors)
  • 2009(Publication Date)
  • Brookings Institution Press

    (Publisher)

  S ubsidies are a potentially powerful tool to address concerns about income redistribution when the design of tax systems is ineffective and politically too difficult to alter to achieve fairness. The ability to target subsidies also makes them a potentially effective instrument to correct market failures. Because they are relatively low-cost instruments that can be used to support a wide range of targeted political objectives, subsidies pervade almost all dimen-sions of our lives. The obvious subsidies are the ones that make the newspapers and generate large public protests such as agriculture, fuel, transport, but there are many more than those making the headlines. At all stages of development, subsidies are everywhere. Although the monitoring of the fiscal costs of these subsidies tends to be quite imperfect, looking at the information available from international data-bases easily hints at their high costs. A recent survey conducted by the World Trade Organization (WTO) for its 2006 report on world trade suggests that trade-related subsidies represent at least 1.6 percent of GDP in developed economies, 1.7 percent in transition economies, and 0.6 percent in developing economies. 1 These figures are lower bounds, because they ignore all forms of indirect subsidies, such as tax or financing concessions, which are not accounted The Scope and Limits of Subsidies MARKUS GOLDSTEIN and ANTONIO ESTACHE 4 The authors thank Tara Bedi and Angeli Kirk for excellent research assistance. 1. WTO (2006). 75 76 markus goldstein and antonio estache for by standardized international reporting of national data. Even as lower bounds, these figures are a significant fiscal burden for any country. This high cost certainly contributes to the bad reputation of subsidies in many policy and academic circles. But there are additional reasons for the con-cern with the omnipresence of this instrument.

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  Reclaiming Development in the World Trading System

  • Yong-Shik Lee(Author)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  478 The financial incentives provided to domestic steel consumers will also be prohibited as import-substitution subsidies. If the government of country A guaranteed the loan and offered tax reductions contingent on export performance, these measures would also be prohibited as Export Subsidies. Today’s regulatory framework for international trade does not allow developing countries to adopt effective development policies that were previously used by today’s developed countries. 479 477 See the relevant discussion in Section 1.4, supra. 478 As discussed earlier, the domestic industry of the importing country needs to sustain material injury for the application of a CVD action, but the threshold for material injury is not considered high. See supra note 454. 479 Supra note 398. tariffs and subsidies 99 This illustration suggests that the current subsidy rules have made “a significant dent in the abilities of developing countries to employ intelligently-designed industrial policies” 480 and that the present ban on Export Subsidies and import-substitution subsidies under Article 3.1 of the SCM Agreement should be lifted in favor of developing coun- tries in consideration of the importance of subsidies to development. In addition, the application of CVD actions against the trade of develop- ing countries should be limited. This limitation would enable developing countries to provide their domestic industries with trade-related subsidies and to facilitate development without the threat of retaliatory measures on their exports. In limiting CVD actions, differences in the development status and income levels existing among developing countries should be considered.

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