Handbook on International Trade Policy
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Handbook on International Trade Policy

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.
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Chapter 26: Direct and Indirect Export Subsidies

James Rude


James Rude Introduction Members of the World Trade Organization (WTO) place a high priority on containing and eliminating the use of export subsidies. An export subsidy is conditional upon the recipient exporting the product or service that is being subsidized. 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 persist in markets for agricultural products and capital goods. Agricultural export subsidies get special attention in the WTO because there is no outright prohibition on these subsidies in this sector, and the Agreement on Agriculture puts limits on existing export subsidies and prohibits the use of new export subsidies. Export subsidies are viewed as among the most disruptive impediments to the operation of international markets. These subsidies punish domestic consumers and taxpayers, and may have detrimental effects for competing exporters. They also distort the allocation of resources within a subsidizer’s market and...

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