Edited by William A. Kerr and James D. Gaisford
Chapter 26: Direct and Indirect Export Subsidies
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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