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Export subsidy

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Title: Export subsidy  
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Subject: International trade, Subsidies, Corn Laws, National income policy agreement (Finland), Jamaican Free Zones
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Export subsidy

Export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic WTO prohibits most subsidies directly linked to the volume of exports.[1]

Export subsidies are also generated when internal price supports, as in a guaranteed minimum price for a commodity, create more production than can be consumed internally in the country. (These price supports are often coupled with import tariffs, which keeps the domestic price high by discouraging or taxing imports on the difference between the world price and the mandatory minimum.) Instead of letting the commodity rot or destroying it, the government exports it. Saudi Arabia is a net exporter of wheat, Japan often is a net exporter of rice.

Export subsidies can cause inflation: the government subsidises the industry based on costs, but an increase in the subsidy is directly spent on wage hikes demanded by employees. Now the wages in the subsidised industry are higher than elsewhere, which causes the other employees demand higher wages, which are then reflected in prices, resulting in inflation everywhere in the economy.

Some countries provide indirect export subsidies in the form of tax reductions. In the United States closely held exporters of U.S. made goods may get a reduction of tax using an Interest Charge Domestic International Sales Corporation (IC-DISC).[2]

Notes and references

  1. ^ Anti-dumping, subsidies, safeguards: contingencies, etc, Understanding the WTO: The Agreements
  2. ^ http://www.aicpa.org/Publications/TaxAdviser/2012/October/Pages/clinic-story-05.aspx

External links

  • International Trade Theory and Policy: Export Subsidies by Steven M. Suranovicby
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