Governments also regulate trade by providing various kinds of support for export producers. Export subsidies come in a variety of forms, but they share the trait in benefitting from government funds. These funds enable them to offer their products or services to other countries at lower prices. The objective of this support is to enable domestic producers to “win” sales by undercutting the prices charged by producers in foreign countries.
|The Case of Agricultural Subsidies
For many years, the governments of wealthy industrial countries, including the United States, Canada, Japan, and much of Europe, have subsidized exports of farm products. These subsidies were initially implemented to bolster domestic farmers in their competition with farmers from other wealthy countries, where agricultural production costs tend to be uniformly high.
These subsidies have been a source of distress for developing countries. Although they may have a comparative advantage in agricultural production, they have difficulty competing on the world market against subsidized prices. Developing countries, therefore, have also subsidized their agricultural sectors, further distorting the market and creating the protectionist stand-off that has polarized negotiations on the issue. Reasons that countries may instate export subsidies in the agriculture sector include make sure that enough food is produced to meet the country’s needs; shielding farmers from the effects of the weather and swings in world prices; or preserving rural society.
Follow the WTOan international body dealing with the rules of trade between participating nations agreements that try to balance the interests of farmers and consumers in both developing and industrialized countries.
To learn more about export subsidies and government policy, please visit the following news analyses:
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