Transcript Morocco export

Dumping, antidumping
duties, import surges,
safeguards, export subsidies
and countervailing duties
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• Dumping
• Dumping, substitutes, competition and price elasticity
• Antidumping duties
• Import surges and safeguards
• Export subsidies
 when prices in international markets do not decrease
 when prices in international markets do decrease
• Production subsidies
• Countervailing duties
10-2
Dumping
• Dumping is selling in one market at a price that is less
than “normal value”, which could mean
a. the price charged to comparable buyers in another market.
b. the average cost of production, including fixed costs and
“normal” profit (accounting for the opportunity costs of time
and other resources used in the production process).
c. the average cost of production, including fixed costs but
excluding “normal” profit.
d. the marginal cost of production including “normal” profit
(but excluding fixed costs).
10-3
Dumping
• According to one of these definitions, dumping might
occur when
1. a firm wants to bankrupt competitors, after which it
plans to raise prices: predatory dumping.
 Similarly, dumping can be used to introduce a new product
made by a market entrant, so that it can increase market share
by causing buyers to switch to the new product.
10-4
Dumping
 But for predatory dumping to remain profitable, barriers to
entry must exist to prevent new firms from entering the
market
 as prices and profits rise after competing firms go bankrupt.
 Otherwise, high prices and profits will fall as new, competing
firms enter the market.
10-5
Dumping
 Predatory dumping can occur domestically as well as
internationally.
 In fact, because free trade allows more competition, predatory
dumping is easier domestically than internationally.
 Predatory dumping is really an issue of anti-trust (antimonopoly) policy instead of trade policy.
 But anti-trust policy is defined and enforced in national courts,
not international courts, and national courts have different
jurisdictions.
10-6
Dumping
2. lower demand caused by lower income of buyers.
 Firms should respond to lower demand by decreasing prices
so that they can avoid surpluses.
 This can occur in the domestic market as well as foreign markets.
 A firm should continue to produce and to sell at a low price in
the short run as long as revenue earned pays for operating
(variable) costs,
o after accounting for opportunity costs (alternative uses) of time and
other variable productive resources,
o with the hope that demand, prices and profit will increase over time.
10-7
Dumping
3. lower demand and higher supply from seasonal
changes.
 Some industries, like clothing and agriculture, are heavily
influenced by seasonal changes in demand and supply.
 Sales tend to occur at the end of seasons for clothing and in
the middle of the harvest for agriculture when sellers want to
decrease surplus inventory.
 If holding inventory is costly and/or goods in inventory can spoil,
then selling below the marginal (and average) cost of production is
economically prudent.
10-8
Dumping
4. firms can price discriminate among consumers or
among markets.
 Consumers in one market (country) with a higher willingness
to pay face a higher price; consumers in another market
(country) with a lower willingness to pay face a lower price.
10-9
Dumping
5. firms have different amounts of competition in
different markets.
 If competition is high, firms are not able to charge more than
the marginal (opportunity) cost of production.
 If competition is absent, a firm can maximize profit by
producing relatively few products and charging up to the
willingness to pay by consumers: more than the marginal
(opportunity) cost of production.
 The degree of competition is related to the ability to
discriminate based on price or willingness to pay (see 4.).
10-10
Dumping, substitutes, competition and
price elasticity
• Markets can be separated when transportation costs are
significant or when trade barriers exist.
• With different amounts of competition in separate
markets, dumping according to definition a. can appear
to occur due to reasons 4. and 5.
10-11
Dumping, substitutes, competition and
price elasticity
• We can represent the degree of competition in
separate markets by different slopes for the demand
function or different price elasticities of demand.
 If little competition exists (few substitutes are available), then
the price elasticity of demand is very low and the demand
function is very steep.
10-12
Dumping, substitutes, competition and
price elasticity
Price
and cost
High price at
which profits
are maximized
Supply = marginal
cost of production
Demand with low price
elasticity (because few
substitutes are available)
0
Quantity produced and sold
by a firm with little
Marginal revenue: less than price (the willingness to
competition in market 1
pay) and falls faster than price when a firm charges
all buyers in the market a single price.
10-13
Dumping, substitutes, competition and
price elasticity
Price
and cost
High price at
which profits
are maximized
in market 1
Low price at
which profits
are maximized
0
Marginal revenue: less than price (the willingness to
pay) and falls faster than price when a firm charges
all buyers in the market a single price.
Supply = marginal
cost of production
Demand with high
price elasticity
(because many
substitutes are
available)
Quantity produced and sold
by a firm with much
competition in market 2
10-14
Dumping, substitutes, competition and
price elasticity
• In sum, if consumers do not have the opportunity to
buy (good) substitutes in a market, firms can charge a
high price
 and consumers have little choice except to continue buying
the expensive product.
 But if good substitutes are available in the market, firms will
not be able to raise their prices much above the prices of
competing products.
10-15
Low prices are good for consumers, bad
for competitors
• Except for predatory dumping, low prices are good for
consumers,
 but obviously bad for firms that must compete with the low
prices.
 A country, especially consumers, should welcome inexpensive
products and dumping that is not predatory.
 But import-competing firms and their workers will tend to
protest against dumping in an international industry and try to
block inexpensive imports.
10-16
Antidumping duties
• To avoid protests by import-competing firms and their
workers, WTO rules allow members to impose
antidumping duties (tariffs) in markets where
1. dumping has been shown to occur (according to definition a.
or b.)
2. “injury” (ex., lower profit or revenue) to the importcompeting firms has been shown.
 When conditions 1. and 2. are satisfied, the WTO allows
governments of injured firms to impose an antidumping duty
equal to the difference between the “normal value” according
to definition a. or b. and the current price.
10-17
Antidumping duties
• After an import-competing firm files a case, national
governments investigate possible dumping and injury.
 In the US, analysis of dumping is done by the Department of
Commerce and analysis of injury is done by the International
Trade Commission.
 In Korea, analyses of both are done by the Korea Trade
Commission
 see http://www.ktc.go.kr/en/pro/pro_anti.jsp?m=m1
 For political reasons, national governments tend to favor the
interests of import-competing firms in these cases instead of
consumers or foreign firms.
10-18
Antidumping duties
• Before evidence of injury has been found but after a
case has been initiated,
 exporting firms sometimes increases their prices and/or
decrease the quantity of exports or both.
 The case might then be terminated or suspended.
• But after an antidumping duty has been imposed, if
exporters raise their prices to the “normal value”, then
the country that imposed the antidumping duty should
remove the duty according to WTO rules.
10-19
Antidumping duties
• In antidumping cases today, products most often
involved are chemicals, steel and other metals, plastic
and rubber products, machinery, textiles and apparel.
• The number of antidumping cases has increased
significantly in the past few decades,
 as the number of members and the volume of trade have both
expanded:
10-20
Antidumping duty cases initiated and
duties imposed by WTO members
Country
1980-1989
1990-1999
2000-2009
2010-2016
cases
duties
cases
duties
cases
duties
cases
duties
initiated imposed initiated imposed initiated imposed initiated imposed
India
0
0
89
48
413
318
178
155
Brazil
5
2
139
105
207
172
212
127
US
70
57
166
139
270
165
129
72
Argentina
0
0
45
26
103
66
64
61
EU
0
0
0
0
25
12
80
58
China
0
0
37
23
139
94
51
52
Australia
0
0
5
1
167
123
89
51
Turkey
0
0
0
0
53
25
54
47
Canada
0
0
12
6
127
125
48
40
Indonesia
3
2
41
32
88
46
48
27
Russia
15
7
71
52
84
54
20
27
Pakistan
0
0
3
1
37
30
41
26
Korea
0
0
13
10
61
45
23
15
All members
96
70
838
602
2203
1563
1305
888
Source: WTO, http://i-tip.wto.org/goods/default.aspx?language=en
10-21
Antidumping duties
• If an exporting country’s government believes that an
antidumping duty case has violated WTO rules,
 the exporting country’s government can file a complaint with
the WTO.
 Up to 2008, there have been 69 such complaints, and 34 of these
have been ruled upon.
 In most of these cases, the WTO dispute resolution body has
found that the importing country’s government violated the
rules or was biased when calculating prices, costs and injury.
 In some cases, the importing country’s government has modified
its policies to make them consistent with WTO rules.
10-22
Antidumping duties
• Despite the costs for consumers and despite the bias by
governments of import-competing firms,
 the WTO allows antidumping duties primarily to please
governments worried about losses for politically powerful
import-competing firms.
10-23
Import surges and safeguards
• For similar reasons, WTO rules also allow
governments to temporarily protect import-competing
firms against surges or large volumes of imports by
using safeguard duties or more simply safeguards where
1. a surge in imports occurs: an increase in the absolute
number of imports or in the relative number of imports
when the total market is shrinking.
2. “injury” (ex., lower profit or revenue) to the importcompeting firms has been shown.
10-24
Import surges and safeguards
• As with antidumping cases, the government of importcompeting firms investigates whether a surge in imports
has occurred and whether an “injury” has occurred.
 The volume of imports is usually easier to calculate than the
“normal value” needed for antidumping cases.
• In contrast to antidumping cases, the government must
have a public hearing for safeguard cases and must
show that safeguards would be in the “public interest”.
 Antidumping cases are not public and are not required to
consider losses for consumers or for society in general.
10-25
Import surges and safeguards
• According to WTO rules, a safeguard duty
 should be only to the extent necessary to prevent or to remedy
the injury and to help import-competing firms adjust.
 should not last more than four years,
 although it can be extended up to eight years if evidence continues
to exist that it is needed and if evidence exists that the importcompeting firms are adjusting.
 that is imposed for more than a year must be progressively
liberalized (made less strict).
10-26
Import surges and safeguards
• In contrast, antidumping duties have no time limits and
do not require import-competing firms to adjust to
changing prices and market conditions.
• Compared the number of antidumping cases, the
number of safeguard cases
 is significantly smaller.
 has not steadily increased during the last 10 years.
10-27
Safeguards initiated by WTO members
Total
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1995-2015
India
0
2
1
1
0
0
0
1
10
1
1
1
3
7
2
41
Indonesia
0
0
0
1
1
1
0
2
0
7
4
7
0
3
1
27
Turkey
0
0
0
5
0
5
3
1
1
0
1
0
1
3
1
21
Chile
2
2
0
1
0
1
0
0
1
0
0
1
2
0
4
19
Jordan
0
8
0
0
1
1
1
2
0
1
0
1
0
1
0
17
Egypt
0
0
0
0
0
0
0
1
0
0
1
4
0
2
2
13
Ukraine
0
0
0
0
0
0
2
1
2
3
2
0
1
0
1
12
Philippines
3
0
3
0
0
1
0
1
1
0
0
0
2
0
0
11
United States
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
10
Czech Republic
1
5
0
0
0
0
0
0
0
0
0
0
0
0
0
9
Ecuador
0
1
4
0
0
0
0
0
0
1
0
0
0
1
0
9
Morocco
0
0
0
0
1
0
0
0
1
1
0
1
0
1
1
8
Colombia
0
0
0
2
0
0
0
0
0
0
0
0
4
0
0
7
12
33
15
14
7
13
8
10
25
20
12
24
18
23
17
311
All members
Source: WTO, http://www.wto.org/english/tratop_e/safeg_e/safeg_e.htm#statistics
10-28
Export subsidies
• Governments sometimes indirectly or directly subsidize
exports.
 The US Department of Commerce provides information about
 market demand and contacts of potential buyers in foreign
countries.
 export and customs procedures.
 other foreign government regulations.
 The US Export-Import Bank lends subsidized credit to US
exporters and to their foreign customers to facilitate buying
and selling internationally.
10-29
Export subsidies
 Some governments allow expedited or duty-free imports of
materials and components that domestic firms can use in
manufacturing and exporting.
 Some governments charge low prices to exporting firms for
government-operated transport services.
 Income tax rules can include hundreds of deductions for
business investment, which act as an implicit subsidy.
 Some products receive export subsidies through price
supports (guaranteed prices) and guaranteed sales at those
prices.
10-30
Export subsidies
• Programs which increase prices in the domestic market
or directly subsidize the amount of production by
domestic firms encourage over-production:
 more products than buyers would freely choose to buy.
 Surpluses (unwanted products) result, and these surpluses
show that resources are used inefficiently.
 Over-production occurs at relatively high (marginal) costs,
which are paid for by taxpayers.
 Often surpluses are exported to other countries at artificially
low prices—through dumping—so that the government can
earn revenue to recoup some costs of the program.
10-31
Export subsidies
• Let’s analyze the effect of an export subsidy.
 When domestic firms are exporters, they should have a
comparative (cost) advantage, so the cost of production is low
relative to the price in world markets.
 With an export subsidy, domestic firms should be
 willing to produce and to export more.
 willing to sell less to domestic buyers if they can earn more
revenue by exporting to foreign buyers.
10-32
Export subsidies
 The price in the domestic market should increase with the
export subsidy when domestic firms sell less of the product
there.
 In other words, domestic consumption should decrease with an
export subsidy even though domestic production and sales
increase.
10-33
Export subsidies
• For export subsidy to function well, the government
must also restrict inexpensive imports through a tariff
or quota.
 Otherwise, import distributors can undermine the export
subsidy by importing at a low price in international markets
and selling at a high price in the domestic market.
 In particular, a price support (market price + subsidy) is a
combination of a export subsidy and an import restriction.
10-34
Export subsidies
• With an export subsidy, domestic firms produce more
than is purchased by domestic consumers, and the
government must pay for the surplus.
 The government could then give away the surplus to the poor, but
there are limits to this strategy before the free products start to
undermine the willingness to buy in the domestic market.
 The government could destroy the surplus, but this is wasteful.
 The government could pay the full price for the surplus and then
export the surplus to foreign buyers at a loss.
 The government could pay domestic firms a subsidy and then let
them export the surplus at lower prices.
10-35
Export subsidies when prices in international
markets do not decrease
• Let’s assume that either the government or domestic
firms export the product at a low price.
 In either case, the loss for the government/taxpayers would be
the difference in the domestic prices and the international
prices, which equals amount of the subsidy.
• Let’s first assume that international prices do not
decrease, despite the increased domestic production
and exports.
• Who would gain and who lose under this policy?
10-36
An export subsidy when prices in international markets do
not decrease
Price of
smart
phones
Domestic
supply
Domestic price
with subsidy
Domestic price
without subsidy
C
Export subsidy
J
F
World price
Gain in producer
surplus
Exports
without
subsidy
0
D
Q2
Because the export market becomes more
profitable, less is sold domestically at a higher price.
D
Q1
Domestic
demand
S
Q1
Exports
with subsidy
S
Q2
Quantity of
smart phones
An export subsidy when prices in international markets do
not decrease
Price of
smart
phones
Loss in consumer
surplus
Domestic
supply
Domestic price
with subsidy
Domestic price
without subsidy
C
Export subsidy
F
World price
Exports
without
subsidy
0
D
Q2
Because the export market becomes more
profitable, less is sold domestically at a higher price.
D
Q1
Domestic
demand
S
Q1
Exports
with subsidy
S
Q2
Quantity of
smart phones
An export subsidy when prices in international markets do
not decrease
Price of
smart
phones
Total earned from/
paid for subsidy
Domestic
supply
Domestic price
with subsidy
Domestic price
without subsidy
Export subsidy
J
F
D
World price
Exports
without
subsidy
0
D
Q2
Because the export market becomes more
profitable, less is sold domestically at a higher price.
D
Q1
Domestic
demand
S
Q1
Exports
with subsidy
S
Q2
Quantity of
smart phones
An export subsidy when prices in international markets do
not decrease
Price of
smart
phones
Losses from inefficient (expensive)
domestic production relative to efficient
(inexpensive) foreign production, paid
for by the government/taxpayers.
Domestic price
with subsidy
Domestic price
without subsidy
Domestic
supply
Export subsidy
F
D
World price
Losses from domestic
consumers who are no longer
able to afford smart phones.
Exports
without
subsidy
0
D
Q2
Because the export market becomes more
profitable, less is sold domestically at a higher price.
D
Q1
Domestic
demand
S
Q1
Exports
with subsidy
S
Q2
Quantity of
smart phones
Export subsidies when prices in international
markets do not decrease
• If the export subsidy and import barrier work as the
government intends, the gains for domestic firms are
represented by areas C + F + J.
 Domestic firms can sell at a higher price.
 Domestic firms can produce and sell a higher quantity (from
QS1 to QS2).
• The cost to the government to pay for the subsidy is
represented by areas F + J + D.
10-41
Export subsidies when prices in international
markets do not decrease
• Losses for consumers are represented by areas C + F.
 Some consumers buy a product that now has a higher price
charged by domestic producers.
 The loss for these consumers is represented by area C.
 Some consumers can no longer afford to buy the product.
 The loss for these consumers is represented by area F.
 The quantity bought by domestic consumers decreases from QD1
to QD2.
10-42
Export subsidies when prices in international
markets do not decrease
• The deadweight loss for the country as a whole is
represented by areas F + D.
 These losses occur because
 some consumers can no longer afford to buy the product and
 less efficient and more expensive production by domestic firms
replaces more efficient and less expensive (that is, at only the
world price) production by foreign firms.
10-43
Production subsidies
• In contrast to an export subsidy, which specifically
subsidizes exports to foreign markets,
 a production subsidy subsidies production and sales in
general—either for the domestic or foreign markets.
• With a production subsidy,
 producers are also predicted to produce more, to export more
and to earn more revenue.
 but prices in the domestic market are predicted not to
increase and might even decrease.
 consumer losses are predicted to be smaller when prices in
the domestic market do not increase.
10-44
Production subsidies
• We represent a production subsidy by increasing the
willingness of domestic producers to produce and sell
in general,
 by moving the domestic supply function right and down:
10-45
A production subsidy when prices do not or do decrease
Price of
smart
phones
Losses from inefficient (expensive)
domestic production relative to efficient
(inexpensive) foreign production, paid
for by the government/taxpayers.
Domestic
supply
Domestic supply
with production
subsidy
D
Domestic price
Domestic price
World price
World price
Prices might decrease if additional
production is significant, increasing
domestic consumption and
decreasing domestic production.
(Marginal) cost of production that
exceeds price (willingness to pay)
represents the magnitude of
inefficiency and deadweight loss.
Exports
without
subsidy
0
D
Q1
Domestic
demand
S
Q1
Exports
with subsidy
S
Q2
Quantity of
smart phones
Export subsidies when prices in international
markets do decrease
• If the domestic government subsidizes exports,
 the larger volume of exports might force exporters to lower
their prices charged to foreign consumers.
 Prices charged to domestic consumers should also not rise as
much as they do when prices charged to foreign consumers do
not change.
 Because prices fall or do not rise as much, exporters are
predicted not to produce as much as compared to the case in
which prices charged to foreign consumers do not change.
 But exporters should be able to collect the full amount of the
subsidy per unit from the government.
10-47
An export subsidy when prices in international markets do
decrease
Price of
smart
phones
Gain in producer
surplus
Domestic price
with subsidy
Domestic price
without subsidy
World price
with subsidy
C
Domestic
supply
J
F
World price
Export subsidy without subsidy
Exports
without
subsidy
0
D
QD2 Q1
Because the export market becomes more
profitable, less is sold domestically at a higher price.
Domestic
demand
S
Q1
Exports
with subsidy
QS2
Quantity of
smart phones
An export subsidy when prices in international markets do
decrease
Price of
smart
phones
Loss in consumer
surplus
Domestic price
with subsidy
Domestic price
without subsidy
World price
with subsidy
C
Domestic
supply
World price
Export subsidy without subsidy
F
Exports
without
subsidy
0
D
QD2 Q1
Because the export market becomes more
profitable, less is sold domestically at a higher price.
Domestic
demand
S
Q1
Exports
with subsidy
QS2
Quantity of
smart phones
An export subsidy when prices in international markets do
decrease
Price of
smart
phones
Total earned from/
paid for subsidy
Domestic price
with subsidy
Domestic price
without subsidy
World price
with subsidy
World price
Export subsidy without subsidy
Exports
without
subsidy
0
Domestic
supply
D
QD2 Q1
Because the export market becomes more
profitable, less is sold domestically at a higher price.
Domestic
demand
S
Q1
Exports
with subsidy
QS2
Quantity of
smart phones
An export subsidy when prices in international markets do
decrease
Price of
smart
phones
Domestic
supply
Domestic price
with subsidy
Domestic price
without subsidy
World price
with subsidy
World price
Export subsidy without subsidy
Losses for domestic sellers but
gains for foreign consumers
due to lower prices.
Exports
without
subsidy
0
D
QD2 Q1
Because the export market becomes more
profitable, less is sold domestically at a higher price.
Domestic
demand
S
Q1
Exports
with subsidy
QS2
Quantity of
smart phones
An export subsidy when prices in international markets do
decrease
Price of
smart
phones
Losses from inefficient (expensive)
domestic production relative to efficient
(inexpensive) foreign production, paid
for by the government/taxpayers.
Domestic price
with subsidy
Domestic price
without subsidy
World price
with subsidy
F
D
Losses from domestic
consumers who are no longer
able to afford smart phones.
0
World price
Export subsidy without subsidy
Losses for domestic sellers but
gains for foreign consumers
due to lower prices.
Exports
without
subsidy
D
QD2 Q1
Because the export market becomes more
profitable, less is sold domestically at a higher price.
Domestic
supply
Domestic
demand
S
Q1
Exports
with subsidy
QS2
Quantity of
smart phones
Export subsidies when prices in international
markets do decrease
• If the export subsidy and import barrier work as the
government intends, the gains for domestic firms are
represented by areas C + F + J.
 But because prices do not rise as much in the domestic
market, these areas are smaller than in the previous case.
• The cost to the government to pay the subsidy is
represented by large red rectangle.
 The cost of the subsidy is predicted to be smaller when the
quantity of exports is predicted to be smaller, although the per
unit subsidy is supposed to be the same.
10-53
Export subsidies when prices in international
markets do decrease
• Losses for consumers are represented by areas C + F.
 But because prices do not rise as much in the domestic
market, these areas are smaller than in the previous case.
10-54
Export subsidies when prices in international
markets do decrease
• The deadweight loss for the country as a whole is
represented by areas F + D + the small orange
rectangle.
 These losses occur because
 some consumers can no longer afford to buy the product (area F)
and
 less efficient and more expensive production by domestic firms
replaces more efficient and less expensive (that is, at only the
world price) production by foreign firms (area D) and
 foreign buyers do not need to pay as much to domestic firms, so
profits for the domestic firms are smaller than otherwise (small
orange rectangle).
10-55
Export subsidies when prices in international
markets do decrease
• Although the small orange rectangle represents a loss
for domestic firms and a gain for foreign buyers,
 it also represents a loss in efficiency when the price (value) of
the product is below the (marginal) cost of production, set at
the world price.
 In other words, when prices are too low, over-consumption
can occur.
 Over-production in the domestic market also occurs due to
the subsidy.
10-56
Export subsidies when prices in international
markets do decrease
• We can represent the losses for domestic consumers
that are not offset by gains from others and losses of
over-consumption by representing
1. the (marginal) cost of production for domestic producers/
sellers, represented by an export supply function.
2. the (marginal) willingness to buy/pay by foreign consumers,
represented by an import demand function.
10-57
An export subsidy when prices in international markets do
decrease
Price of
smart
phones
Losses for domestic consumers who no
longer buy smart phones that are not
offset by gains for others; losses from
inefficient (expensive) domestic
production relative to foreign production
represents the marginal
cost of production (lower
than for foreign firms)
Domestic supply
of exports
Domestic price
with subsidy
Domestic price
without subsidy
Export subsidy
D+F
H
World price
with subsidy
Represents the cost of over-consumption:
the value of the smart phone is lower than
the price (cost) without the subsidy
0
Quantity of
Quantity of
exports without exports with
subsidy
subsidy
World price
without subsidy
Foreign demand
of imports
represents the
(marginal) willingness
to pay/buy
Quantity of
smart phones
Export subsidies
• If a country initially imports a product, a large enough
subsidy can expand production so much that the
country becomes an exporter.
 This has occurred in with agricultural products that domestic
governments have subsidized heavily.
 The EU’s Common Agricultural Policy subsidies wheat, butter
and other dairy products that are often exported, despite the
fact that EU farms are often small and inefficient.
10-59
Export subsidies
• WTO rules distinguish between
 prohibited subsidies: subsidies for each unit exported or
subsidies for exports that reduce the cost of domestic inputs of
production relative to imported inputs to production.
 Prohibited subsidies are never allowed, with some exceptions for
the very poorest countries.
 actionable subsidies: an export subsidy that “injures” firms in
importing countries, or firms from other exporting countries
or foreign firms in the subsidizing country.
 Actionable subsidies are not allowed if evidence of injury is found.
 Injury from subsidies is defined in the same way as from dumping
and surges.
10-60
Export subsidies
 allowable subsidies: subsidies that do not stimulate domestic
production directly are allowed, such as payments for
 basic research
 disease control
 food safety
 transportation infrastructure
 communication infrastructure
 social insurance independent of the amount production
 switching to more efficient production
 switching to more environmentally friendly production
 relocation of firms/workers
 limiting the amount of production due to surpluses
 rural “development” in poor countries
10-61
Countervailing duties
• If the WTO finds that a country is using a prohibited
subsidy or an actionable subsidy that causes injury,
 the plaintiff country may impose a countervailing duty, a duty
uses to offset the price or cost advantage created by the
subsidy.
 The effect is similar to an antidumping duty.
10-62
Countervailing duties
• Because export subsidies encourage over-production
and over-consumption, and because countervailing
duties can reverse these effects,
 WTO rules allow importing countries to impose
countervailing duties.
 But countervailing duties are less common than antidumping
duties and even safeguard measures.
 In 2015 only 14 countervailing duties were in use throughout the
world.
10-63
Countervailing duties imposed by WTO
members
Total
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1995-2015
10
10
2
2
0
2
0
7
6
10
3
2
4
7
9
95
European Union
0
2
3
2
1
0
0
0
1
3
2
0
3
2
1
36
Canada
1
0
0
1
2
0
1
3
1
1
1
4
3
0
0
24
Mexico
0
0
0
0
1
0
0
0
0
0
0
2
0
1
2
13
Australia
0
0
0
0
0
0
1
0
0
1
1
2
3
0
2
11
Brazil
0
0
0
1
0
0
0
1
0
0
0
0
0
0
0
7
China
0
0
0
0
0
0
0
0
0
2
2
0
0
2
0
6
Peru
1
0
1
0
0
0
0
0
0
2
0
0
0
0
0
5
South Africa
2
2
0
0
0
0
0
0
0
0
0
0
0
0
0
5
Argentina
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4
New Zealand
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4
Chile
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
Costa Rica
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
1
14
14
6
8
4
3
2
11
9
19
9
10
13
12
14
216
United States
Total
Source: WTO, http://www.wto.org/english/tratop_e/scm_e/scm_e.htm
10-64
Countervailing duties
• The WTO’s Dispute Resolution Body found in 2005
that
 EU export subsidies for sugar and US export subsidies for
cotton violated WTO agreements.
 See http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds283_e.htm
 http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm
10-65
Summary
1. Dumping is selling in one market at a price that is less
than “normal value”.
2. “Normal value” can mean

the price charged to comparable buyers in another market.

the average cost of production, including fixed costs and the
opportunity costs of time and other resources.

the average cost of production, including fixed costs but
excluding “normal” profit.

the marginal cost of production including “normal” profit
(but excluding fixed costs).
10-66
Summary
3. Dumping can occur because of

anti-competitive (predatory) reasons,

changes in consumer demand across markets

differences in competition that allow price discrimination
across markets.
4. WTO rules allow members to impose antidumping
duties (tariffs) in markets where

dumping has been shown to occur.

“injury” to the import-competing firms has be shown to exist.
10-67
Summary
5. Antidumping cases (duties) have become more
popular in the 2000s, with more than 100 new duties
imposed per year.
6. WTO rules also allow governments to temporarily
protect, or to safeguard, import-competing firms
against “surges” (large volumes) of imports.
10-68
Summary
7. The government of import-competing firms
investigates whether a surge in imports has occurred
and whether an “injury” has occurred.

But unlike antidumping cases, safeguard cases require a
public hearing to consider losses for consumers/society, are
limited to 4-8 years and require that import-competing firms
adjust to lower import prices.
8. Export subsidies raise prices in the domestic market,
and in order for the policy to function well, the
government must also restrict inexpensive imports
through a tariff or quota.
10-69
Summary
9. Deadweight losses from an export subsidy occur
because
 some domestic consumers can no longer afford to buy the
product.
 less efficient and more expensive production by domestic
firms replaces more efficient and less expensive production by
foreign firms.
 over-consumption of the product occurs if the value (price) of
the product for consumers decreases below the (free market,
marginal) cost of production.
10-70
Summary
10. Partially because export subsidies encourage overconsumption, WTO rules allow countervailing duties
against
 prohibited subsidies, which are directly linked to export
targets or require recipients to use domestic components in
the production process.
 actionable subsidies, which injure firms that compete with the
firm receiving the subsidy.
10-71