Foreign Export Subsidies Research Articles

Incentives for Levying Countervailing Duties on Foreign Competitive Goods

Objective: The relationships between firm profits, foreign export subsidy, and countervailing duties (CVDs) have not been discussed sufficiently in the existing related literature. The purpose of the present study is to analyze the effects of CVDs and formulate policy advice regarding CVDs to fill this knowledge gap. Methods: A game theoretic model with oligopolistic market structure is adopted. Results: The proposed model indicates that when a foreign country provides an export subsidy to a foreign final good, a domestic country has an incentive to levy a CVD whose value exceeds that of the foreign export subsidy on the foreign final good because domestic intermediate- and final-good firms might benefit from the CVD. Conclusions: A CVD whose value equals that of a foreign export subsidy is enough to counter the subsidy’s negative effects on the profits made by domestic intermediate- and final-good firms.

THE PROFITS OF FIRMS AND COUNTERVAILING DUTIES IN VERTICALLY RELATED MARKETS

This paper studies the relationship between the profits of firms and countervailing duties in vertically related markets characterized by oligopolies. It is shown that a countervailing duty equal to the foreign export subsidy is required to neutralize the impact of foreign export subsidies on the profits of domestic firms. The domestic country has an incentive to impose a countervailing duty on foreign final goods even though foreign governments only subsidize exports of intermediate goods. In addition, foreign exporting firms may benefit from a countervailing duty more than a foreign export subsidy.

Why are Countervailing Duties Imposed? The Firms’ Viewpoint

This paper studies the relationship between firms’ profits and countervailing duties in vertically related markets characterized by oligopolies. It is shown that a countervailing duty equal to the foreign export subsidy is required to neutralize the impact of foreign export subsidies on the domestic firms’ profits. The domestic country has an incentive to impose a countervailing duty on the foreign final good even though the foreign government only subsidizes exports of the intermediate good. Additionally, the foreign exporting firms may benefit from a countervailing duty more than a foreign export subsidy.

PRODUCT DIFFERENTIATION: AN ALTERNATIVE TO CVDS

AbstractBy using a Cournot model where a domestic firm competes with a foreign firm in the domestic market, this paper suggests that, in addition to countervailing duty measures allowed by the World Trade Organization, product differentiation between the goods produced by the domestic and foreign firms could be considered as a way of eliminating foreign export subsidies.

Export subsidies, countervailing duties, and welfare

Using a simple Cournot duopoly model, this paper provides an important policy implication for trade disputes involving export subsidies. In this paper, the possibility that a foreign export subsidy could benefit the domestic country as well as the foreign country by appropriately using countervailing duties is identified.

Countervailing Duties, Foreign Export Subsidies and Import Tariffs

Given that countervailing duties and import tariffs are set in different ways and for different purposes, I re-examine the relationship between countervailing duties, foreign export subsidies and import tariffs under imperfect competition. I find that (i) the optimal countervailing duty depends on the existing import tariff level; (ii) the optimal import tariff is so high that the optimal countervailing duty is zero and hence foreign export subsidization occurs; and (iii) it is more likely for countervailing duties to be imposed on a foreign firm whose government takes no action when other foreign countries reduce or eliminate their subsidies on exports.

Domestic Welfare Effects of Foreign Strategic Trade Policies

Within a duopoly strategic trade policy model, we analyze the effect of foreign strategic trade policies on domestic welfare when the domestic government pursues a laissez-faire import policy. With Cournot competition and domestic production and consumption, an increase in the foreign strategic export subsidy increases domestic welfare when the domestic price exceeds the foreign firm marginal cost. With Bertrand competition, an increase in the foreign strategic export tax has ambiguous effects on domestic welfare and depends on the degree of product differentiation and domestic cross-price elasticity of demand between domestic and foreign goods.

International duopoly with overseas production and strategic trade policies

This paper examines the strategic export policies in a reciprocal market model of an international Cournot duopoly where two firms in domestic and foreign countries reciprocally supply their products to other countries through overseas production as well as export. It also considers the fact that the firms must incur export costs in addition to production costs. Thus, this paper shows, among others, that the effects of export policies on firms' output and export choices do not depend on the slopes of firms' reaction curves. It is also shown that firms' total outputs are independent of the export policies, and the optimal domestic and foreign export subsidies are zero (laissez-faire).

Strategic trade policy and retaliation

This paper analyses the effect of retaliation with countervailing tariffs on the profit shifting argument for export subsidies. When the domestic country pursues a policy of laissez-faire it may be harmed by a foreign export subsidy. However, when the domestic country pursues an optimal trade policy it will always gain from a foreign export subsidy. The optimal domestic response to a foreign export subsidy is a partially countervailing tariff, and faced with such a response the foreign country will be deterred from subsidising exports. There is no profit shifting argument for an export subsidy when there is retaliation.

EXPORT SUBSIDIES, ENTRY DETERRENCE AND COUNTERVAILING TARIFFS

In this Cournot oligopoly model, a number of incumbent foreign firms face the potential entry of domestic firms. When there is no retaliation by the domestic country, the optimal foreign policy is to subsidize exports so that no domestic firms will enter the industry and the foreign firms capture the entire market. However, when the domestic country can retaliate with a countervailing tariff, then the optimal foreign export subsidy is zero. When the domestic country retaliates with a tariff and a production subsidy, then the optimal foreign export subsidy may be positive. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester

Export subsidies and countervailing tariffs

This paper analyses how retaliation affects the profit-shifting argument for export subsidies. At the first stage the foreign country sets its export subsidy and then at the second stage the domestic country sets its tariff and/or production subsidy. It is shown that if the domestic country pursues an optimal trade policy, then it will always gain from a foreign export subsidy. When the domestic country uses a tariff and a production subsidy, the optimal foreign policy is an export subsidy, but if the domestic country only uses a tariff, then an export tax is usually the optimal policy.

Second-Best Foreign Exchange Policy in the Presence of Domestic Price Controls and Export Subsidies

Poland, like many developing countries, has required its exports to surrender a share of their foreign exchange earnings to the government at an overvalued exchange rate. During the late 1980s, it progressively increased the share which exporters were allowed to retain (the retention ratio), but other distortions to the trade regime remained. A model developed here estimates the effects of these policies on welfare under different foreign exchange elasticities, export and import subsidies, official exchange rates, and policies on exporter retention of foreign exchange earnings. The retention ratios in effect in early 1989 were equivalent to a 51 percent tax on exports or an import tariff of 130 percent. As economic theory would suggest, maximum social benefit would derive from removal of the full range of distortions. Full retention of foreign exchange by exporters in the absence of other distortions would provide social benefits equivalent to 8 percent of gross domestic product. But the net effect of the other policies together is a bias toward tradables, so that a policy of somewhat less than full retention of foreign exchange is optimal in this second-best world.

Responses to foreign export subsidies

Export subsidies remain a nettlesome issue in international trade relations and negotiations. Although economists typically point to the welfare losses associated with subsidies, there is a growing professional literature describing possible welfare gains from subsidies. Economists have spent less time determining the appropriate response to foreign subsidies. This study establishes a framework for making such a determination, given various policy objectives to be achieved in a subsidy response.

Anti-dumping and countervailing duties under oligopoly

This paper constructs a conjectural variations model of international oligopoly in which the home country's optimal policy responses to the foreign government's subsidies and foreign firms' dumping can be calculated. Some theoretical support is found for tariffs that countervail part of the foreign export subsidy; the optimal fraction depends on the size of own and cross effects in demand and on the extent of market competition. However, no normative case is found for anti- dumping duties.