Export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic
market through direct payments, low-cost
loans
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
, tax relief for exporters, or government-financed international advertising. An export subsidy reduces the price paid by foreign importers, which means
domestic consumers pay more than foreign consumers. The
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and ...
(WTO) prohibits most subsidies directly linked to the volume of
exports
An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...
, except for
LDCs. Incentives are given by the government of a country to exporters to encourage export of goods.
Export subsidies are also generated when internal price supports, as in a guaranteed minimum price for a
commodity
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a co ...
, create more production than can be consumed internally in the country. (These
price
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in t ...
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
Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the List of Asian countries by area, fifth-largest country in Asia ...
is a net exporter of