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 tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the debt ( ...

, tax relief for exporters, or government-financed international advertising. An export subsidy reduces the price paid by foreign importers, which means

domestic Domestic may refer to: In the home * Anything relating to the human home or family ** A domestic animal, one that has undergone domestication ** A domestic appliance, or home appliance ** A domestic partnership ** Domestic science, sometimes cal ...

consumers pay more than foreign consumers. The

World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization headquartered in Geneva, Switzerland that regulates and facilitates international trade. Governments use the organization to establish, revise, and enforce the rules that g ...

(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 goods, good, usually a resource, that specifically has full or substantial fungibility: that is, the Market (economics), market treats instances of the good as equivalent or nearly so with no regard to w ...

, 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 expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

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 West Asia. Located in the centre of the Middle East, it covers the bulk of the Arabian Peninsula and has a land area of about , making it the List of Asian countries ...

is a net exporter of

wheat Wheat is a group of wild and crop domestication, domesticated Poaceae, grasses of the genus ''Triticum'' (). They are Agriculture, cultivated for their cereal grains, which are staple foods around the world. Well-known Taxonomy of wheat, whe ...

Japan Japan is an island country in East Asia. Located in the Pacific Ocean off the northeast coast of the Asia, Asian mainland, it is bordered on the west by the Sea of Japan and extends from the Sea of Okhotsk in the north to the East China Sea ...

often is a net exporter of

rice Rice is a cereal grain and in its Domestication, domesticated form is the staple food of over half of the world's population, particularly in Asia and Africa. Rice is the seed of the grass species ''Oryza sativa'' (Asian rice)—or, much l ...

. At the WTO's Tenth Ministerial Conference, which was held in Nairobi, Kenya from 15 to 19 December 2015, the WTO member states agreed to eliminate export subsidies for agricultural products; least-developed nations had until the end of 2018 to eliminate agricultural export subsidies (until 1 January 2017 in relation to cotton exports), while developed nations agreed to eliminate most such subsidies immediately. Export subsidies can cause

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

: 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

wage A wage is payment made by an employer to an employee for work (human activity), work done in a specific period of time. Some examples of wage payments include wiktionary:compensatory, compensatory payments such as ''minimum wage'', ''prevailin ...

s, which are then reflected in prices, resulting in inflation everywhere in the

economy An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

. 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). Another example is

Armenia Armenia, officially the Republic of Armenia, is a landlocked country in the Armenian Highlands of West Asia. It is a part of the Caucasus region and is bordered by Turkey to the west, Georgia (country), Georgia to the north and Azerbaijan to ...

. According to

n legislation, IT companies that suit several criteria are getting 50% of the income tax they have paid back. In 2022, after the drastic revaluation of

Armenian Dram The Armenian dram (; Armenian dram sign, sign: ֏; abbreviation: դր.; ISO 4217, ISO code: AMD) is the currency of Armenia. It was historically subdivided into 100 luma (). The Central Bank of Armenia is responsible for issuance and circulation ...

against

US Dollar The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...

, which could potentially harm exporting industries, a proposal has been put into discussion to return the entire amount of tax paid by IT companies during the previous 4 months.

References

External links

International Trade Theory and Policy: Export Subsidies
by Steven M. Suranovicby {{DEFAULTSORT:Export Subsidy Subsidies Export