Description

Export subsidies are government payments to exporters to help them develop new sales markets or sell surpluses on the world market in order to keep the price on the domestic market stable. Reducing them reduces a country’s exports on the world market by the according amount.

Export subsidies equate to a financial transfer from the exporting to the importing country. The difference between the higher production costs or prices on the domestic market and the lower world market price is compensated for by the government of the exporting country. In addition, if large quantities of a product attract export subsidies, the world market price drops. This has an adverse effect on agricultural producers and a positive effect on consumers in third countries, particularly developing countries. The subsidised release of surpluses can also contribute to volatility in world market prices.

The use of these instruments can have a significant impact on the development of world market prices and can disrupt security of supply in other countries. The WTO decision adopted in Nairobi in 2015 only allows them under certain conditions.

Effective alternatives to export subsidies include WTO-compliant subsidies that are not solely export-based but benefit the competitiveness of domestic production in general.

Requirements

• A properly functioning country-wide administration and monitoring system with access to the relevant information and sufficient technical and human capacities for its design, implementation and monitoring
• Clear and coherent political strategy and targets for policy-makers and public authorities
• Close cooperation and knowledge sharing with research institutions
• Compatible regional and world trade law (WTO conformity)
• Constant market surveying and forecasting
• Efficient customs administration
• Market price information systems

Possible Negative Effects

• Higher prices for consumers and higher costs for processors
• Market distortion between products for export and those produced for the domestic market
• Businesses in the target country that cannot compete with subsidised products from other countries are forced out of the market (social risks)