Description

Import subsidies are payments by governments on imported goods. The subsidies are paid to both private importers and state import institutions.

Import subsidies can help keep prices on domestic markets low. However, in the case of agricultural products, this is at the expense of domestic agriculture and the state coffers. If the imported product is an input (e.g. sugar for processing agricultural products), processing industries benefit from lower import prices. If the product is a final product, consumers benefit (increase in the consumer surplus). Import subsidies are therefore only recommended as a short-term measure in times of critically high food prices. Alternatives such as lower import tariffs should be considered first.

Introducing subsidies on imports from regional partners could – depending on the exporting countries’ production elasticity – cause a shortage in the products concerned and increase prices in the partner country’s domestic market. This can cause problems if the products are also in high demand in the partner country (e.g. staple foods). It is therefore appropriate to reach regional agreements on import subsidies.

The WTO Agreement on Agriculture does not specifically mention import subsidies, so WTO members are not prohibited from applying them. As import subsidies – like export restrictions – can cause shortages on the world market, ever since the surge in agricultural prices in 2007/2008 there have been calls for the WTO to regulate these policy measures.

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
• Bi- or multilateral trade agreements for transparency and equal reduction of trade barriers
• 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

• Great burden on the state budget
• Businesses in the home country that cannot compete internationally are forced out of the market (social risks)
• Increasing dependence on the world market for security of supply in the home country