The World Trade Organization (WTO) has the goal to eliminate all export subsidies. In order to earn permission to subsidize exports countries need to make a commitment to reduce the amount of subsidies in the long run. Reducing subsidies will make all countries buy and sell goods at the world price. Right now developing countries are hurt by subsidies because they cannot compete with the developed countries’ low prices from subsidies.
The process of reducing export subsidies needs to be gradual. The type of good depends on how long subsidies have to be eliminated. For one set it is 5 years for developed countries and 10 years for developing countries and the other set is 9 years for developed countries and 12 years for developing countries. Some developing countries suggest a longer timeframe. As importers they want to make sure they have enough time to adjust to buying products at higher world prices while exporters will need to adjust to selling at world prices. By eliminating the export subsidies it will create a more fair market system by selling at the world price.
I’m curious to see when the subsidies are eliminated if countries will respond by enacting different tariffs to regulate imports to help domestic producers. Hopefully this doesn’t happen because it would be counter productive to enforce tariffs. It all just depends on how countries do adjust overtime.
Subsidies might be eliminated in the future but the goal of eliminate trade barrier is very hard to achieve. Although free trade will increase the overall global welfare, out of political or some other reasons, countries always make the decision that benefit themselves regardless of hurting other countries or not. The free trade equilibrium might be a theoretic condition that would never come true....
ReplyDeleteI feel that this may be a difficult task to accomplish because many countries may benefit from the subsidies they impose. It will be interesting to see how long this takes and to see how many will oppose the elimination of subsidies and if they do anything to stand up against the world trade organization. Hopefully all ends well and developing countries can benefit from this.
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