The Economic Effect of Export Insurance on Export Supply
Authors:   Asia-Europe Perspective Association, Park Hyun-Hee 
Published: June 2018

With the launching of the WTO, the environment of world trade is presently moving toward realizing complete trade liberalism. Under the GATT, only the direct subsidy was regulated for export and the domestic subsidy directly unrelated to export was not explicitly regulated. The reason for regulation on subsidies is that export subsidy brings about unfair result from the position of competing countries because it enables even inherently uncompetitive products to be exported by artificially changing the structure of comparative advantage formed in the marketplace. In contrast, domestic subsidy did not become the object of alertness because the effect of its trade distortion was not only theoretically obviously identified but did not empirically as the concrete reality.
This subsidy, as one of the means for realizing national policy, is widely delivered in a diversity of forms such as provision of subsidies in a narrow sense, tax benefit measures, low-interest loans, export credit, and so on. If this is seen by objective, there are ① export subsidy for encouraging export, ② subsidy for encouraging the use of the particular industry at home, ③ structural adjustment subsidy intended for the industry losing competitiveness, ④ regional subsidy for activating underdeveloped areas, and ⑤ subsidy to promote research and development that is provided its basis principle as the regulation on subsidy. The Agreement on Interpretation and Application of Articles3 6, 16, and 23 of GATT was enacted in the Tokyo Round.
The WTO's Agreement on Subsidies and Countervailing Measures defines the subsidy as the provision of funds by government(financial contribution) or provides that government shall provide support in a form of price and income support stipulated in Article 16 of GATT Agreement and it should consequently provide the beneficiary with benefits. Accordingly, the kinds of subsidies which were conventionally divided into export subsidy and domestic subsidy are now divided into prohibited subsidy, actionable subsidy and non-actionable subsidy on the basis of both the effect of subsidy on trade and specificity.
The prohibited subsidy includes the subsidy provided with export performance and subsidy provided for the use of domestic goods instead of imported products, and its use is overall prohibited. The actionable subsidy is governmental assistance that has the specificity that it is provided for the particular area, industry and enterprise or exerts a long-term influence on export and import and thus damages in other countries. But the actionable subsidy is not prohibited, but the countervailing duty may be imposed on it or retaliation may be provided for it.
These two kinds of subsidies are generally called the subsidies subject to regulation. The non-actionable subsidy is referred to as either governmental assistance used with an allowable aim of R&D, regional development, environmental protection and so on thought it may have specificity or governmental assistance without any specificity.
It is reasoned that the Agreement on these subsidies will exert a tremendous influence on economy in underdeveloped countries, including Korea. The reason is that government's subsidy has had great influences in the process of national economic growth. Because the agreement provides that subsidies shall be restricted on the basis of the recognition that government subsidies artificially distort export competitiveness and impair fair competition between countries, industrial support through governmental assistance policy has arrived at a difficult situation.
Under the WTO, the development of export insurance as a means of export promotion policy is a important indirect method.