The agreement on subsidies and countervailing measures
Subtitle: tying one's hand through the WTO
By: Meredith  Crowley
Contributors: Federal Reserve Bank of Chicago. Research Department
Series: Working paper series -- WP-2006-22; Working paper series (Federal Reserve Bank of Chicago. Research Department : Online) -- WP-2006-22.
Publisher: Federal Reserve Bank of Chicago
Published: 2006
Place of publication: Chicago, Ill.]
Language: eng
Format: [electronic resource] :
Description: "Why would governments agree to restrict their own discretion in setting domestic policies as part of a trade agreement? This paper examines the welfare consequences of the GATT's Agreement on Subsidies and Countervailing Measures (SCM).  If countries which join a trade agreement are given free reign over the use of domestic production subsidies, then after negotiating tariff reductions, governments could undermine the agreement by introducing production subsidies to import-competing producers that effectively act as trade barriers.  The SCM restricts the use of domestic subsidies by countries which have joined the WTO.  Specifically, governments may not use sector-specific subsidies (agriculture is an exception) but they may subsidize their producers if they offer the same subsidy to all producers in their economies.  I show that through an agreement like the SCM, governments can better achieve their goals of maximizing domestic welfare.  This occurs because terms-of-trade concerns lead to subsidies in import- competing sectors that are higher than globally optimal and in export sectors that are lower than globally optimal.  Therefore, a rule to require that subsidies be the same in all sectors forces a country to partially internalize these terms of trade externalities (by reducing subsidies to import-competing sectors and increasing subsidies to export sectors)"--Federal Reserve Bank of Chicago web site.
Notes: Title from PDF file as viewed on 1/18/2007.

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