Optimal International Agreement and Treatment of Domestic Subsidy

Gea M. Lee

No 01-2011, Working Papers from Singapore Management University, School of Economics

Abstract: TWe investigate how a domestic subsidy is treated in an international agreement, when a government, having incentive to use its subsidy as a means of import protection, can disguise its protective use of subsidy as a legitimate intervention with which to address a market imperfection in the import-competing sector. We show that any optimal agreement permits the use of a positive domestic subsidy, but it restricts the home government’s freedom to select domestic subsidy in order to increase the market-access level for foreign exporters. Our finding implies that proper restrictions on domestic subsidies are somewhere between GATT and WTO rules.

Keywords: Treatment of domestic subsidy; International agreement; GATT/WTO rules (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2011-02
New Economics Papers: this item is included in nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in SMU Economics and Statistics Working Paper Series

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Related works:
Working Paper: Optimal International Agreement and Treatment of Domestic Subsidy (2012)
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