When a large exporting country implements an export subsidy, it will result in price increment of goods on the domestic market (David,1991).
The importing country producers will suffer a decrease in well being this will be s result of export subsidy. There will be a decrease in the price of the domestic product in the market, this will result in a decrease in producer surplus in the market. The price reduction will induce a decrease in the output for existing firms, a reduction in employment and a reduction in profit payment (Itoh and Motoshige,1987).
Trade distorting is a result of export subsidies. In the absence of government assistance, both transactions can have a displacement effect on trade, this because it would be impossible for countries to export large quantities without subsidies.
The discrimination of price is known as Dumping. This happens when products from a country are sold at a lower price in a foreign country market than the originating country. Antitrust laws or competition laws, it is a set of laws that regulate and protect consumers from predatory business practices. These laws ensure that there is fair competition in the economy. The laws safeguard against monopoly and unfair flow of competition.
When a company is found to be dumping but it is not engaging in predatory pricing the company has not violated the ant-trust laws that are against predatory pricing. The laws are applied to a range of questionable business dealing like market allocation, monopoly and price fixing just but to name a few. The laws protect the consumer from unfair market competition that brings about high commodities prices in the market.
Predatory pricing strategy forces competitors out of the market by lowering the price lower than any competitive level, this act is quite dangerous for any business sense in order to remove a competitor out of the market the company needs to operate on loss n a certain period. The other disadvantage is that when consumers get used to the product at a high price they will shift to another competitor for a better price. The loose incurred during the lowering of price will take time to be earned due to factors like customer loose of confidence with the product. To me, this is not an ideal way to deal with competition(Skeath,2002).
The use of non-tariff barriers by countries to place penalties on oddly low-priced imports to safeguard domestic factories from the unbalanced competition is one of the most important protection tools that has gained concerned in international trade treaties. Well known among the negative impacts of hostile to dumping arrangements in developing nations is their welfare-debilitating impact particularly on household client endeavors and purchasers. The inconvenience of AD arrangements undermines societal welfare by restraining the inflow of less expensive and quality items from dumping economies. Without guidelines to confine dumping from sending out firms, the offers of dumped items underneath ordinary qualities in residential economies yield enhancements in social welfare. Notwithstanding, with the burden of an AD arrangement, poor buyers in creating nations are prevented the open door from securing improved access to reasonable assortments of stocks.
Similarly, since the foremost target of hostile to dumping approach is to hose the aggressive effect of dumped remote items in residential economies, such a strategy, contend Prusa and Skeath (2002), give motivators to striking back. They discover the likelihood that, when firms in a nation have been recorded an antidumping appeal against by those in another nation, there dependably would be a motivating force for retribution. The worry anyway is that, if nations hold striking back on each certifiable AD arrangement, the quantity of hostile to dumping exercises would become further at a moderately higher speed. Thus, the substance of facilitated commerce is undermined,
what’s more, residential firms’ intensity, what’s more, efficiency increases debilitated. In Prusa and Skeath (2002), it is fought that ongoing increments in the inception of hostile to dumping cases by some creating nations, for example, China, India, and Brazil are generally against nations that recently forced enemy of dumping enactments against them. Additionally, deserving of note is the way that, the long haul financial expenses of the inconvenience of hostile to dumping approaches on creating nations could be generous. By the method for experiences from the verifiable clients of hostile to dumping approaches, a potential obstacle rising clients could expect is the trouble of evacuating an AD measure once it has been forced and residential firms are profiting by the insurance it gives.
Anti-dumping suit the company is normally on a legal battle with a country, this is actually very expensive if the company does not have huge financial support. Withdrawing from the country is the best way to go, a small export firm might not have the capability to pay any fines that may be imposed in it after the country wins the case (Skeath,2002). Domestic companies mostly have the upper hand in matters relating to their own country. Since there is a need to prove that dumping has occurred the goods will be impounded and that is a loss to the exporter.
Climate change has been at the core of WTO conferences and the international community is trying to come up with solutions to deal with renewable energy. Many administrations have adopted the green energy program. The SCM agreement has set guidelines that are to be followed by governments in regards to renewable energy. the connection between renewable energy policies and the WTO laws is important, current display of the challenges is to connect environmental and trade values in the societies. Efforts to promote sustainable renewable energy has become the core legal notion for relevant markets. The cost of sustainable renewable energy is costly. Government intervention through subsidies has been put in place in order to take care of the high price that is incurred when dealing with safe energy.
With the case of Canada renewable energy program that has been the only WTO case recently where under the SCM agreement the FIT scheme has been addressed. The FIT program is not subject to the WTO subsidy, this is due to the fact that the Appellate Body was unable to evaluate whether the program constitutes for the subsidy.
Energy subsidies have the cause of disputes in the WTO, each year five cases have been filed under the SCM agreement since it started. The FIT schemes presence in the domestic content is the widespread forms of subsidies of renewable energy(Lee,2016). Trade disputes are often brought about by renewable energy subsidies. Through SCM agreements subsidies can be successfully challenged or discriminatory through the National Treatment Obligation of the GATT and thereby the TRIMs Agreements. Fossil fuel is better since they are consumer targeted and non-biased. The subsidies are easily challenged through the SCM agreement when the needed criteria are not met (Lee,2016). Due to the fact that the fossil fuel consumer subsidies are naturally supplied to all clients through the economic systems, may not be going to meet the specific requirements of the SCM Agreement(Lee,2016).
WTO participating country has been at the forefront of trying to deal with the energy crisis, alternatives like fossil fuel have been on the rise in order to get cheaper and safer energy. Pressure from interest businesses is every other element which could provide an explanation for why handiest renewable power subsidies have been challenged so far(Lee,2016).
Currently, the renewable sources of electricity are becoming more competitive with fossil fuels and nuclear energy and the two will no longer need to be subsidized. Analysis has suggested that countries are supposed to focus on carbon pricing rather than subsidies for low carbon electricity this will assist in the reduction in the power sector and it is a cost-effective measure(Lee,2016). In a time of more severe climate policy carbon pricing is the most preferred policy instrument this needs to be encouraged to raise demand for renewable energy. The use of subsidies alone would be successful in stimulation further development of clean energy technologies(Lee,2016).
The Biggest Disadvantage of Renewable Energy is the tremendously higher cost of most types of alternative energy in contrast to fossil fuel sources of energy. This has averted the higher penetration of clean power as compared to the non-renewable sources of energy. Also, the big historic power lobbies have effectively used their huge have an effect on and power to inhibit the boom of renewable sources of energy.
Collie, David. “Export subsidies and countervailing tariffs.” Journal of International Economics 31.3-4 (1991): 309-324.
Itoh, Motoshige, and Kazuharu Kiyono. “Welfare-enhancing export subsidies.” Journal of Political Economy 95.1 (1987): 115-137.
Lee, Jaemin. “SCM Agreement Revisited: Climate Change, Renewable Energy, and the SCM Agreement.” World Trade Review 15.4 (2016): 613-644.
Prusa, Thomas J., and Susan Skeath. “The economic and strategic motives for antidumping filings.” Weltwirtschaftliches Archiv 138.3 (2002): 389-413.