Export Subsidies:

Export subsidies are attempts by the government to interfere with the free flow of exports. They are payments to a firm or individual for shipping a good abroad. Similar to taxes, export subsidies can be specific (a fixed sum per unit) or ad valorem (a proportion of the value exported). Around the world, the export industry most frequently subsidized is agriculture. The reason for export subsidies varies depending upon the product and industry, but proponents frequently invoke the notion of self-sufficiency or national security concerns. When effective, export subsidies reduce the price of goods for foreign importers and cause domestic consumers to pay relatively higher prices. They thus distort the pattern of trade away from production based on comparative advantage and, like tariffs and quotas, disrupt equilibrium trade flows and reduce world economic welfare. One of the main export subsidy programs in the US is called the Export Enhancement Program (EEP). Its stated purpose is to help US farmers compete with farm products from other subsidizing countries, especially the European Union, in targeted countries. The EEP's major objectives are to challenge unfair trade practices, to expand U.S. agricultural exports, and to encourage other countries exporting agricultural commodities to undertake serious negotiations on agricultural trade problems. As a result of Uruguay round commitments, the US has established annual export subsidy quantity ceilings by commodity and maximum budgetary expenditures. Export subsidies can often lead countries to engage in legislative actions in order to mitigate the impact of export subsidies on them. These activities can include antidumping legislation, retaliatory tariffs, and nontariff barriers to entry. While these activities can sometimes mitigate the negative impact of a subsidy on a particular group of individuals, the expenditure of resources in response to a previous intervention generally does not increase overall economic welfare as the resources employed to mitigate the subsidy's effect could have been used elsewhere in the economy.