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Capital Subsidies and Countervailing Duties in Oligopolistic Industries

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  • Barbara J. Spencer

Abstract

Under GATT, countries are allowed to impose countervailing duties to offset foreign subsidies. However GATT rules limit the amount of duty to the amount of the subsidy. This paper examines a generalized model of imperfect competition with capital subsidies and shows the conditions under which a countervailing duty will offset the effect of the subsidy on exports. Also, conditions are specified under which exports will increase despite the imposition of the maximum tariff under GATT. In addition, the paper considers whether profit shifting motives for a subsidy still exist even when this maximum duty is anticipated.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2519.

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Date of creation: Feb 1988
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Publication status: published as Spencer, Barbara J. "Capital Subsidies and Countervailing Duties in Oligopolistic Industries," Journal of International Economics, vol. 25, no. 1/2, pp 217-234. August 1988.
Handle: RePEc:nbr:nberwo:2519

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References

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  1. Gene M. Grossman, 1984. "Imports as a Cause of Injury: The Case of the U.S. Steel Industry," NBER Working Papers 1494, National Bureau of Economic Research, Inc.
  2. Barbara J. Spencer, 1988. "Countervailing Duty Laws and Subsidies to Imperfectly Competitive Industries," NBER Chapters, in: Issues in US-EC Trade Relations, pages 315-348 National Bureau of Economic Research, Inc.
  3. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
  4. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  5. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  6. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  7. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  8. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
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Cited by:
  1. Meredith Crowley, 2006. "The agreement on subsidies and countervailing measures: tying one's hands through the WTO," Working Paper Series WP-06-22, Federal Reserve Bank of Chicago.
  2. Meredith A. Crowley, 2003. "An introduction to the WTO and GATT," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 42-57.

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