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Optimal International Agreement and Treatment of Domestic Subsidy

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  • Gea Myoung Lee

    (School of Economics, Singapore Management University)

Abstract

We investigate how a domestic subsidy is treated in an international agreement, when a government, having incentive to use its domestic 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. We show that any optimal agreement, as opposed to the conventional message of the targeting principle, restricts the home government’s freedom to select its domestic subsidy in order to increase the market-access level for foreign exporters. Our finding suggests that a proper restriction on domestic subsidy is somewhere between GATT and WTO rules.

Suggested Citation

  • Gea Myoung Lee, 2012. "Optimal International Agreement and Treatment of Domestic Subsidy," Working Papers 26-2012, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:26-2012
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    References listed on IDEAS

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    Cited by:

    1. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.

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    More about this item

    Keywords

    Treatment of domestic subsidy; International agreement; GATT/WTO rules;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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