Explain the different type of subsidies as per WTO agreements

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<–2/”>a >Ans:  Green Box Subsidies: The subsidies which cause no, or at most minimal, trade distorting effects or effects on production. These subsidies are permitted under WTO regime, for instance; Government Services such as research, disease control, and Infrastructure-2/”>INFRASTRUCTURE and Food Security.

 

Amber Box Subsidies : All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box. For instance, MSP, Procurement Price, sum total of subsidies on inputs like fertilizer, water, credit, power, etc.

 

Blue Box Subsidies: It contains direct payment subsidies which can be increased without limit, so long as payments are linked to production-limiting programs. This is the “amber box with conditions”, conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production.,

Subsidies are financial assistance provided by the government to businesses or individuals. They can be used to promote Economic Development, to protect certain industries, or to help low-income individuals or families.

There are three main types of subsidies:

  • Direct subsidies are payments made directly to businesses or individuals. For example, the government might provide a subsidy to farmers to help them cover the cost of seeds and fertilizer.
  • Indirect subsidies are tax breaks or other financial incentives that make it cheaper for businesses or individuals to operate. For example, the government might provide a tax break for businesses that invest in research and development.
  • Credit subsidies are loans that are made at below-market interest rates. For example, the government might provide a loan to a small business to help it start up or expand.

Subsidies can have a number of effects on the economy. They can increase production, lower prices, and create jobs. However, they can also distort the market and lead to unfair competition.

The World Trade Organization (WTO) has rules governing the use of subsidies. These rules are designed to prevent subsidies from distorting trade and harming other countries.

The WTO distinguishes between three types of subsidies: prohibited subsidies, actionable subsidies, and non-actionable subsidies.

  • Prohibited subsidies are those that are contingent on export performance or the use of domestic over imported goods. This means that the government must give a subsidy to a company or Industry only if they agree to export more goods or use more domestic goods. Prohibited subsidies are considered to be unfair trade practices because they give companies or industries an unfair advantage over their competitors.
  • Actionable subsidies are subsidies that are not prohibited but that may cause adverse effects to the interests of other WTO members. This means that the government can give a subsidy to a company or industry without having to meet any specific conditions, but if the subsidy causes harm to other countries, then those countries can take action against the subsidizing country. Adverse effects can include:
    • Injury to domestic producers of like products in the importing country;
    • Diversion of trade from the importing country to the subsidizing country;
    • Price suppression or undercutting in the importing country;
    • Significant price undercutting in the domestic market of the subsidizing country;
    • Significant price suppression in the domestic market of the subsidizing country.
  • Non-actionable subsidies are subsidies that are not prohibited and that do not cause adverse effects to the interests of other WTO members. This means that the government can give a subsidy to a company or industry without having to meet any specific conditions and without fear of retaliation from other countries. Non-actionable subsidies are limited to the following types:
    • Subsidies that are not specific to an enterprise or industry (i.e., they are available to all enterprises or industries in the country);
    • Subsidies that are given to promote research and development;
    • Subsidies that are given to promote regional development;
    • Subsidies that are given to promote the adaptation of existing technologies to new environmental requirements.

The WTO rules on subsidies are complex and can be difficult to understand. However, they are important because they help to ensure that trade is fair and that subsidies do not distort the market.

Sure. Here are some frequently asked questions and short answers about the different types of subsidies as per WTO agreements:

  1. What is a subsidy?

A subsidy is a financial contribution provided by a government or public body to an enterprise, which confers a benefit.

  1. What are the different types of subsidies?

There are three main types of subsidies:

  • Direct subsidies: These are subsidies that are provided directly to an enterprise, such as grants, loans, or tax breaks.
  • Indirect subsidies: These are subsidies that are provided to an enterprise indirectly, such as through government procurement or regulation.

  • Export subsidies: These are subsidies that are provided to an enterprise to encourage it to export its goods or services.

  • What are the WTO rules on subsidies?

The WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) sets out the rules on subsidies. The SCM Agreement prohibits certain types of subsidies, such as export subsidies and subsidies that are contingent on the use of domestic over imported goods. The SCM Agreement also allows countries to impose countervailing duties on imports that benefit from subsidies.

  1. What are the benefits of subsidies?

Subsidies can be used to achieve a number of policy objectives, such as promoting economic development, protecting the Environment, or supporting research and development. Subsidies can also be used to offset the costs of complying with regulations.

  1. What are the costs of subsidies?

Subsidies can distort trade and competition. They can also lead to higher prices for consumers and taxpayers. Subsidies can also be used to support inefficient industries, which can lead to waste and inefficiency.

  1. What are the alternatives to subsidies?

There are a number of alternatives to subsidies, such as taxes, regulations, and public Investment. Taxes can be used to raise revenue to support government programs. Regulations can be used to protect the environment and promote competition. Public investment can be used to support research and development and infrastructure.

  1. What is the future of subsidies?

The future of subsidies is uncertain. The WTO is currently negotiating a new agreement on subsidies, which could lead to changes in the rules on subsidies. It is also possible that countries will increasingly use alternative policy tools to achieve their policy objectives.

  1. Which of the following is not a type of subsidy as per WTO agreements?
    (A) Export subsidies
    (B) Input subsidies
    (C) Domestic subsidies
    (D) Production subsidies

  2. Which of the following is not a condition for a subsidy to be considered as an Export Subsidy under WTO agreements?
    (A) The subsidy must be contingent on export performance.
    (B) The subsidy must be specific to an enterprise or industry.
    (C) The subsidy must be provided by a government or public body.
    (D) The subsidy must be in the form of a financial contribution.

  3. Which of the following is not a type of input subsidy as per WTO agreements?
    (A) A subsidy on the purchase of inputs used in production.
    (B) A subsidy on the use of inputs in production.
    (C) A subsidy on the production of inputs.
    (D) A subsidy on the export of inputs.

  4. Which of the following is not a type of domestic subsidy as per WTO agreements?
    (A) A subsidy on the production of goods.
    (B) A subsidy on the consumption of goods.
    (C) A subsidy on the investment in goods.
    (D) A subsidy on the export of goods.

  5. Which of the following is not a condition for a subsidy to be considered as a production subsidy under WTO agreements?
    (A) The subsidy must be contingent on production.
    (B) The subsidy must be specific to an enterprise or industry.
    (C) The subsidy must be provided by a government or public body.
    (D) The subsidy must be in the form of a financial contribution.

Answers:
1. (D)
2. (B)
3. (D)
4. (B)
5. (C)