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Subsidies: Rationales and Trade and Investment Distortions Case Solution & Answer

Governments around the world have been awarded grants for a variety of reasons, including the objective of increasing investment and employment, especially those that are high tech, encouraging economically disadvantaged regions, support for family farming and prevention of Bankruptcy “rescues”. Subsidies now play a key role in the location decisions of firms and the impact of international competitiveness. Dealers can offer their products and services for sale below that would in the absence of price subsidies. Companies located abroad may consider them inferior to unfair price competition in international trade. Therefore, international trade negotiations have come to focus on a lot of these subsidy programs that trade distortions should be limited by formal international agreements. Some countries, notably the United States, impose special countervailing duties if their companies are harmed by foreign subsidies. With current and projected reductions in trade barriers, subsidies become relatively more important as a formal assessment process. However, subsidies are put in? PIECE to achieve certain social objectives, and therefore, an intergovernmental agreement limiting subsidies may reduce, rather than improve the welfare of the signatories.
by
David W. Conklin,
Danielle Cadieux
17 pages.
Release Date: June 6, 2011. Prod #: W11279-PDF-ENG
Grants: justifications and business solution and investment distortions case

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