Subsidies: Rationales and Trade and Investment Distortions Harvard Case Solution & Analysis

Governments around the world offer grants for a wide variety of reasons, including the goal of increasing investment and jobs, especially those that are high-tech, stimulating economically depressed regions, support for domestic agriculture, and to prevent failures through "financial assistance". Grants are now playing a key role in decision-making, business place and affect their international competitiveness. Grantees can offer their goods and services for sale at a lower price than it would in the absence of subsidies. Foreign-based corporations can treat these lower prices, as unfair competition in international trade. Consequently, international trade negotiations have come to focus on many of these subsidy programs, such as trade distortions, which should be limited to formal international agreement. Some countries, particularly the U.S., have special obligations to compensate if their corporations now have suffered from foreign grants. With the current and projected reduction of trade barriers, subsidies will become relatively more important as trade defining process. However, subsidies are engaged in a social purpose, and so the intergovernmental agreement, which limits the subsidy may be reduced, and that the improved welfare of the signatories. "Hide
by David W. Conklin, Daniel Cadieux 17 pages. Publication Date: June 6, 2011. Prod. #: W11279-PDF-ENG

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