Market Failure and Subsidies in International Trade

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What is the primary purpose of Countervailing Duty (CVD) law?

To regulate the market forces in economies with true market prices

To protect domestic industries from unfair trade practices (correct)

To promote exports to non-market economies

To calculate the exact value of subsidies provided by foreign governments

In a non-market economy, what is the main challenge in determining the existence of a subsidy?

Calculating the exact benefit received by the exporter

Identifying the correct market price for the subsidized product (correct)

Determining the level of government intervention in the market

Distinguishing between state-controlled and private enterprises

What is the concept of 'benefit' in the context of subsidy calculation?

The positive externality resulting from the subsidy

The government intervention that distorts the market (correct)

The financial gain received by the exporter

The increase in domestic production due to the subsidy

In a state-influenced economy, why is it difficult to determine the level of subsidy?

The government owns most of the actors in the market Signup and view all the answers

What is the relationship between Countervailing Duty (CVD) and Anti-Dumping (AD) measures?

Both measures are intended to offset unfair trade practices Signup and view all the answers

What is the rebuttal to the baseline presumption that non-recurring subsidies can benefit the recipient over time, even after a change in ownership?

Privatization – sold all or substantially all of a company or its assets, retaining no control of the company or its assets, in a sale that was an arm's length transaction for fair-market value Signup and view all the answers

What is the DOC's intention in analyzing the sale of a company or its assets?

To analyze whether the sale was at fair market value, based on factors Signup and view all the answers

What is the implication of the 2002 WTO decision on the ability to show that subsidies continue after a privatization?

It has greatly limited the ability to show that subsidies continue Signup and view all the answers

What can affect the transaction price, even if the sale is at fair market value, according to the WTO Appellate Body?

Market conditions severely distorted by the government Signup and view all the answers

What is the approach required by the WTO Appellate Body in determining the effect of privatization on subsidies?

A case-by-case approach Signup and view all the answers

What is a key characteristic of a market failure due to negative externalities?

The producer has limited responsibility for the extensive costs beyond production and consumer costs. Signup and view all the answers

What is the primary purpose of the State Aids Regime in the WTO agreement?

To regulate the use of subsidies for social and environmental reasons. Signup and view all the answers

In the context of countervailing duties, what is the significance of identifying major exporters?

To identify the presence of subsidies and their impact on the domestic market. Signup and view all the answers

What is the purpose of the POI Questionnaire in the context of subsidy calculation?

To request information from the exporter over a given period of time to assess subsidy receipt. Signup and view all the answers

In a state-influenced economy, what is the implication of the government providing subsidized natural gas to fertilizer companies?

The fertilizer companies are receiving a subsidy, which may be actionable under WTO rules. Signup and view all the answers

What is a necessary condition for a subsidy to exist according to the SCM Agreement?

The financial contribution confers a benefit to the recipient Signup and view all the answers

What is the main concern about subsidies in the global market?

They can cause market distortion and allocate resources inefficiently Signup and view all the answers

What is the significance of specificity in the context of the SCM Agreement?

It determines whether a subsidy is subject to the SCM Agreement disciplines Signup and view all the answers

What is an example of a positive externality that is not captured by a subsidy?

Climate change mitigation Signup and view all the answers

What is the significance of regional specificity in the context of the SCM Agreement?

It determines whether a subsidy is specific to a particular region Signup and view all the answers

In a state-owned commercial bank in China, what makes it challenging to establish a commercial benchmark for a loan?

The state ownership of all commercial banks in the market Signup and view all the answers

What is the primary concern in determining the existence of a subsidy in a state-influenced economy?

The potential market distortion Signup and view all the answers

According to Article 14, what is the condition for government provision of equity capital to be considered as conferring a benefit?

The investment decision is inconsistent with the usual investment practice of private investors Signup and view all the answers

What is the purpose of establishing a commercial benchmark in the context of subsidy calculation?

To determine the benefit conferred to the recipient Signup and view all the answers

In a state-influenced economy, what is the potential effect of a government's provision of equity capital on the market?

Market distortion and unfair competition Signup and view all the answers

What is the consequence of the USTR declining to initiate dispute resolution after a determination of prohibited subsidies by the Commerce Dept?

The US industry has no further recourse except to file a regular CVD petition. Signup and view all the answers

What is the key issue in determining whether to continue applying CVD to a new owner after a privatization?

Whether the sale of assets was at fair market value. Signup and view all the answers

What is the significance of the WTO Panel's 2002 decision on the application of CVD to a new owner after a privatization?

It established that an arm's length sale at fair market value terminates the benefit of the prior subsidy. Signup and view all the answers

What is the requirement for the application of a CVD, according to the CAFC?

The company must have benefited from a subsidy. Signup and view all the answers

What is the implication of the Commerce Dept's determination of prohibited subsidies on the US industry?

The US industry can request the USTR to initiate dispute resolution. Signup and view all the answers

What is the primary requirement for a country to impose countervailing duties on imported goods?

The presence of countervailable subsidies in the exporting country Signup and view all the answers

What is the purpose of Article VI of the GATT in relation to countervailing duties?

To authorize countervailing duties as an exception to the MFN requirement Signup and view all the answers

What is the effect of countervailing duties on the economy of the importing country?

To remove the benefit of subsidies by offsetting them at the border Signup and view all the answers

What is the requirement for determining the amount of countervailing duties to be imposed?

The amount of the subsidy must be equal to the estimated bounty or subsidy Signup and view all the answers

What is the implication of a state-influenced economy on the determination of subsidies?

It makes it more difficult to determine the existence of subsidies Signup and view all the answers

What is the purpose of Article 1 of the subsidy regulations?

To define a subsidy as a financial contribution by a government or public body Signup and view all the answers

What is the effect of countervailing duties on the market for imported goods?

It creates a level playing field for domestic industries Signup and view all the answers

What is the requirement for a country to take action against subsidized imports under Article VI of the GATT?

The country must demonstrate that the effect of the subsidy is to cause or threaten material injury to the domestic industry Signup and view all the answers

What is the purpose of Article 14 of the subsidy regulations?

To provide a framework for calculating the benefit of subsidies Signup and view all the answers

What is the relationship between countervailing duties and anti-dumping measures?

They are complementary and can be imposed simultaneously to address different forms of unfair trade practices Signup and view all the answers