Eliminating Trade Distortion Policies in the United States

Eliminating Trade Distortion Policies in the United States

The corn bounty, it is to be observed, as well as every other bounty upon exportation, imposes two different taxes upon the people; first, the tax which they are obliged to contribute, in order to pay the bounty; and secondly, the tax which arises from the advanced price of the commodity in the home-market, and which, as the whole body of the people are purchasers of corn, must, in this particular commodity, be paid by the whole body of the people.

Introduction

The export subsidy, or bounty as it is referred by Adam Smith, has existed for many centuries. Created to augment an industry in need of assistance to the market, the export subsidy has become an outdated trade entity in the developed world. As stated above, export subsidies impose a greater hindrance to the exporting nation that must be compensated by their consumer population. As the United States prepares to host the next global round of negotiations for the World Trade Organization (WTO) in Seattle, Washington, it establishes the perfect opportunity to initiate the abolition of all export subsidies from domestic policy books worldwide by eliminating our own trade distorting programs.

Export subsidies are tools used to supplement the producer’s profits from selling a commodity. They are efficient and positive when used to initiate commerce in a developing society. Adam Smith realized their intentions by mentioning that, "bounties were given for the encouragement either of some beginning manufactures, or of such sorts of industry of other kinds as were supposed to deserve particular favor" (Smith, 1776: 450). However, their purpose of origin did not legitimize their existence to Smith.

The problem begins when the society grows dependent upon these additional payments because the market has been so thoroughly distorted that prices are inflated beyond normally affordable means. Producers in other nations can no longer compete with the sale price of the commodity from the subsidized nations. The competition is thereby artificially defeated.

Export subsidies have reached their expiration. It is time for world markets to convince their users of their inherent inefficiency and to proceed into the next millennium with an agenda calling for freer global trading practices.

This process of opening markets and eliminating barriers to trade has already caused quite a stir throughout the WTO’s member nations. In particular, the United States and the European Union (EU) will be at the forefront of the chopping block when it comes the time for discussions regarding agricultural trade.