Export Promotion through SOEs and Countervailing Duties

Author Name YOMOGIDA Morihiro (Sophia University)
Creation Date/NO. October 2017 17-J-059
Research Project Comprehensive Research on the Current International Trade/Investment System (pt.III)
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This paper examines the effects of countervailing duties on export promotion through state-owned enterprises (SOEs) by using a simple model of international oligopoly. When an SOE provides an intermediate good to a final good producer, the government may induce the SOE to lower its price of the intermediate good for promoting export of the final good. Under free trade in the final good, this paper shows that the government controls the objective of the SOE so that it promotes the export of the final good by inducing the SOE to lower its intermediate good price below its marginal cost. When the SOE's lowering of the intermediate good price is regarded as a subsidy to the final good producer, a trade partner's government could impose a countervailing duty on the final good import. Under a situation in which the trade partner imposes the optimal countervailing duty on the import of the final good when the SOE lowers its intermediate good price below an appropriate level, this paper examines whether or not the optimal countervailing duty could prevent such export promotion through the SOE. Based on the results obtained in the analysis, this paper derives implications for the recent conflicts on countervailing duties and SOEs between the United States and China.