Effect of Import Tariffs on Foreign Export Subsidies and Countervailing Duties : An Extension of the Model of Wang (2004)

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In this paper, we present an extension of the model of Wang (2004) to analyze the effect of a constraint pertaining to countervailing duties (CVDs). In WTO agreements, it is stipulated that CVDs should not exceed foreign export subsidies; this is different from the setting of Wang (2004). Taking the constraint on CVDs that they do not exceed foreign export subsidies into consideration, we clarify that CVDs are not levied on the foreign firm and foreign export subsidies are not given to the foreign firm. Our result sharply contrasts with the result of Wang (2004) who analyzes the situation in which CVDs can be higher than the subsidies and shows that positive foreign export subsidies come into existence.

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