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4. Suppose the country of Vale has three producers of Good V. Producer 1 has its...

4. Suppose the country of Vale has three producers of Good V. Producer 1 has its research and development costs half paid for by its government, while Producer 2 has purchased land from its government at half the normal price. The effect on both producers is that their average costs of production have fallen 13%. And, as a result, worldwide prices have fallen 5%. Producers of Good V in the country of Wycombe have objected, and after an investigation, Wycombe has placed countervailing duties on the imported products of the three Vale producers. Both Vale and Wycombe are members of the WTO. Given this information, is this duty legitimate in the eyes of the WTO? Why?

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Answer #1

Yes, the duty imposed by Wycombe is legitimate in the eyes of the WTO. According to the rules of the WTO may be applied by a member of the WTO after an investigation by that member and a determination that the subsidy being provided by the other country is adversely affecting the domestic industry of the member country.

In the present case, the subsidy being provided by the government of Vale are of the nature of actionable subsidies aimed at promoting the exports of its domestic producers.

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