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Abstract

The positive influence of subsidies on merchandise exports is well known from international trade theory literature. However, the empirical evidence on the relationship itself remains ambiguous. This article fills a gap in the existing pool of research by conducting a panel data empirical analysis over two decades for 140 countries to understand the relationship between their overall budgetary subsidies and aggregate merchandise export inclination. The detailed research findings of this paper underline the importance of going beyond the "Bali Package" agreed in December 2013 and concluding the Doha Round Negotiations of the World Trade Organization ("WTO"). The outline for the Bali agreement was that the Members of the WTO would exercise utmost restraint in using any form of export subsidy. Because of this inability to reach binding decisions, the Bali agreement is open ended and relies on good will and restraint. Fundamentally, this article stresses the positive impact of disciplining subsidies in particular in no uncertain terms. The results of this article lead to two important conclusions. First, the economic analysis shows that developing countries should realize that a subsidy-based trade war is more likely to put them in a disadvantageous position vis-a-vis the WTO developed members; and second, the legal analysis shows that the Agreement on Subsidies and Countervailing Measures ("ASCM") requires urgent clarification in the negotiating tables to ensure the global economy does not suffer major turbulences in the coming years.

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