Limiting Goods & Services Tax Exemptions for Fairness

Government subsidies are very important to a company’s success. Subsidies are a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive. I believe government should provide subsidies because they can help an industry by paying for part of the cost of the production of a good or service.

The government offers tax credits, reimbursements, and/or by paying for part of the cost a consumer would pay to purchase a good or service. These government subsidies can help an industry by allowing the producers to produce more goods and services and can help the consumer by lowering the cost of a good and service with tax credits. By allowing the producers to produce more, it increases the overall increases quantity demanded for that good or service and lowers the overall price of the good or service which can benefit the consumer in the long run.

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I believe in order to achieve fair trade, government must be limited in the use of their subsidies, because it gives companies advantages that others might not have because of the subsidy. These companies that do not receive government subsidies are at a disadvantage because it hurts investment and any other economic activity. This also establishes a relationship between the government and the company that could lead to future political interest down the line.

When analyzing the Canadian and Brazilian trade dispute, in my opinion, the only way to avoid it was to not allow government subsidies.

If both countries were using private companies for their aircrafts there wouldn’t have been a problem. The case states that the reason why the government was so eager to intervene was because the aircraft industry is very valuable to a nation’s economy. The WTO agreements did not include Brazil. According to the article,

“Signatories to the agreements used national security exceptions to imposed domestic content requirements on (primarily military) government procurements and to provide direct financial assistance to the industry. Yet financial assistance for producing military aircraft would give Empaer a competitive advantage in its pricing for a civilian aircraft. Furthermore, domestic content regulations would deprive Canadian- first and second-tier suppliers of potential sales, thereby weakening Canada’s cluster of aircraft corporations.”

The WTO is supposed to facilitate trade flow, and make it as free as possible. The Proex subsidy was given to Brazil because it is technically a developing economy. The subsidy allowed the Empaer jets to be priced at about 4 million dollars less than the Canadian aircraft company, Bombardier. Canada should win the trade dispute because they are at an unfair disadvantage due to the subsidy.

Countries that have emerging economies have larger risks. Their governments are not as reliable as a country’s government who is established. established. A country’s risk will increase the cost of capital in an emerging market and cause investors to shy away from the company. If a country’s risk is so high, it becomes a danger to employees and there is not not any expected return to take on risks like that.

Governments can support industries and firms in other ways outside of subsidies. I believe governments should offer grants with some sort of incentives that only occur when a company reaches a certain milestone.