Export incentives

From CEOpedia | Management online

Export incentives motivate companies to export certain types of products or services. They are created usually by government and can have form of regulatory changes, tax discounts, legal solutions or direct monetary form. The government may decide to e.g. subsidize export in order to make easier for companies to enter other markets. That however may be received as dumping practice by another country, which can begin to subsidize own producers or to increase customs. Therefore, export incentives should be applied after thorough analysis of the global market. Nevertheless, the main principle of export incentives is to streamline the whole export process and ensure greater flexibility. Export incentives play a significant role in economy's trade strategy of every country. Export promotion is important to maintain competitiveness on international market. Nevertheless, strategies of export promoting vary depending on level of development and Government policy of particular country (Ahmad I. 2015; p. 99-110).

Examples of export incentives

The scope of export incentives is broad. Among other things it generally includes a lower income tax rates, zero-rating sales tax, exemption from export duties or low-cost loans (Ahmad I. 2015; s 99-110). The most popular examples of export incentives scheme are:

  • Duty Drawback - Through Duty Drawback customs duty and excise duty paid on inputs can be paid back to the exporter of finished products. This refund can be acquired when an import fee has been charged for a product or material, but this article is then subsequently exported. In most Asian countries, duty drawback schemes are the principal export incentive.
  • Duty Free Import Authorization (DFIA) - is given in order to enable duty-free import of inputs. Duty free Import Autorization is a benefit with which government help exporters get free imports on certain products: fuel, oil, energy sources and catalyst which are essential for production of export product.
  • Export Promotion Capital Goods Scheme (EPCG) - this scheme allows for the import of capital goods at concessional customs duty (Ahuja R. 2001's.25-28). This incentive was launched in oder to support exporters who wants to produce quality products and sell them on the international markets. Thereby, exporters have an opportunity to import needed equipment, machinery, vehicles and other tools at favourable prices.
  • Market Development Assistance (MDA) - this scheme has been implemented in order to support exporters in promotional activities of export on international markets. Implementation of this project aimed also to assisting Export Promotion Councils to perform export promotional activities for goods and products.

WTO Agreement on Subsidies and Countervailing Measures

Export incentives have a significant impact on exports policy in many countries. Large majority of countries provides some incentives to its exporters. Nevertheless, with accordance to WTO Agreement on Subsidies and Countervailing Measures not every types of export incentives are authorized. This agreement impose some limitation on using export incentives. The authorization to using of these incentives usually depends on level of development of particular country. Lesser-developed countries have a freer hand in using of them. This is specially intended to give them opportunity to improve and develop their country. Export promotion is still one of the major areas in need of attention for the Governments in evry country.

Advantages of Export incentives

Export incentives provide a wide range of advantages for companies willing to export their products. These advantages can include:

  • Increased access to foreign markets - Export incentives can provide companies with greater access to foreign markets, allowing them to expand their business and reach a wider audience. This can lead to increased sales, which can translate into higher profits.
  • Increased competitiveness - Export incentives can give companies the ability to become more competitive in the international market. This can help them to gain a competitive edge over their competitors and ultimately increase their chances of success.
  • Lower costs - Export incentives can also help to reduce the costs associated with exporting. This can include lower shipping costs, reduced tariffs, and other cost-saving measures that can make exporting more cost-efficient and profitable.
  • Access to new technology - Export incentives can also provide companies with access to new technologies that can allow them to produce better quality products. This can help to increase the value of their products, leading to greater profits.
  • Improved customer service - Export incentives can also help to improve customer service by providing companies with access to local markets. This can help to ensure that customers receive their products in a timely and efficient manner, leading to improved customer satisfaction.

Limitations of Export incentives

Export incentives have several limitations that should be taken into account when designing them. These include:

  • Unfair competition - Export incentives can create an imbalance in the market, allowing certain companies to gain an unfair advantage over their competitors.
  • Dumping - Export incentives can lead to dumping, where goods are sold at a price lower than the cost of production, in order to gain a competitive edge. This can have a negative impact on domestic industry.
  • Inefficient allocation of resources - Export incentives are not always used efficiently and can lead to the misallocation of resources. This can lead to an inefficient use of resources, which can have a negative impact on the economy.
  • Loss of revenue - Export incentives can lead to a loss of revenue for the government, as the incentives are subsidized by taxpayers.
  • Negative environmental impacts - Export incentives can also lead to environmental damage, as companies are incentivized to produce more goods which may be harmful to the environment.

Overall, export incentives can be beneficial, but caution should be taken when designing them and their limitations should be taken into account.

Other approaches related to Export incentives

Apart from direct subsidies, there are several other ways of encouraging exports such as trade agreements, market and product development, and financial support.

  • Trade Agreements - These are agreements between two countries that reduce or eliminate trade tariffs and other restrictions. This helps to open up markets and encourages exports.
  • Market and Product Development - Companies can be encouraged to develop new markets and products to increase their exports. Government incentives can be used to provide financial assistance and training to help companies develop new products and market them abroad.
  • Financial Support - Government incentives can also be used to provide financial support to companies that are looking to export. This can take the form of grants, loans, or tax incentives to encourage companies to increase their exports.

In summary, export incentives come in many forms, from direct subsidies to trade agreements, market and product development, and financial support. Each of these approaches can be used to encourage exports and increase the competitiveness of companies in the global market.

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Author: Aneta Walczyk