The Pass-Through of Subsidies to Price

Nations set countervailing duties equal to the amount of subsidy granted to the exporter, ignoring questions of the effects of the subsidy on import prices. The 2011 WTO Appellate Body decision in US – Antidumping and Countervailing Duties (China), followed by conforming changes in U.S. law in 2012, has brought a renewed focus on the pass-through of subsidies to price. This paper reconsiders the theory concerning subsidy pass-through, refining the existing literature and extending the theory to the important case of subsidized fixed factors of production. This allows an appraisal of the role and effectiveness of countervailing measures generally and of recent U.S. attempts to measure pass-through in particular