In the wake of the Uruguay Round Agreement of General Agreement on Tariffs and Trade (GATT), the major trading nations of the world can no longer rely on export subsidies to expand their exports. They are now resorting to various non-price promotion programmes to push their products in international markets in an effort to maintain their market shares and boost exports. The Uruguay Round Agreement requires the member nations to limit the use of price subsidy as a policy instrument to expand exports.

The agreement is aimed at Increasing trade efficiencies, and consequently boosting economic growth by gradually dismantling trade barriers and distortions among the trading nations. Commodity prices are also expected to rise as a result of lower government support to producers and reduced export subsidies. Estimates by the United States Department of Agriculture (USDA) show that only the US agricultural exports are expected to rise by more than $5 billion a year by 2005. Studies also show that the world economy will gain substantially tn terms of new Jobs and Income as a result of increased economic activities following the dismantling of trade barriers among the nations of the world.

In Its attempt to remove trade barriers, the agreement requires the GATT member nations to reduce export subsidies in both volume and value. The developed countries are required to reduce export subsidies on a commodity basis over a 6-year period. They are to reduce volume of subsidised exports by 21 per cent and subsidy expenditures by 36 per cent from the 1986-90 subsidy levels. The developing countries, however, are given an extended period to adjust to the new system. All the member nations are required by the agreement to bring down price subsidies to 1986-90 levels, If the subsidies were higher in 1991-92. The agreement also stipulates that in the future the members may subsidise exports of only those products which received export subsidy during the 1986-90 base

period.

Exporters of the major trading nations are now busy exploring new ways to promote their products In International markets. They are now focusing on non-price promotional programmes of various sorts. The provision of the GATT requiring a reduction of export subsidies, however, did not extend to market promotion activities. It also does not require the member nations to reduce export credits and credit guarantee programmes. In such a situation, developing alternative ways to export subsidies to assist exporters becomes an Important issue.

As non-price market promotion programmes are not covered by the Uruguay Round Agreement and the member nations are free to promote their export products In International markets by advertisement, showroom display etc., the major trading nations of the world are now exploring the potentials of non-price export promotions in their efforts to expand exports. Formulating effective non-price promotion programmes, however, is not an easy task as these do not try to Influence consumer preferences by directly effecting prides of products as In the case of export subsidy. These programmes rather target tastes and preferences of Industries and consumers In Importing countries by promoting the qualities of export products.

The central Issue confronting the policymakers is how best to revise the current programmes, develop new ones to make the transition to less price-subsidised trade, and assist producers and exporters most effectively in this new scenario. This is Important In light of the fact that almost all the nations have discarded Import substitution as a policy tool In favour of export promotion to generate economic activities and Job creations and are competing with each other in an effort to gain a greater share of international trade In various products.

The Issue, however, Is not only how best to redesign programmes to make the transition to less price-subsidised trade, but also to determine the

time horizon In which benefits from the new programmes are to be realised.

Alternatives to price subsidy programmes Include credit guarantee schemes and market promotion drives. Credit guarantee programmes do not provide substantial savings In terms of Interest and. therefore. are less attractive to importers. Market promotions, on the Other hand, are not very effective in expanding exports of bulk commodities. Market promotions, however, are effective In raising exports of high-valued products (HVPs) and generating greater economic activities. The prospect for HVP trade in the future is also bright, given the fact that HVP exports fuelled much of the growth of world trade in agricultural products in the last decade and HVPs now account for 80 per cent of world agricultural trade. The major exporters of agricultural products are emphasizing the promotion of their value-added exports in recent years. Hie EU, for example, spent 70 per cent of its subsidies on exports of HVPs between 1986 and 1990.

The main weakness of HVP promotion is that while price subsidies are more costly for HVPs than bulk products, farmers and ranchers benefit less from these programmes. HVP subsidy costs may be even higher when the same markets become targets of other exporters.

The effectiveness of non-price promotion programmes depends, among others, on the nature of the commodity promoted, the time horizon over which promotion is pursued and the level of expenditure on promotion in foreign markets. Studies show that promotion programmes are likely to be effective over a longer period If the targets are the industries and importers in the export markets. Non-price promotion programmes are also more effective for processed high-valued products rather than bulk commodities. Export subsidies, on the other hand, are found to be more effective in expanding export of bulk commodities. In contrast to export subsidies which arc likely to be effective

only in a particular year, non-price promotions are also found to have a carry-over lasting beyond one year. Some studies in the US showed that a dollar spent on non-price promotion generates a return of about five dollars from activities associated with Increased exports and other related economic activities. Non-price promotions also do not tax the domestic consumers as In the case of export subsidy programmes, which raise the price of the subsidised commodity In the domestic market while depressing it Internationally.

Non-price promotion programmes, however, are not without their weaknesses. Studies indicate that these programmes require a minimum level of expenditure (threshold expenditure) to be effective. If this threshold amount is not expended, the whole expenditure is likely to be wasted. Non-price programmes also take a longer period to become effective as these aim at Influencing consumer tastes and preferences rather than affecting the price of the commodity as In the case of export subsidy programmes. Non-price promotion programmes are also found to be more effective in high-Income countries, as the consumers in these countries are likely to be more willing to pay higher prices for their preferences unlike the consumers in low-income states where they shift away fast from a product in response to its price change. Another related problem with non-price promotion Is that of free rider. Non-price promotion programmes can be conducted both for generic and brand name products. In the case of generic promotions, which have been found to be more effective for certain types of products, there is very little an exporter can do to prevent his competitors from taking advantage of his promotion activities. Producers in tills case, however, can form promotion boards to share costs of promotions among themselves.

The writer is the Research Assistant. University of Delaware, USA