Subsidies and countervailing agreement

The Agreement on Subsidies and Countervailing Measures are popularly known as “SCM Agreement” which addresses two separate concepts but the importance of putting both the concepts in the same agreements is that they are closely related topics and one is the action of other principles. Subsidies are the multilateral disciplines regulated by SCM Agreement of WTO whereas countervailing measures are the kind of remedy for damage caused by subsidy

INTRODUCTION TO THE AGREEMENT

ON SUBSIDIES AND COUNTERVAILING MEASURES

Countervailing Measures are popularly known

as “SCM Agreement” which addresses twoseparate concepts but the importance ofputting both the concepts in the sameagreements is that they are closely relatedtopics and one is the action of otherprinciples

Subsidies are the multilateral disciplinesregulated by SCM Agreement of WTOwhereas countervailing measures are thekind of remedy for damage caused bysubsidy

A subsidy is defined as a “financial contribution” by agovernment which provides a benefit The forms that asubsidy can take include: a direct transfer of funds, apotential transfer of funds or liabilities, foregonegovernment revenue, the purchase of goods, or theprovision of goods or services

Under the Agreement, actions can only be takenagainst subsidies that are “specific.” A specific subsidy

is one that is only given to one company, or to a specialgroup of companies

Export subsidies and local content subsidies are prohibited by Article 3 of the

SCM Agreement These two categories of subsidies are prohibited because they

are designed to directly affect trade and thus are most likely to have adverse

effects on the interests of other Members.

Actionable subsidies are not prohibited However, they are subject to challenge,

either through multilateral dispute settlement or through countervailing action,

in the event that they cause adverse effects to the interests of another Member.

It is a kind of subsidy which is neither prohibited nor restricted by GATT/ WTO

and does not permit any of the member nations to impose countervailing

duties against them.

Categories of subsidies

Prohibited Subsidies

Actionable Subsidies

Non-Actionable Subsidies

Countervailing Measures

Countervailing Duties (CVDs) are tariffs levied on imported goods to offset subsidies which are

either restricted or prohibited under the SCM Agreement

Part V of the SCM Agreement has mentioned a substantive rule to check if the imported goods can

be subjected in imposing CVDs, the rules contain three essentials to establish the objective of

imposing CVDs on imported goods which are as follows

‘Sunset’ means CVDs will be collapse automatically after every 5 years and can be continued only after the condition that if the importer country determines that the exporter country still not following the key regulations of the SCM Agreement.

‘Judicial Review’ is the power given under Article 23 that GATT/ WTO member can create an independent tribunal to review the decisions of investigation authority or investigation panel of GATT/ WTO with respect to the domestic law of the country only if the country has its own national legislation or law relating to CVDs.

Apart from this, it is very important to understand the concept of ‘Sunset’ and ‘Judicial Review’.

The importer country has to determine whether there are any subsidies provided to the producers in their country by their government or any such public body.

When these subsidize goods are imported in the country they must create some threat to their domestic market.

There must be a direct causal link between subsidized goods and a threat to the domestic market.

Subsidies and Countervailing

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I S ubsidies

Subsidies are financial assistance provided by a government

or other organization to support a particular activity or industry

They can come in various forms, including direct cash payments, tax breaks, or in-kind support such as

infrastructure or research and development assistance.

Subsidies are often used to encourage the growth or development of industries that are deemed important for a country's economy or strategic interests They can also be used to support industries that are struggling, either due to competition from imports or other challenges.

They can lead to inefficient allocation of resources and distort markets by artificially inflating the competitiveness of certain industries

They can also be expensive for governments and lead to fiscal deficits.

1.What are subsidies?

2 Drawbacks of subsidies

countries and lead to trade disputes ==> Countervailing measures

Countervailing measures can include tariffs or other restrictions on imports from the subsidized country, or they can involve the imposition of countervailing duties on the subsidized products These measures are intended to offset the effects of the

subsidies and level the playing field for all producers in the affected industry.

The WTO Agreement on Subsidies and Countervailing Measures (ASCM) is a multilateral trade agreement that

sets out the rules for the use of subsidies and the imposition of countervailing measures by WTO member

countries The agreement was negotiated during the Uruguay Round of trade negotiations and came into force in

1995 as part of the creation of the WTO.

The ASCM is designed to ensure that subsidies are used in a way that does not distort international trade and that they do not give an unfair advantage to producers in one country over producers in another The agreement

defines what subsidies are, and it sets out the circumstances under which subsidies are considered to be

countervailable and when they are prohibited.

The ASCM defines a subsidy as a financial contribution by a government or any public body within the territory of

a WTO member that confers a benefit on a recipient, including a direct transfer of funds, a government revenue forgone, or the provision of goods or services at below market value Subsidies can be provided to any industry, including agriculture, fisheries, and manufacturing.

III The WTO Agreement on

Subsidies and Countervailing

Measures (ASCM)

The agreement establishes three categories of subsidies:

Prohibited subsidies: These are subsidies that are specifically prohibited under the

agreement because they are deemed to cause the most harm to international trade.

Examples include export subsidies and subsidies that are contingent on the use of

domestic over imported goods.

Actionable subsidies: These are subsidies that are not prohibited but can cause

trade distortions and harm to other countries' industries They are subject to challenge under the WTO dispute settlement mechanism

Non-actionable subsidies: These are subsidies that are not considered to cause significant

trade distortions and are exempt from challenge under the WTO dispute settlement

mechanism.

Rules for the imposition

of countervailing

The ASCM also sets out the rules for theimposition of countervailing measures, such ascountervailing duties, to offset the effects ofsubsidies that are found to be countervailable Toimpose such measures, a WTO member must

demonstrate that the subsidized imports arecausing or threatening to cause material injury toits domestic industry

Overall, the ASCM is an important part of theWTO's efforts to promote free and fair trade and

to ensure that subsidies are used in a way thatbenefits all WTO members

Thank you

for listening!

Agreement on Subsidies and

Countervailing Measures

An Overview

Structure of the Agreement

• Part I

• Agreement applies only to subsidies that are specifically provided to an enterprise or industry or group of enterprises or industries

• Defines both the term “subsidy” and the concept of “specificity.”

• Parts II and III

• divide all specific subsidies into one of two categories: prohibited and actionable

• establish certain rules and procedures with respect to each category

Structure of the Agreement

• Part V

• the substantive and procedural requirements that must be fulfilled before a Member may apply a countervailing measure against subsidized imports

• Parts VI and VII

• the institutional structure and notification/surveillance modalities for

implementation of the SCM Agreement

• Part VIII

• special and differential treatment rules for various categories of developing country Members

Structure of the Agreement

Structure of the presentation

1 Definition of the term “subsidy”

2 Categories of Subsidies

3 Countervailing Measures

4 Notifications

5 Dispute Settlement

Definition of the term

“subsidy”

Definition of the term “subsidy”

• a financial contribution

• by a government or any public body within the territory of a Member

• which confers a benefit

All three of these elements must be satisfied in order for a subsidy to

exist.

Definition of the term “subsidy”

• a government provides goods or services other than general

infrastructure, or purchases goods

• a government makes payments to a funding mechanism, or entrusts

or directs a private body

Definition of the term “subsidy”

“made by or at the direction of a government or any public body”

• Pubic body: applies not only to measures of national governments,

but also to measures of sub-national governments and of such public

bodies as state-owned companies

• Anti-circumvention device: where a government “entrusts or directs”

a private body to make any of the financial contributions

Definition of the term “subsidy”

Another citeria to “subsidies” (apply in ASCM)

Another citeria to “subsidies” (apply in ASCM)

Categories of Subsidies

Categories of Subsidies

Prohibited subsidies

• export subsidies: subsidies contingent, in law or in fact, whether

wholly or as one of several conditions, on export performance

• local content subsidies: of subsidies contingent, whether solely or as

one of several other conditions, upon the use of domestic over

imported goods

Reason: designed to directly affect trade and thus are most likely to

have adverse effects on the interests of other Members.

Categories of Subsidies

Prohibited subsidies

“Attack” against prohibited subsidies

• Mutilateral track: challenge the subisdies before WTO’s Dispute

Settlement Body (DSB) If the DSB finds in favour of the plaintiff

 ask to remove the prohibited subsidy

• Unilateral track: carry out national investigation

 levy countervailing duties

Categories of Subsidies

Actionable subsidies

“adverse effects”

• is injury to a domestic industry  countervailing action

• serious prejudice complaint related to harm to a Member's export interests

• nullification or impairment of benefits accruing under the GATT 1994

Countervailing Measures

Countervailing Measures

Substantive rules

• may not impose a countervailing measure unless it determines that

• subsidized imports, injury to a domestic industry

• causal link between the subsidized imports and the injury

Countervailing Measures

Procedural rules

Key objectives

• investigations are conducted in a transparent manner

• interested parties have a full opportunity to defend their interests

• investigating authorities adequately explain the bases for their determinations

Transition Rules and Special and Differential Treatment

Transition Rules and Special and Differential Treatment

Developed countries

• 3 years to phase out prohibited subsidies

• Such subsidies must be notified within 90 days

Transition Rules and Special and Differential Treatment

Developing countries

• Least-developed Members (LDCs)

• exempted (prohibition on export subsidies);

• 8 years (import-substitution subsidies)

• Other developing country

• 8 years(export subsidies);

• 5 years (import-substitution subsidies)

• Members in transformation to a market economy

• 7 years (prohibition on export subsidies)

• Must have been notified within 2 years

Notifications

Subsidies

• Members notify all specific subsidies to the SCM Committee

• New and full notifications are due every three years

• notifications are the subject of extensive review and discussion

Require to notify

• their countervailing duty laws and regulations to the SCM Committee

• all countervailing actions taken on a semi-annual basis

• preliminary and final countervailing actions at the time they are taken

• which of their authorities are competent to initiate and conduct

countervailing investigations.

Notifications

Countervailing legislation and measures

Dispute Settlement

Dispute Settlement

• relies on the dispute settlement rules of the DSU

• extensive special or additional dispute settlement rules and procedures  expedited procedures

• special mechanisms for the gathering of information

Agreement on Subsidies

and Countervailing

Measures

An Overview

Structure of the Agreement

• Part I

• Agreement applies only to subsidies that are specifically provided to an enterprise or industry or group of enterprises or industries

• Defines both the term “subsidy” and the concept of “specificity.”

• Parts II and III

• divide all specific subsidies into one of two categories: prohibited and actionable

• establish certain rules and procedures with respect to each category

Structure of the Agreement

• Part V

• the substantive and procedural requirements that must be fulfilled before a Member may apply a countervailing measure against subsidized imports

• Parts VI and VII

• the institutional structure and notification/surveillance modalities for

implementation of the SCM Agreement

• Part VIII

• special and differential treatment rules for various categories of developing country Members

Structure of the Agreement

Structure of the presentation

1 Definition of the term “subsidy”

Definition of the term

“subsidy”

Definition of the term “subsidy”

• a financial contribution

• by a government or any public body within the territory of a Member

• which confers a benefit

All three of these elements must be satisfied in order for a subsidy to

exist.

Definition of the term “subsidy”

• a government provides goods or services other than general

infrastructure, or purchases goods

• a government makes payments to a funding mechanism, or entrusts

or directs a private body

Definition of the term “subsidy”

“made by or at the direction of a government or any public body”

• Pubic body: applies not only to measures of national governments,

but also to measures of sub-national governments and of such public bodies as state-owned companies

• Anti-circumvention device: where a government “entrusts or directs”

a private body to make any of the financial contributions

Definition of the term “subsidy”

Another criteria to “subsidies” (apply in ASCM)

Another criteria to “subsidies” (apply in ASCM)

Categories of Subsidies

Prohibited and Actionable

Categories of Subsidies

Prohibited subsidies

• export subsidies: subsidies contingent, in law or in fact, whether

wholly or as one of several conditions, on export performance

• local content subsidies: of subsidies contingent, whether solely or as

one of several other conditions, upon the use of domestic over

imported goods

Reason: designed to directly affect trade and thus are most likely to

have adverse effects on the interests of other Members.

Categories of Subsidies

Prohibited subsidies

“Attack” against prohibited subsidies

• Mutilateral track: challenge the subisdies before WTO’s Dispute

Settlement Body (DSB) If the DSB finds in favour of the plaintiff

→ ask to remove the prohibited subsidy

• Unilateral track: carry out national investigation

→ levy countervailing duties