Subsidies and Countervailing Measures in International Trade

Subsidies and Countervailing Measure

1. Definition and features         2. International legislation on

subsidies    3. Categories4. Remedies

monetary support or financial preference

Government/ public body

Domestic producer/ exporter

promote the competitive ability of domestically produced goods in local and international market.

May harmful, Protective device

Definition and features        

• I. Definition (Art 1 of SCM)– It is the final contribution, income or price

support by a government or any public body within a territory of a Member to domestic producers and exporters.

– Subject •A government or any public body within a Member

– Beneficiary Object •Domestic producers or exporters

Definition and features        

• I. Definition (Art 1 of SCM)– Forms

• A government practice involves a direct transfer of funds (e.G. Grants, loans, and equity infusion); Potential direct transfers of funds or liabilities (e.g. Loan guarantees)

• Forego or do not collect a due government revenue • A government provides goods or services, or

purchases goods• A government makes payments to a agent to carry

out above functions• Any form of income or price support

Definition and features         • II. Features

– Governmental Behavior– To domestic manufacturers and exporters– various forms (legislation, administrative act,

monetary support or duty-free) – Aim——promote the competitive ability of

domestically produced goods in local and international market

– Effect ——benefit conferred, so as to hinder import and encourage export

– Specificity (must be restricted)

Specificity

• Principle of determination of specificity

A subsidyEnterprises

Industry certain enterprises located within a designated geographical region

Prohibited subsidy

1. ~ in law • Legislation or pursuant to which government operate

explicitly indicate the subsidy limit to certain enterprises2. ~ in fact

• Strictly adhered to the objective criteria established in the legislation, but are not automatically granted subsidy

International legislations on subsidies

• Art6,Art16 of GATT1947 • Tokyo Round Subsidy Code in 1979• Agreement on Subsidies and

Countervailing Measures (SCM) in 1994– Totally 11 parts, 32 provisions and 7 annexes

(Substantial and procedural problems)– Contains a definition of subsidy– Introduces the concept of a "specific" subsidy

Categories (Part II-IV of SCM)

• Prohibited subsidies• Actionable subsidies• Non-actionable subsidies

Prohibited subsidies• Subsidies that require recipients to

meet certain export targets, or to use domestic goods instead of imported goods.

• specifically designed to distort international trade, and are therefore likely to hurt other countries' trade.

Red subsidy

Total 12 types in Annex1

Actionable subsidiesYellow subsidy

• Adverse effect• Injury to the domestic industry of another Member

• Nullification or impairment of benefits accruing directly or indirectly from GATT1994 to other Members

• Serious injury to the interests of another Member

Be permitted Be Restricted

Adverse effect on other Members

No Yes

ActionableMay take

countervailing measuresNon-actionable

Non-actionable subsidies• Non-specific subsidies• Specific subsidies

– Research subsidies • covers not more than 75% of

the costs of industrial research, or

• not more than 50% of the costs of pre‑competitive development activity

– Assistance to disadvantaged regions

– Environmental subsidies • Assistance for adapting

existing facilities to new environmental laws or regulations.

Green subsidy

•Cannot be challenged in the WTO's dispute settlement procedure, and countervailing duty cannot be used on subsidized imports.

Comparison of different subsidiesProhibited Actionable

Effect “Injury” not be considered

“Injury” must be considered

Content 12 types clearly listed in Annex1

Not clarified

determination

Clear legal criteria

No criteria, depends on discretion of authorityProhibited/

ActionableNon-actionable

Specific? Yes No (exceptions)

Get remedies?

Yes.Restricted by SCM

No.Justified

Remedies (parallel mechanism)

• By WTO Dispute Settlement System– Initiative Body-

Government

• By Domestic Countervailing Investigation• Initiative Body-

Domestic industry or government

Prohibited ~ Actionable ~ •Non-actionable ~

Consultation within 30 days within 60 days

/Panel process within 90 days within 120 days

Appeal to DSB within 30~60 days within 60~90 days

Implementation Withdraw subsidy or retaliation

Withdraw subsidy or retaliation

Countervailing Investigation

1. Provisional Measures

2. Undertaking3. Imposition and

Collection of Countervailing Duties

Initiation

Consultation

Investigation

1 y

ear, a

t most 1

8 m

onth

s

Existence of subsidyAmount of subsidy

Injurycausality

Administrative review

Judicial review

Obligation of the Member who initiate

investigation

Provisional Measures

• Form: provisional countervailing duties (cash deposits or bonds)

• Requirement for application– An investigation has been initiated (no sooner than 60days from

the initiation)– Interested members and parties have been given adequate

opportunities to submit information and make comments– A preliminary affirmative determination

• A subsidy exists

• There is injury to a domestic industry caused by subsidized imports;

– Necessary to prevent injury being caused during the investigation.

• Duration– Normally less than 4 months.

Undertaking-after a preliminary affirmative determination

• The government of the exporting member agrees to eliminate or limit the subsidy or take other measures concerning its effects

• The exporter agrees to revise its prices so that the investigating authorities are satisfied that the injurious effect of the subsidy is eliminated

• Investigation maybe suspended or terminated without the imposition of provisional measures or countervailing duties

Countervailing Duties

• After a final affirmative determination– The existence and amount of the subsidy – The effects of the subsidy, the subsidized

imports are causing injury

Imposition and collection of countervailing duties

•Not excess of the amount of the subsidy•Last 5 years