The WTO Agreement on Subsidies and Countervailing Measures (SCM) Achim Seiler, Trade Consultant and Capacity Building Specialist, Kathmandu EU-Project: Trade and Private Sector Development (TPSD) TPSD is implemented by in cooperation with and

Table of Contents What is the Agreement on Subsidies and Countervailing Measures (SCM-Agreement)? What are Subsidies? What kind of remedies are available? What are Countervailing Measures? Financial Contribution The Concept of Specificity Conferring a Benefit Exemption from the Prohibition on Export Subsidies Are Subsidies on Agricultural Products Subject to the Agreement?

What is the SCM-Agreement? The Agreement on Subsidies and Countervailing Measures (SCM-Agreement) disciplines the use of subsidies, and regulates the actions countries can take to counter the effects of subsidies The Subsidies Agreement is ´two agreements in one´. It comprises the multilateral track to challenge certain subsidies under the WTO, as well as the national track, according to which a Member can carry out an investigation and impose counterveiling measures.

Multilateral and unilateral approach Multilateral disciplines are the rules regarding whether or not a subsidy may be provided by a Member. They are enforced through invocation of the WTO dispute sttlement mechanism. This is the so-called multilateral track. Countervailing duties are a unilateral instrument, which may be applied by a Member after an investigation by that Member and a determination that the criteria set forth in the Subsidies Agreement are satisfied. This is known as the national or unilateral track.

What are subsidies? A support programme, measure, incentive etc., which constitutes a financial contribution by a government or any public body within the territory of a member conferring a benefit to the recipient. The subsidy must be specific for the purposes of the Agreement.

What are subsidies? (II) Three types of subsidies: Prohibited Actionable (Non-Actionable)

What are subsidies? (III) Prohibited: Subsidies contingent in law or in fact upon export performance Subsidies contingent on the use of domestic over imported goods

What are subsidies? (IV) Actionable: Subsidies causing adverse effects to the interests of other Members: Injury to the domestic industry Nullification or impairment of benefits Serious prejudice

What are subsidies? (IV) (Non-Actionable) Subsidies which are not specific Assistance for research activities Assistance to disadvantaged regions Assistance to adapt to new environmental requirements These provisions expired at the end of 1999. They are therefore no longer applicable

(Non-Actionable) = Actionable What are subsidies? (V) `Three´ types of subsidies: Prohibited Actionable (Non-Actionable) = Actionable

What kind of remedies are available? Multilateral Track National Track export subsidies import substitution subsidies Injury to the domestic industry Nullification or impairment Serious Prejudice

National Track: Counterveiling measures Determination of: Subsidized imports Injury to a domestic industry Causal link Subsidized imports Injury to a domestic industry Causal link

What are countervailing measures? Provisional countervailing duties Voluntary Undertakings Definitive countervailing duties

What are countervailing measures? (II) Provisional countervailing duties: May be imposed before the conclusion of an investigation, provided there is a preliminary affirmative finding of subsidy causing injury

What are countervailing measures? (III) Voluntary Untertakings: The government of the exporting Member agrees to eliminate or limit the subsidy or take other measures concerning its effects; or The exporter agrees to revise its prices so that the investigating authorities are satisfied that the injurious effect of the subsidy is eliminated

What are countervailing measures? (III) Definitive Countervailing Duties: Such measures may only be imposed at the end of an investigation. The Member imposing a definitive countervailing duty must first have conducted an investigation at the conclusion of which it determined that the conditions and criteria for the application of definitive measures are satisfied.

What is Injury? Injury: Injury is the negative effect of subsidized imports on the position of a domestic industry in an importing country. There are three types of injury: Current material injury Threat of material injury Material retardation of the establishment of a domestic industry

What is Nullification or Impairment? Arises most typically where the improved access to a market that is presumed to flow from a bound tariff reduction is undercut by subsidization in that market. It can serve as a basis for a complaint related to harm to a Member´s exporting interests.

What is Serious Prejudice? Focuses on situations where a subsidy causes Displacement or impedance of imports or exports, either in the market of the subsidizing Member or in a third country market Significant price undercutting, price suppression or depression, or lost sales of the complaining Member´s product in a given market, An increase in the subsidizing Member´s world market share in a subsidized primary product or commodity

Financial Contribution The Subsidies Agreement requires that the measure, programme, incentive, etc. provides a financial contribution and contains the following closed list of the types of measures that are deemed to provide a financial contribution: Direct transfers of funds (example, a grant, a loan, etc.) Potential direct transfers of funds or liabilities (example, a loan guarantee) Governnment revenue that is otherwise due is foregone or not collected (example: fiscal incentives such as tax credits)

Financial Contribution (II) A government provides goods or services other than general infrastructure, or purchases goods A government makes payments to a funding mechanism There is any form of income or price support in the sense of Article XVI of GATT 1994

The concept of specificity Only subsidies that are specific – given to particular enterprises or industries – are subject to the disciplines of the agreement Enterprise-specificity Industry-specificity Regional specificity Prohibited subsidies (deemed to be specific)

Conferring a Benefit A financial contribution by a government is not a subsidy unless it confers a `benefit´. The Appelate Body has ruled that the existence of a benefit is to be determined by comparison with the market-place (i.e. on the basis of what the recipient could have received on the market)

Exemption from the prohibition on export subsidies The prohibition on export subsidies does not apply to least-developed Members, nor to certain Members specifically identified in Annex VII(b) of the Agreement until the GNP per capita of such Members has reached US$ 1,000 per annum

Are subsidies for agricultural products subject to the Agreement? There is no general carve-out from the Subsidies Agreement for agricultural products. However, the Agreement on Agriculture provides for a number of specific rules regarding subsidies on agricultural products that override certain specific provisions of the Subsidies Agreement

Are subsidies for agricultural products subject to the Agreement? (II) On the other hand, except with respect to the „green box“ subsidies, subsidized agricultural products may nevertheless be subject to countervailing duties, and agricultural subsidies must be notified to the Committee on Subsidies and Countervailing Measures

Are subsidies for agricultural products subject to the Agreement? (III) Agricultural export subsidies that are fully consistent with the provisions of the Agreement on Agriculture are not prohibited under the SCM Agreement, but instead are subject to the disciplines of the Agreement on Agriculture. They can be countervailed.