AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES

Presented by: Ankur Kohli 10020241063 Ravi Singh 10020241077 Sahil Verma 10020241078 Anu Moudgil 10020241095 Hrishikesh Malushte 10020241099 Supriya Bansal - 10020241113

BRIEF BACKGROUND
The agreement on Subsidies & Countervailing Measures (SCM) was a significant development that took place in the Uruguay round of multilateral trade negotiations (MTN), conducted within the framework of General Agreement on Tariffs and Trade(GATT), spanning from 1986 1994 and embracing 123 countries as contracting parties. This Round transformed the GATT into the World Trade organisation or WTO as it is known today.

PURPOSE
Principally, the SCM Agreement - Disciplines the use of subsidies by member countries. - Regulates the actions countries can take to offset the effects of subsidies (Dispute-settlement procedure & Countervailing duty)

DEFINITION
As per the SCM (Subsidies & Countervailing Measures) Agreement the term subsidy is defined as a financial contribution, by a government or any public body within the territory of a member, which confers a benefit .

Countervailing measures are defined as steps taken to negate the effect of an action, event or an occurrence". In the context of multilateral trade these are exercised in the form of countervailing duty (CVD) on exports from other member countries

FINANCIAL CONTRIBUTION
Direct transfer of funds loans, grants, equity infusions. POTENTIAL Direct transfer of funds/liabilities loan guarantees. Financial Incentives Revenue foregone, Tax Credits. Provision of goods or services other than general infrastructure. Purchase of goods. PS: Under the provisions of Article XVI of GATT (1947 & 1994), the exemption of export or import duty or taxes shall not be deemed to be a subsidy.

GOVERNMENT OR ANY PUBLIC BODY

National Governments Sub-National governments, State/County governments State-owned companies (e.g. PSU in case of India) Any private body entrusted or directed by government to perform similar functions in accordance with Article 2 of SCM Agreement.

BENEFIT
The existence of a benefit is to be determined by comparison with the marketplace.
Amount (Principle + Interest) paid in availing a loan from government vis--vis that paid while borrowing from the market. Amount paid in availing a guarantee from government vis-vis that paid when taken from the market. Provision of goods & services is to be made for less than adequate remuneration, while Purchase is to be made for more than adequate remuneration. For the equity capital to be considered as a benefit, the investment decision should be inconsistent with the usual investment practice of private investors in that region.

AGREEMENT STRUCTURE

PART I PART II & III PARTS IV & V PARTS VI & VII PART VIII

Introduces the concept of specificity of subsidy

Categorize subsidies; establish rules & procedures

Establish the substantive & procedural requirements of using CVM against subsidized imports Establish the institutional structure and notification modalities for implementation of the SCM Agreement Contains special and differential treatment rules for various categories of developing country Members Contains transition rules for developed country and former centrallyplanned economy Members

PART IX

PART X & XI

Contain dispute settlement and final provisions

SPECIFICITY CLAUSE
Subsidy must be provided specifically to an industry/enterprise/group of industries. Thus, specific subsidies are subject to the SCM agreement

Enterprisespecificity Industryspecificity Regional specificity Prohibited specificity

Govt. targets a particular company or companies for subsidization

A government targets a particular sector or sectors for subsidization. A government targets producers in specified parts of its territory for subsidization. A government targets export goods or goods using domestic inputs for subsidization.

CATEGORIES
Export Subsidies Prohibited Local Content Subsidies Actionable Classification of subsidies Non-actionable Expired in Dec, 1999

Agricultural

PROHIBITED SUBSIDIES
Directly affect the trade and have adverse effects on the interests of other members. Export subsidies Subsidies contingent, completely or conditionally, on export performance. Local content subsidies Subsidies contingent, completely or conditionally, on use of domestic over imported goods.

ACTIONABLE SUBSIDIES
Acceptable under normal circumstances, but challengeable if found detrimental to the interests of fellow member country. Resolution Methods Multilateral dispute settlement, Countervailing measures. However, the complainant must provide prima facie evidence suggesting violation of SCM Agreement.

ACTIONABLE SUBSIDIES
Types of adverse effects

INJURY to a domestic SERIOUS PREJUDICE to industry caused by the exports of subsidizing subsidized imports in the member. territory of the complaining Member.

NULLI ICATION of improved market access (obtained from tariff reduction) due to subsidization.?????

NON-ACTIONABLE SUBSIDIES
(EXPIRED IN DEC, 1999) Subsidies that are not specific Certain types of assistance for research and development Certain types of benefits to support environmental compliance by existing facilities Assistance to disadvantageous regions In each case, the SCM Agreement sets forth detailed requirements the subsidies must satisfy to be nonactionable

NON-ACTIONABLE SUBSIDIES
(EXPIRED IN DEC, 1999)

If provided by a developing country as part of a program of privatization of government-owned enterprises, some types of subsidies are not actionable Direct forgiveness of debts Subsidies to cover social costs The subsidies must be granted for a limited period The country must notify the SCM Committee of the program and the subsidies involved

AGRICULTURE SUBSIDIES
Until 2003, Article 13 of the Agreement on Agriculture established special rules regarding subsidies for agricultural products. As per the Uruguay Round Protocol, Export subsidies which are in full conformity with the Agriculture Agreement are not prohibited by the SCM Agreement, although they remain countervail able. Domestic supports within the green box of the Agriculture Agreement are not actionable multilaterally nor are they subject to countervailing measures.

COUNTERVAILING MEASURES
Substantive rules Countervailing measures cannot be imposed unless subsidized imports & injury to a domestic industry is ascertained and a causal link between the two is established. Procedural rules Rules regarding the initiation, conduct of countervailing investigations, imposition of preliminary and final measures, use of undertakings and duration of measures.

Standing Preliminary Investigation Undertakings Sunset Judicial review

Defines in numeric terms the circumstances under which there is sufficient support from a domestic industry to justify initiation of an investigation.

Ensures the conduct of a preliminary investigation before a preliminary measure can be imposed.

Places limitations on the use of undertakings to settle CVD investigations, in order to avoid Voluntary Restraint Agreements or similar measures masquerading as undertakings. Requires the termination of countervailing measure after five years unless determined that continuation is necessary to avoid the recurrence of subsidization and injury. Requires that members create an independent tribunal to review the consistency of determinations of the investigating authority with domestic law.

SPECIAL & DIFFERENTIAL TREATMENT

Developed countries Allowed to phase out the prohibited subsidies, three years from the date on which the SCM agreement enters into force for them. Such subsidies must be notified within 90 days of the entry into force of the WTO Agreement for the notifying Member

SPECIAL & DIFFERENTIAL TREATMENT

Developing Countries Exemption, either permanent or for a stipulated time period, is given on prohibited subsidies for exports (refer to below table)
CATEGORY (Annex VII) Least Developed Countries (LDC) GNP < $1000 per annum INCENTIVE Exempted from the prohibition on export subsidies. Exempted from the prohibition on export subsidies. Eight-year period granted to phase out their export subsidies (cannot exceed the level of subsidy during this period)

Other Developing Countries

PS - For

import-substitution subsidies the phase out period stands at 8 yrs for LDCs and 5 yrs for Other Developing Countries

SPECIAL & DIFFERENTIAL TREATMENT

The treatment is even more favourable w.r.t actionable subsidies.
Certain subsidies related to developing countrys privatization programmes are not actionable multilaterally. With respect to countervailing measures, developing country Members' exporters are entitled to more favourable treatment with respect to the termination of investigations where the level of subsidization or volume of imports is small.

NOTIFICATIONS
Members need to notify
All the specific subsidies to the SCM committee. Countervailing duty laws regulations to the SCM Committee pursuant to Article 32.6 of the SCM Agreement. Countervailing actions taken on a semi-annual basis, and preliminary and final countervailing actions at the time they are taken. About competent authorities given the authority to initiate and conduct countervailing investigations.

SURVEILLANCE
The Committee shall examine new and full notifications submitted at special sessions held every third year. Notifications submitted in the intervening years (updating notifications) shall be examined at each regular meeting of the Committee.

DISPUTE SETTLEMENT
If a subsidy is causing adverse effects a WTO member can seek resolution of the matter, if, after 60 days, consultations have not resolved the issue. The request for dispute settlement must include information describing the subsidies. A WTO member will request dispute settlement if :
The subsidy is affecting the competitiveness of its exports in third markets. The subsidy is distorting its domestic market, but the domestic industry has not necessarily suffered injury. Other WTO members are likely to support its position.

ANALYSIS OF AGREEMENT

SUGGESTIONS FOR IMPROVEMENT

The guiding principle behind the SCM Agreement has been to allow for trade in commodities that are free of duties or taxes. Current Scenario: Remission of duties on the import of capital goods used for export production is countervailed by importing Member countries. Suggestion: Since tariff on import of capital goods represents indirect tax and hence increased cost, the drawback/refund provisions should also be applicable to capital goods used in export production.

SUGGESTIONS FOR IMPROVEMENT

Current Scenario: Currently, the subsidy level does not exceed de minimis level which is 2 or 3 per cent instead of 1 per cent, as is the case with the developed country Member. For India, the de minimis level is 3 per cent. Suggestion: Raising de minimis level for initiating countervailing action for developing countries like India.

SUGGESTIONS FOR IMPROVEMENT

Current Scenario: Once a developing country crosses the mentioned GNP level, it ceases to get differential treatment. Suggestion: Excluding developing country from the differential treatment only after its GNP has been above the level for a continuous period of three years and not just a one-time attainment at present.

SUGGESTIONS FOR IMPROVEMENT

Current Scenario: Some countries when calculating CVD only examine the total remission and countervail the scheme by full benefits given to exporters under that scheme, disregarding the fact that part of the remission was on account of the duties paid by the exporters. Suggestion: CVDs to be restricted only to the amount by which the subsidy exceeds the de minimus level.

SUGGESTIONS FOR IMPROVEMENT

Current scenario: A full dispute settlement

procedure still takes a considerable amount of time, during which the complainant suffers continued economic harm if the challenged measure is indeed (WTO)-inconsistent.

Suggestion: Provisional measures (interim relief) should be available to protect the economic and trade interests of the successful complainant during the dispute settlement procedure.