Agreement on Subsidies and Countervailing Measures 16022011

8/6/2019 Agreement on Subsidies and Countervailing Measures 16022011

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Presented by:

Ankur Kohli 10020241063

Ravi Singh 10020241077

Sahil Verma 10020241078

Anu Moudgil 10020241095

Hrishikesh Malushte 10020241099

Supriya Bansal - 10020241113

AGREEMENT ON SUBSIDIES ANDCOUNTERVAILING MEASURES


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BRIEF BACKGROUND

The agreement on Subsidies & Countervailing Measures(SCM) was a significant development that took place inthe Uruguay round of multilateral trade negotiations

(MTN), conducted within the framework of GeneralAgreement on Tariffs and Trade(GATT), spanning from1986 1994 and embracing 123 countries as contractingparties.

This Round transformed the GATT into the World Tradeorganisation or WTO as it is known today.


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PURPOSE

Principally, the SCM Agreement

- Disciplines the use of subsidies by membercountries.

- Regulates the actions countries can take to offsetthe effects of subsidies (Dispute-settlementprocedure & Countervailing duty)


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DEFINITION

As per the SCM (Subsidies & Countervailing Measures) Agreementthe term subsidy is defined as a financial contribution, by agovernment or any public body within the territory of a member

,which confers a benefit .

Countervailing measures are defined as steps taken to negate theeffect of an action, event or an occurrence". In the context of

multilateral trade these are exercised in the form of countervailingduty (CVD) on exports from other member countries


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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), theexemption of export or import duty or taxes shall not be deemedto be a subsidy.


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GOVERNMENT OR ANY PUBLIC BODY

National Governments

Sub-National governments, State/Countygovernments

State-owned companies (e.g. PSU in case of India)

Any private body entrusted or directed bygovernment to perform similar functions in

accordance with Article 2 of SCM Agreement.


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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 themarket.

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 thanadequate remuneration, while Purchase is to be made formore than adequate remuneration.

For the equity capital to be considered as a benefit, the

investment decision should be inconsistent with the usualinvestment ractice of rivate investors in that re ion.


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AGREEMENT STRUCTURE


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Establish the substantive & procedural requirements of using CVMagainst subsidized imports

Establish the institutional structure and notification modalities forimplementation of the SCM Agreement

Contains transition rules for developed country and former centrally-planned economy Members

Introduces the concept of specificity of subsidyPART I

PARTSIV & V

PARTSVI & VII

PART IX

Categorize subsidies; establish rules & procedures

Contains special and differential treatment rules for variouscategories of developing country Members

Contain dispute settlement and final provisions

PART II& III

PARTVIII

PART X

& XI


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SPECIFICITY CLAUSE

Subsidy must be provided specifically to anindustry/enterprise/group of industries.

Thus, specific subsidies are subject to the SCM agreement

Govt. targets a particular company orcompanies for subsidization

Enterprise-specificity

A government targets a particular sector orsectors for subsidization.

Industry-specificity

Regionalspecificity

A government targets export goods orgoods using domestic inputs forsubsidization.

Prohibited

specificity

A government targets producers inspecified parts of its territory forsubsidization.


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CATEGORIES

Classificationof subsidies

Prohibited

ExportSubsidies

Local Content

SubsidiesActionable

Non-actionable

Agricultural

Expired in Dec,1999


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PROHIBITED SUBSIDIES

Directly affect the trade and have adverse effectson the interests of other members.

Export subsidies Subsidies contingent,completely or conditionally, on exportperformance.

Local content subsidies Subsidies contingent,

completely or conditionally, on use of domesticover imported goods.


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ACTIONABLE SUBSIDIES

Acceptable under normal circumstances, butchallengeable if found detrimental to the interestsof fellow member country.

Resolution Methods Multilateral disputesettlement, Countervailing measures.

However, the complainant must provide prima facie

evidence suggesting violation of SCM Agreement.


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ACTIONABLE SUBSIDIES

Types of adverse effectsTypes of adverse effects

INJURY to a domesticindustry caused bysubsidized imports in theterritory of the complainingMember.

SERIOUS PREJUDICE tothe exports of subsidizingmember.

NULLI ICATIONofimproved market access(obtained from tariffreduction) due tosubsidization.?????


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NON-ACTIONABLE SUBSIDIES

(EXPIRED IN DEC, 1999) If provided by a developing country as part of a

program of privatization of government-ownedenterprises, some types of subsidies are not

actionable Direct forgivenessforgiveness of debts

Subsidies to covercoversocial costs

T

he subsidies must be granted for al

imitedl

imitedperiod The country must notifynotify the SCM Committee of

the program and the subsidies involved


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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.


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COUNTERVAILING MEASURES

Substantive rules

Countervailing measures cannot be imposed unlesssubsidized 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 countervailinginvestigations, imposition of preliminary and final measures,

use of undertakings and duration of measures.


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Defines in numeric terms the circumstances underwhich there is sufficient support from a domesticindustry to justify initiation of an investigation.Standing

Ensures the conduct of a preliminary investigationbefore a preliminary measure can be imposed.Preliminary

Investigation

Places limitations on the use of undertakings to settleCVD investigations, in order to avoid VoluntaryRestraint Agreements or similar measuresmasquerading as undertakings.

Undertakings

Requires the termination of countervailing measureafter five years unless determined that continuation isnecessary to avoid the recurrence of subsidizationand injury.

Sunset

Requires that members create an independenttribunal to review the consistency of determinationsof the investigating authority with domestic law.Judicial review


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SPECIAL & DIFFERENTIAL TREATMENT

Developed countries

Allowed to phase out the prohibitedsubsidies,three years from the date on which the SCMagreement enters into force for them.

Such subsidies must be notified within 90 daysof the entry into force of the WTO Agreement for

the notifying Member


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SPECIAL & DIFFERENTIAL TREATMENT Developing Countries Exemption, either permanent or for a

stipulated time period, is given on prohibited subsidies forexports (refer to below table)

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

CATEGORY (Annex VII) INCENTIVE

Least Developed Countries(LDC)

Exempted from the prohibition on exportsubsidies.

GNP < $1000 per annum Exempted from the prohibition on export subsidies.

Other Developing Countries Eight-year period granted to phase out their export subsidies (cannot exceed the level ofsubsidy during this period)


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SPECIAL & DIFFERENTIAL TREATMENT

The treatment is even more favourable w.r.tactionable subsidies.

Certain subsidies related to developing countrys

privatization programmes are not actionablemultilaterally.

With respect to countervailing measures, developingcountry Members' exporters are entitled to more

favourable treatment with respect to the termination ofinvestigations where the level of subsidization orvolume of imports is small.


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SURVEILLANCE

The Committee shall examine new and full notificationssubmitted at special sessions held every third year.

Notifications submitted in the intervening years(updating notifications) shall be examined at eachregular meeting of the Committee.


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DISPUTEDISPUTE SETTLEMENTSETTLEMENT

If a subsidy is causing adverse effects a WTOmember can seek resolution of the matter, if, after 60days, consultations have not resolved the issue.

The request for dispute settlement must includeinformation describing the subsidies.

A WTO member will request dispute settlement if : The subsidy is affecting the competitivenesscompetitiveness of its exports in

third markets.

The subsidy is distortingdistorting its domestic market, but the

domestic industry has not necessarily suffered injury. Other WTO members are likely to support its position.


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ANALYSIS OF AGREEMENT


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SUGGESTIONS FOR IMPROVEMENT

The guiding principle behind the SCM Agreement has beento allow for trade in commodities that are free of duties ortaxes.

Current Scenario: Remission of duties on the import ofcapital goods used for export production is countervailedby importing Member countries.

Suggestion: Since tariff on import of capital goodsrepresents indirect tax and hence increased cost, thedrawback/refund provisions should also be applicable to

capital goods used in export production.


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Current Scenario: Currently, the subsidy level doesnot exceed de minimis level which is 2 or 3 per centinstead of 1 per cent, as is the case with the

developed country Member. For India, the deminimis level is 3 per cent.

Suggestion: Raising de minimis level for initiatingcountervailing action for developing countries likeIndia.


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Current Scenario: Once a developing country crosses thementioned GNP level, it ceases to get differential treatment.

Suggestion: Excluding developing country from thedifferential treatment only after its GNP has been above thelevel for a continuous period of three years and not just aone-time attainment at present.


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Current Scenario: Some countries when calculatingCVD only examine the total remission and countervailthe scheme by full benefits given to exporters under

that scheme, disregarding the fact that part of theremission was on account of the duties paid by theexporters.

Suggestion: CVDs to be restricted only to the amountby which the subsidy exceeds the de minimus level.


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Current scenario:A full dispute settlementprocedure 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 andtrade interests of the successful complainantduring the dispute settlement procedure.


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Agreement on Subsidies and Countervailing Measures 16022011

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