Subsidies and DumpingStudy case N6

Relevant information from the case

• Auto-solutions wants to market a new car in Servia

• Servia has significant tax credit that promote the sale of hybrid cars, therefore, Auto-solutions gave up its efforts to enter the market.

• Servia’s government invested heavily in research to promote the development of hybrid cars, the project was held by the Technical University of Servia

• The University transferred the technology it had developed to the newly established Servian car producer Future-Cars for free.

Relevant information from the case

• Future-Cars was owned partly by the University (20 %) and partly by private investors (80 %).

• The production of hybrid cars was very successful, and the new car became extremely popular in Servia. Currently, it has 80 % of the Servian car market

• the hybrid car was also exported to Monia, where it captured 25 % of the car market during two years. During the same period, the sale of Auto- solutions’ cars in Monia was reduced by 15 %.

• 5 years have passed since the market exploration of Auto-solution.

Questions

-How Auto-solutions should proceed with such a case

-What kind of factual information Auto-solutions should be

prepared to provide.

Is it dumping or subsidy?

• It is not dumping!

• Why?

• Because it is a subsidy!

• why?

• Let’s find out!

SUBSIDIES TWO TRACKS

Tax credits on sales of hybrid cars

• Financial contribution Art 1 (a) SCM-Agreement• Government revenue, otherwise due, is foregone?

• „otherwise due“ -> depends on rules of taxation of member (US – FSC)

• Comparison of general tax rates and the lower tax rate

• Does scope of exceptions undermines the existence of a general rule? (US –Large Civil Aircraft, 2nd complaint)

• by a government or a public body

• conferring a benefit Art 1 (b)

• Specificity Art 2 SCM-Agreement• Enterprise or industry specificity Art 2 (a), Industry: Producers of certain types

of products (US – Upland Cotton)

• Prohibited subsidy? Art 3 SCM-Agreement

• Actionable subsidy? Art 5 SCM-Agreement• Must have adverse effects to interests of other members:

• Serious prejudice Art 6 (a): Effect of subsidy is to displace or impede the imports of a like product of another Member into the market of subsidizing member

• Like product: Competition relationship and substitute

• Impedance: Import where hindered by the subsidized product (US – Large Civil Aircraft, 2nd complaint)

•-> no injury to domestic industry. It can only be challenged by WTO dispute settlement under Art 7 SCM

Transfer of technology

• Financial contribution Art 1 (a) SCM-Agreement• Government provides goods or services other than general infrastructure

• Inputs with financial value (US – Softwood Lumber IV)

• Reasonably proximate relationship between action of government providing the good and enjoyment of the good by the recipient (US – Carbon Steel)

• General infrastructure: Available for all entitys (EC – Large Civil Aircraft)

• By a government or public body• Public body: Entity performing governmental functions, Governmental

functions ordinarily classified as governmental in the legal order of the member (US – Carbon Steel)

• Conferring a benefit Art 1 (b)• Art 14 (d) No benefit when there is a adequate remuneration

• Specificty Art 2 SCM-Agreement• SCM only applys to specific subsidies

• Prohibited subsidies are not relevant to our case

• We have come to the conclusion that the issue referred to in our case is an example of actionable subsidy

• Due to the fact that it provoques adverse effects on the interests of another member.

Art 5 SCM Agreement

Paragraphs a to c of art 5 of the SCM Agreements distinguish

between 3 types of adverse effects:

(1) Injury to the domestic industry of another member (article 5a)

(2)Nullification or impairment of benefits accruing directly or

indirectly to other Members under the GATT. 1994 (art. 5.b)

(3)Serious prejudice

The effects resulting from the subsidy that Future Cars is

benefiting from, identifies with the type : Injury to the domestic

industry of another member

This refers to :

• material injury to the domestic industry (which is Monia’s car

industry)

• producing the product that is "like" (cars in general)

• the subsidized product (hybrid cars produced by Future Cars)

• imported into the territory of the complaining Member

(imported into Monia, who is the complaining member)

Remember!

As we already said:

We need to have the preconditions of like product!

- SCM-Agreement- GATT

• Provisions of the WTO Agreement referred to? Articles I:1, III:2

and III:4 of the Gatt 1994.

• In establishing likeness this elements are important!

1. Physical characteristics

2. End uses (substitutional?)

3. Consumer habits and preferences (substitutional?)

4. Tariff classification

Indonesia- Autos(1998) Panel says:

‘characteristics closely resembling’ includes but is not

limited to physical characteristics.

So...

The like products in this case are ‘cars in general’ (In Monia)

and ‘hybrid cars’ (produced by Future Cars)

Art.16 defines domestic industry as

Domestic producers as a whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products

All car produces in Monia are domestic producers which conforms the domestry industry.

InjuryDefinition must pursuant to art 15.1 of the SCM Agreement, be

base on positive evidence and involve an objective of examination

of:

FIRST: the volume of the subsidised imports and the effects on

the subsidised imports on prices in the domestic market for like

products (subsidised imports takes 25% of market)

SECOND: the consequent impact of these imports on the domestic

producers of such products (-15% of sales of Auto-Solutions in

Monia)

Referring to art 15.2 we must ask ourselves:

Has been a significant increase of the subsidised

imports?

Article 15.2 especially focus and contemplates an inquiry into the

relationship between two variables:

• subsidy imports

• domestic prices. Nonetheless in this case we are not given any

price information

Causation issue of non attribution

Art. 15.5 requires that the subsidized imports are, through the effect of subsidies, causing injury to the domestic industry.

Art. 15.4: for examining the effects of subsidised imports, comprise:

1. Whether there has been a significant increase in subsidised imports2. Effect of the subsided imports on prices 3. Consequent impact of the subsised imports on the domestic

industry

-> Since the subsised car entered the market in Monia, Sales of Auto-Solutions dropped by 15% and sales of Future-Cars increased up to 25% in two years

SUBSIDIES TWO TRACKS