WTO rules on Subsidies WTO rules on Subsidies and and

Countervailing MeasuresCountervailing Measures

Prof. Gan YingProf. Gan Ying

12-Feb-200812-Feb-2008

I IntroductionI Introduction

Dilemma ？

• 1), Government policies and social welfare v. adverse effects

• 2), Legitimate or not? –no distortion allowed.

II Basic WTO rules on SCMII Basic WTO rules on SCM

• GATT art.16--1994

• SCMA

Concept of subsidies

Treatment of subsidies

Response to injurious subsidies

III Determination of III Determination of subsidization:subsidization:

concept & categorizationconcept & categorization

• Concept (SCMA art.1.1)

• 1)—provider

• Government body• Public body• Funding mechanism (plan?)• Private body—no restriction

2) financial contribution2) financial contribution

• A) Types • a--Direct transfer of funds

Grants/ loans/ equity infusions• b--Potential direct transfer of funds &

liabilities

Loan guarantees• c--Government revenue, otherwise due, that

is foregone or not collected

Fiscal incentives-tax (US -FSC)

• d--Provision of goods and services other than general infrastructure

• e--Purchase goods

No services? Why? • f--Payments to funding mechanism

Canada --Diary

Cash/ payment in kind/ payment for services• g--Entrustment or direction of a private body

B) Comparison standardB) Comparison standard(art.14 calculation of benefit)(art.14 calculation of benefit)

• a) Market-based standard

• Equity infusion—the usual investment practice of private investors

• Loan—comparable commercial loan that could actually obtained on the market

• Loan guarantee—the amount that would pay on a comparable commercial loan absent the gov. guarantee

• Provision of goods and services： -- adequate remuneration in prevailing market

Conditions (quality/availability/transportation, etc.)

• b) Gov. revenue otherwise due

• Sovereignty—impose duty

• Give tax credit/ exemption CASE: Indonesia – auto1998

CASE: US -- FSC 2000

• Benchmark: taxation system of a country: revenue actually raised v. would have been raised otherwise.

• c) conferring a benefit

benefit v. “cost of government”

CASE: Brazil-aircraft:

• Can be passed from one to another? Privatization – arm’s-length business standard

（ US—CVD on UK hot-rolled steel ）

categorizationcategorization

• 1) Specificity (SCMA art.2)

A) De jure specificity

• Legislation –limit to certain enterprise or industry.

• Objective criteria or conditions governing the automatic eligibility, amount, condition must be strictly adhere to

• B) De facto specificity• Factors:• Use by limited number of enterprises.• Predominant use by certain enterprises. (the dominant use theory) （ US ： 45%-100% ）• Granting disproportionately large amounts to cer

tain enterprises. (the disproportionate beneficiary theory) Compared with the GDP/GNP contribution.

• C) Geographical specificity

Subsidy limited to certain enterprises located in a designated geographical region

• D) Deemed specificity

prohibited ： export subsidies / import substitution subsidies

Traffic Light TheoryTraffic Light Theory

prohibited subsidies (red light)

actionable subsidies (yellow light)

non-actionable subsidies (green light)

Prohibited subsidiesProhibited subsidies

（SCMA art.3）• 1)Export subsidies• De jure or de facto contingent on actual or an

ticipated export performance• Subsidy for export-oriented enterprises?

• Annex I (a)-(l) 12

• 2) Import substitution subsidies

• De jure or de facto contingent on the use of domestic over imported goods

• （ local content requirements?）

Actionable subsidiesActionable subsidies

• Example:

adverse effects to the interests adverse effects to the interests of another memberof another member

• A) Injury to domestic industry

• a) Like product• b) Domestic industry• c) Injury to industry material injury threat of material injury material retardation of the establishment ) factors—volume/price/impact on producers• d) Causal linkOther factors may not be attributed to the subsidized

imports

• B) Nullification or impairment of benefits accruing directly or indirectly under GATT 1994

• Tariff concessions/ market access

• C) Serious prejudice, or threat thereof, to the interests

• The trade effects standard

Non-actionable subsidiesNon-actionable subsidies

• A) non-specified

• B) Some specified—2000/1/1 actionable

• Environment/R&D/Regional

IV Remedies IV Remedies

• 1) multilateral v. unilateral

• A) multilateral： DSU

• Special or additional rules and procedures

• Difference in time frames (prohibited-half as in DSU)

B) unilateral: CVDB) unilateral: CVD

apply to subsidies injuring domestic industries only.

Basic requirements :• Transparency• Opportunity to defend• Adequate explanation for determinations

Procedure for unilateral remediesProcedure for unilateral remedies

• Initiation (Sufficient evidence/ de minimis or negligible subsidy)

• Investigation (questionnaire/ on-spot)• Provisional determination• Final determination• Community/public interest ?• countervailing measures: provisional measures/

definitive duties/ voluntary undertakings (government eliminate or limit subsidies/ enterprises’ raising price)

Special and differential treatment for DCMSpecial and differential treatment for DCM (art. 27) (art. 27)

Examples:

• Prohibition of export subsidies not apply to LDCM or <$1000 per capita annual income.

• Some actionable subsidies in privatization programmes (direct forgiveness of debts, subsidies covering social cost) shall be treated as non-actionable.

V New Round Negotiation on V New Round Negotiation on SCMA & Hot IssuesSCMA & Hot Issues

• WTO subsidy discipline(2004 V.38(6))

• 1, Proposals in DOHA Round

• 2, Developing countries proposal

• 3, Developed countries

VI ChinaVI China

• China has been sued by Canada and US.MOFCOM:

http://www.cacs.gov.cn/DefaultWebApp/index.htm

USITC http://www.usitc.gov/CBSA http://www.cbsa-asfc.gc.ca/menu-eng.html

• Developing country? Transitional country?• Domestic rules (upstream subsidy/anti-

circumvention/ Best information available)