Subsidies and countervailing measures

SCM

SCM
This is the Uruguay Round agreement that sets out the rules under which WTO Members may provide and apply subsidies for domestic products or impose countervailing measures on subsidized imported products.

CVM
countervailing duty, this refers to a special duty or tax imposed by an importing country on an imported product for the purpose of offsetting any subsidies provided in the exporting country, directly or indirectly, for the making, production, or export of the product.

Defining subsidy
Definition of subsidy Unlike the Tokyo Round Subsidies Code, the WTO SCM Agreement contains a definition of the term subsidy. The definition contains three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist

Subsidy clarification
There are four types of specificity within the meaning of the SCM Agreement:

Enterprise-specificity. A government targets a particular company or companies for subsidization;

Industry-specificity. A government targets a particular sector or sectors for subsidization. Regional specificity. A government targets producers in specified parts of its territory for subsidization.

Prohibited subsidies. A government targets export goods or goods using domestic inputs for subsidization.

Subsidy types
Prohibitive: Article 3 of the SCM ( export local content subsidy)

Actionable: production subsidies

SCM
Prohibited and actionable subsidies Prohibited: use domestic content in place of imported content Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted.

SCM Agreement
Under the agreement, a country can use the WTOs dispute-settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (countervailing duty) on subsidized imports that are found to be hurting domestic producers.

SCM
agreement only apply to specific subsidies. They can be domestic or export subsidies. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take counter measures and If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

SCM
When subsidies are hurting importers once again like antidumping agreement investigations are conducted and When the causal link to the domestic industry injury is proved ie subsidized imports injury & causal link then countervailing measures are imposed to offset subsidies from exporting Govt( cvm is special off setting import tax) LDCs are exempted from such countervailing measures

Subsidy ill effect defined

Injury to domestic industry Seriously prejudiced Impairment of other benefits

WTO control & agreement

Multilateral Discipline: under this process WTO members decide that whether they can use a subsidy to international trade Part I provides that the SCM Agreement applies only to subsidies that are specifically provided to an enterprise or industry, part 2 and 3 divide subsidies into prohibited and actionable

SCM
Article 13 says export subsidies in conformity with the Agriculture agreement are not prohibited by SCM agreement

Imp terms of the SCM agreement

Sunset: CVM be terminated after five years when applied Prelim investigation and judicial review EXEMPTIONS LDCs exempted from prohibition of export subsidies( GNP per capita of 1000$ /year). They are given 8 years to use it and phase it out Economies in transition to market economies, given 7yr

 Article 25 of the SCM agreement asking members to notify their subsidy schedule if any CVM under article 32 on semi annual basis