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M y C o u r s e s e r i e s

OBJECTIVE

Provide an overview on Subsidies and Countervailing Measures.

WTO E-LEARNING COPYRIGHT © 12

Introduction to Subsidies and Countervailing Measures in the WTO

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I. INTRODUCTION

Subsidies and countervailing measures

The WTO Agreement on Subsidies and Countervailing Measures disciplines the use of subsidies, and it

regulates the actions countries can take to counter the effects of subsidies. Under the agreement, a country

can use the WTO’s 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

The WTO Agreements include provisions which allow Members to depart from

the basic principles on non-discrimination applicable to trade between WTO Members (the Most-

Favoured-Nation (MFN) and National Treatment principles),

rules related to tariff and non-tariff barriers (NTBs), including the disciplines related to commitments on

maximum bound tariff rates, and

the general prohibition on quantitative restrictions (QRs) (such as quotas), subject to certain conditions.

In this Module, you will study only those provisions concerned with the use of subsidies and the application of

countervailing measures to counteract injurious subsidization.

World Trade Organization (WTO) Members have retained their right to impose trade remedies, such as

anti-dumping and countervailing duties, to correct the competitive imbalances created by unfair trade practices

- dumping and subsidies -,when these cause injury. They have also agreed on multilateral disciplines

governing the granting of subsidies. Members are also allowed to apply safeguard measures in case of a surge

of imports that causes, or threatens to cause, serious injury. Unlike anti-dumping and countervailing

measures, the application of safeguard measures does not depend on unfair trade practices.

This Module will present an overview of the WTO disciplines and conditions for the application of subsidies and

countervailing measures.

Disputes arising regarding the granting of subsidies and the application of anti-dumping, countervailing and

safeguard measures are subject to the Understanding on Rules and Procedures Governing the Settlement of

Disputes (DSU).

Rationale behind trade remedies – A policy perspective

At first sight, it might seem that trade remedies "go against" trade liberalization. One may ask: Why have

Members agreed on rules that provide them the right to restrict trade temporarily? What role do trade

contingency measures -in the form of trade remedies- play in trade agreements?

Trade liberalization around the world has reduced tariff rates to low levels, producing "winners" and "losers"

in each country. However, countries typically do not have identifiable mechanisms for extracting part of the

income gains from the "winners" in order to compensate the "losers" from trade liberalization. Furthermore,

economic circumstances may evolve in a way which makes the maintenance of policies in favour of trade

liberalization untenable because of large adjustment costs.

In light of these considerations, trade agreements may provide governments with a means to depart

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temporarily from certain core obligations contained therein under well defined conditions. Safeguard,

anti-dumping and countervailing measures are alike to the extent that they can be used temporarily to

"shield" vulnerable sectors from the consequences of lower tariff protection in certain circumstances. Without

the possibility of applying these measures, political pressures may build up to a point where protectionist

forces would be able to engineer a permanent reversal of trade liberalization. Accordingly, trade remedies

may be considered as a pragmatic –- and temporary -- tool to deal with the costs of adjustment resulting

from trade liberalization as well as to deflate the build-up of domestic pressures against liberalization.

Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO p. 152-153.

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II. IN BRIEF: TRADE REMEDIES

Members are allowed to apply trade defence mechanisms to remedy a situation of unfair trade practices

(anti-dumping and countervailing measures) or a surge of imports (safeguard measures) when these cause

injury to the domestic industry and subject to certain requirements. Even if these measures are not referred

to as exceptions, they also allow Members to depart – temporarily - from certain core WTO obligations, for

example, to impose tariffs above the bound levels or QRs (depending on the measure).

Anti-dumping, countervailing and safeguard measures have some common features, but also differ in some

aspects. A common feature is that they can be applied only after conducting a domestic investigation where

certain substantive and procedural requirements provided in the respective agreement are met. Many Members

handle anti-dumping and countervailing procedures under a single law, apply a similar process to deal with

them and give a single authority responsibility for investigations. From the three mechanisms, anti-dumping

and countervailing measures are more frequently used than safeguard measures.

Dumping is an action by private firms and thus, it is not prohibited by the Anti-Dumping Agreement. Instead,

the Agreements governs the use of anti-dumping measures. By contrast, in the case of subsidies, it is the

government or a private body following government's instructions which provides the subsidy. Therefore, the

Agreement on SCM includes both disciplines on the use of subsidies as well as upon the use of countervailing

measures by WTO Members. Rather, the application of safeguard measures does not depend on unfair

practices.

With regard to the substantive requirements applied to these measures, in the case of anti-dumping and

countervailing measures, it is necessary to demonstrate that dumped imports or subsidized imports are

causing or threatening to cause material injury to the domestic industry producing the like products. Instead,

for the application of safeguard measures, it is necessary to show that increases imports are causing or

threaten to cause serious injury (imposes a higher standard than material injury) to the domestic industry

producing the like or directly competitive products (a concept which is broader than just "like" products).

Moreover, safeguard measures must be applied as a result of unforeseen developments and of the effect of the

obligations incurred by a contracting party under the GATT 1994.

In addition, investigating authorities have to comply with a number of procedural requirements (conditions for

the initiation of investigations, evaluation of evidence, application of provisional measures, transparency

provisions, duration and review of the measures, etc). The procedural requirements provided for the three

measures are fairly similar, although there are also important differences, especially in the context of

safeguard measures.

While anti-dumping duties would be applied to the products of enterprises found to be practicing dumping,

countervailing duties would be placed on products of enterprises benefiting from the subsidies. Since

safeguard measures have to be applied, in principle, on an MFN basis, they will have to target the imports of

the like or directly competitive products of all WTO Members concerned (in the context of special and

differential treatment, only products coming from developing countries may be excluded under certain

circumstances). In addition, in the case of safeguard measures, the Member will offer compensation to the

affected Members.

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ANTI-DUMPING

MEASURES

COUNTERVAILING

MEASURES

SAFEGUARD MEASURES

Objective To counteract dumping

causing injury to the

domestic industry.

To counteract

subsidization causing

injury to the domestic

industry.

To prevent or remedy

serious injury to the

domestic industry caused

by a surge of imports and

give time to facilitate

adjustment.

Substantive

Requirements

Dumped imports

Material injury

Causal link

Subsidized imports

Material injury

Causal link

Increased imports

Serious injury

Causal link

The measure must be

applied as a result of

unforeseen developments

and of the effect of the

obligations incurred by a

contracting party under

the GATT 1994.

Recipient of the

Measure

Products of enterprises

practicing dumping.

Products of enterprises

benefiting from

subsidies granted by

Members.

Products of enterprises of

Members.

Form of the Measures Anti-dumping duty (may

exceed bound tariff rate).

Countervailing duty

(may exceed bound

tariff rate).

Among others, tariff duty

increase (may exceed

bound tariff rate) or

quota.

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III. SUBSIDIES & COUNTERVAILING MEASURES

(SCM)

IN BRIEF

The SCM Agreement - addresses two separate but closely related matters: (i) the multilateral disciplines on the

use of subsidies; and, (ii) the conditions under which Members may apply countervailing measures. The SCM

Agreement contains a definition of "subsidy", which applies in both of these areas.

The multilateral disciplines govern whether, and what kind of, a subsidy may be granted by a Member. The

SCM Agreement currently classifies subsidies into two categories: prohibited and actionable.

Countervailing measures are unilateral tools, which may be applied by a Member after conducting a domestic

investigation in which it has been determined that subsidized imports are causing or threatening to cause

injury to the domestic industry producing the like products. As in the case of anti-dumping, countervailing

measures are normally applied in the form of customs duties in excess of bound rates. An exporting Member

affected by the measures may challenge a failure to comply with any of the requirements for the imposition of

countervailing measures by using the WTO dispute settlement mechanism.

The SCM Agreement applies to all goods, that is both agricultural and industrial products. The Agreement on

Agriculture provides disciplines on trade-distorting subsidies relating to agricultural products. As we will see,

there are specific provisions regulating the interaction between the SCM Agreement and the Agreement on

Agriculture when referring to agricultural goods.

III.A. THE SUBSIDIES AND COUNTERVAILING MEASURES

(SCM) AGREEMENT: TWO TRACKS

The main object and purpose of the SCM Agreement is to increase and improve GATT disciplines relating to

the use of both subsidies and countervailing measures (US - Carbon Steel, Appellate Body Report,

para. 73). Therefore, the SCM Agreement can be seen as "two agreements in one".

III.A.1. MULTILATERAL DISCIPLINES ON SUBSIDIES

The SCM Agreement provides multilateral disciplines governing whether, and what kind of, a subsidy may

be provided by a Member. Certain subsidies are prohibited and all other specific subsidies may be challenged if

they cause adverse effects to the interests of other Members.

These rules are enforced through the WTO dispute settlement mechanism, in accordance with the

Dispute Settlement Understanding (DSU). This is also called the "multilateral track". In this regard, the

SCM Agreement contains special or additional rules and procedures that supplement or replace the rules of the

dispute settlement mechanism provided in the DSU. The invocation of the multilateral track may end with the

withdrawal of the subsidy or the removal of its adverse effects, depending on the case.

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III.A.2. COUNTERVAILING MEASURES

The SCM Agreement also allows Members to apply countervailing measures after conducting a domestic

investigation according to the criteria set forth in the SCM Agreement (also called "unilateral" or

"domestic" track). As we will see below, countervailing duties can only be applied when subsidized imports

are causing injury or threatening to cause injury to the domestic industry producing the like product. The

SCM Agreement also provides procedural requirements that regulate the conduct of countervailing

investigations. As in the case of anti-dumping, a failure to comply with any of the requirements for the

imposition of countervailing measures can be challenged by the exporting Member through the WTO

dispute settlement mechanism.

Figure 1: The SCM Agreement: Two tracks

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‘AD-CVD’?

People sometimes refer to the two together — “AD-CVD” — but there are fundamental differences

Dumping and subsidies — together with anti-dumping (AD) measures and countervailing duties (CVD) — share

a number of similarities. Many countries handle the two under a single law, apply a similar process to deal with

them and give a single authority responsibility for investigations. Occasionally, the two WTO committees

responsible for these issues meet jointly.

The reaction to dumping and subsidies is often a special offsetting import tax (countervailing duty in the case

of a subsidy). This is charged on products from specific countries and therefore it breaks the GATT principles of

binding a tariff and treating trading partners equally (MFN). The agreements provide an escape clause, but

they both also say that before imposing a duty, the importing country must conduct a detailed investigation

that shows properly that domestic industry is hurt.

But there are also fundamental differences, and these are reflected in the agreements.

Dumping is an action by a company. With subsidies, it is the government or a government agency that acts,

either by paying out subsidies directly or by requiring companies to subsidize certain customers.

But the WTO is an organization of countries and their governments. The WTO does not deal with companies

and cannot regulate companies’ actions such as dumping. Therefore the Anti-Dumping Agreement only

concerns the actions governments may take against dumping. With subsidies, governments act on both sides:

they subsidize and they act against each others’ subsidies. Therefore the subsidies agreement disciplines both

the subsidies and the reactions.

III.B. DISCIPLINES ON SUBSIDIES

III.B.1. DEFINITION OF "SUBSIDY"

For a measure to be covered by the SCM Agreement, it has to fall under the definition of subsidy provided in

Article 1 of the SCM Agreement and meet the "specificity" requirement provided in Article 2.

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Definition of "Subsidy"

The definition of "subsidy" contains three elements which must be satisfied for a subsidy to be covered by

the SCM Agreement (Article 1). There must be:

A financial contribution;

By a government or any public body within the territory of a Member;

Which confers a benefit.

All three elements must be satisfied in order for a subsidy to exist.

Specificity Requirement

The disciplines in the SCM Agreement only apply to "specific" subsidies (Article 2)— i.e. a subsidy available

only to an enterprise, industry, group of enterprises, or group of industries within the jurisdiction of the

granting authority.

a. FINANCIAL CONTRIBUTION

Under the SCM Agreement, a subsidy may only exist where a measure takes the form of a "financial

contribution", or where there is any form of income or price support in the sense of Article XVI of

GATT 1994. Article 1 contains a list of measures that are deemed to provide a financial contribution.

These include direct transfers of funds (e.g. grants, loans, and equity infusion) and potential direct transfers of

funds or liabilities (e.g. loan guarantees). A financial contribution also exists where government revenue that

is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); where a government

provides goods or services other than general infrastructure, or purchases goods; or, where a government

entrusts or directs a private body to carry out these functions.

If a measure confers regulatory - but not financial - advantages, it would not constitute a subsidy. For

instance, assume that a government temporarily exempts a manufacturing facility in financial difficulties from

the obligation to observe anti-pollution laws. To the extent that there is no element of financial contribution,

this would not constitute a subsidy.

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b. BY A GOVERNMENT OR ANY PUBLIC BODY

In order for a financial contribution to be a subsidy, it must be made by - or with the entrustment or direction

of - a government or any public body within the territory of a Member. The SCM Agreement applies not

only to measures of national governments, but also to measures of sub-national governments and of such

public bodies as state-owned companies.

A financial contribution made by a private body may still fall under the definition provided in Article 1.1 of the

SCM Agreement if a government or public body entrusts or directs a private body, that is, if the contribution is

made pursuant to the government's instructions. For example, if a private non-governmental organization

(NGO) gives technical and financial assistance to coffee growers in certain WTO Members in Africa, it would be

a case of private, not governmental, assistance, presumably unless the financial contribution was made at the

direction of a government or public body within the territory of the WTO Member.

c. CONFERS A BENEFIT

A financial contribution by a government is not a subsidy unless it confers a "benefit". The word ''benefit'', as

used in Article 1.1 of the SCM Agreement, is concerned with the ''benefit to the recipient'' and not with the

''cost to government'' (Canada – Aircraft, Appellate Body Report, paras. 154-155.

In many cases, as in the case of a cash grant, the existence of a benefit and its value may be clear. In some

cases, however, the issue of benefit is more complex. For example, when does a loan, an equity infusion or

the purchase by a government of a good confer a benefit?

Although the SCM Agreement does not provide comprehensive guidance on these issues, the Appellate Body

has stated in Canada – Aircraft that the existence of a benefit is to be determined by comparison with

the market-place (i.e., whether the recipient has received a financial contribution on terms more favourable

than those available to the recipient in the marketplace) (Canada – Aircraft, Appellate Body Report, para. 157).

Thus, for example, if a government makes a loan to a manufacturer on conditions equivalent to those that the

manufacturer could obtain from private banks, there is a financial contribution but no benefit; under these

conditions, the loan would not constitute a subsidy.

In the context of countervailing duties, Article 14 of the SCM Agreement provides some guidance with respect

to determining whether certain types of measures confer a benefit. While that provision furnishes contextual

guidance for the meaning of "benefit", as regards multilateral disciplines, the meaning of "benefit" is not fully

resolved.

d. SPECIFICITY

Even if a measure is a subsidy within the meaning of the SCM Agreement, it nevertheless is not subject to the

SCM Agreement unless it has been "specifically" provided to an enterprise or industry or group of

enterprises or industries. The basic principle is that only a subsidy that distorts the allocation of

resources within an economy should be subject to disciplines. Where a subsidy is widely available within an

economy, such a distortion in the allocation of resources is presumed not to occur.

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

(i) Enterprise-specificity -a government targets a particular enterprise or enterprises for subsidization;

(ii) industry-specificity –a government targets a particular enterprise or enterprises for subsidization;

(iii) regional-specificity –a government targets producers in specified parts of its territory for

subsidization; and,

(iv) prohibited subsidies – i.e. export subsidies and domestic content subsidies are deemed to be specific.

The SCM Agreement covers not only subsidies which are de jure specific (their specific nature is derived from

an explicit limitation by the granting authority or the legislation pursuant to which the granting authority

operates), but also those that are de facto specific (the specific nature of the subsidy is derived from the

facts and circumstances surrounding its application; in other words, the subsidy is "in fact" specific). In this

regard, Article 2.1(c) of the SCM Agreement provides that if there are reasons to believe that the subsidy may,

in fact, be specific, other factors listed in the Agreement - such as the use of a subsidy programme by a limited

number of certain enterprises, predominant use by certain enterprises, and the manner in which discretion has

been exercised by the granting authority in the decision to grant a subsidy - may be considered. Information

on the frequency with which applications for a subsidy are refused or approved and the reasons for such

decisions are also to be considered. The extent of diversification of economic activities within the jurisdiction of

the granting authority, as well as the length of time during which the subsidy programme has been in

operation are to be taken into account.

III.B.2. CATEGORIES OF SUBSIDIES COVERED BY THE SUBSIDIES AND

COUNTERVAILING MEASURES (SCM) AGREEMENT

Categories of Subsidies Covered by the SCM Agreement

The SCM Agreement defines two categories of subsidies *:

1. Prohibited; and,

2. Actionable.

All specific subsidies fall into one of these categories.

* The SCM Agreement originally contained a third category: non-actionable subsidies. This category existed

for five years, ending on 31 December 1999 (the possibility for its extension, originally envisaged in

Article 31 of the Agreement, did not occur).

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a. PROHIBITED SUBSIDIES

Article 3 of the SCM Agreement includes two categories of prohibited ("red-light") subsidies:

Export Subsidies: subsidies contingent, in law or in fact, whether solely or as one of several other

conditions, upon export performance (a detailed illustrative list of export subsidies is contained in

Annex 1 of the SCM Agreement). The mere fact that a subsidy is granted to enterprises which export

shall not, for that reason alone, be considered to be an export subsidy within the meaning of this

provision (see footnote 4 of the SCM Agreement).

Import Substitution Subsidies: subsidies contingent, whether solely or as one of several other

conditions, upon the use of domestic over imported goods.

Any subsidy falling under the provisions of Article 3 shall be deemed to be specific. These two categories are

prohibited because they are presumed to distort international trade, and are therefore most likely to have

adverse effects on the interest of other Members. They may be challenged through the WTO dispute

settlement mechanism (multilateral track) on the basis of special accelerated procedures and, if the

subsidy is found to be prohibited, it must be withdrawn without delay. Since these subsidies are most likely to

cause adverse effects, there is no need for the complaining Member to demonstrate the existence of any trade

effects. Rather, the main focus is on the nature of the subsidy itself. Prohibited subsidies may also be subject

to countervailing measures (unilateral or domestic track) if subsidized imports are causing injury to the

domestic industry.

b. ACTIONABLE SUBSIDIES

Most subsidies, such as many production subsidies, fall in the category of "actionable subsidies" (so-called

"yellow-light" subsidies). Actionable subsidies are not prohibited. However, they are subject to

challenge, either through multilateral dispute settlement or through countervailing action, in the

event that they cause adverse effects to the interests of another Member. Thus, in addition to the

existence of a specific subsidy, the complaining Member has to show that this specific subsidy causes adverse

effects. The SCM Agreement defines three types of adverse effects these subsidies can cause:

INJURY: subsidized imports cause injury to a domestic industry in the territory of the complaining

Member. This type of adverse effect can be challenged both at the unilateral level through

countervailing action or at the multilateral level through the WTO's dispute settlement mechanism.

However, only one form of relief (either countervailing duty or an authorized countermeasure) is

applicable.

SERIOUS PREJUDICE: usually arises where the effect of a subsidy is (i) displacement or impedance

of the complaining Member's exports, either in the market of the subsidizing Member or in a third

country market; or, (ii) significant price undercutting, price suppression or depression or lost sales of

the complaining Member's product in a given market; or, (iii) an increase in the subsidizing Member's

world market share in a subsidized primary product or commodity.

Therefore, serious prejudice can serve as the basis for a complaint related to harm to a Member's

interests in its export markets. Accordingly, in the three instances of serious prejudice, the

subsidy can be challenged only through the multilateral track. The SCM Agreement sets out

situations where factors other than the subsidization appear to explain the displacement or impeding

of a complaining Member's exports and where serious prejudice therefore should not be found to

exist. Annex V sets out procedures for developing information concerning serious prejudice in a

dispute.

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NULLIFICATION OR IMPAIRMENT OF BENEFITS (accruing under the GATT 1994): arises most

typically where the improved access to a market that is presumed to flow from a bound tariff

reduction is undercut by subsidization in that market. As with serious prejudice, nullification and

impairment can serve as the basis for a complaint related to harm to a Member's exporting interests,

in this case in respect of the importing country's market. Thus, the subsidy can only be challenged

through the multilateral track.

Relationship between the SCM Agreement and the Agreement on Agriculture

Article 21 of the Agreement on Agriculture establishes that the provisions of GATT 1994 and of other

Multilateral Trade Agreements in Annex 1A to the WTO Agreement – including the SCM Agreement - shall

apply subject to the provisions of the Agreement on Agriculture.

Article 3.1 of the SCM Agreement prohibits export and import-substitution subsidies "except as provided in

the Agreement on Agriculture". In US - Upland Cotton, the Appellate Body stated that agricultural subsidies

are subject to the SCM Agreement "except to the extent that the Agreement on Agriculture contains specific

provisions dealing specifically with the same matter" (US - Upland Cotton, Appellate Body Report, paras. 530-

533). Thus, for example, agricultural export subsidies that are fully consistent with the provisions of the

Agreement on Agriculture are not prohibited under Article 3 of the SCM Agreement. They can be

countervailed.

Article 13 of the Agreement on Agriculture, known as the "Peace Clause", provided that during the

implementation period specified in that Agreement (until 2004), special rules regarding subsidies for

agricultural products were to be applied. Since the implementation period has already expired, the Peace

Clause is not applicable anymore.

EXERCISES

1. Why is the SCM Agreement considered "two agreements in one"?

2. Explain briefly the elements that must be satisfied for a subsidy to be covered by the SCM Agreement.

3. Describe the categories of subsidies covered by the SCM Agreement, indicating the tracks available to

challenge each one.

4. What happens in case of conflict between a provision of the SCM Agreement and a provision of the

Agreement on Agriculture?

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III.C. PROCEDURE FOR THE APPLICATION OF

COUNTERVAILING MEASURES

The SCM Agreement provides substantive and procedural requirements for the application of

countervailing measures. These requirements are similar to those applicable to anti-dumping

investigations. To avoid repetition, we will focus only on those aspects that differ or only apply to

countervailing measures.

III.C.1. SUBSTANTIVE REQUIREMENTS

Conditions for the Application of Countervailing Measures

According to Part V of the SCM Agreement, a Member may impose a countervailing measure only after

determining, pursuant to an investigation, the existence of the three following cumulative requirements:

Subsidized imports;

Material injury to the domestic industry producing the like product, threat of material injury or

material retardation of the establishment of a domestic industry; and,

Causal link between the subsidized imports and the injury.

The concept of injury and causal link , used in anti-dumping investigations have almost the same meaning in

the countervailing context. The main difference is that in the case of countervailing measures, the issue to be

determined is whether there are "subsidized imports" (instead of "dumped imports").

As explained above, the definition of a subsidy contains three basic elements: a financial contribution; by a

government or any public body within the territory of a Member; which confers a benefit. All three of these

elements must be satisfied in order for a subsidy to exist. In addition, the subsidy must be specific.

III.C.2. PROCEDURAL REQUIREMENTS

As in the case of the Anti-Dumping Agreement, the SCM Agreement contains detailed rules regarding the

initiation and conduct of countervailing investigations, the imposition of preliminary and final countervailing

measures, the use of price undertakings and the duration of the measures. A key objective of these rules is to

ensure the transparency of investigations, due process (e.g. that all interested parties have a full opportunity

to defend their interests); and that investigating authorities adequately explain the bases for their

determinations.

Most of the procedural rules that apply in the case of the Anti-Dumping Agreement apply also to the SCM

Agreement. Some notable differences particular to the SCM Agreement include: the de minimis

threshold (subsidy < one per cent ad valorem - when met, an investigation shall be terminated immediately –

Article 11.9); the period of time preliminary measures may remain in force (Article 17.4); and the types of

undertakings that may be entered into (Article 18).

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III.D. SPECIAL AND DIFFERENTIAL TREATMENT

The SCM Agreement recognizes that subsidies can play an important role in economic development

programmes of developing country Members, and thus, provides special and differential treatment to such

Members (Part VIII, Article 27). Differing levels of development among countries mean differing levels

of obligations and transition periods with regard to the SCM Agreement.

III.D.1. MULTILATERAL DISCIPLINES ON SUBSIDIES

The SCM Agreement recognizes three main categories of developing country Members:

(i) least-developed country Members (LDCs), (ii) certain Members identified in Annex VII(b) of the Agreement

until such time as their growth national product (GNP) per capita has reached US$ 1,000 per year, and

(iii) other developing countries. In addition, certain Members benefit from time-limited and

programme-specific special and differential treatment in respect of export subsidies, flowing from Article 27.4

of the Agreement to decisions taken at the Doha Ministerial Conference and related decisions adopted by the

SCM Committee.

Generally, the lower a Member's level of development, the more favourable the treatment it receives with

respect to certain subsidies disciplines. For example, in respect of export subsidies:

Least-developed countries (LDCs) are exempt from the general prohibition on export subsidies;

Members with a GNP per capita of less than US$ 1000 per year listed in Annex VII are also exempt

from the general prohibition. Pursuant to the Doha Ministerial Declaration on Implementation-related

Issues and Concerns, Annex VII includes Members that are listed therein until their GNP per capita

reaches US $1,000 in constant 1990 dollars for three consecutive years, pursuant to a defined

methodology based on recent World Bank data (see G/SCM/38, Appendix 2). Since 2003, the WTO

Secretariat has circulated notes updating the GNP per capita of Members listed in Annex VII (see

G/SCM/110 documents); and,

Other developing country Members had an eight-year period (i.e. until 2003) to phase out their

export subsidies (they were subject to a "standstill" commitment – i.e. they could not increase the

level of their export subsidies during this period). However, as mentioned, certain Members who are

neither LDCs, nor among those Members listed in Annex VII, still benefit from programme-specific

and time-limited exemptions from the prohibition on export subsidies, flowing from Article 27.4 of the

SCM Agreement, decisions taken at the Doha Ministerial Conference and related decisions adopted by

the General Council and the SCM Committee. From 2007, this particular exemption related to certain

export subsidy programmes of the following Members: Antigua & Barbuda; Barbados; Belize; Costa

Rica; Dominica; Dominican Republic; El Salvador; Fiji; Grenada; Guatemala; Jamaica; Jordan;

Mauritius; Panama; Papua New Guinea; St. Kitts and Nevis; St. Lucia; St. Vincent & the Grenadines;

and, Uruguay. Such exemption from the prohibition is subject to a "standstill" obligation and annual

review by the SCM Committee, and may last no longer than 31 December 2015 (see General Council

Decision, WT/L/691).

A developing country Member otherwise exempt from the prohibition on export subsidies may nevertheless

become subject if it reaches export competitiveness in any product.

The prohibition on import substitution subsidies did not apply to LDCs for a period of eight years from the

date of entry into force of the WTO Agreement, while developing Members had a period of five years to phase

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out their import substitution subsidies. Currently, the SCM Agreement does not provide for any exemption

from the general prohibition on import substitution subsidies.

There is also more favourable treatment with respect to actionable subsidies. For example, the invocation of

serious prejudice claims against developing country Members is more limited and certain subsidies related to

developing country Members' privatization programmes are not actionable multilaterally. Such special

treatment is subject to certain notification requirements. Members in the process of transformation from a

centrally-planned to a market, free-enterprise economy (economies in transition) were given a seven-year

period to phase out prohibited subsidies, if notified. These Members also received special and differential

treatment with respect to actionable subsidies.

III.D.2. COUNTERVAILING MEASURES

With respect to countervailing measures, Article 27 provides that developing country Members' exporters are

entitled to more favourable treatment with respect to the termination of investigations where:

(a) The overall level of subsidies granted upon a product does not exceed two per cent of the per-unit value of

the product (for other Members, the de minimis level is one per cent). Until 2003, for developing Members

that had eliminated their export subsidies before the end of the transition period and for Annex VII

Members, the de minimis level was three per cent; and,

(b) the volume of the subsidized imports of a developing country Member is less than four per cent of the total

imports, unless the imports from developing country Members whose individual share is less than four per

cent, collectively account for more than nine per cent of the total imports of the like product in the

importing Member.

TO KNOW MORE... DOHA NEGOTIATIONS

In the light of experience and of the increasing application of anti-dumping and countervailing measures by

Members, at the Doha Ministerial Conference, Members agreed to launch negotiations aimed at

clarifying and improving disciplines under the Anti-Dumping Agreement and the SCM Agreement,

while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments

and objectives, and taking into account the needs of developing and least-developed participants

(Doha Declaration, para. 28). Participants shall also aim to clarify and improve WTO disciplines on fisheries

subsidies, taking into account the importance of this sector to developing countries (Doha Declaration,

para. 28). We note that fisheries subsidies are also referred to in paragraph 31 of the Doha Declaration on

trade and environment. At the Hong Kong Ministerial Conference , Ministers reaffirmed their commitment to

the negotiations on rules (Hong Kong Declaration, para. 28). These negotiations take place in the Rules

Negotiating Group.

EXERCISES

5. Explain briefly the provisions on special and differential treatment included in the SCM Agreement.

17

IV. MONITORING BODIES AND NOTIFICATION

REQUIREMENTS

MONITORING BODIES AND NOTIFICATION REQUIREMENTS

ANTI-DUMPING

MEASURES

SUBSIDIES AND

COUNTERVAILING

MEASURES

SAFEGUARD

MEASURES

MONITORING

BODY

Committee on Anti-

Dumping Practices

Committee on Subsidies and

Countervailing Measures

Committee on

Safeguards

Reporting to the Council for Trade in Goods, these Committees provide Members with

the opportunity to discuss any matters relating to the Agreements, including Members'

notifications of laws and regulations and the application of

anti-dumping/countervailing/safeguard measures (Article 16 of the Anti-Dumping

Agreement, Article 24 of the SCM Agreement and Article 13 of the Agreement on

Safeguards).

MA

IN

NO

TIFIC

ATIO

N R

EQ

UIR

EM

EN

TS

LEGISLATION Notify to the relevant Committee domestic laws and procedures governing the initiation

and conduct of investigations concerning the application of

anti-dumping/countervailing/safeguard measures (including the texts of the

regulations), as well as any modification to such measures (Articles 16.5 and 18.5 of the

Anti-Dumping Agreement, Articles 25.12 and 32.6 of the SCM Agreement, and

Article 12.6 of the Agreement on Safeguards).

In addition, for SUBSIDIES:

Notify all specific subsidies (at all

levels of government and covering

all goods sectors, including

agriculture) to the Committee

(Articles 25 and 26). On the

periodicity of notifications,

Article 25.1 provides for annual

submission; at past SCM

Committee meetings, the Chair

has noted Members' views that

their resources would be best

utilized by giving maximum

priority to submitting new and full

subsidy notifications every two

years and by de-emphasizing the

review of updating notifications in

the intervening years.

ADOPTION OF

MEASURES

Notify to the Committee, without delay, all preliminary or final anti-

dumping/countervailing/safeguard actions taken. Members shall also submit, on a

semi-annual basis, reports of any action taken within the preceding six months

(Article 16.4 of the Anti-Dumping Agreement, Article 25.11 of the SCM Agreement.)

(See also Article 12 of the Agreement on Safeguards).

18

In addition:

Notify domestic authority

competent to initiate and

conduct AD investigations

(Article 16.5 of the

Anti-Dumping Agreement).

In addition:

Notify domestic authority

competent to initiate and

conduct countervailing

duty investigations

(Article 25.12 of the SCM

Agreement).

In addition:

Notify initiation of an

investigation and results

of consultations

(Articles 12.1 and 12.5 of

the Agreement on

Safeguards). Also if a

measure does not apply to

one or more developing

countries in accordance to

Article 9 (Article 9.1 of the

Agreement on Safeguards).

Table 1: Monitoring bodies and notification requirements

NOTIFICATION FORMATS

Anti-Dumping Agreement: Semi-annual report (G/ADP/1), Preliminary and final anti-dumping actions

(G/ADP/2).

SCM Agreement: Subsidies (G/SCM/6, Rev. 1), Laws and regulations (G/SCM/N/1), Semi-annual report

(G/SCM/2).

Agreement on Safeguards: Initiation of an Investigation (G/SG/N/6), Safeguard measure not applied to one

or more developing countries (G/SG/1), Decision to apply measures, including provisional measures and

consultations with Members (G/SG/1).

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V. COMPARATIVE CHART: ANTI-DUMPING,

COUNTERVAILING AND SAFEGUARD

MEASURES

ANTI-DUMPING

MEASURES

COUNTERVAILING MEASURES SAFEGUARD MEASURES

Objective To counteract dumping

causing injury to the

domestic industry

To counteract subsidization that

is causing injury to the domestic

industry

To prevent or remedy

serious injury to the

domestic industry caused

by a surge of imports (no

unfair practice) and give

time to facilitate

adjustment to

competition

Nature of the

Measure

Discriminatory (non-MFN) Discriminatory (non-MFN) Non-discriminatory (MFN,

in principle)

Substantive

Requirements

1.Dumped Imports

2. Material Injury

3. Causal link

1. Subsidized Imports

2. Material Injury

3. Causal link

1. Increased Imports

2. Serious Injury

3. Causal link

In addition, the measure

must be applied as a

result of unforeseen

developments and of the

effect of the obligations

incurred by a contracting

party under the GATT.

Product

Coverage

Like Products Like Products Like or Directly

Competitive Products

Basis of the

Measure

Margin of Dumping Margin of Subsidy Necessity to prevent or

remedy serious injury and

facilitate adjustment

Recipient of the

Measure

Products of Enterprises

practicing dumping

Products of Enterprises

benefiting from subsidies

granted by Members

Products of Enterprises of

Members

Form of the

Measure

Anti-dumping duty (may

exceed bound tariff rate)

Countervailing duty (may

exceed bound tariff rate)

Among others, tariff duty

increase (may exceed

bound tariff rate) or

quota

Duration of the

Measure

Provisional Measure:

a maximum of 4 months or

6 months (on decision of

the authority and upon

Provisional Measure:

a maximum of 4 months

Provisional Measure:

a maximum of 200 days

20

request)

Final Measure:

in principle, only as long as

and to the extent necessary

to counteract dumping

causing injury; however,

termination no later than

5 years from imposition

unless determination, in a

review initiated prior to that

date, that expiry of the duty

would be likely to lead to

continuation or recurrence

of dumping and injury.

Final Measure:

in principle, only as long as and

to the extent necessary to

counteract subsidization causing

injury; however, termination no

later than 5 years from

imposition unless determination,

in a review initiated prior to that

date, that expiry of the duty

would be likely to lead to

continuation or recurrence of

subsidization and injury.

Final Measure:

4 years

(can be extended to 8

years – 10 years for

developing country

Members).

Compensation

to affected

Members

NO NO YES (sometimes)

Special and

Differential

Treatment

special regard to the

situation of developing

countries

De minimis: exclusion of imports

from developing countries if less

than 4% of total imports and

9% collectively.

De minimis: exclusion of

imports from developing

countries if less than 3%

of total imports and 9%

collectively.

As Members applying

measures: duration of

extensions; and re-

application of measures.

21

VI. SUMMARY

The WTO Agreements allow Members to apply three types of trade remedies (anti-dumping, countervailing

and safeguard measures), which permit them to depart from certain obligations contained in the WTO

Agreements. However, such remedies may only be applied after a domestic investigation is conducted and

certain substantive and procedural requirements provided in the respective Agreement are met.

These three mechanisms share many similarities, but also differ in some aspects. While anti-dumping

measures are applied against injurious "dumping", the objective of countervailing measures is to offset the

injurious effect of "subsidies". Both "dumping" and "subsidies" are considered unfair trade practices.

Dumping is an action by private firms, and thus, is not prohibited by the Anti-Dumping Agreement; the

Agreement governs the imposition of anti-dumping measures.

In contrast, in the case of subsidies, it is the government, a government agency or a private body following

government's instructions which provides the subsidy. Thus, the SCM Agreement includes both disciplines on

the use of subsidies as well as upon the use of countervailing measures by WTO Members. In this regard, it

classifies subsidies into two categories: prohibited and actionable. Both types of subsidies might be

challenged through the WTO dispute settlement mechanism; although in the case of actionable subsidies, it

must be demonstrated that these cause adverse effects.

On the other hand, unlike anti-dumping and countervailing measures, the application of safeguard measures

does not depend on unfair trade practices. Rather, safeguard measures may be imposed when a surge of

imports causes injury to a domestic industry. The objective of safeguard measures is to prevent or remedy

serious injury and facilitate structural adjustment of the industry adversely affected by an increase of

imports.

The similarities between these measures extend to the substantive requirements for their application. In the

case of anti-dumping and countervailing measures, it is necessary to show that dumped imports/subsidized

imports are causing or threatening to cause material injury to the domestic industry producing the like

products. For the application of safeguard measures these requirements differ. Instead, it is necessary to

show that increased imports are causing or threaten to cause serious injury to the domestic industry

producing the like or directly competitive products.

Before the imposition of anti-dumping, countervailing or safeguard measures, investigating authorities must

determine that the three substantive elements mentioned above are met. Moreover, investigating authorities

have to comply with a number of procedural requirements (conditions for the initiation of investigations,

evaluation of evidence, application of provisional measures, transparency provisions, duration and review of

the measures, etc). The procedural requirements provided for the three measures are fairly similar, although

there are also important differences, especially in the context of safeguard measures.

Members may decide to apply an anti-dumping, countervailing or safeguard measure, as the case may be,

only if the investigation establishes that the three substantive requirements are met. For all three

mechanisms, the measures may take the form of an increased tariff above the bound level. In addition, the

Agreement on Safeguards allows Members to apply a quantitative restriction, subject to certain conditions.

22

There are also important differences with respect to whom the measures will apply. While anti-dumping

duties would be applied to the products of enterprises found to be practicing dumping, countervailing duties

would be placed on products of enterprises benefiting from the subsidies. Since safeguard measures have to

be applied, in principle, on an MFN basis, they will have to target the imports of the like or directly

competitive products of all affected WTO Members (in the context of special and differential treatment, only

products coming from developing countries may be excluded under certain circumstances). In addition, a

Member applying safeguard measures would have to offer compensation to the affected Members according

to the provisions of the Agreement.

23

PROPOSED ANSWERS

1. Dumping is a form of price discrimination, which takes place when the price of a product when exported

to another country is less than the price of that same product when sold in the market of the exporting

country. Dumping is calculated on the basis of a fair comparison between the normal value (the price of

the imported product in the “ordinary course of trade” in the country of origin or export) and the export

price (the price of the product in the country of import).

2. The normal value is generally the price, in the ordinary course of trade, for the like product at issue when

destined for consumption in the exporting country market. However, in cases where there are no sales of

like product in the ordinary course of trade in the domestic market of the exporting country or the sales

are so low in volume that they do not permit a proper comparison of home market prices and export

prices, the normal value can be determined in two other ways: A. the comparable price of the like product

when exported to a third country (provided that price is representative); or B. the constructed normal

value of the product, which is calculated on the basis of the cost of production, plus a reasonable amount

for administrative, selling and general costs and profits.

3. The export price will normally be based on the transaction price at which the foreign producer sells the

product to the importing country. However, in cases where there is no export price for a given product or

the transaction price at which the exporter sells the product to the importing country is unreliable

because of an association or a compensatory arrangement between the exporter and the importer or a

third party, the export price could be determined by reference to the price at which the imported product

is first resold to an independent buyer. If the imported product is not resold to an independent buyer, or

is not resold as imported, the authorities may determine a reasonable basis on which to calculate the

export price.

4. The basic requirement is a fair comparison between the normal value and the export price. Accordingly,

the prices being compared shall be those of sales made at the same level of trade, normally the

ex-factory level (to avoid the distorting effect of factors such as transport, insurance, etc), and of sales

made at as nearly as possible the same time. To ensure that prices are comparable, the Anti-Dumping

Agreement requires that adjustments be made to either the normal value, or the export price, or both, to

account for differences affecting price comparability in the product, or in the circumstances of sale, in the

importing and exporting markets.

5. The SCM Agreement recognizes that subsidies can play an important role in the economic development of

developing country Members, and thus provides special and differential treatment to such Members. In

general, the lower a Member's level of development, the more favourable the treatment it receives with

respect to subsidies disciplines as well as when faced with countervailing duties. Those special and

differential provisions grant (or granted) longer periods to phase out export and import substitution

subsidies. There is also more favourable treatment with respect to actionable subsidies. Regarding

countervailing measures, the Agreement recognizes that developing country Members' exporters are

entitled to more favourable treatment with respect to the termination of investigations when the level of

subsidization granted upon a product or the volume of the subsidized imports is de minimis according to

the Agreement.

24

Videos E-Learning short videos - Article 27 of the SCM Agreement -

http://etraining.wto.org/admin/files/Trade_Course/SCM_art.27.mov

E-Learning short videos - Benchmarks for certain kinds of financial contribution -

http://etraining.wto.org/admin/files/Trade_Course/SCM_benchmarks for certain kinds of financial

contribution.mp4

E-Learning short videos - Benefit - http://etraining.wto.org/admin/files/Trade_Course/SCM_benefit.mp4

E-Learning short videos - Entrustment or direction

http://etraining.wto.org/admin/files/Trade_Course/SCM_entrustment or direction.mov

E-Learning short videos - Export subsidies - http://etraining.wto.org/admin/files/Trade_Course/SCM_export

subsidies.mp4

E-Learning short videos - Financial contribution -

http://etraining.wto.org/admin/files/Trade_Course/SCM_financial contribution.mov

E-Learning short videos - Public body - http://etraining.wto.org/admin/files/Trade_Course/SCM_public

body.mov

Other videos - http://www.youtube.com/user/WTO