I How to Deal with Countervailing Duty Cases in the Future?

1. IHow to Deal with Countervailing Duty Cases in the Future? Professor Kiyoun SOHN University of Incheon (c) Kiyoun Sohn, 2008

2. Contents I. Key provisions of WTO ASCM II. Specificity III. Calculation of the amount of a subsidy IV. Lesser Duty Rule (c) Kiyoun Sohn, 2008

3. I. Key provisions of WTO ASCM 1. Elements of a countervailable subsidy - a financial contribution by a gov’t - a benefit - specific 2. Issues - no clear-cut definition of ‘a benefit’ - ASCM Article 14 - Canada-AircraftAppellate Body (c) Kiyoun Sohn, 2008

4. Key provisions of WTO ASCM 3. Types of subsidies - Prohibited subsidies - Actionable subsidies 4. Two track remedies - WTO dispute settlement body - Countervailing duty investigations (c) Kiyoun Sohn, 2008

5. II. Specificity 1. Definition (de jure specificity) - explicitly limits access to a subsidy to an enterprise or industry or group of enterprises or industries 2. Exceptions - eligibility: objective criteria or conditions - number of employees or size of enterprise (e.g. subsidies for SMEs) (c) Kiyoun Sohn, 2008

6. Specificity 3. de facto specificity (1) Use by a limited number of certain enterprises (2) Predominant use (3) Granting disproportionately large amounts of subsidy (4) Exercise of discretion in granting decision (c) Kiyoun Sohn, 2008

7. Specificity 4. Issues (1) Lack of definition of key terms regarding de facto specificity (2) Lack of rules on how to apply the factors in determining de facto specificity (3) a need for objective and reasonable criteria for de facto specificity (c) Kiyoun Sohn, 2008

8. Specificity: practices 5. USPractices (Sec 771(5A)(iii). SAA) - USDOC accords different weights to particular factors, depending on the nature of cases - USDOC shall find de factor specificity if one or more of the factors exists. - It accords the least significance to the factor of exercising discretion. (c) Kiyoun Sohn, 2008

9. Specificity 6. EU practices - EC Regulation No 2026/97, Article 3.2(c) - Provides the four factors without specifying how to apply those factors (c) Kiyoun Sohn, 2008

10. Specificity 7. Suggestions - Determination of “disproportionately large amount” by comparing the complained industry’s share in the economy (normally, GNP or GDP) with its share in the total subsidy granted. - Problem: The investigating authorities do not take into account whether or not the government exercised discretion. (c) Kiyoun Sohn, 2008

11. Specificity It appears that the authorities treat the exporting country as a planned economy. - Two-step approach (i) Step 1: examine whether one of the first factors applies to the case in question (ii) Step 2: whether or not the government exercised discretion. (c) Kiyoun Sohn, 2008

12. Specificity - A need to develop guidelines for applying the factors regarding de facto specificity. - They shall include reasonable and objective definitions of and criteria for key terms such as ‘predominant use’ and ‘disproportionately large’. (c) Kiyoun Sohn, 2008

13. III. Calculation of a subsidy ASCM Article 14 “Calculation of the amount of a subsidy in terms of the benefit to the recipient” - Government provision of equity capital - Government loan - Government loan guarantee - Provision of goods or services or purchase of goods by a government (c) Kiyoun Sohn, 2008

14. Calculation of a subsidy Issues: appropriate benchmark <Art 14 of ASCM> (i) Equity infusion: “the usual investment practice of private investors in the territory of the exporting country” Q: short term or long term investment? Q: wide variation in attitudes to risk? (c) Kiyoun Sohn, 2008

15. Calculation of a subsidy (ii) Gov’t loan: “a comparable commercial loan which the firm couldactually obtain on the market” Q: The interest rate depends upon a wide variety of factors such term, the loan amount, the bank’s marketing strategies and economy-wide factors. Average interest rate? How to calculate it? (c) Kiyoun Sohn, 2008

16. Calculation of a subsidy (iii) Gov’t loan guarantee: “a comparable commercial loan absent the gov’t guarantee” - Unlike (ii), there is no specification on the type of ‘a comparable commercial loan’ - In practice, compare the fees of gov’t and private guarantees (c) Kiyoun Sohn, 2008

17. Calculation of a subsidy (iv) Provision of goods or services or purchase of goods by a government: “The adequacy of remuneration shall be determined in relation to prevailing market conditions…in the country” Q: What factors to be considered? Q: How to figure out “prevailing” conditions? adequate remuneration? (c) Kiyoun Sohn, 2008

18. Calculation of a subsidy Q: How to treat subsidies regarding provision of services by gov’t for less than adequate remuneration? - How to harmonize this provision with Article XV of the General Agreement on Trade in Services (GATS)? (c) Kiyoun Sohn, 2008

19. IV. Lesser Duty ASCM Article 19.2 - “It is desirable that the (countervailing) duty should be less than the total amount of the subsidy if such lesser duty would be adequate to remove the injury to the domestic industry.” - Under DDA negotiations, WTO Members have discussed whether the lesser duty rule shall be optional or mandatory. (c) Kiyoun Sohn, 2008

20. Lesser Duty Article 18.1(b) (Undertakings) - “It is desirable that the price increase be less than the amount of the subsidy if such increases would be adequate to remove the injury to the domestic industry.” Provisional measures - No lesser duty rule (c) Kiyoun Sohn, 2008

21. Lesser Duty: practices U.S.: no lesser duty rule EU: mandatory - Para 20 of Preamble of No 2026/97 - Provisional measures (Art 12.1) - Definitive CVDs (Art 15.1) - Undertakings (Art 13.1(b)) - Calculate the Injury margin (c) Kiyoun Sohn, 2008

22. Lesser Duty: practices Two methods - Undercutting method (EU) - Underselling method Q: How to figure out the appropriate injury margin? Q: Factors to be taken into account in calculation of ‘non-injurious price’? (c) Kiyoun Sohn, 2008