WTO rules on Subsidies and Countervailing Measures

1. WTO rules on Subsidies and Countervailing Measures Prof. Gan Ying 12-Feb-2008

2. I Introduction Dilemma ？ • 1), Government policies and social welfare v. adverse effects • 2), Legitimate or not? –no distortion allowed.

3. II Basic WTO rules on SCM • GATT art.16--1994 • SCMA Concept of subsidies Treatment of subsidies Response to injurious subsidies

4. III Determination of subsidization:concept & categorization • Concept (SCMA art.1.1) • 1)—provider • Government body • Public body • Funding mechanism (plan?) • Private body—no restriction

5. 2) 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)

6. 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

7. B) Comparison standard(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.)

8. 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.

9. 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 ）

10. categorization • 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

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

12. C) Geographical specificity Subsidy limited to certain enterprises located in a designated geographical region • D) Deemed specificity prohibited：export subsidies / import substitution subsidies

13. Traffic Light Theory prohibited subsidies (red light) actionable subsidies (yellow light) non-actionable subsidies (green light)

14. Prohibited subsidies （SCMA art.3） • 1)Export subsidies • De jure or de facto contingent on actual or anticipated export performance • Subsidy for export-oriented enterprises? • Annex I (a)-(l) 12

15. 2) Import substitution subsidies • De jure or de facto contingent on the use of domestic over imported goods • （local content requirements?）

16. Actionable subsidies • Example:

17. adverse effects to the interests of 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 link Other factors may not be attributed to the subsidized imports

18. 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

19. Non-actionable subsidies • A) non-specified • B) Some specified—2000/1/1 actionable • Environment/R&D/Regional

20. IV Remedies • 1) multilateral v. unilateral • A) multilateral：DSU • Special or additional rules and procedures • Difference in time frames (prohibited-half as in DSU)

21. B) unilateral: CVD apply to subsidies injuring domestic industries only. Basic requirements : • Transparency • Opportunity to defend • Adequate explanation for determinations

22. Procedure 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)

23. Special and differential treatment for DCM (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.

24. V New Round Negotiation on SCMA & Hot Issues • WTO subsidy discipline(2004 V.38(6)) • 1, Proposals in DOHA Round • 2, Developing countries proposal • 3, Developed countries

25. VI 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)