AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES OUTLINE OF THE PRESENTATION § PART 1: INTRODUCTION § PART 2: SUBSIDY DISCIPLINES – A. What is a subsidy? – B. Prohibited subsidies – C. Actionable subsidies – D. Non-Actionable subsidies (lapsed) – E. Special and Differential Treatment § PART 3: NOTIFICATION OF SUBSIDIES PART 1: INTRODUCTION TWO TRACKS: MULTILATERAL DISCIPLINES VERSUS COUNTERVAILING MEASURES Multilateral disciplines – Rules governing what subsidies WTO Members can provide – Prohibited subsidies / actionable subsidies – Must challenge through WTO dispute settlement for a definitive conclusion. MULTILATERAL DISCIPLINES VERSUS COUNTERVAILING MEASURES Countervailing duties (CVDs) – A duty imposed on an imported product to offset a subsidy – Measure by a WTO Member – Subject to dispute settlement § Note the analogy between CVD and AD ! PART 2: SUBSIDY DISCIPLINES § A. What is a subsidy? The three key elements when examining whether a programme, scheme, etc. constitutes a subsidy are: 1) FINANCIAL CONTRIBUTION 2) BY A GOV’T OR ANY PUBLIC BODY 3) BENEFIT If any of the three elements is missing, then the programme, scheme, etc. is NOT a subsidy under the SCM Agreement 1. Financial contribution FINANCIAL CONTRIBUTION (ARTICLE 1.1) 1. Direct transfer of funds – for example, grants, loans, equity infusions 2. Potential direct transfer of funds – for example, loan guarantees 3. Government revenue that is otherwise due is foregone or not collected – for example, tax credits or import duty exemption FINANCIAL CONTRIBUTION (ARTICLE 1.1) 4. Provision of goods or services other than general infrastructure 5. Purchase of goods 6. Income or price support 2.…by a government or any public body… BY A GOV’T OR ANY PUBLIC BODY (ARTICLE 1.1) Financial contribution granted by a Gov’t (e.g. Federal, Regional, or Municipal Gov’t) OR by a public body (e.g. National Bank, National Power Company, etc.) § Or Gov’t entrusts or directs a private body to make the financial contribution § Within the territory of a Member 3. ... which confers a benefit CONCEPT OF BENEFIT “Benefit to recipient (i.e., not Cost to government)” Canada - Measures Affecting the Export of Civilian Aircraft (DS70) (Panel, upheld by Appellate Body): Benefit = advantage (to recipient), not cost to government Issue: “whether the financial contribution places the recipient in a more advantageous position than would have been the case but for the financial contribution." Basis for comparison = marketplace Issue: Is the financial contribution “provided on terms which are more advantageous than those that would have been available to the recipient on the market." BENEFIT: ARTICLE 14 GUIDELINES (1) Government equity infusions do not confer a benefit unless: – “the investment decision can be regarded as inconsistent with the usual investment practice (including. . . risk capital) of private investors in the territory of that Member” ( Cf. share price, risk / return ) BENEFIT: ARTICLE 14 GUIDELINES (2) Government loans do not confer a benefit unless: – “there is a difference between the amount that the firm receiving the loan pays on the government loan and the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market” BENEFIT: ARTICLE 14 GUIDELINES (3) Government loan guarantees do not confer a benefit unless – “there is a difference between the amount the firm receiving the guarantee pays on a loan guaranteed by the government and the amount the firm would pay on a comparable commercial loan absent the government guarantee BENEFIT: ARTICLE 14 GUIDELINES (4) Government provision of goods or services does not confer a benefit unless: – For less than adequate remuneration based on prevailing market conditions BENEFIT: ARTICLE 14 GUIDELINES (5) Government purchase of goods does not confer a benefit unless: – For more than adequate remuneration based on prevailing market conditions SPECIFICITY § Article 1.2 “A subsidy … shall be subject to the provisions of Part II … Part III or V only if such a subsidy is specific in accordance with the provisions of Article 2.” Part II = prohibited subsidies Part III = actionable subsidies Part V = countervailing measures TYPES OF SPECIFICITY 1. Enterprise-specific (Art. 2.1) 2. Industry-specific (Art. 2.1) 3. Region-specific (Art. 2.2) § Prohibited subsidies are deemed to be specific (Art. 2.3 and 3): § Export subsidies § Import substitution subsidies De jure / de facto Specificity De jure specificity Government explicitly limits access, to “certain enterprises” De facto specificity - no explicit limitation of access, but facts demonstrate such a limitation – Limited number of users, or predominant use by, or disproportionately large amounts to, certain enterprises (Art. 2.1 (c)) PROHIBITED SUBSIDIES § Two types (Article 3): (a)Contingent on export performance (See also Annex I of the Agreement.) (b)Contingent on use of domestic over imported goods § If a panel finds that a certain measure is a prohibited subsidy, the Member shall withdraw the subsidy without delay (Article 4.7) § Certain agricultural subsidies are subject to the Agreement on Agriculture. ACTIONABLE SUBSIDIES (Article 5) § “No Member should cause, through the use of any subsidy ..., adverse effects to the interests of other Members, i.e.: (a) injury to the domestic industry of another Member; (b) nullification or impairment of benefits accruing directly or indirectly to other Members (c) serious prejudice to the interests of another Member. § This Article did not apply to subsidies maintained on agricultural products as provided in Article 13 of the Agreement on Agriculture. `a LAPSED END OF 2003. “ACTIONABLE” § Article 7.8 If a panel report or an AB report determines that the subsidy has resulted in adverse effects to the interests of another Member, the Member granting or maintaining such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy. SERIOUS PREJUDICE (ARTICLES 5 & 6) Serious prejudice may arise in the following cases: – Displace / impede imports of like product into subsidizing country market (Article 6.3(a)) – Displace / impede exports from third-country market (Article 6.3(b)) – Significant price undercutting, price suppression, price depression, or lost sales of like product in same market (Article 6.3(c)) – Increased world market share for primary commodity (like product by definition) (Article 6.3(d)) NON-ACTIONABLE SUBSIDIES (ARTICLE 8) Articles 8 and 9 - Expired 31 December 1999 § Assistance for research activities § Assistance to disadvantaged regions § Assistance to promote adaptation of existing facilities to new environmental requirements In line with Article 31 (Provisions regarding non-actionable subsidies to apply for five years) provisions lapsed 31 December 1999. The Doha Decision § In the Doha Decision on Implementation-related Issues and Concerns, Ministers took note (para 10.2): “of the proposal to treat measures implemented by developing countries with a view to achieving legitimate development goals, such as regional growth, technology research and development funding, production diversification and development and implementation of environmentally sound methods of production as non-actionable subsidies... “During the course of the negotiations, Members are urged to exercise due restraint with respect to challenging such measures.” § Some proposals have been tabled in the negotiations E. Special and Differential Treatment S&D FOR IMPORT SUBSTITUTION SUBSIDIES (PHASE OUT PERIOD) § Developed countries (“general” rule) 3 years (End-1997) (Article 28) Special and differential treatment § Least developed countries- 8 years (End-2002) (Article 27.3) § Other developing countries (than LDCs)-5 years (End-1999) (Article 27.3) § Countries in transformation-7 years (End-2001) (Article 29.2) S&D FOR EXPORT SUBSIDIES (1) § Developed countries (“general” rule) – Export subsidies must be eliminated in 3 years (End-1997) (Article 28) § “Annex VII countries” (Article 27) (i.e. LDCs, developing countries of GNP below $1000 plus Honduras) – Prohibition not applicable S&D FOR EXPORT SUBSIDIES (2) § Other (i.e., non-Annex VII) developing country Members (Art. 27.4) – 8-year phase-out (Expired end-2002) – subsidy not prohibited during the above period, but can be actionable (Article 27.7) § Such Members shall: – Phase-out, preferably in progressive manner – Not increase level of export subsidies EXPORT SUBSIDIES: S & D - Article 27.4 § Article 27.4 provides an extension mechanism for the S&D § Following a procedure decided at Doha, 21 countries were granted extension until 2007 (plus 2 year for phase out) in December 2002 (Other than the above 21 countries, four Annex VII Members “reserved rights”: Bolivia, Honduras, Kenya, Sri Lanka. ) – All extensions are programme-specific and time-limited – stand-still and annual notification required Implications of Extension (G/SCM/39) – Do not affect rights and obligations under other WTO Agreements (Agreement on Agriculture) – Do not affect prohibition under Article 3.1(b) (i.e. import substitution subsidies) – Do not affect rules on actionability of covered subsidies – Products that achieve export competitiveness “graduate” from extension (Arts. 27.5 and 27.6) “EXPORT COMPETITIVENESS” § Article 27.5 and 27.6 If a developing country’s export of a specific product have reached “export competitiveness” i.e, – a share of at least 3.25% in world trade (of that product) – for 2 consecutive years that developing country must phase out its export subsidies for such products over a period of 2 years (8 years for annex VII countries) S&D (Multilateral Disciplines) S&D (Remedy and Investigation) PART 3: NOTIFICATION OF SUBSIDIES WHICH MEMBERS MUST MAKE A NOTIFICATION? § All WTO members, without exception, must submit any notification required PURPOSE OF NOTIFICATION REQUIREMENT § Transparency § No legal implications § Article 25.7: “Notification of a measure does not prejudge either its legal status under GATT 1994 and this Agreement, the effects under this Agreement, or the nature of the measure itself” § When in doubt, err in favour of notification WHEN ARE THEY TO BE NOTIFIED? Article 25 § New and full notification each three years, annual updating notification (of any changes) each intervening year. NOTE: The SCM Committee is currently following, on a trial basis, the formula to submit new and full notifications every 2 years and de-emphasize the updates. § Notification no later than 30 June in year due, covering the previous completed calendar or fiscal year(s) INFORMATION TO BE PROVIDED (G/SCM/6) 1. Title of the subsidy programme 2. Period covered by the notification. 3. Policy objective and/or purpose of the subsidy. 4. Background and authority for the subsidy (including identification of the legislation under which it is granted). 5. Form of the subsidy (i.e., grant, loan, tax concession, etc.). INFORMATION TO BE PROVIDED (cont’d) 6. To whom and how the subsidy is provided 7. Subsidy per unit (if not possible, the total or annual amount budgeted for that subsidy) 8. Duration of the subsidy and/or any other time limits attached to it 9. Statistical data permitting an assessment of the trade effects of the subsidy.