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Presented by: Group 5

1947
GATT was formulated. Adopted a lenient approach to subsidies. Permitted unilateral action against subsidies

1955
Review session inserted the obligation on the contracting parties to cease to grant export subsidies Multilateral Remedies were introduced

1980
Tokyo Round resulted in Subsidies Code Agreement between US and EC Exceptions for developing countries Rules on unilateral remedies were elaborated

SUBSIDY

PROHIBITED (RED)

ACTIONABLE (Orange)

NON ACTIONABLE

EXPORT

LOCAL CONTENT

SPECIFIC

NON SPECIFIC

Part 1 Part II Part III

General provision (Article1and 2) Prohibited subsidies(Article 3 and 4) Actionable subsidies(Article 5, 6 and 7) Non-actionable subsidies(Article 8 and 9) Countervailing Duties(Article 10 and 23) Institutions(Article 24) Notification and surveillance(Article 25 and 26) Developing countries(Article 27) Transitional arrangements((Article 28 and 29) Dispute settlement((Article 30) Final provisions(Article 31 and 32)

Part IV
Part V Part VI Part VII Part VIII Part IX Part X Part XI

A subsidy is a financial contribution by a government, or any form of income or price support, that provides a benefit to the recipient

A benefit exists if a transaction between the government and the recipient is on terms inconsistent with commercial considerations The provision of goods or services for less than adequate remuneration is a subsidy

Financial contributions by a private body at the direction of the government also constitute subsidies The amount of the subsidy is equal to the benefit to the recipient

Direct transfer of funds Potential transfer of liability Foregone revenue Provision of goods or services Payments to a funding mechanism

DIRECT TRANSFER OF FUNDS Grants from the government Loans provided by the government at below-market rates Equity infusions on terms inconsistent with commercial considerations

Foregone Revenue

Tax benefits Tax holidays Tax reductions Tax credits Provision of licenses, permits at less than the normal charge

To be actionable, a subsidy must be specific

It must be limited to an enterprise or industry or group of enterprises or industries The government explicitly limits availability to specified enterprises or industries The subsidy is available only to enterprises in a specified region The subsidy is an export subsidy There are other reasons to believe the subsidy is in fact specific

A subsidy is specific if

A subsidy is not specific, even if the government must decide who receives it, if the applicable laws and regulations set forth objective criteria for providing the benefit
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Certain types of subsidies are simply prohibited by the SCM Agreement


Export subsidies Subsidies based on the use of domestic rather than foreign goods (import substitution subsidies)

Developing countries are allowed to maintain export subsidies


For at least 8 years after they accede to the SCM Agreement, or Until their global market share in a product reaches 3.25 percent for 2 consecutive years Least developed countries can maintain export subsidies indefinitely
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Provision by the government of direct subsidy Currency retention schemes or bonus on exports Freight charges on export shipment more favorable than domestic shipment Any other charge in reference to Article XVI of GATT 1994

A subsidy is actionable if it causes adverse effects to the intrests of other members. Adverse effects may be: serious prejudice to domestic industry eg: export displacement injury to domestic industry in the importing country nullification & impairment of benefits eg: effect of negotiated tariffs are negated by imposition of subsidy. Actionable subsidy can be challenged in the WTO by invoking the agreement on subsidies and counterveiling measures. Actionable subsidies can be offset with countervailing duties if the imports are injuring a domestic industry.

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Subsidies that are not subject to challenge multilaterally or through countervailing actions. Certain types of assistance for research and development ( it should not exceed 75% of industrial research) Certain types of benefits to support environmental compliance by existing facilities Assistance to disadvantages region

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Non countervailable Subsidies Non-actionable subsidies a) a) a) 1. 2. For infrastructure nonspecific subsidies Specific subsidies For R&D For disadvantage regions or

countervailable Subsidies -

Remedies Only if it causes serious adverse effect to another member: 1) Consultation 2) Matter may be referred to WTO for suggesting modification 3) Counter measures, if suggestions not followed

1.

For new adaption

environmental

Actionable studies

a)

1) 2) 3)

Specific subsidies excluding those covered under above, if they do not cause adverse effects, i.e. No injury Benefits not nullified or impaired, and No serious prejudice caused

a)

Specific subsidies excluding those covered under above, if they cause adverse effects.

1) 2) 3)

Consultation Dispute settlement through WTO; or Countervailing measures

Prohibited subsidies

a) b)

Export subsidies Subsidies for use of domestic over imported goods.

1) 2) 3)

Consultation Dispute settlement through WTO; or Countervailing measures

Unilateral Types of Remedial Measures


Multilateral

Countervailing Duties (CVD)

WTO Dispute Settlement Body

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Countervailing duties are levied on the subsidies provided to the domestic industry that injures or threatens to injure the industry of importer country. Countervailing duties may only be imposed pursuant to investigations initiated and conducted in accordance with the provisions of SCM and the AOA. Investigations shall, except in special circumstances, be concluded within one year, and in no case more than 18 months, after their initiation. Countervailing duty investigation shall be given notice of the information and ample opportunity to present in writing all evidence which they consider relevant

any event before the initiation of any investigation, Members the products of which may be subject to such investigation shall be invited for consultations with the aim of clarifying the situation as to the matters referred to and arriving at a mutually agreed solution. Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient. A determination of injury shall be based on positive evidence and involve an objective examination

If the definitive countervailing duty is higher than the amount guaranteed by the cash deposit or bond, the difference shall not be collected. If the definitive duty is less than the amount guaranteed by the cash deposit or bond, the excess amount shall be reimbursed or the bond released in an expeditious manner.

A countervailing duty shall remain in force only as long as and to the extent necessary to counteract subsidization which is causing injury.
Each Member whose national legislation contains provisions on countervailing duty measures shall maintain judicial, arbitral or administrative tribunals or procedures for the purpose.

Committee on Subsidies and Countervailing Measures and Subsidiary Bodies Committee: a)Composition b)Chairman c)Secretariat d)Meetings Formation of subsidiary bodies : PGE Permanent group of experts: a)Composition of group b)Election c)Responsibility

Notifications:

Form of subsidy subsidy per unit duration of subsidy objective of subsidy trade effects of subsidy.

Submission :notification to be submitted prior 30th June of each year Authority of member: a)To make request for information to other member b)To bring the alleged subsidy to the notice of committee Responsibility of member: a)To provide requested information in detail to the member

In need of information b)Report action taken with respect to countervailing duties to the committee Surveillance: The committee shall examine new and full notification submitted at the special sessions held every three year

No. of countries no notifiable


subsidies 10%

have not submitted any notification 48%

have notified subsidies 42%

Source: Report (2010) of the Committee on Subsidies and Countervailing Measures

Special and Differential Treatment

1. 2.

3.

Developed Countries: Allowance of 3 years from the date of enforcement of WTO to phase out prohibited subsidies for members not otherwise eligible for special and differential treatments. The SCM Agreement recognizes three categories of developing country Members 31 least-developed Members (LDCs). Members with a GNP per capita of less than $1000 per year which are listed in Annex VII to the SCM Agreement. Other developing countries . Article(27)

The lower a Member's level of development, the more favourable the treatment it receives with respect to subsidies disciplines. Ex. a) LDCs and Members with a GNP per capita of less than $1000 per year listed in Annex VII are exempted from the prohibition on export subsidies. b) Other developing country Members have an eightyear period to phase out their export subsidies (they cannot increase the level of their export subsidies during this period). Article(27)

c)

d)

e)

With respect to import-substitution subsidies, LDCs have eight years and other developing country Members five years, to phase out such subsidies. Actionable subsidies related to developing country Members' privatization programmes are not actionable multilaterally. With respect to countervailing measures, developing country Members' exporters are entitled to more favourable treatment with respect to the termination of investigations where the level of subsidization or volume of imports is small.
Article(27)

Subsidy programmes which have been established within the territory of any Member before the date on which such a Member signed the WTO Agreement and which are inconsistent with the provisions of this Agreement shall be: (a) notified to the Committee not later than 90 days after the date of entry into force of the WTO Agreement .

Articles(28)

(b) brought into conformity with the provisions of this Agreement within three years of the date of entry into force of the WTO Agreement for such Member and until then shall not be subject to Part II. No Member shall extend the scope of any such programme, nor shall such a programme be renewed upon its expiry. Article(28)

Members in transformation to a market economy are given a seven-year period to phase out prohibited subsidies. These subsidies have been notified within two years of the date of entry into force of the WTO Agreement (i.e., by 31 December 1996) in order to benefit from the special treatment. Members in transformation also receive preferential treatment with respect to actionable subsidies. Article(29)

The provisions of consultation and nullification/impairment ,Articles XXII and XXIII of GATT 1994 respectively, as elaborated and applied by the Dispute Settlement Understanding shall apply to consultations and the settlement of disputes under this Agreement, except as otherwise specifically. Article 30

Nullification or impairment of rights under the GATT 1994 exists if the effect of the subsidies is to offset the value of tariff or other concessions under Article II of the GATT 1994 Nullification or impairment automatically arises if the subsidy is a prohibited subsidy Non-violation nullification or impairment must arise from the use of the subsidy Non-violation nullification or impairment would arise when the effect of a tariff concession is systematically offset or counteracted by a subsidy programme -- US Offset Act (Byrd Amendment)
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The provisions of paragraph 1 of Article 6 ,8 and 9 shall apply for a period of five years, beginning with the date of entry into force of the WTO Agreement. Not later than 180 days before the end of this period, the Committee shall review the operation of those provisions, with a view to determining whether to extend their application, either as presently drafted or in a modified form, for a further period. Article 31

14 12 10 8 6 4 2 0
Products of the chemical and allied industries Resins, plastics and articles; rubber and articles Textiles and articles Base metals and articles Machinery and electrical equipment

1995
1998 2001 2004 2007 2010

1996
1999 2002 2005 2008

1997
2000 2003 2006 2009

20 18 16 14 12 10 8 6 4 2 0 Argentina Australia Brazil Canada

Chile
European Union Japan Mexico New Zealand

Peru
South Africa Turkey United States Venezuela,

Italy

India

Brazil

China

Indonesia

European Union

Korea, Republic of

25 20 I II III IV V VI VII VIII IX X XI

15
10 5 0

14 12 10 8 6 China European Union India Indonesia Italy Korea, Republic of Thailand United States 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

4
2 0

Domestic price P1 Domestic demand met partially through Y1 (domestic production) and partially through Y2-Y1. This is prior to any export subsidy given to the exporting country. Subsidy S given Price reduced to P2 Home production reduced to Y3 Increased imports to Y4-Y3 Producers loss a Consumers gain a+b+c+d Importing country gain b+c+d

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