1. Subsidies and Countervailing
Measures in International Trade

2. Subsidies and
Countervailing Measure
1. Definition and features
2. International legislation on
subsidies
3. Categories
4. Remedies

3. monetary support or
financial preference
Domestic producer/
exporter
Government/
public body
May harmful,
Protective device
promote the competitive
ability of domestically
produced goods in local
and international market.

4. Definition and features
• I. Definition (Art 1 of SCM)
– It is the final contribution, income or price
support by a government or any public body
within a territory of a Member to domestic
producers and exporters.
– Subject
• A government or any public body within a Member
– Beneficiary Object
• Domestic producers or exporters

5. Definition and features
• I. Definition (Art 1 of SCM)
– Forms
• A government practice involves a direct transfer of funds
(e.G. Grants, loans, and equity infusion); Potential direct
transfers of funds or liabilities (e.g. Loan guarantees)
• Forego or do not collect a due government revenue
• A government provides goods or services, or purchases
goods
• A government makes payments to a agent to carry out above
functions
• Any form of income or price support

6. Definition and features
• II. Features
– Governmental Behavior
– To domestic manufacturers and exporters
– various forms (legislation, administrative act, monetary
support or duty-free)
– Aim——promote the competitive ability of domestically
produced goods in local and international market
– Effect ——benefit conferred, so as to hinder import and
encourage export
– Specificity (must be restricted)

7. Specificity
Enterprises
A subsidy
Industry
Prohibited subsidy
certain enterprises located within a
designated geographical region
• Principle of determination of specificity
1. ~ in law
• Legislation or pursuant to which government operate
explicitly indicate the subsidy limit to certain enterprises
2.
~ in fact
•
Strictly adhered to the objective criteria established in
the legislation, but are not automatically granted subsidy

8. International legislations
on subsidies
• Art6,Art16 of GATT1947
• Tokyo Round Subsidy Code in 1979
• Agreement on Subsidies and Countervailing
Measures (SCM) in 1994
– Totally 11 parts, 32 provisions and 7 annexes (Substantial
and procedural problems)
– Contains a definition of subsidy
– Introduces the concept of a "specific" subsidy

9. Categories
(Part II-IV of SCM)
• Prohibited subsidies
• Actionable subsidies
• Non-actionable subsidies

10. Red subsidy
Prohibited subsidies
• Subsidies that require recipients to meet certain
export targets, or to use domestic goods instead of
imported goods.
Total 12 types in
Annex1
• specifically designed to distort international
trade, and are therefore likely to hurt other
countries' trade.

11. Yellow subsidy
Actionable subsidies
Adverse effect on other Members
No
Be permitted
Non-actionable
Yes
Be Restricted
Actionable
May take
countervailing
measures
• Adverse effect
• Injury to the domestic industry of another Member
• Nullification or impairment of benefits accruing directly or
indirectly from GATT1994 to other Members
• Serious injury to the interests of another Member

12. Green subsidy
Non-actionable subsidies
• Non-specific subsidies
• Specific subsidies
– Research subsidies
• covers not more than 75% of the
costs of industrial research, or
• not more than 50% of the costs of
pre‑ competitive development
activity
– Assistance to disadvantaged regions
– Environmental subsidies
• Assistance for adapting existing
facilities to new environmental
laws or regulations.
•Cannot be
challenged in the
WTO's dispute
settlement
procedure, and
countervailing
duty cannot be
used on
subsidized
imports.

13. Comparison of different
subsidies
Prohibited
Effect
“Injury” not be
considered
Content
12 types clearly
listed in Annex1
determination Clear legal
criteria
Actionable
“Injury” must be
considered
Not clarified
No criteria, depends
on discretion of
authority
Prohibited/ Actionable
Non-actionable
Specific?
Yes
No (exceptions)
Get
remedies?
Yes.
Restricted by SCM
No.
Justified

14. Remedies (parallel mechanism)
• By WTO Dispute
Settlement System
– Initiative BodyGovernment
• By Domestic
Countervailing
Investigation
• Initiative BodyDomestic industry or
government
Prohibited ~
Actionable ~
Consultation
within 30 days
within 60 days
Panel process
within 90 days
within 120 days
Appeal to DSB
within 30~60 days
within 60~90 days
•Non-actionable ~
Implementation Withdraw subsidy or
retaliation
Withdraw subsidy
or retaliation
/

15. Countervailing Investigation
1 year, at most 18 months
Initiation
Obligation of the
Member who initiate
investigation
Consultation
Investigation
Administrative
review
Judicial review
Existence of subsidy
Amount of subsidy
Injury
causality
1. Provisional
Measures
2. Undertaking
3. Imposition and
Collection of
Countervailing
Duties

16. Provisional Measures
• Form: provisional countervailing duties (cash deposits or
bonds)
• Requirement for application
– An investigation has been initiated (no sooner than 60days
from
the initiation)
– Interested members and parties have been given adequate
opportunities to submit information and make comments
– A preliminary affirmative determination
• A subsidy exists
• There is injury to a domestic industry caused by subsidized imports;
– Necessary to prevent injury being caused during the investigation.
• Duration
– Normally less than 4 months.

17. Undertaking
-after a preliminary affirmative determination
• The government of the
exporting member
agrees to eliminate or
limit the subsidy or take
other measures
concerning its effects
• The exporter agrees to
revise its prices so that
the investigating
authorities are satisfied
that the injurious effect
of the subsidy is
eliminated
• Investigation maybe suspended or terminated
without the imposition of provisional measures or
countervailing duties

18. Countervailing Duties
• After a final affirmative determination
– The existence and amount of the subsidy
– The effects of the subsidy, the subsidized
imports are causing injury
Imposition and collection of countervailing
duties
•Not excess of the amount of the subsidy
•Last 5 years