A subsidy provided by a WTO Member government is prohibited under the SCM Agreement if it depends, in law or in fact, on the export performance or use of domestic products as compared to imported products. These prohibited subsidies are commonly referred to as export subsidies or import substitution subsidies. They are considered specific and are considered particularly damaging under the Subsidies Agreement and U.S. law. (Special rules apply to agricultural subsidies under the WTO Agreement on Agriculture.) The Agreement on Subsidies and Countervailing Measures (SCM) deals with two distinct but closely related issues: multilateral disciplines governing the granting of subsidies and the use of countervailing measures to offset injury caused by subsidized imports. Developing countries The SCM Convention recognizes three categories of developing country members: least-developed members (LDCs), members with per capita GNP of less than US$1000 per year, listed in Annex VII of the SCM Agreement, and other developing countries. The lower a member`s level of development, the more favorably it is treated in terms of grant disciplines. For example, LDCs listed in Annex VII and members with per capita GNP of less than US$1000 per year are exempt from the export subsidy ban. Other developing countries have an eight-year period to phase out their export subsidies (they cannot increase the level of their export subsidies during this period). With regard to import substitution subsidies, LDCs have eight years and other developing countries that are members of developing countries five years to phase out such subsidies. There is also more favourable treatment in terms of recoverable subsidies. For example, some subsidies related to privatization programmes in developing countries cannot be implemented multilaterally.
With respect to countervailing measures, developing country Members are entitled to more favourable treatment when investigations are terminated when subsidies or import volumes are low. A subsidy granted by a WTO member government is “enforceable” under the agreement (again, some exceptions are provided for agricultural subsidies) if it “harms” another country`s domestic industry or if it “causes serious injury” to the interests of another country. Serious inconveniences can occur when a subsidy may occur: For more information on the Commerce Department`s efforts to enforce subsidies, visit the Centers for Subsidy Enforcement website. In addition, you can learn more about filing a countervailing duty complaint by visiting the Import Administration website. Petitioners can be notified by email: Petitioners_Support@ita.doc.gov. Members in transition to a market economy Members in transition to a market economy have seven years to phase out prohibited subsidies. However, these subsidies must have been notified within two years of the entry into force of the WTO Agreement (i.e. before 31 December 1996) in order to qualify for special treatment. Members in conversion will also receive preferential treatment with respect to enforceable subsidies. Agricultural subsidies Article 13 of the Agreement on Agriculture provides for special arrangements for agricultural subsidies during the implementation period provided for in this Agreement (until 1 January 2003). Export subsidies that are fully consistent with the Agreement on Agriculture are not prohibited by the SCM Agreement but remain countervailable. Domestic support that is fully consistent with the Agreement on Agriculture cannot be implemented multilaterally, but may also be subject to countervailing duties.
Finally, domestic support under the Green Box of the Agreement on Agriculture is neither multilaterally feasible nor subject to countervailing measures. At the end of the implementation period, the SCM Agreement applies to subsidies for agricultural products subject to the provisions of the Agreement on Agriculture pursuant to Article 21. Subsidy laws are valuable sources of information both for assessing the use of subsidies in specific enterprises and for evaluating a state`s or city`s approach to subsidized development in general. Research on subsidy laws is the first step in assessing whether the use of grants by government officials and businesses is consistent with a program`s intentions and legislative requirements. It is also the first step towards reforming subsidy policies to ensure a higher level of accountability and stronger guarantees that subsidized projects will bring tangible benefits. In this sense, when the government gives subsidies to the supplier, there is a win-win situation for both the supplier and the consumer. Essentially, the supplier benefits as if the merchandise were sold at a higher price and would be able to produce a larger quantity of the product. Meanwhile, consumers can enjoy the product at a comparatively cheaper price because suppliers don`t have to charge exorbitant prices to break even for production. The scope of these prohibitions is relatively narrow. Developed countries had already agreed to the ban on export subsidies under the Tokyo Round SCM Agreement, and domestic content subsidies, such as those prohibited under the SCM Agreement, were already inconsistent with Article III of the GATT 1947.
The most important thing about the new agreement in this area is the extension of commitments to developing countries subject to certain transitional rules (see section on special and differential treatment) and the establishment of a speedy (three-month) dispute settlement mechanism for complaints about subsidies prohibited under Article 4 of the SCM Agreement. On the consumer side, government subsidies can help potential consumers with the cost of a good or service, usually through tax credits. A good example of this is the transition to more renewable energy sources. With green economy models still young, the current demand for new energy-saving technologies is low. To influence consumer interest, government subsidies or tax credits can help reduce these high adoption costs. If consumers convert their homes to solar panels, the government will provide individuals and families with a tax credit to offset the high price of purchasing the new solar panels. 1.In its original version, the agreement contained a third category of unenforceable subsidies. This category (together with a provision establishing the presumption of serious injury for certain types of actionable subsidies) was provisionally valid for a period of five years, until 31 December 1999, and could be extended by consensus of the Committee on Subsidies under Article 31 of the Agreement. No such consensus had been reached as at 31 December 1999.
Return to text 2. In order to mitigate this problem, the SCM Agreement was extended for an interim period of five years, which took place on 31 March. December 1999, a sub-category of enforceable subsidies for which there was a rebuttable presumption of significant harm. Under Article 31, this provision (as well as the inapplicable grant provisions) could be extended by consensus of the Grants Committee. No such consensus had been reached as at 31 December 1999. Let us return to the specificity of the text. However, assuming that a measure constitutes a subsidy within the meaning of the SCM Agreement, it is not subject to the Subsidies Agreement unless it has been specifically granted to an enterprise, industry or group of companies or industries. The basic principle is that a subsidy that distorts the allocation of resources within an economy must be sanctioned. If a subsidy is generally available in an economy, it is assumed that such a distortion in resource allocation does not occur.