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

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

II Basic WTO rules on SCM GATT art SCMA Concept of subsidies Treatment of subsidies Response to injurious subsidies

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

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)

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

B) Comparison standard (art.14 calculation of benefit) (art.14 calculation of benefit) (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.)

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.

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 ）

categorization 1) Specificity (SCMA art.2)(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

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.

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

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

Prohibited subsidies 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

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

Actionable subsidies Example:

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

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

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

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

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

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)

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.

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

VI China China has been sued by Canada and US. MOFCOM: m m USITC CBSA Developing country? Transitional country? Domestic rules (upstream subsidy/anti- circumvention/ Best information available)