WTO Agreement on Subsidies and Countervailing Measures
The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement) is an international treaty that aims to regulate the use of government subsidies and the imposition of countervailing duties in international trade. Adopted in 1994, the SCM Agreement is designed to prevent unfair trade practices, promote fair competition, and ensure that subsidies do not distort international trade. Covering both prohibited and actionable subsidies, the SCM Agreement provides a framework for investigating and addressing subsidy disputes between WTO members.
Prohibited Subsidies
The SCM Agreement prohibits certain types of subsidies that are considered to have a particularly harmful impact on international trade. Prohibited subsidies include export subsidies that directly or indirectly increase exports or reduce imports; subsidies contingent on the use of domestic over imported goods; and subsidies that subsidize production for export. These subsidies are considered to be inherently trade-distorting and are not permitted under the SCM Agreement.
Actionable Subsidies
In addition to prohibited subsidies, the SCM Agreement also identifies certain subsidies that are considered actionable. Actionable subsidies are not inherently trade-distorting, but they can still cause injury to other WTO members if they result in increased imports or decreased exports. Actionable subsidies include subsidies that are specific to certain enterprises or industries; subsidies that are contingent on export performance; and subsidies that are provided to cover operating losses. If a WTO member believes that an actionable subsidy is causing injury, it can initiate an investigation and, if necessary, impose countervailing duties.
Countervailing Duties
Countervailing duties are tariffs that are imposed on imported goods to offset the benefits of subsidies received by the producer or exporter of those goods. Countervailing duties can only be imposed under certain specific conditions, including when there is a finding of injury to the domestic industry and when the subsidy is found to be specifically provided to the industry or enterprise producing or exporting the goods.
**WTO Agreement on Subsidies and Countervailing Measures: A Guide for the Uninitiated**
Do you know that there are certain subsidies that can land you in hot water with the World Trade Organization (WTO)? That’s right, the WTO has a set of rules, known as the Agreement on Subsidies and Countervailing Measures (SCM Agreement), that aims to prevent governments from unfairly supporting their domestic industries and distorting trade. Let’s dive into the details and see what’s what.
Prohibited Subsidies
Certain subsidies are strictly no-nos under the WTO’s SCM Agreement. These include export subsidies, which give companies a financial leg up when selling their products abroad. Why the ban? Because they create an uneven playing field and can harm other countries’ industries.
Another type of prohibited subsidy is one that requires companies to use domestic goods in their production. These subsidies can incentivize companies to buy local, even if foreign goods would be cheaper or better quality. Talk about protectionism gone wild!
WTO Agreement on Subsidies and Countervailing Measures
The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement) is an international agreement that aims to ensure fairness and transparency in the use of subsidies by WTO members. The agreement defines what constitutes a subsidy and sets out the rules for the imposition of countervailing measures against subsidized imports that cause serious prejudice to the interests of other WTO members.
Prohibited Subsidies
The SCM Agreement prohibits export subsidies and subsidies that are specifically contingent upon the use of domestic over imported goods. These types of subsidies are considered to be inherently trade-distorting and are therefore prohibited. However, the agreement does allow for certain types of subsidies that are considered to be non-actionable, such as subsidies for research and development, environmental protection, and regional development.
Countervailing Measures
WTO members are permitted to impose countervailing measures on subsidized imports that cause serious prejudice to their domestic industries. Countervailing measures are duties or charges that are levied on subsidized imports to offset the unfair advantage they receive from the subsidy. The amount of the countervailing duty must be equal to the amount of the subsidy that is found to be causing serious prejudice.
## Actionable Subsidies: Types and Impact ##
Subsidies that can be challenged under the SCM Agreement are known as “actionable subsidies.” These include:
1. **Financial contributions:** This encompasses direct payments, grants, and tax breaks.
2. **Government purchases:** When governments buy goods or services from domestic producers at inflated prices, it can unfairly advantage them.
3. **Government loans and loan guarantees:** Favorable lending terms, such as low interest rates or extended repayment periods, can provide a competitive edge.
4. **Price support programs:** Government policies that maintain prices above market levels can prop up certain industries, harming domestic consumers and exporters from other countries.
5. **Equity infusions:** Government investments that provide capital to domestic companies, particularly in sectors where the government has significant influence, can distort competition.
6. **Other direct or indirect benefits:** These cover a wide range of supportive measures that are not easily categorized into the other categories.
When actionable subsidies cause “serious prejudice” to other WTO members, they can be met with countervailing measures. These measures aim to level the playing field by imposing duties on subsidized imports, equivalent to the amount of the subsidy.
WTO Agreement on Subsidies and Countervailing Measures
The Agreement on Subsidies and Countervailing Measures, which was adopted by the contracting parties to the General Agreement on Tariffs and Trade (GATT) in 1979, is designed to provide a framework for the regulation of subsidies and countervailing measures. The Agreement is intended to prevent subsidies and countervailing measures from being used in a manner that harms international trade.
What are Subsidies?
Subsidies are financial contributions from the government to businesses or individuals. Subsidies can take various forms, including direct payments, tax breaks, loans, and loan guarantees.
Disciplines on Prohibited Subsidies
The Agreement prohibits certain types of subsidies, such as those that are contingent on the use of domestic goods or services, and those that are contingent on the export of goods or services.
Disciplines on Actionable Subsidies
The Agreement also disciplines the use of certain subsidies that may cause adverse effects to the interests of other Members. These subsidies are known as "actionable subsidies".
Countervailing Duties
Countries may impose countervailing duties to offset the effects of subsidies that cause material injury to their domestic industries. Countervailing duties are calculated based on the amount of the subsidy received by the foreign producer or exporter.
Special and Differential Treatment for Developing Countries
The Agreement includes special and differential treatment provisions for developing countries. These provisions allow developing countries to use subsidies to promote their economic development, subject to certain conditions.
WTO Agreement on Subsidies and Countervailing Measures
The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement) is an international agreement that disciplines the use of subsidies and countervailing measures by WTO members. The SCM Agreement was negotiated during the Uruguay Round of trade negotiations and entered into force on January 1, 1995. The SCM Agreement is designed to ensure that subsidies do not distort trade or harm the interests of other WTO members. It also provides rules for the imposition of countervailing measures to offset the effects of subsidies.
Prohibited Subsidies
The SCM Agreement prohibits certain types of subsidies, including export subsidies and subsidies that are contingent upon the use of domestic goods or services. The SCM Agreement also prohibits subsidies that are specifically designed to harm the interests of other WTO members.
Permissible Subsidies
The SCM Agreement permits certain types of subsidies, including subsidies for research and development, subsidies for environmental protection, and subsidies for regional development. The SCM Agreement also permits subsidies that are provided to disadvantaged industries or regions. However, these subsidies must be notified to the WTO and must not cause serious prejudice to the interests of other WTO members.
Countervailing Measures
WTO members may impose countervailing measures to offset the effects of subsidies that are found to be causing injury to their domestic industries. Countervailing measures are typically in the form of tariffs or other duties. The SCM Agreement sets out the conditions under which countervailing measures may be imposed, including the requirement that the subsidy must be causing serious prejudice to the domestic industry and that the countervailing measure must be proportionate to the injury caused.
Dispute Settlement
Disputes over subsidy practices or countervailing measures are resolved through the WTO dispute settlement system. The dispute settlement system is a binding process that allows WTO members to resolve disputes without resorting to unilateral action. The dispute settlement system has been used to resolve a number of disputes over subsidies and countervailing measures, including the dispute between the United States and the European Union over subsidies for large civil aircraft.
Conclusion
The SCM Agreement is an important part of the WTO’s system of rules for international trade. The SCM Agreement disciplines the use of subsidies and countervailing measures, ensuring that they do not distort trade or harm the interests of other WTO members. The SCM Agreement also provides a mechanism for resolving disputes over subsidy practices and countervailing measures, helping to maintain the stability of the international trading system.