Chapter 3.

SUBSIDIES AND COUNTERVAILING

MEASURES
 Contents
3.1. Definition, Identification, and Classification of
Subsidies
3.2. Conditions for Imposition of Countervailing
Measures
3.3. Procedural Framework for Countervailing
Measures
3.4. Dispute Settlement Concerning Countervailing
Measures
3.1. DEFINITION, IDENTIFICATION, AND
CLASSIFICATION OF SUBSIDIES
3.1.1. Definition of Subsidies
Legal Framework:
• Article XVI – GATT 1994
• Agreement on Subsidies and Countervailing Measures (SCM
Agreement) – Article 1.1, Article 2

Definition:
A subsidy constitutes financial assistance provided by a government or
any public body within the territory of a Member State to an
organization or individual engaged in the production or exportation of
goods, which confers a benefit upon the recipient.

De minimis threshold: 1% (general); 2-3% (developing countries)

Applicable Legal Instruments

Industrial Goods Agricultural Products

Agreement on Subsidies and
Countervailing Measures (SCM Agreement on Agriculture (AoA)
Agreement) Article 6, Annex 2 (boxes), Articles 9-10
Articles 1-2 (definitions), Article 3 (export subsidies)
(prohibition), Articles 5-7 (effect) Contains specific provisions on
Governs subsidies affecting trade in agricultural subsidies with distinct
manufactured and industrial categorization system
products
Forms of Financial Contribution (Article 1.1(a)(1)
SCM Agreement)
1. Direct Transfer of Funds
Grants, loans, equity infusions, loan guarantees

2. Revenue Foregone
Tax credits, tax exemptions, accelerated depreciation

3. Provision of Goods or Services

Government provision of goods/services other than general
infrastructure

4. Income or Price Support

Payments to a funding mechanism or entrustment to private bodies
3.1.2. Identification of Subsidies
Calculation of Subsidy Amount Determination of Injury
Methods:
• Interest rate differentials on loans
• Differences in loan guarantee Requirements:
costs • Material injury or threat thereof
• Price differentials in • Injury must be significant
goods/services • Based on analysis of all relevant
factors
Subsidy Margin = % of subsidy
relative to value of goods
3.1.3. CLASSIFICATION OF
SUBSIDIES
Classification of Subsidies (SCM Agreement)
PROHIBITED (Red ACTIONABLE (Yellow NON-ACTIONABLE
Light) – Article 3 Light) – Articles 5-7 (Green)* – Article 8
Non-specific subsidies
Export Subsidies
Specific Subsidies
Contingent upon export R&D Subsidies
Challengeable if they cause:
performance Research & development
• Adverse effects to
another Member assistance
Local Content Subsidies
• Injury to domestic
Contingent upon use of Regional Development
industry
domestic over imported Disadvantaged regions
• Nullification of benefits
goods
Environmental Adaptation
Compliance with new
requirements

*Green light category expired December 31, 1999 and was not renewed
Agricultural Subsidies (Agreement on
Agriculture)
Green Box (Annex 2) Blue Box (Article 6.5)
Non-trade-distorting or minimally trade- Production-limiting programs (direct
distorting support (decoupled income payments under production limitation
support, environmental programs) programs)

Red Box – Export Subsidies

Amber Box (Article 6.1)
(Articles 9-10)
Trade-distorting support subject to Export subsidies subject to reduction
reduction commitments (price support, commitments and prohibition for new
input subsidies) users
3.2. COUNTERVAILING MEASURES
Countervailing Measures
Voluntary Undertakings Countervailing Duties
(Article 18) (Article 19)

Exporters may offer undertakings to:

• Eliminate or limit the subsidy Additional tariff to offset subsidization:
• Revise prices to remove injury • Must not exceed subsidy margin
• Applied on MFN basis
Investigation may be suspended • Subject to sunset review
upon acceptance
Conditions for Imposition of Countervailing
Duties (Articles 11, 15)
1. Existence of
2. Material Injury 3. Causal Link
Subsidy
Demonstrated causal
Subsidy margin not less Actual injury or threat of
relationship between
than 1% (de minimis material injury to
subsidized imports and
threshold) domestic industry
injury

→ All three conditions must be satisfied before CVDs may be

imposed.
3.3. PROCEDURAL FRAMEWORK
FOR
COUNTERVAILING MEASURES
Procedural Steps for Imposition of CVDs
1. Petition (Article 11)
Filed by domestic industry or competent authority

2. Investigation (Article 12)

Initiated upon receipt of valid petition

3. Determination
Preliminary and final determinations on subsidy, injury, causation

4. Imposition (Article 19)

CVD imposed based on final determination

5. Review (Article 21)

Administrative and sunset reviews
Standing and Petition Validity
Standing to File Petition Petition Validity

• Domestic industry producing like • Filed by producers representing

product ≥25% of domestic production
• Competent authority of the • Supported by >50% of those
importing Member expressing an opinion
Application of Countervailing Duties
Individual Assessment (Articles 19.3, 19.4)
CVD rate calculated separately for each producer/exporter; must not exceed
subsidy margin

Administrative Review (Article 21.2)

Reviews to increase, reduce, or terminate duties based on changed
circumstances

Duration Limits – Sunset Clause (Article 21.3)

Maximum 5 years; extension only if termination would lead to recurrence

Prospective Application (Article 20)

Duties apply to imports after determination; retroactive only for material injury
3.4. DISPUTE SETTLEMENT
WTO Dispute Settlement Mechanism
Disputes between WTO Members concerning countervailing measures alleged
to be inconsistent with WTO obligations.

Key Legal Issues in CVD Disputes:

• Whether the authority properly determined the existence and amount of

subsidy
• Whether injury and causation were properly established
• Whether procedural requirements of SCM Agreement were observed
• Whether the CVD imposed exceeds the permissible amount

Applicable Law: DSU + SCM Agreement Article 30