Law

International Trade Law

Countervailing Measures under the WTO
 UNIVERSITY GRANTS COMMISSION

AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES

e - PATSHALA MODULE

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 James J. Nedumpara

Associate Professor of Law, O.P. Jindal Global University,

Executive Director, Centre for International Trade and Economic Laws

An initiative by the University Grants Commission, MHRD under the National Mission on Education
through Information and Communication Technology.

Personal Details

Role Name Affiliation

Principal Investigator Prof. (Dr.) Ranbir Singh Vice Chancellor, National Law
University, Delhi
Co-Principle Prof. (Dr.) G.S. Bajpai Registrar, National Law University,
Investigator Delhi
Paper Coordinator Dr. Saloni Khanderia-Yadav NLU, Delhi
Content Writer (CW) James J. Nedumpara O.P. Jindal Global University
Content Reviewer Prof. Abhijit Das Indian Institute of Foreign Trade, Centre
(CR) for WTO Studies, Delhi
Language Editor (LE) Dr. Saloni Khanderia-Yadav NLU, Delhi

Description of Module

Items Description of Module

Subject Name International Trade Law
Paper Name e-PG Patshala Learning Module on the Anti-Dumping Agreement World
Trade Organization
Module Name/Title Countervailing Duties
Module Id 10
Pre-requisites  Emergency action to protect domestic economy and safeguard
measures.
 Article VII of the GATT and the Agreement on Subsidies and
Countervailing Measures.
 The Concept of subsidy, material injury and causation.
 Simultaneous application of anti-dumping and countervailing
measures.
Objectives To understand:
 Emergency action to protect domestic economy and safeguard
measures.
 Article VII of the GATT and the Agreement on Subsidies and
Countervailing Measures.

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 
The Concept of subsidy, material injury and causation.

Simultaneous application of anti-dumping and countervailing
measures.
Keywords Subsidy, countervailing duties, WTO

TABLE OF CONTENTS

ABBREVIATIONS/SHORT-HAND ........................................................................................................................................................................... 4
LEARNING OUTCOME ............................................................................................................................................................................................. 5
1. INTRODUCTION ................................................................................................................................................................................................ 7

1.1. How does a subsidy affect international trade? .............................................................................................. 7

2. HISTORICAL PERSPECTIVE ......................................................................................................................................................................... 8

2.1. SCMA and the Tokyo Code ........................................................................................................................... 9

2.2. Structure of the Agreement........................................................................................................................... 10
3. ARTICLE VI OF GATT 1994 .......................................................................................................................................................................... 12

3.1. General Understanding ................................................................................................................................. 12

3.2. Article VI of GATT 1994 ............................................................................................................................. 12
3.2.1. Relationship between GATT Art.VI and SCMA ..................................................................................... 14
4. IDENTIFYING A SUBSIDY ............................................................................................................................................................................ 15

4.1. What is a subsidy? ........................................................................................................................................ 16

4.1.1. Financial Contribution.......................................................................................................................... 17
4.2. What is specificity? ...................................................................................................................................... 28
4.3. What are the classes of subsidies? ................................................................................................................ 30
4.3.1. Prohibited Subsidies.............................................................................................................................. 31
4.3.1.1. Export Subsidies ........................................................................................................................................................................... 32
4.3.1.2. Import Substitution Subsidies ..................................................................................................................................................... 32
4.3.2. Actionable Subsidies ............................................................................................................................. 33
4.3.2.1. What is injury?.............................................................................................................................................................................. 34
4.3.2.2. What is serious prejudice? ....................................................................................................................................................... 35
4.3.3. Non-Actionable Subsidies ..................................................................................................................... 37
5. IMPOSITION OF COUNTERVAILING MEASURES ................................................................................................................................ 38

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 5.1. Against what kind of subsidies can countervailing measures be imposed upon? ......................................... 38
5.1.1. Substantive Requirement ....................................................................................................................... 38
5.1.1.1. What is a domestic industry? .................................................................................................................................................. 42
5.2. Procedural Requirement ............................................................................................................................... 43
5.3. Other Requirements ...................................................................................................................................... 44
5.4. Imposition of CVDs ..................................................................................................................................... 45
5.4.1. How to calculate the benefit? ................................................................................................................ 45
5.4.2. Calculation of Subsidy .......................................................................................................................... 46
5.4.3. Per Unit/Ad Valorem Subsidy ............................................................................................................... 46
6. DOUBLE REMEDIES ...................................................................................................................................................................................... 48
7. CALCULATION OF A SUBSIDY ................................................................................................................................................................... 50
8. EMERGENCY ACTIONS AND SAFEGUARD MEASURES..................................................................................................................... 50

8.1. General principles ......................................................................................................................................... 50

8.2. Historical background................................................................................................................................... 51
8.3. Structure ....................................................................................................................................................... 51
8.4. Conditions for application of safeguard measures ........................................................................................ 51
8.5. What is the comparator? ............................................................................................................................... 52
9. SUMMARY......................................................................................................................................................................................................... 53
10. DISPUTES REFERRED IN THE MODULE ............................................................................................................................................... 55
11. ANNEXURE: Example of Subsidy Calculation .......................................................................................................................................... 57

ABBREVIATIONS/SHORT-HAND

AB Appellate Body
AD Anti-Dumping
ADA Anti-dumping Agreement
ADD Anti-Dumping Duty
ASCM/SCM Agreement on Subsidies and Countervailing Measures
CVD Countervailing duty

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DCs Developing countries
DRAMs Dynamic Random Access Memory Semiconductors
DSB Dispute Settlement Body
DSU Dispute Settlement Understanding
EC European Communities
EU European Union
EPZs Export processing zones
FTA Free Trade Area
GATT General Agreement on Tariffs and Trade
IA Investigating Authority
IP Investigation period
NME Non-Market Economy
NTBs Non-tariff barriers
R&D Research and development
SCM Subsidies and Countervailing Measures
SCMA Subsidies and Countervailing Agreement
UNCTAD United Nations Conference on Trade and Development
US United States
WTO World Trade Organization
Member World Trade Organization Member States

LEARNING OUTCOME

The module aims to provide a comprehensive understanding of the basic concepts under the
Subsidies and Countervailing Agreement of the WTO. It provides various examples for students
underlining the practical relevance of certain concepts in the application as well as interpretation
of the Subsidies and Countervailing Agreement.

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Briefly, the module shall cover the following areas:

a) History of the SCMA

b) Relation between GATT and SCMA
c) Meaning and constituents of a subsidy
d) Calculation of a subsidy
e) Classes of subsidies and their relevance under the SCMA
f) Concept of Double Remedies
g) Countervailing actions to limit the effect of subsidies as well as safeguard measures

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 1. INTRODUCTION

There are few topics in the field of international trade law that are as contentious and
complicated as the topic of subsidies. During the early years of GATT, emphasis was placed on
reduction of tariffs.1At that time, tariffs were the primary form of protection.2 As an outcome of
the negotiations relating to subsidies Contracting Parties to the GATT were authorized to take
domestic actions against injurious effects of subsidies in the form of countervailing duties under
Article (“Art.”) XVI and VI of the GATT.

As time elapsed, concerns over subsidies as an alternative form of protection began to grow.3
This change in perception of subsidies was due to significant reductions in tariff, which made
subsidies a larger problem (in relative terms). Countries decided to act by making the subsidies
discipline more compact during the Tokyo Round through the Subsidies Code. However, it was
the Agreement on Subsidies and Countervailing Measures (SCMA), concluded at the historic
Uruguay Round that established the primary rules concerning subsidies and countervailing
measures.4

1.1. How does a subsidy affect international trade?

Situation: State “Y” and State “Z” are two countries that produce Product X. State “Y” has a
greater share of the global market owing to comparative advantage 5 over State “Z”. The
Government of State “Z” decides to provide subsidy to the domestic producers of Product X in
their country. Flowchart 1 will explain the possibilities of such a subsidy.

Flowchart 1: How subsidy affects international trade

1 Andreas F. Lowenfeld, International Economic Law (OUP 2008) 217. [hereinafter “Lowenfeld”].
2 Simon Lester, Bryan Mercurio, Arwel Davies and Kara Leitner, World Trade Law: Text, Materials and Commentary (2nd ed.
Hart Publishing 2010) 412 [hereinafter “Lester”].
3 ibid 412.
4 Lowenfeild (n 1) 238.
5 For more information on Comparative Advantage, please visit
<http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact3_e.htm> accessed on 11 July 2014.

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 State "Z" subsidizes the
production of product "X"

Situation 3: State "Y's" market

Situation 1: State "Z" is able to Situation 2: State "Y" could have share in 3rd countries (State
sell their products in State "Y", sold (or further sold) product B,C,D) declines because of
which could not have ocurred "X" in State "Z", had it not been subsidy to State "Z" which has
without subsidy. for the subsidy also entered the product in the
market of other countries.

In this situation, State “Z” can defend its economy by imposing a tariff known as countervailing
duty as the subsidy provided by State “Z” has negatively impacted the market share of State “Y”.

We will be referring to this example in the module.

2. HISTORICAL PERSPECTIVE

The SCMA has strengthened the legal discipline that governs trade distorting subsidies given by
governments to domestic firms. Such subsidies lead to economic distortion and an unfair
competitive advantage and nullify the benefits of tariff reductions.

The first legal provisions dealing with subsidies were in the text of GATT 1947 (enshrined in Art.
VI of GATT 1947 and XVI GATT 1947). These original rules were general in nature. Art. XVI
GATT 1947 did not define the term “subsidy”.6 Further, there was no clarity regarding the types
of adverse effects that could be caused by subsidies. Also, the text of the GATT 1947 did not
provide any response actions that other Contracting Parties could take in such a case.7 In fact, Art.
VI of GATT contained only three paragraphs regarding the use of countervailing measures.8

Thus, the legislation and remedies concerning subsidies was ambiguous. The issue was again
brought to attention during the Tokyo Round of GATT Negotiations (1973-1979). Negotiations
during this round resulted in the “Code on Subsidies and Countervailing Duties”, also known as
the “Tokyo Code”.9 The Tokyo Code eventually proved to be a disappointment.10Adherence to it

6 Bernard M. Hoekman, Trade Laws and Institutions: Good Practices and the World Trade Organization (World Bank
Publications, 1995) 19 [hereinafter “Hoekman”].
7 Arthur E. Appleton and Michael G. Plummer, The World Trade Organization: Legal, Economic and Political Analysis

(Springer Science & Business Media 2007) 688 [hereinafter “Appleton”].

8 This is discussed in detail in the next section.
9 Lowenfeld (n 1) 222.
10 ibid.

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was optional and only few countries were willing to participate in the Tokyo Round
negotiations.11 A more detailed reasoning is provided in the next section.

Once again, subsidies became an important issue during the Uruguay Round of GATT
Negotiations (1986-1994), with negotiators building on the Tokyo Code of 1979.12 By now, the
importance of a legal discipline regulating subsidies was recognized globally. 13 The resulting
SCMA was applicable to all members of the World Trade Organization (WTO). It must also be
noted that no changes were made to the provisions of original GATT that dealt with subsidies –
Art.VI and XVI GATT 1994.

It is also important to mention the significance of Art. XVI of the GATT. Under this provision, if
any Contracting Party grants or maintains any subsidy which operates directly or indirectly to
increase exports of any product from, or to reduce imports of any product into, its territory, it
must notify the Contracting Parties of the nature and extent of subsidization and of its likely
effects on imports and exports and upon request discuss with the other concerned Contracting
Parties the possibility of limiting subsidization. However, in reality, the consultation provisions
under Art. XVI were by and large ineffectual.

2.1. SCMA and the Tokyo Code

The SCMA was an improvement on the Tokyo Subsidies Code. A detailed description on the
changes that SCMA brought to the Subsidies regime in the WTO after the GATT negotiations is
mentioned below:

Box 1.: The Uruguay SCM Code

ʘ Defined certain key terms such as “subsidy” and “serious prejudice” for the first time in any GATT
agreement;
ʘ Prohibited export subsidies and subsidies contingent on the use of domestic instead of imported goods,
including de facto export subsidies that are tied to exports or export earnings in practice though not in
law;
ʘ Created a special presumption of serious prejudice for certain egregious subsidies;
ʘ Significantly strengthened the procedures for showing when serious prejudice exists in foreign markets;
ʘ Established a category of government assistance is deemed to be non-actionable and non-countervailable.
This would require the satisfaction of strict conditions and criteria mentioned within the text of the

11 “The GATT Years: From Havana to Marrakesh”,

<http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm> accessed on 11 July 2014; See also, Congress
of the United States, The Effects of Tokyo Round on Multilateral Negotiations (July 1979),
<https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/111xx/doc11153/79doc660.pdf> accessed on 13 July
2014.
12 Lowenfeld (n 2) 225.
13 ibid.

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 SCMA;
ʘ Required all developing countries (not least developed countries), to phase out export subsidies and import
substitution subsidies, and accelerate the phase-out of export subsidies in situations where a developing
country has achieved global export competitiveness in a particular product sector.

Source: Yan Wang, Trade Remedies and Non-Market Economies (The World Bank Policy Research Working Paper 4650,
March 2008) 5.<http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-4560> accessed on 13 July
2014.

2.2. Structure of the Agreement

In terms of its structure, the SCMA is divided into eleven parts:14

14 TradeMarks Southern Africa, Training Module on Subsidies and Countervailing Measures (2010) 11-12
<http://pages.au.int/sites/default/files/Subsidies%20Training%20Module.pdf> accessed on 10 July 2014
[hereinafter “TradeMarks SA”].

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PART I – GENERAL

Art. 1:Definition of subsidies

Art. 2:Concept of specificity

PART II – PROHIBITED SUBSIDIES

Art. 3: Provides that export subsidies and import substitution

subsidies are prohibited;
Art, 4: Provides multilateral remedies against prohibited subsidies;

PART III – ACTIONABLE SUBSIDIES

Art. 5:Covers the concept of adverse effects;

Art. 6:Discusses serious prejudice;
Art. 7: Similar to provision of Art. 4, as it discusses the multilateral
remedies against actionable subsidies;

PART IV – NON-ACTIONABLE SUBSIDIES

Art. 8: Provides that subsidies which are not specific are non-actionable. It furthermore exempts certain environmental, research and
development (R&D) and regional subsidies, even though they are specific. This category applied provisionally for five years ending 31
December 1999, and pursuant to Art. 31 GATT, could be extended by consensus of the SCM Committee. 15 As of 31 December 1999, no
such consensus had been reached resulting in the expiry of this provision.

PART V – COUNTERVAILING DUTIES

Arts. 10–23:Includes procedural and material injury provisions;

Art. 14: It particularly contains important rules on the calculation of the amount of certain subsidies;

PART VI – INSTITUTIONS

Establishes the Committee on Subsidies and Countervailing Measures and authorizes the establishment of a permanent group of experts;

PART VII – NOTIFICATION AND SURVEILLANCE

Contains important notification and surveillance procedures;

PART VIII – DEVELOPING COUNTRIES

Grants significant special and differential treatment to developing country Members.

PART IX – TRANSITIONAL ARRANGEMENTS

Deals with accessions and transition economies;

PART X – DISPUTE SETTLEMENT

Art. 30: Provides that the Dispute Settlement Understanding (DSU) provisions apply, except as otherwise specified in the SCMA; and

PART XI – FINAL PROVISIONS

15 Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1A, THE LEGAL TEXTS: THE RESULTS OF
THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 231 (1999), 1869
U.N.T.S. 14. [hereinafter “SCMA”]

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Includes the provision that Art. 6.1 (serious prejudice definition) and Arts. 8 and 9 (non-actionable subsidies) applied for five years only. Because
of the failure of the Seattle Ministerial Conference, these provisions expired on 31 December 1999.

Apart from the structure present in the main agreement, the SCMA also includes
seven Annexures:16
Annexure I The illustrative list of export subsidies;
Annexure II Guidelines on consumption of inputs in the production process;
Annexure III Guidelines in the determination of substitution drawback systems as export subsidies;
Annexure IV Calculation of the total ad valorem subsidization for purposes of Article 6.1(a);
Annexure V Procedures for developing information concerning serious prejudice;
Annexure VI Procedures for on the spot investigations ex Article 12.6;
Annexure VII Coverage of developing and least developed Member Countries

3. ARTICLE VI OF GATT 1994

3.1. General Understanding

As pointed out in Flowchart 1, one of the defenses available to State “Z” when State
“Y” provides subsidy for Product X is the imposition of a special tariff, known as
countervailing duty (CVD). CVD is exempted from the Most-Favored Nation (MFN)
obligation,17 and the conditions for CVDs are set out in Art. VI GATT 1994. Notably,
this is the same text that was adopted in the GATT 1947.

3.2. Article VI of GATT 1994

Art. VI GATT 1994 permits members to impose duties (and other measures) on goods
originating in other Members States receive subsidies. 18 Art. VI GATT 1994
specifically imposes certain important conditions on CVD in paragraph 3 and 6.

Paragraph 3 of Art. VI stipulates that imposition of CVDs shall not be in excess of the
estimated subsidy determined to be granted. 19 The reason for this is because a
countervailing duty is not meant to impose penalty, but to offset the distortion that has
been caused by the subsidy.20 This point has been further illustrated by the Appellate
Body (“AB”) in the US – Countervailing Duties on Certain EC products dispute.21 In
this dispute, products were exported to the US from the EC by privatized companies.
These companies were previously state-owned and received government subsidies
before they were privatized. The measure that was challenged in the dispute was the

16 ibid.
17 General Agreement on Tariffs and Trade 1947 (GATT) (15 April 1994) LT/UR/A-1A/1/GATT/2, art
I <http://docsonline.wto.orh> last accessed on 20 June 2014.
18 ibid art. VI.
19 GATT (n 17) art VI (3).
20 Peter Van Den Bossche, The Law and Policy of the World Trade Organization: Text, Cases and Materials (CUP

2013) 353 [hereinafter “Bossche”].

21 WTO, United States — Countervailing Measures on Certain Products from European Communities- Report of the

Appellate Body (9 December 2002) WT/DS212/AB/R [139] [hereinafter “EC-CVD”).

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US CVD law governing the treatment of subsidies provided to state-owned companies
that were later privatized. Subsidy calculation methodologies developed by the United
States Department of Commerce (“USDOC”) were also questioned. The AB noted
that CVDs should not be levied on any product in excess of the amount of the subsidy
that is found to exist. The Appellate Body was reaffirming one of key principles in
GATT Art VI (3), namely, “[n]o countervailing duty shall be levied on any product of
the territory of any contracting party… in excess of an amount equal to the estimated
bounty or subsidy determined to be granted…”

In sum, Art. VI of GATT 1994 still remains significant and will have to be read
together with the SCMA.

“Moreover, Article 19.4 of the SCM Agreement, [is]

consistent with the language of Article VI: 3 of the
GATT 1994. … In sum, these provisions set out the
obligation of Members to limit countervailing duties to
the amount and duration of the subsidy found to exist
by the investigating authority.” ABR, US —
Countervailing Measures on Certain EC Products
[139].

The AB has noted that Paragraph 3 of Art. VI also identifies the responses that are
permitted when a subsidy is found to exist. In US - Offset Act (Byrd Amendment)
dispute, the Complainants22challenged the U.S. amendment to the Tariff Act of 1930
signed on 28 October 2000. This amendment was widely referred to as the “Byrd
Amendment” and was seen as a way to support the steel industry in the U.S. 23
According to the Complainants, the Byrd Amendment was inconsistent with the
obligations of the U.S. under several provisions of the GATT, the Anti-Dumping
Agreement (ADA), the SCMA, and the WTO Agreement.

While determining the relationship between the GATT and SCMA, the AB found that
there are four permissible responses to a countervailable subsidy under the two
agreements.24 See Box below.

“In our view, Article VI: 3 of the GATT 1994 and Part
V of the SCM Agreement encompass all measures
taken against subsidization. To be in accordance with
the GATT 1994, as interpreted by the SCM Agreement,
a response to subsidization must be either in the form of

22 Joint complaint was filed by Australia, Brazil, Chile, European Communities, India, Indonesia, Japan,
Korea and Thailand.
23 For more information, please visit <http://www.ebearing.com/legislation/2000act.htm> last accessed

on 16 July 2014.
24 WTO, United States – Continued Dumping and Subsidy Offset Act 2000- Report of the Appellate Body (16 January

2003) WT/DS217/AB/R [267] [hereinafter “US- Subsidy Offset Act 2000”].

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 definitive countervailing duties, provisional measures or
price undertakings, or in the form of multilaterally-
sanctioned countermeasures resulting from resort to the
dispute settlement system.” ABR, US - Offset Act
(Byrd Amendment) [267].

Further, CVDs can only be levied when it is demonstrated that the effect of
subsidization is causing “material injury” to an established domestic industry,
according to Paragraph 6 of Art VI of GATT 1994.25

Art VI (6) GATT 1994

“No contracting party shall levy any antidumping or
countervailing duty on the importation of any product
of the territory of another contracting party unless it
determines that the effect of the dumping or
subsidization, as the case may be, is such as to cause or
threaten material injury to an established domestic
industry, or is such as to retard materially the
establishment of a domestic industry.”26

Going back to the example mentioned in Flowchart 1, even if State “Z” has given a
subsidy to a product that is exported to State “Y”, and the investigating authorities
within State “Y” have rightly determined the amount of subsidy given, yet no
countervailing duty can be imposed by State “Y” unless the subsidy “is such as to
cause or threaten material injury to an established domestic industry, or is such as to
retard materially the establishment of a domestic industry”.27

In a later part of this module, we will be discussing the term “cause” and “material
injury” in detail.

3.2.1. Relationship between GATT Art.VI and SCMA

The relationship between Art. VI GATT and the SCMA is not expressly mentioned in
the concerned agreements. 28 However, there have been various deliberations
regarding the relationship between these two provisions in Panel and AB decisions. A
WTO Panel in Brazil — Desiccated Coconut touched upon this issue. In this dispute,
the Philippines had expressed concern over CVD imposed by Brazil on the
Philippines’ exports of desiccated coconut.29 The Philippines claimed that the duty

25 GATT (n 18) art VI (6).

26 ibid.
27 K.D. Raju, World Trade Organization Agreement on Anti-Dumping (Kluwer Law International, 2008) 100

[hereinafter “Raju”].
28 ibid.
29 Desiccated coconut is obtained from shredded coconut kernel and is extensively used in puddings and

confectioneries.

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imposed was inconsistent with WTO and GATT rules. During the course of the
dispute, the Panel was faced with the following questions: Whether Article VI of GATT
1994 created rules which were separate and distinct from those of the SCMA, and which
could be applied without reference to that Agreement? Whether Art. VI GATT 1994 and the
SCMA represented an inseparable package of rights and disciplines that must be considered
in conjunction?

In phrasing this issue, the Panel made it clear that the SCMA did not supersede Art.
VI of GATT 1994. 30

“It is evident that both Article VI of GATT 1994 and

the SCM Agreement have force, effect, and purpose
within the WTO Agreement. That GATT 1994 has not
been superseded by other Multilateral Agreements on
Trade in Goods … is demonstrated by a general
interpretive note to annex 1A of the WTO Agreement.
The fact that certain important provisions of Article VI
of GATT 1994 are neither replicated nor elaborated in
the SCM Agreement further demonstrates this point.
Thus, the question for consideration is not whether the
SCM Agreement supersedes Article VI of GATT 1994.”
PR, Brazil — Desiccated Coconut [17].

Later, the AB also upheld the Panel’s findings regarding the relation between Art. VI
of GATT 1994 and the SCMA. The factual reason for this was because the
investigation was initiated by Brazil prior to 1 January 1995, which was the date that
the WTO Agreement came into effect for Brazil. The Panel had opined that the
subsidy rules in GATT could not apply independently of the SCMA.31

4. IDENTIFYING A SUBSIDY
For a measure to be covered by the SCMA, it needs to satisfy:

 Definition of a subsidy mentioned in Art. 1 of the SCMA; and

 Specificity requirements mentioned in Art. 2 of the SCMA.

30 WTO, Analytical Index 1994-2013,

<http://www.wto.org/english/res_e/booksp_e/analytic_index_e/subsidies_05_e.htm> accessed 14
July 2014.
31 WTO, One Page Summary: Brazil Desiccated Coconut
<http://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds22sum_e.pdf> accessed on
25 July 2014.

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 Box 2.: Definition of a subsidy

Article 1 SCMA: Definition of a Subsidy

1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within the territory of a
Member (referred to in this Agreement as “government”), i.e. where:

(i) A government practice involves a direct transfer of funds (e.g. grants, loans and equity
infusion), potential direct transfer of funds or liabilities (e.g. loan guarantees),
(ii) Government revenue that is otherwise due is foregone or not collected (e.g. fiscal
incentives such as tax credits)
(iii) A government provides goods or services other than general infrastructure, or purchases
goods;
(iv) A government makes payments to a funding mechanism, or entrusts or directs a private
body to carry out one or more of the type of functions illustrated in (i) to (iii) above
which would normally be vested in the government and the practice, in no real sense,
differs from practices normally followed by governments;
Or

(a)(2) there is any form of income or price support in the sense of Article XVI of GATT 1994;

And

(b) a benefit is thereby conferred.

1.2. A subsidy as defined in paragraph 1 shall be subject to the provisions of Part II or shall be
subject to the provisions of Part III or V only if such a subsidy is specific in accordance with the
provisions of Article 2.

4.1. What is a subsidy?

The standard economic definition of “subsidy” involves the notion of payment by a

government to a private entity.32 However, the SCMA recognizes that subsidies can
be offered through other means as well. The SCMA sets out rules for identification of
such subsidies. A subsidy is “deemed to exist” if two conditions are met:33

 There must be a financial contribution by the government or any public body or any
form of income or price support;
 A benefit must be conferred (meaning, by the financial contribution or the
income/price support).


32 Lester (n 2) 423.
33 Subsidies and Countervailing Agreement (15 April 1994) LT/UR/DEC-2/1, art. 1.1,
<http://docsonline.wto.org> last accessed on 12 May 2014).

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 Flowchart 2: What constitutes a subsidy?

Benefit
Financial conferment
contribution by which makes Subsidy
a public body the conferee
better off

From the above diagram, it can be seen that mere existence of a financial contribution
does not, in itself, qualify to constitute a subsidy. The financial contribution must also
confer a benefit. Therefore, both the above mentioned conditions must be met.34

4.1.1. Financial Contribution

Art. 1.1(a) (1) SCMA provides a closed list of the types of financial contribution that
includes:35

 Direct transfers of funds such as grants, loans and equity infusions (SCMA Art.
1.1(a)(1)(i));
 Potential direct transfers of funds or liabilities, such as loan guarantees (SCMA
Art. 1.1(A)(1)(i));
 Government Revenue, otherwise due, that is foregone or not collected (SCMA
Art. 1.1(a)(1)(ii));
 The provision by a government of goods or services other than general
infrastructure (SCMA Art. 1.1(a)(1)(iii));
 The purchase by Government of goods (SCMA Art. 1.1(a)(1)(iii)); and
 Government payments to a funding mechanism or entrustment or direction of a
private body (SCMA Art. 1.1(a) (1) (iv)).

Flowchart 3. : Types of Financial Contribution

34 Lester (n 2) 423.
35 SCMA (n 37) art.1; See also, WTO, United States – Measures Affecting Trade in Large Civil Aircraft – Second
Complaint-Report of the Panel (31 March 2011) WT/DS353/R [7.164] [hereinafter “US- Large Aircraft”].

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 TYPES OF FINANCIAL CONTRIBUTION

The provision The Government

Government by a payments to a
Potential Direct Revenue, government of The purchase by funding
Direct Transfer transfer of otherwise due, goods or a government of mechanism or
of Funds Funds that is foregone services other goods entrustment or
or not collected than general direction of a
infrastructure private body

From Art. 1of the SCMA,36 it is clear that the government does not necessarily have
to make payments to qualify that action as a subsidy. A financial contribution will
also exist if a government makes payments to a funding mechanism, or “entrusts” or
“directs”37 a private body to carry out one or more of the type of functions described
above rather than directly doing so itself.38

Further, it should be mentioned that the reason for providing an exhaustive list of
governmental actions that could come with the ambit of “financial contribution” is to
limit the kinds of government actions which could fall within the scope of the
SCMA.39 An analysis of the types of financial contribution is provided below:

4.1.1.1. Direct and Potential Direct Transfer of Funds

As can be observed from the heading, there are two terms that require discussion:
direct transfer of funds and potential transfer of funds.

Financial contribution involving “direct transfer of funds” from government or a

public body to a private body comes within the scope of the first type of financial
contribution. As the name suggests, the transfer of funds is directly made in this case
through “grants, loans and equity infusion”, as is identified in the main text of the
SCMA.

The word “potential” constitutes a financial contribution when the government

promises to transfer money under certain conditions. The SCMA itself has given the
example of “loan guarantees” as a form of potential transfer of funds. Determination
of this type of transfer is more difficult to identify when compared to those under the
category of “direct transfer of funds”. However, it must be noted that assuming the
possibility that the government may transfer funds is not a sufficient reason to satisfy
the term “potential direct transfer of funds.”

36 ibid.
37 The term “entrust” and “direct” are discussed in detail at a later part of this module.
38 Lester (n 2) 238-240.
39 WTO, United States – Measures Treating Export Restraints as Subsidies- Report of the Panel (29 June 2001)

WT/DS194/R [8.69] [hereinafter “US - Export Restraints”].

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In the US — Large Civil Aircraft (2nd complaint) dispute, EC had claimed that ten
categories of measures implemented by the US (including tax and non-tax benefits
from the State of Washington, property and sales break from the State of Kansas, etc.)
provided subsidies to Boeing’s (a U.S. multinational company that designs and
manufactures commercial airplanes) large civil aircraft division). This, according to
the EC was inconsistent with the SCMA. One of the contentions raised related to the
“potential direct transfer of funds”. The Panel established that “mere possibility that a
government may transfer funds” upon the fulfillment of any pre-defined condition is
not enough to satisfy the definition of a financial contribution. Therefore, it could not
be brought under “potential direct transfer of funds”.40

4.1.1.2. Revenue Foregone that is otherwise due

A financial contribution also exists when a government does not collect or foregoes
revenue which is otherwise due. This kind of financial contribution is more
complicated in nature. A fiscal inventive such as a “tax credit” could come within the
ambit of this category.

In the United States — Tax Treatment for Foreign Sales Corporations (FSC) dispute,
several countries challenged the tax exemptions amounting to billions of dollars given
to offshore foreign sales corporations established by U.S. firms. The FSCs were
generally subsidiaries of US corporations selling goods in foreign markets. The Panel
and AB had to address several questions regarding “revenue foregone or otherwise
foregone”. In particular, one important question was addressed by the Panel:

When is ‘foregone revenue’ otherwise due?

The Panel noted that the term “otherwise due” referred to a situation that would have
prevailed had the measures in question not been implemented. 41 Therefore, it is a
matter of determining whether, in the absence of such measures, would there have
been a higher tax liability? In the view of the Panel 42 , when considering whether
revenue foregone was “otherwise due”, an examination of the situation that would
exist had the measure in question not been implemented, must be made.43

In the Canada – Autos dispute44, an import duty exemption was granted to certain
imported cars. This was considered to be revenue “otherwise due” as the exemption
implied that the normal MFN import duty of 6% would not have to be paid to the

40 US-Large Aircrafts (n 39) [7.164].

41 WTO, United States – Tax Treatment for “Foreign Sales Corporation”- Report of the Appellate Body (24 February
2000) WT/DS108/AB/R [90] [hereinafter “US-FSC”].
42 WTO, United States – Tax Treatment for “Foreign Sales Corporation”- Report of the Panel (8 October 1999)

[7.45] WT/DS108/R. [hereinafter “PR US-FSC”]

43 ibid.
44 WTO, Canada-Certain Measures Affecting the Automotive Industry- Report of the Appellate Body (31 May 2000)

WT/DS139/AB/R [91] [hereinafter “Canada-Autos”].

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Canadian Government. According to the Appellate Body, this exemption amounted to
“foregone revenue” that the Government would otherwise have raised.45

4.1.1.3. Government Purchase of Goods or Provision of Goods and Services

In general, governments purchase goods and services with a transfer of funds to

private companies.46 An example of this could be the purchase of military equipment
by the government from private companies. From the example, one can gauge that the
ambit of the term “goods and services” is very broad. The Canada–US Softwood
Lumber dispute, which is one of the most significant and enduring trade disputes in
recent history, provides guidance on the concept of ‘government purchase of goods
and services’.

At the heart of the dispute is the claim that the Canadian lumber industry was being
unfairly subsidized by federal and provincial governments, as most timber in Canada
is owned by the provincial governments. The prices charged to harvest the timber
(known also as “stumpage fee”) were set administratively, rather than through the
competitive marketplace. Competitive market place charging was the norm in the U.S.
The U.S. claimed that this act by Canada constituted an unfair subsidy, and was thus
subject to the U.S. CVD laws. The Canadian government and lumber industry
disputed this assertion, based on a number of factors, including that Canadian timber
was provided to such a wide range of industries, and that lack of specificity made it
ineligible to be considered a subsidy under US law. Since 1982, there had been six
major iterations of the dispute which are simply named Softwood Lumber I, Softwood
Lumber II, Softwood Lumber III, Softwood Lumber IV, Softwood Lumber V and
Softwood Lumber VI.

Could standing timber be a “good”?

In the Softwood Lumber IV dispute, 47 Canada argued that the term “goods” was
limited to tradable items with an actual or potential tariff classification. Standing
timber, according to Canada, did not fall within its definition. The AB examined the
dictionary definition of the term “goods” and concluded that the meaning of the term
“goods” as used in Art 1.1 (a) (1) (iii) included items that were tangible and capable
of being possessed. The AB summarized its findings in Paragraph 67:

“In sum, nothing in the text of Article 1.1(a) (1) (iii), its
context, or the object and purpose of the SCMA, leads
us to the view that tangible items -- such as standing,

45 Petros C. Mavroidis, George A. Bermann and Mark Wu, The Law of the World Trade Organization (WTO):
Documents, Cases & Analysis (1st ed. West American Casebook 2012) 564.
46 SCMA (n 37) art. 1.1.
47 WTO, United States - Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from

Canada-Report of the Appellate Body (29 August 2003) WT/DS257/AB/R [152] – [153] [hereinafter
“Softwood Lumber IV”].

Page 20 of 61
 unfelled trees -- that are not both tradable as such and
subject to tariff classification, should be excluded, as
Canada suggests, from the coverage of the term 'goods'
as it appears in that Article.”

The AB also noted in Paragraph 51 of the report that:

“[T]he concept of subsidy defined in Article 1 of the SCM Agreement

captures situations which something of economic value is transferred
by a government to the advantage of a recipient.”

Thus, the AB concluded that standing timber are “goods” within the meaning of
Art.1.1 (a) (1) (iii) of the SCMA. The AB found that the Canadian stumpage
arrangements gave tenure holders the right to enter onto government lands, cut
standing timber, and enjoy exclusive rights over the timber that was harvested.
According to the AB, by granting right of harvest of standing timber, the provincial
governments put at the disposal of timber harvesters the right to make use of these
resources. This was financial contribution “in kind” within the meaning of Article 1.1
(a) (1) (iii) of the SCMA.

4.1.1.4. Payment to Funding Mechanisms/Entrustments or Direction of a Private

Body

In this type of financial contribution, the Government involves a private entity to

perform one of the three earlier mentioned kinds of financial contribution. 48
According to the wordings of the text, the Government may make payments to a
“funding mechanism”, or can “entrust or direct” a private body to do so.

In US- Countervailing Duty Investigation on DRAMS dispute, the US imposed

countervailing duty order on import of Dynamic Random-Access Memory (DRAM),
a sophisticated version of Random Access Memory (RAM) from South Korea. One of
the issues in this dispute related to the interpretation of the term “entrustment” and
“direction” to a private body. The U.S. alleged that the South Korean Government
had permitted to “entrust” and “direct” a groups of creditors (which was not 100%
owned by the Korean Government) to participate in all financial contributions at
issue. The AB had to decide the distinction between the terms “entrustment” and
“direction”, and whether the South Korean Government had “entrusted” or “directed”
the creditors.49

According to the AB, “entrustment” occurs when the Government gives a

responsibility to a private body, whereas “direction” refers to a situation where the

48 Lester (n 2) 426.
49 WTO, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors
(DRAMS) from Korea-Report of the Appellate Body (27 June 2005) WT/DS296/AB/R [108]; [110]; [111];
[116] [hereinafter “US – DRAMS”].

Page 21 of 61
Government exercises authority over the private body.50 Therefore, both these criteria
must be met to prove “direction and entrustment”.51

The determination of “entrustment” or “direction” in disputes is very intensive and

fact based. The facts of EC-Countervailing Measures on DRAMS Chips (EC- DRAM)
were very similar to the US- Countervailing Duty Investigation on DRAMS. The
product that was investigated was the same Dynamic Random-Access Memory from
South Korea. In this case, the Panel concluded the presence of an “entrustment or
direction” after considering the following:52

 The extent of Government ownership of the banks that were involved in

the dispute;
 Financial situation of the recipient of the financing which, at the time,
was weak;
 Restructuring took place by way of a formal government act;
 Withholding information during the subsidy investigation.

Therefore, the degree of difficulty in determining the “entrustment or direction” is

visible from the approach taken by the Panel in the EC-Countervailing Measures on
DRAMS Chips.

4.1.1.5. Income or Price Support

Article 1.1 (a) (2) of the SCMA also treats any form of income or price support as a
subsidy if it confers a benefit. The term “support” is often used in the context of
agriculture, especially with respect to government support programs for farm products.
In the ordinary meaning, “support” denotes “the action of contributing to the success
or maintaining the value of something”. In the light of this ordinary meaning, the
meaning of “support” within Article 1.1 (a) (2) refers to the action of the government
that directly or indirectly increases the export of any product from its territory or
reduces the imports of any product within its territory. The Appellate Body in United
States- Softwood Lumber noted that the range of government measures capable of
providing subsidies is broadened still further by the concept of “income or price
support” in paragraph (2) of Article 1.1(a).53

4.1.2. Government or Public Body

For a financial contribution to be deemed a subsidy for the purposes of the SCMA,
the financial contribution must be made by government or a public body. However,
any financial contribution made by a private body may still fall under the definition in

50 Agreement on Subsidies and Countervailing Duties, Analytical Index,

http://www.wto.org/english/res_e/booksp_e/analytic_index_e/subsidies_01_e.htm (last visited July 18,
2014).
51 ibid.
52 WTO, EC-Countervailing Measures on DRAMS Chips – Report of the Panel (17 June 2005) WT/DS299/R; See

also, Mavroidis (n 49) 540.

53 PR, Softwood Lumber IV (n 51) at 52.

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Art. 1.1 SCMA if that contribution was made pursuant to entrustment or direction by
the government.

What is a public body?

In Korea — Commercial Vessels, the European Communities argued before a WTO panel
that the Export-Import Bank of Korea (KEXIM) was a public body on the grounds that, inter
alia, it was created and operated on the basis of a public statute giving the government control
over its decision making. The Panel agreed with the EC that KEXIM was a public body
because it was controlled by government (or other public bodies). The panel noted:

[A]n entity will constitute a ‘public body’ if it is controlled

by the government (or other public bodies). If an entity is
controlled by the government (or other public bodies), then
any action by that entity is attributable to the government,
and should therefore fall within the scope of Article 1.1(a)
(1) of the SCM Agreement.

In the US — Anti-Dumping and Countervailing Duties (China), 54 products from

China (circular welded carbon quality steel pipe, light-walled rectangular pipe and
tube laminated woven sacks and certain new pneumatic off-the-road tyres) were
allegedly subsidized and dumped in the US market. The US Department of
Commerce (“USDOC”) imposed anti-dumping and countervailing duties concurrently
on the products.
The AB, in this dispute, noted that the term “public body” in Article 1.1(a) (1) of the
SCMA 55 covers only those entities that possesses, exercise or are vested with
governmental authority. The AB completed an analysis prescribed by Art. 31 of the
Vienna Convention on Law of Treaties and concluded that the concept of “public
body” shared certain attributes with the concept of “government”. Further, the AB
noted that a public body within the meaning of Article 1.1. (a)(1) of the SCMA must
be an entity that possesses, exercises or is vested with governmental authority.
However, it stressed that:

Just as no two governments are exactly alike, the

precise contours and characteristics of a public body are
bound to differ from entity to entity, State to State, and
case to case. Panels or ABs confronted with the
question of whether the conduct falling within the scope
of Art. 1.1.(a)(1) SCMA is that of a public body has to
be answered by conducting a proper evaluation of the
core features of the entity concerned, and its
relationship with government in the narrow sense.

54 WTO, United States- Definitive Anti-Dumping and Countervailing Duties on Certain Products from China-Report of
the Appellate Body (11 March 2011) WT/DS379/AB/R [317–318] [hereinafter “China -AD-CVD”).
55 SCMA (n 37) art.1.1 (a) (1).

Page 23 of 61
In the same dispute, another pertinent question was raised by China was with regard
to the interpretation of the term “public body” by the Panel. The Panel upheld the
finding of the USDOC that certain State-owned Enterprises (SOEs) and State-owned
Commercial Banks (SOCBs) in China were public bodies for the purposes of SCMA.
According to the panel SOEs and SOCBs were “controlled by the government”. A
key question in this dispute was:

Whether government ownership is relevant for government control?

The AB concluded that the Panel’s analysis lacked proper legal basis as even if a
government is the majority shareholder of an entity, such did not demonstrate whether
the government exercised meaningful control over the conduct of that entity.

The AB reversed the panel finding on the issue of government control. The AB drew
a distinction between entities merely owned or controlled by a government and
entities that exercise some degree of “governmental authority.” According to the AB,
“[a] public body within the meaning of Article 1.1. (a)(1) of the SCM Agreement
must be an entity that possesses, exercises or is vested with governmental authority”.
The key issue according to the AB was whether these SOEs and SOCBs exercise
governmental functions on behalf of the Chinese Government. According to the AB,
evidence that a government exercises meaningful control over an entity and its
conduct may serve, in certain circumstances, that the relevant authority possesses
government authority.

Further, the AB diverged from the Panel’s reasoning that the use of the collective
term “government” had no meaning besides facilitating the drafting of the SCMA and
that the words “a”, “or”, and “any” within the phrase “a government or any public
body” indicated that “government” and “public body” are separate concepts with
distinct meanings.56

4.1.3. Benefit

The existence of the financial contribution or income/price support is not sufficient

for the existence of a subsidy. There must also be a benefit that has been conferred.
Art. 1 of the SCMA identifies the practices that constitute a “financial contribution”,
but it does not define the term “benefit” or set out criteria for measurement of whether
a benefit is conferred.

However, the AB report in Canada – Aircraft provides guidance relating to the term
“benefit”. In this dispute, Brazil alleged that Canada had granted certain subsidies
with the intention to support the export of civilian aircraft. Brazil primarily contended
that these measures were inconsistent with Art. 3 of the SCMA. The Panel, in its

56 Abhijit Das and Shailja Singh, Key Concepts on Subsidies Jurisprudence (Indian Institute of Foreign Trade)
<http://wtocentre.iift.ac.in/DisputeAnalysis/WTO%20Subsidies%20Agreement_Recent%20Jurisprude
nce_230212.pdf> accessed on July 12, 2014. [hereinafter “Das”].

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report, provided its clarification regarding the meaning of the term “benefit”. In its
opinion, the ordinary meaning of “benefit” encompassed some form of advantage.57
The Panel stated that “the ordinary meaning of “benefit” per se included any notion of
net cost to the government.”58

“Marketplace” comparison
“We also believe that the word ‘benefit’ as used in Art.
1.1 (b), implies some kind of comparison. This must be
so, for there can be no ‘benefit’ to the recipient unless
the ‘financial contribution’ makes the recipient ‘better
off’ that it would otherwise have been, absent that
contribution. In our view, the marketplace provides an
appropriate basis for comparison in determining
whether a benefit has been conferred, because trade-
distorting potential of a “financial contribution” can be
identified by determining whether the recipient has
received a “financial contribution” on terms more
favourable than those available to the recipient in the
market”. ABR, Canada – Aircraft [9.112]

In sum, the Panel in Canada – Aircraft found that a “financial contribution” conferred
a “benefit” and constituted a subsidy under Art. 1 SCMA when it was provided on
terms which were more advantageous that those otherwise available to the recipient
on the market.

While conducting the benefit analysis, the panel in EC–DRAMS agreed with the
Appellate Body in Canada–Aircraft that the proper standard is whether the recipient
is “better off” than it would have been absent the contribution.59 As a corollary, it
found that the appropriate basis” for determining the existence of a benefit is the
market place. This view has also been upheld in Canada – Renewable Energy, where
the AB noted that a financial contribution conferred a benefit within the meaning of
Art. 1.1(b):60

“When it conferred an advantage on its recipient, and that such an advantage was to
be determined by comparing the position of the recipient in the marketplace with or
without the financial contribution.”

4.1.3.1. Methods to Calculate Subsidy

57 ibid 7.
58 WTO, Canada – Measures Affecting the Export of Civilian Aircraft- Report of the Panel (14 April 1999)
WT/DS70/R [9.112]
[hereinafter “Canada- Aircrafts”].
59 PR, EC-DRAMS (n 56) [7.176].
60 WTO, Canada – Certain Measures Affecting the Renewable Energy Generation Sector-Report of the Panel (19

December 2002) WT/DS412/R [5.159] [hereinafter “Canada-Renewable Energy”].

Page 25 of 61
(Please also look at Chapter 6 and Annexure I)

The SCMA, however, does not define the term ‘benefit’, although a definition of this
term has a crucial importance in converting a government contribution into a subsidy.
Therefore, it may be necessary to read Art. 1.1 (b) of SCMA along with Art. 14. As
noted earlier, Art.14 of SCMA provides that the term ‘benefit’ refers to ‘benefit to
recipient’. It appears that definition of benefit in Art. 1.1 (b) has been influenced by
the context of Art. 14.

Art. 14 of the SCMA is concerned with the calculation of the subsidy in

countervailing investigations specified by Part V of this Agreement. In addition to Art.
14, Annex IV of the SCMA also deals with the calculation of the total ad valorem
subsidization (paragraph 1(a) of Art. 6). 61 As indicated earlier, the approach under
Annex IV of the SCMA is based on a cost-to-government approach, while the former
is based on benefit-to-recipient approach.62

Although existence of a benefit is a necessary part of establish a subsidy, cost to

government may still be used when calculating the amount of the subsidy. In any case,
neither of the two provisions mentioned is amply clear.63

Art. 14 SCMA64establishes that any method of calculating benefit shall conform to

certain guidelines. .

The guidelines set out in Art. 14 SCMA are:65

 Government provision of equity capital confers a benefit where the investment

decision can be regarded as inconsistent with the usual investment practice
(including that regarding the provision of risk capital) of private investors in that
member’s territory;
o
 A loan by a government confers a benefit where there is a difference between the
amount that the firm receiving the loan pays on that loan and the amount the firm
would pay on a comparable commercial loan that the firm could actually obtain on
the market, with the benefit equal to the difference between these two amounts;
o
 A loan guarantee by a government confers a benefit where there is a difference
between the amount that the firm receiving the guarantee pays on that guaranteed
loan and the amount that the firm would pay on a comparable commercial loan
absent the government guarantee, with the benefit equal to the difference between
these two amounts adjusted for any differences in fees; and
o

61 Petros C. Mavroidis, Patrick A. Messerlin and Jasper M. Wauters, The Law and Economics of Contingent
Protection in the WTO, (Edward Elgar Publishing Limited 2008) 384-386 [hereinafter “Mavroidis II”]
62 ibid.
63 ibid.
64 SCMA (n 37) at art. 14.
65 ibid art. 14.

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  The provision of goods or services, or the purchase of goods, by a government
confers a benefit where the provision is made for less than adequate remuneration, or
the purchase is made for more than adequate remuneration, with the adequacy of
remuneration determined in relation to prevailing market conditions for the good or
service in question in the country of provision or purchase (including price, quality,
availability, marketability, transportation, and other conditions of purchase or sale).

These guidelines are inspired by a simple view of “distortion”. The assumption is that a
financial contribution confers a benefit when it leads to distortion of the market mechanism.
The AB in Japan- DRAMs (Korea) made the following observations regarding the
requirements of the chapeau of Article 14:

The chapeau of Article 14 sets out three requirements. The

first is that “any method used” by an investigating authority
to calculate the amount of a subsidy in terms of benefit to the
recipient shall be provided for in the national legislation or
implementing regulations of the Member concerned. The
second requirement is that the “application” of that method
in each particular case shall be transparent and adequately
explained. The third requirement is that “any such method”
shall be consistent with the guidelines contained
in paragraphs (a)-(d) of Article 14.

Notwithstanding the benefit-to-the recipient language, one could argue that other
approaches such as cost of production (COP) test could also be relevant in the in the
determination of subsidy where the domestic market price is distorted by government
intervention, or where there is no market place. Contextual support for this
proposition is also available from Item (j) and (k) of Annex I of the SCMA. In US -
Softwood Lumber III,66 both Panel and AB examined the USDOC’s calculation of the
benefit conferred on the lumber producers from the provision of a “good” (trees) by
the Canadian Government on the basis of Art 14(d) of the SCMA. Emphasis was laid
on trying to identify the prevailing market conditions. While the Panel in the dispute
noted that the prevailing market conditions would be the rate of trees in private land
in Canada, the AB held otherwise. As per the AB, the Canadian market was too
distorted to be used as a benchmark. In general, this demonstrates that there is no
uniformity in conclusively The AB, paragraph 102, stated:

The determination of whether private prices are

distorted because of the government’s predominant role
in the market, as a provider of certain goods, must be
made on a case-by-case basis, according to the
particular facts underlying each countervailing duty
investigation.

Pass- Through and Privatization Issues

66 WTO, US — Softwood Lumber III- Report of the Appellate Body (22 March 2004) WT/DS277/AB [102]
[hereinafter “Softwood Lumber III”).

Page 27 of 61
The application of the benefit-to-the-recipient had presented particular problems in
the cases of state-owned enterprises which had been subsequently privatized. When a
non-recurring financial contribution was paid to a state-owned enterprise, one
particular issue was whether the benefit would remain with the firm, or with the
firm’s owners or its productive assets. The USDOC in several cases held that even
after change of ownership of a state-owned enterprise pursuant to sale at arm’s length
and at fair market value, it could continue to impose CVD on the premise that pre-
privatization subsidies have not been fully exhausted. The U.S. raised the argument
that the benefit to the productive operations of the original contribution continue to
exist even after the privatization.

The issue was resolved by the WTO panel in US- Lead Bismuth II, whose reasoning
was upheld by the AB:

Box 3: Pass-Through Benefit and Privatization

Privatization at arm’s length and; for fair market value must lead to the conclusion that the
privatized producer paid for what he got and thus did not get any benefit or advantage from
the prior financial contribution bestowed upon the state-owned producer. While Members
may maintain a rebuttable presumption that the benefit from financial contributions (or
subsidization) continues to accrue to the privatized producer, privatization at arm’s length and
for fair market value is sufficient to rebut such a presumption. PR, US- Lead Bismuth II,
para. 7.82

4.2. What is specificity?

Once the existence of a financial contribution along with the conferment of benefit
has been established, a subsidy is deemed to exist. However, only “specific” subsidies
are subject to regulation under the SCMA. Therefore, a discussion on the concept of
specificity is central to classifying a government support as a ‘subsidy’.67

Art. 2 of the SCMA provides that a subsidy to be actionable, it must be specific to

“certain enterprises”.68 This means that the subsidy in question must be specific to an
enterprise, industry or a group of enterprises or industries within the jurisdiction of
the authority that is granting the subsidy.

However, Art. 2.1 of the SCMA clarifies that a subsidy is specific not only when it is
limited to certain enterprises by law (de jure) but also where the subsidy is provided
in fact (de facto) only to certain enterprises.69 De jure specific subsidies are of two

67 Lester (n 2) 427.
68SCMA (n 37) art. 2.
69 SCMA (n 37) art.2.1 (b).

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types: export subsidy and import substitution subsidies (discussed later in this
module).

The differences between de jure and de facto specificity are mentioned in the table
below.

De jure Specificity De facto Specificity

ʘ Where a subsidy is explicitly limited ʘ It is quite possible that a subsidy at

sectorally or regionally, either by face value is non-specific, but in fact
the granting authority, or by is operated in a specific manner.
legislation, it is de jure specific. Other factors may be considered,
including:
ʘ Where the authority or legislation
establishes an objective criteria or  the use of a subsidy programme by a
conditions governing the eligibility limited number of certain enterprises;
for, and amount of, a subsidy, the  predominant use of certain
specificity will not exist. enterprises;
 the granting of disproportionately
large amounts of subsidy to certain
enterprises, etc.

ʘ In the analysis, account must be taken

of the extent of diversification of
economic activities within the
jurisdiction as well as of the length of
time during which the subsidy
programme has been in operation.
The analysis may lead to a finding of
de facto specificity.

Sometimes, de jure grounds for a finding of specificity are absent. In such a case,
other factors may be considered:70

 Use of a subsidy program by a limited number of certain enterprises;

 Predominant use by certain enterprises;
 Grant of disproportionately large amounts to certain enterprises; and
 Manner in which discretion has been exercised by the granting authority in the
decision to grant a subsidy.

70 Matthias Herdegen, Principles of International Economic Law (OUP 2013) 247 [hereinafter “Herdgen”]

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In considering these four factors, one should take account of the diversification of
economic activities within the relevant jurisdiction, as well as the length of time that a
subsidy program has been in operation. The text of Art. 2.4 of the SCMA require that
any determination of specificity be clearly substantiated on the basis of positive
evidence.71

Further, under Art. 2 of the SCMA, all export subsidies and import substitution
subsidies within the meaning of Art. 3 of the SCMA are automatically deemed to be
specific. This has been upheld by the Panel in the US – Cotton dispute.72

4.3. What are the classes of subsidies?

Art. 3 to 9 of the SCMA establishes a three-class framework for the categorization of

subsidies and subsidy remedies:73

 Subsidies that are prohibited (the red light category);

 Subsidies that may be challenged in WTO dispute settlement proceedings
and domestically countervailed if they cause adverse trade effects (the
yellow light category); and
 Subsidies that are non-actionable and non-countervailable if they are
structured according to criteria intended to limit their potential for causing
trade distortions (the green light category).

71 SCMA (n 37) art. 2.4.

72 WTO, United States – Subsidies on Upland Cotton-Report of the Panel (8 September 2004) WT/DS267/R
[7.1153] [hereinafter “US Upland Cotton”).
73 SCMA (n 37) art. 9.

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 Flowchart 4: Classes of Subsidies

Prohibited Subsidies
(Red Light Subsidies)
•Export Subsidy
Such subsidies are strictly prohibited •Import Substitution Subsidy
under the SCMA.
Such are also known as:

•Specific
Actionable Subsidies •Causes adverse effects to the
interests of other Members (
(Yello Light Subsidies) injury, nullification or
Such subsidies are subject to challenge impariment of benefits to
under the DSB is they cause injury to accuring to Members or a
the Members. A subsidy is actionable if serious prejudice including a
it is: threat thereof).
Non-actionable and Non-countervailable
Subsidies
(Green Light Subsidy)

Group of subsidies to which the

discipline of SCMA does not apply.

4.3.1. Prohibited Subsidies

Art. 3 of the SCMA lists subsidies that are prohibited under all circumstances.74 To
challenge such a subsidy successfully in WTO dispute settlement proceedings, a
complaining country need only prove that the subsidy exists; there is no need to
demonstrate that the subsidy suffered adverse trade effects. CVD action under
domestic law also may be taken against prohibited subsidies, but an affirmative injury
determination still must be made.

Two types of subsidies are prohibited under Art. 3 of the SCMA:75

 Subsidies contingent, in law or in fact, whether solely or as one of several other

conditions, on export performance (export subsidies);
 Subsidies contingent, whether solely or as one of several other conditions, on the
use of domestic rather than imported goods (import subsidies).

Flowchart 5. What constitutes “prohibited Subsidies?”

74 SCMA (n 37) art.3.
75 ibid.

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 Export Subsidies

Prohibited Subsidies

Import Substitution Subsidies

4.3.1.1. Export Subsidies

Export subsidies are subsidies contingent upon export performance. This includes
programmes included in the explanatory list of export subsidies in Annex I of the
SCMA. Art. 4 of the SCMA establishes expeditious procedures for resolving disputes
concerning prohibited subsidies.76 For this, the existence of a prohibited subsidy must
be proven. If a Panel or the AB finds that the State is maintaining a prohibited subsidy,
the Dispute Settlement Body of the WTO (DSB) can authorize countermeasures if the
subsidy is not withdrawn expeditiously.77

4.3.1.2. Import Substitution Subsidies

This category of prohibited subsidies is defined as subsidies contingent, whether

solely or as one of several other conditions, on the use of domestic over imported
goods.78 These often take the form of local content requirements (“LCR”), making the
analysis complicated. It must be noted that Art. 3.1(b) SCMA mentions the term
“goods”, but since local content requirements often comprises not only goods but also
other costs items, the requirements themselves require deep scrutiny.79

“… We believe a finding that Article 3.1(b) extends

only to contingency “in law” upon the use of domestic
over imported goods would be contrary to the object
and purpose of the SCM [agreement], because it would
make circumvention of obligations by Members too
easy.” ABR, Canada –Autos [142].

In Canada- Autos, Canada’s import duty exemption for imports by certain

manufacturers was challenged. Amongst other issues such as MFN and National
Treatment (‘NT’), the Panel and subsequently, the AB also discussed prohibited
subsidies at length. The import duty exemption implemented by the government of
Canada was in conjunction with a “production to sales ratio” requirement.
76SCMA (n 37) art. 4.
77 US International Trade Administration. Enforcement and Compliance, ‘Statement of Administrative
Actions: Agreement on Subsidies and Countervailing Measures’
<http://enforcement.trade.gov/regs/uraa/saa-cv.html> accessed on 12 July 2014.
78Lester (n 2) 441.
79 SCMA (n 37) art.3.1 (b).

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With regard to Export Subsidies, the AB upheld the Panel’s interpretation of Art 3.1
(a) SCMA that the duty exemption in conjunction with the ratio requirements was a
prohibited subsidy that was contingent “in law” or de jure. This was because the
amount of the duty exemption earned by a domestic manufacturer was directly
dependent upon the amount exported. The AB further noted that Art 3.1 (b) SCMA,
dealing with import prohibition subsidies, extended to subsidies that are contingent
“in fact” or de facto upon the use of domestic over imported goods. In this regard, the
AB was of the opinion that the Panel’s analysis had insufficient factual basis.

In the US – Upland Cotton dispute,80 US’ agricultural “domestic support” measures,

export credit guarantees and other measure were alleged to be export and domestic
content subsidies and consequently challenged by Brazil. Brazil opined that such
schemes implemented by the US were adversely affecting Brazil’s domestic industry.
After a detailed analysis, the AB held that US’ export credit guarantee programmes at
issue were “export subsidies” within the terms of the SCMA.

4.3.2. Actionable Subsidies

In essence, the use of the term “actionable” means that under this provision subsidies
are not prohibited outright, as they are under the category of prohibited subsidies, but
an action against the measure may be brought if it is negatively impacting trade.81 Art.
5 SCMA sets out three conditions for a specific subsidy to be treated as actionable
subsides under the second conditions of having an adverse effect on trade:82

Flowchart 6. Adverse Effects

80 WTO, United States – Subsidies on Upland Cotton- Report of the Panel (8 September 2004) WT/DS267/R.
81 Lester (n 2) 441.
82 SCMA (n 37) art. 5.

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 Injury to domestic industry of another WTO Member

Nullification or impairment of benefits accruing directly or indirectly

to other WTO members (in particular, a country may not introduce or
increase a subsidy that has the effect of negating the value of a tariff Adverse Effects
cut)

Serious prejudice to the interests of another member

4.3.2.1. What is injury?

Footnote 45 SCMA clarifies that the term “injury” to mean material injury to a
domestic industry. 83 This has been clarified by the AB in the US – Carbon Steel,
where it was alleged by the EC that CVD imposed by the US on imports of certain
corrosion-resistant carbon steel flat products (“corrosion resistant steel”) was in
contradiction of the SCMA. This dispute related, in particular, to the final results of a
full sunset review of the measure which was carried out by USDOC. The USDOC
found that revocation of the CVD order would likely to lead to continuation or
recurrence of a countervailable subsidy. One of the issues that the AB had to deal
with was the term “injury”:84

Moreover, footnote 45 to Art. 15 indicates that, in the

SCMA, the term “injury” is, “unless otherwise
specified”, [to] be taken to mean material injury to a
domestic industry, threat of material injury to a
domestic industry or material retardation of the
establishment of such an industry and shall be
interpreted in accordance with the provisions of Article
15.

Material injury has been defined in Art. 15.1 of the SCMA.85 This is mentioned in
greater detail in the subsequent section.

83 Lester (n 2) 443.
84 WTO, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from
Germany- Report of the Appellate Body (28 November 2002) WT/DS213/AB/R [78] [hereinafter “US-Steel”).
85 SCMA (n 37) art. 15.1.

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4.3.2.2. What is serious prejudice?

Serious prejudice arises where the effect of a subsidy is manifested in: import
displacement or impediment in either the subsidizing-country or third-country
markets; significant price undercutting, significant price suppression, price depression
or lost sales in any market; or an increase in world market share.86 In other words,
serious prejudice covers the negative effect of the subsidies in the market of the
subsidizing Member, as well as in a third country market. Under the SCMA, a
determination of serious prejudice must be based on measurable, verifiable data.87Art.
6.4 to Art. 6.6 of the SCMA provide more detailed guidance on the criteria set out in
Art. 6.3. They do not, however, articulate any defenses to allegations of serious
prejudice.88 (Such defenses are contained in Arts. 6.7 and 6.8 SCMA).

Box 4: Serious Prejudice

Article 6.3: Serious Prejudice

Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case where one or several
of the following apply:

(a) the effect of the subsidy is to displace or impede the imports of a like product of another Member
into the market of the subsidizing Member;

(b) the effect of the subsidy is to displace or impede the exports of a like product of another Member
from a third country market;

(c) the effect of the subsidy is a significant price undercutting by the subsidized product as compared
with the price of a like product of another Member in the same market or significant price suppression,
price depression or lost sales in the same market;

(d) the effect of the subsidy is an increase in the world market share of the subsidizing Member in a
particular subsidized primary product or commodity(17) as compared to the average share it had during
the previous period of three years and this increase follows a consistent trend over a period when
subsidies have been granted.

(footnote original) 17 Unless other multilaterally agreed specific rules apply to the trade in the product
or commodity in question.

If one of the conditions of Art. 6(3) is met then, “serious prejudice” may exist. The
SCMA gives no additional guidance of whether the conditions listed in Art. 6(3) are
sufficient for serious prejudice to exist.

86 ibid 6.3.
87Congress of the United States, ‘The Effects of Tokyo Round on Multilateral Negotiations’ (July 1979),
<https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/111xx/doc11153/79doc660.pdf (last
visited on 20 July 2014).
88 ibid.

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In the case of actionable subsidies, the complainant must establish adverse effects.
Therefore in claims involving serious prejudice, adverse effects are required to be
established. In US- Upland Cotton, the adverse effects were found to entail price
suppression for upland cotton in the world market. The various U.S. domestic
subsidies were cotton were considered as the cause for the price suppression.
Similarly in the case of EC- Large Aircraft, subsidies by EU member countries to
Airbus were considered to have adverse effects on Boeing, the U.S. company. The
adverse effects were noticed in the nature of displacement of imports in the European
Market, displacement of export from other third country markets and lost sales.

Conditions for application of “Serious Prejudice”

The Panel, in US — Upland Cotton (Article 21.5 —

Brazil) has demonstrated the conditions to determine
“serious prejudice”: 89 “Article 6.3(c) of the SCM
Agreement provides that “serious prejudice in the sense
of paragraph (c) of Article 5 may arise in any case
where one or several of the following apply” (emphasis
added). The Panel considers that this phrase must be
interpreted to mean that “the situations listed in Article
6.3(a)-(d) in themselves constitute serious prejudice”.
PR, US- Upland Cotton [10.255]

Notably, the SCMA refers to two kinds of actionable subsidies against which action
can be taken in the WTO or in domestic CVD proceedings if adverse effects are
established.90

 The first type of subsidies are those that are not otherwise dealt with by the SCMA as
prohibited or non-actionable subsidies;
o
 The second (termed dark amber subsidies), listed in Art.6.1, are presumed to cause
serious prejudice.

Where serious prejudice is presumed, the burden is placed on the government that has
allegedly provided the subsidy to demonstrate that serious prejudice did not result
from the subsidization in question. The four “dark amber” subsidies are:

 Total subsidization of a product exceeding five percent ad valorem, which is

calculated in accordance with Annex IV on a cost-to-the-government basis;
 Subsidies to cover operating losses sustained by an industry;
 Subsidies to cover operating losses sustained by an enterprise other than one-time
measures that are non-recurrent and cannot be repeated for that enterprise and

89 PR, US-Upland Cotton (n 73) at [10.255].

90 ibid [10.255].

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 that are given merely to provide time for the development of long-term solutions
and to avoid acute social problems; and
 Direct forgiveness of debt.

Art. 7 SCMA and Annex V establish expeditious and effective procedures for
resolving disputes regarding “dark amber” and “yellow light” subsidies. The
procedures are virtually identical to those for other WTO dispute settlement
proceedings.91

 Once a Member requests consultations regarding such a subsidy, the SCMA allots
180 days for completion of the panel proceedings and the issuance of a decision by
the DSB.
o
 The SCMA provides an additional 60 days for appeals of panel findings.
o
 The losing party cannot block adoption of an adverse panel or AB report and the DSB
must authorize countermeasures where a signatory has not either withdrawn a subsidy
found to be causing serious prejudice or eliminated its adverse effects within six
months.

“Injury” and “Serious Prejudice”

Are “injury” and “serious prejudice” the same?

“In short, we see serious prejudice as an entirely

different concept from injury. Rather than having to do
with the condition of a particular domestic industry
within the territory of a Member (the subject matter of
injury analysis), in our view serious prejudice has to do
in the first instance with negative effects on a
Member’s trade interests in respect of a product caused
by another Member’s subsidization.” PR, Korea —
Commercial Vessels [7.578]

4.3.3. Non-Actionable Subsidies

Art. 8.2 SCMA sets out the criteria and conditions under which three types of
subsidies may be non-actionable:92

 Government assistance for industrial research and pre-competitive

development activity;
 Government assistance to disadvantaged regions; and
 Government assistance to adapt existing plant and equipment to new
environmental requirements.

91SCMA (n 37) art. 7.

92 ibid art. 8.2.

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This category applied provisionally for five years ending 31 December 1999, and
pursuant to Art. 31 SCMA, could be extended by consensus of the SCM Committee.93
As of 31 December 1999, no such consensus had been reached resulting in the expiry
of this provision.

5. IMPOSITION OF COUNTERVAILING MEASURES

5.1. Against what kind of subsidies can countervailing measures be imposed
upon?

Countervailing measures can be imposed against two types of subsidies:

 Actionable subsidies
 Prohibited subsidies

However, for countervailing measures to be imposed, a WTO Member must fulfill:

 Existence of a subsidy scheme;

 Injury to its domestic industry producing like products; and
 Causal link between (a) and (b)

The SCMA also distinguishes between definitive CVDs and provisional CVDs.
Definitive CVDs are imposed at the end of the investigation. On the other hand,
provisional CVDs are imposed on the basis of a preliminary finding of subsidy
causing injury. 94 However, the investigation must be initiated in accordance with
Art.11 SCMA.95
5.1.1. Substantive Requirement

A WTO Member who is attempting to impose a CVD measure must demonstrate that
a subsidy must be causing injury or a threat of injury to the domestic industry
producing the same product (as you may recall, “what is a subsidy” has already been
discussed at an earlier stage).Thus, the three substantive requirements which is
required to be proven before the imposition of a CVD measure are as follows:

 Injury
 Like Products
 Causality

a.) Injury: The definition of material injury is provided in Art. 15 SCMA. 96 For
“injury” to be demonstrated, a Member must disclose “positive evidence”
regarding the volume of the subsidized imports and their effect on prices in the

93 ibid art. 31.

94 ibid art.17.
95 ibid art. 11; for more information, kindly refer to <http://www.wto.org/english/docs_e/legal_e/24-

scm_02_e.htm#articleXV> accessed on 19 July 2014.

96 ibid art.15.

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 domestic prices for “like products”. Material injury has been defined in Art. 15.1
SCMA:

Art. 15.1 SCMA: Definition of Material Injury

“A determination of injury for purposes of Article VI

GATT 1994 shall be based on positive evidence and
involve an objective examination of both (a) the volume
of the subsidized imports and the effect of the
subsidized imports on prices in the domestic market for
like products and (b) the consequent impact of these
imports on the domestic producers of such products.”

What is positive evidence?

“The term “positive evidence” related, in our view, to

the quality of the evidence that authorities may rely on
in making a determination. The word “positive” means
to us that the evidence must be of an affirmative,
objective and verifiable character, and must be credible.”
ABR, EC-Bed Linen (Article 21.5 – India) [114]

The evaluation of volume requires an IA to consider whether there has been a

significant increase in subsidized imports. 97 The SCMA clarifies that the eventual
estimation of volume could be based on one or several factors. However, such
culmination of several factors is permitted when the conditions required by Art. 15.2
SCMA has been fulfilled.

What are the conditions under Art 15.2 of SCMA?

“There are three ways in which an investigating

authority may comply with the Article 15.2 requirement
to “consider whether there has been a significant
increase in subsidized imports.” First, the investigating
authority may consider whether there has been a
significant increase in the volume of subsidized imports
in absolute terms. Second, the investigating authority
may consider whether there has been a significant
increase in the volume of subsidized imports relative to
domestic production. Third, the investigating authority
may consider whether there has been a significant
increase in the volume of subsidized imports relative to
domestic consumption. Article 15.2 provides that “[n]o

97 This may be in absolute or relative terms.

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 one or several of these factors can necessarily give
decisive guidance.” PR, US — DRAMs [7.223].

Art. 15.4 of the SCMA requires that the examination of the impact of the dumped
imports on the domestic industry shall include an evaluation of all relevant economic
factors and indices having a bearing on the state of the industry and then mentions 15
specific factors. Art. 15.4 SCMA concludes that this list is not exhaustive and that no
single or several of these factors can necessarily give decisive guidance. Some of
these are as under:98

ʘ Actual and potential decline in output;

ʘ Sales;
ʘ Market Share;
ʘ Profits;
ʘ Productivity;
ʘ Return on investments;
ʘ Utilization of capacity;
ʘ Factors affecting domestic product prices;
ʘ Actual and perceivable negative effect on cash flow;
ʘ Inventories
ʘ Employment, etc.

Threat of Injury: The SCMA requires demonstration of threat of injury. Threat of

injury must have occurred and cannot be based on conjecture or remote possibility.99
The Panel in the US- Softwood Lumber VI held that the authorities do not have to
specify one particular event that has occurred, which will cause damage in
“progression” of the given circumstances. It may happen that a domestic industry
alleges that it is not yet suffering material injury, but is threatened with injury which
will develop into material injury unless countervailing measures are imposed.100

Art. 15.7 SCMA offers special provisions for a case of threat of material injury. This
is because any investigation based on threat of material injury will necessarily be
speculative since it involves analysis of events that have not yet happened.101 That is
why a determination of threat must be based on facts and not merely on allegation,
conjecture or remote possibility (as was stated earlier).

b.) Domestic Industry producing like products: Like product has been defined in
Footnote 46 of the SCMA as a product which is identical, i.e. alike in all respects,
to the product under consideration. In absence of such a product, another product
which is not alike in all respects, but has characteristics closely resembling those
of the product under consideration is permitted.102

98 SCMA (n 37) art. 15.4.

99 ABR Softwood Lumber IV (n 51) [7.60].
100 Trademarks SA (n 15) 9.
101 SCMA (n 37) art. 15.7.
102 TradeMarks SA (n 15) 9.

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 Footnote 46 to SCMA

Throughout this agreement the term “like product” shall

be interpreted to mean a product which is identical, i.e.,
alike in all respects to the products under consideration,
or in the absence of such a product, another product
which, although not alike in all respects, has
characteristics closely resembling those of the products
under consideration.

This definition is to be strictly applied. In the Indonesia – Automobile Industry, the

Panel had to determine which European and American cars were “like” the
Indonesian-produced Timor car. The Panel rejected the EC argument that all
passenger cars were “like” products, and rather took a more nuanced view, based on
data from the automotive industry itself.103

“One reasonable way for this Panel to approach the

“like product” issue is to look at the manner in which
the automotive industry itself has analyzed market
segmentation. The United States and the European
Community have submitted information regarding the
market segmentation approach taken by DRI”s Global
Automotive Group, a company whose clients include all
major auto manufacturers, including KIA, PT TPN”s
national car partner. DRI has in its analysis considered
the physical characteristics of the cars in question when
designing its segmentation. It has used as an initial filter
the size of the vehicle, but it has then divided cars of a
given size into upper and lower end categories, and has
moved luxury cars, regardless of size, from lower
segments to the E segment. We consider such an
approach, which segments the market based on a
combination of size and price/market position, to be a
sensible one which is consistent with the criteria
relevant to “like product” analysis under the ASCM.”
PR, Indonesia – Automobile Industry [14.234].

The Panel in Indonesia – Automobiles Industry concluded that finished-Timors and

comparable kit- car imports were alike in the circumstances of the case.104It is noted
that the jurisprudence involving “like products” refused to adopt a formalistic
understanding.105

103 ibid.
104 WTO, Indonesia – Certain Measures Affecting the Automobile Industry- Report of the Panel (2 July 1998)
WT/DS54/R [14.234–14.235] [hereinafter “Indonesia-Autos”].
105 Lowenfeld (n 1) 26.

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 5.1.1.1. What is a domestic industry?
Art. 16.1 SCMA defines domestic industry as domestic producers as a whole of like
products, or those of them whose collective output of the products constitutes a major
proportion of the total domestic production of those products. The text appurtenant to
Art. 16.1 SCMA reads as follows:

Article 16.1 SCMA

For the purposes of this Agreement, the term “domestic
industry” shall, except as provided in paragraph 2, be
interpreted as referring to the domestic producers as a
whole of the like products or to those of them whose
collective output of the products constitutes a major
proportion of the total domestic production of those
products, except that when producers are related to the
exporters or importers or are themselves importers of
the allegedly subsidized product or a like product from
other countries, the term “domestic industry” may be
interpreted as referring to the rest of the producers.”

In US — Offset Act (Byrd Amendment), the Appellate Body noted that Article 11.4 of
the SCM Agreement requires investigating authorities to “determine” whether an
application for the initiation of an investigation has been “made by or on behalf of the
domestic industry”. If a sufficient number of domestic producers have “expressed
support” and the thresholds set out in Article 11.4 of the SCM Agreement have
therefore been met, the “application shall be considered to have made been by or on
behalf of the domestic industry”.

One of the issues in Mexico – Oil was whether enterprises might be excluded as a
domestic “producer” of the like product solely on the basis that they lack actual
output at particular defined moments. The panel held that there is no requirement that
a particular producer be producing the like product at the moment the application was
filed.106

In certain cases, subsidies to an upstream product can result in benefits to the

downstream product. Although the input may not be a like product for the purpose of
domestic industry standing, if it can be demonstrated that the subsidies have passed
through to the downstream product which was exported, then CVD duties can be
maintained.107

106 WTO, Mexico – Definitive Countervailing Measures on Olive Oil from the European Communities- Report of the
Panel, WT/DS341/R (4 September 2008) [7.188].
107 ABR, US- Softwood Lumber III (n 51) [163].

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c.) Causal Nexus between subsidy and Injury: Art. 15.5 SCMA requires a causal
nexus between the subsidy and the material injury. The text of Art. 15.5 SCMA
has been reproduced below:

It must be demonstrated that the subsidized imports are,

through the effects of subsidies, causing injury within
the meaning of this Agreement. The demonstration of a
causal relationship between the subsidized imports and
the injury to the domestic industry shall be based on an
examination of all relevant evidence before the
authorities. The authorities shall also examine any
known factors other than the subsidized imports which
at the same time are injuring the domestic industry, and
the injuries caused by these other factors must not be
attributed to the subsidized imports. Factors which may
be relevant in this respect include, inter alia, the
volumes and prices of non-subsidized imports of the
product in question, contraction in demand or changes
in the patterns of consumption, trade restrictive
practices of and competition between the foreign and
domestic producers, developments in technology and
the export performance and productivity of the domestic
industry.

According to Bossche, this provision imposes a dual obligation:108

ʘ Attribute injury to subsidized imports; and

ʘ Ensure that injury caused by factors other than subsidized imports is not
attributed to subsidized imports. (‘Non-attribution’ test)

The evaluation of import volumes, prices and their impact on the domestic industry is
helpful in assessing whether the domestic industry has suffered material injury.
Further, these factors will also be indicative of whether the injury has been caused by
the dumped imports or by other factors. Footnote 47 SCMA states that the
demonstration of the causal link must be based on an examination of all relevant
evidence before the IAs. IAs must also examine factors other than the subsidized
imports injuring the domestic industry at the same time. The resulting injury caused
by these factors must not be attributable to the dumped imports.

5.2. Procedural Requirement

Flow chart 7: Procedures under SCMA

108 Bossche (n 21) 531.

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 Article 11: Initiation and
Article 21: Duration and Article 22: Public notice and
subsequent investigation,
review of countervailing explanation of determinations
including the standing
duties and undertakings; measures;
determination;

Article 12: Evidence,

including due process rights of Article 20: Retroactivity; Article 23: Judicial Review
interested parties;

Article 19: Imposition and

Article 13: Pre-initiation
collection of countervailing
consultations;
duties;

Article 17: Provisional

Article 18: Undertakings;
measures;

5.3. Other Requirements

STEP 1: Contents application A countervailing duty case normally starts with the official
submission of a written complaint by the domestic industry to the
importing country authorities that injurious subsidization is
taking place. This complaint is called the application in the
SCMA. Art. 11.2 contains requirements for the contents of this
application.
STEP 2: Pre-initiation examination Art. 11.3 imposes the obligation on the importing country
authorities to review, before initiation, the accuracy and the
adequacy of the evidence in the application. However, as Art.
11.3 does not provide any details on the nature of this review, it
is difficult for Panels to judge whether importing country
authorities have complied with Art. 11.3.
STEP 3: Standing determination Under Art. 11.4 SCMA, importing country authorities must
determine, before initiation and on the basis of an examination of
the degree of support for, or opposition to, the application
expressed by domestic producers of the like product that the
application has been made by or on behalf of the domestic
industry.
STEP 4: Pre-initiation consultations Art. 13 SCMA requires an importing Member to engage in
consultations with the exporting Member prior to initiation, with
the aim of clarifying the situation and arriving at a mutually
agreed solution.
STEP 5: De minimis/negligibility Art. 11.9 contains the important de minimis rule that the
rules investigation shall be promptly terminated if the subsidization
margin is less than 1% ad valorem. Similarly, prompt termination
is required where the volume of subsidized imports, actual or
potential, from a particular country is negligible.
STEP 6: Investigation deadline Art. 11.11 provides that investigations shall normally be
concluded within one year and in no case more than 18 months
after their initiation. The 18 month deadline appears to be
absolute.

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 5.4. Imposition of CVDs

5.4.1. How to calculate the benefit?

The general rules for calculation of value of subsidy are as follows:

Step I: Allocation period and The subsidy amount has to be established during the Period of Investigation
allocation (POI, which is normally the most recent financial year), but as many subsidies
are effective for a number of years, subsidies granted before the POI should
also be investigated; Per unit subsidy: Weighted average value over the POI
(e.g. duty drawback);Global sum subsidy: Allocation of the global sum to each
unit of the product as appropriate (e.g. machinery)

Allocation involves two exercises:

1. Attribution to the POI of subsidies granted before the POI; and

2. Allocation of the subsidy amount per unit of the like product.
Step II: Allocation to the IP of Recurring subsidies (e.g. tax incentives), which effects are felt immediately
portion of subsidies granted after granting: the expensed amount in the POI should be increased by the
before the IP
annual commercial interest rate; Non-recurring subsidies linked to the
acquisition of fixed assets (e.g. machinery): total value of subsidy has to be
spread over the normal depreciation period of the assets.
Step III: Appropriate Once the subsidy amount for the POI has been established, the per unit amount
denominator for allocation of is derived by allocating it over the appropriate denominator consisting of the
subsidy amount
volume of sales or exports of the product concerned.

Appropriate denominator:

Export subsidies: Export volume during the POI;

Non-export subsidies: Total sales (domestic plus export);
If the benefit of a subsidy is limited to a particular product, the denominator
should reflect only sales of that product.

Step IV:Deduction from Allowed deductions from the amount of subsidy: Any application fee or cost
amount of subsidy necessarily incurred to qualify for, or to obtain the subsidy, directly paid to the
government in the POI; Export taxes, duties or other charges levied on the
export of a product, specifically intended to offset the subsidy.

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 5.4.2. Calculation of Subsidy
Calculating the amount of subsidy and value of a subsidy presents complex
accounting issues which cannot be fully explored in this module 109 . Once the IA
establishes that a subsidy is countervailable, intricate formulas are employed to
determine how the subsidy be allocated over the production of the like product.110 In
general terms, the per unit subsidy is determined by dividing the subsidy by the
number of units produced (in the case of domestic subsidies) or exported (in the case
of export subsidies). The benefits or effects of the subsidy may extend beyond the
amount of subsidization
5.4.3. Per Unit/Ad Valorem Subsidy
The SCMA assumes that an important effect of a subsidy is always to reduce a firm’s
costs and the methodology adopted to calculate CVD’s therefore reflects the same.111
The objective of the calculation is to arrive at the amount of subsidy per unit of
production during the investigation period.112 In the case of consumer products, such
as television sets, the appropriate unit would be each individual item. 113 If bulk
products, such as fertilizers or chemicals, are involved, it would be appropriate to
calculate the subsidy, say, per ton, or other appropriate unit of measurement. 114
Therefore, the simplest type of subsidy is that granted on a per unit basis.115

Per unit subsidy can be converted into an ad valorem rate by expressing the per unit
subsidy as a percentage of the average CIF (duty unpaid) unit import price. In this
way it can be established whether the subsidy amount is de minimis since this is
expressed ad valorem. In certain circumstances, it may also be considered to be
appropriate to express the CVD on an ad valorem basis.

Box 5. Numerical Example

Company A which is located in an Export Promotion Zone, receives an

income tax exemption if it wholly exports its product, namely Urea.
During the period of investigation, Company A produced and exported
100000 tonnes of Urea. The Company made a profit of US$ 4 million on
Urea during the POI. The normal income tax rate in Company A’s
jurisdiction is 25percent. The value of the income tax exemption for
Company A, based on this tax rate, is US $ 1 million, which equates to a
per tonne value of US $10. The interest rate applicable in that country is
10 percent per annum. Since the tax exemption has an equivalent effect
to a cash grant, the value of countervailable export subsidy is US $ 11

109 Foreign Affairs, Trade and Development Canada, Government of Canada, ‘U.S. Trade Remedy Law:
The Canadian Experience’ <http://www.international.gc.ca/trade-agreements-accords-
commerciaux/topics-domaines/disp-diff/section02.aspx?lang=eng> accessed on 20 June 2014.
110 ibid.
111 European Commission, ‘Guidelines for the Calculation of the amount of subsidy in countervailing duty

investigations’ Official Journal of the European Commission (17.12.98) Official Journal of the European
Communities (98/c 394/04).
112 ibid.
113 ibid.
114 ibid.
115 ibid.

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 per tonne.

Once determined, CVDs can be imposed on an aggregate basis or a lesser duty rate
basis.

a) Aggregate Basis: The text of Art. 19.3 SCMA states:116

“When a countervailing duty is imposed in respect of any product, such

countervailing duty shall be levied, in the appropriate amounts in each case,
on a non-discriminatory basis on imports of such product from all sources
found to be subsidized and causing injury, except as to imports from those
sources which have renounced any subsidies in question or from which
undertakings under the terms of this Agreement have been accepted. Any
exporter whose exports are subject to a definitive countervailing duty but who
was not actually investigated for reasons other than a refusal to cooperate,
shall be entitled to an expedited review in order that the investigating
authorities promptly establish an individual countervailing duty rate for that
exporter.”

As can been seen from the text above, Art. 19.3 of the SCMA permits the Members to
impose duties on an aggregate basis. This means that all imports originating in a
country that is found to be subsidized reserve a right to establish their rate of subsidy
(if any). In the US-Softwood Lumber IV dispute, the AB confirmed that this article
permitted WTO Member States to impose duties on non-investigated exporters.117

b) Lesser Duty Rate Basis: The text of Art 19.2 SCMA states:118

“The decision whether or not to impose a countervailing duty in cases where

all requirements for the imposition have been fulfilled, and the decision
whether the amount of the countervailing duty to be imposed shall be the full
amount of the subsidy or less, are decisions to be made by the authorities of
the importing Member. It is desirable that the imposition should be permissive
in the territory of all Members, that the duty should be less than the total
amount of the subsidy if such lesser duty would be adequate to remove the
injury to the domestic industry, and that procedures should be established
which would allow the authorities concerned to take due account of
representations made by domestic interested parties whose interests might be
adversely affected by the imposition of a countervailing duty.”

Thus, according to Art. 19.2 SCMA, Members can impose duties by:

 Matching the level of subsidy paid; or

116 SCMA (n 37) art. 19.3.

117 ABR, Softwood Lumber IV (n 71) [91–92].
118 SCMA (n 37) art 19.2.

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  Enough to counteract the injury suffered, provided that duties at an amount
lower than that under (a) suffices to counteract the damages suffered.

Sub-point (b) of Art 19.2 SCMA is known as lesser-duty rate.119No CVD shall be
levied on any imported product in excess of the amount of the subsidy found to exist,
calculated in terms of subsidization per unit of the subsidized and exported product as
per Art 19.4 SCMA. Certain WTO members such as the European Union has adopted
the lesser duty rule.

6. DOUBLE REMEDIES
Please refer to the discussion on “double remedies” in the module on Antidumping.

Important Provisions in the SCMA and GATT against the imposition of Double
Remedies

It should be noted that the AD and CVD measures are trade remedies which addresses two
distinct trade practices and have different purposes and effects.120The important provisions
from the standpoint of SCMA which obligated the IAs to avoid imposing double remedies on
the same products are mentioned below.

Art. VI: 5 GATT

…no product…shall be subject to both anti-dumping and
countervailing duties to compensate for the same situation of
dumping or export subsidization.

Art. VI: 3 GATT

No countervailing duty shall be levied on any product of the
territory of any contracting party imported into the territory
of another contracting party in excess of an amount equal to
the estimated bounty or subsidy determined to have been
granted, directly, or indirectly…

The AB in US-AD-CVD (China) considered the clause “in excess of an amount equal to the
estimated bounty or subsidy” Art. VI: 3 GATT and paralleled it with the intention stated
under Art. 19:3 and 19:4 of the SCMA which provides:

Art. 19.3 SCMA

When a countervailing duty is imposed in respect of any
product, such countervailing duty shall be levied, in the
appropriate amount in each case, on a non-discriminatory
basis on imports of such product…

Art. 19.4 SCMA

119Lowenfeld (n 1) 539.
120Report of the Appellate Body, United Sates- Definitive Anti-Dumping and Countervailing Duties on Certain
Products from China (11 March 2011) [239] WT/DS379/AB/R.

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 No countervailing duty shall be levied on any imported
product in excess of the amount of the subsidy found to exist,
calculated in terms of subsidization per unit of the subsidized
and exported product.

Given Art. VI GATT is the founding provision for both the AD and SCMA, it therefore
reverberates in the overlaps of the SCM and AD Measures given a cumulative application of
the SCMA and ADA. The AB in the US-AD-CVD (China) held as erroneous the Panel’s
holding that “the imposition of anti-dumping duties calculated under a nonmarket economy
country methodology has no impact on whether the amount of the concurrent countervailing
duty is collected is ‘appropriate’ or ‘not’” and that the Art. 19.3 does not address the double
remedy issue. The AB held that the Panel failed to give meaning to all the terms of Art. 19.3
SCMA and stated that:

Article 19.3 SCMA

The appropriateness of the countervailing duties cannot be
determined without having regard to anti-dumping duties
imposed on the same product to offset the same subsidization.
The amount of a countervailing duty cannot be ‘appropriate’
in situations where that duty represents the full amount of the
subsidy and where the anti-dumping duties, calculated at
least to some extent on the basis of the same subsidization,
are imposed to remove the same injury to the domestic
industry. Dumping margins calculated based on [non-market
economy (surrogate normal value methods) methodology are,
for the reasons explained above, likely to include some
component that is attributable to subsidization.

The AB also held that an IA has an affirmative obligation to establish whether or to what
degree the concurrent application of CVD and AD would offset the same subsidization
twice.121

The AB distinguished between the legal and factual issue of double remedies and provided
that double remedies do not necessarily exists in every instance of concurrent application of
duties, when an IA is using the NME methodology. 122 The offsetting of the same
subsidization twice depends on whether to what extent domestic subsidies have affected the
export price of a product, and on whether the IA has taken the necessary steps to adjust its
methodology to take account of this factual situation.123 The AB held while noting that the US’
had argued that it had no statutory authority to make adjustments to CVDs, that the failure of
address the double remedies represents the failure of USDOC’s duty to determine the
“appropriate” amount of CVDs.124 The AB stated that such an obligation flows from Art. VI:
3 GATT into the Art. 19.3 and 19.4 SCMA.125

121 ibid [604].

122 ibid [599].
123 ibid.
124 ibid [604]-[605].
125 ibid [601].

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 7. CALCULATION OF A SUBSIDY

As was mentioned earlier, calculation of subsidies is a complex undertaking. However, the

EC introduced guidelines for the calculation of the amount of subsidy in countervailing duty
investigations. This was published in the Official Journal of the European Communities on 17
December 1998. In it, the EC has considered several examples on how to calculate subsidies.
These have been reproduced in Annexure I of this document. This exercise will greatly help
in clearing concepts regarding calculation of subsidies.

8. EMERGENCY ACTIONS AND SAFEGUARD MEASURES

A WTO member may apply a temporary or “safeguard” measures in cases where

increase in imports of the product is causing, or is threatening to cause, serious injury
to the industry. 126 Safeguards could be in the form of extra duty, or any other
measures on the import of a product. Notably, safeguard measures were always
permitted under the GATT 1947 regime by way of Article XIX.127 However, they
were infrequently used, and some governments preferred to protect their industries
through other measures such as the “grey area” measures.128

It was the WTO Safeguards Agreement (“SGA”) which established procedural and
substantive rules, including time limits, on the use of safeguards, and in prohibiting
“grey area” measures.

8.1. General principles

The SGA sets forth the rules for application of safeguard measures pursuant to
Article XIX of GATT 1994. Safeguard measures are defined as “emergency” actions
with respect to increased imports of particular products, where such imports have
caused or threaten to cause serious injury to the importing Members domestic
industry.129

The guiding principles of the Agreement with respect to safeguard measures are:

 Such measures must be temporary;

 They may be imposed only when imports are found to cause or threaten
serious injury to a competing domestic industry;
 They be applied on a non-selective (MFN) basis that they be progressively
liberalized while in effect;

126 WTO, Technical Information on Safeguard Measures

<http://www.wto.org/english/tratop_e/safeg_e/safeg_info_e.htm> accessed on 22 July 2014
(Technical Information).
127 GATT (n 18) art XIX.
128Will be discussed late in this module.
129 Agreement on Safeguards (SGA) LT/UR/SG (15 April 1994) art.2. <http://docsonline.wto.org>

accessed 12 May 2014.

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  Member imposing them must pay compensation to the Members whose trade
is affected.

Thus, safeguard measures, unlike anti-dumping and countervailing measures, do not

require a finding of an “unfair” practice, must be applied on an MFN basis.

8.2. Historical background

Under GATT 1947, safeguards were regulated only by Article XIX, and it was the
Uruguay Round that created the SG Agreement, which adds clarity and introduces
certain changes. SGA was negotiated in because GATT Contracting Parties had been
increasingly applying a variety of so-called “grey area” measures to limit import on
certain measures. Grey area measures include bilateral voluntary export restraints,
orderly marketing agreements, etc. These measures were not imposed pursuant to
Article XIX, and thus were not subject to multilateral discipline through the GATT.
SGA now clearly prohibits such measures.130
8.3. Structure

The Agreement consists of fourteen articles and one annex. In general terms, it has
four main components:

 General provisions (Articles 1 and 2);

 Rules governing Members' application of new safeguard measures (i.e., those
applied after entry into force of WTO Agreement (Articles 3-9));
 Rules pertaining to pre-existing measures that were applied before the WTO
entry into force (Articles 10 and 11); and
 Multilateral obligations and institutions regarding application of safeguard
measures (Articles 12-14).
8.4. Conditions for application of safeguard measures

Article 2 sets forth the conditions under which safeguard measures may be applied.
These conditions are:

 Increased imports and;

 Serious injury or threat thereof caused by such increased imports.

Serious Injury is defined in the agreements as significant overall impairment in the

position of a domestic industry. In determining whether serious injury is present,
investigating authorities are to evaluate all relevant factors having a bearing on the
condition of the industry. Factors that must be analyzed are:131

130 Technical Information (n 155).

131 ibid.

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 ʘ Absolute and relative rate and amount of increase in imports,
ʘ Market share taken by the increased imports,
ʘ Changes in level of sales, production, productivity, capacity, utilization, profits and
losses, and;
ʘ Employment of the domestic industry.

8.5. What is the comparator?

Unlike the SCMA which requires “like products” comparison, the SGA requires
“directly substitutable products” as a comparator. In the Korea – Alcoholic Beverage
dispute, the AB held that:

The term “directly competitive or substitutable”

describes a particular type of relationship between two
products, one imported and the other domestic. It is
evident from the wording of the term that the essence of
that relationship is that the products are in competition.
This much is clear both from the word “competitive”
which means “characterized by competition”, and from
the word “substitutable” which means “able to be
substituted”. The context of the competitive relationship
is necessarily the marketplace since this is the forum
where consumers choose between different products.
Competition in the market place is a dynamic, evolving
process. Accordingly, the wording of the term “directly
competitive or substitutable” implies that the
competitive relationship between products is not to be
analysed exclusively by reference to current consumer
preferences. In our view, the word “substitutable”
indicates that the requisite relationship may exist
between products that are not, at a given moment,
considered by consumers to be substitutes but which are,
nonetheless, capable of being substituted for one
another. ABR, Korea- Alcohol Beverages [114].

8.6. What were the “grey area” measures and how did the SGA address grey
area measures?

Grey area measures are primarily bilateral or plurilateral measures that are trade
restrictive. The SGA required the phase-out of all grey area measures that were in
effect when the SGA entered into force. Members were given a period within which
they had to notify all such measures that they maintained, as well as timetables for
phasing them out. No such pre-existing measures could be maintained beyond 31

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December 1999.132 Furthermore, the SG Agreement strictly prohibits the use of any
such measures going forward.

Primary differences between SCMA and SGA are as follows:

SCMA SGA
Objective To counteract To prevent or remedy serious injury to
subsidization that is the domestic industry caused by a surge
causing injury to the of imports (no unfair practice) and give
domestic industry time to facilitate adjustment to
competition
Nature Non-MFN MFN
Requirements Subsidized Imports; Increased Imports; Serious Injury;
Material Injury; Causal Link Causal Link
Product Like Products Directly Substitutable Products
Coverage

9. SUMMARY

SCMA primarily addresses two closely related topics: multilateral disciplines

regulating the provision of subsidies, and the use of countervailing measures to offset
injury caused by subsidized imports.

9.1. Structure of the Agreement

 Part I provides that the SCMA applies only to subsidies that are specifically provided
to an enterprise or industry or group of enterprises or industries, and defines both the
term “subsidy” and the concept of “specificity.”
 Parts II and III divide all specific subsidies into one of two categories: prohibited and
actionable, and establish certain rules and procedures with respect to each category.
 Part V establishes the substantive and procedural requirements that must be fulfilled
before a Member may apply a countervailing measure against subsidized imports.
 Parts VI and VII establish the institutional structure and notification/surveillance
modalities for implementation of the SCMA.
 Part VIII contains special and differential treatment rules for various categories of
developing country Members.
 Part IX contains transition rules for developed country and former centrally-planned
economy Members.
 Parts X and XI contain dispute settlement and final provisions.

9.2. Scope & Coverage

132 ibid.

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Part I of the SCMA provides its scope and coverage. Specifically, it establishes a
definition of the term “subsidy” and an explanation of “specificity”. Only a measure
which is a “specific subsidy” within the meaning of Part I is subject to multilateral
disciplines and can be subject to countervailing measures.

9.3. Definition of the term ‘subsidy’

Unlike the Tokyo Round Subsidies Code, the Uruguay Code of the SCMA contained
a definition of the term “subsidy”.

The definition contains three basic elements:

(i) Financial contribution

(ii) by a government or any public body within the territory of a Member
(iii) which confers a benefit. All three of these elements must be satisfied in order for
a subsidy to exist.

Concepts such as “financial contribution”, “government or any public body”, “benefit”

etc. has been explained in detail.

9.4. Categories of Subsidies

The SCMA creates two basic categories of subsidies:

(i) those that are prohibited;

(ii) those that are actionable.

9.5. Countervailing Measures

Part V of the SCM A sets forth certain substantive requirements that must be fulfilled
in order to impose a countervailing measure, as well as procedural requirements
regarding the conduct of a countervailing investigation.

A Member may not impose a countervailing measure unless it determines that there
are:

(i) subsidized imports,

(ii) injury to a domestic industry, and
(iii) causal link between the subsidized imports and the injury.

9.6. Double Remedies

Despite being wholly different in nature, occasionally a situation does arise where a
subsidized product is dumped in the domestic market of another country. This is

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known as “double remedies”. An analysis of the provisions of GATT and the SCMA
is made in this chapter to bring out a clear picture on double remedies.

9.7. Emergency Actions

“Safeguard” measures are implemented in cases where increase in imports of the

product is causing, or is threatening to cause, serious injury to the industry. These are
also known as “emergency actions”. The legal regime for this is provided under the
Safeguards Agreement (SGA). A comparison between the SCMA and the SGA has
been made for the sake of clarity.

*_*_*

10. DISPUTES REFERRED IN THE MODULE

Year Dispute Citation

1998 WTO, Indonesia – Certain Measures Affecting the Automobile WT/DS54/R
Industry- Report of the Panel
1999 WTO, United States – Tax Treatment for “Foreign Sales WT/DS108/R
Corporation”- Report of the Appellate Body
1999 WTO, Australia- Subsidies Provided to Producers and Exporters of WT/DS126/R
Automotive Leather- Report of the Panel
1999 WTO, Canada – Measures Affecting the Export of Civilian Aircraft- WT/DS70/R
Report of the Panel
2000 WTO, Canada-Certain Measures Affecting the Automotive Industry- WT/DS139/AB/R
Report of the Appellate Body
2000 WTO, United States – Tax Treatment for “Foreign Sales WT/DS108/AB/R
Corporation”- Report of the Appellate Body
2000 WTO, Canada- Certain Measures Affecting the Automotive Industry- WT/DS139/AB/R
Report of the Appellate Body
2001 WTO, United States – Measures Treating Export Restraints as WT/DS194/R
Subsidies-Report of the Panel
2001 WTO, United States – Measures Treating Export Restraints as WT/DS194/R
Subsidies-Report of the Panel
2002 WTO, United States — Countervailing Measures on Certain Products WT/DS212/AB/R
from European Communities- Report of the Appellate Body
2002 WTO, United States- Preliminary Determinations with Respect to WT/DS236/R
Certain Softwood Lumber from Canada- Report of the Panel
2002 WTO, United States – Countervailing Duties on Certain Corrosion- WT/DS213/AB/R
Resistant Carbon Steel Flat Products from Germany- Report of the
Appellate Body
2002 WTO, Canada – Certain Measures Affecting the Renewable Energy WT/DS412/R
Generation Sector-Report of the Panel
2003 WTO, United States - Final Countervailing Duty Determination with WT/DS257/R
Respect to Certain Softwood Lumber from Canada-Report of the Panel
2003 WTO, United States – Continued Dumping and Subsidy Offset Act WT/DS217/AB/R
2000- Report of the Appellate Body

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2003 WTO, United States - Final Countervailing Duty Determination with WT/DS257/AB/R
Respect to Certain Softwood Lumber from Canada-Report of the
Appellate Body
2003 WTO, European Communities – Anti-Dumping Duties on Imports of WT/DS141/AB/RW
Cotton-type Bed Linen from India-Article 21.5 Report of the Appellate
Body
2003 WTO, United States - Final Countervailing Duty Determination with WT/DS257/AB/R
Respect to Certain Softwood Lumber from Canada-Report of the
Appellate
2004 WTO, United States – Subsidies on Upland Cotton-Report of the Panel WT/DS267/R

2004 WTO, United States – Subsidies on Upland Cotton-Report of the Panel WT/DS267/R
2005 WTO, United States – Countervailing Duty Investigation on Dynamic WT/DS296/AB/R
Random Access Memory Semiconductors (DRAMS) from Korea-Report
of the Appellate Body
2005 WTO, United States – Countervailing Duty Investigation on Dynamic WT/DS296/R
Random Access Memory Semiconductors (DRAMS) from Korea-Report
of the Panel
2005 WTO, Korea- Measures Affecting Trade in Commercial Vessels- WT/DS273/R
Report of the Panel

2008 WTO, Mexico – Definitive Countervailing Measures on Olive Oil from WT/DS341/R
the European Communities- Report of the Panel
2010 WTO, United Sates- Definitive Anti-Dumping and Countervailing WT/DS379/R
Duties on Certain Products from China- Report of the Panel
2011 WTO, United States – Measures Affecting Trade in Large Civil WT/DS353/R
Aircraft – Second Complaint-Report of the Panel
2011 WTO, United States – Measures Affecting Trade in Large Civil WT/DS353/R
Aircraft – Second Complaint-Report of the Panel
2011 WTO, United Sates- Definitive Anti-Dumping and Countervailing WT/DS379/AB/R
Duties on Certain Products from China- Report of the Appellate Body
2011 WTO, United Sates- Definitive Anti-Dumping and Countervailing WT/DS379/AB/R
Duties on Certain Products from China- Report of the Appellate Body

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11. ANNEXURE: Example of Subsidy Calculation

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