Multilateral disciplines are the rules regarding whether or not a subsidy
may be provided by a Member. They are enforced through invocation of the
WTO dispute settlement mechanism. Countervailing duties are a unilateral
instrument, which may be applied by a Member after an investigation by
that Member and a determination that the criteria set forth in the SCM
Agreement are satisfied.
Structure of the Agreement
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I provides that the SCM Agreement 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(1),
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 SCM
Agreement. 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
Coverage of the Agreement Back to top
I of the Agreement defines the coverage of the Agreement. Specifically, it
establishes a definition of the term “subsidy” and an explanation of
the concept 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.
of subsidy Unlike the Tokyo Round Subsidies Code, the WTO SCM
Agreement contains a definition of the term “subsidy”. The definition
contains three basic elements: (i) a 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.
concept of “financial contribution” was included in the SCM
Agreement only after a protracted negotiation. Some Members argued that
there could be no subsidy unless there was a charge on the public account.
Other Members considered that forms of government intervention that did
not involve an expense to the government nevertheless distorted
competition and should thus be considered to be subsidies. The SCM
Agreement basically adopted the former approach. The Agreement requires a
financial contribution and contains a list of the types of measures that
represent a financial contribution, e.g., grants, loans, equity infusions,
loan guarantees, fiscal incentives, the provision of goods or services,
the purchase of goods.
order for a financial contribution to be a subsidy, it must be made by
or at the direction of a government or any public body within the
territory of a Member. Thus, the SCM Agreement applies not only to
measures of national governments, but also to measures of sub-national
governments and of such public bodies as state-owned companies.
financial contribution by a government is not a subsidy unless it confers
a “benefit.” In many cases, as in the case of a cash
grant, the existence of a benefit and its valuation will be clear. In some
cases, however, the issue of benefit will be more complex. For example,
when does a loan, an equity infusion or the purchase by a government of a
good confer a benefit? Although the SCM Agreement does not provide
complete guidance on these issues, the Appellate Body has ruled (Canada
– Aircraft) that the existence of a benefit is to be determined by
comparison with the market-place (i.e., on the basis of what the recipient
could have received in the market). In the context of countervailing
duties, Article 14 of the SCM Agreement provides some guidance with
respect to determining whether certain types of measures confer a benefit.
the context of multilateral disciplines, however, the issue of the meaning
of “benefit” is not fully resolved.
Assuming that a measure is a subsidy within the meaning of the SCM
Agreement, it nevertheless is not subject to the SCM Agreement unless it
has been specifically provided to an enterprise or industry or group of
enterprises or industries. The basic principle is that a subsidy that
distorts the allocation of resources within an economy should be subject
to discipline. Where a subsidy is widely available within an economy, such
a distortion in the allocation of resources is presumed not to occur.
Thus, only “specific” subsidies are subject to the SCM Agreement
disciplines. There are four types of “specificity” within the meaning
of the SCM Agreement:
A government targets a particular company or companies for
A government targets a particular sector or sectors for subsidization.
specificity. A government targets producers in specified parts of
its territory for subsidization.
subsidies. A government targets export goods or goods using
domestic inputs for subsidization.
Categories of Subsidies Back to top
SCM Agreement creates two basic categories of subsidies: those that are
prohibited, those that are actionable (i.e., subject to challenge in the
WTO or to countervailing measures). All specific subsidies fall into one
of these categories.
subsidies Two categories of subsidies are prohibited by Article
3 of the SCM Agreement. The first category consists of subsidies
contingent, in law or in fact, whether wholly or as one of several
conditions, on export performance (“export subsidies”). A
detailed list of export subsidies is annexed to the SCM Agreement. The
second category consists of subsidies contingent, whether solely or as one
of several other conditions, upon the use of domestic over imported goods
(“local content subsidies”). These two categories of subsidies
are prohibited because they are designed to directly affect trade and thus
are most likely to have adverse effects on the interests of other Members.
scope of these prohibitions is relatively narrow. Developed countries had
already accepted the prohibition on export subsidies under the Tokyo Round
SCM Agreement, and local content subsidies of the type prohibited by the
SCM Agreement were already inconsistent with Article III of the
GATT 1947. What is most significant about the new Agreement in this
area is the extension of the obligations to developing country Members
subject to specified transition rules (see section below on special and
differential treatment), as well as the creation in Article 4 of the SCM
Agreement of a rapid (three-month) dispute settlement mechanism for
complaints regarding prohibited subsidies.
subsidies Most subsidies, such as production subsidies, fall in
the “actionable” category. Actionable subsidies are not prohibited.
However, they are subject to challenge, either through multilateral
dispute settlement or through countervailing action, in the event that
they cause adverse effects to the interests of another Member. There are
three types of adverse effects. First, there is injury to a
domestic industry caused by subsidized imports in the territory of the
complaining Member. This is the sole basis for countervailing action.
Second, there is serious prejudice. Serious prejudice usually
arises as a result of adverse effects (e.g., export displacement) in the
market of the subsidizing Member or in a third country market. Thus,
unlike injury, it can serve as the basis for a complaint related to harm
to a Member's export interests. Finally, there is nullification or
impairment of benefits accruing under the GATT 1994. Nullification or
impairment arises most typically where the improved market access presumed
to flow from a bound tariff reduction is undercut by subsidization.
creation of a system of multilateral remedies that allows Members to
challenge subsidies which give rise to adverse effects represents a major
advance over the pre-WTO regime. The difficulty, however, will remain the
need in most cases for a complaining Member to demonstrate the adverse
trade effects arising from subsidization, a fact-intensive analysis that
panels may find difficult in some cases(2).
subsidies Article 13 of the Agreement on Agriculture
establishes, during the implementation period specified in that Agreement
(until 1 January 2003), special rules regarding subsidies for agricultural
products. Export subsidies which are in full conformity with the
Agriculture Agreement are not prohibited by the SCM Agreement, although
they remain countervailable. Domestic supports which are in full
conformity with the Agriculture Agreement are not actionable
multilaterally, although they also may be subject to countervailing
duties. Finally, domestic supports within the “green box” of the
Agriculture Agreement are not actionable multilaterally nor are they
subject to countervailing measures. After the implementation period, the
SCM Agreement shall apply to subsidies for agricultural products subject
to the provisions of the Agreement on Agriculture, as set forth in its
Countervailing Measures Back
V of the SCM Agreement sets forth certain substantive requirements that
must be fulfilled in order to impose a countervailing measure, as well as
in-depth procedural requirements regarding the conduct of a countervailing
investigation and the imposition and maintenance in place of
countervailing measures. A failure to respect either the substantive or
procedural requirements of Part V can be taken to dispute settlement
and may be the basis for invalidation of the measure.
rules A Member may not impose a countervailing measure unless
it determines that there are subsidized imports, injury to a domestic
industry, and a causal link between the subsidized imports and the
injury. As previously noted, the existence of a specific subsidy must be
determined in accordance with the criteria in Part I of the Agreement.
However, the criteria regarding injury and causation are found in Part V.
One significant development of the new SCM Agreement in this area is the
explicit authorization of cumulation of the effects of subsidized imports
from more than one Member where specified criteria are fulfilled. In
addition, Part V contains rules regarding the determination of the
existence and amount of a benefit.
rules Part V of the SCM Agreement contains detailed rules
regarding the initiation and conduct of countervailing investigations, the
imposition of preliminary and final measures, the use of undertakings, and
the duration of measures. A key objective of these rules is to ensure that
investigations are conducted in a transparent manner, that all interested
parties have a full opportunity to defend their interests, and that
investigating authorities adequately explain the bases for their
determinations. A few of the more important innovations in the WTO SCM
Agreement are identified below:
The Agreement defines in numeric terms the circumstances under which
there is sufficient support from a domestic industry to justify
initiation of an investigation.
investigation. The Agreement ensures the conduct of a preliminary
investigation before a preliminary measure can be imposed.
The Agreement places limitations on the use of undertakings to settle
CVD investigations, in order to avoid Voluntary Restraint Agreements
or similar measures masquerading as undertakings
The Agreement requires that a countervailing measure be terminated
after five years unless it is determined that continuation of the
measure is necessary to avoid the continuation or recurrence of
subsidization and injury.
review. The Agreement requires that Members create an independent
tribunal to review the consistency of determinations of the
investigating authority with domestic law.
Transition Rules and Special and Differential
countries Members not otherwise eligible for special and
differential treatment are allowed three years from the date on which for
them the SCM Agreement enters into force to phase out prohibited
subsidies. Such subsidies must be notified within 90 days of the entry
into force of the WTO Agreement for the notifying Member.
countries The SCM Agreement recognizes three categories of
developing country Members: least-developed Members (“LDCs”), Members
with a GNP per capita of less than $1000 per year which are listed in
Annex VII to the SCM Agreement, and other developing countries. The lower
a Member's level of development, the more favourable the treatment it
receives with respect to subsidies disciplines. Thus, for example, LDCs
and Members with a GNP per capita of less than $1000 per year listed in
Annex VII are exempted from the prohibition on export subsidies. Other
developing country Members have an eight-year period to phase out their
export subsidies (they cannot increase the level of their export subsidies
during this period). With respect to import-substitution subsidies, LDCs
have eight years and other developing country Members five years, to phase
out such subsidies. There is also more favourable treatment with respect
to actionable subsidies. For example, certain subsidies related to
developing country Members' privatization programmes are not actionable
multilaterally.. With respect to countervailing measures, developing
country Members' exporters are entitled to more favourable treatment with
respect to the termination of investigations where the level of
subsidization or volume of imports is small.
in transformation to a market economy Members in transformation
to a market economy are given a seven-year period to phase out prohibited
subsidies. These subsidies must, however, have been notified within two
years of the date of entry into force of the WTO Agreement (i.e., by
31 December 1996) in order to benefit from the special treatment.
Members in transformation also receive preferential treatment with respect
to actionable subsidies.
Article 25 of the SCM Agreement requires that Members notify all specific
subsidies (at all levels of government and covering all goods sectors,
including agriculture) to the SCM Committee. New and full notifications
are due every three years with update notifications in intervening years.
The notifications are the subject of extensive review and discussion by
the SCM Committee.
legislation and measures All Members are required to notify
their countervailing duty laws and regulations to the SCM Committee
pursuant to Article 32.6 of the SCM Agreement. Members are also
required to notify all countervailing actions taken on a semi-annual
basis, and preliminary and final countervailing actions at the time they
are taken. Members also are required to notify which of their authorities
are competent to initiate and conduct countervailing investigations.
Dispute Settlement Back to top
SCM Agreement generally relies on the dispute settlement rules of the DSU.
However the Agreement contains extensive special or additional dispute
settlement rules and procedures providing, inter alia, for expedited
procedures, particularly in the case of prohibited subsidy allegations. It
also provides special mechanisms for the gathering of information
necessary to assess the existence of serious prejudice in actionable
The Agreement as it originally entered into force contained a third
category — non-actionable subsidies. This category (along with a provision
establishing a presumption of serious prejudice in respect of certain
specified types of actionable subsidies) applied provisionally for five
years ending 31 December 1999, and pursuant to Article 31 of the
Agreement, could be extended by consensus of the SCM Committee. As of 31
December 1999, no such consensus had been reached. back
To mitigate this problem, the SCM Agreement established, during a
five-year provisional period which ended 31 December 1999, a sub-category
of actionable subsidies with respect to which a rebuttable presumption of
serious prejudice existed. Under Article 31, this provision (along with
the provisions concerning non-actionable subsidies) could be extended by
consensus of the SCM Committee. As of 31 December 1999, no such consensus
had been reached. back