The Agreement on Subsidies and Countervailing Measures (SCM Agreement) deals with two distinct but connected issues: the use of countervailing measures to mitigate harm brought on by subsidized imports and global norms governing the granting of subsidies. The guidelines governing whether a member may offer a subsidy are known as multilateral disciplines. By using the WTO dispute resolution process, they are enforced. Countervailing duties are a unilateral tool that may be used by a member following an inquiry by that Member and the conclusion that the SCM Agreement’s requirements have been met.
Areas covered by the agreement
The scope of the Agreement is outlined in Part I of the Agreement. It establishes a definition of the word “subsidy” and explains the idea of “specificity” in particular. Only actions that fall under the definition of “specific subsidy” in Part I are subject to multilateral disciplines and are eligible for countervailing measures.
Subsidy
Three fundamental components make up the definition of a subsidy:
- a monetary donation,
- made by a government or other public entity located on a member’s territory,
- that delivers a benefit.
A subsidy cannot exist until all three of these conditions are met. Prohibited and Actionable Subsidies are the two categories of subsidies established by the SCM Agreement. Receivers of prohibited subsidies are obligated to employ domestically produced items in place of imported ones or to satisfy specific export targets. They are forbidden because they are intended to stifle international trade and are therefore likely to harm trade with other nations. Specific subsidies that harm the interests of other members by invalidating or impairing GATT advantages, harming their domestic industries, or causing them substantial prejudice are known as actionable subsidies.
Specificity
Even if a measure is considered a subsidy by the SCM Agreement, it is not subject to it unless it has been specifically given to a particular firm, industry, or group of enterprises or industries. The fundamental tenet is that any subsidy that skews the distribution of resources within an economy needs to be reined in. Such distortion in the distribution of resources is assumed not to arise where a subsidy is broadly accessible within an economy. Therefore, the SCM Agreement disciplines only apply to “specific” subsidies. According to the SCM Agreement, there are four different kinds of “specificity”:
Enterprise-specificity
The government targets one or more specific businesses for subsidies
Industry-specificity
The government focuses its subsidies on a specific industry or industries
Regional specificity
The government targets producers for subsidies in particular areas of its jurisdiction
Prohibited subsidies
The government targets export-oriented products or those made with domestic materials for subsidies.
Countervailing measures
Part V of the SCM Agreement outlines In-depth procedural requirements for the conduct of a countervailing investigation; the imposition and maintenance in place of countervailing measures; as well as certain substantive requirements that must be satisfied to impose a countervailing measure. The measure may be declared invalid if either the substantive or procedural requirements of Part V are not followed. This can be done through dispute resolution.
Substantive rules
Without first determining that there are subsidized imports, harm to a domestic industry, and a causal connection between the injury and the subsidized imports, a Member is not permitted to implement a countervailing measure.
Rules of procedure
The SCM Agreement’s Part V offers specific guidelines on how countervailing investigations should be started and carried out and how final measures should be applied. It also includes how undertakings should be used and how long measures should last. One of the main goals of these regulations is to make sure that investigations are carried out openly and that all parties involved have an equal opportunity to defend their interests. The investigating authorities are also to adequately explain the reasons behind their conclusions.
Dispute resolution
The Dispute Settlement Understanding (DSU’s) dispute resolution provisions are frequently relied upon by the SCM Agreement. However, the Agreement includes numerous special or supplementary dispute resolution rules and processes that call for faster processing. This is particularly when claims of unlawful subsidizing are involved. Additionally, it offers unique methods for acquiring the data required to determine if there is grave prejudice in cases of actionable subsidies.
