WTO Agreement on Subsidies and Countervailing Measures - Essay Example

? The WTO Agreement on Subsidies and Countervailing Measures (ASCM). (a) The character of the different economic measures in Alturai. Do these measures amount to ‘subsidies’ in the ASCM? The WTO Agreement on Subsidies and Countervailing Measures (ASCM) describes in detail about the provisions pertaining to Subsidies and countervailing measures, which contained both in Tokyo Round Negotiations and in GATT 1947, which is offering greater certainty and uniformity in its implementation. The ASCM agreement inflicts strict disciplines to make sure that subsidies do not badly impact the general interests of WTO Members. For the first time, a definition for subsidy has been included ,which states that a subsidy is one if there is a financial income or contribution or price support is extended by a government, and an advantage is thereby conferred to the trade or specific industry. The definition definitely helps the Member States to understand what measures would be construed as subsidy with predictability and certainty of the rules and thus helps to limit the trade distortive subsidies. There are also some controls or disciplines on countervailing initiatives, which intended to make sure that these do not undesirably obstruct trade and that these offer aids for products, which are badly impacted by subsidies. (Chen 2010:33). Requirement as regards to Specificity A subsidy shall be precise to an industry or an enterprise or group of industries or enterprises so as to be covered under the SCM Agreement. The fundamental notion is that a subsidy that deforms the provision of resources within an economy should be subject to discipline. Whenever a subsidy is broadly seen within an economy, such a distortion in the allocation of resources is assumed not to happen. Hence, only some “particular” subsidies are falls under the ambit of SCM Agreement. A subsidy is regarded “specific” if access to it is overtly restricted to some enterprises only. In US-Softwood Lumber IV case, it is held that it is not a necessary benefit derived is to be a direct and in some cases, benefit might have been passed through to other recipients also. In the above case, “the wood product industries “were regarded by the AB to constitute the restricted group of industries as recipient.(WTO 2010:1460).In EC- DRAMs Chips case, the subsidy was found to be used only just 6 out of 200 entitled companies was regarded as the basis for establishing the specificity. (McGovern 2008:32-15). Restricted Subsidies or Red-light Subsidies These subsidies are intended to impact the trade directly and hence, most likely to have bad impacts on the interest of the other Members. Article 3 (1) (a) of the SCM Agreement puts a bar on subsidies, which are accorded with a stipulation that it should meet certain parameters like usage of domestic products, in favor of imported products which are also known as domestic content subsidies. As per Article 4 of the SCM Agreement, these subsidies fall under an accelerated dispute settlement provision and the Member who found to grant such a subsidy would be asked to withdraw the same immediately. (Rothgeb & Chinapandhu 2007:39). “Actionable Subsidies or Amber Light Subsidies” Article 5 to 7 of the SCM Agreement controls actionable grants or aids. An action can be initiated against a Nation, if it has granted subsidies, which would have bad impacts on the interest other Member nations. When any of the following three conditions is met, then adverse impacts are said to be existing. If it causes any harm to the home industry of another Member Nation Under GATT 1994, if any impairment or nullification has happened or If under Article 5 of SCM Agreement, if grave unfairness to the interests of another Member Nation is found to be existing. When financial grant or aid is said to be exceeding five percent of the ad valorem of a product; or when operating losses suffered by an enterprise or an industry is being covered by the enterprise or industry or when subsidies are being offered directly to forgive debts. “As per Article 7.9 “of the SCM agreement, the above initiatives can be confronted through the introduction of countervailing initiatives. If no proper initiatives have been taken by the Member who grants a subsidy either to remove the grave impacts or call back the subsidy, the DSB (Dispute Settlement Body) has the authority to initiate countermeasures proportionate to the magnitude, and the nature of the bad effects determined to be present. Nonetheless, in the majority of the cases, a complaining Member normally finds it arduous to establish the bad impacts emanating from these subsidies. (Chen 2010:34). Both these groups of subsidy may be confronted either through the multilateral dispute settlement or through the levy of countervailing duties. When the issue is raised in the DSM, the complaining member must corroborate either that the measure is a proscribed subsidy , in which case it must be vacated , or that the measure is an actionable subsidy that has created worst trade impacts , in which instance , the measure should be of roll- back or its worst impacts should be removed. For countervailing measures, the importing Member must carry out an examination which establishes that the subsidized imports are creating harm to its domestic industries. In Canada –Aircraft case, AB authenticated the findings of the Panel that if the financial grant accorded is mainly to make the beneficiary “better off” than what would have been. The marketplace offers a proper basis for evaluation in deciding whether a “ benefit “ has been granted since the trade-distorting probability of a financial aid can be recognised by deciding whether the beneficiary has been received or not, a fiscal aid on terms, which is more advantageous than those available to the recipient in the market. (Froese 2010:77). In US –FSC case, it was held by the Appellate Body that the fiscal treatment of revenue is subject to the disputed initiative required to be contrasted with the treatment of lawful comparable income. The AB confirmed that it might not always be practical to recognise a general tax rule that would be applicable to the revenues in question for the want of contested initiatives. (Trebilcock & Howse 2005:339). In Korea –Commercial Vessels, it was held by the AB that the control of the body is a significant yardstick in deciding whether an entity is a public body or not and whether the SCM Agreement is applicable or not. (Poretti 2009:317). Subsidies also include any financial support extended either directly or indirectly to enhance the export of products from or reduce imports into the province of a Member nation. For instance, in 1958, a case was brought by Australia against France (BISD 75/46) contending subsidy of wheat and wheat flour. In this case, AB concluded that the elements of price support amounted to a subsidy. The “UK Leaded Bars” case pertains to US levy of countervailing duties in Certain Hot-Rolled Lead, and Bismuth Carbon Steel Products supplied from the United Kingdom .In this case, it was averred that the USA contravened the Article 10 ASCM jointly with “Articles 19, 1 and 14 ASCM “by imposing countervailing taxes on the imports by the private sector companies without first ascertaining or probing whether there subsists any financial backing pertaining to those imports. Secondly, the United States also infringed the Article 19.4 ASCM by levying duties in excess of the sum of any financial support seemed to exist.(Bureau of National Affairs 2003:1108). In this case, it was alleged by the European Commission (EC) that US inflicted countervailing duties on steel products imported from UK. US argued that the countervailing duties were levied mainly to offset the subsidies granted to private steel industries in UK. However, EC claimed that levy of countervailing duties tantamount to the infringement of Articles 1.1(b), 10, 14 and 10.4 of the Subsidies Agreement. Due to failure to arrive at a consensus between the parties, EC requested to set up a panel on the issue. Later, Mexico and Brazil also joined the issue. Panel finally held that by imposing countervailing duties on the steel bars, the US had infringed Article 10 of the Subsidies Agreement. However, US decided to appeal against the panel decision to the Appellate Body, and the AB also confirmed the findings of Panel. In case of steel industries , some study group had suggested that there is ample proof that the subsidies were existed , are existing and likely to be present in the future also, which has a threatening impact on steel industries and steel trade and hence should not be encouraged. The following recommendations were made by the study group; A contract could be applicable to particular subsidies to the steel industry as well as generic subsidiaries where the steel company or the steel industry was a beneficiary as seen in Brazil and Argentina. All disguised subsidiaries could be banned, except those not having a dire impact and those that were otherwise not banned as in the case of Czech Republic, Argentina, Turkey and Russia. All disguised subsidies should be banned except those openly allowed as in the case of Korea and Brazil. An agreement should include all generic subsidies where steel is the major beneficiary as in the case of Korea. The agreement should provide for an open list of restricted subsidies. Subsidies should be limited to fund for a) restructuring the steel industry b) crude steel manufacturing capacity closures c) scientific and innovation work d) social programs e) environmental assistance as in the case of Ukraine. (Pagani 2008:156). Alturai’s extension of credit to exporters to countervail customs duties in recipient nations can be obviously regarded as an export subsidy. Alturai might not have openly announced its new economic policies for its steel industry as subsidies. However, in the background of the above case laws, one can come to a conclusion that these policies encompass subsidies under the Agreement on Subsidies and Countervailing Measures. Thus, Alturai’s practice of granting credit to exporters of finished steel to be offset against the payment of customs duties at the country of destination, setting a maximum price on it, and guaranteeing a supply of the iron to its steel manufacturers, Alturai’s Department of Trade financial contributions, amounting to 1 per cent of the sales value as an export subsidy can be regarded as measure’s amount to ‘subsidies’ in the ASCM. (b) What possible action can be taken concerning the different measures, and can action be taken to stop the losses sustained by the steel industry in Benares? It is assumed that the credit extended by Alturai to exporters to countervail custom duties in recipient countries like Benares. Further, it is assumed that the cumulative of all subsidies extended in Alturai would have inevitably surpassed the cap of 5%, suggesting a serious injustice. Benares can initiate an investigation against Alturai’s export subsidies, but must adhere to the obligations under World Trade Organization. To protect their steel industry, Benares can levy quotas. Nonetheless, Alturai should be allowed to export the quantum analogues to the annual mean quantity during the last three preceding years. ASMC offers a road map regarding of allocation of quotas amongst steel supplying nations to Benares, particularly when imports shoot up abruptly during a year. Nonetheless, it should be remembered that while levying such quotas by Benares, Alturai would become eligible to receive compensation through consultation. Else, they can even increase or levy tariffs on exports from Benares. In the given case, Benares has every reason to believe that Alturai’s practice of granting credit to exporters of finished steel to be offset against the payment of customs duties at the country of destination, setting a maximum price on it, and guaranteeing a supply of the iron to its steel manufacturers, Alturai’s Department of Trade financial contributions, amounting to 1 per cent of the sales value as an export subsidy , then Benares has every right to ask for a consulting with the Alturai to discuss about the provision of above incentives, which is against ASCM. Benares should submit all the available evidences in respect of the nature and the existence of the above subsidies. On receiving such a consultation request from the Benares, Alturai should engage in consultation with the Benares as early as possible. The main objective of such consultation should be to explain the real background scenario and to arrive at a mutually agreed solution to the issue. Even after the expiry of 30 days of the request for the consultation by Benares, if no mutually consented solution has been arrived at between Alturas and Benares, any one of the Members of the party to such consultation may cite the issue to the DSB (Dispute Settlement Body) for the immediate setting up a panel. Once the panel has been established, expert opinion on the subject may be called for. Alturas has every right to demonstrate that the measure adopted by it does not tantamount to a proscribed subsidy. The expert group after going through all the evidence produced before it will come to a conclusion that measure adopted by Alturas is a prohibited subsidy. The Panel shall circulate its final report to the parties concerned to the dispute. The panel shall recommend if it found the initiatives perused by Alturas to be a proscribed subsidy, it would ask the Alturas to withdraw the subsidy immediately, and panel may also suggest in its order the time frame by which the above subsidies granted by Alturas shall be withdrawn. Within 30 days of the circulating to all the members the report by the panel, Alturas has the right to appeal against the findings of DSB. If the appeal is accepted by the Appellate Body, it should render its decision within 30 days of its acceptance. The report submitted by the Appellate Body should be adopted by the DSB, and both the Alturas and Benares should unconditionally acknowledge the same except the DSB chooses by consensus not to adopt the same within twenty days immediately following its deliverance to the Members.(Hoffman , Nielsen & Rumsey 2007:116). In US –Subsidies on Upland Cotton case, it was alleged by the Brazil that the US cotton producers received many of the US government financial support schemes, which gravely injured the interest of the Brazil as regards to cotton. DSB in this case, after evaluating the scenarios, took the view that the empirical impacts of US government financial aid programs should be regarded in its entirety instead of individually. (c) If Alturai was a developing Country but did not appear in Annex VII of the ACSM, would your answer in (a) and (b) be any different? Under Annex VII, the least developed nations whose gross per capita national products is well below USD 1000 per annum in 1990 are presently exempted from the purview of the ASCM. The least developing nations which appear in Annex VII can provide financial assistance for privatization schemes and developing nation Members are not exposed to multilateral action under ASCM. Likewise, exporters from developing nation Members are given favorable treatment as regard to countervailing policies. When subsidies or the quantum of imports is negligible, then investigations pertaining to such exports may be dismissed. This preferential treatment regarding exports is known as ‘de minimis provision’. Article 27.1 of ASCM states that no countervailing duty investigation against a developing nation can be initiated if; a) The aggregate quantum of subsidies extended on the product in question does not surpass 2% of its value arrived at per unit footing; b) The quantum of the subsidized imports symbolizes less than 4% of the aggregate imports of the analogues’ product in the importing member nation. Thus, Benares before initiating action against Alturai should take into account the above ceilings. One best example is the Brazil –Aircraft case, which involved financing by the government which was well below the market rate to domestic aircraft industries. In this case, Brazil never opposed that the initiative was not an export subsidy, but it took defense that since it was a developing economy at that time, it had the privilege to offers such subsidies. Further, about sixteen nations are presently exempt due to phase-out regulations for some “grand-fathered “schemes through 2015. Thus, even if a nation is a least- developed nation, if it is expected to surpass the per-capita income of USD 1000, may not be exempted from the SCM procedures The United Nations presently have fifty countries in the list Least Developed Countries (LDC). Out of the above, thirty-three nations are the members of WTO at present and the balance 17 nations are in the various stages of the accession process to the WTO. Nonetheless, as per Article 27.5 &27.6 of SCM Agreement , LDC Members that reach export competitiveness in any given product must gradually discontinue over a time of eight years from for that product. Further, the earlier exemption accorded to LDCs from the bar on subsidies relevant upon on the usage of domestic over imported products inflicted by SCM Agreement as this exemption had already expired at the fag end of the year 2003. A special procedure was introduced in the year 2001 to cater the requirements of some small developing nations. Schemes that are eligible for extensions were export subsidy programs are as follows: In the guise of either partial or full exemptions from import duties and internal taxes which are offered by developing nation Members. The percentage of their global merchandise export trade was not higher than 0.1% Where the nation’s Gross National Income (GNI) for the year 2000 as per World Bank publication was at or below US$ 20 billion. These LDC nations are adhering to guidelines fixed by the SCM Committee. The WTO General Council gave an extension for the exemption from the financial grants to exports in July 2007 up to 31 December 2015 to the LDC countries. In majority of cases, the incentive programs notified were pertaining to Special Economic Zone initiatives. (Bagwell, Bermann & Mavroidis 2010:69). If Alturai was a developing Country but did not appear in Annex VII of the ACSM, then my answer would be different. Since, Alturai is extending subsidies to its iron & steel industry, and since, it is a developing nation but not appearing in the Annex VII of the ACSM, Alturai will be permitted to roll back its subsidies on exports over a period of 8 years as long as if it is found to be uniform with their development requirements; further, during this period, Alturai is barred from enhancing its quantum of export subsidies. Further, if under Article 27.14, Benares makes a request, the committee will decide whether or not the export subsidy being practiced by the Alturai fits with its developments’ requirements. Further, the rolling –back period by the Alturai’s export subsidies may be renewed by year by year if it is needed and consented to by the committee. Suppose, if not an extension has been granted by the Committee, then Alturai should phase out its export subsidy within twenty-four months. In practical parlance, Alturai which is applying for an extension before the expiry of original 8 years is gaining automatically another two-year exemption even in the worst case of turning down of its application by the committee. Since Alturai is not appearing in the Annex VII even though it is a developing nation , if it reaches “ export competitiveness “ for iron- related products , then , it will have two years to roll back its export subsidies on iron products. Competitiveness presents if a developing nation’s exports surpass 3.25% of the global trade in the iron products for two consecutive years. Since Alturai is a developing nation, there exists stern guideline regarding dispute settlement where a developing country extends subsidies. Under Articles 27.7 to 27.9 developing nations are eligible to a preferential treatment. Hence, Benares cannot complain against prohibition of export subsidies against Alturai, particularly under Article 4 and 27. Benares can raise its objection by following the process provided in Article 7 as regards to actionable claims. Unless substantiated by positive evidence as detailed in Article 6.1, Benares cannot succeed in its effort to prove serious prejudice by Alturai. List of References Bagwell K, Bermann, GA & Mavroidis, PC. (2010) Law and Economics of Contingent Protection in International Trade. Cambridge: Cambridge University Press Bureau of National Affairs. (2003) International Trade Reporter Decisions, Volume 24. California: University of California Chen, C. (2010) Fisheries Subsidies under International Law. New York: Springer Froese, M D. 2010 Canada at the WTO: Trade Litigation and the Future of Public Policy. Toronto: University of Toronto Press Hoffman, M, Nielsen, L & Rumsey M. (2007) The WTO, Animals and PPMs. New York: BRILL McGovern, E. EU Anti-Dumping and Trade Defense Law and Practice .New York: Globe Field Press Pagani, F, (2008) Subsidy Negotiations: Text and Legal Analysis. London: Cameron May Poretti, P. (2009) The Regulation of Subsidies within the General Agreement on Trade. New York: Kluwer Law International Rothgeb, JM & Chinapandhu, B. (2007) Trade and Development in a Globalized World: The Unfair Trade. New York: Lexington Books Trebilcock, MJ & Howse, R. (2005) The Regulation of International Trade. New York: Routledge Taylor & Francis Group WTO. (2010) Dispute Settlement Reports 2008 .Cambridge: Cambridge University Press Read More