SUBSIDIES & ITS CATEGORIES

UNDER SCM AGREEMENT

PRESENTED BY:
SABRINA YASMIN
ID: 17154072,
COURSE: INTERNATIONAL TRADE LAW
LL.M.HR Program
Chittagong Independent University
 INTRODUCTION

• The SCM Agreement builds upon the Subsidies Code and

the original GATT provisions. Unlike those predecessors, the
SCM Agreement contains a definition of subsidy and
introduces the concept of the "specificity" (selective
availability) of a subsidy.
• The SCM Agreement - addresses two separate but closely related
matters:
(i) the multilateral disciplines on the use of subsidies; and,
(ii) the conditions under which Members may apply
countervailing measures.
• The SCM Agreement contains a definition of "subsidy", which
applies in both of these areas.
• The multilateral disciplines govern whether, and what kind of, a
subsidy may be granted by a Member.
• The SCM Agreement applies to all goods, that is both agricultural
and industrial products.
 DEFINITION OF SUBSIDY

• Unlike the Tokyo Round Subsidies Code, the 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 present for a subsidy to exist.
Remember, however, that not all "subsidies" are covered by
the SCM Agreement. Rather, only those that are "specific" are
covered.
DEFINITION OF SUBSIDY (CONT.)
 CATEGORIES OF SUBSIDIES UNDER
THE SCM AGREEMENT

• The SCM Agreement regulates two basic categories of subsidies:

1. those that are prohibited, and
2. those that are actionable (i.e., not prohibited but potentially
subject to challenge on the basis of adverse effects, or to
countervailing measures).
• All specific subsidies fall into one of these categories.
• The SCM Agreement adopts what is sometimes called a "traffic
light" approach in categorizing different types of subsidies.

**The SCM Agreement originally contained a third category: non-actionable subsidies.

This category existed for five years, ending on 31 December 1999 (the possibility
for its extension, originally envisaged in Article 31 of the Agreement, did not occur).
 CATEGORIES OF SUBSIDIES UNDER
THE SCM AGREEMENT (CONT.)
1. PROHIBITED SUBSIDIES:
Prohibited, "Red light" or "red" subsidies: Prohibited on the basis of
their (irrebutably) presumed adverse effects on trade. There are
two types of prohibited subsidies:

(A) Subsidies contingent, in law or in fact, upon export

performance, ("export subsidies").
>> For a subsidy to be an export subsidy prohibited under
the SCM Agreement, it must be "contingent“ upon export
performance, whether solely or as one of several conditions.
(B) Subsidies contingent upon the use of domestic over
imported goods("import substitution" or "local content" subsidies).
>> For a subsidy to be prohibited under the SCM
Agreement as an import substitution subsidy, it must be
"contingent" on the use of domestic over imported goods.
 CATEGORIES OF SUBSIDIES UNDER
THE SCM AGREEMENT (CONT.)

2.1. ACTIONABLE SUBSIDIES - GENERAL:

• Under the actionable subsidies provisions, there are a number of

forms of adverse effects caused by subsidies that a complaining
Member can allege before a WTO dispute settlement panel.
• In all cases, the assessment is fact-specific.
• It is not sufficient (as in the case of prohibited subsidy disputes) to
establish that the subsidy in question, as alleged, exists.
 CATEGORIES OF SUBSIDIES UNDER
THE SCM AGREEMENT (CONT.)

2.2. ACTIONABLE SUBSIDIES – SERIOUS PREJUDICE:

• One of the kinds of adverse trade effects contemplated by

the SCM Agreement is "serious prejudice to the interests of a
[…] Member" caused by another Member's subsidies, which
includes both present serious prejudice and threat of serious
prejudice.
• The Agreement contains provisions on a number of particular
forms of serious prejudice, the first two of which are based on the
concept of "displacement or impedance" of trade flows.
 CATEGORIES OF SUBSIDIES UNDER
THE SCM AGREEMENT (CONT.)

2.3. ACTIONABLE SUBSIDIES - INJURY :

• Another basis for action under the actionable subsidies provisions

is "injury", which has the same meaning as for countervailing duty
investigations.
• That is, this refers to material injury or threat of material injury to
the domestic industry producing the product that is "like" the
subsidized product imported into the territory of the complaining
Member, or to material retardation of the establishment of a
domestic industry producing that product.
 CATEGORIES OF SUBSIDIES UNDER
THE SCM AGREEMENT (CONT.)

2.4. ACTIONABLE SUBSIDIES - NULLIFICATION OR

IMPAIRMENT OF BENEFITS:
• The final kind of adverse effect provided for in the SCM
Agreement is nullification or impairment of benefits accruing
directly or indirectly to other Members under GATT 1994, in
particular under multilateral tariff bindings.
• This provision reflects the reality that under certain
circumstances, a subsidy provided within the territory of a
Member may directly undercut the market-opening concessions
that Member has negotiated with its WTO trading partners.
 REFERENCE:

1. Detailed Presentation of Subsidies and Countervailing Measures in

the WTO, WTO E-LEARNING COPYRIGHT © (12), My Course series,
URL:
https://ecampus.wto.org/admin/files/Course_385/Module_1594/M
oduleDocuments/SCM-L2-R1-E.pdf
2. Introduction to Subsidies and Countervailing Measures in the WTO,
WTO E-LEARNING COPYRIGHT © (12), My Course series,
URL:
https://ecampus.wto.org/admin/files/Course_385/Module_1593/M
oduleDocuments/SCM-L1-R1-E.pdf
THANKS TO ALL