Agreement on Subsidies and Countervailing Measures

The Agreement on Subsidies and Countervailing Measures elaborates the provisions relating to subsidies and countervailing measures in the General Agreement and in the Tokyo Round Code, providing greater uniformity and certainty in their implementation.

The Agreement imposes disciplines to ensure that subsidies do not adversely affect the interests of the WTO Members. There are disciplines on countervailing measures aimed at ensuring that they do not unjustifiably impede trade, and that they provide relief to producers adversely affected by subsidies. The Agreement also recognizes that subsidies may play an important role in the economic development programmes of developing countries.

The Agreement classifies developing countries into two categories.

1. The first category, found in Annex VII, comprises least-developed countries and certain other specified countries until such time as their GNP per capita reaches $1000 per annum.

2. The second category consists of all other developing countries.

The nature and extent of special and differential treatment accorded to any given developing country depends on the country classification.

The Agreement includes several novel elements. For example, it defines subsidies and the conditions under which they are to be considered as "specific" (in contrast to "general") subsidies.

Only specific subsidies are subject to the disciplines of the Agreement. These are classified in one of three ways

3. prohibited

4. actionable

5. non-actionable subsidies

Different remedies are provided for each category.

Prohibited subsidies are those granted contingent on export performance or on the use of domestic over imported products.

Non-actionable subsidies include

• subsidies which are not specific among specific subsidies, and
• subject to certain criteria specified in the Agreement -
• those granted for basic industrial and applied research
• those granted to disadvantaged regions
• those granted to promote or adapt existing facilities to new environmental requirements.

All other subsidies are actionable that is; action can be taken against them if they have adverse effects on the trade of other Members. The Agreement creates a sub-category of actionable subsidies where serious prejudice is presumed to exist, unless the subsidizing Member can demonstrate that the subsidies have not caused serious prejudice. The Agreement also provides more detail on the determination of serious prejudice caused by actionable subsidies.

Several of the provisions of the Tokyo Round Code and the GATT have been strengthened

• the calculation of certain subsidies
• the determination of injury
• the procedures for initiating and conducting the countervail investigation
• the conditions for terminating the investigation (the de minimis provisions)
• the imposition of countervail measures (provisional, definitive, and price undertaking)
• their review and duration

Other provisions in the Agreement include an expedited review for exporters not included in the initial investigation, greater detail in public notices, and domestic judicial review. The Agreement also extends the coverage of inputs for exports for which tax benefits can be provided without such benefits being classified as export subsidies.

The extensive nature of the new obligations is such that several developing countries may find it difficult to meet these obligations when taking countervailing actions and are likely to require technical assistance.

Recognition of Interests

Special and Differential Treatment of Developing Country Members: Article 27:7



During the transition period, when developing country Members are permitted to continue to use export subsidies and subsidies contingent on the use of domestic over imported goods, the relevant provision for dispute resolution is that relating to actionable subsidies (ie. Article 7), and not that relating to prohibited subsidies (ie. Article 4).

Special and Differential Treatment of Developing Countries: Article 27:8



Although the subsidies specified in Article 6:12 are in general presumed to result in serious prejudice, such a presumption will not apply in the case of developing country Members. In these cases, a finding of serious prejudice has to be based on positive evidence.

Special and Differential Treatment of Developing Countries: Article 27:9



Subsidies granted by developing country Members are actionable if they cause injury to an industry in the complainant's market, or nullify or impair other Members' benefits under GATT 1994 by displacing or impeding imports of like products into the subsidizing developing country Member's market. Serious prejudice (including displacement from third-country markets) is not actionable. These limitations on actionability do not apply to subsidies referred to in Article 6:1

Special and Differential Treatment of Developing Country Members: Article 27:10



The Agreement requires termination of a countervailing investigation where the volume of subsidized imports from a Member is negligible. Although the Agreement does not contain a general definition of "negligible", subsidized imports from developing country Members are defined as negligible if

Fewer Obligations

Special and Differential Treatment of Developing Country Members: Article 27:2 and 27:5



Annex VII countries are not subject to the prohibition on export subsidies applicable to other WTO Members. Developing country Members who are not covered by Annex VII are exempted from this prohibition for a limited period of time. The exemption from the prohibition will not apply to a product in which the developing country Member attains "export competitiveness", defined in terms of the share of its export in world trade of that product. Developing country Members in Annex VII are given a longer period than other developing country Members to phase out export subsidies on products in which export competitiveness is reached.

Implementation Period

Special and Differential Treatment of Developing Country Members: Article 27:2(b) and 27:4



Developing country Members, other than Annex VII countries, are entitled to an eight year transition period within which to phase out export subsidies before being subject to prohibition. Meanwhile, these countries are prohibited from increasing their level of export subsidies.

The Committee on request may grant extensions of the eight-year transitional period. The decision will be made in light of the economic, financial and development needs of the Member concerned. If an extension is granted, the Member has to consult annually with the Committee regarding the necessity of maintaining the export subsidies. If an extension (or further extension) of the period is not granted by the Committee, the remaining export subsidies are to be phased out within two years from the end of the last authorized period. A developing country Member, other than an Annex VII country, which requests an extension of the eight year transition period, will in any event have an additional two year period to phase out export subsidies.

Special and Differential Treatment of Developing Country Members: Article 27:3



The prohibition of the granting of subsidies on the use of domestic over imported goods does not apply to developing country Members for a period of five years and to least-developed country Members for a period of eight years.

Special and Differential Treatment of Developing Country Members: Article 27:5



A developing country Member which attains export competitiveness in a given product has to phase out export subsidies on such products:

• within eight years for Annex VII countries; and

• within two years for other developing country Members.