Understanding WTO Subsidies Agreement (Subsidies and Countervailing Measures)

As per recent WTO ruling India will need to discontinue its subsidies provided on exports as it comes in conflict with the WTOs Subsidies and Countervailing Measures (SCM) Pact. In that context let us understand what is Subsidies and Countervailing Measures (SCM) Pact  and what led to India’s disqualification. Also we will see what are different terms associated with the same.

Subsidies and Countervailing Measures (SCM) Pact:

  • Various countries provide subsidies to the different tune so as to protect their economic interest and boost certain aspects of economy such as exports in this case.
  • It may happen that a particular country would provide subsidies in such a way that her products become cheap in international market and products from other country can not withstand such a cheap pricing.
  • As recently, China was blamed of providing exorbitant subsidies for its finished steel products which then used to flood Indian market affecting domestic producers as Chinese steel was cheaper.
  • The WTO Agreement on Subsidies and Countervailing Measures disciplines the use of subsidies, and it regulates the actions countries can take to counter the effects of subsidies.
  •  Under the agreement, a country can use the WTO’s dispute-settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects.
  • Or the country can launch its own investigation and ultimately charge extra duty (“countervailing duty”) on subsidised imports that are found to be hurting domestic producers.
  • Countervailing Duties: As said earlier that China is blamed of excessively subsidising its steel products. When such products are imported in a country, concerned country can launch an investigation to measure the extent of such excessive subsidies. When importing country finds that there exists excessive subsidies, it would be countered with extra import duty on such products to offset the effect of subsidies. Such measures are called countervailing duties.
  • The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) addresses two separate but closely related topics: multilateral disciplines regulating the provision of subsidies, and the use of countervailing measures to offset injury caused by subsidised imports.
  • Agreement provides definitions of subsidies and categorises into two as prohibited subsidies and actionable subsidies.
  • Prohibited subsidies are subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade.
  • In the case of actionable subsidies, the subsidising government must either withdraw the subsidy or remove its adverse effects.

Special and Differential treatment:

  • The WTO agreements contain special provisions which give developing countries special rights and allow other members to treat them more favourably. These are “special and differential treatment provisions” (abbreviated as S&D or SDT).
  • The special provisions include:
    • longer time periods for implementing agreements and commitments
    • measures to increase trading opportunities for these countries
    • provisions requiring all WTO members to safeguard the trade interests of developing countries
    • support to help developing countries build the infrastructure to undertake WTO work, handle disputes, and implement technical standard
    • provisions related to least-developed country (LDC) members.

India and SCM Pact:

The SCM Agreement recognises three categories of developing country Members:

  1. least-developed Members (“LDCs”),
  2. Members with a GNP per capita of less than $1000 per year which are listed in Annex VII to the SCM Agreement, and
  3. Other developing countries.
  • 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 countries have to phase out subsidies in eight years since this agreement came into existence.
  • It is this clause which has put matters of export subsidies into contention.

Indian Position: 

  • WTO notified that India had crossed the threshold mark  in 2013, 2014, 2015.
  • In 2011, India submitted a note to the WTO stating that the phase-out period for export subsidies should be eight years from the time a country crossed the threshold.
  • As other developed countries had got 8 years to phase out subsidies in 1994, and same treatment shall be available for countries which are now crossing the threshold mark.

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