SCM Agreement Research Articles

Legal Implications of U.S. CVD on Tires and Undervalued Currency in the WTO's SCM

Purpose - This paper examines whether the imposition of countervailing duties by the United States on undervalued foreign currency is legally consistent with the WTO's SCM Agreement.
 Design/methodology - The study uses a methodology that involves analyzing relevant WTO agree- ments, prior panel reports, Appellate Body decisions, and other legal documents.
 Findings - The findings suggest that to impose countervailing duties, certain legal requirements must be met, including financial contribution, benefit, and specificity. The paper also notes that when calculating the benefits of undervalued foreign currency, losses from import activities due to currency undervaluation must be considered. Additionally, classifying all exports to the US under specific industries or business groups is likely to be inconsistent with the SCM Agreement.
 Originality/value - Even the US countervailing measures on exchange rate subsidies may not comply with WTO regulations due to incorrect calculation of benefits and a lack of specificity, however, it suggests that when intervening in the foreign exchange market, the measures should aim to achieve only minimum policy goals.

Tackling Cross-Border Subsidies in the EU: The Need to Build on a Promising Start Part 1

In two recent rulings regarding anti-subsidy duties on imports from Egypt, the EU General Court confirmed that cross-border subsidies can be countervailed under the Basic Anti-Subsidy (AS) Regulation. According to the General Court, Belt and Road subsidies granted by China to subsidiaries of Chinese state-owned companies outside China can legitimately be attributed to the government of third countries through application of international law principles. This article looks at the General Court’s findings and the implications for further AS investigations against crossborder subsidies. Cross-border subsidies, General Court, Basic AS Regulation, Belt and Road Initiative, countervailing duties, SCM Agreement, ILC Articles

The EU’s new Foreign Subsidy Regulation on collision course with the WTO

The European Union (EU) has become increasingly concerned about government-dominated economies that provide financing for companies engaging in commercial activities in the EU. The concern is that companies receiving these so-called foreign subsides gain an unfair advantage over their European competitors. With astonishing unity and speed, the EU, therefore, has created an ambitious piece of legislation, Regulation 2022/2560, commonly referred to as the Foreign Subsidies Regulation (FSR).The FSR allows the European Commission (EC) to take unilateral action against foreign subsidies that are presumed to distort the internal market. The EU’s plan represents a far-reaching change in the EU’s foreign trade policy and creates a field of tension with the World Trade Organization (WTO). Whilst there is legal uncertainty about the scope of theWTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), some of the practices now regulated by the FSR most likely fall under the SCMAgreement which was incorporated into EU law by Regulation 2016/1037 (Anti-Subsidy Regulation).The FSR provides for a conflict rule establishing the supremacy of WTO law in such situations. However, considering the EU legislator’s interpretation of the SCM Agreement, there are considerable doubts as to whether this mechanism will effectively prevent the EC from taking unilateral action in an area that is actually subject to WTO law. In the area of overlaps, the FSR may, therefore, violate the supremacy of WTO law which would lead to the illegality of the FSR. This article addresses this risk and provides an outlook on how the EU could ensureWTO compliance by not applying the FSR if the regulated practice also falls under the SCM Agreement. Subsidy, Foreign Subsidies Regulation, Agreement on Subsidies and Countervailing Measures, SCM Agreement, Anti-Subsidy Regulation, WTO Legality, Foreign Direct Investment, 301 US Trade Act 1974

Green Industrial Policy Conflict with WTO Rules and Implications for Emerging Economics: From the Perspective of New Energy Vehicles (NEVs)

Purpose – The purpose of this paper is to analyze the green contradiction between China’s NEVs subsidy policies and WTO rules. It proposes resolutions for China and South Korea from the perspective of GATT Article 20 and the US New Climate Bill. Design/Methodology/Approach – Based on the investigation of NEVs in the market, this paper finds that relevant effective subsidy measures can promote China’s NEVs development. Moreover, through case study and literature, this paper also analyzes the compliance of China’s NEVs subsidy measures under the SCM Agreement. Finally, it puts forward relevant implications for the NEVs development of China and South Korea. Findings – This paper studies credit preference, financing support and LCRs, which may be determined to be prohibited subsidies and production subsidies, Tax incentives and price support may be determined to be actionable subsidies. Subsidies for specific NEV enterprises or regions may be deemed to de jure or de facto specific subsidies with disordering global trade order. Research Implications – This study has far-reaching significance in promoting the reform of WTO related- subsidy regulations and formulating a special RE subsidy agreement under the multilateral trade system, which will resolve the conflicts of the environmental and energy trade under the background of low-carbon energy transition.

Article: Are There ‘Exceptions’ to the SCM Agreement? Applicability of the GATT Exceptions Vis-à-Vis the International Rules on Subsidies

The Agreement on Subsidies and Countervailing Measures (‘SCM Agreement’) regulates the use of subsidies by Members of the World Trade Organization (‘WTO’) to prevent distortions of international trade. With the rise of new types of subsidies, however, the subsidies disciplines in the SCM Agreement are considered to be insufficient. More and more WTO Members invoke exceptions as demanded by the geopolitical imperatives to justify their measures, but the SCM Agreement itself does not contain any exceptions that remain effective as of today. The WTO’s general rules on subsidy can be found not only in the SCM Agreement but also in the General Agreement on Tariffs and Trade (‘GATT’). The exceptions set forth in Articles XX and XXI of the GATT (collectively, ‘GATT Exceptions’) can justify any breach of the GATT. The question would thus be: whether and to what extent the GATT Exceptions can justify a breach of the SCM Agreement. After briefly introducing debates over the applicability of the GATT Exceptions to the SCM Agreement, this paper observes the interpretative relationship between the GATT and the SCM Agreement. Thereafter, this paper proposes certain interpretative rules on the application of the GATT Exceptions vis-à-vis the SCM Agreement.

China-US Currency Subsidy Dispute from WTO Perspective: Review and Response

Since the new countervailing regulations came into effect, the U.S. Department of Commerce has conducted various countervailing investigations on Chinese enterprises for undervalued currency. This paper analyzes the core legal issues of undervalued currency subsidies, determines whether the exchange rate is undervalued and determines the elements and specificity of subsidies according to the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the WTO dispute settlement judicial mechanism, and proposes countermeasures in the face of the U.S. Department of Commerce's investigation.

International Regulation of Industrial Subsidy

ABSTRACT Subsidies are frequently used by states as an instrument of industrial policy for promoting economic growth, and are a major reason for international trade frictions. Existing industrial subsidy rules, especially the Agreement on Subsidies and Countervailing Measures (SCM Agreement), appear insufficient for effective international subsidy regulation. Subsidy rules reform has been initiated in and outside the World Trade Organization (WTO). Though subsidies are not a China-specific issue, China is an implied target and a major stakeholder of the reform, given the profound impact of its state-led economy. The reform faces a difficult situation: states are tempted to use subsidies to meet various challenges, whereas multilateral efforts in the WTO seem unpromising due to the different positions of world leading economies, and plurilateral efforts led by the trilateral group also face an unclear prospect of multilateralization. Improving international subsidy regulation calls for both rule-making efforts and political consensus and international cooperation, especially from world leading economies.

Bringing Trade and Environmental Norms Together: The Case of the WTO Fisheries Subsidies Negotiations

Abstract Protecting the environment is not a new topic in international trade law. The growing environmental impacts of globalization have made protecting the environment an increasingly pressing issue. In fisheries subsidies negotiations since 2001, WTO members have attempted to introduce environmental norms into the existing trade law framework. After examining the draft text and the Fisheries Subsidies Agreement, this article finds it difficult and inappropriate to assess and regulate purely environmental issues through the lens of trade agreements, particularly the SCM Agreement. The draft text and the Agreement reveal conflicts with the basic concepts, principles, and framework of WTO law and do not ensure effective conservation of fisheries stocks. Based on these findings, this article argues that, as much as the conservation of fish stocks is imperative, it should be done in a manner consistent with the basic framework of international law and international trade law.

Re-exploration of the Dual Attributes of Environmental Protection and International Trade in Electricity Price Subsidies for Biomass Power Generation: A Chinese Perspective

Biomass power generation is an important utilization method of renewable energy, and its electricity price subsidy has dual attributes: environmental protection and international trade. For the sustainable development of human society and for the country to compete for the right to develop, subsidies are necessary. To make up for the costs caused by externalities, subsidies have their legitimacy, which constitutes the environmental protection attribute of subsidies. Under the WTO legal framework, electricity price subsidies may constitute subsidies, prohibited subsidies, and actionable subsidies under the SCM Agreement, which is a concrete manifestation of its international trade attribute. It is difficult to have the best of both worlds in environmental protection and international trade. To reconcile the contradiction between the two, we should seek both inward and outward solutions: internally, strengthen policy compliance, promote the healthy development of the industry, and realize marketization as soon as possible; externally, seek institutional support at the level of international law, and set exemptions for environmental subsidies through multilateral negotiations, ministerial meetings, etc. It is necessary to seize the opportunity of energy transformation, including biomass power generation, as soon as possible with the encouragement of the “Two Carbon-related” Goals.

On the Practice and Dispute of the Rules for Determining the Specificity of Exchange Rate Subsidies in the United States

The U.S. Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings proposed in 2020 incorporated currency exchange rate undervaluation to the subsidy program and clarify the concept of a "group" of enterprises in the subsidy specificity. The exchange rate undervaluation, if needed to be regulated or prohibited, must be subsidy-specific. The Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings generalizes the concept of a "group" of enterprises to facilitate a de facto specificity determination for exchange rate subsidies. The application of this rule has been found in the exchange rate subsidy investigations initiated by the U.S. in the past two years, making it more difficult for the investigated country to defend itself. However, the rules of specifying the U.S. exchange rate subsidies are not compatible with the SCM Agreement under the WTO framework. In this regard, China can actively defend against the inconsistency between the rules of the U.S. exchange rate subsidies and the SCM Agreement, enhance the transparency of the relevant exchange rate policies and exchange rate operations, pay attention to procedural participation, and improve the skills of responding to the lawsuit.

Leveling the Playing Field: Industrial Policy and Export-Contingent Subsidies in India–Export Related Measures

AbstractIn India–Export Related Measures, the United States challenged a range of Indian measures as prohibited export-contingent subsidies, and a WTO panel largely agreed. This article examines the factors at play in the United States’ decision to bring the challenge. At the level of policy, the United States case reflects India's graduation from the protections afforded developing nations’ export-contingent subsidies under the Agreement on Subsidies and Countervailing Measures. A closer examination, however, shows that India ramped up its export-contingent subsidies just as the SCM Agreement required it to wind those subsidies down. Moreover, the expanded Indian subsidies led to increased import competition with the politically influential metals and pharmaceutical sectors in the United States, which pushed the US challenge. We reflect on the larger implications of the challenge for the future of trade rules on industrial policy. In particular, we note that the United States pursued a trade enforcement policy that would have the effect of increasing pharmaceutical prices in the United States, by reducing subsidies for imported generic drugs, at a time when the Trump administration allegedly was trying to reduce the price of prescription drugs. This disconnect suggests the need for both greater transparency in trade policy and greater governmental coordination on the connection between trade policy and other policy priorities.

Nihil novi sub sole:The Need for Rethinking WTO and Green Subsidies in Light ofUnited States – Renewable Energy

AbstractUS–Renewable Energyis the last in a series of WTO disputes involving subsidies schemes with local content requirements. Local content requirements (LCRs) are highly discriminatory and trade distortive instruments and therefore all cases concerning green energy have been found to violate WTO law. However, recent jurisprudence has developed a different definition of prohibited LCRs under the GATT and the SCM agreement, the latter allowing for some leeway to define origin of products under a government subsidy scheme. Depending how the subsidy scheme is framed, it will be able to be excused from the GATT's more stringent prohibition of LCRs, this raises question of consistency in the application of the LCRs prohibition. Moreover, we review a simple and robust approach that modern welfare economics suggests for framing discussions of subsidy policy. We apply this approach to the case of renewable energy subsidies and discuss some complexities with respect to local content requirements. In conclusion, this allows us to critically assess and review proposals to increase coherence between WTO subsidy policy and green energy promotion policies and submit proposals to achieve better suited WTO subsidy rules.

Special Economic Zones and Free Trade Enclaves: A Troubled Existence After India: Export Related Measures (Panel) Ruling?

Special Economic Zones (SEZs) and Free Trade Zones (FTZs) are special trade or manufacturing enclaves within the territory of a State governed by a different set of laws and regulations than the rest of its territory. They form an essential part of the economic development, trade, and investment policy of several developed countries as well as emerging economies. In 2018, the United States challenged, among other measures, certain incentives which India had provided to SEZs, Export Oriented Units, Biotechnology and Electronics and Hardware Parks (EOU/EHTP/BTP) under India’s Foreign Trade Policy. These incentives were challenged as prohibited export subsidies under the Agreement on Subsidies and Countervailing Measures (SCM Agreement). While the Panel found against India, some of the issues adjudicated in the Panel report have implications for SEZs, FTZs and other similar entities located in such special enclaves. This article seeks to examine some of the key implications of this dispute on the functioning of deemed foreign trade zones within the territorial bounds of a WTO member. Of particular focus is, how WTO Members can implement the SEZs or other Trade Zones without inviting adverse outcomes. In addition, the article examines the contentious issue of the operation of the phase-out period for export subsidies under Article 27.2 of the SCM Agreement, which is of particular importance to a number of developing countries. Special Economic Zones, WTO, SCM Agreement, United States, India, fiscal incentives, revenue foregone, Footnote 1, Article 27, Annex VII, developing countries, cross-border zones

One Stone, Two Birds: Can China Leverage WTO Accession to Build the BRI?

The efficacy of the World Trade Organization (WTO), as an international forum seeking to provide a uniform platform to Member States for bilateral and multilateral negotiations and further the spirit of a new international economic legal order, is challenged constantly. This article explains how China is using the WTO accession process to leverage its domestic interests towards the Belt & Road Initiative (BRI) to obtain greater commitments from existing and potential BRI nations. It is shown that after the BRI’s official establishment in 2013, China’s trade commitments from potential accession countries are becoming more pronounced, with increasing and sometimes onerous expectations of the acceding countries, due to the lack of any standard format for bilateral accession protocols. WTO law is increasingly part of BRI hard law governance practices, suggesting encroachment of BRI disputes within the WTO dispute settlement framework to establish a novel approach to dispute resolution. Since rules-based trade practices are needed, Member States should not adopt accession protocols that are either too rigid or too flexible, thereby creating glaring loopholes to be misused. WTO’s overall objective of furthering trade liberalization can be achieved only by keeping track of techniques adopted by developed countries when negotiating with developing and least developed countries such that potential members are not discouraged from joining the new economic order from the outset. BRI, Belt and Road Initiative, WTO, accession, SCM agreement, subsidies, services, telecommunications, trade-related investment measures, LDC Guidelines

WTO 보조금 협정상 ‘적절한 대응조치’의 법적 판단기준

이 논문의 목적은 WTO 보조금 협정상 ‘적절한 대응조치’의 법적 판단기준을 재검토하는 것이다. 다자적 분쟁해결을 도모하는 WTO 분쟁해결제도에서도 판정의 불이행이 지속되면 양자적 성격의 대응조치가 취해진다. 보조금 협정상 적절한 대응조치는 보조금 협정 제4.10조에서 규율하며, 그 구체적 수준은 DSU 제22.6조의 중재인들이 결정한다. 초기 DSU 제22.6조 중재에서는 적절한 대응조치의 법적 판단기준으로 보조금가액을 선택하였다. 보조금가액에 기초하여 일차적으로 대응조치 수준을 산정한 후, 금지보조금의 철폐라는 분쟁의 목적과 구체적 상황을 고려하여 대응조치 수준을 조정하였다.<BR> 그런데 이러한 보조금가액 기준은 여러 가지 문제를 노정해왔다. 특히 무역효과나 국내산업 피해를 기초로 하는 조치가능보조금이나 DSU의 통상적 보복조치와 비교할 때, 금지보조금의 경우만 보조금가액에 기초하여 대응조치를 결정하는 것이 과연 적절하고 효과적인지 의문이 제기되었다. 이 논문에서는 국제법상 대응조치와 관련하여 국제법위원회의 논의와 국제법원 판례에서 확인된 비례성 원칙을 검토하였다. 그리고 금지보조금 관련 적절한 대응조치 결정에 비례성 원칙이 어떻게 도입되어야 하는지를 살펴보았다. 보조금 협정상 대응조치의 법적 판단기준을 재검토함으로써 향후 분쟁해결제도 개선 논의를 살펴보는 데에도 의미 있는 기여를 할 수 있으리라 기대한다.

Subsidies and Countervailing Measures: Challenges in International Trade Law

In the global era with all demands and expectations for a better economic condition in a country that an international trade is needed. Fair competition can be carried out in competition between business actors and commodity (goods or services) in overseas with business actors and commodity (goods or services) in country. One form of creating justice in international trade competition is by providing subsidies. The issue of subsidies created the problems and disputes. The problem formulations of this research were: (1) how are the effects of subsidies and countervailing in international trade regulations? (2) how is the case analysis related to subsidies and countervailing measures according to the provisions of the GATT 1994, The SCM Agreement and other legal provisions? The results showed that (1) the effect of subsidies and countervailing measures based on their types (red light, yellow light, green light) in international trade regulations had provided clear provisions as well as the impact and limitations in implementing these provisions in accordance with the provisions. GATT 1994 and The SCM Agreement. (2) The several cases described regarding subsidies that were not allowed because they created injustice that the subsidies were only carried out in an emergency situation and their nature rescued them from an economic crisis.

Nihil novi sub sole. The need for rethinking WTO and green subsidies in light of United States – Renewable Energy

US-Renewable Energy is the last in a series of WTO disputes involving subsidies schemes with local content requirements. Local content requirements (LCRs) are highly discriminatory and trade distortive instruments and therefore all cases concerning green energy have been found to violate WTO law. However, recent jurisprudence has developed a different definition of prohibited LCRs under the GATT and the SCM agreement, the latter allowing for some leeway to define origin of products under a government subsidy scheme. Depending how the subsidy scheme is framed, it will be able to be excused from the GATT’s more stringent prohibition of LCRs, this raises question of consistency in the application of the LCRs prohibition. Moreover, we review a simple and robust approach that modern welfare economics suggests for framing discussions of subsidy policy. We apply this approach to the case of renewable energy subsidies and discuss some complexities with respect to local content requirements. In conclusion, this allows us to critically assess and review proposals to increase coherence between WTO subsidy policy and green energy promotion policies and submit proposals to achieve better suited WTO subsidy rules.

Subsidy and its effects

Governments follow a subsidy policy to encourage the use of certain goods by some consumers. Subsidy can be explained as also that firms-producers sell the determined goods at a cheaper price than the market price and subsidizing government collects the difference. They are tools which are widely used in the hands of governments and can be allocated to various economic issues. In general, it is used as a policy of price policy and anti-inflationary policy in the classical sense. In the modern sense, it used for the purpose of general equilibrium, in other words, to equalize trade balance such as lowering prices and controlling inflation, preventing the long-term decline of industries. However, there are many significant negative effects of subsidies such as increase in taxes, leading to inefficiency of local industries, increase in borrowing, and disruption of identity between buyer and vendor prices in markets. One of rules set on subsidies is SCM Agreement. In the Agreement, subsidies were identified and rules were set on subsidies which could impact international trade. Since there are many types of subsidies, there should be more strict rules and policies about their implementation in order to eliminate and avoid potential barriers in international trade.

Leveling the Playing Field: Industrial Policy and Export-Contingent Subsidies in India-Export Measures

In India-Export Measures, the United States challenged a range of Indian measures as prohibited export- contingent subsidies, and a WTO panel largely agreed. This article examines the factors at play in the United States’ decision to bring the challenge. At the level of policy, the United States case reflects India’s graduation from the protections afforded developing nations’ export-contingent subsidies under the Agreement on Subsidies and Countervailing Measures. A closer examination, however, shows that India ramped up its export-contingent subsidies just as the SCM Agreement required it to wind those subsidies down. Moreover, the expanded Indian subsidies led to increased import competition with the politically influential metals and pharmaceutical sectors in the United States, which pushed the U.S. challenge. We reflect on the larger implications of the challenge for the future of trade rules on industrial policy. In particular, we note that the United States pursued a trade enforcement policy that would have the effect of increasing pharmaceutical prices in the United States, by reducing subsidies for imported generic drugs, at a time at which the Trump administration allegedly was trying to reduce the price of prescription drugs. This disconnect suggests the need for both greater transparency in trade policy and greater governmental coordination on the connection between trade policy and other policy priorities.

US–China Trade War An Impetus for New Norms on Technology Transfer

This article argues that the trade dispute between United States (US) and China should be an impetus for new rules and norms regarding technology transfer at the World Trade Organization (WTO). Technology transfer is a desirable outcome under WTO rules, including the Trade-Related Intellectual property Rights Agreement. However, Trade-Related Aspects of Intellectual Property Rights (TRIPs) have failed to effectively promote and facilitate technology transfer. The problem lies in the nature of the intellectual property rights that TRIPs are intended to protect and enforce. Though necessary, by conferring exclusive rights to its holder, intellectual property rights have the unintended consequences of inhibiting competition and technology transfer. Furthermore, it may impede the transfer of technology from developed countries to developing countries where firms often lack the capacity to further innovate the technology it has acquired. This article proposes new norms at the WTO, in particular the TRIPs and SCM Agreement, to improve its efficacy in promoting and facilitating technology transfer.