The Agreement on Subsidies and Countervailing Measures (SCM
Agreement) took effect with establishment of the World Trade
Organization on January 1, 1995. The General Agreement on Tariffs
and Trade allowed an importing country to impose countervailing
duties (CVD) to offset public subsidies for the manufacture,
production, or export of merchandise. The SCM Agreement establishes
disciplines for calculating subsidies and defines which subsidies
are countervailable.
While dumping is generally an action by a firm (see
Anti-Dumping), subsidization is an action by a government.
Because of this, the SCM Agreement contains disciplines on both the
subsidizing government and on the actions taken by the government
in the importing country against another government's subsidies.
The agreement defines three categories of subsidies: prohibited,
actionable, and non-actionable. The definition of prohibited or
actionable subsidies applies to domestic or export subsidies on
agricultural as well as industrial products, except when the
subsidies conform to the Agreement on Agriculture.
Prohibited and actionable subsidies can be challenged in the
WTO dispute settlement procedure. In the case of prohibited
subsidies, if the dispute settlement procedure confirms that the
subsidy is prohibited, it must be withdrawn immediately. Otherwise,
the complaining member can take appropriate countermeasures. In the
case of actionable subsidies, if the subsidy is found to result in
adverse effects to the interest of another member, the subsidizing
member must take action to remove the adverse effects of the
subsidy or withdraw it. Otherwise, the complaining member may take
countermeasures commensurate with the degree and nature of the
adverse effects.
The agreement defines three types of damage that subsidies can
cause. One country's subsidies can hurt:
- a domestic industry in an importing country,
- rival exporters from another country when the two compete in
third markets, and
- exporters trying to compete in the subsidizing country's
domestic market.
In the case of both prohibited and actionable subsidies, a CVD
can only be levied against the subsidized imports after the
importing country has conducted a detailed investigation subject to
WTO procedures. The SCM Agreement contains rules for deciding
whether a product is being subsidized, criteria for determining
whether subsidized imports are causing injury to a domestic
industry, and rules on the implementation and duration (normally 5
years) of countervailing measures. The subsidized exporter can also
agree to raise its export prices (known as a price undertaking) as
an alternative to subjecting its exports to a countervailing
duty.
Changes to the SCM Agreement aimed at clarifying and improving
disciplines are being negotiated under the auspices of the WTO Rules Negotiating Group. The Doha Ministerial Declaration affirmed that
least-developed countries and developing countries with per capita
Gross National Product below $1,000 would be allowed to use export
subsidies, normally prohibited under WTO rules, consistent with
their development needs. Subsidies with "legitimate development
goals" would be allowed and ministers agreed that during the
negotiations their governments will exercise due restraint in
challenging these subsidies under the SCM Agreement. Few developing
countries use subsidies in agriculture.
During the post-Uruguay Round period, 1995-2011, WTO countries
initiated 54 countervailing duty investigations on trade of
agricultural products. Trade in processed and prepared foods
accounted for 24 followed by trade in animals and animal products
with 13. The bulk of these investigations took place in the
first five years (1995-1999). Since then, countervailing duty
investigations have been rare in agriculture, with only four in the
last five years.
Countervailing duty investigations by product
type