Definition of a subsidy The World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures addresses issues related to subsidisation of goods and spells out the actions countries may take to counter the effects of subsidies.

A subsidy is deemed to exist if there is a financial contribution by a Government or any public body within the territory of a member, conferring a benefit to the enterprise, industry or group of enterprises or industries.

The financial contribution relates to the following:

(i) a direct transfer of funds, e.g. grant, bonus, equity infusion;

(ii) Government revenue forgone or not collected that is otherwise due e.g. fiscal incentives such as tax credits;

(iii) Government provision of goods or services to a firm on terms and conditions more favourable than are available under prevailing market conditions; and

(iv) any form of income or price support.

The WTO Agreement only applies to specific subsidies i.e. subsidies available only to an enterprise, industry, group of industries or group of enterprises in the country that provides the subsidy.

Type of subsidies

The Agreement defines two categories of subsidies i.e. prohibited and actionable subsidies. It used to have a third category i.e. non-actionable subsidies but this has not been done away with.

Prohibited subsidies are those subsidies that require beneficiaries to meet certain export targets or to use domestic instead of imported goods. They are prohibited because they distort trade and therefore likely to adversely affect other members trade.

Prohibited subsidies can be challenged through the multilateral track or through the unilateral track (these tracks are elaborated below).

Actionable subsidies are not prohibited but are subject to challenge, either through the multilateral track or through the unilateral track, in the event that they cause or threaten to cause adverse effects to the interests of another member.

The two tracks

A country that faces negative effects of subsidies has two options it can apply to counter the effects of the subsidies. It can use the multilateral track, i.e. the WTO 's dispute settlement procedure to seek the withdrawal of the subsidy (or the removal of its adverse effects) or the unilateral track whereby it can also launch its own investigations and impose countervailing duty on subsidised products that are found to be hurting domestic producers.

The multilateral track involves use of multilateral disciplines/rules to determine whether or not a subsidy may be provided by a member.

It is enforced through invocation of WTO dispute mechanism. Certain subsidies are prohibited and all other specific subsidies may be challenged if they cause adverse effects to the interests of other members.

If the Dispute Settlement Body rules that the subsidy does have an adverse effect, then the subsidy must be withdrawn or its adverse effect must be removed.

The unilateral track is where a country launches its own investigations and can then impose countervailing duties if the subsidised imports are causing material injury to the domestic industry.

Zimbabwe has in place the Competition (Anti-dumping and Countervailing Duty) (Investigation) Regulations, 2002, which it can use to launch investigations on subsidies under the unilateral track option.

There are in-depth investigation procedures, which are similar to those under the Anti-dumping Agreement. A failure to respect these rules can be taken to the dispute settlement body and may lead the invalidation of a measure.

The Competition and Tariff Commission is responsible for carrying out these investigations and make appropriate recommendations to Government i.e. whether or not to impose a countervailing duty.

Like under dumping, concepts such as initiation of investigations, determination of injury, definition of domestic industry, provisional measures, undertakings, definitive duty, duration of measures and dispute settlement mechanism also to subsidisation as indicated hereunder:

Initiation and investigation

An investigation to determine the existence, degree and effect of any subsidy is initiated upon a written application by or on behalf of the domestic industry.

Upon receipt of such an application, the Competition and Tariff Commission reviews the accuracy and adequacy of the evidence provided in the application to determine whether the evidence is sufficient to justify the initiation of an investigation.

Interested members/parties in a countervailing duty investigation are given ample opportunity to present evidence orally through public hearings and in writing as well. Confidential information provided by the parties to the investigation is treated in a confidential manner.

In the investigations, it must be determined that a subsidy exists, there is material injury to the domestic industry and a demonstration of the causal relationship between the subsidised imports and the alleged injury i.e. the subsidised imports are causing the injury to the domestic industry.

In determining injury to the domestic industry as a result of the subsidised imports, there is an evaluation of all relevant economic factors having a bearing on the state of the industry, including actual or potential decline in output, sales, market share, profits, productivity, return on investments, capacity utilisation employment, etc.

Provisional and definitive measures

Provisional measures are imposed if a preliminary affirmative determination has been made that a subsidy exists and that there is injury to a domestic industry caused by the subsidised imports.

The measures are necessary to prevent the injury being caused during the substantive investigations. They take the form of provisional countervailing duties and last up to a maximum of four months.

Definitive countervailing duty is determined after the full-scale investigations and is equal to the subsidy or an amount, which is sufficient to remove the injury.

The definitive duty should be terminated on a date not later than five years from its imposition unless the Commission determines, in a review initiated before that date on their own initiative or at the request of the affected industry, that the expiry of the duty would likely lead to the continuation or recurrence of injury.

Undertakings

Instead of the application of countervailing duties, voluntary undertakings may be can be considered under which the Government of the exporting member agrees to eliminate or limit the subsidy or the exporter agrees to revise its prices so that the injurious effect of the subsidy is eliminated.

Judicial review

Judicial review involves the review of administrative actions relating to final determinations in Countervailing investigations. This is done to ensure that the investigation procedures in the Subsidies agreement and the domestic legislation have been followed.

This is done by relevant judicial, arbitral or administrative tribunals of importing country. These tribunals have to be independent of the authorities responsible for conducting the countervailing proceedings.

Dispute settlement

The WTO Dispute Settlement mechanism provides a forum for members including Zimbabwe to challenge other members prohibited or actionable subsidies, as well as the application by other members of countervailing measures.

The Herald (Harare)

11 April 2008

Harare

 Source: allafrica.com