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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY
VISAKHAPATNAM, A.P., INDIA
PROJECT TITLE
Analysis on Susi!i"s an! Coun#"$%ailin& M"asu$"s un!"$ WTO
SU'JECT
In#"$na#ional T$a!" La(
NAME O) THE )ACULTYM$. Sau$a* Soo!
Na+" o #*" Can!i!a#"
A-*il K$is*nan
Roll No. S"+"s#"$
/01201/
VI SEM
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DECLARATION
I hereby declare that the project work entitled “Analysis on Sbsidies and Conter!ailin"
#easres nder $TO% sb#itted to the Da#odara# Sanji!ayya National Law &ni!ersity'
(isakhapatna# is a record o) an ori"inal work done by #e and is #y own e))ort and that no
part has been pla"iari*ed withot citations+ &nder the "idance o) Sir Sarabh Sood and this
project work has not per)or#ed the basis )or the award o) any De"ree or diplo#a, associate
ship,)ellowship and si#ilar project+
Akhil -rishnan
Roll code. /01201/
3th se#ester
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CERTI4ICATE
The project entitled “Analysis on Sbsidies and Conter!ailin" #easres nder $TO 5
sb#itted to the Da#odara# Sanji!ayya National Law &ni!ersity' (i*a" )or International
Trade Law as part o) internal assess#ent is #y ori"inal work carried ot nder the "idance
o) 6r+ Sarabh Sood+ The research work has not been sb#itted elsewhere )or award o) any
pblication or de"ree+ The #aterial borrowed )ro# other sorces and incorporated in the
work has been dly acknowled"ed+
Akhil -rishnan
Roll code. /01201/
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Acknowledgement
I wold like to e7press #y special appreciation and thanks to #y ad!isor 8ro)essor Sarabh
Sood sir' yo ha!e been a tre#endos #entor )or #e+ I wold like to thank yo )or
encora"in" #y research' ad!ice )or the research has been priceless+ I ha!e taken e))orts in
this project+ 9owe!er' it wold not ha!e been possible withot the kind spport and help o)
#any indi!idals and or"ani*ations+ I wold like to e7tend #y sincere thanks to all o) the#+
I a# hi"hly indebted to press in)or#ation brea )or their "idance and constant sper!ision
as well as )or pro!idin" necessary in)or#ation re"ardin" the project and also )or their spport
in co#pletin" the project+
I wold like to e7press #y "ratitde towards #y parents and #e#ber o) ni!ersity )or their
co.operation and encora"e#ent which help #e in co#pletion o) this project+
6y thanks and appreciations also "o to #y )aclty in de!elopin" the project and people who
ha!e willin"ly helped #e ot with their abilities+
Akhil -rishnan
Roll code. /01201/
3th se#ester
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Abstract:
Analysis on Sbsidies and Conter!ailin" #easres nder $TO
Conter!ailin" dties :C(Ds;' also known as anti.sbsidy dties' are trade i#port dties
i#posed nder $orld Trade Or"ani*ation :$TO; rles to netrali*e the ne"ati!e e))ects o)
sbsidies+ They are i#posed a)ter an in!esti"ation )inds that a )orei"n contry sbsidi*es its
e7ports' injrin" do#estic prodcers in the i#portin" contry+ Accordin" to $orld Trade
Or"ani*ation rles' a contry can lanch its own in!esti"ation and decide to char"e e7tra
dties' pro!ided sch additional dties are in accordance with the
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iterature Review: In #y projects I ha!e conslted #any book and so#e o) the articles
to enhance #y project and to "i!e a better nderstandin" o) the project and #y topicin
8ana"ariya' A+ :1a; The $TO Trade 8olicy Re!iew o) India' 1B+ It is !ery nicely
discssed abot $TO and the trade policies o) India+ And also talks abot !arios i#port and
e7port dties and sbsidies+
In + 9oda' A+ :1B;+ De!elopin" Contry in the International Tradin" Syste#' Allied
8blishers' N+ Delhi+ It is !ery nicely discssed abot the Conter!ailin" 6easres and how
it is i#posed on a particlar state+
!y"othesis: Sbsidies are pro!ided by a state to its do#estic #arket so as to boost p their
prodction and to "i!e boo# in e7port o) do#estic "ood in order to ha!e a !ery "ood
econo#y whereas $TO does the contrary thin" by applyin" conter!ailin" #easres and
stoppin" the do#estic "oods )ro# e7portin" in a better rates+
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Table of #ontents:
Declaration
Certi)icate
Acknowled"e#ent
Abstract
Objecti!e and Ai# o) the stdy
Literatre re!iew
9ypothesis
Chapter 1@ Introdction
Chapter /@ $TO A"ree#ent on Sbsidies and Conter!ailin" 6easres :SC6;
Chapter 2@ Analytics o) E7port Sbsidy and Conter!ailin" Dty
Chapter @
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$ntroduction:
The practice o) "i!in" e7port incenti!es is near ni!ersal' and India is no e7ception+
9owe!er' the e7tent and the )or# o) e7port incenti!es !ary )ro# contry to contry
dependin" on the contry?s econo#ic strctre :incldin" its )iscal strctre;' its o!erall
resorce a!ailability' its e7port potential' and the e))ecti!eness o) e7port incenti!es in
realisin" its e7port potential+ $ithin its o!erall bd"et constraint' each $TO 6e#ber contry
#st decide how best to strctre its e7port incenti!es that are consistent with the $TO rles
and at the sa#e ti#e achie!e the objecti!e o) e7port pro#otion+
Not all e7port incenti!es are re"arded as sbsidies nder the $TO A"ree#ent+ The
A"ree#ent on Sbsidies and Conter!ailin" 6easres :SC6 A"ree#ent;' )ra#ed in the #ost
recent rond' na#ely &r"ay Rond :also the lon"est rond 1B3.; "o!erns the condct
o) 6e#ber contries with respect to all sbsides+1 The SC6 A"ree#ent clearly speci)ies
what e7port incenti!es constitte a sbsidy and hence sbjected to the disciplines o) the SC6
A"ree#ent+ This A"ree#ent is a considerable i#pro!e#ent o!er the plrilateral A"ree#ent
on Sbsidies and Conter!ailin" 6easres a"reed in the Tokyo Rond :12.;+ In the
SC6 A"ree#ent' thedisciplines o!er sbsidies and conter!ailin" dties were #ade stron"er
and clearer' and the ter# “sbsidy% was clearly de)ined+
An i#portant aspect o) the crrent )ra#ework o) disciplines on sbsidies is that India
to"ether with other low.inco#e contries has been e7e#pted )ro# the prohibition on e7port
sbsidies )or non.a"ricltral prodcts+ 9owe!er' this e7e#ption does not i#ply i##nity
)ro# conter!ailin" dty procedres' shold the sbsidised prodcts case #aterial injry to
do#estic indstries in i#portin" contries+ Conse>ently' while Indian e7ports ha!e
bene)ited )ro# e7port incenti!es in so#e destinations' the i#portin" contries ha!e
conter!ailed a"ainst these incenti!es+ Indeed' so#e e7port incenti!es "i!en in India are
conter!ail able in ter#s o) the SC6 A"ree#ent+
O!er the years as tari))s ha!e been redced and certain non.tari)) barriers ha!e been re#o!ed
and as co#petition has increased' there has been increasin" tendency to se contin"ent
#easres sch as Anti D#pin"' Conter!ailin" Dty and Sa)e"ard Dty especially by the
de!eloped indstrialised contries' and #ore recently also by de!elopin" contries+ These
#easres are spposed to ad!ance “)airness% by checkin" a"ainst the “n)airness% in
international trade+ In practice' howe!er' #any 6e#ber contries are sin" these #easres
a"ainst the ad!ance#ent o) )airness+
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Conter!ailin" Dty :C(D; is i#posed to netralise the ad!erse e))ect o) e7port sbsidies on
the do#estic indstry o) i#portin" contry+ E!en tho"h the n#ber o) C(D cases that were
initiated and noti)ied drin" 1.1 :1B cases; show a decline co#pared to that in 10.
:100 cases; de to the stren"thenin" o) thesbsidies pro!isions' the n#ber o) C(D cases
is e7pected to increase in )tre+ This is partly on accont o) the )act that !olntary e7port
restraint is no lon"er per#itted and partly becase sbsidies )or research and de!elop#ent'
re"ional de!elop#ent and better en!iron#ental standards that were non.actionable earlier are
no lon"er non.conter!ailable :see &NCTAD /000;+ As on Dece#ber 21' /000' C(D
#easres were in )orce a"ainst 1/ Indian e7ports to di))erent contries+ 4rther#ore' a"ainst
Indian e7ports C(D cases ha!e been initiated drin" Fly.Dece#ber' /000+
It is not jst the n#ber o) cases or prodcts in which C(D actions ha!e been taken bt also
the #anner in which the dties ha!e been calclated that ha!e raised so#e concern in India+
4or e7a#ple' di))erent contries ha!e i#posed !aryin" le!el o) dties )or the sa#e e7tent o)
e7port sbsidisation+ This is on accont o) considerable di!er"ence in the practice o)
de!eloped contries in their interpretation o) the $TO on the conter!ailability o) e7port
incenti!e #easres+ In so#e cases or e7port incenti!es are conter!ailed a"ainst )or reasons
o) )or# rather than sbstance+ In this conte7t it is necessary to e7a#ine the $TO stats o)
e7port pro#otions #easres in India+ Sch an e7a#ination wold lead to conclsions on how best to se the present e7e#ptions that the $TO rles "i!e to India )ro# the prohibition o)
e7port sbsidies on non.a"ricltral prodcts+ =esides' there is also a need )or e7a#inin" the
e7tent to which these e7port pro#otion #easres actally a))ect e7port per)or#ance+ Sch an
analysis will also help in de!isin" e7port pro#otion sche#es that are least actionable within
the A"ree#ent and at the sa#e ti#e also pro#ote e7ports )ro# the contry+ This stdy is an
atte#pt in this direction+
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%hat is a &Subsidy'&
Altho"h the ter# 5sbsidy5 is >ite )a#iliar in econo#ics' it is rarely de)ined precisely+
O)ten it is sed synony#osly with a "o!ern#ent trans)er o) #oney to an entity in the pri!ate
sector+ On other occasions' the ter# 5sbsidy5 #ay re)er to the pro!ision o) a "ood or ser!ice
at a price below what a pri!ate entity wold otherwise ha!e to pay )or it+ On still other
occasions' it #ay re)er to !arios "o!ern#ent policies that #ay )a!orably a))ect the
co#petiti!e position o) pri!ate entities' sch as procre#ent policies or pro"ra#s to edcate
workers+ Get' it is by no #eans clear that all sch#easres are 5sbsidies5 in any #eanin")l
sense+/ ilibri# withot the presence o) "o!ern#ent+ The classic econo#ic #odels o)
"eneral co#petiti!e e>ilibri#' )or e7a#ple' are entirely decentrali*ed and e#body no
"o!ern#ent sector+2 $hen the "o!ern#ent enters the pictre thro"h ta7 and e7penditre
policies' it will alter e>ilibri# prices and otpt+ Acti!ities )or which the net retrns are
redced will be discora"ed to so#e de"ree' and those acti!ities can be said to be 5ta7ed+5
Acti!ities )or which the net retrns are enhanced will be encora"ed to a de"ree' and they
#ay be said to be 5sbsidi*ed+5
The di))iclty with this concept o) sbsidi*ation is that it is e7ceedin"ly di))iclt to apply as a
practical #atter+ The hypothetical #arket e>ilibri# withot "o!ern#ent cannot be
obser!ed' and indeed is not clear that the concept is coherent+ I#plicit in the classic "eneral
e>ilibri# #odels is a capacity )or actors to en"a"e in transactions' yet it is di))iclt to see
how sch a capacity can arise in a lar"e econo#y withot a "o!ern#ent to create property
ri"hts+ 4rther' the de!iations )ro# any bench#ark e>ilibri# that reslt )ro# "o!ern#ent
acti!ity are e7ceedin"ly co#ple7+ itencertain+
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pri!ate entities o) !arios sorts occpational health and sa)ety pro"ra#s' en!iron#ental
>ality pro"ra#s' pro"ra#s to trans)er resorces to certain disad!anta"ed "rops' and ntold
others+ 4inally' "o!ern#ent e7penditre pro"ra#s pro!ide !ast bene)its to pri!ate sector
entities in direct and indirect ways' incldin" pblic edcation' hi"hways' research and
de!elop#ent )ndin"' low cost insrance' )ire and secrity ser!ices' a le"al syste#' and on
and on+ E!en national de)ense ser!ices no dobt bene)it pri!ate )ir#s by redcin" risk and
lowerin" the cost o) capital+
A"ainst this backdrop' it is srely i#possible in practice to ascertain the 5net5 i#pact o)
"o!ern#ent on any entity accordin" to the sort o) bench#ark pt )orth abo!e+ O) necessity'
there)ore' one #st search )or other bench#arks to deter#ine when a 5sbsidy5 e7ists+
The si#plest alternati!e is to look at each "o!ern#ent pro"ra# in isolation' and to i"nore the
>estion o) whether any bene)its that it con)ers #ay be o))set by costs elsewhere+ I) a
particlar pro"ra# con)ers bene)its on a pri!ate entity' a 5sbsidy5 #ay bedeclared to e7ist
withot )rther in>iry+ Ths' )or e7a#ple' i) a )ir# recei!es a loan )ro# the "o!ern#ent at a
below.#arket rate' one #i"ht say that a 5sbsidy5 arises withot any re"ard to the !arios ta7
and re"latory brdens i#posed on the )ir#+
A second possible alternati!e is to ass#e that "enerally applicable ta7' e7penditre andre"latory policies a))ect #ost enterprises abot e>ally and ths do not con)er any net
5sbsidy+5 E>i!alently' one #i"ht ass#e that any sbsidy con)erred by "enerally applicable
pro"ra#s is ni)or# across indstries' and will be conteracted by an o))settin" #o!e#ent in
e7chan"e rates+ 8ro"ra#s o) narrow applicability that tar"et bene)its at particlar indstries'
by contrast' #i"ht be ass#ed to con)er bene)its that encora"e prodction in that indstry+
To illstrate' a "o!ern#ent #i"ht #ake an in!est#ent ta7 credit a!ailable to all indstries
that se drable "oods+ On the pre#ise that all indstries bene)it abot e>ally and that any
a))ects on international co#petiti!eness wash ot thro"h e7chan"e rates' sch a pro"ra#
#i"ht be i"nored )or prposes o) identi)yin" 5sbsidies+5 =y contrast' i) the ato#obile
indstry is the bene)iciary o) a special ta7 credit pro"ra# )or in!est#ent in ato#obile
#an)actrin"' a 5sbsidy5 #i"ht be )ond as to that indstry+
A third possible alternati!e is to )ocs on the i#pact o) "o!ern#ent on pri!ate acti!ities
relati!e to the i#pact o) other "o!ern#ents on si#ilarly sitated entities elsewhere+ In the
international conte7t' one #i"ht look )or pro"ra#s that see# to con)er particlarly lar"e
bene)its on particlar entities relati!e to the bene)its that "o!ern#ents con)er on si#ilar
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entities in other contries+ The pres#ption wold be that #ost "o!ern#ents ta7 and re"late
in ro"hly si#ilar )ashion' resltin" in si#ilar back"rond e))ects on the co#petiti!e position
o) #ost pri!ate entitiesHonly when a pro"ra# )or a particlar "rop o) pri!ate entities stands
ot as especially "eneros relati!e to sch pro"ra#s elsewhere wold a 5sbsidy5 be present+
Ths' )or e7a#ple' i) #ost "o!ern#ents pro!ide a certain ran"e o) bene)its to their )ar#ers'
those pro"ra#s #i"ht be pres#ed to cancel each other ot in international trade #ore or
less' and no 5sbsidy5 wold be )ond+ =t i) a particlar contry pro!ides indstrial
assistance to the se#icondctor indstry in a conte7t where no sch aid is pro!ided by other
"o!ern#ents' a 5sbsidy5 #i"ht be said to e7ist+
Each o) these alternati!es has ob!ios de)iciencies+ The )irst has the !irte o) si#plicity' bt
its essential )ailin" was noted abo!eHby i"norin" the o))settin" costs i#posed by
"o!ern#ent on pri!ate actors it raises a "reat dan"er that 5sbsidi*ation5 will be )ond where
a pri!ate entity has not been #eanin")lly ad!anta"ed by "o!ern#ent pro"ra#s+ Indeed'
becase so #any "o!ern#ent pro"ra#s are )nded ot o) "eneral re!enes' a narrow )ocs
on particlar "o!ern#ent e7penditre pro"ra#s withot any o))set )or #ost )or#s o) ta7ation
wold lead to the conclsion that there is ra#pant 5sbsidi*ation5 in !irtally any econo#y+
The second alternati!e is little #ore than des e7 #achina+ The insperable co#ple7ities o)
calclatin" the net i#pact o) national "o!ern#ents on do#estic indstries are a!oided by
ass#in" that "enerally applicable pro"ra#s ha!e a netral i#pact while tar"eted pro"ra#s
do not+ =t there is no reason to belie!e that this ass#ption is correct+ 6any broadly
applicable pro"ra#s ha!e widely disparate e))ects on di))erent indstries+ Consider a si#ple
e7a#ple like pblic edcationHit will lower the cost o) labor toindstries that se edcated
workers' bt it #ay increase the cost o) labor to indstries that se lower.skilled workers by
lowerin" the spply o) sch workers+ 6any si#ilar e7a#ples #i"ht be "i!en with respect to
ta7 and re"latory pro"ra#s+ And' o) corse' the >estion o) what is to be considered
5"enerally applicable5 or 5tar"eted5 is hardly strai"ht)orward+
The third alternati!e chan"es the in>iry )nda#entally' and treats 5sbsidi*ation5 as an
alteration in the co#petiti!e position o) pri!ate entities relati!e to si#ilar entities elsewhere+
This shi)t in e#phasis perhaps captres the notion that sbsidi*ation in!ol!es 5tiltin" the
playin" )ield'5 and #i"ht be de)ended on that basis+ =t it too raises di))iclt practical
proble#s+ The pres#ption that #ost "o!ern#ents ta7 and re"late si#ilarly with respect to
back"rond )actors that a))ect the co#petiti!e position o) pri!ate entities is hi"hly sspect'
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and the #ere )act that a particlar type o) pro"ra# e7ists in one contry and not another' or is
#ore "eneros in one contry than in another' is at best a weak #arker )or a pro"ra# that
shi)ts the co#petiti!e balance o!erall+
In s#' it is )ar easier to conceptali*e a 5sbsidy5 in si#ple econo#ic #odels that it is to
identi)y a sbsidy in practice+ E!en when a "o!ern#ent pro"ra# !iewed #yopically #i"ht
see# to a))ord necono#ic assistance to an indstry' sch assistance #ay in )act o))set to
other ta7 and re"latory brdens that disad!anta"e the indstry+ Any ad#inistrable rle )or
decidin" whether a particlar "o!ern#ent pro"ra# is a sbsidy or not will no dobt reslt in
serios errors o) o!er inclsion and nder inclsion )or this reason alone+ Other co#ple7ities
will be considered below+
%TO Agreement on Subsidies and #ountervailing Measures (S#M)*
E7port incenti!es play an i#portant role in encora"in" e7ports )ro# a contry+ Al#ost e!ery
contry pro!ides incenti!es to its e7porters+ 9owe!er' not all types o)
e7port incenti!es are actionable nder the SC6 A"ree#ent+ To analyse what kind o) e7port
sbsidy is actionable and what is not' a "ood nderstandin" o) the #ain pro!isions o) the
A"ree#ent is an absolte #st+ $e stdy the #ain pro!isions o) the A"ree#ent below+
The A"ree#ent on Sbsidies and Conter!ailin" 6easres :SC6 A"ree#ent; that has been
ti"htened nder the &r"ay Rond' addresses two distinct bt related isses+ These isses
relate to :A; the #ltilateral disciplines :set o) rles; on the pro!ision o) sbsidies that a
6e#ber nation #st )ollow' and :=; the conter!ailin" #easres to netralise the ad!erse
e))ect o) sbsidised i#ports+ 6ltilateral disciplines are en)orced thro"h in!ocation o) the
$TO Dispte Settle#ent 6echanis# :DS6;+ 6ore precisely' certain sbsidies are prohibited
and certain other types o) sbsidies can be challen"ed i) they case ad!erse e))ects to the
interests o) other 6e#bers+
1www+wto+or" last !isited on 1/,02,/01
http://www.wto.org/http://www.wto.org/
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Multilateral +isci"line on Subsidies:
The SC6 A"ree#ent nder $TO de)ines what constittes a sbsidy+ A #easre is de)ined to be a sbsidy i) it contains the )ollowin" three ele#ents :a; it is a )inancial contribtion :b; the
contribtion is by a "o!ern#ent or any pblic body within the territory o) a 6e#ber and :c;
the contribtion con)ers a bene)it+/
A )inancial contribtion cold take the )or# o) direct trans)ers or o) inco#e or price spport+
Direct trans)ers cold take the )or# o) "rants' loans' and e>ity in)sion or cold also be in
the potential sense when "o!ern#ent pro!ides )or loan "arantees+ ali)y as sbsidy+ 9owe!er' e7cess o) re#ission or drawback is considered to be a
)inancial contribtion' and as we shall see later' is also considered a sbsidy+ The A"ree#ent
cate"orically #entions@
“Jthe e7e#ption o) an e7ported prodct )ro# dties or ta7es borne by the like prodct when
destined )or do#estic cons#ption' or the re#ission o) sch dties or ta7es in a#onts not in
e7cess o) those which ha!e accred' shall not be dee#ed to be a sbsidy+%
A )inancial contribtion by itsel) does not necessarily constitte a sbsidy+ The )inancial
contribtion #st con)er bene)it to the recipient+O)ten' it is not easy to deter#ine whether a
)inancial contribtion con)ers a bene)it as the A"ree#ent pro!ides only a partial "ide to
whether a bene)it is to be considered with re)erence to a co##ercial bench#ark or with
re)erence to the cost to the "o!ern#ent+ In the conte7t o) conter!ailin" dties' the
2=aldwin' R+E+ :1;+ I#posin" 6ltilateral Discipline on Ad#inistrated 8rotection' Chapter 11 inThe $TO as an International Or"ani*ation' edited by Anne -re"er' O7)ord &ni!ersity 8ress+
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A"ree#ent #entions that the bene)it is to be assessed with re)erence to co##ercial
bench#arks+
A "o!ern#ent pro!ision o) e>ity capital is considered a bene)it i) an in!est#ent decision is
considered inconsistent with the sal in!est#ent practice o) pri!ate in!estors+ Si#ilarly' a
"o!ern#ent loan or a loan "arantee is considered a bene)it i) the a#ont a )ir# actally pays
is less than the a#ont that the )ir# wold ha!e paidi) the sa#e )acility were to be a!ailed on
a co##ercial basis )ro# the #arket+ 8ri#e )acie all "o!ern#ent )inancial contribtions
wold see# to con)er so#e bene)it to its recipient+ $hat cold be an e7a#ple where
"o!ern#ent )inancial contribtion does not con)er any bene)it to the recipientK ity capital' )or e7a#ple' does not con)er any bene)it i) the decision #ade is
consistent with the sal in!est#ent practice o) pri!ate in!estor in the territory o) that
6e#ber+
E!en i) a #easre is shown to be a sbsidy' it cannot be sbjected to SC6 A"ree#ent
disciplines nless it is pro!ided speci)ically to an enterprise or indstry or "rop o)
enterprises or indstries+ Sbsidies that are pro!ided speci)ically to an enterprise distort the
allocation o) resorces within an econo#y+ On the contrary' sbsidies that are widely
a!ailable are pres#ed to be non.distortionary+ Ths sbsidies that are speci)ic alone are
sbjected to the SC6 A"ree#ent disciplines+
Speci)icity has been de)ined in ter#s o) an enterprise' indstry' "eo"raphical re"ion'
prohibited sbsidies :that )a!or e7ports o!er do#estic sales;' and where a sbsidy is
altho"h non.speci)ic bt there are o!erridin" reasons to belie!e the sbsidy to be speci)ic+
9owe!er' sche#es where objecti!e criteria or conditions are laid down "o!ernin" the
eli"ibility )or a sbsidy' speci)icity is dee#ed not to e7ist+
#ountervailing Measures:
Conter!ailin" #easres are a nilateral re#edy applied by a 6e#ber only a)ter
in!esti"atin" the case in accordance with the criteria laid down in the SC6 A"ree#ent+ To be
able to i#pose conter!ailin" dty the 6e#ber contry #st establish the )ollowin" three
sbstanti!e aspects@ :a; that the i#ports are sbsidised :b; that an injry is cased to the
do#estic indstry and :c; that there e7ists a casal link between the sbsidised i#ports and
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the injry+ There is well laid ot procedre to be )ollowed in the condct o) conter!ailin"
in!esti"ations and the i#position o) conter!ailin" #easres+ 4ailre to respect either the
sbstanti!e or procedral re>ire#ents can be taken to dispte settle#ent and can )or# the
basis )or the in!alidation o) the #easre+
All conter!ailin" dties nor#ally ha!e a li)e o) not #ore than years+ I) there is a chan"e in
the e7tent o) sbsidy or in the injry to do#estic indstry' a case can be #ade )or the re!iew
o) C(Ds within reasonable period o) ti#e+ I) no re!iew takes place within )i!e years all
C(Ds #st ato#atically ter#inate' and any case )or the i#position o) C(Ds has to be #ade
a)resh
Special and Di))erential Treat#ent :SDT; with respect to C(Ds@
De!elopin" contry 6e#bers whose e7ports are sbject to conter!ailin" dty in!esti"ations
are "i!en special and pre)erential treat#ent+ An in!esti"ation re"ardin" a prodct ori"inatin"
in a de!elopin" contry 6e#ber are i##ediately ter#inated i)@
:a; The sbsidy le!el does not e7ceed the#ini## le!el which is / or 2 per cent instead o)
1 per cent' as is the case with the de!eloped contry 6e#ber+ 4or Anne7 (II 6e#bers' o) which India is one' the #ini## le!el is 2 per cent
:b; The !ol#e o) sbsidised e7ports represents less than per cent o) the total i#ports o) the
like prodct in the i#portin" 6e#ber contry' nless i#ports )ro# de!elopin" contry
6e#bers' whose indi!idal shares o) total i#ports represent less than per cent' collecti!ely
accont )or #ore than per cent o) total i#ports o) the like prodct in the i#portin" 6e#ber+
A >estion that asserts itsel) here is what does this SDT with respect to both sbsidies
discipline and C(Ds translates in ter#s o) bene)its "i!en to de!elopin" contries+ So lon" as
the sbsidised e7ports )ro# de!elopin" contries are s#all in the sense o) the share o)
sbsidised e7ports in total world e7ports o) the prodct :i+e+' the e7port prodct is not
internationally co#petiti!e; not e7ceedin" certain #ini## percenta"e' de!elopin" contries
can contine "i!in" e7port sbsidies+ 9owe!er' no action can be taken a"ainst sbsidised
e7ports so lon" as the sbsidy is below de #ini#is le!el :both in !ale and !ol#e ter#s;+ I)
the sbsidy is hi"her than the de #ini#is li#it not all sbsidised e7ports #ay lead to injry to
do#estic indstry o) the i#portin" 6e#ber contry+ Since de#onstration o) injry is needed
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)or the i#position o) C(Ds' where there is no injry no C(Ds can be i#posed a"ainst
sbsidised e7ports )ro# de!elopin" contries+ 4rther#ore' e!en i) there is injry :)ro#
e7ports sbsidised beyond de #ini#is le!el; not all contries #ay be keen on initiatin" the
action+ In all sch cases de!elopin" contries #ay bene)it on accont o) SDT
,-"ort Subsidy and #ountervailing +uty:
E7port incenti!es' as opposed to the incenti!es )or prodction )or do#estic #arket' are those
that e7plicitly link pay#ents to e7port trade+ Incenti!es or sbsidies that are "i!en to all
do#estic prodcers :and not jst to e7porters; are considered to be less trade distortionary
than those "i!en speci)ically to e7porters+ All e7port sbsidies can broadly be classi)ied in
two "rops@ pre :non.netral; and co#pensatory :netral; e7port sbsidies+ 8re sbsidies
are #eant to "i!e e7porters an ad!anta"e o!er co#petitors in the international #arket
whereas co#pensatory sbsidies are #eant to netralise "o!ern#ent.i#posed handicaps+ 4or
e7a#ple' pro!idin" credit to e7porters at lower than #arket rate is a pre sbsidy whereas
dty re)nd or drawback by the "o!ern#ent to e7porters is in the natre o) co#pensatory
sbsidy+ Co#pensatory sbsidy is "i!en to re#o!e the doble incidence o) ta7 on e7port
prodcts+
Se!eral ar"#ents are "i!en in de)ence o) pre sbsidies )ro# a de!elopin" contry
perspecti!e+ 4or e7a#ple' it is well know that #any de!elopin" contries ha!e anti.e7port
bias in the )or# o) hi"her i#port tari))s' o!er!aled e7chan"ed rates' and lack o) easy access
to i#ported inpts )or #an)actre o) e7ports+ All these #easres tend to #ake do#estic
#arket #ore attracti!e than e7port #arket to do#estic prodcers+ E7port sbsidy is
considered a #echanis# )or netralisin" this bias+ =esides a call )or re#o!in" anti.e7port
bias' e7port sbsidy is also jsti)ied on "ronds o) in)ant indstry+ An indstry is considered
in)ant when there e7ists tre#endos scope )or learnin".by.doin"' #akin" it !iable in the lon"
rn and,or when there are considerable spillo!er e))ects whose bene)its cannot be internalised
by the indstry+ Relati!ely recent jsti)ication )or sch sbsidy co#es )ro# achie!in" e7port
e7pansion and di!ersi)ication that helps a contry cope better with e7ternal trade shocks+
9owe!er' these jsti)ications ha!e so"ht to be rejected on both theoretical and e#pirical
"ronds by the proponents o) )ree trade who do not deny the e7istence o) distortions in
de!elopin" econo#ies bt )a!or re#o!in" o) these distortions per se rather than #iti"atin"
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their e))ects thro"h sbsidies :see 8ana"ariya 1b;+ 9owe!er' those who )a!or sbsidy
rote' belie!e that the do#estic distortions created o!er a lon" period o) ti#e cannot be
re#o!ed so soon+ Till sch ti#e' they ar"e that de!elopin" contries be allowed to se
e7port sbsidies )or #iti"atin" the ad!erse e))ect o) distortions+
E7port sbsidies are "i!en on the belie) that sch sbsidies help in e7port pro#otion+ These
sbsidies take se!eral )or#s+ 6ost o)ten the e))ect o) e7port sbsidies are e7pected to work
thro"h price channel+ As we saw in the pre!ios section' e7port sbsidies are now sbject to
the discipline o) SC6 A"ree#ent+ Accordin"ly' e7port sbsidies are either prohibited or
in!ite conter!ailin" dties i) they case ad!erse e))ects to the interest o) other 6e#ber
contries
.O$ ,-"ort romotion Measures:
Like #any "o!ern#ents elsewhere'
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Another way cold be in ter#s o) location o) nits i+e+incenti!es to e7portin" nits inside or
otside do#estic tari)) area+ In this paper we adopt the )or#er classi)ication i+e+' by a"ency
pro!idin" e7port incenti!es+
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#onclusion:
E7cept )or the local content :or i#port sbstittion; sbsidy' de!elopin" contries like India
ha!e been e7e#pted )ro# the prohibition on e7port sbsidy' which #eans that India can
contine "i!in" e7port sbsidies+ 9owe!er' e7e#ption )ro# prohibited sbsides does not
accord i##nity )ro# the conter!ailin" dty actions i) the sbsidised e7ports ad!ersely
a))ects do#estic indstry o) the i#portin" 6e#ber contries+ In this paper we e7a#ine the
stats o) !arios e7port pro#otion sche#es o) "o!ern#ent o) India :
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)inally to help e7ports where we ha!e potential co#parati!e ad!anta"e' particlarly since
e7chan"e rate depreciation is politically npalatable+ Indeed' India needs to restrctre its
e7port incenti!es+
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0ibliogra"hy:
1+ C&TS :1;+ Sbsidies and Conter!ailin" 6easres' C&TS =rie)in" 8aper+
/+ 9ajra' S+ :1;+ India?s 4orei"n Trade 8olicy Re"i#e@ Non.Tari)) Isses and $TO
Nor#s' R=I Occasional 8apers' (ol+ /0' No+ 1' S##er' 1+
2+ 9oda' A :/000;+ Sbsidies and Conter!ailin" 6easres@ A
