Industrial Subsidies

The WTO Agreement on Subsidies and Countervailing Measures (also known as the Subsidies Agreement or the SCM Agreement) establishes multilateral disciplines on the use of subsidies and provides mechanisms for challenging government measures that contravene these rules.

These disciplines are enforceable through binding WTO dispute settlement, which specifies strict time lines for bringing an offending practice into conformity with the pertinent obligation. The remedies in such circumstances can include the withdrawal or modification of a subsidy, or the elimination of a subsidy’s adverse effects.

In addition, the Subsidies Agreement sets forth rules and procedures to govern the application of anti-subsidy or countervailing duty (CVD) measures by WTO Members with respect to subsidized imports.

The Subsidies Agreement nominally divides subsidy practices into three classes: prohibited (red light) subsidies; permitted yet actionable (yellow light) subsidies; and permitted non-actionable (green light) subsidies. Export subsidies and import substitution subsidies are prohibited.

All other subsidies are permitted, but are actionable (through national CVD actions or WTO dispute settlement action) if they are (i) “specific”, i.e., limited to a firm, industry or group of industries; and, (ii) found to cause adverse trade effects, such as material injury to a domestic industry or serious prejudice to the trade interests of another WTO Member. With the expiration of the Agreement’s transitional provisions on green light subsidies, the only non-actionable subsidies are those that are not specific, as described above.