Presentation on Subsidy

8/3/2019 Presentation on Subsidy

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Subsidies Agreement :Subsidies Agreement :Countervailing DutyCountervailing Duty

PerspectivePerspective



Approach to subsidisation Approach to subsidisation- - ASCM ASCM

DisciplinesDisciplines onon flexibilityflexibility toto subsidizesubsidize CalibratedCalibrated approachapproach to to disciplinesdisciplines

againstagainst subsidisationsubsidisation



CategorisationCategorisationProhibited SubsidyProhibited Subsidy ± ± Art. 3Art. 3Actionable subsidiesActionable subsidies

NonNon--actionable subsidiesactionable subsidies



Actionable subsidy Actionable subsidy

Specific subsidies causing adverse effectsSpecific subsidies causing adverse effects(injury, serious prejudice, nullification and(injury, serious prejudice, nullification andimpairment) are actionableimpairment) are actionable

Action and DSU panel process in all casesAction and DSU panel process in all casesand through countervailing dutyand through countervailing dutyinvestigation for importsinvestigation for imports

Remedy is removal of adverse effects of Remedy is removal of adverse effects of the subsidy or imposition of countervailingthe subsidy or imposition of countervailingduty on importsduty on imports



N onN on--actionable subsidyactionable subsidy NoNo actionaction cancan bebe takentaken againstagainst subsidiessubsidies thatthat areare

nonnon--specificspecific - - determineddetermined on on thethe basisbasis of of EligibilityEligibility basedbased onon objectiveobjective criteriacriteria oror conditionsconditionsEligibilityEligibility automatic,automatic, criteriacriteria strictlystrictly adheredadhered to toCriteriaCriteria areare neutral,neutral, economiceconomic in in naturenature andandhorizontalhorizontal in in applicationapplicationNoNo predominantpredominant use use byby certaincertain enterprisesenterprises

UpUp toto 19991999 specificspecific givengiven forfor RR &D,&D, assistanceassistance to todisadvantageddisadvantaged regionsregions andand forfor environmentalenvironmentalpurposespurposes werewere nonnon--actionableactionable. . NowNow lapsedlapsed



S&D ProvisionsS&D Provisions F lexibilities for Annex VII countriesF lexibilities for Annex VII countries

including Indiaincluding India ExportExport subsidiessubsidies notnot prohibitedprohibited (Art(Art

2727..22(a))(a)) subjectsubject to to reachingreaching exportexportcompetitivenesscompetitiveness

Enhanced subsidy margin of 3% andEnhanced subsidy margin of 3% and

volume of subsidized imports of 4% /volume of subsidized imports of 4% /9% not subject to countervailing9% not subject to countervailingdutiesduties



W hat is relevant for CountervailingW hat is relevant for Countervailingduty Investigationduty Investigation

Definition of subsidyDefinition of subsidy Understanding specificityUnderstanding specificity Quantification of the subsidyQuantification of the subsidy Calculation of the dutyCalculation of the duty Injury and CausalityInjury and Causality



W hen Does Subsidy ExistW hen Does Subsidy Exist- - Art 1 Art 1

Financial contributionFinancial contributionDirect / potential direct transfer of fundsDirect / potential direct transfer of fundsRevenueRevenue otherwiseotherwise duedue foregoneforegone

ProvisionProvision of of goodsgoods oror servicesservices ± ± excludingexcludinggeneralgeneral infrastructureinfrastructureEntrustmentEntrustment by by GovernmentGovernment of of aboveabovefunctionsfunctions

O r Income / price support O r Income / price support AND AND

Benefit thereby conferred Benefit thereby conferred ..



F ootnote 1F ootnote 1- - Important exemptionImportant exemption

Exemption of an exported productExemption of an exported product F romF rom dutiesduties oror taxestaxes borneborne byby aa likelike

productproduct destineddestined forfor domesticdomesticconsumptionconsumption

NotNot deemeddeemed a a subsidysubsidy



Specific SubsidiesSpecific Subsidies Article 1.2 provides that a subsidy shall beArticle 1.2 provides that a subsidy shall be

countervailable only if such a subsidy is specificcountervailable only if such a subsidy is specific Criteria for specificityCriteria for specificity

Prohibited subsidiesProhibited subsidiesEnterprise specificityEnterprise specificityIndustry specificityIndustry specificityRegional specificityRegional specificity

Two broad categories in Article 2Two broad categories in Article 2

De jureDe jure specific subsidiesspecific subsidiesDeDe--factofacto specific subsidiesspecific subsidies



Specific SubsidiesSpecific Subsidies ± ± dede--jure jure A subsidy is deA subsidy is de- -jure specific if jure specific if

Access to the subsidyAccess to the subsidy explicitlyexplicitly limited tolimited tocertain enterprises. If access is limitedcertain enterprises. If access is limitedbased on objective criteria then it wouldbased on objective criteria then it wouldnot be a specific subsidynot be a specific subsidyProhibited subsidies are deemed specificProhibited subsidies are deemed specific

To be determined with reference to theTo be determined with reference to the jurisdiction of the granting authority. jurisdiction of the granting authority.



D eD e--factofacto Specificity [2.1(c)]Specificity [2.1(c)] Notwithstanding any appearance of nonNotwithstanding any appearance of non- -

specificity, the subsidy mayspecificity, the subsidy may in fact in fact bebespecific. F ollowing factors may bespecific. F ollowing factors may be

consideredconsideredUse by a limited number of enterprisesUse by a limited number of enterprisesPredominant use by certain enterprisesPredominant use by certain enterprisesGranting of disproportionately largeGranting of disproportionately largeamounts to certain enterprisesamounts to certain enterprisesManner in which discretion has beenManner in which discretion has beenexercised.exercised.



Prohibited SubsidiesProhibited Subsidies

L ocal content subsidiesL ocal content subsidies

Export subsidiesExport subsidies- - Illustrative Illustrative L ist inL ist inAnnex IAnnex I Remedy through DSURemedy through DSU

DefaultingDefaulting membermember requiredrequired to tow ithdra w w ithdra w thethe subsidy subsidy oror facefacecountercounter- - measuresmeasures



CertainCertain ExceptionsExceptions fromfrom ProhibitionProhibition inin Annex Annex II Exemption or remission of indirect taxes on exportExemption or remission of indirect taxes on export

productsproducts RED of prior stage cumulative indirect taxes onRED of prior stage cumulative indirect taxes on

inputsinputs usedused in production of the exported productin production of the exported productprovided this does not exceed corresponding REDprovided this does not exceed corresponding REDon inputs used in the production of domesticallyon inputs used in the production of domesticallysold like productssold like products ± ± item (h)item (h)

RED on prior stage cumulative indirect taxes onRED on prior stage cumulative indirect taxes oninputsinputs consumed in production of the exportedconsumed in production of the exported

product. To be interpreted in accordance withproduct. To be interpreted in accordance withguidelines in Annex IIguidelines in Annex II ± ± item (h)item (h) Remission or drawback of import charges onRemission or drawback of import charges on

imported inputsimported inputs consumedconsumed in the production of thein the production of theexported product. Substitution drawback schemesexported product. Substitution drawback schemes

are permitted in accordance with guidelines inare permitted in accordance with guidelines inAnnex IIIAnnex III ± ± item iitem i



Conditions for RED of CumulativeConditions for RED of CumulativeIndirect TaxesIndirect Taxes

InputsInputs mustmust havehave beenbeen consumedconsumed in inthethe productionproduction processprocessPhysically incorporated inputsPhysically incorporated inputsEnergy, fuel, oil and catalystsEnergy, fuel, oil and catalysts

ThereThere mustmust bebe aa reasonablereasonable andand

effectiveeffective verificationverification systemsystem in in placeplace totoconfirmconfirm whichwhich inputsinputs areare consumedconsumedandand inin whatwhat amountsamounts. .



Substitution Drawback SchemesSubstitution Drawback Schemes H omeH ome marketmarket inputsinputs of of samesame qualityquality

andand characteristicscharacteristics as as importedimportedproductproduct areare usedused inin thethe productionproductionprocessprocess..

CorrespondingCorresponding importsimports areare mademadesubsequentlysubsequently

TheThe totaltotal periodperiod betweenbetween exportexport andandimportimport isis notnot moremore thanthan 22 yearsyears. .



Countervailing Duty InvestigationCountervailing Duty Investigation Provisions are in Articles 10Provisions are in Articles 10- -23 of 23 of

the Subsidies Agreementthe Subsidies Agreement Basics are similar to those in antiBasics are similar to those in anti- -

dumping investigation.dumping investigation. H owever, preH owever, pre- -initiation consultationsinitiation consultations

with the exporting country providedwith the exporting country provided

for in Article 9for in Article 9 Govt. of the exporting countryGovt. of the exporting countryactively involvedactively involved



InvestigationInvestigation - - Main RequirementsMain Requirements

Establishing specificity of theEstablishing specificity of thesubsidiessubsidiesCalculating amount of subsidy perCalculating amount of subsidy perunit during the POIunit during the POIEstablishing injury and causality dueEstablishing injury and causality dueto subsidised importsto subsidised imports



Calculation of the Amount of Calculation of the Amount of SubsidySubsidy

Two broad approachesTwo broad approachesCost to the governmentCost to the government

Benefit to the recipientBenefit to the recipient Article 14 specifies that for purposesArticle 14 specifies that for purposes

of countervailing dutyof countervailing duty

Benefit to the recipient approach toBenefit to the recipient approach tobe followedbe followed



B enefit to RecipientB enefit to Recipient ± ± Article 14 Article 14 Method to calculate benefit toMethod to calculate benefit to

recipient shall be provided for inrecipient shall be provided for innational legislation or implementingnational legislation or implementingregulation.regulation.

Any such method shall be consistentAny such method shall be consistentwith the guidelines in Article 14with the guidelines in Article 14



Pass through of benefitPass through of benefit The benefit of a subsidy may pass throughThe benefit of a subsidy may pass through

from the recipient of the financialfrom the recipient of the financialcontribution to other entities.contribution to other entities.

Even if the ultimate recipient of benefitEven if the ultimate recipient of benefithas not received the financial contribution,has not received the financial contribution,a subsidy would exist if in fact some onea subsidy would exist if in fact some onehas received ithas received it

Recipient of financial contribution andRecipient of financial contribution andrecipient of benefit could be different.recipient of benefit could be different. Establish pass through beforeEstablish pass through before

countervailing indirect subsidiescountervailing indirect subsidies



Steps in Calculating the SubsidySteps in Calculating the Subsidy Calculation should reflect the amount of Calculation should reflect the amount of

subsidy found to exist during the periodsubsidy found to exist during the periodof investigation and not simply the faceof investigation and not simply the facevalue of the financial contribution.value of the financial contribution.

Check whether benefit is expensed duringCheck whether benefit is expensed duringperiod of investigation. Else allocateperiod of investigation. Else allocate

Calculate per unit subsidy (Article 19.4)Calculate per unit subsidy (Article 19.4)during the period of investigation forduring the period of investigation foreach schemeeach scheme

Arrive at the total per unit subsidy for allArrive at the total per unit subsidy for allschemes.schemes.





Three presumptions for AllocationThree presumptions for Allocation Subsidies linked to purchase of fixedSubsidies linked to purchase of fixed

assets to be allocated.assets to be allocated. R&D subsidies to be presumptivelyR&D subsidies to be presumptively

allocated except, when demonstratedallocated except, when demonstratedthat doing so is inappropriate.that doing so is inappropriate.

NonNon--recurring subsidies should berecurring subsidies should be

presumptively allocated, exceptpresumptively allocated, exceptwhen demonstrated that doing so iswhen demonstrated that doing so isinappropriate.inappropriate.



G eneral Principles for AllocationG eneral Principles for Allocation Affirmative answers to any one of theAffirmative answers to any one of the

following would normally point towardsfollowing would normally point towardsallocationallocationWhether the purpose of the subsidy wasWhether the purpose of the subsidy wasfor purchase of fixed assetsfor purchase of fixed assetsWhether nonWhether non- -recurring and / or largerecurring and / or largeWhether oriented towards futureWhether oriented towards futureproductionproductionWhether consisting of equity infusionWhether consisting of equity infusionWhether carried forward in recipientsWhether carried forward in recipientsaccounting records.accounting records.



Allocation Vs. Expense Table Allocation Vs. Expense Table Distribution of the tableDistribution of the table General discussionGeneral discussion





G rantsG rants Direct Transfer of funds :Amount receivedDirect Transfer of funds :Amount received Tax exemption: Amount of tax payable atTax exemption: Amount of tax payable at

applicable rateapplicable rate Tax reduction: Amount of tax payable atTax reduction: Amount of tax payable at

applicable rateapplicable rate ±± tax paidtax paid Accelerated depreciation: Amount of taxAccelerated depreciation: Amount of tax

payable under normal depreciation schedulepayable under normal depreciation schedule ± ±amount actually paidamount actually paid

Interest rate subsidies: Amount of interestInterest rate subsidies: Amount of interestsaved by the recipientsaved by the recipient

In all above cases add an amount for interestIn all above cases add an amount for interestduring period of investigation.during period of investigation.





LoansLoans ± ± Special CasesSpecial Cases Tax deferrals, deferral of any otherTax deferrals, deferral of any other

financial obligationsfinancial obligations ± ± treat astreat asinterest free loansinterest free loans

Reimbursable grantsReimbursable grants ± ± treat astreat asinterest free loans till reimbursedinterest free loans till reimbursed

Contingent liability loans atContingent liability loans at

preferential interest ratepreferential interest rate ± ± treat astreat asloans till determined that it wouldloans till determined that it wouldnot be repaid.not be repaid.



Loan G uaranteeLoan G uarantee[Art. 14 (c)][Art. 14 (c)]

If not guarantee paidIf not guarantee paidSubsidy= amount of interest payable forSubsidy= amount of interest payable forcomparable loan in absence of comparable loan in absence of government guaranteegovernment guarantee ± ± amount of amount of interest paid on the guaranteed loan.interest paid on the guaranteed loan.

If guarantee fee paidIf guarantee fee paidNo subsidy if fee is sufficient to enable theNo subsidy if fee is sufficient to enable theguarantee program to cover all its costsguarantee program to cover all its costsand earn a reasonable profit marginand earn a reasonable profit marginIf fee is not sufficient to enable operationIf fee is not sufficient to enable operationon a commercial basis then treat as if noon a commercial basis then treat as if noguarantee fee paid.guarantee fee paid.



Provision of G oods and ServicesProvision of G oods and Servicesby the G overnmentby the G overnment- - Art. 14(d) Art. 14(d)

Subsidy = Adequate remuneration for theSubsidy = Adequate remuneration for theproduct/service in relation to prevailing marketproduct/service in relation to prevailing marketconditions in the domestic marketconditions in the domestic market ± ± price paidprice paidby the firmby the firm

Adequacy of remunerationAdequacy of remunerationEstablish that same goods/services providedEstablish that same goods/services providedboth by government and private operationboth by government and private operationSubsidy = price charged by governmentSubsidy = price charged by government ± ± pricepricecharged by private operators for comparablecharged by private operators for comparablepurchase topurchase toi) concerned company; elsei) concerned company; elseii) comparable companies in the same sector;ii) comparable companies in the same sector;elseelseiii) in the economy as a wholeiii) in the economy as a whole





Adequacy Adequacy of of RemunerationRemuneration B enchmarksB enchmarks

Normally the prices at which the same or similar goodsNormally the prices at which the same or similar goodsare sold by private suppliers in arm¶s lengthare sold by private suppliers in arm¶s lengthtransactions in the country of provisiontransactions in the country of provision

In following situations prices other than private pricesIn following situations prices other than private pricesmay be usedmay be used

Monopoly supply by governmentMonopoly supply by governmentGovernment administratively controls the prices for theGovernment administratively controls the prices for thegoods concernedgoods concernedPrivate pricesPrivate prices are are distorteddistorted due to government¶sdue to government¶spredominant rolepredominant role as a provider of the goodsas a provider of the goods

In the above 3 situations any proxy price/constructedIn the above 3 situations any proxy price/constructedprice may be used, ensuring that it relates to theprice may be used, ensuring that it relates to theprevailing market situation in the country of provisionprevailing market situation in the country of provision



Purchase of G oods by G overnmentPurchase of G oods by G overnment Subsidy = Price paid for the like productSubsidy = Price paid for the like product

by governmentby government ± ± highest price offered forhighest price offered fora comparable purchase of the same goodsa comparable purchase of the same goods

by the private sectorby the private sector If concerned company makes noIf concerned company makes nocomparable sales to private operators,comparable sales to private operators,thenthen

Subsidy = Price paid for the like productSubsidy = Price paid for the like productby governmentby government ± ± price paid by privateprice paid by privateoperators to comparable companies in theoperators to comparable companies in thesame sector / in the economy as a wholesame sector / in the economy as a whole





G overnment Provision of EquityG overnment Provision of EquityCapitalCapital

Not a subsidy unless investment decisionNot a subsidy unless investment decisionis inconsistent with usual investmentis inconsistent with usual investmentpractice of private investors in thepractice of private investors in the

exporting country.exporting country. Subsidy = Price paid by the governmentSubsidy = Price paid by the governmentfor the sharesfor the shares ± ± normal market price fornormal market price forthe sharesthe shares

If no market is freely traded shares exists,If no market is freely traded shares exists,scrutinize governments¶ expectation of ascrutinize governments¶ expectation of areturn on price paid for equityreturn on price paid for equity







Allocation of Subsidy to per unit of Allocation of Subsidy to per unit of L ike ProductL ike Product

If export subsidies, then amountIf export subsidies, then amountattributed to POI may be divided byattributed to POI may be divided byexport volume during POIexport volume during POI

F or nonF or non- -export subsidies domesticexport subsidies domesticplus export sales in POI to be usedplus export sales in POI to be usedas denominatoras denominator

If benefit of subsidy not limited to aIf benefit of subsidy not limited to aparticular product, total recipientparticular product, total recipientsales to be used as denomenator.sales to be used as denomenator.



Deduction from Amount of subsidyDeduction from Amount of subsidy F ollowing may be deducted from amount of F ollowing may be deducted from amount of

subsidysubsidyApplication fee / other costs necessarily incurredApplication fee / other costs necessarily incurredto qualify for or obtain the subsidyto qualify for or obtain the subsidy

Must be shown that above payment compulsoryMust be shown that above payment compulsoryto receive the subsidy. Payment should be toto receive the subsidy. Payment should be togovernment.government.Payment to private parties e.g. lawyers,Payment to private parties e.g. lawyers,accountants etc. for obtaining subsidy notaccountants etc. for obtaining subsidy notdeducteddeductedExport taxes may be deducted if these continueExport taxes may be deducted if these continueto be levied at the time when duty isto be levied at the time when duty isrecommended.recommended.



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Presentation on Subsidy