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IHow to Deal with

Countervailing Duty Cases in the Future?

Professor Kiyoun SOHN

University of Incheon

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Contents

I. Key provisions of WTO ASCM

II. Specificity III. Calculation of the amount

of a subsidyIV. Lesser Duty Rule

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I. Key provisions of WTO ASCM

1. Elements of a countervailable subsidy

- a financial contribution by a gov’t - a benefit - specific

2. Issues - no clear-cut definition of ‘a benefit’ - ASCM Article 14 - Canada-Aircraft Appellate Body

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Key provisions of WTO ASCM

3. Types of subsidies - Prohibited subsidies - Actionable subsidies4. Two track remedies - WTO dispute settlement body - Countervailing duty

investigations

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II. Specificity

1. Definition (de jure specificity) - explicitly limits access to a subsidy to an enterprise or industry or group of

enterprises or industries2. Exceptions - eligibility: objective criteria or

conditions - number of employees or size of enterprise (e.g. subsidies for SMEs)

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Specificity

3. de facto specificity (1) Use by a limited number of

certain enterprises (2) Predominant use (3) Granting disproportionately

large amounts of subsidy (4) Exercise of discretion in granting decision

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Specificity

4. Issues (1) Lack of definition of key terms regarding de facto specificity (2) Lack of rules on how to apply the factors in determining de facto specificity (3) a need for objective and reasonable criteria for de facto specificity

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Specificity: practices

5. US Practices (Sec 771(5A)(iii). SAA) - USDOC accords different weights to particular factors, depending on the nature of cases - USDOC shall find de factor specificity if one or more of the factors exists. - It accords the least significance to

the factor of exercising discretion.

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Specificity

6. EU practices - EC Regulation No 2026/97,

Article 3.2(c) - Provides the four factors

without specifying how to apply those

factors

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Specificity

7. Suggestions - Determination of “disproportionately

large amount” by comparing the complained industry’s share in the economy (normally, GNP or GDP) with its share in the total subsidy granted.

- Problem: The investigating authorities do not take into account whether or not the government exercised discretion.

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Specificity

It appears that the authorities treat the exporting country as a planned

economy. - Two-step approach (i) Step 1: examine whether one of the first factors applies to the case in question (ii) Step 2: whether or not the government exercised discretion.

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Specificity

- A need to develop guidelines for applying the factors regarding de

facto specificity. - They shall include reasonable and objective definitions of and criteria

for key terms such as ‘predominant use’ and ‘disproportionately large’.

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III. Calculation of a subsidy

ASCM Article 14 “Calculation of the amount of a subsidy in

terms

of the benefit to the recipient” - Government provision of equity

capital - Government loan - Government loan guarantee - Provision of goods or services or purchase of goods by a government

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Calculation of a subsidy

Issues: appropriate benchmark

<Art 14 of ASCM> (i) Equity infusion: “the usual investment practice of private investors in the territory of the exporting country” Q: short term or long term investment? Q: wide variation in attitudes to risk?

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Calculation of a subsidy

(ii) Gov’t loan: “a comparable commercial loan which the firm could actually obtain on the market” Q: The interest rate depends upon a wide variety of factors such term, the loan amount, the bank’s marketing

strategies and economy-wide factors. Average interest rate? How to calculate

it?

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Calculation of a subsidy

(iii) Gov’t loan guarantee: “a comparable commercial loan absent the gov’t guarantee” - Unlike (ii), there is no specification on the type of ‘a comparable commercial loan’ - In practice, compare the fees of

gov’t and private guarantees

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Calculation of a subsidy

(iv) Provision of goods or services or purchase of goods by a government: “The adequacy of remuneration shall be determined in relation to prevailing market conditions…in the country” Q: What factors to be considered? Q: How to figure out “prevailing” conditions? adequate remuneration?

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Calculation of a subsidy

Q: How to treat subsidies regarding provision of services by gov’t for

less than adequate remuneration? - How to harmonize this provision

with Article XV of the General Agreement on Trade in Services (GATS)?

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IV. Lesser Duty

ASCM Article 19.2 - “It is desirable that the

(countervailing) duty should be less than the total amount of the subsidy if such lesser duty would be adequate to remove the injury to the domestic industry.”

- Under DDA negotiations, WTO Members have discussed whether the lesser duty rule shall be optional or mandatory.

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Lesser Duty

Article 18.1(b) (Undertakings) - “It is desirable that the price

increase be less than the amount of the subsidy if such increases would be adequate to remove the injury to the domestic industry.”

Provisional measures - No lesser duty rule

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Lesser Duty: practices

U.S.: no lesser duty rule

EU: mandatory - Para 20 of Preamble of No 2026/97 - Provisional measures (Art 12.1) - Definitive CVDs (Art 15.1) - Undertakings (Art 13.1(b)) - Calculate the Injury margin

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Lesser Duty: practices

Two methods - Undercutting method (EU) - Underselling method

Q: How to figure out the appropriate injury

margin?Q: Factors to be taken into account in calculation of ‘non-injurious price’?