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(c) Kiyoun Sohn, 2008 1
IHow to Deal with
Countervailing Duty Cases in the Future?
Professor Kiyoun SOHN
University of Incheon
(c) Kiyoun Sohn, 2008 2
Contents
I. Key provisions of WTO ASCM
II. Specificity III. Calculation of the amount
of a subsidyIV. Lesser Duty Rule
(c) Kiyoun Sohn, 2008 3
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
(c) Kiyoun Sohn, 2008 4
Key provisions of WTO ASCM
3. Types of subsidies - Prohibited subsidies - Actionable subsidies4. Two track remedies - WTO dispute settlement body - Countervailing duty
investigations
(c) Kiyoun Sohn, 2008 5
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)
(c) Kiyoun Sohn, 2008 6
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
(c) Kiyoun Sohn, 2008 7
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
(c) Kiyoun Sohn, 2008 8
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.
(c) Kiyoun Sohn, 2008 9
Specificity
6. EU practices - EC Regulation No 2026/97,
Article 3.2(c) - Provides the four factors
without specifying how to apply those
factors
(c) Kiyoun Sohn, 2008 10
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.
(c) Kiyoun Sohn, 2008 11
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.
(c) Kiyoun Sohn, 2008 12
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’.
(c) Kiyoun Sohn, 2008 13
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
(c) Kiyoun Sohn, 2008 14
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?
(c) Kiyoun Sohn, 2008 15
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?
(c) Kiyoun Sohn, 2008 16
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
(c) Kiyoun Sohn, 2008 17
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?
(c) Kiyoun Sohn, 2008 18
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)?
(c) Kiyoun Sohn, 2008 19
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.
(c) Kiyoun Sohn, 2008 20
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
(c) Kiyoun Sohn, 2008 21
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
(c) Kiyoun Sohn, 2008 22
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’?