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I How to Deal with Countervailing Duty Cases in the Future?. Professor Kiyoun SOHN University of Incheon. Contents. I. Key provisions of WTO ASCM II. Specificity III. Calculation of the amount of a subsidy IV. Lesser Duty Rule. I. Key provisions of WTO ASCM.

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i how to deal with countervailing duty cases in the future

IHow to Deal with Countervailing Duty Cases in the Future?

Professor Kiyoun SOHN

University of Incheon

(c) Kiyoun Sohn, 2008

contents
Contents

I. Key provisions of WTO ASCM

II. Specificity

III. Calculation of the amount of

a subsidy

IV. Lesser Duty Rule

(c) Kiyoun Sohn, 2008

i key provisions of wto ascm
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-AircraftAppellate Body

(c) Kiyoun Sohn, 2008

key provisions of wto ascm
Key provisions of WTO ASCM

3. Types of subsidies

- Prohibited subsidies

- Actionable subsidies

4. Two track remedies

- WTO dispute settlement body

- Countervailing duty investigations

(c) Kiyoun Sohn, 2008

ii specificity
II. Specificity

1. Definition (de jure specificity)

- explicitly limits access to a subsidy to

an enterprise or industry or group of enterprises or industries

2. Exceptions

- eligibility: objective criteria or conditions

- number of employees or size of

enterprise (e.g. subsidies for SMEs)

(c) Kiyoun Sohn, 2008

specificity
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

specificity7
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

specificity practices
Specificity: practices

5. USPractices (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

specificity9
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

specificity10
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

specificity11
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

specificity12
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

iii calculation of a subsidy
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

calculation of a subsidy
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

calculation of a subsidy15
Calculation of a subsidy

(ii) Gov’t loan: “a comparable commercial

loan which the firm couldactually

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

calculation of a subsidy16
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

calculation of a subsidy17
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

calculation of a subsidy18
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

iv lesser duty
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

lesser duty
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

lesser duty practices
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

lesser duty practices22
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’?

(c) Kiyoun Sohn, 2008