Download - Presentation on Subsidy
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 1/42
Subsidies Agreement :Subsidies Agreement :Countervailing DutyCountervailing Duty
PerspectivePerspective
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 2/42
Approach to subsidisation Approach to subsidisation- - ASCM ASCM
DisciplinesDisciplines onon flexibilityflexibility toto subsidizesubsidize CalibratedCalibrated approachapproach to to disciplinesdisciplines
againstagainst subsidisationsubsidisation
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 3/42
CategorisationCategorisationProhibited SubsidyProhibited Subsidy ± ± Art. 3Art. 3Actionable subsidiesActionable subsidies
NonNon--actionable subsidiesactionable subsidies
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 4/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 5/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 6/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 7/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 8/42
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 ..
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 9/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 10/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 11/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 12/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 13/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 14/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 15/42
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. .
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 16/42
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. .
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 17/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 18/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 19/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 20/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 21/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 22/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 23/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 24/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 25/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 26/42
Allocation Vs. Expense Table Allocation Vs. Expense Table Distribution of the tableDistribution of the table General discussionGeneral discussion
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 27/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 28/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 29/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 30/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 31/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 32/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 33/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 34/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 35/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 36/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 37/42
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
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 38/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 39/42
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 40/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 41/42
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.
8/3/2019 Presentation on Subsidy
http://slidepdf.com/reader/full/presentation-on-subsidy 42/42
TH ANK YOUTH ANK YOU