Types of specificity

Enterprise-specificity: for a particular enterprise

Industry-specificity: for a particular sector or sectors

Regional-specificity: for producers in specified parts of a territory

Elements for adverse effect:

- material injury or threat of material injury (clearly foreseeable and imminent injury)

- nullification or impairment of benefits under GATT 1994 when the improved access to a market is undercut by subsidization in that market (see relevant sections concerning DSM)

- serious prejudice to the interests of another Member, or the threat of serious prejudice

Any one of the above three elements will be enough to get the action initiated.

Factors relevant to injury:

- volume of the subsidized imports: whether there has been a significant increase either in absolute terms or relative to production or consumption in the importing country

- the effect of the subsidized imports on the prices of like products in the domestic market: whether there has been significant price undercutting, depression or suppression, i.e., prevention of price increase which would have occurred in the absence of the subsidized imports

- the consequent impact of the imports on the domestic producers of these products, such as decline in output, sales or market share, profits, productivity, return on investments, cash flow, inventories, employment, wages, etc..

Criteria for serious prejudice.

Serious prejudice is considered to exist if at least one of the following conditions is fulfilled.

The subsidy displaces or impedes the import of a like product of another Member into the market of the subsidizing Member. In this case, the subsidy is given by an importing Member, and the adverse effect is on an exporting Member.

The subsidy displaces or impedes the export of a like product of another exporting Member in a third country market. In this case, the subsidy is given by an exporting Member, and the adverse effect is on another exporting Member sharing a common export market.

The subsidy results in significant price undercutting, significant price suppression (a situation in which prices are prevented from rising though normally they would have risen) or price depression (lowering of prices), or lost sales in a market. In this case, the subsidy is given by an exporting Member, and the adverse effect is on the importing Member in its market; or the subsidy is given by an importing Member, and the adverse effect is on an exporting Member in the market of the importing Member; or the subsidy is given by an exporting Member, and the adverse effect is on another exporting Member in a third country market.

The subsidy on a particular primary product or commodity results in an increase in the world market share of the subsidizing Member in that product or commodity as compared to the average share it had during the previous three years, and the increase follows a consistent trend over the period in which the subsidy has been granted.

Example of serious prejudice.

The Panel on European Community-Refunds on Exports of Sugar-Complaint by Brazil (Nov. 1980) considered the quantity of European Community sugar made available for export with maximum refunds and also the fact that the funds for export refunds did not have a limit. It concluded that the manner of application of the system of granting export refunds contributed to depress sugar prices in the world market, and this constituted a serious prejudice to Brazil.

Clarification of some terms.

Domestic industry: the whole of the domestic producers of the like products, or at least those of them whose collective output of the products constitutes a major proportion (normally more than half) of the total domestic production of those products, excluding related producers

If there are isolated markets for products in question in a country, the examination of injury can be conducted in relation to only the industry located in a specific isolated region, i.e., regional industry, not to the total or majority of the domestic producers.

Industry in a unified market of a customs union must be taken to be the domestic industry.

Like products: products identical, i.e., alike in all respects, to the product under consideration, or in the absence of such products, products which have characteristics closely resembling those of the product under consideration, even though they are not totally alike in all respects

The decision regarding the like product is important because it is the basis of determining which companies constitute the domestic industry, and that determination in turn governs the scope of the investigation and determination of injury and causal link.

For example: The Panel on US-Definition of Industry Concerning Wine and Grape Products (April 1992), examined whether wines and grapes were like products. It concluded that they were not because these two products had different physical characteristics and the production of grapes and the production of wine were two separate groups of industries in the US.

Remedies.

For prohibited and actionable subsidies, two types of remedy are possible, i.e., remedy through the dispute settlement mechanism at a multilateral level and remedy by imposing countervailing duty at a unilateral level. The route of countervailing duty can be taken only if material injury or a threat of material injury exists.

Countervailing Measures are usually duties imposed by the importing country to offset the effect of the subsidy on the product in question. They are a unilateral remedy, but may only be applied by a Member after an investigation by that Member and a determination that the criteria set forth in the SCM Agreement are satisfied.

Criteria: subsidized imports or the existence of a prohibited or actionable subsidy, injury to a domestic industry, a causal link between the subsidized imports and the injury