The subsidy regulations and vietnam’s position as a member of the wto

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Joint Swedish-Vietnamese Master’s Programme MASTER’S THESIS The Subsidy Regulations and Vietnam’s position as a Member of the WTO SUPERVISORS: Pr. Christina Moell Dr. Vu Thi Hong Minh 1 Statutory Declaration I hereby declare that the thesis has been written by myself. The thesis has been neither presented to any institution for evaluation nor previously published in its entirety or in part. Any tables and figures which are quoted from other sources have been acknowledged. Acknowledgements This thesis has been completed with the help of my supervisors: Professor Christina Moell and Doctor Vu Thi Hong Minh and of the Drafting Evaluation Council members of the Law Faculty of the University of Lund and Hanoi Law University. I would like to express my special thank to all for their supervision and help. 2 Table of Contents Statutory Declaration ................................................................................................... 2 Acknowledgements ...................................................................................................... 2 Table of Contents ......................................................................................................... 3 Abstract 4 Abbreviations ............................................................................................................... 5 Executive Summary ..................................................................................................... 6 1. Introduction.................................................................................................... 7 2. The basic understanding of the subsidy in international trade....................... 8 The subsidy regulations and coutervailing measures of the WTO and 3. Vietnam........................................................................................................ 16 Recommendations and resolutions to improve the subsidy regulations in 4. Vietnam........................................................................................................ 42 Conclusion ................................................................................................... 51 5. Table of Statutes and other Legal Instruments........................................................... 55 Table of Cases ............................................................................................................ 56 Bibliography............................................................................................................... 57 3 Abstract There are two major aspects of the subsidy issue in international trade which are usually both considered by Governments. They are the subsidy on exported commodities and the anti-subsidy which may be applied to imported commodities by the countervailing measures. Vietnam, as a new Member of the WTO, needs to study the law on subsidy and this thesis will concentrate on studying issues relating to subsidy and anti-subsidy. To assess the subsidy and anti-subsidy regulations of Vietnam and study them in connection with the subsidy and anti-subsidy regulations of the WTO seems a necessary task. The thesis consists of the three following parts: The first part covers the basic understanding of subsidies in international trade. The concept of subsidy is considered in terms of other fields, such as, linguistic, economic and political. It also considered in the light of the GATT 1994, the Subsidy Code 1979, the SCM Agreement and the AoA. Anti-subsidy in international trade is is also considered. In the second part covers the subsidy regulations and anti-subsidy of the WTO and of Vietnam. The SCM Agreement and the AoA of the WTO were used in analysing the WTO subsidy regulations and anti-subsidy; the Ordinance was used to analyse the Vietnamese regulations. In the third part we give recommendations for improving the subsidy regime of Vietnam. Based on general research on the adaptation of subsidy policies elsewhere in the World and in China in particular, suggestions for the improvement of Vietnamese policies and laws and for strengthening its implementing mechanisms are proposed. 4 Abbreviations AoA AMS ASPI CVM GATT 1994 Ordinance SCM WTO US Agreement on Agriculture Aggregate Measuremant of Support (in Agreement on Agriculture) Against Subsidy Products Imported into Vietnam Countervailing Measures General Agreement on Tariffs and Trade 1994 Ordinance on measures against subsidized products imported into Vietnam, Ordinance on ASPI 2004 Subsidy Countervailing Measure(s) World Trade Organization United State 5 Executive Summary Supporting subsidies and fighting against subsidies in international trade are usually argued for at the same time. This is because they affect international trade both positively and negatively. This thesis thus focuses on the subsidy regulations applying to both imported and exported commodities activities. It limits itself to the subsidy regulations of the WTO and of Vietnam. In addition, the thesis will make some recommendations to Vietnam in its capacity as a Member of the WTO. Certain basic research methods will be used in the thesis. They are the comparative, logical, analytical and legal research methods: The comparative method will be used in the process of research. The thesis will compare the subsidy regulations of the WTO and of Vietnam. In addition, the logical and analytical methods will be used to identify legal issues that should be taken into account. Furthermore, the legal research method will look for lessons applicable to the regulations in Vietnam. The above methods will also focus on certain issues. For example, the subsidy regulations of the WTO; the subsidy regulations and policy of Vietnam before and after its accession to the WTO. In particular,, they will be used to analyze certain subsidy disputes brought before the WTO and to make further recommendations to Vietnam. 6 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. 1. Introduction It would be very difficult to evaluate fully the effects of subsidies on international trade, as well as those of all the direct and indirect benefits that flow from subsidy policies. The majority of subsidies come from Governments and public authorities since they are used as instruments of economic and social policies. Thus, a subsidy can serve various purposes, such as, encouraging advanced technologies, assisting underdeveloped areas or protecting the environment. As an example, the operation of the steel industry and its factories may damage the environment. So, on the one hand the Governments have to control pollution and on the other hand they have to help companies purchase and install pollution abatement equipment. Developing countries tend to rationalize subsidization by linking it to the promotion of their industrial development. However, subsidies may damage international trade as they distort free competition. In international context, a subsidy gives an unfair competitive opportunity to subsidized products over the like products that have not been subsidized. The business receiving the subsidy will have advantages in competition with other businesses in the market since the price of subsidized products may be lower than the cost of non-subsidized products. In addition, a subsidy can undermine market access as it can be seen as an instrument to limit the movement of commodities in the international markets. Consequently, government subsidies lead to unfair competition in an otherwise free economic market. Nevertheless, to maintain subsidies in some situations may be necessary for the stabilization of national and international trade. In practice, international trade institutions such as the WTO allow their Members to apply subsidy measures in some certain cases, especially, subsidies may apply to sectors. For example, the subsidies would be applied to agricultural sector. 7 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. 2. The basic understanding of the subsidy in international trade 2.1 The concept of the subsidy and the evolution of the subsidy regulations in international trade 2.1.1 The concept of the subsidy in international trade The subsidy in international trade may be studied in terms of many different aspects, such as the linguistic, economic, political … From a linguistic point of view, the meaning of “subsidy” is a grant or contribution of money.1 In economic theory, based on its form and function, subsidies and taxes are opposite and equivalent: a subsidy can be considered as a negative tax and vice versa.2 According to Samuelson and Nordhaus “if taxes are used to discourage consumption of commodities, subsidies are used to encourage production…”3 The researcher Thalassorama used three criteria for defining a subsidy. They are modification of market failures, reduction of cost and enhancement of revenue. He defined a subsidy as any government program that potentially permits a business to increase its profits that would not exist without the government program. According to the experts studying subsidies to Aquaculture, a subsidy is a transfer of funds by a government in order to reduce the cost of production and increase revenue for the producer.4 The WTO defines a subsidy by way of the two criteria of “financial contribution” and “benefit”. By Article 1:1 of the Agreement on subsidies and countervailing measures of the WTO, a subsidy is deemed to exist if: “(a) (1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as “government”), i.e. where: 1 Oxford Advanced learner’s Dictionary of current English, 6th Edition, Oxford, (2000). 2 Alberto Gabriel, Subsides to service sectors: A neo – protectionist distortion or a useful development tool, (2005), p.7. 3 Samuelson and Nordhaus, economics, (2001), p.78. 4 Fisheries and Aquaculture Department, The state of world fisheries and Aquaculture, (2002), part 3. 8 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfer of funds or liabilities (e.g. loan guarantees); (ii) Government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); (iii) a government provides goods or services other than general infrastructure, or purchases goods; (iv) a government make payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; or (a)(2) there is any form of income or price support in the sense of Article XVI of GATT 1994; (b) a benefit is thereby conferred.5 Thus, the definition of a subsidy in Article 1.1 has two elements: (1) a financial contribution by the government (Article 1.1(a)) and (2) a benefit (Article 1.1(b)). However, regrettably, the Agreement does not define the term “benefit”. This means that the “action” of the government is the core of the concept of “subsidy”. The point of views above show that there are many different ways to define the term. However, the form and function criteria are considered basic. In short, a subsidy has the following characteristics: - The subsidy is a trade policy tool encourage production; - There is financial contribution by the government or other public body. - The contribution confers a benefit; - The subsidy may indirectly impact the market. 5 SCM Agreement Art.1.1 (a),(b). 9 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. 2.1.2 The evolution of the regulation of subsidies in International trade 2.1.2.1 GATT and the Charter of international trade Organisation (ITO) The first subsidy regulations were introduced at the suggestion of the ITO, and they were prepared and submitted by the United States. The document proposed to introduce distinct regimes for export subsidies and for domestic subsidies. The export subsidies were sub-divided into those applicable to primary commodities and non-primary products. While domestic subsidies were permitted, export subsidies depended on additional conditions as the resulting bi-level pricing was generally prohibited. In the agricultural sector, the latter were exceptionally permitted if not applied in a way that might lead to acquiring more than an equitable share of world trade. 6 However, the ITO Charter has not entered into force. It was only the General Agreement on Tariffs and Trade (GATT) which provided a uniform regime for all forms of subsidies. It permitted all kinds of subsidies without distinction but it was soon realized that: this regime could not survive the first amendment of the GATT. A 1955 review session did nothing but resuscitated the old two-tier classification provided in the Havana Charter (1946) between domestic subsidies and export subsidies, as well as between export subsidies on primary commodities and nonprimary products7. A separate paragraph in the form of Article XVI: 3 was devoted to the regulation of export subsidies on primary products – the category containing agricultural products. In addition, the ambiguous and controversial concepts relating to issues like “equitable share”, “representative period”, “special factors” remained, and these provisions provided a source of tension and uncertainty throughout the history of the GATT. 6 Desta, M.G, the law of International trade in agriculture products, (2002), pp. 100-104. Ibid, p. 131.. 10 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. 2.1.2.2 The 1979 Subsidy Code After the Review Session on Article XVI of the GATT in 1955 and the Declaration in 1960 on Giving Effect to the Provisions of Article XVI: 4, the next big step in subsidy rule–making emerged from the Tokyo Round. The Agreement on Interpretation and Application of Article VI, XVI and XXXIII, which is known as the Subsidy Code entered into force on January, 1st, 1980.8 The Code would be applicable to the contracting parties that signed it. More contracting parties accepted the Code than had accepted the 1960 Declaration. The Subsidy Code confirmed the prohibition of export subsidies on non-primary products. In addition, it introduced an illustrative list of export subsidies. The Code also elaborated certain rules pertaining to adverse effects and it contained special and different treatment provisions for developing country signatories. The Subsidy Code introduced more detailed rules pertaining to countervailing measures, notably in respect of procedures associated with countervailing duty investigations and standards for determining whether a subsidy was a cause or threat of material injury. 2.1.2.3 The Agreement on Subsidy and Countervailing Measures (SCM) Neither the GATT nor the Subsidies Code 1979 contained a definition of “subsidy”. However, the SCM Agreement provided such a definition and is thus considered as a landmark in comparison with the previous laws. It applies only to trade in goods. That means subsidy regulations do not apply to agriculture subsidies. According to the Articles 1 and 2 of the SCM, the concepts such as "subsidy" and "specificity" are the keys to the entire Agreement. Article 1 of the SCM Agreement states that a subsidy is deemed to exist if a financial contribution or income or price support is provided by a government, and a benefit is thereby conferred, and that such subsidy is the subject of the Agreement if it is “specific”. Article 2 contained principles for determining the following types of specificity: first, enterprise specificity; second, industry specificity; third, regional specificity. 8 2006 The Report of the WTO. 11 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. The SCM also developed definitions, concepts and methodologies relating to adverse and effects and established procedural rules for multilateral remedies and for specific existence of the application on countervailing measures. Substantively, the Agreement clarifies the market benchmarks to be used in valuing subsidies and requires that “all relevant factors” should be considered in determining whether injury is present. In particular, the rules have included the elaboration of the requirement of an investigation, the calculation of the benefits amounting from different forms of subsidization, the existence or threat of injury, and the establishment of causal links between subsidization and its effects on domestic industry. 2.1.2.4 The Agreement on Agriculture The Agreement on Agriculture (AoA) emerged from the Uruguay Round. It was the most complete attempt to frame explicit multilateral rules for agricultural trade. Separate provisions dealt with each of the three policy pillars defined in the Agreement – Market access, domestic support and export subsidy. Additionally, the WTO Agreement on Agriculture sets out a legal framework that imposes principles in the three critical areas effecting trade in agriculture under Article 9. First, the Agreement limits the use of export subsidies. Second, the Agreement sets agriculture trade on a predictable footing by requiring the elimination of non-tariff barriers, such as quotas and import bans and simple tariffs. Third, the Agreement calls for commitment to reducing trade-distorting domestic support, while preserving criteria-based “green box” policies that can provide support to agriculture in a manner that minimizes distortions to trade. Consequently, the Agreement on Agriculture was the first major international attempt to reform agriculture trade policies that have depressed and destabilized world prices and markets for many years. It limited the use of agriculture export subsidies while efforts were also made to increase market access and to reduce distorting domestic support. 2.2 Subsidy areas in international trade In international trade, subsidies are classified in many different ways. Based on the scope of application, subsidies can be divided into two main categories: export 12 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. subsidies and domestic subsidies; Based on the subjects receiving subsidies (excluding consumption subsidies), subsidies are divided into two categories: industry subsidies and horizontal subsidies; Horizontal subsidies include subsidies to protect the environment, save energy, research and development and assistance to under-developed areas; In industry, subsidies are separated into subsidies to non – agricultural commodities and subsidies to agriculture commodities. 2.2.1 Subsidies to non-agriculture commodities In order to guarantee equality in trading activities, and promote competition and economic growth, the WTO stipulates categories of subsidy. Under the SCM Agreement, non–agricultural subsidies are classified into two groups: the prohibited subsidies9, and actionable subsidies10. Originally, there was a third category under the SCM Agreement, non – actionable subsidies 11, but this category only lasted for a 5 year period and ended on December 31, 1999, and has not been extended. The subsidies prohibited by the SCM Agreement include: export subsidies and local content or import substitution subsidies. The prohibited subsidies are irrefutably presumed to distort trade. Thus, these prohibitions are not new and “the developed countries had already accepted the prohibition on export subsidies in the 1960s under GATT Article XVI. Similarly, the ban on local content subsidies can be traced back to Article III: 4 of GATT, on national treatment, specifically the prohibition on measures favouring the use of domestic goods”12. These two categories of subsidies are prohibited. They are designed to directly affect trade and thus are most likely to have adverse effects on the interests of other Members. Actionable subsidies, according to the SCM, are not prohibited. However, these subsidies would be suit in cases they cause injury to the domestic industry of another Member, serious prejudice to the interests of another Member or nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994. 9 Part I- Art 3, 4 – ASCM. 10 Part III - Art 5, 7 – ASCM. 11 Part IV- Art 8, 9 – ASCM. 12 2006 The Report of the WTO. 13 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. 2.2.2 Subsidies to agricultural commodities The subsidy provisions regarding agriculture differ from those applying to nonagricultural products in two important ways. First, the Agreement on Agriculture envisages commitments to reduction of both domestic support measures and export subsidies. Second, the commitments to the reduction of export subsidies underline the reality that they are unlike subsidies on manufactures. The original efforts at disciplining agriculture protection did not contemplate the possibility of eliminating export subsidies. At the Sixth WTO Ministerial Meeting held in Hong Kong in December 2005, the Members state of the WTO agreed “eliminate export subsidies in agriculture by 2013. This will have the effect of establishing parity in the treatment of export subsidies on manufactures and agricultural products”. 13 In the Agreement on Agriculture, domestic supports are distinguished in terms of the degree to which they are deemed to distort markets. There are so–called green, amber and blue that are listed in subsidy reduction commitments. A blue subsidy is a direct payment to the producers and not subject to reduction in the WTO Agreement on Agriculture. A green subsidy is not subject to reduction under the AoA. It is neither directed at specific products nor connected to production on prices, like programs on rural development, renewable energy and land conservation. An amber subsidy is technically called the Aggregate Measurement of Support (AMS) and is subject to ASM reduction commitments as it is regarded the most directly trade-distorting. In addition, “the blue subsidies are a sub-category of amber measures, but treated differently in terms of liberalization commitments. Blue subsidies are those that may be deemed trade-distorting, but are contingent upon limitations in production. These subsidies are not included in the ASM”.14 The subsidy stipulations on agriculture differ from those on non-agricultural commodities but the remedies regarding subsidized commodities derive from the SCM Agreement and are the same as the remedies on non-agricultural commodities. 13 2006 The Report of the WTO. 14 2006 The Report of the WTO. 14 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. 2.3 The Countervailing measures fighting against subsidies in International trade activities For a long time, subsidies were considered as major barriers to liberalization having a serious effect on the market. The first regulations on subsidies were provided in the GATT (1947) and then in the SCM, the subsidized were classified into different kinds. Some of them may distort the nature of trade. Therefore, when the industry of a Member is injured by direct export subsidies of other Members, countervailing measures can be used. These measures are only to be used if the subsidy harms the industry of the importing Member state. In order to allow this response to injury to the domestic industry of the importing country immediately, the SCM Agreement set out conditions for imposing temporary CVM, these conditions being: 1. subsidized imports; 2. injury to a domestic industry; and 3. a causal link between the subsidized imports and the injury. If all of the conditions are satisfied, the injured party may apply temporary countervailing measures. These measures may be considered as countervailing duties. Article VI: 3 of GATT 1994 defines the term “countervailing duties” as “a special duty levied for the purpose of offsetting any bounty or subsidy bestowed, directly or indirectly, upon the manufacture, production or exports of any merchandise”.15 The SCM Agreement provides the rules on applying countervailing duty. According to Article 19.2, the injured Member may apply the countervailing duty under Article 19 except the subsidies had been removed. So, the Article shows that the purpose of the application on the countervailing duty is to reduce trading injury. However, the duty rate for imported goods of each country may be different thus the countervailing duty rate must be based on the level of subsidy and the specific injury in a certain case. 15 SCM Agreement, Footnote 36. 15 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. A countervailing duty is used to fight against a foreign subsidy that injured domestic industry. In order to prevent any abuse of countervailing duty, Article 21.3 of the SCM Agreement provides that a countervailing duty shall be terminated no later than five years from its imposition. To extend this time the authorities have to review the countervailing duty by way of a new investigation procedure before the period ended. The authorities can initiate a review on their own or on behalf of domestic industry. In conclusion, the application of countervailing measures is necessary in international trade. However, some conditions must be satisfied before measures can be imposed. They are subsidy, injury and a causal link relation between subsidy and injury. In other words, the injury should be a result of the subsidy. Therefore, the subsidizing Members have to compensate the injured Members whose domestic industry suffers difficulties. 3. The subsidy regulations and coutervailing measures of the WTO and Vietnam 3.1 The subsidy regulations of the WTO There are two basic multilateral agreements providing for subsidies under the WTO. They are the agreement on Subsidy and Countervailing Measures (SCM) and the Agreement on Agriculture (AoA). Besides the above agreements, subsidy issues are covered in some other WTO agreements such as the agreement on Trade- related investment Measures (TRIMs), the General Agreement on Trade and Tariff 1994 (GATT) and the General Agreement on Trade in Services (GATS). This thesis is limited to research on subsidy regulations provided by the first two agreements only. It would be noted that the SCM is a general agreement while the AoA is a specialized agreement on subsidies. 3.1.1 Identification of subsidy There are two key factors that are used in the identification of subsidies. They are financial contribution and received benefit. 16 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. "Financial contribution" is the first element that would be used in the identification of subsidies. The SCM has listed a series of factors that could be used to address "financial contributions" made by a government. The agreement also cover cases in which the government may indirectly subsidize to businesses through private organizations A "financial contribution" may be identified by the 4 following pointers: First, a fund may be transferred from the government to a business. It is possible that the government simply gives cash to a business. More likely is that the government provides capital with a favourable interest rate or other conditions. It may also provide insurance so that business may reduce its costs.16 Second, a subsidy can be identified by more indirect financial encouragement provided by the government. For example, tax holidays, favourable conditions on tax collection and on the like. The point is that the government give the business favourable conditions by not taking money that would otherwise be taken.17 Third, supplying commodities or services outside the usual public infrastructure may also be considered as a government subsidy18 Fourth, a money contribution made by the government to a financial intermediary or any private organization which carries out any activities provided in Article 1.1 of the SCM is also government subsidy.19 The point of the fourth point is that the activities listed in the first to third points can be regarded as financial contributions regardless of funds came from a government or another organization. In fact, the four elements used for determining a financial contribution under WTO raise a question. The question is whether the provision uses listing skill or illustrative technique. This is because listing skill is in issue, a payment can be a financial 16 Article 1.1 (a)(i) SCM 17 Article 1.1(a) (ii) SCM. 18 Article 1.1(a) (iii) SCM. 19 (Article 1.1(a)(iv) SCM 17 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. contribution and a subsidy even if it does not match the points in the regulation, 20but, if the list is illustrative, that may widen the meaning of the term to allow payments to be classed as financial contributions even though they are not within the strict meaning of the term.21 In a debate of Canada over two dispute cases, Canada – Dairy and Canada – Aircraft it was considered that the use of the term in Article 1.1 (a) was comprehensive rather than illustrative.22 However, according to Article 1 of the SCM, we can affirm that the involvement of the government or public organizations is a crucial condition. Involvement of the government or public organizations is the first and most important requirement that is used for determining a subsidy under Article 1.1. Secondly, that there is "received benefit" from the contribution of the government is the second factor involved in the determination of a subsidy. That means the "financial contribution" would not be considered as a subsidy unless the contribution creates a "received benefit" for a business. However, the SCM has no definition of the term "benefit and there is controversy about it. In order to determine the term "benefit", the Panel as the Appellate Body of the WTO has provided explanations that create the general principles to be used in cases. For example, in the case “Canada – Measures Affecting the Export of Civilian Aircraft”, the Appellate body of the WTO affirmed that the term “benefit” was determined by a comparison of the financial contribution and market conditions. Naturally, the comparison was used for the determination of what a business can get from the government financial contribution and from the market. The Appellate Body affirmed that “We also believe that the word “benefit”, used in Article 1.1(b) of the SCM, implies some kind of comparison. This must be so, for there can be no “benefit” to the recipient unless the financial contribution makes the recipient “better 20 Terry Collins and Gerry Salembier – International disciplines on Subsidies; GATT, WTO and Future Agenda, (1996), p176. 21 Melaku Geboye, The Law of International Trade in Agriculture, 2003, P160-165. 22 The Canada – Dairy, report of the Panel, supra n 19, para. 4.310 and Canada – Aircraff, report of the Panel, supra n. 36, para. 5.27. 18 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. off” that it would otherwise have been, absent that contribution in our view, the marketplace provides an appropriate basis for comparison in determining whether the recipient has received a financial contribution on terms more favourable than those available to the recipient in the market”.23 In the case of EC – DRAMS (European Communities-Countervailing Measures on Dynamic Random Access Memory Chips from Korea, WT/DS299, Panel report adopted on 17 June 2005), the Panel affirmed that the existence of a "benefit" is a necessary element in finding that there has been a subsidy. Accordingly, “only in cases where the financial contribution provides the recipient with an advantage over and above what it could obtained an the market, at the moment the government financial contribution be considered to have conferred a benefit and a subsidy will be considered existence”.24 However, the term "benefit" has also been indirectly explained by Article 14 of SCM which concerns the calculation of the amount of a subsidy in terms of the benefit to the recipient, as follows: Government provision of equity capital shall not be considered as an SCM conferring a benefit, unless the investment decision can be regarded as inconsistent with the usual investment practice of private investors of that Member; a loan by a government shall not be considered as an SCM conferring a benefit, unless there is a difference between the amount that the firm receiving the loan pays on the government loan and the amount the firm would pay a compatible commercial loan which the firm could actually obtain on the market. In this case the benefit shall be the difference between these two amounts; a loan guarantee by a government shall not be considered as an SCM conferring a benefit unless there is a difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by the government and 23 Appellate Body Report, WT/DS70/AB/R, supra note 74, paragraphs 149-161, adopted 20 August 1999. 24 Report of EC – DRAMs, para 7.175. 19 Fel! Använd fliken Start om du vill tillämpa Heading 1 för texten som ska visas här. the amount that the firm would pay on comparable commercial loan absent the government guarantee; the provision of goods or services or purchase of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration. So, "benefit" is considered as the second element that is used when determining a subsidy according to SCM. However, in order to determine correctly the meanings of "benefit", "more convenience" or "more than what the business gets” they must be analyzed and examined in terms of the specific market circumstances. Besides the two basic elements discussed above, the concept "specific sense" is also considered in some cases. Though "specific sense" is not always an element used to determine a subsidy, it is said to be a condition for the application of the special cases provided by parts II, III and V of the SCM. They are prohibited subsidies, actionable subsidies and countervailing measures. The term "specific" is not clearly defined but, based on Article 1.2 of the SCM, a subsidy can be "specific" where the receivers are economic organizations such as a business, economic groups or economic sectors. Legally, a specific subsidy is created in cases when the competent authority prescribes the businesses that can receive it.25 In reality, there are some subsidies that are not "specific" though they seem to be. These kinds of subsidy are those with certain features that lead to certain businesses only getting the subsidy; money is provided to some businesses much more than the others.26 It may be difficult to determine which case is in issue here. However, a subsidy is created by the action of governments or public organizations. In order to determine whether there is a subsidy we have to look at relevant situations, market circumstances and the relationship between subsidized activities and benefits. In other words, market circumstances are usually used for determining the benefit of a subsidy. 25 Article 2.1(a) SCM 26 Article 2.1 (c) SCM. 20
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