The EU anti-subsidy rules define a subsidy as "a financial contribution made by (or on behalf of) a government or public body which confers a benefit to the recipient". The EU may impose countervailing duties to neutralise the benefit of such a subsidy only if it is limited to a specific firm, industry or group of firms or industries. Export subsidies and subsidies contingent on the use of domestic over imported goods are deemed to be specific.
what is a subsidy?
A "financial contribution" may take different forms:
- a direct or potential transfer of funds (e.g. grants, loans, equity injection or loan guarantees)
- government revenues (which are otherwise due) foregone or not collected (e.g. tax credits)
- government provision of goods and services (other than general infrastructure)
- government purchase of goods
- any of the above functions performed by a private body (e.g. a bank) on the instruction of the government.
A 'benefit' is conferred if any of the above financial contributions are provided on terms more favourable than those available on the market. For example, if the government provides electricity at below market price or buys a product at above its market value.
An example of a specific, 'countervailable' subsidy would be a subsidy which is limited to a particular sector, such as the textile sector. In contrast, a subsidy which is generally or broadly available – like training aid or aid to small businesses – is not normally considered specific.
Anti-subsidy in a nutshell
- Subsidies can be used for different purposes, e.g. pursuing domestic and social policies, fostering production or exports, creating jobs, facilitating the creation and expansion of new industries, supporting economic activities that might otherwise fail, etc.
- However, they may distort competition by making subsidised goods artificially competitive (e.g. cheaper) against non-subsidised goods and thus negatively affecting competitors.
- For example, if a non-EU country subsidises its domestic producers of a certain product, these producers can, for example, reduce their export prices to the EU market, artificially increase capacity or improve the quality of their product by investing more in research. The above effects which may not be due to the merit of the firm, but only to the subsidy, and may yet cause injury to the EU industry.
In such circumstances, EU producers may ask the Commission to intervene by levying countervailing measures to restore fair competition in the EU.
The EU’s anti-subsidy policy
When an EU industry considers that imports of a product from a non-EU country are subsidised and injuring the EU industry producing the same product, it can lodge a complaint with the EU Commission.
If the complaint contains prima facie evidence of subsidy and injury, the Commission must open an anti-subsidy investigation. If the investigation shows that
- the imports benefit from a countervailable subsidy,
- there is injury suffered by the EU industry,
- there is a causal link between the injury and the subsidised imports, and
- the imposition of measures is not against the Community interest, then the Commission may impose provisional countervailing measures i.e. a temporary security or bond on the imports concerned, provided it acts within 9 months of launching the investigation.
If definitive measures are warranted, they must be imposed by the Council of the EU within 13 months. Definitive measures are normally applicable for five years.
A countervailing measure – usually in the form of a duty – is applied to counteract the injurious effects of subsidised imports on the EU market and restore fair competition. It can be a percentage of the price of the goods, a fixed amount per unit or a minimum import price as the goods enter the EU. The duty is paid by the importer and collected by the customs authorities of the EU country concerned. (see monitoring)
Exporters can also request a price undertaking, offering to commit to sell the product under investigation above a minimum price. In return, no duty is imposed.
The exporting country may also agree to remove or limit the subsidy.
Measures are usually imposed for 5 years. However, during that time, EU countries, importers, exporters, the authorities of the exporting country concerned or EU producers may request an interim review if they have prima facie evidence that the measures are no longer needed (e.g. the government of an exporting country may claim that the subsidy no longer exists) or that they are no longer sufficient to counteract subsidised injurious imports (the EU industry may claim that the subsidy amount has increased).
In the final year of application of the measures, the Community producers may ask the Commission to conduct an expiry review to determine whether the expiry of the measures would be likely to lead to a continuation or recurrence of subsidisation and injury. If this is the case, the measures may be continued for another five years.
Importers can also request a refund of the duties paid when they think that the amount of subsidy has been reduced or eliminated.
More on Anti-subsidy
The EU's anti-subsidy rules are based on a 1994 WTO agreement which allows remedial action to be taken against subsidies that are considered an unfair trade practice. The rules contain:
- the definition of a subsidy
- criteria for determining whether imports of subsidised products are causing injury to the EU industry
- procedures for initiating and conducting investigations
- rules on the implementation and duration of countervailing measures.
The Commission has also adopted guidelines for calculating the amount of a subsidy.