Legal Definitions - countervailable subsidy

A countervailable subsidy refers to a financial contribution or benefit provided by a government to specific domestic industries or enterprises that gives them an unfair advantage in international trade. When a country's domestic industry is harmed by imports that have benefited from such a subsidy, the importing country may impose special duties, known as "countervailing duties," on those subsidized goods to offset the unfair advantage.

For a subsidy to be considered countervailable, it typically must meet certain criteria, including:

• It is a financial contribution from a government or public body.
• It confers a benefit to the recipient.
• It is "specific," meaning it is targeted to a particular enterprise, industry, or group of enterprises or industries, rather than being a general policy available to all.

Here are some examples to illustrate this concept:

• Example 1: Direct Cash Grants to a Specific Industry

  Imagine Country A's government provides large cash grants exclusively to its domestic steel manufacturers, allowing them to upgrade their factories and produce steel at a significantly lower cost per unit. When this subsidized steel is exported to Country B, it can be sold at prices that Country B's unsubsidized steel producers cannot match, leading to job losses and financial difficulties for Country B's steel industry.

  How it illustrates the term: The cash grant is a financial contribution from Country A's government. It confers a benefit (lower production costs) specifically to its steel industry. Because this specific benefit harms Country B's domestic steel industry, Country B could deem it a countervailable subsidy and impose countervailing duties on steel imports from Country A to level the playing field.

• Example 2: Preferential Loans for Export-Oriented Businesses

  Suppose Country C's state-owned bank offers loans at extremely low, below-market interest rates, but only to companies in its domestic aerospace sector that are actively exporting aircraft components. This allows these companies to finance their operations and expansion much more cheaply than their international competitors, giving them a significant cost advantage in global markets.

  How it illustrates the term: The low-interest loans from the state-owned bank are a financial contribution. They confer a benefit (reduced borrowing costs) specifically to Country C's export-oriented aerospace companies. If these subsidized components flood the market of Country D, harming Country D's own aerospace industry, Country D could argue that this is a countervailable subsidy and apply special duties to those imported components.

• Example 3: Tax Breaks for Renewable Energy Manufacturers

  Consider Country E, which offers substantial tax exemptions and rebates, but only to its domestic manufacturers of solar panels and wind turbines, provided they meet certain export targets. This allows these companies to retain more of their profits and invest further, making their products more competitive on the international stage compared to manufacturers in other countries that do not receive such specific tax advantages.

  How it illustrates the term: The tax exemptions and rebates are a financial contribution from Country E's government. They confer a benefit (lower tax burden and increased profitability) specifically to its renewable energy manufacturers tied to export performance. If these subsidized products cause material injury to the solar panel and wind turbine industries in Country F, Country F could identify this as a countervailable subsidy and implement countervailing duties on those imports.