Extract

Allegedly trade-distorting subsidies conferred on domestic industries by member countries have been a longstanding issue of contention in trade policy circles. According to Leitner and Lester1 disputes regarding subsidies and responding countervailing duties accounted for 109 issues in dispute in formal trade dispute proceedings between 1995 and 2016 – more than any other GATT/WTO agreement aside from anti-dumping and the basic GATT itself. A number of these disputes have been high profile, including the long-running softwood lumber dispute between Canada and the USA; the dispute between Brazil and Canada over aircraft subsidies by both countries; the dispute between the EU and the USA over US taxation of Foreign Sales Corporations; the dispute between Brazil and the USA over US subsidies to domestic cotton production; the dispute over EU subsidies to sugar production; and the dispute between the USA and the EU over subsidies to Boeing and Airbus.

It is useful to keep in mind three basic subsidy scenarios:

The latter two scenarios do not implicate the potential imposition of unilateral countervailing duties given that the subsidized products are not moving from Country A to Country B’s market, but instead raise the potential for a formal complaint under the Dispute Settlement provisions of the WTO.

Under Article VI of the GATT, member countries may impose countervailing duties on imports into their domestic markets in an amount not in excess of the estimated bounty or subsidy determined to have been granted, directly or indirectly, on the manufacture,...