XVI	Subsidies
	Section A - Subsidies in General
	1	For any trade-distoring subsidy, requires notification of the extent and nature of the subsidy, its trade impact, and its rationale. Requires discussion with any CP experiencing "serious prejudice" about "limiting" the subsidy.
	Section B - Additional Provisions on Export Subsidies
	2	Recognizes the adverse impact of export subsidies on other Contracting Parties
	3	Requires that Contracting Parties "seek to avoid the use of subsidies on the export of primary products." Any subsidy on primary should not result in a "more than equitable share of world export trade."
	4	By as close to 1/1/1958 as possible, prohibits all export subsidies on products other than primary products which result in dumping
	5	Requires periodic review of the effectiveness of this Article.

 

Agreement on subsidies and countervailing measures:
I	1	Definition of a subsidy: The definition of "subsidy" contains three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit.    The Agreement contains an exhaustive list of the type of measures that represent a financial contribution. These include direct transfers of funds (e.g. grants, loans, and equity infusion) and potential direct transfers of funds or liabilities (e.g. loan guarantees). A financial contribution also exists where government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); where a government provides goods or services other than general infrastructure, or purchases goods; or where a government entrusts or directs a private body to carry out these functions.    Counterexamples: (i) Paper mill If, for instance, a government temporarily exempts a paper mill in financial difficulties from the obligation to observe anti-pollution laws, it confers regulatory, not financial, privileges. Given that there is no element of financial contribution, this would not constitute a subsidy. (ii) An NGO in Africa If a private NGO - non-governmental organization - gives technical and financial assistance to coffee growers in Africa, it is a case of private, not governmental, aid. The definition of a subsidy requires the financial contribution to come from a government or public body, which means that this would not be considered a subsidy. (iii) A loan to a manufacturer If a government makes a loan to an automobile manufacturer on conditions equivalent to those that the manufacturer could obtain from private banks, there is a financial contribution but no benefit, and the loan would not constitute a subsidy as per Article 1 of the SCM Agreement.
	2	Specificity: Provides that its disciplines apply only to subsidies that are specifically provided to an enterprise or industry, or group of enterprises or industries. The basic principle behind "specificity" is that a subsidy that distorts the allocation of resources within an economy should be subject to discipline.
II		Prohibited subsidies.
	3	Subsidies contingent upon export performance ("export subsidies"), or upon the use of domestic over imported goods ("import substitution subsidies" or subsidies contingent on domestic content requirements), are prohibited ("red"). The prohibition does not apply to (i) official export credits consistent with international agreements in place as of 1 January 1979, (ii) export subsidies covered under the Agreement on Agriculture, or (iii) export subsidies of least developed countries.
	4	Provides for DSB remedies for prohibited subsidies, with no need for the complaining Member to show trade effects. Prohibited subsidies may also be subject to countervailing action. Provides for expedited proceedings. For example, time periodsArticle 4 are half those specified in the DSU.
III		Covers actionable subsidies. Most specific subsidies, such as production subsidies, fall in the "actionable" category ("yellow"). Actionable subsidies are not prohibited. However, they are subject to challenge, either through multilateral dispute settlement or through countervailing action, in the event that they cause adverse effects to the interests of another Member. (Per 27.13, privatization subsidies of LDCs are not actionable.)
	6	Defines adverse effects as (i) injury to a domestic industry; (ii) nullification or impairment of previously negotiatied market access benefits, or (iii) serious prejudice to a Member's exports. Serious prejudice is presumed in the case of subsidies by a DC greater than 5 per cent ad valorem, certain subsidies to cover operating losses, and the direct forgiveness of debt.
	7	Prescribes DSB remedy procedures.
IV		Covers non-actionable subsidies.
	8	Three narrowly-defined categories of subsidies are non-actionable ("green"): (i) research subsidies up to 75% of industrial research and up to 50% of development up to the first prototype; (ii) subsidies to disadvantaged regions (85% of Member's average GDP per capita or 110% of its unemployment rate); (iii) environmental subsidies.
V		Contains detailed rules regarding the initiation and conduct of countervailing investigations, the imposition of preliminary and final measures, the use of undertakings, and the duration of measures. Mostly similar to Anti-Dumping Agreement. It explicitly authorizes the cumulation of the effects of subsidized imports from several Members provided that the specific criteria are met.
	11	Initiation and subsequent investigation: Unilateral countervailing measures are acceptable only in the case of domestic injury and require evidence of (a) a subsidy (of at least 1%), (b) injury and (c) a causal link between the subsidezed imports and the alleged injury.
	14	States that, in a countervailing duty context, the existence of a benefit may be assessed by reference to commercial benchmarks, and provides some guidance for determining the amount of the benefit with respect to certain types of measures.
	18	Provides for voluntary undertakings of exporters to negate the subsidy or its impact if there has been a preliminary determination of subsidy and injury, and must lapse if either party request that the investigation be completed and a negative determination of subsidy or injury results (to avoid disguised VERs.)
VI	24.1	Institutions. Establishes the Committee on SCM composed of representatives from each of the Members, which meets no less than twice a year.
	24.3	Establishes a Permanent Group of Experts composed of five independent persons, highly qualified in the fields of subsidies and trade relations. The experts are elected by the Committee and one of them is replaced every year. The PGE may be requested to assist panel or provide an advisory opinion on the existence and nature of any subsidy.
VII		Notification and surveillance
	25	Requires notification of subsidies by June 30 of each year and of all preliminary and final actions which constitute countervailing measures.
	26	Requires the Committee on SCM to review notifications every third year.
VIII	27	Special and differential treatment rules for various categories of developing country Members. The SCM Agreement recognizes three categories of developing country Members: (i) least-developed country Members ("LDCs"), (ii) certain Members identified in Annex VII(b) of the Agreement until such time as their GNP per capita has reached USD 1,000 per year, and (iii) other developing countries. (Categories (i) and (ii) are collectively referred to as "Annex VII countries"). The lower a Member's level of development, the more favourable the treatment it receives with respect to subsidies disciplines as well as when faced with countervailing duties. Thus, for example, Annex VII countries are exempted from the prohibition on export subsidies, while other developing country Members have an eight-year period to phase out their export subsidies, without raising them in the meantime. The exemption is discontinued if a country reaches "export competitiveness," defined as achieving a 3.25% global export share for 2 consecutive years.
	27.3	The prohibition on import substitution does not apply for a period of five years for developing country Members and for eight years for least developed country Members.
	27.10	Establishes de minimis subsidy at 2% ad valorem for LDCs or 3% (27.11) for LDCs phasing out export subsidies ahead of schedule or least developed countries listed in Annex VII. De minimis import shares are set at 4%, or 9% for LDCs collectively
IX	28	Contains transitional rules for developed country and former centrally-planned economy Members. DCs must notify within 90 days and achieve conformity within 3 years.
	29.2	Covers countries in transformation to market economies. Allows seven years for economies in transition to phase out import-substitution subsidies. Forgiveness of debt is a nonactionable subsidy, and serious prejudice cannot be the basis for multilateral remedies.
X		Contains a general dispute settlement provision.
XI		Final provisions