Agreement on Subsidies and Countervailing Measures (SCM) is an essential agreement that comes under the purview of the World Trade Organization (WTO) and is aimed at creating a level playing field in international trade. It sets out the rules for the use of subsidies, which are financial assistance provided by governments, and the measures that other countries can take to counteract any negative effects caused by them.
In this article, we will explore the key provisions of the SCM agreement, its scope, and the benefits it offers to businesses and governments.
Key Provisions of the SCM Agreement
The SCM agreement is structured around three main pillars:
1. Definitions: This section defines what constitutes a subsidy, the various forms of subsidies, and the criteria that need to be met to classify a measure as a subsidy. The agreement categorizes subsidies into three types: prohibited subsidies, actionable subsidies, and non-actionable subsidies.
2. Rules: This section outlines the rules for the use of subsidies and the measures that other countries can take to counteract them. Prohibited subsidies, which are subsidies that are inherently trade-distorting, are strictly prohibited under the agreement. Actionable subsidies, which are subsidies that cause adverse effects on the interests of other WTO members, can be challenged and retaliated against through the dispute settlement mechanism of the WTO. Non-actionable subsidies, which are subsidies that have a minimal effect on trade, are allowed under certain conditions.
3. Subsidies and Countervailing Measures: This section deals with the procedures for initiating and conducting investigations into alleged subsidies and the imposition of countervailing measures to address the negative effects of subsidies. The agreement provides for the use of countervailing duties, which are additional import duties levied on goods that have benefited from a subsidy.
Scope of the SCM Agreement
The SCM agreement applies to all subsidies granted by governments or any public body in their territory. It covers both domestic and foreign subsidies and applies to all goods and services traded across borders. The agreement also applies to any measures taken by WTO members to counteract the negative effects of subsidies.
Benefits of the SCM Agreement
The SCM agreement offers several benefits to businesses and governments that are involved in international trade. Some of the key benefits include:
1. Promotes Fair Competition: The SCM agreement promotes fair competition by ensuring that subsidies are only used to achieve legitimate policy objectives and not to give unfair advantages to domestic producers.
2. Prevents Trade Distortion: The agreement helps to prevent trade distortion by prohibiting the use of subsidies that are inherently trade-distorting and providing a mechanism to address the negative effects of other subsidies.
3. Provides a Dispute Settlement Mechanism: The SCM agreement provides a mechanism for resolving disputes between WTO members regarding subsidies and countervailing measures. This helps to prevent retaliatory actions that could escalate into trade wars.
Conclusion
The SCM agreement is a vital tool for promoting fair and transparent international trade. By setting out clear rules for the use of subsidies and the measures that other countries can take to counteract them, the agreement helps to create a level playing field for businesses and governments. While there are still challenges in implementing the agreement effectively, it remains a crucial component of the WTO`s efforts to promote open and fair trade.