The Agreement on Subsidies and Countervailing Measures (SCM Agreement) took effect with establishment of the World Trade Organization on January 1, 1995. The General Agreement on Tariffs and Trade allowed an importing country to impose countervailing duties (CVD) to offset public subsidies for the manufacture, production, or export of merchandise. The SCM Agreement establishes disciplines for calculating subsidies and defines which subsidies are countervailable.
While dumping is generally an action by a firm (see Anti-Dumping), subsidization is an action by a government. Because of this, the SCM Agreement contains disciplines on both the subsidizing government and on the actions taken by the government in the importing country against another government's subsidies. The agreement defines three categories of subsidies: prohibited, actionable, and non-actionable. The definition of prohibited or actionable subsidies applies to domestic or export subsidies on agricultural as well as industrial products, except when the subsidies conform to the Agreement on Agriculture.
Prohibited and actionable subsidies can be challenged in the WTO dispute settlement procedure. In the case of prohibited subsidies, if the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining member can take appropriate countermeasures. In the case of actionable subsidies, if the subsidy is found to result in adverse effects to the interest of another member, the subsidizing member must take action to remove the adverse effects of the subsidy or withdraw it. Otherwise, the complaining member may take countermeasures commensurate with the degree and nature of the adverse effects.
The agreement defines three types of damage that subsidies can cause. One country's subsidies can hurt:
- a domestic industry in an importing country,
- rival exporters from another country when the two compete in third markets, and
- exporters trying to compete in the subsidizing country's domestic market.
In the case of both prohibited and actionable subsidies, a CVD can only be levied against the subsidized imports after the importing country has conducted a detailed investigation subject to WTO procedures. The SCM Agreement contains rules for deciding whether a product is being subsidized, criteria for determining whether subsidized imports are causing injury to a domestic industry, and rules on the implementation and duration (normally 5 years) of countervailing measures. The subsidized exporter can also agree to raise its export prices (known as a price undertaking) as an alternative to subjecting its exports to a countervailing duty.
Changes to the SCM Agreement aimed at clarifying and improving disciplines are being negotiated under the auspices of the WTO Rules Negotiating Group. The Doha Ministerial Declaration affirmed that least-developed countries and developing countries with per capita Gross National Product below $1,000 would be allowed to use export subsidies, normally prohibited under WTO rules, consistent with their development needs. Subsidies with "legitimate development goals" would be allowed and ministers agreed that during the negotiations their governments will exercise due restraint in challenging these subsidies under the SCM Agreement. Few developing countries use subsidies in agriculture.
During the post-Uruguay Round period, 1995-2011, WTO countries initiated 54 countervailing duty investigations on trade of agricultural products. Trade in processed and prepared foods accounted for 24 followed by trade in animals and animal products with 13. The bulk of these investigations took place in the first five years (1995-1999). Since then, countervailing duty investigations have been rare in agriculture, with only four in the last five years.
Countervailing duty investigations by product type