Understanding subsidies and countervailing measures

By Competition commission | 25 Oct 2018 at 13:15hrs
Competition commission
Zimbabwe is one of the one hundred and sixty four (164) World Trade Organisation (WTO) members that aspire to achieve free trade amongst themselves. However, free trade is not always free and fair due to trade distortions which occur as a result of dumping and subsidisation of products, collectively known as unfair trade practices.

This article focuses on subsidies and countervailing measures.

Article XVI of the General Agreement on Tariffs and Trade (GATT), disciplines the use of subsidies by WTO members and regulates actions members can take to counter the effects of other members' subsidies. The Subsidies and Countervailing Measures (SCM) Agreement of GATT attests to that and does not prohibit members from granting most forms of subsidies. It contains rules to determine which programmes and measures are subsidies, as well as rules governing the use of and disciplines on subsidies, and disciplines on the use of countervailing measures.

The SCM Agreement defines a subsidy as a financial contribution by a Government which confers a benefit. Governments use subsidies mainly to correct market failures or to address policy priorities, and in so doing these subsidies may distort international markets. Most forms of subsidies under the SCM Agreement are allowed although they are subject to rules and disciplines.

The Agreement regulates two basic categories of subsidies namely (i) those that are prohibited and (ii) those that are actionable. Prohibited subsidies are deemed to have adverse effects on trade i.e. export subsidies and import substitution/local content subsidies. If subsidies are found to be prohibited, then they must be withdrawn immediately. Actionable subsidies are those not prohibited but potentially subject to challenge on the basis of adverse effects.

There are three types of adverse effects on the basis of which a Member can bring a dispute against another Members subsidies:-


i. serious prejudice - this includes displacement or impedance of imports of a "like product' into the market of the subsidizing Member; displacement or impedance of exports of a "like product' into a third country market; significant price undercutting, price suppression or depression, or lost sales; and in the case of a primary product, an increase over historical levels in the world market share of the subsidized product.

ii. Injury - injury to the domestic industry producing the like product in the importing country, caused by subsidized imports.

iii. Nullification or impairment of benefits - Where the effect of the subsidy in the territory of the subsidizing Member is to prevent trading partners from enjoying the benefits of multilateral market access concessions received from the subsidizing Member.

In the event that a member introduces the above mentioned subsidies which will be distorting trade against Zimbabwean products, the domestic industry can make an application to the Competition Tariff Commission ("Commission") for a countervailing duty investigation to be initiated.

The Commission is mandated in terms of Section 34 (c) of the Competition Act [14:28] read together with the Competition (Anti-Dumping and Countervailing Duty) (Investigation) Regulations, 2002 to undertake countervailing duty investigations. The Commission can only initiate countervailing duty investigations after receiving sufficient evidence that the subsidisation of the particular product by a Government of a WTO member has caused injury to the domestic industry.

In addition to sufficient evidence, the Commission is obliged to assess the industry representativeness prior to commencing the investigation.

The first requirement is that the written petition is supported by a domestic producer of like products, whose collective output constitutes more than 50% of the total production of the like products produced by that portion of the domestic industry, expressing either support for or opposition to the written petition.

Secondly, that the domestic producers of like products expressly support the written petition account for not less than 25 % of the total production of the like products produced by the domestic industry. If all conditions are satisfied and the Commission decides to initiate an investigation, it has to notify the appropriate interested parties (i.e. the WTO Secretariat, the subsidising Government, private players in the sector) and publish a notice of initiation of investigation.

For more information you may contact the following:
The Director Competition and Tariff Commission Unit L, Block 1 Second Floor Celestial Office Park 1908 Borrowdale Road Harare or directorPcompetition.colw  or (04) 853127-31.

The Competition and Tariff Commission is a statutory body that operates under the guidance of the Competition Act (Chapter 14:28). One of the functions of the Commission is to undertake investigations and make reports to the Minister of Industry and Commerce (MolC) relating to tariff charges, unfair trade practices and the provision of assistance or protection to local industry. The Commission also gives the technical backstopping to the MoIC on tariffs in trade negotiations.


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