As per the Black’s Law Dictionary1, subsidy means a grant, usually made by the government, to any enterprise whose promotion is considered to be in the public interest. Although governments sometimes make direct payments (such as cash grants), subsidies are usually indirect or disguised. In theory as well as practicality, subsidies are not bad. However, if a subsidy can distort trade or are acting as a barrier to free and fair trade are actionable under the Agreement on Subsidies & Countervailing Measures (“ASCM”).

The members of the World Trade Organisation (“WTO”) have formulated their local laws for anti subsidy measures in accordance with the directions issued by WTO. Subsidy is a financial contribution and benefit provided by a government or a public body. Subsidies are defined under General Agreements on Trade and Tariff (“GATT”), Tokyo Round and WTO. As per WTO, subsidies are broadly classified in to prohibited, actionable, or non‐actionable. Following the concept of “welfare nation”, every country provides subsidies to help and support the economic growth; however, if the trade of subsidised product, is injuring the domestic industry of the importing country, the importing country gets a right to impose countervailing measures against such exports. If a subsidy provided by the government promotes unfair trade, it is prohibited /actionable under WTO.

ASCM under WTO defines a subsidy in respect to the prohibited, actionable and non actionable subsidies. There are three basic elements of an actionable subsidy, namely, (i) a benefit, (ii) given by a government or public body &, (iii) which is specific in nature.2 “A ‘financial contribution’ and a ‘benefit’ arising out of that contribution are two separate legal elements in Article 1.1 of ACM, which determine whether a countervailable subsidy exists”3. The term ‘benefit’ is an important element in identifying the existence of a subsidy.

For both domestic economic development and international trade relations, subsidy is an important issue. It may have negative impact on the importing country causing injury to the industry and leading to unfair competition.

About Author:
Mr. Deepanshu Sharma, Legal Associate,
TPM Consultants.

1. Black’s Law Dictionary, 1469 (8th ed. 2004)
2. https://www.wto.org/english/docs_e/legal_e/24-scm.pdf (last visited on April 16, 2016)
3. Appellate Body Report, Brazil – Aircraft.