Practial Issues

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If a WTO member concludes that another member is

providing a prohibited or actionable subsidy as defined by Articles 3 and 5 of the ASCM, it can challenge the subsidyusing multilateral dispute settlement procedures.Prohibited subsidies are specific types of subsidies (export

and import substitution subsidies), while actionablesubsidies include all specific subsidies that have certainpredefined adverse effects. This chapter discusses theconcepts of prohibited and actionable subsidies and thenprovides an overview of the multilateral remedy procedures

applicable.



Article 3.1 provides that subsidies “contingent upon export

performance” and those “contingent upon the use ofdomestic over imported goods” are prohibited. If a membergrants or maintains a prohibited subsidy, other WTOmembers may challenge the subsidy in a specialmultilateral dispute settlement procedure, described in thelast part of this chapter.



Article 3.1(a) prohibits subsidies that are “contingent, in law

or in fact, whether solely or as one of several otherconditions, upon export performance,” including theprograms enumerated in the illustrative list of exportsubsidies in Annex I of the ASCM.



The word “contingent” in Article 3.1(a) means the grant of

the subsidy must be conditional or dependent upon exportperformance; the export contingency may be the solecondition governing the grant of a prohibited subsidy or itmay be “one of several other conditions.”



Article 3.1(b) prohibits subsidies that are “contingent,

whether solely or as one of several other conditions, uponthe use of domestic over imported goods.”



Specific subsidies that do not meet the Article 3.1 definitionof prohibited subsidies are actionable. Unlike prohibitedsubsidies, actionable subsidies are permissible so long asthey do not cause adverse effects to the interests of other

members. Article 5 defines adverse effects as follows:

(i) injury to the domestic industry of another Member;

(ii) nullification or impairment of benefits accruing directly

or indirectly to other Members under GATT 1994 inparticular the benefits of concessions bound under ArticleII of GATT 1994; or

(iii) serious prejudice to the interests of another Member.



The concept of injury to the domestic industry of another

member involves an analysis of the effects of allegedlysubsidized imports on prices in the domestic market forlike products and of the impact on the imports on thedomestic producers of the like product.



Article 6 provides further guidance on the concept ofserious prejudice, including the threat of serious prejudice.

Article 6.1 previously contained rules for assessing whetherserious prejudice has occurred; however, as per Article 31 ofthe ASCM, they expired at the end of 1999. Consequently,proof of serious prejudice must now be made primarily

with reference to the above-mentioned rules of Article6.3.13 Article 6.3 provides that serious prejudice may arise

where an actionable subsidy has one or more of thefollowing effects:



1. it displaces or impedes imports of a like product ofanother member into the market of the subsidizingmember;

2. it displaces or impedes the exports of a like product ofanother member from a third-country market;

3. it results in a significant price undercutting by thesubsidized product as compared with the price of a like

product of another member in the same market orsignificant price suppression, price depression, or lost salesin the same market; or

4. it leads to an increase in the world market share of the

subsidizing member in a particular primary product orcommodity as compared to the average share it had duringthe previous period of 3 years, and this increase follows a

consistent trend over a period when subsidies have beengranted.

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