subsidies+and+countervailing+measures+(SCMs)


 * Subsidies & Countervailing Measures (SCMs) **

Any effort on the part of a government and sometimes a large commercial vendor corporation to artificially (and temporarily) lower product prices in cross-border trade can be termed a subsidy. Purchasing agents should be aware of discriminating tax incentives, export credits, special duty exemptions and handling/licensing requirements for the favoured products. Measures taken by the customer or competing vendor’s country in response to the artificial pricing are termed a countervailing measure. Both subsidies and their reactive countervailing measures can delay procurement, reduce competition and discourage trade. **// Definitions //** //The WTO SCM Agreement defines “subsidy” as requiring three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist.//

//Countervailing Measures are actions monetary or otherwise restrictive that are taken by the customer or competing vendor’s country in response to imposition of a subsidy.//

At least three types of potential adverse effects can arise when SCMs are introduced. First, there is **injury** to a domestic industry caused by subsidized imports in the territory of the complaining Member. This is the sole basis for permitting a countervailing action. Second, there is **serious prejudice**. Serious prejudice usually arises as a result of adverse effects (e.g., export displacement) in the market of the subsidizing Member or in a third country market. Thus, unlike injury, it can serve as the basis for a complaint related to harm to a Member's export interests. Finally, there is **impairment** of the free trade process – specifically the benefits accruing under international trade agreements such as the GATT 1994. Nullification or impairment typically arises where the improved market access presumed to flow from a bound tariff reduction is undercut by subsidization. Solutions lie in referring proposed SCMs to a forum such as the WTO and EU for discussion and constraint. SCM agreements such as by the WTO, narrow the application of the SCMs and limit their term. Their proposed impact can be measured by long term price analysis during the bid evaluation process. When an actionable subsidy is suspected, the vendor’s bid may be disqualified and turned over to a disputes forum such as the EU Disputes settlement Unit which regularly handles subsidy appeals. The anti-subsidy forums and initiatives in the [|EU], UN and [|WTO] discourage application of subsidies as temporary, artificial and subjective impediments to procurement pricing and the goal of fostering full and open competition.
 * // The problem & solution //**


 * // Links & References //**