17. Trade remedies: Subsidy/Countervail

Subsidies are a common instrument of state policy used by all countries for a range of purposes. There is nothing inherently wrong with subsidies but, in some cases, they may have trade-distorting effects. The GATT, and now the WTO, have sought to restrict the use of subsidies which have such effects while allowing states to subsidize for other purposes (research and development for example).

A subsidy is defined by the WTO as a financial contribution made by a government or any public body that confers a benefit on the recipient. Subsidies can be in any form of direct funds transfers, grants, low interest loans, or price supports. Subsidies also can be offered in the form of government revenue forgone or not collected.

The agreement defines two categories of subsidies:

• prohibited

• and actionable.

Non-actionable subsidies (end on 31 December 1999)

Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade.

Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests

otherwise the subsidy is permitted.

Actionable subsidies: three types of damage they can cause.

• One country’s subsidies can hurt a domestic industry in an importing country.

• They can hurt rival exporters from another country when the two compete in third markets

• Domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market.

Countervailing duties are special duties imposed on imports to offset the benefits of government subsidies to producers or exporters in the exporting country.

Conditions to CV:

• formal investigation

• there is a subsidy

• imports of subsidized products are causing injury to domestic industry

Period for protection – 5 years. Voluntary raise of prices – removal of CV

18. Key issues of international trade in services. Leading exporters and importers of services. Importance of services for national economies.

Key issues of international trade in services

The International Services Economy

• High and growing importance for income, employment and production

• Increasing share in world trade

Some Services Agreements. Articles on services could be found in…

• NAFTA,

• Treaty of Rome,

• OECD Code on transactions in current invisibles, and various sector specific arrangements like the Chicago Convention dealing with air traffic and various agreements relating to financial services and telecommunications)

• As well, some services are commonly incorporated in goods which are themselves subject to border regulation under the GATT

  • exposed photographic film,

  • audio recordings,

  • blue prints and legal documents.

Barriers to cross-border trade in services: Barriers to trade in services are quite varied and depend on numerous local regulations

Examples of barriers to cross-border trade in services

• setting up a local office to supply some services (such as banking, or restaurants – connection with restrictions on foreign direct investment)

  • banking,

  • trade and catering

• immigration laws or restrictions on work permits

  • musicians,

  • auditors

WTO website: Leading exporters and importers in world trade in commercial services, 1998

Exporters	Value $bn	Share in world %	Importers	Value $bn	Share in world %
United States	240.0	18.2	United States	165.8	12.7
United Kingdom	100.5	7.6	Germany	125.0	9.6
France	84.6	6.4	Japan	110.7	8.5

Leading exporters and importers in world trade in commercial services, 2000

Exporters	Value $bn	Share in world %	Importers	Value $bn	Share in world %
United States	274.6	19.1	United States	198.9	13.8
United Kingdom	99.9	7.0	Germany	132.3	9.2
France	81.2	5.7	Japan	115.7	8.1

Leading exporters and importers in world trade in commercial services (excluding intra-EU (27) trade), 2008

Rank	Exporters	Value$bn	Share %	Annual percentage change	Rank	Importers	Value $bn	Share %	Annual percentage change
1	Extra-EU (27) exports	743,2	26,9	11	1	Extra-EU (27) imports	620,7	23,9	13
2	United States	521,4	18,8	10	2	United States	367,9	14,2	8
3	China	146,4	5,3	20	3	Japan	167,4	6,4	13
4	Japan	146,4	5,3	15	4	China	158,0	6,1	22
5	India	102,6	3,7	17	5	Korea,	91,8	3,5	12
6	Hong Kong, China	92,3	3,3	9	6	Canada	86,6	3,3	6
7	Singapore	82,9	3,0	3	7	India	83,6	3,2	18
8	Switzerland	75,2	2,7	16	8	Singapore	78,9	3,0	6
9	Korea	74,1	2,7	20	9	Russian Federation	74,6	2,9	29
10	Canada	64,8	2,3	2	10	Thailand	46,3	1,8	21

Trade in services has been the fastest growing component of international trade since the early 1990s, with average annual growth rates of close to 10% and a total cross-border export value of $2,800 billion in 2006 (WTO 2008). Over the same period, the composition of services trade has shifted dramatically in favour of high-skill intensive categories such as business services, provoking heated debate about the consequences of services offshoring.