Export Promotion and the WTO, A Brief Guide (ITC 2009) presents the rules in the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (ASCM) – covering manufactured goods – and the WTO’s Agreement on Agriculture (AoA). Both agreements provide specific rules for developing countries. The authors examined export promotion schemes that are available to developing countries and comply with international rules on subsidies.
The guide provides a “nuts and bolts” overview of what governments and exporters should consider when developing export promotion schemes under ASCM and AoA. It describes subsidies and duty drawback tools that are available to developing and least developed countries (LDCs) to help identify potential sources of financial support.
Agreement on Subsidies and Countervailing Measures
The rules of ASCM apply only to subsidies that are ‘specific’ or explicitly limited to:
- One enterprise
- Certain enterprises
- One industry
- Certain domestic industries
- Certain enterprises located within a designated region(s)
The ASCM guide defines the following key terms that help the reader understand core concepts of the guide.
Subsidy: A government is providing either a financial contribution or income support to the benefit on a specific recipient. A financial contribution can include when a government provides:
- A loan guarantee to a private company
- An exemption from taxes, provides tax credits or otherwise forego revenue
- Goods or services other than general infrastructure, or purchased goods
Actionable subsidies: Permitted subsidies under ASCM can still be challenged through WTO dispute settlement proceedings if they have “adverse effects” on the interests of other WTO members.
Non-actionable subsidies: Subsidies that cannot be subject to action are those intended for environmental protection or make up for regional inequalities within a state or to promote research and development.
ASCM prohibited subsidies: Subsidies that are prohibited under ASCM include those that are contingent upon export performance (export subsidies). The guide provides case studies to present how to determine whether a subsidy program or a loan is prohibited.
Exemptions from on export subsidies: LDCs with gross national product per capita less than US$1,000 annually are exempted from AoA and are listed in the guide.
Agreement on Agriculture
The AoA has a long-term objective of establishing a fair market-oriented agricultural trading system through a progressive reduction of agricultural support and protection. It covers market access (i.e. tariff reductions), restrictions on the use of domestic subsidies and restriction on the use of export subsidies on primary products. A list of cover agricultural products is provided in Annex I of the Agreement.
Export subsidies most prevalent in the agricultural sector and covered under AoA include:
Direct export subsidies contingent on export performance: sales of non-commercial stocks of agricultural products for export at prices lower than comparable domestic market prices, producer-financed subsidies (e.g. government levies that are used as an export subsidy), cost reduction measures (e.g. marketing), internal transport subsidies, and subsidies on incorporated products.
In a fashion similar to the ASCM guide defines key terms that help the reader understand the allowances and exemptions and prohibited conditions under AoA as highlighted here:
Export credits: result when a buyer or supplier of exported goods or services is allowed to deter payment for a certain period of time. These involve a certain level of official support.
Export credit guarantees: instruments that cover the risks of export credits, such as default by a borrower. These can be both political (created by government practices, war or natural disasters) and commercial (complexities associated with foreign buyers).
Permitted export subsidies: export credits that are consistent with the OECD Arrangement on Guidelines for Officially supported Export Credits.
Prohibited export subsidies: grants by governments below certain interest rates, or payments by governments of at least part of the costs incurred by exporters, or financial institutions to secure a material advantage.
Free trade zone: an area within a country regarded as being outside its customs territory and exempt to customs duties and taxes.