The agreement of subsidies and countervailing measures (SCM) is an essential trade agreement enforced by the World Trade Organization (WTO). The agreement aims to create a level playing field for all countries in the international trade market by regulating the use of subsidies and providing measures to counteract adverse effects caused by subsidised imports.
In simple terms, a subsidy is a financial or other form of aid given by the government to businesses or industries. While subsidies may seem beneficial to a country`s domestic businesses, they can create unfair trade practices, especially when they are used to support exports. This is where the SCM agreement comes into play.
The SCM agreement sets out rules for the use of subsidies in international trade and provides a framework for countervailing measures to be taken when subsidies cause damage to another country`s domestic industry. The agreement defines three categories of subsidies: prohibited, actionable, and non-actionable.
Prohibited subsidies are those that directly contribute to export or contingent on export performance. They are deemed illegal and subject to countervailing measures by other countries. Examples of prohibited subsidies include export subsidies, subsidies contingent on the use of domestic goods instead of imported ones, and subsidies granted solely to firms located in export processing zones.
Actionable subsidies are those that are deemed to cause injury to other countries` domestic industries. These subsidies are subject to countervailing measures if other countries can prove the subsidies are causing harm. Examples of actionable subsidies include subsidies given to firms experiencing financial difficulties, research and development subsidies, and subsidies granted to producers of specific products.
Non-actionable subsidies are those that are unlikely to cause injury to other countries` domestic industries. They are exempt from countervailing measures and include subsidies for public goods like education, health, and environmental protection.
The SCM agreement also outlines the procedures for countervailing measures, which are actions taken by member countries to counteract the adverse effects of subsidised imports. The measures can include additional duties, fees, or taxes on imported goods, as well as import restrictions such as quotas or voluntary export restraints.
In conclusion, the agreement of subsidies and countervailing measures is a critical trade agreement that ensures fair competition in the global market. It provides a framework for regulating the use of subsidies and counteracting the adverse effects on domestic industries. As businesses and governments become more interconnected globally, the SCM agreement will continue to play an essential role in protecting fair trade practices.
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