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SUBSIDIES

AND
COUNTERVAILING
MEASURES

SUBSIDIES AND COUNTERVAILING MEASURES


Is

a countervailing is a trade countermeasure adopted by government to


offset any bounty or subsidy given to
exporters whish is not generally available
to other producers of the exporting
countries.

WHAT IS A SUBSIDY?
SUBSIDY refers to any specific assistance (e.g. Financial
contribution, income or price support schemes) directly or
indirectly provided by the government of the country of
export or origin in respect of the product imported into
the Philippines. An industry is deemed to have received
subsidy where a benefit is conferred(confer
award/bestow/grant/give) as a result of:
**Direct and/or potential transfer of government funds
(e. g. Grants, loans, equity, infusion, loan guarantee.
**The government foregoing the revenue the revenue
that should otherwise have been collected (e. g. Tax
credit) ***TAX CREDIT***
**The government providing goods or services or
purchasing goods.

ARE ALL SUBSIDY COUNTERVAILABLE/ACTIONABLE?

Not all subsidies are countervailable/actionable.


Subsidy, in order to be countervailable/actionable,
must be specific, i.e., explicitly limited to:
1.) an enterprise or group of enterprises:
2.) an industry sector or group of industries
3.) a designated geographic region within the
jurisdiction of the granting authority.

WHAT ARE ACTIONABLE SUBSIDIES?


Actionable subsidies or Yellow subsidies
are those falling under the definition of
subsidy described as can be the combination
of non-actionable nor prohibited subsidies
Those which have been proved to be
benefitted by the following :

**Direct and/or potential transfer of government funds (e. g. Grants, loans, equity,
infusion, loan guarantee.
**The government foregoing the revenue the revenue that should otherwise have
been collected (e. g. Tax credit)
**The government providing goods or services or purchasing goods.

WHAT ARE NON-ACTIONABLE SUBSIDIES?

Or Green Subsidies are those which are


permitted as they are of a general nature,
applied across-the-board to all industries and
not limited to a specific industry or enterprise or
group of enterprises or industries. Subsidy,
under this category, cannot be subjected to
either countervailing measures or other
disciplines under the WTO Agreement on
Subsidies and Countervailing Measures.

EXAMPLE OF GREEN SUBSIDIES IS


GOVERNMENT ASSISTANCE FOR RESEARCH
ACTIVITIES CONDUCTED BY FIRMS TO :
Adapt existing production facilities to new
environmental requirements, or
Assist in the development of industries in
disadvantaged regions, provided that such
assistance is not directed to specific
enterprises or industries within the region.

WHAT ARE PROHIBITED SUBSIDIES?

Red Subsidies include export subsidies,


i.e., those that are contingent on export
performance, and subsidies that are
contingent on the use of domestic over
imported goods. An importing country
alleging this kind of subsidy can avail of
remedy measures by bringing the matter
before the WTO Dispute Settlement Body for
redress. (restore/level out/equalize.)

EXAMPLES OF RED SUBSIDIES :

Direct subsidies based n export performance.


Currency retention schemes involving bonus on exports.
Exemption from direct taxes (e.g. Tax on profits related to
exports)
Exemption from or remission of, indirect taxes (e.g. Value added
tax on exported products in excess of those borne by these
products when sold for domestic consumption.
Remission or drawback of import charges (e.g. Tariffs and other
duties) in excess of those levied on inputs consumed in the
production of exported goods.
Export guarantee programs at premium rates inadequate to cover
the long term costs of the program
Export credits at rates below the governments cost of borrowing,
where they are used to secure a material advantage in export
credit terms.

SCOPE AND COVERAGE

What articles may be covered by a countervailing action?

A countervailing protest may cover any product which is


granted directly or indirectly by the government in the
country of export or origin, any kind or form of specific
subsidy upon the exportation or manufacture of such
product, and the importation of such subsidized product
is causing or threatening to cause material injury to a
domestic industry, or is materially retarding the growth,
or preventing the establishment of a domestic industry.

IMPORTATIONS EXEMPTED FROM


COUNTERVAILING ACTION :
Articles imported by, or consigned to government
agencies not organized to profit and particularly
designated by law or proper authorities to import,
directly or through awardees, such articles as
would stabilize and/or supplement shortages
Conditionally duty-free importations allowable
under Section 105 of the TCCP, as amended

WHAT IS THE COUNTERVAILING DUTY ACT OF


1999?

Republic Act (R.A.) 8751, otherwise known as the


Countervailing Duty Act of 1999 was signed on
August 7, 1999 and took effect on August 31, 1999. It
amended Section 302 of the TCCP, which provides
protection to a domestic industry which is being
injured, or is likely to be injured by subsidized
products imported into or sold in the Philippines.
The Implementing Rules and Regulations (IRR) of RA
8751 as embodied in Joint Administrative Order No.
02, series of 2000 took effect on September 25,
2000.

RATIONALE FOR THE PASSAGE OF RA 8751:


To transform the domestic countervailing
duty law into a more workable and simple
piece of legislation providing safety nets
against the inflow of cheap subsidized
imports.
To strengthen the rules governing the
investigation of countervailing cases.
To align the domestic law with the WTO
Agreement on Subsidies and Countervailing
Measures.

Who may file for countervailing action?


Ans. A petition may be filed by, or on behalf of, the
domestic industry, in writing and in a notarized
form.
X What constitutes a domestic industry?
Ans. Domestic industry refers to the domestic producers,
as a whole, of the like product or to those producers of
such like product whose collective output of the product
constitutes a major proportion of the total domestic
production of those products in the industry concerned.

When producers are related to the foreign exporters or


importers or are themselves importers of the allegedly
subsidized product, the term domestic industry may be
interpreted as referring to the rest of the producers.

GOVERNMENT AGENCIES THE ADMINISTER THE


COUNTERVAILING LEGISLATION :

Department of Trade and Industry-Bureau


of Import Services or Department of
Agriculture : receives the properly
documented application (DTI for industrial
goods and DA for Agricultural products);
determines whether or not a prima facie
case exists to warrant initiation of
investigation; and conducts preliminary
investigation for purposes of determining
whether or not the provisional measures may
be imposed

Tariff Commission conducts formal


investigation
and
makes
the
final
determination for purposes of the definitive
countervailing duty.

Bureau of Customs takes charge in


imposition of the countervailing measures.

Who may file a petition for countervailing action?


Ans. A petition may be filed by, or on behalf of, the
domestic industry, in writing and in notarized form.
X What constitutes a domestic industry?
Ans. Domestic industry refers to the domestic
producers, as a whole, of the like product or
those producers of such like product whose
collective output of the product constitutes a
major proportion of the total domestic production
of those products in the industry concerned
When producers are related to the foreign
exporters or importers or are themselves
importers of the allegedly subsidized product, the
term domestic industry may be interpreted as
referring to the rest of the producers.

What is the threshold of support by


producers for the petition to be accepted?
Ans. *Support by domestic producers whose
collective output constitutes more than 50%
of the total production of the like product
produced by the domestic industry.
*Support by producers accounting for at
least 25% of the total domestic production of
the product alleged to be subsidized.

UNDER WHAT CONDITIONS CAN A COUNTERVAILING INVESTIGATION


BE INITIATED WITHOUT A WRITTEN APPLICATION FROM THE DOMESTIC
INDUSTRY?

In special circumstance, DTI or DA may, on it


own motion, initiate a countervailing action
even without the written application from the
domestic industry. The concerned authorities
should
have
sufficient
evidence
of
subsidization, injury and causal link to justify
the initiation of the investigation.

INFORMATION REQUIRED WHEN APPLYING FOR THE LEVY OF


COUNTERVAILING DUTY.

Identity of the applicant and a description of the volume and the value of his
domestic production of the like product.
List of all known domestic producers of the like product and if possible;
Description of the volume and value of the domestic production of the like product
accounted for by such producers (if the application is made on behalf of the domestic
industry);
Description of the allegedly subsidized product
Names of the exporting countries, each known exporter or foreign producer, and a
list of the importers of the product;
Estimated aggregate or cumulative quantity, the port and the date of arrival, the
import entry declaration of the allegedly subsidized product.
Nature, extent and estimated amount of the alleged subsidy.
Total capital invested, production and sales volume, and aggregate production
capacity of the domestic industry;
Effect of the price of the allegedly subsidized product on the price of the like product
in the domestic market; and
Consequent impact of the importation of the allegedly subsidized product on the
domestic industry, i.e. Prices at which the product is sold in the domestic market of
the exporting country and export prices; injury and causality; volume of subsidized
imports; and adverse effects of such imports on domestic prices and on domestic
industry

STAGES IN A COUNTERVAILING INVESTIGATION :


a.

b.

c.

d.

Prima Facie Determination The DTI-BIS or DA has 10 days from receipt of the
properly documented petition to examine the accuracy and adequacy of the petition
and determination whether there is sufficient evidence to justify the initiation of an
investigation.
Preliminary Determination once a prima facie case has been established, DTI,
or DA initiates the investigation and makes a preliminary determination on whether
or not a provisional measure may be imposed within 20 days from receipt of the
answers of the questionnaire from respondents and other interested parties.
Final Determination in the conduct of its formal investigation, the Commission
notifies all interested parties; receives representations and/or other submissions;
holds preliminary conference and public consultations; and conducts on-site
investigation/data verification both foreign and domestic. The Commission has 120
days from receipt of the advice from either Secretary of DTI or DA to complete its
investigation and submit its report of findings to the Secretary.
Issuance of Department Order within 10 days from receipt of the affirmative
final determination by the Commission, the Secretary of DTI or DA issues a
Department Order for the imposition of a definitive countervailing duty, unless the
Secretary has earlier accepted a price undertaking from foreign exporter, producer
or government of the country of export or origin.
In case of a negative determination, the Secretary, after the lapse of the period for
the petitioner to appeal to the Court of Tax Appeals, issue, through the Secretary of
Finance, an Order for the Commissioner of Customs to immediately release the
cash bond to the importer

PURPOSE OF THE GOVERNMENT TO GOVERNMENT


CONSULTATION AND WHEN IS IT CONDUCTED

Upon acceptance of a properly documented


application and before initiating an investigation,
the Secretary of either DTI or DA notifies the
government of the country of export or origin about
the impending application for countervailing
measure and invites the same as well for
consultation with the objective of clarifying the
situation as to the same as well to matters referred
to in the application and arriving at a mutually
agreed upon solution.

UNDER WHAT CIRCUMSTANCES CAN A PETITION BE REJECTED AND THE


INVESTIGATED?

A. In the case of a product originating from a developed country, when;


amount of subsidy is de minimis, i.e. less than 1%;
volume of subsidized imports is negligible, i.e. less than 3% of the total
imports of the importing country. However, this rule does not apply when
countries with individual shares of less than 3% collectively account for
more than 7% of imports of the product under investigation; or
injury is negligible.
B. In case of a product originating from a developing country; when;
amount of subsidy is de minimis, i. e. Equal to or less than 2% ( 3% for
least developed countries.
volume of subsidized imports is negligible, i.e. less than 4% of the total
imports of the importing country. However, this rule does not apply when
countries with individual shares of less than 4% collectively account for
more than 9% of total imports; or
injury is negligible.

What is meant by disclosure of essential facts?


Ans. Before making the final determination, the Commission is
required to disclose to interested parties, (e.g., exporters or
producers, their governments, and importers) the essential
facts on which the decision to apply the duty is to be made.
The parties given five (5) days from the date of receipt of the
essential facts to defend their interests in writing.

X What can the investigating authorities do if the exporting

enterprises refuse to cooperate, impede an investigation or


make incorrect/incomplete information?
Ans. The authorities can decide on the basis of the best
informationavailable.

FOUR (4) ELEMENTS OF COUNTERVAILING

Like Products a product is identical or alike in all respects to the article


under consideration or, in the absence of such product, another product
which, although not alike in all respects, has characteristics closely
resembling those of the product under consideration.
Subsidy refers to any specific assistance directly or indirectly provided by
the government of the country of export or origin in respect of a product
imported into the Philippines.
Injury means material injury, threat of material injury or material
retardation of the growth or the prevention of the establishment of a
domestic industry. Injury test must be based on positive evidence and shall
involve an objective examination of both (i) the volume of the subsidized
imports, (ii) effects of subsidized imports on the prices of like product in the
domestic market; and (iii) the consequent impact of these imports on
domestic producers of such products.
Causal Link the material injury suffered by the domestic industry is the
direct result of the importation of the subsidized product.

FACTORS CONSIDERED IN DETERMINING MATERIAL


INJURY TO THE DOMESTIC INDUSTRY:

Actual or potential decline in output, sales, market share,


profits, productivity, return on investments or utilization of
capacity.
Effects on domestic prices;
Actual or potential effects on cash flow, inventories,
employment, wages, growth, and ability to raise capital or
investments; and
Whether there has been an increased burden on
government support programs.

THREE (3) WAYS IN DETERMINING PRICE EFFECTS :

Price depression refers to the extent by which the domestic


producer reduces its selling price in order to compete with
the allegedly subsidized product.

Price depression exists when the allegedly subsidized


product prevents the domestic producer from increasing its
selling price to a level that would allow full recovery of its
cost of production.

Price undercutting refers to the extent by which the allegedly


subsidized product is consistently sold at a price below the
domestic selling price of the like product.

FACTORS IN DETERMINING THE EXISTENCE OF A THREAT OF


MATERIAL INURY:

Nature of the subsidy in question and the trade effects likely to


arise there from;
Significant rate of increase in the importation of the subsidized
product into the domestic market indicating the likelihood of
substantially increased importation;
Sufficient freely disposable, or an imminent, substantial increase
in, production capacity of the foreign exporter indicating the
likelihood of substantially increased subsidized exports in the
domestic market, taking into account the availability of other
export markets to absorb any additional exports;
Whether such subsidized products are entering at prices that will
have a significantly depressing or suppressing effect on domestic
prices, and will likely increase demand for further importation of
the subsidized products; and
Inventories of the product being investigated.

WHAT ARE EXAMPLES OF INJURY FACTORS NOT


RELATED TO SUBSIDIZATION?

Contraction in demand or charges in the


patterns of consumption.
Trade restrictive practice of, and competition
between, foreign and domestic producers.
Developments in technology; and
Export performance and productivity of the
domestic industry.

REMEDIES/MEASURES IMPOSED AGAINST


SUBSIDIZATION

Provisional Measure takes the form of a


security (cash deposit or bond) equal to the
amount of the provisionally calculated amount of
subsidy. It is applied only after the DTI-BIS or
DA has made a preliminary affirmative
determination and no sooner than 60 days from
the initiation of the case.
Definitive Duty final countervailing duty
imposed, in addition to the regular duty and
other charges, o a protested product imported
from a specific exporter, following an affirmative
determination.

Duration of the imposition of countervailing measures:


Provisional measure four (4) months
Definitive countervailing duty five (5) years from the date of imposition.
what is price undertaking?
Price undertaking is a voluntary undertaking by the government of the exporting
country to eliminate or limit the subsidy; or voluntary commitment by the
foreign exporter and/or the producer that they will increase their prices or will
cease exporting to the Philippines at the subsidized price. An offer of price
undertaking shall be made only after a preliminary affirmative determination
of subsidization and injury to the domestic industry.
Price undertaking is effective for a period of five (5) years unless the foreign
exporter proves to the satisfaction of the authorities that the undertaking is no
longer necessary.

what is lesser duty rule?


Lesser duty rule is the imposition of countervailing duty in amounts lower than
the calculated subsidy, if such a lesser duty is adequate to remove the injury to
the domestic industry.

REVIEWS AVAILABLE TO THE AFFECTED PARTIES OF COUNTERVAILING MEASURES:

Administrative Review :
a.
Sunset review may be initiated by any interested party or upon own
motion of the commission before the sunset date, i.e., the 5th year to
determine whether the expiry of the duration of the countervailing duty
imposition would lead to a continuation or recurrence of subsidization and
injury.
b.
Interim Review conducted by the Commission, motu propio, or upon the
direction of the Secretary or upon petition of any interested party to
determine whether (i) the imposition of the countervailing duty is no longer
necessary to offset subsidization, taking into consideration the need to
protect the existing domestic industry against dumping, (ii) the existing duty
is not sufficient to counteract the subsidization which is causing injury. At
one (1) year should have elapsed since the imposition of the countervailing
duty before an interim review can be initiated.
2. Judicial Review Aggrieved and/ or any interested party may file a petition
for review with the Court of Tax Appeal within thirty (30) days from receipt
of notice of the final ruling on the imposition of a countervailing duty. Filing
of such petition for review shall not in any way stop or suspend the
imposition and collection of the countervailing duty.
1.

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