Research On "Benefit" In The Scm Agreement Under WTO

Subsidy is an issue that relates to economic, social and political affairs of most countries and regions. Therefore it has always been a ticklish issue in the process of trade liberalization. Nearly every country has different types of subsidy policy in diversified forms and varied strength. Different from the anti-dumping rules, subsidy is never forbidden in general by WTO agreements. This can be seen in the wording of relevant agreements. The measures dealing with dumping are called anti-dumping measures while those dealing with subsidies are not called anti-subsidy measures but countervailing measures. The Chinese expression for countervailing measures can literarily be translated to anti-subsidy measures, which is not a precise one. There is never such wording of anti-subsidy measures in international legal documents.Since the precise wording is countervailing measures, what exactly does it countervail? It is quite clear that these measures are countervailing the benefit which is conferred by governmental subsidies. The benefit conferred by subsidies gives the enterprises artificial competitive advantage and the order of competition in international trade will be distorted. Meanwhile the concept of benefit is employed as one legal criteria of subsidy in the Agreement on Subsidies and Countervailing Measures (“the SCM Agreement”). Comparing with the concept of a financial contribution which is amplified by four explanatory sub-paragraphs, the word“benefit”is not clearly defined in the SCM Agreement.This dissertation is composed of an introduction and six chapters.The title of Chapter I is The Meaning of Benefit and the Foothold of Analysis. This Chapter introduces firstly the interpretive conclusion of benefit developed by the Panel and Appellate Body in Canada–Aircraft, that is“a benefit would only be conferred if a financial contribution was provided on terms that are more advantageous than those that would have been available to the recipient on the commercial market”. This interpretive conclusion is the expression of the standard for benefit determination. It might reveal the meaning of t benefit to some extent but it is not the essential meaning of benefit. The meaning of benefit should be interpreted from the viewpoint of competition law. Although the concept of trade law/trade policy is independent from that of competition law/competition policy, they are closely connected, collaborate with each other and reinforce mutually. They also share the same rationale and general purposes to some extent. Therefore, it is good and practical to interpret the meaning of benefit from the viewpoint of competition law without any theoretical barrier. Only from the viewpoint of competition law can the concept of benefit be correctly developed. Benefit is a kind of artificial competitive advantage for the beneficiary which embodies a trade distorting potential. Therefore beneficiary is the foothold for analyzing the benefit concept, while provider is not a proper perspective. It is confirmed repeatedly by Panels and the Appellate Body in many WTO disputes cases.The title of Chapter II is Recipient of Benefit. This Chapter addresses the beneficiary who is the recipient of benefit. The recipient of benefit is different from the recipient of financial contribution. The former will be identified as beneficiary while the latter can be called as receiver. In many situations the concepts are different. This distinction is usually ignored and thus always leads to logical confusion in benefit analysis, even in some WTO disputes. The beneficiary is the foothold for analyzing benefit concept. The SCM agreement itself is silent regarding who is the beneficiary of a subsidy. According to the reports of Panels and Appellate Body in many WTO subsidy disputes, productive operation of an enterprise is too abstract to be a beneficiary; legal personality is not the outer boundary of a beneficiary, a limited liability company and its shareholders can be identified as one beneficiary; one financial contribution might have multiple beneficiaries and thus constitute more-than-one subsidies. The rule of“legal personality is not the outer boundary of a beneficiary”is directly related to the pass-through analysis in Chapter VI.The title of Chapter III is Benchmark for Benefit Determination. This Chapter discusses the meaning of benefit conferred by subsidies which is a kind of artificial competitive advantage for the beneficiary that embodies a trade distorting potential. This artificial competitive advantage could be identified by determining whether the market position of the beneficiary has been improved comparing with its competitors. In other words, competitors of the beneficiary could serves as benchmark for benefit determination. The financial contributions provided in the SCM agreements can be divided into two categories. One is the kind completed by governments (or public bodies) in the form of commercial transactions, such as direct transfer of funds including governmental equity capital and governmental loans, potential direct transfers of funds including governmental guarantee, and the provision of goods or services and purchase of goods by a government. The other is the kind completed by governments (or public bodies) in the performance of official capacity or public serve, such as tax credits. The first category of financial contributions may take the relevant marketplace as comparing benchmark. When making benefit determination in the case of the first category, the competitor benchmark may be replaced by the commercial benchmark. Article 14 of the SCM Agreement contains some guidelines such as the usual investment practice of private investors which should be the benchmark in the case of governmental equity capital, the amount the firm would pay on a comparable commercial loan which should be the benchmark in the case of governmental loans, the amount that the firm would pay on a comparable commercial loan absent the governmental guarantee which should be the benchmark in the case of governmental guarantee and adequate remuneration which should be the benchmark in the case of the provision of goods or services and purchase of goods by a government. As for the second category of financial contributions, there is no corresponding marketplace as comparing benchmark. Therefore, when making benefit determination in the case of the second category, the competitor benchmark should be employed. Besides, there also exist self-evident benchmarks in case of grant scenario and other contributions treated as grants.The title of Chapter IV is The Characteristic of Commercial Benchmarks. This chapter presents what requirements should be satisfied when some commercial prices are chosen to serve as commercial benchmarks. Firstly, the price of private bodies is generally the first choice to be used as a benchmark although the price of governments or public bodies is not precluded from being a commercial benchmark. The essential characteristic of private bodies is pursuit of profit which is the only motive of their operations. Of course it doesn’t need to be a short-term or extreme profit rate. Whether the enterprise is domestic or foreign and the enterprise’s market share is representative or not are irrelevant to the issue whether this enterprise is a private body. The Appellate Body interprets a government as an entity which regulates, restrains, supervises or controls individual behavior by the legal authority and interprets a public body as an entity vested with certain governmental responsibilities, or exercising certain governmental authority. Secondly, the commercial benchmark employed should be the transaction which takes place at the same time as the government provides the financial contribution. Thirdly, a commercial benchmark chosen for benefit determination must stand for fair market value at arm’s-length transactions priced under freely competitive market conditions. Fourthly, a commercial benchmark chosen for benefit determination should also be comparable. It is necessary to make some kind of adjustments to the benchmark price to assure the comparability between the commercial benchmark and the financial contribution under certain circumstances. But adjustments need sufficient and valid information as solid bases. If the selected price cannot satisfy the comparability requirements after possible adjustments, the investigating authority is allowed to employ other qualified price as commercial benchmark. If any price selected according to benchmark-choice rule cannot satisfy the comparability requirements after possible adjustments, or there is no enough data to support adjustments, the investigating authority is allowed to make changes to the benchmark-choice rule including employing constructed price. In summary, a comparable price of private bodies is generally the first choice to be used as the commercial benchmark chosen for benefit determination which must stand for fair market value at arm’s-length transactions taking place at the time the government provides the financial contribution.The title of Chapter V is Appropriate Adaptations of the Commercial Benchmark Choice Rule. This chapter addresses the appropriate adaptations of Article 14. Article 14 is only an illustrative list of commercial benchmarks. Since Article 14 doesn’t cover all eventualities, adaptations are necessary. The characteristic and the wording of Article 14 also provide the feasibility of such adaptation. Such adaptation is allowed in WTO dispute settlement practice and its boundary is confined to some extent. It is shown by denying the inside investor standard in Japan–DRAMs, basic reasonableness test advancing in EC–Countervailing Measures on DRAM Chips, and approximate criterion developed in US–Anti-Dumping and Countervailing Duties. Adjustment is one of the methodologies to make the adaptation in its reasonable boundary. Commercial-reasonability-determination methodology is a reasonable adaptation to Article 14(a), out-of-country benchmark is a reasonable adaptation to Article 14(d) and the rate of constructed loan is a reasonable adaptation to Article 14(b). The adaptation of Article 14 also shows that the commercial benchmark choice rule is an open rule consistent with the essential meaning of benefit concept.The title of Chapter VI is Pass-through of Benefit. This chapter deals with the dynamic analysis of benefit. The distinction between the beneficiary and the receiver discussed above and the rule to determine the beneficiary serve as grounds for the discussion in this chapter. The first issue discussed in this chapter is the pass-through under the circumstance of transfer of enterprise ownership (including privatization). Does a post-privatization-enterprise still benefit from subsidies conferred before privatization? The same person methodology was employed by USDOC to make a determination on this issue based on the decision whether the prior-privatization-enterprise and the post-privatization-enterprise is the same legal person. The same person methodology is unacceptable to the DSB because legal personality is not the outer boundary of a beneficiary and the fact that the legal personality of the enterprise privatized didn’t change through privatization does not mean there is no new beneficiary. In such circumstance, a new benefit determination is indispensable. USDOC ignored the distinction between utility value and market value and determined by using the same person methodology that the benefit of subsidies conferred before privatization will continue to accrue to the post-privatization-enterprise without a new benefit determination, disregarding the price the new shareholder pays in the privatization transaction. The fact that a privatization is completed at arm’s-length and for fair-market value should lead to the presumption by the investigating authority that the benefit of subsidies conferred before privatization stops accruing to the post-privatization-enterprise. The second issue addressed in this chapter is upstream subsidy scenario. If countervailing duties are intended to offset a subsidy granted to the producer of an input product, but the duties are to be imposed on the processed product (and not the input product), it is obligated for an investigating authority to make a new benefit determination except: (1) the transaction between the producer of an input product and the producer of the processed product is not at arm’s-length and not for fair-market value; (2) the producer of an input product is the same person as the producer of the processed product; or (3) the input product and the processed product are both under investigation.In summary, Chapter I The Meaning of Benefit and the Foothold of Analysis is the theoretical foundation for benefit analysis and also the guideline of benefit determination. Chapter II Recipient of Benefit addresses the benificiary which is the foothold and the center of benefit analysis. Chapter III Benchmark for Benefit Determination, Chapter IV The Characteristic of Commercial Benchmarks, Chapter V Appropriate Adaptation of the Commercial Benchmark Choice Rule discuss the comparing benchmark for benefit determination which should be the core part of the discussion. Chapter VI Pass-through of Benefit deals with the dynamic analysis of benefit which is a logical extension of the discussion. Logically this dissertation can be divided into four parts, that is the theoretical foundation, the foothold, the core part and the logical extension of benefit analysis.