On The Identification Of Subsidy Benefit In The SCM Agreement

"Benefit" is one of the two legal essential elements in the definition of subsidy stipulated in the SCM Agreement. As the core element in the definition of subsidy,"benefit" and "financial contribution" have been regarded as criterion to determine the existence of subsidy. If the recipient of financial contribution is likely to receive more favorable conditions than those could actually obtain on the market, then the sense of "benefit" in article1.1in the SCM Agreement arises."Benefit" is not an abstract definition. It implies some kind of comparison, whose focus is on the recipient of benefit rather than on the authority providing financial contribution. Benefit is something that can be received or enjoyed, and thus making the recipient have a better position after receiving financial contribution, which is identified by the "market", the appropriate basis. As the relevant context of defining benefit in article1.1(b), benchmark stipulated in article14in the SCM Agreement is the guidelines of whether the recipient has a better position on the market owing to the conferral of financial contribution. Private prices in the country of provision or purchase are the primary benchmark of the investigating authority to determine the existence of subsidy benefit. However, if private prices on the market have been distorted by the predominant role of the government, the investigating authority can use alternative benchmark rather than private prices to determine whether the conditions of financial contribution are more favorable than those on the market. But in the countervailing duty investigation, alternative benchmark can become a controversial issue because they might be abused by the investigating authority, especially on determining under what circumstances alternative benchmark can replace primary benchmark, and on determining specific alternative benchmark, hitherto there are still no definite answers. Regarding the benefit pass-through of subsidy, there are no specific stipulations in the SCM Agreement. As for the existence of subsidy benefit and the extent of pass-through to products or enterprises after transaction or privatization, there are no concurrent criterions. In practice, subsidy benefit may be distinguished by an arm’s length transaction and fair market value, but it would not distinguish automatically. It depends on particular cases to determine whether subsidy benefit has been passed through. At present, State-owned economy dominates in our country and government plays an important role on the market. State-owned enterprises and national commercial banks participate in economy extensively, as a result, the benchmark might be recognized as distorted and alternative benchmarks will be applied, causing China to have an unfavorable position in coping with the countervailing duty investigations launched by other countries on Chinese exports. However, while in interpretation and application of article14in the SCM Agreement, it is very difficult for China to make a fundamental change of the conclusion of the Appellate Body concerning alternative benchmark, especially the one contained in article15(b) in the China Accession Protocol. But in some particular aspects, countermeasures and justified claims can be made to reduce the possibilities and unfavorable impacts of abusing alternative benchmarks to minimum degree. Therefore, China should make relevant stipulations on the issue of upstream subsidy as lay down in the Countervailing duty Ordinance and its corresponding regulations as soon as possible to fill the legal loopholes and ensure that the investigating authority has the legal basis in countervailing duty investigations.