The third type of subsidy under the SCM Agreement is a green light subsidy. Green light subsidies are non-actionable by WTO Members even though they might otherwise be considered countervailable. The most common type of green light or non-actionable subsidies include those provided for research and development, those provided to disadvantaged regions of a country, or those provided to assist environmental concerns.

 

It is worth noting that the Commerce Department strictly and narrowly interprets what constitutes a green light subsidy to prevent expansion of the green light provision. The United States statute places specific limitations on the scope of these exceptions, and the government providing the subsidy has the burden of proving that these limitations have been met. Any doubts are resolved in favour of the subsidy programme being considered actionable under United States law.

 

For example, non-actionable research and development subsidies are limited to two basic types of subsidies. The first type, 'industrial research' subsidies, are subsidies provided to enhance research aimed at the discovery of new knowledge with the objective of developing new products or significantly improving existing products. The second type is 'pre-competitive development activity', which involves subsidies provided to assist the translation of industrial research into a plan for new and improved products up to the point of the first non-commercial prototype.

 

United States law imposes further limitations on these subsidies before they are deemed non-actionable. Specifically, to qualify as green light subsidies, they must be limited to funding a very narrow set of expenses, such the cost of research personnel, or costs of instruments, equipment, land and buildings used exclusively and permanently for the research, or related costs of consultancy used exclusively for the research activity. These programmes may also fund certain additional overhead costs or other running costs incurred directly as a result of the research activity. Any such reimbursed costs must not cover more than 75% of the industrial research costs or 50% of the pre-competitive development costs.

 

United States law similarly restricts the types of subsidies that qualify as non-actionable disadvantaged regional subsidies. These are generally defined as those subsidies provided as part of a generally applicable regional development policy. Moreover, strict criteria must be met before even these types of subsidies qualify as non-actionable. First, the subsidy must be designed for a clearly designated, contiguous geographical area with a definable economic and administrative identity. Second, the region receiving the subsidy must be disadvantaged more than temporarily. Third, the assistance provided must be generally available, not targeted to any specific industry. Fourth, eligibility criteria for receiving assistance must be neutral, objective and capable of verification. And, fifth, the overall programme must include ceilings on the subsidy amount available per project.

 

In addition to these strict criteria, United States law also imposes further limits on the economic circumstances of the disadvantaged region, which must be assessed over a three-year period. The Commerce Department must make this assessment based either on the overall per capita income, household income, or gross domestic product per capita, any of which must not exceed 85% of the average for the territory concerned. Alternatively, the unemployment rate must be at least 110% of the average for the territory as a whole.

 

There are also strict limits on what qualify as non-actionable environmental subsidies. These must involve the adaptation of existing facilities to new environmental requirements imposed by law which result in greater financial burden on firms. To qualify for green light status, the subsidy must be a one-time, non-recurring measure whose total value is limited to 20% of the adaptation cost (if 21% of the cost is subsidized, the entire subsidy is countervailed). Moreover, such subsidies must be directly linked to planned nuisance and pollution reduction and be made available to all firms that can adopt new equipment or production process. Further, the subsidies may be used only to upgrade existing facilities in operation for at least two years at the time the environmental requirements were imposed; and they cannot involve the cost of replacing and operating the actual facility.

 

Finally the subsidies may only compensate for environmental requirements which are new and unforeseen.

 

As one can easily see, the United States Congress has been very careful to define strictly and narrowly the programmes that can qualify as non-actionable subsidies. These provisions were reluctantly added to the United States statute to reflect United States obligations under the SCM Agreement.

 

The irony is that, as a technical matter, the green light subsidies provisions of the SCM Agreement do not currently apply. Under Article 31 of the SCM Agreement, the rules on green light subsidies applied for only five years, after which time WTO Members were to decide whether or not to extend the rules. No formal action or decision to extend had been made.

 

A similar provision in the United States law calls for the various provisions that declare certain subsidies to be non-actionable to not apply after the five-year period, unless they are specifically extended. Reflecting its desire to keep more control over trade policy, Congress required the Administration to come back to Congress for new authorization to extend these provisions, even if the WTO Members decided to extend them. At this time, therefore, the provisions do not apply.

 

Note, however, that most of the rules for non-actionable subsidies reflect general principles that would apply anyway, and probably would be sufficient to keep the programme in question from being declared an actionable subsidy. The main difference is that the specific rules provided so-called safe harbours that allowed countries and companies to proceed with more confidence that their actions were not creating actionable subsidies. Now that we are back to the general principles, the 'zone of uncertainty' applies once again.

 

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures