A government programme providing a benefit must also be 'specific' to an enterprise or industry. This means that the programme must be targeted to provide benefits only to a specific enterprise, industry, or group, rather than providing some type of benefit generally to the economy as a whole. As a practical matter, the issue of specificity is typically resolved before consideration of benefit as the Commerce Department can forego more complicated analyses and calculations should it find that a programme does not meet the 'specificity' requirement.

 

The purpose behind the 'specificity' requirement is to ensure that those types of broad-based government assistance programmes or services that most governments normally provide as a routine function of governance are not subject to countervailing duties. For example, the provision of public roads and bridges, which generally provide a benefit to anyone that uses them rather than to specific industries, are not 'specific'. Thus, the specificity requirement ensures that duties are not imposed unreasonably on broad government programmes (such as road building) that provide benefits broadly throughout the economy.

 

In an effort to simplify the 'specificity' issue, United States law classifies all such government subsidies into one of three broad categories: (1) export subsidies; (2) import substitution subsidies; and (3) domestic subsidies. Export subsidies and import substitution programmes are automatically deemed specific and are always actionable. For purposes of the statute, an 'export subsidy' refers to a subsidy that is contingent on export performance. An 'import substitution subsidy' refers to a subsidy that is 'contingent on the use of domestic goods over imported goods'. These are discussed below.

 

Export subsidies

 

As one would expect, export subsidies can take many forms. Annex I of the WTO SCM Agreement provides an illustrative list of common types of export subsidies. In addition to 'direct subsidies' paid to a firm based on export performance, there are several other less obvious types of export promotion that may amount to export subsidies, including: exemption or remission of direct or indirect taxes upon exportation; currency retention schemes that provide a 'bonus' for exports; provision for transport or freight charges on more favourable terms for export than for domestic shipments; and the remission or 'drawback' of import fees or other charges on imported inputs upon exportation.

 

Whether or not a particular export promotion programme amounts to an 'export subsidy' within the meaning of the statute depends, of course, upon the unique circumstances of each programme. Nevertheless, the law is sufficiently broad to classify a wide variety of export promotion programmes as prohibited export subsidies.

 

United States law makes clear that a programme can create an export subsidy by being contingent, either in law or in fact, on exports. When a programme makes exports an explicit condition of benefits, the linkage is clear and cannot be contested. Sometimes a programme refers to both export and non-export factors. In those instances, the Commerce Department almost always views the explicit listing of an export factor as tainting the whole programme and making the programme an export subsidy.

 

The more interesting cases, however, involve so-called de facto export conditions. Even when the foreign government law does not specifically discuss export conditions, the Commerce Department is often willing to find de facto export conditions in the circumstances of a particular case. For example, is the foreign company's home market so small that a producer would have to export to have commercially viable production levels? Does the foreign company in fact export most of its production? Are companies that export a large portion of their production the only ones that ever seem to qualify for benefits under a programme? All of these details are relevant.

 

The Commerce Department applies more inclusive standards than the WTO SCM Agreement may contemplate. Under WTO principles, the mere fact that a company exports should not be sufficient reason to find an export subsidy. Although this issue has been raised in a few WTO proceedings, the standards are still very much in the process of being defined and clarified.

 

Import substitution subsidies

 

The same types of issues arise with regard to import substitution subsidies. As mentioned above, import substitution subsidies involve subsidies that are contingent on the use of domestic inputs over imported inputs. Typically, such subsidies take the form of a direct payment by the government to the producer to compensate for any price differential between the domestic and imported input. For example, assume a country provides inputs to the steel industry at a price lower than the market price. In this example, the government provides a financial benefit (i.e. below-market price for domestic inputs) to a specific industry.

 

Assessing the countervailability of such programmes invariably raises several issues, such as the comparability of the substituted products, and documentation of the price differential between the import and domestic input. As with export subsidies, the Commerce Department casts a very wide net to catch import substitution subsidies.

 

Domestic subsidies

 

Although both export subsidies and import substitution subsidies are always specific under United States law, and therefore always countervailable, the situation is not so clear with regard to domestic subsidies. Domestic subsidies are those subsidies that are not contingent on export performance or use of domestic over imported goods. Determination of whether or not a domestic subsidy is specific has been the subject of many previous CVD proceedings. The statute seeks to resolve this issue by providing two avenues for determining the specificity of domestic subsidies. Domestic subsidies may be determined to be specific either as a matter of fact (de facto specificity), or as a matter of law (de jure specificity). 'De jure' specificity means simply that the programme is considered specific because eligibility for the programme is expressly limited by law to certain recipients by the specific eligibility terms of the enabling programme.

 

Even if the terms of the law providing the subsidy do not determine it to be specific, the statute nevertheless permits a finding of specificity 'as a matter of fact'. Such de facto specificity means simply that although eligibility for the subsidy has not been limited by the precise eligibility terms of the programme, the actual usage of the programme by a limited number of recipients demonstrates that the programme is in fact specific.

 

This issue of de facto specificity has generated a long history of intense dispute in countervailing duty cases over the years. This issue has also been frequently taken to the United States courts, which have offered lots of guidance, but much of it has been inconsistent depending on the specific judge making the decision. This murky area was codified into the United States statute in 2001, and Congress thus tried to set forth its view.

 

A subsidy is de facto specific if one of four factors exists as part of the programme. The factors are: (1) whether the use of the subsidy programme is limited to a specific number of enterprises; (2) whether the programme is in fact used only by certain types of enterprises; (3) whether the programme grants a disproportionately large amount only to certain enterprises; or (4) whether the discretion used in granting the particular subsidy favours a specific enterprise or industry.

 

Even this attempt at codification, however, does not help very much. This issue is inherently fact-specific, and Congress has refused to set any clear guidelines to help companies know in advance what is specific and what is not. Congress believes that leaving the decisions to the Commerce Department on a case-by-case base creates a 'zone of uncertainty' that can serve as a deterrent to those who might come too close to the edge.

 

To determine whether the number of users is limited, Commerce Department considers the diversity of the overall economy of the jurisdiction providing the subsidy (i.e. if a targeted sector represents a small portion of the jurisdiction's overall economy, the subsidy may be specific even if generally available to all producers within a certain sector). A subsidy may even be specific to a 'group' of industries even if the industries have nothing in common other than the receipt of the subsidy.

 

Clearly, the determination of whether or not a particular domestic subsidy meets the 'specificity' tests outlined above is both complicated and fact-specific, and will proceed on a case-by-case basis. Many domestic financial assistance programmes can be difficult to gauge under this standard, particularly those involving various types of direct equity investments in private corporations, as well as direct government loans made to private companies. As outlined above, resolution of these issues often comes down to a technical decision as to whether or not these decisions or practices are consistent with market decisions.

 

Finally, domestic subsidies known as regional subsidies are separately addressed under United States law. Regional subsidies are those limited to certain enterprises within a designated geographical region. Generally, such subsidies that are provided by a state or province within that state or province are not specific, and therefore not countervailable. However, such regional subsidies provided by the central government to a specific region or province of the country are deemed specific, and therefore are countervailable.

 

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