In contrast to the outright prohibited red light subsidies, the WTO SCM Agreement establishes a second tier of actionable subsidies known as yellow light subsidies. These are generally those subsidies that are neither the outright prohibited (i.e. red light) subsidies nor the non-actionable green light subsidies (discussed below). In addition, yellow light subsidies are also generally understood to include four other types of subsidies specifically mentioned in Article 6.1 of the SCM Agreement, being: (1) total subsidization exceeding 5%; (2) subsidies covering the operating losses of an industry; (3) subsidies covering the operating losses of an enterprise; and (4) direct forgiveness of a debt.

 

Yellow light subsidies are actionable under the SCM Agreement (and under United States law) only if they are found to adversely affect the interests of a WTO Member. Despite this distinction in the SCM Agreement, however, whether or not a particular subsidy amounts to a yellow light subsidy is not a meaningful distinction for United States proceedings. Under United States law any subsidy must injure (i.e. adversely affect) a domestic industry to be actionable. United States law now provides an 'injury test' in all cases brought against WTO Members, and thus requires a Commission determination of injury before imposing duties. Other countries are not entitled to an injury test. (It is theoretically possible for a country to assume equivalent obligations and qualify, but this would be extremely rare.)

 

Thus, the yellow light distinction is mainly meaningful in a WTO proceeding because adverse effects include the material injury test plus two additional possibilities for finding adverse affects, which are: (1) nullification or impairment of GATT 1994 benefits accruing to a Member; or (2) serious prejudice to the interests of another Member. Other than this distinction, red light and yellow light subsidies are essentially treated the same from the perspective of the United States countervailing duty law.

 

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