WTO Subsidies Agreement

The Agreement on Subsidies and Countervailing Measures (SCM Agreement) is one of the multilateral agreements annexed to the Marrakesh Agreement Establishing the World Trade Organization, which entered into force on 1 January 1995. It applies to trade in goods (services subsidies fall under the GATS, and agricultural subsidies are additionally governed by the Agreement on Agriculture).

The SCM Agreement does two main things. First, it defines and disciplines subsidies granted by governments or public bodies. A subsidy exists under Article 1 when there is a financial contribution (such as a grant, loan, tax break, or provision of goods/services) that confers a benefit, and it is actionable only if "specific" to an enterprise, industry, or group of industries under Article 2. Second, it regulates the use of countervailing duties (CVDs) — tariffs that importing countries may impose to offset injurious subsidization, subject to investigation procedures laid out in Part V.

The agreement originally sorted subsidies into three categories — the so-called "traffic light" system:

• Prohibited (red): export subsidies and import-substitution subsidies (Article 3).
• Actionable (amber): subsidies that cause adverse effects to another member, which can be challenged at the WTO or met with CVDs.
• Non-actionable (green): certain R&D, regional development, and environmental adaptation subsidies under Article 8 — but this category lapsed at the end of 1999 because members did not agree to extend it.

Disputes are handled through the WTO's Dispute Settlement Body. Landmark cases include US – FSC (DS108) on US export tax breaks, the long-running EC and Certain Member States – Large Civil Aircraft (DS316, Airbus) and US – Large Civil Aircraft (DS353, Boeing) disputes, and Canada – Aircraft (DS70). Special and differential treatment provisions give developing and least-developed countries longer phase-out periods and higher de minimis thresholds.