A Guide For Canadian Municipalities
Assessing Financial Assistance Under Canada's Trade Agreement
With respect to goods, the WTO Agreement on Subsidies and Countervailing Measures (ASCM) establishes rules on the provision of subsidies by WTO Members. A “subsidy” is defined as a “financial contribution” (e.g., a grant, a loan or a tax credit) by a government (including a local government) that confers a “benefit” to the recipient of the “financial contribution” (in general, puts the recipient in a position more favourable than it would be had the financial contribution been obtained in the market).
Only prohibited or actionable subsidies violate the ASCM. An actionable subsidy is a subsidy that is “specific” (i.e. essentially a subsidy that is targeted to a particular company or industry or group of companies or industries) and causes adverse effects (e.g. lost sales, lower prices) to foreign competitors of the subsidy recipient. A “prohibited” subsidy is one that is either contingent upon export performance or contingent upon the use of domestic over imported goods. Countries may take action against actionable or prohibited subsidies through WTO dispute settlement. A foreign government may also impose countervailing duties on imports of subsidized goods where those goods cause injury to producers in the foreign country.
With respect to services, the only existing disciplines under the GATS relate to non-discrimination. Specifically, the GATS contains national treatment and most-favoured-nation (MFN) disciplines relevant to the provision of subsidies to service sectors. In the case of National Treatment, Members may include full or limited national treatment commitments in their Schedule of Specific Commitments for a relevant sector or mode of supply or they may choose to exclude a specific sector. With respect to MFN, a Member may provide for measures that are not consistent with MFN treatment by listing an exemption in its GATS List of Article II (MFN) Exemptions. As a practical matter, any non-discriminatory requirements that might apply would relate primarily to foreign companies delivering their services through a commercial presence in the host country. Additional rules regarding subsidies in service sectors are under consideration, as mandated by GATS Article XV.
The NAFTA contains no disciplines on subsidies for services. Article 1201 excludes subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance, from the coverage of NAFTA Chapter 12 (Services).
With respect to NAFTA's Investment Chapter, Article 1108 exempts subsidies or grants, including government-supported loans, guarantees and insurance, from Chapter 11 provisions relating to national treatment, MFN treatment and senior management and Boards of Directors.
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