SCM Agreement
Also called: Agreement on Subsidies and Countervailing Measures, WTO subsidy rules · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
The SCM Agreement (Agreement on Subsidies and Countervailing Measures) is the WTO rulebook on subsidies. A subsidy is money or a benefit that a government gives to its producers. The agreement sorts subsidies into two groups:
- Prohibited subsidies ("red light") are banned outright. These are subsidies that depend on exporting more (export subsidies), or on using domestic goods instead of imported ones (a local-content condition).
- Actionable subsidies ("yellow light") are allowed. But another member can challenge them if they cause harm.
If subsidised imports cause material injury (real harm) to an industry at home, the importing country may impose a countervailing duty (CVD). This is an extra import duty that cancels out the foreign subsidy.
Example
India gave up its Annex VII exemption (WTO notification, 2017), so its export schemes such as MEIS were treated as banned export subsidies. The US challenged them (DS541), and the panel ruled against India in October 2019. India then brought in RoDTEP and RoSCTL (2021). These schemes refund taxes already built into export costs, so they do not reward exporting as such.
Don't confuse with
- Anti-dumping duty: this targets a firm selling abroad below normal value, meaning its price at home or its cost of making the good. A CVD targets a government's subsidy.
- TRIMS: this bans local-content rules attached to investment measures. The SCM Agreement bans subsidies that depend on using local content.