SECTION 302: Subsidies and Countervailing Duty Not all subsidies are countervailable/actionable.

Law Subsidy, in order to be countervailable, must be

"specific;" i.e., explicitly limited to:
SUBSIDIES AND COUNTERVAILING MEASURES
* An enterprise or group of enterprises;
A. DEFINITIONS
* An industry sector or group of industries; and
What is subsidy?
* A designated geographic region within the
"Subsidy" refers to any specific assistance (e.g.
jurisdiction of the granting authority.
financial contribution, income or price support
schemes) directly or indirectly provided by the "Actionable subsidies" or "yellow subsidies" are
government of the country of export or origin in those falling under the definition of "subsidy" which
respect of the product imported into the Philippines. are neither non-actionable nor prohibited subsidies.
What are non-actionable and prohibited subsidies?
An industry is deemed to have received subsidy "Non-actionable subsidies" or "green subsidies"
where a benefit is conferred as a result of: "Non-actionable subsidies" or "green subsidies" are
those which are permitted as they are of a general
* Direct and/or potential transfer of government
nature, i.e., applied across-the-board to all
funds (e.g., grants, loans, equity infusion, loan
industries and not limited to a specific industry or
guarantees);
enterprise or group of enterprises or industries.
* The government foregoing the revenue that Subsidy, under this category, cannot be subjected
should otherwise have been collected (e.g., tax to either countervailing measures or other
credits); and disciplines under the Agreement.

* The government providing goods or services, or

purchasing goods.
Examples:
* For research activities conducted by firms;
What is a countervailing duty?
*To adapt existing production facilities to new
A "countervailing duty" is a special duty levied, in environmental requirements; and
addition to the regular duty and other charges, by
* To assist in the development of industries in
an importing country on its imports which have
disadvantaged regions, provided that such
been found to be subsidized in the country of origin
assistance is not directed to specific enterprises or
or exportation. It is equal to the ascertained amount
industries within the region.
of subsidy, calculated in terms of subsidy per unit of
the subsidized exported product. It is imposed
following an affirmative final determination.
"Prohibited subsidies" or "red subsidies,"
"Prohibited subsidies" or "red subsidies," on the
other hand, include export subsidies, i.e., those that
What is a countervailing bond?
are contingent on export performance, and
A "countervailing bond" is a security (cash deposit subsidies that are contingent on the use of
or bond) equal to the amount of the provisionally domestic over imported goods. An importing
calculated amount of subsidy. It is required to be country alleging this kind of subsidy can avail of
posted when the investigating authorities find that remedy measures by bringing the matter before the
such measure is necessary to prevent injury being WTO Dispute Settlement Body for redress.
caused during the course of the investigation.
Examples:
* Direct subsidies based on export performance;
Are all subsidies countervailable?
* Currency retention schemes involving a bonus on
exports;
* Provision of subsidized inputs for use in the - Causal Link – the material injury suffered by the
production of exported goods; domestic industry is the direct result of the
importation of the subsidized product.
* Exemption from direct taxes (e.g., tax on profits
related to exports);
* Exemption from, or remission of, indirect taxes What is a country of export?
(e.g., VAT) on exported products in excess of those
A "country of export" is the country from where the
borne by these products when sold for domestic
allegedly subsidized product was shipped to the
consumption;
Philippines, regardless of the location of the seller.
* Remission or drawback of import charges (e.g., The country of export and the country of origin may
tariffs and other duties) in excess of those levied on be the same, but not in all instances.
inputs consumed in the production of exported
What is a country of origin?
goods;
A "country of origin" is where the allegedly
* Export guarantee programs at premium rates
subsidized product was either wholly obtained or
inadequate to cover the long-term costs of the
where its last substantial transformation took place.
program; and
The country of origin and the country of export may
* Export credits at rates below the government’s be the same, but not in all instances. In case of
cost of borrowing, where they are used to secure a transshipment, where a product is shipped from a
material advantage in export credit terms. third country that is not the country where the
product was manufactured or processed, the
country of origin would be different from the country
What are the elements or factors to be considered of export.
before a countervailing duty may be imposed?
There are four (4) elements or factors which must
What is a domestic industry?
be considered before a countervailing duty may be
imposed, namely: "Domestic industry" refers to the domestic
producers, as a whole, of the like product or to
- Product Comparability – a product is identical or
those producers of such like product whose
alike in all respects to the article under
collective output of the product constitutes a major
consideration or, in absence of such product,
proportion of the total domestic production of that
another product which, although not alike in all
product. However, when producers are related to
respects, has characteristics closely resembling
the foreign exporters or importers or are
those of the product under consideration.
themselves importers of the allegedly subsidized
- Subsidy – refers to any specific assistance directly product, the term "domestic industry" may be
or indirectly provided by the government of the interpreted as referring to the rest of the producers.
country of export or origin in respect of a product
imported into the Philippines.
"Price suppression" exists when the allegedly
- Injury – means material injury to a domestic
subsidized product prevents the domestic producer
industry, threat of material injury or material
from increasing its selling price to a level that would
retardation of the growth or the prevention of the
allow full recovery of its cost of production.
establishment of a domestic industry. Injury test
must be based on positive evidence and shall "Price undercutting" refers to the extent by which
involve an objective examination of both (a) the the allegedly subsidized product is consistently sold
volume of the subsidized imports and the effect of at a price below the domestic selling price of the
subsidized imports on the prices of like product in like product.
the domestic market, and (b) the consequent
impact of these imports on domestic producers of
such products. B. SCOPE AND COVERAGE
What articles are covered by a countervailing * To transform the domestic countervailing duty law
action? into a more workable and simple piece of legislation
providing safety nets against the inflow of cheap
A countervailing protest may cover any product
subsidized imports;
which is granted, directly or indirectly, by the
government in the country of export or origin, any * To strengthen the rules governing the
kind or form of specific subsidy upon the investigation of countervailing cases; and
exportation or manufacture of such product, and
* To align the domestic law with the WTO
the importation of such subsidized product is
Agreement on Subsidies and Countervailing
causing or threatening to cause material injury to a
Measures.
domestic industry, or is materially retarding the
growth, or preventing the establishment of, a
domestic industry.
Have the rules and regulations to implement R.A.
Are there any importations exempted from 8751 been promulgated?
countervailing action?
Yes, the Implementing Rules and Regulations (IRR)
Yes, the following importations or consignments was signed by the concerned Secretaries/Agency
shall not be subject to countervailing duty protests: Heads before it was published on September 18,
2000. The IRR (Joint Administrative Order No. 02,
* articles imported by, or consigned to, government
s. 2000) took effect on September 25, 2000, i.e.,
agencies not organized for profit and particularly
seven (7) days after publication.
designated by law or proper authorities to import,
directly or through awardees;
* such articles as would stabilize and/or supplement Who administers the countervailing legislation?
shortages; and
The following government agencies are tasked to
* conditionally duty-free importations allowable administer the countervailing legislation:
under Section 105 of the Tariff and Customs Code,
as amended. * Department of Trade and Industry-Bureau of
Import Services (DTI-BIS) in the case of industrial
goods, or Department of Agriculture (DA) in the
case of agricultural products.
C. THE LEGISLATION
- receives written application and determines
What is the Countervailing Duty Act of 1999?
whether the application is proper in form and
Republic Act No. 8751, otherwise known as the substance and whether documentary requirements
"Countervailing Duty Act of 1999," which amended are complied with;
Section 302 of the Tariff and Customs Code of the
- determines whether or not a prima facie case
Philippines, provides protection to a domestic
exists to warrant initiation of investigation; and
industry which is being injured, or is likely to be
injured, by subsidized products imported into or - conducts preliminary investigation for purposes of
sold in the Philippines. determining whether or not provisional measures
(countervailing bond) may be imposed.

When was R.A. No. 8751 signed? Effective?

* Tariff Commission (TC)
R.A. 8751 was signed on August 7, 1999 and took
effect on August 31, 1999. - conducts formal investigation and submits report
of findings to either DTI or DA Secretary for the
issuance, in case of affirmative findings, of a
What are the fundamental reasons behind the Department Order concerning the imposition of the
passage of the new countervailing duty law? definitive countervailing duty.
* Bureau of Customs (BOC) - the level of subsidies granted does not exceed
2% of the value calculated on a per unit basis (for
- imposes the countervailing bond and/or the
least developed countries, it is 3%); or
definitive countervailing duty upon receipt of the
above Department Order, through the Secretary of - the subsidized imports are less than 4% of the
Finance. total imports of the importing country. However, this
rule does not apply when developing countries with
individual shares of less than 4% collectively
D. PROCEDURES account for more than 9% of total imports.

Who may file a petition for countervailing action?

A petition may be filed by or on behalf of the What is meant by "price undertaking"?
domestic industry in writing and should be
* a voluntary undertaking by the government of the
embodied in a notarized form.
exporting country to eliminate or limit the subsidy;
What is the threshold of support by producers for or
the petition to be accepted?
* a voluntary commitment by the foreign exporter
(a) support by domestic producers whose collective and/or the producer that they will increase their
output constitutes more than fifty percent (50%) of prices or will cease exporting to the Philippines at
the total production of the like product produced by the subsidized price.
the domestic industry; and
(b) support by producers accounting for at least
An offer of price undertaking shall be made only
25% of the total domestic production of the product
after a preliminary affirmative determination of
alleged to be subsidized.
subsidization and injury to the domestic industry.

Who else, aside from the domestic industry, may

What are the stages of a countervailing
initiate a countervailing investigation?
investigation?
In special circumstances, DTI or DA may, on its
* Prima Facie Determination
own motion, initiate a countervailing action. The
concerned authorities should have sufficient The DTI-BIS or DA, upon receipt of the properly
evidence of subsidization, injury and a causal link documented petition, has ten (10) days to examine
to justify the initiation of the investigation. the accuracy and adequacy of the petition and to
determine whether there is sufficient evidence to
justify the initiation of an investigation.
What is the "de minimis rule"?
The following information are to be provided in a
The petition shall be immediately rejected and the petition for the levy of countervailing duty:
investigation terminated in the situations described
- identity of the applicant and a description of the
below:
volume and the value of his domestic production of
* In the case of a product originating from a the like product;
developed country, when:
- a list of all known domestic producers of the
- the amount of subsidy is de minimis, i.e., less like product and, if possible;
than 1%; or
- a description of the volume and value of the
- the volume of subsidized imports or the injury domestic production of the like product accounted
is negligible. for by such producers (if the application is made on
behalf of the domestic industry);
* In the case of a product originating from a
developing country, when: - a description of the allegedly subsidized
product;
 - names of the exporting countries, each known Once a prima facie case has been established,
exporter or foreign producer, and a list of the DTI-BIS or DA initiates the investigation and makes
importers of the product; a preliminary determination (on whether or not a
provisional measure may be imposed) not later
- estimated aggregated or cumulative quantity,
than twenty (20) days from receipt of the answer of
the port and the date of arrival, the import entry
the respondents and other interested parties.
declaration of the allegedly subsidized product;
Upon a preliminary affirmative finding, the
- the nature, extent and estimated amount of the
Secretary of DTI or DA issues a Department Order
alleged subsidy;
for the imposition of a provisional countervailing
- number of persons employed by the affected duty in the form of a cash bond equivalent to the
domestic industry; amount of provisionally calculated dumping margin.

- total capital invested, production and sales The requirement of the dumping bond shall be
volume, and aggregate production capacity of the made not sooner than sixty (60) days from the date
domestic industry; of initiation of the investigation. The date of the
initiation of the investigation shall be the date the
- effect of the price of the allegedly subsidized Secretary publishes such notice in two (2)
product on the price of the like product in the newspapers of general circulation.
domestic market; and
The provisional countervailing duty may be
- consequent impact of the importation of the imposed for a period not exceeding four (4)
allegedly subsidized product on the domestic months.
industry as demonstrated by relevant factors and
indices having a bearing on the state of the The Secretary of DTI or DA shall immediately
domestic industry as enumerated in Section 12 of terminate the countervailing investigation upon
the IRR. finding that:

> prices at which the product is sold in the - the amount of subsidy is de minimis or where
domestic market of the exporting country and the volume of the subsidized product, or the injury
export prices; is negligible; or

> injury and causality; - the volume of imports from a particular country
is less than three percent (3%) of all imports of like
> volume of subsidized imports; and product. However, this rule does not apply when
> adverse effects of such imports on countries with individual shares of less than 3%
domestic prices and on domestic industries. collectively account for more than 7% of imports of
the product under investigation (in the case of
Upon acceptance of a properly documented developing countries the subsidized imports are
application and before initiating an investigation, less than 4% of total imports of the importing
the Secretary of DTI or DA shall notify the country). However, this rule does not apply when
government of the country of export or origin about developing countries with individual shares of less
the impending countervailing investigation and than 4% collectively account for more than 9% of
provide it a copy of the non-confidential summary of total imports); or
the application.
- the injury is negligible.
Upon notification, the government of the country of
export or origin shall also be invited for consultation
with the objective of clarifying the situation as to * Final Determination
matters referred to in the application and arriving at
a mutually agreed solution. In the conduct of its final determination, the Tariff
Commission notifies all interested parties, receives
representations and/or other submissions, and
* Preliminary Determination holds preliminary conference and public
consultations. Investigators conduct ocular plant
inspection and examination of books of accounts of * the nature of the subsidy in question and the trade
all concerned parties domestically and in the effects likely to arise therefrom;
exporting countries.
* a significant rate of increase in the importation of
The Tariff Commission has 120 days from receipt of the subsidized product into the domestic market
the advice from the Secretary of DTI/DA to indicating the likelihood of substantially increased
complete its own inquiry and submit its report of importations;
findings to either Secretary.
* sufficient freely disposable, or an imminent,
substantial increase in, production capacity of the
foreign exporter indicating the likelihood of
* Issuance of Department Order
substantially increased subsidized exports in the
The DTI or DA Secretary shall, within ten (10) days domestic market, taking into account the availability
from receipt of the affirmative final determination by of other export markets to absorb any additional
the Commission, issue a Department Order exports;
imposing a definitive countervailing duty on the
* whether such subsidized products are entering at
subsidized product, unless he has earlier accepted
prices that will have a significantly depressing or
a price undertaking from the foreign exporter,
suppressing effect on domestic prices, and will
producer or government of the country of export or
likely increase demand for further importation of the
origin.
subsidized products; and
In case of a negative finding by the Commission,
* inventories of the product being investigated.
and after the lapse of the period for the petitioner to
appeal to the Court of Tax Appeals, the Secretary
shall issue, through the Secretary of Finance, an
What factors other than subsidized imports would
Order for the Commissioner of Customs to
cause the non-levy of countervailing duties?
immediately release the cash bond to the importer.
All the parties concerned shall also be duly notified * contraction in demand or changes in the patterns
of the dismissal of the case. of consumption;
* trade restrictive practices of, and competition
between, foreign and domestic producers;
What are the economic factors to be taken into
account in determining material injury to the * developments in technology and export
domestic industry? performance; and
* actual or potential decline in output, sales, market * productivity of the domestic industry.
share, profits, productivity, return on investments,
or utilization of capacity;
What can the investigating authorities do if the
exporting enterprises refuse to cooperate during
* effects on domestic prices; and the investigation?
* actual or potential effects on cash flow, The authorities can decide on the basis of the best
inventories, employment, wages, growth, and ability information available.
to raise capital or investments.
An additional factor to be taken into account is
whether there has been an increased burden on What is meant by "disclosure of essential facts"?
government support programs. Before making the final determination, the
Commission is required to disclose to the interested
parties (e.g. exporters or producers, their
In determining the existence of a threat of material governments, and importers) the essential facts on
injury, what factors does the Commission consider? which the decision to apply the duty is to be made.
The parties are given five (5) days from the date of
receipt of the essential facts to defend their countervailing duty imposition would lead to a
interests in writing. continuation or recurrence of subsidization and
injury.

E. MEASURES
What is an interim review?
What are the remedies/measures imposed against
subsidization? It is a review conducted by the Commission, motu
proprio, or upon the direction of the Secretary or
upon petition of any interested party to determine
* Provisional Measure - takes the form of a whether:
provisional duty in the form of a cash bond, in
* the imposition of the countervailing duty is no
addition to any other duties, taxes and charges
longer necessary to offset subsidization, taking into
imposed by law on the allegedly subsidized
consideration the need to protect the existing
product. It is applied only after the DTI-BIS or DA
domestic industry against dumping.
has made a preliminary affirmative determination
and no sooner than 60 days from the initiation of * the existing duty is not sufficient to counteract the
the case. subsidization which is causing injury.
* Definitive Duty - final countervailing duty imposed, At least one (1) year should have elapsed since the
in addition to the regular duty and other charges, on imposition of the countervailing duty before an
a protested product imported from a specific interim review can be initiated.
exporter, following an affirmative final
determination.
G. JUDICIAL REVIEW
What are the actions available to the aggrieved
What is the "lesser duty rule"?
and/or interested party?
After it had been established that subsidized
Within 30 days from receipt of notice of the final
imports are causing injury to the domestic industry,
ruling, a petition for review of such ruling may be
the decision on whether the amount of duty should
filed with the Court of Tax Appeals by any party in a
be the full amount of subsidy or less is made by the
countervailing investigation who is adversely
authorities. If a lesser duty is adequate to remove
affected by the final ruling on the imposition of a
the injury to the domestic industry, such duty should
countervailing duty.
be levied.
The filing of such petition for review shall not in any
way stop or suspend the imposition and collection
F. DURATION OF MEASURES of the countervailing duty.
What is the lifetime of each countervailing
measure?
H. PHILIPPINE COMMITMENTS VIS-À-VIS THE
Provisional countervailing duty – four (4) months WTO AGREEMENT ON SUBSIDIES AND
COUNTERVAILING MEASURES
Definitive countervailing duty – five (5) years from
imposition What previously WTO-inconsistent provisions in the
old countervailing law (Section 302) have been
amended/revised by the new law to align these with
What is meant by "sunset review"? the WTO Agreement?

It is a review that may be initiated by any interested * lack of provisions for notification of/consultation
party or upon own motion of the Commission with the government of the exporting country;
before the “sunset date”, i.e., the 5th year, to
determine whether the expiry of the duration of the
* withholding of the release of questioned governments are non-transparent and therefore
importation pending the determination of a prima should be monitored closely.
facie case of subsidization;
In view, however, of the inherent nature of
* imposition of provisional measure immediately subsidization (i.e., a grant by a government), the
upon the finding of a prima facie case, effective up Philippines, in pursuing a countervailing case,
to the final determination of subsidization; necessarily pits herself against the protested
foreign government, thereby opening the possibility
* indeterminate period of the imposition of the
of a diplomatic row.
countervailing bond;
Further improvements have been introduced in the
* inclusion of substitutes in the definition of “like
procedural aspects of investigation to expedite the
products”; and
resolution of countervailing cases. Accordingly, the
* country-specific application of the countervailing Commission has adopted the following procedures:
duty.
* verification/ocular inspection is immediately
conducted upon receipt of the case from DTI or DA;

I. STRENGTHENING OF THE COUNTERVAILING * preparation of the staff report within fifty (50) days
MECHANISM from receipt of the case;

What provisions in the new countervailing duty law * designation of an alternate counsel so that in the
strengthen the mechanism against subsidized event that the lead counsel is not available, motion
imports? for resetting of hearings will no longer be
necessary;
* proactive implementation by concerned
authorities, including commercial and agricultural * conduct of summary proceedings, similar to
attaches; regular court procedures. Rather than hearing the
testimony of witnesses, their affidavits are
* prescription of a statutory period of 120 days for submitted to the opposing party at least three (3)
the Commission to complete its formal investigation days before the scheduled hearing to afford the
and submit its report of findings to the Secretary of opposing party time to study said affidavits and
DTI/DA; formulate clarificatory questions to be asked during
* creation of a Special Unit within the implementing the hearing;
agencies to undertake the tasks mandated under * conduct of 5-day marathon hearings; and
the Countervailing Duty Act of 1999; and
* disallowance of dilatory tactics or
* earmarking of the countervailing duty collected for unnecessary/unjustified delays.
the capacity building/strengthening of the
implementing agencies.
K. BUSINESS IMPLICATIONS

J. EFFECTIVENESS OF THE COUNTERVAILING What are the implications for business of RA 8751?
DUTY LAW
For business persons, knowledge of the complex
How effective is the implementation of the new rules on the levy of countervailing duty is essential
countervailing duty law perceived? in their capacities as domestic producers whose
interests may be adversely affected by the
Strengthened might be the countervailing duty law, subsidization of foreign producers and exporters by
it can only be as effective as the implementing their respective governments.
authorities are. Trade, agriculture or finance
attaches and other consular officials need to be Since 1969, only three (3) countervailing cases
very proactive and vigilant in detecting/monitoring have been successfully pursued by the national
subsidization by foreign governments. It must be authorities involving: wheat flour from France and
recognized that subsidies extended by Germany, spanners and wrenches from India and
transmission and conveyor belts from India. The
dearth of countervailing cases filed against
subsidized imports could be attributed to the
extreme difficulty of proving subsidization by foreign
governments and the possible straining of intra-
state relations that may arise from the filing of a
countervailing case.
On the other hand, Philippine exporters are finding
out that as their exports of manufactured products
rise, there are mounting pressures from industries
in the importing countries for the levy of
countervailing duty on the ground that the goods
are being subsidized. One such instance happened
in August 1995 when Philippine desiccated coconut
was imposed a 121.5% countervailing duty by
Brazil. The Philippines complained that the
imposition of the countervailing duty violated Article
VI of the GATT 1994, charging that there was no
basis for Brazil’s action because instead of
subsidies granted to desiccated coconut
processing, development assistance was provided
to coconut farmers through a levy collected from
those farmers.
Under such circumstances, it has become essential
for enterprises to be familiar with the rules
applicable in this area. An understanding of the
rules of the WTO Agreement on Subsidies and
Countervailing Measures could, for instance,
enable an exporting enterprise to take
precautionary steps to avoid countervailing actions
in foreign markets where there are increasing
pressures from industrial and other groups for such
actions. It would be in the interest of the local
exporting enterprise not to allow its exports to rise
in a market where it is apprehensive of a petition for
countervailing action. Instead, where possible, it
should diversify its trade to other markets.