Specificity of Subsidy Benefits in U.S. Department of Commerce Countervailing Duty Determinations

By Ragosta, John A.; Shanker, Howard M. | Law and Policy in International Business, Winter 1994 | Go to article overview

Specificity of Subsidy Benefits in U.S. Department of Commerce Countervailing Duty Determinations


Ragosta, John A., Shanker, Howard M., Law and Policy in International Business


A potentially countervailable subsidy exists under U.S. law(1) when the Department of Commerce (Commerce) finds that a government program provides selective treatment to an enterprise or industry, or group of enterprises or industries,(2) and "provides a countervailable benefit with respect to the merchandise."(3) The first requirement, which is the focus of this Article, is the specificity test."(4) The relevant inquiry regarding specificity is whether a competitive advantage bestowed by the government is given to a particular enterprise or industry, or group thereof, such that the benefit is capable of causing a misallocation of a country's economic resources.(5)

Commerce has repeatedly stressed that there is no precise formula for determining whether specificity exists and that such determinations must be made on a program-by-program basis.(6) Nonetheless, many of the factors that Commerce considers relevant remain constant, even though the weight that Commerce gives any particular factor or the methodology that it uses varies from one case to another. This Article discusses the current status of specificity law, offers guidance on how this law should develop, and provides practical assistance in applying the various factors that Commerce considers when determining whether a program provides specific benefits to an enterprise or industry or group thereof.

I. INTRODUCTION

A government program must provide benefits, in law or in fact, to a specific enterprise or industry, or group of enterprises or industries, to satisfy the specificity prong of the statutory test.(7) Thus, the specificity test focuses upon who receives the benefit of a program, not simply who uses a program.(8) For example, if a particular government program provides loans to hundreds of industries, but provides low-interest loans to only a few industries, the allocation of the benefit becomes the relevant focus. Although allocation of benefits and use of a program's subsidy vehicle will typically coincide, combination does not occur necessarily.

The specificity requirement ensures that programs conferring a broad, generalized benefit are not countervailable.(9) For example, roads and schools for public use or tax credits available to all companies confer a generalized benefit and are thus not countervailable.(10) On the other hand, programs that favor one or more market participants and are capable of distorting the relative allocation of resources to different sectors of a country's economy,(11) or are "potentially trade distorting,"(12) are specific benefits.

In a leading explanation of countervailing duty methodology, Commerce officials have described several purposes of the specificity requirement. First, the specificity requirement serves to limit the imposition of countervailing duties solely to "government-induced distortions to the relative positions of firms within an economy."(13) Second, the requirement exists to prevent an overly broad application of countervailing duties by foreign governments.(14) Third, the requirement should provide objective criteria for determining which government actions are countervailable.(15) Finally, although Commerce has not said so, specificity seems to incorporate some concept of fairness, permitting only the offset of those subsidies that do not represent the legitimate functions of government.(16)

The first of these purposes has been the most influential in guiding Commerce's application of the specificity requirement.(17) For example, Commerce officials have recognized that non-specific governmental acts may indirectly benefit industry but should not be countervailable:

Government action both at home and abroad benefits industry in innumerable ways: through public roads and education, sound fiscal and monetary management, maintenance of law and order, and so on. As these actions filter through, no one can say which firms derive a relative net benefit or burden. …

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