The SCM agreement, also known as the Agreement on Subsidies and Countervailing Measures, is a treaty created in 1994 by the World Trade Organization (WTO). This agreement aims to regulate the use of subsidies and how countries can respond to them in the global trade market.
Subsidies are financial or other types of assistance given by a government to domestic industries in order to improve their competitiveness in the global marketplace. However, subsidies can also distort international trade by giving an unfair advantage to certain industries or countries.
Under the SCM agreement, countries must report all subsidies provided to their domestic industries, and these subsidies are subject to review by other member countries. The agreement categorizes subsidies into three types: prohibited, actionable, and non-actionable.
Prohibited subsidies are those that directly harm another WTO member`s industry or cause significant trade distortions. Examples of prohibited subsidies include those that require the use of domestic over imported goods, export subsidies, and subsidies that favor domestic production over imported products.
Actionable subsidies are those that can cause significant trade distortions. These subsidies can be challenged and countervailing measures can be taken against them by other WTO members. Countervailing measures can include tariffs on the subsidized goods or services.
Non-actionable subsidies are those that have minimal trade distortion effects. These subsidies do not require any countervailing measures, but they must be reported to other WTO members.
One of the main objectives of the SCM agreement is to provide a level playing field for all WTO members, so that countries can compete on equal terms in the global market. By regulating the use of subsidies, the SCM agreement helps to promote fair competition and discourage trade-distorting practices that can harm the global economy.
In conclusion, the SCM agreement is an important treaty created by the WTO to regulate the use of subsidies in international trade. By categorizing subsidies into prohibited, actionable, and non-actionable, the SCM agreement helps to promote fair competition and discourage trade-distorting practices. As a professional, it is important to understand the significance of the SCM agreement in global trade and its impact on the economy.