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SECTION 302: Subsidies and Countervailing Duty Law
1. What is subsidy?
refers to any specific assistance (e.g. financial contribution,
income or price
support schemes) directly or indirectly provided by the government of the country of
export or origin in respect of the product imported into the Philippines.
Direct and/or potential transfer of government funds (e.g.,
grants, loans, equity infusion, loan guarantees);
The government foregoing the revenue that should otherwise
have been collected (e.g., tax credits); and
government providing goods or services, or purchasing goods.
2. What is a countervailing duty?
A "countervailing duty" is a special duty levied, in addition to the regular duty and other charges, by an importing country on its imports which have been found to be subsidized in the country of origin or exportation. It is equal to the ascertained amount of subsidy, calculated in terms of subsidy per unit of the subsidized exported product. It is imposed following an affirmative final determination.
What is a countervailing bond?
"countervailing bond" is a security (cash deposit or
bond) equal to the amount of the provisionally calculated amount
of subsidy. It
is required to be posted when the investigating authorities find
that such measure is necessary to prevent injury being caused
during the course of the investigation.
4. Are all subsidies countervailable?
Not all subsidies are countervailable/actionable. Subsidy,
in order to be
countervailable, must be “specific;” i.e., explicitly limited to:
enterprise or group
industry sector or group of industries; and
designated geographic region within the jurisdiction of the granting authority.
are those falling under the definition of “subsidy” which are
neither non-actionable nor prohibited subsidies.
5. What are non-actionable and prohibited subsidies?
are those which are permitted as
they are of a general nature, i.e., applied across-the-board to all industries and not limited to a specific industry or enterprise or group of enterprises or industries. Subsidy, under this category, cannot be subjected to either countervailing measures or other disciplines under the Agreement.
research activities conducted by firms;
adapt existing production facilities to new environmental
assist in the development of industries in disadvantaged regions,
provided that such assistance is not directed to specific
enterprises or industries within the region.
on the other hand, include export subsidies, i.e., those
that are contingent on export performance, and subsidies that are
contingent on the use of domestic over imported goods. An
importing country alleging this kind of subsidy can avail of
remedy measures by bringing the matter before the WTO Dispute
Settlement Body for redress.
subsidies based on export performance;
retention schemes involving a bonus on exports;
of subsidized inputs for use in the production of exported goods;
from direct taxes (e.g., tax on profits related to
from, or remission of, indirect taxes (e.g., VAT) on
exported products in excess of those borne by these products when
sold for domestic consumption;
or drawback of import charges (e.g., tariffs and other
duties) in excess of those levied on inputs consumed in the
production of exported goods;
guarantee programs at premium rates inadequate to cover the
long-term costs of the program; and
credits at rates below the government’s cost of borrowing, where
they are used to secure a material advantage in export credit
6. What are the elements or factors to be considered before a
countervailing duty may be imposed?
There are four (4) elements or factors which must be considered before a countervailing duty may be imposed, namely:
Comparability – a
product is identical or alike in all respects to the article under
consideration or, in absence of such
product, another product which, although not alike in all
respects, has characteristics closely resembling those of the
product under consideration.
to any specific assistance directly or indirectly provided by the
government of the country of export or origin in respect of a
product imported into the Philippines.
material injury to a domestic industry, threat of material injury
or material retardation of the growth or the prevention of the
establishment of a domestic industry. Injury
test must be based on positive evidence and shall involve an
objective examination of both (a) the volume of the subsidized
imports and the effect of subsidized imports on the prices of like
product in the domestic market, and (b) the consequent impact of
these imports on domestic producers of such products.
Link – the
material injury suffered by the domestic industry is the direct
result of the importation of the subsidized product.
7. What is a country of export?
of export” is the country from where the allegedly subsidized
product was shipped to the Philippines, regardless of the location
of the seller. The
country of export and the country of origin
may be the same, but not in all instances.
8. What is a country of origin?
A “country of origin” is where the allegedly subsidized
product was either wholly
obtained or where its last substantial transformation took place. The country of origin and the country of export
may be the same, but not in all instances.
In case of
transshipment, where a product is shipped from a third country
that is not the country where the product was manufactured or
processed, the country of origin would be different from the
country of export.
9. What is a
industry” refers to the domestic producers, as a whole, of the
like product or to those producers of such like product whose
collective output of the product constitutes a major proportion of
the total domestic production of that product. However, when
producers are related to the foreign exporters or importers or are
themselves importers of the allegedly subsidized product, the term
“domestic industry” may be interpreted as referring to the
rest of the producers.
10. What is price depression?
11. What is price suppression?
suppression” exists when the allegedly subsidized product
prevents the domestic producer from increasing its selling price
to a level that would allow full recovery of its cost of
12. What is price undercutting?
undercutting” refers to the extent by which the allegedly
subsidized product is consistently sold at a price below the
domestic selling price of the like product.
B. SCOPE AND COVERAGE
1. What articles are covered by a countervailing action?
countervailing protest may cover any product which is granted,
directly or indirectly, by the government in the country of export
or origin, any kind or form of specific subsidy upon the
exportation or manufacture of such product, and the importation of
such subsidized product is causing or threatening to cause
material injury to a domestic industry, or is materially retarding
the growth, or preventing the establishment of, a domestic
Are there any importations exempted from countervailing
Yes, the following importations or consignments shall not be subject to countervailing duty protests:
* articles imported by, or consigned to, government agencies
for profit and particularly designated by law or proper authorities to import, directly or through awardees;
* such articles as would stabilize and/or supplement
conditionally duty-free importations allowable under
Section 105 of the Tariff and Customs Code, as amended.
1. What is the Countervailing Duty Act of 1999?
Act No. 8751, otherwise known as the “Countervailing Duty Act of
1999,” which amended Section 302 of the Tariff and Customs Code
of the Philippines, provides protection to a domestic industry
which is being
injured, or is likely to be injured, by subsidized products
imported into or sold in the Philippines.
2. When was R.A. No. 8751 signed?
R.A. 8751 was signed on August 7, 1999 and took effect on August 31, 1999.
3. What are the fundamental reasons behind the passage of the
To transform the domestic countervailing duty law into a
more workable and simple piece of legislation providing safety
nets against the inflow of cheap subsidized imports;
To strengthen the rules governing the investigation of
countervailing cases; and
To align the domestic law with the WTO Agreement on
Subsidies and Countervailing Measures.
4. Have the rules and regulations to implement R.A. 8751 been
Yes, the Implementing Rules and Regulations (IRR) was signed by the concerned Secretaries/Agency Heads before it was published on September 18, 2000. The IRR (Joint Administrative Order No. 02, s. 2000) took effect on September 25, 2000, i.e., seven (7) days after publication.
5. Who administers the countervailing legislation?
following government agencies are tasked to administer the
Department of Trade and Industry-Bureau of Import Services
the case of industrial goods, or Department
of Agriculture (DA)
in the case of agricultural products.
receives written application and determines whether the
application is proper
in form and substance and whether documentary requirements are
- determines whether or not a
prima facie case exists
to warrant initiation of investigation; and
investigation for purposes of determining whether or not
provisional measures (countervailing bond) may be imposed.
Tariff Commission (TC)
conducts formal investigation and submits report of
findings to either DTI or DA Secretary for the issuance, in case of
affirmative findings, of a Department Order concerning the
imposition of the definitive
Bureau of Customs (BOC)
- imposes the countervailing bond
definitive countervailing duty upon receipt of the above
Department Order, through the
Secretary of Finance.
1. Who may file a petition for countervailing action?
petition may be filed by or on behalf of the domestic industry in
writing and should be embodied in a notarized form.
2. What is the threshold of support by producers for the
petition to be accepted?
(a) support by domestic producers whose collective output
constitutes more than fifty percent (50%) of the total production
of the like product produced by the domestic industry; and
(b) support by producers accounting for at least 25% of the
total domestic production of the product alleged to be subsidized.
3. Who else, aside from the domestic industry, may initiate a
special circumstances, DTI or DA may, on its own motion, initiate
a countervailing action. The concerned authorities should have
sufficient evidence of subsidization, injury and a causal link to
justify the initiation of the investigation.
4. What is the “de minimis rule”?
petition shall be immediately rejected and the investigation
terminated in the situations described below:
· In the case of a product originating from a developed
- the amount of subsidy is de
minimis, i.e., less than 1%; or
- the volume of subsidized imports or the injury is
· In the case of a product originating from a developing
- the level of subsidies granted does not exceed 2% of the
value calculated on a per unit basis (for least developed
countries, it is 3%); or
- the subsidized imports are less than 4% of the total imports of the importing
country. However, this rule does not apply when developing countries with individual shares of less than 4% collectively account for more than 9% of total imports.
5. What is meant by “price
a voluntary undertaking by the government of the exporting
country to eliminate or limit the subsidy; or
a voluntary commitment by the foreign exporter and/or the
producer that they will increase their prices or will cease
exporting to the Philippines at the subsidized price.
offer of price undertaking shall be made only after a preliminary
affirmative determination of subsidization and injury to the
6. What are the stages of a countervailing investigation?
The DTI-BIS or DA, upon receipt of the properly documented petition, has ten (10) days to examine the accuracy and adequacy of the petition and to determine whether there is sufficient evidence to justify the initiation of an investigation.
following information are to be provided in a petition for the
levy of countervailing duty:
- identity of the applicant and a description
of the volume and the value of his domestic production of
the like product;
- a list of all
known domestic producers of the like product and, if possible;
- a description of the volume and value of the domestic
production of the like product accounted for by such producers (if
the application is made on behalf of the domestic industry);
a description of the allegedly subsidized product;
names of the exporting countries, each known exporter or
foreign producer, and a list of the importers of the product;
- estimated aggregated or cumulative quantity, the port and
the date of arrival, the import entry declaration of the allegedly
- the nature, extent and estimated amount of the alleged
- number of persons employed by the affected domestic
- total capital invested, production and sales volume, and
aggregate production capacity of the domestic industry;
- effect of the price of the allegedly subsidized product on
the price of the like product in the domestic market; and
- consequent impact of the importation of the allegedly
subsidized product on the domestic industry as demonstrated by
relevant factors and indices having a bearing on the state of the
domestic industry as enumerated in Section 12 of the IRR.
> prices at which the product is sold in the domestic
market of the exporting country and export prices;
injury and causality;
volume of subsidized imports; and
> adverse effects of such imports on domestic prices and on
acceptance of a properly documented application and before
initiating an investigation, the Secretary of DTI or DA shall notify
the government of the country of export or origin about the
impending countervailing investigation and provide it a copy of
the non-confidential summary of the application.
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 matters
referred to in the application and arriving at a mutually agreed
a prima facie case has
been established, DTI-BIS or DA initiates the investigation and
makes a preliminary determination (on whether or not a provisional
measure may be imposed) not later than twenty (20) days from
receipt of the answer of the respondents and other interested
a preliminary affirmative finding, the Secretary of DTI or DA
issues a Department Order for the imposition of a provisional
countervailing duty in the form of a cash bond equivalent to the
amount of provisionally calculated dumping margin.
requirement of the dumping bond shall be made not sooner than
sixty (60) days from the date of initiation of the investigation.
The date of the initiation of the investigation shall be
the date the Secretary publishes such notice in two (2) newspapers
of general circulation.
provisional countervailing duty may be imposed for a period not
exceeding four (4) months.
Secretary of DTI or DA shall immediately terminate the
countervailing investigation upon finding that:
the amount of subsidy is de minimis or where the volume of the subsidized
product, or the injury is negligible; or
the volume of imports from a particular country is less
than three percent (3%) of all imports of like product.
However, this rule does not apply when countries with
individual shares of less than 3% collectively account for more
than 7% of imports of
the product under investigation
(in the case of developing countries the subsidized imports
are less than 4% of total imports of the importing country).
However, this rule does not apply when developing countries with
individual shares of less than 4% collectively account for more
than 9% of total imports); or
the injury is negligible.
In the conduct of its final determination, the Tariff Commission notifies all interested parties, receives representations and/or other submissions, and holds preliminary conference and public consultations. Investigators conduct ocular plant inspection and examination of books of accounts of all concerned parties domestically and in the exporting countries.
The Tariff Commission has 120 days from receipt of the advice from the Secretary of DTI/DA to complete its own inquiry and submit its report of findings to either Secretary.
of Department Order
DTI or DA Secretary shall, within ten (10) days from receipt of
the affirmative final determination by the Commission, issue a
Department Order imposing a definitive countervailing duty on the
subsidized product, unless he has earlier accepted a price
undertaking from the foreign exporter, producer or government of
the country of export or origin.
case of a negative finding by the Commission, 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 Order for the Commissioner of Customs to immediately
release the cash bond to the importer. All the parties concerned shall also be duly
notified of the dismissal of the case.
What are the economic factors to be taken into account in
determining material injury to
the domestic industry?
· actual or potential decline in output, sales, market share,
profits, productivity, return on investments, or utilization of
effects on domestic prices; and
actual or potential effects on cash flow, inventories,
employment, wages, growth, and ability to raise capital or
additional factor to be taken into account is whether there has
been an increased burden on government support programs.
In determining the
existence of a threat of material injury, what factors does the
the nature of the subsidy in question and the trade effects
likely to arise therefrom;
a significant rate of increase in the importation of the
subsidized product into the domestic market indicating the
likelihood of substantially increased importations;
sufficient freely disposable, or an imminent, substantial
increase in, production capacity of the foreign exporter
indicating the likelihood of substantially increased subsidized
exports in the domestic market, taking into account the
availability of other export markets to absorb any additional
whether such subsidized products are entering at prices
that will have a significantly depressing or suppressing effect on
domestic prices, and will likely increase demand for further
importation of the subsidized products; and
inventories of the product being investigated.
other than subsidized imports would cause the non-levy of
contraction in demand or changes in the patterns of
trade restrictive practices of, and competition between,
foreign and domestic producers;
developments in technology and export performance; and
productivity of the domestic industry.
What can the investigating authorities do if the exporting
enterprises refuse to cooperate during the investigation?
The authorities can decide on the basis of the best
What is meant by “disclosure
of essential facts”?
making the final determination, the Commission is required to
disclose to the interested parties (e.g.
exporters or producers, their governments, and importers) the
essential facts on 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 interests in writing.
What are the remedies/measures imposed against
Definitive Duty -
countervailing duty imposed, in addition to the regular duty and
other charges, on a protested product imported from a specific
exporter, following an affirmative final determination.
What is the “lesser duty rule”?
it had been established that subsidized imports are causing injury
to the domestic industry, the decision on whether the
amount of duty should be the full amount of subsidy or less is
made by the authorities. If a lesser duty is adequate to remove
the injury to the domestic industry, such duty should be levied.
1. What is the lifetime of
each countervailing measure?
– five (5) years from
What is meant by “sunset
It is a review
that may be initiated
by any interested party or upon own motion of the Commission
before the “sunset date”, i.e., the 5th
year, to determine whether the expiry of the duration of the
countervailing duty imposition would lead to a continuation or
recurrence of subsidization and injury.
3. What is an interim review?
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 whether:
the imposition of the countervailing duty is no longer
necessary to offset subsidization, taking into consideration the
need to protect the existing domestic industry against dumping.
the existing duty is not sufficient to counteract the
subsidization which is causing injury.
At least one (1) year should have elapsed since the imposition of the countervailing duty before an interim review can be initiated.
are the actions available to the aggrieved and/or interested
of the final ruling, a petition for review of such ruling
may be filed with the Court of Tax Appeals by any party in
a countervailing investigation who is adversely affected by the
final ruling on the imposition of a countervailing duty.
filing of such petition for review shall not in any way stop or
suspend the imposition and collection of the countervailing duty.
H. PHILIPPINE COMMITMENTS VIS-À-VIS THE WTO AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES
previously WTO-inconsistent provisions in the old countervailing
law (Section 302) have been amended/revised by the new law to
align these with the WTO
· lack of provisions for notification of/consultation
with the government of the
· withholding of the release of questioned importation
pending the determination of a prima
facie case of subsidization;
· imposition of provisional measure immediately upon the
finding of a prima facie
case, effective up to the final determination of subsidization;
· indeterminate period of the imposition of the
inclusion of substitutes in the definition of
“like products”; and
· country-specific application of the countervailing
I. STRENGTHENING OF THE COUNTERVAILING MECHANISM
provisions in the new countervailing duty law strengthen the
mechanism against subsidized imports?
proactive implementation by concerned authorities,
including commercial and agricultural attaches;
· prescription of a statutory period of 120 days for the
Commission to complete its formal investigation and submit its
report of findings to the Secretary of DTI/DA;
· creation of a Special Unit within the implementing agencies
to undertake the tasks mandated under the Countervailing Duty Act
of 1999; and
· earmarking of the countervailing duty collected for the
capacity building/strengthening of the implementing agencies.
J. EFFECTIVENESS OF THE COUNTERVAILING DUTY LAW
effective is the implementation of the new countervailing duty law
might be the countervailing duty law, it can only be as effective
as the implementing authorities are.
Trade, agriculture or finance attaches and other consular
officials need to be very proactive and vigilant in
detecting/monitoring subsidization by foreign governments. It must
be recognized that subsidies extended by governments are
non-transparent and therefore should be monitored closely.
view, however, of the inherent nature of subsidization (i.e., a
grant by a government), the Philippines,
in pursuing a countervailing case,
necessarily pits herself against the protested foreign
government, thereby opening
the possibility of a diplomatic row.
improvements have been introduced in the procedural aspects of
investigation to expedite the resolution of countervailing cases.
Accordingly, the Commission has adopted the following procedures:
verification/ocular inspection is immediately conducted
upon receipt of the case from DTI or DA;
preparation of the staff report within fifty (50) days from
receipt of the case;
· designation of an alternate counsel so that in the
event that the lead counsel
is not available, motion for resetting of hearings will no longer
conduct of summary proceedings, similar to regular court
procedures. Rather than hearing the testimony of witnesses, their
affidavits are submitted to the opposing party at least three (3)
days before the scheduled hearing to afford the opposing party
time to study said affidavits and formulate clarificatory
questions to be asked during the hearing;
conduct of 5-day marathon hearings; and
· disallowance of dilatory tactics or
are the implications for business of RA 8751?
business persons, knowledge of the complex rules on the levy of
countervailing duty is essential in their capacities as domestic
producers whose interests may be adversely affected by the
subsidization of foreign producers and exporters by their
Since 1969, only three (3) countervailing cases have been successfully pursued by the national authorities involving: wheat flour from France and 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.
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.