Subsidy control: guidance

World Trade Organisation (WTO) rules

WTO rules ensure that subsidies do not distort international competition or confer an unfair benefit on domestic producers. These rules are ultimately about protecting free and fair international trade and competition, so that one country's exports do not hold an unfair advantage over another.

WTO rules are very different from UK Subsidy Control Rules and EU State Aid Rules. While subsidies are generally allowed under WTO rules, there are restrictions as to how subsidies can be awarded. If governments do not comply with these restrictions, then this could give rise to a challenge from another country's government (a trade dispute).

The key WTO principle of national treatment applies to all subsidies (goods or services) – the requirement that domestic and foreign products are treated the same. For example, for a subsidy relating to services, this subsidy must be available to foreign service suppliers in the same way that it is available to domestic service suppliers.

The Agreement on Subsidies and Countervailing Measures (ASCM)

Specific rules relating to subsidies for goods are contained in the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM). 

Certain subsidies are prohibited by the ASCM. A subsidy that is contingent on the export performance of a good, or a subsidy that specifically requires the use of a domestic good over an imported good, is prohibited under WTO rules. For example, in the 1990s, the Australian government provided loans to two leather production companies to support their production. Whilst there was no explicit requirement to export, the size of the loans and the increase in production that resulted from these financial contributions meant that the domestic market could not sustain the amount of leather that was being produced, thus incentivising the companies to export. The WTO found this to be a prohibited subsidy due to the direct impact on export volume. 

Certain subsidies could be actionable, meaning members can take action against another member for their subsidies if they can prove certain factors relating to their impact – for example, that the subsidy has caused an unfair impact on its own domestic market. Actions that members may take include: raising a legal challenge at the WTO; or taking action by providing subsidies in their domestic market to offset the injury that has been caused. Both actions can result in high costs for a government. It is therefore important to consider whether the subsidy will:

• result in the displacement of another country's exports in the Scottish market or in the market of another country in favour of the domestically subsidised product
• significantly undercut the price of a 'like product'
• substantially increase the market share of a Scottish export to artificial levels

Agriculture

Subsidies relating to agriculture must comply with the UK subsidy control requirements set out in the Act. However, if a proposed measure is within scope of the World Trade Organisation Agreement on Agriculture (AoA), then the WTO Regulations also apply. This covers subsidies relating to the majority of agricultural products and some forestry and horticulture products.

The AoA does not contain a specific definition of a subsidy. Therefore, definitions contained within the WTO Agreement on Subsidies and Countervailing Measures (ASCM) should be read across to the AoA where applicable.

The scope of the Agreement is outlined through specified product coverage contained in Annex 1 of the Agreement. If producers of the listed products are eligible for support, then the support is likely to be within scope of the AoA.

Classifications of support under the AoA

The classification of support covered by the AoA is treated differently depending on whether it is considered trade distorting or not, and is differentiated as follows:

• green box support is support which is considered to have no, or minimal, trade distorting effect
• blue box support is support considered trade-distorting (because it is coupled to levels of production) but with limited impacts because it is coupled to limited levels of production
• amber box support is support which is considered to be potentially trade distorting

Green box and blue box support are not subject to limits under the AoA. Permitted support that does not meet the green box or blue box requirements is by default amber box and is subject to limits. The WTO limit for amber box support applies to the UK as a whole. Scotland’s proportion of this limit is 12.67% of the UK total.

For transparency purposes, all (green, blue, and amber box) domestic support that falls within the scope of the AoA must be notified to the WTO on an annual basis.

WTO and UKCB notification

New support measures (subsidy schemes) that fall within scope of the AoA must be notified to the WTO via the UK Co-ordinating Body (UKCB). In accordance with The World Trade Organisation Agreement on Agriculture (Domestic Support) Regulations 2020 (2020 No. 1578), the UKCB is the body designated by the Secretary of State to co-ordinate the collection of information needed to enable the United Kingdom to comply with its obligations under the Agreement on Agriculture.

The Domestic Support Regulations stipulate that an authority proposing a new scheme must give written notice of that support, as soon as practicable, and in most cases, at least six months before the day on which the proposing authority intends to adopt the new domestic support.

This also applies to schemes that are being amended as noted in paragraph six of The Domestic Support Regulations.

The UKCB will circulate the notification of the new or amended scheme/support measure to UK Government Department for Environment, Food and Rural Affairs (DEFRA) and the devolved administrations who are given the opportunity to comment. If all administrations are satisfied, DEFRA will submit the notification to the WTO. At this point, member states will be given an opportunity to comment on the support measure/scheme.

Notifications of new scheme/support measures should be sent to the Subsidy Control Team who will instigate the UKCB process. Notifications should take the form of a completed Regulation 5 form available at the top of this page. Please contact the Subsidy Control Team for help with completing this form. 

Fisheries

Subsidies relating to fish, fish products and aquaculture are required to comply with requirements set out in the Act. There is no equivalent WTO Trade Agreement yet relating specifically to fish and fish products however, this is expected to be agreed upon shortly. Until a fsheries agreement is in place, support measures relating to fish and fish products are regulated by the WTO Agreement on Subsidies and Countervailing Measures (ASCM).