Guidance

Determining subsidies and countervailing duties

Updated 22 November 2024

Legal framework

Primary legislation in the Taxation (Cross-border Trade) Act 2018 (the Taxation Act)

Schedule 4 to the Taxation Act (Dumping of goods or foreign subsidies causing injury) covers subsidies.

Secondary legislation in the Trade Remedies (Dumping and Subsidisation) (EU Exit) Regulations 2019 (the D&S Regs)

Regulations 19 to 26 in Part 3 in the D&S Regs set out further provisions dealing with subsidies, including how to determine whether there is a countervailable subsidy and how to calculate the amount that can be attributed to subsidised imports.

World Trade Organisation – relevant provisions

Article XVI of the General Agreement on Tariffs and Trade (GATT) and the Agreement on Subsidies and Countervailing Measures (ASCM) set out the requirements which must be met for WTO members to be able to impose countervailing measures.

Introduction to subsidy investigations

When imported goods have caused or are causing injury to UK producers because the goods have benefited from a subsidy from a foreign authority, a countervailing measure may be needed.

If a UK industry applies to us for a countervailing measure on certain goods and provides sufficient evidence that the imported goods are subsidised, and this is causing injury to UK industry, we will carry out an investigation into the goods concerned. For further information on how to apply for an investigation, consult the Applying for a trade remedies investigation guidance.

During a subsidy investigation:

• we establish whether a subsidy exists and whether it is countervailable
• we calculate the amount of subsidy to be attributed to the subsidised imports
• we calculate the countervailing duties
• we determine whether injury has been caused by the subsidised imports
• we consider whether measures are in the economic interests of the UK

For further information on our investigation process, consult the TRA’s investigation process guidance.

What is a subsidy?

A subsidy exists if there is either a financial contribution by a foreign authority which confers a benefit or a form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade 1994 (part of Annex 1A to the WTO Agreement) which confers a benefit also.

To establish whether there is a subsidy we look at:

• whether there has been a financial contribution
• whether the financial contribution is made by a foreign authority
• what benefit it confers on recipients

Determining if the subsidy comes from a foreign authority

To determine whether a subsidy exists we must first establish that a financial contribution has come from a foreign authority. A foreign authority is defined in Schedule 4 of the Taxation Act and means a government or public body within a foreign country or territory

We establish whether an organisation is a public body on a case-by-case basis. We do this by looking at the characteristics and functions of that body and its relationship with government Any organisation may be considered to be a public body if it carries out functions typically carried out by any level of government and/or if government exercises effective control over its activities.

State-ownership of an enterprise can but does not always mean that the enterprise is a public body. For a state-owned enterprise to be considered a public body, there should be evidence that the enterprise either possesses and carries out government functions or has been given authority to carry out government functions.

If a foreign authority such as a government has entrusted or directed a private body to carry out functions that would normally be vested in the foreign authority, then the private body may be deemed a foreign authority.

Financial contributions by foreign authorities

Financial contributions come in many forms. A foreign authority may make a financial contribution to an industry or business through one or more of the following activities:

• it makes a direct or potential direct transfer of funds or liabilities to an industry or business
• revenue otherwise due to it is foregone or is not collected
• it provides goods or services (other than general infrastructure)
• it purchases goods
• it makes payments to a funding mechanism
• it entrusts or directs a private body to undertake one or more of the activities above on its behalf

Direct transfer of funds and liabilities

The most common direct transfers of funds are in the form of grants and loans but the term ‘funds and liabilities’ is broader than just a transfer of money. We may consider other transactions involving financial resources or other financial claims to be direct transfers of funds or liabilities, for example:

• transfer of shares
• joint ventures that are set up to enable support of the transfer of funds and liabilities
• debt settlement and debt forgiveness (including debt-for-equity swaps and interest rate reductions, forgiveness and deferral of debt)

If the financial position of the recipient improves, this may indicate that there has been a direct transfer of funds.

Potential direct transfer of funds and liabilities

We consider there is a potential direct transfer of funds when there has been an actual commitment to transfer funds, even if the transfer has not yet been completed. An example of this is a loan guarantee. The possibility of a funds transfer is not enough to be considered in this way.

Revenue foregone or not collected

When revenue due to a government has not been collected, we may consider this to be a form of financial contribution. Examples of this include taxes, debt, derivatives or dividends that have not been collected. It can also include fiscal incentives such as tax credits. Tax exemptions or other fiscal incentives can have a similar effect to providing a grant or other type of subsidy. To establish if a government has made a financial contribution of this sort to a business, we may compare its tax arrangements to the arrangements of a similar firm.

Provision of goods or services other than general infrastructure

In a case where goods or services are being provided by a foreign authority, we will look at whether this constitutes a form of financial contribution. We will need to establish whether the government has provided the goods or services at a cost lower than is available on the commercial market. We will also evaluate whether the goods or services qualify as general infrastructure – in other words, if they benefit wider society rather than a specific firm or group of firms. If they qualify as general infrastructure, it may not be appropriate to countervail them.

Purchase of goods

We may treat goods purchased by a foreign authority as a form of financial contribution if they are purchased at a price that is greater than, or inconsistent with what is available on commercial markets. This is because they have the potential to inflate the seller’s revenues.

Payment to a funding mechanism

This is where public funding is directed into a pool of resources (for example, an investment fund) that is dedicated to a particular purpose or industry. Payments by a foreign authority to a funding mechanism are a form of financial contribution.

Income or price support

Subsidies can also involve forms of income or price support which aim to either directly or indirectly:

• increase exports of a product from the subsidising country or territory
• reduce imports of a product into the subsidising country or territory

Examples of these arrangements could include trade distortions caused by a foreign authority (for example, tax subsidy) or direct government intervention in the market which is intended to directly set and maintain a given price of a product at a particular level. These methods provide additional ways in which foreign authorities can provide subsidies beyond making straightforward financial contributions.

Export restraints

Export restraints are a limit on the volume of goods that a country can export. This can increase the supply of certain goods within a domestic market and hence lower the price of these goods. We may consider this to be a form of financial contribution if it lowers input costs for the goods concerned in our investigation.

How we assess the benefit

As well as establishing that a financial contribution is in place for the goods in question, we need to calculate the benefit it confers on the recipient. A benefit cannot exist theoretically – we must show that it has been received by a recipient. It is important to note that the recipient may not necessarily be the same recipient that directly received the financial contribution.

We will look at the amount of the subsidy and the benefit it provides during our period of investigation. To do this, we will establish whether the recipient has received a financial contribution on more favourable terms than would be available on the commercial market.

The various mechanisms by which different subsidies operate can have a significant impact on the calculation process.

How we assess the ‘pass through’ benefit of a subsidy

A benefit is considered to have ‘passed through’ from one industry to another if, for example, a subsidy for an upstream industry provides a benefit to a downstream industry.

We will assess pass-through on a case-by-case basis by:

• comparing the prices of subsidised input products into a manufacturing process with non-subsidised input products under prevailing market conditions
• looking at average prices for the input products (in a scenario where they were not subsidised) in competitive conditions (for example, in commodities exchanges)

If the suitable data is not available, we will use data from comparable non-subsidised industries.

We do not automatically presume benefit to the producer of the downstream goods when we identify upstream subsidies. We may compare the price of the input product between the vendor and purchaser at the downstream stage. This will help us determine if the input product has been purchased on more favourable terms than those that are available on the market.

How we calculate benefit

The way in which we calculate the benefit for the different types of subsidy are explained below.

Grants

For grants, we will generally calculate the benefit as being equal to the total amount of the grant, minus adjustments for fees or other factors where appropriate.

Benefit = grant amount – adjustments

Tax exemptions and other fiscal incentives can have a similar effect to providing a grant or other types of financial contribution. For example, if we find that a foreign authority has decided to forego tax revenue from a business either in full or in part, we will calculate the benefit as the difference between the amount that the business would ordinarily pay and the amount they actually paid.

Benefit = (amount ordinarily paid - amount actually paid) - adjustments

Loans

When a foreign authority provides a loan at an interest rate or with credit terms that are more favourable than would be found on a private market, we will assess the benefit as the difference between the amount paid (or to be paid) compared to the amount that would have been payable on the private market.

Benefit = (market loan interest rate/credit terms - foreign authority loan interest rate/credit terms) - adjustments

As part of our adjustment process, we will deduct any fees associated with accessing the loan from the total benefit conferred.

Loan guarantees

A loan guarantee from a foreign authority may allow a company to access loans on more favourable terms than would otherwise be available on the commercial market. We will assess the benefit conferred as the difference between the cost of the loan with the guarantee and loans available through a comparable commercial lender without a guarantee. We will deduct any fees associated with accessing the loan guarantee from the total benefit conferred, as part of our adjustment process.

Benefit = (terms available without loan guarantee - terms available with loan guarantee) - adjustments

Debt-for-equity swaps

When a foreign authority purchases equity in a company for less than would normally be paid, for example to reduce the company’s debts, we will assess benefit as the difference between the price paid and the value of the equity in prevailing market conditions.

Land-use rights

If we find that property markets are distorted, we will identify a benchmark that estimates the market conditions that would exist without the preferential terms. We will then assess benefit as the difference between the benchmarked price and the price paid.

Subsidy amount = benchmarked property price - property price paid

Export credits and financing

Export credits are a type of export subsidy and so are contingent on export performance. Some export credits are prohibited, as per Article 3 of the WTO ASCM. We will follow the Organisation for Economic Co-operation and Development (OECD)’s guidelines in assessing which export credits are prohibited and which confer a benefit.

Equity infusions

If we find that a foreign authority has purchased equity in a company when a private market investor would not have, we may find that this equity qualifies as a financial contribution which confers a benefit. If we do, we will:

• identify an appropriate benchmark price for the equity
• calculate the benefit as the difference between this benchmark price and the price actually paid by the foreign authority.

Provision of goods and services

If goods or services have been provided at a price that is lower than that available on the commercial market, this qualifies as a benefit. We will calculate the benefit as the difference between the price paid for the goods or services and the prevailing market terms and conditions. If there is no market price for the goods or services in the foreign country or territory, we will identify an appropriate benchmark from another country to use as a comparison. When we do this, we will look at price, quality, availability, marketability, transportation and other conditions of purchase or sale.

Purchase of goods

If we find that a foreign authority has purchased goods from an exporter for more than they would normally pay under prevailing market conditions, we will calculate the benefit as the difference between the price paid and the prevailing market price in that foreign country or territory.

As with provision of goods and services, if there is ordinarily no market for the goods in the foreign country or territory, we will identify a comparable market benchmark. When we do this, we will look at price, quality, availability, marketability, transportation and other conditions of purchase or sale.

Establishing whether the subsidy is countervailable

Not all subsidies are countervailable (can be offset through a trade remedy). A subsidy is countervailable if it is specific to certain companies or industries (rather than general) and when it is granted either directly or indirectly for the manufacture, production, export or transport of goods. These subsidies may promote unfair trade in goods that harm UK industry.

How we determine the specificity of a subsidy

In order for a subsidy to be deemed countervailable and subject to a trade remedies measure it must be specific. This means that the subsidy must be limited to specific industries, regions or situations.

A subsidy is explicitly specific if the granting authority, or the applicable law, limits availability to certain enterprises or industries. For example, the subsidy is:

• limited to certain enterprises or industries in terms of access
• contingent on export performance
• contingent on the use of domestic over imported goods
• limited to a specific geographical region within the jurisdiction of the granting authority

A subsidy is in fact specific if it is only used or granted in a specific manner. This may be because it is:

• used disproportionately by certain businesses, industries or regions;
• granted disproportionately by a discretionary public body to certain businesses, industries or certain regions.

We never assume a subsidy is specific. When someone applies to us to investigate a possible countervailable subsidy, we will ask them to provide all the information they have to help us determine specificity.

Calculating the amount of subsidy to be attributed to the subsidised imports

In order to recommend a remedy to counteract the effect that subsidised goods are having on the domestic market, we need to establish the amount of subsidy that should be attributed to the subsidised imports.

To do this calculation, we must have established:

1. the total amount of the countervailable subsidy (known in the D&S Regs as determination of the amount of benefit conferred)
2. the amount that can be attributed to the period of investigation (known in the D&S Regs as determination of the amount of the countervailable subsidy that is attributable to the period of investigation)
3. which goods the countervailable subsidy may be allocated to during the period of investigation (known in the D&S Regs as determination of the goods the subsidy is attributable to during the period of investigation)

Determining the amount of benefit conferred

When we recommend a countervailing duty to be applied to a subsidy, the amount of duty we specify will depend on the value of the benefit which has been conferred. We will assess all financial contributions from foreign authorities in terms of economic value, either in the form of a monetary transfer or a transfer in kind. It is the benefit to the recipient that matters, not the cost (or opportunity cost) to the foreign authority.

We will include all financial contributions which have been wholly transferred (or where there is an existing agreement to be wholly transferred) to the recipient, irrespective of whether the full benefit of the financial contribution has been realised.

Determining the amount of the subsidy that can be attributed to the period of investigation

To attribute the right proportion of a subsidy to the period of investigation, we need to establish whether the subsidy was in place during our period of investigation and if it is non-recurring.

Many types of subsidy are financial payments or arrangements which are made repeatedly and with immediate effect (for example, a production output subsidy).

Non-recurring subsidies may be used for one-off purposes, for example purchasing fixed assets. With these, the total value of the subsidy will be spread over the normal life of the assets, in line with industry standards for depreciating assets.

This approach means that non-recurring subsidies such as the provision of land or equipment which were provided several years before the period of investigation can be countervailable if the benefit is realised during the period of investigation.

Qualifying countervailable subsidies

If only part of a subsidy provided a benefit during the period of investigation (regardless of whether it was received before or during the period of investigation), we will only consider it to be a qualifying countervailable subsidy if it is more than 1% of the value of all sales of goods to which it is attributable.

If the total amount of the subsidy received during the period of investigation also provided a benefit solely in the same period, there is no qualifying threshold to be a qualifying countervailable subsidy.

This process specifically relates to attributing the subsidy amount to our period of investigation and is not part of the process by which we establish whether a subsidy is potentially countervailable at the beginning of our investigation.

Determining the amount of the subsidy that can be attributed to the period of investigation

We will determine the amount of subsidy that can be attributed to the period of investigation, as follows:

• If the total amount of the subsidy received during the period of investigation also provided a benefit solely in the same period, then the whole subsidy amount is countervailable – in other words, we will attribute the entire subsidy amount to our period of investigation
• If a qualifying countervailable subsidy was received during the period of investigation, but only part of it provided a benefit during that time, we will recommend a remedy which will counteract that proportion of the subsidy. For example, the subsidy may be a grant for building work that is received during the period of investigation but gives the recipient a benefit over a 10-year period
• If a qualifying countervailable subsidy was in place before the period of investigation but it provided a benefit during the period of investigation, we will assign only part of the subsidy amount to the period of investigation and recommend a remedy that reflects this
• In the latter two instances, the subsidy amount will be depreciated or amortised (gradually written off) by an appropriate method (see Amortisation/Depreciation)
• If the subsidy is not a qualifying countervailable subsidy it will be disregarded

Amortisation and depreciation

To determine the proportion of the subsidy which can be attributed to the period of investigation, we also need to consider the type of asset we are looking at – either tangible or intangible.

Amortisation is the process of spreading an intangible asset’s cost over its useful life. An intangible asset is one that is not physical in nature, for example:

• patents and trademarks
• franchise agreements
• proprietary processes, such as copyrights
• cost of issuing bonds to raise capital
• organisational costs

Depreciation involves allocating the cost of a fixed asset over its useful life. Fixed assets are tangible (physical) assets. Some examples of fixed or tangible assets that are commonly depreciated include:

• buildings
• equipment
• office furniture
• vehicles
• land
• machinery

Determining which goods (and the value of those goods), the subsidy can be attributed to during the period of investigation

Once we have assigned the subsidy to the period of investigation, we will look at the sales of the goods concerned during this period to establish the amount of subsidy per unit.

To do this, we will determine whether the subsidy is linked to:

• a specific category of goods
• the export of certain goods
• the sale of certain goods
• to sales to a certain market

If the subsidy is linked to a specific category of goods, we will attribute the subsidy to those goods during the period of investigation.

If the subsidy is linked to the export of certain goods, we will attribute the value of all of the exports of the goods concerned during the period of investigation.

If the subsidy is linked to the sale of certain goods, we will attribute the subsidy to the value of all the sales of the particular goods concerned during the period of investigation.

If the subsidy is linked to sales to a certain market, we will attribute the subsidy to the value of all of the goods sold to that market during the period of investigation.

Calculating countervailing duty amounts for exporters

After we have calculated the amounts of subsidy, we compare these to the injury margin to determine what countervailing duties to recommend. Our aim is to calculate an individual countervailing duty for each cooperating overseas exporter in an investigation. However, in most cases, investigations involve a large number of exporters and it is not practical to calculate individual subsidy amounts and injury margins for each exporter. In this situation, we will therefore use sampling. For more information about this process, see the TRA’s investigation process TROG.

When we sample exporters in a subsidy investigation, we will set different duty rates for sampled and non-sampled parties.  First, we will set an individual duty rate for each sampled exporter and then we will set a single duty rate for all non-sampled, cooperating exporters. Finally, we will set a single duty rate for all other exporters. This is known as the ‘residual rate’.

Applying the lesser duty rule

When we set the duty rates, we will follow the lesser duty rule. Under this rule, in some cases we will impose duties at a level lower than the amount of subsidy, but which is enough to remove injury (the injury margin).

Calculating a countervailing duty for sampled exporters

We will calculate individual countervailing duty rates for each sampled exporter. Following the lesser duty rule, this will be either their individual injury margin or their individual subsidy amount, whichever is lower.

Calculating a countervailing duty for non-sampled cooperating exporters

Cooperating exporters who are not in the sample will receive a single countervailing duty that is no higher than the weighted average of the countervailing duties calculated for the sampled exporters. We will not include in this weighted average any amounts that are minimal or based on facts available.

Any cooperating exporter who was not chosen for the sample can ask us to calculate an individual countervailing duty for them. They can do this by submitting the necessary information at the appropriate period of our investigation. We will calculate an individual duty rate for them unless this would be overly burdensome and prevent timely completion of the investigation.

Calculating a countervailing duty for all other exporters (residual amount)

We will set this amount on a case-by-case basis and we can use any reasonable means to do so.