Subsidy in Europe

Definition of Subsidy

Originally, import and export duties granted to the King ; later, any tax imposed by Parliament ; now, popularly, as synonymous with subvention

Subsidy and Trade Barrier Regulation

From the document “Trade Barriers Regulation [TBR]”, published by the European Commission:

Under WTO law, a “subsidy” is broadly defined as a financial contribution from a government, which confers a benefit on the recipient, which he could not otherwise obtain in the market. For example, a non-repayable transfer of government funds, such as a grant or a tax exemption to a company would obviously fall into this category. In other cases, a comparison with the market is necessary to establish whether a subsidy exists. For
example, a Government loan would only involve a subsidy if it were granted on more favourable terms than the market i.e. a loan at below market rates; the same consideration applies to loan guarantees, equity infusions and the Government provision of goods.

It is important to note that subsidy disciplines apply only to benefits, which result from a financial intervention by Governments. Many kinds of Government actions confer benefits but cannot be considered as subsidies. For example, if a Government lowers social or, especially relevant today, environmental standards, this may reduce companies’ costs and confer a benefit, at least from the purely selfish point of view of the company. However,
as there is no financial contribution from the Government, it is not a subsidy and cannot be subject to remedies against subsidies. Similarly, an export ban on steel scrap may benefit still producers by reducing the price of their raw material; this is not a subsidy. Another example is customs tariff increases – these benefit companies by granting them protection, but the Government gains rather than forgoes revenue.

Not all subsidies can, however, be challenged. Certain kinds of subsidies are, in that respect, viewed more favourably than others. For instance, subsidies which apply across the board in the territory of the government which grants them, and thus do not give certain firms an advantage over others, are not normally considered to distort trade. An example may be a lower rate of corporate income tax for Small and Medium Enterprises so-called non-specific subsidies. Under WTO law, no action can be taken against a non-specific subsidy.
On the other hand, specific subsidies e.g. those limited to certain enterprises, potentially can distort trade and can, therefore, be challenged, if they cause adverse effects (e.g. injury to domestic industry, displacement of exports, price undercutting) to other WTO Members; these are referred to as “actionable” subsidies. Proof of such effects needs of course to be provided before any action is taken.

Finally, certain subsidies are considered to have in all circumstances, by their very nature, a direct negative effect on trade and are, therefore, outrightly prohibited: these are export subsidies and subsidies which favour the use of domestic rather than imported products. For example, government loans at preferential rates provided only to exporters or tax exemptions based on the percentage of domestic parts used in production.

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Definition of Subsidy is, temporally, from A Concise Law Dictionary (1927). This page needs to be proofread..

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