According to agreement on subsidies, a subsidy should satisfy following three elements:
- A financial contribution.
- By a government or any public body within the territory of a member country.
- Which confers a benefit.
The agreement covers only specific industries. Specific subsidies are those subsidies that are available only to an enterprise or industry (or a group of enterprise’s or industries) operating within the jurisdiction of the granting authority. The agreement provides certain special and differential treatment to developing countries.
The agreement deals with three categories of subsidies:
- Prohibited subsidies: those contingent upon export performance or the use of domestic instead of imported goods.
- Actionable subsidies: those that have demonstrably adverse effects on other member countries.
- Non-actionable subsidies: including those provided (with stipulated limitations) to industrial research and pro-competitive development activity to disadvantage regions, or to existing facilities to adapt themselves to new environmental requirements.
The Agreement also puts restrictions on the use of countervailing measures against competitors subsidies. To prevent undue hardships, developing countries and countries in transition from centrally planned to market economies are allowed extra time to bring the subsidies into conformity with the new rules. While industrial economies are required to reduce, over six years, the volume of subsidized agricultural exports by at least 21 per cent and the value of subsidies at least by 36 percent, the respective figures for developing countries are 14 per cent and 24 per cent. All countries are bound not be introduce new subsidies.
The UR agreement has brought the domestic support policies also under the multilateral trade discipline. However, domestic support measures that have along a minimal impact on trade (“green box” policies) such as general government services in the areas of research, disease control, infrastructure and food security as also certain direct payments such as certain income support policies, structural adjustment assistance, payment under environmental programs and regional assistance programs are exempted.
The non-exempted types of subsidies included in the aggregate measures of support (AMS) required to be reduced include assistance in the form of production limiting subsidies and assistance given for growth of agriculture and rural development like procurement at support prices and subsidies on inputs and credit. However, even these subsidies are required to be reduced only if their total amount as a proportion of the value of agricultural production exceeds five per cent in case of developed countries and 10 per cent in case of developing countries. If the non-exempted subsidies are above these limits, they are required to be reduced by 20 percent in case of developed countries and by 13.3 per cent in developing countries by 1999.