an essay on "Free zones regulations and the posititon with the WTO agreement on Subsidies and Countervailing Measures ..

Introduction
Free zones are special economic zones set up at multiple locations in a country to promote trade.
This is especially popular in developing countries and in fact it is so popular in developing
countries that most of their trades carry out in these special zones. Apart from being a less rules
and regulation oriented zone, the countries pursuing free zones are driven by following
objectives:
 Development of the disadvantaged and backward regions
 Generation of income
 Increasing employability rates
 Attracting foreign investments such as FDI
Promotion of foreign technology and business management knowledge transfer
The objectives mentioned above are pursued simultaneously in free zones along with a range of
fiscal benefits and incentives to the companies operating in these free zones. Such incentives and
monetary benefits are: Taxation exemptions, Flexible rules on important and labor,
infrastructural benefits to the companies such as transportation, easy access to various facilities
such as research facilities and easy access to skilled labor among others.
Subsidies and Countervailing measures
As mentioned above, subsidies are benefits provided to companies operating these special zones.
The range of benefits includes taxation benefits, infrastructural, access to technology and
facilities and so on. Anything, that leads to the development and also the promotion of trade in
the country thereby also improving backward regions in which these free zones are operating.
Generation of wealth and employability among others. Hence it is clear that Subsidies are
legitimate tools used by Governments to serve its constituents. Hence subsidies are a good tool;
however there is a much darker side to subsidies as well. Some granted subsidies are known to
cause distortion in international trade and also inject unfair trade practices. Hence, WTO has
come up with various disciplines that govern the usage and grantability of such subsidies which
lead to unfair competition between domestic subsidized goods of a particular country to that of
the non-subsidized goods of another country. These unfair market competition could develop in
any of the following mentioned markets : a) The market of that country which subsidized their
goods and services b) The market of the country which is importing those subsidized product or
service or a c) The third country market. The WTO agreement provides several mechanisms to
tackle such subsidies. These are known as countervailing measures.
Countervailing measures or simply Anti-subsidies are an instrument to set off trade difference to
ensure smooth and fair trade. It provides a relief to the domestic country in a particular importing
member country against material injury caused by subsidies of another exporting member
country. For e.g., in 2000s China started to dump a lot of heavily subsidized goods in the Indian
market rendering domestic companies helpless. The SCM agreement ensures appropriate actions
to be taken during such situations in order to counter battle the effects of subsidies. Anti-
subsidies don‟t necessarily provide a complete protection to the domestic industry per se, but
serves as a purpose of providing remedial action to the domestic market of the country which is
importing the good and services against the unfair trade practices employed by the exporting
country. In fact, countervailing measures are nothing but remedial measures to correct the
damages done by subsidies having trade-distorting effects.
In order to understand the current subsidies and countervailing measures let
us first understand the Subsidies and Countervailing measures that were
present in the GATT system prior to the Uruguay round.
The original GATT was extremely limited when it came to provisions regarding the subsidies
and countervailing measures. All of these provisions applied only to trade in goods and not trade
in services. GATT Article XVI originally consisted only of a single paragraph containing a very
loose requirement for subsidies that used to operate to reduce exports or imports. Article II: 2(b)
of GATT had provisions to authorize the use of countervailing duties and also antidumping
duties even if they would result in traffic rates that go beyond countervailing duties.
Article VI in turn had imposed three very important requirements on the usage of countervailing
duties. The first one was the use of such duties cannot exceed the “subsidy” granted on particular
products. Second one was that the duties could never be imposed unless and until the resulting
effect of the subsidization would cause or threaten material injury done to a domestic industry.
Finally, if the subsidies are granted to an extent that the product is considered as dumping, the
product would not be subjected both anti-dumping and countervailing duties so as to compensate
for the loss owing to the subsidization. A final provision was Article III: 8(b) bearing the use of
subsidies was the “national treatment” requirements of the Article III required the member
countries to treat both the domestic products and the foreign products as same for consideration
of tax and other regulatory purposes.
Hence, we can conclude that the original GATT was quite tolerant when it came to subsidies. It
would acknowledge countervailing measures to the extent that when a competing product were...