WT/GC/W/880  
G/SCM/W/589  
WT/COMTD/W/274  
 
26 May 2023  
(23-3619) Page: 1/6 
General Council  
Committee on Subsidies and Countervailing Measures  
Committee on Trade and Development  Original: English  
 
A CASE FOR REBALANCING THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING 
MEASURES (ASCM) – POLICY SPACE TO PROMOTE INDUSTRIALISATION IN DEVELOPING 
COUNTRIES  
COMMUNICATION FROM  THE AFRICA N GROUP (ANGOLA; BENIN; BOTSWANA; BURKINA FASO; 
BURUNDI; CABO VERDE; CAMEROON; CENTRAL AFRICAN REPUBLIC; CHAD; CONGO; CÔTE 
D'IVOIRE; DEMOCRATIC REPUBLIC OF CONGO; DJIBOUTI; EGYPT; ESWATINI; GABON; THE 
GAMBIA; GHANA; GUINEA; GUINEA -BISSAU; KENYA; LESOTHO; LI BERIA; MADAGASCAR; 
MALAWI; MALI; MAURITANIA; MAURITIUS; MOROCCO; MOZAMBIQUE; NAMIBIA; NIGER; 
NIGERIA; RWANDA; SENEGAL; SEYCHELLES; SIERRA LEONE; SOUTH AFRICA; TANZANIA; TOGO; 
TUNISIA; UGANDA; ZAMBIA AND ZIMBABWE)  
 
The following communication, dated 22 May 2023, is being circulated at the request of the Africa n 
Group .  
 
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1  INTRODUCTION  
1.1.  This submission is submitted as a follow -up to the Africa Group submission tabled in the General 
Council held on 8 -9 March 2023 titled "Policy space for industri al development - a case for 
rebalancing trade rules to promote industrialisation and to address emerging challenges such as 
climate change, concentration of production and digital industrialisation " (WT/GC/W/868, 
G/C/W/825, WT/COMTD/W/270, IP/C/W/695, WT/W GTTT/W/33). It is a contribution to the 
discussions and negotiations towards the reform of the WTO agreed by Ministers at MC12.  
1.2.  Subsidies are a critical instrument in the toolbox that national governments use to address 
market failures and achieve a varie ty of policy goals. The Agreement on Subsidies and Countervailing 
Measures (ASCM) contains multilateral rules that discipline the type and scope of allowable subsidies 
or limits within which subsidies may be provided by a Member. The Agreement also regulat es the 
actions that members can take to counter the effects of subsidies which can be enforced either 
through the WTO dispute settlement mechanism or through the imposition of countervailing duties 
or measures.  
1.3.  Members, as entailed in Article 27 of the AS CM, recognise that subsidies may play a role in 
economic development of developing country Members and agreed on provisions on Special and 
Differential Treatment of Developing Country Members. However, some of these flexibilities had 
transitional periods a nd have since expired. The world economy is confronted with compounding 
global challenges today, including the on -going effects of the COVID -19 pandemic, climate crisis and 
economic consequences of geopolitical tensions, global food and energy crises, caus ing the cost -of-
living crisis and rising debt burdens in many countries. In this context, it is important to consider 
how flexibilities, not only in the context of S&D as provided for in Article 27, can be availed to 
developing countries to provide them wi th the requisite tools to respond to the polycrisis.  
1.4.  Subsidies in developing countries aimed at achieving "legitimate development goals ", including 
support for regional growth, technology research and development, production diversification, and 
developme nt and implementation of environmentally sound methods of production should not have 
to face countervailing measures or other actions from other governments.  Yet, it is instructive in WT/GC/W/880 • G/SCM/W/589 • WT/COMTD/W/274  
 
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  this regard that developing countries have been the main targets of cou ntervailing measures by 
developed economies.  
1.5.  The Africa n Group therefore calls for flexibilities to be granted to developing countries so as to 
provide requisite flexibilities to developing countries to respond to the polycrisis and to drive their 
structur al transformation, industrial development and diversification. The ASCM disciplines need to 
be recalibrated and rebalanced to infuse certainty and equity in the multilateral trading system.  
1.6.  This paper aims to provide a non -exhaustive list of issues that can be considered by Members 
to rebalance trade rules to enable industrialisation within the framework of the ASCM to enable 
sustainable economic transformation in developing countries and in particular Africa. This is 
important in light of the relevance of subsidy disciplines to emerging policy orientations increasingly 
adopted by many Governments.  
2  RELEVANCE OF WTO ASCM RULES AND DISCIPLINES TO CURRENT CHALLENGES  
2.1.  The scale of the polycrisis confronting the global economy, inequality and disparities in levels 
of development of countries and regions, highly concentrated patterns of production, and the lack 
of sufficiently diversified economies in developing countries calls for urgent action at a multilateral 
level to devise rules that are fit for purpose. With the world economy still emerging from the COVID -
19 pandemic, it is today confronted with a confluence of global challenges among them the ongoing 
climate crisis, a global food and energy c rises which is causing the cost -of-living crisis and rising 
debt burdens in many developing countries.  
2.2.  In the context of this "polycrisis ", Governments, most notably in developed economies are 
implementing industrial policies as a viable option for acceler ating sustainable economic growth as 
a means of advancing national economic priorities, including the de -risking of supply chains. 
Industrialisation is an indispensable factor in the development process and is critical in the process 
of the enhancement and  expansion of productive capacities to achieve economic diversification. 
Many developing countries struggle to diversify their economies and it is important to explore how 
WTO rules can facilitate the industrialisation efforts of Members. For example, Afri ca's growth 
trajectory is limited by its dependence on production and exports of agricultural and extractive 
primary commodities which leaves it vulnerable to global shocks.  
2.3.  Between 1995 and 2021, there has been a level of convergence in the degree of exp ort 
diversification among the Americas, Asia, and Europe (see Annex A - Figure 1) . However, a 
breakdown among income groups highlights that the export diversification gap between (i) low -
income countries, which include mainly African countries, and (ii) up per-middle - and high -income 
countries remains wide (see Annex A - Figure 2) . Over the last three decades, Africa recorded only a 
slight improvement in export diversification, that is, a 0.03 points decrease in the export 
diversification index.  
2.4.  Developing ec onomies seeking to develop their economies from a relatively much lower base 
are also contending with ambitious carbon reduction and mitigation targets, in line with their 
nationally determined contributions (NDCs) as negotiated under the Paris Agreement. The increasing 
adoption of decarbonization targets with extraterritorial application imposed through trade measures 
by their main export markets also underscores the urgency to diversify their economies and integrate 
into environmentally -friendly and high value manufacturing value chains as key producers and 
suppliers of products in the green economy, e.g. electric vehicles and their components such as 
energy storage systems, domestic solar and wind energy products, etc.  
2.5.  UNCTAD points out in its 2023 Techn ology and Innovation Report that "Developing countries 
now have opportunities to catch up, reduce poverty, and at the same time help tackle climate change 
and set the world on a more sustainable course "1.  Significantly, the report further highlights and 
acknowledges the critical role of WTO trade rules towards this ideal, such as the disciplines under 
the ASCM, including local content requirements and public procurement and the need for their review 
to bring them in sync with the Paris Agreement.     
 
1 Technology and Innovation Report 2023  - Opening Green Windows: Technological opportunities for a 
low-carbon world  : https://unctad.org/publication/technology -and-innovation -report -2023. WT/GC/W/880 • G/SCM/W/589 • WT/COMTD/W/274  
 
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  2.6.  Further, research and development (R&D) is critical to industrialisation, including promoting 
green mobility and, with that, renewable energy solutions, as well as structural transformation into 
new, or more sustainable industrial activities. The importance of  public -private cooperation in R&D 
to enhance research activities and translate research outcomes into a production plan for commercial 
use is well -documented. In developing countries, private companies alone are unlikely to have 
sufficient incentives and capacities. The constraints imposed by disciplines in the ASCM can hamper 
public sector support for R&D purposes that is necessary for developing countries to develop their 
nascent industries, keep up with the pace of technological advances at competitive levels, and 
undermine efforts to harness or beneficiate their natural resources to move up production value 
chains or decarbonise existing and future production capacities.  
2.7.  The expiry of the carve -outs contained in Article 8 of the ASCM which allowed for non-actionable 
subsidies of up to 75 percent of industrial research or no more than 20 percent of costs of adaptation 
to new environmental requirements or regulations, unfortunately stifles this ambition to 
industrialise, whilst also placing existing expor ts at risk of noncompliance with increasingly stringent 
sustainability standards2.  It is in fact also argued that the thresholds in the expired carve -outs are 
too conservative for the climate change response necessary to decarbonise3.   
2.8.  The prohibitions  contained in Article 3 of the ASCM on local content requirements presents a 
further constraint to the ability of developing countries to structurally transform and diversify their 
productive sectors. Even with the flexibilities provided for in Article 27. 3 of the ASCM which have 
since lapsed on 31 December 1999 and 31 December 2002, the uncertainties with respect to this 
provision in view of the restriction in the Agreement on Trade -Relate Investment Measures (TRIMS) 
on the domestic content requirement cr eated ambiguity and uncertainty on its practical 
applicability4. 
2.9.  Capital and research -intensive industries (e.g. automotive sector) require economies of scale 
in production which are often impossible to realize through domestic markets alone. The 
developm ent of domestic capacities along a value chain and promoting sustainable regional value 
chains in such cases would require flexibilities with respect to eligibility criteria for Annex VII 
countries and the prohibition of local content requirements. The lev els or degree of production and 
export diversification could serve as an additional objective criterion.  
3  DEVELOPMENT DIMENSION IN THE ASCM – ADAPTING SUBSIDIES RULES TO ADVANCE 
SUSTAINED AND SUSTAINABLE INDUSTRIALIZATION OF DEVELOPING COUNTRIES  
3.1.  In view of the polycrisis and the need for Governments to respond in the interests of all, 
consideration should thus be given to extend flexibilities required within the context of the ASCM to 
enable developing countries to grant subsidies, including complimentary lo calization initiatives to 
promote regional growth, industrial development and structural transformation, production 
diversification and development, technology research and development funding, and the promotion 
of environmentally sound methods of producti on (i.e. green industrialization) and green industries 
to confront climate change, including freight rebates to mitigate against high transport costs.  
3.2.  The following in respect of the relevant provisions identified to pursue the above legitimate 
sustained a nd sustainable development goals is proposed:   
• The criteria of determining prohibition of paragraph 1(a) of Article 3 under the terms of 
paragraph 2(a) of Article 27 shall be revised with a view to, among others5   
i. updating the threshold of GNP per capita of $1,000 per annum, and ensuring re -
inclusion of a Member when its GNP per capita falls back below the agreed threshold,  
 
2 The expiry of these permissible (or "green -light") subsidies toward research and development, regional 
development and environmental protection wiped out the policy space for Members t o address technological, 
poverty and environmental challenges — all crucial issues for sustainable development.  
3 Kleimann, D. (2023) 'Climate versus trade? Reconciling international subsidy rules with industrial 
decarbonisation ', Policy Contribution 03/20 23, Bruegel . 
4 Whilst this submission will address the remedial steps to resolve this challenge within the ASCM, for 
coherence, the solutions to difficulties attendant to the Agreement on TRIMS will be explored in future 
submissions . 
5 These listed criteri a are non -exhaustive and are without prejudice to any future negotiating positions . WT/GC/W/880 • G/SCM/W/589 • WT/COMTD/W/274  
 
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  ii. incorporating additional objective criteria to expand reach of the provision such as the 
level of export diversification, the g lobal share of exports, etc., and  
iii. taking account of regional investment needs to promote regional integration and 
achieving desired economies of scale.  
• The prohibition of paragraph 1(b) of Article 3 shall not apply to developing country 
Members and least d eveloped country Members provided the use of domestic goods does 
not exceed the threshold to be agreed by Members.  
 
• In the case of actionable subsidies, the threshold for the termination of countervailing 
duty investigation of a products originating in a developing country Member shall be 
increased to x per cent of its value calculated on a per unit basis; The standard for 
negligibility should also be revised to be based on a market penetration test, rather than 
on imports as a percentage of total imports -test, i.e. if exports from an individual 
developing country is less than x% of the market where goods are being exported to, 
there should be no cumulation with imports from other countries.  
 
• The expiry in 2000 of Article 8 of the ASCM that  used to provide some policy space for 
Members to address technological, poverty and environmental challenges — all crucial 
issues for sustainable development is an issue that Members need to reconsider in view 
of emerging global challenges. Article 8 of t he SCM provided cover for non -actionable 
(green -light) subsidies toward research and development, regional development and 
environmental protection. Some nations took advantage of these provisions, but their full 
potential had not yet been realized when Ar ticle 8 expired in 2000. It is proposed that 
Article 8 of the ASCM be reinstated to enable developing countries to grant subsidies, 
including through complimentary localization initiatives, for industrial development and 
structural transformation, includin g technology research and development funding, 
production diversification and development and to allow measures to promote green 
industrialization to confront climate change and freight rebates to mitigate high transport 
costs. In hindsight, the scale of t he climate change crisis and subsequently ambitious 
multilateral commitments to urgently respond to this global challenge seem to have been 
underestimated when Article 8 reforms were adopted. Its reinstatement must be coupled 
with an increase in applicable  thresholds respectively in relation to R&D, and the cost of 
adaptation to new environmental requirements imposed by law and/or regulations.  
 
• Article 27 of the ASCM on Special and Differential Treatment of Developing Country 
Members  is further proposed for  consideration on the following elements:  
 
i. remedies to be considered by developing countries,  
ii. increasing the de minimis margins,  
iii. revising the standard for negligibility and cumulative assessment of the effects of 
imports to be based on market penetration,  
iv. increasing the volume of negligible volume of imports,  
3.3.  The applicability of the flexibilities and subsidies envisaged above, including their duration, 
shall be contingent on criteria and procedures to be agreed, taking due regard of the objective of 
foster ing resilient and sustained development. Without prejudging nor predetermining the thresholds 
and timelines, the architecture could be borrowed and adapted from the tests and procedures 
applicable to Article 27.5 and Article 27.6 of the ASCM, including oth er relevant and objective criteria 
to be negotiated and agreed (e.g. share of global exports, level of export diversification, etc).  
4  CONCLUSION  
4.1.  There has been extensive use of subsidies by many Members, yet the political systems that 
deliver the subsidies , the substantive meaning of subsidies in those systems, and the forms those 
subsidies take differ. While developed countries can afford to act unilaterally, developing countries 
are limited by various factors in doing so. Not least geopolitical and uneven  market power dynamics WT/GC/W/880 • G/SCM/W/589 • WT/COMTD/W/274  
 
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  that render developing countries vulnerable to wide -ranging punitive and retaliatory actions. In order 
for the multilateral trading system to be just and equitable, a multilateral framework that provides 
policy space and certainty to  developing countries to implement legitimate policy measures is 
urgently required.  
4.2.  There is a balance of interests that needs to be arrived at in the multilateral trading system to 
enable predictability of trade rules whilst simultaneously allowing Membe rs the requisite policy space 
to achieve their development objectives. Such a balance requires that Members are provided the 
flexibility to implement legitimate policy measures to address common contemporary and future 
challenges such as climate change, un even industrial and economic development, job creation, 
improvement of living standards inter alia . Improving the flexibilities in the ASCM could assist in this 
regard.  
4.3.  The African Group, therefore calls for focused discussions by Members to address the 
constraints inherent in certain WTO agreements which limit the policy space to drive industrialization, 
economic diversification and structural transformation programmes, including the ability to respond 
to emerging challenges such as climate change.  
4.4.  The Af rican Group reserves the right to identify further issues for clarification and improvement 
and to complement its position in the relevant WTO bodies where this issue is discussed.  
 
_______________  
 
  WT/GC/W/880 • G/SCM/W/589 • WT/COMTD/W/274  
 
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  ANNEX  A 
Figure 1: Export Diversification by Income Groups (1995 -2021)  
 
 
 
 
Source:  UNCTAD calculations based on UNCTADStat.  
Note:  The diversification index measures how similar the product composition of exports of a country or 
region is to the world average. The index ranges between 0 and 1 and a smaller figure indicates 
higher similarity and thus more diversified exports.  
Figure 2: Economic Complexity Index (2020)  
 
 
 
 
Source:   Atlas of Economic Complexity, Harvard Growth Lab, Centre for International Development, Har vard 
University, https://atlas.cid.harvard.edu/rankings  
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