INTERNATIONAL LAW Essay Example | Topics and Well Written Essays - 2500 words

INTERNATIONAL LAW - Essay Example World Trade Organization (WTO) Agreement of Subsidies and Countervailing Measures (ASCM) is a practical example of hard instrument model of international laws directed at regulation of subsides. A subsidy has been defined concretely to include financial support as well as price support extended by a government that creates an advantageous situation for certain industries. Alturai and Benares are neighbouring countries and currently both hold membership in World Trade Organisation. Alturai is facing recession in its steel industry so consequently, the government has formulated new economic policies. For instance, the government has extended and assured constant supply of iron that is the primary raw material for manufacturing steel. The stable and consistent supply of raw material will enable the steel industry to boost production. Additionally, the implementation of price ceiling is a significant incentive as suppliers will be able to reap the maximum possible profits. The element of increased profit will induce new suppliers to join the industry, prevent the steel industry from crashing, and ensue in more employment opportunities. The policies will also accelerate exports as the government has sanctioned to give credit equivalent to payment of custom duty for exports of steel. Lastly, the government being well aware of the need for innovation and cost competitiveness in the globalized market, has granted monetary assistance equivalent to 1% of sales value to be invested in research and development. Investment in research and development is imperative to ensure survival in today’s volatile, consumer oriented and globalised markets. Firms no longer have to only deal with domestic competition but also take on international competitors. Therefore, it is integral to explore technological opportunities. Foreign exchange earnings from exports are one of the fundamental macro-economic aims of a country. Hence, escalating exportation is not only fruitful for dom estic industry but for foreign exchange reserves as well. According to WTO SCM agreement, a subsidy encompasses three basic elements: a monetary contribution, by a government or public organization and provides a benefit. All of the stated criteria must be met for any financial contribution to be deemed as subsidy (International Trade Centre, 2009 b). Although various kinds of government incentives that do not actually involve financial contributions being made, however these can be thought as subsidies as they undermine competition. The US-Softwood Lumber IV case clearly states in its judgement that subsidies can be direct as well as passed indirectly in order to benefit certain parties. However, the SCM agreement demands that a financial contribution is a prerequisite for subsidy such as grants, loans, guarantees, fiscal incentives. Secondly, the contribution has to be made by or at the order of the government or a public entity within the country. Obviously, a subsidy must prove beneficial for the interest of the recipient; sometimes the benefit is easily identifiable whereas in other instances, it can be complicated (Macrory, Appleton, & Plummer, 2005). The EC-DRAMs Chips case is a clear reminder that a subsidy passed to only 6 out of 200 firms is enough to be labelled as a subsidy established under specificity. Article 1 of ASCM lays down the definition of a subsidy, clause1.1 states (WTO, 1995): â€Å"