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4 J. WTO & China 23 (2014)
The Benchmark for Measuring Subsidies: An Economic Analysis

handle is hein.journals/jwtoch4 and id is 289 raw text is: The Benchmark for Measuring Subsidies: An Economic Analysis The Benchmark for Measuring Subsidies: An Economic Analysis Bin Zhang* Abstract: Countervailing measures are designed to neutralize the terms-of-trade externalities that result from one country' s subsidies for its own producers on another country' s producers. In turn, international regulations mediate the use of countervailing measures. In trade remedy prac- tice, countervailing measures promote the efficient allocation of global resources, and benchmarks calculated based on a market without government intervention are used to measure the subsidies and their effects. But a purely market-based benchmark contradicts the intent of the multilateral regulations on countervailing measures and can lead to inconsistencies within the benchmark rule itself. Instead, the cost or the domestic price of the product in question should be adopted as the benchmark, which will not only simplify the antidumping and countervailing investigation proce- dures, but is also logically consistent with the current countervailing duty rules. Keywords: Countervailing measure, Subsidy calculation, Benchmark I. INTRODUCTION Subsidies are used to redress market distortions and rationalize resource alloca- tion. Unlike tariffs, subsidies are a part of domestic policy. But in an open econo- my, subsidies are similar to tariffs in that they trigger terms-of-trade externalities that can provoke countervailing measures from trading partners. To promote coop- eration in international trade, international rules on subsidies and countervailing measures have been put in place to restrict trade-distorting subsidies. At the same time, these rules recognize that subsidies in general are valid instruments for mem- bers to achieve their domestic policy goals. With this understanding, many coun- tries have implemented countervailing duty (CVD) legislation, and opened investi- 'Bin Zhang. Associate Professor. Glorious Sun School of Business & Management, Donghua University, Shanghai, China. Email: richard@dhu.edu.cn. This study is supported by the National Social Science Fund of China (NSSFC), Project No. 11BGJ012.

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