Prohibited Subsidies Two categories of subsidies are prohibited by Article 3 of the SCM Convention. The first category consists of subsidies that, legally or in fact, depend entirely or as conditions on export performance (export subsidies). The SCM agreement is accompanied by a detailed list of export subsidies. The second category consists of subsidies which, alone or among other conditions, refer to the use of domestic imported goods (subsidies for local content). These two categories of subsidies are prohibited because they are supposed to directly affect trade and are therefore most likely to have a negative impact on the interests of other Members. Developing countries The SCM agreement recognises three categories of members from developing countries: the least developed countries (LDCs), members with a per capita GNP of less than US$1000 per year, listed in Schedule VII of the SCM Convention, and other developing countries. The lower a member`s level of development, the more favourable the treatment he or she receives for grant disciplines. For example, LDCs and members with a per capita GNP of less than US$1000 per year, listed in Schedule VII, are exempt from the ban on export subsidies. Other developing countries have eight years to end their export subsidies (they cannot increase their export subsidies during this period). With regard to import substitution subsidies, LDCs have eight years and other developing countries have five years to end these subsidies.

Achievable subsidies are also treated more favourably. For example, some subsidies related to privatization programmes for members of developing countries cannot be applied multilaterally. With regard to countervailing measures, exporters from developing countries are entitled to more favourable treatment in the event of a closed investigation when the level of subsidies or import volume is low. The WTO Agreement on Subsidies and Countervailing Measures disciplines the use of subsidies and regulates the measures countries can take to counter the effects of subsidies. The agreement allows a country to use the stock market fund dispute settlement procedure to request the withdrawal of the subsidy or the elimination of its adverse effects. Or the country can open its own investigation and ultimately impose additional duties (countervailing duties) on subsidized imports, which harms domestic producers. The SCM agreement creates two basic categories of subsidies: those that are prohibited, those that can be implemented (i.e. challenged in the WTO or that take countervailing measures). All specific grants fall into one of these categories. 7.9 In the event that the member has not taken appropriate measures to eliminate the negative effects of the grant or to withdraw the subsidy within six months of the adoption of the panel`s report or the appellate body`s report, the DSB gives the complaining member permission to take action.

, depending on the degree and nature of the adverse effects, unless the DSB agrees to reject the application. Part I provides that the SCM agreement applies only to subsidies granted specifically to a company or industry or group of companies or industries and defines both the subsidy and the concept of specificity. In Parts II and III, all specific grants are categorized into two categories: prohibited and applicable (1), and they define specific rules and procedures for each category. Part V defines the physical and procedural requirements that must be met before a member can apply a countervailing measure against subsidized imports.