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MINISTRY OF EDUCATION AND TRAINING MINISTRY OF JUSTICE HANOI LAW UNIVERSITY NGUYEN QUYNH TRANG SUBSIDY LAW FOR DEVELOPING COUNTRIES UNDER WTO REGULATIONS – LESSONS FOR VIET NAM Speciality: International Law Ref Cod No.: 380108 SUMMARY OF DOCTOR DISSERTATION HÀ NỘI – 2018 INTRODUCTION Urgency of study of the topic In the context of free trade, WTO members must gradually reduce and eliminate government interventions towards trade restriction and equity Accordingly, government subsidies for domestic production must be reduced and eliminated This concept is embodied in various WTO Agreements and is binding on all members of the organization For developing countries, however, free trade may pose enormous challenges and difficulties that could cause serious damages to the domestic production and national economy Where subsidies are eliminated, products and enterprises in developing countries will encounter difficulties in competing with those from developed ones It is also recognized by WTO members that countries with economies that are just capable of ensuring a low standard of living and are in the early stages of development may need protectionist measures or instruments to affect imports, and, as long as the implementation of economic development goals to create more favorable conditions, the application of such measures is still true Subsidy is also recognized by WTO members as playing an important role in the development of developing countries For Viet Nam, Resolution No.08/NQ-TW issued on February 5th, 2007 by the 10th Party Central Committee on “A number of major policies and guidelines for quick and sustainable development of the economy when Vietnam becomes a member of the World Trade Organization", in addition to recognizing opportunities "to expand export markets", "to promote economic development", and "enhance national status", also pointed out several challenges that "Vietnam's products and enterprises will have to compete with foreign products and enterprises not only in the world market but also in the domestic arena" while "a number of enterprise my go bankrupt, and unemployment can rise" Facing the challenges and difficulties that a developing and vulnerable economy may encounter, Resolution 22/NQ-TW issued on April 10th, 2013 by the 11th Party Central Committee on "International integration" set out the orientation: "to actively develop and implement measures to protect legitimate interests of the State, enterprises, and consumers in the country" The Government may protect the interests of the enterprises by combining various measures such as application of tariff measures, non-tariff measures, and subsidies Protecting corporate interests through subsidy programs, however, is the most effective measure to achieve both short-term and longterm goals The policies "to eliminate subsidies under the commitment schedule and to supplement appropriate forms of subsidies in line with World Trade Organization regulations" also specified in Resolution No.08/NQ-TW Nevertheless, the reality of international economic integration in Vietnam is considered as "not closely linked to the need to improve the quality, efficiency, and sustainability of economic development" Vietnam's subsidy law has not been effective and failed to generate momentum for the development of the domestic production Even many enterprises cannot access the Government’s subsidies On the other hand, the practice of WTO anti-subsidy disputes shows that subsidies are applied in all members, from developing countries to developed ones In the context of increasingly complicated and fierce competition, the demand for subsidies from domestic producers is very high Formulation of appropriate national subsidy legislation policies for the purpose of protecting and enhancing the competitiveness of newly-formed industries and strategic industries while ensuring the goal of free trade is a challenge for the Government of Vietnam Joining the WTO on January 11 th, 2007, Vietnam officially became the 150th member and had full rights and obligations of a developing member Vietnam is obliged to comply with WTO rules on subsidy cuts and is also has entitled to receive special and differential treatment in subsidy provisions for developing countries Therefore, comprehensive studying of WTO subsidy law to fulfill obligations and to take full advantage of all the entitlements from the largest free trade body to develop an effective national legal system on subsidies and to create driving force for economic development is an indispensable requirement of all developing countries in general and Vietnam in particular On the basis of argument, implementation of the Party's guidelines, actual demand for subsidies of the domestic production, current status of subsidy policies of Vietnam, the study of the topic on "Subsidy law for Developing Countries under WTO Regulations - Lessons for Viet Nam" is of paramount importance both in theory and practice Subjects of study and scope of study of the thesis The subjects of the thesis include: WTO’s views on subsidies and the application of subsidy legislation to developing members; views on the nature and impact of subsidies on international trade; WTO’s current regulations on subsidies for developing members; subsidy laws of China, Brazil, and the United States; and commitment and actual status of subsidy law in Vietnam When studying "subsidy law," the study content will cover two issues, including the law on government subsidies for the domestic production and anti-subsidy law on subsidized import goods This is quite a large content The thesis focuses on studying low on government subsidies for domestic production with a view to proposing the development and improvement of Vietnam’s subsidy law in the context that the Government accompanies with enterprises with subsidies targeted to cutting-edge industries as well as start-ups and small and medium enterprises vulnerable to international trade competition Studying anti-subsidy law is also important, but in the context of a thesis, doctoral candidates conduct study of anti-subsidy law on subsidized imports in order to clarify how can unfair subsidy can be countered in the WTO More details of anti-subsidy law will be included in the post-thesis studies Within the scope of the thesis, the author has mentioned various types of WTO legal sources, but only current WTO regulations on subsidies embodied in agreements and conventions among members have been focused on It is the first and most important source of WTO subsidy law applied to govern when a subsidy measure is brought to a WTO dispute settlement body The thesis also uses case laws to clarify current WTO regulations without investigating any individual one Other WTO legal sources will not be studied in the thesis The thesis also focuses on analyzing the subsidy law of from China, Brazil, and the United States The reason for choosing these three members is that China and Brazil are developing countries in Asia and Latin America China represents the members that have transition economies studying the commitments and legal policies for subsidies of China gives us lessons on the elimination or use of subsidies in a country where enterprises used to rely heavily on the state Meanwhile, Brazil represents the developing countries that joined WTO from the very beginning and have attained strong development achievements At the same time, the United States represents the developed economies and importing countries where several anti-subsidy measures have been applied All three chosen countries have relatively diverse disputes on subsidy in WTO Therefore, the selection of China, Brazil, and the United States will help the thesis focus on the specific analysis of valuable experience in developing and finalizing Vietnam's subsidy policies towards economic development Study methodology To clarify the studying issues, the thesis uses a combination of various scientific study methods such as: (1) Synthesis and analysis, mainly used in many study contents of the thesis and applied in assessment of studies on subsidies, and examination of practical disputes on subsidies within WTO and in a number of member countries, Viet Nam's commitment on subsidy, and other contents; (2) Statistics, applied in studying subsidy disputes among selected members and practical data on subsidies, and; (3) Comparison and contrast, applied in studying subsidy law in member countries in relation to WTO regulations on subsidy The study methods are based on the dialectical materialist and historical materialist methodology of Marxism-Leninism, the Communist Party of Vietnam’s views and guidelines on politics and economics, culture, and society In particular, the approach to combining theory and practice is used throughout the thesis, especially in studying WTO regulations on subsidy concept, benefit concept, subsidy margin, anti-subsidy taxes, and special and differential preferences for developing countries The thesis also uses the case study method to study the subsidy disputes Purpose and task of study The purpose of the thesis is to clarify the rationale and content of WTO regulations on subsidy applicable to developing countries in a systematic and comprehensive manner The thesis also aims at clarifying the subsidy law of China, Brazil, and the United States under the coverage of WTO regulations on subsidy On that basis, the thesis targets to drawing lessons and making recommendations for development and finalization of the subsidy law of Vietnam To achieve such goals, the thesis sets out the tasks of study as follows: - Analyze and clarify the theoretical issues and contents of WTO regulations on subsidy applicable to developing countries - Analyze and clarify views and trends on application and maintenance of subsidy in developing countries - Analyze and clarify policy commitments and law of China, Brazil, and the United States and, at the same time, analyze the practicality of a number of subsidy disputes related to these members to further clarify the compatibility of national subsidy law and WTO regulations on subsidy - Analyze and assessment the current status of the legal policy on subsidy in Vietnam from time to time with focus on the current legal policies - Analyze the lessons learned from the aforementioned studies in development and finalization of the subsidy law in Vietnam - Make specific proposals on finalization of the subsidy law in Vietnam in order to enhance the competitiveness of Vietnamese products and enterprises, thereby boosting the economy New study results of the thesis The thesis has new theoretical and practical contributions as follows: - Contribute to clarifying WTO subsidy argumentation problems, of which the thesis analyzes and assesses each component of subsidy, and perspectives and ideologies on application and maintenance of subsidy in different schools of thought - Contribute to clarifying WTO regulations on subsidy special treatment for developing countries as well as the development process and trends of such regulations - Analyze and draw in-depth lessons and make recommendations in finalizing the national subsidy law towards enhancing the competitiveness of Vietnamese products and enterprises; - Analyze and make appropriate recommendations for Vietnamese enterprises in accessing to and taking advantage of Vietnam's subsidy law - Analyze and make appropriate recommendations for Vietnam to integrate more actively and effectively in term of subsidy issue Structure of the thesis The thesis includes the introduction, contents, conclusions, and list of references and annexes The contents of the thesis is divided into four chapters attached with subconclusion of each chapter, specifically as follows: Chapter 1: Overview on study situation related to the thesis; Chapter 2: WTO fundamental legal theories on subsidy for developing countries; Chapter 3: Practices of WTO subsidy law for developing countries and practices of subsidy law in member countries; and Chapter 4: Experience lessons and solutions for finalization of Subsidy Law in Vietnam BASIC CONTENTs OF THE THESIS CHAPTER OVERVIEW ON STUDY SITUATION RELATED TO THE THESIS 1.1 Study situation 1.1.1 Study situation aboard Most notable is the Doctoral Candidate Bui Ngoc Anh’s Ph.D thesis of Law (2007) at Georgetown University Law Center "WTO laws on subsidies and the accession and participation of transition economies: Vietnam’s case study" However, in other countries, there are various studies on WTO subsidy law in general, of which the regulations applicable to developing member countries form part of the studies A number of typical monographs and textbooks include (i) George A Berman, Petros C Mavroisid (2007), “WTO Law and Developing Countries”, Cambridge University Press, New York; (ii) Marc Benitah (2001), “The law of subsidies under the GATT/WTO system”, The Hague Kluwell Law International, Hague; (iii) Melaku Geboye Desta (2002),“The law of international trade in agricultural products : from GATT 1947 to the WTO agreement on agriculture”, Kluwer Law International …, Additionally, electronic materials and articles related to WTO subsidy law applicable to member countries in general and developing members in particle Specifically, the materials include “Dispute Settlement – World Trade Organization – 3.7 Subsidies and Countervailing Measures” used by the United Nations (2003) in the training course “Dispute Settlement in International Trade, Investment and Intellectual Property”; “Export Promotion and The WTO: A brief guide” by International Trade Center (2009); Current Developments under the WTO Agreement on Subsidies and Countervailing Measures
as an Example for the Functional Unity
of Domestic and International Trade Law” by Christian Tietje/Gerhard Kraft/Rolf Sethe (2004); “A Commitment Theory of Subsidy Agreements” by Daniel Brou, Michele Ruta (2012) The electronic materials and articles on the subsidy law in member countries include China’s steel industry: Dealing with growth, consolidation and rationalization” by China Chamber of Commerce of metals, minerals, chemicals importers and exporters (5/2007); “China's Pure Exporter Subsidies” by Fabrice Defever and Alejandro Riano (2012); “Estimates of energy subsidies in China and Impact of Energy reform” by Lin, B., and Z.Jiang (2011); and “Dumping and subsidies: The law and procedures governing the imposition of anti-dumping and countervailing duties in the European Community” by Clive Standbrook, Philip Bentley (1996) 1.1.2 Study situation at home The most typical example is Doctoral Candidate Quang Minh's Ph.D thesis (2012) "Developing Vietnamese agricultural subsidy law in accordance with World Trade Organization (WTO) regulations." In addition, several theses of Master of Laws have studied this issue, including: "The subsidy law of Vietnam when becoming a member of the World Trade Organization” by Do Hong Quyen (2009); "Law on anti-subsidy in commercial activities in Vietnam - Theoretical and practical issues" by La Van Thai (2013); " Law on anti-subsidy in commodity trade when Vietnam becomes a member of the World Trade Organization" by Nguyen Quang Huong Tra (2007); "Law on competition management, anti-dumping, anti-subsidy, and trade safeguards in Vietnam Current situation and solutions" by Vu Thu Trang (2012); and International Trade Law textbooks at Hanoi Law University, Faculty of Law of National University Hanoi, and other training institutions Monographs include Faculty of Law, Can Tho University (2010), Summary of typical WTO disputes - Jury and Appellate Body Reports, 19952010 Research articles related to WTO subsidy law applicable to developing members include: "Export Tax and Import Tax Law 2016: Important innovations in line with integration requirements" by Hoang Thi Thu Hien (2016); "Agricultural subsidies in WTO and the application of agricultural subsidy policies in the United States and the European Union" by Pham Quang Minh (9/2012); "Vietnam's Accession to WTO: Analysis of Tariff, Industry, and Subsidy - Book 2: Subsidy and WTO Accession: Compliance of WTO regulations and Impact on policy for Vietnam" by Montague Lord and Nguyen Truong Son (September 2005); "Vietnam Industry - Some Recommendations for Development Policies to 2025 and Vision to 2035" by Duong Dinh Tram (2017); and "Identifying Prioritized Industries in the national industrial policies" by Vu Thanh Tu An (2017) 1.2 Assessment of study situation related to the thesis Despite of many studies on WTO subsidy law applicable to developed countries or national law on subsidy, there has not been a comprehensive study of the law in practice to conclude the theoretical and practical issues of WTO subsidy law applicable to developing countries in general and Vietnam in particular for recommendations and proposals for construction and finalization the subsidy law of Vietnam towards enhancing the competitiveness of enterprises, developing key industries, accompanying with the start-up enterprises and medium and small enterprises 1.3 Suggested study direction of the thesis In theory: - Analyze and identify trends in movement and development of WTO subsidy law and analyze and identify the position and role of the WTO legal source for subsidies, thereby affirm its leading and important position of the provisions of WTO Agreements on Subsidies as well as the complementary role of the GATT/WTO case law in explaining these provisions to clearly demonstrate the legacy movement of WTO regulations on subsidy - Analyze and clarify the current viewpoints of WTO on subsidy in general and on specific types of subsidies, including agricultural subsidy and industrial subsidy In addition, the thesis also analyzes and assesses the impact and nature of subsidy through an approach of comparison of the views of various scholars and correlates the effects and nature of subsidy to the case of developing countries - Clarify the WTO's current position on anti-subsidy measures with a view to providing a basis for screening subsidy programs that are allowed to be maintained in the member countries 10 According to doctrines that support trade liberalization, export subsidy and localized subsidy are trade-distorting subsidies As a general rule, WTO prohibits the application and maintenance of export subsidy and localized subsidy from the date (01/01/1995)on which the WTO Agreement took effect for all members With a view to recognizing that subsidy can play an important role in developing members’ development programs, WTO allows the extension of the schedule of elimination of export subsidy and localized subsidy applicable to developing and least developed members during the phase of enhancing export competitiveness The relaxation of the obligation to reduce of localized subsidy is not as broad as for export subsidy, and the reduction roadmap of localized subsidy is shorter than that of export subsidy In AOA, members also did not make separate agreements on localized subsidy for agricultural products Localized subsidy for agricultural products will, therefore, be subject to the SCM Agreement as for industrial goods For developing members joining after 1995, WTO view on export subsidy and localized subsidy is rather tough Special and differential treatment is not applicable, and these members must commit to eliminating export subsidy and localized subsidy upon accession In addition to export subsidy and localized subsidy, in the subsidy law, the member governments can apply and maintain many other subsidies for domestic enterprises Under the accession of the SCM Agreement, export subsidy and localized subsidy are referred to as the "red-light subsidy" group; at the same time, the subsidy group out of export subsidy and localization subsidy is referred to as the "yellow-light subsidy" While the "red-light subsidy" group clearly demonstrates a great impact on international trade, the "yellow-light subsidy" group represents different levels of impact, even if there are subsidies that have no affect the international trade Therefore, WTO members are not bound to eliminate upon roadmap all subsidies as the SCM Agreement requires members not to adopt subsidies to have adverse effects on the interests of other members Domestic support is a financial support from the government, with no impact or negligible impact on trade, for agricultural producers Domestic support in agriculture is not associated with export criteria or priority on consumption of domestic products, so 16 the general view of WTO is that members are allowed to apply and maintain domestic support under the certain conditions Most importantly, in WTO view, domestic support is not considered as subsidy Firstly, agricultural subsidy is governed by specific regulations rather than general provisions on subsidy under the SCM Agreement Secondly, members are allowed to maintain agricultural subsidy, including subsidy for agricultural exports, more than subsidies for other products Finally, during the implementation phase, agricultural subsidy, whether causing serious losses or damages, are exempt from countervailing measures During the years of implementation (19952004), under the provisions of Article 13 (AOA), agricultural export subsidy and domestic support for agricultural products in conformity with WTO rules would not be subject to the SCM Agreement In the Nairobi commitment package, agricultural subsidies should be cut immediately for developed countries except for a few agricultural products and for three years for developing countries (by 2018) However, this period can be extended to years (for developed countries) and years (for developing countries) in some limited cases In addition, developing countries may be able to flexibly cut marketing and transportation cost subsidies for export agricultural products (Article 9.4 - AOA) in an 8year roadmap (at the end of 2023), i.e., five years after the expiry of the roadmap for full elimination of export subsidy Least-developed and food-importing countries (List G/AG/5/Rev.10) will be extended with the elimination roadmap of marketing and transport subsidies until the end of 2030 2.4.2 WTO view on countervailing measures In WTO view, a countervailing measure applied by a developing country member should be taken into consideration For some of the prohibited subsidies that a developing country member is allowed to maintain, countervailing will be consider in line with sanctions that are subject to countervailable subsidies For countervailable subsidies that a developing member applies, the applied countermeasures will be reduced more than the developed counterparts 17 2.4.3 Subsidy dispute settlement mechanism The settlement of subsidy disputes concerning developing member countries is in accordance with the general procedure set out in the DSU, Article XXII, Article XXIII – GATT, and Article 30 - SCM Agreement Developing members are entitled to special and differential treatment in accordance with the general provisions of the DSU: selecting at least one jury member from developing countries and receiving technical assistance from the Secretariat The parties to the dispute may apply one or several modes of dispute settlement: (1) Consultation; (2) Brokerage, and mediation; (3) arbitration, and (4) before the DSB 2.5 Relationship between WTO subsidy law and other relevant legal sources\ 2.5.1 WTO subsidy law and FTAs In the WTO legal system, there is no specific WTO view on the subsidy law in FTAs, but WTO has expressed its views on the FTA in general as " the signatories recognize the desire for more free trade through voluntary agreements, thereby developing further economic integration of the countries participating in such agreements Thus, the provisions of the Agreement not interfere the establishment of a tariff union or free trade area or the adoption of a provisional agreement necessary to establish a tariff union or free trade area among its member territories " (Article XXIV - GATT 1994) Although the new-generation FTA concept has many differences, and the scope of commitments of the new-generation FTAs extends beyond the scope of the tariffs outlined above, WTO has expressed a strong support for the WTO members to establish FTAs for the purpose of conducting more free trade than WTO commitments The FTA and WTO relationship is dialectical 2.5.2 WTO subsidy law and national law Subsidy law of a WTO member, whether an independent state, a territorial region, an economic union, a federal state or a state, must be compatible with WTO subsidy law 18 without applying reservation for any content Subsidy law of a developing or least developed country must be based on the special and differential treatment set out in the WTO subsidy law SUBCONCLUSION OF CHAPTER The WTO view on subsidy has undergone a process of formation and development with certain changes, from the general level of adjustment, not mandatory to the detailed, to a comprehensive and mandatory level However, throughout such process, whether the level of subsidy cuts or arrangements is different, on the basis of doctrines favoring free trade and opposing trade protectionist measures, WTO has shown anti-subsidy viewpoint and only accept and maintain subsidy in a strict, orderly manner Although WTO recognizes the need for subsidy in developing and least developed countries for economic development, the incentives are not large At present, the obligations of developing countries on application and maintenance of subsidy not differ much from those of developed countries Chapter 3: Practices of WTO subsidy law for developing countries and practices of subsidy law in member countries CHAPTER PRACTICE OF WTO SUBSIDY LAW FOR DEVELOPING COUNTRIES AND PARCTICE OF SUBSIDY LAW IN MEMBER COUNTRIES 3.1.Practice of WTO subsidy law 3.1.1 Determination of existence of subsidy and subsidy margin A subsidy will survive the fulfillment of two basic conditions: (1) a financial contribution from a government or public body in such government’s territory, or a government price subsidy or income support; and (2) offer benefits to subsidy beneficiaries To determine whether such subsidy may be counterproductive both by law or by practice For further clarification, a number of case law has been studied: DS 194, DS 257, DS 273, DS 379, and DS 70 19 The SCM Agreement does not specifically regulate the calculation of the subsidy value and subsidy margin These methods of calculation will be prescribed by national law Thus, in terms of WTO regulations, the calculation of subsidy margin and subsidy value for subsidies made by developed or developing member countries is the same 3.1.2 Determination of injury caused by subsidy The concept of "injury" is explained in footnote 45 of the SCM Agreement: "The term of injury, unless otherwise defined, would be construed as material injury to a domestic production, threatening material injury or actual delay in setting up a domestic production industry " Firstly, evidence of the existence of injury to the domestic production and the causal relationship must be made when deciding to initiate anti-subsidy investigations Secondly, preliminary evidence of the existence of injury to the domestic production must be considered when the investigating body decides to apply provisional measures to imports considered as subsidized Finally, if evidence of injury is insufficient, antisubsidy investigation must be terminated 3.1.3 Application of anti-subsidy measures to developing countries Anti-subsidy measures that may apply to subsidies made by developing members include provisional measures, voluntary commitments, and anti-subsidy taxes Under SCM regulations, the application of provisional measures, voluntary commitments, and anti-dumping duties on subsidies made by developing or developed members is no different Consideration before the application of anti-subsidy measures is reflected in the provisions on minimum benefit margin (related to anti-subsidy taxes) 3.2 Practice of subsidy law in WTO member countries 3.2.1 Practice of subsidy law in China China subsidies show basic characteristics as follows: (1) Subsidies mainly through incentives for exemption and reduction of concessions and concessional loans; (2) Subsidies with specific targets and objectives in key industries, and; (3) Subsidies 20 provided to a wide variety of beneficiaries, including SOEs, private enterprises, and foreign-invested enterprises China's anti-subsidy law is essentially based on the SCM Agreement when China becomes a member of the WTO Regulations and codes issued before this time are replaced by new legal documents, specifying the provisions on methods of determining benefits, a content that the SCM Agreement has not specified in detail A number of disputes have been studied in DS379, DS437, DS449, DS358, and DS359, 3.2.2 Practice of subsidy law in Brazil Brazil subsidies are made through a variety of financial contributions, from capital supplies, tax returns and exemptions, or receivables Brazil subsidizes are spent on prioritized sectors: pharmaceuticals, information technology, aircraft production, shipbuilding, and aquaculture Competitors with weak competitiveness such as small and medium-sized enterprises or enterprises operating in the Amazon, Northeastern, and Central Brazil regions have received subsidies to promote development Brazil's antisubsidy law is based on the SCM Agreement, which has achieved compatibility Brazilrelated subsidy dispute has been studied in DS46 3.2.3 Practice of subsidy law in the United States The US subsidies are maintained at the federal and state levels The thesis focuses on subsidy programs launched by the federal government Subsidized programs are geared to specific geographic areas (difficult or isolated areas ), scientific research activities, non-competitive subjects (small and medium-sized enterprises), health care, environmental protection, or sustainable development, etc At the federal level, the government does not apply and maintain export subsidy The government’s financial contributions to domestic production are mainly in the form of reductions in income tax through deduction of taxable income and tax credits The US anti-subsidy law is set out in a number of documents which are specified and regularly updated and modified, especially the sub-law documents Some typical the US-related subsidy disputes have been studied in DS108 and DS 267 21 SUBCONCLUSION OF CHAPTER Although WTO is a free trade organization, each member country has developed and implemented subsidy programs to support its domestic production for different purposes The practice of subsidy law in member countries reflects the compliance situation and the understanding of the different WTO regulation Both China, Brazil, and the United States have adopted and maintained a variety of subsidy programs for a variety of subjects, with a variety of financial contributions from loans, credit guarantees, direct cash, and tax returns or exemptions The commonality of the practice of subsidy law of the three representatives shows that the programs have defined purposes and that most subsidies determine the termination of the subsidy CHAPTER 4: EXPERIENCE LESSONS AND SOLUTIONS FOR FINALIZATION OF SUBSIDY LAW IN VIETNAM 4.1 Current situation of subsidy law in Vietnam 4.1.1 Vietnam's commitments on subsidy Subsidy is one of the complex issues during Vietnam's eleven years of WTO accession negotiations Vietnam is committed to the elimination of prohibited subsidies and maintenance of only domestic support for agricultural products Vietnam's commitment of subsidy elimination to WTO is reasonable at the time of Vietnam's accession to WTO It is fully compliant with the WTO regulations on subsidy, demonstrating Vietnam’s willingness to implement free trade Even more commitments have reached the level of trade liberalization that is higher than the WTO regulations on subsidy 4.1.2 Law on government financial contribution Vietnam applies and maintains financial contribution programs for domestic production, including import tax incentives, corporate income tax incentives, non- 22 agricultural land use tax incentives, credit guarantees, subsidies for trade promotion and transport, subsidies for priority sectors, and agricultural support 4.1.3 Anti-subsidy law after WTO accession Provisions on anti-subsidy continue to be finalized and more compatible with the SCM Agreement in Foreign Trade Administration Law 2017 4.1.4 Assessment of compatibility with the SCM Agreement At present, the government's financial contribution measures are quite diversified The assessment of financial contribution measures will be based on the beneficiary's eligibility criteria and the specificity, therefore, it can be divided into three categories, including financial contributions which not constitute subsidies, financial contributions in the form of non-specialized subsidies, and specialized subsidies Import duty-free programs based on export criteria such as import duty exemption for imported goods for processing and production of export goods may constitute export subsidies Other subsidy programs are specialized in nature So far, Vietnam has not initiated any anti-subsidy investigation on imports into Vietnam The Foreign Trade Administration Law 2017 is assessed as more compatible with the SCM Agreement than previous law on the concepts of subsidy, minimum level of subsidy, level of imported goods considered as negligible, tax returns, and domestic production However, the subsidy-related provisions of the Foreign Trade Administration Law 2017 are subject to a number of issues that require further discussion on distinctness, consultation procedures, and calculation of subsidy value 4.1.5 Practice of subsidy disputes related to Vietnamese goods At present, there are no anti-subsidy cases against imports from Vietnam before WTO However, with respect to the domestic complaint procedures, by April 2018, Vietnamese goods exported to other countries have been subject to anti-subsidy complaints or double complaints (anti-subsidy and anti-dumping) in 10 cases in different countries Of which, there have been five cased terminated due to no injury to the 23 production sector in the importing countries (including the steel pipes in the United States in 2011, frozen warm-water shrimp in the United States in 2013, polyester fibers in EU in 2013, pressed aluminum in Australia in 2016, and galvanized steel in Australia in 2017); four cases concluded to apply anti-subsidy tax (including PE plastic bag in the United States in 2009 and sunset review in 2015, steel hangers in the United States in 2012 and steel nails in the United States in 2014); and one case being investigated (copper fitting in Canada in 2017) The PE bag case was selected for study and analysis 4.2 Experience lessons for finalization of subsidy law in Vietnam in the new period Based on the WTO regulations on subsidy and practice of subsidy law and disputes on subsidies for developing countries, it can identify lessons and directions in development of subsidy law of Vietnam Specifically, in the situation of international economic integration of a developing country with many weak production sectors and vulnerable enterprises, the subsidy law of Vietnam should focus on experiences from other developing countries in development of subsidy law: (1) Compliance with regulations on export subsidy and localized subsidy; (2) Adoption and maintenance of domestic support for agriculture; (3) Application of appropriate financial contribution measures; (4) Application of targeted subsidies; (5) Compliance with the principle of transparency; and (6) Development of appropriate and effective anti-subsidy law 4.3 Proposal of a number of solutions in for finalization of subsidy law of Vietnam The proposed solutions will aim to improve the subsidy law in Vietnam to improve the efficiency of subsidies and competitiveness for Vietnamese products and enterprises, ensuring compliance with Vietnam's WTO commitments on subsidies 4.3.1 Solution group for improvement of subsidy orientation This group focuses on four solutions: to quickly build up the basic criteria for selecting priority industries; Undertake in-depth research and analysis of industries that can be selected as priority and key industries in Vietnam; to research subsidy 24 beneficiaries related to production sectors, types of enterprises, and labor groups vulnerable to trade liberalization; and to actively review subsidy beneficiaries throughout the implementation of subsidy programs 4.3.2 Solution group for finalization and improvement of effectiveness of subsidy law Based on the list of eligible beneficiaries, the next important step is to improve the contents of subsidy law for specific beneficiaries towards defined objectives Viet Nam should pay attention to eight solutions: (1) to set up specific objectives for each subsidy program for specific beneficiaries in each identified period and subsidies based on outcomes of the beneficiaries; (2) to regularly carry out performance appraisal activities of enterprises and sectors during and after the program's completion in order to clarify the effectiveness of the subsidies; (3) to review and select the financial support measures applied in each subsidy program in line with the subsidy objectives and economic development path of the country; (4) to actively take advantage of the developing country's entitlements to adopt and maintain allowable subsidy measures; (5) to supplement new regulations and modify a number of regulations of the subsidy law (including regulations on subsidy and countervailing taxes) aiming at product development and improvement of competitiveness of domestic products in the most effective way; (6) to strengthen the support for non-subsidy issues such as training, technical, administrative and corporate governance activities for subsidized enterprises and industries to achieve subsidy targets; (7) to strengthen training for human resources participating in development and implementation of subsidy law in Vietnam; and (8) to strengthen legal training and improvement of understanding of enterprises and production sectors on the subsidy law 4.3.3 Issues of subsidy that Viet Nam needs to consider when entering into free trade agreements Firstly, the provisions on "creating benefits" that subsidy may provide to beneficiaries should be clarified in the international agreements on subsidy 25 Secondly, developing members need special and special treatment for subsidies in a more complete and appropriate way Thirdly, the view of "developing countries" should be more explicit, up-to-date, and appropriately grouped into regulations on subsidy to ensure the true meaning of the special and differential treatment regime Finally, there should be a firm attitude and persuasive argument that international agreements on export subsidy should be directed towards the principle of fairness and equity SUBCONCLUSION OF CHAPTER Based on WTO regulation as well as the practice of subsidies in developing member countries, Chapter presents six lessons and 12 recommendations towards the development and improvement of the efficiency of Vietnam's subsidy law in the trend of trade liberalization It argues that the principle of subsidiarity in the development of domestic subsidy schemes, subsidy should be applied only in the short term for the production sector to be identified as priority economic sectors and aimed at enhancing the competitiveness in the international market, creating a spur for the development of other sectors, and promoting economic development or applying to special and vulnerable target groups toward the goal of ensuring social benefits CONCLUSION OF THE THESIS The WTO regulations on subsidy were established by GATT 1947 and developed through various rounds of negotiations In the process of development, the WTO view on subsidy has changed with the tendency to put more subsidy agreements on the table and control the application of subsidies by more members However, the WTO members have admitted in relevant agreements that early trade protection and subsidy can play an important role in the development of developing countries Application and maintenance of subsidy in developing countries is aimed at enhancing the competitiveness of products, of enterprises, and of developing countries As such, subsidy is not a complete elimination measure in accordance with the WTO regulations 26 Developing member countries receive special and differential treatment in the application and maintenance of subsidy for domestic production in the first instance of free trade The WTO’s special and differential treatment regime for subsidy has been more or less eroded than in the previous period In the area of subsidy, however, developing and least developed members still receive incentives for reducing the subsidy obligations as well as the reduction schedule The practice shows that developing countries are adopting unfair and unsatisfactory subsidy rules Developing member countries that joined WTO after 1995 must make commitments to eliminate all export subsidies in both the industrial and agricultural sectors The application and maintenance of subsidy in the context of WTO membership is becoming increasingly difficult As a result, developing member countries must make every effort to utilize the subsidies that are allowed to be used to develop subsidy law in favor of domestic production From the perspective of international law, as a trade protectionist measure, WTO and many other free trade agreements not support the application of subsidy From the point of view of social benefits, subsidy is, after all, a measure that has the effect of reducing the state budget and hence also diminish other social welfare Therefore, the use of subsidy in the International Trade Policy requires compliance with WTO regulations on subsidy and should have other benefits to offset the decline in the budget Developing the legal policies on subsidy in developing member countries in general and in Vietnam in particular must define a throughout principle that "subsidy should be targeted for a short period of time and directed to important objects that need to be subsidized " The target groups in the legal policies on subsidy include priority industries of the country and sectors that need to be protected to ensure social benefits Under the AOA, the SCM Agreement, and the Nairobi Declaration, developing member countries are only allowed to maintain certain types of subsidies or support: (1) Export subsidy for a few agricultural products (by 2018 and may be extended to 2022 under limited conditions); (2) export subsidy for marketing and transport costs in accordance with Article 9.4 - AOA (by 2023 for developing members or 2030 for least developed members); (3) Domestic support for agricultural products not exceeding 10% 27 of the total value of a basic agricultural product, or the level of support for a particular product not exceeding 10 per cent of the gross value of the agricultural amount of that member; (4) Domestic support in green box and blue box; and (5) all other subsidies that have no adverse effect Vietnam's subsidy law continues to be maintained: tax exemptions, reductions, credit grant, credit guarantee, or agricultural subsidies Targeted beneficiaries include priority and spearheaded industries, difficult areas; small and medium-size enterprises, or households However, the subsidy law of Vietnam still reveals limitations on selection of effective financial support measures, subsidy beneficiaries, and purposes of each subsidy program Development and finalization of Vietnam subsidy law to be in line with WTO regulations on subsidy and to achieve national interest protection objectives need to focus on WTO regulations as well as the experience of many other developing countries Lessons should be addressed in the process of finalization of Vietnam subsidy law include: - Always abide by the provisions on the elimination of export subsidy and localized subsidy in both the industrial and agricultural sectors - Take efforts to research and apply financial support measures that not constitute subsidies and allowable subsidy measures - Select appropriate financial support measures that bring about immediate and long-term benefits to beneficiaries - Establish short-term and long-term goals for each beneficiary and concurrently target to those who not meet the requirements of the subsidy programs - Undertake obligations on reviewing and revising legal documents on subsidy as well as implement the obligations on timely notifying WTO of subsidy programs in line with the principles of transparency 28 On the basis of theory and practice, the thesis proposes a number of solutions to improve the legal policy on subsidy in Vietnam Firstly, in order to overcome the perplexity in identifying beneficiaries, Vietnam should: (1) quickly develop a system of basic standards for selection of priority industries; (2) conduct in-depth research and analysis of industries that may be selected as priority industries; (3) undertake research on the subsidy beneficiaries in terms of production sectors, types of enterprises, and vulnerable groups before trade liberalization; and (4) actively review beneficiaries throughout the implementation of subsidy programs Secondly, to improve the effectiveness of subsidy programs and attach subsidies with their purposes, the thesis proposes (eight) solutions Specifically, Vietnam needs to: (1) formulate specific objectives of each subsidy program for specific beneficiaries in each certain period and subsidies based on outcomes of beneficiaries; (2) regularly carry out activities to assess the performance of firms or sectors during and after the end of the programs; (3) review and select financial support measures applied in each subsidy program in line with the subsidy objectives and economic development path of the country; (4) actively take advantage of the developing country's entitlements to adopt and maintain authorized subsidy measures; (5) to supplement new regulations and modify a number of regulations of the subsidy law (including regulations on subsidy and countervailing taxes) aiming at product development and improvement of competitiveness of domestic products in the most effective way; (6) strengthen the support for non-subsidy issues such as training, technique, administration, or corporate governance for subsidized enterprises; (7) strengthen human resource training activities in formulating and implementing legal policies on subsidy of Vietnam; (8) strengthen legal training and improve the understanding of enterprises and production sectors on legal policies on subsidy Finally, in order to overcome unfairness and inequity of international agreements on free trade, the thesis proposes four issues that Viet Nam needs to consider when participating in the WTO's next round of negotiations as well many other free trade agreements In particular, Vietnam should pay attention to the issues as follows: (1) the 29 provisions on "material benefits" that subsidy brings to beneficiaries should be clarified in international agreements on subsidy; (2) developing country members should be eligible for special and differential treatment of subsidy in a more complete and appropriate manner; (3) the view on "developing country" should be further clarified, updated, and appropriately grouped in the subsidy provisions to ensure the true meaning of the special and differential treatment regime; (4) It is necessary to have a firm attitude and convincing argument that international agreements on export subsidy should be based on the principles of fairness and equity 30