[News Terms] Semiconductor Support Blocked by WTO? The 'Subsidies Agreement'

The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures is an agreement established to prevent trade distortions and maintain fair competition, commonly referred to as the Subsidies Agreement.

[Image source=Reuters Yonhap News]

The core of this agreement is the classification of subsidies into three types: "prohibited," "actionable," and "permissible," with limited allowances. First, according to Article 1 of this agreement, a subsidy defined by the WTO is one that meets conditions such as financial contribution, payment by government or public institutions, or provision of benefits, or has "specificity," meaning it is granted to particular enterprises or industries that could cause issues. Subsidies include not only direct financial support but also support in the form of tax credits or provision of goods or services.

Among these, subsidies provided to export enterprises or import substitution enterprises, or subsidies granted only to specific enterprises, are classified as "prohibited subsidies." If it is determined that a particular country or enterprise has been harmed by such subsidies, consultations can be requested with the concerned country. Furthermore, if no agreement is reached within 30 days, the matter can be referred to the WTO Dispute Settlement Body through a formal procedure.

Even if subsidies are not legally conditioned on export performance, if it can be proven that they are linked to actual or anticipated exports or imports, they are also considered prohibited subsidies and subject to the same procedures. This is why there is an interpretation that the semiconductor industry subsidies recently provided by countries such as the United States and Japan may fall under these "prohibited" regulations. South Korea, as a WTO member since its establishment on January 1, 1995, is subject to this agreement. The concern that the Korean government’s direct subsidies to semiconductor companies could lead to other countries filing complaints against South Korea at the WTO stems from this.

Meanwhile, subsidies permitted under the WTO Subsidies Agreement include support for research and development, development of underdeveloped regions, and environmental-related subsidies.