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Unveiling the Countervailing Duty Investigations: From Turkish Lens

| Competition Law

Article by Ertuğrul Can Canbolat, Reşat Eraksoy, Deboleena Dutta and Yavuz Kayhan

1. Introduction

It has been 30 years since the Agreement on Subsidies and Countervailing Measures (“ASCM”) of the World Trade Organization (“WTO”) entered into force. Its objective is to ensure fair trade practices by offsetting the market distortions caused by subsidies provided by the exporting countries’ governments that harm domestic industries in importing countries. ASCM lays down rules for Countervailing Duty (“CVD”) investigations, which can be undertaken by any WTO member state. As of March 2024, a total of 381 CVD investigations have been initiated. To provide context, this figure represents approximately 10% of the most popular trade remedial tool, i.e., anti-dumping investigations, with more than 3,200 investigations initiated until March 2024.

As a member of the WTO, Türkiye is empowered to both initiate CVD investigations against alleged subsidies provided by other WTO members and have been the subject of such investigations initiated by others. However, Türkiye’s engagement in initiating CVD investigations has not been as extensive as its involvement as a respondent in investigations conducted by other WTO members. There have been only three CVD investigations initiated by Türkiye, of which, definitive measures were imposed pursuant to only one investigation. On the other hand, Türkiye has been subjected to 23 CVD investigations initiated by other WTO members, primarily the United States (“US”). Notably, the steel, pipes and metal have been the primary targets of most CVD investigations against Türkiye.

Under the ASCM, the determination of the existence of a subsidy entails several requirements. Firstly, it necessitates identifying a financial contribution or any form of income or price support provided by a government or public body. Secondly, it requires establishing that such a financial contribution confers a benefit to the recipient, which can be direct or indirect. Thirdly, it mandates demonstrating that the subsidy is specific, meaning it is provided to certain enterprises or industries, or limited to a particular region, which distinguishes it from generally available measures. After establishing existence of countervailable subsidy, the investigating WTO member calculates the subsidy margin and also examines if such subsidy is causing injury to domestic industries in importing countries. If it is found that the injury to the domestic industry in attributable to the subsidy granted by the foreign government, then CVD may be imposed.

Within this scope, this article delves into all the CVD investigations concerning Türkiye, by first analysing the investigations initiated by the Turkish Ministry of Trade (“Ministry”), and then discussing the Turkish programmes that have been found to be countervailable by other WTO members and the reasons thereof. It is then finally concluded that Türkiye needs a more proactive approach towards countering the distortions and ensuring that the Turkish producers and exporters are competing in fair markets domestically and abroad.

2. CVD Investigations Initiated by Türkiye

Türkiye actively uses trade defense tools, like anti-dumping duties and safeguard measures, to support domestic producers and exporters. Looking at the number of investigations along with the measures taken and duties imposed, it is observed that Türkiye has initiated 148 anti-dumping investigations and 34 safeguard investigations in the last three decades. In contrast, since the adoption of the first legislation on dumping and subsidies, which is the Law on the Prevention of Unfair Competition in Imports, Türkiye has only initiated 3 CVD investigations. Among these three CVD investigations, the one initiated in 2008 resulted in the imposition of definitive measures while the two investigations initiated in 2015[1] and 2018[2] have been terminated without the imposition of any measures due to the withdrawal of applications by the applicant companies.

The only investigation that resulted in the imposition of an anti-subsidy measure was initiated in 2008[3] and concluded in 2009[4] with CVD rates ranging from 4.25% to 21.61% on imports of polyethylene terephthalate (“PET”) films from India.

The Ministry found several programmes to be countervailable during the original investigation as they were determined to be financial contribution in the form of revenue foregone and specific since their application were contingent upon export performance. Such programmes were (i) Pre-Licensing Programmes and Import Tax Exemptions, which enables the recipients of the programme to import products without any taxes, (ii) Duty Entitlement Passbook and Duty Drawback Schemes, whereunder, the exporters receive a certain rate of the FOB value of the imports realised, (iii) Export Promotion Capital Goods, wherein the recipients can import capital goods at reduced import taxes if, within six years, they export six times the tax advantage gained, (iv) Export Credit Programmes obliging the banks to provide export credits prior to or following the realisation of exports, thereby, reducing the costs of borrowing for, (v) Exclusive Economic Zone Programme, which allows companies, operating in specified economic zones and exporting all kinds of non-prohibited products and import all kinds of goods including capital goods, with certain exemptions from customs duties, commercial transactions, taxes and other similar obligations, and (vi) Incentive Package Programme of the Maharashtra Local Authority in India, which provides duty drawbacks as well as electricity, domestic transit, and stamp duty exemptions for fixed capital investments as investment incentives to boost industrial investments in underdeveloped regions of Maharashtra.

In the following two expiry reviews initiated in 2014[5] and 2020[6], the Ministry observing the likelihood of continuation or recurrence of subsidization or injury, extended the CVDs at the rates ranging between 4.25% and 11.61%. Till date, it is the only CVD investigation conducted by the Ministry that resulted in imposition of CVD measures.

3. CVD Investigations Initiated against Türkiye

Among the 23 CVD investigations launched against imports of specific products from Türkiye since 1994, 15 were initiated by the United States alone, 3 by the European Union, 2 by Canada, and 1 each by Australia, the United Kingdom, and India. Presently, there are 17 anti-subsidy measures imposed on imports from Türkiye.

3.1 The United States

The US is the largest user of CVDs since 1994, with over 200 CVD investigations (more than half of the total CVD investigations ever initiated) initiated by the US government agencies: the International Trade Administration of the Department of Commerce (“USDOC”) and the US International Trade Commission (“USITC”). U.S. has conducted 15 CVD investigations against imports of various products from Türkiye and imposed definitive measures pursuant to 13 such investigations. These measures continue to remain in force.

3.1.1 Turkish Programmes found to be Countervailable

While concluding the CVD investigations, the USDOC examined the Turkish programmes alleged to be subsidies, as well as the arguments by the Government of Türkiye and the participating companies. Accordingly, US countervailed the following programmes in various investigations:

  • Tax Programmes: Several programmes in Türkiye are regarded as financial contributions in the form of revenue foregone, conferring benefit and being de jure or de facto specific by the USDOC in multiple investigations:
  • Tax deductions for export revenue allow for a deduction from gross income based on foreign-exchange earnings, contingent upon export performance.[7]
  • Inward processing certificate exemptions waive customs duties and value-added tax (“VAT”) on imported raw materials used for export, with exemptions under D-3 certificates (for imported raw materials or intermediate unfinished goods used in the production of goods sold in the domestic market) deemed countervailable for exceeding levies on domestically consumed products[8].Notably, the tax and duty exemptions received on imported inputs under D-1 certificates (for imported raw materials or intermediate unfinished goods used in the production of exported goods) have been found to not confer countervailable benefits by the USDOC[9].
  • The property tax exemption program provides tax exemptions for buildings in specified industrial zones[10].
  • The special consumption tax refund program refunds taxes paid on goods used for non-listed items are limited to a group of enterprises or industries that make it countervailable[11].
  • Free zone laws grant corporate income tax[12] and income tax exemptions for workers’ wages[13] for firms operating within designated zones, both of which are countervailable due to their specificity[ACTECON1] and revenue forgone.
  • Tax and fee incentives for renewable energy offer exemptions and discounts to facilities using renewable resources, constituting a financial contribution and specificity towards users of renewable energy facilities[14].
  • Exemption on Exchange Tax for Foreign Exchange Transactions provides exemptions from the banking and insurance transaction tax rates to 0.1 percent on foreign exchange sales between banks, sales to the Ministry of Treasury and Finance, and payment of foreign currency loans, to certified industrial enterprises and exporters who are members of exporters’ unions[15].
  • Regional Investment Incentive Scheme (“RIIS”), Large Scale Investment Incentive Scheme (“LSIIS”), Strategic Investment Incentive Scheme (“SIIS”), and General Investment Incentive Scheme (“GIIS”): These programmes have been held to be countervailable for offering financial contribution in the form of revenue foregone, conferring benefit in terms of exemptions and specific to firms making a specified minimum investment in certain geographic regions:
  • The RIIS offers Investment Incentive Certificates (“IICs”) to qualifying companies, granting customs duty and VAT exemptions, interest support, social security premium support, and tax reductions. While the USDOC deems customs duty exemptions[16] and formerly VAT exemptions as well countervailable, VAT exemptions in Türkiye's VAT system are not considered a financial contribution granting benefit to companies anymore[17].
  • Under RIIS, the Ministry of Industry and Technology covers the employer’s share of social security premiums for additional employment created by IIC projects, which is countervailable due to revenue forgone and specificity nature[18].
  • Similarly, LIIS, SIIS and GIIS offer various incentives, including customs duty exemptions, VAT exemptions and refunds, interest support, social security premium support, tax deductions, land allocation, and income tax withholding support[19].
  • Export Financing Programmes: The USDOC countervailed the following credit programmes as they have been found to provide financial contribution in the form of direct fund transfers from the government conferring benefits equal to the difference between loan payments and those of comparable commercial loans, and being contingent upon export performance:
  • Türkiye's Rediscount Loan Programme (formerly known as the Short-Term Pre-Shipment Rediscount Programme), managed by the Export Credit Bank of Türkiye (“Eximbank”) and commercial banks, aims to boost manufacturers' and exporters' competitiveness by offering loans with customs duty and VAT exemptions[20].
  • Export-Oriented Working Capital Credit, administered by Eximbank, extends loans to export-oriented manufacturers against commitments for the final export of Turkish origin goods[21].
  • The Pre-Shipment Export Credit Programme[22], Post-Shipment Rediscount Credit Programme[23], and Specific Export Credit Programme[24] managed by Eximbank, offer financial support to Turkish exporters and manufacturers, countervailed for their financial contributions, benefits, and specificity contingent upon export performance.
  • Export Subsidy Programme for Agricultural Products issues disbursements to companies based on the exportation of certain agricultural products, including pasta, flowers, vegetables, fruit, olive oil, meats, and chocolates[25].
  • The Turkish Exporters’ Assembly (“TEA”) collaborates with the Ministry of Trade to oversee industry-specific exporters’ associations like the Turkish Steel Exporters’ Association (“TSEA”), to aid members involved in foreign trade remedy proceedings[26].
  • Provision of Raw Materials for Less Than Adequate Remuneration (“LTAR”): Türkiye's LTAR programmes encompass several initiatives, each countervailed by the USDOC as they were regarded as financial contribution in the form of provision of goods or services below market values and meeting specificity requirements:
    • The Provision of Land for LTAR programme enabled the sale of Treasury-owned immovables to private companies for industrial development, constituting a financial contribution and being specific in its application.
    • Provision of Hot Rolled Steel (“HRS”) for LTAR involved Erdemir, Isdemir and Ordu Yardımlaşma Kurumu (“OYAK”), the Turkish military pension fund that is a shareholder of Erdemir and Isdemir. Based on the evidence on record, the USDOC determined that the Turkish Government’s significant involvement in OYAK extends to Erdemir and Isdemir, and thus, Erdemir and Isdemir are public bodies, and hence “authorities”[27]. Accordingly, it was found that supplying HRS to companies at LTAR, was countervailable. This programme was disputed by Türkiye before the WTO Panel, which is discussed later in the article.
    • Provisions of Natural Gas for LTAR, facilitated by Boru Hatlari ile Petrol Taşıma A.Ş. (“BOTAS”), found to be a government entity by the USDOC, involved the sale of natural gas predominantly to power producers, including Habas, at LTAR. The USDOC considered this programme countervailable, and the benefit was calculated based on different benchmark prices adjusted to include delivery charges and VAT[28].
    • Provision of Steel Wire Rod for LTAR, supplied by Erdemir and İsdemir, was also countervailed as the government's significant control over OYAK, and by extension, these entities constituted a financial contribution, with the subsidy rate calculated using market prices prevalent in Turkish market as benchmark to calculate to the subsidy rate[29].
  • Grant Programmes: Several Turkish government programmes aimed at supporting trade and business development have been identified as countervailable by the USDOC due to their financial contributions in the form of direct transfer of funds conferring benefits to specific entities:
    • The Foreign Fair Support Programme provides reimbursement of up to 50 percent for companies participating in international trade fairs, constituting a direct transfer of funds, and benefiting Turkish corporations involved in export-oriented activities[30].
    • The Domestic Fair Support Programme offers reimbursements for domestic trade fair participation, specifically targeting companies aiming to promote exports[31].
    • Small and Medium Sized Enterprises (“SME”) Development Support Programme (“KOBIGEL”), established to bolster SMEs through grants or interest-free loans[32].
    • Law 5084's Energy Support Programme, administered by the Ministry ofTrade , provides financial aid to enterprises in designated provinces to offset electricity costs[33].
    • The Turquality Programme supports Turkish product branding and image promotion through financing various expenses like trademark registration and promotional activities by providing grants to Turkish producers after being evaluated by the Exporters’ Association Union based on the potential for international brand creation and contingent upon export performance[34].
    • The Social Security Premium Incentive, managed by the Turkish Social Security Institution, aims to bolster production and employment in select provinces by reducing employers' insurance premiums. Eligible companies in provinces designated by the Council of Ministers can benefit by not paying the employers' share of long-term social security insurance premiums (11 percent total), making it regionally specific[35].
    • Minimum Wage Support programme is designed to reduce the employment costs of the companies due to the sudden increase of the minimum wage, upon changes in policy, and is administered by the Social Security Institution [36][ACTECON2] .
  • Research & Development (“R&D”) Incentives: Government initiatives aimed at fostering research and development (R&D) activities in Türkiye have been identified as countervailable by the USDOC due to their financial contributions conferring benefit to specific entities:
    • Under the R&D Law (Law No. 5746), support is provided to technology centers, R&D centers, and projects through corporate income tax deductions, income tax exemptions for R&D personnel salaries, and insurance premium support[37].
    • Support for foreign market research programme supports transportation and accommodation expenses for company employees during market research trips abroad, constituting a direct transfer of funds and benefiting exporters specifically[38].
    • The grants provided by the Scientific and Technological Research Council of Türkiye (“TUBITAK”), such as the 1501 TUBITAK Industrial R&D Projects Grant Programme and the 1511 Research Technology Development and Innovation Projects in Priority Areas Grant Programme, offer financial contributions and reimbursement for expenses to companies located in designated geographical regions, thus qualifying as countervailable subsidies[39].
    • The Project Based Investment Incentive System supports high-value, R&D-intensive projects meeting a minimum investment threshold of 500 million Turkish Liras through various incentives, such as tax breaks and employment support[40].

3.1.2 WTO Dispute concerning Pipes and Tubes from Türkiye

Noting the inconsistencies with the WTO obligations in some of the CVD decisions concerning pipes and tubes, Türkiye raised concerns before the WTO Panel in connection with CVD imposed by the US on the imports of certain oil country tubular goods (“OCTG”); welded line pipe (“WLP”); and heavy walled rectangular welded carbon steel pipes and tubes (“HWRP”) from Türkiye; and in connection with a 2011 sunset review and 2013 administrative review of the countervailing duty order on imports of circular welded carbon steel pipes and tubes (“CWP”) from Türkiye[41]. The WTO Panel discussed the issues raised and concluded:

  • The USDOC failed to provide a reasoned and adequate explanation for its determination that OYAK is under “meaningful control” or part of the Turkish Government and consider relevant evidence on the record. It also failed to apply the standard applicable to the public body enquiry in its assessment of “meaningful control,” by failing to establish that the entities (Erdemir and Isdemir) possess, exercise, or are vested with governmental authority to perform a government function. Moreover, the Panel also recorded that the USDOC did not rigorously evaluate the length of operation of the alleged Provision of Hot Rolled Steel for LTAR.
  • Türkiye also claimed that the USDOC rejected in-country prices as a benchmark based solely on evidence that the government owns or controls the majority or a substantial portion of the market for the good, with no consideration of whether in-country prices are distorted. The Panel rejected this claim as it considered the evidence before it and found that Türkiye did not demonstrate that the USDOC systematically bases its decision to rely on in-country, or out-of-country prices exclusively on evidence as to whether the government owns or controls the majority or a substantial portion of the market.
  • The USDOC had acted inconsistently with WTO obligations with respect to the use of facts available regarding missing price information, full production capacity, in the countervailing proceedings.
  • Cumulative assessment of effects of subsidised imports with the effects of dumped imports. Such cross-cumulation of imports is inconsistent with the WTO framework.

Although the Panel mostly decided in favour of Türkiye, the US appealed against the Panel Report before the Appellate Body, and the decision is pending considering the ongoing WTO Appellate Body crisis[42].

3.2 The European Union

Among the 53 CVD investigations initiated by the European Commission (“EC”) since 1994, only three concerned the imports from Türkiye. While terminating two of these investigations concerning imports of hot-rolled flat steel[43] and European sea bass and gilthead sea bream[44] as the complainants withdrew their respective complaints[45], the EC imposed countervailing measure pursuant to the CVD investigation concerning imports of “certain rainbow trout.”

Initiated on 15 February 2014[46], the EC examined the alleged subsidies programmes including state support to investments made in the aquaculture sector, direct subsidies granted to producers of trout, subsidised loans and insurance for trout producers, subsidies for consultancy, subsidies for fishing vessels, and other subsidy programmes. Pursuant to the investigation, it found the following programmes to be financial contribution, providing benefit to the specific entities:

  • Direct and Indirect Subsidies to Producers of Trout: The EC found the existence of financial contribution in the form of grant to the trout producers with a licence from the Ministry of Food, Agriculture and Livestock. This grant was specific, as the granting authority, and the relevant legislation[47] grants access explicitly to the aquaculture sector. After rejecting the arguments made by the Turkish trout producers regarding adjustment of corporate tax as ‘other costs’ and financing costs incurred on account of delay in disbursement, the EC calculated the benefit on a “whole fish equivalent basis” for the sampled exporting producers based on the direct subsidy amount received for the farming activity or for the purchases from unrelated suppliers.
  • Subsidy Loans: Rejecting the argument of the trout exporting producer that the impugned loan was intended for investments unrelated to trout production, the EC found that certain preferential loans[48] from Ziraat Bankası (this government owned bank provides favorable loans to Turkish agricultural companies) and Small and Medium Enterprises Development Organization received by the exporting producer of rainbow trout are countervailable as they were specific to the aquaculture sector and the benefited the producer by reducing the overall financing costs as the loans were granted below market rates.

In an interesting turn of events, noting significant changes on the structure and the terms of implementation of the concerned subsidies in 2021, the EC on its own initiative initiated a partial interim review, following the conclusion of expiry review[49]. Accordingly, the range of CVD rates was modified from 6.7% to 9.5% in the original investigation to 2.8% to 4.4%[50] following the partial interim review investigation.

3.3 The United Kingdom

Following the withdrawal process of the United Kingdom (“UK”) from the EU, the UK’s Trade Remedies Authority (“TRA”) initiated a transition review of the countervailing duty on rainbow trout from Türkiye, which was concluded by the European Commission with definitive CVD measures. During this transition review, it was noticed that there were no imports of rainbow trout from Türkiye during the period of investigation but there were low levels of imports from Türkiye over the injury period. Thus, it was determined that the low levels of imports demonstrated that the measure earlier imposed by the European Commission was sufficient to offset the importation of the relevant subsidised goods into the UK. Accordingly, TRA recommended to vary the application of the countervailing amount on rainbow trout from Türkiye for 5 years from 30 January 2021 and maintain the amount of the countervailing duty between 1.5% to 9.5%.[51]

3.4 Canada

Canada initiated two CVD investigations against Türkiye under the Special Import Measures Act (“SIMA”)[52], resulting in definitive measures. The first investigation, initiated in December 2017, concerned imports of certain dry wheat pasta[53], concluded with imposition of CVDs[54]. The investigation identified countervailable programmes including export subsidies for agricultural products, tax deductions for export revenue, and provision of input materials by the government at below market value.

Another investigation initiated in November 2019[55] concerned imports of certain corrosion-resistant steel sheet products from Türkiye. Additionally, re-investigations identified further countervailable programmes, including property tax exemptions, unemployment insurance premium support, special consumption tax refunds, and fee exemptions for vocational qualification certificates. As a result, subsidy rates were re-calculated, and measures were amended accordingly[56].

3.5 Others

India[57] and Australia[58] had each initiated one CVD investigation. However, both investigations were terminated without analyses of the alleged programmes or imposition of any measures.

4. Concluding Remarks

Since 1994, while Türkiye has been the subject of 76 anti-dumping investigations, its involvement in CVD investigations as the exporting country has been less frequent, totalling 23. Notably, 65% of these CVD investigations were initiated by the United States. Türkiye, like most of the developing countries, provides incentives and grants to its exporting companies to boost production and exports. Therefore, the foreign trade policies are designed in conjunction with the industrial policy of developing countries, which often clash with the developed countries’ free market-oriented trade policies. The ASCM provides a vehicle to bridge the gap between such policies.

In conclusion, Türkiye’s experiences in navigating CVD investigations provide invaluable insights for legal practitioners, policymakers, companies, and stakeholders involved in international trade law. It provides the necessary technical and legal know-how and potential toolkit to devise policies within the outlines of ASCM to the WTO members while also allowing the relevant companies to boost their export performance. On the other hand, considering the broad sectors that have often been subjected to CVD investigations, the understanding of their methodologies and the determinations made thereof for the companies operating in those sectors may provide invaluable insights into implementation of robust procurement and export strategies and data management system to protect their commercial interests.

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