RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/443
17 May 2001
(01-2530)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
REPLIES TO QUESTIONS AND COMMENTS CONCERNING PROPOSALS ON
IMPLEMENTATION-RELATED ISSUES REFERRED TO THE COMMITTEE
IN THE 15 DECEMBER 2000 DECISION OF THE GENERAL COUNCIL
Replies of Cuba, Dominican Republic, Honduras, India, Indonesia, Malaysia, Pakistan,
Tanzania, Uganda and Zimbabwe to Questions raised concerning the Proposal
contained in document G/SCM/W/431/Rev.1 of 20 March 2001
The following communication, dated 1 May 2001, has been received jointly from the
Permanent Missions of Cuba, the Dominican Republic, Honduras, India, Indonesia, Malaysia,
Pakistan, Tanzania, Uganda and Zimbabwe.
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First of all, we wish to thank all delegations that submitted comments and questions on our
proposal.  For ease of reply, we have grouped together the similar questions.  We shall begin by
referring to the questions put by the delegations of Switzerland and Japan concerning the procedure to
be followed to solve this problem.  Both delegations have said that it would be  necessary to amend
the provisions of Article 27.6 of the Agreement on Subsidies and Countervailing Measures, under
Article 10 of the Agreement Establishing the WTO.
In our view the procedural aspects of this issue are not important at least at this stage.  The
membership should work on the substance of the problem, which has been generally recognized as a
legitimate one that needs to be resolved by this body urgently.  Procedural issues can always be
addressed subsequently in the General Council.
With regard to the second observation by the delegation of Switzerland concerning the need
to establish some additional conditions for the re-inclusion of a developing country whose exports
may have fallen under the threshold of 3.25 per cent, we think this is a suggestion which is worth
exploring further and we are open to further discussions on this basis.
We thank the Swiss delegation for putting forward constructive positions that can help us to
find a balanced solution.  This Swiss proposal could be the basis for discussing similar concerns
raised by the European Communities, Australia, Canada and the United States.
With regard to the observation by Hong Kong, China asking for some light to be shed on the
possible impact of the proposal on global trade flows, we wish to stress, that our proposal has been
made in the context of a real problem that is inherently difficult to quantify;  nevertheless, we feel that
the proposal will have a positive impact on developing countries' trade since its aim is to improve the
disciplines of the Agreement so as to ensure that a developing country is really competitive in a given
industry before being obliged to eliminate any incentive being granted by it.G/SCM/W/443
Page 2
With regard to the first question raised by the European Communities concerning the term
"world trade", and whether it includes intra-customs union/FTA trade, we think that the Agreement is
clear in this regard.  It refers to the share of exports of a product by a developing country in world
exports of that product.  Thus, we understand that trade among countries belonging to a customs
union is to be included so that the percentage share is a genuine one.
The European Communities' second question has already been dealt with on the basis of the
Swiss proposal.
With regard to the third question, on the length of the phase-out period for subsidies, we
consider that the provisions at Article 27.5 of the Agreement are quite clear.
Canada's first question refers to how the period of five years was arrived at as a reasonable
time-frame.  Our delegations proposed this five-year period taking into account the fact that the
majority of the transition periods provided for in the Agreements are of a five year duration, while at
the same time reflecting the period which we think would ensure stable competitiveness of a
developing country.  We also know that the curren t period of two years was not the result of any
statistical analysis to justify its establishment.
Canada also questions the need for an automatic re-inclusion provision.  Here we think our
proposal is a clear and broad one.  Developing countries are vulnerable to external and internal
conditions that can affect their competitiveness at any time, which is why a provision is needed toallow incentives to be granted at a given moment.
In its last question, Canada states that the current definition of a product is at four-digit level
of the Harmonized System Nomenclature.  Here we would point out that the text of the Agreement
clearly mentions "section heading", which is reflective of the intention of the negotiators which was toestablish a product definition corresponding to a section.  Lastly, we consider that the inconsistency
pointed out by Canada is based on the interpretation made by that delegation concerning the intent of
the Article, which is to establish the competitiveness of exports of a product.
Finally, we shall refer to the questions raised by the distinguished delegation of the
United States.  At the outset, as a general reaction, we wish to point out that developing countries
neither have the inclination nor the financial resources to grant export subsidies in any sector, be itagricultural or industrial.  All that developing countries can provide as an incentive to their industrial
sector are measures involving a fiscal sacrifice, which do not represent a major disbursement of
resources aimed at inefficient sectors as is the case for some developed countries in the agricultural
sector.  Furthermore, these very incentives have been used as instruments of development policies by
the developed countries when they were less developed and which helped them attain their presentlevel of development.
With regard to paragraph 2, which contains questions concerning the lack of notifications, we
consider that the absence so far of any notifications about a country having reached the present level
of export competitiveness does not mean that a legitimate problem does not exist.  This is a matter ofprinciple, and the proposal is aimed at clarifying and improving the provisions of the Agreement, for
the benefit of all Members.  The fact that developing countries may or may not have yet reached a
situation of export competitiveness is not important, what is important is that experience has shown
that in innumerable cases the export shares of developing countries have varied widely from year to
year because of both internal and external uncertainties.  The objective of this proposal is to provide acertain predictability and in a way to restore the balance of the Agreement.  It must be stressed that
this Agreement contains a serious imbalance in that subsidies granted by the developed countries are
accepted as non-actionable, while the few incentives granted by the developing countries are
classified as prohibited.G/SCM/W/443
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In paragraph 3, the United States seeks to establish a difference between developing countries
in general and the developing countries included in Annex VII.  Here it is important to note that our
countries have submitted a proposal, currently under consideration in the General Council, aimed at
improving the provisions of that Annex so that a larger number of developing countries may benefit
from it.  We hope that the developed countries will take a positive view of this proposal when it is
taken up in the General Council.  Furthermore, the countries that would be included in our proposals
for Annex VII are the most disadvantaged countries and we do not see any reason for the major
trading partners to delay a decision that would benefit such countries and would help them to offset
the disadvantages inherent in their situation.
In paragraphs 4 and 5, the United States tries to draw a distinction which does not hold water
between the countries included in Annex VII.  All the countries incl uded in that Annex are poor and
lack the resources to grant big export subsidies.  However, these countries would all benefit from the
proposed solution since they would continue to enjo y the necessary flexibility to grant incentives to
their industrial sector where there is a lack of competitiveness.  Once again, this is a matter of
principle, and it does not matter whether a developing country can or cannot use a provision:  what isimportant is that there should be clear rules offering the same opportunities to countries with similar
levels of development.  In addition, the purpose of this proposal is to provide greater predictability
and not to try to improve the developing countries' competitiveness.
Moreover, in paragraphs 4 and 5 the United States uses expressions such as "significant
export subsidization" and "significant export market share", which are not appropriate and do not
correspond to the real situation of developing countries.  Once again, we wish to point out that the
incentives granted by developing countries never reach the level of the subsidies granted by
developed countries.
We also wish to point out that the countries benefitting from the preferences granted by
developed countries will also benefit from the improvement of the disciplines of Article 27.  Many of
the co-sponsors of this proposal are themselves beneficiaries of the preferences access schemes.  In
their experience, such schemes helped them to address several supply side constraints and enable
them to take advantage of the preferential access schemes in a more meaningful manner.
With regard to paragraphs 6 and 7, we wish to point out that the proposal for the extension of
the period seeks not only to correct the problem of fluctuations in a Member's share in world trade
resulting from external factors of volatility, but also to ensure that the Member really is competitive in
a given product.  Fluctuations are not due exclusively to external situations, but also to internal
reasons.  Once again, the objective of the proposal is to achieve security and predictability regardless
of whether the determining factors are external or internal.
Though we are grateful to the United States delegation for its suggestions concerning policies
to be applied in the case of natural disasters, it is unfortunate that once again the United States
assumes that the developing countries which will benefit from improving the disciplines of this
Agreement grant major financial resources in the form of subsidies, which is not the case.Developing countries are giving these incentives in order to compensate for the relatively poor
infrastructure facilities inherent to their situa tion.  In addition, the proposal to amend Annex VII
answers the second part of their comments, in as much  that the proposal seeks to provide for countries
presently not included in the Annex and which may suffer from natural disasters or some other type of
crisis, and for whom too it is therefore important to be provided the flexibility provided for inArticle 27.G/SCM/W/443
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With regard to paragraph 8, we consider that this concern is similar to that raised by
Switzerland and other countries, and are ready to discuss it on the basis of the Swiss proposal.
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