RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/486
7 February 2002
(02-0595)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
IMPLEMENTATION-RELATED ISSUES REFERRED
TO THE COMMITTEE BY MINISTERS
Replies from India1 to Questions from Australia2, the European Communities3,
Canada4, Egypt5 and the United States6
The following communication, dated 6 February 2002, has been received from the Permanent
Mission of India.
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A. QUESTIONS FROM AUSTRALIA (G/SCM/W/474)
Article 14
(i) For a subsidy to exist from duties foregone or not collected, benefit should have
been received during the investigation period
An exporter may have applied for, but not received, a subsidy during the investigation
period.  Australia agrees that if the duty refund has not been received and no benefit has been
conferred during the investigation period, then  a subsidy cannot be deemed to exist for the
purposes of a countervail investigation.  The exporter would have had to have availed itself of
the duty refund.
In the example outlined by India in paragraph 19 of document G/SCM/W/462, does
India presume that a specific subsidy, i.e. an ac tionable subsidy, exists whereby the investigating
authorities may impose countervailing duties?
Reply
India confirms Australia’s understanding in this regard.
(ii) Expenses incurred by recipient to ob tain the subsidy should be deducted from
amount of the subsidy and from amount of countervailing duty
                                                     
1 G/SCM/W/462
2 G/SCM/W/474
3 G/SCM/W/475
4 G/SCM/W/477
5 G/SCM/W/478
6 G/SCM/W/479G/SCM/W/486
Page 2
In terms of the examples provided in par agraph 22 of document G/SCM/W/462, if these
charges/expenses are ones which apply on the commercial market, for example, bank guarantee
charges, does India consider that deductio ns for these expenses constitute subsidies?
Reply
An exporter incurs various expenses for obtaining the benefit under a particular scheme which
is sought to be countervailed. It is India’s contention that the investigating authority should make
certain deductions from the amounts of subsidy on account of expenses incurred for obtaining benefits
under the scheme. The list of type of expenses to be deducted as indicated in paragraph 22 of India’s
proposal are merely illustrative and all expenses in curred in obtaining the subsidy should be deducted
while calculating the amount of countervailing duty subsidy. Deduction for these expenses would notconstitute a subsidy as there would be no financial contribution.
(iii) Does India distinguish between application/administration fees charged by
governments to administer countervailable schemes and fees required to access a
benefit under countervailable schemes which could/would apply in the normalcourse of business, i.e. costs which would otherwise be borne by a firm on the
commercial market?
Reply
In India’s view  calculating the amount of s ubsidy without deducting expenses incurred due to
the conditions imposed by the countervailable schemes results in countervailing duty being imposed
in excess of the benefits conferred. Such expenses include apart from application/administration fees,
bank guarantee charges, and margin money cost etc. which would otherwise not have been required to
have been borne by a firm if it was not availing of the subsidy.
(iv) To determine average useful life of assets, depreciation information of individual
recipient firms should be used
Could India clarify what is meant by a depreciation period “without any scientific
basis”?  Is India suggesting that there is or should be a standard applied?  How would this
apply where a government provides flexibility or a llows a firm self-assessment in relation to the
definition of whole of life costing for capital goods?
Reply
India would like to clarify that in respect of subsidies granted for the acquisition of assets, the
period assumed for allocating the benefits has varied considerably from case to case.  It is India’s
contention that the amount of subsidy should be calculated according to the average useful  life of the
asset as reflected in the financial statements of the exporters.  It is further clarified that the
depreciation to be used should not be based on the amount calculated for taxation purposes.
B. QUESTIONS FROM THE EC (G/SCM/W/475)
Q1. Can Brazil and India please clarify whether all expenses incurred should be deducted or
only expenses necessarily incurred  in order to obtain the subsidy?G/SCM/W/486
Page 3
Reply
India’s position is that all expenses incurred in order to obtain the subsidy should be deducted
while calculating the amount of subsidy.
Q2. Could India please explain what can constitute "benefits…reduced after making
necessary adjustment as required under th e schemes."(para. 22 of G/SCM/W/462).
Reply
In India’s view, “benefits……. reduced after making necessary adjustments as required under
the schemes” means that the expenses incurred by  the exporting company in order to obtain the
subsidy should be deducted from the amount of subsidy.
C. QUESTIONS FROM CANADA (G/SCM/W/477)
Article 14 – (Topic 1 from Annex I to th e Chairman’s paper circulated by fax on
17 December 2001)
Issue 3 – Is India suggesting that, where the specified financial contribution (i.e., the
forgoing or non-collection of duties) occurs after the period of investigation, there is no benefit
notwithstanding that the eligibility requirements were satisfied and legal entitlement to the
financial contribution vested during the investigation period?  Is a benefit in terms of the
marketplace not conferred at the time legal enti tlement to a financial contribution vests in the
recipient (insofar as the financial contribution becomes a receivable of the enterprise concerned,
which can be factored into its product pricing equation)?
Reply
In a number of cases the investigating authority has imposed countervailing duty without
ascertaining whether the exporters have received the benefit during the period of investigation. An
exporter may have applied for but not received a subsidy during the investigation period.  However,
if the subsidy has not been received during the inve stigation period then it cannot be deemed to exist
for the purposes of countervailing investigation.  The benefit would accrue only after there is an
instruction or order from the Government specifica lly in respect of the concerned exporter which
legally entitles him to the subsidy.
Issue 4 – What does India perceive to be the deficiencies in current footnote 1 and items
(h) and (i) of Annex 1?  Given that the remission or drawback of duties otherwise owing are, by
their very nature, financial contributions, is it  not incumbent on granting Members to ensure
that their programmes are administered in a mann er that allows for verification of the amounts
by which exemptions or remissions exceed duties which have accrued?
Reply
Investigating authorities are required to comply with obligations under Article VI:3 of GATT
1994 and Article 19.4 of the Subsidies Agreement so that no countervailing duty is levied on any
imported product in excess of the amount of subsidy found to exist.  It is therefore essential thatcountervailing duties are limited to the amount of excess remission, exemption or deferral. The
obligations under Article VI:3 of GATT 1994, Article 19.4 of the Subsidies Agreement and
provisions of Annex I items ‘h’ and ‘i’ have to be read harmoniously for limiting the amount ofG/SCM/W/486
Page 4
countervailing duties to the amount of excess duty remission etc.  This is the clarification being
sought by India.
Issue 5 – Does this refer to administrative costs, (e.g., application costs)?  If not, what
other expenses are envisaged?
Reply
In India’s view calculating the amount of subsidy without deducting expenses incurred due to
the conditions imposed by the countervailable schemes results in countervailing duty being imposed
in excess of the benefits conferred. Such expenses include apart from application/administration fees,
bank guarantee charges, and margin money cost etc. which would otherwise not have been required tohave been borne by the firm if it was not availing the subsidy.
D. COMMENTS FROM EGYPT (G/SCM/W/478)
(c) For the subsidy to exist duties foregone or not collected, benefit should have been
received during the investigation period (India)
We disagree with this proposal as it is co nsidered a restriction on the investigation
authority.
India’s comments
If no refund of duty is received during the period of investigation then the question of benefit
does not arise. Accordingly, it may be appropriate to exclude these from the calculation of benefit to
the recipient.
Additional guidelines should be added to Article 14
Expenses incurred by recipient to obtain the subsidy should be deducted from amount
of the subsidy (Brazil and India) and from amount of countervailing duty (India)
We agree with the first part of the proposal that these expenses must be deducted from
the subsidy but it is not appropriate to deduct  these expenses again from the countervailing
measures since it has been deducted before from the subsidy.
India’s comments
India’s intention is that the expenses incurred in obtaining the benefit should not be included
in calculating the benefit to the recipient. Th ere is no intent to deduct the expenses twice.
Review Procedures
Clarify Article 21.2 to provide for automatic adjustment of countervailing duties for
schemes withdrawn (India)
We disagree with this proposal, as any schemes withdrawn shall be subject to a review
rather than any automatic adjustment.G/SCM/W/486
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India’s comments
As stated in paragraph 27 of India’s proposal  continued imposition of the countervailing duty
at levels initially determined would amount to th e duty being in excess of the amount of subsidy
found to exist. If the level of countervailing duty were to be reduced taking into consideration benefitswhich are no longer available due to the correspondence schemes having been withdrawn, only after
conduct of a review then excess countervailing of duties would continue for a long period.  This is
more so as  the review procedures tend to get open ended without any finality regarding conclusion of
the review.
Definition of domestic industry and injury analysis
(a) Clarify “major proportion of the total domestic production”, and clarify whether
defining domestic industry, as those who supported the petition cannot be construed as
impermissible interpretation of the major proportion requirement (India)
We disagree with this proposal, since there is no need for any further explanation
regarding this matter.
India’s comments
India’s contention is that if Article 16.1 were intended to define the domestic industry as
those producers who expressly supported the petition seeking initiation of a countervailing duty
investigation, the injury analysis would become me rely a proforma exercise in which the authorities
would simply check whether the petitioning firms were materially injured.  This would preclude any
balanced assessment and objective examination.  It is therefore considered that a clarification of the
terms “major proportion of the total domestic production” is necessary.
(b) In determining likeness of products, account should be taken of differentiated nature of
products even where they have closely resembling characteristics, inter alia  through
consideration of price comparison, substitu tability and whether in direct competition
(India)
We disagree with this proposal, as the defi nition stated in the AD Agreement is more
appropriate.
India’s comments
The reference by Egypt to the definition stated in the Anti-dumping Agreement being more
appropriate is not very clear.  Perhaps Egypt could further elaborate on why the definition in the Anti-
dumping Agreement is more appropriate.
E. US QUESTIONS TO INDIA (G/ SCM/W/479)
Tiret 80 Proposals Involving ASCM Article 14 and De Minimis  (G/SCM/W/462, G/SCM/W/466, and
G/SCM/W/470)
Q1.  The SCM Committee should clarify the prov isions of the ASCM in Annex I (items h and
i), Annex II and Annex III so that any remission, exemption or drawback of duties and import
charges to the extent of those levied on inputs consumed is not countervailed and only theamount of remission, exemption or drawback of duties and import charges in excess of thoseG/SCM/W/486
Page 6
levied on inputs consumed may be treated as a countervailable subsidy (G/SCM/W/462,
para 14).
(a) The proposal appears to presume that the “excess” amount of remission,
exemption or drawback is calculable.  In many instances, however, this is not thecase, or can only be done with great difficulty.  Please discuss how the ASCM
provisions regarding remission, exemption or drawback of duties should be
applied in situations where the amount of  excess is either not calculable, or can
only be calculated with great difficulty  and significant additional burden to the
investigating authority and other parties involved.
(b) In India’s view, is it not appropriat e to countervail the entire amount of a
payment made by a government to an ex porter where, although such payment is
nominally described as “remission, exemption or drawback of duties”, the
government has not examined the type and/ or amount of inputs consumed in the
manufacture of exported merchandise and the taxes or import charges levied on
such inputs in order to ensure a correlation between the payment and suchtaxes, or import charges?
Reply
The thrust of India’s proposal is that  no countervailing duty shall be levied on any product in
excess of the amount equal to the subsidy determined to have been granted. A countervailing duty
should be limited to the amount of the estimated subsidy.  This position is supported by provisions of
Article VI:3 of GATT 1994 and Article 19.4 of the ASCM.  The investigating authorities are under an
obligation to abide by the requirement that no countervailing duty be levied in excess of the amount of
subsidy founds to exist.  It is not clear how it is being claimed that the amount of excess remissionexemption or drawback of duties is not calculable or can only be calculated with great difficulty.  In
order to fulfill obligations under Article VI:3 of the GATT and Article 19.4 of ASCM the
investigating authorities are bound to estimate or determine the excess remission exemption or
drawback of duties.
Q2.  The SCM Committee should clarify that the addition of an amount for interest on the
benefit conferred during the investigation period  is not in conformity with the object and
purpose of the ASCM.  In the alternative, the SCM Committee should clarify whether
calculation of the interest amount on a notional basis instead of calculating it from the date the
benefit was conferred is a reasonable method of calculating interest (G/SCM/W/462, para 16).
(a) Please explain in more detail and by way of concrete examples, India’s objectives
with this proposal.  In particular, please explain what is meant by “calculation of
the interest amount on a notional basis instead of calculating it from the date the
benefit was conferred.”
(b) Please provide concrete examples of actual cases in which this practice has been
applied.
Reply
As has been stated in paragraph 15 of India’s proposal it is a practice among certain
investigating authorities to add a notional amount fo r interest to the benefit conferred during the
investigation period.  The amount of interest is not calculated on the basis of the date when the benefit
was conferred but on a notional basis depending on the nature of subsidy. To illustrate a notional
amount of interest has been added by certain investigating authorities to the benefit conferred onG/SCM/W/486
Page 7
account of the unpaid customs duties on capital goods  used for production of exported products.  Even
if the benefit of unpaid customs duty became available towards the end of the period of investigation
the amount of interest was calculated by assuming that the benefit accrued at the beginning of the
period of investigation and was available during the entire period of investigation and full commercial
rate of interest was applied on the unpaid customs duty.
In respect of certain schemes the benefits have been assumed to be recurring in nature and
half the commercial rate of interest has been applied during the investigation period. This approach is
incorrect and prejudicial to the interest of exporters.  If an export is made during the first month of the
year the countervailing duty will be collected in the first month or immediately thereafter.  Similarly if
an export is made in the 12th month of the year the countervailing duty will be collected in the 12th
month or soon thereafter.  The approach of using half the commercial rate of interest could perhaps be
justified, notwithstanding reservations against calculating interests on subsidies as an additional
subsidy, only if the countervailing duty were collected at the end of the year in respect of all imports.
The EC has calculated the amount of benefit and hence the countervailing duty by adding an
amount for interest in its various countervailing duty investigations e.g. antibiotics case, PET filmscase etc.
Q3.  The SCM should clarify that while dete rmining the average useful life (AUL) of the
asset, the depreciation used for allocating the benefit should be based on the information
available with the individual firms receiving  the subsidy. (G/SCM/W/462, para 18).
(a) To what extent would India’s proposal require a change to the ASCM?  If a
change to the agreement is not required, please explain, in India’s view, how this
proposal should be effectuated.
(b) Please clarify whether India is proposing an AUL based on the normal
depreciation of assets in the industry concerned as suggested in G/SCM/W/462,
para 17, or based on the information available with the individual firms
receiving the subsidies as suggested in G/SCM/W/462, para 18.
(c) If India is proposing an industry based AUL:
(i) Under what circumstances should in vestigating authorities be allowed to
use company-specific depreciation rates if it differed from the industry
rates?
(ii) How should investigating authorit ies address circumstances in which
there are no set rates for the particular industry at issue?
(iii) How should investigating auth orities address instances where the
industry standard depreciation rules reflect extraneous tax policy
considerations (e.g., accelerated depreciation) rather than the actualexpected physical life of the assets?
(d) If India is proposing an AUL that is company-specific:
(i) Under what circumstances should in vestigating authorities be allowed to
use an industry-wide depreciation rate if it differed from the
company-specific one?G/SCM/W/486
Page 8
(ii) How should investigating authorit ies calculate the AUL if the company
had significant changes to its depreciation schedules during or
immediately prior to the investigation, e.g., asset write-downs?
(iii) Often there is a difference between  the depreciation rules for accounting
purposes and the depreciation rules for tax purposes.  Please explain
whether, in India’s view, one is preferable over the other.
(e) In India’s view, to what other types of subsidies should the depreciation rules be
applied (e.g. , large, one-time debt forgiveness, or the provision of equity capital
not necessarily related, or tied to, capital goods)?
(f) If a very small subsidy is provided, and it is related, or tied to, capital
equipment, should the benefit still be allocated over the relevant depreciation
period?
Reply
India would like to clarify that in respect of subsidies granted for the acquisition of assets, the
period assumed for allocating the benefit have varied considerably from case to case.  It is India’s
view that amount of subsidy should be calculated a ccording to the average useful life of the asset as
reflected in the financial statement of the exporter in accordance with nationally accepted accountingpractices.  It is further clarified that the depreciation to be used should not be based on the amount
calculated for taxation purposes.
India’s views on depreciation rules are limited to the situation wherein a subsidy has been
granted for acquisition of assets. No comments are offered in respect of other types of subsidies.
If a very small amount of subsidy has been provided which is related or tied to capital
equipment the depreciation should be calculated in accordance with the nationally accepted
accounting practice.
The Subsidies Agreement is silent on the aspect of depreciation of assets while determining
benefit to the recipient. Disciplines in this regard could be included in Article 14 of the SubsidiesAgreement.
Q4.  The ASCM Committee should clarify that for a subsidy to be deemed to exist under
Article 1.1(a)(1)(ii) of the ASCM, the exporter  concerned should have received the benefit of
duty foregone or not collected during the period of investigation (G/SCM/W/462, para 21).
(a) To what extent would India’s proposal require a change to the ASCM?  If a
change to the agreement is not required, please explain, in India’s view, how this
proposal should be effectuated.
(b) Please describe in greater detail when the benefit would accrue to the exporter
under India’s proposal.
(c) Are there any instances where India beli eves that the benefit can reasonably be
assumed to accrue before it is actually received?  For example, if all exportersare automatically entitled to receive 10 p er cent of the value of their exports in
the form of a government grant, would it be reasonable to calculate the amount
of the benefit as 10 per cent of the exporter’s export sales?G/SCM/W/486
Page 9
Reply
In a number of cases the investigating authority has imposed countervailing duty without
ascertaining whether the exporters have received the benefit during the period of investigation. An
exporter may have applied for but not received a subsidy during the investigation period.  However,if the subsidy has not been received during the inve stigation period then it cannot be deemed to exist
for the purposes of countervailing investigation.  The benefit would accrue only after there is a
specific instruction or order from the Government in respect of the concerned exporter which legally
entitles him to the subsidy.
In India’s view no change is required to the Agreement to give effect to the proposal in
Para 21 of its submission in G/SCM/W/462.
In India’s view it is prejudicial to the inte rest of the exporter by including subsidy not
received during the investigation period while calculating the amount of subsidy.  To address this
problem India has made the necessary suggestion in paragraph 21 in the document G/SCM/W/462.
5.  The SCM Committee should review Article 14 of the ASCM and recommend certain
deductions from the subsidy amount which should be mandatorily taken into consideration by
the investigating authorities while determining the level of countervailing duty.  The SCM
Committee should also clarify that such adju stments as required by the countervailable scheme
should be taken into account while determining the amount of subsidy.  (G/SCM/W/462,para 23).
(a) To what extent would India’s proposal require a change to the ASCM?  If a
change to the agreement is not required, please explain, in India’s view, how this
proposal should be effectuated.
(b) Please describe under what circumstances an investigating authority should be
required to make certain deductions from the subsidy amount.
(c) India has provided a list of the types of expenses to be deducted.  Is the list of
proposed deductions intended to be exhaustive or merely illustrative?  Are there
any circumstances under which these or similar expenses should not be deductedor should all expenses incurred in ob taining the subsidy always be deducted?
(d) Please discuss any differences between India’s proposal and that suggested by
Brazil in paragraph 7(e) of Brazil’ s Tiret 80 submission (G/SCM/W/464).
Reply
An exporter incurs various expenses for obtaining the benefit under a particular scheme,
which is sought to be countervailed. It is India’s contention that the investigating authority should be
required to make certain deductions from the subsidy on account of expenses incurred for obtainingbenefits under the schemes. The list of type of expenses to be deducted as indicated in paragraph 22 of
India’s proposal are merely illustrative and all expenses incurred in obtaining the subsidy should be
deducted.
Conceptually there is no difference in India’s proposal and that suggested by Brazil.
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