WORLD TRADE  
ORGANIZATION  TN/RL/GEN/6 
14 July 2004 
 (04-3027) 
Negotiating Group on Rules Original:   English 
  
 
SPECIFICITY  
 
Communication from Canada
 
  The following communication, dated 21 May 2004, is being circulated at the request of the 
Delegation of Canada. 
  The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(04)/54), also be circulated as a formal document.  
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I. ISSUE 
 
1. The concept of “specificity” is one of the cornerstones of the WTO Agreement on Subsidies 
and Countervailing Measures Agreement  (ASCM).  It has been generally recognized for nearly 
20 years now that this important concept woul d benefit from precisi on in its application.
1  A review of 
the many interpretations of this requirement a nd the significant domestic litigation it has caused over 
this period of time reinforces the need to estab lish certain checks to the discretion afforded to 
investigating authorities in its application.2  Given the fact that all remedies under the ASCM require a 
specificity finding, the concept would benefit from further clarification.  
 2. The amendments proposed in this document atte mpt to strike a balance between the need to 
establish clear and objective standards for the applica tion of Article 2 of the ASCM, and the need to 
retain the necessary flexibility to a ddress different facts in different cases.  It is believed that such 
amendments would result in a clearer and more pr edictable specificity test.  In this regard, the 
discussion below does not purport to be an exhaustive enumeration of relevant issues.  This document 
is simply intended to promote a technical discussi on on the specificity requirement.  Canada reserves 
the right to offer additional thoughts on the matter.  
II. GENERAL PRINCIPLES 
 3. The purpose of the specificity requirement in Ar ticle 1.2 of the ASCM is to ensure that the 
disciplines in the Agreement cover only those subsidies that are ta rgeted to certain entities or 
productive activities, i.e. subsidies that go to some entities over others.  The panel in US – Export 
Restraints  explained: 
 
                                                     
 
1 “Draft Guidelines for the Application of the Concept of Specificity in the Calculation of the Amount 
of a Subsidy Other Than an Export Subsidy”, SCM/W/89 (25 April 1985) 
2 See for example: J.H. Bello, & A.F. Holmer, “US Trade Law and Po licy Series #12: The Specificity 
Dialogue Continues”, (1988) 22:2 Inte rnational Lawyer, 563; J.C. Lowe & D. Mason, Jr., “Recent Highlights in 
Commerce’s Application of the ‘Specificity Test’ Under Countervailing Duty Law” (1994) 864 PLI/Corp 39; J.A. Ragosta & H.M. Shanker, “Specificity of Subsidy Benefits in US Department of Commerce Countervailing 
Duty Determinations”, (1994) 25 Law & Pol’y Int’l Bus 639. TN/RL/GEN/6 
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 “[W]hile the object and purpose of the Agre ement clearly is to discipline subsidies 
that distort trade, this object and purpose can only be in respect of ‘subsidies’ as 
defined  in the Agreement.  This definition, which incorporates the notions of 
‘financial contribution’, ‘benefit’, and ‘sp ecificity’, was drafted with the express 
purpose of ensuring that not every government  intervention in the market would fall 
within the coverage of the Agre ement” (emphasis in original);
3 
III. CERTAIN CONCEPTS REQUIRING CLARIFICATION 
 
A. “ENTERPRISE”, “INDUSTRY”, AND “GROUP” 
 
4. The phrase “enterprise or industry or group of enterprises or industries”, in respect of which 
specificity must be established, encompasses a sizeable universe of analysis.  Yet, there is no clear 
guidance in the ASCM on the meaning of “ente rprise” and “industry”, nor on how the respective 
groupings are circumscribed.  This lack of clarity results in uncertainties in the application of the 
specificity test. 
 
5. Most recently, the panel in US – Softwood Lumber IV  was required to determine whether 
Canada’s forestry management programmes were specific to a group of industries.  It noted:  
“The SCM Agreement does not define an ‘i ndustry’ nor does it provide for any other 
rules concerning which enterprises could be c onsidered to form an  industry for the 
purposes of Article 2 of the SCM Agreement or whether a group of industries has to 
produce certain similar products in or der to be considered a ‘group’.”
4 
6. The panel went on to identify certain “industri es” in its own terms, and to determine that they 
constituted a “limited group” without re ference to any objective standard.5 Better guidance on the 
identification and assessment of industries for sp ecificity purposes would assist both investigating 
authorities and WTO dispute settlement panels, and would provide Members with a clearer and more 
predictable rule.  B. DE FACTO SPECIFICITY  7. Two aspects of the de facto  specificity test would also benefit from clarification. 
 
8. First, the weight of the four de facto  specificity factors in Article 2.1(c) of the ASCM should 
be made more explicit.  That is, where a subsidy is de jure  generally available and the exercise of 
government discretion has been neutral and objec tive, any use by a limited number of certain 
enterprises, predominant use or disproportionate gran ts during a particular period of time may be due 
                                                     
 
3 United States – Measures Treating Export Restraints as Subsidies , Report of the Panel, WT/DS194/R 
and Corr.2, adopted 23 August 2001, para. 8.63. See also Indonesia – Certain Measures Affecting the 
Automobile Industry , Report of the Panel, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, adopted 
23 July 1998, para. 14.155, and United States – Final Countervailing Duty Determination with respect to Certain 
Softwood Lumber from Canada , Report of the Panel, WT/DS257/R, adopted 17 February 2004, para. 7.116 
(“Article 2 SCM Agreement is concerned with the distortion that is created by a subsidy which either in law or 
in fact is not broadly available.”). 
4 US – Softwood Lumber IV, supra note 3, para. 7.119 
5 Ibid., para. 7.121:  
 
“We consider that the ‘wood products industrie s’ constitutes at most only a limited group of 
industries – the pulp industry, the paper industry, the lumber industry and the lumber remanufacturing 
industry – under any definition of the term ‘limited’.”  TN/RL/GEN/6 
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 solely to situational circumstances.  For example,  any “predominant use by certain enterprises” during 
a given time period may be solely the result of  certain enterprises being first off the mark. 
 9. Second, there is currently no clear guidance in  the ASCM on the particular application of any 
of the four factors set out in Article 2.1(c).  A case in point is the application of the 
“disproportionately large grants” factor.  An applicat ion of this factor based on a strict comparison of 
absolute subsidy amounts going to eligible recipi ents ignores the reality that disbursements to a 
particular enterprise or industry may be larger or smaller, depending on the relative importance of the 
enterprise or industry in a given sector of the economy.   For example, a finding that there existed “the 
granting of disproportionately large amounts of subsid y to certain enterprises” would be justified if a 
given group of agricultural industries, which a ccounted for 30 per cent of the value of total 
agricultural production, was found to have receive d 70 per cent of available subsidy amounts.  
However, such finding would not be justified if the group of industries in question received 30 per 
cent of available subsidy amounts.  IV. PROPOSED AMENDMENTS  
A. “ENTERPRISE”, “INDUSTRY”, AND “GROUP” 
 
Amendment 1 
 
10. It is proposed that the phrase “ in accordance with international standard industrial 
classification and ” be added to Article 2.4 of the ASCM.  The amended provision would thus read: 
 
“Any determination of specificity under th e provisions of this Article shall be in 
accordance with international stan dard industrial classification and  clearly 
substantiated on the basis of positive evidence.” 
11. The added text would serve to reference cu rrent objective classifications, namely the United 
Nations International Standard Industrial Cla ssification of All Economic Activities  (ISIC).6  T h e  
ISIC, as revised from time to time, is well-suited for specificity analysis: it already objectively 
identifies and names industries, and groups them into  various levels of aggregation; it has been in 
existence for nearly as long as the GATT; it enjoys wide recognition in ternationally; and it is already 
used by the WTO in the production of world trade st atistics.  Indeed, the ISIC represents the most 
current international understanding of the concepts of “industry” and “enterprise”.7  
 12. The rationale behind this amendment is th at it would require domestic investigating 
authorities to request and assess evidence on the av ailability or use of a subsidy in terms of 
established industry codes and aggregations.  Accord ingly, it would require such authorities, as well 
as WTO dispute settlement panels, to make factua l findings that would be more clearly based on 
widely accepted international standards.  B. DE FACTO SPECIFICITY  Amendment 2  
13. It is proposed that the Agreement expressly conf irm that the mere existence of any of the four 
factors does not automatically establish specificity, i. e. that a specificity fi nding that ignores the 
totality of the facts of a given case would not be sustainable.  Accordingly, the following phrase 
should be added between the second and third sentences of Article 2.1(c):  “These factors shall be 
                                                     
 
6 Currently ISIC Rev.3.1, ESA/STAT/SER.M/4/Rev.3.1. 
7 ESA/STAT/SER.M/4/Rev.3.1, para. 15 (“indus try”), and paras. 53-57 (“enterprise”). TN/RL/GEN/6 
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 evaluated based on the totality of the facts, and no  one or several of them can necessarily give 
decisive guidance.”  The amended provision would thus read:  
“(c) If, notwithstanding any appearan ce of non-specificity resulting from the 
application of the principles laid down in s ubparagraphs (a) and (b), there are reasons 
to believe that the subsidy may in fact be  specific, other factors may be considered. 
Such factors are: use of a subsidy pr ogramme by a limited number of certain 
enterprises, predominant use by certain ente rprises, the granting of disproportionately 
large amounts of subsidy to certain enterp rises, and the manner in which discretion 
has been exercised by the gran ting authority in the decision to grant a subsidy.  These 
factors shall be evaluated based on the totalit y of the facts, and no one or several of 
them can necessarily give decisive guidance.  In applying this subparagraph, account 
shall be taken of the extent of divers ification of economic activities within the 
jurisdiction of the granting authority, as well as of the length of time during which the subsidy programme has been in operation.” 
14. This amendment would confirm that de facto  analysis involves an assessment of the totality 
of the facts of a given case.  It would recognize that situational circumstances beyond the control of granting authorities might explain use or distribution patterns of a subsidy that is otherwise de jure  
non-specific under subparagraphs (a) and (b).  Such an amendment would therefore expressly 
preclude any arbitrary automaticity in the application of the factors in subparagraph (c), e.g., where an 
investigating authority determines de facto  specificity based solely on the existence of one of the 
listed factors, notwithstanding any reasonable explanati on for the existence of that factor or any other 
evidence of non-specificity.  
Amendment 3 
 
15. It is proposed that a footnote be added to the end of the phrase “the granting of 
disproportionately large amounts of subsidy to certain  enterprises” in Article 2.1(c) requiring that 
disproportionality be determined with reference to a relevant objective benchmark, such as the 
relative importance of recipient industries, in terms of production value, within the jurisdiction of the 
granting authority.  
16. This amendment would clarify that while the distribution of subsidy amounts may appear 
disproportionate when viewed on an absolute basi s (i.e. a strict comparison of subsidy amounts 
among recipient industries for a given period), such distribution may in fact be proportionate because 
amounts received by the industries in question were  in proportion to their share of the production 
value of the relevant economic sector. 
 
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