RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/USA/14
18 January 1999
(99-0146)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Questions from the EUROPEAN COMMUNITY Regarding the
New and Full Notification of the UNITED STATES1
The following communication, dated 11 January 1999, has been received from the Permanent
Delegation of the European Commission.
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I. FEDERAL PROGRAMMES
A. NOTIFIED PROGRAMMES
Advanced Subsonic Technology Programme (Page 5)
Is it possible to specify exactly which types of research costs are eligible to be subsidized by
this programme?  Are there any provisions for limiting cumulation of subsidies granted under this
programme with those granted under other federal or state-level programmes?
High Speed Research Programme (Page 8)
Is the amount of subsidy limited to a specific percentage of the costs of the research in
question?  Are there any provisions for limiting cumulation of subsidies granted under this
programme with those granted under other research programmes, for example, those administered by
the Department of Defence?
B. NON-NOTIFIED PROGRAMMES
Various agencies of the US Government op erate research programmes, which are funded
under the general heading of the "Research Fund for America".  Some of these programmes appear to
be specific to certain enterprises, as defined by Article 2 of the Subsidies Agreement, since although
they are apparently available to a wide range of recipients, the general aim of the fund seems to be tofoster high-risk technologies which promise commercial payoffs and economic benefits.  Given the
general purpose of these programmes, there must be a considerable amount of discretion open to the
granting authority when selecting projects for suppor t, since the eligibility criteria are not objective,
and in practice the recipients are likely to consist disproportionately of certain types of technology-
based companies.
                                                     
    1G/SCM/N/3/USA/Suppl.1, G/SCM/N/16/USA/Suppl.1 , G/SCMN/25/USA/Suppl.1 and G/SCM/N/38/USA.G/SCM/Q2/USA/14
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Other programmes are clearly sector specific and most of them have been notified previously
on a sectoral basis.
In view of the above, the US is requested to  explain why the following programmes have not
been notified, and to provide a notification if appropriate.
1. National Science and Technology Council
(a) Large Scale Networking and High-End Computing and Computation Programme
Formerly known as the High Performance Computing and Communication Programme, this
programme has a budget of $850 million, including $110 million for the development of a new
generation internet.  In response to questions on its 1996 update notification, the US had indicated thatit was considering making a notification of this programme.
(b) Partnership for a New Generation of VehiclesThis programme, which involves the development of fuel efficient cars, has a budget of about
$240 million, and was reported by the US in previous notifications.
2. Department of Commerce
(a) Manufacturing Extension Partnership
$107 million for the technological development of small businesses.  What is the definition of
"small business" in the context of this programme?
(b) Advanced Technology ProgrammeOperated by the National Institutes for Standards and Technology, this provides $260 million
to help the private sector develop high-risk technologies.
(c) The Textile/Clothing Technol ogy Corporation Programme (TC2)
This programme, which had a budget of $3 million in 1997, was reported in previous
notifications.
3. Department of Energy
(a) The Alternative Fuel Vehicle Development Programme, the Motor Challenge
Programme and the Heat Engines Programme  had a combined budget of $35 million in 1997 and
were reported in previous notifications.
(b) The Building Equipment Programme, the Building Systems Programme  and the
Building Envelope Programme had a combined budget of nearly $70 million in 1997 and were
reported in previous notifications.
(c) The Lightweight Transportation Materials Programme had a budget of $13.9 million
in 1997 and was reported in previous notifications.
(d) The Membrane Programme, the Geothermal Energy Programme , the Energy Storage
Systems Programme, the Biomass Power Programme , the Advanced Turbine System Programme , the
Isotope Production and Distribution Programme, th e Coal Research and Development Programme , theG/SCM/Q2/USA/14
Page 3
Fuel Cell for Stationary Applications Programme, the Oil Programme  and the Natural Gas
Programme had a combined budget of $350 million in 1997 and all were reported in previous
notifications.
(e) The Materials and Metals Processing Metals Initiative had a budget of $14.7 million
and was reported in previous notifications.
(f) The AMTEX programme had a budget of $10.1 million in 1997 and was reported in
previous notifications.
4. Shipbuilding
In questions on the previous new and full notification of the US, the Community asked why
neither the Capital Construction Fund or the Construction Reserve Fund , both of which provide
considerable tax benefits to US shipbuilders in the form of deferrals, had not been notified.  In itsreply (Doc. G/SCM/Q2/USA/10;  page  25), the US explained that it was examining this issue.  Why
has no notification been forthcoming?
II. STATE-LEVEL MEASURES
A. N
OTIFIED PROGRAMMES
On pages 56-71 of its notification, the US has notified a large number of state-level subsidies.
The Community considers this to be an important  step towards compliance with the notification
obligations of the US under the WTO Subsidies Agreement, and takes note of the contribution made
by the US in improving transparency in this area.   However, the Community notes that for many of
the notified programmes the information provided is incomplete.  In particular, the notification
provides only limited information on the amount of the subsidy  and the duration of the subsidy .
1. Amount of subsidy
For many programmes, the US has provided no information on the amount of the subsidy.
Even in those cases where the US has provided information under the heading "amount", it has
usually not provided either the subsidy per unit or the total amount budgeted, as required by
Article 25.3(iii) of the WTO Subsidies Agreement.  These dates are considered extremely importantby the Community, since they enable Members to  evaluate the importance of a subsidy and its
possible trade effects.
The Community therefore requests that information on the amount of the subsidy should be
provided for all notified schemes.  It further requ ests that such information should contain sufficient
data on the subsidy per unit or total amount budgeted.
2. Duration of the subsidy
For many programmes, no information on the duration of the subsidy, required by
Article 25.3(iv) of the WTO Subsidies Agreement, ha s been provided.  Even where such information
is provided, it is not always meaningful.
The Community requests that information on all notified programmes should be provided
both on the date of the creation and (if appropriate) the expiry
 of the programme.  In addition, in
connection with the duration of the subsidy, the US is also requested to give information on the
duration of the benefit for recipients, particularly in the case of tax subsidies.  This information isG/SCM/Q2/USA/14
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important to enable other Members to evaluate the importance of programmes and their potential
trade effects.
3. Questions on specific notified programmes
California – Enterprise Zones (Page 57)
With regard to the Nolan programme, please explain on what basis the targeted areas are
selected.  What is the maximum amount of subsidy per recipient?
Delaware – Enterprise Zones (Page 58)
Please explain exactly how the subsidy in the form of bonds is given and on what basis
targeted areas are selected.  What is the maximum amount of subsidy per recipient?
Texas – Capital Fund Loan Programme (Page 70)
What is the maximum amount of subsidy per recipient?
B. NON-NOTIFIED PROGRAMMES
1. Counter-notification
In its counter-notification under Article 25.10 of the Subsidies Agreement (Doc.
G/SCM/Q2/USA/11 of 5 August 1997), the Comm unity identified the following state-level
programmes which appear to be specific but which have not been notified by the US.
Florida: Export Assistance and Financing Programme
Ohio: Export Tax Credit Programme
Washington: Tax Exemption on Form LumberThe US has still not included these programmes in its current new and full notification.  The
US is requested to explain why they have not been notified, and, if appropriate, to provide a
notification using the standard format.
2. Questions on previous new and full notification
Further to the above, on Pages 10-27 of its questions on the previous new and full notification
of the US (Doc. G/SCM/Q2/USA/4 of 24 June 199 6), the Community identified a large number of
state-level programmes which had not been notified, but which appeared to be specific and thus
subject to notification under Article 25.2.
The Community notes that many of these programmes have still not been included in the
present new and full notification of the US, and once again requests the US to notify them ifappropriate.
3. Other non-notified programmes
In order to illustrate the above, a review of su bsidies available to enterprises in some of the
larger US states has shown that there are many incentive schemes which, although widely available,
actually operate to reinforce the competitive position of certain enterprises or are grantedG/SCM/Q2/USA/14
Page 5
disproportionately to a limited number of companies, sometimes on the basis of the exercise of
discretion by the granting authorities.  A number of examples of such programmes follow.  The US is
requested to consider notification of such programmes, which seem to be specific.
(i) Ohio
The Office of Tax Incentives of the Department of Development grants income tax credits to
firms creating at least 25 new jobs.  Since it is known in advance that only a limited number of firms
will qualify for this subsidy, it should be considered specific.
(ii) Texas
The Department of Commerce runs the Smart Jobs Programme.  This provides grants to firms
for training workers, thus reducing their costs and improving competitiveness.  It had a budget of over
$27 million in 1996 and is granted to a large number of firms, but in practice a large slice is targeted
to a few firms in the automotive and electronics sectors.
(iii) Florida
Enterprise Florida, through the Florida Development Finance Corporation, issues "Enterprise
Bonds" to certain companies at around 30 per cent below commercial lending rates.  Only a small
number of companies are able to benefit from this subsidized financing.
(iv) California
The Trade and Commerce Agency provides the Manufacturers' Investment Tax Credit.  This
subsidy takes the form of tax credits, which can be carried forward for up to eight years if unused.
However, in the case of "special" taxpayers, the credit can be carried forward for 10 years.
Under the R&D tax credit, firms can offset 11 per cent of their in-house research expenditure
against tax.
Under Operating Loss Carryover rules, firms new to the state can carry forward 100 per cent
of their losses for eight years;  existing firms can only carry forward 50 per cent of losses for five
years.
All three schemes are referred to by the Agency as "targeted" tax incentives;  it is known in
advance that only certain enterprises will be able to take full advantage of these schemes.
Consequently, specificity would seem to be present.
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