WORLD TRADE
ORGANIZATIONTN/RL/W/139
18 July 2003
(03-3889)
Negotiating Group on Rules Original:  English
FURTHER CONTRIBUTION TO THE DISCUSSION OF THE NEGOTIATING
GROUP ON RULES ON THE AGREEMENT ON SUBSIDIES AND
COUNTERVAILING DUTY MEASURES
Submission from Australia
The following communication, dated 17 July 2003, has been received from the Permanent
Mission of Australia.
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Australia recalls its earlier paper relating to its general contribution to discussion of subsidies
and countervailing duty measures.  The following raises some additional issues as well as proposing
areas where current disparities and ambiguities need to be addressed in order to provide greater clarityand predictability in the rules relating to prohibited and actionable subsidies.
Prohibited export subsidies
Australia considers that it is important that the rules relating to export subsidies are upheld
and are not circumvented through lack of clarity or imprecision.  Australia noted in its general
contribution to the discussion of the Negotiating Group on Rules on the Agreement on Subsidies and
Countervailing Measures 
1 that the rules need to be clarified and improved in relation to prohibited
subsidies contingent ‘in fact’ upon export performance.  In particular, Australia identified that the
standard for meeting the ‘in fact’ contingency under SCM Article 3.1(a) currently lends itself to
discriminatory and unpredictable treatment.
The Appellate Body in Canada – Aircraft  acknowledged that analysis of ‘in fact’ export
contingency is difficult.  It indicated that it is not sufficient to demonstrate solely that a government
granting a subsidy anticipated  that exports would result but that the government granted the subsidy
contingent  upon export performance.2  In examining footnote 4, second sentence, it noted that “merely
knowing that a recipient’s sales are export-oriented does not demonstrate, without more , that the
granting of a subsidy is tied to actual or anticipated exports” (emphasis added).3  It noted that export
orientation may be taken into account as a relevant fact provided that it is one of several facts and not
the only fact supporting a finding.  Further, the Appellate Body considered that the nearness-to-the-
export-market factor of demonstrating export contingency needed to be treated with caution.4
                                                     
1 Document TN/RL/W/85
2 Canada – Measures Affecting th e Export of Civilian Aircraft , (hereafter Canada – Aircraft ),
Appellate Body Report, WT/DS70/AB/R, Adopted 8 August 1999, paragraph 171
3 Ibid., paragraph 173
4 Ibid., paragraph 174TN/RL/W/139
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In Australia’s view, there need to be clearer rules on the conditions or facts which give
grounds for a conclusion that a subsidy is contingent ‘in fact’ upon actual or anticipated export
performance.  There is no guidance on what facts or what kinds of facts must be taken into account.
Whilst export propensity is one fact (and cannot solely be based on the fact that a company exports)
which would be considered to determine whether a subsidy is contingent on export and therebyprohibited, case law suggests that export propensity has taken on greater weight in the range of factors
which are examined to determine export contingency.
Further, it has been Australia’s experience in countervail investigations that investigating
authorities will establish firstly (and correctly) the existence of a subsidy and will determine
(incorrectly) that the subsidy is contingent on export performance by virtue of the company exporting,
and thereby apply the corresponding denominator in a countervail calculation.
• Australia proposes that in considering a range of factors, it should be made clear that export
propensity should not be a factor taken in isolation.  Currently footnote 4 does not adequately
address situations where domestic markets of a subsidizing Member are small or where there
are fluctuating market conditions, such that products destined for the domestic market have to
be sold on the export market.
• Australia proposes that a range of factors that should be taken into account for export
contingency, be listed.
• Australia also proposes that investigating authorities should ensure that consideration of the
facts relating to contingency on export performance is clearly established in a countervail
investigation.
Australia is of the view that it is important to maintain the presumption in the SCM of serious
trade effects caused by prohibited subsidies.  Australia noted in its earlier concepts paper that
consideration of the levels of export competitiveness in a product is already reflected in the SCM in
the context of special and differential treatment.  Notwithstanding the relevance of GATTArticle XVI:3 in relation to the export of primary products, consideration of export competitiveness of
a subsidized product may address current discriminatory treatment of a product which may be
subsidised but, due to fluctuating domestic market conditions, is no longer solely for the domestic
market.  For example, would it be feasible to examine whether, as a result of subsidization, a
Member’s export competitiveness has increased to certain levels and not been at those levels forsustained periods?
• Should export propensity be considered a factor but only once a certain level or threshold of
export competitiveness has been reached?  In th e same way that market share is examined in
the context of subsidies which cause serious prejudice, is it relevant to consider export
competitiveness in order to establish export contingency?
Enforcement
Australia believes that there needs to be clarification of the meaning of “withdraw the
subsidy” both in the context of Part III and Part V of the SCM to ensure consistency in its application.
Australia does not consider that there has been consistency in the analysis by panels of these
provisions and believes that this is an area which requires clarification.  As noted in TN/RL/W/85,Australia considers that ‘withdrawal of the subsidy’ is a prospective remedy regardless of whether the
subsidy is recurring or non-recurring.  Further, Australia considers that “withdraw the subsidy”,
whether in the context of Part III (Article 4.7) or Part V (Article 7.8) of the SCM, does not necessitate
repayment by the recipients of the subsidy as a norm.TN/RL/W/139
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Australia sees merit in examining the following issues to clarify these provisions:
• Whether the context of Part III and V alters the meaning of “withdraw the subsidy”, as has
been suggested by some panels;
• Whether replacement of a prohibited subsidy with an actionable subsidy constitutes an
effective or suitable remedy;
• Whether “withdrawal of the subsidy” means removal of adverse trade effects;
• Whether retrospectivity or repayment should normally only be countenanced to the extent that
there are portions of a subsidy which are deemed allocated over future periods of time;
• Given that there is a presumption of serious trade effects where it is established that there is a
prohibited subsidy, whether there is nonetheless a need to quantify or establish the level of
serious trade effects in ‘withdrawal of the subsidy’;
• Whether ‘withdrawal of the subsidy’ should not go beyond the adverse trade effects;
• Whether SCM Articles 4.10 and 7.9 in relation to “appropriate countermeasures” provide
context to the meaning of “withdraw the subsidy”;
• Whether there should be a distinction between recurring and non-recurring subsidies;
• Whether termination of a prohibited subsidy constitutes “withdrawal”;
• Whether “withdrawal” must encompass a punitive remedy and have an “impact”5 and
enforcement effect on the subsidizing Member.
Actionable Subsidies:  Serious Prejudice
Australia notes that the chapeau of SCM Article 6.3 states that serious prejudice “may arise in
any case where one or several  of the following apply” (emphasis added).  Australia proposes that the
evidentiary requirements under SCM Article 6.3 to demonstrate that “the effect of a subsidy” has
caused displacement or impeding of exports in a subsidizing Member’s market should be clarified,
including whether there are distinctions in evidentiary requirements which need to be made between
the sub-paragraphs of Article 6.3, for example, between sub-paragraphs a), b) and d).
In Indonesia – Autos 6, the Panel found that the analysis required under SCM Article 6.4 is
not relevant or appropriate to claims pursuant to Article 6.3(a).  However, the Panel noted that this did
not mean that the market share data are irrelevant to an analysis of displacement or impeding of
exports or that it may be highly relevant evidence.  The Panel said there could be some overlap in
terms of relevance of the analysis required under SCM Article 6.4, particularly where the evidence
must demonstrate the effect of the subsidy.
Within SCM Article 6.3, what would be the representative period and does this need to be
specified more clearly?  If subsidization has been present in the market for some time, does this affect
an assessment of displacement and impediments to exports?
SCM Article 6.5 provides that a comparison of prices of the subsidized product with the non-
subsidized like product be made with “due account being taken of any other factor affecting price
comparability”.  Australia sees merit in exploring clarification of what factors should be taken into
account.
                                                     
5 Australia – Subsidies Provided to Producers and Exporters of Automotive Leather , Recourse to
Article 21.5, Report of the Panel, WT/DS126/RW, 21 January 2000, paragraph 6.34.
6 Indonesia – Certain Measures Affecting the Automobile Industry, (hereafter Indonesia – Autos ),
Report of the Panel, WT/DS54/55/59/64/R, 2 July 1998, paragraph 14.211.TN/RL/W/139
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Clarification of the circumstances listed under SCM Article 6.7, in particular sub-
paragraph (f) would be useful.  What standards or other regulatory requirements would be captured by
this sub-paragraph?
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