WORLD TRADE
ORGANIZATIONTN/RL/W/57
10 February 2003
(03-0858)
Negotiating Group on Rules Original:  English
EGYPTIAN PAPER CONTAINING QUESTIONS AND COMMENTS ON
THE CONTRIBUTIONS SUBMITTED IN THE FRAMEWORK OF
THE DOHA NEGOTIATIONS ON THE SUBSIDIES AND
COUNTERVAILING MEASURES AGREEMENT
The following communication, dated 5 February 2003, has been received from the Permanent
Mission of Egypt.
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The current paper includes comments and questions on the recent US and EC contributions
submitted in the framework of the negotiations conducted by the Negotiating Group on Rules on the
Agreement on Subsidies and Countervailing Measures (hereinafter referred to as the “SCM
Agreement”).
1. Communication from the US:  Special and differential treatment and the Subsidies
Agreement (TN/RL/W/33)
The US contribution focuses exclusively on the question of the special and differential
(“S&D”) treatment of developing Members within the context of the SCM Agreement.
The US first provides an overview of the existing provisions of the SCM Agreement which
grant developing Members S&D treatment.  However, despite asserting the need to address the
legitimate concerns of the developing world, the US adopts a very narrow interpretation of the S&D
treatment provisions of the SCM Agreement by putting the emphasis on their temporary and limited
nature.
The US also describes, and seems to consider as substantial, the “ accommodations”  made for
the benefit of developing and lesser-developed Members in the Decision on Implementation approved
at the Fourth Ministerial in Doha.  Having described the “ numerous and substantial clarifications ”
made to the SCM Agreement to the benefit of de veloping Members, the US then questions the
necessity of examining the contributions and proposals put forward to guarantee and protect the
interests of developing Members and, thus, raises the question of whether or not the existing S&D
treatment provisions need further refinement.
In the second part of its contribution, the US details its position with respect to the
negotiations conducted on the S&D treatment provisions of the SCM Agreement.  The US rightly
points out that subsidies can undermine the efficient allocation and utilization of resources and have
trade distorting effects.  Also, it mentions that the SCM Agreement is aimed at limiting the negative
effects of subsidies.  Moreover, the US indicates that subsidies cannot, as such, be used as a long-term
development tool and should only be invoked to the extent necessary.TN/RL/W/57
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In this context, the US considers that S&D treatment provisions are not meant to be
permanent and favours the integration of all Members, as soon as practicable, under the full
disciplines of the SCM Agreement.  Moreover, the US argues that it would not be fair to change the
rules in the middle of the game for those countries which relied upon the rules as originally written.
Finally, according to the US, the case in favour of subsidies generally overstates the benefits andunderstates the negative consequences of subsidies as instruments for promoting economic
development.
In its contribution, the US does not take into consideration the concerns voiced by developing
and least-developed Members.  In particular, it fails to consider that all Members, regardless of their
development status, are already bound by the provisions of the SCM Agreement and that the S&D
treatment provisions only grant developing and least-developed Members limited rights.  Also, the USdoes not take into account the needs of developing Members, one of the most important of which is
flexibility.  Indeed, the unstable economic situation of most Members requires them to have the
possibility of waiving their obligations under certain circumstances.  The fact that certain developing
countries have, at present, the possibility of not having to resort to the S&D treatment provisions of
the SCM Agreement, is not a sign that they will not have to invoke these provisions in the future and
cannot justify the application of a unique and strict set of rules to all Members regardless of their
specific situation.
2. Proposal by the EC:  WTO negotiations concerning the WTO Agreement on Subsidies
and Countervailing Measures (TN/RL/W/30)
(i) The SCM Agreement in practice
The proposal put forward by the EC first ex plains how the SCM Agreement was established
on the basis of a “traffic light” system.  At one end of the spectrum subsidies, e.g., export subsidies,are prohibited while at the other end, green subsidies, e.g., environment or research subsidies, were
not actionable.
Question: - The EC claims that the non-actionable or “green” subsidy category has proven to be
ineffective.  Could the EC develop why it considers that these subsidies have “ proven
to be ineffective ”?
(ii) Definition of subsidies
- Disguised subsidies
The EC considers that significant amounts of financial support are increasingly granted by
governments for ostensibly general activities, which in fact directly benefit the production of certain
products.  The EC considers that these disguised restrictions have harmful effects on trade.
We understand the EC’s concern but do not see how the so-called disguised subsidies could
be distinguished from the other types of subsidies.  Indeed, most subsidies are, by nature, destined fordefinite groups of beneficiaries and/or purposes although they are provided for in general public
regulations.  We believe that the distinction proposed by the EC is unnecessary and will neither clarify
nor improve the SCM Agreement since disguised subsidies are already covered by its existing
provisions.
Questions: - How does the EC intend to practically define disguised subsidies?
 - Considering that so-called disguised subsidies can be of a very different nature, what
type of uniform rules could be applied to them?TN/RL/W/57
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- State-controlled entities
The EC proposes to define the notion of state-controlled entities in order to avoid a
circumvention of subsidy disciplines by entities acting under the covert direction of governments.  We
do not believe that the clarification sought by the EC is necessary considering the broad interpretationwhich can be given to the term “public body” of Article 1.1(a)(1) of the SCM Agreement.  In Canada
– Dairy Products,  the Panels and Appellate Body evidenced that prohibited subsidies can even be
provided by private entities within a public regulatory framework.
Question: - How does the EC propose to draw an objective line between public entities which
should be considered part of governments and those which should not?
(iii) Local content subsidies
Considering the difficulty of challenging the local content subsidies of Article 3.1(b) of the
SCM Agreement the EC proposes to consider every subsidy linked to the use or purchase of domestic
industrial products, and thus in breach of Article III.4 of GATT 1994, as inconsistent withArticle 3.1(b).
We do not believe that it is necessary to clarify the subsidies defined in Article 3.1(b) and to
link this provision to Article III.4 since the terms of Article 3.1(b) do not raise any interpretation
issues.
(iv) Export Financing
Item k of Annex I establishes that, as a general rule, Members must not finance exports at
rates that are below the cost of funds.  Item K also provides for a “safe harbour” - an export creditsupport is not considered as a prohibited export subsidy in the meaning of Article 3.1(a) as long as it
is in conformity with a recognized and generally accepted international undertaking on official export
credits.  The proviso applies only to export credits and not to other types of export financing, i.e.,
export guarantees, risk premia, etc.  Considering these limitations, the EC proposes to expand the
scope of the safe harbour and, thus, to consider other types of export financing schemes compliant
with the OECD Arrangement as non-prohibited export subsidy.
A series of questions arise from the EC proposals with respect to export credit, the first being:
to which country would such an extension of the “safe harbour” benefit? As underlined in the
document submitted by India, the introduction of such provision would, undoubtedly, not benefit
developing Members but OECD countries which would gain additional flexibility for granting export
financing and this, without temporary limitations.
In addition, the reference to the OECD Arrang ement, which is an external Agreement, is
problematic for Members which are not part of the OECD.  Indeed, Members cannot be requested to
comply with an agreement they have not agreed to.  In the event that the “evolutionary interpretation”
prevails, non-OECD Members could be in a situation where their legislation, in perfect compliancewith WTO obligations, could suddenly be inconsistent with their obligations under the SCM
Agreement because of a change to the OECD Arrangement.
For the above reasons we opposed the EC proposal but nevertheless would require the EC to
clarify the following.
Question: - In its proposal, the EC takes note of the concerns of developing countries who have
argued that they are not members of the OECD puts them at a disadvantage.  HowTN/RL/W/57
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does the EC propose to address the concerns of developing Members with regard to
this issue?
(v) More effective notification rules
The EC claims that Members fail, to a large extent to regularly notify their subsidy schemes
as required under Article 25 of SCM Agreement.  Therefore, it is suggested to explore the possibility
of penalizing partial or non-notification.  This could be done, for example, through the establishment
of an expedited WTO dispute settlement procedure.
We do not believe that the system proposed by the EC is necessary since the majority of
Members ensure that their laws are notified to the WTO to the extent possible and reasonable.  Also,we submit that the system proposed by the EC would be difficult to enforce.  Finally, we do not
consider that the EC’s proposal falls within the scope of the mandate of the Negotiating Group on
Rules as defined at the Doha Ministerial Conference.
Questions: - Could the EC specify what has led it to consider that Members fail to a large extent to
comply with their obligations under Article 25 of the SCM Agreement?
   - What does the EC understand by partial or non-notification?
(vi) Subsidies and environment
The EC notes that certain subsidies may have a positive impact on the environment.  In the
light of the expiry of the “green box” (Article 8 of the SCM Agreement), the EC considers that it is
necessary to consider how to approach subsidies aimed at the protection of the environment in the
future.
For India, the extension of the “green box” would exclusively benefit developed countries
since only these countries have the necessary financial reserves to address environmental needs.  For
Venezuela, on the contrary, non-actionable subsidies might be one of the tools necessary in order to
implement certain development policies in the framework of the multilateral trading system.
In the light of the above considerations, it seems that the following questions need to be
addressed prior to a further examination of this issue.
Questions: - Which types of subsidies would be included in a new category of non-actionable
subsidies?
 - To which Members would such subsidies be available would benefit?
 - How can this issue be addressed in such a way as to take into consideration Point 10.2
of the Decision on Implementation-Related Issues and Concerns which refers
specifically to the need to examine “measures aimed at achieving legitimate
development goals such as regional grow th, technology research and development
funding, production diversification and development and implementation of
environmentally sound methods of production” ?
(vii) Countervailing disciplinesQuestions: - The EC proposes to strengthen and increase the effectiveness of the rules set forth in
the SCM Agreement.  Does the strengthen ing of the rules imply the introduction of
more precise obligations for countervailing discipline users?
- What measures are contemplated by the EC in order to reduce the cost of CVD
investigation?TN/RL/W/57
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 - Would the proposals envisaged by the EC provide identical rights and obligations for
both developed and developing Members?
(viii) Special and Differential treatment
The EC and US have the same position with regard to the S&D treatment provisions of the
SCM Agreement.  The EC states that, as a principle, it believes that rules on subsidies should apply
without exception.  The EC is ready to consider positively S&D treatment provisions for developing
Members, only if their application is limited to a strict period of time and following an agreement on
rules for non-exempted countries.
As underlined in the Paper submitted by India on 10 December 2002 (TN/RL/W/40), we
believe that the EC attempts to further constrict the policy options available to developing countries
for subsidization necessary for achieving development objectives.  Developing countries suffer from
permanent structural disadvantages and require S&D treatment for their development.
Also, we think that the two-step approach of the EC, i.e., the decision to address the
developing countries’ concerns after rules applicable for all Members are agreed upon, is problematic
for preserving the interests of developing Members.  In a negotiation, a party cannot waive certain of
its fundamental rights against the promise that its concerns will be addressed at a later stage.  We are
of the opinion, contrary to the EC, that the S& D treatment issues which are vital for developing
countries should be settled before any other issues.
Questions: - What would be included in the S&D treatment package proposed by the EC?
 - Which types of Members would benefit from the S&D treatment provisions
introduced or maintained?
 - What does the EC consider as a “ strictly temporary period”?
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