RESTRICTEDWORLD TRADE
ORGANIZATIONTN/RL/M/8
10 June 2003
(03-2965)
Negotiating Group on Rules
SUMMARY REPORT OF THE MEETING
HELD ON 5-7 MAY 2003
Note by the Secretariat
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 5-7 May 2003.
A. ADOPTION OF THE AGENDA
2. The Group adopted the following agenda:
A. ADOPTION OF THE AGENDA....................................................................................................... ....... 1
B. REGIONAL TRADE AGREEMENTS.................................................................................................... .1
C. ANTI-DUMPING ................................................................................................................. .................... 1
D. SUBSIDIES AND COUNTERVAILING MEASURES , INCLUDING FISHERIES SUBSIDIES ......................7
E. OTHER BUSINESS .......................................................................................................................12
- Date of the next formal meeting of the Group
B. REGIONAL TRADE AGREEMENTS
3. No participant raised any issues under this agenda item.
C. ANTI-DUMPING
4. The first paper, entitled "Proposal on Reviews"  (TN/RL/W/83), was sponsored by
13 participants.  The sponsors explained that the proposal sought a solution to the problem of the
arbitrary introduction of rules, procedures and me thodologies in reviews that differ from those in
original investigations due to lacunae in the current Anti-Dumping Agreement ("ADA").  There were
five key elements:  (a) to clarify that the provisio ns which apply to original investigations, including
de minimis  thresholds, also apply to reviews, whenever applicable;  (b) to clarify that only exporters
and importers can request administrative reviews under Article 9.3 ADA;  (c) to clarify that the
dumping margin in an administrative review under Article 9.3 shall be based on all imports from a
specific exporter that were entered into the importing Member for not less than one year, and not on
an individual import basis;  (d) to improve the rules so that reviews are not unfairly extended to theprejudice of respondents;  (e) to clarify, through the development of harmonized indicative lists
relating to the assessment of dumping and "likelihood of injury" in revocation reviews under
Article 11.2, that the burden of proof is on those parties advocating the continuation of an AD order.
It was emphasized that current conditions and pricing practices should be examined and that recycling
of old material from initial investigations should not be permitted.
5. One participant considered that, although predictability was important, it should not come at
the expense of accuracy.  Regarding de minimis  thresholds, why permit dumping to continue at a levelTN/RL/M/8
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of 2 percent when the goal of the ADA was to remedy all the injurious dumping?  Regarding the
proposal that only an importer or exporter be allowed to request an Article 9.3 review, how did this fit
with the mandate to maintain the effectiveness of the ADA?  Regarding Article 11.2 reviews, to
impose an affirmative burden of proof would effectively require the authority to prove what will
happen in the future, a burden which was inconsistent with the likelihood standard and would beimpossible to satisfy.  Likewise, why bar authorities from considering evidence from the record of the
original investigation, when that record reflected the conduct of respondents when they operated
without the discipline of any measure?  The participant supported the suggestion that authorities be
encouraged to pay interest if excessive duties coll ected were not refunded within 90 days following
completion of a review; its own paper went further to suggest that all excess duties collected should
be refunded with interest.
6. Another participant, while supportive of the objectives of the proposal, was concerned that the
effectiveness of the ADA against the persisten ce and recurrence of unfair trade should not be
undermined.  The interests of exporters would be best served by severing links to past calculations
and injury determination.  The emphasis should be on demonstrating, on the basis of updated
information, that continued application of the measure, or the applicable rate of duty, was no longer
justified.  Regarding exporters that were excluded from the market due to a prohibitively high ADduty, the participant could not agree to a presumption that the termination of measures would not lead
to continuation or recurrence of dumping.  An exporter should be given the opportunity to provide
information on exports to other markets where AD measures did not apply; an assessment as to
whether such exports being dumped should be made in light of the findings.
7. Several participants agreed that rules governing reviews should be clearer and that they
should generally be the same as those applicable to original investigations.  One participant cautioned
that while Articles 2 through 6 ADA were a starting-point for reviews, modifications might be
required in view of the particularities of review proceedings.  For example, while a review might
show de minimis dumping or negligible import volumes due to an undertaking, this might not be
decisive given that the question was what would happen if the undertaking lapsed.  The participantalso asked whether, where for example an investigating authority is confronted in a review with a
situation where export sales have been made to a related party and are thus no longer reliable,
circumstances have changed such that another me thodology should be applied as compared to the
original investigation.  To what extent should changed circumstances be taken into account in
reviews?
8. The next paper introduced, sponsored by the same 13 participants, was entitled "Proposal on
Facts Available"  (TN/RL/W/93).  The sponsors explained that the best source of information for
calculating dumping margins was a respondent's actual data and that the primary purpose of using
"facts available" was to fill in gaps arising from a lack of information, not to punish respondents that
had acted to the best of their ability.  However, some investigating authorities used facts available
even where respondents had acted to the best of their ability, and had refused to consider information
on the grounds it was not provided in a manner and within the time period requested.  In addition,high margins often resulted from the abusive use of the least favourable facts available.  To address
these problems, Article 6.8 ADA should be amended to reflect the primary purpose of the "facts
available" rules.  The authorities should not resort to facts available unless they had made all
reasonable efforts to obtain necessary information from respondents and specified in detail the
information considered insufficient.  Further, as long as information submitted by a respondent meetscertain conditions, the authorities should use the information, even if not all the required information
has been submitted.  Authorities must make sure, when choosing information from various sources,
that the selected information represents the prevailing state of the industry and market, not a minor
and exceptional situation within the industry.  Finally , in order to strengthen disciplines on the use of
"adverse facts available", it was imperative to clarify situations in which respondents can be deemedto have been non-co-operative and the use of facts available thus permissible.TN/RL/M/8
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9. Several participants noted that the rules on "facts available" reflected a delicate balance of
rights and obligations of importing and exporting Members.  One participant observed that some
parties had an incentive to provide information selectively or to misrepresent the significance of
information, and the authorities needed effective tools to address such situations.  The proposals that
facts available be used only to substitute for missing or rejected information and that authorities berequired to use all verifiable information submitted would give nearly full control of an investigation
to a respondent.  Furthermore, information could be submitted past appropriate deadlines, or in an
unusable form, or could be complete but misrepresented.  In addition, this proposal could result in less
accurate determinations by creating an incentive to withhold data.  With respect to the use of
information from secondary sources, the participant enquired whether authorities would be precluded
from using information contained in the application, as  currently provided for.  Finally, with respect
to the proposal to define a co-operative party as one that provides "a substantial portion of the entireinformation requested by authorities", would the proponents also accept that the authorities may
utilise adverse facts available in the event a party withholds a substantial portion of the necessary
information?
10. Another participant noted that the purpose of "facts available" was to fill in gaps in the
necessary information, whether resulting from deliberate action of a party or the unavailability ofinformation.  Regarding the reference to "significantly impeding the investigation" in Article 6.8
ADA, this provision could be useful to counteract extreme behaviour.  As for requiring the authorities
to choose, as facts available, information from a secondary source that appropriately represents the
prevailing state of industry in the relevant market, such information might not be available to the
investigating authority.  As regards a proposed definition of "cooperation", the participant was notsure whether such a definition was needed, given that information might be missing even where a
party cooperated.
11. Several participants shared the view that the provisions on "facts available" should be
reviewed.  One participant agreed that Article 6.8 should clearly provide that "facts available" may be
used only to substitute missing or rejected information, and not the entire submission concerned.Further, an interested party should be given a fu ll opportunity to provide the additional information
requested and, if information was rejected, the investigating authorities should provide reasons.  For
parties that did not fully co-operate, the authorities should be entitled to use facts available and should
not be expected to justify in detail the facts used.  Another participant observed that an exporter that
did not have the information requested should not be punished.
12. The next paper, entitled "Agreement on Anti-Dumping Practices and Subsidies and
Countervailing Measures - Illustrative Common Issues"  (TN/RL/W/104), was sponsored by
10 participants. A sponsor stated that this submission identified a few illustrative issues, which
although common to the ADA and Part V of the ASCM, were disciplined differently without any
known specific reason for such asymmetry.  The areas identified, which were non-exhaustive, related
to definition of domestic industry (Article 4.1 ADA and 16.1 ASCM), interested parties (Article 6.12
ADA and 12.10 ASCM), provisional measures (Article 7 ADA and 17 ASCM), refund orreimbursement of the duty paid in excess (Article 9.3 ADA and 19.4 ASCM), expedited reviews
(Article 9.5 ADA and 19.3 ASCM) and retroactivity (Article 10 ADA and 20 ASCM).  The exercise
of harmonization/improvement should continue throughout the negotiations in order to avoid
establishment of new unjustified differences.
13. Various participants supported the idea of developing common rules for AD and CVD.  One
participant however suggested approaching harmonization with caution so as not to eliminate
appropriate differences between the ADA and ASCM.  An important part of this discussion would be
which Agreement had the better rule; participants should not assume that the more specific or
restrictive would be preferable in every case.  Regarding the proposal to harmonize the rulesTN/RL/M/8
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governing the duration of application of provisional measures, another participant enquired whether
the proponents wished to apply the periods in the ADA or the ASCM.
14. The next paper introduced was entitled "Communication from Argentina"  (TN/RL/W/81).
The sponsor was of the view that although the Uruguay Round ADA was an improvement over
previous Codes, the concepts on which its application were based needed to be clarified, as they hadnot prevented disputes arising.  It agreed with some other participants that the primary objective of the
Group was to clarify and improve the disciplines of the ADA in order to minimise the risk posed by
discretionary application.  It had identified in its paper a non-exhaustive list of provisions and issues
requiring consideration: sales between related parties; normal value/sales between related parties in
the domestic market of the exporting country; construction of the export price; like product;
cumulative imports; ex-officio initiation of AD invest igations; confidential information; reviews; and
best information available.
15. Several participants reacted positively to the paper, noting that it echoed similar concerns
expressed in their own proposals.  Regarding confidential information, one participant requested more
information on what the proponent had in mind. Regarding reviews, this participant sought more
information concerning the proponent's views on how new shipper reviews should be conducted
where no export sales had occurred nor sales contracts concluded.  Another participant enquiredwhether the sponsor agreed with certain other participants that reviews should be carried out on the
basis of the same rules as are applicable to investigations.
16. The next paper introduced was entitled "General Contribution to the Discussion of the
Negotiating Group on Rules on the Anti-Dumping Agreement"  (TN/RL/W/86).  The sponsor
indicated that, with the exception of duty absorption, the issues raised had already been identified inthe Group.  The same participant introduced a paper entitled "Article 9.4 of the WTO Anti-
Dumping Agreement: Dumping Margins for Each Sampled Exporter based on Facts
Available" .  The paper referred to a lacuna in the ADA in relation to the level of AD duty to be
applied to uninvestigated exporters and producers where all sampled margins were based on "facts
available".  It stressed the need to find solutions to overcome this lacuna.  The same participantintroduced a paper entitled "'Like Product' within the meaning of the WTO Anti-Dumping
Agreement"  (TN/RL/W/91).  The sponsor proposed to consider Article 2.6 ADA in light of WTO
jurisprudence, to reflect more fully the approach being taken by AD administrators and to give greater
clarity to this Article than existed at present.  It proposed replacing the word "identical" in Article 2.6
with "goods which have essentially the same physical characteristics", and incorporating a non-
hierarchical list of criteria in the definition of "like product".  The sponsor enquired whether separate
criteria should be developed to distinguish between "likeness" for the purposes of ADA Article 2relating to dumping determinations and ADA Article 3 relating to injury determinations.
17. Regarding the "General Contribution" paper (TN/RL/W/86), several participants questioned
the sponsor's view that in some areas it migh t be appropriate to maintain the discretion of
investigating authorities.  Concern was also expressed regarding the proposed "codification" of
dispute settlement rulings, as these were not intended to create rights and obligations.  Regarding thesponsor’s suggestion that the lesser duty rule migh t be inappropriate in case of systematic and
persistent dumping, one participant asked whether the idea was prompted by problems in
implementing the lesser duty rule or by the view th at a persistent dumper should be excluded from the
benefits of the rule, while another argued that systematic and persistent dumping had no basis in
economic theory.  Regarding duty absorption, one participant stated that this concept did not exist inthe ADA and enquired how it could be improved or clarified in the context of the Doha mandate.
Another participant questioned why there was a need to address duty absorption given that AD duties
already remove the injurious effect of dumping.  One participant posed written questions relating to
lesser duty rule and duty absorption which are reflected in document TN/RL/W/106 entitledTN/RL/M/8
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"Questions from India on Australia’s Paper on General Contribution to the Discussions of the
Negotiating Group on Rules on the Anti-Dumping Agreement".
18. Regarding the paper on Article 9.4 ADA (TN/RL/W/90), concerns were raised that the
proposal to allow the authorities to calculate an "all others" rate based on "any other reasonable
method" where no sampled exporter cooperated with the investigation would increase uncertainty andgive the authorities undue discretion.
19. Regarding the paper on "like product" (TN/RL/W/91), participants had differing views as to
whether “WTO jurisprudence” could provide guidance on how the term “like product” is to be
understood in the context of th e ADA.  In add ition, several participants questioned the need to
develop separate criteria for like product determ inations under Articles 2 and 3 of the ADA.  They
also questioned the idea of replacing the word “identical” with “goods which have essentially the
same physical characteristics”, as the proposed wording left more room for arbitrary interpretationand possible abuse.  One participant observed that, read in the context of ADA Articles 2.2.2, 2.4 and
3.6, a like product need not be identical to the product under consideration.
20. The sponsor provided preliminary responses to comments made and questions raised.
Regarding "codification" of dispute settlement rulings, the sponsor had used the term loosely, not in
the sense that the Appellate Body or Panels had any role in amending the Agreement, but rather tounderline that their rulings could be useful in identifying gaps and am biguities in the ADA.  As
regards duty absorption, the sponsor wanted to ensure that an effective remedy was in place if duty
absorption occurred.  Regarding like products, the sponsor believed that even if the current definition
of like product and the word “identical” were not changed, it would be helpful if relevant WTO
jurisprudence were incorporated into the current definition.
21. The eighth paper introduced was entitled “Identification of Additional Issues under the
Anti-Dumping and Subsidies Agreements”  (TN/RL/W/98).  The sponsor indicated that properly
addressing the topics in its paper would not only help to preserve the basic concepts, principles and
effectiveness of the ADA/ASCM, but would benefit a ll Members.  Turning to some of the specific
issues, the sponsor proposed clarifying the ADA's treatment of causation in light of Appellate Bodyrulings that authorities have an affirmative obligation, not referred to in the texts of the ADA/ASCM,
to separate and distinguish the injurious effects of factors other than dumped imports.  While the
Appellate Body had recognized the difficulty in c onducting this analysis, it had provided no specific
guidance.  On "domestic industry", some Members limited injury analysis to those firms which
supported an application, leading to a distorted picture of the condition of the domestic industry.  The
ADA/ASCM should be clarified to specifically address this practice.  On favoured exporter treatment,
some Members discriminatorily excluded from an investigation and any subsequent measuresexporters that were producers in the same exporting country of the same merchandise subject to
investigation; the ADA/ASCM could specifically address such abuses.
22. Several participants welcomed the submission and/or the identification of certain issues
therein.  As regards causation, one participant agre ed that the negotiations should clarify how the
authorities separate and distinguish effects of other factors in practice.  Regarding domestic industry,some participants shared the sponsor's concern.  However, one participant cautioned that under the
proposal all domestic producers would have to s ubmit detailed information which could lead to
unworkable procedures and more use of poor information or resort to facts available.  This participant
noted that producers not part of the domestic industry can be examined as an "other factor" when it
comes to causal link.  On favoured exporter treatment, several participants noted that ADA Article 9.2already prohibited such discriminatory treatment.   Regarding cross-cumulation, several participants
considered it inappropriate to cumulate dumped and subsidized imports together for the purpose of
considering two separate trade remedy measures.  Regarding fragmented industries, one participant
queried whether sampling might not be appropriate.TN/RL/M/8
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23. The sponsor responded to certain of the comments and questions.  Regarding favoured
exporters, the sponsor had encountered situations where products were excluded from investigations
due to particular relationships between companies.  Although the sponsor agreed that duties should be
collected on a non-discriminatory basis in respect  of any product, clarification of Article 9.2 was
called for as other Members had alternative interpretations.  With respect to cross-cumulation, thesponsor was not proposing to count the same goods tw ice; if goods from a single country were alleged
to be both dumped and subsidized, the volume of those goods would only be counted once.  If
dumped and subsidized goods whose prices had been impacted by both dumping or subsidization
competed with each other and with the domestic like product in the same market, the injurious impact
would collectively hammer the domestic industry.  With respect to excluding exporters found not to
have dumped/received a countervailable subsidy, a uniform interpretation of ADA Article 9.3 and
ASCM Article 19.4 was needed given the different interpretations by Members.  While ADAArticle 9.3 stated that no duty should be assessed where merchandise was found not to have been
dumped, other Members had expressed the view that although duties could not be assessed in this
situation that did not preclude future reviews in which that company could be found to have dumped.
24. The next paper referred to was entitled “Submission of the Arab Republic of Egypt on the
Clarification of Certain Provisions of the Anti-Dumping Agreement” ( TN/RL/W/105).  The
sponsor identified in its paper currency conversion (Article 2.4.1 of the ADA) and material retardation
(Footnote 9 of the ADA) as possible issues for clarification and improvement.  There was no
discussion of this paper.
25. As for the follow up papers, two participants provided answers to written questions posed in
document TN/RL/W/80 entitled “Clarifications sought by India on the Submissions by the
United States (TN/RL/W/35) and Canada (TN/RL/W/47)" .
26. The sponsor of document TN/RL/W/35 explained that as regards public access to memoranda
adopted, Members should maintain a public record where parties could obtain all non-confidential
information submitted by parties to an investigation.  The term “memoranda adopted” referred to any
document that the investigating authority explained in its determination, including what information itused in making its determination.  As for verification outlines, they should reduce the need to resort to
the use of facts available, as they informed comp anies, in advance, what an importing Member needed
to review during verifications.  This provided exporters with the opportunity to prepare properly for
the verification, thus reducing the likelihood of problematic or failed verifications.  Regarding
administrative protective order procedures, these procedures were followed by its authorities for
granting access to confidential information.  Although they were tailored to meet the needs of its own
legal system, all Members should be able to develop and implement similar procedures to permitaccess to confidential information while ensuring that it was protected and not disclosed
inappropriately.
27. The sponsor of TN/RL/W/47 provided writte n answers in document TN/RL/W/92 entitled
“Responses from Canada to Certain Questions Posed by Korea in TN/RL/W/65, Australia in
TN/RL/W/62, Egypt in TN/RL/W/79 and India TN/RL/W/80”.
28. On the follow-up submission entitled “Egyptian Paper Containing Replies to Questions
posed by Australia in Document Number TN/RL/W/73”  (TN/RL/W/101), the sponsor requested
that this paper be read in conjunction with more detailed submissions it had provided to the Group in
TN/RL/W/65 & 67 & 90 and 79, in which the sponsor clarified its position regarding the different
submissions of other participants.
29. In relation to the follow-up submission entitled “Fourth Set of Questions from the
United States on Papers Submitted to the Rules Negotiating Group”  (TN/RL/W/103), some
participants provided oral responses to some of the questions posed.  Regarding questions relating toTN/RL/M/8
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different approaches on sunset, one participant mentioned that improving the current sunset
mechanism by specifying indicative lists to be consid ered in the review would be sub-optimal since it
would not discipline AD authorities’ discretion in the predictive or speculative assessment process of
such reviews.  The proposed alternative simple appr oach to terminate AD orde rs automatically after a
certain period would enhance the operation of the sunset provisions.
30. In the ensuing general discussion, several part icipants expressed views on sunset reviews.
One participant stated that, in the absence of a new investigation, it could not be determined whether
continued imposition of measures was necessary to prevent injurious dumping from reoccurring.  The
Group should consider how the rules governing sunset  reviews could be properly enforced so as to
guarantee the rights of exporters. In its submission (TN/RL/W/79) it had stated that the current system
could be improved by providing that the level of du ties could be modified in the context of a sunset
review to reflect new dumping/injury determinatio ns and that sunset reviews must be completed
within a prescribed time limit (e.g. 12 months).  Howe ver, the participant was reluctant to insert a list
of factors in the ADA that authorities would have to consider in determining whether expiry of a duty
was likely to lead to a continuation or recurrence of dumping and injury.  Developing countries should
be given special treatment under such proposals, as their small markets could not bear the interim
period between investigations where there was clear evidence that a domestic industry was sufferingfrom injurious dumping.  Another participant commented on the sunset proposal contained in
document TN/RL/W/76.  The first element in that proposal, the lack of clarity in Article 11.3 ADA,
merited further examination.  However the second element, the bar on new initiations within at least
six months following the termination of an AD measure, would distort the balance of rights and
obligations under the ADA.
D. 
SUBSIDIES AND COUNTERVAILING MEASURES , INCLUDING FISHERIES SUBSIDIES
31. The first paper was entitled “General Contribution to the Discussions of the Negotiating
Group on Rules on the Agreement on Subsidies and Countervailing Measures” (TN/RL/W/85).
Regarding prohibited subsidies, the sponsor suggested clarifying and making more predictable the
rules on de facto  export contingency.  It did not propose to loosen the rules on export subsidies, but
simply to clarify them in an area where their application was subjective and discriminatory.  It also
referred to the question of the meaning of "wit hdraw" in the context of prohibited subsidies.
Regarding non-actionable subsidies, it stated that  one such category – non- specific subsidies – still
existed, but it was open to considering the reinstatement of a non-actionable category.  Regarding
Article 6.1 ASCM, it did not necessarily agree that  the presumption of serious prejudice should be
reinstated.  The Group should first look at calculation issues, as Article 6.1 ASCM should not be
reinstated without knowing how the thresholds would be calculated.
32. Several participants agreed with the sponsor that, wherever possible, parallel provisions on
AD and CVD should be harmonized, that considerati on should be given to formalising the approach
the SCM Committee had developed for the implementation of Members’ notification obligations, and
that the work of the "Informal Group of Experts" would provide a good basis for further work on the
codification of analytical and quantitative subsidy methodologies.  Regarding de facto  export
subsidies, one participant acknowledged that de facto  export subsidization was difficult, but
considered that the extent to which a company exported was relevant.  Participants sought
clarification regarding the pertinence of export competitiveness to de facto  export subsidization.  The
sponsor responded that it intended to submit further papers in relation to prohibited subsidies,
Article 6 issues in terms of serious prejudice, and the possibility of looking at export competitivenessas a means of getting some predictability in what is a subjective analysis.
33. The third paper introduced was entitled “Elements of a Steel Subsidies Agreement”
(TN/RL/W/95).  The sponsor recalled a communiqué from the OECD High level Group on Steel
instructing the Disciplines Study Group to begin work "on the elements of an agreement for reducingTN/RL/M/8
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or eliminating trade distorting subsidies in steel".  Pursuant to that decision, the OECD Secretariat had
drafted a list of questions and propositions relating to 17 proposed elements of a steel subsidies
agreement.  The sponsor had submitted comments addressing these proposed elements, as had other
participants, and was presenting them here in order to keep the Group fully informed.  Its comments
should not be considered as official positions or negotiating proposals, nor as necessarily indicative ofthe views of other participants in  the OECD steel process.  The Disciplines Study Group continued to
make progress.  An informal meeting in Washington was productive in identifying and clarifying the
critical issues, and the OECD Secretariat had issued a second draft of a potential agreement.  The goal
was to conclude work on the development of the elements this year, and to make as much progress as
possible before Cancún.
34. Several participants indicated that they were participating in the work on steel, and that it was
useful to keep the Group informed.  However, one participant had reservations about whether thework being done in the OECD should be brought to the WTO.  While disciplines on subsidies were
important, the Group's focus should be to clarify ADA and ASCM provisions and to stop the abuse
and misuse of its related measures and procedures.
35. A number of participants commented or posed questions concerning "Subsidies Disciplines
Requiring Clarification and Improvement"  (TN/RL/W/78), which had been introduced at a prior
meeting.  One participant noted that prohibited and non-actionable subsidies were part of a balance
intrinsic to the ASCM, so if the category of prohibited subsidies was enlarged, the use of CVD should
also be curtailed.  As the Doha mandate reaffirmed the general objective of environmental protection,
the definition of non-actionable subsidies in the environmental sector, such as tax incentives for
cleaner production or application of polluter pay principle, should be attempted.  If the Groupidentified subsidies which were as disruptive of world markets as export and import substitution
subsidies, the participant could support expanding the prohibited category, provided that the reference
in Article 3.1 to conflicting provisions in the Ag reement on Agriculture were maintained.  Regarding
equity capital, the ASCM needed clarification and the general rule must remain that investment
decisions of governments must not be inconsistent with commercial practice.  However, to questionMembers’ possibility to make such decisions would go beyond the Group's mandate.  Finally, the
participant agreed that the understanding reached in the SCM Committee regarding compliance with
subsidy notification obligations could be reflected in the ASCM, but doubted that this would improve
considerably the discipline of Members regarding this obligation. It suggested other means to increase
compliance such as penalising non-notifications, while finding ways to ease the burden on ASCM
Annex VII Members.
36. Regarding the sponsor’s suggestion to include the subsidies identified in Article 6.1 ASCM in
an expanded prohibited category of subsidies, one participant doubted that these subsidies had the
same degree of trade distorting effects as subsidies contingent upon export performance or the use of
domestic over imported goods.  Domestic subsidies were provided in order to achieve certain policy
objectives by affecting resource allocation in the domestic market and, unlike the subsidies identified
Article 3 ASCM, did not lead to any direct trad e distortion.  Clarifying disciplines on domestic
subsidies called for careful consideration; subsidies should not be a priori  prohibited without
examining their trade distorting effects.  As for improving compliance with subsidy notification
obligations, the participant emphasized the importa nce of examining ways to reduce the burden of
notification and providing capacity building in response to the needs of developing countries.
Another participant enquired whether the sponsor en visaged inclusion of those start-up incentives that
are deemed to cause serious prejudice under paragraph 4 of Annex 4 of the ASCM in an extended
prohibited subsidies category.
37. The sponsor of TN/RL/W/78 provided preliminary answers to questions posed.  With respect to
the link between dark amber and green subsidies, there was a historical link perceived by Members in
the Uruguay Round and if discussions were foreseen regarding a green light category, tighterTN/RL/M/8
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disciplines would be needed in the red light category.  As regards government-equity infusions, while
not questioning governments’ sovereign right to invest in the private sector, these investments could
lead to market distortions whether directly or indirectly.  As for expansion of the red light or dark
amber category, the sponsor was ready to look at ways to make it easier for developing countries and
make sure they receive necessary technical assistance in the area of subsidies notifications.
38. On the sub-agenda item of Fisheries Subsidies, four submissions were introduced and
discussed.  The first submission was entitled “Questions from Japan Concerning Papers on
Fisheries Subsidies Issues” (TN/RL/W/84) , which  posed questions on the papers TN/RL/W/77 and
TN/RL/W/58.  With respect to TN/RL/W/77, the s ponsor asked when participants had reached a
consensus to provide better disciplines on subsidies that promote over-capacity and over-fishing, or
have other distorting trade effects.  It enquired whether "artisanal" fisheries meant small-scale coastal
fisheries and whether subsidies to medium- and large-scale fisheries in developing countries would besubject to discussion.  It enquired whether the production distortion of shared stocks caused by
fisheries subsidies was the only reason the sponsor believed that fisheries subsidies differed from
others and should be treated in a special fashion. It also asked if the Group’s discussion on fisheries
subsidies should be limited to those provided to shared stocks fisheries and whether the sponsor had
reasonable grounds to conclude that certain kinds of fisheries subsidies distorted trade to the samedegree as export subsidies and thus needed tighter disciplines than other sectors.  Regarding the
improvement of notifications, the participant wondered whether this objective could be achieved
within the framework of the Committee on Subs idies and Countervailing Measures.  As for
TN/RL/W/58, the sponsor of TN/RL/W/84 enquired about the grounds to proceed to categorization
even though there was no consensus to do so, and the direction the sponsors envisaged for futurediscussion on fisheries subsidies with a mere reference to lists developed by various organizations
with different objectives.  It also asked if any Member had requested consultations under ASCM
Article 7.1 regarding fisheries subsidies, what consultations were carried out and why the said injury
was not rectified in the consultations.
39. In reaction to these questions, the sponsor of TN/RL/W/77 stated that the source for its view
that there was a consensus to address these issues in the Group was the Doha mandate, where
Ministers had clearly singled out fisheries subsidies for special attention. Paragraph 28 of the Doha
Declaration specifically referred to paragraph 31 on Trade and Environment which in turn recognized
the importance of enhancing the mutual supportiven ess of trade, environment and development, with
regard to the fisheries subsidies negotiations.  As regards the term "artisanal fisheries", it referred to
small-scale fisheries that employed labour intensive harvesting, processing and distribution
technologies to exploit marine and inland fishery re sources. Such fisheries typically targeted local
rather than export markets.  The sponsor intended to include medium- to large-scale fisheries in
developing countries in the discussions, while acknowledging the needs of those countries to develop
their fisheries in a sustainable manner.  It was ready to consider how special and differential treatment
might apply to disciplines on fisheries subsidies. Furthermore, the participant did not intend to limit
the discussion of improved disciplines to those provided to shared stocks; disciplines needed to becomprehensive enough to cover all significant fishery subsidies programmes that contributed to over-
capacity or over-fishing or had other trade-distorting effects.  It was open as to whether fisheries’
specific factors should be taken into account in structuring disciplines, or whether a given stock is
depleted.  The possible reintroduction of ASCM Article 6.1 could be useful in strengthening
disciplines on fisheries subsidies. As regards subs idy notifications to the SCM Committee, the current
system was not providing useful and comprehensive information about particular fisheries
programmes.
40. Likewise, certain co-sponsors of TN/RL/W/58 noted that there were many types of subsidies
in the sector, both "good" and "bad", and that the various attempts at categorization provided a useful
basic resource to identify types of subsidies in the fisheries sector and to consider case by case howthey might be addressed in this negotiation.  Their paper was intended to take stock of work done onTN/RL/M/8
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categorization and to provide an additional resource for work on clarification and improvement of
disciplines in the sector.  As for consultations under ASCM Article 7.1, examples previously provided
highlighted the practical difficulties of applying subsidies disciplines in the fisheries sector.
41. In reaction to these responses, the sponsor of TN/RL/W/84 considered that the Doha mandate
did not prejudge the work of the Group nor instruct the Group to negotiate sector-specific rules forfisheries subsidies.  Advocates of disciplines had not shown any particularities in the sector, nor any
distinctive distortions caused by fisheries subsidies, that would justify such an approach.  Nor had
they established that over-capacity and over-fishing was within the mandate.  This was the initial
phase of the negotiations, and further clarifications and more comprehensive responses to the
questions posed were required before moving to the next stage of the discussions.
42. Document TN/RL/W/77 was also discussed in a submission entitled “Korea’s Comments on
the Submission of the United States TN/RL/W/77” (TN/RL/W/97).  The sponsor did not agree with
the interpretation of the Doha mandate provided by  the sponsor of TN/RL/W/77; fisheries subsidies
were not singled out.  The negotiations should focus on the trade effects of subsidies, not the
environmental dimension and stock depletion, whic h were outside the scope of the Group's mandate
and should be dealt with in the Committee on Trade and Environment.
43. Also regarding document TN/RL/W/77, one participant enquired about the status of a
fisheries subsidy that could be seen as promoting ov er-capacity when looked at in isolation, but which
was granted in the context of a management regime that promoted sustainable development of the
resource and that aimed at ensuring renewal of stocks.  It also wondered if the sponsor was suggesting
that there would be discussions of fishery management  regimes in the context of the discussions of the
subsidy notifications.  In reaction to this query, the sponsor acknowledged the influential relationshipbetween the subsidies regimes and the management programmes.
44. The second submission was entitled “Comments from the People’s Republic of China on
the United States Proposal on Fisheries Subsidies”  (TN/RL/W/88).  One participant welcomed the
sponsor’s interest in improving disciplines on fisheries subsidies that contributed to over-capacity and
over-fishing or had other trade-distorting effects.  However, this participant had reservationsregarding a possible green light category, as it could undermine effective and improved disciplines.
Thus, while it recognized that some subsidy programmes did reduce overcapacity and enhance
sustainability, this should not be the starting-point of the discussions.  As for aquaculture, wild and
capture fisheries had certain unique features that the current WTO rules were not well suited to
address, but aquaculture should not escape appropriate and effective disciplines.
45. The next paper was entitled “Submission of the European Communities to the Negotiating
Group on Rules – Fisheries Subsidies”  (TN/RL/W/82).  The sponsor stated that its submission
reflected and followed its internal reform of the Common Fisheries Policy, the main objective of
which was to provide for sustainable exploitation of fisheries resources, as part of a wider sustainable
development agenda taking account of the environmental, economic, and social aspects in a balanced
manner.  It believed that a sustainable fisheries policy, which restored fish stocks’ productivity, would
offer improved economic and social returns to both the industry and society as a whole.
46. The sponsor explained that subsidies given to the sector by the sponsor and its Member States
were roughly Euros 1 billion annually.  Before the reform, around 50 per cent of the subsidies went to
the fishing fleet while the rest were devoted to on-shore industry, infrastructure and aquaculture.
Although the sponsor had had a common fisheries policy for 20 years, adjustments had not kept pace
with growth in capacity or sharply falling fish st ocks.  Although a large part of the subsidies was
granted for vessel decommissioning, structural aid for fleet renewal was still being given.  The result
was that although the fleet was significantly reduced in terms of tonnage and engine power,
technological improvements meant that the overall capacity-reducing effect was limited.  It becameTN/RL/M/8
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clear that subsidies to investment in fishing fl eets did not contribute to achieving a sustainable
fisheries industry.  This type of subsidy artificially reduced costs and risks of investment in an already
over-capitalized industry and promoted over-supply of  capital.  Each newly subsidized vessel reduced
the productivity and profitability of every other vessel in the fishery concerned.  As a consequence,
the sector attracted more resources than would have otherwise been the case.  As stocks declined,quotas were reduced.  This led to an increase in fishing effort and a race for fish.  To fish harder more
capacity was required and to pay for the investment more fish were needed and such a vicious circle
could have never been sustained.  In 2002, the sponsor was faced with a growing number of fish
stocks that were on the verge of collapse and a fleet that was too big for the available fish.  This
resulted in diminishing catches, reduced economic returns, dependence on public aid, loss of jobs and
the gradual weakening of coastal communities.  The most effective way to cut this over-capacity was
to ban capacity-enhancing subsidies.  This measure was contemplated with very stringent rules tolimit the entry of new vessels, a one-off aid package to withdraw over-capacity, and last but not least,
with significant reductions in allowable catches.
47. Against this background, the sponsor proposed the introduction of two fisheries specific
boxes into the ASCM.  The first was a red box, which would prohibit any subsidies which increase
capacity (essentially those for construction of new vessels or the modernization of existing vessels inany way that increased their capacity).  The second was a green box where a number of subsidies
could still be given, either because they contributed to the overall objective of reducing capacity or
because they mitigated social effects inherent in capacity reductions.  An effective control of this type
of solution also required a workable system of subsidies notifications and not simply depending on the
good will of Members to notify.  It suggested that a subsidy could only be claimed to be green andthereby non-actionable under the ASCM if it had been notified.
48. The sponsor addressed two additional issues.  Effective fisheries management was also
essential to prevent over-fishing.  However, fisheries management issues were difficult to reconcile
with the mandate and expertise of the Group or even with the Agreement under negotiation.  Several
international organizations such as FAO, UNEP and the OECD were examining these issues; thisraised the question whether these organizations could come up with a coherent set of solutions to
fisheries management.  Regarding the treatment of developing countries on fisheries, the sponsor was
deeply committed to listening to concerns and requests of developing countries.  They were in the best
position to identify their own specific needs, which might not be identical for each country concerned.
To this end, each developing country should present to the Group a list of its needs in this area.
49. A number of participants welcomed the submission and saw value in its general direction.  In
particular, some participants were pleased that the sponsor recognized the link between subsidizationand over-fishing, sought to categorize subsidies based on effects, and built on the traffic light
approach of the ASCM.  Other participants however enquired about the aspects of peculiarities of the
fisheries sector that could not be dealt with in the framework of the current ASCM.  Several
participants agreed with the sponsor's view that, while fisheries management issues were important
and needed to be addressed, the Rules Negotiating Group was not well equipped to address them;however, one participant noted that subsidy and ma nagement issues were interwoven and that both
should be addressed in other fora.  Several participants also welcomed the focus of the sponsor on the
need for transparency regarding fisheries subsidies.
50. A variety of views were expressed regarding the sponsor's proposal to prohibit subsidies
which increase capacity.  One participant stated that over-capacity contributed to over-exploitation offisheries resources and thereby distorted trade.  Such subsidies - particularly those in the form of
direct payments and cost reducing transfers – shou ld be disciplined.  One approach was to discuss
ways of prohibiting capacity-enhancing subsidies, and it found the sponsor’s suggestion relating to a
revised list of prohibited subsidies interesting.  Several other participants welcomed the sponsor's
approach, but believed that the proposal on prohibited subsidies was too narrow, and that a moreTN/RL/M/8
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comprehensive approach, such as a ban on all subsidies that promote over-capacity or distort trade,
would be preferable.  For several participants, the prohibition should be focused on trade-distorting
subsidies.  The issue of circumvention of the proh ibition was also raised: for example, would a ban on
subsidies for permanent transfers of fishing vessels  to third countries clear the way for subsidising
temporary transfers? It was also asked whether under the proposal governments could subsidize vesselconstruction where the vessel was for delivery to an owner based in and operating under the
jurisdiction of another country.  By contrast, one participant asked why the proposed prohibited
subsidies caused over-exploitation and trade distortion, and why the current ASCM did not address
them adequately.
51. A range of views were expressed on the proposal to create a green box of non-actionable
subsidies.  Various participants had concerns about negotiating green box measures, at least before
agreeing to a category of sweeping prohibitions.  Certain participants considered that a green boxgave rise to a risk of circumvention and should thus be tightly linked to capacity reductions.
Regarding the specific subsidies proposed for a green box, several participants queried how subsidies
for modernization of fishing vessels to improve safety, product quality and working conditions helped
reduce fishing capacity.  It was observed that a firm would have to meet these costs in order to
compete or meet regulatory requirements.  One participant suggested that subsidies for under-exploited and artisanal fisheries should be permitted.
52. As for the special treatment for developing countries, one participant observed that fisheries
are important to the economies of many developing countries and that success in prohibiting harmful
fisheries subsidies would benefit those countries, but noted that the fisheries sectors in many such
countries would not be able to benefit from new world market opportunities without help.  Severalother participants considered that special and differential treatment for developing countries was
important, with one developing participant signalling its intention to table a proposal regarding its
needs in this area.
53. The sponsor responded that its proposal for a red box was not to be read restrictively; it
proposed to ban all subsidies that create capacity, and its submission merely identified examples ofsuch subsidies.  The red and green boxes fit well together: the red box would ban capacity-creating
subsidies, while the first category in the green box  would encompass capacity-reducing subsidies.  As
for the second category in its proposed green box,  it was meant to help in the dealing with the
negative social effects of capacities reductions.
E. 
OTHER BUSINESS
54. It was agreed that the next formal meetin gs of the Group would be held on 11 June 2003
(RTAs) and 18-19 June 2003 (AD/SCM). The 18-19 June meeting would start with AD.
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