RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/462
3 September 2001
(01-4196)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
IMPLEMENTATION-RELATED ISSUES REFERRED TO THE
COMMITTEE AT THE REQUEST OF THE CHAIRMAN OF
THE GENERAL COUNCIL ON 31 JULY 2001
Review by the SCM Committee of the Provisions of the Agreement on Subsidies
and Countervailing Measures Regarding Countervailing Duty Investigations
Communication from India
The following communication, dated 3 September 2001, has been received from the
Permanent Mission of India.
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A. INTRODUCTION
1. The General Council of the WTO has referred the following tiret to the Committee on
Subsidies and Countervailing Measures for its consideration:
“Tiret 80:  The Chairman of the General Council requests the Committee on Subsidies and
Countervailing Measures to review the prov isions of the Agreement on Subsidies and
Countervailing Measures regarding  countervaili ng duty investigations and to report to the
General Council by 30 September 2001.”
This issue has a number of distinct elements which need to be deliberated upon in detail and decisions
taken in respect of each of them.  These include the definition of domestic industry for the purpose ofevaluation of injury, review procedures, resort to facts available, calculation of the amount of
subsidies etc.
2. The Agreement on Subsidies and Countervailing Measures (ASCM) establishes detailed rules
for initiating countervailing duty proceeding and the conduct of the investigation including:
(a) the establishment and treatment of facts;
(b) the definition of domestic industry for injury analysis;
(c) the calculation of the amount of subsidy;
(d) the imposition and calculation of countervailing duties, and(e) the duration and review of countervailing measures.
The objective behind countervailing duties is to raise the price of imported goods to a non-subsidised
or non –injurious level.  However, the interpretation of certain provisions of the ASCM and the
manner of their implementation by various investigating authorities leading to imposition of
countervailing duty appears to be  not in total consonance with that objective.G/SCM/W/462
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B. DEFINITION OF DOMESTIC INDUSTRY AND INJURY ANALYSIS
3. According to the Article 15 of the ASCM, a determination of injury for the purpose of
countervailing duty investigation involves, in part, an  examination of the impact of subsidized imports
on the domestic industry.  The scope of domestic industry is defined in Article 16.1 of the ASCM,
according to which “domestic industry” is to be  interpreted as referring to the domestic producers as
a whole of the like product or to those of  them w hose collective output of the products constitutes a
major proportion of the total domestic production of those products except when the producers are
related to the exporters or importers, or are themselves importers of the subsidized products.
4. Several instances have been noticed wherein the investigating authorities have defined the
domestic industry by limiting it to those producers who came forward with affirmative support forinitiating the investigation.  There should be no confusion between the standing requirements of the
domestic industry under Article 11.4 of the ASCM a nd that of the definition of domestic industry
under Article 16.1 of the ASCM, otherwise the injury analysis would be fundamentally skewed.  If
Article 16.1 were intended to define the domestic industry as those producers who expressly
supported the petition seeking initiation of the countervailing duty investigation, an injury analysiswould be merely a proforma exercise in which the authorities would simply check whether the
petitioning firms were materially injured.  This precludes any balanced assessment and objective
examination of the impact of subsidized imports on domestic producers as a whole of the like product
or to those  of them whose collective output constitutes a major proportion of the total domestic
production of those products.  The obligation on the investigating authority with regard to the injuryanalysis is more onerous than this,  as the investigating authority is required to define the domestic
industry as referring to at least to those producers  whose collective output of the product
constitutes a major proportion of the total domestic production of those products .
5. The SCM Committee should clarify the term s “major proportion of the total domestic
production” and clarify whether the practice of limiting the definition of domestic industry to those
producers who supported the petition seeking initiati on of the countervailin g duty investigation
cannot be construed as an impermissible interpretation of the major proportion requirement.
6. Footnote 46 to Article 15.1 of the SCM Agreement provides that  “Throughout this
Agreement the term “like product” (“product similare”) shall be interpreted to mean a product which
is identical, i.e. alike in all respects to the prod uct under consideration, or in the absence of such a
product, another product which, although not alike in all respects, has characteristics closely
resembling those of the product under consideration”.  For the like product test, investigating
authorities typically look at the physical technical and chemical properties of the products, their end
use, consumer perceptions and preferences so as to ensure that the products compared have closely
resembling characteristics.
7. It is the practice in the various investigating authorities to create product groupings based on
certain product characteristics.  However, it has been observed that the product groups do not
adequately take into consideration the highly differentiated nature of the product under consideration
and the vastly different end use which the various constituents of a product group can be put to.  Thisleads to a situation where, for the purposes of in jury analysis, a comparison is made between products
which do not have closely resembling characteristics with those of the product under consideration.
Instances have been noticed in which low quality and less expensive imported product was compared
with vastly different, patented, high-value prod uct produced by the domestic industry leading to a
finding of inflated injury.  This does not result in a fair and balanced analysis of injury suffered by thedomestic industry of the importing country due to the alleged subsidized exports.G/SCM/W/462
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8. The SCM Committee should recommend that while determining likeness of products as in
Footnote 46 of the ASCM, investigating authorities should take into consideration the significance
of differentiated nature of the products even if they have closely resembling characteristics, inter
alia through considerations of price comparison, substitutability  and whether they are in direct
competition.
C. CALCULATION OF THE AMOUNT OF SUBSIDY
9. Article 14 of the ASCM specifies that for the purpose of countervailing measures any method
used by the investigating authority to calculate the be nefit to the recipient shall be provided for in the
national legislation or implementing regulations of the member concerned and its application to each
particular case shall be transparent and adequately explained.  However, this has led to lack of
uniformity in practice being followed by the inves tigating authorities in various countries leading to
imposition of countervailing duties in excess of the benefits conferred to the recipients. It is essential
that the methodology adopted by the investigating authorities for calculating the amount of subsidy in
terms of the benefit to the recipient be review ed by the Subsidies and Countervailing Measures
Committee so as to ensure that the countervailing duty imposed is limited to offsetting or neutralizing
a subsidy and that there is no excess countervailing of benefits to the recipients.  Certain problemswhich have been noticed in calculation of the amount of subsidy and imposition of countervailing
duties in excess of the benefit conferred to the recipient are highlighted in this section.
10. Annex I to the ASCM gives an Illustrative List of export subsidies. Item (h) of this list
specifies that the exemption, remission or deferral of prior stage cumulative indirect taxes on goodsand services used in the production of exported goods in excess of the exemption, remission or
deferral of prior stage cumulated indirect taxes on goods and services used in the production of like
products when sold for domestic consumption constitutes an export subsidy.  Similarly remission or
drawback of import charges in excess of those levied on imported inputs that are consumed in the
production of exported product constitutes an export subsidy under item (i) of the Illustrative List.According to the Guidelines on Consumption of I nput in the Production Process (Annex II to the
ASCM) indirect tax rebate schemes and remission/drawback of customs duty schemes can constitute
an export subsidy to the extent that they result in exemption, remission or deferral of prior stage
cumulative indirect taxes or import charges in excess of the amount of such taxes actually levied on
inputs that are consumed in the production of the exported products.  Similarly substitution drawback
schemes can constitute an export subsidy to the extent that they result in an excess drawback of the
import charges levied on the imported inputs for which drawback is claimed.
11. It is the practice among investigating authorities of certain countries wherein duty remission,
exemption or drawback is countervailed to the full extent of remission, exemption or drawback of the
duties and is not limited to that amount which is in excess of those levied on inputs consumed.  Such a
practice ignores the specific direction provided in Para 2 to Annex II of the ASCM whereby remission
or drawback of duties in excess of the amount  of such duties and taxes actually levied is to be treated
as a subsidy.
12. According to Footnote 36 to Article 10 of the ASCM, the established purpose of
countervailing duties is to offset the advantage afforded to imported merchandise by a subsidy
bestowed upon the manufacture, production or export of the merchandise.  If there is no advantage tobe offset, countervailing duties cannot be imposed.  Article VI:3 of GATT 1994 specifies the extent to
which countervailing duties may be imposed.  This article in relevant part states “ No countervailing
duty shall be levied on any product  of the territory of any contracting party imported into the
territory of another contracting party in excess of the amount equal to the estimated bounty or
subsidy determined to have been granted ”.  It is therefore clear that a countervailing duty should be
limited to the amount of the estimated subsidy.  Such an understanding regarding the permissible
extent of countervailing duty is also textually supported by the provision of Article 19.4 of the ASCMG/SCM/W/462
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according to which “no countervailing duty shall be levied on any imported product in excess of the
amount of subsidy found to exist”.
13. Indirect tax rebate schemes and duty drawb ack/remission schemes are not export subsidy per
se.  While the ASCM has not specified what should be the essential elements of a drawback/indirecttax rebate scheme, it has enunciated the general principle that indirect tax rebate schemes and duty
remission / drawback schemes constitute export subsidies to the extent that they result in a remission,
exemption or drawback of duties and import charges in excess of those levied on inputs that have
been consumed in the production of the exported product .  If the amount of duty remission,
exemption or drawback is equal to the amount of duty levied then this is not treated as an export
subsidy and no benefit is therefore deemed to have been conferred on the producer/exporter.
However, if the duty remission, exemption or drawback is in excess of the duty levied then this is an
export subsidy on which countervailing duties may be levied. Before levying the countervailing duty
due to benefit arising from such excess remissions, exemption or drawback of duties, the investigating
authority must determine the amount of benefit to the recipient and limit the countervailing duty to
that amount.  As no benefit is conferred to the recipient to the extent of the duty levied on inputs
consumed, any benefit which is conferred is limited to the extent of remission, exemption ordrawback of duties in excess of those levied on inputs consumed.  This should be the practice if the
terms “constitute an export subsidy to the extent” and “in excess of the amount” appearing in para 2
Annex II of the ASCM are to be given proper meaning.  By imposing countervailing duties to the full
extent of duty remission, exemption or drawback , the investigating authorities would be levying
countervailing duties “in excess of the amount of subsidy found to exist” contrary to Article 19.4 ofthe ASCM.
14. The SCM Committee should clarify the  provisions of the ASCM in Annex I (items (h) and
(i)), Annex II and Annex III so that any remissio n exemption or drawback of duties and import
charges to the extent of those le vied on inputs consumed is not countervailed and only the amount
of remission, exemption or drawback of duties and import charges in excess of those levied on
inputs consumed may be treated as a countervailable subsidy.
15. In determining the subsidy amount it is the prac tice among the investigating authorities to add
a notional amount for interest to the benefit conferred during the investigation period, for which there
is no textual support in the ASCM.  Furthermore the amount of interest is not calculated on the basis
of the date when the benefit was conferred, but on a notional basis, depending on the nature of thesubsidy. For recurring subsidies the interest amount is calculated at half of the commercial interest
rate during the investigation period.  Often such methods are prejudicial to the interest of the exporters
as these lead to  a higher amount of interest compared to a methodology wherein the interest is
calculated on the basis of the date when benefit was conferred.
16. The SCM Committee should clarify that the addition of an amount for interest on the
benefit conferred during the investigation period is not  in conformity with the object and purpose
of the ASCM. In the alternative, SCM Committee should clarify whether calculation of the interest
amount on a notional basis instead of calculating it from the date when the benefit was conferred is
a reasonable method of calculating interest.
17. In respect of non-recurring subsidies for acquisition of fixed assets, the amount of
countervailing duty is required to be based on the benefit appropriately allocated across the period
reflecting the normal depreciation of such assets in the industry concerned.  It has however been
observed that each investigating authority assumes a depreciation period without any scientific basis.
18. The SCM Committee should clarify that while determining the average useful life of the
asset, the depreciation used for allocating the bene fit should be based on the information available
with the individual firms receiving the subsidy.G/SCM/W/462
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19. Under provisions of Article 1.1(a)(1)(ii) of the ASCM, a subsidy is deemed to exist if
government revenue that is otherwise due is foregone or not collected.  The benefit does not accrue to
the exporter by the mere existence of any scheme under which the duty may be foregone or not
collected. The benefit would accrue only after there is a specific instruction or order from theGovernment specifically in respect of the concerned exporter and duty is foregone or not collected.
20. Instances have been noticed wherein the investigating authorities have imposed
countervailing duties in respect of certain duty refunds permitted by the government, which was
applied for by the exporter but not received during the investigation period.  As no refund was
received during the investigation period, subsidy cannot be deemed to exist under Article 1.1(a)(1)(ii)
of the ASCM.
21. The ASCM Committee should clarify that for a subsidy to be deemed to exist under
Article 1.1(a)(1)(ii) of the ASCM, the exporter co ncerned should have received the benefit of duty
foregone or not collected during the investigation period.
22. It is the practice among the investigating authorities of certain countries wherein no deduction
is made from the subsidy amount for expenses that were incurred for availing the benefit sought to be
countervailed.  Imposition of countervailing duty without accounting for expenses incurred due to the
conditions imposed by the countervailable schemes, results in the extent of countervailing duty being
in excess of the benefit conferred.  A few of the deductions from the subsidy amount, which need tobe taken into account by investigating authorities, include bank guarantee charges, margin money
costs, application fees paid by the exporter for av ailing the benefits etc.  Similarly benefits availed
under various schemes get reduced after making necessary adjustments as required under the
schemes. Such adjustments should also be taken into account while determining the amount of
subsidy.
23. The SCM Committee should review Article 14 of the ASCM and recommend certain
deductions from the subsidy amount which should be mandatorily taken into consideration by the
investigating authorities while determining the level of countervailing duty. The SCM Committee
should also clarify that such adjustments as required by the countervailable scheme should be
taken into account while determining the amount of subsidy.
D. R
EVIEW OF COUNTERVAILING DUTIES
24. According to Article 21.2 of the ASCM a revi ew of continued imposition of countervailing
duty can be undertaken upon request by an interested party which submits positive information on the
following:
(a) the continued imposition of countervailing measures is no longer necessary to offset
the countervailable subsidy; or
(b) the injury would be unlikely to continue or recur if the measures were removed or
varied; or
(c) the existing measure is not, or is no longer, sufficient to counteract the countervailing
subsidy which is causing injury.
25. There is no provision for an interested party to seek a review for any procedural mistake or a
manifest error of appreciation committed by the investigating authorities.  This clearly is against the
goal of ensuring objective decision making by the investigating authorities based on facts.  This isbest illustrated by situations wherein the findings of the investigating authorities could be based onG/SCM/W/462
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evidence whose veracity, according to an interested  party, may be doubtful. If such a doubt arises
during the course of an investigation, the interested party may have an opportunity of seeking suitable
redressal.  However after the final determinations are made and the doubt about the veracity of
evidence arises, the interested party has no opportunity to seek redressal apart from  a judicial remedy.
26. Keeping the goal of ensuring objective deci sion making during countervailing duty
investigations, the SCM Committee should decide that the investigating authorities shall review the
need for continued imposition of countervailing du ty upon request by an interested party which
submits positive information regarding procedural mistake or a manifest error of appreciation
committed by the investigating authorities.
27. According to Article 21.2 of the ASCM the author ities shall review the need for the continued
imposition of the duty where warranted on their own initiative.  There may be situations wherein theconcerned exporter may no longer be receiving any benefit from a scheme which was determined to
have been countervailable due to the scheme having been subsequently withdrawn by the Government
of the exporting country.  In such situations the subsidy margins determined at the time of the
investigation would no longer reflect the benefit to the recipient after withdrawal of the benefit
conferring schemes.  Continued imposition of the countervailing duty at levels initially determinedwould amount to the duty being in excess of the amount of subsidy found to exist and the
investigating authorities should automatically adju st the countervailing duty corresponding to the
subsidy margins for the schemes withdrawn.
28. The SCM Committee should clarify provisions of Article 21.2 of the ASCM and recommend
that investigating authorities should automatically adjust the countervailing duty corresponding tothe subsidy margins for the schemes withdrawn.
E. R
ESORT TO FACTS AVAILABLE
29. According to Article 12.7 of the ASCM investiga ting authorities may resort to facts available
in the following circumstances if any interested party or interested Member:
(a) refuses access to information; or
(b) does not provide necessary information within a reasonable period; or
(c) significantly impedes the investigation.
There may be situations in which the investigating authority finds that a portion of the information
sought from the interested party has not been provided within a reasonable period. In such situations itis the practice among certain investigating authorities to reject all the information  provided by the
interested party although some portion of it may have been submitted within a reasonable period, and
resort to facts available for the entire information.  This results in imposition of countervailing duty
which is higher than would have been the case if that portion of the information submitted within a
reasonable period had been taken cognizance of by the investigating authority.
30. The SCM Committee should clarify that during a countervailing duty investigation all
information submitted by an interested party or interested Member which is verifiable and which is
appropriately  submitted within a reasonable period should be taken into consideration by the
investigating authority. However if a portion of the necessary information is not submitted within areasonable period then for that portion of the information the investigating authority may resort to
facts available under Article 12.7 of the ASCM.G/SCM/W/462
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F. C ONCLUSION
31. The SCM Committee should deliberate and take  decisions on the various issues raised in
this paper so that countervailing duty investigations  do not result in imposition of countervailing
duty in excess of the amount of subsidy, after an objective examination of injury to the domestic
industry while ensuring procedural fairness to the interested parties.
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