WORLD TRADE
ORGANIZATIONG/SCM/W/513
10 June 2002
(02-3185)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
IMPLEMENTATION RELATED ISSUES REFERRED TO THE
COMMITTEE BY MINISTERS
Tiret 80 – Paper from Brazil
The following communication, dated 6 June 2002, has been received from the Permanent
Mission of Brazil.
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On 10 September 2001, Brazil circulated document G/SCM/W/464, in which its proposals
related to “tiret 80” of the outstanding implementation issues were outlined.  In response to questions
by Members, additional contributions were presented by Brazil, with the symbols G/SCM/W/483,G/SCM/W/502 and G/SCM/W/511.
With a view to clarifying some issues raised by Members during the debates in the Plenary,
Brazil presents this consolidated version of its proposals, with their “rationale” and, as appropriate,
with examples, in order to facilitate the consideration of each item.
I. PROPOSALS RELATED TO ARTICLE 14 OF THE SCM AGREEMENT
“CALCULATION OF THE AMOUNT OF THE SUBSIDY IN TERMS OF THE
BENEFIT TO THE RECIPIENT”
A. T
HE “CHAPEAU ” OF ARTICLE 14
Brazil understands that, for the purpose of Part V of the SCM Agreement, investigating
authorities shall calculate the amount of the subsidy in terms of the benefit conferred to the recipient(producer/exporter) and do so on a product unit basis.  This approach is the only one consistent with
the title of the article; therefore no other basis for this calculation should be allowed.
Although most of the Members agree with this interpretation of the SCM Agreement, the text
of the “chapeau” of Article 14 might leave room for misinterpretations as a result of the fact that onlyits title refers explicitly to the calculation of the amount of a subsidy in terms of the benefit to the
recipient, but not the “chapeau” itself.
This absence may lead to the incorrect interpre tation that Article 14 refers strictly to the
calculation of the benefit to the recipient but not to the calculation of the amount of the subsidy interms of the benefit of the recipient.  Consequently, some may argue that, for the purpose of Part V of
the SCM Agreement, it would be possible to a dopt any method for the calculation of the amount of
the subsidy (for instance, one based on the cost to the granting government).G/SCM/W/513
Page 2
For illustrative purposes, suppose, for instance, that the Government of a certain country
provided, in 2001, US$10,000 for the producers of product A and that the total production of that
good in the given country, in the period in question, amounted to 10 tonnes.  So, it was determined
that the amount of the subsidy was US$1/Kg and, considering that the imports of this product caused
injury to the domestic industry of another Member, this Member applied a countervailing duty ofUS$1/Kg on the imports of product A, irrespective of considerations about the actual benefit to the
recipients.  Such an approach would be, in Brazil’s view, inconsistent with Article 14.  However, in
order to remove any possibility of misinterpretation, we propose that the chapeau mirrors the language
of the title.
There is a second element to be addressed in the discussions, related to transparency.  The
obligation of transparency established in the chap eau (“any method used … shall be transparent and
adequately explained …”) can also be misinterpreted as only referring to the method for the
calculation of the benefit and not to the method for the calculation of the amount of the subsidy.
Consequently, a Member could consider itself not to be required to include in its national legislation  -
or implementing regulation – the method used to calculate the amount of the subsidy.  Therefore,
there seems to exist a margin for the utilization of non-transparent methods for the calculation of theamount of the subsidy.
Thus, in order to clarify Article 14  and avoid misinterpretations, the “chapeau” of that  Article
should read as follows:
“For the purpose of Part V, any calculation of the amount of a subsidy shall be
effected in terms of the benefit conferred to the recipient on a per unit and per
exporter/producer basis.  Any method used by the investigating authority to calculate
the amount of the subsidy in terms of the benefit conferred pursuant to paragraph 1 of
Article 1 shall be transparent and adequately explained.” (…)
B. A
DDITIONAL GUIDELINES TO ARTICLE 14
In order to guarantee more predictability and harmonization of the methods adopted by the
Members for calculating the amount of the subsidy, Brazil also considers that additional guidelines
should be included in Article 14.  The topics covered by these additional guidelines are of a different
nature from those topics covered by letters (a) to (d) of Article 14.  It is important to note that the
Brazilian proposal does not intend to cover all the re levant aspects that are involved in a subsidy
investigation.
The proposed additional guidelines are:(e) expenses incurred by the exporter/producer in order to obtain the subsidy (e.g.
administrative charges) shall be deducted from the amount of the subsidy.  Exporttaxes applicable to the export of the product under investigation and intended to offset
the subsidy shall also be deducted from the amount of the subsidy;
(f) in case the subsidy is not granted according to the quantities that are produced,
exported or transported, the amount of the subsidy shall be calculated by determiningthe corresponding proportion of the subsidy amount that is related to the production,
sale or export, as appropriate,   of the good; and
(g) in case the subsidy is granted to acquire capital goods, the amount of the subsidy shall
be calculated according to the rules for the depreciation of the good in the industryconcerned and with the volume of production, sale or export, as appropriate, of the
product.G/SCM/W/513
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(i) Deduction of expenses and export taxes
As for the issue related to the deduction of expenses and export taxes, the idea behind this
proposal is that the investigating authority should calculate the amount of the subsidy based on the net
benefit to the exporter.
In relation to the expenses, it is important to clarify that the Brazilian proposal refers only to
the expenses necessarily incurred in order to qualif y for or obtain the subsidy.  These expenses are of
an administrative nature (e.g. application fees) and are paid by the producer/exporter directly to the
authority responsible for the concession of the subsidy.
It must be shown that such payment is compulsory by law or any applicable legislation  in
order to receive the subsidy.  Thus payments to private parties, e.g. lawyers, accountants, incurred in
applying for subsidies, would not be deductib le.  Neither would voluntary contributions to
governments, such as donations.
With regard to the export taxes, Brazil considers that if they were not intended to offset
subsidies, they should not be deducted, once they do not have the effect to reduce the benefit that a
recipient has obtained.  For instance, if a Government decided to apply export taxes on exports of a
large group of products, regardless of the consideration whether they have been subsidized or not, the
benefit received by an specific exporter that had obtained a subsidy would not be deducted.
A different situation would be if the export taxes were applied only on the exports of the
subsidized product, as a result, for instance, of an agreement between the exporting Member and a
Member that has its exports to third markets affected by the subsidy.  In this case, the export taxes
were intended to offset the subsidy and should be deducted.
In the discussions on this subject in the Committee’s meetings, some Members have raised
some concerns related to the criteria that should be  used to determine if the export tax is intended to
offset the subsidy.  One of those criteria could be the scope of the export tax, that is, whether  it is
applied only on exports of subsidized products or on a large group of products.  Another criteria
would be the moment when the decision to apply the export tax was taken (for instance, if the export
tax is previous of the implementation of the subsidy program it is obviously not intended to offset the
subsidy).  It should also be investigated whether the export tax was created as a result of bilateralconsultations or of a dispute settlement procedure; and if not, what its motivation was.  Those are
some examples of criteria/aspects that should be analyzed in order to determine whether the deduction
is warranted.
It is also important to note that those deductions (expenses and export taxes) would require
the demonstration by the exporter/producer under investigation that he has effectively paid
administrative charges and/or export taxes.  The burden would rest with the  exporter to request such
deductions and to present verifiable evidence that they were warranted.
In the case of export taxes, claims for deductions should only be accepted if the charges
involved were levied during the investigation period, and if it were established that they continued to
be levied at the time when definitive measures were recommended.
(ii) Appropriate Denominator for the Calculation of Subsidy Amount:
As the amount of the subsidy shall be calculated on a per-unit product basis, it is important to
introduce a guideline related to this issue.G/SCM/W/513
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Once the total amount of benefit related to a subsidy is determined for the period under
investigation (period for which the amount of the s ubsidy is determined), the investigating authority
shall calculate the amount of the subsidy on a per unit-basis.  The unit adopted depends on the
characteristics of the product under investigation and normally should be the commercial unit.  For
instance, in the case of an investigation on imports of shoes, the unit adopted should be pair of shoes;in the case of an investigation on imports of chemicals, the unit adopted should be tons, and so on.
When the subsidy is tied to production, sales or exports, it is not a difficult task to determine
the amount per unit.  Nevertheless, when this is not the case, some doubts could be raised with regard
to the denominator to be adopted in order to calculate the amount per unit.  In order to clarify this
matter, Brazil has suggested that the denominator should be the production, sales or export, depending
on the characteristics of the subsidy.  For instance, if it benefits only the exports of the firm, thebenefit should be divided by the total volume of its exports.  If the subsidy implies a reduction of the
cost of production, the benefit should be divided by  the whole volume of production.  If the subsidy
affects the sales of the firm, the benefit should be divided by the volume of sales.  If the benefit of a
subsidy is limited to a particular product, the denominator should reflect only sales
[production/exports] of that product.  If this is not the case, the denominator should be the recipient’stotal sales [production/exports].
We provide, below, some examples to illustrate the matter:
Example 1
A producer of a single product receives a subsidy on energy, and he pays for the energy
consumed in the production process a price that is lower than the price paid by other producers.  For
instance, instead of paying, in the period of investigation, $10,000, he pays $5,000 that is, a benefit of
$5,000 is conferred to that producer.  Taking into account that the reduced cost of energy benefits allthe volume of the production of the product under investigation, regardless whether it is destined to
exports or to the domestic market, the benefit of $5,000 should be divided by the total production in
the same period (5,000 tons.).  In this example, the amount of the subsidy granted would be $1 per
unit.
Example 2
A producer of a single product pays a lower price for the transportation of his production
either to domestic consumers or to the domestic port of loading of his exports.  In the period of
investigation, instead of paying $2,000 for transport costs, he paid $1,000 for the transportation.  He
received a benefit, then, of $1,000.  If 2,000 units of the product were sold (either to domestic market
or exports), the amount of the subsidy would be $0.50 per unit.
Example 3
In this example the subsidy is granted by reference to exports:
A producer of a single product receives a grant of $50,000 in 1987 to subsidize its exports to a
certain country.  The period of investigation is 1995.  In 1995, total sales of its product were
30,000,000 units, exports to that country were  10,000,000 units.  The useful life period of the assets in
the industry in question (which is the same for th e company under investigation) is 10 years.  The
amount of the subsidy in the investigation period would be calculated by spreading the total benefitconferred over the useful life period of the assets, what would result in a benefit of $5,000 during the
period of investigation, and then dividing the amount so obtained by the volume of the exports.  The
amount of the subsidy conferred to the exports of the product under investigation would be $0.0005
per unit.G/SCM/W/513
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(iii) Subsidy Tied to the Acquisition of Capital Goods
Considering that the investigat ing authorities should determine the amount of subsidy for the
period of investigation and considering that there are subsidies the effects of which extend over a
number of years, it is important to introduce guidelines related to this issue.  One of the cases in whichthis situation can be raised refers to subsidies tied to the acquisition of capital goods.
For those subsidies, Brazil considers that the amount of benefit has to be spread over the
useful life period of the assets.  This should be done on the basis of the depreciation rule adopted by
the recipient, considering that it is in accordance with the generally accepted accounting
principles/legislation of the exporting country.  Normally, Members’ legislation establishes a period
for the depreciation of fixed assets and the method adopted refers to the straight-line-method.
It should also  be considered that some Members’ legislations allow for an “accelerated
accounting depreciation” that is based on the actual utilization of the fixed assets (equipments,
machinery) which result in a different useful life period of assets from that provided for in the
legislation.  For instance, suppose an equipment with a  useful life period established by the fiscallegislation at 10 years, and consequently with the normal depreciation rate of 10 per cent (straight-
line-method).  This equipment can be depreciated in faster (higher depreciation tax) if it is
demonstrated that its actual utilization is more in tensive than the utilization normally considered to
determine the useful life period of the good.  In those cases, the burden is on the producer to
demonstrate this circumstance (more intensive use) to the tax authority, on the basis, for instance, ofthe numbers of hours of working, volume of production and/or other indicators.
Summing up, considering the existence of subsidies tied to the acquisition of capital goods the
effects of which are not concentrated in the period they were granted/conceded, it is important to
spread the benefit over the useful life period of the assets.  This useful life period should beestablished on the basis of the legislation of the exporting Member.
C. S
AMPLING
Considering that the calculation of the amount of  the subsidy shall be in terms of the benefit,
it implies that an amount of the subsidy shall be  calculated for each exporter under investigation.
Nevertheless, there are cases in which the number of exporters under investigation is so large that
makes it impossible to arrive at a specific determination of the amount of subsidy for each of them.  Inthose cases, the investigating authorities would use samples.  In order to avoid divergent practices
among Members, it is important that the use of sample obeys specific criteria such as those mentioned
in Article 6.10 of Agreement on Anti-Dumping.
II. PROPOSAL RELATED TO FACTS AVAILABLE
The objective of the proposal in this area is to establish some sort of symmetry between the
provisions of the Anti-Dumping Agreement on facts available (Annex II of the Agreement) and the
Agreement on Subsidies and Countervailing Measures , which, although providing for the possibility
of recourse to facts available in its Article 12.7, does not elaborate on the matter.
The AD Agreement already establishes guidance for the use of “facts available” in its
Annex II, which details, for instance, the procedures to  be applied in case an interested party refuses
access to information or does not provide the necessary information.  These two situations are exactly
those referred to in Art. 12.7 of the SCM Agreement.  Given this fact, it is Brazil’s view that there is
no reason why the same procedures should not be applied in CVD investigations.  The convenience ofthe Brazilian proposal is particularly clear in the situation where AD and CVD investigations onG/SCM/W/513
Page 6
imports from the same Member are conducted at the same time, the investigating authorities being
obliged to follow guidelines on the treatment of th e information provided in one investigation and not
in the other.
Article 12.7  of the SCM Agreement clearly establishes that “facts available” could only be
used when an interested party refuses access to information or does not provide the necessary
information.  Thus, Brazil considers that the “fac ts available” concept allows the investigating
authorities to use information originated in sources other than the party concerned only under those
specific circumstances.
A few modifications should be done in Annex II in order to adapt it to the language and
concepts of the SCM Agreement.  For instance, where Annex II of the AD Agreement reads“interested parties”, it should be read “interested Members and/or interested parties”; where Annex II
reads “normal value”, it should be read  “amount of subsidy”; and, of course, where Annex II reads
“Paragraph 8 of Article 6”, it should read “Paragraph 12 of Article 7”.  As "independent sources"
(paragraph 7 of Annex II) are concerned it could be mentioned, for instance, Members’ notifications
to WTO and public reports of the agencies responsible for programs.
III. PROPOSAL RELATED TO “ DE MINIMIS ”
Brazil’s proposal, in this case, seeks to interpret Article 19 of the Agreement on Subsidies and
Countervailing Measures in a way that is compatible with its Article 11.9.  The latter determines, inter
alia, that “there shall be immediate termination [o f an investigation] in cases where the amount of a
subsidy is de minimis ”.  However, when it comes to the imposition and collection of countervailing
duties, as set forth in Article 19 of the cited agreement, there is an omission of such a “ de minimis ”
clause.  If, for a certain reason, the amount of the subsidy is found to be less than the “ de minimis ”
threshold for a specific exporter, the text does not provide explicit guidance.  This lacuna, in practice,
may be interpreted as allowing the collection of duties even if the amount of the subsidy is below the“de minimis ”.
There is an important element in this discussion that would be worth exploring: the distinction
between the moments of imposition and collection of the duty.  Brazil naturally considers that there
would be no possibility to impose duties when the amount of subsidy has been found to be “ de
minimis ” during the investigating period.  However, in some cases, specially when the amount of the
countervailing duty is assessed on a retrospective basis, when it comes to the final assessment for thecollection of the duty, some countries would  not apply the “ de minimis ” rule.  Brazil’s position is
that, in both systems (prospective and retrospective), no countervailing duties should be collected
when the amount of the subsidy is found to be “ de minimis ”.
There are several instances related to anti-dumping investigations where duties have been
collected, even though the actual dumping margin was “ de minimis ”.  As there exists a parallelism
between the collection of anti-dumping and countervailing duties, it is quite possible that this sort of
situation might arise also regarding the collection of countervailing duties.
IV. PROPOSALS RELATED TO REVIEW PROCEDURES
1. Introduce provision for assessment of degree of support for review requests
The Brazilian proposal regarding “standing” applies to “sunset” reviews conducted pursuant
to Art. 21.3 of the SCM Agreement and what Brazil suggests is the adoption of the same “standing”
test established in Art. 11.4. Art. 21.3 already requires that a petition be made “by or on behalf of the
domestic industry”.  In that sense, our proposal does not require a change to the SCM Agreement.  Itsimply intends to clarify that the expression “by or on behalf of the domestic industry” should beG/SCM/W/513
Page 7
understood as in Art. 11.4. Brazil considers that it is relevant to make clear that the same test should
be applied in both cases (initiation of investigation and initiation of review).
It is important to emphasize that the Brazilian proposal should not be construed as to impede
the authorities to initiate a review on their own initiative.
2. Introduce provision for notification of Me mbers whose products are subject to review
In view of the fact that the initiation of a review under Art. 21.3 of the SCM Agreement
implies that the duty may remain in force pending th e outcome of such a review, it is important that,
before this initiation, Members whose products may be subject to such review shall be notified of this
possibility and invited for consultations with the aim of clarifying the situation and arriving at a
mutually agreed solution.
Article 21.4 establishes that the provisions of Art. 12 regarding evidence and procedures shall
apply to any review.  By analogy, there is no reason why the procedures of notification and
consultation as established by Art. 13.1 should not apply to the reviews.
Some Members have mentioned a possible relationship of this  proposal with provisions in
Article 22 of the Agreement.  In this respec t, the procedures referred to in Art. 22 .1 to 22.6 relate to
notification and public notice upon and after  the initiation of an investigation, and not to the
notification and consultation related to the  reception of a petition.  Furthermore, Article 22.7 refers to
the notification and public notice  due upon the initiation as well as to the other notifications and
public notice  due in the course of the review.  As this Article does not mention Art. 13, it does not
refer to the notification and consultation  prior to the initiation of the review, which is the precise
object of the Brazilian proposal.
3. Introduce provision for prior consultation with affected Members before initiating
review and during its course
The Brazilian proposal refers to procedures of consultations established in Art. 13 that
involve only the exporting Members of the products of which may be or are subject to sunset review.
Brazil considers that its proposal does not require a change to the SCM Agreement:  it simply intends
to clarify that all the procedures followed in an investigation should be applied in a review, including
the opportunity for consultation.
4. Introduce detail in Article 19.3 concerning expedited review of new exporters
In Brazil’s view, the SCM Agreement provisions do not establish procedures to be followed
in expedited reviews.  We consider that as Art. 19.3 sets forth that the “investigating authorities
promptly establish an individual countervailing duty rate for that exporter", it is necessary to define
how fast should the investigating authorities respond to a complaint, as well as the duration of the
review (for instance, in an accelerated manner, as established by Art. 9.5 of the Anti-Dumping
Agreement?).
One possibility would be that, since the review refers exclusively to the calculation of the
amount of the subsidy in terms of the benefit received by the exporter that requests such a review, itshould be normally concluded  in 6 (six) months.  Moreover, considering that the party requesting the
review is the affected exporter and that the aim is to expedite the initiation of the review,
consultations with the exporting Member prior to the initiation would not be necessary.  With regard
to the procedures provided for in Articles 12, 13 (except for 13.1) and 22, they would apply to the
new exporter.
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