. /.RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/457
4 July 2001
(01-3329)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBMISSION OF THE EUROPEAN COMMUNITIES TO THE
COMMITTEE ON SUBSIDIES AND COUNTERVAILING MEASURES
The Chairman's fax of 11 June 2001 contained several "questions to clarify" with regard to
the proposal on export competitiveness (G/SCM/W/ 431/Rev.1).  The following comments are made
solely for the purpose of clarifying the technical issues addressed in these questions and are withoutprejudice to the actual position to be taken by the European Communities on the substance of the
proposal.
The Chairman's questions
If export competitiveness is lost after the end of the eight-year phase-out period, what
happens?  (That is, could export subsidization be resumed, and for how long; e.g. until export
competitiveness was again reached, with then a new eight-year phase out period?)
If export competitiveness is lost during the eight-year period what happens?  (That is, would
export subsidization be permitted until export competitiveness was again reached, with then a new
eight-year period if and when export competitiveness was again reached?)
EC comments:  The "stop-the-clock" understanding
If a Member listed in Annex VII loses export competitiveness during or after the 8-year
phase-out period, export subsidization can be resumed until export competitiveness is reached again.If export competitiveness is regained, the export subsidies must be phased out.  However, starting
anew the full eight-year phase-out period for such Members appears excessive. Indeed, it would not
take into account that despite the lower subsidy levels (or even the lack of export subsidization),
export competitiveness had been maintained in earlier years.  Therefore, to allow under these
circumstance full-fledged export subsidization until export competitiveness is reached again togetherwith a full eight-year phase-out period thereafter would confer an advantage which "overshoots".
In this respect, one could envisage in cases where export competitiveness is lost after the
initial eight-year phase-out period and regained thereafter , to establish as a new phase-out period
the reference period proposed by Switzerland for establishing re-entry, i.e. 2 consecutive calendar
years.  It should also be noted that a phase-out pe riod of this duration is already set in Articles 27.4
and 27.5 of the SCM Agreement.  It would also follow from the principle of avoiding the granting of
excessive export subsidies, that the level of subsidization would not exceed the level which is needed
to regain export competitiveness.
Example 1:
1.1.2003:  Export competitiveness established. Subsidy of "80" phased out by reducing it by
10 every year (e.g. subsidy in 2009: "20"). 31.12.2010: phase-out complete.  1.1.2013:  Established
that export competitiveness lost.  1.1.2013: Subsidy of "20" introduced (subsidy level does not exceedG/SCM/W/457
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what is needed to regain export competitivenes s).  1.1.2017:  Export competitiveness regained.
Subsidy of "20" to be phased out over two years, i.e. by 31.12.2018.
For the same reasons as explained above, if export competitiveness is lost during the eight-
year period and regained thereafter , export subsidization can resume at a level needed to regain
export competitiveness.  Normally, this will be the level which was reached during the calendar year
preceding the reference period used for determining that export competitiveness was lost.  If export
competitiveness is regained later on, the export subsidies must be phased out over a period of
2 consecutive calendar years or the remainder of the eight-year phase-out period after export
competitiveness was established, whichever is the longer.  This takes into account that if export
competitiveness was lost early on through the initial phase-out period, the total resulting phase-out
period would never be less than eight years.
Example 2:
1.1.2003: Export competitiveness established.  Subsidy of "80" phased out by reducing it by
"10" every year.
Scenario (a)
1.1.2010 (subsidy "10"):  Established that export competitiveness lost.  Then allowed to re-
introduce subsidy of up to "40"  (i.e. subsidy level in 2007 which is the calendar year before thebeginning of the reference period of two years).  Export competitiveness regained 1.1.2015.  Phase-
out over two consecutive calendar years, i.e. until 31.12.2016 .
Scenario (b)
1.1.2005 (subsidy "60") Established that export competitiveness lost.  Allowed to give
subsidies up to "80" (initial subsidy level before phase-out i.e. in 2002) until export competitiveness
regained.  Regained export competitiveness 1.1.2015.  Phase-out over six years, i.e. until 31.12.2020
(since remaining period of initial 8-year period was six years: 1.1.2005 - 31.12.2010).
Conclusion
If export competitiveness referred to in Article 27.5 of the WTO Agreement on Subsidies and
Countervailing Measures is lost, a Member listed in Annex VII is allowed to resume export
subsidization at a level which does not exceed what is necessary to achieve export competitiveness.
Once export competitiveness is regained, these export subsidies must be phased out over a period of
two consecutive calendar years or, as the case may be, the remainder of the initial eight-year phase-out period after export competitiveness was established, whichever is the longer.
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