RESTRICTED
WORLD TRADE G/SCM/Q2/AUS/5
1October 1996
ORGANIZATION(96-3895)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Questions from theEUROPEAN COMMUNITY Regarding theNew
andFullNotification ofAUSTRALIA1
Thefollowing communication, dated 19September 1996, hasbeenreceived fromthePermanent
Delegation oftheEuropean Community.
_______________
Australia submitted on7August 1995 itsnotification ofsubsidy programmes totheWTO
pursuant toArticle XVI:1 GATT 1994 andArticle 25oftheWTO Subsidies Agreement.
Inthisrespect, theCommunity would liketoobtain clarification onanumber ofissues onthe
notified schemes asdescribed below.
Moreover, theCommunity hasobtained information ondifferent subsidy schemes which were
notnotified totheWTO although theirnotification seems necessary pursuant toArticle 25.2ofthe
Subsidies Agreement.
I. NOTIFIED SUBSIDY PROGRAMMES
Australia notified anumber ofprogrammes which arelisted below. After examination, the
Community hasserious concerns ontheextent andthepractical implications ofthenotified programmes.
Thepresent analysis constitutes theremarks oftheCommunity andarequest forclarification. The
Community would liketoobtain further information foreachprogramme onthespecific criteria which
havetobemetbefore thesubsidy isgranted, andinparticular ifexport performance isacriterion.
(a) Bed-Sheeting
- Australia claims thatthebounty wasnotpayable onexported bedsheeting. Inthis
respect, could Australia provide domestic andexport statistics inorder toevaluate this
statement?
- Could Australia provide theamount ofthebounty?
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(b) Books
- Australia states thattherateofthebounty wasfortheperiod 1987-1988 20percent
toreduce gradually to4.5percentin1997. However, thetotalamount ofthebounty
increased intheperiod 1994-1995 to$A25,400,000 compared to$A22,274,000 for
theperiod 1993-1994. Could Australia provide aclarification forthisincrease?
(c) Citric Acid
- TheCommunity examined thebounty andfound thatthebounty waspaidtothesole
Australian citric acidproducer, Sirius Biotechnology. Since thereisonlyoneproducer
whobenefits fromthescheme, theCommunity would likemore information regarding
thesalesstructure (including exporting activity) ofthiscompany.
(d) Computers
- Isthisprogramme available forsoftware?
- Australia states thatthescheme willendin1995. TheCommunity understands that
theprogramme wasextended until2000 atareduced rateof5percent. Could
Australia confirm this?
- TheCommunity hasconcerns about theinterpretation ofthetradeeffects ofthebounty
forcomputer equipment. Thestatement thatthebounty aimstogivelocalcompanies
thepossibility tobuyAustralian hardware iscontradicted bythefindings ofthe
Australian Industry Commission. The94-95 Annual Report states thatpartofthe
computer bounty ispaidonproduction destined forexport. Furthermore, theICReport
continues: "Based ontheavailable data, exports received about halfofthebounty
payments oncomputers ".Theamount ofsubsidy isquiteconsiderable e.g.$A35.6 m
for1995/1996. Inview oftheinformation contained intheICAnnual Report, the
Community requests further clarification. TheCommunity would alsolikeinformation
onwhether thebounty iscontingent upon theuseofdomestic overimported goods
andconsequently, itscompatibility withArticle 3.1(b) oftheSubsidies Agreement.
(e) Machine Tools andRobots
- Although Australia states thatthebounty isdesigned toencourage localproduction
ofmetal-working machine tools byimproving competitiveness against imports, the
export dataontheproducts concerned arenotsufficiently desegregated todetermine
export levels. Theexport intensity ratios oftheBureau ofIndustry Economics indicate
that16percentofthetotalamount ofbounty wenttoexports. Towhatextent isexport
performance taken intoaccount when granting thesubsidy?
(f) Shipbuilding
- Information available totheCommunity indicates thatbounties arepayable on130per
centoftheproduction cost. Thebounties weretherefore equal to12percentofthe
actual production cost. TheAnnual Report oftheIndustry Community for1992/1993
shows that83percentofallshipbuilding bounties wereapplied forexport assistance
in1991/1992, 87percentin1992/1993 and86percentin1993/1994. Onthebasis
ofthese figures, theCommunity concludes thatthisscheme mayconstitute adefacto
export subsidy. Could Australia elaborate onthecriteria forgranting thesubsidy?G/SCM/Q2/AUS/5
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Furthermore, theCommunity would likeAustralia tocomment on(i)thefigures of
theIndustry Commission; and(ii)thecompliance ofthescheme withArticle 3.1(a)
oftheSubsidies Agreement.
(g) Textile Yarns
- Thefigures oftheTextiles, Clothing andFootwear Development Authority (Australian
Federal body) show thatthebounty scheme hasledtoastrong growth inexports of
textiles. In1988/1989 7percent(equal to$A236 m)ofallvalue-added textiles were
exported, compared toalevelof26percentin1994/1995 (equal to$A461 m).To
whatextent isexport performance taken intoaccount when granting thesubsidy?
II. ADDITIONAL PROGRAMMES NOT NOTIFIED TOWTO
Australia hasnotnotified alarge number ofprogrammes which appear tobenotifiable under
Article 25.TheCommunity finds thattheschemes described below provide afinancial contribution
which confers benefits tothelocalindustry. Inaddition theschemes areclearly specific (aspertaining
toaspecific sector orcontingent upon exports). Inaddition tothespecific questions asked, the
Community would likeclarification whythese programmes were notnotified toWTO andrequests
that,ifappropriate, Australia supplies anotification under Article 25,using thestandard format.
FEDERAL ORNATIONAL PROGRAMMES
(a) Pharmaceuticals -Factor FScheme
Thefactor Fscheme allows theGovernment togivehigher prices forpharmaceuticals
itbuys. Prior to1992 firms hadtomeet quantitative targets forR&D andexport activity.
DuetoGATT inconsistency, thecriteria changed toacommitment toincrease value-added
inAustralia by50percentinthreeyears and/or achievement ofR&D spending actual to3per
centofannual turnover.
However where quantitative criteria cannot bemet,qualitative criteria arepossible
suchasnewinvestment inproduction facility. Since thecommercial agreements onthisissue
areconfidential, itisnotpossible toascertain whether export policy isaqualitative criterion.
Theprogramme isclearly specific since thescheme subsidizes thepharmaceutical sector. The
Community alsoconsiders thatthisscheme mayconstitute aprohibited subsidy asprescribed
inArticle 3(b)oftheSubsidies Agreement since thescheme provides anincentive fortheuse
ofdomestic over imported goods intheform oftheconditions ofincreasing domestic
value-added.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthisscheme withtheSubsidies Agreement?
(b) Passenger Motor Vehicle Export Facilitation Scheme (PMVEFS)
ThePMVEFS aimstoincrease Australian exports ofhighly processed, highvalue added
automotive products. Thescheme provides forexporter "bonus points" which aretradable
against thetariff costs ofimports.
Since 1991, thescheme wasextended inorder tocover automotive machine tools,
automotive tooling anddesign, development andproduction services. TheAustralian IndustryG/SCM/Q2/AUS/5
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Commission estimates thedutysaving fortheAustralian industry fortheperiod tobeworth
$A763.3 m.Inaddition the94/95 Annual Report oftheIndustry Commission states: "Under
thescheme itisprofitable forfirms toexport ataprice which doesnotcover production costs,
provided thatthelosssosustained islessthanthebenefit fromtheduty-free entitlements earned
through thatexport activity" .TheCommunity concludes withrespect tothecriteria thatthis
programme constitutes anexport subsidy.
TheCommunity requests anotification under Article 25andrequests Australia to
elaborate onthisscheme, especially thecriteria andexport contingency.
(c) Textile Clothing andFootwear Import Credits Scheme (TCFICS)
TheTCFICS wasspecifically designed torestructure thetextile sector. Under the
scheme, forevery $A100 ofvalue added inTCFexports, amanufacturing company would
receive $A30 credit against thetariff ruling onimports.
TheIndustry Commission states thatthisbenefit subsidizes exports. In1994/1995
$A143 mworth ofcredits wereissued inresponse to$A850 mofexports. Thescheme provided
anaverage 15.5percentrateofexport subsidy (1993-1995). Regarding thetrade effects, the
Industry Commission claims thatsince theinception ofthescheme, exports oftextiles have
increased significantly.
TheCommunity requests anotification under Article 25.Could Australia elaborate
onthecriteria forgranting thesubsidy?
(d) Partnerships forDevelopment (PD) andFixed Terms Agreements (FTA)
ThePDandFTAschemes appear tobespecifically designed toforce foreign ITand
telecommunications firms toexport iftheywishtoparticipate ingovernment programmes.
Aforeign firm, whose government salesexceeds $A40 m,signs apartnership agreement by
which thefirmcommits itselftoexport anamount equal tohalfitsannual imports andanaverage
70percentlocalvalue added across allexports.
ThefactthatPDandFTAhaveaneffect ontrade isshown bytheexport results of
thecompanies involved intheschemes. According totheDepartment ofIndustry, the
participating firms reported exports of$A1.4 bn.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthissubsidy withArticle 3.1(a) oftheSubsidies Agreement?
(e) Export Finance andInsurance Corporation
TheEFIC wascreated bytheFederal Government inorder toachieve anincrease of
exports through theGovernment accepting ahigher levelandvariety ofrisk. EFIC'sgives
financial support totransactions insupportable under normal market terms. In1991-1992, this
federal body supported exports worth $A4.9 bn.In1993-1994, EFIC provided $A13.2 m
ofexport aid.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthissubsidy withArticle 3.1(a) oftheSubsidies Agreement?G/SCM/Q2/AUS/5
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(f) Export Market Development Grants Scheme (EMDG)
TheEMDG Scheme aimstosubsidize themarket opening costs ofSME'saiming to
export goods, services, industrial property rights andknow-how. Thescheme provides for
grants tocover partoftheinitial marketing expenses. Inorder tobeeligible, afirmmust
generate lessthan$A25 minexports andhaveincurred atleast$A30,000 incostsinaclaim
ayear.
TherateoftheEMDG expenditure hasincreased considerably overtheyears. The
totalamount ofEMDG subsidies rosefrom$A134 min1991-1992 to$A236.9 min1995-1996.
Apparently, theAustralian authorities havenotreleased anydataregarding theimpact ofthe
EMDG scheme onnewexports. However, thereisnodoubt thatprogramme aimsspecifically
toincrease export activity andwillhaveaconsiderable impact ofexports tothirdcountries.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthissubsidy withArticle 3.1(a) oftheSubsidies Agreement?
(g) International Trade Enhancement Scheme (ITES)
TheITEscheme wasestablished in1992. Theprogramme isdesigned toprovide
assistance toAustralian firms intheform ofconcessionary loans. Thefirmmust expect to
export atleast$A20 moverafive-year period. In1993-1994 thescheme wasextended to
smaller firms whowere notabletomeetthe$A20 mcriterion. Thefunds aresupposed to
berefunded through capital repayments orroyalties onexport sales. TheITES payments rose
from $A20.7 min1991-1992 to$A39.1 min1994-1995.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthissubsidy withArticle 3.1(a) oftheSubsidies Agreement?
(h) Innovative Agricultural Marketing Programme (IAMP)
TheIAMprogramme subsidizes ruralandrural-related export andimport replacement
projects. Theprogramme wassetupin1986foraninitial period offiveyears butwasextended
until 1996. Themaximum amount ofgrants is$A5mayear. Theexpenditure ofthe
programme liesbetween $A3.8 mand$A5.0 ayearintheperiod 1991-1996.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthissubsidy withArticle 3.1(a) oftheSubsidies Agreement?
(i) Export Access Programme
Thisprogramme wasestablished toprovide indirect subsidy assistance tosmall and
medium sized firms requiring training andpractical assistance inorder todevelop export
expertise. Theprogramme isoperated bytheAustralian Chamber ofCommerce andIndustry,
theMetal Trade Industry Association andtheCouncil ofSmall Business Organizations.
Theexpenditure oftheprogramme liesbetween $A1.0 mand$A6.1 ayearintheperiod
1991-1996.
TheCommunity requests anotification under Article 25.Could Australia comment
onthecompatibility ofthissubsidy withArticle 3.1(a) oftheSubsidies Agreement?G/SCM/Q2/AUS/5
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REGIONAL ORSUB-FEDERAL PROGRAMMES
Thefollowing isa(non-exhaustive list)ofstateprogrammes which theCommunity believes
should havebeennotified andonwhich theCommunity requests further clarification. TheCommunity
requests Australia tonotify thebelow described programmes andsupply thefollowing information:
policy objective, budget, subsidy perunit,criteria foreligibility, number andnature ofbeneficiaries,
duration ofthesubsidy, statistical datapermitting anassessment ofthetrade effects ofthesubsidy
and,ifappropriate acomment onthecompatibility ofthescheme withArticle 3oftheSubsidies
Agreement (asadopted bytheWTO Subsidies Committee on21July1995 (document G/SCM/6 of
9August 1995).
(a) Victoria
- Electricity tariff subsidy foraluminium smelters
Alcoa Australia isinreceipt ofpreferential electricity ratesforitsPortland andPort
Hedland smelters. Thecommercial benefit isworth $A200 mandgiven thatthemajor
proportion ofoutput isexported, seems tobeadefacto export subsidy.
TheCommunity requests more detailed andspecific information concerning these
electricity tariff subsidies foraluminium smelters where amajority oftheproduction
isexported. Could Australia comment onthecompatibility ofthescheme with
Article 3.1(a) oftheSubsidies Agreement?
- Market Entry Programme
TheVictoria 'sMarket Entry Programme provides subsidies forcompanies developing
anexport market strategy. TheGovernment alsoprovides foraidtonewexporters.
Inapilotphase, 20firms hiring anexport manager received a50percentsalary subsidy
inyear1and20percentinyear2.TheCommunity would likeafullnotification
oftheaidschemes onstatelevelandtoknow which criteria havetobemettoqualify
forthesubsidies (foreachprogramme), anduptowhatlevelaidcanbegiven byeach
state.
- Investment Attraction Programme
- Industry, Regional andTrade Support Programme
(b) NewSouth Wales
- State Development andCountry Industries Assistance Act
ThisActestablished theDevelopment Corporation ofNSW andtheCountry Industries
Assistance Fund which provide alargenumber ofincentives totheNSW industry such
assubsidized utilities and"competitive" taxregimes. TheNSW Authorities spentabout
$A608 million onassistance tonon-agricultural industry.
- Taxrebates forAsiaPacific regional headquarters
- Regional Business Development Scheme
- Regional Business Infrastructure ProgrammeG/SCM/Q2/AUS/5
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(c) Queensland
- Major Projects Incentive Schemes
- Business Development Programme
- Industry andTechnology Programme
(d) Western Australia
- Investment Promotion andFacilitation Programme
Thisprogramme provides subsidies toprojects selected bythestategovernment.
Examples: $A3.12 million interest ratesubsidy forErgLtd.and$A1.21 convertible
loanforAustal Ships
- Industry Development Programme
- Investment Attraction
(e) South Australia
- Economic Development Programme
Thisprogramme targets growth inexport earnings atarateof15percentperannum.
ThisgeneralprogrammeadministeredbytheEconomicDevelopmentAuthorityprovides
flexible assistance packages toawiderange ofbusinesses.
(f) Tasmania
- Industrial Development Programme
Thisgeneral assistance programme aimstoliftexports ofTasmanian businesses to
$A3.5 billion perannum andattract additional investment.