RESTRICTED
WORLD TRADE G/SCM/W/413
14October 1996
ORGANIZATION(96-4251)
Committee onSubsidies andCountervailing Measures
NOTE FROM THE INFORMAL GROUP OFEXPERTS
TheInformal Group ofExperts onCalculation Issues Related toAnnex IVoftheAgreement
onSubsidies andCountervailing Measures hasheldsixmeetings todate. TheInformal Group ofExperts
wasestablished pursuant toFootnote 62toAnnex IVoftheAgreement, bydecision oftheCommittee
(G/SCM/5).
Theattached outline identifies theissues thathavebeendiscussed todatebytheInformal Group
ofExperts. Bywayofgeneral background, thefollowing points arerelevant:
1. Theidentification ofissues andpossible methodological approaches isexclusively inthecontext
ofcosttogovernment, asrequired byparagraph 1ofAnnex IV.
2. Theinclusion ofanygiven typeofmeasure intheoutline isnotintended toimply thatsuch
ameasure inallcaseswould beasubsidy. Rather, onlymeasures thataresubsidies perArticle 1
oftheAgreement andarespecific perArticle 2would berelevant inanyproceeding pursuant
toArticle 6.1(a).
3. Similarly, theoutline isnotintended toimply thatanysubsidy meeting thecriteria fornon-
actionability assetforth inArticle 8oftheAgreement would berelevant inthecontext of
Article 6.1(a). Asrequired byparagraph 8ofAnnex IV,non-actionable subsidies bydefinition
would beexcluded from anycalculation pursuant toArticle 6.1(a).
4. Theoutline reflects theissues thathavearisen intheInformal Group ofExperts 'discussions
todate. Thus, itisnotintended torepresent anexhaustive listofalltopics thatmight berelevant
under Annex IV.G/SCM/W/413
Page2
Outline ofIssues Discussed bytheInformal Group ofExperts
I. Expensing versus allocation ofsubsidy benefits
A. Table withdraftillustrative list
B. General principles/presumptions
1. Whether large andnon-recurring
2. Whether usedforpurchase offixed assets
3. Whether oriented toward future production
4. Whether consists ofequity
5. Whether carried forward inrecipient 'saccounting records
C. Implications fordetermination ofserious prejudice based on5%threshold
II. Allocation period
A. Useful lifeofassets
1. How determined
2. Applied toalltypes ofallocated subsidies?
B. Other period(s) forsome subsidies (e.g.lifeofloanforloanbenefits)?
III. Time value ofmoney
A. Whether appropriate incontext ofcosttogovernment
B. Ifincorporated, methodological issues
1. Discount rate
2. Shape ofbenefit stream (upward/downward sloping)G/SCM/W/413
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IV. Inflation
A. Consistent basis fornumerator anddenominator
B. Inflationary economy countries (paragraph 5)
1. Definition of"inflationary"
2. Whether andhowtoreflect inflation innumerator
V. Sales denominator
A. Period onwhich based
1. Year prior toyearinwhich subsidy "granted" (Annex IV,paras. 2and3)
2. Could "granted" bedeemed alsotoencompass "allocated" (suggesting annual
revision)?
B. Variability
1. When (what criteria/periodicity) andhow: every year; onlywhen anew
subsidy; different denominators fordifferent subsidies?
2. Concerns overcertainty vs.effects ofpassage oftime/changing circumstances
onsalesvalues
3. Relevantincontextofwhether5%isappliedonacompany-specificorindustry-
widebasis
C. Question ofallocation ofsubsidies toparticular products (alsorelevant tonumerator)
VI. Government costoffunds
A. How tocalculate, when toapply
B. Components
1. Costofborrowed funds
2. Costs ofraising taxes
3. Feespaidbysubsidy recipientsG/SCM/W/413
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C. Dataissues/feasibility
1. OECD vs.non-OECD countries
2. Level ofgovernment (national/state vs.municipal)
3. Sources ofdata
(a) Bond yields, other interest costinformation
(b) Costofraising taxes
VII. CosttoGovernment ofDifferent Types ofSubsidies
A. Grants
1. Outright
(a) Facevalue
(b) Treatment ofgrants paidininstalments: asifgranted atasingle
moment, orasifmultiple grants?
2. Reimbursable
(a) Similar tocontingent liability loans
(b) Subsidy: facevalue lessanyreimbursement
(c) Point, ifany,atwhich deemed outright grant (i.e.reimbursement
conditions notfulfilled).
B. Loans
1. Ordinary
Difference between amount repaid andcostoffunds.
2. Contingent liability
(a) Similar toreimbursable grants; treatasinterest freeloan?
(b) Subsidy: shortfall, ifany,between amount repaid andcostoffunds.
(c) Point, ifany,atwhich deemed grant (i.e., contingency notfulfilled)G/SCM/W/413
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C. Interest ratesubsidies
1. Possibility oftreating assubsidized loan(e.g.ifknown inadvance byrecipient)
2. Possibility oftreating asgrant (e.g.ifnotknown inadvance byrecipient)
D. Debt Forgiveness
1. Subsidy: amount ofdebtforgiveness
2. Relationship topresumption under Article 6.1(d)
E. LossCoverage
1. Subsidy: amount oflosscoverage
2. Relationship topresumption under Article 6.1(b) and(c)
F. TaxConcessions
Ingeneral, amount ofrevenue foregone
1. Accelerated depreciation
(a) Year-by-year orcumulative calculation?
(b) Former mayassume future non-profitability; latter maynotreflect
reality, duetoroll-overs
(c) Company-specific orprogramme-wide?
2. Taxexemptions
Amount thatwould havebeencollected
3. Taxdeductions
Amount thatwould havebeencollected
4. Taxdeferrals
Could betreated asinterest-free loansG/SCM/W/413
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G. Equity Infusions
1. Benchmark market price forstock, ifavailable
2. Ifstock nottraded:
(a) Studies concerning future profitability
(b) Calculations based onfinancial ratios, ofwhatstock price should be
(c) Ifcompany notequityworthy, howshould subsidy becalculated?
3. Duration ofbenefits (e.g. indefinite period, benefits arising year-by-year
(OECD); orsome other approach toidentify relevant period)
H. Loan Guarantees
Tobediscussed
I. Government provision ofgoods and/or services
1. Preferential price inrelation tomarket price
2. Possibleadditionalrequirementthatprovidingcompanyisincurringlossoverall
(a) Should thisberequired?
(b) Ifso,howtodefine losscoverage, i.e.,would target profit levelbe
builtintodefinition ofcost?
3. Specificity: required
J. Government purchase ofgoods
Tobediscussed
K. Forgiveness oflegalobligations
1. Specificity (e.g.bankruptcy protection)
2. Examples: coverage bygovernment ofseverance payorotherlegally-imposed
employment costs; possibly certain environmental costs
L. Export credit insurance/export promotion/other export-related
Notnecessarily relevant under Article 6G/SCM/W/413
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M. Upstream subsidies
Pass-through analysis necessary
N. Multiple exchange rateprogrammes
Further information needed onusage ofmultiple exchange rates
O. Research anddevelopment subsidies
1. May takedifferent forms (grants, loans, etc.) -Calculation ofcostto
government depends onform
2. Question ofallocation toparticular products dueto:future orientation; general
nature ofsome research activities
P. Worker training
1. Canbesimilar towage subsidy
2. Questions ofspecificity andbenefit
3. What benchmark fordetermining costtogovernment (e.g.facevalue orbased
oncomparison withcostofunemployment benefits)