./.WORLD TRADE
ORGANIZATIONTN/RL/W/135
14 July 2003
(03-3805)
Negotiating Group on Rules Original:  English
COMMENTS AND VIEWS FROM AUSTRALIA ON CANADA’S SUBMISSION ON
IMPROVED DISCIPLINES UNDER THE AGREEMENT ON SUBSIDIES AND
COUNTERVAILING MEASURES (DOCUMENT TN/RL/W/112)
The following communication, dated 11 July 2003, has been received from the Permanent
Mission of Australia.
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The following is based on comments and questions raised at the June 2003 session of the
Negotiating Group on Rules in relation to Canada’s further submission on proposed issues for
clarification and improvement of disciplines under the WTO Agreement on Subsidies and
Countervailing Measures.  Australia thanks Canada for this contribution which usefully develops
areas for possible clarification and improvement.
Australia agrees that the constituent elements of the definition of a “subsidy” and the pass-
through of a benefit must be clearly established in an investigation.  It would be useful for
consideration to be given to establishing guidelines to assist in pass-through analyses for investigating
authorities.  Australia also agrees that there are certain aspects of the definition of “specificity” within
SCM Article 2 that could be clarified.
On serious prejudice, Australia notes Canada’s proposal to reinstate and enhance SCM
Article 6.1.  Australia considers that SCM Article 6.1 has been ineffective due to the lack of clarity
and complexities involved in relation to the calcul ation of the ad valorem subsidization deeming level.
Australia is of the view that the reinstatement of SCM Article 6.1 would therefore be premature
without further work in relation to Annex IV as Canada has proposed (and indeed Australia hasproposed that the work undertaken by the Informal Group of Experts on calculation would be a good
basis for further examination of calculation of subsidization in the context of Part V of the SCM and
sees value in such work continuing).
Canada refers to Paragraph 4 of Annex IV and the possibility of improving disciplines in
relation to start-up subsidies.  Given the range of issues examined by the Informal Group of Experts
such as allocation of subsidies and depreciation, Australia would be interested in Canadian views on
the relationship between start-up subsidies in paragraph 4 of Annex IV (the 15% deeming level) and
the 5% deeming level specified in SCM Article 6.1.  Australia would also appreciate further
elaboration on the improved disciplines on start-up subsidies that Canada is seeking.  Is Canadaseeking to explore this on the basis of the text of Annex IV in relation to start-up subsidies or seek to
have specific provisions relating to such subsidies captured by the provisions of the SCM proper?
Australia would also welcome Canada’s views on the implications of Annex IV, paragraph 1,
which states that any calculation of the amount of a subsidy “shall be done in terms of the cost to the
granting government” (emphasis added).  One of the constituent elements of the definition of a
subsidy is conferral of a benefit .  Case law has supported that it is the benefit, not the cost toTN/RL/W/135
Page 2
government, which determines a subsidy.  Australia is of the view that any future examination or
work in relation to calculation of subsidization must ta ke into account, first that there is a benefit and
secondly, how that benefit is calculated.  Should that be on the basis of cost to government?
On the issue of possible improvements and clarifications to countervail investigations,
Australia agrees that it would be useful to look at  guidelines on how to quantify a subsidy.  Australia
notes that Canada has given an example of roya lty-based financing and that the Informal Group of
Experts did not reach a consensus on the cost to government of government providing such financing.
That Group noted in its supplementary report that consensus was unlikely to be reached.  However,
Australia is interested in further Canadian views on this issue.
Canada proposes that where a domestic like product is itself being subsidized, modalities
should be explored whereby there is a net effect assessed between domestic and foreign subsidies.
Australia believes that this goes beyond the scope of the WTO Agreements to provide a legitimate
remedy to subsidization.
Notwithstanding that there may be a subsid y conferred on a domestic like product, the
permissible remedy is to counter or offset the injurious effect of subsidized imports  on the domestic
industry within the importing Member’s market.  It is the existence of a subsidy which benefits
imported product, not the domestic product, which is causing injury.  A countervail investigation is
based on prima facie evidence of injurious subsidization notwithstanding that assistance may be
provided to the domestic like product.  Causation must be demonstrated.  There is no “differentialimpact” but an assessment of the impact of subsidized imports.  An assessment of factors other than
the subsidized imports which may be injuring the domestic industry is also taken into account in a
countervail investigation.  “Trade” has been distorted only to the extent that imports into the domestic
market have been injuriously subsidized.  Whether or not the domestic like product is subsidized and
exported and causing injury in another market is not at the heart of the countervail investigation.Indeed, it could be argued that, without such subs idization of the domestic like product, the injurious
effect of the subsidized imports in the importing Member’s market may be greater.  Australia would
therefore appreciate clarification from Canada on how modalities could be developed which would be
consistent with SCM Article 15 in relation to the determination of injury.
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