RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/445
9 May 2001
(01-2386)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
FOLLOW-UP QUESTIONS AND COMMENTS CONCERNING
PROPOSALS ON IMPLEMENTATION-RELATED ISSUES
REFERRED TO THE COMMITTEE IN THE 15 DECEMBER 2000
DECISION OF THE GENERAL COUNCIL
Questions from the United States
The following communication, dated 8 May 2001, has been received from the Permanent
Mission of the United States.
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Technical Paper and Proposal Regarding Article 27.6 of the Agreement - Honduras
The United States presents the following questions and comments as an initial reaction to the
replies given by Honduras and the Dominican Republic, on behalf of the co-sponsors of the proposal
set forth in G/SCM/W/431/Rev.1, during the informal meetings of the Committee on Subsidies and
Countervailing Measures on 1 and 3 May.  As indicated by the US delegation in those meetings, the
United States continues to study the proposal and the explanations provided, and reserves the right to
submit further questions and comments at a later stage of the Committee’s consideration.  Moreover,the United States provides these questions and comments without prejudice to its ultimate views
(whether of a technical or policy nature) on the desirability or not of this or any similar proposal.
What is the basis for the proposed five-year period for determining export competitiveness?
If it is simply that the proposed five-year period corresponds to the length of many transition periodsin the WTO agreements, what exactly were your findings from surveying the agreements?  The
United States agrees that “export competitiveness” should be measured on a basis that reasonably
reflects the attainment of genuine competitiveness in world markets, as opposed to its resulting from
temporary conditions of market volatility.  But given that all developing country Members other than
those referenced in Annex VII were provided eight years to phase out their export subsidies, a period
which ends on 1 January 2003, we question the practical value of establishing a five-year period for
determining competitiveness.  In this regard, is it envisaged that this proposal would apply only with
respect to developing country Members referenced in Annex VII?
The provision which would allow developing country Members to re-introduce export subsidies in the
event that export competitiveness is lost appears to be predicated on the belief that the Subsidies
Agreement is intended to sanction or encourage the use of export subsidies by developing country
Members in order to achieve and maintain export comp etitiveness.  What is the basis for this belief in
the Subsidies Agreement?G/SCM/W/445
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Proposal Concerning Aggregate and Generalized Rates of Remission of Import Duties1 - India
The United States presents the following questions and comments as an initial reaction to the
replies given by India during the informal meetings of the Committee on Subsidies and
Countervailing Measures on 1 and 3 May with respect to its proposal set forth in G/SCM/W/430regarding aggregate and generalized rates of remission of import duties.  As indicated by the US
delegation in those meetings, the United States continues to study the proposal and the explanations
provided, and reserves the right to submit further questions and comments at a later stage of the
Committee’s consideration.  Moreover, the United States provides these questions and comments
without prejudice to its ultimate vi ews (whether of a technical or policy nature) on the desirability or
not of this or any similar proposal.
First, as we understand it, the primary stated aim of India’s proposal is to reduce reporting
and information- and data-carrying burdens on companies.  The United States is prepared to review
constructively suggestions for achieving this goal, provided  that this can be achieved without an
undue loss of transparency or accuracy.  That said, we are unsure that the suggestions outlined by
India would ultimately have the effect of lessening the administrative, data-gathering and reportingburdens.  For example, in its responses to questions from Switzerland, Canada, the EC, and the
United States, India explains that: (i) a large number of companies would be surveyed; (ii) the survey
would be supplemented by on-site verifications at selected companies; (iii) such information would be
analyzed (and therefore presumably collected and verified) on an ongoing basis; and, (iv) in the case
of capital goods, company  data on machine operating time by product, export and domestic sales
turnover data, machine-specific depreciation data, and trend data on import sourcing would ensure
accurate apportionment of the duty incidence on capital goods to the exports in question.  (We note
that item (ii) suggests that all companies would have to maintain detailed data records, since each
would have to be ready for an on-site verification, if selected.)  We appreciate that India has suggested
these elements in an effort to reassure Members about their transparency and accuracy concerns, but itstill leaves us sceptical that the goal of reducing burdens would be achieved.
However, assuming that the goals of burden reduction could be satisfied and balanced with
the need for an acceptable degree of transparency and accuracy to be maintained, an important issue
still seems to remain.  That is whether the extent of overrebate should be considered on a company-
specific or aggregate, industry-wide basis.
Our concern with India’s proposal is that, even on an industry-wide basis, India’s
methodology likely would result in an overrebate.  Under India’s proposal, the aggregate rate of duty
remission would be calculated on the basis of the input utilization rates of a large number of surveyed
companies, across which production efficiency is likely to vary, perhaps considerably.  Then, to the
extent that the exporters in an industry tend to be the most efficient companies, the aggregate rate ofduty remission proposed by India would exceed the ac tual, average rate of tax incidence for exporters,
i.e., result in an overrebate, because the aggregate rate of duty remission (based on both relatively
inefficient non-exporters and relatively more efficient exporters) will reflect an input utilization rate
higher , on average, than that of (the relatively more efficient)  exporters.  Statistical sampling
techniques are not the answer, here, as the problem is one of  identifying and surveying the correctpopulation of companies, which is all exporters, not producers, of the export good in question. [ Note :
In a more complicated situation, importers, producers and exporters might be distinct and separate
units.  In that case, all three groups collectively make up the relevant population: the importers have
                                                     
1 Throughout these questions and comments, unless noted otherwise, the term “exporter”
means a producing unit that exports and pays duties on imported inputs used to produce the exportedproduct.G/SCM/W/445
Page 3
the data on duties paid; the producers have data on inputs actually used; and the exporters have data
on exports and duties remitted.]
The United States is also concerned about the possibility of overrebate in the context of adjusting the
aggregate rate for the extent to which imports are used in the production of the export good inquestion.  India has not yet explained how the aggr egate rate of duty remission would be adjusted in
this regard.  On what basis does India propose making this adjustment, from which sources or
companies would data be collected, and what would be the actual mechanics of the adjustment?
Proposal Concerning Inputs Consumed in the Production Process - India
The United States presents the following questions and comments as an initial reaction to the
replies given by India during the informal meetings of the Committee on Subsidies and
Countervailing Measures on 1 and 3 May with respect to its proposal set forth in G/SCM/W/430
regarding inputs consumed in the production process.  As indicated by the US delegation in those
meetings, the United States continues to study the proposal and the explanations provided, and
reserves the right to submit further questions and comments at a later stage of the Committee’sconsideration.  Moreover, the United States provides these questions and comments without prejudice
to its ultimate views (whether of a technical or polic y nature) on the desirability or not of this or any
similar proposal.
The United States remains concerned about problems associated with defining a capital good
and allocating depreciation across time and across the multiple products that a company may produce.
For example, with respect to allocations of depreciation across time, while it is true that a
country’s Generally Accepted Accounting Principles (GAAP) typically include depreciation
schedules, national tax codes often allow accelerated depreciation that bears no relation to accountinguseful life.  In such cases, accelerated depreciation could result in an overrebate of taxes and
competitive advantages early in the life of the capital good that might not be fully offset later in the
life of the capital good, after the capital good is fully depreciated (for tax purposes).
These concerns, most of which would persist even in the case of a tax exemption granted to a
company that produces for export only, highlight the difficult problem of minimizing the negative
impact of taxes on export competitiveness, while at the same time guarding against rebates that wouldunfairly confer a competitive advantage upon exports.
Proposal for the Amendment of Footnote 61 of the Subsidies Agreement - Colombia
The United States presents the following questions and comments as an initial reaction to the
replies given by Colombia during the informal meetings of the Committee on Subsidies and
Countervailing Measures on 1 and 3 May with respect to its proposal set forth in G/SCM/W/429.  As
indicated by the US delegation in those meetings, the United States continues to study the proposal
and the explanations provided, and reserves the right to submit further questions and comments at a
later stage of the Committee’s consideration.  Moreover, the United States provides these questionsand comments without prejudice to its ultimate view s (whether of a technical or policy nature) on the
desirability or not of this or any similar proposal.
We understand the distinction Colombia is making between a system that rebates prior-stage
taxes on export and a system that exempts prior stage taxes on imports (of the input), as well asColombia’s claim that the latter system obviates th e need for a calculation system because it precludes
overrebates.G/SCM/W/445
Page 4
We note that item (h) covers only prior-stage cumulative indirect taxes, not import charges
and not VAT.  However, Colombia’s paper in sections 2 and 3 refers both to indirect taxes and import
taxes.  Does Colombia’s proposal cover both, or just indirect taxes?  Is Colombia’s proposal limited to
tax exemptions and the first part of item (h)?  The proposal refers to deferrals, as well as exemptions.
By “deferral,” do you mean a delayed exemption, i.e., an exemption that is contingent upon export?
We agree that the scope of the first part of item (h) is seemingly broad, arguably covering
capital goods used in the production of an exported good.  And, as Colombia’s paper appears to note,
the first part also is clear in allowing a rebate or exemption of indirect taxes on capital good imports
used to produce a good for export, but only to the extent that such rebates or exemptions are allowed
on capital goods used to make products like the exported good that are sold domestically.  Would
Colombia please elaborate on its proposal to meet the requirements of the first part of item (h) bymeans of “structured incentives for export compan ies whose production is intended partly but not
exclusively for the international market”?  How would this work and what structured incentives does
Colombia have in mind?  Would specialized capital good imports used to produce for export only
qualify under the first part of item (h)?  If so, on what basis?
Would export-only companies qualify for a tax exemption on capital good imports under
Colombia’s proposal?  If so, on what basis?  If not, would such an exporter – as Colombia sees it –
qualify under part two of item (h), if footnote 61 covered capital goods?
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