WORLD TRADE  
ORGANIZATION  TN/RL/GEN/22 
19 October 2004 
 (04-4405) 
Negotiating Group on Rules Original:   English 
  
 
PROHIBITED EXPORT SUBSIDIES 
 
Communication from Australia
 
  
 The following communication, dated 18 October 2004, is being circulated at the request of 
the Delegation of Australia.   The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(04)/ 151), also be circulated as a formal document. 
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 Article 3.1(a) of the WTO Agreement on Subsidies and Countervailing Measures (SCM) 
provides that:  
(a) subsidies contingent , in law or in fact
4, whether solely 
or as one of several other conditions, upon export 
performance, including those illustrated in Annex I … 
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4This standard is met when the facts dem onstrate that the granting of a subsidy, 
without having been made legally contingent  upon export performance, is in fact tied 
to actual or anticipated exportation or expor t earnings. The mere fact that a subsidy 
is granted to enterprises which export shall not for that reason alone  be considered to 
be an export subsidy within the meaning of this provision.” 
I.   ISSUES 
 
 Australia previously identified in earlier papers1 that there is currently a lack of clarity in the 
rules relating to prohibited subsidies contingent ‘in fact’ upon export performance.  Specifically, 
Australia identified that the standard for meeting the ‘in fact’ contingency under SCM Article 3.1(a) 
currently lends itself to discriminatory and unpredicta ble treatment.  It is discriminatory, given that 
WTO case law has appeared to place a greater weight  on the export propensity of a product in the 
range of factors which are examined to determine export contingency.  Notwithstanding that the facts 
and circumstances will clearly vary on a case by case b asis, it is unclear as to what facts are to be 
determinative in any assessment of  ‘in fact’ export contingency. 
  Australia also noted that WTO case law had acknowledged the difficulties associated with an 
analysis of ‘in fact’ export contingency.  In summary, such case law has considered the following 
matters and found:  
• It is not sufficient to demonstrate solely that a government granting a subsidy anticipated  that 
exports would result but that the government granted the subsidy contingent  upon export 
performance.   
                                                     
 
1 Document TN/RL/W/85 and TN/RL/W/139 TN/RL/GEN/22 
Page 2  
 
  
• In relation to footnote 4, second sentence, of Article 3.1(a), “merely knowing that a 
recipient’s sales are export-oriented does not demonstrate, without more , that the granting of 
a subsidy is tied to actual or anticipated exports” (emphasis added).
2   
 
• Export orientation may be taken into account as a relevant fact provided that it is one of 
several facts and not the only fact supporting a finding.   
 
• The nearness-to-the-export-market factor of de monstrating export contingency needs to be 
treated with caution.3 
  Australia considers that clearer rules and obj ective and verifiable criteria are needed on the 
conditions or facts which give gro unds for a conclusion that a subsid y is contingent ‘in fact’ upon 
actual or anticipated export performance.  There is no guidance on what facts or what kinds of facts 
must be taken into account.     Currently the rules relating to subsides are discriminatory in favour of large markets or economies.  A subsidy provided to a product by a WT O Member with a large domestic market for that 
product may be actionable but carry little if no risk of  being found to be export contingent.  The same 
subsidy provided to a product by a WTO Member  with a relatively small domestic market may 
represent a very high risk of being contingent on export performance given a much higher export 
orientation.  Further, a product may be subsidised but, due to fluctuating domestic market conditions, 
may no longer be solely for the domestic market.   
 
 Consideration of the levels of export competitiv eness in a product is al ready reflected in the 
SCM in the context of special and differential treatm ent.  In that context, export competitiveness is 
measured by a Member’s share of world trade in th at product for a specified time period.  Australia 
considers that it may be feasible to examine whethe r, as a result of subsidization, a Member’s export 
competitiveness has increased to certain  levels and not been at those le vels for sustained periods.  The 
weight given to export orientation in considering ‘in fact’ export contingency could therefore have 
relevance by virtue of the increase in th e export competitiveness of the product.   
  Clearer rules on prohibited subsidies continge nt ‘in fact’ upon export performance also are 
important in the context of the remedies for prohibi ted export subsidies.  It has also been suggested 
that it may be appropriate to strengthen the remedies for prohibited subsidies in the context of 
countervailing duty proceedings 
4.  Australia agrees that it is important to maintain the presumption 
that prohibited subsidies cause serious trade effects.  However, it is equally important that it be clearly 
established whether a subsidy is prohibited for the purposes of counterva iling duty investigations. 
  Australia noted its experience in countervail investigations where investigating authorities 
establish firstly (and correctly) the existence of a su bsidy but determine (incorrectly) that the subsidy 
is contingent on export performance by virtue of the fact that the company being investigated is 
exporting.  If there are no clear rules or guidelines to be able to determine whether or not a subsidy is 
contingent ‘in fact’ upon export performance, this cl early will affect the calculation of the level of 
subsidization to the product in c ountervailing duty investigations.  Th e incorrect deeming of a subsidy 
to be prohibited ‘in fact’ upon export performance af fects the use of the appropriate denominator in a 
countervail calculation.  In other words, a company’ s total export sales will be used rather than total 
sales.  
                                                     
 
2 Canada – Measures Affecting the Export of Civilian Aircraft , (hereafter Canada – Aircraft ), 
Appellate Body Report, WT/DS70/AB/R, Adopted 8 August 1999, paragraph 173 
3 Ibid., paragraph 174 
4 See TN/RL/W78  TN/RL/GEN/22 
 Page 3 
 
 
  
II.  PROPOSED AMENDMENTS 
 
 Australia proposes the following amendments to the SCM:  
(i) Australia proposes that in considering a range of factors, it should be made clear that 
export propensity should not be a factor taken in  isolation.  Currently footnote 4 to Article 
3.1(a) does not adequately address situations  where domestic markets of a subsidizing 
Member are small or where there are fluctua ting market conditions, such that products 
destined for the domestic market have to be sold on the export market.   
 
(ii) Australia proposes that footnote 4 to Article 3.1(a) be amended.  An illustrative, non-
exhaustive range of factors that should be taken into account for export contingency, 
could be listed. 
 
This list could include the conditions or performance requirements attached to the 
granting of the subsidy; and the export orientation (in the context of export 
competitiveness of a product). 
 
(iii) Just as footnote 35 to Article 10 elaborates on establishing whether a measure falls within 
the parameters of Article 8.1(a) to determine specificity or a measure within Article 8.2 to 
determine if the measure is non-actionable, Australia also proposes that investigating 
authorities should ensure that consideration of  the facts relating to contingency on export 
performance is clearly established in a countervail investigation. 
 
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