RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/451
11 June 2001
(01-2859)
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 and Comments of the United States
The following communication, dated 8 June 2001, has been received from the Permanent
Mission of the United States.
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General Comments
The United States appreciates the prompt replies submitted, respectively, by India and the
group of 10 delegations to the questions we circulated in G/SCM/W/445, in follow-up to the previous
discussions of the Committee on these issues.
The following additional questions will, hopefully, further clarify certain aspects of these
proposals, so that we might better understand their purpose and anticipated operation.  We arecontinuing to study and reflect carefully on these proposals, and will undoubtedly have further
questions to explore as we continue our consideration.
It bears reiterating, however, that we are pursuing these clarifications exclusively on technical
grounds, and the interest we may exhibit in improving our understanding of the proposals should notbe construed as necessarily reflecting an endorsement of them.
Indeed, the United States continues to harbour serious policy reservations about the merits of
any alteration to the Subsidies Agreement which would have the effect of loosening current
disciplines against distortive subsidy practices or generally encouraging the use of such subsidies,particularly export subsidies.  We continue to be concerned that at least some of these proposals
would have just that effect.
In light of these serious policy reservations, and the concomitant need to gain clearer
understanding and reassurance that our concerns about these proposals can be satisfactorily addressed,we are not in a position to draw any conclusions at this stage of the process.  We hope that the
Committee can continue to have a serious examination and assessment of these proposals, and offer
the following questions and observations in that  spirit.  We offer these comments and questions
without prejudice at this stage as to whether or not we endorse or concur with any or all of the
analyses and conclusions which those Members proposing clarifications or amendments have
advanced.  We look forward to continuing a serious discussion of these issues in the Committee.G/SCM/W/451
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Questions/Comments on G/SCM/W/447, submitted by India
Concerning the proposal regarding aggregate and generalized rates of remission of import
duties, in responding to our previous questions and concerns on the differences between an
industry-wide versus exporter assessment and th e possibility of an over-rebate, India states:
It is emphasized that the aggregate and generalized rate of remission
of import duties crucially depends on statistical information based on
a representative sampling of the industry as a whole.  In case the
sample is confined to only the exporters then the resulting data would
not give a reasonably accurate picture of the concerned industry.
This statement makes clear India’s view that getting a reasonably accurate picture of the
concerned industry is the primary objective of the statistical exercise.  That certainly would be true if
the duty rebates/remissions provided for under item (i) of Annex I of the WTO Agreement on
Subsidies and Countervailing Duty Measures applied to all production, or if production and exporting
were completely separate activities undertaken by completely different sets of firms.
However, item (i) is limited to exports, and Members’ economies as a general rule are not
characterized by completely separate production and export activities at the firm level.  Given this
fact, and the clear and explicit limitation of the scope of item (i), the statistical issue here can be
reduced to the following question:
• Absent the data needed to calculate directly the average amount of input consumed in the
production of the exported product, what is a reasonable way to estimate the above-mentioned
average?
In the context of trying to solve this problem, the point which the United States has raised
about the possibility of exporters having greater-than-average efficiency is as follows.  India is
absolutely right that greater efficiency among exporters is far from certain and may vary in degree
from industry to industry.  However, if sampling the whole industry and sampling exporters both are
feasible, then sampling only exporters (assuming that they are all producers) clearly is preferred given
the possibility of the bias that results from exporters being more efficient than non-exporters.
• In other words, if sampling the whole industry and sampling just exporters are two different
ways of estimating  the average amount of input consumed in the production of the exported
product, and the second way is never worse than the first, why would you ever use the first?
India points out that the population of exporters is a moving target, but so, too, is the whole
industry – firms drop out and start up all the time.  The United States is not arguing for perfection and
recognizes that all estimation techniques are imperfect.  Our only point is that sampling exporters
involves one less potential bias than does sampling the whole industry – again, bearing in mind that
the problem at hand is estimating the average amount of input consumed in the production of the
exported  product, not the average amount of  input consumed in production.
Turning to India’s comments on our questions regarding the issue of the share of imported
inputs consumed in the production process.  India has addressed concerns expressed about the
possibility of an overrebate from the use of an inflated basis for calculating the duty incidence by
proposing to use the lowest of the actual transaction prices available with the customs authorities.
First, as an aside, we would note here that it appears that under India’s proposal, the duty rate
would be applied to the product of (1) the lowest transaction price and (2) the amount of input neededG/SCM/W/451
Page 3
to produce a given quantity of the exported product, and then that amount of duty would be calculated
as a percentage of the value of the given quantity of the exported product.
• Is our understanding correct?  If so, what price would be used as the value component?
But returning to the basic suggestion, it’s our sense that India’s response addresses a valuation
issue, whereas the question we posed related the issue of usage, i.e., the possibility of an over-rebate
resulting from not getting right the extent of imports used that are consumed in the production of the
exported product.
From our perspective, it still remains unclear how exactly the aggregate and generalized rate
of duty remission would be adjusted to reflect the extent to which imports are consumed in productionof the exported product.
• Please explain more fully.
Turning next to the proposal concerning inputs consumed in the production process, and, in
particular, India’s comments on the matter of the allocation of depreciation of imported capital goods
across time.  India states that an amount for depreciation from the financial statement would be used
consistent with GAAP, and presumably, under India’s proposal, this amount would form the basis for
the aggregate and generalized rate of duty remission covering capital good imports.
• If so, to which financial statement does India refer?  Would it be some kind of average
financial statement, over all companies in the survey?
• Under the Indian proposal, would accelerated depreciation be used if GAAP allowed
companies to use accelerated depreciation for both tax and accounting purposes?
As is evidenced by our questions, we continue to hold a number of doubts and questions
about the reliability and accuracy of the alternat ive system being proposed by India with respect to
aggregate and generalized rates of remission.
• It would be of immense help to us and, no do ubt, other Members, if India could describe in
detail how its proposed system would work, in cluding examples of (1) how all relevant
statistics would be computed and (2) step-by-step procedures for calculating the aggregate
and generalized rate of duty remission for a given input, including adjustments to account for
the extent to which imported inputs are consum ed in the production of the exported product.
Comments on G/SCM/W/448 (22 May 2001) from Cuba, Dominican Republic, Honduras, India,
Indonesia, Malaysia, Pakistan, Tanzania, Uganda and Zimbabwe.
Irrespective of whether it is correct to observe that the “majority” of WTO Agreements have
transition periods of five years or more, we remain of the view that the transition period referred to in
Article 27.5 and 27.6 is of a fundamentally different nature.  In other circumstances involvingtransitions, Members are expected to come into conformity with their obligations not as a result of a
particular event but as part of a broader and graduated implementation of obligations.
In Article 27.5, the transition provision is geared to circumstances in which a developing
country has become “export competitive” in a particular product line.  As a result, to the extent thatexport subsidies were ever consistent with a given country’s development needs, they would no
longer be appropriate in the circumstances referenced in 27.5 - 27.6 due to the inherently distortive
nature of such subsidies.G/SCM/W/451
Page 4
As a result, just as Article 27.4 provides a wi ndow of two years to complete the elimination of
export subsidies more generally when a developing country’s particular situation no longer makes
appropriate the use of such subsidies, it is logical and symmetrical that a similar two-year window
would apply in these circumstances.
As to the issue of whether, independently or in conjunction with this proposal, it would be
appropriate to expand the scope of Annex VII so that “a large number of developing countries may
benefit from it,” the position of the United States is very clear.  We do not accept it.  For reasons we
have stated previously, it would be wrong for th e trading system and wrong for the countries which
such a change would purport to help.  In any case, the Committee has not been requested to consider
any such proposals, so it would be inappropriate in  our view to suggest that the Article 27.6 proposal
be viewed or justified in the context of such other proposals.
As for our third observation, it is not correct that the United States assumes that developing
countries “are able to give high levels of subsidies as direct payments to their industries.”  Our point is
that a subsidy is a subsidy, irrespective of whether it is provided in the form of a direct cash payment
or manifests itself as money uncollected by govern ment which it would otherwise collect.  When tied
to exports, either form of subsidy is just as di stortive, just as harmful to that country’s trading
partners, and just as apt to result in wasteful competitive subsidization.  The extent to which any such
practices ever employed in the past by developed countries “helped them attain their present level of
development” is debatable, at best.
In any event, we must return to one of our fundamental concerns, which is that providing the
opportunity to reintroduce export subsidies runs counter to the basic thrust of the Subsidies
Agreement and suggests perversely that countries should be encouraged to employ export subsidies
with the express purpose of attaining export comp etitiveness. We agree that developing countries
should have a full opportunity and support to pursue sound economic and trade policies to achievetheir goal of greater international competitiveness, and we accept that they must or sometimes choose
to continue the use of export subsidies during the period in which they are adopting such sound
policies.  We do not agree, however, that export subsidies constitute sound policies and that somehow
they should be endorsed by the Agreement as a means of achieving competitiveness.
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