RESTRICTED
WORLD TRADE G/SCM/Q2/USA/10
3July1997
ORGANIZATION(97-2771)
Original: English Committee onSubsidies
andCountervailing Measures
SUBSIDIES
Replies oftheUNITED STATES1toQuestions Posed by
KOREA2,NORWAY3,JAPAN4,theEUROPEAN COMMUNITY5,
ARGENTINA6,INDIA7,CANADA8,andTHAILAND9
Thefollowing communication, dated 23June1997, hasbeenreceived from thePermanent
Mission oftheUnited States.
_______________
TABLE OFCONTENTS
Page
Questions from Korea ..............................................2
Questions from Norway .............................................4
Questions from Japan ..............................................5
Questions from theEuropean Community ..................................6
Questions from Argentina ............................................33
Questions from India ...............................................35
Questions from Canada .............................................38
Questions from Thailand ............................................40
1G/SCM/N/3/USA &Corr.1.
2G/SCM/Q2/USA/1,3G/SCM/Q2/USA/2,4G/SCM/Q2/USA/3 &Rev.1,5G/SCM/Q2/USA/4 &9,6G/SCM/Q2/USA/5,
7G/SCM/Q2/USA/6,8G/SCM/Q2/USA/7 &Suppl.1,9G/SCM/Q2/USA/8.G/SCM/Q2/USA/10
Page2
Questions from KOREA (G/SCM/Q2/USA/1)
Q1. Itseems thattaxcredits orexemptions forinvestments were omitted inthenotification.
Please explain thereason fortheomission andifpossible, provide alistoftaxrelated subsidies
andtheir contents.
Answer
Since submitting our1995notification, wehaveexamined andanalyzed various taxprogrammes
andprovisions andplantoinclude information relevant tothenotification requirement inafuture
notification.
High Speed Research Programme
Advanced Subsonic Technology Programme
Q2. According tothenotification, itseems thatthese arenon-actionable subsidies likethe
pre-competition activities. Please provide therates ofsubsidies paidfortotalR&D expenses.
Answer
Without prejudice towhether ornotthese programmes constitute non-actionable subsidies,
wearenotcurrently notifying theseprogrammes under Article 8.3oftheAgreement fornon-actionable
treatment. Itis,therefore, unnecessary toprovide information demonstrating thespecific manner and
levels bywhich R&D costs eligible fornon-actionable coverage areshared among thegovernment
andprivate sector participants forpurposes ofanArticle 25notification. Therelative intensity of
government participation inindividual projects under these programmes willvaryfromoneinstance
toanother based onavariety offactors.
Q3. Could youexplain thecontracting conditions andtheparticipating enterprises ofthese
programmes?
Answer
Thecontracts usedfortheseprogrammes arebased onfixed-price orcost-reimbursement terms,
withafewofthelatter containing cost-sharing andincentive oraward feeprovisions. Thegrants under
thisprogramme predominantly arewithuniversities andareofacost-reimbursement, no-fee nature.
FortheHighSpeedResearchprogramme,keyparticipatingorganizationsareBoeing,McDonnell
Douglas, General Electric andPratt&Whitney.
FortheAdvanced Subsonic Technology programme, inaddition totheabove-listed companies
andother companies building components andengines forlargesubsonic transport aircraft, more than
73manufacturers, associations, anduniversities involved ingeneral aviation participate.
Partnership foraNewGeneration ofVehicles
Q4. Itisstated that"The PNGV isacooperative R&D programme between various agencies
oftheUSFederalGovernmentand,primarily,USCAR".However,theobjectiveofthisprogramme
(toimplement commercially viable innovation from ongoing research onconventional vehicles)
seems nottobeconsistent withtheconditions ofthenon-actionable research subsidy (tosubsidize
industrial research orpre-competitive development activities).G/SCM/Q2/USA/10
Page3
Answer
Asexplained inourresponse totheEuropean Community ’squestions withrespect tothePNGV,
thePartnership islessadiscrete “programme ”thanitisacoordinative mechanism foravariety of
interrelated projects andcooperative activities. Without prejudice toanypotential claims wemaywish
tomake inthefuture withrespect tothenon-actionable nature ofR&D activities occurring under the
auspices ofthePNGV, wenotethatthecurrent notification under review isanotification pursuant
toArticle 25oftheAgreement. Ifandwhen theUnited States makes anotification ofanyprogramme
pursuant toArticle 8.3oftheAgreement, theconditions ofnon-actionable research subsidies willbe
addressed.
Q5. CanthePNGV beregarded asaproject thatcanbeconverted orused forindustrial
application orcommercial exploitation?
Answer
Aswestated inournotification ofthisprogramme, andasKorea itself notes intheprevious
question,oneofthethreemaingoalsofthePNGVprogrammeasawholeis“toimplementcommercially
viable innovation fromongoing research onconventional vehicles. ”However, wesuspect thatKorea
isagain interested ininformation which would relate tothecompatibility ofthese activities withthe
provisions ofArticle 8.2oftheAgreement. Werepeat: theUnited States hasnotsubmitted anotification
pursuant totheprovisions oftheArticle 8.2and8.3oftheAgreement. Again, without prejudice to
anyclaimwhichwemaylatermakewithrespecttothisprogrammeanditscompatibilitywithArticle8.2,
Korea ’squestion appears torelate to“pre-competitive development activity ”asthattermisdefined
inthecontext ofthenon-actionable subsidy provisions oftheAgreement. Assuch, itisnotgermane
tothediscussion ofthisnotification under Article 25.
Textile/Clothing Technology Corporation Programme
Q6. Itisstated that"The Textile/Clothing Technology Corporation isanon-profit membership
organization andonlythebasic research element isfunded bytheFederal Government through
agrant from theUSDepartment ofCommerce." However, since therealobjective ofthe
programme seems tobetopromote theproduction andsales ofUSmade textiles andapparels,
itisamatter ofsubstituting imports tostimulate theuseofdomestic products. Please explain
your position concerning thismatter.
Answer
Wedisagree withKorea ’scharacterization oftheTC2programme asoneaimed atstimulating
theuseofdomestic products. Korea ’squestion seems toimply thatallgovernment industrial assistance
thatisnotanexport subsidy is,bydefault, animport substitution subsidy. Wewould notagree with
sobroad acharacterization.
Import substitution subsidies are,pursuant totheterms ofArticle 3oftheAgreement, subsidies
contingent upon theuseofdomestic overimported goods. Thisisaclearandexplicit legalstandard
which obviously doesnotextend toallassistance which might benefit adomestic industry. Asubsidy
which aimstopromote increased research anddevelopment, orevenonewhich aimsatincreasing
commercial production, cannot onthose terms alone besaidtobe“contingent upontheuseofdomestic
overimported goods. ”Therefore, since theTC2programme isessentially aimed atstimulating basic
research andthedemonstration ofnewequipment andproduction techniques, itinnowayconstitutes
animport substitution subsidy.G/SCM/Q2/USA/10
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Questions from NORWAY (G/SCM/Q2/USA/2)
Q1. Thenotification from theUnited States doesnotseem toinclude notifications onstate
level. Could theUnited States explain whytheyhave notmade these notifications andrefer to
thearticles intheAgreement onSubsidies andCountervailing Measures thatexempt thesesubsidies
from notification. Could theUnited States alsogiveanindication onhowmuch thestatesubsidies
amount toasapartofthetotalamount ofsubsidies.
Answer
TheUnited States hasexamined andcompiled information onanumber ofmeasures atthe
stategovernment level which maysatisfy thenotification requirements setforth intheAgreement.
Some oftheprogrammes which wehaveidentified overlap withthelistofsub-federal measures which
werenoted inthequestions posed bytheEuropean Community (EC), although many oftheprogrammes
contained ontheEC’slistwould notappear tomeettheAgreement ’snotification criteria. Forexample,
asageneral rule,industrial development bondprogrammes areprovided onagenerally available basis
within thejurisdiction inquestion. Thesamewould betrueofmany programmes aimed atencouraging
energy conservation andenvironmental protection, justasthereareanumber oftaxprogrammes offered
onagenerally available basis within thestates. Other oftheprogrammes noted bytheECarereally
notaimed atindustry, butaremoreapplicable toindividual citizens andnon-commercial circumstances.
Therefore, while theUnited States doesnotcontest theprinciple thattheSubsidies Agreement applies
tocoveredsubsidymeasuresprovidedbythevariouslevelsofgovernmentwhichexistwithintheterritory
ofaMember, wewould notnecessarily concur withtheEC’sassessment ofthenotifiable nature of
many oftheprogrammes listed initsquestionnaire.
Astothegeneralissueofnotifyingsuch“sub-central”measures,theUnitedStateshaswelcomed
thediscussions which haveoccurred within theCommittee onthistopicandisprepared toengage in
further discussions withother Members inaneffort todetermine whether itispossible toachieve a
broader commitment byallWTO Members tosupply suchinformation. Aswehavesaidbefore, we
understand thepolitical, legalandadministrative difficulties which thiscommitment canposeforcertain
Members, astheyaredifficulties which onsome levelwefaceaswell. Atthesame time, however,
weareconscious oftheobligations oftheAgreement andtheneedtoimprove compliance inthearea
ofsubsidy notifications.
Many oftheprogrammes offered byUSstates undoubtedly offerlittleinthewayofmeaningful
subsidization, butinsofar asnotifications under GATT Article XVI:1 andArticle 25oftheAgreement
arenotdeterminative ofthelegalstatus oreffects ofasubsidy (perArticle 25.7), therealissuebefore
usisoneoftransparency. TheUnited States Federal Government willcontinue tomake thiscaseto
ourcolleagues inthevarious stategovernments oftheUnited States, justaswewillconsult withthem
concerning thespecific programmes raised inquestions posed byother WTO Members. Irrespective
ofothers 'intentions orefforts, itremains theUSobjective tobeableprovide theCommittee witha
notification ofstate-level measures within thereasonably nearfuture.
However, asothers havepointed out,itwould beunreasonable foranyofustoexpect asystemic
andlong-term improvement inthisareauntilsuchtimeaswecanallassure oursub-central government
authorities thatother WTO Members withsimilar sub-central programmes willalsoinclude such
information intheirnotifications. Todate,thishasoccurred inonlyafewinstances, andwearenot
inaposition tosaywhether thenotifications wereexhaustive insuchinstances. However, wehave
beenencouraged bytheapparent willingness ofcertain Members -including some which havefederal
systems ofgovernment similar toourown-tostrive forimprovements inthisareaofreporting. We
remain committed todothesame.G/SCM/Q2/USA/10
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Questions from JAPAN (G/SCM/Q2/USA/Rev. 1)
Q1. Weunderstand thatsubsidies have been offered toSEMATECH. Please explain these
subsidies indetail andthereason whythese subsidies arenotnotified.
Answer
Without commenting onwhether anyoftheactivities associated withSEMATECH satisfy the
requirements fornotification under thisAgreement, weofferthefollowing information intheinterest
oftransparency. Beginning inAugust 1987, several USsemiconductor andcomputer companies formed
SEMATECH toconduct research anddevelopment (R&D) onadvanced semiconductor manufacturing.
TheNational Defense Authorization Actforfiscal years 1988 and1989, enacted inDecember 1987,
authorized theUSSecretary ofDefense tomake grants toSEMATECH todefray certain R&D expenses
inviewoftheconsortium ’scritical roleinmeeting certain USnational security anddefense technology
needs. Atthattime, itwasanticipated thattheFederal Government would provide $100 million per
yearoverafive-year period ending infiscal year1992, which would match thecontributions of
SEMATECH ’smember companies. InApril 1988, theSecretary ofDefense delegated totheDefense
Advanced Research Projects Agency theresponsibility forworking withSEMATECH topursue jointly
theshared R&D objectives oftheDepartment ofDefense andtheconsortium.
TheSEMATECH consortium sponsors research inawiderange offields andsectors generally
related tomicro-electronics. Projects arefunded onacost-shared, merit basis, according toobjective
criteria andconditions. SEMATECH alsooperates afacility inwhich members mayresearch and
testnewequipment andprocesses. Knowledge resulting fromthatresearch isshared among consortium
members anddiffused widely. TheUSDepartment ofDefense historically provided 50/50 cost-sharing
forprojects conducted through theSEMATECH consortium. Thisassistance ended withthesupport
provided infiscal year1996.
Q2. Weunderstand thatsubsidies have been offered bytheFederal Council forScience,
Engineering andTechnology tothefollowing projects: theAdvanced Manufacturing Technology,
theHigh-Performance Computing andCommunications Programme, Global Change Research,
Advanced Material andProcessing andBiotechnology research. Please explain these subsidies
indetail andthereason whythese subsidies arenotnotified.
Answer
Weassume thatJapan’sreference totheFederal Council forScience, Engineering and
Technology ismeant torefer totheFederal Coordinating Council forScience, Engineering and
Technology (FCCSET). FCCSET wasapolicy coordinating body, established in1976, designed to
address science andtechnology issues thataffect multiple federal agencies. FCCSET offered no
subsidies,butcouldbecharacterizedashavingcoordinatedpolicyinitiativesunderwhichcertainresearch
anddevelopment assistance wasprovided.
FCCSET wasresponsible forproviding more effective planning, integration, andcoordination
ofFederal scientific, engineering, educational, andtechnological programmes. FCCSET wasalso
designedtoachievemoreeffectiveutilizationofthescientific,engineering,educational,andtechnological
resources andfacilities ofFederal agencies, andtoeliminate unnecessary duplication. Other goals
ofFCCSET included involving individuals andcompanies from theprivate sector inaddressing the
interaction oftheFederal Government andprivate industry, andfurthering international cooperation
inscience, engineering andtechnology.G/SCM/Q2/USA/10
Page6
InNovember 1993, President Clinton reorganized theFCCSET, along withtheNational Space
Council andtheNational Critical Materials Council toform onecoordinating body, known asthe
National Science andTechnology Council (NSTC). Thiscabinet-level council istheprincipal means
forthePresident tocoordinate science, space, andtechnology policies across theFederal Government.
TheCouncil prepares research anddevelopment strategies thatarecoordinated across Federal agencies
inorder toaccomplish multiple national goals.
TheNSTC ischarged with: (1)coordinating thescience andtechnology policy-making
implementationprocessacrossFederalagencies;(2)ensuringthatscienceandtechnologypolicydecisions
areconsistent withthePresident ’sstated goals; (3)ensuring thatscience andtechnology policy issues
areconsidered inthedevelopment andimplementation ofother Federal policies andprogrammes; and
(4)furthering international cooperation inscience andtechnology activities. Inall,theNSTC provides
aninteragency strategic management system tofoster teamwork andenhance theability toidentify
opportunities forinterdisciplinary solutions.
TheNSTC hasninecommittees, eachdevoted toachieving national goalsinanareaofparticular
importance. These committees cover: Health, Safety andFood; Fundamental Science; Information
andCommunication; Environment andNatural Resources; Civilian Industrial Technology; Education
andTraining;Transportation;NationalSecurity;andInternationalScience,EngineeringandTechnology.
Given thebroad andvaried nature oftheinitiatives referenced inJapan'squestion, itisdifficult
tojudge whether these initiatives, oraspects ofthem, maymeetthenotification requirements ofthe
Subsidies Agreement. Wewillevaluate them carefully forpurposes ofpossible future notification.
However, asageneral observation, itbears noting thatmany oftheinitiatives spearheaded bytheNSTC
essentiallyamounttonomorethantheorganizationofamoreeffectiveandefficientmeansofmarshalling
existing talents andresources tomeetbetter defined objectives. Inmany cases, themissions ofthe
R&D remain government- orpublic policy-oriented andthereisnoappreciable increase inthefinancial
resources devoted tothem. Asisthecaseinournotification oftheactivities associated withthe
Partnership foraNew Generation ofVehicles (PNGV), itisoften difficult toascertain ona
programme-wide basiswhether subsidies areactually conferred pursuant tothesekinds ofprogrammes.
However, where appropriate, weremain willing toconsider their notification intheinterests of
encouraging greater transparency andunderstanding.
Questions from theEUROPEAN COMMUNITY (G/SCM/Q2/USA/4+9)
I. NOTIFIED SUBSIDY PROGRAMMES
TheUnited States notified anumber ofprogrammes which arelisted below. Thepresent analysis
alsoconstitutes arequest forclarification andforfurther information, foreachprogramme, onthe
specific criteria which have tobemetbefore thesubsidy isgranted, andinparticular ifexport
performance isacriterion.
1. Aerospace andAeronautics
1.1 TheDC-XA Programme
Q1. Could theUnited States explain whatismeant withparticipation intheprogramme through
theuseofcontracts?G/SCM/Q2/USA/10
Page7
Answer
First, asageneral matter, itshould bepointed outthatinterms ofalltheUSprogrammes
notified under thissectoral heading, theselection criteria areunique toeachprogramme andaredisclosed
intheannouncement ofcompetition oravailability. (Theformoftheannouncement isdetermined by
whether theprogramme isacontract, cooperative agreement orgrant.) Further, none ofthese
programmes hasexport performance asaselection criterion.
Theprogrammes identified inthenotification asbeing administered through contracts are
procurements bytheUSGovernment ofgoods orservices, conducted inaccordance withFederal
acquisition regulations.
Q2. Could theUnited States explain whether thisprogramme isforthesoleuseofnon-
commercial aerospace activities? Arecommercial activities benefiting from thisprogramme, and
ifso,what industries arethemain beneficiaries?
Answer
TheDC-XA programme isatechnology demonstration procured bytheFederal USGovernment
tofurthervariousofitsresearchanddevelopmentactivities.Thelikelihoodofanysecondarycommercial
benefits from thisprogramme maybegreatest intheaerospace industry, although itisbynomeans
certain thatprivate sector participants have, infact,gained anysuchbenefits. Intheinterest of
transparency, theUnited States chose toreport thisprogramme aspartofthe1995subsidies notification
because ofitsvisibility anditsassociation withtheX-33 programme. However, wedonotbelieve
thatwewere obliged tonotify thisprogramme, because itisatbestunclear whether itconforms to
thedefinition ofasubsidy contained inArticle 1.Forexample, totheextent thatthegovernment may
beprocuring aservice, itwould beunclear thatthegovernment isproviding a“financial contribution, ”
andthere isnoreadily available evidence thata"benefit" isbeing conferred inthesense ofthe
Agreement 'suseofthatterm. Inanycase,theDC-XA programme wascompleted infiscal year1996;
noexpenditures inthefiscal year1997 areplanned.
1.2 TheY-33(sic) andY-34 (sic)Programmes
Q1. CouldtheUnitedStatesidentifywhat"privatesectorpartners"are?CouldtheUnitedStates
provide thecriteria foreligibility withrespect toparticipation byprivate sector partners?
Answer
Theterm“private sector partners ”refers tothose companies selected through thecooperative
agreement mechanism explained inthenotification. Thecriteria foreligibility aredefined inthe
Cooperative Agreement Announcement (CAN) fortheprogramme.*
Q2. Canthebenefits under X-33 andX-34 becumulated since bothprogrammes cover the
development ofdifferent technologies, e.g.,reusable launch vehicle forX-33 andnewtechnology
flight experience forX-34?
*Interested delegations wishing toinspect excerpts from theX-33 CAN arerequested tocontact
Miss Susan Aspinall, Office 1028, Tel.7395109.G/SCM/Q2/USA/10
Page8
Answer
Weareunsure whatismeant bytheterm“cumulation ofbenefits. ”However, wecanconfirm
thattheX-33 andX-34 programmes areseparate technology demonstration programmes.
Q3. Canthebenefits under both programmes becumulated withanyavailable regional or
state programmes?
Answer
Again, weareunsure whatismeant bythequestion 'sreference to"cumulation." TheX-33
andX-34 aredistinct, andseparate, programmes, andtoourknowledge nosuchindependent regional
orstateprogrammes exist. ThestateofCalifornia doesparticipate intheX-33programme itselfthrough
theprovision ofcertain taxexemptions, butthelevelofitsfinancial participation isnegligible.
2. Agriculture
2.1 Export Enhancement Programme
Q1. CantheUnited States comment ontheimplementation oftheWTO Agricultural Agreement
withrespect tothisprogramme? Could theUnited States provide thetimetable forreducing the
amount ofsubsidies?
Answer
Wedidnotinclude thisinformation intheArticle 25notification asitisnotafeature ofthe
Subsidies Agreement 'snotification requirements and,inanycase, maybereadily obtained from the
United States 'Uruguay Round schedule ofcommitments made inrelation totherequirements ofthe
Agreement onAgriculture.
Q2. TheUnited States notification liststheavailability of"bonuses" foreligible exporters. Could
theUnited States specify what form (e.g.grant, loan, guarantee) theexport subsidy takes? In
casedifferent forms ofsubsidy areavailable, could anexporter cumulatively benefit from different
forms ofsubsidy?
Answer
Wewillendeavour tosupply thisinformation inasubsequent written submission.
2.2 TheDairy Export Incentive Programme (DEIP)
Q1. CantheUnited States comment ontherelationship between theDEIP andtheDairy
Indemnity Programme (DIP) operated bytheFederal Crop Insurance Corporation (wholly-owned
government corporation)? Could theUnited States reconcile thegovernment expenditures of
US$117.6 million fortheDEIP andUS$2,417 million expenditures fortheDIPprogramme in
theFederal Budget?
Answer
TheDairy Export Incentive Programme, Dairy Indemnity Payment Programme (DIPP), and
FederalCropInsurancearethreeseparateprogrammes.TheDIPPwasre-authorizedbythe“Agriculture,
Rural Development, Food andDrug Administration, andRelated Agencies Appropriations Act,1996"G/SCM/Q2/USA/10
Page9
(PL104-37). PL104-37 provides funding fortheDIPP of$100,000 tobeused, untilexhausted, for
necessary expenses involved inmaking fairmarket indemnity payments todairy farmers, formilkor
cows, andtomanufacturers ofdairy products, whohavetoremove theirmilkordairy products from
commercial markets because ofunacceptable residues ofregistered andapproved chemicals, orthe
presence ofnuclear contamination ortoxicsubstances when suchcontamination isnotaresult offault
ornegligence bythefarmer. Total expenditures inFY94were$310,784 to27producers in15states,
FY95expenditures were $25,250 to7producers in5states.
Q2. Incasethese programmes cover different activities, could theUnited States provide afull
notification oftheDIPaccording toArticle 25?
Answer
TheUnited States doesnotnecessarily consider theDIPP tomeetthenotification requirements
setforth ineither Article XVI:1 oftheGATT 1994 orArticle 25.2oftheAgreement onSubsidies
andCountervailingMeasures.Moreover,itbearsnotingthattheDIPPfallsunderArticle6,Paragraph1
andAnnex 2oftheAgreement onAgriculture andthecurrent funding isa“contingent liability. ”
Nevertheless, weprovide thefollowing information according totheagreed notification format inthe
interests oftransparency.
Policy objectives and/or purpose
Toprovide indemnity payments todairy producers who, through nofaultornegligence, have
beendirected byapublic regulatory agency toremove theirrawmilkfromcommercial markets because
ithasbeencontaminated bypesticides, nuclear radiation orfallout, ortoxic substances andchemical
residues other thanpesticides. Payments mayalsobemade tomanufacturers ofdairy products when
theproducts areremoved from thecommercial market because ofpesticide contamination.
Legislative background andauthority
TheDIPP wasoriginally authorized bySection 331oftheEconomic Opportunity Actof1964.
Thestatutory authority fortheprogramme wasextended several times. Most recently, funds were
appropriatedforthisprogrammebytheAgriculture,RuralDevelopment,FoodandDrugAdministration,
andRelated Agencies Actforthefiscal yearending September 31,1997. ThisActauthorizes DIPP
untilthefunds appropriated under theActareexpended.
Towhom andhowisassistance provided
Dairy farmers andmanufacturers ofdairy products who, through nofaultoftheirown, suffer
income losses withrespect tomilkormilkproducts removed fromcommercial markets because such
milk ormilk products contain certain harmful residues. Inaddition, dairy farmers canalsobe
indemnified forincome losses withrespect tomilkrequired toberemoved fromcommercial markets
duetochemical ortoxic substance residues orcontamination bynuclear radiation orfallout.
Amount andform ofpayment
Eligible dairy producers andmanufacturers areindemnified indollars based onthemilkthey
would havemarketed ifthepublic agency hadnotremoved them from marketing theirmilkormilk
products. Total expenditure inFY1995 was$25,250 paidto7producers in5states.G/SCM/Q2/USA/10
Page10
Duration
DIPP isauthorized untilappropriated funds havebeenexpended orSeptember 30,1997.
Trade effects
Unknown, ifany.
Q3. Follow-up Question: CantheUSexplain clearly thedifference between DIPandDEIP
aswellasthedifference inbudget?
Answer
Asexplained above, theDairy Indemnity Payment Programme (DIPP) provides indemnity
payments todairy producers who, through nofaultornegligence, havebeendirected byapublic
regulatory agency toremove theirrawmilkfromcommercial markets because ithasbeencontaminated
bypesticides,nuclearradiationorfallout,ortoxicsubstancesandchemicalresiduesotherthanpesticides.
Payments mayalsobemade tomanufacturers ofdairy products when theproducts areremoved from
thecommercial market because ofpesticide contamination.
Under theDairy Export Incentive Programme (DEIP), payments aremade incash,CCC-owned
commodities, orgeneric certificates onabidbasis toentities thatsellUSdairy products forexport.
Export salesunder theprogramme mustbeinaddition to,and,totheextent practicable, notdisplace,
commercial export salesofUSdairy products. Eligible dairy products, inbulk, arebutter, butteroil,
anhydrous milkfat,nonfat drymilk, whole milkpowder, cheddar cheese, mozzarella cheese, cream
cheese, fetacheese, andgouda cheese. Infiscal year1995, government expenditures onDEIP amounted
to$140.2 million for248,257 metric tonsofdairy products. Theprogramme isoperated onanad
hocbasis, where varying levels ofbonuses maybeoffered forseveral different kinds ofdairy products.
2.3 Agricultural Price Support Programmes
Q1. CantheUnited States explain whytheAgriculture Trade Actclassifies export credit in
short-term export credit (section 202a) andintermediate-term export credit (section 202b)? What
aretheeligibility criteria forbothtypes ofbenefits? Canthebenefits under thetwotypes ofexport
credit becumulated?
Answer
Section 202(a)oftheAgricultural Trade Actof1978, asamended, simply defines short-term
credit guarantees (GSM 102)tohaverepayment terms nottoexceed a3-year period. Section 202(b)
ofthesame Actdefines intermediate-term credit guarantees (GSM 103)tohaverepayment terms of
notlessthana3-year period norformore thana10-year period. Currently, maximum terms under
GSM 103donotexceed 7years.
TheAgricultural Trade Actof1978, asamended, authorizes theCommodity Credit Corporation
touseexport credit guarantees to:1)increase exports ofagricultural commodities; 2)compete against
foreign agricultural exports; and3)allow countries tomeettheirfoodandfibreneeds. Forintermediate
credit guarantees, additional criteria include whether thecountry hasanInternational Monetary Fund
standby agreement, aParis Club rescheduling planorhastaken steps toassure viable international
trade.G/SCM/Q2/USA/10
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Again, insofar asthecredits offered varyaccording totheirstated terms, theirbenefits are
likewise distinct andseparate.
Q2. CantheUnited States provide thetimetable indicating itsfulfilment ofitsobligations under
theWTO Agricultural Agreement?
Answer
Wedidnotprovide thisinformation asitisnotrequired bythenotification obligations ofthe
Subsidies Agreement, butthetimetable issetforthintheUnited States 'Uruguay Round schedule of
commitments made inrelation totheAgreement onAgriculture.
Q3. TheCommodity Credit Corporation which administers theexport credit programme, is
alsoresponsible forthe"reimbursement fornetrealized losses". CantheUnited States specify
whether thisprogramme iscovered bythenotification ofagricultural schemes?
Answer
TheCommodity Credit Corporation export credit guarantee programmes (GSM-102 and
GSM-103) arecommercial export credit guarantee programmes based onmarket interest rates. These
export credit guarantee programmes arenotfinanced through theCCC“reimbursement fornetrealized
losses ”accounts. Since theexport credit guarantee programmes arecommercial export programmes,
theyarenotcovered bythenotification ofagricultural schemes.
Q4. TheAgriculturalCreditInsuranceFund(ACIF)operatesguaranteedloansforfarmowners.
Could theUnited States clarify whether theloanguarantee subsidies granted bytheACIF are
covered bythenotification oftheprice support programme, orifnot,byanyother notified
programme?
Answer
Theactivities oftheAgricultural Credit Insurance Fund werenotencompassed byanyofthe
programmes contained inthenotification. Wewillendeavour toprovide further information about
thistopic inasubsequent submission.
3. Automotive Industry
3.1 Partnership foraNewGeneration ofVehicles
Q1. Could theUnited States specify what istheform ofthesubsidy foreligible companies
andonwhat basis thelevelofthesubsidy amount isdetermined?
Answer
Assistance under thePNGV programme isprovided through anumber ofadministrative
mechanisms including contracts, subcontracts, understandings, grantawards, cooperative research and
development agreements andshared research arrangements. Arrangements caninclude funding ofbasic
research aswellasarrangements which combine government andprivate research without anytransfer
offunds. Therelative proportions ofgovernment andprivate participation arefrequently determined
through aprocess ofnegotiation, andwillvarywidely depending ontheparticular initiative, agency,
administrative mechanism(s) andproject(s) involved. Thelevelofanysubsidy amount, totheextent
thatthere maybeanysubsidy, willtherefore varywidely onacase-by-case basis.G/SCM/Q2/USA/10
Page12
Q2. Could theUnited States provide thecriteria foreligibility?
Answer
Duetothenumber andvariety ofinitiatives which comprise thePNGV, itisimpossible to
specify anyuniform “criteria ”foreligibility. Generally speaking, however, thepartnerships among
theFederal laboratories, automobile manufacturers, universities andvarious suppliers totheautomotive
industry areapproved onthebasis ofthecompatibility ofaproposed project withthestated goals of
theprogramme. Forexample, the“Declaration ofIntent ”which wassigned bytheFederal Government
andUSCAR on29September 1993, callsforthegovernment andindustry toseekouttechnologies
from anysource which maycontribute toachieving thegoals ofthepartnership.
ThePNGV mandate isinclusive, notexclusionary. Infact,many oftheR&D projects that
arepartoftheportfolio ofPNGV (some ofwhich predate PNGV) include supplier andtechnology
firms thatareeither owned orcontrolled bycompanies thatarenotlocated intheUnited States. For
example, USCAR ispursuing potential parallel collaborations with itscounterpart, EUCAR.
Requirements forparticular projects aregoverned bytheauthorizing statute oftheparticular agency
providing assistance.
Q3. TheUnited States thattheform ofassistance isnegotiated between thecompany andthe
government.Isexportactivityorimportsubstitutionapossiblerequirementforgrantingsubsidies?
Answer
No.Neither export activity norimport substitution isusedasacriterion forparticipation in
PNGV-related activities.
Q4. Trade Effects: what istheexpected market share ofthecreation ofacarconsuming less
fuel?
Answer
While thereareclearsocial, economic, environmental andcommercial advantages tobegained
through thedevelopment ofavehicle which consumes lessfuel,there arenospecific estimates ofan
expected market share forsuchacar.Asstated intheUSnotification ofthePNGV programme, it
isatbestpremature tospeculate onanyquantifiable trade effects resulting from thisprogramme.
Moreover, thediversity ofresearch anddevelopment activities, thewidespectrum ofpublic, private
andeducational entities involved, andtheparticipation offoreign anddomestic firms inupstream
industries would almost preclude anything other thanahighly speculative andtheoretical assessment
ofanytrade effects, including theexpected market share ofthenewly-created vehicles.
Q5. Follow-up Question: Isthere anupper ceiling ontheamount ofsubsidy asapercentage
ofeligible costs?
Answer
Asnoted intheprevious responses, thePNGV islessadiscrete, self-contained programme
thanitisthecoordinated implementation ofanetwork ofnumerous partnerships among Federal
laboratories, automobile manufacturers, universities andavariety ofsuppliers totheautomotive industry
inwhich theparticipants jointly andcooperatively apply resources tomeetthethree programme goals
described inthenotification.G/SCM/Q2/USA/10
Page13
AssistanceprovidedtothecomplexvarietyofpartnershipscoordinatedbythePNGVisdelivered
through anumber ofadministrative mechanisms including contracts, subcontracts, understandings,
grants, awards, cooperative research anddevelopment agreements (CRADAs) andshared research
agreements. Asaresult, therelative proportions ofgovernment andprivate participation arefrequently
determined through aprocess ofnegotiation, andwillvaryaccording totheadministrative mechanism(s)
used,theagency(ies)involved,thekindsofinitiative(s)attempted,andthetypesofproject(s)undertaken.
There isnouniform rulewhich determines themaximum permitted levelofgovernment participation
throughout thefullspectrum ofPNGV-related activities.
Aswehaveindicated before, allorpartoftheactivities conducted under thePNGV umbrella
arestructured suchthat,inmany instances, nosubsidy within themeaning oftheAgreement could
necessarily besaidtoexist. Asageneral rule,however, initiatives andprojects undertaken within
thePNGV context strive toensure substantial cost-sharing onthepartofprivate industry ininstances
where public andprivate funds and/or other assistance arecombined.
3.2 TheMotor Challenge Programme/Alternative FuelVehicle Development Programme
Q1. Could theUnited States provide clarification ontheworking of"cooperative agreements"
and"cost-shared contracts"?
Answer
Acooperative agreement isanagreement between thegovernment andanon-Federal party
whereby money orproperty istransferred totherecipient tosupport orstimulate research.
Acost-shared contract isacontract entered intobetween thegovernment andanon-Federal
party inwhich costs associated withthework areshared asspecified inthecontract. Thistypeof
contract must bemutually beneficial toindustry andgovernment.
4. Energy
4.1 TheClean Technology Demonstration Programme
Q1. Could theUnited States clarify whether thisprogramme islinked totheClean Technology
Demonstration programme which started on17February 1986 andendson6June 2002 (Public
Law98-473, 99-100). Thisprogramme seems tohave amuch higher budget. Could theUnited
States comment?
Answer
Weassume thattheECisreferring totheClean CoalTechnology Demonstration Programme.
Aswestated inournotification, thisprogramme isauthorized under Public Law99-190. Wefurther
stated inournotification thattheamount budgeted fortheprogramme forfiscal year1995 totalled
$37.1 million. Asweareunaware ofanyother programme withasimilar name, theCommunity ’s
statement thatthisprogramme “seems tohaveamuch higher budget ”isunclear. Totheextent that
theECmayberelying onbudget information fromprioryears, wenotethatfunding forthisprogramme
hasdecreased steadily since 1993.G/SCM/Q2/USA/10
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5. Export Credit Programmes oftheUSEXIM Bank
Q1. Could theUnited States explain whynodataareavailable for1994-1995? According to
theFederal Budget, following subsidies were given in1995: US$90million direct loansubsidy,
US$537 million guaranteed loansubsidy andUS$7million direct grants. Moreover, thefigures
provided bytheUnited States cover thedirect loanlevels which isnottheamount ofsubsidy as
requested under Article 25.
Answer
Thetableincluded intheUSnotification didinclude datafor1994 along withestimates for
1995. Asfor1995, finalfigures arenowavailable ($millions):
Direct Loan Level Budget Authority %
FY1995 1,605.3 90.3 5.6
G’tee&Insurance Level Budget Authority %
FY1995 10,311.0 532.9 5.2
Further information andclarification willalsobemade available inthe1996update notification.
II. ADDITIONAL PROGRAMMES NOT NOTIFIED TOWTO
FEDERAL PROGRAMMES
A. Small Business Administration
A.1 Investment Company Assistance Programme
Q. Under theSmall Business Investment Act,theSBApromotes economic development by
stimulating theflowoflong-term financing tosmall business concerns forprojects thatinvolve
fixed assets. Thepurpose oftheprogramme istostimulate theflowofequity capital andlong-term
loan funds intosmall businesses inorder toimprove growth anddevelopment. Thebasic
requirement isthatthere besufficient private capital andmanagement expertise. Long-term
financing isgranted atmore favourable terms thanprivate market conditions. TheCommunity
requests anotification ofthisscheme asprescribed byArticle 25oftheSubsidies Agreement.
Answer
Wehaveexamined thisprogramme -theSmall Business Investment Companies programme,
orSBIC -butdonotbelieve thattheevidence concerning itsactivities suggests clearly thatthe
programme isspecific within themeaning ofArticle 2oftheAgreement. TheSBIC programme is
ahorizontal measure thatprovides assistance tosmall businesses covering abroad range ofsectors
suchthatthesheer number andrange ofbusinesses which participate argue against itbeing characterized
as“specific ”.Thepurpose ofthisprogramme isto“stimulate andsupplement theflowofprivate
equity capital andlong-term loanfunds which small business concerns needforthesound financing
oftheirbusiness operations andfortheirgrowth, expansion andmodernization, andwhich arenot
available inadequate supply. ”G/SCM/Q2/USA/10
Page15
A.2 Guarantee Loans Programme
Q. Section 7aoftheSmall Business Actof1953established theguarantee loans programme.
Theguarantee loans programme operates through asize-standard foreligibility. TheSBAhas
established a-500 employee standard formost manufacturing andmining industries and
US$5.0 million turnover standard fornon-manufacturing industries. Total benefits amount to
US$6.73 million in1993. TheCommunity requests anotification ofthisscheme asprescribed
byArticle 25oftheSubsidies Agreement.
Answer
Forthesamereasons asexplained intheprevious answer, ourexamination ofthisprogramme
didnotleadustoconclude thatthere isasufficient basis forconsidering ittobespecific within the
meaning ofArticle 2oftheAgreement. Theloanguarantee programme isahorizontal measure that
provides assistance tosmall businesses covering abroad range ofsectors. Thenumber andvariety
ofparticipating firms combined withtheneutral andobjective nature oftheeligibility criteria weigh
against characterizing theprogramme asspecific. Eligibility forthisprogramme isbased primarily
onthesizeoftheenterprise. Thisprogramme isfrequently usedforlong-term maturities and,assuch,
iswellsuited forcapital assets ofrealestate andequipment.
A.3 Small Business Innovation Research Programme
Q. TheSmall Business Development Actof1982provides thelegalbasis forthisprogramme.
Itaimstoencourage small business toexplore theirtechnological potential andprovide incentives
fortheircommercialization. TheCommunity requests anotification ofthisscheme asprescribed
byArticle 25oftheSubsidies Agreement.
Answer
TheSBIR programme isahorizontal measure thatprovides research anddevelopment (R&D)
assistance tosmall businesses covering abroad range ofdisciplines. Forthesamereasons asdescribed
before inrelation toother SBAprogrammes, thenon-specific nature ofthisassistance would appear
toexempt itfrom thenotification obligation.
Eligibility forthisprogramme isbased primarily onthesizeoftheenterprise. Inaddition,
abroad range ofindustries participate inthisprogramme, including those involved inlaseroptics,
computers, energy conservation, medical instrumentation, biotechnology, environmental technologies,
materials development andmany other applications andactivities. Moreover, anindependent analysis
oftheSBIR programme confirmed thatSBIR awards havenotbeenconcentrated among arelatively
small number ofrecipients.
TheSBIRprogrammeprovidesgrantsforresearchanddevelopmentactivitiesofsmallbusinesses.
Eleven USFederal agencies participate inthisprogramme (theDepartments ofAgriculture, Commerce,
Defense, Education, Energy, Health andHuman Services, andTransportation, theEnvironmental
ProtectionAgency,theNationalAeronauticsandSpaceAdministration,theNationalScienceFoundation,
andtheNuclear Regulatory Commission). Eachagency setsasideasmall percentage ofitsR&D budget
totheSBIR programme. TheSBIR programme serves several Federal missions, andthesubjects
containedinasolicitationmustbeconsistentwiththeprogrammaticgoalsandobjectivesofthesponsoring
agency. Theresearch topics cover most disciplines.G/SCM/Q2/USA/10
Page16
SBIR hasthree phases. Phase 1(sixmonths) isusedtodetermine anidea’sscientific and
technical merit andfeasibility. Theideas mustappear tohavecommercial potential. APhase 1award
canbeupto$100,000.
Those companies whopassPhase 1mayapply forPhase 2(twoyears) which involves the
development ofaprototype product orprocess. Technical andscientific merit areweighed equally
atthisstage, butspecial consideration isalsogiven forprojects which havesecured non-Federal capital
support forPhase 3.Phase 2awards canbeupto$750,000.
Firms conduct andfinance Phase 3research without theuseofSBIR funds inorder topursue
commercial applications oftheR&D funded inPhases 1and2.Phase 3mayinvolve non-SBIR R&D
orproduction contracts withaFederal agency forproducts orprocesses intended forusebytheFederal
government. TheSBAhasdeveloped andusesacomputerized commercialization matching system,
which canlinkanSBIR awardee withpotential sources ofcapital.
A.4 Export Assistance
Q. TheSBAassistssmallbusinessesintheirexportactivitythroughExportAssistanceCentres.
Inaddition, SBAdeveloped theExport Working Capital Programmes. TheCommunity requests
anotification ofthisscheme asprescribed byArticle 25oftheSubsidies Agreement andcomment
onthecompatibility ofthisscheme withtheobligations under Article 3oftheSubsidies Agreement.
Answer
Ourreview ofthisprogramme doesnotleadustobelieve thatitwarrants notification. US
Export Assistance Centres (EACs) were authorized bysection 202oftheExport Enhancement Act
of1992, andareadministered jointly bytheSmall Business Administration, theDepartment of
Commerce, theExport Import BankoftheUnited States andtheAgency forInternational Development.
There arecurrently fifteen 15EACs andtheyaredesigned toassist businesses whowishtoexpand
theirmarketsthroughexports.EACsprovidedcounselling,generalmarketresearchreports,international
tradedata,andpublic- andprivate-sector contacts inthecountry towhich thebusiness plans toexport.
Counsellors alsoassist businesses indeveloping aninternational marketing strategy.
TheExport Working Capital Programmes arecoordinated through theSBAandtheExport
Import Bank, andefforts havebeenmade inrecent years toincrease theharmonization ofthetwo
programmes. They areloanguarantee/assistance programmes which aredesigned toimprove small
businesses 'access toworking capital fromavariety ofsources inorder tofacilitate financing ofexport
sales. Forexample, thecontacts, assistance andguarantees offered under theprogramme havehelped
small businesses tosecure financing forcommercial activities which, because ofthemodesty ofthe
transaction, might otherwise bedifficult toobtain. Weareunaware ofanyincompatibility vis-a-vis
theobligations oftheAgreement and,based ontheinformation wehavereviewed, wedidnotfind
ittofallwithin thenotification requirements oftheAgreement. However, wewillattempt todevelop
further information about theprogrammes inorder todetermine whether theyshould beincluded in
future notifications.G/SCM/Q2/USA/10
Page17
Follow-up Questions forAlloftheAbove Small Business Administration Programmes
Q1. Intheabove programmes what isthedefinition ofsmall businesses? Isthesame definition
usedineachsector andunder eachprogramme?
Answer
Asageneral rule,thedefinition of“small business ”under SBAprogrammes isanenterprise
employing 500orfewer employees, although certain distinctions canarisedepending upon whether
theprogramme applies tomanufacturing orservices.
Q2. Ineachprogramme, aresubsidies granted automatically toeligible companies oristhere
discretion involved?
Answer
First, theextent towhich these programmes canbesaidtoprovide "subsidies" is,nodoubt,
debatable. Astothedegree ofautomaticity which characterizes theprovision anddistribution of
assistance, itisdifficult togeneralize across thefullspectrum ofSBAprogrammes. Some measure
ofautomaticity isimbedded within theeligibility criteria ofthevarious programmes, butsome measure
oflegitimate judgment alsomustbeexercised, e.g.,indetermining thescientific andtechnical merits
ofproposals forSBIR grant awards.
Q3. How isitdetermined thattheprogrammes arenon-specific? Areanysectors excluded
from eligibility?
Answer
Nosectors areexcluded from eligibility under theSBAprogrammes. Theonlyrestrictions
onparticipation arethesizeoftheenterprise.
B. Department ofCommerce
B.1 Trade Adjustment Assistance forFirms andIndustries
Q. TitleII,Chapter 3oftheTrade Actof1974established aprogramme providing assistance
tofirms andindustries injured byincreased imports. Inorder toreceive Trade Actcertification,
thecompany mustdemonstrate thatincreased imports ofdirectly competitive products contributed
toadecline insales. Theassistance aimstodevelop arecovery strategy andfinancing ofconsultants
toimplement thestrategy. Theassistance isgiven intheform ofproject grants covering between
50-100% oftheproject cost. TheCommunity requests anotification ofthisscheme asprescribed
byArticle 25oftheSubsidies Agreement. Could theUnited States comment onthecompatibility
ofthisscheme withitsobligations under theSubsidies Agreement?
Answer
Ourreview ofthisprogramme didnotleadustobelieve thatthere wassufficient evidence
ofspecificity towarrant itsnotification. Eligibility isopentoanyfirmthatdemonstrates thatithas
lostsalesandemployment andthatthese losses aredirectly related toincreasing imports oflikeor
directly competitive products. Thecausal linkbetween increased imports anddeclines insales can
beestablished through discussions withthecompany ’scustomers whostatetheyhaveshifted fromG/SCM/Q2/USA/10
Page18
thecompany toimported products. Assistance isprovided through oneoftwelve Trade Adjustment
Centres located throughout theUnited States.
There isnoindustrial orgeographic targeting ofeligible businesses. Moreover, while lost
salestoimported goods maybeabasis forqualifying forassistance, there isnocontingency thatthe
recipients 'customers resume purchasing fromtheassisted enterprise inorder toreceive theassistance.
Inlightoftheeconomic andnon-targeted nature oftheselection criteria, wedidnotfindthatspecificity
existed under thisprogramme, atleastonaprogramme-wide basis.
B.2 Textile andClothing Technology Programme
Q. TheInternational Trade Administration oftheDepartment ofCommerce administers the
textile andclothing technology programme. Theprogramme aims toimprove thecompetitive
position oftheUnited States fibre, textile, apparel andother sewn products. Thetotalbudget
oftheprogramme isUS$3.4 million. Since theprogramme isadministered bytheITA, there
seems tobeanexport requirement inorder toobtain subsidies. Inthisrespect, theCommunity
requests thatthisprogramme isnotified. Moreover, theCommunity questions thecompatibility
ofthisprogramme withArticle 3oftheSubsidies Agreement andrequests clarification onthis
issue.
Answer
Thisprogramme was,infact,included intheUnited States ’notification, beginning onpage73.
Wewould further notethattherearenoexport requirements inorder toobtain thisresearch assistance,
sowedonotbelieve thatthere areanyinconsistencies vis-a-vis theprogramme andtherequirements
ofArticle 3.
B.3 Economic Development Administration
Q. TheEconomicDevelopmentAdministration(EDA)oftheDepartmentofCommerceprovides
business development assistance through loans andloanguarantees toUScompanies. ThePublic
Works andEconomic Development Actof1965 authorizes theSecretary ofCommerce toaidin
financing thepurchase ofland andfacilities forindustrial orcommercial usage within a
re-development areaby(a)making loans and(b)guaranteeing loans. Inthecaseofguaranteed
loans, theEDA isauthorized toreduce theinterest paidbyaborrower upto4%. Inthepast,
theEDA programme wasregionally andsectorally targeted tothesteelindustry. Under theEDA
programme, forinstance, theMahoning Valley Economic Development Programme wassetup
forsteel production inOhio. TheCommunity requests theUnited States toprovide afull
notification ofthisprogramme under Article 25.
Answer
TheEconomic Development Administration isnota“programme ”butrather anagency within
theUSDepartment ofCommerce. Inpreparing ournotification, wereviewed theactivities oftheEDA
andconcluded thattheyareneither specific within themeaning ofArticle 2,nordotheyprovide any
benefit toindustry.
TheEDA doesprovide “planning grants ”togovernmental andquasi-governmental bodies in
depressed areas oftheUnited States. EDA alsoprovides “economic research andtechnical assistance ”
touniversities, consulting firms andindividuals. However, noassistance isprovided tocompanies
underthis“programme.”Projectsfocusmainlyonunemployment,poverty,growth,migration,industrial
location, innovation, productivity, etc.G/SCM/Q2/USA/10
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EDAalsoprovides“economicadjustmentassistance,”whichamountstoassistancetonon-profit
organizations andstateandlocalgovernments inorder todevelop strategies toprevent andrespond
tojoblosses. Certain manufacturing enterprises maybenefit indirectly fromsuchassistance through
theredevelopment efforts, butwedidnotidentify anyinformation tosuggest thatonecould specify
particular benefits targeted tocommercial firms. Inasimilar context, theEDA alsoadministers the
“PublicWorksandDevelopmentFacilities”programmewhichprimarilyprovidesinfrastructureassistance
toeconomically distressed areas.
Follow-up Question: What arethecriteria fordesignating eligible regions? AreGDP percapita
ortheunemployment ratefactors taken intoconsiderations?
Answer
Anunemployment ratecriterion (i.e., comparing aregional ratetothenational average) is
used indetermining eligibility fortheprovision of"planning grants" tothegovernmental and
quasi-governmental bodies referred toabove.
C. Department ofEnergy
C.1 Machine ToolPartnership
Q. TheStevenson Wydler Technology Innovation Actof1980created asubsidy programme
formachine toolmanufacturers administered bytheUSDepartment ofEnergy. TheCommunity
would likeafullnotification ofthisprogramme under Article 25oftheSubsidies Agreement.
TheCommunity requests anotification ofthisscheme asprescribed byArticle 25oftheSubsidies
Agreement.
Answer
Thisisacooperativeprogrammebetweengovernmentandindustryforresearchanddevelopment
andissimilar instructure toother R&D programmes administered bytheDepartment ofEnergy.
Itwasinitiated in1993 using technology transfer mechanisms thatwere authorized bythe
Stevenson-Wydler Technology Innovation Actof1980. Theamount budgeted forFY1996 totalled
$2.7million. Thiscooperative programme isavailable tomanufacturing andnon-manufacturing entities
alike. Forexample, participants include colleges, universities andnon-profit organizations. Weare
examining theprogramme more closely, andwillendeavour tosubmit additional information about
theprogramme inafuture notification.
C.2 Advanced Technology Programme
Q. TheOmnibus Trade andCompetitiveness Actof1988established anaidscheme withmain
objective tostimulate USeconomic growth bydeveloping high-risk andenabling technologies.
Company awards canbecovered uptoUS$2million. Thepercentage islessthan50%forjoint
ventures withnomonetary limit. Thetotalamount ofgrants wasUS$47.9million in1993. Could
theUnited States elaborate onthecriteria foreligibility, theoperating mechanism forthese schemes
andthebeneficiaries? TheCommunity requests afullnotification ofthisprogramme asprescribed
byArticle 25WTO Subsidies Agreement.
Answer
Insofar astheAdvanced Technology Programme (ATP) isconcerned, weexamined this
programme inthecourse ofpreparing theUSnotification andconcluded thatthere wasinsufficientG/SCM/Q2/USA/10
Page20
evidence ofspecificity onaprogramme-wide basissuchastowarrant itsnotification under Article 25.
Theprogramme provides assistance forresearch anddevelopment toawidevariety oforganizations,
including companies, universities, independent non-profit research organizations, andgovernment
laboratories active indiverse andnumerous areas ofresearch andcommerce.
TheATPisacompetitive programme thataccepts proposals from individual companies and
industry-led consortia (which mayinclude non-profits orgovernments) forprojects thattheyinitiate.
Atthenational level, theATPisadministered bytheDepartment ofCommerce 'sNational Institute
ofStandards andTechnology. Proposals cancome fromanysector oftheeconomy thatperforms R&D
andarereviewed bypanels ofexperts from theprivate sector, government, anduniversities. These
panelsjudgetheproposalssolelyontheirmerits,usingexplicitpublishedcriteria,withthemostemphasis
being placed onaproposal ’stechnical andscientific merit. There arenoexplicit guidelines orlimitations
regarding thetypes ofindustries thatmaytakepartintheATP. Rather, theATPsimply requires that
proposed research projects havethepotential toproduce economic benefits fortheUnited States.
Since theATPbegan in1990, nearly 800organizations haveparticipated directly in288separate
ATPprojects. Hundreds ofadditional organizations haveparticipated assubcontractors andstrategic
partners.Theseorganizationshaveundertakenahighlydiversifiedrangeofresearch,involvingnumerous
sectors oftheeconomy, withprojects spanning anarray oftechnologies ranging from information
technology tomanufacturing toadvanced materials. ATPawards havebeengranted inareas asbroad
anddiverse asbiotechnology, chemicals, computing information andcommunications, andelectronics.
Within thepastseveral years, theATPhasadopted programme competitions which seekto
identify broad categories ofresearch anddevelopment aspriority areas forATPfunding. TheATP
solicits ideas from industry forprogramme competitions inmany diverse areas. Todate, theyhave
covered awidevariety ofareas, including, e.g.,toolsforDNA diagnostics, information infrastructure
forhealth care, andmanufacturing composite structures. Meanwhile, funding continues inareas that
havenotbeenthesubject of“programme competitions. ”
Follow-up Question: Towhat extent isthisprogramme open toandactually usedbyallsectors
oftheeconomy?
Answer
TheATPconcentrates onpromising buthighriskenabling technologies thatcanformthebasis
fornewandimproved products andservices. Itdoesnotfundproduct development. Byvirtue of
itsimplementing legislation andeligibility requirements, theprogramme isopentofirms inevery sector.
From ourestimation, itisneither usedpredominantly byanysector, nordoesitdisburse funds
disproportionately tofirms inanysector oftheeconomy. Thenearly 300projects undertaken since
theprogramme 'sinception havebeeninvolved avariety ofsectors, including manufacturing processes,
agriculture, biotechnology, electronics, materials, chemicals andchemical processing, andenergy,
environment andinformation technologies, eachofwhich isahighly diversified sector initsownright.
C.3 Energy Related Inventions Programme
Q. Small andmedium-sized companies areeligible forsubsidies under theEnergy Related
Inventions Programme. Theprogramme wasestablished bytheFederal Non-Nuclear Energy
Research andDevelopment Actof1974. TheActprovides thatcompanies meeting thecriteria
andrecommended bytheNational Institute ofStandards andTechnology canobtain upto
US$100,000. Could theUnited States elaborate onthecriteria foreligibility, theoperating
mechanism forthese schemes andthebeneficiaries? TheCommunity requests afullnotification
ofthisprogramme asprescribed byArticle 25WTO Subsidies Agreement.G/SCM/Q2/USA/10
Page21
Answer
Inpreparing ournotification, weexamined thisprogramme anddidnotidentify evidence of
specificity suchastowarrant itsnotification. Thisprogramme, authorized bysection 14oftheFederal
Nonnuclear Energy Research andDevelopment Actof1974(Public Law93-577), isgenerally available
tosmall andmedium-sized enterprises andisdesigned topromote research inenergy-saving technology.
While there arenosizestipulations withrespect topotential applicants, fewlarge firms participate
given the$100,000 limitandthelengthy process involved. Asitsname implies, information about
theprogramme istypically disseminated byDOE representatives attradefairsandother events where
inventors might gather. Given itsbroad availability andneutral eligibility criteria, ouranalysis led
ustoconclude that,fromaprogramme-wide perspective, itisnotspecific and,therefore, notsubject
tothenotification requirement.
Follow-up Question: How aresmall andmedium-sized enterprises defined?
Answer
Thestatute doesnotspecifically refertothesizeofenterprises among itseligibility criteria.
Rather, itstates specifically thattheprogramme isdesigned toserve theneeds ofindependent inventors,
whose proposals areevaluated using technical criteria. Applications aresubmitted byinventors in
both theprivate sector andatuniversities. Although precise statistics arenotmaintained, the
administering authorities forthisprogramme estimate thatmore than90%ofthegrantawards aremade
toindividuals orcompanies employing fewer than20people.
C.3 Energy Policy Act1992
Q. TheEnergy Policy Actof1992established thefollowing programmes: theHydrogen R&D
Programme, theTransportable Sector Advanced Material Development Programme, theAdvanced
CarTurbine System andtheSupport toEnergy Efficiency Programme. TheCommunity requests
afullnotification ofthese programmes asprescribed byArticle 25oftheWTO Subsidies
Agreement.
Answer
These programmes were, infact,included intheUSnotification. TheHydrogen R&D and
Advanced CarTurbine System programmes werenotified andidentified byname. Further, when the
Community refers totheSupport toEnergy Efficiency Programme, weassume thatitisreferring to
theDepartment ofEnergy ’sOffice ofEnergy Efficiency. Itshould benoted thatseveral ofthenotified
programmes areadministered outofthatoffice, including theMembrane Programme, theGeothermal
Energy Programme, theEnergy Storage Systems Programme, theProcess Heating andCooling
Programme, theBiomass Power Programme, andtheAdvanced Turbine Systems Programme. As
fortheTransportable Sector Advanced Material Development Programme, weareassuming thatthe
Community refers totheTransportation Sector Advanced Material Development Programme which
wasrestructured intotheLight-Weight Transportation Materials Programme. Thisprogramme appears
beginning onpage54oftheUSnotification.
D. Metal andSteel
D.1 Assumption ofPension Liabilities
Q. ThePension Benefits Guaranty Corporation (PBGC), apublic corporation, guarantees
andassumes pension liabilities fortheUSsteelindustry. ThePBGC provides fourquantifiableG/SCM/Q2/USA/10
Page22
benefits totheUSsteelindustry. First, theinsurance premiums charged byPBGC areinsufficient
tocover losses incurred byPBGC inassuming pension liabilities. Second, USsteelcompanies
areallowed tounderfund pension plans andconsequently spent thefunds asworking capital.
Third, theInternal Revenue Service grants funding waivers tosteelcompanies. Fourth, PBGC
assumes companies 'pension planliabilities upon termination ofthepension plan. Theguaranteed
underfunded pension liabilities resulted inUS$4.75 billion (1992 figures) inbenefits forsteel
producers. ThePBGC exercises considerable discretion inestablishing itspolicy. TheCommunity
requests afullnotification ofthesubsidies granted byPBGC.
Answer
Indeveloping ournotification, wereviewed thisactivity andconcluded thattherewasnobasis
fornotifying itongrounds ofspecificity ortheconferral ofabenefit. ThePBGC ’sactivities cover
awiderange ofindustries andareactuarially sound.
ThePBGCprotectstheretirementincomesofmorethan41millionUSworkers,inabout58,000
defined benefit plans. PBGC currently paysmonthly retirement benefits directly to174,000 retirees
in1,971 terminated plans, covering awiderange ofindustries. Also, PBGC receives nofunds from
thegovernment, butoperates oncollected premiums andincome from investments.
Inacountervailing duty(CVD) investigation ofcertain USsteelproducts, theCVD authorities
ofMexico found thatthere was“insufficient proof toestablish thefixed insurance premiums which
PBGC charges areundervalued orthattheyprovide acountervailable benefit. ”They alsodetermined
that“theinsurance premiums arenotatalldirected towards benefitting thecompanies butrather have
thepurpose ofinsuring thattheemployees continue toreceive theirpensions evenwhen theyarenot
intheposition tobearthecosts ofthese expenditures. ”
Inrespect totheCommunity ’sconcern about whether thePBGC hasinsufficient funds tocover
losses, ifmeasured onanaccrual basis, thePBGC hadapositive cashflowineightofthelasttenyears
uptotheyearofnotification and,from allindications, willcontinue tohaveoneintheforeseeable
future. Astowhether "USsteelcompanies areallowed tounderfund pension plans,"thisiscertainly
notthecasefromthePBGC ’sperspective. Inanyevent, anyquestion ofunderfunding (even without
thePBGC 'sknowledge) should nowbeamoot point given therising premiums being charged.
Asconcerns thecontention thattheInternal Revenue Service (IRS) grants pension funding
waivers tosteelcompanies, itshould firstbeclearthattheauthority oftheIRSisseparate from, and
doesnotrelate to,thePBGC. TheIRScangrant “waivers ”ofalloraportion ofminimum funding
requirements ofpension plans asdefined intheEmployee Retirement Income Security Actof1974
(ERISA). However, thetermwaiver ismisleading because themechanism amounts toadeferral, or
modification ofpayment terms. Eligibility forthistreatment isbased uponfourcriteria. Theemployer
mustbeoperating ataneconomic loss,there mustbesubstantial unemployment orunderemployment
inthetrade orbusiness concerned, thesalesandprofits oftheindustry concerned aredepressed or
declining, anditmust bereasonable toexpect thattheretirement planwillbecontinued onlyifthe
waiver isgranted. Thisauthority oftheIRSisnotlimited tosteelcompanies. While therecord keeping
procedures prevent analysis oftherange ofindustries which haveparticipated, theprogramme isopen
toallindustries which meetthecriteria setoutabove.
Finally, wearesomewhat puzzled bytheEC'scontention thatbyassuming acompany 'spension
planliabilities upon termination oftheplan, thePBGC 'sconduct constitutes asubsidy. Assumption
ofpension liabilities upon termination ofthepension planisinthenature oftheguarantee activity
itself. Thisiswhatanyinsurance programme would doanditiswhythecompanies arerequired to
maintain PBGC insurance.G/SCM/Q2/USA/10
Page23
E. Agriculture
E.1 TheFinancial Assistance Corporation Assistance Fund
Q. TheFarm Credit Administration, anindependent federal agency, operates anagricultural
credit system offarm credit banks thatlends tofarmers, ranchers andtheir cooperatives. The
Farm Credit System comprises among other associations oneAgricultural Credit bank which lends
toeligible buyers. According totheFederal Budget, theFund incurred US$117 million in1995.
Could theUnited States elaborate ontheamount ofinterest subsidy which isavailable toeligible
farmers? Could theUnited States, ifappropriate, provide afullnotification under Article 25?
Answer
TheFarmCreditSystem(FCS)isacooperativeagriculturalcreditsystemthatprovidesprivately
financed credit tofarmers, ranchers, andtheircooperatives. TheFarm Credit Administration, an
independent Federal agency, examines andregulates thesystem forsafety andsoundness. Operating
expenses arefinanced byassessments ofsystem institutions anddonotrequire budgetary resources
from theFederal Government. System banks finance loans primarily from thesaleofbonds tothe
public andtheirowncapital funds. TheFinancial Assistance Corporation (FAC), anFCSfinancing
institution, hadinterest expenses of$117million infiscal year1995. TheUSTreasury paysinterest
onsome FAC debt, buttheFCSisrequired toreimburse theTreasury.
FCSloans arenotsubsidized. TheFarm Credit Amendments Actof1986 prohibits theFCS
from underpricing itscompetition.
E.2 Conservation Reserves Programme (CRP)
Q. TheCRP wasmandated bytheFood Security Actof1985 toestablish permanent cover
onhighly erodible cropland. Theobjective oftheprogramme istoprovide support tofarmers
incontrolling soilerosion andtocompensate decreased production. TheCRP isavailable inall
states forcroplands meeting theeligibility criteria. Theprogramme isadministered through the
Commodity Credit Corporation bystatecommittees under thegeneral direction oftheSecretary
ofAgriculture. TheFederal Budget liststhatin1995 US$731 million wasactually provided in
subsidies toCRP contract holders. TheCommunity requests anotification ofthisprogramme
under Article 25.
Answer
Provided below isanotification oftheConservation Reserve Programme (CRP):
1. Policy objectives and/or purpose
TheCRPisavoluntary programme thatoffers landowners andoperators annual rental payments
andcost-share assistance toestablish approved conservation practices onhighly erodible andother
environmentally sensitive cropland. Theprogramme encourages participants toestablish permanent
areas ofgrass, treesandother long-term cover toreduce soilerosion, improve water quality, protect
wildlife habitats, andachieve other conservation andenvironmental benefits. CRPcontracts arefor
10to15years.G/SCM/Q2/USA/10
Page24
2. Legislative background andauthority
TheFood Security Actof1985, asamended, most recently bytheFederal Agriculture
Improvement andReform (FAIR) Actof1996, authorized theCRP, which isfinanced through the
Commodity Credit Corporation (CCC) andadministered bytheFarm Service Agency andtheNatural
Resource andConservation Service.
3. Towhom andhowisassistance provided
Tobeaneligible participant, landowners musthaveowned theacreage, oroperators musthave
leased theacreage, foratleastoneyear. Cropland must havebeencropped intwoofthepastfive
years, andmustmeetspecific environmentally based eligibility criteria. Under theterms oftheCRP
contract,theparticipantmustagreetoestablishapprovedvegetativecoverandnotconductanyharvesting
orgrazing, except thattheSecretary ofAgriculture maypermit these activities orother commercial
usesoftheforage onCRPlandinresponse toadrought orsimilar emergency.
4. Amount andform ofpayment
Infiscal year1995, government expenditures onCRPwere$1.7billion withtotalenrolment
of36.4million acres, themaximum authorized through 2002bytheFAIR Act.Annual per-acre rental
payments arebased onsite-specific soilproductivity andlocalprevailing cashequivalent rental rates.
Abonus maybeprovided formaintenance ofeligible special environmental practices. Inaddition,
CCC paysupto50%oftheone-time costs ofestablishing conservation practices.
5. Duration
TheCRPisauthorized bytheFAIR Actthrough theyear2002.
6. Trade effects
Upto36.4million acreshavebeenenrolled intheCRPandsome cropland thatotherwise would
havebeeninproduction hasbeenidled, thereby reducing export supplies ofUScrops. Under aproposed
ruleimplementing FAIR Actprovisions, there willbeagreater emphasis onenroling cropland that
yields thehighest environmental benefits while lesserodible andenvironmentally sensitive cropland
previously enrolled intheCRPwillbereturned toproduction. Although theFAIR Actauthorizes
a36.4million acrecaponCRPacreage, future enrolment isuncertain atthistimeandwilldepend
onhowmany producers offercropland forenrolment, theenvironmental sensitivity ofcropland offered
forentry, rental ratesoffered byproducers, andother factors. Therefore, itisnotnowpossible to
provide meaningful statistics ofthetypereferred tointheagreed format fornotifications under
Articles 25oftheSubsidies Agreement andXVI:1 oftheGATT 1994.
E.3 Promotion andDevelopment ofFishery Products
Q. TheAmerican Fisheries Promotion Actauthorizes agrant programme forfishery
development projects. TheDepartment ofCommerce administers afund which isfinanced by
atransfer of30%ofallcustoms duties onimported fishery. Thisprogramme provides grants,
subsidies andcontributions todomestic fishproducers. Thetotalamount ofbenefits liesaround
US$3 million. TheCommunity requests anotification ofthisprogramme under Article 25.G/SCM/Q2/USA/10
Page25
Answer
Webelieve thattheprogramme being referred tointhisquestion istheSaltonstall-Kennedy
(S-K)Programme(orFund),whichiscapitalizedthroughannualtransfersbytheSecretaryofAgriculture
totheSecretary ofCommerce inamounts equal to30%ofthegross receipts collected under thecustoms
lawsonimports offishandfishproducts. TheS-KProgramme provides research anddevelopment
grants toorganizations thatcarry outprojects tobenefit thefishing industry generally, andallresearch
results aremade publicly available.
Congress, through theappropriations process, determines howtheS-KFund isallocated. The
Department ofAgriculture (USDA) receives only30%ofthetotalduties collected onfishery imports
and,inturn,transfers thissame amount totheDepartment ofCommerce. Thus, USDA actsonlyas
apass-through anddoesnotretain anymoney collected fromfishery import duties. Inthemostrecent
years, Congress hasdirected thatmostoftheS-Kfunds beusedtooffset theneedforother operations,
leaving onlyaportion intheS-Kaccount fora"grant programme."
Wenotethat,toourknowledge, anumber ofother WTO Members provide similar forms of
support totheir fisheries industries. Weareexamining thestructure andimplementation ofthis
programme moreclosely, andwillnotify itinthefuture should weconclude thatitsatisfies thereporting
requirements.
F. TaxIncentives
F.1 Capital Construction Fund
Q. TheCapital Construction Fund provides fordirect taxdeferment incentives toshipbuilders
toreplace orreconstruct vessels. Thebenefits areonlyavailable toUScitizens. Theeligible
applicant willreceive taxincentives fordepositing assets inaccordance with therules ofthe
programme. In1993, thetotalamount ofbenefits since theprogramme inception amounted to
US$5.4 billion intaxdeferments. TheCommunity requests anotification ofthisprogramme under
Article 25.
F.2 Construction Reserve Fund
Q. ThisFund aims toprovide incentives forUSshipbuilding industry. Ataxdeferment is
granted toshipbuilders fortheconstruction ofvessels fornational defence orUScommerce. The
benefit consists ofdeferment oftaxongains. TheCommunity requests anotification ofthis
programme under Article 25.
Answer
Weareexamining theterms ofbothofthese programmes withaviewtodetermining whether
theyfallwithin thenotification requirements oftheAgreement. Ifweconclude thattheydo,wewill
provide thenecessary information inafuture notification.G/SCM/Q2/USA/10
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Follow-up Question: Towhat extent dothese orother available schemes provide subsidies
toshipowners contingent upon theuseofUS-built vessels, thusproviding anindirect subsidy to
USshipbuilders?
Answer
Wewilllookforthese elements asweexamine theprogrammes forpossible notification.
However, evenifuseoftheprogramme wascontingent upon theuseofUS-built vessels, wewould
notnecessarily share theview thattheprogramme would provide anindirect "subsidy" within the
Agreement 'smeaning ofthatterm.
F.3 Incentives forExport Activity
Q. TheDepartment ofTreasury developed ascheme where foreign source income (e.g.income
from export activities) iseligible fortaxconcessions. USpersons andcorporations aretaxable
ontheir world-wide income. This scheme provides forreduced taxation forexporters and,
therefore,indirectlyprovidesanincentivetoexportactivity.TheCommunityrequestsanotification
ofthisprogramme under Article 25.
Answer
Weassume thattheCommunity 'squestion refers totheForeign Sales Corporation provisions
oftheUSInternal Revenue Code, which wereenacted in1984. Wewilladdress thisissueinouranswer
toquestion K.below. Ifthisisnotthesubject oftheEC'squestion, thenwewillrequire further
information orelaboration inorder tobeabletorespond.
F.4 TaxBreaks forEthanol
Q. Ethanol isacorn-based gasoline additive which isconsidered tobeanewsource offuel.
Ethanol production isbenefiting from taxbreaks. TheArcher TaxBillaimed toimpose normal
taxrates forethanol production. However, thebillwasnotpassed byCongress. Therefore, the
production ofethanol isstillbenefiting from preferential taxrates. TheCommunity requests
anotification ofthisprogramme under Article 25.
Answer
Informationconcerningthismeasurewillbeincludedinafuturenotificationcontaininganumber
oftax-related provisions which wehaveresearched andidentified fornotification.purposes.
G. Aerospace andAeronautics
G.1 Commercial Development ofSpace Programme
Q. TheSpace Actestablished aprogramme intending todevelop thespace programme for
commercial purposes. Theannual budget liesbetween US$20 andUS$29 million intheperiod
1989-1993. TheSpace Actprovides explicitly forindustry participation inorder tobeeligible
forbenefits under thisprogramme. TheCommunity requests anotification ofthisprogramme
under Article 25.G/SCM/Q2/USA/10
Page27
Answer
TheCommercialSpaceCentres(CSCs-previouslyreferredtoastheCentresfortheCommercial
Development ofSpace (CCDS)) areaninnovative effort byNASA designed tofacilitate theuseof
spaceforcommercialproductsandservices.Thecentresarebasedatuniversities,andeachhasindustrial
partners intheareasoftechnical expertise. Theresearch conducted covers awiderange ofspace-related
issues, including biotechnology, biosystems, agriculture, remote sensing, communications, automation
androbotics, andmaterials processing. Theprogramme wasnotnotified because itapplies toabroad
number ofdisparate industries andareasofresearch andtechnology, which indicates thattheprogramme
isnon-specific innature. While wedonotconsider ittobenotifiable, weprovide thefollowing
information according totheagreed notification format intheinterests oftransparency.
1. Policy objective and/or purpose
Thecentres arenot-for-profit consortia ofuniversity/industry/government partnerships, each
ofwhich isledbyauniversity-based management team. Theroleofthecentres istoprovide expertise,
linkages andfocus fordeveloping industry anduniversity investment inthecommercial useofthe
attributes ofspace. Each CSC represents aspecific discipline orareaofresearch -primarily for
commercial application.
2. Background andauthority
Theprogramme isadministered byNASA ’sOffice ofLifeandMicrogravity Sciences and
Applications. Legislative authority derives from theNational Aeronautics andSpace Actof1958,
asamended, andtheUSGovernment 'sannual budget andappropriations legislation.
3. Form; Towhom andhowassistance isprovided
Eachcentre ’spartners (industry, university, andgovernment organizations) participate inthe
conduct ofspace-related research anddevelopment activities forcommercial applications. Funds are
provided bythecentre partners andthrough grants provided byNASA.
4. Amount
Approximately $20million ingrants based onFY96budget authority, inaddition to
approximately$10millionforthedevelopmentandfabricationofSpaceStation-uniqueresearchhardware.
5. Duration
Ongoing. (Theprogramme began in1985, astheCentres forCommercial Development of
Space.)
6. Trade Effects
Inlightofthescope andnature oftheR&D activity being assisted, itisnotpossible todetermine
what, ifany,trade effects mayeverresult from thisprogramme.
H. Overseas Private Investment Corporation (OPIC)
Q. Section 231oftheUSForeign Assistance Actprovides thelegal basis fortheactivities
ofOPIC. OPIC isapublic body providing aidtocompanies conducting overseas investments.
Theaidgranted byOPIC canbeclassified asfollows: (a)investment insurance; (b)investmentG/SCM/Q2/USA/10
Page28
guarantees (loan guarantees); (c)direct investment; and(d)investment encouragement (feasibility
ofreimbursable grants). OPIC grants upto100% insurance oftheprincipal investment capital
andinterest. Private risk-based interest rates andinsurance premiums forbusiness investments
aremuch higher. Theincentives provided byOPIC constitute aclear benefit tooverseas private
investments. Thetotalincentives ofOPIC amounted toUS$58.3 million in1995. TheCommunity
considers thatthebenefits granted byOPIC constitute subsidies toUSindustry and,therefore,
requests anotification according toArticle 25.
Answer
TheOverseasPrivateInvestmentCorporation(OPIC)isanagencyoftheUSFederalGovernment
which provides investment insurance, loans andloanguarantees forinvestment projects inforeign
countries. OPIC ’scurrent investment encouragement activities donotinclude feasibility studies or
reimbursable grants. Theagency ’sinvestment encouragement efforts essentially consist ofmeetings
andadvice, andOPIC currently provides nogrants atall.Upuntilthemid-1980s, OPIC provided
alimited number ofgrants, amounting tolessthan$1million peryear. OPIC continues tohavestatutory
authority todoso,butthiselement ofitsactivities hasnotrecently beenfunded.
Based onourexamination ofOPIC ’soperations, there wasnotsufficient evidence towarrant
concluding thatsuchactivities arespecific within themeaning ofArticle 2.Access to,andparticipation
in,OPIC activities arenotlimited toanyindustry orgroup ofindustries. Theinvestment insurance,
loansandloanguarantees which OPIC provides areavailable toabroad range ofsectors intheeconomy,
including manufacturing, services, infrastructure, agri-business, andeco-business. Forexample, in
fiscal year1995, OPIC insured orfinanced investment projects insuchareas astelecommunications,
mining,well-drilling,parkingmetersystemmanagement,softdrinks,lifeinsurance,bankingandtourism.
Finally, participation inOPIC projects isinnowaycontingent upon export performance oronthe
useofdomestic overimported goods. Rather, OPIC merely facilitates USinvestment inforeign
economies. Forthese reasons, wedonotbelieve thattheactivities ofOPIC arespecific within the
meaning oftheAgreement; therefore, theyneednotbenotified under Article 25.
I. Shipbuilding
Q. TheMerchant Marine Actestablished theFederal ShipFinancing Fund toassist inthe
development oftheUSmerchant marine byguaranteeing construction loans andmortgages on
USflagvessels built intheUnited States. Guarantees areavailable upto87.5% ofthecostof
aproject. For1995, thesubsidy ratewasabout US$10 million. Thetotalamount ofguaranteed
loans wasabout US$418 million. TheCommunity requests anotification ofthisprogramme under
Article 25.
Answer
Weareexamining theterms ofthisactivity withaviewtodetermining whether itfallswithin
thenotification requirements oftheAgreement. Ifweconclude thatitdoes, wewillprovide the
necessary information inafuture notification.G/SCM/Q2/USA/10
Page29
Follow-up Question: Towhat extent doesthisorother available schemes provide subsidies to
shipowners contingent upon theuseofUS-built vessels, thusproviding anindirect subsidy toUS
shipbuilders?
Answer
Wewilllookforthese elements asweexamine theprogramme forpossible notification.
However, evenifuseoftheprogramme wascontingent upon theuseofUS-built vessels, wewould
notnecessarily share theview thattheprogramme would provide anindirect "subsidy" within the
Agreement 'smeaning ofthatterm.
J. Transportation
J.1 Payments toAirCarriers
Q. TheDepartment ofTransportation administers theAirport andAirway Trust Fund.
According totheFederal Budget, about US$23 million isallocated tothisfund. Could theUnited
States provide more detailed information regarding thefinancing activities oftheFund and,if
appropriate, provide afullnotification under Article 25?
Answer
Payments toaircarriers arecurrently made from theAirport andAirway Trust Fund under
theSmall Community AirService Programme, which isadministered bytheDepartment of
Transportation. TheSmall Community AirService Programme isgenerally referred toastheEssential
AirService (EAS) programme. TheAirport andAirway Trust Fund isanaccount established and
administered bytheUSDepartment oftheTreasury intowhich proceeds fromuserfee-type taxes are
deposited. (These userfee-type taxes include a10%taxondomestic passenger tickets, a$6taxon
international flights departing from theUnited States, a6.25% taxondomestic airfreight, a15
cent-per-gallon taxongasoline purchased bynon-commercial carriers, anda17.5centpergallon tax
ongasoline purchased bycertain other kinds ofcarriers.) Theprimary function oftheAirport and
Airway Trust Fundistosupport overall aviation development. EASprogramme payments toaircarriers
constitute averysmall portion oftheAirport andAirway Trust Fund. Infiscal year1996, forexample,
EAS payments toaircarriers were $22.6 million outoftotal Airport andAirway Trust Fund
disbursements forallpurposes ofabout $6billion. Since theEASprogramme provides funds toservice
providers (aircarriers), itisnotcovered bytheSubsidies Agreement. Onthatbasis, wedetermined
thatitdidnotwarrant notification under theAgreement.
TheEASprogramme cameabout asaresult ofderegulation oftheUSdomestic airline industry.
When theindustry wasderegulated in1978, theUSCongress wanted toensure thatsmall towns
maintained adirect airservice linktothenational airtransportation system and,therefore, provided
fordirect payments toaircarriers toserve communities thatwould otherwise receive noscheduled
airservice. Importantly, noaircarrier service subsidized under theEASprogramme competes directly
withnonsubsidized, market-driven aircarrier service. While funding oftheEASprogramme hasvaried
widely almost since itsinception in1978, theoverall trend hasbeendownward. Intheearly 1980s,
forexample, theEASprogramme wasfunded atannual levels ofmore than$100 million, whereas,
asoutlinedabove,fiscalyear1996fundingwas$22.6million.Fiscalyear1997fundingis$25.9million.G/SCM/Q2/USA/10
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K. Foreign Sales Corporations
Q. TheTaxReform Actof1984 established asystem whereby certain equipment hasbeen
financed atpreferential rates byusing foreign salescorporations (FSCs). Non-US companies have
leased orbought equipment from UScompanies, called FSCs. Toqualify asaFSC, acorporation
mustbeorganized under thelawsofapossession oftheUnited States orunder thelawsofacountry
thathasentered intoanexchange ofinformation agreement withtheUnited States. Bermuda,
theUSVirgin Islands, Barbados andGuam havebeenpopular jurisdictions. Acondition toqualify
forFSCisthattheincome must constitute receipts from therental orsaleofexport property.
Exportpropertymeanspropertysatisfyingthefollowingrequirements:USmanufacture,minimum
50%UScontent andconsumption outside theUnited States. Thebenefits consist oflarge tax
incentives.TheCommunityrequestsfullnotificationofthisprogrammeunderArticle25,especially
thecriteria foreligibility. TheCommunity would liketheUnited States tocomment onthe
compatibility ofthisprogramme withitsobligations under Article 3oftheSubsidies Agreement.
Answer
When acorporation qualifies asaforeign sales corporation (FSC) under USlaw,aportion
ofitsexport income isexempt fromUSincome taxandaUScorporation isnotsubject toUStaxon
dividends distributed from aFSCoutofearnings attributable tocertain export income.
AFSCmustbeaforeign corporation -thatis,onewhich isnotcreated ororganized inthe
United States orunder thelawoftheUnited States orofanyindividual USstate. TheFSCmusthave
aforeign presence, meet certain management requirements, andmeet certain economic process
requirements. Insalesbetween unrelated parties, actual transaction prices areusedtodetermine the
income ofaFSCthatiseligible forataxexemption. Insalesbetween related parties, thetaxable income
oftheFSCandthetaxable income oftheother related party arecomputed based uponatransfer price
determined under anarm's-length pricing approach orunder oneoftwoformulae which areintended
toapproximate arm's-length pricing.
TheUnited States doesnotconsider itappropriate tonotify these provisions under Article 25.
A1981understanding accepted bytheGATT Council recognizes thateconomic processes, including
transactions involving exported goods, located outside theterritorial limits oftheexporting country
neednotbetaxed, withthecaveat thatarm's-length pricing beusedintransactions between related
persons. Weconsider thattherequirements forqualification asaFSCandforearning tax-exempt
income ensure thattheincome arises from aneconomic process located outside theterritory ofthe
United States. Thus, pursuant totheunderstanding accepted bytheGATT Council, FSCincome need
notbesubject toanyUStaxation. Consequently, itfollows thatapartial exemption from optional
UStaxation would notconflict withthisprinciple.
Follow-up Question: TheCommunity considers thisprogramme tobespecific. Inviewofthis
disagreement, willtheUSnotify thisprogramme forthepurpose oftransparency, bearing inmind
theprovisions ofArticle 25?
Answer
TheUnited States would, firstofall,notethat(i)there areanumber ofprogrammes which
wehavenotified and/or provided significant information about notwithstanding theirnotconstituting
"specific subsidies" within themeaning oftheAgreement; and(ii)there areanumber ofprogrammes
which theCommunity hasapparently decided nottonotify "forthepurpose oftransparency"
notwithstandingsimilardisagreementsastotheirnotifiability(e.g.,developmentaidforAirbusIndustrie).
Whereas Article 25.7oftheAgreement makes clearthattheactofnotification carries inandofitselfG/SCM/Q2/USA/10
Page31
nolegalweight astotheidentification ofapractice asa"specific subsidy," itisuptoeachMember
tomake itsownjudgments onwhich ofitspractices fallwithin thenotification requirement and-of
those which donot-theextent ofinformation thatisnecessary and/or appropriate toprovide inorder
topromote greater transparency andmutual understanding ofeachothers 'systems ofindustrial support,
taxation, etc.While wearealways amenable toproviding information which would enable others to
understand better theoperation oftheFSCtaxprovisions, itisclearfromtheCommunity 'squestions
thatithasalready reviewed theextensive information about theFSCthatcanbefound inthepublic
domain.
SEMATECH
Follow-up Question: Given thatSEMATECH isdesigned topromote research intomicro-
electronics, onwhat basis canitbedemonstrated thatthesubsidy isnon-specific?
Answer
Please seeourearlier response tothequestion onSEMATECH posed byJapan. SEMATECH
hasfeatured anumber ofdifferent aspects andactivities, notallofwhich arereadily categorizable
asconstituting asubsidy within theAgreement 'sdefinition. Inanyevent, asweindicated above,
government funding fortheconsortium ended withthefiscal year1996 support.
SUB-FEDERAL PROGRAMMES
Aswehavestated inreply toasimilar question fromNorway, theUnited States hasexamined
andcompiled information onanumber ofmeasures atthestategovernment levelwhich maysatisfy
thenotification requirements setforth intheAgreement. Some oftheprogrammes which wehave
identified overlap withthelistofsub-federal measures which were noted inthequestions posed by
theEuropean Community (EC), although many oftheprogrammes contained ontheEC’slistwould
notappear tomeettheAgreement ’snotification criteria. Forexample, asageneral rule,industrial
development bond programmes areprovided onagenerally available basis within thejurisdiction in
question. Thesame would betrueofmany programmes aimed atencouraging energy conservation
andenvironmental protection, justasthere areanumber oftaxprogrammes offered onagenerally
available basis within thestates. Other oftheprogrammes noted bytheECarereally notaimed at
industry, butaremore applicable toindividual citizens andnon-commercial circumstances. Therefore,
while theUnited States doesnotcontest theprinciple thattheSubsidies Agreement applies tocovered
subsidy measures provided bythevarious levels ofgovernment which existwithin theterritory ofa
Member, wewould notnecessarily concur withtheEC’sassessment ofthenotifiable nature ofmany
oftheprogrammes listed initsquestionnaire.
Astothegeneralissueofnotifyingsuch“sub-central”measures,theUnitedStateshaswelcomed
thediscussions which haveoccurred within theCommittee onthistopicandisprepared toengage in
further discussions withother Members inaneffort todetermine whether itispossible toachieve a
broader commitment byallWTO Members tosupply suchinformation. Aswehavesaidbefore, we
understand thepolitical, legalandadministrative difficulties which thiscommitment canposeforcertain
Members, astheyaredifficulties which onsome levelwefaceaswell. Atthesame time, however,
weareconscious oftheobligations oftheAgreement andtheneedtoimprove compliance inthearea
ofsubsidy notifications.
Many oftheprogrammes offered byUSstates undoubtedly offerlittleinthewayofmeaningful
subsidization, butinsofar asnotifications under GATT Article XVI:1 andArticle 25oftheAgreement
arenotdeterminative ofthelegalstatus oreffects ofasubsidy (perArticle 25.7), therealissuebefore
usisoneoftransparency. TheUnited States Federal Government willcontinue tomake thiscasetoG/SCM/Q2/USA/10
Page32
ourcolleagues inthevarious stategovernments oftheUnited States, justaswewillconsult withthem
concerning thespecific programmes raised inquestions posed byother WTO Members. Moreover,
inthecontext ofourconsultations withstate-level governments, wearesharing thelistofprogrammes
identified bytheECforpurposes ofclarifying whether anyofthese programmes, should they(still)
exist, mayfallwithin thenotification obligations oftheAgreement. Irrespective ofothers 'intentions
orefforts, itremains theUSobjective tobeableprovide theCommittee withanotification ofstate-level
measures within thereasonably nearfuture.
However, asothers havepointed out,itwould beunreasonable foranyofustoexpect asystemic
andlong-term improvement inthisareauntilsuchtimeaswecanallassure oursub-central government
authorities thatother WTO Members withsimilar sub-central programmes willalsoinclude such
information intheirnotifications. Todate,thishasoccurred inonlyafewinstances, andwearenot
inaposition tosaywhether thenotifications were exhaustive insuchinstances. However, wehave
beenencouraged bytheapparent willingness ofcertain Members -including some which havefederal
systems ofgovernment similar toourown-tostrive forimprovements inthisareaofreporting. We
remain committed todothesame.
Follow-up Question: Would theUSagree thatthefollowing areexamples ofdejurespecific
subsidies which should benotified under Article 25?Many other examples atstate levelcanbe
given.
Answer
(a) Alabama Enterprise Zone Act
(b) Alaska -Export Assistance Programme
(c) Arizona -Export Loan Guarantee Programme
(d) Arkansas -Export Finance Programme
(e) Arkansas -Property TaxExemptions forCotton Mills
(f) Delaware -Targeted Areas TaxIncentives
(g) Maryland -Seafood andAquaculture Loan Fund
(h) Michigan -Property TaxExemption forSugar andMetallic Mineral Ores
(i) Texas -Property TaxAbatement forReinvestment Zones
(j) Wisconsin -Wisconsin Development Zone Programme
Asafurther illustration oftaxincentives atthesub-federal level, willtheUSnotify under
Article 25thesubsidies available inenterprise zones which existin30states?
TheinformationwhichtheUnitedStateshasthusfargatheredwithrespecttostate-levelactivities
includes anumber ofenterprise anddevelopment zoneprogrammes. However, wearenotyetina
position toconfirm thenotifiability ofthespecific programmes identified above. Some ofthe
programmes maynot,infact,constitute "subsidies" within themeaning oftheAgreement, whereas
others mayrepresent elements ofmore broadly applicable taxandfinancing provisions notwithstanding
thatthenames provided above givetheimpression ofspecificity.G/SCM/Q2/USA/10
Page33
Questions from ARGENTINA (G/SCM/Q2/USA/5)
Q1. Most oftheindustrial subsidies notified bytheUnited States ofAmerica areresearch and
development subsidies. However, theUnited States doesnotprovide information onthetotal
percentage ofthecosts oftheproject concerned thatarecovered bysuchsubsidies, noronthe
types ofcosts thesubsidies cover. Could theUnited States provide suchinformation inorder
tobeabletodetermine whether these programmes areinconformity withtherequirements of
Article 8.2(a) oftheAgreement?
Answer
Inournotification, inouroralreplies atthespecial meeting oftheCommittee, andinthese
written responses, wehaveprovided certain -often necessarily generalized -information oncost
percentages andthetypes ofcosts incurred. However, without prejudice towhether ornotanyor
alloftheUSresearch andtechnology programmes arenon-actionable subsidies, wearenotcurrently
notifying these programmes under Article 8.2-8.3 oftheAgreement. Aswehavestated elsewhere
inthenotification andinthese replies, theprogrammes aresovaried andtailored totheneeds ofthe
particular R&D activity being undertaken thatitwould often bemisleading togeneralize either with
respect tothelevels andmanner inwhich costs areshared aswellastowhether asubsidy is,infact,
being provided. Moreover, totheextent thatcertain programmes mayconfer subsidies, many are
alsosobroadly available andusedasnottobeconsidered specific. Inanyevent, insofar asthe
United States isnotatthistimemaking anotification under Article 8,weareunder noobligation to
attempt toprovide thekindofdetailed information oncosts andcostsharing thatisrequired bythe
terms, criteria andconditions ofArticle 8.2-8.3.
Q2. With regard totheExport Enhancement Programme (EEP), theexistence ofasubsidy
means thattheexport prices ofeligible products arelowered totheextent necessary tocompete
withother suppliers onspecific markets. Could theUnited States provide information onthe
destinations oftheexports thathavebenefitted under thisProgramme andtheexport price levels
ofthese exports?
Answer
Wehaveprovided theinformation requested intheattached Table 1.
Q3. TheDairy Export Incentive Programme (DEIP) hasasimilar objective tothatoftheEEP,
andtheamounts allocated indicate thattheincidence ofthesubsidy pertonexported must be
significant. Could theUnited States provide abreakdown ofexports byproduct andthebenefits
received byexporters todifferent countries ofdestination?
Answer
Wehaveprovided theinformation requested intheattached Table 2.
Q4. Thecontents ofquestion No.3apply totheSOAP andCOAP Programmes. Could the
United States confirm thatthese programmes have come toanendandnolonger exist since
1January 1996?
Answer
Under theFood, Agriculture, Conservation, andTrade (FACT) Actof1990, asamended,
theUSSecretary ofAgriculture wasauthorized touse$50million annually toencourage additionalG/SCM/Q2/USA/10
Page34
salesofcottonseed oilandsunflowerseed oilexports under theCottonseed OilAssistance Programme
(COAP) andtheSunflowerseed OilAssistance Programme (SOAP). Funds fortheseprogrammes were
made available under Section 32oftheAgricultural Adjustment Actof1935.
However, under themost recent USfarmlegislation, theFederal Agriculture Improvement
andReform (FAIR) Actof1996, neither COAP norSOAP werereauthorized. Without reauthorization,
neither COAP norSOAP areoperational.
Q5. Don'ttheprogrammes ofassistance toproduction through price support mechanisms
produce undesirable effects onthequantity oftheproduct obtained andthegeneration ofexportable
surpluses thatcould have anadverse impact onthemarket ingoods? Arethese assistance
programmes fully compatible withtheprovisions oftheAgreement onAgriculture relating to
reduction commitments (Article 6.4)anddirect payments (Article 6.5)andhence subject tothe
provisions ofArticle 13?
Answer
TheUSUruguay Round Schedule ofCommitments Limiting Subsidization forAgricultural
Products identifies programmes ofassistance thataresubject toreduction commitments because they
have trade-distorting effects. Some programmes aredeminimis and,therefore, compatible with
Article 6.4oftheAgreement onAgriculture. Deficiency payments forwheat, coarse grains, rice,
andcotton arecompatible withArticle 6.5. Deficiency payments areeliminated bytheFederal
Agriculture Improvement andReform Actof1996 effective withthecrops harvested in1996.
Q6. Arethese assistance programmes covered byAnnex 2oftheAgreement onAgriculture
andtherefore non-actionable subsidies within themeaning ofArticle 8oftheSCM Agreement?
Iftheyareclassified asnon-actionable subsidies, andeven ifArticle 13oftheAgreement on
Agriculture applies, shouldn 'titbedemonstrated thatthese measures arenon-actionable?
Answer
Programmes identified intheUSUruguay Round Schedule ofCommitments Limiting
Subsidization forAgricultural Products asconforming withAnnex 2requirements, such asthe
Conservation Reserve Programme, arenon-actionable forpurposes ofcountervailing duties consistent
withArticle 13(a) oftheAgreement onAgriculture.
Q7. Dotheproduction assistance programmes fulfil therequirement under Annex 2,
paragraph 1,oftheAgreement onAgriculture thattheymust have noeffect ontrade orprices?
Answer
Programmes identified intheUSUruguay Round Schedule ofCommitments Limiting
Subsidization forAgricultural Products asconforming withAnnex 2requirements, such asthe
Conservation Reserve Programme, havenoorminimal trade-distorting effects.
Q8. Theassistance programmes thatconstitute price support should beanalysed ingreater
detail anddepth from thestandpoint ofimplementation ofArticle 6oftheAgreement on
Agriculture inorder tobeabletodetermine whether Article 13.3oftheAgreement onAgriculture
applies. Could theUnited States provide information ontheeffects ofthese programmes onthe
prices andproduction ofdifferent goods?G/SCM/Q2/USA/10
Page35
Answer
TheUSUruguay Round Schedule ofCommitments Limiting Subsidization forAgricultural
Products identifies programmes ofassistance thataresubject toreduction commitments because they
havetrade-distorting effects. However, aswestated above, some programmes aredeminimis and,
therefore, compatible withArticle 6.4oftheAgreement onAgriculture, andthedeficiency payments
previously provided forwheat, coarse grains, rice,andcotton were compatible withArticle 6.5of
theAgreement onAgriculture. TheUnited States hasendeavoured toprovide asmuch ofanindication
ofthepotential tradeeffects arising fromsuchprogrammes asispossible todoonanaggregate basis.
Should Argentina haveparticular questions orconcerns withrespect tospecific products, wewould
beprepared toaddress those points individually, either intheSubsidies Committee orintheCommittee
onAgriculture. TheUnited States alsoremains opentoabilateral exchange inorder toclarify any
outstanding questions.
Questions from INDIA (G/SCM/Q2/USA/6)
Q1. Underthetitle:"TheExportEnhancementProgramme(EEP)"applicabletotheagriculture
sector thesubheading "towhom andhowassistance tobeprovided" theworking oftheEEPhas
been explained indetail. Sub-Section (4)under thesubheading states thattheexporter makes
anoffer totheCCC toestablish theamount ofbonus necessary tomake theeligible commodity
competitive withthesame commodity being offered forsalefrom other exporting countries. Under
Sub-Section (5)theCCC thendetermines ifthebonus makes theexporter 'ssalecompetitive.
Isthedetermination based oncompetitor 'sprice onlyoristhecostofproduction ofthe
domestic producer alsotaken intoaccount? Anexample eachofcalculations ofbonus forboth
types, ifapplicable, maybegiven.
Further, theCCC alsodetermines iftheoffer bytheexporter meets therequirements
oftheprogramme. These requirements maybespecified.
Answer
TheamountofCommodityCreditCorporationbonusisbasedprimarilyonthedifferencebetween
theworld market pricefortheproduct soldandthedomestic costsoftheproduct sold. TheCCC bonus
should beconsidered astheamount needed toconclude thesaleatthenegotiated world market price.
Theexporter determines theamount ofCCC bonus needed afterconsidering thedomestic market
conditions fortheproduct sold. Theexporter submits aperformance security totheCCC andthen
makes anoffertotheCCC forabonus, including withtheoffertherelevant terms oftheexport sales
transaction.
TheGeneral Sales Manager willreview thebidtodetermine ifitmeets therequirements of
theprogramme. Specifically, thesalespriceisreviewed todetermine ifitmeets theminimum acceptable
levelafterconsidering theprevailing world market priceforthattypeofproduct, destination andother
details oftheexport sale.TheGeneral SalesManager thenreviews theCCCbonus request todetermine
if,afterconsidering thedomestic market forthetypeofproduct, thelevelofbonus requested bythe
exporter doesnotexceed themaximum allowed.
Thegeneral requirements oftheprogramme aredetailed inregulations, andspecific country,
commodity andother requirements arestated in“Invitations forOffers ”issued bytheCCC. These
requirements include, butarenotlimited to:(a)arequired performance security; (b)product
specifications; (c)required details oftheexport saleincluded intheoffertotheCCC; and(d)proper
certifications.G/SCM/Q2/USA/10
Page36
Q2. Itismentioned onpage13oftheUSnotification thatunder "The Dairy Export Incentive
Programme (DEIP)" payments aremade onabidbasis toentities thatsellUSdairy products
forexport. Bidbasis maybeelaborated further.
Answer
Allsalesunder theDEIP aremade byprivate sector exporters whocontact prospective buyers
ineligible countries andnegotiate asalescontract. Thesaleiscontingent upon USDepartment of
Agriculture (USDA) approval ofabonus. Eachprospective exporter submits abidtoUSDA requesting
asubsidy, orbonus, thatwould allow thesaletotakeplace attheagreed price. USDA reviews all
bidsforthecompetitiveness ofthebonus value requested, andcompares thebidswithoffers fromother
USexporters andsalesofcompetitor countries. USDA hastherighttoreject anyorallbids.
Once USDA accepts abid,theexporter andtheCommodity Credit Corporation (CCC) enter
intoanagreement. When theexporter furnishes USDA withevidence thatthespecified commodity
hasbeenexported tothetargeted country under theterms oftheagreement, theexporter canrequest
payment ofthebonus from CCC.
Q3. Under thesubheading "ToWhom andhowassistance isprovided" onpage13oftheUS
notification, itisstated thatpayments aremade incash, CC-owned commodities, orgeneral
certificates onabidbasis toentities thatselldairy products forexport.
Answer
TheDEIPallowsthepaymentofthebonusineithercashorCommodityCreditCorporation-held
commodities. Ifpayment ismade inCCC-held commodities, thepayment willbemade intheform
ofageneric certificate. Themethod ofpayment, cashorcertificate, isstipulated inthe“Invitation
forOffers. ”Because ofthelowlevels ofCCC-held commodities tocollateralize generic certificates,
thebonus payment under recent programming hasbeenincash.
Q4. Under theExport Assistance Measures (EAM) intheagriculture sector titled: "mandated
exports salesofDairy Stocks", itisstated onpage14oftheUSnotification thatbytheUruguay
Round Agreement Actof1994, theSecretary maintains discretionary authority tosellCC-owned
dairy stocks intotheexport market.
Forhowmany years aresuch discretionary sales intended tocontinue? What arethe
factors taken intoaccount bytheSecretary while exercising hisdiscretion?
Answer
Thediscretionary authority tosellCommodity Credit Corporation inventory willremain with
CCC asameans fortheorderly disposal ofsurpluses acquired byCCC. Programme activity willbe
conducted consistent withourWTO obligations. (Please seeourreplies toCanada, below, foradditional
detail.)
Q5. Under theAgriculture Price Support Programmes thefollowing additional information
maybeprovided:
(a) thevalue ofGovernment payments (deficiency plusothers) asapercentage ofthe
value ofproduction (values atsupport prices) foreachcommodity intherelevant
tables;G/SCM/Q2/USA/10
Page37
(b) theamounts mentioned inthetextinsupport ofeach commodity through
Government payments (net)donotmatch withthefigures given inensuing tables.
Could itbeclarified what causes thisdiscrepancy? Thediscrepancy isamajor
oneinthecaseofcorn.
Answer
Inregard toquestion (a),onecanderive thisinformation fromthedatapresented inthetables
found intheUSnotification. Weareunable toidentify orunderstand thediscrepancies towhich India
isreferring initsquestion (b),andwould therefore require additional clarification inorder toreply.
Q6. DoestheUSmaintainanynon-productspecificsubsidiesfollowingthroughcheapirrigation,
electricity, credits etc? Ifyes,information about them maybeprovided.
Answer
Please seetheUSUruguay Round Schedule ofCommitments Limiting Subsidization for
Agricultural Products, Supporting Table 10:Non-Product Specific AMS.
Q7. Intables 1to5under theAgriculture Price Support Programmes, canthevalue of
production, bothatsupport price andmarket price, wherever available, beprovided? Ifyes,
details thereof.
Answer
Wewillendeavour toprovide information onthevalue ofproduction atthemarket price in
asubsequent submission. However, thevalue ofproduction based onsupport priceisnotameaningful
measure because notallproduction receives thesame support andsome receives none.
Q8. Under theExport Enhancement Programme (EEP), theUShave mentioned thatfiscal
year1994, theCCcommitted US$1,150 million inbonuses under EEP. Isitpossible togivea
break upseparately forwheat, flour, foodgrains, rice,vegetable oils,frozen poultry, barley, milk,
pork andeggs?
EXPORT ENHANCEMENT Programme
Awards forFiscal Year 1994
COMMODITY QUANTITY UOM TOTAL
Barley Malt 65,000 MT $9,550,260.00
Eggs 61,891,510 DOZEN 14,972,146.84
Feed Grains 1,676,790 MT 90,170,308.70
Frozen Pork 13,718 MT 13,630,247.00
Frozen Poultry 27,795 MT 20,661,729.75
Rice 46,430 MT 2,309,215.00
Vegetable Oil 372,700 MT 29,841,636.20
Wheat 19,112,543 MT 890,485,804.79
Wheat Flour 556,088 MT 78,081,064.00
Total 1,149,702,412.28G/SCM/Q2/USA/10
Page38
*Milk isincluded intheDEIP. ForFY94under theDEIP:
Quantity Bonus
Nonfat DryMilk 91,870 MT $77,268,693
Whole Milk Powder 11,039 MT $14,331,149
Questions from CANADA (G/SCM/Q2/USA/7 +Suppl. 1)
Q1. Under thesixR&D programmes notified, what types ofcosts aretypically eligible for
funding?
Answer
Based onthequestion ’sreference to“six”R&D programmes, weassume thatitisdirected
attheprogrammes administered bytheNational Aeronautics andSpace Administration (NASA).
Generally, under theNASA programmes, costsmustbe“allowable, allocable andreasonable ”inorder
tobeeligible forreimbursement. Advance agreements maybenegotiated toclarify thedegree towhich
particular types ofcostswillbeallowed; however, suchagreements cannot overrule legalorregulatory
listings ofallowable costs.
Section 31.205 oftheFederal Acquisition Regulation (19CFRChapter 1)(FAR) contains a
detailed listanddiscussion oflimitations onallowability forcost-reimbursement typecontracts with
commercial organizations. Forinstance, baddebtlosses, interest costs onfinancing, andpolitical
contributions arenotallowable. Advertising andpublic relations costs aresometimes allowable,
depending onthebenefit tothecontract and/or thecontracting agency. USFederal andstatetaxes
(except income taxes) areusually allowable, asarecosts forindependent research anddevelopment.
Slightly different rules mayapply toeducational andnon-profit organizations, andaresetforth in
circulars A-21 andA-125 oftheOffice andManagement andBudget.
Theterm“allowable ”typically means thatthecostisreasonable, isnotprohibited under law
orregulation, andmeets anyapplicable standards promulgated bytheCostAccounting Standards Board
(CASB) oftheOffice ofManagement andBudget. Ifthereisnospecifically applicable CASB standard,
oriftheCASB standards donotapply generally tothecontractor, thecostmustmeetgenerally accepted
accounting principles. Acostis“allocable ”ifitisincurred specifically forthecontract, ordirectly
benefits thecontract andother work, orisnecessary totheoverall operation ofthebusiness. Finally,
acostis“reasonable ”if,initsnature andamount, itdoesnotexceed thatwhich would beincurred
byaprudent person intheconduct ofcompetitive business.
Q2. Inthecaseofnotified R&D programmes where there isjoint participation, i.e.,private
companies andgovernment agencies (i.e., NASA), istheparticipation equally shared? What
proportion offunding hasinvolved theparticipation ofconsortia?
Answer
With jointparticipation programmes, NASA requires cost-sharing between NASA andthe
non-government partner(s). Cost-sharing evaluations aremade through anassessment ofcashand
non-cash (in-kind) contributions. In-kind contributions caninclude compensated services ofpersonnel
assigned totheproject, equipment, industrial research anddevelopment, ifauthorized, properly
accountable intellectual property, andfacilities. Resources contributed byindustry partner(s) mayvary
among programmes andevenamong participants within thesame programme. None ofthenotified
programmes haveinvolved theparticipation ofconsortia.G/SCM/Q2/USA/10
Page39
Q3. Towhat extent, ifatall,doanyoftheprogrammes, withtheexception ofagricultural
programmes, involve cost-shared arrangements withStates?
Answer
Ourreview ofthenotified programmes didnotgenerally reveal anysystematic cost-sharing
arrangements withstates. However, inindividual R&D projects, stateorlocalgovernment entities
maysometimes participate asconsortium members, along withFederal andprivate sector partners.
Q4. Interms ofagricultural programming, would theGovernment oftheUnited States clarify
theobjective oftheMandated Export Sales ofDairy Stocks given thatthemandated minimum
saleswereeliminated bytheUruguay Round Agreements Actof1994? Under what circumstances
might theSecretary exercise discretionary authority tosellCCC-owned dairy stocks intotheexport
market?
Answer
Although themandated salelevels fordairy products nolonger exist, theSecretary maintains
discretionary authority forthesaleanddisposal ofanyCommodity Credit Corporation inventory.
Sales ofthese commodities arebased onapolicy oforderly disposal, consistent withthefulfilment
oftheCCC’spurposes andobjectives, andinamanner thatbestprotects theassets oftheCCC and
obtains thegreatest netreturn. Programme activity willbeconducted consistent withourWTO
obligations.
Q5. TheGovernment oftheUnited States hasstated thatUSgrain imports would notlikely
increase meaningfully ifprice support programmes wereeliminated andgrain prices fellbecause
theUnited States isagrain exporting country. Towhat extent have price support programmes
encouraged excess production?
Answer
Itshould beclear toallthattheUnited States strongly supports thenegotiation offurther
multilateral disciplines overdomestic agricultural support policies. Furthermore, recent domestic
agriculturalpolicyreformsundertakenbytheUnitedStatesthroughtheFederalAgricultureImprovement
andReform Actof1996 testify toourdetermination torestore agricultural production andtrade to
asystem more fullycharacterized bymarket principles. While itmaybethecasethatprice support
programmes haveartificially affected production levels inthepast,itwould bedifficult toisolate the
impact ofUSprice support programmes inlightofthesignificant world market distortions thatarise
from other countries ’agricultural support policies.
Q6. Have Loan Deficiency payments beenincluded intheMarketing Loans under thewheat
andfeedgrain section?
Answer
Yes.G/SCM/Q2/USA/10
Page40
Questions from THAILAND (G/SCM/Q2/USA/8)
Q1. TheExport Enhancement Programme (EEP)
- What arethecriteria forselecting target foreign markets forrice?
Answer
Aswithother EEP-eligible commodities, EEPforriceistargeted tocountries where the
United States facessubsidized orother unfair competition. Thefollowing fourcriteria areconsidered
inselecting markets forEEPinitiatives: (1)thepotential tofurther UStrade policy objectives of
opposing competitors 'subsidies andotherunfair tradepractices; (2)ademonstrated potential todevelop,
expand, ormaintain markets forUSagricultural commodities while considering theUShistorical market
share andlong-term commercial relationships; (3)theeffect onnon-subsidizing agricultural exporters;
and(4)therelationship between thesubsidy requirements ofpotential EEPsalestotheexpected benefits.
- Please givethelistsofcountries andcommodities which wereselected fortheEEP
inthefiscal year1994.
Answer
Information onthecountries andcommodities selected under boththeEEPandtheDairy Export
Incentive Programme (DEIP) forthefiscal year1995 arepresented inthetables attached totheend
ofthissubmission.
- Please provide thevalue ofsubsidy classified bycommodity.
EXPORT ENHANCEMENT Programme
Awards forFiscal Year 1994
COMMODITY QUANTITY UOM TOTAL
Barley Malt 65,000 MT $9,550,260.00
Eggs 61,891,510 DOZEN 14,972,146.84
Feed Grains 1,676,790 MT 90,170,308.70
Frozen Pork 13,718 MT 13,630,247.00
Frozen Poultry 27,795 MT 20,661,729.75
Rice 46,430 MT 2,309,215.00
Vegetable Oil 372,700 MT 29,841,636.20
Wheat 19,112,543 MT 890,485,804.79
Wheat Flour 556,088 MT 78,081,064.00
Total 1,149,702,412.28
Milk isincluded intheDEIP. ForFY94under theDEIP:
Quantity Bonus
Nonfat DryMilk 91,870 MT $77,268,693
Whole Milk Powder 11,039 MT $14,331,149G/SCM/Q2/USA/10
Page41
- Iftheeffect onnon-subsidizers isoneofthecriteria governing theselection
ofcommodities andcountries under theEEP programmes, howcantheUnited
States avoid harming theexport markets ofnon-subsidizers.
Answer
Asexplained previously, theEEPisatargeted programme; subsidies arenotavailable ona
globalbasis.Eachinitiativeiscarefullydevelopedwiththepurposeofallowingnon-subsidizingexporters
tocontinue theirsalestothese markets athistorical levels.
Q2. Forreasons oftransparency, please provide details ofthefollowing:
- theMarketing Promotion Programme
Answer
TheMarket Access Programme (MAP), formerly theMarket Promotion Programme (MPP),
usesfunds fromtheUSDepartment ofAgriculture ’s(USDA) Commodity Credit Corporation (CCC)
tofinance promotional activities forUSagricultural products. TheMAP wasauthorized bySection 244
oftheFederal Agricultural Improvement andReform Actof1996, theOmnibus Budget Reconciliation
Actof1993, andtheFood, Agriculture, Conservation, andTrade Actof1990 andisadministered
byUSDA ’sForeign Agricultural Service (FAS). Under theMAP, funds from theCCC areusedto
partially reimburse programme participants conducting foreign market development projects foreligible
products inspecified countries. Activities financed include consumer promotions, market research,
technical assistance, andtrade servicing.
- thePublic Law(PL)480Food AidProgramme
Answer
TheP.L.480foodaidprogramme iscomprised ofthreetitles. Eachtitlehasdifferent objectives
andprovides agricultural assistance tocountries atdifferent levels ofeconomic development. TitleI
oftheP.L.480programme isadministered bytheUSDepartment ofAgriculture, andTitles IIand
IIIareadministered bytheAgency forInternational Development (AID).
TitleI-Trade andDevelopment Assistance -provides forgovernment-to-government sales
ofagricultural commodities todeveloping countries fordollars oncredit terms, orforlocalcurrencies.
Agreements signed under theTitleIcredit programme mayprovide forpayment terms ofupto30
years, lowinterest rates, andgrace periods ofupto5years.
TitleII-Emergency andPrivate Assistance Programmes -provides forthedonation ofUS
agricultural commodities tomeetemergency andnon-emergency foodneeds. Agricultural commodities
donated bytheUSGovernment tomeet emergency needs may beprovided under
government-to-governmentagreements,throughpublicandprivateagencies,includingintergovernmental
organizationssuchastheWorldFoodProgramme,andothermultilateralorganizations.Non-emergency
assistancemaybeprovidedthroughprivatevoluntaryorganizations,cooperatives,andintergovernmental
organizations.
TitleIII-Food forDevelopment -provides forgovernment-to-government grants tosupport
long-term growth intheleastdeveloped countries. Thedonated commodities aresoldonthedomestic
market, andrevenue generated fromthesaleintherecipient countries isusedtosupport programmes
ofeconomic development.G/SCM/Q2/USA/10
Page42
- theGSM-103 Export Credit Guarantee Programmes
Answer
TheGSM-103 intermediate export credit guarantee programme isoneoftwoprogrammes
administered bytheCommodity Credit Corporation (CCC) established toinsure financing forsales
ofUSagricultural commodities overseas. Theprogramme provides coverage oncredit terms fornot
lessthana3yearperiod norformore thana10yearperiod. Currently, maximum terms under
GSM-103 donotexceed 7years. Under theprogramme, foreign buyers purchase USagricultural
commodities from private USexporters, withUSbanks providing financing totheimporters ’bank
oncommercial terms.G/SCM/Q2/USA/10
Page43
TABLE 1
EXPORT ENHANCEMENT PROGRAMME
Awards forFiscal Year 1995 byCommodities andCountries
Commodity Quantity (MT) Bonus paid(US$)
Barley malt
Brazil 15,000 704,520
Caribbean countries 30,000 750,000
Central American Countries 9,200 455,580
Colombia 14,000 224,000
Korea 2,000 55,540
South Africa 10,000 430,000
ThePhilippines 25,000 750,000
Venezuela 7,500 371,000
Total 112,700 3,740,640
Barley orMalting Barley
China, P.R. 75,000 1,963,750
Total 75,000 1,963,750
Eggs
Hong Kong DOZEN 35,383,070 6,686,468
Near EastCountries DOZEN 28,398,650 6,492,405
Total 63,781,720 13,178,873
Feed Grains
Cyprus 48,510 1,451,855
Egypt 25,000 693,000
Israel 108,548 3,202,701
Saudi Arabia 200,000 5,754,000
South Korea 14,150 381,767
Total 396,208 11,483,323G/SCM/Q2/USA/10
Page44
Commodity Quantity (MT) Bonus paid(US$)
Frozen Pork
TheFormer Soviet Union 21,030 12,704,714
Total 21,030 12,704,714
Frozen Poultry
Africa 381 140,970
Asia 3,119 1,179,432
Egypt 1,450 761,650
Middle EastCountries 28,125 14,881,457
Saudi Arabia 6,266 3,586,902
Singapore 902 272,734
Total 40,243 20,823,145
Rice
EastEurope/Former Soviet Union 41,590 2,320,133
EastEuropean Countries 20,350 1,428,045
Israel 5,500 329,450
Lebanon 10,000 250,400
Middle East/Africa 167 9,185
TheFormer Soviet Union 5,140 350,180
Turkey 30,000 360,000
Total 112,747 5,047,393
Wheat
Africa Southern Region 109,090 3,505,127
Africa West &Central Region 124,940 4,035,313
Algeria 300,000 5,753,750
Bahrain andKuwait 122,000 3,035,132
Bangladesh 688,650 13,956,559
China, P.R. 3,735,000 68,884,750
Cyprus 28,000 75,800G/SCM/Q2/USA/10
Page45
Commodity Quantity (MT) Bonus paid(US$)
Egypt 3,412,010 61,572,363
Finland 13,000 348,790
Honduras 31,800 272,953
Jordan 299,250 4,796,593
Lebanon 123,250 2,610,317
Malta 18,571 363,374
Morocco 119,700 1,082,433
Nicaragua 17,508 94,368
Norway 61,000 1,038,030
Pakistan 762,800 9,316,992
Slovenia 100,000 3,004,500
SriLanka 599,200 9,091,288
Sub-Saharan African Countries 1,342,835 24,563,925
TheFormer Soviet Union 20,000 399,800
ThePhilippines 1,018,900 12,187,464
Trinidad &Tobago 109,200 1,380,703
Tunisia 325,000 2,957,000
Turkey 60,000 1,431,650
Yemen 365,000 7,274,300
Total 13,906,704 243,033,274
Wheat Flour
Egypt 37,500 3,526,875
Lebanon 424 38,880
Sub-Saharan African Countries 6,500 612,810
TheFormer Soviet Union 5,375 781,445
Yemen 250,000 22,449,100
Total 299,799 27,409,110G/SCM/Q2/USA/10
Page46
TABLE 2
DAIRY EXPORT INCENTIVE PROGRAMME
Awards forFiscal Year 1995 byCommodities andCountries
Commodity/Country Quantity (MT) Bonus Paid(US$)
Anhydrous milkfat
Africa 92 51,480
Algeria 3,000 1,614,000
Asia 4,324 2,390,627
Caribbean andCentral America 324 129,887
Mexico 6,138 2,916,360
N.Africa, M.EastandP.Gulf 395 244,172
South America 970 595,230
Total 15,243 7,941,756
Butter
Africa 366 108,300
Algeria 2,500 897,500
Caribbean 17 4,702
Central America 59 5,733
Egypt 5,000 1,677,000
Former Soviet Union 4,962 3,316,636
Total 12,904 6,009,871
Butteroil
Algeria 2,000 1,076,000
Caribbean andCentral America 192 82,815
N.Africa, M.EastandP.Gulf 17 8,568
South America 30 18,150
Total 2,239 1,185,533G/SCM/Q2/USA/10
Page47
Commodity/Country Quantity (MT) Bonus Paid(US$)
Butteroil and/or Anhydrous
Algeria 7,500 5,897,500
Caribbean 248 211,379
Central America 200 159,000
Jamaica 186 155,652
Malta 30 26,904
Total 8,164 6,450,435
Cheddar cheese
Algeria 1,000 1,480,000
N.Africa, M.EastandP.Gulf 359 354,105
Total 1,359 1,834,105
Mozzarella cheese
Asia 32 24,000
Former Soviet Union 38 38,304
N.Africa, M.EastandP.Gulf 815 857,848
Persian Gulf 355 468,044
Saudi Arabia 299 366,781
South America 300 209,100
Total 1,839 1,964,077
Non-fat drymilk
Africa 1,999 1,127,367
Algeria 82,550 57,763,850
Asia 20,030 8,241,686
Bangladesh 204 162,928
Caribbean 512 385,554
Caribbean andCentral America 6,330 2,379,540
Central America 1,939 1,431,440
Chile 2,082 1,529,850G/SCM/Q2/USA/10
Page48
Commodity/Country Quantity (MT) Bonus Paid(US$)
Colombia 385 281,907
Egypt 3,771 2,969,786
Former Soviet Union 185 90,945
Mexico 41,875 10,028,775
N.Africa, M.EastandP.Gulf 12,482 5,030,638
Persian Gulf 358 261,849
Peru 286 198,084
Saudi Arabia 852 669,784
South America 9,914 4,261,533
SriLanka 153 110,160
Tunisia 289 222,671
Venezuela 702 507,250
Total 186,898 97,655,597
Processed American cheese
N.Africa, M.EastandP.Gulf 71 64,301
Persian Gulf 16 20,181
South America 140 98,000
Total 227 182,482
Whole milkpowder
Africa 213 249,955
Bolivia 34 37,332
Caribbean 526 590,145
Caribbean andCentral America 2,470 1,647,626
Central America 693 730,459
Chile 70 73,500
Colombia 669 728,240
Ecuador 235 260,825
Egypt 96 105,120
Former Soviet Union 4,500 4,238,080G/SCM/Q2/USA/10
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Commodity/Country Quantity (MT) Bonus Paid(US$)
N.Africa, M.EastandP.Gulf 1,250 925,622
Persian Gulf 345 388,270
Saudi Arabia 923 1,015,760
South America 6,245 4,777,788
Tunisia 115 129,226
Turkey 1,000 1,103,000
Total 19,384 17,000,948