RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/M/28
14 August 2001
(01-4004)
Committee on Subsidies
and Countervailing Measures
MINUTES OF THE MEETING
HELD ON 2-3 MAY 2001
Chairperson:  Mrs. Usha Dwarka-Canabady (Mauritius)
1. The Committee on Subsidies and Countervailing Measures held a regular meeting on 2-
3 May 2001.
2. Before the agenda was adopted, the delegate of Korea raised as a procedural issue the steps
that should be followed when Members seek to place items on a meeting agenda.  Pursuant to Rule 4
of the rules of procedures of the Committee on Subsidies and Countervailing Measures , in G/L/144,
requests for items to be place on the agenda of a forthcoming meeting shall be communicated to the
Secretariat in writing, together with the accompanying documentation to be issued in connection with
that item.  Documentation for consideration at the meeting shall be circulated preferably three weeks,but in any case, not later than ten calendar days prior to the date set for the meeting.  It seemed to
Korea that the documentation accompanying the US request to include item K on the proposed agenda
had been distributed only just prior to the meeting.  Korea did not think that this fully respected the
spirit or the letter of Rule 4 of the Rules of Procedures, and this situation was unfortunate as the
delegate would have appreciated reading such documentation in advance so as to have a clear
understanding of the American position.  Although Korea did not object to discussing this item at the
meeting, as an individual item or as Other Business, Korea did seek clarification for the record.
3. The Chairperson reminded Korea that the annotated agenda had been sent a couple of weeks
before, with the note that Members who wanted to inscribe any agenda item should have done so by
19 April.  The United States, on 19 April, had made a request that the item be inscribed on the agenda,
so that seemed to be in order. As regards documentation, the Chairperson was not sure whichdocumentation Korea referred to, because there was no documentation  for this item as far as she
knew. She understood that the United States proposed to make an oral statement, and that there were
copies of that oral statement at the back of the room.
4. At the request of the Chairperson, the Secretary of the Committee took the floor and noted
that Rule 3 was the rule for inscribing items on the agenda, and that Rule 3 provides that its open to
any Member to suggest items for inclusion up to, and not including, the day on which the notice of the
meeting is to be issued.  The deadline, as the Chairperson had mentioned, for inscription of additional
items on the agenda for this meeting had been specified as 19 April.
5. The Chairperson asked the United States to clarify whether they had any documentation for
this agenda item.
6. The delegate of the United States stated that he did have a document that was available at the
back of the room which was essentially the statement that he would be providing under this agenda
item.  He had thought that it would be useful for Members to have something in writing so that they
did not have to try to take notes.  He did understand the concerns expressed by Korea, and had alreadyG/SCM/M/28
Page 2
expressed personally apologies to him for not having been able to provide him documentation along
the lines of the US statement at an earlier point.  The delegate also appreciated Korea's not objecting
formally on this point, but just seeking a clarification.
7. The Committee adopted the following agenda:
Page
A. NATIONAL LEG ISLATION................................................................................................3
1. Review of Notifications of New or  Amended Legislation or Regulations
not previously reviewed by the Committee (including supplemental)
Notifications of Existing Provisions not Previously Reviewed)
- Canada - G/ADP/N/1/CAN/3/ADD.1-G/SCM/N/1/CAN/3/ADD.1
- Ecuador - G/ADP/N/1/ECU/2-G/SCM/N/1/ECU/2-G/SG/N/1/ECU/2
- Jordan - G/ADP/N/1/JOR/1-G/SCM/N/1/JOR/1
- Latvia - G/ADP/N/1/LVA/2 & SUPPL.1- Morocco - G/ADP/N/1/MAR/2-G/SCM/N/1/MAR/2
- Mexico - G/ADP/N/1/MEX/1/SUPPL.1
- Peru - G/ADP/N/1/PER/1/SUPPL.3-G/SCM/N/1/PER/1/SUPPL.3
- Tunisia - G/ADP/N/1/TUN/2-G/SCM/N/1/TUN/2
2. Continuing Review of Previously Reviewed Notifications
- Chile - G/ADP/Q1/CHL/2-G/SCM/Q1/CHL/2
- Malaysia - G/ADP/Q1/MYS/7-G/SCM/Q1/MYS/7
B. SUBSIDIES – 2000 UPDATING NOTIF ICATIONS (GSCM/N/60/..) ...............................4
- Australia - G/SCM/N/60/AUS/Rev.1
- Brazil - G/SCM/N/60/BRA
- Dominica - G/SCM/N/60/DMA
- European Communities - G/SCM/N/60/EEC + Adds.1, 5, 7, 9, 9/
Suppl.1 and 13
- Israel - G/SCM/N/60/ISR
- Jamaica - G/SCM/N/60/JAM
- Japan - G/SCM/N/60/JPN + Suppl.1
- Latvia - G/SCM/N/60/LVA
- Mexico - G/SCM/N/60/MEX- New Zealand - G/SCM/N/60/NZL
- Norway - G/SCM/N/60/NOR
- Poland - G/SCM/N/60/POL
- Thailand - G/SCM/N/60/THA
- Turkey - G/SCM/N/60/TUR- Uganda - G/SCM/N/60/UGA
- Zambia - G/SCM/N/60/ZMB
C. SUBSIDIES 1999 UPDATING NOTIFI CATIONS (G/SCM/N/48/..) .................................5
- Brazil - G/SCM/N/48/BRA
- Dominica - G/SCM/N/48/DMA
- European Communities - G/SCM/N/48/ EEC/ADD.7G/SCM/M/28
Page 3
- Ghana - G/SCM/N/48/GHA
- Israel - G/SCM/N/48/ISR
- Jamaica - G/SCM/N/48/JAM
- Mexico - G/SCM/N/48/MEX
- New Zealand - G/SCM/N/48/NZL- Thailand - G/SCM/N/48/THA
- Uganda - G/SCM/N/48/UGA
- Zambia - G/SCM/N/48/ZMB
D. SUBSIDIES 1998 NEW AND FULL NOTIFIC ATIONS (G/SCM/N/38/..)........................6
- Israel - G/SCM/N/38/ISR
- Uganda - G/SCM/N/38/UGA
- Zambia - G/SCM/N/38/ZMB
E. WORKING PARTY ON SUBSIDY NOTIFICATIONS – CHAIRPERSON'S
REPORT ON 2 APRIL AND 1 MAY 2001 MEETING .......................................................6
F. PROCEDURES FOR REVIEW OF 2001 NEW AND FULL
NOTIFICATIONS (G /SCM/W/441).....................................................................................9
G. SEMI-ANNUAL REPORT OF COUNTERVAILING ACTIONS
(ARTICLE 25.11) (G/SCM/N /68/ADD.1 AND ADDENDA) ..............................................9
H. PRELIMINARY AND FINAL COUNTERVAILING ACTIONS:
NOTIFICATIONS (G/SCM/N/ 67, 69 + CORR.1, 70 AND 72) ...........................................9
I. PERMANENT GROUP OF EXPERT S – ELECTION OF AN EXPE RT..........................10
J. EXPORT CREDITS - ITEM REQUESTED BY  BRAZIL .................................................10
K. FINANCIAL SUPPORT BY THE GOVERNMENT OF KOREA FOR
HYUNDAI ELECTRONICS, INC. - ITEM REQUESTED BY THE UNITED STATES.14
L. OTHER BU SINESS ............................................................................................................17
M. DATE OF NEXT RE GULAR MEETING ..........................................................................19
N. IMPLEMENTATION-RELATED ISSUES REFERRED TO THE COMMITTEE
IN THE GENERAL COUNCIL'S DECISION OF 15 DECEMBER 2000 -
CHAIRPERSON'S REPORT ON THE COMMITTEE'S INFORMAL MEETINGS
OF 2 APRIL AND 1 MAY 2001 ..............................................................19
O. ELECTION OF OFFICERS ................................................................................................23
A. 
NATIONAL LEGISLATION
8. The review of notifications of countervailing duty legislation and regulations was conducted
in accordance with procedures adopted by th e Committee at its special meeting in April 1996
(G/SCM/W/293).  All of the notifications subject to review and the questions posed with respect to
the review, were also on the agenda of the Committee on Anti-Dumping Practices and all of them had
been considered at that meeting.G/SCM/M/28
Page 4
9. The Delegate of Morocco stated that Morocco had considered with great interest the questions
put by the United States and the European Union on its legislation and on the implementation of
countervailing measures, and intended to give a general oral reply, to be followed shortly thereafter by
detailed written replies.  Law 13-89 on Foreign Trade and Decree 2-93-415 covered countervailingmeasures.  They were elaborated in 1989, and came into force in 1993, long before the adoption of the
Agreement on the implementation of Article VI of GATT 1994, which was a result of the Uruguay
Round negotiations.  Thus the Uruguay Round results were not included in the law.  In point of fact,
the provisions of Article 15 of the Law, as well as Title V, were based on principles set forth in
Article VI of GATT 1947, because Morocco was not bound by the Tokyo Round Agreement on the
interpretation of Articles VI, XVI and XXIII of the General Agreement because it was not a signatory
of that Agreement.  Therefore, Article 15 of the law, entitled "Measures to Protect NationalProduction", provides for application of countervailing measures in conformity with the provisions of
Article VI of GATT 1947, which did not specify the precise context and means of applying such
measures.  Since it came into force in 1993, the provisions of Article 15 in law 1389 had never been
implemented.  If Morocco needed to apply a count ervailing duty, it would do so in accordance with
the procedures and regulations of the SCM Agreement.  Effectively, with the signing of theMarrakesh Agreement, the SCM Agreement became an integral part of the legislative system of
Morocco, and its provisions prevail over the coun tervail provisions of law 13-89.  With a view to
further strengthening the implementation, at the natio nal level, of multilateral rules for countervailing
measures, a draft law had been elaborated to incorporate all of those provisions.  This new draft would
replace the other provisions of Article 15 of Law 13-89 and Title V of its implementing decree.
10. The delegates of the European Communities and the United States
 thanked the delegate of
Morocco and looked forward to detailed written replies.
11. The Chairperson brought to the attention of the Committee something which had been
brought to her attention by the delegation of Tunisia.  In particular, at the Anti-Dumping Committee
meeting, Tunisia had not been in a position to reply to questions raised on their notification in view of
the fact that the questions were not available in all languages.  The same situation applied for this
Committee.  Therefore the Committee would revert to Tunisia's notification at the next regular
meeting of the Committee.
12. The Chairperson noted that written follow up questions concerning any legislative notification
reviewed needed to be submitted not later than 17 May 2001, and written answers not later than
2 July 2001.  In order for a previously reviewed notification of legislation to appear on the agenda of
the Committee's regular meeting in October 2001, the questions needed to be submitted to the
Secretariat, and to the notifying Member, no later than 13 September 2001.  The Secretariat would, as
usual, issue a reminder note of relevant deadlines for this Committee and the Committees on Anti-Dumping Practices and Safeguards in the following few weeks. The Committee took note of the
statements made.
B. SUBSIDIES – 2000 UPDATING NOTIFICATIONS
13. The delegate from the United States indicated that the United States would be supplying - for
all of the notifications under this section of the agenda with the exception of Dominica, Uganda and
Zambia - some written questions by the follow-up deadline.
14. Concerning the notification of Brazil, questions were received from the European
Communities and the United States, and circulated in the following documents:.
G/SCM/Q2/BRA/9 – Questions from the European Communities
G/SCM/Q2/BRA/10 – Questions from the United StatesG/SCM/M/28
Page 5
At the meeting, the delegate of Brazil provided an oral summary of Brazil's answers to certain of the
questions.
NO WRITTEN REPLIES TO THESE QUESTIONS HAVE BEEN RECEIVED.
15. The delegate from the European Communities th anked the Brazilian delegation, for the effort
Brazil had made in providing a subsidy notification for the first time since 1996, and thus for
providing the opportunity, in the spirit of transparency, to ask questions on the subsidies programmes.
16. Concerning the notification of the European Communities, the following written questions
and answers were received:
G/SCM/Q2/EEC/ 23 – Questions from the United States
G/SCM/Q2/EEC/24 – Ques tions from Australia
G/SCM/Q2/EEC/26 – Replies to the United States
G/SCM/Q2/EEC/29 – Replies to Australia
17. The delegate of the European Communities noted that the United States had posed written
questions on the EC's 2000 updating notification, but that the United States itself had not yet
submitted updating notifications for 1999 or 2000, and asked when these updating notifications might
be forthcoming from the United States.
18. The delegate of the United States regretted not having supplied these notifications, and
expected to do so by the end of June.
19. Subsequent to the meeting, the following follow -up questions were received in respect of the
European Communities' notification:
G/SCM/Q2/EEC/ 27 – Questions from the United States
G/SCM/Q2/EEC/ 28 – Questions from the United States
NO WRITTEN REPLIES TO THESE QUESTIONS HAVE BEEN RECEIVED.
20. Concerning the notification of Israel, the following written questions and replies were
received.
G/SCM/Q2/ISR/10 - Questions from the United States
G/SCM/Q2/ISR/11 - Questions from the European Communities
G/SCM/Q2/ISR/12 - Replies to the United States and the European Communities
21. No questions were posed concerning the notifications of Australia, Dominica, Jamaica, Japan,
Latvia, Mexico, New Zealand, Norway, Poland, Thailand, Turkey, Uganda, or Zambia.
22. The Committee took note of all of the statements made.
C. SUBSIDIES – 1999 UPDATING NOTIFICATIONS
23. The Chairperson noted that all of the notifications under this agenda item other than those of
the European Communities, Ghana and Thailand were multiple-symbolled and had already been
reviewed under agenda item B.G/SCM/M/28
Page 6
24. No questions were posed in respect of the notifications of the European Communities, Ghana
or Thailand.
D. SUBSIDIES – 1998 NEW AND FULL NOTIFICATIONS
25. The Chairperson noted that of the three notifications on the agenda for review under this
agenda item, only that of Israel had been the subject of written questions.  As that notification was
multiple-symbolled as, inter alia , a 1999 updating notification, those questions had been addressed
under agenda item C.  The other two notifications, those of Uganda and Zambia, also were multiple-
symbolled as 1999 updating notifications and also had been reviewed under agenda item C.  No
further questions were raised in respect of any of these notifications.
26. The Chairperson noted that the  notifications of Australia, Brazil and Jamaica, which had
been reviewed under previous agenda items, also were multi-symbolled as inter alia  1998 new and
full notifications.  They had not been included under this agenda item because they had beencirculated in three languages after the deadline for inclusion in the agenda as 1998 new and full
notifications.  In view of the fact that they had been reviewed as updating notifications, however, the
Chairperson suggested that the Committee consider their review to be completed.  In other words,
these notifications would not appear on the agenda of the Committee's autumn meeting for review as
1998 new and full notifications.
27. The Committee so agreed.
28. The Chairperson recalled that any oral questions raised at the meeting concerning any of the
subsidy notifications reviewed, for which written responses were desired, needed to be submitted in
writing no later than 17 May 2001.  Written answers to all written questions needed be submitted no
later than 2 July 2001.
E. WORKING PARTY ON SUBSIDY NOTIFICATIONS - CHAIRPERSON 'S REPORT ON 2 APRIL AND
1 MAY 2001 MEETINGS
29. The Chairperson recalled that the Working Party on Subsidy Notifications had met on 2 April
and 1 May 2001 to discuss two issues.  First was the procedures for the Committee's review of 2001
new and full notification, which were due in just under two months, on 30 June.  The Working Party'sdiscussion of these procedures had been based on the procedures adopted by the Committee for the
review of the 1998 new and full notifications.  While delegations had indicated that they generally
were in favour of following these same procedures for the upcoming review, the Committee
nevertheless had considered the possibility of modifying some of the time frames foreseen in the
procedures, and possibly also building in a mechanism for re-consideration of previously-reviewed
notifications.  Ultimately, however, a consensus had been reached in the Working Party that the
procedures followed for the review of the 1998 new and full notifications should be adoptedunmodified for the review of the 2001 new and full notifications.  A draft of these procedures, which
had been circulated in document G/SCM/W/441, had been considered at the 1 May 2001 Working
Party meeting, and no comments had been raised.  These procedures were on the agenda for adoption
by the Committee under the next agenda item.
30. The second item discussed extensively at the Working Party's previous two meetings had
been whether a way could be found to reduce the burden of notifications for all Members while
maintaining transparency. As had been noted by the Chairperson and previous Chairs of the
Committee on many occasions, the situation in respect of notifications was extremely bad.  The large
majority of Members, including some of the largest trading countries, both developed and developing,had not submitted updating notifications for 2000, although the due date for 2001 new and full
notifications had almost arrived.  Many Members had never submitted any notifications at all. AsG/SCM/M/28
Page 7
discussed in the Working Party, the previous autumn the Chairperson had sent letters to all Members
that had never notified, and she had as well met with two such delegations at the time of their Trade
Policy Reviews in Geneva.  She noted that a number of Members, including some that had never
notified before, had submitted notifications in the past several months covering the time periods for
which they owed notifications.  This was an encouraging sign that more Members were taking theirobligations under Article 25 seriously, and she hoped that all Members were redoubling their efforts
to make their 2001 new and full notifications on a timely basis.
31. In spite of the recent compliance by some delegations, however, the overall picture remained
poor, given the great tardiness or complete lack of notifications from the majority of Members.  In
view of this significant and worsening problem, the Working Party earlier in the year had asked the
Secretariat to send a questionnaire to Members seeking information as to the nature of the problemsthey experienced in making notifications.  The responses to that questionnaire were summarized in
document G/SCM/W/432.  As indicated in that summ ary, almost all Members who had responded to
the questionnaire stated that preparing updating notifications required the same amount of effort and
resources as preparing new and full notifications.  Members also had identified resource shortages,
particularly human resources, as the most important cause of their difficulties in notifying, and hadindicated as well that the format itself - that is, preparing and presenting the information in the
required format - also contributed to their difficulties.
32. On the basis of these results, the Working Party had continued its discussion, which had been
ongoing for some time, of whether reducing the frequency of notifications might improve thesituation.  A number of possibilities had been discussed in this regard, including the elimination of
updating notifications and changing the frequency of new and full notifications to once every two
years, rather than once every three years.  The possib ility of a longer interval between notifications for
developing countries than for developed countries also had been discussed.
33. In informal consultations held after the 2 April Working Party meeting, and at the 1 May
Working Party meeting, further discussions had been held of the different possibilities, including
additional elements that might accompany reducing the frequency of notifications.  One was that the
change in frequency should be reviewed by the Committee after the first two-year cycle to determine
whether compliance had improved.  Another element was that the Working Party should discuss the
notification format, and in particular the formatting requirements for the information notified, with a
view to simplifying as much as possible the presentational requirements of the notification process.  Anumber of Members noted in this respect that such a discussion would be very useful so long as it did
not call into question the required substantive content set forth in the Agreement.  The final element
was the idea that the Secretariat would look into organizing a subsidy notification seminar back-to-
back with a meeting of the Committee, probably in Spring 2002, at which the capital-based officials
responsible for subsidies and subsidy notifications could be present to exchange ideas  and brainstormabout practical means that individual Members could use to streamline their internal processes for
preparing their notifications.
34. Considerable support had been expressed in the Working Party for the proposed package of
steps that could be taken to try to improve compliance on notifications.  No member had indicatedopposition to this suggested approach, and to the contrary, there seemed to be a consensus in the
Working Party as to the substance of the elements proposed.
35. The question then had been discussed as to the kind of a decision that the Committee could
take to implement these steps.  The Chairperson had suggested that the decision could be taken byway of a Chair's statement which would recognize the problems that Members were having and
indicate an agreement by Members to try to focus their resources on making maximum efforts to
submit new and full notifications every two years, and to de-emphasize the presentation and review of
updating notifications.  This procedure would be subject to review by the Committee after a trialG/SCM/M/28
Page 8
period of a first two-year notification cycle, with a view to monitoring its effectiveness in improving
compliance.  In addition,  the Working Party would be asked to review the presentational aspects of
the notification format, with a view to facilitating the preparation of notifications, and the Secretariat
would be asked to look into organizing a subsidy notification seminar next spring for responsible
capital-based officials.
36. At the request of Members, the Chairperson had sent by fax to the Committee the previous
day the proposed text of a Chair's statement addressing these elements.  She had since been informed
that some Members needed a bit more time to reflect on the formal aspects of the proposed decision.
She thus suggested that the Committee revert to this  question in the near future, so that all Members
had a few days to look at the text and to think it through.  In view of the advanced state of the
discussions on this issue, she proposed that the Committee schedule a brief special meeting ten dayslater, i.e. on 11 May, to consider this matter for action.
37. The delegate from Australia thanked the Chairperson for her summary of the useful work that
she had done on this question.  Australia was very supportive of the substance and the outcome of
what the Chairperson had come up with.  However, like some of the other Members, the delegate hadsome questions about the broader WTO implications, in legal terms, of what was being proposed,
given the text of the actual Subsidies Agreement itself.  It might be helpful if there were an indication
from the legal area of the WTO Secretariat as to the broader implications, in legal terms, of what it is
that the Committee was proposing to do in terms of the actual current obligations under the Subsidies
Agreement which, to some extent, Members would be departing from.
38. The Chairperson noted that the proposed text had been reviewed by lawyers in the Secretariat.
She thought however that it might be useful for the Secretariat to look again at this and any similar
questions Members might raise, without reopening the package that had been broadly agreed.
39. The delegate from the United States asked whether the Chairperson would be considering
suggestions for modifications to the language of the text of the Chair's Statement so as to reassure
certain delegations on this point.
40. The Chairperson noted that the decision was a decision by Members, so it would be up to
Members to decide whether they could agree to certain modifications of this text.  The basic idea was
to retain the substance of the text, the package that had been agreed, but if modification of thelanguage would make Members more comfortable with it, she was open to that.
41. The delegate from Malaysia indicated that Malaysia did not have problems with the substance
of this proposal, but shared similar concerns to those of Australia and the United States as to the legal
aspects and the wider implications.  Therefore, Malaysia wanted some answers as to the implicationsto the Agreement.  Malaysia called upon other Memb ers to join them to ensure that the same spirit
that had been reflected in this case be reflected in discussing the implementation-related concerns
brought by a group of developing countries to be discussed in the Committee.  Some Members had
said the proposals were for a reinterpretation of the Agreement; some had said that they would require
amendment of the Agreement.  The text under discussion also looked like an amendment to theAgreement.  Malaysia looked forward to the same  spirit of cooperation when it came to resolving
those implementation related issues.
42. The delegate of Uruguay asked for a clarification of whether there would be a statement made
by the Chairman, or a formal decision by the Committee.
43. The Chairperson replied that the suggestion that she had made was that it would not be a
separate decision as such, but a decision as reflected in a Chair's statement in the normal minutes of
proceedings.  It would not circulate separately as a decision.G/SCM/M/28
Page 9
44. The Committee took note of the statements made.
F. PROCEDURES FOR REVIEW OF 2001 NEW AND FULL NOTIFICATIONS
45. The Committee adopted the procedures for review of new and full notifications set forth in
document G/SCM/W/441.
46. The Chairperson informed Members that pursuant to these newly-adopted procedures, 2001
new and full notifications circulated in three languages no later than 19 June 2001 would be placed on
the agenda for review at the special notification re view meeting in the autumn.  Thus far, 2001 new
and full notifications had been received from the delegations of Cuba;  Hong Kong, China;  Oman;
Macau, China;  Paraguay;  Switzerland;  Thailand, and Zimbabwe.  The Secretariat would circulate an
airgram shortly after 19 June identifying the notifications to be reviewed.  Written questions
concerning those notifications would be due by 17 July 2001, and written answers to the writtenquestions by 18 September 2001.  She reminded Members that, as set forth in the procedures, the
procedure would work properly only if Members submitted their 2001 new and full notifications by
the 30 June 2001 deadline.  She urged Members, in the constructive spirit which had been shown that
week in respect of subsidy notification issues, to take this deadline seriously.
G. 
SEMI -ANNUAL REPORTS OF COUNTERVAILING ACTIONS
47. The Chairperson recalled that a request for semi-annual reports for the second half of 2000, to
be submitted by 28 February 2001, had been circulated to Members in G/SCM/N/68, dated
3 January 2001.  As was unfortunately almost always the case, a number of the semi-annual reports
had been received later.  She reminded Members that semi-annual reports were always due at the end
of February for the period July through December of  the previous year, and at the end of August forthe period January through June of the current year. She urged all Members to take the steps
necessary to submit these notification on time.  Particularly for those Members that had taken no
action, this notification should be purely a mater of routine.
48. Members who had submitted semi-annual reports were identified in paragraph 1 of the
document G/SCM/N/68/Add.1, dated 24 April 2001.  To the extent possible, the semi-annual reportshad been translated and circulated to the Committee, and were included in the documents made
available for the meeting.  In addition to the eight Members who had submitted semi-annual reports of
countervailing actions, 43 Members, listed in paragraph 2 of document  G/SCM/N/68/Add.1 had
notified the Committee that they had not taken any countervailing actions during the period in
question.  She noted that while Members who took actions appeared generally to comply with this
notification requirement, there remained a significant number of Members, as would be observed
from document G/SCM/N/68/Add.1, who had not responded to the request for semi-annual reports,and had therefore failed to comply with this important requirement.  She urged Members who had not
notified to take appropriate action as soon as possible.
49. No Member raised any comments or questions to the semi-annual reports submitted.
H. 
NOTIFICATIONS OF PRELIMINARY AND FINAL COUNTERVAILING ACTIONS
50. The Chairperson recalled that lists of the notifications of preliminary and final countervailing
duty actions received by the Committee had been ci rculated in documents G/SCM/N/67, N/69-70, and
N/72.  Since the previous meeting of the Committee, preliminary and final countervailing actions had
been notified by Canada, the European Communities, South Africa, and the United States.
51. No questions or comments were raised in respect of any of these notifications.G/SCM/M/28
Page 10
I. PERMANENT GROUP OF EXPERTS – ELECTION OF AN EXPERT
52. The Committee elected Mr. Jorge Castro Bernieri (Venezuela) to the Permanent Group of
Experts for a term of five years, to replace Mr. Gary Horlick, whose term had expired.
J. EXPORT CREDITS -  ITEM REQUESTED BY BRAZIL
53. The delegate of Brazil noted that Brazil had requested the inclusion of this item on the agenda
of the meeting with a view to sharing with other Members its views and concerns regarding the
available WTO rules on export financing practices.  For the previous three years, Brazil had been
participating in a dispute that concerned precisely those rules, as applied for exports of aircraft.
54. In those proceedings, Brazil had identified a number of points that raised serious concerns
about the adequacy of the relevant provisions contained in the WTO agreements.  They were just a
few, maybe inordinately few, with a large number of grey areas that needed to be clarified.Unfortunately, these clarifications sometimes came under the shape of panel or Appellate Body
findings.  However, given the number of grey areas, the dispute settlement mechanism had, in the
case of export financing, taken the driving seat in a rules making exercise that should be conducted by
the Members of this Organization.
1. Insufficient coverage
Item (j)
55. First, as far as export financing was specifically concerned, the Agreement on Subsidies and
Countervailing Measures dedicated just a couple of items in the illustrative list of prohibited subsidies
found in Annex I to the Agreement.  They were items (j) and (k).  Item (j) supposedly providedguidance concerning insurance and guarantee programmes applied to export financing.
56. What item (j) basically offered was just a notion that insurance and guarantee programmes
should charge premium rates that were adequate to cover their long-term costs and losses.  Put
differently, they should “break even”.  Some countries understood that the way item (j) was drafted
could lead to a result where it was left open, for example, the question of how to treat guarantees thatbring transaction rates under usual market levels.  This was an issue of utmost importance for the
countries that could not match these terms, even if they offered similar guarantees.  After all,
sovereign credit ratings differed considerably even among homogeneous economies.  In a
membership so diverse as WTO’s, the “break even” requirement of item (j) fell way short of ensuring
a level playing field among Members, in a clear disadvantage to those that enjoyed lower credit
ratings.
57. Moreover, a number of other forms of guarantees were not clearly regulated, such as equity
insurance or guarantees associated to an export credit package.  Although these “complements” had a
substantial impact on export transactions, they were not even mentioned in item (j), nor anywhere else
in the SCM Agreement.  The provisions of item (j) were obviously insufficient to deal with the
diversity of mechanisms found in the market today.
Item (k)
58. In just two paragraphs, item (k) was supposed to give Members guidance enough on how to
conduct their export credit programmes.  Once again, just a few principles were set out in item (k).  In
its first paragraph, item (k) generally established that Members must not finance exports at ratesG/SCM/M/28
Page 11
below their cost of funds.  Given the last phrase of that first paragraph, one would infer that rates
below their costs of funds would be acceptable if they did not secure a “material advantage”.
59. This last phrase should give Members some comfort since, in their vast majority, WTO
Members had high costs of funds, at levels that were much more elevated than those of a few
developed economies.  However, a finding by a WTO panel (fortunately not yet endorsed by the
Appellate Body) pointed in a very troubling direction.  That panel found that a Member could be in
violation of its WTO obligations depending on the way that it supported the interest rates to bring
them to market levels.  In other words, depending on the way that a developing country chose to
match market conditions – even if it was not securing a material advantage – this practice or
mechanism could be challenged.  This finding was a source of inequity that some Members could not
live with.  The costs of funds of WTO Members were different and that, in itself, should not be a
parameter for determining WTO compliance or not.
60. The appropriate benchmark was the market.  However, panels might find the market too
elusive to use as a benchmark.   If the guidance the SCM Agreement provided to panels was
insufficient, then Members must tackle this problem.
Article 3
61. Another source of difficulties was the way that Article 3 dealt with “de facto” export
subsidies.  The Appellate Body had found that targeting of a particular industry – or company even –
to receive funds was not a criterion to characterize a “de facto” export subsidy.  According to the
Appellate Body, export orientation was not a factor  either.  As long as the subsidy granted was not
“tied to” exportation or export earnings, the grant was not a “de facto” export subsidy.
62. Under this rationale, a Member could choose a company or industry that exported 100 per
cent of its production, grant funds to this company in amounts that virtually distorted the market in its
favour, and still be found to be granting a domestic subsidy.  The only condition to be in compliance
with the SCM Agreement was not to require paybacks linked to export earnings.  In fact, if there was
no payback whatsoever, there was no contingency, and therefore there was no WTO violation.  Thiswas a type of support that developing countries could not engage in.
63. Brazil agreed that export orientation alone was not conclusive evidence to characterize a “de
facto” export subsidy, but the standards that were being developed under the dispute settlement
mechanism were inequitable and clearly insufficient.
2. The OECD Consensus
64. The second paragraph of item (k) made explicit reference to the “interest rate provisions” of
the OECD Arrangement on Guidelines for Officially Supported Export Credits.  Brazil was quitesurprised to find out that some major WTO Members found that the term “interest rate provisions”
referred to the whole body of that Arrangement.  As mentioned earlier, at least one panel seemed to
equate the market to the terms of that Arrangement, and this was a very disturbing development,
particularly if the term “interest rates provisions” was read broadly.
65. Another question that needed to be addressed was the theory that the reference to the OECD
Consensus gave a permanent “carte blanche” to the participants of that Arrangement to alter WTO
rules.  When Members agreed to incorporate the in terest rate provisions of the Arrangement, they
incorporated the provisions that were in place at the time the Marrakech Agreement was signed.  They
did not waive their rights to decide on any change s to the text of the WTO Agreements, or even to
their domestic legislation, when they had incorporated the WTO Agreement to their internal law.  Ifthe evolutionary theory prevails, non-OECD partic ipants might go to sleep one day in complianceG/SCM/M/28
Page 12
with their WTO obligations and, the following day, wake up being challenged, simply because with
no warning, the participants had changed some provisions of the Arrangement. This was assuredly not
a hypothetical situation, as Brazil might be living it just then.
66. Brazil found it useful that Members be aware that, as of that moment, the Arrangement
participants were developing rules that would apply to floating rate transactions, and that would takeenvironmental concerns into account.  The rules on floating rates were certainly “interest rates
provisions” within the meaning of item (k).  These rules, if the evolutionary theory prevailed, would
alter the obligations of some 120 WTO Members, and they probably would find out about their new
obligations, if they were lucky, on the Internet, if they bothered to check it out. One OECD Member
had announced that it was advancing the goal of incorporating environmental risk assessment into
officially supported export credits. The environmental provisions might or might not be an “interest
rates provision”; they certainly were for the Members that equated the “interest rates provisions” tothe whole body of the Arrangement.
3. The “market window”
67. Another factor further complicating the scenario described so far was the use of the so-called
“market window” by some developed countries.  The delegate said developed because this window
did not open to developing countries, for various reasons.
68. A participant of the OECD Arrangement could de part from the OECD rules by claiming that
it was operating as a private entity, under the same conditions as market operators.  The prevailing
market conditions would allow an export credit ag ency from a country with low cost of funds to
provide financing at rates lower than the OECD rate – the CIRR – or at terms longer than the OECD
permitted, and still claim that it did not confer a “benefit” within the meaning of Article 1 of the  SCMAgreement.  Therefore, it would not be providing a “subsidy”.
69. The first observation was that this same claim could not be raised by a developing country -
even if it had the economic resources and political w ill to develop such practices - since this country
would likely have cost of funds higher than the OECD rates. Following this line, it might be argued
that, by providing loans at rates lower than their cost of funds this country would fall within theprohibition of item (k).
70. The second observation is that the use of the “market window” was virtually unchallengeable,
for all “market window” operations were under a dark cloak of alleged “business confidentiality”.
The complainant could not provide a panel any evidence that the “market window” operation was
more generous than the market.  This threatened to be an insurmountable burden of proof for
Members that, unlike other OECD participants, had no way to request notifications or clarifications.
71. Finally, these agencies competed with private operators with the only – once again alleged –
mandate to “break even”.  However, neither did they pay income taxes nor did they have to pay
dividends or justify their practices to a body of stockholders.  They enjoyed privileges that enhanced
their ability to compete to a level that no private bank could possibly achieve.
72. These operations must be disciplined and the WTO had a role to play in this regard.
4. New economic circumstances
73. Brazil was, to the extent possible, following with  interest  the efforts undertaken in the OECD
and in other organizations with a view to developing disciplines regarding export credits.  Those
efforts adapted the disciplines to the new market circumstances and reflected the changing practices
found in the international market.G/SCM/M/28
Page 13
74. The WTO Agreements had changed little in the previous 40 years.  Items (j) and (k) of the
illustrative list derived from provisions that were first incorporated in WTO rules in 1960.  These
rules on export credits had been developed by a small number of countries that were engaged in
medium and long-term financing practices.  The items of the 1960 list that pertained to export credits
had been adapted only once, when the Annex of the 1979 Subsidies Code was elaborated. That Code
had had very limited application given its plurilateral nature.  A Code that had been adopted at a time
when credits provided under the OECD Arrangement te rms were far more favourable than the market.
At a time when the cost of funds of all Members – even the major players – was above the
Arrangement rates.  A minor change had been made to item (j) and no change had been made to item
(k) by the drafters of the SCM Agreement.
75. The SCM Agreement was the first instrument with disciplines on export subsidies and export
credits that applied on a multilateral basis.  Its rules needed to be equitable and to provide a level
playing field for all Members.  Maybe the OECD participants were comfortable with the existing
situation because they had a system of notifications among themselves and they kept their guidelines
updated to their needs and compatible with their practices.  The same did not happen to the other
WTO Members, particularly those that had aspirations to market products that demanded long-termfinancing.
76. The WTO rules needed to provide clarity and predictability in a fair and equitable way.  They
needed to reflect the present realities of the ma rket and the innovations introduced in the area of
international financing in the previous 41 years.
77. In sum, in the previous few years Brazil had tried to be a participant in the market of goods
with technology content that demanded long-term fina ncing.  Financing terms in this market had been
established long before Brazil became a player in it.  But this had proven to be a Herculean and very
frustrating task.
78. The task might be challenging but Brazil would not give up on its rights for equal and fair
conditions of competition in the international markets.  This was what WTO should be about.  If therules were inequitable and/or insufficient to prov ide a level playing field to its Members, then the
rules needed to be changed.  What was certain was that developing countries must not be content with
and abide by rules that did not offer them a fair chan ce to compete in all segments of the international
markets.  Brazil, for one, would not allow strenuous efforts by private companies to develop high
technology goods – and, unlike in most countries, without government funding – to be thwarted by
unfair competition allowed by inequitable rules.
79. In conclusion, the delegate stressed that Brazil was seriously concerned about the issues
raised above, which did not exhaust all questions concerning this matter.  It was Brazil’s view that
Members needed to take a closer look at official export credits as soon as possible.  Brazil was
carefully following the disputes that were currently under way and hoped that their outcome would
avoid further inequities.  Under any circumstances, since the points raised were of a systemic nature
and needed urgent attention, Brazil had decided to bring this matter to the attention of this Committee,without prejudice to other courses of action within the WTO framework.
80. The delegate from India thanked the delegation of Brazil for an extremely useful and very
comprehensive statement on export credits.  Although she was not in a position to go into the
substance of the statement at that stage, India was definitely interested in further discussion on the
subject.  Several important systemic issues had also been raised by Brazil which India felt meriteddiscussion in this Committee.  India supported further discussion on this subject in this Committee.G/SCM/M/28
Page 14
81. The delegate of Malaysia shared the concerns expressed by the delegation of Brazil, and also
looked forward to further discussing the subject in this Committee.
82. The Chairperson noted that there had been an expression from India and Malaysia that this
matter should be discussed in the Committee. She requested that the Committee take note of the
statements made by Brazil and by the other delegations, and asked the delegate from Brazil to
circulate his statement in writing, which would give Members enough time to reflect further on the
matter.
83. The Committee took note of the statements made.
84. The statement by Brazil was subsequently circulated in document G/SCM/33.
K. FINANCIAL SUPPORT BY THE GOVERNMENT OF KOREA FOR HYUNDAI ELECTRONICS , INC. –
ITEM REQUESTED BY THE UNITED STATES
85. The delegate from the United States had requested that this item be placed on the agenda of
the regular meeting of the Committee on Subsidies and Countervailing Measures in order to bring to
the Committee's attention certain information and concerns about  recent actions taken by the Korean
Government authorities and entities in the context of ongoing financial sector reform efforts.  The
United States believed that these actions might have  implications for the rules and disciplines of the
Subsidies Agreement, and believed that there were serious questions about whether Korea's actions
might even be inconsistent with its obligations under the Agreement.  The United States
acknowledged that it might not be fully aware of relevant developments or of the policy
considerations that collectively had dictated the government's up to that point.  Thus, in bringing this
matter to the Committee, the United States welcomed the comments of other Members andappreciated any additional information, clarification or perspective that the Korean delegation might
be able to provide.
86. The United States did not intend to take up the Committee's time with a far- ranging
discussion of past and current financial market problems in Korea and the various KoreanGovernment policies that had been designed and implemented to address them.  It sufficed to say that
the United States recognized that the Korean Gove rnment was at that time engaged in a determined
effort to place Korea's financial markets on a stable and sound footing, from both an institutional and
an operational standpoint.  Corporate governance, capital adequacy, bank lending practices,
privatization, consolidation, and transparency were all difficult yet important issues that the Korean
authorities were attempting to address head-on, and the United States supported and welcomed
Korea's efforts in that regard.
87. It was, in part, out of its respect and support for these broader efforts that the United States
had have become concerned about  recent developments and actions as they concerned certain Korean
firms, particularly Hyundai Electronic Industries (HEI), which had been renamed Hynix.  More
specifically, the United States questioned the extent to which the financial assistance that had recentlybeen extended by the Korean Development Bank (KBD) to Hynix was consistent with the
government's overall market reform efforts - indeed, whether this assistance actually undermined or
detracted from those efforts - and the extent to which it might constitute a subsidy that might
adversely affect the interests of other WTO Members.
88. It would, therefore, be helpful if the Korean authorities could confirm or clarify the US
understanding of the facts and circumstances su rrounding the KDB assistance to Hynix.  As the
United States understood it, under a "general bond purchase programme" initiated the previous year -
and before the inception of a separate, more limited "KDB bonds programme" - government credit
guarantees had been provided in an effort to induce private investment in newly-issued bondsG/SCM/M/28
Page 15
(repackaged in the form of "collateralized bond oblig ations,"  or "CBO's") of many cash-strapped,
debt-burdened companies, which otherwise faced limited opportunities to obtain capital from equity,
credit, or traditional bond markets.  HEI had been free the previous year to participate in this general
bond purchase programme, but it had not been able to find customers for its new bonds, even with the
government guarantees that were then being promis ed to investors.  The United States understood that
HEI faced the prospect of a severe liquidity crunch in 2001, as: (i) the D-RAM market was
experiencing a pronounced cyclical downturn, (ii) HEI, reportedly, was itself experiencing declining
competitiveness; (iii) some $2.6 billion worth of its corporate bonds were coming due in 2001 (out of
$3.4 billion in total corporate debt due in 2001).  Under the separate KDB bond purchase programme
that had begun in 2001, KDB had effectively intervened as an investor of last resort, committing to
refinance 80 per cent of HEI's corporate bonds coming due in 2001.  Thus, in January 2001,  KDB
had purchased roughly $200 million in newly-issued  HEI bonds, with the intention of reselling them
to private investors  as (primary) collateralized bond obligations, with the necessary credit guarantees
attached.  To the knowledge of the United States, only a very limited number of the companies had
participated in this KDB bond purchase programme to that point.
89. In addition to KDB bond purchases, Hynix had apparently secured a rather large amount of
new financing from commercial banks, as a result of the banks' fully restoring credit lines that they
had previously reduced.  The United States was struck by the fact that HEI had secured the new
financing at a time when the Korean commercial banks as a whole were concerned about their
financial strength in the context of the prevailing merger and acquisition  and market consolidation
trends, and when many banks were reserving funds to cover anticipated bad debt or had recentlyfinished doing so.  The United States would appreciate a better understanding of why, if these banks,
for whatever reason, were willing to restructure or refinance HEI's existing debt obligations, on terms
and conditions fully consistent with commercial considerations - i.e., if the banks independently
viewed HEI as being inherently "viable" - would not credit negotiations between HEI and its creditor
banks have occurred as a normal course of events and without the need for government involvement,particularly through the use of credit guarantees.  In this regard, the United States note the Korea
Industrial Development Co.  (KID), a subsidiary of the Hyundai group, had recently declared
bankruptcy, due in large part to the unwillingness of its creditors (the Korea Exchange Bank being the
largest among them) to extend additional credit.  According to a 6 March 2001 Wall Street Journal
article, KID's creditors were unwilling to lend more money because they agreed that KID would be
unable to repay.  Yet, in January 2001, KID had been deemed financially viable and deserving of
support under the same KDB bond programme that had benefited HEI.  What the above informationand reports suggested therefore, was that - irresp ective of whether HEI could have legitimately been
characterized by Korean authorities as a viable firm - it was not perceived by the markets as being
deserving of additional capital until such time as  government authorities had intervened with a
specially designed bond programme backed by government credit guarantees.
90. In bilateral exchanges, Korean authorities had assured the United States  that the KDB bond
programme would terminate at the end of 2001, a nd that Hynix was getting its financial house in
order at that time because it would be made to "s ink or swim" on its own in 2002.  Without prejudice
to the protection of US  rights and interests concerning the interventions which had already been
made, the United States fully expected Korea to abide by its intention to terminate this financialsupport programme at the end of 2001.  Hynix was a globally significant producer and exporter of D-
RAMs.  Clearly, its subsidization could give rise to adverse effects for the trade of other Members and
serious questions of consistency with Korea's obligations under the Subsidies Agreement.  The
United States looked forward to considering any additional information and explanation which the
Korean delegation might wish to provide, and to  hearing the comments of other WTO Members on
the matter.
91. The delegate of the European Communities stated  that the EC had followed with interest the
intervention by the United States.  While the EC did not have any comment to make on the particularG/SCM/M/28
Page 16
case raised by the United States, the EC wanted nevertheless to express its concerns about reported
government intervention in the financial sector in Korea which allegedly amounted to subsidies to
certain companies or sectors.  While the EC understood that the issue raised by the United States was
limited to possible government support to one particular company in the D-RAM market, the EC
noted that the existence of such support had been alleged in other sectors as well.  The EC also notedthat the company explicitly mentioned by the United States wapart of a group of companies which
were involved in other sectors.  In view of this , the EC looked forward to hearing the reply by the
Korean delegation on the questions raised by the United States.
92. The delegate of Korea expressed appreciation for the US and EC statements.  Especially, the
Korean delegation appreciated the United States' support and welcome of Korea's financial sector
reform efforts.  In January 2001, the Korean Development Bank had introduced its underwritingprogramme of corporate bonds as a temporary measure to address the serious discrepancy between
supply and demand in Korea's corporate bond market.  The programme had been adopted in response
to special circumstances posed by a poorly functioning bond market in Korea.  The delegate
emphasized that it was temporary and was because of special circumstances.  A large number of
corporate bonds, issued immediately after the 1997 financial crisis were due to mature in 2001.  Theprevailing corporate bond market was, however, virtually penalized because a number of investors
were unwilling to assume additional risk.  Without alternative sources of funding, many companies
would therefore be unable to finance their maturing bonds.  If those companies lost the opportunity to
refinance their debts, they would face another vicious cycle of financial crunch that could jeopardize
their progress towards restructuring and possible fo rce even some viable companies into bankruptcy.
To prevent this scenario from happening, the Korean Development Bank had developed temporary
measures for a period during which Korean capital markets could adjust and companies could
implement their restructuring programmes.  Regarding the serious questions of consistency with
Korea's obligations under the Subsidies Agreement, the Korean delegation wanted to reply seriously
that they were confident that the KDB programme was consistent with Korea's obligations under theWTO Agreement on Subsidies and Countervailing Measures.  In this regard, there were two points.
Firstly, the programme was not narrowly targeted to assist Hyundai Electronics or firms in the semi-
conductor sector.  All firms that met the criteria that were seriously affected by the distress in the
bond market and passed a viability test could take part.  In more detail, to be eligible for the
programme, a company would need to be deemed viable even though the high concentration of
maturing loans presented it with temporary liquidity problems.  Company eligibility would need to be
demonstrated through detailed financial viability studies.  A company would need to be able to
redeem 20 per cent of the value of its bonds and it also would need to have a viable restructuring plan.
Even more, a committee composed of representatives from the KDB, creditor banks and the Korean
Credit Guarantee Fund selected companies for participation through a fair and transparent review
process.  Only those companies receiving a consensus of the Committee that they could be viable
could participate.  Secondly, the costs of participation in the programme were linked to normal marketcosts for comparable credit.  The financial costs of the participating companies, including Hyundai
Electronics, were clearly above a comparable market-based rate cost.  In addition to that, the KDB
programme had no criteria related to either export performance or import substitution. The delegate
also wanted to point out that the title of agenda item K was improper because the programme was not
limited to Hyundai Electronics. He assured Members that the programme would continue to beimplemented in a WTO-consistent manner.
93. The delegate of the United States extended his appreciation to the Korean delegate for his
explanations, and said that the United States was interested in seeing the statement in writing. From
the US perspective perspective, what was most striking was that there were actually someencouraging changes taking place in the Korean financial markets.  The particular thing that
concerned the United States was the extent to which government authorities, or authorities acting
under government coordination, were seeking to subs titute their own judgement for the increasingly
market-oriented judgement of many of the Korean cred itor banks, particularly for this company.  TheG/SCM/M/28
Page 17
basic point of the United States was to urge the Kore an authorities to allow the sort of restructuring
that they had already identified in broad terms wanting to seek, to actually play itself out and to let the
market play the determinative role in ensuring the long-term competitiveness of the Korean economy.
What struck the United States was that there were really two programmes at issue.  The particular
bond programme that was of special concern to the United States, while it might not be limitedspecifically to HEI or to Hynix alone, was in fact limited to five or six companies.  These were
companies which, as explained in the US statement,  absent the government intervention, the creditor
banks did not deem to be viable firms.  So as the United States saw it, unless they were not seeing the
full picture, the viability of the firm was not determined by the market, but determined by the
intervention of the public authorities. The delegate had not meant to imply that the United States
thought that the KDB bond programme had any specific export contingency or export orientation
attached to it.  The United States did note, however, that based upon the data available, this particularfirm exported anywhere from 75 to 90 per cent of its production of those chips.  It was, he believed,
the second largest producer in the world of those ch ips.  So it would have, necessarily, an impact on
the market if the government was really taking steps to see that it participated in the market when its
own creditors would not have done so based u pon normal commercial considerations.  The
United States urged the Korean authorities to continue to act prudently, and to ensure that
restructuring efforts that they had undertaken, both broadly and with respect to individual firms, were
adhered to.
94. The Committee took note of the statements made.
L. OTHER BUSINESS
1. US countervailing duty investigation of softwood lumber – item requested by Canada
95. The delegate of Canada stated that Canada appreciated the opportunity to express its concern
about the recent decision by the United States to initiate yet another countervailing duty investigation
on softwood lumber from Canada.  This action, which was being taken concurrently with an
antidumping investigation, represented the fourth US countervail investigation of softwood lumberfrom Canada in the previous 18 years - notwithstanding the fact that the United States had never been
able to sustain a finding of  injurious subsidization.  With an estimated US$6 billion in annual
Canadian softwood lumber exports to the United Stat es at stake, Canada would continue to vigorously
defend its softwood lumber interests and avail itself of its WTO  remedies if and as necessary.
96. The delegate of the United States indicated that he would report back to Washington the
interest of the Canadian authorities and the concern they had about the case. He assured Canada, and
the Members of the Committee, that no one more than the United States would be happy to have this
trade problem go away.  He thought, on a technical level, that he might quibble with the charge that
the United States had not been able to successfully sustain a claim of injurious subsidization, since, in
the past, many of those processes had not played out completely because mutually satisfactory
solutions had been found.  But obviously the underlying problem of subsidization had not gone away,and unfortunately the United States and Canada found themselves in this position again.  But he
would take back Canada's concerns to Washington, and would convey them with all seriousness.
97. The Committee took note of the statements made.
2. Reporting by the Committee to the Council fo r Trade in Goods in connection with the
Fourth Ministerial Conference – statement by the Chairperson
98. Concerning reporting by the Committee to the Council for Trade in Goods in connection with
the Fourth Ministerial Conference, which would take place from 9 to 13 November 2001, the
Chairperson noted that the General Council would be meeting on 23-24 October.  At that meeting, itG/SCM/M/28
Page 18
would undertake the annual review of WTO activities on the basis of reports submitted by subsidiary
bodies, including the report of the Goods Council, which would be adopted sometime in early
October.
99. The SCM Committee's autumn meeting was scheduled for the end of October in fact, and
therefore would not be held until after the Goods Council's report was adopted.  The same situation
had arisen before the Geneva and Seattle Ministerial Conferences, and in those cases, the Chair of the
Committee had sent a letter to the Chair of the G oods Council containing a factual report of the
Committee's activities since its most recent annual report.  This had avoided the necessity to call a
special meeting simply to adopt an interim report for consideration by the Goods Council.  Since this
had become a routine procedure following the Geneva Ministerial, the Chairperson suggested that the
Committee again follow the same procedure, that is, to allow the Chair of the Committee to send aletter to the Goods Council Chair prior to the Good s Council meeting.  This would contain a factual
statement of the activities of the Committee since the adoption of the Committee's last annual report
in October 2000.  Copies of the letter would of course be made available to all Members.  In addition,
as the Committee would adopt its annual report for 2001 on 1
 or 2 November, every effort would be
made to circulate that report prior to the Ministerial Conference.
100. The Committee so agreed.
3. Communication from the OECD – statement by the Chairperson
101. The Chairperson noted that a communication had been received by the Secretariat the
previous week from the Secretariat of the OECD.  A copy of the document reflecting thatcommunication was available in the room, and was circulated as G/SCM/32.  As indicated in the
communication, the Participants to the Arrangement on Guidelines for Officially Supported Exports
Credits had decided to publish the country risk classifications that were used for the Premium
Agreement of the Arrangement, and had made those classifications available on their website.  She
had requested the Secretariat to make available to any Member who so requested the full text of theExport Credit Arrangement and the Premium Agreement, unless the Committee believed that it might
be more useful simply to circulate these to all members of the Committee.
102. A second question also had been prompted by the communication from the OECD
Secretariat.  In particular, in informal discussions between the WTO Secretariat, as observer to the
Participants Group on the Export Credits Arrangemen t, and the OECD Secretariat, the idea had arisen
that representatives of the OECD Secretariat might consider coming to Geneva to make a factualpresentation on the operation of the Arrangement for interested Members.  If the Committee
considered that there could be some benefit to such a presentation, the WTO Secretariat could be
requested to follow this up with the relevant staff of the OECD.
103. The delegate of Brazil stated, concerning the possible factual presentation, that since the
Committee was being informed of this idea only at this meeting, he wished to have some time to
discuss this item with his authorities, to see if they had some input on the best way to proceed.
104. The Chairperson noted that the Committee certainly could await Members' comments on this.
105. The Committee took note of the statements made.
4. Request from Papua New Guinea for an extension of the transition period for export
subsidies pursuant to Article 27.4 – statement by the Chairperson
106. The Chairperson drew to the Committee's attention a request that had been received the
previous Friday from Papua New Guinea, for an extension pursuant to Article 27.4 of the transitionG/SCM/M/28
Page 19
period for export subsidies.  This request was contained in document (G/SCM/N/74/PNG) and was
available in the room.  She noted that the communication referred to an attached legislation, but that
in fact the legislation had not yet been provided.  The Secretariat had requested a copy from the PNG
delegation in Brussels, and would circulate it as soon as it was received.  She recalled that under
Article 27.4, if a developing country Member deemed it necessary to apply export subsidies beyondthe eight-year transition period (which would expire on 1 January 2003), it needed to, not later than
one year before the expiry of that period (i.e., not later than 31 December 2001), enter into
consultation with the Committee, which would determine whether an extension of the period was
justified, after examining all of the relevant economic, financial and development needs of the
developing Member in question.
107. Given that Papua New Guinea's request had been received only two working days before the
meeting, she proposed that the Committee defer any discussion of it until the regular meeting in the
autumn.  In the meantime, she suggested that Me mbers that were interested in obtaining more
information in respect of Papua New Guinea's request submit any questions they deemed relevant to
the delegation of Papua New Guinea, with a copy to the Secretariat for circulation to Members.
108. The Committee took note of the statement made.
M. DATE OF NEXT REGULAR MEETING
109. The Chairperson noted that in accordance with the Committee's decision adopted in
February 1995, the Committee's autumn meetings would be held during the week of 29 October. She
recalled that pursuant to the decision adopted under a previous agenda item, the Committee would
hold a special meeting for review of 2001 new and fu ll notifications back-to-back with its autumn
regular meeting.  In view of this, four meeting days had been reserved, namely 30 October-
2 November 2001.
110. The Committee took note of the Chairperson's statement.
N. IMPLEMENTATION -RELATED ISSUES REFERRED TO THE COMMITTEE IN THE GENERAL
COUNCIL 'S DECISION OF 15 DECEMBER 2000 – CHAIRPERSON 'S REPORT ON THE COMMITTEE 'S
INFORMAL MEETINGS OF 2 APRIL AND 1 MAY 2001
111. The Chairperson noted that her report on the 2 April and 1-3 May informal meetings of the
Committee was made pursuant to the second paragraph of the procedures adopted by the Committee
for its consideration of implementation-related issues referred to it by the 15 December 2000 decision
of the General Council (WT/L/384).  This report also would be more or less the basis for the report to
be made to the General Council the following week as requested by the Chairman of that Body.
112. The Committee had met informally on 2 April and 1 and 3 May to discuss the implementation
related issues.  At these meetings, the Committee had discussed proposals from Colombia in
document G/SCM/W/429, from India in G/SCM/W/ 430, and jointly from Cuba, the Dominican
Republic, Honduras, India, Indonesia, Malaysia, Pakistan, Tanzania, Uganda, and Zimbabwe in
G/SCM/W/431/Rev.1.
113. The proponent delegations had presented their proposals, and a number of Members had
raised questions and made comments on the proposals.  In general, the discussion had focussed on
technical issues raised by the proposals, in respect of which certain clarifications had been requested.
After the meeting, the delegations of Australia, Canada, Chile, the EC, Hong Kong China, Japan,
Switzerland, and the United States had submitted written versions of their questions and comments,G/SCM/M/28
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which had been circulated in documents G/SCM/W/433-440.  Some Members had noted that their
comments and questions were without prejudice to their positions in respect of any of the proposals.
114. Taking  the proposals in the order of the issues in the General Council's decision, the proposal
by a group of countries sought a change from 2 to 5 years for the period over which exportcompetitiveness is to be established under Article 27.6.  The proposal equally sought a mechanism to
re-allow developing countries that had achieved export competitiveness in a product to resume export
subsidies on that product if exports fell below the export competitiveness threshold.
115. Some of the main technical and operational points raised concerning this proposal were:
• Firstly, whether any criteria (such as a minimum time-period and/or how far below the export
competitiveness threshold the country's exports of the products were) would be applied to the loss
of export competitiveness to determine whether the country was eligible to resume providing
export subsidies on that product.  On this point the proponents had stated that this suggestion was
worth exploring through further discussion.
• A second point raised was what would happen to  countries that went back below the export
competitiveness threshold, i.e., whether they would again have a multi-year period to phase out
the resumed export subsidies.  On this point, the proponents indicated that, pursuant to
Article 27.5, Members in this situation would have a further eight-year phase-out period.
• The next point raised was whether such a change to a provision of the SCM agreement could be
accomplished by an interpretation, or could only be done through amendment of the Agreement.
On this point, the proponents had stated that the procedural aspects of the issue should not be themain focus of the discussion at this point, but that the Committee should rather concentrate on the
substance for the time being, with the possibility of procedural issues being addressed by the
General Council.
• Another point was the definition of "product" for the purposes of Article 27.5, and in particular
whether this was a four-digit "heading" of the HTS, or something else.  The proponents had stated
that the reference to a product as a "section heading" in the English text of Article 27.6 of the
Agreement reflected the negotiators' intention to define a product as a "section" of the
Harmonized System.  The Secretariat had been asked to look into the terminology used in the
French and Spanish versions of the Agreement, and had found that the term in the French text of
Article 27.6 was "position" while that in the Spanish version of this Article the term was"partida." The Secretariat had further found that in the French version of the Harmonized System,
the term "position" referred to the four-digit leve l, and that similarly, the term "partida" in the
Spanish version of the Harmonized System also refe rred to the four-digit le vel.  The term in the
English version of the Harmonized System corresponding to the four-digit level was "heading."
In all three languages, a "section" of the Harmonized System was a group of chapters, and so wasat a much higher level of aggregation than a "heading," "position," or "partida." As noted,
however, the term "section" appeared only in the English version of the text, and not in the
Spanish or the French versions of the Agreemen ts, so that these two texts in themselves were
clear.  There had been suggestions that some fu rther institutional research, including with the
assistance of the Market Access Division, might be undertaken.
116. On India's proposal, in document G/SCM/W/430, in respect of aggregate and generalized
rates of duty remission or exemption, the main idea was that the existing rules in the Agreement
concerning the accounting for duty drawback were too difficult for small businesses.  India advocated
allowing Members to establish national averages fo r the use of imported inputs, based on statisticalG/SCM/M/28
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studies and published sources, instead of requiring every company to maintain its own detailed
records of the amounts of imported and domestically-produced inputs that it used.
117. A number of Members had raised questions concerning how this proposal would work in
practice:
• There were questions about whether adequate published data would be available to perform the
necessary calculations, about whether and how often the averages would be updated, about how
different levels of usage of input materials among producers would be taken into account, and in
general about how transparency and verifiability would be ensured, and circumvention prevented,
such that the final amount of duty exemption or remission overall would be no greater than the
amount of duties actually collected or owing on imported inputs incorporated into exported
products.  The issue of industry collusion also had been raised.  On these points, India stated thatIndia had the administrative machinery to both construct the statistical norms on the basis of
company studies and published information, and to verify the norms on an ongoing basis to
ensure their accuracy.  To ensure no excessive remission of import duties in imported inputs,
India stated that the lowest transaction values from Customs would be used to value the imported
inputs, and that there would be monitoring to ensure that the total amount of remission paid didnot exceed the amount of duties collected on imported inputs.
• The question had been raised as to whether the proposal was intended only for small businesses in
developing countries Members, or for small businesses of all Members.  India had replied that thisproposal should be applicable only to developing country Members, as a provision for special and
differential treatment, and that it should apply to all enterprises of those Members.
• Some Members had suggested that a simpler way to address the problems identified by India
would be to establish tax-fee zones, or to apply "end use" tariffs, which apply reduced tariff rates
on input products.  India had replied that these alternatives would not address the specific
problems of developing countries.
118. On the final issue referred to the Committee for discussion, the definition of inputs consumed
in the production process, the delegations of India and Colombia had presented proposals.  Both of
these papers proposed including capital goods in the definition in footnote 61 of inputs consumed in
the production process.  India's proposal argued th at capital goods, like catalysts, were not physically
incorporated in the goods, and that if catalysts, which underwent no permanent chemical change in theproduction process, could be considered "inputs consumed", so should capital goods, which were
depleted during the production process.
• The main technical and operational comments and questions raised in respect of India's proposal
had centred on transparency and verifiability, among other things because in many cases a given
piece of capital equipment might be used to make goods both for domestic consumption and forexport, capital goods are depreciated over varying and sometimes lengthy periods, some capital
goods might be used to make a range of different products, and some goods might not easily be
identifiable as either capital goods or final goods.
• The view also had been expressed by some delegations that if the problem was high tariffs on
capital goods, a better and simpler approach to the problem would be to reduce or eliminateimport duties and taxes on imported capital goods.
• India's response in respect of the questions raised on its proposal concerning inputs consumed in
respect of transparency questions had been that  information would need to be maintained by
enterprises concerning their annual turnover and the proportion of their production that wasG/SCM/M/28
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exported, some of which already was maintained for taxation purposes.  The amortization rates
that would be used would be determined on the basis of generally accepted accounting principles,
and allocation of duty relief to different products produced on a single piece of equipment would
not present a significant problem because most small and medium enterprises produced only a
single product or a very narrow range of products.  The apportionment of the use of capital goodsas between domestic and export production would be based on the proportion of production that
was exported, and no remission would be allowed in respect of products sold domestically.
119. Colombia's proposal, which addressed the capital goods  issue from the standpoint of indirect
tax exemption or remission, was based on Colombia's reading of items (g), (h), and (i) of the
Illustrative List of Export Subsidies.  According to  Colombia's paper, if item (h) was interpreted such
that drawback of indirect taxes was made conditional on the physical incorporation of inputs, thiswould discriminate against developing countries by excluding capital goods from the implementation
of instruments intended to allow such goods to be imported under favourable conditions aimed at
enhancing the competitiveness of those countries' exports.
• At the discussions held in that morning's in formal meeting, four broad questions had been
addressed to Columbia relating to the definition of capital goods, the question of allocation of
costs of capital equipment across time, the interpre tation of item (h) of the Illustrative List, and
what underlie structured incentives.
• Colombia had responded that the issue was access to capital goods on competitive terms so that
export competitiveness was not diminished by domestic tax burdens, and that reducing or
eliminating taxes and duties on such goods was not possible for some developing countries due topressing revenue needs of governments.  Colombia had also argued that for companies that
produce both for exports and for the domestic market, a system of tax exemption on capital goods
used by those companies would satisfy the requirement of item (h) of the Illustrative List of
Export Subsidies that equal exemption or remission of prior-stage cumulative indirect taxes could
be allowed in respect of goods produced for export and those produced for the domestic market.Columbia also had indicated that allocation questions were less relevant if a system of duty and
tax suspension or exemption, rather than rebate, was used.
120. The Chairperson felt that during the informal meeting that week, the Committee had made
some progress in clarifying some of the issues at hand.  She noted that there was a willingness bydelegations to engage in further clarifying issues, and, if possible, to try to find an appropriate solution
to the concerns which had been raised.  What remained now was to move further and to try to start
identifying any areas where consensus might be possible.  Therefore, a schedule of meetings had been
discussed for the period through the end of July, and three dates had been tentatively identified; these
would be made known to the Committee once confirmed.  To make the discussion at meetings more
productive, it had been suggested that the new questions and comments raised orally at the just-
concluded informal meeting be submitted in writing by the close of business the next day (14 May),and that new written responses to those questions be submitted by Monday, 14 May 2001.  This
would allow delegations two weeks to prepare for the next informal meeting, which hopefully would
facilitate an increasingly interactive discussion, as suggested by Members that morning.
121. Concerning the reporting to the General Counc il, the Chairman of the General Council had
requested a brief oral report by the Chair of this Committee to be made at the 8 May meeting of the
General Council.  As the Chairperson had indicated previously, this report should refer to the
procedures adopted by this Committee for consideration of the implementation related issues, should
indicate the dates on which the Committee had already met in informal session to carry out its
discussions, and the dates that had just been agreed for future meetings, and should summarize thediscussions held to that point, in a manner simila r to the report that she had just made to theG/SCM/M/28
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Committee.  Of course, there would be consultations with the incoming Chair of the Committee on
the substance to be included in the report.
122. The Committee took note of the Chairperson's report and agreed to the proposed schedule of
meetings and the dates for further written submissions.
O. ELECTION OF OFFICERS
123. The Committee elected Mr. Remo Moretta (Australia) as Chairman, and Mr. Leo Palma
(Philippines) as Vice Chairman, of the Committee.
124. The meeting was adjourned.
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