WORLD TRADE  
ORGANIZATION  TN/RL/GEN/97 
20 January 2006 
 (06-0271) 
Negotiating Group on Rules Original:   English 
  
 
SUBSIDIES:  WITHDRAWAL OF A SUBSIDY 
 
Communication from Australia
 
 
 
 The following communication, dated 19 January 2 006, is being circulated at the request of the 
Delegation Australia.   The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiation Group as an informal document (JOB(06)/9 ), also be circulated as a formal document. 
 
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   Australia proposes that the meaning and scope  of what constitutes “withdrawal” of the 
subsidy as provided under Article 4.7 of the WTO Agreement on Subsidies and Countervailing 
Measures (SCM) be clarified.
1  
  While this issue, of course,  arose for Australia in the Australian Automotive Leather  case, it is 
one which we believe is crucial fo r finding a remedy for prohibitive subsidies, whatever form they 
may take.  We do not seek to undermine the dis pute settlement process nor do we seek to open up 
matters of implementation of subsidy dispute outcomes.   
  As the Australian Automotive Leather  implementation panel stated , “withdrawal” of a subsidy 
is “to enforce the absolute prohibition on the gr ant or maintenance” of prohibited subsidies.
2  I t  
presumes and reinforces that prohibited subsidies cause serious trade effects.  Australia strongly endorses this view. 
 
Presumption of serious trade effects
 
  Adverse effects are presumed for prohibited subsidies.  Therefore, “withdrawal” of the subsidy could mean at least the removal of  these adverse effects (or something more). 
 
 Australia considers that the phrase “withdrawal of the subsidy” means the same in both SCM 
Article 4.7 and SCM Article 7.8.  The language in SCM Article 7.8 provides the context of what 
“withdrawal” of the subsidy means.  And, in the co ntext of Article 7.8, “withdrawal of the subsidy” 
must be different or something more than “removal of adverse effects” in relation to the remedy for 
actionable subsidies.   
 
                                                     
 
1 Previous submissions by Australia on this issue are contained in documents TN/RL/W/139, dated 
18 July 2003, and TN/RL/GEN/35 (JOB(05)/41), dated 23 March 2005 
2 Australia – Subsidies Provided to Producers and Exporters of Automotive Leather (hereafter 
Australian  Automotive Leather ), Recourse to Article 21.5, Panel Report, WT/DS126/RW, 21 January 2000, 
paragraph 6.34. TN/RL/GEN/97 
Page 2  
 
   We do not want to undermine the presumption of adverse effects and indeed, if we do not 
deal with “withdrawal of the subsidy” adequately to give this phrase meaning, then there is a risk that 
the presumption is undermined.  If the remedy for prohibited subsidies, namely “withdrawal” of the 
subsidy, is not adequately clarified, then th e absolute prohibition on granting or maintaining 
prohibited subsidies is also undermined.   
 
Possible remedies or approaches
 
  Depending on the facts and circumstances, the very nature or type of prohibited subsidy may have an impact or implications for what may cons titute “withdrawal” of the subsidy.  In order to 
provide increased predictability and certainty to th e current rules and to reinforce the absolute 
prohibition on prohibited subsidies, SCM Article 4.7 should be clarified to in clude the parameters of 
the remedy.     Some Members have suggested that a dis tinction be drawn between one-off and recurring 
subsidies in order to define what constitutes “w ithdrawal” of the subsidy.  In other words, 
“withdrawal” would be examined on the basis of the frequency of payment of subsidies determined by 
a panel to be prohibited.  Australia sees merit in this.
3 
  “Withdrawal” of a subsidy would appear to be  relatively straightforward where it means the 
complete cessation or termination of benefits.   
 
 But there remains a lack of clarity on what would constitute “withdrawal” under various circumstances or scenarios.  For example, where payments have already been fully disbursed but 
future production has or is benefiting from that fully  disbursed subsidy (for example, either a one-off 
payment or an expired recurring subsidy program that has an ongoing effect), “withdrawal” of the 
subsidy would need to address ongoing benefits. 
  Whether a subsidy is a one-time payment or  recurring, it is possible that a subsidy 
programme, and presumably payments under that prog ramme, found to be prohibited could be revised 
in order to achieve withdrawal of the subsidy.  This  could be through, for example, the removal of the 
export contingency aspect of the program although s ubsidies would be continued to be paid.  The 
outcome of this is that the prohibited subs idy could be considered to be withdrawn. 
  Australia therefore considers that there is merit in clarifying whether “withdrawal” of the subsidy may allow for the replacement of the proh ibited subsidy with an actionable subsidy and the 
extent to which such replacement would still amount to “withdrawal”.  Replacement of the prohibited 
subsidy with an actionable subs idy may undermine the effectiveness of the remedy provided under 
SCM Article 4.7 where the expectation of wit hdrawal is the termination of the program. 
  Further, an examination of the rationale fo r finding the subsidy program prohibited may be 
necessary in order to ensure that the obligation is  not circumvented.  If the subsidy programme was 
intended to target an industry which relied on e xports and was designed on the basis of the export 
orientation of that industry, any subsidy paid consequently could potentia lly be based on export 
contingency and therefore still amount to a prohibite d subsidy.  In other words, “withdrawal” may 
only be satisfied through terminati on of the subsidy in this scenario. 
 
                                                     
 
3 There are also currently proposals in relation to Pa rt V of the SCM in relation to whether subsidies are 
allocated or expensed.  These discussions are, we believe, relevant to consideration of “withdrawal” of the 
subsidy.  TN/RL/GEN/97 
 Page 3 
 
 
  Repayment/ retrospective remedy  
  In Australia’s view, a remedy should not be pu nitive but ensure that a subsidy is brought into 
conformity.  Nor does Australia consider that “withdrawal” should encompass a retrospective remedy 
and the possibility of repayment, including repayment in full.   
 
 However, we consider that portions of a s ubsidy which are deemed allocated over future 
periods of time may not be considered to be “rep ayment” as such.  For exam ple, in the circumstance 
of a non-recurring subsidy, say for plant and equi pment which has an ongoing benefit and involving 
more than one payment, the remedy of “withdrawal ” would be to require an end to payments.   
 
 Australia has previously outlined the consider able difficulties posed in relation to repayment 
or retrospective remedy for some jurisdictions.  By clarifying the SCM Agreement to strengthen the 
rules, especially their deterrent effect, would in our view present a better outcome than focussing on 
areas which would simply pose too great a difficult y for governments with different domestic legal 
systems. 
 How would the text be clarified?
 
  Australia previously indicated suggestions for clarifying the “withdrawal” provision under 
Article 4 of the SCM Agreement.   
 
(i) The text of SCM Article 4 should be elaborat ed to clarify the parameters of what is 
required in order to “withdraw” the subsidy,  depending on the facts and circumstances 
surrounding the granting of the subsidy; 
 
(ii) specifically, clarify the text of SCM Article 4 to ensure that a subsidy claim should 
require the panel to make a finding to elabor ate on what in broad terms would constitute 
“withdrawal” of the subsidy. 
 
o For example, a claim brought before a panel would also be required to outline what 
would constitute “withdrawal” of the subsid y.  A panel could then, as part of its 
findings, provide the parameters of what  could constitute “withdrawal”.   
 
(iii) Clarification of analogous provisions within  Article 7.8 in relation to “withdraw the 
subsidy” may also be helpful.   
 PROPOSED TEXTUAL AMENDMENTS 
 
4.7 If the measure in question is found to be a prohibited subsidy, the panel shall recommend that the subsid izing Member withdraw the subsidy 
[footnote *] without delay.  In this regard, the panel shall specify in its recommendation what would constitute withdrawal of the subsidy and
 the 
time period within which the measure must be withdrawn. 
 ______________________________________________________ 
Footnote *  What constitutes withdrawal of the subsidy necessarily 
depends upon the facts and circumstances surrounding the granting of 
the subsidy, including, but not limited to, whether the subsidy granted 
confers an ongoing benefit.   
 
 TN/RL/GEN/97 
Page 4  
 
  7.8 Where a panel report or an Appe llate Body report is adopted in 
which it is determined that any subsidy has resulted in adverse effects to the interests of another Member within th e meaning of Article 5, the Member 
granting or maintaining such subsidy sh all take appropriate steps to remove 
the adverse effects or shall withdraw the subsidy [footnote **
]. 
 
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Footnote **   As defined in Article 4.7 of this Agreement.  
 
 
 Australia reserves the right to submit further proposals on this issue. 
 
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