WORLD TRADE  
ORGANIZATION  TN/RL/GEN/81 
16 November 2005 
 (05-5391) 
Negotiating Group on Rules Original:   English 
  
 
SERIOUS PREJUDICE 
 
Paper from Brazil
 
  
 The following communication, dated 15 November 2005, is being circulated at the request of 
the Delegation of Brazil.   The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(05)/ 284), also be circulated as a formal document. 
 
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I. INTRODUCTION 
 1. This communication addresses the “serious pr ejudice” provisions of Article 6 of the WTO 
Agreement on Subsidies and Countervailing Measures  (“ASCM”), which provide an important 
remedy in response to the adverse displacement or impedance and price effects of subsidies.  2. This paper, in part, comments on Canada ’s communication on serious prejudice, 
TN/RL/GEN/14, dated 15 September 2004, which a ddressed the expiration of certain provisions and 
alleged deficiencies in Article 6.  Brazil reserves the right to submit further communications on the issues in this paper as well as on other aspects of Part III of the ASCM. 
 
II. COMMENTS ON CANADA’S PROPOSED AMENDMENTS 
 A. R
EINSTATEMENT OF ARTICLE 6.1 
 3. In its communication on serious prejudice, Canada  proposes that Article 6.1 of the ASCM be 
reinstated.  Brazil supports the reinstatement of  this provision provided that footnotes 15 and 16 
relating to civil aircraft be deleted.  We also suggest some additions and clarifications as detailed 
below.   
 4. Footnotes 15 and 16 were based on the expectati on that civil aircraft would be subject to 
specific multilateral rules.  Given that such rules have not been developed, and the Doha Development 
Agenda does not provide for the nego tiation of such rules, we thi nk that these footnotes are thus no 
longer relevant and should be deleted. 
 5. Brazil proposes that the phrase “ enterprise, or product line ” be added to Article 6.1(b) to 
clarify that subsidies to cover operating losses associated with a particular product line, as 
distinguished from operating losses across an enterprise as  a whole, should also be deemed to result in 
serious prejudice.  The amended provision would thus read: 
 TN/RL/GEN/81 
Page 2  
 
 (b) subsidies to cover operating losses sustained by an industry, 
enterprise, or product line ; 
 6. Furthermore, Brazil proposes that Article 6.1(c) should be clarified since it contains vague, 
undefined terms, in particular “long-term solution s” and “acute social problems”.  In the absence of 
generally accepted meanings for these terms, the application of these terms to specific factual 
situations could prove impracticable.  Brazil woul d be receptive to more discussions on how any of 
the issues intended to be covered by the terms “l ong-term solutions” and “acute social problems” 
could be addressed more specifically and with greater  certainty in Article 6.1. One possibility would 
be the elimination of both terms. 
 
7. Brazil agrees with Canada that paragraph 4 of  Annex IV appears anomalously situated, as it 
relates to whether a particular subsidy in a start-up situation is deemed to result in serious prejudice 
rather than to the calculation of the amount of  subsidization. Brazil therefore proposes a new 
Article 6.1(e) that includes paragraph 4 of Anne x IV, including relevant footnotes. The proposed 
provision would read: 
 
(e)  where the recipient is in a start-up situation,
1 the overall rate 
of subsidization exceeds 15 percent of the total funds invested.
2 
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1  Start-up situations include instances where financial commitments 
for product development or constr uction of facilities to manufacture 
products benefiting from the subsid y have been made, even though 
production has not begun. 
2    For purposes of this paragraph, a start-up period will not extend 
beyond the first year of production. 
 B. P
ROPOSED AMENDMENT TO ARTICLE 7 OF THE ASCM 
 8. In its communication, Canada proposes the impos ition of certain additional requirements with 
respect to consultations described in Articles 7.1 and 7.2 of the ASCM.  Specifically, Canada 
proposes that a Member, in its “ statement of available evidence ” under paragraph 7.2, also provide 
“detailed assessment” of such evidence in arriving at the “ reason to believe ” referred to in 
paragraph 7.1, including “the amount of the subsidy”
1. 
 9. Brazil does not agree with the introduction of  such requirements that operate to impose 
additional burdens on Members at the consultations ph ase of the proceeding.  Brazil considers that at 
this stage of a proceeding the availability of evidence is limited.  Article 7.3 states that the “purpose of 
the consultations shall be to clarify the facts of th e situation. . . ”.  Thus, to expect a Member to 
provide a detailed assessment at this juncture presum es greater access to information than is realistic 
in most cases.  
10. Furthermore, Brazil considers that Members would be prejudiced by the requirement to place 
a detailed assessment on the record at the consu ltations stage which coul d be relied upon to the 
detriment of a Member at later stages of the pro ceeding when more information is available and the 
record is more fully developed.  
                                                     
 
 1 The introduction of the term “amount” could be construed as a requirement of precise quantification 
of the subsidy, which goes beyond the idea of “general magnitude” used by the panel United States Subsidies on 
Upland Cotton , when referring to the nature of  the serious prejudice analysis.  TN/RL/GEN/81 
 Page 3 
 
 
 11. Accordingly, and for the reasons explained above, Brazil does not agree with Canada’s 
proposed amendments to Article 7 of the ASCM.  C. O
THER PROPOSED AMENDMENTS  
 
12. Canada also proposes to (a) replace the cost -to-government approach with a benefit-to-
recipient approach in the calculation of ad valorem  subsidization under subparagraph 6.1(a) of the 
ASCM;  (b) extend the market share analysis in Ar ticle 6.4 of the ASCM to the causation assessment 
under 6.3(a);  (c) confirm that the threshold per centage in paragraph 4 of Annex IV to the SCM 
extends beyond subsidies expensed in the start-up period to include subsidies allocated over a multi-
year period;  
 13. Subject to additional clarification and review  of implementing text, Brazil supports these 
amendments proposed by Canada and looks forwar d to further discussions among WTO Members. 
 
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