WORLD TRADE  
ORGANIZATION  TN/RL/GEN/112 
21 April 2006 
 
 (06-1830) 
Negotiating Group on Rules Original:   English/ 
 French 
 
 
 
PROPOSED AMENDMENTS TO CERTAIN PROVISIONS OF THE AGREEMENT ON 
SUBSIDIES AND COUNTERVAILING MEASURES 
 
Communication from Canada  
 
 
 The following communication, dated 20 April 2006,  is being circulated at the request of the 
Delegation of Canada.  
 The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(06)/93), also be circulated as a formal document.  
_______________ 
 
 
 The following reduces to legal text, earlier s ubstantive proposals made by Canada on the 
issues of “specificity” and “serious prejudice”, having regard to comments received from other Members:    
 
A. SPECIFICITY
 
  As indicated in Canada’s earlier paper on specificity (TN/RL/GEN/6 of 14 July 2004), a 
de facto  specificity analysis should involve an assessment of the totality of the facts of a given case in 
recognition of the fact that circumstances beyond the control of granting authorities might explain the take-up and distribution patterns of a subsidy that is otherwise de jure  non-specific under 
subparagraphs 2.1 (a) and (b) of the Agreement on Subsidies and Countervailing Measures (ASCM).  
 
 Furthermore, subparagraph 2.1(c) of the ASCM  should provide for the possibility that, while 
the distribution of subsidy amounts may appear dispr oportionate when viewed in absolute terms (i.e. a 
strict comparison of subsidy amounts among recipient industries over a given period), such distribution may in fact be proportionate when assessed against an objective economic benchmark. 
(i.e., because the amounts received by  the industries in question were in proportion to their share of 
the production value of the sector concerned).    Text Proposal
 
  
 It is proposed that Article 2.1(c) be amended as follows:  
 
2.1 (c) If, notwithstanding any appearan ce of non-specificity resulting from the 
application of the principles laid down in s ubparagraphs (a) and (b), there are reasons 
to believe that the subsidy may in fact be  specific, other factors may be considered. 
Such factors are: use of a subsidy pr ogramme by a limited number of certain 
enterprises, predominant use by certain ente rprises, the granting of disproportionately 
large amounts of subsidy to certain enterprises2.bis, and the manner in which discretion TN/RL/GEN/112 
Page 2  
 
  has been exercised by the granting authority  in the decision to grant a subsidy.  These 
factors shall be evaluated based on the to tality of the facts, and no one or several 
of them can necessarily give decisive guidance .  In applying this subparagraph, 
account shall be taken of the extent of di versification of economic activities within 
the jurisdiction of the granting authority, as well as of the length of time during which 
the subsidy programme has been in operation. 
 
[Footnote 2.bis] Disproportionality shall be determined by 
reference to a relevant objective benchmark, such as the relative 
importance of recipient industries, in terms of production value, within 
the territory of the granting authority .  
 
B. SERIOUS PREJUDICE  
 
 The following legal text proposals are based on Canada’s earlier paper on “serious prejudice” 
(TN/RL/GEN/14 of 15 September 2004).   
 Text Proposals     
 
 
Article 6  
Serious Prejudice  
 
6.1 Serious prejudice in the sense of paragraph (c) of Article 5 shall be deemed to exist in the 
case of:  
(a) the total ad valorem  subsidization
1 of a product exceeding 5 per cent2; 
 
(b) subsidies to cover operating losses sustained by an industry; 
 
(c) subsidies to cover operating losses sustaine d by an enterprise, other than one-time 
measures which are non-recurrent and cannot be repeated for that enterprise15.1 and 
which are given merely to provide time fo r the development of long-term solutions 
and to avoid acute social problems; 
 
(d) direct forgiveness of debt, i.e. forgiv eness of government-held debt, and grants to 
cover debt repayment3; 
 
 
  
                                                     
 
1 The total ad valorem  subsidization shall be calculated in accordance with the provisions of Annex IV. 
2 Since  it is anticipated that civil aircraft will be subject to specific multilateral rules, the threshold in 
this subparagraph does not apply to civil aircraft. 
15.1 For the purpose of this provision, “enterprise” includes any successor or affiliated enterprise.  
3 Members recognize that where royalty-based financing for a ci vil aircraft programme is not being 
fully repaid due to the level of actual sales falling belo w the level of forecast sales, this does not in itself 
constitute serious prejudice for the purposes of this subparagraph.  TN/RL/GEN/112 
 Page 3 
 
 
  (e) subsidies to a firm in a start-up situation16.1, if the overall rate of subsidization16.2 
exceeds 15 per cent of the total funds invested16.3 during the start-up period16.4.  
 
6.2 and 6.3 [Unchanged].   
6.4 For the purpose of paragraphs 3(a) and
 3(b), the displacement or impeding of exports shall 
include any case in which, subject to the provisions of paragraph 7, it has been demonstrated that 
there has been a change in relativ e shares of the market to the disadvantage of the non-subsidized like 
product (over an appropriately representative period sufficient to demonstrate clear trends in the 
development of the market for the product concerned,  which, in normal circumstances, shall be at 
least one year).  "Change in relative shares of the market" shall include any of the following 
situations:  (a) there is an increase in the market share of the subsidized product;  (b) the market share 
of the subsidized product remains constant in circumst ances in which, in the ab sence of the subsidy, it 
would have declined;  (c) the market share of the subsidized produc t declines, but at a slower rate than 
would have been the case in the absence of the subsidy. 
 
6.5 to 6.9  [Unchanged].   
Article 7 
Remedies 
 7.1 to 7.7 [Unchanged].  
 7.8 Where a panel report or an Appellate Body re port is adopted in which it is determined that 
any subsidy has resulted in adverse effects to the in terests of another Member within the meaning of 
Article 5, the Member granting or maintaining such subsidy shall take appropria te steps to remove the 
adverse effects or shall withdraw the subsidy.
22.1 
 7.9 and 7.10 [Unchanged].    
 
    
 
                                                     
 
16.1 Start-up situations include instances where fi nancial commitments for product development 
or construction of facilities to ma nufacture products benefiting from the subsidy have been made, even 
though production has not begun .   
16.2 The overall rate of subsidization includes subsid ies expensed in the start-up period as well as 
non-recurring subsidies properly allocable over a mu lti-year period extending beyond the start-up 
period, and subsidies that have been committed but not yet disbursed . 
16.3 Total funds invested means the total of all expenses incurred during the start-up period plus the 
acquisition cost of all assets, determined in acco rdance with generally accepte d accounting principles. 
16.4 The start-up period terminates upon commenceme nt of normal commercial sales, regardless 
of whether full commercial production levels have been achieved.  The start-up period shall not extend 
beyond the first year of production . 
22.1 In determining appropriate steps to remove adv erse effects, the benefit of subsidies that were 
fully disbursed prior to the expiration of the period  for compliance with an adopted panel or Appellate 
Body report, shall be allocated over the total production of the products to which the subsidy is properly 
attributable under generally a ccepted accounting principles.  TN/RL/GEN/112 
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  ANNEX IV 
 
CALCULATION OF THE TOTAL AD VALOREM SUBSIDIZATION 
(PARAGRAPH 1(A) OF ARTICLE 6)
62 
 
 
1. Any calculation of the amount of a subsidy for the purpose of paragraph 1(a) of Article 6 shall 
be done in terms of the benefit to the recipient . 
 2. Except as provided in paragraphs 3 through 5,  in determining whether the overall rate of 
subsidization exceeds 5 per cent of the value of th e product, the value of the product shall be 
calculated as the total value of the recipient firm's
63 sales in the most recent 12-month period, for 
which sales data is available, preceding th e period in which the subsidy is granted.64 
 3. Where the subsidy is tied to the production or sale of a given product, the value of the product 
shall be calculated as the total value of the recipien t firm's sales of that product in the most recent 12-
month period, for which sales data is available, pr eceding the period in which the subsidy is granted. 
 4. [Now Article 6.1(e)]. 
 
 5. Where the recipient firm is located in an inflationary economy country, the value of the 
product shall be calculated as the recipient firm's to tal sales (or sales of the relevant product, if the 
subsidy is tied) in the preceding calendar year indexe d by the rate of inflation experienced in the 12 
months preceding the month in whic h the subsidy is to be given. 
 6. In determining the overall ra te of subsidization in a give n year, subsidies given under 
different programmes and by different authorities in the territory of a Member shall be aggregated. 
 7. Subsidies granted prior to the date of entry in to force of the WTO Agreement, the benefits of 
which are allocated to future production, shall be included in the overall rate of subsidization. 
 8. Subsidies which are non-actionable under releva nt provisions of this Agreement shall not be 
included in the calculation of the amount of a subsidy for the purpose of paragraph 1(a) of Article 6. 
 
 
 
 Finally, the above text proposals do not address the status of certain other provisions in the 
current ASCM that were consequentially affected by the lapsing of Article 6.1 of the Agreement 
(i.e., footnotes 14 to 16, Article 6.2, footnot e 19, Annex IV, footnote 66, Article 27.8, and 
Article 27.9).  These will have to be reviewed by the Group.    
 Canada reserves its right to offer further views on these and other issues. 
 
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62 An understanding among Members should be deve loped, as necessary, on matters which are not 
specified in this Annex or which need  further clarification for the purposes of paragraph 1(a) of Article 6. 
63 The recipient firm is a firm in the territory of the subsidizing Member. 
64 In the case of tax-related subsidies the value of th e product shall be calculated as the total value of 
the recipient firm's sales in the fiscal year  in which the tax-related measure was earned.