WORLD TRADE  
ORGANIZATION  TN/RL/GEN/136 
16 May 2006 
 
 (06-2373) 
Negotiating Group on Rules Original:   English 
  
 
 
IMPROVEMENT AND CLARIFICATION IN ARTICLES 27.5 AND 27.6 
OF THE ASCM REGARDING EXPORT COMPETITIVENESS  
 
Submission by Egypt;  India;  Kenya; and Pakistan  
 
 
 The following communication, dated 15 May 2006, is being circulated at the request of the Delegations of Egypt, India, Kenya and Pakistan.  
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 1. In its earlier submissions
1 to the NGR, India had raised certain issues relating to  the ASCM 
for improvement and clarification.  This paper pr esents a  textual proposal by a group of Members on 
one of the issues raised in these submissions, na mely provisions relating to export competitiveness 
(Articles 27.5 & 27.6).  
  
Issue  
  
2. The flexibility available to developing countri es, including Annex VII countries, to provide 
export subsidies to a product is contingent on export competitiveness not having been achieved in 
respect of that product. Article 27.6 of the ASCM provides that ‘Export competitiveness in a product 
exists if a developing country Member’s exports of that product have reached a share of at least 
3.25 per cent in world trade of that product for two consecutive calendar years. ’  Once export 
competitiveness in a product has been  reached, export subsidies on it have to be gradually phased out, 
according to Article 27.5 of the ASCM. The provisions on export competitiveness, however, have two 
deficiencies.  First, the provision does not take  into consideration the possibility that export 
competitiveness might have been reached on account of  temporary volatility in global trade.  Second, 
there is no explicit provision in the ASCM to provi de flexibility to grant export subsidies, in case 
export competitiveness is subsequently lost i.e. the export share of a country falls below the 3.25 per 
cent level again.     
Proposal I -  Appropriate period fo r achieving expor t competitiveness
 
  
3. The period of two years established in paragra ph 6 of Article 27 of the ASCM is not sufficient 
to determine the export competitiveness, especially in view of the volatility of the international 
market.  In order to ensure that export compe titiveness is really reached and not because of any 
temporary volatility in global markets, one option c ould be to extend the two-year period to a longer 
period, which would be a reasonable time frame to ensure that a developing country has indeed 
reached a situation of export competitiveness in a gi ven product.  As an a lternative to extending the 
two-year period for computation of export competitiveness, a system of moving average  could be 
used. If a product has achieved 3.25 per cent share in world trade for two consecutive years, this 
                                                      
1 TN/Rl/W/4 (April  2002) & TN/RL/W/120 (June 2003).  TN/RL/GEN/136 
Page 2  
 
  should not be taken as the sole basis for phasing out export subsidies.  It should also be determined 
whether the 3.25 per cent share has been achieved by taking a moving average of the past [5] years.  
Thus, the system of moving average would be reso rted to only after the 3.25 per cent share in global 
trade has been reached for two consecutive years.  Moving average would be computed on the basis 
of exports not only of the current year, but also of the past few years, say [5] years.  This would 
ensure that the 3.25 per cent benchmark for tw o consecutive years has not been achieved on account 
of volatility in global market for the product concerned or fluctuations in currency markets, but indeed 
represents competitiveness of the product.    
How will it work?  
  
4. Let us assume that the moving average of expor ts have to be calculated on the basis of five-
year export trends.  Let us further assume the pe rcentage share in global exports under two scenarios 
for a product for the period 2006–11 is as shown in th e table below.  Under scenario I, the export 
shares are significantly lower than the 3.25 per cen t benchmark in the period 2006–09.  However, 
there is an upswing in the export share during 201 0–11.  Based on the historical trends under this 
scenario, it is possible that the upswing in the global export share is on account of temporary fluctuations.  On the other hand, under scenario II, th e share in global exports is close to the 3.25 per 
cent benchmark during the period 2006–09.  The ups wing in export share during 2010–11 appears to 
represent continuity in the historical trend in export share.     
Example Illustrating Calculation of Moving Average Exports Share 
 
Year Percentage share in global trade: 
Scenario I  Percentage share in global  
Trade: Scenario II  
2006 2.75 3.15 
2007 2.55 3.35 
2008 2.35 3.15 
2009 2.45 3.22 
2010 3.55 3.55 
2011 4.25 4.25 
   
Moving 
average for 2010 (2.75+2.55+2.35+2.45+3.55)/5 = 2.73 (3.15+3.35+3.15+3.22+3.55)/5 =3.28 
Moving 
average for 
2011 (2.55+2.35+2.45+3.55+4.25)/5 = 3.03 (3.35+3.15+3.22+3.55+4.25)/5 =3.50 
  
 5. It may be noted that under the existing pr ovisions of the ASCM, the product concerned would 
have reached export competitiveness in 2011, as th e 3.25 per cent benchmark for two consecutive 
years is reached in 2011.  This would hold for both  scenarios.  If the system of moving average export 
share were to be used, however, expor t competitiveness would be reached only
 under scenario II in 
the year 2011. The above example illustrates how the system of moving average exports share would guard against export competitiveness being reached on the basis of temporary fluctuations in global 
exports.  
 
   TN/RL/GEN/136 
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  Proposal II - Flexib ility to reintroduce export subsidies, in case export competitiveness is lost  
  
6. There is no explicit provision in the ASCM for automatic inclusion and, hence, the flexibility 
to provide (or continue to provide) export subsidie s if later on the export share of a country falls 
below the 3.25 per cent level.  Any provision on loss in export competitiveness would need to include 
the following elements:  (i) criteria for determin ing loss in export competitiveness;  (ii) period for 
determining loss in export competitiveness;  (iii) period for which export s ubsidy would be permitted 
again;  and (iv) phase-out period, in case expor t competitiveness is reached for the second time.  
During the discussion on this issue in the process of addressing implementation issues, one Member 
had suggested ‘stop-the-clock’ mechanism.  Under this approach, if a developing country that had 
reached export competitiveness were to lose it duri ng the ensuing phase-out period, the ‘clock’ for 
that phase-out period would be stopped until export competitiveness was again reached.  After export 
competitiveness has been reached for the second time, the country concerned would have the 
remainder  of its phase out period to complete the phase-out  of its export subsidies on that product.  If 
export competitiveness was lost after the end of th e eight-year phase-out period, under the ‘stop-the-
clock’ approach, the Member could re-introduce export subsidies on that product, and then would 
have two years to phase them out once export co mpetitiveness was re-reached.  The group believes 
this suggestion as a balanced solutio n to address the problem identified. 
  
Textual Proposal I - Period for Achieving Export Competitiveness  
  
Article 27  
  
Special and Differential Treatment of Developing Country Members  
  
27.5 A developing country Member which has reached export competitiveness in any given product 
shall phase out its export subsidies for such produ ct(s) over a period of two years.  However, for a 
developing country Member which is referred to in Annex VII and which has reached export 
competitiveness in one or more products, export subs idies on such products sh all be gradually phased 
out over a period of eight years.     27.6 Export competitiveness in a product exists if  a developing country Member's exports of that 
product have reached a share
2 of at least 3.25 per cent in world tr ade of that product for two consecutive 
calendar years.  Export compe titiveness shall exist either (a) on the basis of notification by the 
developing country Member having reached export competitiveness, or (b) on the basis of a 
computation undertaken by the Secretariat at the re quest of any Member.  For the purpose of this 
paragraph, a product is de fined as a section heading of the Ha rmonized System Nomenclature.  The 
Committee shall review the operation of  this provision five years from the date of the entry into force of 
the WTO Agreement. 
                                                      
2 To determine export competitiveness of a part icular product, the share of that product 
in world trade shall be calculated on a multi-ye ar [5] moving average basis for two consecutive 
years,  ie calculating the moving average share of that product for each year of the two 
consecutive calendar years.  
 TN/RL/GEN/136 
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Textual Proposal II - Flexibility to reintroduce export subsidies, in ca se export competitiveness is lost
 
  
27.X  If a developing country Member that has reached export competitiveness once and then lost 
it again during the ensuing eight year phase out peri od, that phase out period would be stopped until 
export competitiveness was reached again. At that point, th e Member would have the remainder of its 
eight year phase out period to complete  the phase out of the export subsidies.   
  
If export competitiveness is lost after the end of the eight year phase out period, the Member could 
reintroduce export subsidies on that  product, and then would have tw o years to phase them out once 
export competitiveness is again reached.    
  
 
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