. /.   WORLD TRADE  
ORGANIZATION  TN/RL/GEN/101 
3 March 2006 
 
 (06-0933) 
Negotiating Group on Rules 
 Original:   English 
 
 
THE EXISTENCE OF A BENEFIT 
 
Paper from Brazil  
  
 The following communication, dated 2 March 2006, 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(06)/40), also be circulated as a formal document. 
 
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I. INTRODUCTION 
 
1. In document TN/RL/W/19, Brazil raised some  concerns regarding Article 14 of the SCM 
Agreement and the guidelines for calculation of the am ount of a subsidy in terms of the benefit to the 
recipient. Besides the legal drafting suggestions  contained in document W/19, Brazil wishes to further 
clarify issues related to the determination of be nefit under parts II and III of the SCM Agreement. 
 
2. In Canada ─ Aircraft, the Appellate Body expressed the view that “Article 14, which we have 
said is relevant context in  interpreting Article 1.1(b) , supports our view that the marketplace is an 
appropriate basis for comparison. The guidelines set fo rth in Article 14 relate to equity investments, 
loans, loan guarantees, the provision of goods or services by a government, and the purchase of goods 
by a government. A 'benefit' arises under each of  the guidelines if the recipient has received a 
‘financial contribution’ on terms mo re favourable than those availabl e to the recipient in the market ” 
(emphasis added) (WT/DS70/AB/R, paras. 155 and 158).  
 3. In United States ─ Upland Cotton, the Appellate Body stat ed that “the apparent rationale for 
Part III differs from that for Part V of the SCM Agreement . Under Part V, the amount of the subsidy 
must be calculated  because, under Article 19.4 of the SCM Agreement and Article VI:3 of  the GATT 
1994, countervailing duties cannot be levied in excess of that amount. In contrast, under Part III, the 
remedy envisaged under Article 7.8 of the SCM Agreement is the withdrawal of the subsidy or the 
removal of the adverse effects. This remedy is no t specific to individual companies. Rather, it targets 
the effects of the subsidy more generally” (emphasis added) (WT/DS267/AB/R, para. 464). 
 
4. Read in conjunction, both rulings of the Appellate Body made it clear that: 1) the 
determination of a benefit under Parts II and III of the SCM Agreement is to be made having the 
marketplace as a basis for comparison; 2) since Artic le 14 is relevant contex t in interpreting Article 
1.1(b), one deducts that a benefit under Parts II a nd III will only arise if the recipient has received a 
“financial contribution” on terms more favourable th an those available to the recipient in the market; 
and 3) the fact that the recipient has received a “f inancial contribution” on te rms more favourable than 
those available to the recipient in the market does not  mean that a calculation of the benefit is required 
for Parts II and III of the SCM Agreement. TN/RL/GEN/101 
Page 2  
 
   
II. PROPOSED TEXTUAL AMENDMENTS 
 
5. In order to codify this interpretation, Braz il suggests the following amendment to Article 1.1: 
 
Article 1 
Definition of a subsidy 
 
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
 
(…) 
and 
 
(b) a benefit is thereby conferred y. 
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New footnote y : 
 y. For the purpose of Parts II and III, the existence of  a “benefit” is to be determined on the basis of 
a comparison between the financial contribution by a government or any public body within the 
territory of a Member and the prevailing market  conditions. In the case of “loans by a 
government”, a benefit will exist only to the extent that those “loans by a government” are made 
at more advantageous conditions than those offered in the marketplace for loans:  1) with similar 
term and structure; 2) having guarantees of a si milar nature and coverage; 3) denominated in the 
same currency; and 4) gran ted within the territory  of the same Member. 
 
 
6. Under the same approach, Brazil also sugg ests the following amendment to Article 14: 
 
 
Article 14 
Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient  
 
 (b) a loan by a government shall not be considered as conferring a benefit, unless there is a 
difference between the amount that the firm recei ving the loan pays on the government loan 
and the amount the firm would pay on a compar able commercial loan which the firm could 
actually obtain on the market. In this case the be nefit shall be the diff erence between these two 
amounts x; 
 
-------------------------------------- 
 
New footnote x : 
 
x. The comparison between a “loan by a government ” and “the comparable commercial loan which 
the firm could actually obtain on the market” can only be made if both loans: 1) have similar 
term and structure; 2) have guar antees of a similar nature and co verage; 3) are denominated in 
the same currency; 4) are granted within the t erritory of the same Member. A fair comparison 
shall be made between the “loan by a government ” and “the comparable commercial loan which 
the firm could actually ob tain on the market”. 
 
 
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