RESTRICTED  WORLD TRADE  
ORGANIZATION  TN/RL/M/25 
29 March 2005 
 (05-1276) 
Negotiating Group on Rules  
  
 
SUMMARY REPORT OF THE MEETING 
HELD ON 23 FEBRUARY 2005 
 
Note by the Secretariat
 
 
 
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 23 February 2005. 
A. ADOPTION OF THE AGENDA  
2. The Group adopted the following agenda: 
A. ADOPTION OF THE AGENDA .........................................................................................................1  
B. ANTI -DUMPING ("AD")................................................................................................................1  
C. SUBSIDIES AND COUNTERVAILING MEASURES , INCLUDING FISHERIES SUBSIDIES ......................3  
D. OTHER BUSINESS .........................................................................................................................4  
-  Date of the Group's meeting in April 2005 
B. ANTI -DUMPING ("AD")   
3. The Group first discussed a "Senior Officials'  Statement" (TN/RL/W/171) sponsored by 
15 Participants.  The sponsors reiterated their be lief in the importance of achieving a substantial 
outcome in the AD negotiations and avoiding that hard-won market access benefits be undermined by 
protective trade remedy measures.  The statement identified six broad objectives pertaining to changes 
the sponsors wished to see intr oduced to the Anti-Dumping Agreem ent (ADA), namely: mitigating 
the excessive effects of AD measures; preventing AD measures from becoming permanent; 
strengthening due process and enhancing the tran sparency of proceedings; reducing costs for 
authorities and respondents; terminating unwarranted and unnecessary investigations at an early stage; 
and improving and clarifying substantive rules for dumping and injury.  The sponsors were of the 
view that Participants, on the road to Hong Kong,  should shift to text-based negotiations as soon as 
possible.   
4. Some Participants generally supported the six objectives identified and envisaged the need to 
intensify the Group's work and find pragmatic solu tions to the issues raised.  Others shared the 
sponsors' assessment regarding the progress that n eeded to be achieved in the Group, but emphasised 
that Participants should not lose sight of subs idies and countervailing measures and fisheries 
subsidies, where similar progress is also warranted .  Other considered that the objectives did not 
reflect the proposals of all Participants and thus were not a proper framework for the Group's future 
work.  One Participant called for an  in-depth dialogue before emba rking on text-based negotiations.  
Some Participants noted that there was no menti on of special and differential (S&D) treatment for 
developing and least-developed countries among the objectives and that a balanced outcome could not 
be reached without introducing effective S&D provisions into the ADA.          TN/RL/M/25 
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 5. The next submission was entitled "Proposal on Ma ndatory Application of Lesser Duty Rule" 
(TN/RL/W/170).  The sponsor stressed the need to make application of the lesser duty rule mandatory.  Building on the elements contained in  another submission (TN/RL/W/119), the sponsor 
proposed an initial framework for certain aspects of the disciplines on determination of the injury 
margin.  The main elements involved amending Ar ticle 9.1 of the ADA to provide for mandatory 
application of the lesser duty rule and providing that  injury margins be dete rmined in accordance with 
principles set out in a new Annex to the ADA.  The sponsor proposed two broad options for 
determining the injury margin. It also provided four  options for determining the target price for the 
domestic industry.  It explained th at the existence of injury margin s should be established on the basis 
of a comparison on a weighted average basis of all comparable transactions or by a comparison on a 
transaction-to-transaction basis and that all nega tive values should be taken into account.     
6. A number of Participants supported the main thru st of the paper that the lesser duty rule 
should be made mandatory.  Nevertheless, concerns  were expressed regardi ng the proposal.  It was 
observed that the proposal omitted price suppression,  depression and volume contained in Article 3.2 
of the ADA and was silent regarding the factors set forth in Article 3.4 of the ADA.  With respect to 
pricing behaviour, the proposed enquiry was far mo re complicated than the analysis of price 
undercutting described by Article 3.2 of the ADA and was not equivalent to an injury analysis.  The 
proposed methodology for determining lesser duty re defined the concept of injury and ignored the 
existing provisions in Article 3 of the ADA.  The suggested methodology would, in the case of a prospective system of duty collection, lead to less a ccurate or indeed inflated  injury margins.  One 
Participant predicted considerable complexity asso ciated with any good faith implementation of the 
mechanics of this proposal which would require a mu ltitude of highly subjective judgements.       
7. Certain clarifications were requested.  It wa s enquired how transparency would be achieved, 
how to identify a time when the price of the dom estic like product was not affected by dumped 
imports, and at what level of trade the comparis on would be made.  Questions were also posed 
regarding the reference to the prices of exporters  found not to have dumped, how to determine an 
appropriate third country, how to determine the relevant profit margin, whether there would be a 
hierarchy among the proposed various options reflected  in paragraph 1.2 of the proposal’s annex, and, 
in a prospective system of duty collection, what w ould happen if the injury margin was zero or less.  
The sponsor was also requested to indicate wh ether it applied the lesser duty rule and which 
methodology it used. 
8. The sponsor stated that the proposal neither sought to quantify injury nor attempted to 
supplant the requirements of injury analysis in Article 3.4 of the ADA. Once there was a 
determination of dumping, injury and causal link, the issue of application of a lesser duty rule would arise.  Volume effect would only be addressed through some of the options presented as a part of various methodologies for calculating target price.  Th e sponsor did not attempt to redefine injury, but 
to have a methodology or mechanism for maki ng the lesser duty rule mandatory.  Regarding 
transparency, the sponsor explained that current re quirements could apply.  It acknowledged that it 
might not be easy to determine a time when the price of the domestic like product was unaffected by dumped imports, but suggested that two possib ilities were where there were no imports during a 
particular period, and where there was no price und ercutting during a particular period.  As regards 
level of trade, this should be up to  the investigating authority, as it would depend on the facts of each 
case.  Regarding selection of an appropriate thir d country, the sponsor was hesitant to prescribe 
disciplines, but if additional disciplines in the cont ext of normal value based on an appropriate third 
country were developed, they could be also used  for purposes of injury margin determinations.  
Regarding reasonable profit margins, if disciplin es under Article 2.2.2 were arrived at, those 
disciplines might also be used for purpo ses of injury margin determinations.  
9. The sponsor clarified that paragraph 1.1 of its proposal could be applied even in a situation 
where dumping had just started, whereas paragraph 1.2 (a) would be relevant  when dumping had gone  TN/RL/M/25 
 Page 3 
 
 
 on for some time and prices had already been adversely affected by dumping.  In case of no imports, 
the need might arise to look at alternatives to what  was proposed in paragraph 1.1, such as the target 
price methodology.  The sponsor’s present practice w as similar to the cost of production method, but 
more complicated than what was proposed.  While the sponsor was open to discussing the desirability 
of a hierarchy among the options, it was of the view  that an importing country defining a particular 
methodology and giving a reasonable explanation fo r departure from the notified methodology could 
contribute to transparency in the determination of in jury margins.  As to whether changes in economic 
conditions would render two periods incomparable, paragraph 2.2 of its  proposal stipulated that the 
two periods should be comparable.  The periods  should be as close as possible, and economic 
conditions and conditions of competition in the two periods should be c onsidered.  Regarding 
situations where injury margins were zero, it w as of the view that no duty would be imposed.  
Although it recognized the difficulties related to mandato ry application of lesser duty rule in certain 
duty collection systems, the sponsor was willing to  discuss this issue and to introduce appropriate 
changes to its proposal to take on board any concerns.  
C. SUBSIDIES AND COUNTERVAILING MEASURES , INCLUDING FISHERIES SUBSIDIES  
10. A submission entitled “Contribution to the Discu ssion of the Framework for the Disciplines 
on the Fisheries Subsidies” (TN/RL/W/172) and sponso red by three Participants was discussed.  The 
sponsors stated that discussions on fisheries subs idies had been bogged down by disagreement among 
Members on whether a “bottom-up” or “top-down”  approach should provide the framework for 
disciplines on fisheries subsidies.  This submission identified the demerits of the "top-down" approach 
proposed by six Participants in TN/RL/W/154, a nd put forward a framework based on the "bottom-
up" approach.  The sponsors considered that the "t op-down" approach was inconsistent with the basic 
principles of the Agreement on Subsidies and Count ervailing Measures (ASCM); lacked flexibility in 
response to future policy needs; would cause a r ace for exceptions, and involved inequity among 
sectors.  The "top-down" approach would oblige Me mbers to bring their subsidy programmes to the 
WTO and get permission on a programme by progra mme basis from other Members, a process that 
would require substantial human a nd financial resources and could be  prohibitive for even benign 
subsidies, especially for developing countries.  
11. By contrast, the proposed “bottom-up” approach  identifying the “red light” and “green light” 
subsidies from the viewpoint of sustainable resource  management was consistent with the provisions 
of the ASCM and the Doha mandate.  The proposal iden tified five types of subsidies that could lead to 
over-capacity and over-fishing, and thus could be classified as “red  light” subsidies subject to 
prohibition.  The proposal also identified six ty pes of “green light subsidies” that contribute to 
resource management and conservation and are not trade distorting, thus should be recognized as non-
actionable.  It was emphasised that government support for general infrastructure did not fall under 
the coverage of the ASCM and thus should be  outside the scope of the new disciplines.  
12. Some Participants considered this submission to be a significant contribution and believed 
that the time was ripe to move to a more concrete discussion of existing fisheries subsidies 
programmes, without prejudice to Participants’ view s on the structure of any new disciplines.  They 
welcomed the sponsors’ acknowledgement that a num ber of subsidies should be prohibited.  More 
engagement on a technical discussion on the defi nition and categorization of subsidies was now 
required.  That said, these Participants rejected th e paper’s criticism of the "t op-down" approach.  The 
Doha mandate singled out fisheries subsidies for the very treatment to which the three sponsors 
objected.  Under a "top-down" approach, the whole negotiation would become an exercise in 
transparency. By contrast, the sponsors’ proposal, as currently framed, could result in disciplines that 
are less than the current WTO disciplines. 
13. Some Participants enquired what  percentage of the sponsors’ subsidies would be covered by 
the proposed red and green boxes; what percentage of  their subsidies would fall into a grey area; how  TN/RL/M/25 
Page 4  
 
 subsidies falling into the grey area such as subsidies to current costs, price and income supports, and 
fisheries-specific infrastructure, should be tackled; and how would it address the recognized failure of the amber box given the problems of the effects- based approach.  Questions were also posed 
regarding the definition of capacity  enhancement; how such a concept could be effectively captured in 
WTO rules; what was meant by small-scale subsisten ce fisheries in general and within the context of 
the sponsors' own fisheries sectors; and why the spon sors hadn't included price support in their list of 
prohibited subsidies. 
14. On S&D, some Participants welcomed the emph asis of certain elements of the paper on small 
and vulnerable fisheries.  It was viewed that flex ibility in the application of the prohibited subsidy 
category to assist developing countries in achieving capacity expansion, vessel modification, sound 
resource management, disaster relief and infrastructure development was crucial.  A clear 
differentiation should be made be tween capacity enhancement and ove r-capacity.  Other Participants, 
though acknowledging the importance of S&D, were of  the view that the challenge would be how to 
deliver such treatment in a way which would di stinguish between those Members with developed 
fishing industries and those with fishing res ources available for domestic development.  Many 
developing countries were already major fishing nations and already had serious problems of 
overcapacity.  It was thus presumed that they would wish to join in the application of disciplines on 
harmful subsidies and thereby contribute to the sustai nability of fish stocks on which they depend.  An 
important next step would be fo r developing countries to outline how  they consider S&D treatment 
should be delivered in the new disciplines. 
15. The sponsors found the reception of the paper to be generally positive.  They emphasised that 
although specific reference to fisheries subsidies in  the Doha mandate was made, this did not imply 
that it should be singled out in the negotiations.  As regards government expenditure, the percentage 
of their subsidies covered by various boxes were ir relevant as the main issue should be the effect on 
resource sustainability.  They welcomed the concep t of transparency, but not that advocated by the 
"top-down" approach.  The focus of the proposal was the identification of subsidies programmes 
falling under green and red boxes and proceeding to de fine the subsidies that could fall in the grey 
area would follow.  On S&D, the sponsors acknowl edged its importance and the need to elaborate 
further on this issue in the future. 
16. On the general issue of subsidies and counterva iling measures, one Participant, supported by 
others, flagged the need to move forward in the ar ea of subsidies and countervailing measures in order 
to ensure its progress at the same pace of that of the other areas of the Rules negotiations.  It urged 
those Participants who had previ ously submitted proposals in the past to submit elaborated proposals 
for discussion at the informal session of the Group.  
D. 
OTHER BUSINESS  
17. The next meeting of the Group will be held  on 11-13 April 2005.  The deadline for any 
informal elaborated proposals for consideration in the informal mode at that meeting will be Tuesday, 
22 March 2005, close of business.   
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