RESTRICTED  WORLD TRADE  
ORGANIZATION  G/SCM/M/58 
2 April 2007 
 
 (07-1360) 
Committee on Subsidies  
and Countervailing Measures  
 
 
MINUTES OF THE REGULAR MEETING  
HELD ON 26-27 OCTOBER 2006 
 
Chairperson:  Mr. Keiya Iida (Japan) 
 
 
 
1. The Committee on Subsidies and Countervailing Measures ("the Committee") held a regular 
meeting on 26-27 October 2006.  
2. The proposed agenda for this meeting was contained in WTO/AIR/2916 and Corr.1.  The 
Committee adopted the following agenda: 
A. NEW NOTIFICATIONS OF COUNTERVAILING DUTY LEGISLATION ................................................2  
B. PREVIOUSLY REVIEWED NOTIFICATIONS OF LEGISLATION .........................................................2  
C. SEMI -ANNUAL REPORTS OF COUNTERVAILING DUTY ACTIONS (ARTICLE 25.11)........................2  
D. NOTIFICATIONS OF PRELIMINARY AND FINAL COUNTERVAILING DUTY ACTIONS .......................3  
E. TRANSITION REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL OF ACCESSION OF THE 
PEOPLE 'S REPUBLIC OF CHINA TO THE WORLD TRADE ORGANIZATION .......................................3  
F. ARTICLE 27.4  PROCESS ................................................................................................................9  
1. Review of Transparency and Standstill Obligations ...........................................................10  
2. Decisions to continue extensions of the transition period for 2007.....................................13  
3. Review of standstill and transparency commitments of Colombia ....................................13  
G. PROPOSALS TO EXTEND THE PROCEDURES SET FORTH IN G /SCM/39 BEYOND 2007..................13  
H. PERMANENT GROUP OF EXPERTS ...............................................................................................16  
I. REQUEST FROM THE UNITED STATES TO  MALAYSIA PURSUANT TO ARTICLE 25.8  OF 
THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES ........................................16  
J. OTHER BUSINESS .......................................................................................................................16  
K. DATE OF NEXT REGULAR MEETING ............................................................................................16  
L. ANNUAL REPORT TO THE COUNCIL FOR TRADE IN GOODS .........................................................16  
 G/SCM/M/58 
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  A. N
EW NOTIFICATIONS OF COUNTERVAILING DUTY LEGISLATION  
3. The Chairperson  recalled that Items A and B of the agenda of this meeting dealt with the 
review of notifications of count ervailing duty legislation and/or re gulations in accordance with the 
procedures adopted by the Committee at its specia l meeting in April 1996 (document G/SCM/W/293).  
These procedures provided inter alia  that at each regular meeting the Committee would consider 
notifications of new or amended legislations not previously reviewed by the Committee if such 
notifications had been circulated to Members in a ll three working languages at least six weeks prior to 
the scheduled date of the meeting.  He repor ted that the Committee had recently received new 
notifications of countervailing duty legislation from Chinese Taipei, Panama and Turkey.  However, 
since these notifications were not yet available in  the three working languages six weeks prior to the 
date of the meeting, they were not on the agenda an d would be discussed at the next regular meeting.  
Thus there were no new notifications of counterv ailing duty legislation to be discussed at this 
meeting.   
B. PREVIOUSLY REVIEWED NOTIF ICATIONS OF LEGISLATION  
4. The Chairperson  stated that the procedures adopted in 1996 also provided that the Committee 
would revert to a previously reviewed legislativ e notification if written qu estions were submitted on 
such a notification not later than six weeks in ad vance of a meeting.  In this connection, the 
Committee had before it a legislative notification of Israel contained in document G/SCM/N/1/ISR 
and Corr.1.  Written questions on this notification had been posed by the European Communities in 
document G/SCM/Q1/ISR/11 and by the United St ates in documents G/SCM/Q1/ISR/12 and 14.  
Israel had submitted written replies to these ques tions, which had been circulated in documents 
G/SCM/Q1/ISR/13 and 15 & Corr.1.  
5. There were no comments on the notification of Is rael or on the replies of Israel to the 
questions posed by the European Co mmunities and the United States.   
6. The Chairperson reported that concerning the revi ew of legislative notifications at the next 
regular meeting in April 2007, pursuant to the Committee's agreed procedures, in order for a new 
legislative notification to be placed on the agenda of that meeting, it must be circulated in all three 
languages by 12 March 2007.  Shortly after that date , the Secretariat would circulate an airgram 
informing Members of all of the legislative notificati ons to be reviewed at the meeting in April.  In 
order for a previously-reviewed legislative notifica tion to appear on the agenda of the next regular 
meeting, written questions must be submitted to th e Member concerned, and to the Secretariat, not 
later than 12 March 2007.   
C. SEMI-ANNUAL REPORTS OF COUNTERVAILING DUTY ACTIONS (ARTICLE 25.11)   
7. The Chairperson  recalled that a request for the subm ission of semi-annual reports for the 
period 1 January - 30 June 2006, to be submitted no later than 31 August 2006, had been circulated to 
Members in document G/SCM/N/144, dated 30 June  2006.  Members who ha d submitted semi-annual 
reports of countervailing duty actions we re identified in paragraph 1 of document 
G/SCM/N/144/Add.1, dated 18 Oc tober 2006.  These Members were:  Canada;  the European 
Communities;  Japan;  and the United States.  To th e extent possible the semi-annual reports had been 
translated and circulated to the Committee and were  included in the documentation made available for 
this meeting.  Members who had notified that they have not taken any countervailing duty action 
during the first half of 2006 were listed in para graph 2 of document G/SCM/N/144/Add.1.  While 
Members which had taken counter vailing duty actions appeared generally to comply with the 
notification requirement in Article 25.11 of the SCM Agreement , there remained a significant number 
of Members (80) who had not responded to the re quest to submit a semi-annual report and which had 
therefore failed to comply with this important requirement.   G/SCM/M/58 
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  8. There were no comments or questions on any of the semi-annual reports. 
D. NOTIFICATIONS OF PRELIMINARY AND FINAL COUNTERVAILING DUTY ACTIONS  
9. The Committee turned to documents G/SCM/N/142, 143, 145, 147 and 148 which listed 
notifications of preliminary and final countervailing duty actions that had been received since the last 
regular meeting of the Committee from Canada, the European Communities and the United States.   
10. There were no comments or questions on any of these notifications.   
E. TRANSITION REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL OF ACCESSION OF THE 
PEOPLE 'S REPUBLIC OF CHINA TO THE WORLD TRADE ORGANIZATION  
11. The Chairman  recalled that paragraph 18 of the Protocol of Accession of the People's Republic 
of China to the World Trade Organization provided that all subsidiary bodies, including this 
Committee, "which have a mandate covering Ch ina's commitments under the WTO Agreement or 
[the] Protocol shall, within one year after accession, review, as appropriate to their mandate, the implementation by China of the WTO Agreement and of the related provisions of [the] Protocol".  
China was to provide relevant information in adva nce of the review, including information specified 
in Annex 1A to the Protocol.  China could also  raise issues relating to any reservations under 
Section 17 or to any other specific commitments made by other Members in the Protocol, in 
subsidiary bodies which had a rele vant mandate.  This Committee had to report the results of the 
review promptly to the Council for Trade in Goods.  Review was to take place after accession in each 
year for eight years, with a final review in year  10 or at an earlier date decided by the General 
Council.  
12. The Chairman noted that there were no procedures set out in the Protocol for the conduct of 
the transition review, except that China was to provide  relevant information in advance of the review.  
In this regard, Annex 1A specified that China w as requested to provide information on the following 
to this Committee in accordance with Article 18.1 of its Accession Protocol:  "Pricing Policies":  (a) 
"application of existing or any other price controls  and the reason for their use";  and (b) "pricing 
mechanisms of China's state tradi ng enterprises for exported products".   China's submission, received 
on 23 October 2006, had been circulated as document G/SCM/N/149.  The United States and the 
European Communities had submitted written questi ons (G/SCM/Q2/CHN/23 and 24).  Before 
proceeding to these questions, the Chairman ope ned the floor for any general comments.   
13. The delegate of Canada
 stated that, in the context of th e 2005 transitional review of China, 
Canada, jointly with the United States and Mexico , had submitted questions regarding China's steel 
policy (G/SCM/Q2/CHN/15).  At that time, the dele gate of China had provided partial, oral answers 
to some of the questions.  He reiterated the request that answers to all questi ons be provided in writing 
and he recalled that the joint submission in doc ument G/SCM/Q2/CHN/15 had highlighted some of 
Canada's concerns on China's steel policy announced  in July 2005, which could have significant 
repercussions on the world steel market and on the Canadian steel industry.  These concerns centred 
on the high degree of intervention of the Chinese Government in the direction and decision-making 
regarding the allocation of resources into and out of the steel industry.  These concerns had been 
expressed in the context of the Working Party re port accompanying China's Protocol of Accession in 
which China had agreed that the Government would not influence directly, or indirectly, commercial 
decisions on the part of state-owned or state-inv ested enterprises and had agreed that state-owned 
enterprises, including banks, should be run on a co mmercial basis.  Canada's concerns were even 
more relevant today given the growing impor tance of China's steel production and capacity. 
14. The delegate of the United States  said that this was the fifth annual transitional review of 
China and that after this review the Committee wo uld have completed more than one-half of the G/SCM/M/58 
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  reviews required by China's Protocol of Accession.  The United States continued to believe that the 
transitional review was a useful mechanism that he lped to provide needed additional transparency 
with regard to China's trade regime and that also provided Members with a multilateral forum for 
conveying their concerns with China's WTO complia nce efforts.  As such, the transitional review 
mechanism was a useful supplement to bilateral di scussions with China.  In April 2006 China had 
submitted its first subsidy notification since becoming a WTO Member in December 2001.
1  T h e  
submission of this document represented an importa nt step for China as the notification obligation 
under the SCM Agreement was one of the more important transparency obligations of WTO 
Members.  The United States welcomed the submissi on of this notification and looked forward to a 
full review of the notification after China had subm itted its written responses to Members' questions.  
However, while the United States appreciated th e efforts China had made with regard to its 
notification obligation, other important obligations  remained of immediate concern to the United 
States.  In this respect, the delegate mentione d the continued existence of prohibited subsidy 
programmes that China had specifically committed to eliminate upon accession to the WTO almost five years ago.  A number of these Chinese programmes, some of which were reported in China's 
notification and some of which we re not, provided subsidies conti ngent upon exportation or upon the 
use of domestic over imported goods.  All of th ese programmes should be terminated without delay 
and without pre-conditions.  
15. The delegate of Japan 
stated that, although Japan had not submitted questions in the context 
of this year's transitional review, Japan shared the concerns expressed by the United States and the 
European Communities in their written submissions.  Japan appreciated the efforts that China had 
made in submitting its first subsid y notification, but there still rema ined uncertainty around China's 
subsidy regime.  Therefore, Japan would like to continue to particip ate in the discussions on this issue 
in this Committee. 
16. The Chairman  then invited the delegation of the Unite d States to introduce the questions in 
document G/SCM/Q2/CHN/23.  
17. The delegate of the United States  said that the questions posed by his delegation pertained to 
prohibited subsidy programmes that had been in exis tence for quite some time and to other possible 
prohibited subsidy programmes.  In this connec tion, the United States had sought clarifications 
regarding disturbing information suggesting that China might be introducing new prohibited subsidies 
that targeted and extended financial support for the expansion of exports in certain industries, such as 
textiles, autos and auto parts, and agriculture.  The United States was disappointed that China's 
subsidy notification did not cover certain types of subsidies.  For example, there was no reporting of 
any subsidies that might have been provided through  China's state-owned banks.  He noted that this 
issue was covered in paragraphs 172 and 173 of Ch ina's Working Party report and that in paragraph 
173 of that report China stated that "it was attemp ting to reduce the availab ility of certain types of 
subsidies, in particular by making government-own ed banks operate on a commercial basis".  China 
had also agreed at the time that it would work toward s a full notification of its subsidies.  Therefore, 
the United States had posed several questions relati ng to the banking and financial sector in China.  
For example, it had asked for an update regarding China's plans for banking reforms and specifically 
about China's plans for meeting its objective that the big four state-owned banks should be run on a 
commercial basis.  It had also enquired about polic ies affecting the big four state-owned banks and 
sales of non-performing loans to China's asset manageme nt companies.  In addition, the United States 
had asked China to explain whether its understanding  was correct that eligib ility for long-term loans 
was generally contingent upon cons istency with state industrial policies and to explain how these 
banks were able to issue loans in a market-oriented manner if, in fact, they were required to take into 
account state industrial policies.  In another part of its written submission, the United States had asked 
                                                      
1 G/SCM/N/123/CHN.   G/SCM/M/58 
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  China to explain how its new bankruptcy law would, or would not, apply to state-owned enterprises if 
they were insolvent.   
18. The delegate of the United States said that hi s delegation's written submission also addressed 
the important area of export credits, an issue that required more transparency .  Specifically, the United 
States had asked a number of questions seeking info rmation about the terms and conditions of export 
credit financing provided by China's Exim Bank and by the China Development Bank.  
19. Finally, in reviewing China's subsidy notifi cation, the United States had found no reporting of 
subsidies provided by provincial and local govern ments in China.  Paragraph 173 of China's 
Accession Working Party report highlighted "subsid ies provided by sub-national governments", as an 
area in which reporting was needed.  He noted in this  respect that at the special Committee meeting to 
review 2005 new and full subsidy notifications the dele gate of China had indicated that China was in 
the process of preparing a notification with respect to those subsidies.  The United States recognized 
that the compilation of all the information missi ng from China's subsidies notification would require 
significant time and effort, but this did not relieve Ch ina of its obligation to notify all of its subsidy 
programmes as required by Article 25 of the SCM Agreement  and the commitments China had 
undertaken in its Protocol of Accession.   
20. In summary, the United States welcomed the subm ission of China's first subsidy notification 
but remained troubled by China's continued use of what appeared to be prohibited subsidy 
programmes.  As a major beneficiary of the multilateral trading system, China bore a responsibility, like other major trading powers, to ensure that its trade regime was consistent with the fundamental 
rules.  If China failed to follow the fundamental rule s of the trading system and failed to abide by its 
explicit accession commitments, China risked unde rmining the system itself and diminishing the 
economic and commercial benefits that China deri ved from it.  The United States looked forward to 
China's responses to its written questions. 
21. The delegate of China 
stated that he had listened very a ttentively to the statements made by 
other delegations and that he ha d already provided a detailed expl anation of China's position on the 
issues raised by these delegations in his statemen t at the special Committee meeting to review the 
2005 new and full subsidy notifications.  China was determined to observe the obligations of the SCM 
Agreement  but collecting information in a country as la rge as China posed enormous difficulties.  
China had made great efforts in this respect and had received assistance from the Secretariat to help 
Chinese officials to understand the SCM Agreement  and determine which policies should be notified.  
Regarding the issues raised by the United State with respect to prohibited subsidies, China had 
explained in bilateral consultations  with the United States why it cons idered that the policies referred 
to by the United States were not subsidies inconsistent with the SCM Agreement .  His delegation 
would provide more details on this matter in its forthcoming responses to the questions posed by a 
number of delegations on China's s ubsidy notification.  China was of the view that it had faithfully 
observed its obligations under the SCM Agreement .  All subsidies identified in Annex 5(b) to China's 
Protocol of Accession had been eliminated.  While there could be further discussions on whether or 
not certain subsidy programmes were WTO-incons istent, doubts about China's determination to 
observe its WTO obligations were unfounded. 
22. The delegate of China reiterated the positi on of his delegation that reform measures 
concerning the banking sector had nothing to do with  the concept of subsidy as defined in the SCM 
Agreement .  China had repeatedly stressed this point in discussions in this Committee in previous 
years and had provided a substantial amount of information on the banking sector and its reform 
which enabled Members to form an opinion as to whether or not China's state-owned commercial 
banks were operating on the basis of commercial c onsiderations.  With respect to the issue of 
transparency, China considered th at its 2005 new and fully subsidy notification was complete, based 
on the information gathered on subsidies maintained  at the central government level.  He emphasized G/SCM/M/58 
Page 6  
 
  in this respect that the notification covered a part icular time period and th at determining whether a 
measure constituted a subsidy often posed technical difficulties.  
23. Regarding the textiles sector, the delegate of China indicated that, as a consequence of the 
deepening of the reform of the financial sector in China, there were no longer government credit 
policies that would direct commercial banks to provide  loans to certain sectors or enterprises.  Policies 
of the Chinese Government that could have an effect on the credit decisions of these commercial 
banks regarding the textiles sector included the D ecision of the State Council on the Reform of the 
Investments Regime, Provisional Regulations on Pr omotion of Industrial Structure Adjustment, and 
Regulations on Guidance on the Direction of Foreign Investment.  The Decision of the State Council 
on the Reform of the Investment Regime specifically  provided that investment projects in the textiles 
sector should be decided by enterprises themselves in accordance with market considerations, with 
loans independently audited and examined by ba nks.  Regarding the question posed by the United 
States in respect of the Notice of Relevant Polici es to Promote Chinese Textile Enterprises to Shift to 
New Ways of Growth and Support Them to Go Globa l, the delegate of China explained that the 
Chinese Government would arrange a special fund to support technology innov ation and research and 
development projects, including with respect to new fibre materials and products and water and 
energy saving techniques.  This very recent progr amme was designed particularly for small and 
medium-size enterprises and was not contingent upon ex port.  It aimed at accelerating the structural 
adjustment and technology upgrading of the textil e sector, in view of the deteriorating trading 
environment and the unfair treatment faced by Chin ese manufacturers.  This was the first programme 
introduced specially for the textiles sector.  Befo re the introduction of this programme, the Chinese 
Government had no policy whatsoever that provided dir ect subsidies specifically to the textiles sector.  
On the question of the United States regarding th e Ten Thousand Miles March for Brand Building, he 
stated that this initiative was not limited to the tex tiles and clothing sector but applied to all industries 
across the board.  This particular programme i nvolved the organization of the participation of 
enterprises in regional, national and internati onal exhibitions, brand pu blicity and promotion 
activities, and exchanges, training and workshops c oncerning brand promotion etc.  Therefore, this 
programme did not involve subsidies as defined in the SCM Agreement . 
24. Regarding the question of the United States conc erning automobiles, the delegate of China 
stated that the Minister of Commerce of Ch ina (MOFCOM) and the National Development and 
Reform Commission (NDRC) had recently iden tified eight cities namely, Changchun, Tianjin, 
Taizhou, Shanghai, Wuhan, Xiamen, Wuhu and Chongqing where production of automobiles and 
components for export were mainly concentrated.  Ho wever, the identification of these eight cities did 
not entail any specific measures to offer incentives. 
25. In response to the question po sed by the United States on Chin a's measures with respect to 
semi-conductors, the delegate of China stated th at China's 2005 new and full subsidy notification 
already contained the information regarding exis ting assistance provided to the semi-conductor sector.  
The Chinese Government was currently studying possibl e further policies related to this sector, which 
would be in accordance with WTO rules and the common practice of other countries.  The Chinese 
Government had long ago abolished the practice of planning the development of individual 
enterprises.  Thus there was no problem of co ordination between central, provincial and local 
government, as implied by the question posed by the United States.  As to the specific point mentioned in the question regarding Wuhan city, his authorities had not been able to obtain much 
detailed information on this issue as they had received the question at a very late stage but preliminary 
responses from relevant sources indicated that th ere was no subsidy involved in this project.  
26.
 On the question of the United States regarding ag riculture, the delegate of China stated that it 
was true that the NDRC had issued a notice announc ing an exemption from the railway construction 
fund levy for all grains bound for overseas markets.  However, it was important to note that another 
notice issued by NDRC in 2002 announced an exemption from the railway construction fund levy for  G/SCM/M/58 
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  all imported grains as well as for all grains for sale in the domestic market, effective 1 April 2002.  In 
other words, the exemption from this railway cons truction fund levy of grains bound for the overseas 
market had been introduced after the exemption from th is levy of imported grai ns as well as grains for 
the domestic market.  As to the MOFCOM five-year plan for the export of agricultural products, the 
delegate of China explained that the six measures mentioned in the question of the United States 
were:  tightening quality and food safety control;  pr omoting brand publicity;  strengthening training 
in the information services;  promoting the estab lishment of agriculture associations;  exploring 
support measures, and finally intensifying diplomatic  efforts for a sound trading environment.  These 
were measures of a general guidance natu re and did not involve specific benefits. 
27. With respect to the issue of export credit, the de legate of China stated that the export credit 
business of the China Export and Import Bank was cons istent with the exception provided in Item k of 
Annex I to the SCM Agreement .  Detailed information on the expo rt credit programmes of the China 
Export and Import Bank was availabl e on its website.  China had pr ovided a long and detailed written 
response to the same questions posed in the framework  of the first Trade Policy Review of China.  
While the details of these programmes were co mplicated, the export credit business of the China 
Export and Import Bank was consiste nt with the provisions of the SCM Agreement .  With regard to 
the export credit business of the China Development Bank, after verification, his authorities could 
confirm that the export credit adopted by the Bank was a market-oriented business.   
28. The delegate of China stated that the position of his Government with respect to VAT refund 
schemes was that such schemes did not involve subs idies because the refund ra te was lower than the 
rate levied. 
29. Finally, the delegate of China stated that it appeared that certain Members had strong doubts 
with regard to the subsidy programmes in China and that they considered that China's policies of a 
general guidance nature were subsidies.  China c ould only provide subsidies if legislation existed 
involving the transfer of specific benefits.  In th is regard, consultations with various government 
agencies with regard to some of the questions posed  to China, for example, on the steel development 
policy, revealed little evidence of the existence of s ubsidies.  Thus he considered that Members should 
not exaggerate the situation regarding subsidies in China. 
30. The delegate of the United States  thanked the delegate of Ch ina for the detailed responses 
given to the questions of the United States.  He noted that on textiles the delegate of China had 
explained that a fund had been ar ranged to finance new product and t echnology developments but that 
none of the funding was inconsistent with WTO ru les and none of the funding was contingent on 
export performance.  In this connection, he w ondered why the Government of China found it 
necessary to subsidize or to provide these funds at all in an industry such as textiles, where China had 
a clear competitive advantage, and given that trad e in textiles was expanding at a very high rate, 
including China's exports.  He also asked how the fact that China's recent measures to cool down the 
economy, specifically to cool down bank lending, ha d entailed the use of administrative means or 
measures could be reconciled with th e claim of the delegate of China that, as a result of reforms of the 
investment regime, there was no longer government  involvement in the provision of credits by 
commercial banks.   
31. With respect to the automob ile sector, the delegate of the United States wondered how 
concentration of production of automobile and autom obile parts could take place if no incentives were 
used.  He wondered whether the delegate of Chin a was suggesting that in China the market just 
happened to determine that produc tion should be located in the eight cities designated by the 
Government. 
32. Lastly, on banking, the delegate of the United States said that there were numerous sources 
including investment banks, NGOs, IGOs and academic studies that all noted problems in China's G/SCM/M/58 
Page 8  
 
  banking sector, particularly with respect to reform s on the institutional side.  Since there was some 
confusion about the state of affairs in China's ba nking sector, he could perhaps read through some of 
these sources at the next meeting and have the de legate of China respond to them.  All of these 
sources were publicly available.  He asked whether Ch ina agreed with the Unit ed States that when a 
state-owned bank was providing a loan to an uncreditworthy company or was providing loans at 
below-market interest rates to specific groups of companies, for example, state-owned enterprises, 
that should considered to be a subsidy.  Sec ondly, the issue of non-performing loans had been 
discussed quite thoroughly in much of the academic  literature and his dele gation understood that 
many of the non-performing loans had been purchased  by asset management companies in China.  
One could perhaps argue that these were prudentia l measures that any government would take to 
provide for the stability of its financial system.  However, the United States was also concerned about 
what the asset management companies were doing w ith the non-performing loans that they purchased.  
Some of the non-performing loans that were pur chased by asset management companies had been 
converted into equity in the companies that had orig inally taken out the loans.  He asked China if it 
could provide any more information on how such co mpanies were chosen in terms of eligibility for 
such debt- equity conversions and on the terms on which such debt equity conversions were made. 
33. With regard to the questions raised by the European Co mmunities in document 
G/SCM/Q2/CHN/24, the delegate of China stated that he had already addressed the issue of VAT 
refund schemes and had explained the situation regard ing subsidy programmes of local governments.  
The support provided by the Guangdong Provincial G overnment, mentioned in Question 4.2 of the 
European Communities, did not constitute an expor t subsidy because this programme was aimed at 
promoting the participation of small and medium-sized  enterprises in the international market and was 
basically the same as the programme that existed at the level of the central government, which had 
been described in the notification recently submitted by China.   
34. In response to the comments of the United Stat es, the delegate of China stated that the 
Chinese textile sector was facing intense competition, particularly in low-end products.  The 
Agreement on Textiles and Clothing required Members to make efforts toward structural adjustment, 
and China was actually making efforts in this regard .  The measures adopted by China in this regard 
were not inappropriate, particularly  in view of the difficulties face d by the Chinese manufacturers in 
the developed markets.   
35. With regard to the questions raised by the United States on measures taken by China to cool 
down its economy, he stated that in this respect China did not employ straightforward administrative 
measures, but relied, instead, on a combination of macro-economic policy measures.  With regard to 
automobiles, the delegate of China stated that  MOFTOC and the NDRC had simply recognized the 
fact that as a result of years of competition production of automobiles in China had become 
concentrated in these eight cities.  However, this did not mean that the Government was providing any 
incentives.  
36. The delegate of China stated that China di ffered with the United States as to whether the 
issues relating to the banking sector should be di scussed in this Committee but that the market 
response to the public listing of the state-owned banks showed that the direction of China's reform of 
the banking sector was sound.  
37. The delegate of the European Communities
 noted that the delegate of China had pointed out 
with regard to the VAT refunds that these refunds we re lower than the VAT paid.  In this respect, and 
irrespective of legal assessment of this issue, the European Communities consid ered that such a policy 
was certainly not neutral to trade flows, because if  the refund was lower th an the duty paid, this 
clearly meant that the downstream industry using this product for which this low VAT refund was 
given, was favoured.  The better access enjoyed by the downstream industry to certain products which 
were artificially kept in the country favoured the dow nstream industry also in terms of its consequent  G/SCM/M/58 
 Page 9 
 
 
  export performance.  The European Communities shared  the strong concerns that had been expressed 
by many European industries with r espect to the potential, if not actual, trade-distorting effect of this 
practice.  With regard to the response of the delegate  of China to one of the sub-items in Question 4 of 
document G/SCM/Q2/CHN/24, he asked the delegate of China to identify the particular programme 
in the full subsidy notification of China to which he had referred.  With regard to the other sub-items 
of this Question, he noted that these questions were very detailed and identified precisely who was 
providing, or perhaps providing, the assistance whic h looked like an export subsidy on the face of it.  
While it might be difficult for a big country for Ch ina to lay its hands on each  and every subsidy and 
notify this, at least with regard to these three ite ms the European Communities would have very much 
appreciated it to get a more precise reply because it had given a clear indication where China's 
Government could have found, or can still find, mo re information with regard to these issues.   
38. The delegate of China  stated that he had taken note of the comments of the delegate of the 
European Communities and that the particular qu estions concerning these possible subsidies of the 
local government would be taken in to consideration in the informa tion gathering process with regard 
to subsidies provided at the level of local governments. 
39. The Chairman stated that there were no guidelines for the report contained in the Protocol.  
Following the review at last year's fall meeting, the Chairperson, acting on her own responsibility, had 
prepared a brief, factual report, with references to the documents concerned, and attaching the portion 
of the minutes of the meeting which relate to the transition review.  He proposed that the Committee 
agree to follow the same procedure.  It was so decided .   
F. ARTICLE 27.4  PROCESS  
40. The Chairperson  stated that as indicated in the airgram convening the meeting, this agenda 
item comprised two distinct sub-items.  First, the review of compliance with the transparency and 
standstill obligations provided for in document G/ SCM/39 and in the decisions adopted by the 
Committee on the basis of that document;  and second,  the adoption of decisions in respect of the 
continuation of extensions for certain de veloping country Members for 2007.   
41. The Chairperson recalled that most of the export subsidy programmes covered by the 
notifications of the Members listed in the above ag enda item currently benefited from an extension of 
the transition period until the end of 2006, with th e possibility of another extension until the end 
of 2007.  In the case of these export subsidy pr ogrammes the relevant Committee decisions were 
based solely on the "fast track" pr ocedures set forth in G/SCM/39.  In the case of Colombia, however, 
the transition period for the programmes concerned ha d ended at the end of 2004, to which must be 
added the final two-year period provided for in Article  27.4.  This was the result of decisions adopted 
by the Committee based on document G/SCM/39 a nd paragraph 10.6 of the Doha Ministerial 
Decision on Implementation.  
42. The Chairperson proposed that the Committee: 
 (1) review the transparency and standstill obligations provided for in fast-track 
extensions based solely on the procedures in G/SCM/39, i.e. all notifications other 
than that of Colombia;   
  (2) consider the proposed decisions to conti nue those extensions, where it appeared that 
the Committee had completed its review of transparency and standstill to Members' 
satisfaction;  and   
 
 (3) address the standstill and transparency re view of the two programmes of Colombia 
once the "fast-track" review and decision-making process has been completed. G/SCM/M/58 
Page 10  
 
   
1. Review of Transparency and Standstill Obligations 
43. The Chairperson
 recalled that the procedures set forth in G/SCM/39 and the decisions adopted 
by the Committee pursuant to these procedures (doc uments G/SCM/50-92 and addenda) provided for 
annual review by the Committee of compliance with standstill and transp arency requirements.  At its 
meeting in October 2005, the Committee had agreed  that the Members concerned would submit the 
required notification by 30 June 2006, that any written questions  on these notifications should be 
submitted by 1 September 2006, and th at written answers to such questions should be submitted by 
6 October 2006.  
44. The Committee proceeded to review the notif ications submitted in documents G/SCM/N/146 
and addenda.  
Antigua & Barbuda (G/SCM/N/146/ATG)2 
• Fiscal Incentive Act Cap 172 (December 1975) (G/SCM/50 and Add.1-3) 
• Free Trade and Processing Zone Act No . 12 of 1994 (G/SCM/51 and Add.1-3)  
 
Barbados (G/SCM/N146/BRB & Addendum 1)3 
 
• Fiscal Incentive Programme (G/SCM/52 and Add.1-3) 
• Export Allowance (G/SCM/53 and Add.1-3) 
• Research & Development Allowance (G/SCM/54 and Add.1-3) 
• International Business Incentives (G/SCM/55 and Add.1-3) 
• Societies With Restricted Liability (G/SCM/56 and Add.1-3) 
 
Belize (G/SCM/N/146/BLZ) 
 
• Fiscal Incentives Act (G/SCM/57 and Add.1-3) 
• Export Processing Zone Act (G/SCM/58 and Add.1-3) 
• Commercial Free Zone Act (G/SCM/59 and Add.1-3) 
• Conditional Duty Exemptions Facility unde r Treaty of Chaguaramas (G/SCM/60 and 
Add.1-3) 
 
Costa Rica (G/SCM/N/146/CRI)  
 
• Free Zone Regime (G/SCM/61 and Add.1-3) 
• Inward Processing Regime (G/SCM/62 and Add.1-3) 
 
Dominica (G/SCM/N/146/DMA)4 
 
• Fiscal Incentives Programme (G/SCM/63 andAdd.1-3) 
                                                      
2 Written questions had been received from the United States in docume nt G/SCM/Q3/ATG/11. 
3 Written questions had been received from the United States in document G/SCM/Q3/BRB/14 and 
replies from Barbados circulated in document G/SCM/Q4/BRB/6. 
4 Written questions had been received from the Un ited States in document G/SCM/Q3/DMA/8 and 
replies from Dominica circulated  in document G/SCM/Q4/DMA/6.  G/SCM/M/58 
 Page 11 
 
 
  Dominican Republic (G/SCM/N/146/DOM)5 
 
• Law No. 8-90 to "Promote the Establishment of New Free Zones and Expand Existing Ones" 
(G/SCM/64 and Add.1-3) 
 
El Salvador (G/SCM/N/146/SLV)6 
 
• Export Processing Zones and Marketing Act,  as amended (G/SCM/65 and Add.1-3) 
 
Fiji (G/SCM/N/146/FJI)7 
 
 • Short-Term Export Profit Deduction (G/SCM/66 and Add.1-3) 
 • Export Processing Factories/Export Processing Zones Scheme (G/SCM/67 and Add.1-3) 
       •  The Income Tax Act (Film Making and Audio Visual Incentive Amendment Decree 2000) 
(G/SCM/68 and Add.1-3) 
 
Grenada (G/SCM/N/146/GRD)8 
 
• Fiscal Incentives Act No. 41 of 1974 (G/SCM/69 and Add.1-3) 
• Statutory Rules and Orders No. 37 of 1999 (G/SCM/70 and Add.1-3) 
• Qualified Enterprises Act No. 18 of  1978 (G/SCM/71 and Add.1-3) 
 
45. The delegate of Grenada  stated that due to technical pr oblems in capital, Grenada had been 
unable able to furnish the United States with a repl y at the present time, but that a response would be 
provided as soon as possible.9 
Guatemala (G/SCM/N/146/GTM)  
 
• Exemption from Company Tax, Customs Duties and Other Import Taxes for Companies 
under Special Customs Regimes (G/SCM/72 and Add.1-3) 
• Exemption from Company Tax, Customs Duties and Other Import Taxes for the Production 
Process Relating to Activities of Managers and Users of Free Zones (G/SCM/73 and 
Add.1-3) 
• Exemption from Company Tax, Customs Duties and Other Import Taxes for the Production 
Process of Commercial and Industrial Enterprises Operating in the Industrial and Free Trade Zone (G/SCM/74 and Add.1-3) 
                                                     
 
5 Written questions had been received from the United States in documen t G/SCM/Q3/DOM/14 and 
replies from the Dominican Republic ci rculated in docume nt G/SCM/Q4/DOM/6. 
6 Written questions had been received from the United States in document G/SCM/Q3/SLV/12 and 
replies from El Salvador circulated in document G/SCM/Q4/SLV/6. 
7 Written questions had been received from the Un ited States in document G/SCM/Q3/FJI/18 and 
replies from Fiji circulated in document G/SCM/Q4/FJI/6. 
8 Written questions had been received from the United States in docume nt G/SCM/Q3/GRD/11. 
9 See document G/SCM/Q4/GRD/6. G/SCM/M/58 
Page 12  
 
   
Jamaica (G/SCM/N/146/JAM)
10 
 
• Export Industry Encouragement Act (G/SCM/75 and Add.1-3) 
• Jamaica Export Free Zone Act (G/SCM/76 and Add.1-3) 
• Foreign Sales Corporation Act (G/SCM/77 and Add.1-3) 
• Industrial Incentives (Factory Construc tion) Act (G/SCM/78 and Add.1-3) 
 
Jordan (G/SCM/N/146/JOR)  
 
• Partial or Total Exemption from Income Tax of Profits Generated from Exports under Law 
No. 57 of 1985, as amended (G/SCM/79 and Add.1-3) 
 
Mauritius (G/SCM/N/146/MUS)11 
 
• Export Enterprise Scheme (G/SCM/80 and Add.1-3) 
• Pioneer Status Enterprise Scheme (G/SCM/81 and Add.1-3) 
• Export Promotion (G/SCM/82 and Add.1-3) 
• Freeport Scheme (G/SCM/83 and Add.1-3) 
 
Panama (G/SCM/N/146/PAN)  
 
• Official Industry Register (G/SCM/84 and Add.1-3) 
• Export Processing Zones (G/SCM/85 and Add.1-3) 
 
Papua New Guinea (G/SCM/N/146/PNG)  
 
• Section 45 of the Income Tax (G/SCM/86 and Add.1-3) 
 
St. Kitts & Nevis  (G/SCM/N/146/KNA)12 
 
• Fiscal Incentives Act No. 17 of 1974 (G/SCM/90 and Add.1-3) 
 
St. Lucia (G/SCM/N/146/LCA)13 
 
• Fiscal Incentives Act No. 15 of 1974 (G/SCM/87 and Add.1-3) 
• Free Zone Act, No. 10 of 1999 (G/SCM/88 and Add.1-3) 
• Micro and Small Scale Business Enterprises Act,  No. 19 of 1998 (G /SCM/89 and Add.1-3) 
 
46. The delegate of St. Lucia  stated that because of capacity constraints his country had not been 
able to submit responses to the questions posed by the United States, but he assured the Committee 
that written responses would be provided as soon as possible. 
                                                      
10 Written questions had been recei ved from the United States in document G/SCM/Q3/JAM/13 and 
replies from Jamaica circulated in document G/SCM/Q4/JAM/6. 
11 Written questions had been received from the United States in documen t G/SCM/Q3/MUS/13 and 
replies from Mauritius circulated in document G/SCM/Q4/MUS/6. 
12 Written questions had been received from the United States in document G/SCM/Q3/KNA/12 and 
replies from St. Kitts & Nevis circulated in document G/SCM/Q4/KNA/6. 
13 Written questions had been received from the United States in docume nt G/SCM/Q3/LCA/10.  G/SCM/M/58 
 Page 13 
 
 
  St. Vincent & Grenadines (G/SCM/N/146/VCT)  
 
• Fiscal Incentives Act No. 5 of 1982, as amended (G/SCM/91 and Add.1-3) 
 
Uruguay (G/SCM/N/146/URY)  
 
• Automotive Industry Export Promotion Regime  (G/SCM/92 and Add.1-3)   
47. The Chairperson  thanked Members for the constructive par ticipation in this review process.  
It was his perception that the Committee had now co mpleted its required transparency and standstill 
review in respect of all of the programmes just di scussed.  He therefore pr oposed, as foreseen in the 
fast-track procedures, that for the programmes for which the review has been completed, the 
Committee adopt  decisions to continue the extensions for a further year, calendar year 2007, on the 
same basis and subject to the same requirements as the original decisions. 
2. Decisions to continue extensions of the transition period for 2007 
48. The Chairperson  recalled that in previous years the Secretariat had prepared a draft decision 
text providing for an extension of the transiti on period with respect to each of the programmes 
covered by the procedures in G/SCM/39.  The Committee then adopted th ese programme-specific 
decisions one-by-one.  This year, in order to simplif y the procedure, the Chairperson proposed that the 
Committee decide, pursuant to the procedures set forth in G/SCM/39, to extend until 
31 December 2007 the transition period for the e limination of export subsidies for each of the 
programmes as listed in Annex 2 of a room document th at had been made available to Members.  The 
Secretariat would prepare and circulate individual decisions pertaining to each of these programmes based on the text of the model decision in Annex 1 of the document.   
49. The Committee agreed
 to proceed as suggested by the Chairperson and decided  to extend the 
transition period for the programmes listed in Annex 2 of the room document until 
31 December 2007.14   
3. Review of standstill and transpa rency commitments of Colombia 
50. The Committee then turned to the review of Co lombia's standstill and transparency and other 
commitments undertaken in the extension decisions adopted in 2003 pursuant to the procedures in 
G/SCM/39 and paragraph 10.6 of the Mi nisterial Decision on Implementation.15   
51. The Chairperson  drew the Committee's attention to a notification by Colombia in document 
G/SCM/N/146/COL and recalled that, pursuant to th e terms of the existing decisions, Colombia's 
extension entered into the final two-year transition period in Article 27.4 at the end of 2004.  Thus, 
beyond the mandated review, the Committee was not ca lled upon to take any further action in respect 
of the Colombia's two programmes, namely the Free-Zone Regime (G/SCM/93 & Add.1) and the 
Special Import-Export System for Capital Goods a nd Spare Parts (SIEX) (G/SCM/94 & Add.1).   
52. There were no comments or questions on these programmes. 
G. PROPOSALS TO EXTEND THE PROCEDURES SET FORTH IN G/SCM/39  BEYOND 2007   
53. The Chairperson  recalled that at the regular meeting on 25 April 2006 the Committee had 
discussed a proposal contained in document G/SCM/W/535 that would extend until 2018 the 
                                                      
14 See documents G/SCM/50/Add.4-G/SCM/92/Add.4.  
15 Documents G/SCM/93 & Add.1 and G/SCM/94 & Add.1. G/SCM/M/58 
Page 14  
 
  procedures set forth in G/SCM/39 with respect to cer tain developing country Members referred to as 
small, vulnerable economies.  The Committee had he ld three informal open-ended meetings on this 
subject, on 23 June, 21 July and 13 October.  Prio r to the first of these informal meetings, the 
Committee had received a proposal from Panama (G/SCM/W/537) that would provide for an extension of the procedures in G/SCM/39 with respect to all developing country Members that 
currently benefited from an extension of the tr ansition period under these procedures.  Panama's 
proposal was subsequently co-sponsored by Costa Rica, Jordan and Uruguay.  
54. At the meeting in June, Members had agreed to a process of exchange of written questions 
and answers on these proposals.  The Committee had set a deadline of 1 September 2006 for questions 
and 6 October 2006 as a deadline for answers.  The Committee held a preliminary discussion of 
responses to these questions at its informal meeti ng held on 13 October 200 6.  Another informal 
meeting would take place in November  to continue the Committee's consideration of these responses.   
55. He sensed that the informal consultation pro cess that had taken place since the meeting in 
April was generally perceived by delegations to be  useful and constructive.  However, it was clear 
that the process was still at a relativ ely early stage and that additional  work was necessary to arrive at 
a consensus on the matter.  It was therefore his intention to continue the process of informal 
consultations.  
56. The delegate of Barbados
 made a statement on behalf of the proponents of the proposal 
contained in G/SCM/W/535 namely Antigua and Ba rbuda, Belize, Dominica, El Salvador, Fiji, 
Grenada, Guatemala, Jamaica, Mauritius, Papua Ne w Guinea, St. Kitts and Nevis, St. Lucia, St. 
Vincent and the Grenadines and Barbados.  He e xpressed his appreciation for the constructive manner 
in which the process had been conducted to date.  He also thanked the Committee for the decision 
taken under the previous agenda item to allow an annual extension of the programmes.  At this 
juncture the issue remained of extreme importan ce to all of the proponents and he hoped to see a 
favourable and timely conclusion to this process.   The WTO had an obligation to help those 
developing countries who were seeking to enhan ce their export diversification and production base 
and who had made econom ic and developmental decisions to appl y certain programmes in this regard.  
These programmes had many socio-economic and devel opment benefits and were a key element in 
the full and sustained integration of the propo nents into the international trading system. 
57. He noted that the proponents had all complied with the various transparency and standstill 
arrangements as well as the annual notification procedur e and were in conformity with the regulations 
laid down in G/SCM/39 and the decisions taken by Ministers at Doha.  The circumstances that 
necessitated the programmes in the first place still persisted and in some cases those needs were 
actually greater.  In his view, a continuation of  these programmes, in a uniform and consistent 
manner, was therefore essential.  He thanked t hose delegations who had submitted questions in 
writing and asked for their continued flexibility and understanding if some smal l delegations had been 
unable to respond in a timely manner to these comp lex and technical questions.  He then proposed 
that the Committee indicate a cut-off date for th e question and answer process to ensure that the 
negotiations advanced as quickly as possible in the hope of making a decision on this matter by the 
end of the year or, at the very latest, by the firs t quarterd of 2007.  He thanked all those delegations 
who had been willing to engage w ith the proponents on a bilateral le vel.  He asked delegations to 
focus on the developmental aspects of the proposal a nd to take note of the evidence which illustrated 
that these programmes were neither trade dist orting nor injurious to other countries. 
58. The delegate of El Salvador  thanked those Members who had asked questions and who were 
interested in continuing the consultation pro cess through which he hoped the Committee would be 
able to move on to the final stage of the negotiations in this procedure.  He stressed the importance of 
the proposal in G/SCM/W/535 for El Salvador in term s of job-creation through tax measures in order 
to help achieve the sustainable economic growth of  his country.  He also emphasized the importance  G/SCM/M/58 
 Page 15 
 
 
  of concluding the question and answer process in th e hope of reaching a decision on this issue by the 
first quarter of next year at the very latest. 
59. The delegate of Mauritius  stated that he appreciated the constructive engagement that had 
been demonstrated by delegations in the cons ultation process.  The four schemes currently in 
operation in Mauritius had been instrumental in fost ering and diversifying the economic export base.  
However, his country still faced enormous difficulties in its efforts to integrate into the global 
economy.  Mauritius had experienced a decline in the growth rate from 4.7 per cent in 2004 to 2.5 per 
cent in 2005, the balance of trade had deteriorat ed by 52 per cent during the period 2000-2004 and the 
export processing zone sector alone registered a 17 per cent decline in employment, with a dozen 
factories closing down between 1995 and 2005.  Consequently, the elimination of the subsidies 
programme at this juncture could prove detrimental to his country's industrial development.  He also 
underscored the fact that Mauritius' participation in world trade continued to remain negligible. 
60. The delegate of the Dominican Republic  stated that his country supported the statement made 
by Barbados on behalf of the proponents of G/SC M/W/535, and urged the Committee to continue its 
work as the proposed extension was of vital importa nce to the economic and social development of 
his country. 
61. The delegate of Panama  wished to express his satisfaction at the constructive way the process 
had been managed and the efforts made by the Co mmittee so far.  He supported the statements from 
Barbados and El Salvador and emphasized the impor tance of maintaining these programmes to enable 
the proponents to expand their production base and sustai n their contribution to international trade.  A 
deadline should be set to complete the current stage of technical negotiations so that a decision could 
be taken by the end of the year or at the very  latest during the first quarter of next year. 
62. The delegate of Costa Rica  thanked the Committee for its decision to extend the programmes 
notified by Costa Rica up to 31 December 2007.  He emphasized the importance of the proposal in G/SCM/W/535 in terms of the economic, financia l and developmental needs of the countries 
concerned, and the social consequences in the areas of poverty reduction, improvement of 
employment prospects and rural development. 
63. The delegate of Jordan
 thanked the Members who had s poken and had touched on the points 
that Jordan had intended to raise.  It was very important to complete the technical discussions as soon as possible with the goal of reaching a deci sion by the first quarter of next year. 
64. The delegate of St. Kitts & Nevis
 wished to associate himself w ith the statements made by 
Barbados, El Salvador and the ot her delegations who ha d spoken on this subject.  The proponents of 
the proposal had all faced similar structural impedi ments to economic growth and development.  Over 
the past decade, St. Kitts & Nevis had been adversely affected by a series of natural disasters, including three major hurricanes wh ich had caused a combined loss estimated at over 200 per cent of 
GDP.  Rising production costs had led to the closure of the 300 year old sugar industry.  St. Kitts & 
Nevis had remained faithful to the standstill and tr ansparency provisions embodied in G/SCM/39 and 
with a population of less than 40,000, and a very na rrow range of exports, the subsidies involved had 
no distortive effects on global trade. 
65. The delegate of the Solomon Islands
 spoke on behalf of Fiji and Papua New Guinea and 
reported that both countries had recently submitted th eir responses to the Secretariat, which were 
subsequently circulated as G/SCM/Q4/F JI/6 & G/SCM/Q4/PNG/6 respectively. 
66. The Committee took note  of the statements.  G/SCM/M/58 
Page 16  
 
  H. P
ERMANENT GROUP OF EXPERTS  
67. The Chairperson  recalled that there were currently two vacant positions in the Permanent 
Group of Experts ("PGE")and that at the meeti ngs in October 2005 and April 2006 the Committee had 
not been able to reach an agreement on the appoint ment of two new members of the PGE.  He sensed 
that there had been no change in the situation since the last meeting and he therefore proposed that the 
Committee should revert to this issue at its next meeting. 
I. REQUEST FROM THE UNITED STATES TO MALAYSIA PURSUANT TO ARTICLE 25.8  OF THE 
AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES  
68. The Chairperson reported that the Committee ha d before it a request from the United States 
made under Article 25.8 of the SCM Agreement , circulated in document G/SCM/Q2/MYS/10. 
69. The delegate of the United States  stated that it had conducted numerous consultations with 
Malaysia over an extended period of time prior to the submission of this paper.  He appreciated the 
co-operation it had received so far from Malaysia and looked forward to receiving replies to the 
questions posed and the submission of Malaysia's new and full notification. 
70. The delegate of Malaysia  reported that she had recently received some responses from capital 
and proceeded to read out th e replies to the Committee. 
71. The delegate of the United States  thanked the delegate of Malaysia for her oral response and 
stated that he was looking forward to receiving the replies in writing in due course. 
J. OTHER BUSINESS  
72. There were no issues raised under this agenda item. 
K. DATE OF NEXT REGULAR MEETING  
73. The Chairperson  recalled that the Committee had agreed at its meeting of 21 February 1995 
that regular meetings would normally be held in the last weeks of April and October respectively.  He 
therefore proposed that the next meeting of the Co mmittee take place in the week of 23 April 2007. 
L. ANNUAL REPORT TO THE COUNCIL FOR TRADE IN GOODS  
74. The Committee adopted  its annual report to the Council for Trade in Goods under 
Article 32.7 of the SCM Agreement .16 
__________ 
 
 
                                                      
16 Document G/L/798 (8 November 2006).