WORLD TRADE  
ORGANIZATION   
G/SCM/Q2/USA/50 
11 May 2012 
 (12-2561) 
Committee on Subsidies 
and Countervailing Measures Original: English 
 
 
 
SUBSIDIES 
 
Replies to Questions posed by INDIA1 regarding the New and Full 
Notification of the UNITED STATES2 
   The following communication, dated 7 May 2012, is being circulated at the request of the 
delegation of the United States.  
_______________ 
 
 
AGRICULTURE 
 I. EXPORT ASSISTANCE PROGRAMME 
(a) The Dairy Export Incentive Program (DEIP) 
Question 
 
 How does the U.S. propose to calculate the m aximum quantity of subsidized U.S. exports 
under the DEIP to ensure adherence to the WTO limits? 
 
Reply 
  The United States has always managed the DEIP program consistent with the quantity and budgetary outlay limits specified in th e U.S. export subsidy commitments.  
 II. AGRICULTURAL DOMESTIC SUPPORT PROGRAMS 
(a) Agriculture Income Support and Market ing Assistance for Covered Commodities 
(b) Price Support for Milk and Sugar 
Questions: 
 
(i) US may please indicate the manner in which dairy farm operators are 
identified in respect of receiving the benefits under the 2002 Farm Act.  Specifically, are the minimum pri ces applicable to all government 
purchases of non-fat dry milk, butter, and cheese?  What is the quantum of government purchases relative to total production? 
                                                      
1 G/SCM/Q2/USA/43.   
2 G/SCM/N/186/USA. G/SCM/Q2/USA/50 
Page 2  
 
  Reply 
 
 Under the 2002 farm act, the price of milk w as supported at the level of $9.90 per cwt.  
Minimum purchase prices for butter, non fat dry milk, and cheese were established to maintain that 
level and were applicable to all purchases.  G overnment purchases and production for the relevant 
years of the 2002 Farm Act are provided below. 
 
ITEM 2003 2004 2005 2006 2007 
Million pounds 
Butter      
  Production 1,242 1,247 1,347 1,448 1,644 
  Purchases 8 -7 0 0 0 
Nonfat dry milk      
  Production 1,589 1,412 1,533 1,514 1,499 
  Purchases 515 0 -81 64 0 
Cheese, cheddar      
  Production 2,701 3,004 3,046 3,124 3,057 
  Purchases 35 0 0 0 0 
Source:  National Agricultural Statistics Service, and Commodity Credit Corporation 
(CCC), U.S. Department of Agriculture. Negative numbers mean more product was 
sold from CCC inventories than was purchased.  
 
(ii) Are all milk producers eligible to enter into the 'Milk Income Loss 
Contracts'?  What are the threshold criteria to qualify for such 
contracts? 
Reply 
 
 To be eligible, a producer had to share in the risk of producing milk, and make contributions (of land, labor, management, equipment, or capital) to the dairy farming opera tion that were at least 
commensurate with the share of the producer's proceeds from the operation. 
 
(iii) In respect of the non-recourse programme for sugar, who are the 
beneficiaries:  both growers and pr ocessors or only processors?  How 
does the 'marketing allotments' work?  G/SCM/Q2/USA/50 
 Page 3 
 
 
  Reply 
 
 The non-recourse loans are made to processors of domestically-grown sugar.  Producers who 
deliver sugar beets and sugarcane to processors had to be paid for their product proportional to the 
value of nonrecourse loans processors received for these commodities. 
 
 Under the provisions for flexible marking allo tments in the 2002 Farm Act, the Secretary of 
Agriculture was required to annually estimate the qu antity of sugar for domestic human consumption, 
reasonable carryover stocks, carry-in stocks, dom estic production, and imports.  The Secretary 
established an overall allotment quantity to avoid fo rfeitures of sugar to the USDA Commodity Credit 
Corporation (CCC).  When marke ting allotments were in effect, these provided each processor of 
cane or beet sugar a specific li mit on sales for the year, above which penalties would apply.  The 
overall allotment quantity was to be divided betw een beet processors (54.35%) and cane producers 
(45.65%), including cane producers of Hawaii and Puerto Rico.  
 Allotments were to be automatically suspe nded when estimates of imports for domestic food 
use exceeded sum of:  1.532 million short tons and quantities of sugar reassigned to imports from unfilled allocations of beet sugar or cane sugar overall allotment quantity. 
  If the Secretary determined that any sugarcan e processor who had been allocated a share of a 
State cane sugar allotment was unable to market the processor's allocation for the crop year, the 
Secretary would reassign the estimated quantity of the de ficit.  Allocations were  to be divided initially 
among other processors within that State, then to other cane sugar States, then to CCC inventories, 
and finally to imports.   If the Secretary determined that any sugar b eet processor who had been allocated a share of 
the beet sugar allotment was unable to market pr ocessor's allocations for the crop year, Secretary 
would reassign estimated quantity of the deficit to ot her beet processors, then to CCC inventories, and 
finally to imports.  
(iv) In respect of both the dairy and sugar subsidies, what is the share of 
returns for the farmer/grower/processor that the subsidy represents? 
Reply 
 
 Data are not available to answer this question.   India may wish to consult the OECD database 
on Producer Support Estimates for one method that examines government support to producers, keeping in mind the OECD method is not comp arable to WTO methods for reporting domestic 
support. 
 
(v) What is the share of the subsidi es relative to production costs? 
Reply 
 
 Data are not available to answer this question. 
 
3. Energy Supply -- Renewable Energy Resources 
 
4. Energy Conservation Programs -- Transportation Sector 
 
5. Energy Conservation - Industry Sector 
 
6. Fossil Energy Research and Development G/SCM/Q2/USA/50 
Page 4  
 
  (i) Who are the 'eligible private parties' for CRADAs relating to the 
subsidies outlined in each of the four notifications specified above?  It is requested to provide a list of such parties for FY 2007 and 2008, in respect of which the U.S. notification provides data. 
Reply 
 
 Eligible private parties are non-Federal en tities.  Under a competitive announcement, the 
announcement itself will define the eligible private pa rties.  Providing the names of beneficiaries is 
not required under the Subsidies Agreement.  
(ii) What is the nature of R&D that has been developed under the CRADAs 
entered into in FY 2007 and 2008? 
Reply 
 
 CRADAs supporting Department of Energy tran sportation programs cover a broad portfolio 
of technologies in the following areas:  electrochem ical energy storage, power electronics and electric 
machines, advanced materials, advanced combustio n engines and emission control technologies, and 
advanced alternative fuels and lubricants.    
(iii) Could the US provide a list of products and technologies resulting from 
CRADA and other funding in respect of the aspects covered under the 
notifications (renewable energy, energy efficiency in transportation and 
industry, and fossil fuel related research) over a 10-year time period?  Could the US provide the extent to  which such funding has impacted 
costs of domestic production? 
Reply 
 
 In the transportation area, CRADAs typically  support early-stage, high-risk R&D.  The 
resulting technologies and concepts can take up to te n years to mature and must be followed by an 
industry commercialization decision before they  reach production (should an auto manufacturer 
choose to integrate them into a vehicle).  In this  product development process, the industry partner's 
in-house effort that follows join t work through a CRADA often leads to significant refinements in the 
state of technology.  As such, although wo rk accomplished through CRADAs has achieved great 
success, product-based contributions are difficult to  trace to a specific agreement and it is impossible 
to estimate with certain accuracy how the f unding has affected costs of domestic production. 
 
(iv) How has such funding impacted the pricing of the product developed/ 
license fees in relation thereto?  What  has been the 'license fees' or 
royalty charged by private develop ers who have benefited from such 
funding?  What is the proportion of use in the domestic market and exports of such products? 
Reply 
 
 Funding and license fees vary greatly by individual project and effort.  The Department does 
not have information about the proportion of use in the domestic market as compared to exports. 
 
(v) Are there different types of CRADA, or do they follow a similar format?  
Can the US provide the copies of typical CRADAs used?  G/SCM/Q2/USA/50 
 Page 5 
 
 
  Reply 
 
 There are two major categories of CRADAs, "standard" and "simplified."  Standard CRADAs have a combined contribution of more than $1 50,000, and simplified CRADAs have a combined 
contribution of less than $150,000.  As an exam ple, the National Energy Technology Laboratory 
provides sample model CRADAs online:  http://www.netl.doe.gov/business/crada/crada.html .   
 
(vi) What are "other forms of colla boration accomplished through 
consortium-based activities betw een government laboratories and 
private industry", and who are the users of the R&D developed through 
such collaboration in each of the ca tegories covered by the notifications? 
Reply 
 
 National laboratories can engage in "Work fo r Others," which are specific projects with 
specific deliverables and timelines, and which are fu lly-funded by the privat e-sector participant.  
Typically, in Work for Others agreements, the privat e-sector participant that funds the activity is the 
user of the R&D developed through the collaboration.     There are also partnership- or consortium- based activities that bring together national 
laboratory participants and private-sector partic ipants.  For vehicle technologies, no funds are 
exchanged through such partnerships.  Rather, the partnership brings together experts from 
government, laboratories, and industry to discuss cr itical barriers, R&D needs, develop technical 
targets and strategies to achieve them, and eval uate R&D progress toward those targets.  No 
competitive or proprietary information is exchange d in the partnership process, and the technical 
discussion and information exchanged benefit bo th government/national laboratory and industry 
participants alike.   
 
 In addition, national laboratories and private industry (including industr y groups or consortia) 
can work collaboratively to respond to Department  of Energy funding opportunities, and if selected 
for award, work together to implement projects.  The Department selects projects through an open and 
competitive process in which panels of independent technical experts evaluate proposals according to 
specific criteria described in a publicly available funding opport unity announcement. 
 
7. Innovative Technology Loan Guarantee Program  
 
Questions: 
 
(i) What are the terms and conditions of the loan guarantee agreements 
under the program? 
Reply 
 
 The terms of the loan guarantee agreements  are found in our Solicitations, which are all 
available on the LPO website (www.lgprogram.energy. gov).  As our approach varies, depending on 
the Solicitation, the target technology and the progra m (Title XVII, section 1703 or 1705;  or ATVM), 
the terms and conditions change.  There is no set of  generic terms or conditions in the program, each 
solicitation in different.  However, on the question of fees only, for Title XVI loan guarantees only, 
we charge an application fee, a facility fee (payable  in part at conditional commitment and in part at 
closing) and an annual maintenance fee. 
 
(ii) How do they address the issue of fully  covering the government's cost of 
providing the guarantees? G/SCM/Q2/USA/50 
Page 6  
 
  Reply 
 
 Covering the cost of loan guarantees this is governed by the Federal Credit Reform Act of 
1990 (FCRA) and OMB Circular A-11.  DOE is required to  compute an expected "cost" of the loan or 
loan guarantee in accordance with FCRA, which must be set aside in advance with proceeds of an 
appropriation or a borrower payment. 
  
FISHERIES 
 
1. Fisheries Finance Program (FFP)  
 
2. Saltonstall-Kennedy Grant Program:  Fisheries Research and Development  
 
3. Sea Grant 
 
4. Columbia River Hatcheries  
 
Questions: 
 
(i) Fisheries Finance Program (FFP).  In respect of the FFP: 
(a) How does the U.S. ensure that there is no financing of any project 
that could be construed to lead to overcapitalization of any fishery? 
Reply 
 
 The FFP's rule prohibits financing the constr uction of new vessels or reconstruction that 
increases harvesting capacity.  The purpose of each proj ect is examined in the application process.  
Loans are made only to applicants who hold existing harvesting right in managed fisheries.  
 
(b) How are 'qualified projects' ascertained for availing of the loan? 
Reply 
 
 All applicants undergo a complete loan inv estigation which includes business, fisheries and 
credit background checks.  Qualified projects must  be in the fisheries harvesting, processing, 
transportation, distributing or aquaculture sectors.  
(c) What is the difference between the interest rate for a FFP loan 
and for a commercial loan?  If the interest rates are the same, 
why would a recipient opt for a FFP loan?  What is the benefit in such a loan? 
Reply 
 
 Both FFP and private sector interest rates va ry.  FFP rates are generally in line with the 
private sector.  At any time one or the other could be  lower.  Often private sector lenders react to the 
historic credit risks of fisheries financing by incr easing rates and shorting terms.  In those situations 
the FFP may be able to provide better debt service terms.   G/SCM/Q2/USA/50 
 Page 7 
 
 
  (d) On what basis does the U.S. conclude that there is no 'net outflow 
of government funds'? 
Reply 
 
 FFP loans are made at market interest rates.  In 15 years of direct lending, the FFP has had 
only two loans default.  Its loans are repaid with  interest above its cost of borrowing.  The FFP's 
accountants do an annual reestimation of its hi storic and projected inflows and outflows. 
 
(e) What are the other pertinent details of the Buy-back Loan to 
Bering Sea Aleutian Islands? 
Reply 
 
 The formal name of the program is: Longline Catcher Processor Subsector of the Bering Sea 
and Aleutian Islands Non-pollock Groundfis h Fishery Capacity Reduction Program ( the "Program" ). 
 
 Pursuant to Magnuson-Stevens Fishery Conser vation and Management Act section 312 (b) – 
(e) (the "Act") which provides for the fishing capacity reduction programs, and Title XI of the 
Merchant Marine Act 1936 sections  1111 and 1112, which provides for the reduction cost financing, 
the Program had its final rules published on September 29, 2006.  The Program was given 
Congressional authority (FY 2005 Appr opriations Act – Public Law 108- 447 and 108-199) to finance 
$75 million for buyback purposes.  Though this Congressional Authority established fishing capacity 
reduction programs within the Alaska non-pollock fisheries3, this Program (long-line catcher 
processor) had been finalized because the industry ha d developed the plans and contracts that had 
been approved by NOAA Fisheries to initiate the buyb acks.  Their allocated portion of the $75 million 
was $36 million.  In a reverse auction bidding process, the Program was able to permanently remove 3 fishing vessels and 12 fishing licenses and permits for $35 million.  The loan is to be repaid by the 
remaining post-reduction fishermen. 
  Fees (Loan Payments):  Fees for repaym ent of the loan are authorized under 
section 312(d)(2)(C) of the Act.  According to the final rules associated with implementing the fee 
system, all long-line catcher processors harvesting no n-pollock groundfish ("fish sellers") are required 
to pay the fee and all parties making the first ex-v essel purchase of the non-pollock groundfish ("fish 
buyers") are required to collect the fee, account for and forward the fee revenue for the purpose of 
repaying the loan.  Since this industry sector is  catcher-processors, the members are deemed to be 
both the fish sellers and fish buyers.   The established fee is based on a $/lb basis,  provided the total fees collected do not exceed 
five per cent (5%) of the average ex-vessel produc tion value.  The fee amount is calculated on an 
annual basis:  the principal and interest amount due  over the preceding twelve months, divided by the 
metric tons of pacific cod allocated to th e long-line catcher processors multiplied by 2,205
4.  The 
original fee was assessed at $0.02 per pound caught with payment and collection beginning on October 24, 2007.  NOAA Fisheries determined that  the fee was generating more than necessary to 
service the loan thus the fee was reduced to $0.01 45 per pound effective January 1, 2012.  If the 
principal and interest shall exceed 5%  of the ex-vessel pacific cod revenues
5, an additional fee of one 
                                                      
3 Sectors of the Non-pollock fisheries include the l ong-line catcher processor,  the American Fisheries 
Act trawl catcher processor, no n-AFA trawl catcher processors, and the pot catcher processors. 
4 Rounded up from 2,204.622 lbs. to simplify accounting. 
5 Total pacific cod revenue to be determined from the State of Alaska's Commercial Operator Annual 
Report produced annually in March following the close of the previous season. G/SCM/Q2/USA/50 
Page 8  
 
  penny per pound ($0.01/lb) will be assessed for Pollo ck, arrowtooth flounder, Greenland turbot, skate, 
yellowfin sole, and rock sole.   Loan Status:  The funding for the $35M loan occurred on May 29, 2007.  The interest rate is 
6.84% fixed.  The loan's scheduled maturity is 30 years; however, fee collection will continue for as 
long as necessary to fully repay the loan.  The first payment was collected on February 11, 2008.  As 
of March 29, 2012, the current principal and interest loan balance is $32,678,722.80. 
 
(ii) Saltonstall-Kennedy Grant Program (R&D): 
(a) Who are the entities within the meaning of the Shipping Act to 
whom the subsidies can be provided? 
Reply 
 
 Applicants are eligible to apply for a gran t or a cooperative agreement under the Saltonstall-
Kennedy Grant Program if the applicant: 
 
 is a citizen or national of the United States; 
 is a citizen of the Northern Mariana Islands (N MI), being an individual who qualifies as such 
under section 8 of the Schedule on Transitional Ma tters attached to the constitution of the 
NMI; 
 is a citizen of the Republic of the Marshall Isla nds, Republic of Palau, or the Federated States 
of Micronesia;  or 
 represents an entity that is a corporation, partnership, association, or other non-Federal 
entity, non-profit or otherwise (including Indian tribes), if such entity is a citizen of the 
United States or NMI, within the meaning of section 2 of the Shipping Act, 1916, as amended 
(46 U.S.C. app. 802).  
 
(b) Are all juridical persons incorporated in the U.S. eligible for 
funding? 
Reply 
 
 See above.  
(c) How does the U.S. ensure that th e research results are placed in 
the public domain (as claimed in  their assessment on 'Trade 
effects')? 
Reply 
 
 An Annual report to Congress outlining outcomes of each completed project is submitted by 
the Secretary of Commerce.  These reports are publ ic information and are posted at the NOAA S-K 
website.  Additionally all final reports ar e housed at NOAA and are public information. 
 
(iii) Sea Grant Program: 
(a) What is the nature of research results from this program?  Who 
benefits from the research done?  G/SCM/Q2/USA/50 
 Page 9 
 
 
  Reply 
 
 Sea Grant research activities are focused in four  areas:  1) Healthy Coastal Ecosystems;  2) 
Sustainable Coastal Development;  3) a Safe Sust ainable Seafood Supply and 4) Hazard Resilient 
Coastal Communities. Results vary widely but are available to the public.  
 
 
METALS, MINERALS AND EXTRACTION (NON-FUEL) 
 
1. Excess of Percentage over Cost De pletion for Non-fuel Minerals 
 
2. Expensing of Exploration and Deve lopment Costs for Non-fuel Minerals 
 
3. Emergency Steel Loan Guarantee Program 
 
Questions: 
 
(i) Excess of Percentage over Cost Depletion for Non-fuel Minerals: 
 
(a) How are depletable expenditures or 'cost depletion' assessed? 
Reply 
 
 In general, for computing cost depletion a " unit cost" must first be computed by dividing the 
taxpayer's adjusted basis in the property by the num ber of remaining recoverable units of oil and/or 
gas.  The taxpayer's adjusted basis is determin ed under internal revenue code section 1011.  The 
number of remaining recoverable units for any tax pe riod is the estimated number of recoverable units 
determined at the end of the tax period plus th e number of units produced and sold during the tax 
period.  The unit cost is then multiplied by the number of units sold during the tax period to compute the cost depletion deduction.    In certain situations, which include lease bonu ses and advanced royalties, cost depletion can 
also be based on dollar amounts.  In this calculation,  the taxpayer's remaining basis is divided by the 
total remaining gross income expected to be recei ved from the beginning of the tax period to total 
depletion of the property to calculate a unit cost in  dollars cost per expected dollar receipts.  The 
resulting fraction is then multiplied by the tax period's reportable gross income to compute the allowable cost depletion.   
 Depletion is subject to recapture as ordinary income upon the sale or other disposition of an 
oil, gas, geothermal, or other mineral property at a gain.  Recapture is limited to the amount by which 
the depletion deduction reduced the adjust ed basis of the disposed property. 
 
(b) How is the pricing of such minerals pursuant to the tax 
concession both in domestic a nd export markets is assessed? G/SCM/Q2/USA/50 
Page 10  
 
  Reply 
 
 Data are not available to answer this question.  
 
(ii) Expensing of Exploration and Deve lopment Costs for Non-fuel Minerals 
(a) How non-fuel mineral producers and royalty owners are 
permitted expensing of certain capital outlays associated with the development of non-fuel minerals rather than amortization over 
the life of the mine for federal income tax purposes? 
Reply 
 
 Data are not available to answer this question.  
(b) What is the impact of the subsid y on pricing of the product in 
domestic and export markets? 
 
Reply 
  Data are not available to answer this question. 
 
 
TIMEPIECES AND JEWELLERY 
 
1. The Insular Possessions Watch and Jewellery Programs . 
 Question: 
 
 Whether all watches benefiting from the dut y exemption are shipped only into the U.S? 
 
Reply 
  Eligible watch producers who are located in th e U.S. Virgin Islands, (the insular possessions 
of Guam, American Samoa, as well as the Commonw ealth of the Northern Mariana Islands are also 
eligible to participate in the program but there ar e currently no producers in those locations) receive 
the benefits for shipments into the United States.  Eligible watch producers who are located in the 
U.S. Virgin Islands, (the insular possessions  of Guam, American Samoa, as well as the 
Commonwealth of the Northern Mariana Islands are also eligible to participate in the program 
but there are currently no producers in those locatio ns) receive the benefits for shipments into the 
United States.    
OTHER 
 
 
1. Empowerment Zones and Renewal Communities 
 
2. New Markets Tax Credit  G/SCM/Q2/USA/50 
 Page 11 
 
 
  Questions: 
 
(i) What is the nature of markets and trading activities that are prevalent in 
these regions? 
(ii) What is the contribution of the subsidies to product development for 
both domestic and export markets? 
Reply 
 
 The New Markets Tax Credit (NMTC) was estab lished to encourage investment in low-
income communities.  Specialized financial in stitutions called community development entities 
(CDEs) receive an allocation of tax credits throug h a national competitive application process.  These 
tax credits are distributed to equity investors of the CDEs.  In turn, the CDEs are required to invest in 
low-income communities.  The federal government de cides on the initial allocation of credit authority 
to CDEs, but does not determine the specific investme nts made by CDEs in low-income communities.   
 
 For this purpose, low-income communities are defined as census tracts that either exceed a 
certain poverty rate or in which the median income  is low relative to the state or metropolitan area 
median income.  Census tracts are a statistical subdi vision of the United States that generally contain 
between 1,000 to 8,000 people.  Approximately 36 per cent of the nation's population lives in census tracts determined to be qualifying low-income  communities.  These qualifying census tracts are 
widely distributed across the United States and cove r every state and type of area (both rural and 
urban).  There is a diversity of economic activity in these low-income communities that mirrors the 
diversity of the broader national economy.     It is expected that NMTCs would have lim ited to no impact of the aggregate level of 
production for either the domestic or export market.  The most likely effect of the program is in 
influencing the location of economic activity within  the United States to be within a low-income 
community, whether it be a retail location or the location of a manufacturing plant.  Approximately 60 per cent of NMTCs fund real estat e investment projects within lo w-income communities, such as 
the construction of a hotel or retail establishm ent.  The remainder of NMTCs fund businesses 
operating in low-income communities.  These businesses include a variety of service and retail establishments, as well as some manufacturing firms.   
 
  
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