WORLD TRADE  
ORGANIZATION  TN/RL/GEN/35 
23 March 2005 
 (05-1225) 
Negotiating Group on Rules Original:   English 
  
 
SUBSIDIES:  WITHDRAWAL OF A SUBSIDY 
 
Communication from Australia
 
  
 The following communication, dated 22 March 2005, is being circulated at the request of the 
Delegation of Australia.   The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(05)/41), also be circulated as a formal document. 
 
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  In the interest of exchanging views with other WTO Members on this important issue, 
Australia provides the following elaboration of so me aspects of the questions previously posed
1 to 
provide better guidance to Members on the meaning a nd scope of the term “withdraw the subsidy”.   
  
I. ISSUES 
 Australia would like to focus initially on select aspects of the range of issues suggested by the 
questions posed previously, namely:   
 
(i) What constitutes “withdrawal” of the subsidy;  
 
(ii) If “withdrawal” of the subsidy can be defined as compliance with the rules;  and 
 
(iii) If “withdrawal” of the subsidy is, or should be, more than compliance with the rules. 
 
(i) What constitutes “withdrawal” of the subsidy 
 Clarification is needed on whether SCM Article 4.7 relating to “withdrawal” of the subsidy is 
intended to ensure compliance with the rules, that is , whether a subsidy found to be prohibited is to be 
brought into conformity with the rules.  The requirement in SCM Article 4.7 to “withdraw” the 
subsidy is a special or additional rule that is di fferent from the requirement under Article 19.1 of the 
Dispute Settlement Understanding (DSU).2  A remedy for prohibited subsidies must be meaningful 
and effective regardless of the form in wh ich a prohibited subsidy is found to exist.3 
 
                                                      
1 TN/RL/W/139 of 18 July 2003 
2 See Appendix 2 to the DSU and G uatemala – Cement AB Report , para 65; Australia – Subsidies 
Provided to Producers and Exporters of Automotive Leather  (hereafter Australian Automotive Leather) , 
Recourse to Article 21.5, Panel Report, WT/DS126/RW, 21 January 2000, para 6.41. 
3 Australian Automotive Leather, 21.5 Report , para 6.36. TN/RL/GEN/35 
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 There is a presumption in the SCM of the seri ous trade effects of prohibited subsidies.  
“Withdrawal” of a subsidy is “to enforce the abso lute prohibition on the grant or maintenance” of 
prohibited subsidies.
4   
  “Withdrawal” of the subsidy of itself could be taken to have removed the adverse effects if 
withdrawal of the subsidy meant the complete cessa tion or termination of benefits.  However, if the 
subsidy has been fully disbursed or if a fully dis bursed subsidy has ongoing benefits (for example, the 
useful life of assets), the question arises as to whether the prohibited subsidy has been “withdrawn” in the sense of the adverse effects removed.    
 It could be argued that while a subsidy or progr amme exists or continues, it is susceptible to a 
claim that it causes adverse effects in future.  Furthe r, the very nature or type of prohibited subsidy 
may also have an impact or implication for what may constitute “withdrawal” of the subsidy.
5  For 
example, should a different or separate remedy be applied for recurring subsidies which are expensed 
annually?  Should the design of a subsidy influenc e what constitutes “withdrawal” of the subsidy?  
For example, a prohibited subsidy contingent ‘in fact’ upon export performance may be differently 
designed to a prohibited subsidy contingent ‘in la w’ upon export performance.  The former may have 
been designed to target companies with export poten tial.  Cessation of the programme may or may not 
remove the serious trade effects caused by the su bsidy in world markets.  Similarly, a prohibited 
subsidy contingent ‘in law’ upon export perfo rmance and containing exp licit export performance 
targets may arguably be made compliant by the remo val of the targets.  A replacement subsidy may 
still constitute an actionable subsidy and potentially s till be prohibited as it may ‘in fact’ be contingent 
on export performance if the government had targeted sectors which are export-based.   Australia does not suggest that “withdrawal” of the subsidy is the equivalent of “removing the 
adverse effects”.  But we consider that clarificati on is necessary within SCM Article 4 on the extent of 
the remedy to be applied.   
  Such clarification is particularly desirable when  it is recalled that a prohibited subsidy is also 
an actionable subsidy.  In a prohibited subsidy case wh ere the adverse effects are assumed, the text of 
SCM Article 4.7 provides that the remedy is “wit hdrawal” of the subsidy.  “Withdrawal” of the 
subsidy could therefore arguably be intended to include removal of the adverse effects.   
 
 Further, Australia notes that the issue of the meaning of “withdrawal” of the subsidy has in 
any case been raised in the context of serious prejudice.  Another WTO Member
6 proposes that it be 
made explicit that in removing the adverse effects of the subsidy, the benefit of subsidies fully 
disbursed prior to the end of the compliance period be allocated over the total production of the 
products.  That Member notes that the “withdrawal” of the subsidy “would not, in and of itself, be a 
sufficient remedy in those cases where subsidi es fully disbursed under a withdrawn programme 
clearly benefited future production, allocation becom es necessary in order to ensure that the adverse 
effects of the measure are removed.”    
                                                     
 
4 Australian Automotive Leather, 21.5 Report , para 6.34. 
5 Australian Automotive Leather , 21.5 Report , footnote 24:  the panel expressed the view that the 
“specific details of the factual evidence underlying the conclusion that the subsidies were … prohibited do not, 
in our view determine what is required in order to “with draw the subsidy” within the meaning of Article 4.7 of 
the SCM Agreement”.  
6 See TN/RL/GEN/14; JOB(04)/120 (Serious prejudice).  TN/RL/GEN/35 
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 (ii) If “withdrawal” of the subsidy is compliance 
 Australia considers that there is merit in clarifying whether “withdrawal” of the subsidy may 
allow for the replacement of the prohibited subsidy w ith an actionable subsidy.  If “withdrawal” of a 
subsidy is to bring a prohibited subsidy into conf ormity with the SCM without requiring “removal of 
adverse effects”, then the issue arises as to whet her a prohibited subsidy could be replaced by an 
actionable subsidy.  This in Australia’s view  could undermine the effectiveness of the remedy 
provided under SCM Article 4.7 and would necessarily depend on the facts and circumstances relating 
to a particular case or situation.7   
 
(iii) If “withdrawal” of the subsidy is more than compliance 
 In the context of examining whether repaym ent is required, including partial or full 
repayment, the remedy under SCM Article 4.7 is not “intended to fully restore the status quo ante  by 
depriving the recipient of the prohibited subsidy of  the benefits it may have enjoyed in the past”.8 
 
Australia considers that there needs to be clarification on whether “withdrawal” of a subsidy 
requires more than compliance, that is, that there needs to be a deterrent effect or punitive remedy, 
and if so, clarification also on what the extent of that penalty should be.    
In addition to issues concerning removal of adverse effects, does it also encompass a 
retrospective remedy and the possibility of  repayment, including repayment in full.
9  Repayment of 
course may encompass a situation where there are po rtions of a subsidy which are deemed allocated 
over future periods of time. 
 
A retrospective application should only be applied if the withdrawal of the subsidy at the time 
of the panel decision would not remove the adverse trade effects. 10  However, putting aside whether 
or not a retrospective and punitive remedy were a ppropriate, removal of the adverse trade effects may 
have implications for the presumption of such effects in prohibited subsidy cases. 
 
II. PROPOSED AMENDMENTS 
Australia proposes the following amendments  to Article 4 of the SCM Agreement: 
 
(i) the text of SCM Article 4 should be elaborat ed to clarify the parameters of what is 
required in order to “withdraw” the subsidy,  depending on the facts and circumstances 
surrounding the granting of the subsidy; 
 
(ii) specifically, clarify the text of SCM Article 4 to ensure that a subsidy claim should 
require the panel to make a finding to elabor ate on what in broad terms would constitute 
“withdrawal” of the subsidy. 
 
                                                      
7 Australian Automotive Le ather, 21.5 Report,  para 6.47:  the panel did not consider that “it is possible 
to change, ex post facto , the export contingency associated with the prohibited subsidy”, noting that “it was a 
logical impossibility to change the facts and circumstances surrounding the decision to provide the subsidy 
which led to the conclusion that the subsidy was prohibited”. 
8 Australian Automotive Leather, 21.5 Report,  para 6.49. 
9 Australian Automotive Leather, 21.5 Report, para 6.39:  The panel concluded that “withdrawal” of the 
subsidy is not limited to prospective action only where export subsidies are fully disbursed and the export contingency is entirely in the past. 
10 Australian Automotive Leather, 21.5 Report , para 6.34. TN/RL/GEN/35 
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 • For example, if findings related to a one-off subsidy, then a panel could provide the 
parameters of what could constitute “withdrawal” on the basis of a claim made on what must be withdrawn (as outlined under proposed amendment (i) above). 
 
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