WORLD TRADE  
ORGANIZATION  TN/RL/GEN/112/Rev.2 
21 March 2011 
 (11-1394) 
Negotiating Group on Rules Original:   English 
  
 
RE-INSTATEMENT OF DEEMED SERIOUS PREJUDICE 
PROVISIONS OF ARTICLE 6.1 
 
Communication from Canada
 
 
Revision  
   The following communication dated 18 March 2011, is being circulated at the request of the 
delegation of Canada. 
 
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  The Agreement on Subsidies and Countervailing Measures  (the "ASCM"), requires an 
effective remedy to respond to the trade-dist orting effects of actionable subsidies that will 
complement the existing rules and disciplines in respect of prohibited subsidies and countervailing 
measures.  In this regard, the deeming clause in  Article 6.1 conferred an important evidentiary 
advantage to complainants in respect of the m easures therein described.  The lapsing of these 
provisions on 31 December 1999 and the lack of new disciplines on the table to-date in these 
negotiations suggest a need to re-instate this important element of the ASCM with a view to 
strengthening the overall disciplines.  In view of  these objectives, and the high likelihood of trade 
distortion resulting from the measures outlined in this  Article, Canada believes that the re-instated 
provisions of Article 6.1 should apply to all WTO Members.  
  The following proposes refined legal text furt her to earlier submissions made by Canada on 
this issue (TN/RL/GEN/14, TN/RL/GEN/112, and TN/RL/GEN/112/Rev.1) having regard to the 
views expressed by other Members. 
 Text Proposal
 
  
Article 6 
 
Serious Prejudice  
 
6.1 Serious prejudice in the sense of paragraph (c) of Article 5 shall be deemed to exist in the 
case of: 
 
(a) the total ad valorem  subsidization14 of a product exceeding 5 per cent15; 
 
                                                      
 14 The total ad valorem  subsidization shall be calculated in  accordance with th e provisions of 
Annex IV. 
 15 Since  it is anticipated that civil aircraft will be subject to specific mu ltilateral rules, the 
threshold in this subparagraph does not apply to civil aircraft.  TN/RL/GEN/112/Rev.2 
Page 2  
 
  (b) subsidies to cover operating losses sustained by an industry; 
 
(c) subsidies to cover operating losses sustaine d by an enterprise, other than one-time 
measures which are non-recurrent and cannot be repeated for that enterprise
x and 
which are given merely to provide time fo r the development of long-term solutions 
and to avoid acute social problems; 
 
(d) direct forgiveness of debt, i.e. forgiv eness of government-held debt, and grants to 
cover debt repayment16; 
(e) subsidies to a firm in a start-up situation, if the overall rate of subsidization 
exceeds 15 per cent of the total funds invested during the start-up period.y  
 
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Article 27 
Special and Differential Treatment for Developing Country Members 
 
27.8
 There shall be no presumption in terms of paragraph 1 of Article 6 that a subsidy 
granted by a d eveloping country Member results in serious prejudice, as defined in this 
Agreement.  Such serious prejudice, where applicable  under the terms of paragraph 9, shall be 
demonstrated by positive evidence, in acco rdance with the provisions of paragraph 3 thro ugh 8 
of Article 6.  
 
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ANNEX IV 
 
CALCULATION OF THE TOTAL AD VALOREM SUBSIDIZATION 
(PARAGRAPH 1(A) OF ARTICLE 6)62 
 
 
                                                      
 x For the purpose of this provision, "enterprise"  includes any successor or affiliated enterprise.  
 16 Members recognize that where royalty-based financ ing for a civil aircraft programme is not being 
fully repaid due to the level of actual sales falling belo w the level of forecast sales, this does not in itself 
constitute serious prejudice for the purposes of this subparagraph. 
 y Start-up situations include in stances where financial commitments for product development or 
construction of facilities to manufacture products benefiting from the subsidy have been made, even 
though production has not begun. The overall rate of  subsidization includes su bsidies expensed in the 
start-up period as well as non-recurring subsidies pr operly allocable over a multi-year period extending 
beyond the start-up period, and subsidies that have  been committed but not yet disbursed. Total funds 
invested means the total of all expens es incurred during the start-up period  plus the acquisition cost of all 
assets, determined in accordance with generally ac cepted accounting principles. The start-up period 
terminates upon commencement of normal commercial  sales, regardless of  whether full commercial 
production levels have been achieved. The start-up period shall not extend beyond the first year of 
production.        
 62 An understanding among Members should be deve loped, as necessary, on matters which are not 
specified in this Annex or which need further clarification for the purposes of paragraph 1(a) of Article 6.  The 
recommendations in the Report by th e Informal Group of Experts to the Committee on Subsidies and 
Countervailing Measures (G/SCM/W/4 15/Rev.2) should serve as the starting point for discussions 
towards such an understanding.   TN/RL/GEN/112/Rev.2 
 Page 3 
 
 
  1. Any calculation of the amount of a subsidy for the purpose of paragraph 1(a) of Article 6 shall 
be done in terms of the benefit to the recipient . 
 2. Except as provided in paragraphs 3 through 5,  in determining whether the overall rate of 
subsidization exceeds 5 per cent of the value of th e product, the value of the product shall be 
calculated as the total value of the recipient firm's
63 sales in the most recent 12-month period, for 
which sales data is available, preceding th e period in which the subsidy is granted.64 
 3. Where the subsidy is tied to the production or sale of a given product, the value of the product 
shall be calculated as the total value of the recipien t firm's sales of that product in the most recent 12-
month period, for which sales data is available, pr eceding the period in which the subsidy is granted. 
 
4.
 Where the recipient firm is in a start -up situati on, serious prejudice shall be deemed to 
exist if the overall rate of subsidization exceed s 15 per cent of the total funds invested.  For 
purposes of this paragraph, a start -up period will not extend beyond the first year of 
production.65 
 
5. Where the recipient firm is located in an inflationary economy country, the value of the product shall be calculated as the recipient firm's to tal sales (or sales of the relevant product, if the 
subsidy is tied) in the preceding calendar year indexe d by the rate of inflation experienced in the 12 
months preceding the month in whic h the subsidy is to be given. 
 
6. In determining the overall ra te of subsidization in a give n year, subsidies given under 
different programmes and by different authorities in the territory of a Member shall be aggregated. 
 7. Subsidies granted prior to the date of entry in to force of the WTO Agreement, the benefits of 
which are allocated to future production, shall be included in the overall rate of subsidization. 
 
8.
 Subsidies which are non -actionable under relevant provisions of this Agreement shall 
not be included in the calculation of the amo unt of a subsidy for the purpose of paragraph  1(a) 
of Article  6. 
 
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 63 The recipient firm is a firm in the territory of the subsidizing Member. 
 64 In the case of tax-related subsidies the value of the product shall be calculated as the total value of 
the recipient firm's sales in the fiscal year  in which the tax-related measure was earned. 
 65 Start -up situations include instances where financ ial commitments for product development or 
construction of facilities to manufacture products benefiting from the subsidy have been made, even 
though production has not begun.