WORLD TRADE  
ORGANIZATION  G/SCM/Q2/USA/35 
23 April 2008 
 (08-1944) 
Committee on Subsidies and  
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to Questions posed by CANADA1, the EUROPEAN COMMUNITIES2, CHINA3, and the 
SEPARATE CUSTOMS TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU4 
Regarding the New and Full Notification of the UNITED STATES5 
   The following communication, dated 21 April 2008,  is being circulated at the request of the 
Delegation of the United States.   
 
_______________ 
 
 
Replies to Questions Posed by CANADA
 
 Federal Programs
 
 
Renewable Energy Resources pages 12-13 
 Energy Conservation Programs (Transportatio n Sector Building Technology, State and 
Community Sector Industry Sector) pages 14-19  
Question 1 
 
What are the various competitive procedures used to determine participation in these 
energy programs?   
 
Reply
 
  Much of the research conducted under programs administered by the Department of Energy is funded through competitive solicitations.  The qualif ication procedures for various programs is to 
select research partners and projects based on fact ors such as energy saving potential, likelihood of 
success, and alignment with the recommendations of industry-developed technology roadmaps.  
Selection of applications is generally based on the findings of the technical evaluations, the 
importance and relevance of the proposed application to program  objectives, fund availability and 
cost reasonableness (see, for example, http ://www.eere.energy.gov/buildings/about/).   
 
                                                     
 
1 G/SCM/Q2/USA/31.   
2 G/SCM/Q2/USA/33.   
3 G/SCM/Q2/USA/32.   
4 G/SCM/Q2/USA/34.   
5 G/SCM/N/123/USA.   G/SCM/Q2/USA/35 
Page 2  
 
  Energy Conservation Programs (Transportatio n Sector Building Technology, State and 
Community Sector Industry Sector) pages 18 
 
Question 2 
 
Canada would be interested in having more details with respect to the amount given 
under each part of the sub-programs, i.e., under total industrial sectors and each of the 
industries of the future.   
 
Reply
 
 
 We are unable at this time to provide the leve l of detail with respect to the amounts provided 
under each sub-program.  The notification does provi de the total amount of funds provided under the 
program as a whole and does list the particular industr ial sectors that were eligible under each of the 
sub-programs.   
 
Energy Conservation Industry Sector pages 17-18 
 
Question 3 
 
The stated objectives of the Energy Conservation Industry Sector Program  includes:  to 
improve the productivity of energy-intensive industries through the development and delivery 
of advanced science and technology options.  Woul d this assistance extend to the acquisition of 
new and more production-efficient machiner y/equipment (with consequentially better 
environmental performance) for use in  recipients industrial operations?   
 Reply
 
  No.  The objective of this program is to improve energy efficiency by developing and delivering advanced science and technology options.    
Fossil Energy Research and Development - pages 19-20  
 
Question 4 
 
Are the results of any federal funded research and development technologies and 
analyses made publicly available or are they limited  to the industries with which the Office of 
Fossil Energy has participated in a joint partnership?    
Reply
 
  Federally-funded, non-classified research and development technologies and analyses are 
made publically available on the internet.   
 
Question 5 
 
While it is stated that the Office of Fossil Energy participates in joint partnerships with 
certain industry utilizing mechanisms, details are not provided as to how industries qualify or 
apply for such partnerships?  Please provide details.    G/SCM/Q2/USA/35 
 Page 3 
 
 
  Reply  
  Most R&D procurements for the Office of Fossil Energy are coordinated by the National 
Energy Technology Laboratory (NETL).  NETL uses many mechanisms to involve industry from competitive solicitations to entering into Coope rative Research and Development Agreements 
("CRADAs").  Each of the mech anisms has separate processes for application and involvement.  
Qualified partnerships are able to provide e xpertise and funding needed to ensure successful 
development and deployment of new technologies a nd to promote technology transfers.  Areas of 
focus include (but are not limited to) increasing the domestic energy supply, protecting the environment, ensuring a comprehensive energy delivery system, and enhancing national energy 
security.   
 
Expensing of Exploration and Development Co sts for Oil, Gas and Other Fuels Excess of 
Percentage Over Cost Depletion For Oil, Gas and Other Fuels Alternative Fuel Production 
Credit pages 20-23 
 
Question 6  
In view of the significant increases in the cost of crude oil in the past several years, have 
any of these programs been enhanced, revised, or otherwise changed?   
 Reply
 
  Our notification covers fiscal years 2003 and 2004.   Changes to the program will be detailed 
in future notifications.  As a general matter, the Fossil Energy programs change organization and 
policies from time to time and funding fluctuates year to year.    
 
Capital Gains on Royalties on Coal pages 23-24 
 
Question 7 
 
Please describe the relationship, if any, between the tax treatment of royalties on coal 
and the Alternative Fuel Production Credit, as notified by the United States in 1998 and then 
available under the Crude Oil Windfall Profit Tax Act of 1980.  Does the United States have any information on the impact of this and any previous programs of the like on US coal exports in particular?   
 Reply
 
 
Coal taxed at the capital gains rate when sold  by the producer may be used by the purchaser 
as a feedstock in producing synthetic fuel that qualif ies for the alternative fuel production credit.  We 
have no information on the impact of these provisions on US coal exports.    Fisheries Finance Program (FFP) pages 28-30  
 
Question 8 
 
It is stated that since this program provides loans at relatively high interest rates and 
has a relatively low default rate, it has not resulted  in a net outflow of government funds.  If so, 
it is apparent that recipients could obtain loans from commercial lending institutions.  
Accordingly, has the program been consequently terminated? G/SCM/Q2/USA/35 
Page 4  
 
  Reply
 
  The loan markets for long-term debt tend to perceive higher risks associated with the commercial fishing industry.  As a result, adjustments are made to the interest rate and the term of the 
loan, which can make the FFP's fixed rate loans an  attractive option.  The program has not been 
terminated and remains active within the limits of its lending authority.   
 
Question 9 
 
It is also stated that FFP is barred from fina ncing any project that could be construed as 
leading to overcapitalization of any fishery.  How is this defined?    
Reply
 
  There is no FFP regulation that provides a de finition of either "overcapitalization" or 
"overcapacity".  Generally, the National Marine Fi shery Service has defined overcapitalization to be 
the same as overcapacity which can be expressed in te rms of the level of output a firm can produce.  
Overcapacity is the difference between the level of  output at maximum economic yield and the level 
of output that could be produced by the fish ha rvesting industry.  The FFP bars in all national 
fisheries, regardless of their capacity condition,  loans that would result in increasing harvesting 
capacity.    Saltonstall-Kennedy Grant Program:  Fi sheries Research and Development page 30  
 
Question 10 
 
This program is funded by duties on fishery imports.  Given that duties have declined 
over the years, has funding for this program  been augmented from other sources?   
 
Reply
 
  The Saltonstall-Kennedy (S-K) Grant Program is  capitalized through annual transfers by the 
Secretary of Agriculture to the Secretary of Comm erce of amounts equal to 30 per cent of the gross 
receipts collected under the customs laws on imports of fish and fish products.  Over the past 5 years, 
these import duties have actually increased; thus, th ere has been no need to augment funding from 
other sources.    Columbia River Hatcheries pages 32-33  
 
Question 11 
 
Describes the changes to the Mitchell Act and this program prompted by the application 
of the Endangering Species Act in the Columbia River Basin?   
 
Reply
 
 
 The unharvested abundance of Mitchell Act hatche ry salmon that stray into Columbia River 
tributaries to spawn unacceptably reduce the fitn ess of Endangered Species  Act-listed naturally 
spawning salmon in the same tributaries.  Measure s currently are being planned and implemented to 
reduce the number of these hatchery fish that  are allowed to spawn with natural fish.    G/SCM/Q2/USA/35 
 Page 5 
 
 
  Excess of Percentage Over Cost Depletion for Non-Fuel Minerals Page 38 
Expensing of Exploration and Developmen t Costs for Non-Fuel Minerals Pages 38-39 
 
Question 12 
 
Please provide an explanation for the wide differences in revenue lost in 2003 as 
compared to 2004 for both programs.   
 
Reply  
 
 Under cost depletion, outlays are deducted over the productive life of the property based on a 
fraction of the resources extracted.  Significant in creases in outlays may lead to large increases in 
deductions under cost depletion.  Under percentage depletion, taxpay ers deduct a percentage of gross 
income from mineral production at specified rates.  The deductions under percen tage depletion are not 
directly related to a firm's outlays in any given year.  An increase in a firm's expected outlays, 
therefore, may increase the expected value of deduc tions under cost depletion relative to percentage 
depletion leading to a change in the tax expenditu re estimate of percentage over cost depletion.  
Projections of future tax expenditures are based on historic tax information that may change 
significantly from year to year.   
 
Capital Gains Treatment of Iron Ore Pages 39-40  
 
Question 13 
 
Why is the revenue loss for this program so low?   
 Reply
 
  The tax expenditure estimate is based on historic  tax data and other available information.  It 
should be noted that the capital gains treatment of iron ore only applies to individuals not to 
corporations.    Emergency Steel Loan Guarantee Program page 41-42  
 
Question 14 
 
As regards the Emergency Steel Loan Guarantee Program , while we understand that the 
Board's authority to issue guarantees expired  December 31, 2005 and that there are no 
applications pending under this program, could th e United States please provide particulars as 
to any ongoing disbursements anticipated under the three already approved guarantees?   
 
Reply
 
 
 There is only one outstanding loan which is to be repaid by 1 June 2008.  We do not 
anticipate any new disbursements.    
The Textile/Clothing Technology Corporation Program (TC2) Pages 42-43  
 
Question 15  
Is the Textile/Clothing Technology Corporat ion a government body and does it provide 
services to any US textile or clothing enterprise which applies?   
 G/SCM/Q2/USA/35 
Page 6  
 
  Reply
 
  The Textile/Clothing Technology Corporation [TC]
2 is not a government body.  [TC]2 is a 
non-profit membership organization that includes fiber, textile, appare l and other sewn product 
enterprises, retailers, unions, associatio ns, and academic institutions.  [TC]2 service programs are 
funded by member dues payments or revenue from services provided to domestic and international 
enterprises, organizations, and governments.    
OTHER 
 
Tobacco Payments  
In November 1998, the attorney generals of 46 states signed an agreement (referred to as 
the Master Settlement Agreement) with the to bacco companies requiring them to make 
payments to states to perpetuity as reimburse ment for past tobacco-related costs.  This 
settlement commits the tobacco companies to  pay approximately $206 billion over the first 
25 years of the agreement.  This is in addition to an additional settlement for $40 billion over 
25 years to the other 4 states governments. Govern ments can spend this money as they wish.   
 Question 16  
• It is reported by the US General Accounting Office that several Tobacco states allocate a 
portion of their Master Settlement Agreement (MSA) payments for assistance to tobacco 
growers.  Are MSA payments distributed to tobacco growers included in the United States' notification?  Could the United States elaborate on the amounts and use of such disbursements to tobacco growers?   
 
Question 17 
 
• The National Tobacco Grower Settlement Trus t Agreement (commonly referred to as 
Phase II) is a separate agreement betwee n tobacco-growing states and tobacco 
companies.  Under this agreement, tobacco  growers are required to make payments 
totalling over $5 billion in a trust for dist ribution to tobacco growers.  Are Phase II 
payments distributed to tobacco growers includ ed in the United States' notification?  
Could the United States elaborate on the amounts disbursed to tobacco growers?   
 
Reply
 
  The MSA and Phase II are not covered by the no tification.  For deta iled information on the 
disbursements, please see the report of the General Accountability Office at:  
www.gao.gov/new.items/d07534t.pdf.    G/SCM/Q2/USA/35 
 Page 7 
 
 
  Replies to Questions Posed by the EUROPEAN COMMUNITIES  
  
General
 
 
 Whereas the US has submitted the 2003 New and Full subsidy notification covering the 
fiscal year 2002 in due course it has submitted the 2005 New and Full subsidy notification covering the fiscal years 2003 only after 2 years delay.   
 
Question 1 
 
 Could the US please explain the reason for the late submission of the New and Full 
subsidy notification G/SCM/N/123/USA covering the fiscal years 2003 and 2004?   
 
Reply
 
 
 The United States has devoted significant time and resources over the years to meet its notification obligations under the Subsidies Ag reement.  Coordination between the federal 
government and the fifty state governments has been  particularly demanding.  Despite our best 
efforts, due to numerous program and personnel ch anges, the notification at issue was unavoidably 
delayed.   
 
Question 2 
 
 Could the US please also submit the 2006 New and Full subsidy notification 
G/SCM/N/155/USA covering the fiscal years 2005 and 2006 as soon as possible?   
 
Reply
 
  Yes.    
Energy & Fuels
 
 
Renewable Energy Resources 
 
Question 3 
 
 Please explain the term eligible private part ies and indicate how many eligible private 
parties have benefited from this programme in each fiscal year.   
 
Reply  
  The Renewable Energy Production Incentive (REPI) program was created by the Energy 
Policy Act of 1992, and amended in 2005, to prov ide financial incentives for electricity produced 
using renewable energy sources and sold by qualifie d renewable energy generation facilities.  REPI is 
part of an integrated strategy in the 2005 Energy Policy Act to  promote increases in the generation 
and utilization of electricity from renewable ener gy sources and to promote market utilization of 
renewable energy technologies.  Eligible electric production facilities that may be considered to 
receive Renewable Energy Production Incentive (REP I) payments include not-for-profit electrical 
cooperatives;  public utilities;  state governments;  Commonwealths;  territories of the United States;  
the District of Columbia;  Indian tribal government s, or a political subdivision thereof;  or Native 
Corporations that sell the facility's electricity.  The number of private parties that have benefited is not 
readily available.   G/SCM/Q2/USA/35 
Page 8  
 
  Question 4 
 
 Please explain the various competitive pro cedures in more detail.  Which conditions 
must be met in order to be able to benefit from this programme?   
 Reply
 
  The conditions that must be met to qualify for this program are consistent with the description 
of the eligibility criteria provided in the previous answer.  For a further detailed explanation of the 
specific eligibility criteria that must be met to qualif y for this program, please see Title 10 of the Code 
of Federal Regulations, starting with section 451.3.  The Code of Federal Regulations can be accessed 
via the internet at:  http://ecfr.gpoaccess.gov/cg i/t/text/text-idx?c=ecfr&tpl=%2Findex.tpl.   
 
Energy Conservation Programs – Transportation Sector 
 
Question 5 
 
 Please illustrate the competit ive procedure and the conditions which must be met in 
order to qualify for the programme.   
 
Reply
 
 
 As noted above, the qualification procedures fo r various programs are to select research 
partners and projects based on factors such as en ergy saving potential, likelihood of success, and 
alignment with the recommendations of industry- developed technology roadmaps.  Selection of 
applications is generally based on the findings of the technical evaluations, the importance and 
relevance of the proposed application to pr ogram objectives, fund availability and cost 
reasonableness.    
Question 6 
  What private parties are considered to  be eligible for the programme?   
 
Reply
 
  Any private party is potentially eligible, although the program focus is on energy-intensive industries.   
 
Subsidy scheme not included in this notification 
  The EC's attention has been drawn to a certain tax subsidy scheme the so-called "B-99" 
tax subsidy.  This scheme reduces the costs of US Biodiesel producer/exporters by 15 to 20 per cent.   
 
Question 7 
 
 Could the US please indicate whether this subsidy programme already existed in the 
fiscal year 2003 and 2004?   
 
Reply
 
  It did not.    G/SCM/Q2/USA/35 
 Page 9 
 
 
  Question 8 
 
 If it already existed please notify th e programme according to the format.   
 
Reply  
 
 Not applicable.    
Alternative Fuel Production Credit 
 
Question 9 
  Please indicate the number of beneficiaries in the year 2003 and 2004.   
 
Reply
 
 
 This tax expenditure estimate is based on a sample of all corporate tax returns.  The exact number of firms receiving this credit is not readily available.    
Question 10 
 
 Please explain the term producer and royalty owner in more detail.  Must there be met 
any conditions in order to qualify as producer or royalty owner?   
 
Reply
 
 
 In 2003 and 2004, the credit was available only for gas produced from biomass and synthetic 
fuel produced from coal.  The producer of synthetic  fuel from coal is the person that transforms the 
coal into synthetic fuel.  The producer of gas from biomass is person that collects and processes the gas from a landfill facility.  A royalty owner generally  holds title to certain mineral rights.  The 
royalty owner is relevant only with respect to cred its for oil from shale and tar sands and for gas from 
coal seams.   
 
Question 11 
 
 Which authority is responsible for operating this programme?   
 Reply
 
  The Internal Revenue Service.    
Alcohol Fuel Credit and Partial Exemptio n from Federal Excise Tax on Gasoline 
 
Question 12   What is considered to be a small producer?   
 
Reply
 
 
 A person who, at all times during the taxable year, has a productive capacity for alcohol not in 
excess of 60 million gallons.   G/SCM/Q2/USA/35 
Page 10  
 
  Question 13 
 
 Please indicate how many producers and blend ers benefited from this programme in the 
year 2003 and 2004?   
 Reply
 
  The tax expenditure estimate provided is b ased on information collected on the amount of 
qualifying fuels.  The number of producers receiving the credit was not tabulated and is not readily 
available.   
 
Questions concerning Attachment I:  Information on programmes granted or maintained at 
sub-federal levels  
 
Delaware – Corporate Income Tax Credits 
 
Question 14 
 
 Please explain in more detail the policy ob jective to encourage new and expanded 
facilities within targeted industries is Delaware.   How many beneficiaries benefited during the 
reporting period?   
 
Reply  
  The program encourages employment within th e "targeted industries".  The program requires 
that a taxpayer in a "targeted industry" invest a minimum of $200,000 in a new or expanded facility 
and hire a minimum of five new employees.  The pr ogram is designed to help industries expand their 
facilities and use new and updated t echnology while doing so.  The num ber of beneficiaries is not 
readily available.    
Delaware – Delaware Access Programme 
 
Question 15 
 
 Are the bank loans provided on a commercial basis?  What are the conditions in order 
to qualify for the programme?  What are the incentives for the banks in order to engage in riskier financing?  Are there any liabilities assumed by the Authority?  When does the 
programme end?    
Reply
 
  The bank has the sole responsibility for decidi ng whether or not and under what terms and 
conditions to make the loan.  The bank sets its own criteria for determining whether to make the loan, 
what types of loan it wants to make under the pr ogram and determines all of  the conditions of the 
loan.  The borrower can be a corporation, partnershi p, joint venture, sole proprietorship, cooperative 
or other entity which is authorized to do business in Delaware.  When a bank participates in the 
program, a special reserve fund is established from upfront premium payments from a portfolio of 
loans that the bank makes under the program to cove r possible losses.  The full amount of the reserve 
is available to the bank to cover any uncollected f unds from any of the loans.  This reserve enables a 
bank to provide lending that may be riskier than  the average commercial loan.  In the 2004, the 
program was ongoing.     G/SCM/Q2/USA/35 
 Page 11 
 
 
  Florida – Semiconductor, Defence, or Spa ce Technology Sales and Use Tax Exemption 
(SC`DST)  
 
Question 16 
 
 Please explain in more detail the policy object ive and conditions to be met in order 
qualify for the programme?   
 
Reply  
 
 Florida recognizes that semiconductor, defe nse, and space technology facilities make 
significant annual investments in high-tech replaceme nt equipment to keep pace with rapid advances 
in technology and heavy usage.  The program at is sue is an exemption of sales and use taxes that 
would otherwise be paid by the qualifying busi ness on machinery and equipment used in production 
and research and development.   
 
 A business certified to receive this exemption may elect to designate one or more state universities or community colleges as recipients of up to 100 percent of the amount of the exemption for which they may qualify.  If the university or college agrees to receive the funds, it must further 
agree to match them equally and use the proceeds in pursuit of research and development projects as 
requested by the certified business.   
 
 In order to participate in the program, a co mpany must apply to Enterprise Florida and be 
certified by the Governor's Office of Touris m, Trade and Economic Development (OTTED) as a 
semiconductor, defense, or space technology facility.  Industrial m achinery and equipment used in 
semiconductor, defense, or space technology fac ilities to design, manufacture, assemble, process, 
compound, or produce semiconductor, defense, or space technology products for sale or for use by 
these facilities are exempt from the tax imposed.  M achinery and equipment used predominantly in 
semiconductor, defense, or space related research  and development activities in a research and 
development facility are also fully exempt from the relevant taxes.   
 
Hawaii – High Tech Business Investment Tax 
 
Question 17 
 
 Please specify the term High technology business.   
 
Reply
 
 
 "Qualified high technology business" means a business, employing or owning capital or 
property, or maintaining an office, in the state; provi ded that:  (1) more than fifty per cent of its total 
business activities are qualified research and that th e business conducts more than seventy-five per 
cent of its qualified research in the state;  or (2) more than seventy-five per cent of its gross income is 
derived from qualified research and that this income  is received from products or services sold or 
provided from the state.    Massachusetts – Jobs Creation Incentive Payment 
 
Question 18 
 
 What is considered to be a "qualifying biotechnology and medical device 
manufacturing"?  Considering that it is a Jobs Creation Incentive Scheme, please indicate the 
reasons why this programmes only app lies to the indicated companies.   G/SCM/Q2/USA/35 
Page 12  
 
  Reply
 
  The jobs incentive payment for newly created ma nufacturing jobs is available to corporations 
engaged primarily in the research, development,  production or provision of biotechnology, or 
manufacturers engaged in the production of prod ucts for a medical device manufacturing business 
primarily engaged in manufacturing medical or surgi cal instruments, surgical appliances or supplies, 
or electromedical, electrotherapeutic  or irradiation apparatus.  This  incentive is specifically designated 
to reward biotech and medical device manufactur ers for creating well-paying positions whose skills 
sets are forecast to be in high demand for the future.    Nebraska – Ethanol Tax Credit 
 
Question 19 
 
 Please describe in more detail the conditi ons to be met under this programme.  How 
many beneficiaries benefited from this progra mme during the reporting period?  What was the 
beneficiary's major market?  Could you please indi cate the names of the beneficiaries?  When 
will the programme end?   
 
Reply
 
 
 The tax credits are provided to plants that demonstrate capability to produce a minimum rate 
of ethanol production, before denaturing, of one hundred thousand gross gallons annually.  Producers 
can receive credits for a period of ninety-six c onsecutive months, but in no event will credit be 
allowed for ethanol production which occurs after 30 June 2012.  During the reporting period, the 
state entered into agreements with twenty-three enti ties.  However, an estimate of only five entities 
would actually qualify to receive the credits durin g the reporting period.  Providing the names of 
beneficiaries is not required by the Subsidies Ag reement.  Furthermore, providing beneficiary names 
and the beneficiaries' major markets could raise issues of confidentiality.    
Wyoming – Taxpayer Remedies 
 
Question 20 
 
 What are the exact conditions which must be met in order to qualify for the 
programme?  How many companies benefited from  this scheme during the reporting period?  
What was the beneficiary's major market?  Could you please indicate the names of the 
beneficiaries?  When will the programme end?    
Reply
 
  A person with a tax liability for the sale of et hanol-based motor fuel, or gasoline sold for the 
purpose of blending into an ethanol-based motor fuel, may redeem a tax credit of $0.40 per gallon 
with the Wyoming Department of Transportation.  Ethanol-based motor fuel is defined as a blend of 
10 per cent ethanol and 90 per cent gasoline that is used to operate motor vehicles.  The total credits 
redeemed by all ethanol producers may not exceed  $4,000,000 per year, and the total credits 
redeemed by any individual ethanol producer ma y not exceed $2,000,000 per year.  Additionally, an 
ethanol producer constructing a new ethanol producti on facility may receive tax credits for a period 
not to exceed 15 years after the date construction is completed.  Any ethanol producer that expands its 
production after 1 July 2003, by at least 25 per cent is eligible for tax credits.  Ethanol 
producers qualifying for the tax credit on or befo re 1 July 2003, may only receive a tax credit 
until 30 June 2009.    G/SCM/Q2/USA/35 
 Page 13 
 
 
  Replies to Questions Posed by CHINA  
 
Question 1 
 
 Regarding "Capital Gains Treatment of C ertain Timber Income" on page 33, please 
explain how the supplier can get a royalty co ntract?  Will the timber sold under a royalty 
contract be used for domestic purpose or for export?    
Reply
 
 
 Any sale of timber held more than one year by  the owner of land from which the timber is cut 
is eligible for capital gain treatment.  A sale under a royalty contract is a dis position in which a person 
other than the owner has the right to cut the timber  but the owner retains an economic interest in the 
timber.  Capital gain treatment is allowed whethe r the timber is used domestically or exported.   
 Question 2 
 
 Regarding "the Emergency Steel Loan Guaran tee Program" on page 41, we noticed that 
it is aimed at assisting companies injured by the import crisis in 1998-2002.  Please clarify how 
the authority determines that the companies were injure by imports?  Is there any difference 
between the terms and conditions for government loan guarantee and those for normal 
commercial loan guarantee?    
Reply
 
 
 Eligible steel companies are those which have experienced layoffs, production losses, or financial losses.  Such companies may receive a gu arantee if credit is not otherwise available under 
reasonable terms or conditions sufficient to meet thei r financing needs, as refl ected in their financial 
and business plans.  Generally, it is likely that th e Board's guarantee enabled the bank to provide a 
loan on better terms than it would have b een able to without the guarantee.   
 
Question 3 
 
 The notification indicates that participants  of some subsidy programs are determined 
through various competitive procedures.  Will the candidates for the programs and the results 
of the competitions be publicized?  How can th e US government ensure the fairness of such 
competitions?   
 Reply
 
  The qualification procedures for various programs is to select research partners and projects 
based on factors such as energy saving potential, likelihood of success, and alignment with the 
recommendations of industry-developed technology road maps.  Selection of app lications is generally 
based on the findings of the technical evaluations , the importance and relevance of the proposed 
application to program objectives, fund availability and cost reasonableness.  Applicants are notified 
of the results of the solicitation process.  Internal  government controls ensure that the applicable 
regulations as to the selection of app licants are followed appropriately.   G/SCM/Q2/USA/35 
Page 14  
 
  Question 4 
 
 Some subsidies provided under the notified  programs can be categorized as R&D 
subsidies, such as TC2 and Advanced Technol ogy Program.  Are there any restrictions on the 
use of specific R&D subsidies?  If any, which kind of activities are those eligible for R&D subsidies?   
 
Reply
 
 
 The ATP holds competitions open to proposals in all areas of technology, and has provided 
cost-shared financial assistance for the development of a wide variety of technologies.  The ATP program supports enabling technologies that contribut e to the development of  new products, processes 
and services across a diverse range of the economy.  The [TC]
2 program of basic research is 
performed partially internally and partially by exte rnal entities on a contractual basis.  The program is 
designed to stimulate growth in the textile and apparel sector.  Funded projects are peer reviewed and 
approved by a Technical Advisory Group (TAG).  The results of the [TC]2 research projects may have 
applicability not only in the textile and appare l sector but to other manufacturing and service-
producing sectors as well.    Question 5 
 
 Regarding the steel industry, the US only notified the Emergency Steel Loan Guarantee 
Program and partial loan and tax preferential policies in the states of Indiana, Ohio and 
Virginia.  As we know, the US Federal a nd States governments are providing more subsidy 
programs to the steel industry than those have been notified, for example, the Pension and 
Health Care Bailout Program of Federal govern ment and a large number of subsidy programs 
in States governments.  Please clarify the complete ness of subsidy programs in the notification.   
 Reply
 
  The Pension Benefit Guarantee Corporation (PBG C) is a pension insurance program.  A large 
number and wide variety of industries participate in the program.  The federal government has never 
provided any funds to the PBGC.  The program has been entirely funded by premiums paid by 
companies enrolled in the program.  Recently, the premiu ms have been raised.  Many, if not all of the 
steel companies whose pension plans were taken over by the PBGC were subsequently sold in arm's-
length, fair market value transactions.     The federal Health Coverage Tax Credit (HCT C) was created by the Trade Act of 2002 to 
help certain displaced workers and certain retirees in a large number and wide variety of industries to 
pay for their health insurance.  It is a tax cr edit for individuals and does not provide a financial 
contribution to business entities.  Gene rally, those individuals eligible to  claim the credit fall into one 
of two categories.  Some have been trade-impact ed workers who have lost their jobs and were 
classified as Trade Adjustment Assistance (TAA) or Alternative Trade Adjustment 
Assistance (ATAA) eligible.  Others were individua ls whose pensions were being paid by the PBGC, 
were at least 55 years of age and not entitled to Me dicare.  The tax credit covered 65 percent of the 
cost of qualified health insurance for eligible i ndividuals and their qualified family members. To 
receive the HCTC an individual had to be enrolled in  a qualified health insurance plan.  The HCTC is 
a refundable credit -- even if the individual paid no  tax he or she received a payment.  However, 
individuals had to either register with the HCTC  program for advance payment or claim it on their 
individual federal income tax return.   
  As noted in the question, numerous state progr ams with respect to the steel industry were 
notified.  The notification under discussion covers the period 2003 and 2004.  Therefore, ad hoc  G/SCM/Q2/USA/35 
 Page 15 
 
 
  incentives given prior to, or after this time are not included;  nor does the notification include specific, 
ongoing programs implemented at the state level af ter the 2003/2004 period.  However, since the 
compilation of information at the sub-federal level that constituted the input for the notification under 
discussion, the following four programs have been br ought to the attention of the federal government:  
(1) a $150,000 grant for pollution control equipment by the State of Ohio to AK Steel;  (2) a 10-year 
tax abatement to upgrade machinery from the City of East Chicago, Indiana, valued at $74 million, to 
the International Steel Group (although we also note th at the facilities at issue were subsequently sold 
in an arm's-length, fair market value sale in  2005);  (3) a $12.1 million tax abatement, $115,000 in 
training grants and a $1.1 million tax credit by the State of Ohio to Charter Steel;  and, (4) a $7.5 million tax abatement by the State of Ohio to Wheeling Pittsburgh.   
 G/SCM/Q2/USA/35 
Page 16  
 
  Questions Posed by the SEPARATE CUSTOMS TERRITORY OF TAIWAN,
 
PENGHU, KINMEN AND MATSU  
 
Question 1 
 
 According to the Renewable Energy Resources , subsidies are granted through various 
competitive procedures.  We would be very  grateful for more information about these 
procedures.    
Reply
 
 
 As noted above, the qualification procedures fo r various programs are to select research 
partners and projects based on factors such as en ergy saving potential, likelihood of success, and 
alignment with the recommendations of industry- developed technology roadmaps.  Selection of 
applications is generally based on the findings of the technical evaluations, the importance and 
relevance of the proposed application to pr ogram objectives, fund availability and cost 
reasonableness.    Question 2 
 
 With reference to the Alternative Fuel Production Credit , we would like to know the 
criteria determining "qualifying production".    
Reply
 
 
 In 2003 and 2004, the credit was available only for gas produced from biomass and synthetic fuel produced from coal.  The credit is currently available only for coke and coke gas.  Qualifying 
production is gas or synthetic fuel that is (1 ) produced in the United States or a possession, 
(2) produced at a facility placed in service before a sp ecified date (generally 1 July 1998), and (3) sold 
by the producer to an unrelated person.    
Question 3 
 
 As to the Fisheries Finance Programme  (FFP), it states, "Since 1991, the FFP has been 
barred by NOAA policy and Congressional directives from financing any project that could be 
constructed to lead to overcapita lisation of any fishery.  Because of this policy, and because any 
subsidy element that might be attributable to th is programme is small or nonexistent, the trade 
effects from this programme are likely to be mini mal, if any".  Except for the NOAA policy and 
Congressional directives, we would like to learn more details on the efforts made to prevent 
overcapitalisation through this programme.  Additi onally, we also want to know what criteria 
and methods are used by the US Government to determine whether there is overcapitalization.  
Finally, we would like to require the rationale as to why only "minimal" trade effect is caused 
due to the NOAA policy and any subsidy element of this programme.   
 
Reply
 
 
 As noted above, the FFP rules bar in all nati onal fisheries, regardless of their capacity 
condition, loans that would result in increasing ha rvesting capacity.  FFP administrators have the 
experience and knowledge to implement this polic y.  Additionally, all FFP loans that involve 
harvesting vessels are reviewed by regional fisher ies directors and senior NMFS management.  To 
qualify for FFP financing, applicants must have the necessary harvesting rights.  FFP financing 
neither increases nor decreases these harvesting rights.   
  G/SCM/Q2/USA/35 
 Page 17 
 
 
   There is no FFP regulation that provides a de finition of either "overcapitalization" or 
"overcapacity".  Generally, the National Marine Fi shery Service has defined overcapitalization to be 
the same as overcapacity which can be expressed in te rms of the level of output a firm can produce.  
Overcapacity is the difference between the level of  output at maximum economic yield and the level 
of output that could be produced by the fish harvesti ng industry.  In light of the minor benefit, if any, 
provided under this program, and the prohibition w ith respect to increasing harvesting capacity, it is 
not unreasonable to assume that any trade effect would be minimal.    
Question 4 
 
 Turning to the Emergency Steel Loan Guarantee Programme , the guaranteed loans are 
only provided to qualified steel companies in accordance with the rules established by the 
Guarantee Board.  Therefore, it would be very apropos to specify the "rules" established by the 
Guarantee Board in determining whether to confer benefits or not.   
 Reply
 
 
 The eligibility criteria are as follows:   
 (a) An eligible borrower must be a Qualifie d Steel Company that can demonstrate:   
  (1) credit is not otherwise available to it under reasonable terms or conditions 
sufficient to meet its financing needs, as reflected in the financial and business plans 
of the company;   
  (2) the prospective earning power of that  company, together with the character 
and value of the security pledged, furnish reasonable assurance of repayment of the loan to be guaranteed in ac cordance with its terms;   
 
 (3) the company has agreed to permit a udits by the General Accounting Office 
and an independent auditor acceptable to th e Board prior to the issuance of the 
guarantee and while any such guaranteed loan is outstanding;   
  (4) it has experienced layoffs, productio n losses, or financial losses between 
1 January 1998, and the date of applica tion for the Guarantee, demonstrated as a 
comparison between employment, produc tion, or net income existing on 
1 January 1998 and on the date  of application;  and 
  (5) in the case of a purchaser of substantial assets of a Qualified Steel Company;  
the Qualified Steel Company is unable to re-organize itself.   
 (b) A company will be considered a purchaser of substantial assets of a Qualified Steel Company 
if the company's identifiable assets purchased from a Qualified Steel Company are 50 percent or more 
of the consolidated assets of that Qualified Steel Company and its subsidiaries.   
 
(c) The lender must provide with its application a letter from at least one lending institution other 
than the lender to which the borro wer has applied for financial assistance dated within six months of 
submission of the application, indicating that the borrower was denied for substantially the same loan 
it is now applying for, and the reasons the borrowe r was unable to obtain the financing for which it 
applied.  In addition, the lender applying for a gua rantee under this program must certify that it would 
not make the loan without the Guarantee Board's guarantee.   
 G/SCM/Q2/USA/35 
Page 18  
 
  As noted above, there is only one outstanding loan , which is to be repaid 1 June 2008.  No 
more disbursements are anticipated.    
Question 5 
 
 Concerning the Textile/Clothing Technology  Corporation Programme , we notice that this 
programme does not directly benefit the production  or exportation of particular companies or 
products.  In light of the financial support conferred upon particular companies' R&D 
activities, we are wondering whether this pr ogramme may reduce the operation costs of a 
subsidised company and whether this programme indirectly benefit this company's production 
or exportation.    
Reply
 
 
 As noted in our notification, the Te xtile/Clothing Technology Corporation [TC]2 is a not-for-
profit consortium of fiber, textile, apparel and other sewn product enterprises, retailers, unions, 
associations, and academic institutions.  [TC]2 has several service programs and performs basic 
research.  The organization funds projects for basi c research on high risk, enabling technologies.  
Results of the research are available to, and may be  used by a business entity in any economic sector.  
Due to the nature of the program, any particular benefit derived from the pr ogram would be difficult 
to measure.   
 
Question 6 
 
 With regard to the Empowerment Zones, Enterprise  Communities Renewal Communities , 
we would like to know specifically what kinds of  businesses are "qualified businesses", and the 
criteria and procedures determ ining the qualifications.   
 Reply
 
  In general, under Section 1397C(b) of the Internal Revenue Code, for purposes of the 
Empowerment Zone tax subsidies and related tax subsidies, an enterprise zone business includes a 
"qualified business entity", which means, with re spect to any taxable year, any corporation or 
partnership if for such year each of the following re quirements is met:  (1) every trade or business of 
such entity is the active conduct of a qualified busin ess within an empowerment zone;  (2) at least 
50 per cent of the total gross income of such en tity is derived from the active conduct of such 
business;  (3) a substantial portion of the use of the tangible property of such entity (whether owned or 
leased) is within an empowerment zone;  (4) a subs tantial portion of the intangible property of such 
entity is used in the active conduct of any such business;  (5) a substantial portion of the services 
performed for such entity by its employees are perfo rmed in an empowerment zone;  (6) at least 
35 per cent of its employees are residents of an empow erment zone;  (7) less than 5 per cent of the 
average of the aggregate unadjusted bases of the prope rty of such entity is attributable to collectibles 
(as defined in section 408(m)(2)) other than collectibl es that are held primarily for sale to customers 
in the ordinary course of such business;  and (8) l ess than 5 per cent of the average of the aggregate 
unadjusted bases of the property of such entity is a ttributable to nonqualifie d financial property.   
 
 In addition, under Section 1397C(d) of the Internal Revenue Code, for purposes of the 
Empowerment Zone tax subsidies and related tax s ubsidies, a "qualified business" generally includes 
any type of business except for the types of bus inesses described below.  The following types of 
businesses are prohibited from being qualified businesses  under this provision:  (1) the business of 
renting residential property (for example, rental apar tments) to others;  (2) th e business of renting non 
residential property (for example commercial office  buildings) where less than 50 per cent of the 
gross rents are from enterprise zone businesses;  (3 ) the business of renting tangible personal property  G/SCM/Q2/USA/35 
 Page 19 
 
 
  to others where less than 50 per cent of the prop erty is rented by enterprise zone businesses or 
enterprise zone residents;  (4) the business of development or holding of intangibles (for example, computer software) for sale or license;  (5) the businesses of operating golf courses, country clubs, 
massage parlors, hot tubs, suntan facilities, racetracks or other gambling facilities, or liquor stores;  or 
(6) the use of more than $500,000 in assets in the business of farming.    Question 7  
 
 About the Export Credit Programmes for the Export-Import Bank of the United States , it is 
said, "All Ex-Im Bank Programmes a re in full conformity with the OECD guidelines on export 
credit practices and, concomitantly, the Agreement on Subsidies and Countervailing 
Measures".  We would be very grateful fo r more details about how this programme is 
conformed with OECD guidelines specifically (what guidelines are referred) and the SCM Agreement (Item K, Annex I).   
 
Reply
 
 
 US Ex-Im Bank follows the OECD Guidelines on  Export Credits in terms of its guarantee, 
insurance and lending programs by offering terms a nd conditions that are cons istent with the terms 
and conditions of the Arrangement.  In addition,  the Ex-Im Bank has designed its programs and its 
operations to address the Subsidies Agreement, speci fically "Item (j)" of Annex I (achieving a long 
term breakeven).  In addition, to the extent the Ex-Im Bank provides direct credits, the Bank strives to 
ensure compliance with Arrangement parameters, and in this context, so long as Ex-Im Bank follows 
the interest rate provisions of the Arrangement, it fa lls with the safe harbour exemption of "Item (k)".  
For more details on Ex-Im Bank's specific programs, please go to www.exim.gov .   
 Question 8 
 
 Finally, in the New York Liberty Zone , income tax concessions are wage credit, tax-
exempt bonds and bonus.  We would like to know,  except for the form of wage credit, whether 
these subsidies are also limited to qualified small bu sinesses.  In addition, we are also concerned 
about the definition of "qualified small busin esses" and the determination of conferring these 
subsidies.    
Reply
 
 
 Except for the expanded work opportunity tax credit (the "wage credit") which does not apply 
to a large trade or business with an average of more than 200 em ployees during the taxable year, the 
other tax incentives available in the New York Li berty Zone under Section 1400L of the Internal 
Revenue Code, such as tax-exempt bonds and more favorable depreciation, are not limited to small 
businesses and thus may be used by any business, whet her large or small, that meets the requirements 
for the particular tax incentives.   
  In determining whether a business is a prohib ited large business with more than an average 
of 200 employees during a taxable year for purposes of the wage credit in the New York Liberty 
Zone, the IRS provided some guidance on this dete rmination in IRS Notice 2002-42, 2002-27 I.R.B. 
(8 July 2002).  An employer can use any reasonable method of calculating the average number of 
employees on business days during the taxable year.  Special rules under Section 52 of the Internal Revenue Code apply that treat members of certain  controlled groups of corporations and certain 
unincorporated trades or businesses that are under common control in the aggregate as single 
employers for purposes of this large business restriction.    
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