WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CAN/38 
9 April 2010 
 
 (10-1870) 
Committee on Subsidies 
and Countervailing Measures Original:   English/ 
 French 
 
 
 
SUBSIDIES 
 
Replies to Questions Posed by the UNITED STATES1 Regarding the  
New and Full Notification of CANADA2 
 
  The following communication, dated 29 March 2010, is being circulated at the request of the delegation of Canada.  
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Structured Financing Facility 
 
Question 1 
 
Based on the description of this programme provided in Canada's notification, financing 
assistance is provided to purchasers/lessors of Ca nadian-built vessels.  In response to previous 
questions about this programme, Canada stated that "any assistance provided is not contingent 
upon the use of domestic over imported goods or  upon export performance".  Please further 
explain how the stated objective of this programme, "to stimulate demand for new Canadian-built vessels produced in existing Canadian shipyards", is met. 
 
Reply
 
 
 The objective of SFF is to stimulate economic  activities in the Canadian shipbuilding and 
industrial marine industry by providing financia l assistance to the buyers/lessees of Canadian-built 
ships.  There is no requirement that goo ds be purchased from only Canadian sources. 
 
Canadian Apparel and Textiles Industries Programme 
 
Question 2 
 
One of the objectives of this programme is to  help the apparel and textile manufacturing 
sectors in Canada "develop and implement global  strategies".  Please explain how companies 
qualify for assistance under this programme.  Must  recipients be exporters in order to qualify 
for benefits under this programme? 
 
                                                      
1 G/SCM/Q2/CAN/35. 
2 G/SCM/N/186/CAN. G/SCM/Q2/CAN/38 
Page 2  
 
  Reply
 
  Presently, only Canadian companies establishe d prior to 27 June 2002, and created for the 
purpose of manufacturing textiles qualify to receive assistance under the CANtex component of the Canadian Apparel and Textile Indus tries Program.  In order for a company to qualify the applicant 
needs to demonstrate management capability and th e financial wherewithal to undertake the proposed 
project activities and have a proven product or service with a history of sales in Canada or abroad.  
Recipients/Applicants do not need to be e xporters in order to qualify for assistance. 
 
Strategic Aerospace and Defence Initiative 
 
Question 3  
 
This programme provides assistance for strategic research and development in the 
aerospace and defence (A&D) indus tries to foster, among other things, "the competitiveness of 
Canadian A&D companies".  Please explain in fu rther detail the conditions that must be met 
for a project to qualify for funding under this programme. 
 
Reply
 
  To be eligible for SADI support, appli cants and projects must meet the following 
five conditions in order to qualif y for funding under this programme: 
 
(1) SADI assistance is only available to Canadian incorporated companies that: 
 
• Conduct strategic R&D activities in the A&D industries;  and 
 
• create opportunities for Canadians to contribute to a highly skilled and 
knowledge-based workforce. 
 
(2) Similarly, the proposal must demonstrate that the company's project will be 
comprised of eligible activities.  These activities are defined as: 
 
• Industrial research:  Planned research or critical investigation aimed at 
discovery of new knowledge, with the objective that such knowledge may be 
useful in developing new products, process es or services, or in bringing about 
a significant improvement to existing products, processes or services; 
 
• pre-competitive development:  the translation of industrial research findings 
into a plan, blueprint or design for new, modified or improved products, processes or services whether intended for sale or use, including the creation 
of a first prototype which would not be capable of commercial use.  It may 
further include the conceptual formulation and design of products, processes or services and of initial demonstration or  pilot projects, but does not include:  
(i) initial demonstration or pilot projects  if these could be converted or used 
for industrial application or commercial exploitation;  or (ii) routine or 
periodic alterations to existing prod ucts, production lines, manufacturing 
processes, services, and other on-g oing operations even though these 
alterations may represent improvements. 
  G/SCM/Q2/CAN/38 
 Page 3 
 
 
  (3) The project must include strategic R&D activities, involving one or more 
technologies that: 
 
• Support the development of next ge neration A&D related products and 
services; 
 
• build on Canadian strengths in A&D technology development; 
 
• enable Canadian companies to partic ipate in major platforms and supply 
chains;  or 
 
• assist the sector in achieving Cana da's international obligations 
(e.g. development programmes supported by Canada). 
 
(4) The applicant must also demonstrate that  government support is required to meet the 
scope and timing of the project. 
  (5) Strategic R&D and/or manufacturing of high-value added technologies, derived from 
SADI funded projects, must take place in Canada, unless otherwise agreed to by the 
Minister. 
 
PRECARN 
 
Question 4  
 
According to the description, one of the programme's objectives is to "boost the 
productivity, agility and global competitiveness of  Canadian firms through the development and 
application of robotics and intelligent systems-en abled solutions that have market demand".  
Please explain the conditions that must be met for a project to qualify for funding under this 
programme. 
 
Reply
 
  Precarn funds R&D projects in the fields of advanced robotics and intelligent systems.  The following conditions must be met in order for a project  to be eligible for fu nding under this project;  
firstly, all Eligible Projects will be led by an eligible  recipient, and will include the participation of at 
least one user of the proposed technology that tests project results, as well as the participation of researchers affiliated with at least one Canadian re search institution.  Typical ly, for a project to be 
eligible there must be at least one  technology developer, one university researcher, and one initial user 
of the proposed technology.  
Over the course of the Phase 4 Research Program, Precarn will contribute an average of 
40 per cent of the total costs of all eligible project s, though its contribution to each Eligible Project 
may range from 25 per cent to 65 per cent , depending on individual circumstances. 
 
Precarn will support a mix of projects in terms of size, risk, complexity and participation by 
firms across Canada.  The programme will seek to ta ke advantage of the expe rience of other Canadian 
not-for-profits organizations involved in R&D and to  this end.  Precarn may enter into arrangements 
with these other organizations to assist Precarn in the delivery of the Phase 4 Research Program. 
  
 G/SCM/Q2/CAN/38 
Page 4  
 
  Precarn may fund projects involving internationa l R&D collaboration where it is to Canada's 
advantage:  in such cases its funding support will be di rected to the costs associ ated with the Canadian 
portion of the project.  Precarn will also act as a national focal point for collaborative research and development in Intelligent Systems and Advanced R obotics in Canada so that it can be a source of 
strategic intelligence. 
 
Provincial Programmes not Notified 
 
 Public sources indicate that Canada's provincial governments administer several 
programmes that were not included in this notifi cation.  For each of these programmes, please 
explain whether the programme is still in place and, if so, why the programme was not notified 
pursuant to Article 25 of the Subsidies Agr eement.  Further, please confirm that these 
programmes conform to Canada's commitments under Article 3 of the Subsidies Agreement. 
 
Investissement Quebec 
 
Question 5 
 
The United States has previously asked Ca nada about Investissement Québec, an 
economic development organization that provides fi nancial assistance to companies in Quebec.  
Most recently, Canada stated that Investissement Québec (IQ) "manages different types of assistance programmes to companies" but that su ch assistance does not constitute a subsidy as 
defined by Article of the ASCM and is thus no t subject to the notification requirements under 
Article 25 of the ASCM".
3  However, the public website of IQ explains that assistance under 
IQ includes a range of "tax assistance measures " for corporations engaged in "specialized 
activities" or that are set-up in "a designated region of Quebec".  Eligible operations for some 
of these tax measures appears to be limited to enterprises engaged in the manufacture or 
processing of wood, energy, metals or food produc ts.  Others appear to condition eligibility to 
enterprises located in certain regions of Quebec, such are the Maritime regions of Bas-Saint 
Laurent, Côte-Nord and Gaspésie. 
 
Reply  
  These tax assistance measures are for companies engaged in the manufacturing and processing of a wide range of products involving wood, energy, foodstuffs, metals, peat, slate, 
precious or semiprecious stones, recycling of wast e and residue from development or processing of 
natural resources, printing or publis hing, non-metallic minerals, and so on.  Investissement Québec 
merely administers the companies' eligibility for su ch measures, in accordance  with the Taxation Act 
and the statutory provisions relating to the measures in question. 
 
Government of Québec Programme for Lab Research Inc  
 
Question 6  
 
 According to 2008 reports, the Québec govern ment provided more than $CN3 million in 
subsidies and loans to LAB Research Inc., to suppo rt the expansion of its Canadian facilities.  
The Canadian-based global non-clinical co ntract research organization also received a 
non-refundable contribution of $CN2 million.  The programme, administered by the Quebec 
government's Minister of Economic Development, Innovation and Exportation, aims to attract 
and retain research investments.  LAB Research  also received a $CN529,000 subsidy from the 
Quebec government to create 242 new jobs.  In addition, the corporation obtained a 
$CN500,000 loan from Canada Economic Develo pment as part of the Business and Regional 
Growth Programme. 
                                                     
 
3 G/SCM/Q2/CAN/30.  G/SCM/Q2/CAN/38 
 Page 5 
 
 
  Reply  
  This is an R&D activity.  Lab Research Inc. provides pre-clinical and non-clinical contract 
research services in the pharmaceutical, biotechnology, ag ro-chemistry and industrial sectors.  The aid 
was granted in the context of a second extension of the company's facilities.  It is limited on the one 
hand to covering costs incurred in the expansion of  premises used exclusively and permanently for 
research purposes in an amount of $2 million for an investment of at least $24 million, and, on the other, to covering expenditures relating to staff e ngaged solely in research activities for specialized 
training in an amount of the order of $529,000.  
The refundable $500,000 loan received by the company forms an integral part of 
Canada Economic Development's Business and Regi onal Growth Program, as stated in Canada's 
2009 notification.  Government of Qu ébec Programme for Alcan  
 
Question 7  
 
 In 2006, the Québec government and alumi num producer Alcan signed an agreement to 
build an aluminum smelter in the Saguenay- Lac-Saint-Jean region.  Provisions of the 
agreement provided Alcan a $CN400 million interest-free loan over 30 years;  tax benefits 
worth $CN112 million;  a new block of 225 MW of  electricity supplied by Hydro-Québec at the 
high-power L rate from 2010 to 2045;  extension of a sales contract for 342 MW delivered by 
Hydro-Québec at the high-power L rate from 2024 to 2045;  and extension of Alcan's rights 
over the waters of the Péribonka River from 2034 to 2058 for continuous power production 
of 900 MW. 
 
Reply
 
  The tax measures relate to improvements made to the Québec government tax system, 
announced at the introduction of the 2007-2008 Budget.  The improvements extend to firms across Québec, including Alcan.  The general high-power L rate applies to subscriptions for a required 
capacity of 5 MW or more, not only to aluminium companies.  Under the 2006 agreement, the 
government of Québec did not extend Alcan's rights ove r the waters of the Péribonka River:  it merely 
acknowledged that the requisite conditi ons for renewal had been met.  Alcan will be able to exercise 
its renewal option as of 1 January 2032 at the earliest.  
Government of Qu ébec Aeronautical Development Strategy 
 
Question 8  
 
 According to the WTO's 2007 TPR for Ca nada, the Government of Québec in 2006 
launched the Québec Aeronautical Developmen t Strategy, a wide-ranging programme of 
assistance to Québec's aeronautical industry to support, inter alia , the "purchase of 
leading-edge equipment". 
 
Reply
 
 
 This development policy is not a programme and therefore has no budget.  The development 
strategy for the aeronautical industry specifies Québ ec government policy for the years to come.  It 
draws on the numerous competitive advantages that Qu ébec has to offer in the aeronautical sphere, 
including labour skills, R&D, acquired expertise,  a network of more than 200 SMEs, and a high 
standard of training. G/SCM/Q2/CAN/38 
Page 6  
 
  Government of Qu ébec Refundable Tax Credit for Vessels 
 
Question 9 
 
 According to the WTO's 2007 TPR of Cana da, the Government of Québec offers a 
refundable tax credit for the construction of vessels, as well as "a reduction of tax on capital on 
the acquisition of vessels made entirely in Québec". 
 
Reply
 
 
 Québec levies a tax on capital.  Since 2007, the lowering of the tax on capital rate has been 
balanced in favour of all firms across Québec.  Th e rate is 0.12 per cent in 2010 and the tax will be 
abolished on 31 December 2010.  Under the Taxati on Act, as companies operating an enterprise in 
Québec, they may be eligible  for a tax credit package. 
 Question 10  
 
Enterprise Cape Breton Corporation Assistance 
 
 According to the WTO's 2007 TPR of Ca nada, The Enterprise Cape Breton 
Corporation promotes and assists the developm ent of regional industry through repayable 
contributions and other forms of investment to projects which support economic growth.  In the 
case of food processing, conditions include that "the market for the output of this project must be import substitution or export orientated". 
 
Reply
 
 
 Enterprise Cape Breton Corporation (ECBC) is  a federal Crown corporation created to 
promote and assist the financing and development of  Cape Breton Island.  ECBC is responsible for 
the delivery of ACOA's programmes on Cape Br eton Island.  Programmes delivered by ECBC on 
behalf of ACOA are reported through ACOA.  
Enterprise Cape Breton Corporation 
 1. Enterprise Cape Breton Corporation (ECBC) Program.  2. The notification covers the FY 2006/07 and 2007/08. 
 
3. The ECBC Program provides direct assistance to business and communities.  The Corporation 
has in place a set of policies which outline speci fic areas of eligibility for both commercial and 
non-commercial funding.  The overall objective of  this assistance is to help create a positive 
long-term economic impact for Cape Breton Island.  Each project is assessed against three basic 
criteria: 
 
• Viability/sustainability; 
 
• need/incrementality; 
 
• net economic impact on the region.  G/SCM/Q2/CAN/38 
 Page 7 
 
 
   The ECBC Program is designed to provide support to business, by facilitating private sector 
investment in projects that enhance the comp etitiveness of commercial enterprises and increase 
opportunities to produce long-term, sustainable jobs.  The programme offers access to capital, support 
for human resource capacity building, entreprene urship skills development, and assistance for 
e-commerce.  Funding is also available to provide support to communities to help plan and implement 
non-profit community development projects.  This includes assistance for infrastructure, strategic 
planning and festivals and events.  4. Assistance is provided under the legislative authority of the Government Organization Act, 
Atlantic Canada, 1987 . 
 
5. Assistance is provided in the form of secure d and unsecured loans, interest free or interest 
bearing loans, equity investments and grants.  6. Commercial funding is provided to SMEs to expand, modernize and become more 
competitive.  Assistance is generally in the form of interest free or interest bearing loans, secured or 
unsecured loans of up to 50 per cent of the actual elig ible costs.  Assistance can also be provided in 
the form of an equity investment.  To be eligible for an equity investment, applicants must generally 
demonstrate a minimum equity balance of 20 per cent of the pro-forma net fixed assets.  
Non-commercial funding is provided to non-profit organizations that provide support to the business 
community.  Assistance is generally in the form of a grant provided on the basis of a percentage of 
eligible costs up to 75 per cent. 
 7. ECBC disbursed $7.8 million in FY 2006/ 07 and $8.1 million in FY 2007/08 under its 
commercial and non-commercial programming.  
8. ECBC programming was created in 1988. 
 
Sector-Specific Provincial Programmes 
 
 Canada's 2007 WTO Trade Policy Review id entified "sector-specific programmes" in 
shipbuilding, textiles, defence, fisheries, energy, film and TV, and various programmes at the 
provincial levels, some on a cost-sharing basis with the Federal Government.  The Report also 
notes that "no province or territory has indicated to the federal government that it has subsidies 
subject to the notification require ments of the Subsidies Agreement". 
 
Question 11 
 
 Could Canada please explain what additi onal provincial-level support programmes 
might exist and why these programmes at the provi ncial levels should not be subject to the 
notification requirements of Arti cle 25 of the Subsidies Agreement? 
 
 The 2007 TPR further states that "most provinces offer tax incentives to businesses that 
may take the form of tax credits, tax exemptions or tax holidays, in areas such as the film and 
TV industry, to generate employment or stimul ate investment, manufacturing capacity … ".  
Other incentives provided by the provinces are R&D funding and fuel tax exemptions or 
rebates for certain commercial activities. 
 
Question 12 
 
 To the extent not already addressed elsewhe re in its response, could Canada please 
explain why these programmes at the provincial levels should not be subject to the notification requirements of Article 25 of the Subsidies Agreement? G/SCM/Q2/CAN/38 
Page 8  
 
  Replies 11 and 12
 
  As mentioned in the past, Canada supports  the subsidy notification process as being an 
important transparency exercise and agrees that s ub-federal subsidy programmes that are determined 
to meet Canada's obligation under Art. 25 of the ASCM should be notified. 
 
As such, the federal government is engaged in  continuing consultations  with the provincial 
and territorial governments regarding subsidy notification requirements.  We consider this as a work 
in progress and we make every effort to pr ovide a full notification in a timely manner. 
 
During the consultations for the 2009 notificati on, two provinces have informed the federal 
government of programmes that meet the criteria for th e purposes of notification.  This is reflected in 
our notification submitted in September.  
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