REPORT TO THE CONGRESS
REVIEW AND OPERATION OF THE
Report of the
The Uruguay Round Agreements Act of 1994 (URAA) requires the Secretary of Commerce, in consultation with other departments and agencies, to conduct an ongoing review of the operation of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (Subsidies Agreement), with specific emphasis on three areas. These three areas concern the effectiveness of the Subsidies Agreement in (1) disciplining the use of subsidies which are prohibited by the Agreement, (2) remedying the adverse effects of subsidies which are actionable, particularly through a special provision of the Agreement which establishes a rebuttable presumption of adverse trade effects when certain types of subsidies are provided, and (3) ensuring that the provision for certain non-actionable subsidies does not undermine the benefits derived from other parts of the Subsidies Agreement. Further, the Secretary is required to report to the Congress on this review by June 30, 1999.
The Subsidies Agreement establishes multilateral disciplines on subsidies, including mechanisms for challenging government subsidies that are prohibited by the Subsidies Agreement and permissible subsidies that adversely affect competition in foreign markets. The URAA assigned both the Department of Commerce (Commerce) and the Office of the U.S. Trade Representative (USTR) responsibilities for monitoring and enforcing the obligations contained in the Subsidies Agreement. Commerce and USTR collaborate closely to fulfill their roles with respect to these responsibilities. The roles of the two agencies are both unique and complementary. USTR coordinates the development and implementation of overall U.S. trade policy with respect to subsidy matters. The role of Commerce's Import Administration is to enforce the countervailing duty (CVD) law and, in accordance with responsibilities set forth in the URAA, to spearhead the subsidies enforcement activities of the United States with respect to the disciplines embodied in the Subsidies Agreement.
The attached report is based on these activities and provides the Congress with an overview of the operation of the Subsidies Agreement, with specific emphasis on the three areas noted above. Although our experience with some of these areas is limited, generally we have found that the multilateral disciplines established in the Subsidies Agreement provide effective tools for preventing the use of prohibited subsidies and in challenging government subsidiess that are in violation of the Agreement. Further, we have seen no evidence that the inclusion of a category of non-actionable subsidies has detracted from the effective disciplines contained in other provisions of the Subsidies Agreement. This Agreement remains the most important instrument available to discipline worldwide subsidy practices.
Finally, the report notes that the two sets of provisions of the Subsidies Agreement concerning non-actionable subsidies and the presumption of serious prejudice will expire at the end of 1999, unless they are extended by a consensus of the WTO Subsidies Committee. Many factors will be considered as the United States and the Subsidies Committee review the operation of these provisions in order to decide whether to modify and/or extend such provisions, or to permit them to expire at the end of this year, as is provided for in the Agreement. The Administration is currently consulting with the Congress, the private sector and other official advisers on this issue.
Section 282 of the Uruguay Round Agreements Act of 1994 (URAA) details the joint and separate responsibilities of Commerce and USTR in the review of the operation of the WTO Subsidies Agreement. Among the responsibilities of Commerce, as set forth in section 282(d), is the submission of a report to the Congress reviewing:
the effectiveness of part II of the Subsidies Agreement in disciplining the use of subsidies which are prohibited under Article 3 of the Agreement,
the effectiveness of part III and, in particular, Article 6.1 of the Subsidies Agreement, in remedying the adverse effects of subsidies which are actionable under the Agreement, and
the extent to which the provisions of part IV of the Subsidies Agreement may have undermined the benefits derived from other parts of the Agreement, and, in particular-
the extent to which WTO member countries have cooperated in reviewing and improving the operation of part IV of the Subsidies Agreement,
the extent to which the provisions of Articles 8.4 and 8.5 of the Subsidies Agreement have been effective in identifying and remedying violations of the conditions and criteria described in Article 8.2 of the Agreement, and
the extent to which the provisions of Article 9 of the Subsidies Agreement have been effective in remedying the serious adverse effects of government subsidies described in Article 8.2 of the Agreement.
This report contains the results of our review of the Subsidies Agreement, with specific emphasis on the parts of the Agreement outlined above.
The Subsidies Agreement establishes multilateral disciplines on subsidies and provides mechanisms for challenging subsidies that violate these disciplines. WTO disciplines are enforceable through the binding WTO dispute settlement system. Special dispute settlement rules in the Subsidies Agreement establish strict timelines for implementing a panel report, and include remedies that, depending upon the type of subsidy in question, require the withdrawal of the subsidy or the elimination of a subsidy's adverse effects.
Among its various disciplines, the Subsidies Agreement provides remedies for subsidies affecting competition in the importing country's market, in the market of the subsidizing government and in third country markets. Previously, the only effective U.S. remedy against foreign subsidization was application of the U.S. countervailing duty (CVD) law. While that law is effective in addressing the effects of subsidized merchandise in the U.S. market, it is not designed to address the effects of subsidies in other markets. The Subsidies Agreement, together with the WTO dispute settlement procedures, provides the substantive and procedural tools for addressing the problems faced by U.S. companies confronting subsidized competition anywhere in the world, while enabling the United States to retain strong and effective legal remedies against subsidized imports that injure domestic industries in the United States.
The Subsidies Agreement disciplines government subsidy practices through a method of categorization based on the "stop/proceed with caution/go" symbolism of the common traffic light. Export subsidies ("subsidies contingent . . . upon export performance") and import substitution subsidies ("subsidies contingent . . . upon the use of domestic over imported goods") are prohibited - or "red light" - practices. Subsidies provided for certain industrial research and development, regional development and environmental compliance purposes are both permitted and non-actionable ("green light") practices, so long as such government assistance is provided according to the strict conditions and criteria stipulated in the Agreement. Finally, all other ("yellow light") subsidies are permitted, but may be challenged through WTO dispute settlement or CVD proceedings. These subsidies become "actionable" when: (i) they are limited to a firm, industry or group thereof within the territory of a WTO Member (so-called "specific" subsidies); and (ii) they cause adverse trade effects. Certain subsidies, moreover, are presumed to cause such effects -- i.e., subsidies granted in certain circumstances to cover operating losses, subsidies for the direct forgiveness of debt, or the subsidization of a product in excess of five percent of the product's value. Because they are viewed as straddling the line between prohibited and actionable subsidies, these presumptively harmful subsidies/circumstances are referred to as the "dark amber" category of subsidies. Each of these categories is discussed in more detail below.
Although we have had only limited experience with some of the categories of subsidies mentioned above, we have generally found that the multilateral disciplines established in the Subsidies Agreement have worked effectively when used to prevent or challenge the use of prohibited subsidies and to challenge subsidies that have adverse trade effects. Further, we have seen no evidence that the inclusion of a category of non-actionable subsidies has detracted from the effective disciplines contained in other provisions of the Subsidies Agreement.
One way in which the Subsidies Agreement facilitates compliance with these disciplines, and the monitoring of such compliance, is through subsidy notification. All WTO Members are required to make an annual notification providing information about all measures with in their jurisdictions which would constitute "specific" subsidies. Members submit "new and full" notifications every third year, beginning in 1995, and update notifications (usually containing information solely on changes made to previously notified subsidies) in the intervening years. The Agreement charges the Subsidies Committee with reviewing the full notifications at special sessions held every third year, with updates reviewed at regular, semi-annual Committee meetings.
These subsidy notifications have played an important role in the United States' monitoring and enforcement activities to protect U.S. rights and benefits under the Subsidies Agreement. Recognizing the important advantages which such notifications could bring in improving our understanding of foreign subsidies and in identifying those practices which might be most detrimental to U.S. interests, the United States has devoted considerable attention to reviewing these notifications. Notifications can be a particularly useful tool in assessing adherence to the Agreement, especially in regard to prohibited subsidies. To this end, the United States conducts an extensive review of WTO Members' notifications in order to identify unreported subsidies, pose questions concerning the operation and effects of notified subsidies and review the consistency of reported measures either with the Agreement's prohibitions or with provisions calling for the phase-out of such practices. This increase in transparency, added to the increased attention all Members have devoted to the notification process, has ensured that compliance with obligations of the Agreement has continued to improve over time.
However, because of the extraordinary burden of coordinating and compiling information from various government agencies to meet the broad scope of the notification requirements outlined above, efforts have begun to build a consensus among Members to streamline the notification process. Our current proposal would provide for a system of biennial notifications, with update notifications discarded and review meetings held in the "off" years. This would permit Members to better rationalize the resources between preparing to make a notification and the review of others' notifications. Such a change would likely both ease administrative burdens and enhance transparency, insofar as many Members currently file late and incomplete notifications under the existing procedures. The Committee may attempt to develop a decision to implement such a change for approval by Ministers at Seattle in November of this year.
II PROHIBITED ("RED LIGHT") SUBSIDIES
One of the more important achievements of the Uruguay Round negotiations with respect to disciplining the use of trade-distorting subsidies was the establishment of the so-called "red light," or prohibited, category of subsidies. The WTO Subsidies Agreement advances subsidy disciplines not only by establishing meaningful dispute settlement procedures, but also by broadening the list of prohibited practices. As under the prior GATT Subsidies Code, export subsidies are prohibited under the WTO Subsidies Agreement. However, the current Subsidies Agreement includes a clearer and more expansive definition of a prohibited export subsidy (i.e., subsidies contingent in law or in fact, whether solely or as one of several other conditions, on export performance). In addition, the Subsidies Agreement contains a new prohibition against the use of import substitution subsidies (i.e., subsidies contingent on the use of domestic over imported goods).
Our experience with the application of the red light provisions in the context of both CVD investigations as well as in multilateral dispute settlement has demonstrated that the Subsidies Agreement is effective in disciplining the use of prohibited subsidies. As discussed below, the prohibition on the use of red light subsidies has resulted in a lower incidence of export and import substitution subsidies in developed countries compared with developing countries. Moreover, where governments (both developed and developing) do resort to the use of prohibited subsidies, WTO panels have shown little tolerance and recommended their elimination. In this regard, we will continue to monitor closely the manner in which countries found to be in violation of the Subsidies Agreement implement the panel decisions.
Experience With the Application of the Red Light Provision
Countervailing Duty Cases
It is in the context of CVD cases that Commerce becomes the most familiar with the subsidy practices of U.S. trading partners. Since the Subsidies Agreement came into force nearly five years ago, Commerce has conducted 19 CVD investigations and has conducted multiple reviews of 20 CVD orders or suspension agreements. Our experience in this area leads us to conclude that the governments of developed countries have, for the most part, refrained from engaging in prohibited practices. In contrast, the governments of developing countries have provided such subsidies more often than have developed country governments.
While our investigations and reviews have involved many developed countries, only the governments of Turkey, Italy and Korea, and certain sub-federal governments of Belgium and Canada, have been found to be providing prohibited subsidies. Several of the subsidies provided by the Turkish and Italian governments, as well as the one subsidy discovered in Canada, were provided for the benefit of agricultural products and hence, arguably, may not be considered to be prohibited export subsidies. (1) Of the remaining subsidies, three have been terminated (in Korea) and the remaining provide relatively small levels of benefits.
Under Article 27.3 of the Subsidies Agreement, the prohibition against import substitution subsidies does not apply to developing countries until the year 2000, and does not apply to least-developed countries until 2003. With respect to the provision of export subsidies, the prohibition does not apply to least-developed countries. In the case of other developing countries, the prohibition against the provision of export subsidies does not apply until the year 2003, as long as the country in question has met several conditions. These conditions are set forth in Article 27.4 of the Agreement: (1) the country must phase out its export subsidies within the eight-year period, (2) the country must not increase the level of its export subsidies, and (3) the country must eliminate such subsidies within a shorter period when the use of such export subsidies is inconsistent with its development needs. Our experience has shown that, since 1995, developing countries have provided red light subsidies more often than developed countries. Of the developing countries examined, many have been found to maintain at least one red light subsidy, and one country was found to have nine different red light subsidies. Although, as mentioned above, these countries are not currently prohibited from using red light subsidies, we have countervailed them under our CVD law and will continue to monitor developments closely as we near the expiration of the developing country exemption, particularly with respect to import substitution subsidies, which are set to be eliminated by the year 2000.
There are other areas within the context of CVD cases where the existence of prohibited subsidies becomes relevant. One area involves the determination by the International Trade Commission (ITC) that a U.S. industry is threatened with material injury because of subsidized imports. In making its determination, among other relevant economic factors, the ITC considers whether the countervailable subsidy involved is a subsidy described in Article 3 (or Article 6.1) of the Subsidies Agreement. Since January 1, 1995, there have been no CVD investigations in which the ITC has made a determination regarding threat of material injury.
Another area where the existence of prohibited subsidies becomes important concerns a determination during a CVD investigation that "critical circumstances" exist. The statutory provisions dealing with critical circumstances address the issue of import surges that may occur once a petition is filed or is rumored to be filed. A finding of critical circumstances allows for the imposition of duties up to 90 days before a preliminary determination, which otherwise would be the starting date for relief. In determining the existence of critical circumstances, one factor that Commerce must take into account is whether the subsidy is inconsistent with the Subsidies Agreement. A prohibited subsidy would qualify as this type of subsidy. There have been no affirmative critical circumstances determinations involving a CVD investigation since 1995. However, in two of the recently initiated CVD investigations involving cold-rolled steel, there are allegations that critical circumstances exist.
One final area to mention concerns the ITC determination of whether to "sunset" a CVD order. In making its determination, the ITC must consider the "nature" of the subsidy, i.e., whether the subsidy being provided is a subsidy described in Article 3 (or Article 6.1) of the Subsidies Agreement. Thus, Commerce has been identifying in its sunset notices to the ITC the nature of the subsidies reviewed. The ITC will take account of this in its determinations.
While our experience with CVD cases suggests that the prohibition on the use of red light subsidies has had an impact on the types of subsidies provided by governments of developed countries, certain governments are still providing such subsidies. For this reason, it is important that the expedited WTO dispute settlement procedures that apply to disputes involving possible prohibited subsidies be effective in remedying such practices.(2) In recent months, final panel reports have been issued in several cases involving export subsidies.(3) The United States has brought or played an active role in each of these cases. From these reports it is clear that, in interpreting the agreement, WTO panels are taking a tough stance with regard to what constitutes a prohibited export subsidy, even when it comes to finding a de facto export subsidy, i.e., export subsidies that are tied to exports or export earnings in practice though not in law. Outlined below are the recent panel decisions regarding export subsidies.
Australia - Prohibited Export Subsidies on Leather
In a dispute between the United States and Australia concerning the provision of prohibited export subsidies on leather, the standard in determining what constitutes a de facto export subsidy has been given real meaning. In October 1996, the United States and Australia reached a settlement concerning two export subsidies available to leather producers. The settlement included an agreement by Australia to excise automotive leather from eligibility under both programs by April 1, 1997. However, soon after the settlement, Australia announced a new package of subsidies granted to the sole Australian exporter of automotive leather, Howe and Company Proprietary, Ltd. The subsidy package included a grant contract, which provided for three payments totaling A$30 million, and a loan contract, which provided for a 15-year loan of A$25 million at a low interest rate, with no principal or interest paid for the first five years. The United States requested the establishment of a panel, alleging that the new measures constituted de facto export subsidies. The panel issued its final report on May 25, 1999.
In making its determination, the panel analyzed the loan and grant contracts separately and found that the three payments under the grant contract constituted de facto export subsidies.(4) The panel stated that, given the export-dependent nature of Howe's business and the small size of the Australian leather market, the sales performance targets that were required under the grant contract were effectively export performance targets. In addition, the panel took note of the fact that the Government of Australia provided assistance only to Howe, the only exporter of automotive leather. Based on these facts, the panel concluded that the payments under the grant contract were subsidies "contingent ... in fact" on export performance in violation of Article 3.1(a) of the Agreement.
The panel recommended that the measures be withdrawn within 90 days. Australia did not appeal the panel report, which was adopted by the DSB on June 16, 1999. Australia has indicated that it would implement the panel's recommendations, but has not given an indication as to how it would do so. The Administration will monitor closely the steps taken by the Australian government to ascertain whether the measures are withdrawn in accordance with the panel report.
Canada - Measures Affecting the Export of Civilian Aircraft
The panel reviewing the dispute between Canada and Brazil involving Canadian measures affecting the export of civilian aircraft recently issued its final report, finding evidence of both a de jure and a de facto export subsidy. In that dispute, Brazil alleged that several Canadian measures available to the civilian aircraft industry constituted prohibited export subsidies. Because of the issues involved, the United States became a third party observer in this case. The panel found that two programs - the Canada Account and Technology Partnerships Canada (TPC) - constituted prohibited export subsidies. The panel found that the Canada Account program provided export credits at below-market rates to the civilian aircraft industry and concluded that such credits were contingent in law on export performance.
With respect to the TPC program, the panel's analysis and findings serve to clarify several previously ambiguous aspects of the definition of a de facto export subsidy. Brazil alleged that this subsidy provided royalty-based financing at below-market rates of return for investments in projects that result in a high technology product for sale in export markets. The panel found that "TPC funding in the regional aircraft sector is expressly designed and structured to generate sales of particular products, and that the Canadian Government expressly takes into account, and attached considerable importance to, the proportion of those sales that will be for export, when making TPC contributions in the regional aircraft sector." The panel went on to conclude that "these facts demonstrate that TPC assistance to the Canadian regional aircraft industry would not have been granted but for some expectation of exportation or export earnings."
Significantly, in making its determination, the panel rejected an argument from Canada that the export orientation of the industry should not be taken into consideration. The panel found that this factor, while not dispositive, nevertheless was one of several that should be considered. In addition, the panel rejected the Canadian argument that, in order for a subsidy to be contingent upon export, there must be some form of penalty for not realizing increased export sales. The panel found this argument to be insufficient to demonstrate that a subsidy would not have been granted but for anticipated exportation or export earnings.
As in the Australian Leather case, the panel recommended that these prohibited subsidies be withdrawn within 90 days. Unlike the Australian Leather case, however, the parties to this dispute have appealed the panel findings. The United States has been actively involved in this appeal as a third party. Of particular importance to the United States are issues relating to subsidy definition and the standard for identifying a de facto export subsidy. With respect to subsidy definition, Canada (joined by the EC as a third party) has asked the Appellate Body to overturn the panel's finding that a "cost to government" is not one of the necessary elements for a subsidy. With respect to de facto export subsidies, Canada (again joined by the EC) has asked the Appellate Body to adopt a narrower standard than that applied by the panel.
Brazil - Export Financing Program for Civil Aircraft
Another recently issued panel report, involving a dispute between Canada and Brazil over Brazil's export financing program for civil aircraft, addressed the issue of the applicability of the export subsidy prohibition to developing countries. As discussed above, our CVD experience has shown that developing countries maintain a significantly higher number of export subsidies than developed countries. This can be explained by the special and differential treatment accorded to developing countries by the Subsidies Agreement. As discussed above, under Article 27 of the Subsidies Agreement, the prohibition against the provision of export subsidies does not apply to developing countries, such as Brazil, for a period of eight years, as long as the country in question has met several conditions. These conditions include requirements that a developing country phase out its export subsidies during the eight-year period, and that a country's level of export subsidies not increase during that period.
In this case, Canada alleged that Brazil's PROEX export financing program (insofar as it applies to civil aircraft) is subject to the prohibition on the provision of export subsidies because Brazil has not adhered to the conditions of Article 27.4. The panel ruled that Brazil has not been phasing out its export subsidies over the eight-year period and that it has increased the level of its export subsidies. Consequently, the panel found that because Brazil has failed to comply with the conditions of Article 27.4, the prohibition of export subsidies is applicable to Brazil. Accordingly, payments under PROEX were found to constitute prohibited export subsidies. The panel's findings in this dispute are significant because they suggest that the conditions for enjoying the special and differential treatment accorded developing countries under the Subsidies Agreement will be rigorously applied.
As in the cases discussed above, the panel recommended that Brazil withdraw its prohibited subsidies within 90 days. Because both Brazil and Canada have appealed the panel findings, the ruling has not yet been adopted or implemented. As in the Canadian aircraft dispute discussed above, the United States has taken an active role in the appeal process. From a systemic standpoint, the most important issue raised concerns the nature of the remedy available in a WTO subsidy dispute. Brazil (joined by the EC as a third party) as essentially argued that it cannot be required to "withdraw" a subsidy that it has already committed to provide. The United States has vigorously opposed this contention, arguing that if Brazil's argument was accepted, WTO dispute settlement would be rendered worthless as a vehicle for addressing the problems caused by subsidies.
III ACTIONABLE ("YELLOW LIGHT" AND "DARK AMBER") SUBSIDIES
The Subsidies Agreement refers to two types of subsidies against which action can be taken in the WTO or in domestic CVD proceedings if adverse effects are established. The first type, i.e., yellow light subsidies, are those that are not otherwise dealt with by the Agreement as prohibited or non-actionable subsidies. In order for this type of subsidy to be actionable, it must be specific (e.g., provided to a single firm or industry or a group thereof) and cause adverse effects to the interests of another member. Adverse trade effects can include (1) material injury, or the threat thereof, as in CVD proceedings, (2) the nullification or impairment of benefits accruing directly or indirectly to another WTO Member under GATT 1994, and (3) the displacement or impeding of sales or significant price undercutting, price suppression or price depression in so-called "serious prejudice" disputes brought to the WTO. Because serious prejudice can arise in any market affected by an actionable subsidy (whether in an importing country, the subsidizing country, or a third-country market), it is the standard most often used to challenge subsidized competition in the subsidizing country or third-country markets.
The second category of actionable subsidies, i.e., dark amber, is listed in Article 6.1 of the Agreement. Dark amber subsidies are presumed to cause serious prejudice.(5) Where serious prejudice is presumed, the burden is placed on the subsidizing government to demonstrate that serious prejudice did not result from the subsidization in question. The four categories of dark amber subsidies are (6) :
In addition to strong substantive rules that apply to these two actionable classes of subsidies, the Agreement establishes expeditious and effective procedures for resolving disputes regarding "dark amber" and "yellow light" subsidies. Supplementing the generic WTO dispute settlement rules, the provisions of the Subsidies Agreement, among other things, require a subsidizing country to withdraw a subsidy or remove its adverse effects within six months of the adoption of a panel report. In addition, Annex V of the Subsidies Agreement establishes an information-gathering procedure that can be used by a complaining country to gather information needed to establish the existence of an actionable subsidy and/or serious prejudice.
Experience with the Dark Amber Provision
Of the two categories of actionable subsidies outlined above, it is the dark amber category about which the Congress has requested our observations. Generally speaking, there has been little experience to date with this category of subsidies. This may be attributable to a greater degree of uncertainty concerning how the provisions, in practice, would operate in comparison with a "standard" serious prejudice subsidy complaint, i.e., one not involving any presumption. An Informal Group of Experts was established by the Subsidies Committee to examine, develop and recommend to the Committee additional rules for calculating the value of subsidies on the basis of the cost to the subsidizing government.(8) Their report and recommendations were intended to provide some additional certainty with respect to the provision involving the five percent subsidization ceiling. However, it remains difficult to gauge with any confidence how effectively this provision serves to enhance the Agreement's subsidies disciplines. One way it may have served to increase disciplines is through its deterrence effect, i.e., in the degree to which it may have dissuaded governments from providing subsidies of the kind that are presumptively considered to cause serious prejudice. To date, however, there is no evidence which could objectively or empirically be used to measure the impact of the dark amber presumption.
In addition, as indicated in Article 27 of the Agreement, the dark amber category permits certain serious prejudice complaints to be brought against developing countries that were not permitted prior to the entry into force of the Subsidies Agreement.(9) That is, those subsidy practices identified in Article 6.1 that are provided or maintained by a developing country WTO Member may be challenged in WTO dispute settlement on serious prejudice grounds, albeit without the benefit of a rebuttable presumption. For all other developing country actionable subsidies, the only basis for a WTO subsidy complaint would be if the complainant can show nullification or impairment of tariff concessions or other GATT obligations with regard to imports into the subsidizing developing country Member's market, or unless material injury to a domestic industry in the market of an importing country occurs. For example, the disputes brought by the EC and the United States against various measures affecting the Indonesian automobile industry involved Article 6.1 allegations, and the panel in that case ultimately found that -- the product in question having been subsidized in an amount exceeding five percent ad valorem -- it was permissible to challenge the subsidies on serious prejudice grounds. As discussed below, the EC ultimately prevailed in its case on that basis. If the dark amber provisions of Article 6 expire, as discussed in a later section of this report, the United States would have a more difficult time arguing that the serious prejudice standard would still apply to developing countries that maintain large subsidies, provide debt forgiveness or grant subsidies to cover operating losses.
Indonesia: Subsidies to the Automotive Sector
In 1997, the EC and the United States brought a WTO dispute settlement complaint against various measures, including certain subsidy practices, granted or maintained by the Government of Indonesia which affect the Indonesian automobile industry and market. Since 1993, Indonesia granted tax and tariff benefits to producers of automobiles and automotive parts based on the percentage of local content of the finished automobile or part. In 1996, the Indonesian government established the "National Car Program," which granted "pioneer" companies luxury tax- and tariff-free treatment if they met gradually increasing local content requirements. One company, PT Timor Putra Nasional, was granted pioneer status and was given the right to import up to 45,000 finished cars in a one-year period from its Korean partner, Kia Motors Corporation. The United States contended that, among other things, the tax and tariff benefits constituted subsidies that caused serious prejudice to U.S. trade interests. The United States also alleged that a $690 million government-directed loan to PT Timor constituted a subsidy that caused, or threatened, serious prejudice.
On July 2, 1998, the panel circulated its report finding that the measures in question violated Articles I and III:2 of GATT 1994, Article 2 of the TRIMs Agreement, and Article 5(c) of the Subsidies Agreement. With respect to U.S. claims under the Subsidies Agreement, the panel, as a threshold matter, dismissed the claims concerning the loan to PT Timor on the grounds that these claims were not included in the U.S. request for establishment of a panel, and, thus, were not within the panel's terms of reference under WTO rules.
With respect to the U.S. claims that the other measures caused serious prejudice to U.S. interests, the panel ruled against the United States, essentially because there were no exports of U.S.-origin passenger cars to Indonesia. In the case of General Motors and Ford, the panel found (and the United States did not dispute) that the passenger cars in question were sourced (or were to be sourced) from facilities in Europe. As a result, the panel found that, under the Subsidies Agreement, the United States essentially lacked "standing" to complain about the effect of Indonesian subsidies on exports from Europe to Indonesia. In the case of Chrysler, which did plan on sourcing its passenger car exports to Indonesia from the United States, the panel appeared to agree with the U.S. position that actual exports did not have to be shown to demonstrate serious prejudice. However, as a factual matter, the panel found that the United States had not provided sufficient evidence to demonstrate that Chrysler's intent to export passenger cars to Indonesia had gone beyond the tentative planning stage.
On the other hand, the panel did find that the Indonesian subsidies had caused serious prejudice to the interests of the EC. Thus, the panel did find that those subsidies had an adverse impact on exports of passenger cars by General Motors and Ford. Moreover, in sustaining the EC's claim, the panel accepted many of the arguments put forward by the United States regarding the manner in which the Subsidies Agreement should be interpreted and applied.
Finally, the panel did not accept a subsidiary claim by the United States under Article 28 of the Subsidies Agreement. Article 28 is a transition provision which gave WTO Members three years in which to bring government subsidies that were inconsistent with the Subsidies Agreement into conformity with its provisions. During that three-year period, Members were not to extend the scope of any such subsidies. The United States argued that Indonesia had extended the scope of the 1993 program in various ways. While the panel found that the subsidies in question were prohibited subsidies within the meaning of Article 3.1(b) of the Subsidies Agreement, it also found that under Article 27.3, Indonesia, as a developing country, was not subject to the prohibition until the year 2000. Therefore, it found that the subsidies were not "inconsistent with" the Subsidies Agreement, and, thus, were not subject to the Article 28 ban against the extension of their scope.
Although the panel did not sustain the U.S. claims under the Subsidies Agreement, its findings with respect to the U.S. claims under the GATT and the TRIMs Agreement and the EC serious prejudice claim adequately addressed the commercial problem. Therefore, the United States did not appeal the panel's findings, nor did any of the other parties. On July 23, 1998, the DSB adopted the report.
Thereafter, the parties could not agree on the period of time in which Indonesia should implement the DSB's recommendations and rulings, and on October 8, the EC requested binding arbitration to determine the "reasonable period of time" for implementation. Although the United States had hoped to resolve this issue through further negotiations, in the arbitration proceeding it took the position that Indonesia had not justified its request of 15 months for implementation. On December 7, the arbitrator issued his findings. He agreed with the United States that Indonesia did not require 15 months for implementation, but found that, in light of the severe economic crisis in Indonesia, it should have twelve months for implementation. The arbitration decision, therefore, states that Indonesia must comply by July 22, 1999.
Countervailing Duty Cases
The existence of dark amber subsidies becomes relevant in CVD cases in two instances. Because both of these were discussed in some detail in the red light section above, they will merely be mentioned here. One area of relevance concerns the ITC determination of whether a U.S. industry is threatened with material injury due to subsidized imports. The second involves the ITC determination of whether to sunset a CVD order. As mentioned earlier, in both of these determinations, the ITC must consider the nature of the subsidy, i.e.,whether the countervailable subsidy involved is a subsidy described in Article 6.1 (or Article 3) of the Subsidies Agreement. Commerce provides the ITC with the necessary information on which to base its determinations. To date, there have been no ITC determinations involving the threat of material injury with respect to a CVD investigation. Although the sunset cases are still in progress, Commerce has not yet notified the ITC of any dark amber subsidies for consideration in making its determination.
NON-ACTIONABLE ("GREEN LIGHT") SUBSIDIES
The Subsidies Agreement contains a category of subsidies that are not actionable under WTO dispute settlement procedures or national CVD laws when strict conditions and criteria are met. The three categories of non-actionable, or "green light," subsidies are: (A) government assistance for industrial research and pre-competitive development activity(10); (B) government assistance to disadvantaged regions; and (C) government assistance to adapt existing plant and equipment to new environmental requirements. The criteria defining these green light subsidies are sufficiently narrow to prevent any undermining of the gains in subsidies disciplines contained in other provisions of the Subsidies Agreement. Moreover, Article 8 establishes procedures designed to ensure that governments do not abuse the limited right to use these types of subsidies. In addition, Article 9 provides a remedy that is available if a non-actionable subsidy causes serious adverse effects to the industry of another WTO member.
The criteria and conditions set out in the Agreement under which these three types of subsidies may be non-actionable are as follows:
Under Article 8.2(a), government assistance for research activities conducted by firms, or by higher education or research establishments on a contract basis with firms, is non-actionable if the assistance:
-covers no more than 75 percent of the total eligible cost of industrial research, or no more than 50 percent of the eligible cost of pre-competitive development activity, over the life of an individual project, or the simple average of the two -- 62.5 percent -- for research subsidies that span the two categories; and
-is limited to: (i) cost of personnel employed exclusively in the research activity; (ii) cost of instruments, equipment, land, and buildings used exclusively and permanently (except when disposed of on a commercial basis) for the research activity; (iii) cost of consultancy used exclusively for the research activity; (iv) additional overhead cost incurred directly as a result of the research activity; and (v) other running costs (such as those of materials, supplies, and the like), incurred directly as a result of the research activity.
Only government assistance for research up to the point of the first non-commercial prototype is considered non-actionable. Government-funded development and production assistance is actionable in both WTO dispute settlement and U.S. CVD proceedings.
Under Article 8.2(b), government assistance to disadvantaged regions is non-actionable if:
-it is part of a general regional development policy;
-each region is a clearly designated, contiguous geographical area, and is not created solely as a conduit for aid;
-the assistance is generally available to, and generally used by, all industries within eligible regions (i.e., it is not de facto specific);
-the assistance is not for regions suffering only temporary disadvantage;
-the eligibility criteria are clearly spelled out in law or regulation so as to be capable of verification; and
-the eligibility criteria are neutral and objective, and include a measurement of economic development (based on either per capita income or household income GDP of not more than 85 percent of the country average or unemployment of at least 110 percent of the country average) as measured over a three-year period.
In addition, a regional development subsidy cannot provide more aid than is appropriate for reduction of regional disparities and must include ceilings on the amount of assistance for each project based on the different levels of development of assisted regions. Within such ceilings, the distribution of assistance is to be sufficiently broad and even so as to avoid providing a specific subsidy.
(C) Environmental Adaptation
Government assistance also will be considered non-actionable if it promotes adaptation of facilities in operation for at least two years to new environmental requirements that are imposed by law or regulation. To be permissible the new requirements must result in greater constraints and financial burdens on firms. In addition the assistance must:
-constitute a one-time non-recurring measure;
-be limited to 20 percent of the cost of adaptation;
-not cover the cost of replacing and operating the assisted investment, which must be fully borne by the firm;
-be directly linked to and proportionate to a firm's planned reduction of nuisances and pollution;
-not cover any manufacturing cost savings that may be achieved; and
-be available to all firms that can adopt the new equipment or production processes.
Review of Green Light Subsidies by the Subsidies Committee
To date, there have been no subsidies notified to the Committee as green light subsidies. However, any claim by a WTO member for green light treatment would be subject to review by the Subsidies Committee. Article 8.3 directs governments to notify the Subsidies Committee of subsidies for which non-actionable status is sought before such subsidies are implemented. This rule provides the United States with the opportunity to scrutinize rigorously all applications for non-actionable status. A subsidy will not be considered non-actionable if the Committee determines that the relevant criteria have not been met. If the Committee fails to make a determination or if any member is dissatisfied with the Committee's determination, the member may refer the matter to binding arbitration, which must be completed within 120 days of the referral.
Each member must file annual updates of its notifications of subsidies for which green light status has been granted by the Subsidies Committee.(11) Whenever a member makes a substantial modification to a subsidy granted green light status, the review process begins again. (The determination that a subsidy has been modified may be according to information supplied by the subsidizing member or based on a Secretariat determination, which in turn may be based on the assertion of any member.) If the Committee or the binding arbitration process determines that a subsidy does not meet the criteria of Article 8.2, the subsidy may be challenged in WTO dispute settlement proceedings or through domestic CVD proceedings.
Even if a subsidy meets the criteria of Article 8, it is actionable under Article 9 if it causes "serious adverse effects" to the domestic industry of another member, causing "damage which would be difficult to repair." This standard is higher than the normal serious prejudice or injury standard. The Subsidies Committee must determine within 120 days following unsuccessful consultations between the countries concerned whether the subsidy has caused serious adverse effects. If the Committee finds that serious adverse trade effects exist and also finds that the subsidizing government should modify its subsidy, the subsidizing country must act to eliminate the serious adverse effects within six months. If that member does not follow the Committee's recommendations within six months, the Committee must authorize countermeasures commensurate with the nature and degree of the serious adverse effects determined to exist.
Although Article 8 confers "green light" status only on those subsidies that have been notified, a footnote to Article 10 provides that a subsidizing government always has the right to demonstrate that a subsidy challenged in a WTO dispute settlement or a domestic CVD proceeding satisfies the criteria of Article 8.2, and therefore is non-actionable.
Finally, it bears noting that a footnote to Article 8.2 (a) of the Agreement provided for a review by the Subsidies Committee of the operation of the green light provisions governing industrial research and development subsidies, including the definitions, no later than July 1, 1996. In addition, section 282 of the URAA and the accompanying passages of the Statement of Administrative Action directed U.S. representatives to propose that the Committee expand this review to cover the operation of all of the green light provisions, and that such review take place on a periodic basis. Because no subsidies had been notified by July 1996 as green light subsidies under the provisions of Article 8, the Committee's review of the operation of the industrial research and development provisions was necessarily of a limited and inconclusive nature. Thus, the United States suggested, and the Committee agreed, that any later in-depth review not be limited to just one part of the green light provisions. As there have been no subsidies notified to the Committee as green light subsidies, there has been no further Committee review of this provision prior to the current review discussed below.
Experience With the Green Light Provision
As discussed above, there have been no notifications of alleged green light subsidies made to the Committee since the entry into force of the Agreement.(12) There are a number of possible explanations for this. First, as noted above, such notifications must be made in advance of implementing a subsidy which meets the relevant green light criteria. There may be enough ambiguity about what would constitute a "new" subsidy to act as a disincentive against the simple re-enactment and notification of existing subsidies. Second, it is clear that a Member does not have to notify a subsidy to the Committee under the green light provisions in order to mount a "green light defense" of that subsidy if it is investigated in a CVD proceeding or challenged in WTO dispute settlement.(13) Therefore, some WTO Members may have determined that it is preferable to argue a green light case only if a subsidy is challenged than to go through the burdensome process of notifying the program to the Subsidies Committee in order to earn the green light "label."
This brings us to a third possible reason for the lack of green light notifications, i.e., the requirements of the Agreement and the notification procedures agreed upon by the Subsidies Committee. The United States has taken a leading role to ensure that the notification and review procedures associated with submitting a green light notification are rigorous and exacting. The conditions and criteria of green light status set forth in the Agreement are numerous and detailed. When transposing these requirements to the kind and magnitude of information that is needed to enable other Members to evaluate the consistency of the subsidy with the relevant conditions and criteria, it is possible that many Members have concluded that attempting a notification is more trouble than it is worth.
Further, the Committee reached agreement in 1998 on procedures for the conduct of arbitration proceedings involving non-actionable subsidies, pursuant to Article 8.5 of the Agreement. For several years, the United States (supported by some other Members) had objected to a draft set of procedures that had been circulated in May 1995. The United States had several concerns, but the main objections stemmed from the manner in which the procedures would have effectively limited a Member's ability to request arbitration based on what topics had or had not been raised during the course of the Committee's review of a non-actionable subsidy notification. Ultimately, the Committee reached consensus based on a series of U.S. suggestions which addressed the controversial issues differently and, in an introduction to the document, clarified that the admonitions to consult and use the Committee review procedures seriously do not, in themselves, constitute rules of procedure for arbitration.
From the inception of the Article 8.5 discussions, the United States had always taken the position that it is desirable to reach agreement on arbitration procedures, given that no guidance is provided by the Agreement, and the time period allotted by Article 8.5 to complete these proceedings (120 days) is quite abbreviated. To the extent that procedural ambiguities are clarified in advance of an arbitration request, arbitrators have more time to focus on the substantive issues and arguments within the extremely tight time frame. We believe the procedures that were ultimately adopted provide this added clarity without compromising any legal rights under the Agreement to seek binding arbitration over green light subsidy disputes.
Insofar as footnote 35 of the Agreement does permit Members to argue green light status in the context of WTO disputes and CVD proceedings without having first notified the alleged green light subsidy, it is useful to describe our experience thus far with this alternative. To date, no Member has attempted to defend a subsidy practice in WTO dispute settlement based on a rationale that it meets the green light criteria.
Countervailing Duty Cases
In terms of U.S. CVD proceedings, application of the green light provisions of the Subsidies Agreement has been guided by the statutory mandate to construe such provisions narrowly so as to prevent their misuse. To this end, Commerce has established rules specifying the timelines and procedures for claiming green light treatment in the context of a CVD case. Commerce has made clear that in order to establish a subsidy's non-countervailability, foreign respondents must make a claim and present evidence supporting such a claim within a reasonable time period for the claim to be properly investigated and analyzed. Moreover, when a proper claim is received, the subsidy is carefully examined to determine whether the exacting standards of the green light provisions have all been met. Since enactment of the URAA, Commerce has completed 19 investigations and multiple reviews of 20 CVD orders. Of the more than 500 subsidies investigated in those proceedings, Commerce received four requests for regional green light treatment, two requests for environmental green light treatment and one request for R&D green light treatment. None of these subsidies was found to merit green light status.(14)
5. EXPIRATION OF THE DARK AMBER AND GREEN LIGHT SUBSIDY PROVISIONS
Article 31 of the Subsidies Agreement states that "[t]he provisions of paragraph 1 of Article 6 and the provisions of Article 8 and Article 9 shall apply for a period of five years, beginning with the date of entry into force of the WTO Agreement. Not later than 180 days before the end of this period, the Committee shall review the operation of those provisions, with a view to determining whether to extend their application, either as presently drafted or in a modified form, for a further period." In other words, Article 31 requires the Subsidies Committee to review the operation of the green light and dark amber subsidy rules beginning no later than July 5, 1999, with the proviso that these provisions will expire at the end of 1999 unless an explicit decision is made to keep them in force, whether as currently written or with modifications.
The Uruguay Round negotiators of the Subsidies Agreement included this special review requirement because they recognized that the green light and dark amber provisions were the most novel and untested of all of the new Agreement's provisions. Given that WTO Members had no or little prior GATT experience in the use of either explicit legal presumptions of serious prejudice or normative rules for exempting certain subsidies from the potential of CVD or multilateral subsidy remedies, the negotiators sought to provide for the review and potential termination or modification of these rules within a fixed time period in the event that they worked in an unforeseen -- and undesirable -- fashion. Moreover, to ensure that this review requirement would be taken seriously, the Agreement presents the act of reviewing the provisions as a joint (or at least simultaneous) exercise -- insofar as they serve as opposing kinds of disciplines within the Agreement -- and it requires that an affirmative decision be taken in order for them to remain in effect beyond five years.
In crafting the U.S. implementing legislation, the Administration and Congress were similarly cautious with respect to the review and extension of these rules. First, a variety of provisions in the URAA have the general objective of ensuring that the green light provisions do not serve as loopholes or otherwise undermine the increased disciplines over subsidies achieved in the Uruguay Round negotiations. More specifically, in regard to the question of the Article 31 review, section 282 of the URAA imposes a number of jointly agreed requirements on the Executive Branch to make certain that the United States' participation in the review is thorough, careful and reflective of the full spectrum of U.S. interests.
As the Statement of Administrative Action accompanying the URAA explains, "[s]ection 282 . . . provides for an ongoing review of the Subsidies Agreement and establishes general and specific objectives with respect to that review. The general objectives are to ensure that: (1) the provisions of the Subsidies Agreement regarding red light, dark amber and yellow light subsidies are effective; and (2) the provisions . . . regarding green light subsidies do not undermine the benefits derived from the other portions of the Subsidies Agreement." The annual reports to the Congress on the Administration's subsidies monitoring and enforcement efforts are one element of the ongoing review.(15)
Essentially, the URAA provisions concerning the Article 31 review stand for the proposition that the green light and dark amber rules must be judged as enhancing, or at least not detracting from, the overall effectiveness of the Subsidies Agreement in order for the United States to conclude that it is appropriate to extend their application. The Statement of Administrative Action explains that "the provisions [of U.S. law] in question expire 66 months after the entry into force of the WTO unless extended by Congress. Before the decision of the Subsidies Committee, USTR is directed to consult with the Senate Finance and House Ways and Means Committees. (The Administration will not limit its consultations to those committees, but will ensure that it consults with all interested committees, as well as the private sector.) Should the Subsidies Committee decide to extend Articles 6.1, 8 and 9 of the Agreement, either as presently drafted or in modified form, the Administration, after further consultations with relevant committees and the private sector, will submit legislation to implement the agreed extension. A bill to provide for such an extension would be eligible for consideration under "fast track" procedures.(16) If Articles 6.1, 8 and 9 are not extended, section 282(c)(5)... directs USTR to submit a report to Congress setting forth the provisions of this bill which should be repealed or modified as a result of the sunset of these Articles."
With respect to the review conducted by the Subsidies Committee, since mid-1998, the Chairman has been holding informal bilateral discussions with Members to discuss both the substance of the review and the procedures that would be followed in conducting that review. On June 14th of this year, an informal meeting of the Committee was held to discuss this issue. During this meeting, the Chairman provided an overview of his informal consultations to date. Generally, a majority of Members indicated that they could join a consensus to extend the application of these provisions with no changes for a further limited period, due to the lack of experience with the provisions and the difficulty of agreeing to any changes within the timeframe. While some developing countries have expressed concerns with the provisions as currently drafted, no Member has expressed unconditional opposition to an extension. Finally, there are still a small number of countries that have not expressed a definitive position on this issue, including the United States. The Administration will keep the Congress informed as this process moves forward.
In the meantime, USTR has begun the process of consulting with other agencies and soliciting the views of the private sector. As to interagency discussions, a more focused process of consideration and discussion was initiated through the Trade Policy Staff Committee and its Subcommittee on Subsidies. Beyond USTR and Commerce, there are a number of federal agencies with a particular interest in reviewing the use, effectiveness and possible extension of the dark amber and green light provisions. For example, the green light provisions governing industrial research and pre-competitive development activity are of interest to a variety of agencies engaged in federal research and development and technology commercialization activities. In addition, a number of agencies will pay close attention to the impact which the extension or termination of both the green light and dark amber provisions could have on the objectives and negotiating positions developed for the next stage of WTO negotiations to achieve greater liberalization of international agricultural trade, as is mandated by the WTO Agreement on Agriculture.
In terms of the private sector's views, the first formal step occurred with the April 1998 report of the President's Advisory Committee for Trade Policy and Negotiations (ACTPN) on WTO Implementation and its chapter reviewing the Subsidies Agreement. Since then, in the context of soliciting the public's views with respect to the preparations undertaken for the 1999 WTO Ministerial Conference and the WTO's forward work program, USTR issued a Federal Register notice in August of last year which included a specific request for public comment on the question of the Article 31 review. In addition, Commerce and USTR have met with several Industry Sector Advisory Committees to discuss this issue and solicit their opinions and concerns. Further consultations with these and other official advisory committees are anticipated.
In the ACTPN's April 1998 report, it was noted that "there has not been a single notification of a non-actionable ('green light') subsidy. Concerns over abuse of the 'green light' provision have therefore not materialized, perhaps due to perceptions that the provision will be strictly interpreted in the WTO Subsidies Committee. . . . There is also a significant lack of experience with the 'dark amber' . . . subsidies." The ACTPN report observes that "[t]he lack of any experience with these provisions poses a dilemma with respect to their sunsetting in 1999. It had been anticipated that a decision on this issue would be made on the basis of empirical experience with the provisions' operation." The report concludes that "the U.S. Government should seek temporary extension of the 'green light' and 'dark amber' provisions to allow for more experience and appropriate analysis and resolution."
The submissions received in response to USTR's Federal Register notice for the most part reflected an uncertainty about the value of the dark amber provisions and continued wariness of the green light rules. A number of the submissions did not address the question of the Article 31 review. However, of those that did, many commentators appeared to consider the real or potential costs to subsidies discipline represented by the green light rules as overshadowing the real or potential additions to discipline afforded by the dark amber provisions.
As discussed in detail above, the experience we have had to date with the application of different provisions of the Subsidies Agreement is mixed. With respect to the application of the red light provisions, in the context of both CVD investigations and multilateral dispute settlement, we have seen demonstrated clearly that the Subsidies Agreement is effective in disciplining the use of prohibited subsidies.
However, our experience with the dark amber and green light provisions is much more limited. We have found that, when used, the dark amber mechanism has been effective in challenging government subsidies that are in violation of the Agreement. In addition, we have seen no evidence that the inclusion of a green light category of non-actionable subsidies has detracted from the effective disciplines contained in other provisions of the Subsidies Agreement.
Because these two provisions will expire at the end of this year, the United States must determine whether to allow them to expire or support an extension, possibly for a limited time. The discussion in the previous section illustrates only some of the information and observations that will need to be carefully evaluated as the U.S. position with respect to this issue is finalized. The Administration looks forward to an intensive and constructive process of consultation with the Congress and the private sector in the coming weeks and months as this assessment moves forward.
1. When a CVD case involves an agricultural or processed agricultural product, while the subsidy may be countervailed, the determination of whether it is considered to be a prohibited export subsidy becomes more complex because of additional rules contained in the WTO Agreement on Agriculture (Agriculture Agreement). Under Article 13 (c) of the Agriculture Agreement and Article 3.1 of the Subsidies Agreement, during the Agriculture Agreement's nine-year "implementation period", export subsidies on agricultural products are exempt from dispute settlement action under the Subsidies Agreement if the subsidies are in conformity with the obligations in Part V of the Agriculture Agreement.
2. Article 4 of the Subsidies Agreement establishes expeditious procedures for resolving disputes concerning prohibited subsidies. All that must be established is the existence of a prohibited subsidy. If a panel finds that a government is maintaining a prohibited subsidy, the panel must recommend that the subsidy be withdrawn "without delay". If this recommendation is not followed within the time-period specified by the panel, the Dispute Settlement Body of the WTO (DSB) must authorize countermeasures.
3. In the current report, we are providing the reader with information concerning panel reports that address the issues being examined. However, there are several other WTO subsidy cases that have been filed since entry into force of the Subsidies Agreement. Of particular note, for the first time in years, the United States is a defendant in a WTO dispute involving multilateral subsidies disciplines. In November 1997, the European Communities (EC) requested consultations concerning the Foreign Sales Corporation (FSC) provisions of the U.S. Internal Revenue Code, and has since claimed that these provisions constitute a prohibited subsidy in violation of the Subsidies and Agriculture Agreements. A panel was established in September 1998. The United States has vigorously defended the FSC provisions as being consistent with its WTO obligations. The case has been fully argued, and an interim panel report is now expected in late July.
Other disputes involving the Subsidies Agreement include: Belgium, France, Greece, Ireland and the Netherlands Income Tax Subsidies Cases (The United States requested consultations on certain tax measures maintained by the five countries identified that it believes constitute prohibited subsidies. These cases are still at the consultation stage.); Brazil Autos (The United States, Japan and the EC requested consultations with Brazil concerning subsidies provided to its auto industry. However, U.S. concerns about Brazil's auto regime were addressed in a bilateral agreement reached at the consultation stage of the dispute.); Canada Dairy(The panel ruled in favor of the United States on export subsidy claims under the Agriculture Agreement, but refrained from ruling on U.S. claims under Article 3 of the Subsidies Agreement. This case will be appealed on July 15th.); Canada Autos (Japan and the EC have a case pending before a WTO panel alleging the existence of import substitution subsidies provided to the auto industry in Canada. The United States is participating before the panel as a third party.); Canada Aircraft II (Brazil made a serious prejudice claim in this companion case to the one that is on appeal [discussed later in this report]. This case is still at the consultation stage.); European Communities and France Avionics(The United States recently requested consultations with the EC and France concerning actionable subsidies granted to a French company to develop a new flight management system adapted to Airbus aircraft. This dispute may involve dark amber subsidies as well. Consultations were held on June 30, 1999.); Japan Leather (The EC requested consultations with Japan concerning actionable subsidies provided to its leather industry which are causing adverse trade effects to the EC leather industry. This case is still at the consultation stage.)
4. With respect to the loan contract, the panel found that there is nothing in the loan contract that explicitly linked the loan to Howe's production or sales, or to actual or anticipated export earnings. Therefore, the panel concluded that the loan contract was not contingent upon export performance within the meaning of Article 3.1(a) of the Subsidies Agreement.
5. Developing countries are exempt from the presumption of serious prejudice, but are subject to normal serious prejudice rules for those situations where presumptions would otherwise exist for developed countries.(See, for example, Indonesian Autos discussed below.)
6. Footnotes 16 and 17 of the Agreement state that (1) the five-percent quantitative threshold for a presumption of serious prejudice, and (2) serious prejudice presumed solely on the basis of debt forgiveness arising out of misforecast royalty repayment schemes do not apply to civil aircraft.
7. This is in contrast to the "benefit-to-recipient" calculation methodology which the Subsidies Agreement authorizes -- and which Commerce and other countries' investigating authorities use -- for CVD proceedings. The "cost-to-government" approach calculates the value of a subsidy based on what it has cost the government to provide it, versus a subsidy amount calculated based on the actual commercial benefit to the recipient of the subsidy.
8. The Informal Group issued a report to the Committee in July, 1997, detailing its views and providing 21 separate recommendations on cost-to-government valuation and allocation issues. This report was first considered at the Committee's regular meeting in October, 1997. Following an initial round of questions and remarks from WTO Members, the Group slightly revised its report in March, 1998, and the revised report was again before the Committee for consideration at its April, 1998 meeting. At the conclusion of the Committee's consideration of these recommendations, they were neither formally adopted nor rejected.
9. In addition to Article 27's dark amber provisions concerning developing countries, Article 27.7 provides that, until the prohibition of export subsidies for developing countries is fully implemented, developing country Members' export subsidies can be challenged in WTO dispute settlement, if they cause serious prejudice to the interests of another WTO Member.
10. Under footnote 24, the green light provision pertaining to government assistance for research activities does not apply to civil aircraft, i.e., government assistance for research and development which meets the Subsidies Agreement definition of a subsidy and is specific to civil aircraft is fully actionable in WTO dispute settlement and countervailable under national CVD law.
11. In the initial years of the Subsidies Agreement's implementation, the United States has worked closely with other concerned WTO Members to ensure that the procedural and information requirements for these notifications are detailed and extensive.
12. While some WTO Members have contended that certain subsidies that they have included in their general WTO subsidy notifications meet the green light criteria, they have not included the necessary information to demonstrate this and did not submit the notification pursuant to the relevant green light provisions of Article 8.3 of the Agreement. Consequently, the United States and other Members have made clear that these assertions of green light status carry no weight under the green light notification and review provisions spelled out in Article 8.
13. See, footnote 35 to Article 10 of the Subsidies Agreement.
14. It should be noted that whereas the United States rejected an Italian claim for regional green light treatment for certain subsidies provided to the Mezzogiorno region in the investigation of Pasta from Italy, the investigating authorities of Canada and New Zealand accorded these same subsidies green light treatment in CVD investigations undertaken by them at approximately the same time as Commerce's proceeding.
15. The most recent annual report to the Congress was submitted on February 1, 1999, and is available on Commerce's Subsidies Enforcement website at "www.ita.doc.gov/import_admin/records/esel"
16. Because the URAA already authorizes the use of "fast track" procedures to approve any such extension, this is unrelated to the issue of any new trade agreement "fast track" authority to which the Congress and Administration might agree.