RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/433
4 April 2001
(01-1720)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
QUESTIONS AND COMMENTS CONCERNING PROPOSALS
ON IMPLEMENTATION-RELATED ISSUES REFERRED TO
THE COMMITTEE IN THE 15 DECEMBER 2000
DECISION OF THE GENERAL COUNCIL
Questions and Comments of Switzerland
The following communication, dated 2 April 2001, has been received from the Permanent
Mission of Switzerland.
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G/SCM/W/429;  Paper submitted by Colombia
At the outset, Switzerland would like to thank all countries which have contributed to this
meeting;  all papers presented have helped us to better understand the issues raised.
We do have reservations about the feasibility of the proposed amendment as it raises complex
questions for its implementation.  Specifically, we see problems due to the intrinsic nature of capital
goods, which are:
- used for the production of goods intended for the export as well as for domestic
markets (as mentioned in §3.4 of the Indian paper);
- used over a specific period of time (which must be defined so it can be included in the
calculation);
- not always easy to identify:  some goods can be used either as an input,  but may be
also consumed by households.
How possibly will we manage and make sure that only the pro rata drawback will be paid out
considering these points just raised which make the calculation of the amount of remission very
difficult?  Does this amount remaining for remission per unit produced matter so much and make a
real difference?  How do we ensure that transparency is guaranteed for all WTO Members?  These aresome of the elements we think should be further clarified by this Committee.
Another question is the legal implementation once we have agreed to a possible solution.
Footnote 61 would have to be amended as stipulated in Art. X of the Agreement establishing the
WTO to include, if accepted, capital goods.  It is not possible legally, from our point of view, to
change this definition by a mere interpretative decision.G/SCM/W/433
Page 2
G/SCM/W/430:  Discussion Paper submitted by India
This paper deals with point 6.3 of the GC decision of 15 December which raises two items.
The first element concerns the remission of import duties calculated with a generalized rate.  The
second element concerns the definition of physical inputs in the production process.  We have already
dealt with the second element above while commenting on the submission of Colombia and willtherefore concentrate here on the aggregate remission of import duties.
India proposes such a change of drawback system for import duties, given the often small
nature of production units in developing countries as mentioned in §2.4.  On such premises it would
be obviously helpful, if other means of calculating the remission were available.  We do, however,
have concerns regarding the feasibility of such a change.  The disciplines evoked in Annexes II and
III were meant to make the drawback of any import du ties transparent, and by so doing this, to ensure
that the rules of the Subsidies Agreement were not circumvented.
India proposes two solutions on which such aggregate rates of remission of import duties
could be based.  But for both methods proposed, we  do not see how this could be implemented in
practical terms, making sure that predictability, fairness, and transparency is maintained.
Especially, we feel that the system in which the remissions would be contingent upon
statistical results for the production process as a whole in an economy, would create a burdensome
task for administrations (§2.7 mentions technical officials studying information in international books,
etc.), not be time-effective enough for traders and would probably introduce potential discretionary
powers to administrations which could undermine the disciplines agreed upon in the Subsidies
Agreement.  To the second proposed element which relies on a determination through price of the
inputs, we have a similar kind of reservation.  For example, who will decide which prices to take for
performing the calculations?  We also feel that important fluctuations existing when applyinginternational prices will render the system non-transparent and thus, potentially detrimental for other
WTO Members.
Thus, Switzerland sees serious flaws in the discussed approach.  If the question of import
duties is so relevant for developing countries we should seek to find alternatives to solve this problem.
We do however think that there are already alternatives which are commonly used by many WTO
Members and which are allowed under the Subsidies Agreement.
Our first reaction obviously would be to propose that import duties shall be reduced, if they
could affect the export competitiveness of their pr oducts.  Knowing that many developing countries
depend on import duties for fiscal reasons, this is easier said than done.  Therefore, more targeted
tools should be found.  There is the possibility of creating tax free zones which many developing
countries have reverted to.  Products created in those zones profit from inputs which are tax
exempted, hence ensuring competitive prices.  Finally, we could envisage as an even more focused
solution the introduction of so called "end use" tariffs which apply reduced rates for inputs for
products.  Most of the time they are applied on primary and semi-manufactured products.  But wecould use them also for finished products like capital goods and make them benefit from reducedimport duties.  The first footnote of the Subsidies Agreement makes a reference to this possibility
which is further developed under letter i) of Anne x I.  In any case, any solution found must continue
to ensure transparency and not the weakening of the existing disciplines in the area of subsidies.
Finally, we were also wondering under this item if the system of remission proposed by India
would be available in their opinion for all WTO Members or only for developing countries.  We
would be glad for comments here too.G/SCM/W/433
Page 3
G/SCM/W/431/Rev.1:  Export competitiveness Art. 27.5/6 ASCM
The issue raised by this contribution merits our attention as it touches on an important
element of S&D provisions in the Subsidies Agreement which establishes a parameter for graduation.
Switzerland has taken note with interest of the arguments brought forward and is supportive of itsmain thrust.  Volatility of international markets can influence this parameter - export competitiveness
- as defined in Art. 27.6.  In order to have a more stable database of comparison it does make sense to
extend somehow the period fixed by Art. 27.6.  We are not yet convinced that it must be up to 5 years
but we could go along with an extension longer th an the actual two consecutive years.  Also, we do
agree that the lack of regulation for the case evoked in the second part, i.e. what happens to a
developing country which falls again under the limit of 3.25 per cent of the world share in a product,
should be removed and a decision on how to interpret such a case should be sought.
This said, however, we would like to make two observations regarding the proposal in front
of us.
The first one is a legal concern:  we had a strong reservation about the proposed procedure of
decision attached to the original paper, removed in the revised version.  For Switzerland, the change
needed regarding the extension of the period over the given two years constitutes an amendment and
must be tackled through the relevant Article X establishing the WTO which imposes strict procedures.
And we do base our concern on the last sentence of §2 in Art. IX, which says:  "This § shall not be
used in a manner that would undermine th e amendment provisions in Article X."
Secondly, if we can agree that developing countries shall have the possibility to reintroduce
export subsidies when falling below the landmark we must make sure that this does not happen
because of volatile changes in the downward direction either.  Switzerland therefore would propose
that in such cases some additional conditions should be introduced.  Specifically, we were thinking
that the share in the world market of the concerned product should fall considerably under 3.25 per
cent (e.g. 3 per cent) in order to exclude being based on statistical flaws.  Again considering the
volatility of world markets, the drop below this mark should cover a period longer than one year
before export subsidies could then be again introduced.  This would be, in our impression, thenecessary prerequisites for the adoption of such an interpretation.
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