 
  WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CAN/19 
22 September 2004 
 (04-3982) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Responses to Questions Posed by the UNITED STATES1 
Regarding the New and Full Notification of CANADA2 
 
  The following communication, dated 21 September 2004, is being circulated at the request of the Delegation of Canada.  
_______________ 
 
 
Industrial Programmes 
 
I. DEFENCE INDUSTRY PRODUCTIVITY PROGRAMME 
US Question 1
 
 
 Please explain in more detail the types of or ganizations that are eligible to receive 
funding under this programme.  For example, are private companies eligible? 
 
US Question 2   
 
 Please also explain which industries are cons idered producers of "viable defence or 
defence-related products".  Additionally, is funding under this programme only used to fund 
public defence-related projects, or is funding also available for commercial projects, e.g., 
commercial aircraft/engines? 
 
Response  
  The Defence Industry Productivity Programme originated in 1959 when the Canada/United States Defence Production Agreement went into effect, and terminated with the 
Federal Budget of 28 February 1995.  Since the termination of DIPP in 1995, the Government of 
Canada has not entered into any new agreements, an d redirected it activities to the orderly sun-setting 
of all DIPP agreements.  These sun-setting activities have focussed on fulfilling the disbursement of 
all funding obligations contained in multi-year ag reements committed to prior to the time DIPP was 
terminated, maintaining the current status of all re porting and repayment obliga tions in its agreements, 
protecting the interests of the Government of Ca nada, conducting audits, and managing the closure of 
project files as appropriate.  The DIPP portfolio is largely closed, with a current legacy of only 113 
projects still in effect.  There has been no expenditure of funds for DIPP since 31 March 1999.  
                                                     
 
1 G/SCM/Q2/CAN/18 
2 G/SCM/N/95/CAN G/SCM/Q2/CAN/19 
Page 2  
 
  (Specific Response to US Question 1).  The typ es of organizations that were eligible were 
broadly defined as any individual, partnership, associ ation, co-operative, ins titution or body corporate 
or any trustee or legal representative thereof but  not including a legal entity that was owned or 
controlled by the government of a country other th an Canada unless the entity was likely to make a 
significant contribution to the development of the Canadian defence-relate d industry.  As well, 
eligible projects had to relate to the developm ent, manufacture, or support of defence-related 
products.   (Specific Response to US Question 2).  Given the broadly based eligib ility criteria for both 
applicants and projects, many manufacturing industr ies were legitimately considered to be viable 
defence or defence-related producers.  DIPP was not used to support defence procurement.  Dual-use 
military/commercial projects were assessed on the mer its of their respective attainment of defence-
related production or im provements to the base of defence in dustries in Canada.  Commercial 
aircraft/engine developments were  ineligible if there was no demonstrated enhancement of economic 
growth through the promotion of viable  defence or defence-related products. 
 
II. ONTARIO COMMUNITY FUTURES PROGRAMME  
US Question
 
 
 Please explain whether there are conditions/limits on the industries eligible for 
assistance under this programme.  What indus tries have benefited from this programme? 
 
Response  
  There are no restrictions as to the industri es eligible for assistance under this programme. 
Proposals must be for local investment and must dem onstrate that funds will be used to assist existing 
businesses to stabilize or expand or to help local en trepreneurs to develop and diversify the local 
economy by creating new businesses.  The progra mme is directed at small and medium-size 
businesses (SMEs).  Loans cannot exceed $125,000.     A very broad range of industries have benef ited from this programme, including industries in 
retail trade, manufacturing, aquaculture, knowledg e-based activities; tourism; services (including 
personal/professional services); and ag riculture and food processing.  
 
III. COASTAL QUEBEC, COMMUNITY ECONOMIC ADJUSTMENT INITIATIVE 
PROGRAMME & FISHERIES ACCESS PROGRAMME 
US Questions
  
 
 Would you please explain in more detail th e types of activities funded by the 
above-listed programmes?  Please also explain whether each of these programmes take into 
account overcapacity and/or overpro duction when granting funding. 
 
Response  
 
 Coastal Quebec   Special Fund for the Economic development a nd adjustment of Quebec Fishing Communities, 
SFQC, was established in 1995 under TAGS (The A tlantic Groundfish Strategy, 1994).  The main 
objective of TAGS was to mitigate the impact of the stock reductions on the affected economies of 
Canada's Atlantic coast and include d economic development measures.  
  G/SCM/Q2/CAN/19 
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  The programme was extended to March 2003 in 1999.  It has since expired. 
  Activities funded by the programme went to wards diversifying and strengthening the 
economy of the regions and communities affected by the groundfish crisis and therefore reduce the 
dependence on the fisheries resource.  More specifically, SFQC support was directed toward commercial projects, feasibility studies and project s aimed at developing new ocean-based resources 
as well as non-fisheries entrepreneurship.  The major ity of projects were not fisheries related and any 
projects related to fisheries concerned underutilised species. 
 
 The programme therefore did not encourage overfishing or overcapacity.  
 Response
 
 
 The Community Economic Adjustment Initiative (CEAI)   The Community Economic Adjustment Initia tive (CEAI) was announced on 12 January 1999 
and began operationally in June of that year.  CEAI supported no new projects after 31 March 2001.   
 The programme provided contributions to projects that:  
 
• would help diversify the local economy;  
• would have tangible and sustainable econom ic benefits such as job creation;  
• would have community support;  
• would leverage other (private  or public) funding;  and  
• were not eligible for funding un der any other existing programme.  
 The types of projects most commonly funded were: waterfront improvements, museums and historic 
sites, tourist attractions, and trails or walkwa ys.  CEAI funding was provided to businesses on terms 
comparable to those available through financial institutions. 
  The programme's objective was to diversify the economy, which would reduce the number of 
vessels and salmon fisheries-related businesses, thus decreasing overcapacity.  
Response
  
  Fisheries Access Programme   The objective of the Fisheries Access Progr amme is to increase commercial fishing 
opportunities for eligible Aboriginal groups, resulti ng in an enhanced level of participation in 
commercial fisheries by these groups.  To support the enhanced level of participation in commercial 
fisheries, assistance includes retiring commercial licen ces, vessels, fishing gear and equipment, and 
also includes the provision of funds for the construc tion of vessels and gear.  Funds are also provided 
for the development of necessary skills for Aboriginal  groups to fish safely.  Such development is 
provided through training and other skill developm ent activities relating to the safe operation and 
management of commercial fisheries.  The progra mme does not contribute to overcapacity and/or 
overproduction since the capacity provided to eligib le Aboriginal groups is that which has already 
been voluntary retired by other commercial operators.  G/SCM/Q2/CAN/19 
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 IV. TECHNOLOGY PARTNERSHIPS CANADA 
US Question Series 1
 
 
 It is stated that the government’s investment  ratio will normally vary between 25 per cent and 
30 per cent of the eligible costs of each project a nd, where justified, the maximum sharing ratio may 
reach 50 per cent if it is essential to the success of  the project.  Do these payments cover all costs 
associated with the funded project?  Response
 
 
 No.  The investment provided by TPC is ta rgeted strictly towards the eligible, supported 
R&D-related costs of a project.  There are numer ous costs that TPC will not support, such as: 
 (a) costs relating to infrastructure, production re lated capital equipment, cost overruns, and land;  
 
(b) Eligible yet unsupported costs, where the TPC  R&D programme has deemed that the project 
in question would proceed within the same scope , timing or location even without additional 
TPC investment;  and 
 (c) In many cases, where TPC limits its overhead co sts to 65 per cent of Direct Labour, which is 
often lower than the actual overhead co sts being incurred by the company. 
 
US Question Series 2
   
 
 How are the royalty/repayments determ ined?  How does the repayment schedule 
conform with or relate to similar, commercially  funded projects?  At what point in a TPC 
funded project does repayment occur?  How is  a "project’s market success" defined for 
purposes of royalty/repayment?  
 
Response  
  Royalties are determined based on a financial analysis of the project and are related to 
expected returns, on a case-by-case basis.  TPC is  a risk/reward sharing programme such that if 
companies expect a high return on their investment, so will TPC.       TPC will get repaid based on the success of the projects.  This is dependent on the level of 
sales achieved by the company.  Repayment typica lly occurs during the Benefits Phase, once the 
R&D portion of the project is finished, and is usually  based on a straight royalty rate applied to sales 
of the company.  As such, TPC’s performance varies directly with the company’s sales performance.  
 
US Question Series 3
  
 
 What percentage of investments result in "successful commercial exploitation of the 
results of the supported projects?"  How and to what extent have these projects generated "a 
satisfactory return on government’s investments".  How is this measured? 
 
Response  
 
 A satisfactory return on the government’s investme nt is specifically related to the individual 
projects themselves, and is viewed on a case-by-case basi s.  In this regard, a satisfactory return could 
include both monetary and non-mone tary benefits such as, e.g., new environmental technology, R&D 
capacity building, and incr eased intellectual property.  G/SCM/Q2/CAN/19 
 Page 5 
 
 
  
 TPC was created in 1996/97. Given that the R&D portion of a project takes an average of about 5 years and that the benefits phase of a project av erages about 10 years, it is too early to be able 
to generate any meaningful data on satisfactory financial returns. 
 US Question Series 4
  
 
 It is our understanding that, as of early 2004, total TPC commitments were CN$2.356 
billion (of which about two thirds has been disbursed) and that repayments through 2002 
totalled only about CN$30 million.  Could Canada  please confirm or cor rect this statement? 
 
Response  
  This is correct.  However, as explained, the R&D portion of a project takes an average of roughly 5 years and the benefits phase of a project averages roughly 10 years.  Accordingly, it is too 
early for such a statement to accurately reflect th e financial returns under the programme.  By 2002, 
repayments would have only just begun on the earliest  of projects.  At that time, over 90 per cent of 
the TPC projects would have still been in th e R&D phase and therefore not generating any 
repayments.  Since then, as expected, royalties have  begun to increase dramatically, as outlined in the 
chart below.  As the programme matures, a greater number of projects will be in the repayment phase, 
and repayment amounts will continue to grow in earnest. 
 
 Fiscal Year
  Repayment Amount  
  1998-99  $13.1M (includes the sale of warrants for $9.3M and a settlement for     $3.5M. Royalties=0.3M) 
 1999-00  $4.0M 
 2000-01  $4.8M  2001-02  $8.3M  2002-03  $19.0M  2003-04  $28.0M  2004-05 Forecast $50.0M 
 2005-06 Forecast $77.0M 
 2006-07 forecast $118.0M  The exponential growth is expected  to continue over the short to medium term and will eventually 
plateau once the TPC portfolio reach es a steady state (value of projects entering the portfolio equals 
the value of projects exiting the portfolio). 
 
V. STRUCTURED FINANCE FACILITY 
US Question
 
 
 Please explain how this programme is consis tent with Article 3.1(b) of the Subsidies 
Agreement.  
Response
 
  The Structured Finance Facility does not requi re the use of domestic over imported goods as a 
condition for the granting of assistance towards the acquisition of a vessel. 
 
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