WORLD TRADE
ORGANIZATIONTN/RL/W/112
6 June 2003
(03-2925)
Negotiating Group on Rules Original:  English/
French
IMPROVED DISCIPLINES UNDER THE AGREEMENT
ON SUBSIDIES AND COUNTERVAILING MEASURES
Communication from Canada
The following communication, dated 5 June 2003, has been received from the Permanent
Mission of Canada.
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The Uruguay Round Agreement on Subsidies and Countervailing Measures  (the “Subsidies
Agreement”) introduced significant improvements to prior multilateral and plurilateral
rules/disciplines on subsidies and countervailing measures, as enshrined in the GATT 1947 and the1979 Tokyo Round Subsidies and Countervailing Duties Code, respectively.  These included, a
comprehensive definition of “subsidy”, the further elaboration of prohibited subsidy practices,
improved multilateral disciplines on domestic subsidies, and the clarification of rules for the conduct
of subsidy investigations and the application of countervailing duties.
That said, the experience to date with the op eration of the Subsidies Agreement (as reflected,
inter alia , in the WTO litigation record, the operational ineffectiveness of certain parts of the
Agreement and the lapsing of specific provisions in December 1999) points to a need for the further
clarification and improvement of disciplines in this area with a view to achieving greater convergence
in the manner of their interpretation and application and enhancing predictability.
As a next step in the evolution of multilateral rules in this area, Ministers at Doha instructed
the Negotiating Group on WTO Rules to clarify and improve disciplines under the Subsidies
Agreement while preserving the basic concepts, principles and effectiveness of the Agreement as well
as its objectives, and taking into account the needs of developing and least developed Members.
In carrying out this mandate, Canada sees an important opportunity for the Negotiating Group
to work toward minimizing the scope for the evasi on or abuse of Subsidies Agreement disciplines and
remedies while, at the same time, ensuring the continued effectiveness of the Agreement in addressing
trade-distorting subsidy measures.
With the mandate from Ministers and these objectives in mind, Canada has identified the
following issues as possible subjects for negotia tion.  This does not, however, purport to be an
exhaustive enumeration of the negotiating issues that Canada may wish to pursue.
Finally, it is Canada’s view that developing and developed countries share a mutual interest in
advancing the issues presented in this submission.  In this regard, Canada is prepared to discuss
specific proposals for the consideration of the special circumstances of developing and least
developed countries.TN/RL/W/112
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PROPOSED ISSUES FOR CLARIFICATIONS AND IMPROVEMENTS
1. DEFINITION OF SUBSIDY
General Objective:  To require that the constituent elements of the definition of “subsidy” in
Article 1.1 of the Subsidies Agreement be clearly established in an investigation.
Underlying Principle:  Where the recipient of the original “financial contribution” and the
recipient of the resulting “benefit” are alleged to be different entities, the investigating authorities
cannot assume but, rather, must definitively establ ish, a subsidy pass-through from the former to the
latter.
Pass-Through of Benefit:  WTO jurisprudence has clarified that an investigating authority
cannot assume that the benefit of subsidies provided to producers of upstream input products passes-
through to producers of downstream products, especially if there is evidence on the record that thetransactions occurred at arms-length.  Rather, the investigating authority must examine whether, and
to what extent, upstream subsidies benefited downstream producers.  In this regard, consideration
should be given to establishing appropriate guidelin es to assist investigating authorities in conducting
pass-through analyses.
2. SPECIFICITY
General Objective:  That the Subsidies Agreement provide clearer guidance as to when a
subsidy is “specific”.
Underlying Principle:  Certain aspects of the current definition of “specificity” would benefit
from clarification.
The concept of “specificity” is a cornerstone of the Subsidies Agreement upon which both the
actionability and countervailability of a subsidy depend.  In this regard, Canada believes that certain
aspects of the current provisions on “specificity” would benefit from clarification (e.g., the meaning
of the phrase “enterprise or industry or group of enterprises or industries”).
3.  ACTIONABLE SUBSIDIES
General Objective:   To ensure that the Subsidies Agreement includes an effective remedy to
respond to the export and import displacing effects of subsidies.
Underlying Principle: The “serious prejudice”  provisions of the Subsidies Agreement are an
important complement to the rules/disciplines in respect of prohibited subsidies and countervailing
measures, particularly for export-oriented economies.  However, the lack of recourse to the serious
prejudice remedy and the lapsing of certain serious prejudice provisions in 1999 indicate a need torevisit this part of the Agreement with a view to its clarification and improvement.
Serious Prejudice:  The “deeming” clause in Article 6.1 conferred an evidentiary advantage
to complainants in respect of the specific measures enumerated in that provision by relieving them of
the burden of having to demonstrate adverse effects once it was established that the subsidy inquestion was one described in Article 6.1.  In addition to the loss of this evidentiary advantage, the
expiration of this provision in 1999 had consequential implications for a number of other relatedTN/RL/W/112
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provisions in the Subsidies Agreement, which were rendered either inoperative or of uncertain status.1
Canada believes that consideration should be given to reinstating and enhancing the deemed serious
prejudice provision.
Paragraph 4 of Annex IV provides a deemed serious prejudice threshold for start-up
incentives that is distinct from the ad valorem  subsidization threshold prescribed in Article 6.1 of the
Subsidies Agreement.  In this regard, Canada will also want to explore how current disciplines in
respect of start-up subsidy incentives, which can have obvious trade distorting effects, might be
improved.
The Report by the Informal Group of Experts to the Committee on Subsidies and
Countervailing Measures2 on Annex IV to the Subsidies Agreement contains a number of practical
recommendations on the calculation of the cost to government and ad valorem  subsidization for
different types of subsidies as well as on related issues.  Consideration should be given to building
these recommendations into the Agreement, if and as appropriate, with a view to improving the clarity
and effectiveness of Annex IV and, by extension, Article 6.1(a) of the Subsidies Agreement.
Finally, the Rules Group should explore how the current serious prejudice provisions might
be usefully clarified and improved in order to render the multilateral discipline more effective.  For
example, consideration should be given to clarifying the subsidy “effects” requirement (including the
identification of other factors that may be contributing to export or import displacement).
4. DISPUTE SETTLEMENT
General Objective:  The special dispute settlement rules in respect of prohibited subsidies
should function effectively with the generally applicable dispute settlement rules in the DSU.
Underlying Principle: General dispute settlement procedures should accommodate the
prescribed accelerated timeframes for the adjudication of prohibited subsidy claims without
impairing the ability of Members to advance other claims of violation.
Accelerated Timeframes:  Article 4.12 of the Subsidies Agreement, which provides
accelerated timeframes for the adjudication of prohibited subsidy disputes, is listed among the special
or additional dispute settlement rules and procedures in Appendix 2 to the DSU.  The language ofArticle 4.12 is mandatory, affording no discretion with respect to the application of these accelerated
timeframes.  Moreover, in accordance with Article 1.2 of the DSU, these special timeframes prevail
over the generally applicable timeframes set out in the DSU.  However, giving effect to these special
timeframes has proven difficult where other claims of violation, in addition to those in respect of
prohibited subsidies, are also at issue.  Consideration should, therefore, be given to how the specialtimeframes for prohibited subsidies can be reconciled with the generally applicable timeframes in the
                                                     
1 Among the provisions affected by the lapsing of Article 6.1 are the following:
(i) Article 6.2, which operates “notwithstanding”  Article 6.1;
(ii) footnote 19, which establishes a limited evidentiary requirement for Article 6.1;(iii) Annex IV on the calculation of total ad valorem  subsidization for the purpose of
Article 6.1(a);
(iv) footnote 66, insofar as serious prejudice must now be demonstrated in all cases;(v) Article 27.8, which eliminates the presumption of serious prejudice under Article 6.1 for
subsidies granted by developing countries;
(vi) footnote 15, which refers to Article 6.1(a); and(vii) footnote 16, which refers to Article 6.1(d).    
2 Document G/SCM/W/415/Rev.2 of 15 May 1998.TN/RL/W/112
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DSU in such situations, having regard to parallel negotiations currently taking place in the Doha
Round, to improve the efficiency and effectiveness of the DSU.
Permanent Group of Experts:  The functioning of this institution should be examined to
determine how its advisory and dispute settlement roles might be improved.
5. OTHER ISSUES
Canada notes that certain Members have proposed that the Rules Group consider the
treatment of certain subsidies (e.g., in relation to environmental protection) under the Subsidies
Agreement.  Canada would support such a discussion.
6. COUNTERVAIL
The following issues should be read in conjunction with those clarifications and
improvements proposed in Canada’s earlier submission on the Anti-Dumping Agreement3 that are
equally relevant to the negotiations in respect of this Agreement (e.g., vis-à-vis  initiation standards,
transparency, public interest, and duty imposition).
General Objective:  To achieve greater convergence among Members in the manner in which
the countervailing duty provisions of the Subsidies Agreement are interpreted and applied.
Underlying Principle: Greater guidance and definitional precision are required for key
concepts and principles relevant to the conduct of subsidy investigations and the application of
countervail measures.    
Investigations:  The countervail part of the current Subsidies Agreement could benefit from
various clarifications and improvements.  For example, consideration should be given to:
• the need for further and more detailed guidelines concerning the quantification of amounts of
subsidy (e.g., in respect of royalty-based financing); and
• the harmonization, where possible and appropriate, of the provisions of the Subsidies Agreement
and Antidumping Agreement, (e.g.,  whereas the Subsidies Agreement provides expedited reviews
for any exporter that was not actually investigated, the Antidumping Agreement restricts
expedited reviews to new shippers).
General Objective:  To ensure greater equity in the countervail process.
Underlying Principle: The countervail process should take into account the amount of
subsidy benefiting the domestic industry.
Subsidized Domestic Like Product:  Where, in a countervailing duty investigation, the
domestic like product is itself being subsidized, trade is arguably distorted only to the extent that the
foreign and domestic subsidies have a differential impact.
In the interest of greater systemic fairness, the Rules Group should explore practical
modalities to ensure that the countervail process takes account of the amount of subsidization
specifically benefiting the domestic like product.
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3 Refer to document TN/RL/W/47.