RESTRICTED
WORLD TRADE G/SCM/W/75
17October 1995
ORGANIZATION(95-3125)
Original: Spanish Committee inSubsidies andCountervailing Measures
REPLIES TOQUESTIONS POSED BYTHE EUROPEAN COMMUNITIES1
CONCERNING THE NOTIFICATION OFMEXICAN
LAWS AND REGULATIONS2
Thefollowing communication, dated 15September 1995, hasbeenreceived fromthePermanent
Mission ofMexico.
_______________
QUESTIONS OFTHE EUROPEAN COMMUNITY
(SUBSIDIES)
General
Thegeneral reference throughout thetextto"price discrimination" seems inappropriate
inthiscontext, asprice discrimination isonlyrelevant indetermining theexistence ofdumping.
Reply
Article 28oftheForeign Trade Actdefines unfair practices ininternational trade asthe
importation ofgoods under conditions ofpricediscrimination (dumping) orsubsidization which cause
orthreaten tocause injury. Consequently, theprovisions which refertotheterm"unfair practices"
cover bothdumping andsubsidies.
1G/SCM/W/51.
2G/ADP/N/1/MEX/1 andG/SCM/N/1/MEX/1.G/SCM/W/75
Page2
ANNEX 1-FOREIGN TRADE ACT
TITLE V
1. Chapter 1
Article 29
Article 29,second section says: "Evidence ofinjury orthreat ofinjury shall berequired
whenever thecountry oforigin orsource ofgoods inquestion observes reciprocity. Otherwise,
theMinistry mayimpose theappropriate countervailing duties without having toprove injury
orthreat ofinjury".
Inthisregard, theCommunity asks:
(i) What does"reciprocity" mean inthiscontext?
Reply
Inthecontext ofthisArticle, reciprocity means thatMexico grants theinjury testtocountries
which grant itininvestigations ofMexican exports. Astheinjury testismandatory inbothdumping
andsubsidy investigations forallMembers, Mexico isobliged togrant theinjury testsince allother
WTO Members havetheobligation togrant it.
(ii) Onwhat basis andinwhat circumstances, inviewofprovisions ofArticle 10of
theSubsidies Agreement, cancountervailing measures betaken without apositive
determination ofinjury?
Reply
Innocircumstances, astheinvestigations carried outunder theGATT SCM Agreement, in
otherwords, forcountries thatareparties tothatAgreement, mustnecessarily include thecorresponding
analysis ofinjury, thisbeing anobligation under theSCM Agreement itself.
(iii) Isacomplaint required, andisaninvestigation carried outbefore measures are
taken, asrequired byArticle 10oftheSubsidies Agreement?
Reply
Yes,inaccordance withArticle 49oftheForeign Trade Act,there aretwoways ofinitiating
anadministrative investigation. Thefirstisattherequest ofaninterested party, which mustnecessarily
beaccompanied bythecorresponding application, andthesecond isinspecial circumstances, where
without anyrequest being made theinvestigation authority decides toinitiate aninvestigation when
ithassufficient dataconcerning theexistence ofthesubsidy, theinjury andthecausal relationship,
which isperfectly compatible withtheprovisions ofArticle 11.6oftheSCM Agreement.
Bothcases necessarily leadtotheundertaking ofanadministrative investigation asspelled out
intheForeign Trade ActanditsRegulations, forthepurpose ofestablishing thatthesubsidies under
investigation areactually granted andthattheyarecountervailable under thelegislation, andalsothat
theycause orthreaten tocause injury tothedomestic production ofidentical orsimilar products, as
provided forintheSCM Agreement.G/SCM/W/75
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2. Chapter IV
Article 40
Article40,secondparagraph,states:"Whenalloftheproducersarerelatedtotheexporters
orimporters orarethemselves importers oftheproduct under investigation, theterm "domestic
industry" maybeinterpreted asreferring totheentire group ofproducers ofthegoods produced
during theimmediately preceding stage inthesame continuous lineofproduction".
Inthisregard theCommunity asks:
(i) Arethegoods produced during the...continuous lineofproduction likeproducts
totheimported goods, asdefined infootnote 46oftheSubsidies Agreement?
(ii) Ifthey arenotlikeproducts, how isthisdefinition of"domestic industry"
comparable withArticle 16oftheSubsidies Agreement?
Reply
Theterm"domestic industry" inArticle 40oftheActmustbeinterpreted inaccordance with
therequirements oftheSubsidies Agreement. Accordingly, bearing inmind footnote 46ofthe
Agreement theauthorities willcomply withthisprovision, which requires thattheterm"likeproducts"
beinterpreted tomean aproduct which isidentical, orintheabsence ofsuchaproduct, another product
which, although notalikeinallrespects, hascharacteristics closely resembling those oftheproduct
under consideration.
Article 42
Inaccordance withArticle 15(7) oftheSubsidies Agreement, theinvestigation authorities
should consider thenature ofthesubsidy orsubsidies inquestion andthetrade effects likely to
arise therefrom, when assessing threat ofinjury.
PleaseexplainwhythisfactorhasnotbeenincludedintheMexicanlegislation.DoesMexico
consider thatchanges inthelevel ofsubsidy would have anyimpact onthethreat ofinjury
assessment?
Reply
Neither theForeign Trade ActnoritsRegulations actually refertothenature ofthesubsidy
asafactor when assessing threat ofinjury, butArticles 42,Section VI,oftheForeign Trade Actand
68and69oftheRegulations allow thepossibility ofconsidering other factors inaddition tothose listed
inthose Articles.
Inaddition, theinvestigating authority willapply theprovisions oftheSCM Agreement because
itisanintegral partofthelegislation andhastobecomplied withbytheMexican authority.
Consequently, when assessing thethreat ofinjury theauthority hastoconsider thelevelofsubsidy.
Thus, theinvestigating authority considers thatapossible change inthelevelofsubsidy may
havemajor repercussions onthepossible threat ofinjury tothedomestic industry, andtherefore, on
thebasisoftheSCM Agreement, itwilltakeintoaccount notonlythisvariable butalsoalltheothers
listed inArticle 15.7oftheAgreement.G/SCM/W/75
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Article 43
Asregards cumulation, theCommunity isnotconvinced thattheMexican legislation fulfils
therequirements setoutinArticle 15.3oftheSubsidies Agreement forcumulatively assessing
theeffects oftheimports. Please explain under which conditions cumulation would bepossible.
Reply
Inaccordance withArticle 67oftheForeign Trade Regulations, forthedetermination ofinjury
theMinistry mayassess cumulatively where imports ofaproduct from more thanonecountry are
simultaneously thesubject ofinvestigations forunfair international trade practices. Thevolume and
effects ofsuchimports willbeassessed cumulatively provided theycompete among themselves and
withtheidentical orsimilar products manufactured inMexico.
Article 15.3oftheSCM Agreement ismore specific inlaying down therequirements thatmust
besatisfied forcumulative assessment. AsthisAgreement forms partofMexican legislation, as
explained inreply toQuestion 1,theMexican authority isobliged tocomply withit.
Article 49
Under which conditions cananinvestigation ex-officio beinitiated? Arethe"special
circumstances" ofArticle 11(6) oftheSubsidies Agreement foreseen inthisregard?
What evidence isrequired foranex-officio notification?
Reply
Inaccordancewithadministrativepractice,theinvestigationauthoritywillinitiateaninvestigation
ex-officio onlyinspecial circumstances andwhere ithasinformation andevidence oftheexistence
ofasubsidy thatiscausing orthreatening tocause injury andofacausal relationship between thetwo.
Thus, therequirements setoutinArticle 11.6oftheSCM Agreement areprovided for.
Article 50
Article50says:"Therequestingpartiesmustberepresentativeofthedomesticindustry..."
Isthisthesame as"awritten application byoronbehalf ofthedomestic industry" inaccordance
withArticle 11oftheSubsidies Agreement?
WhatdoesMexicoconsideras"legallyconstitutedorganization"?Isthisprovisionconsistent
withArticle 11(4) oftheSubsidies Agreement insofarthatatleast25percentofthedomestic
industry should support acomplaint?
Reply
Itisthesame, asArticle 50states thattheperson requesting theinitiation ofaninvestigation
must berepresentative ofthedomestic industry.
Article 50oftheActisinkeeping withArticle 11.4oftheSCM Agreement, inthatbothrefer
to25percentasaminimum levelofrepresentativeness forthesubmission ofanapplication forthe
initiation ofaninvestigation.G/SCM/W/75
Page5
Inaccordance withArticle 136oftheRegulations, legally constituted organizations aredeemed
tobechambers, associations, confederations, councils oranyother group ofproducers constituted
inaccordance withMexican law,whose object istorepresent theinterest ofnatural orlegalpersons
engaged intheproduction ofidentical orsimilar goods.
Article 53
Doesthetime-limit of30daysinclude orexclude thetimefortransmitting thequestionnaire
assetoutinfootnote 40toArticle 12.1.1 oftheSubsidies Agreement? Cananextension ofthe
time-limit begiven?
Reply
Article 3oftheForeign Trade Actestablishes thatreferences totime-limits indayscorrespond
toworking days, andtherefore the30daysmentioned inArticle 53areworking dayscounting from
thepublication oftheresolution toinitiate aninvestigation, andinclude thetimefortransmitting the
questionnaire totheparties. Thisistheequivalent ofabout 42calender days. Itshould bepointed
outthatastheAgreement refers tocalender days, theMexican legislation thusgrants alonger period
thanthatprovided forintheAgreement, which represents anadvantage fortheparties.
Ifnecessary, extensions canbegranted, where justification isprovided inaccordance with
Article 12.1.1 oftheSCM Agreement.
Article 57
HowwillMexico ensure thatprior totheimposition ofprovisional measures, apreliminary
affirmative determination ofsubsidization andinjury hasbeen made?
According toArticle 57,provisional measures canbeimposed after aperiod ofatleast
45daysfrom thepublication oftheresolution toinitiate theinvestigation. How canthe45-day
period bereconciled withthe60daysprovided forinArticle 17.3oftheSubsidies Agreement?
Reply
Prior totheimposition ofprovisional measures, theinvestigating authority analyses the
information submitted bytheparties, inaccordance withthelegislation, todetermine theexistence
ofthesubsidy, theinjury, andthecausal relationship between thetwo,andthusdetermine whether
provisional measures needtobeapplied soastoensure thatinjury doesnotcontinue tobecaused to
thedomestic industry during theperiod oftheinvestigation. Thus, theprovisions ofArticle 17of
theSCM Agreement arefullyobserved.
Article 57oftheForeign Trade Actprovides thataprovisional countervailing dutymaybe
determined within aperiod of130daysfrom thedayfollowing thepublication oftheresolution to
initiateaninvestigation.Article82oftheRegulationslaysdownthecontentofthepreliminaryresolution
intheevent thatunfair practices havebeenfound toexist, thatistosaythattheexistence ofasubsidy,
theinjury orthreat ofinjury, andthecausal relationship between thetwo,havebeenproved toexist,
these being thenecessary elements todetermine theexistence ofanunfair practice inconformity with
Article 28oftheForeign Trade Act,thuscomplying with theprovisions ofArticle 17ofthe
SCM Agreement.G/SCM/W/75
Page6
TheForeign Trade Actrefers totime-limits inworking days, asmentioned inArticle 3ofthe
Act,while theGATT Agreements refertocalendar days, andconsequently there isnoinconsistency
between thetwoas45working daysisalittlemore than60calendar days.
Article 61
Can consultation with other WTO Members take place before theinitiation ofan
investigation asforeseen inArticle 13.1oftheSubsidies Agreement? Willsuchconsultations be
offered byMexico?
Reply
Mexico caninvite other parties toholdconsultations aftertheapplication hasbeensubmitted
andbefore theresolution toinitiate aninvestigation hasbeen issued, asprovided forinthe
SCM Agreement.
Asthese consultations areprovided forintheSCM Agreement, theymustbeoffered bythe
Mexican authority inaccordance withArticle 13oftheabove-mentioned Code.
Article 62
Mexico failstoprovide anexplanation ofhowitintends tocalculate theamount ofthe
benefit ofthesubsidy. Please explain onwhat elements suchcalculation willbebased.
Reply
Article 38oftheForeign Trade Actstates thatforthecalculation oftheamount ofasubsidy,
thetotalofexport taxes, duties orother charges payable ontheexport ofthegoods inthecountry
oforigin anddesigned tooffset thesubsidy shallbededucted.
Inaddition, themethod forcalculating thebenefit conferred upon therecipient ofasubsidy
hasalready beendulydeveloped bytheinvestigating authority, andvarious procedures havebeenused
intheadministrative practice. Basically, thebenefit consists ofatransfer ofresources inconditions
other thanmarket conditions. Consequently, thebenefit ismeasured asthedifference between the
market price andtheprice actually paid, multiplied bythequantity ofthesubsidized good concerned
(water, electricity etc.inthecaseofsubsidies toinputs). See,forexample, thepreliminary resolutions
onflatsteels published intheOfficial Journal of14,17and18April 1995. However, thismethod
hasnotyetbeenincorporated intonational law.Among theamendments being prepared fortheForeign
Trade ActanditsRegulations istheinclusion ofthismethodology, which willhavetobeperfectly
compatible withtheprovisions oftheSCM Agreement.