ASCM Nijhoff

Rüdiger Wolfrum, Peter-Tobias Stoll and Michael Koebele (eds), WTO-Trade Remedies.
© 2008 Koninklijke Brill NV. Printed in the Netherlands. pp. 423–452
AGREEMENT ON SUBSIDIES AND COUNTERVAILING

MEASURES (SCMA)
Article 1
Definition of a Subsidy
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within
the territory of a Member (referred to in this Agreement as “government”),
i.e. where:
(i) a government practice involves a direct transfer of funds (e.g. grants, loans,
and equity infusion), potential direct transfers of funds or liabilities (e.g.
loan guarantees);
(ii) government revenue that is otherwise due is foregone or not collected
(e.g. fiscal incentives such as tax credits);1
(iii) a government provides goods or services other than general infrastructure,
or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts or
directs a private body to carry out one or more of the type of func-
tions illustrated in (i) to (iii) above which would normally be vested in
the government and the practice, in no real sense, differs from practices
normally followed by governments;
or
(a)(2) there is any form of income or price support in the sense of Article XVI of
GATT 1994;
and
(b) a benefit is thereby conferred.
1.2 A subsidy as defined in paragraph 1 shall be subject to the provisions of Part II or
shall be subject to the provisions of Part III or V only if such a subsidy is specific in
accordance with the provisions of Article 2.
Footnote 1: In accordance with the provisions of Article XVI of GATT 1994 (Note to
Article XVI) and the provisions of Annexes I through III of this Agreement, the exemption
of an exported product from duties or taxes borne by the like product when destined for
domestic consumption, or the remission of such duties or taxes in amounts not in excess
of those which have accrued, shall not be deemed to be a subsidy.
Bibliography
J. H. Jackson, The World Trade System (2nd ed. 1997); A. F. Lowenfeld, International Economic
Law (2002); M. Matsushita et al., The World Trade Organization: Law, Practice, and Policy (2003);
E. McGovern, European Community Anti-Dumping and Trade Defence Law and Practice (2006);
E. McGovern, International Trade Regulation (1995); WTO, Analytical Index, Guide to GATT Law
and Practice (1995), vol. I.
Case Law
Panel Report, US—Lead and Bismuth I, SCM/185, 15 November 1994, unadopted; Appel-
late Body Report, Brazil—Desiccated Coconut, WT/DS22/AB/R; Appellate Body Report,
EC—Hormones, WT/DS26/AB/R, WT/DS48/AB/R; Appellate Body Report, Brazil—
Aircraft, WT/DS46/AB/RW; Panel Report, Brazil—Aircraft, WT/DS46/R; Panel Report,
Brazil—Aircraft, WT/DS46/RW; Panel Report, Brazil—Aircraft, WT/DS46/RW/2; Appellate
Body Report, Canada—Aircraft, WT/DS70/AB/R; Appellate Body Report, Canada—Aircraft,
WT/DS70/AB/RW; Panel Report, Canada—Aircraft, WT/DS70/R; Appellate Body Report,
ADAMANTOPOULOS
424 article 1 scma
Canada—Dairy, WT/DS103/AB/R, WT/DS113/AB/R, WT/DS103/AB/R/Corr.1, WT/

DS113/AB/R/Corr.1; Appellate Body Report, Canada—Dairy, WT/DS103/AB/RW, WT/
DS113/AB/RW; Appellate Body Report, US—FSC, WT/DS108/AB/R; Appellate Body
Report, US—FSC, WT/DS108/AB/RW; Panel Report, US—FSC, WT/DS108/R; Appellate
Body Report, US—Lead and Bismuth II, WT/DS138/AB/R; Panel Report, US—Lead and
Bismuth II, WT/DS138/R, WT/DS138/R/Corr.2; Appellate Body Report, Canada—Autos,
WT/DS139/AB/R, WT/DS142/AB/R; Panel Report, Canada—Autos, WT/DS139/R,
WT/DS142/R; Panel Report, US—Export Restraints, WT/DS194/R, WT/DS194/R/Corr.2;
Appellate Body Report, US—Countervailing Measures on Certain EC Products, WT/DS212/AB/
R; Panel Report, US—Offset Act (Byrd Amendment), WT/DS217/R, WT/DS234/R; Panel
Report, Canada—Aircraft Credits and Guarantees, WT/DS222/R; Panel Report, US—Softwood
Lumber III, WT/DS236/R; Appellate Body Report, US—Softwood Lumber IV, WT/DS257/
AB/R; Panel Report, US—Softwood Lumber IV, WT/DS257/R, WT/DS257/R/Corr.1;
Panel Report, US—Upland Cotton, WT/DS267/R, WT/DS267/R/Corr.1; Panel Report,
Korea—Commercial Vessels, WT/DS273/R; Appellate Body Report, US—Countervailing Duty
Investigation on DRAMs, WT/DS296/AB/R; Panel Report, US—Countervailing Duty Investiga-
tion on DRAMs, WT/DS296/R; Panel Report, EC—Countervailing Measures on DRAM Chips,
WT/DS299/R.
Table of Contents
A. General 1
I. Overview of Subsidies under the SCMA 1
II. Historical Overview 4
B. Paragraph-by-Paragraph Analysis 6
I. Definition of a Subsidy (Art. 1.1 SCMA) 6
II. Financial Contribution (Art. 1.1(a)(1) SCMA) 9
1. Direct Transfer of Funds (Art. 1.1(a)(1)(i) SCMA) 19
a) Direct and Potential Direct Transfer of Funds 23
b) Potential Direct Transfer of Liabilities 30
2. Government Revenue Foregone or Not Collected
(Art. 1.1(a)(1)(ii) SCMA) 31
a) Footnote 1 to Art. 1.1(a)(1)(ii) SCMA 44
3. Provision of Goods or Services and Purchase of Goods
(Art. 1.1(a)(1)(iii) SCMA) 51
a) Provision of Goods or Services Other than General Infrastructure 52
b) Purchase of Goods 60
4. The Anti-Circumvention Provision: Funding Mechanism and
Private Bodies (Art. 1.1(a)(1)(iv) SCMA) 63
a) Payments to a Funding Mechanism 65
b) “Entrusts or Directs” 69
c) Private Body 78
d) Type of Functions 79
e) Normally Vested in or Followed by the Government 81
5. Income or Price Support (Art. 1.1(a)(2) SCMA) 84
III. Benefit Conferred (Art. 1.1(b) SCMA) 91
1. The Meaning of “Benefit” 92
2. Recipient of the Benefit 97
3. Conferral of the Benefit 101
4. Pass-Through of Benefit 105
IV. Specific and Non-Specific Subsidies (Art. 1.2 SCMA) 111
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A. General*
I. Overview of Subsidies under the SCMA

WTO rules on subsidies contained in the SCMA are intended to impose 1
disciplines on the granting by public authorities to industry of economic
support that may negatively affect international trade. Subsidies have been
a difficult and sensitive issue to bring within the rules of the multilateral
trading system. They always involve, directly or indirectly, state sovereignty
and the exercise of power by a public authority. Subsidies assist sovereign
governments in accomplishing their domestic economic, regional, and
social policies and may often be aimed at assisting a country’s industrial
competitiveness in the international economy. They may concern an ample
assortment of economic sectors and industrial activities. Moreover, not every
public subsidy is regarded as capable of distorting international trade, as is
the case with subsidizing education, healthcare, scientific research, etc. In
practice, it is often difficult to determine the effects of a given subsidy on
international trade, and moreover, some subsidies are maintained for policy
reasons even if they are known to have trade-distorting potential.
In order to accommodate the concerns of GATT/WTO Members for flex- 2
ibility with respect to the disciplines on subsidies, not all subsidies capable
of affecting international trade have been brought under the SCMA.1 WTO
practice has confirmed that, even if economic theory suggests that a given
subsidy has the potential of distorting trade, this in itself does not trigger
the application of the SCMA to such a subsidy.2 Likewise, the definition of
a subsidy in the SCMA is intended to cover only certain types and effects
of government support to industry and is built on the legal notions of
(1) financial contribution, (2) benefit, and (3) specificity, each of which has
its own definition. In attempting to circumscribe the object and purpose
of the SCMA, the WTO panels and Appellate Body have held that the
SCMA imposes multilateral disciplines only on certain forms of subsidies
that are capable of distorting international trade and only as defined in
the SCMA.3
Part I SCMA with the heading “General Provisions” is composed of arts 3
1 and 2. Art. 1 SCMA defines the term subsidy and art. 2 SCMA devel-
ops the term specificity (as opposed to general availability) of a subsidy.
Accordingly, only subsidies as defined in art. 1 SCMA are covered by the
* The author is grateful to Igor Danilov and Dora Castaneda for their useful contribu-
tions to the present chapter.
1
WT/DS194/R, WT/DS194/R/Corr.2, paras 8.61–8.63.
2
Ibid., para. 8.62.
3
WT/DS70/R, para. 9.119; WT/DS194/R, WT/DS194/R/Corr.2, paras 8.62–8.63.
ADAMANTOPOULOS
426 article 1 scma
SCMA. In addition, only subsidies which are specific as defined under

art. 2 SCMA can be subject to the rules on prohibited subsidies of part
II SCMA, actionable under part III SCMA, or subject to countervailing
measures under part V SCMA. Finally, it must be noted that the SCMA
relates only to subsidies benefiting traded goods and not services.4
II. Historical Overview

4 Under the GATT 1947, subsidies were not subject to harsh disciplines. The
only rules dealing with subsidies essentially were art. XVI GATT 1947,
providing for notification of and consultations on subsidies, and art. VI
GATT 1947, allowing the imposition of countervailing measures. Neither
of these provisions contained a definition of subsidy but only referred to the
term subsidy.5 Similarly, the first agreed set of detailed rules on subsidies,
the Agreement on Interpretation and Application of Articles VI, XVI, and
XXIII of the General Agreement on Tariffs and Trade of 1979 (hereafter,
Tokyo Round Subsidies Code), a plurilateral agreement (not binding on all
GATT Members but only on those who committed to it), did not include
a clear definition of the term subsidy. Instead, the Tokyo Round Subsidies
Code provided for the first time a clearly distinctive treatment of export
subsidies, which were prohibited in respect of industrial products, and “other
than export” subsidies.6 The Tokyo Round Subsidies Code also included
the annex “Illustrative List of Export Subsidies” which is now contained
in annex I SCMA.
5 The Uruguay Round of multilateral trade negotiations which ended in 1994
resulted in the adoption of the SCMA, among the other multilateral WTO
agreements. The SCMA gave the first definition of the term subsidy which is
still valid today.7 In contrast to the distinction between export subsidies and
“other than export” subsidies established under the Tokyo Round Subsidies
Code, the new definition rests on the notions of financial contribution and
benefit. Accordingly, art. 1 SCMA defines subsidies essentially as a financial
contribution by a government whereby a benefit is conferred.
4
Subsidization of services is subject to the GATS. See art. XV GATS.
5
A GATT panel on subsidies “considered that it was neither necessary nor feasible to
seek an agreed interpretation of what constituted a subsidy”. Panel on Subsidies, Report
on the Operation of the Provisions of Article XVI, adopted 21 November 1961, L/1442,
19 April 1961, BISD 10S/201, para. 23.
6
See arts 8–11 Tokyo Round Subsidies Code. See also Lowenfeld, 235; Jackson, 289.
7
See art. 1 SCMA. The definition of subsidy has been recognized as one of the most
important achievements of the Uruguay Round negotiations. WT/DS108/R, para. 7.80.
ADAMANTOPOULOS
article 1 scma 427
B. Paragraph-by-Paragraph Analysis
I. Definition of a Subsidy (Art. 1.1 SCMA)

The purpose of art. 1.1 SCMA is to provide a definition of a subsidy to be 6
applied throughout the SCMA8 and the other WTO agreements relating
to trade in goods. The definition in art. 1.1 SCMA sets out two distinct
whilst necessary elements for a subsidy to exist: (1) there must be a “financial
contribution” (alternatively, income or price support under art. XVI GATT
1994) by a government or any public body within the territory of a WTO
Member and (2) such a financial contribution should confer a “benefit”.9
The connector “and” between both elements in arts 1.1(a) and 1.1(b) SCMA
indicates that these are two cumulative requirements. However, the finding
of a financial contribution does not imply the granting of a benefit thereby,
and vice versa. Hence, demonstration of the simultaneous presence of each
separate legal element (i.e., financial contribution and the benefit) is required
for alleging and establishing the existence of a subsidy.10 The panels and
Appellate Body have strictly adhered to this rule.
The definition of subsidy in art. 1.1 SCMA applies to all types of subsidies 7
covered by the SCMA, such as prohibited, actionable, countervailable, or
non-actionable subsidies. Therefore, it is a prerequisite for a public support
action to fall within this definition in order to be subject to the applica-
tion of the provisions on prohibited subsidies, actionable subsidies, coun-
tervailing measures, and notifications. The definition of a subsidy under
the SCMA also applies to governmental support measures under the AG
Agreement.11
Art. 1 SCMA does not impose any obligation on WTO Members with 8
respect to the subsidies it defines; hence, it has the purpose of a definitional
norm only.12
8
WT/DS236/R, para. 7.24.
9
See WT/DS46/RW, para. 5.18; WT/DS194/R, WT/DS194/R/Corr.2, para. 8.20;
WT/DS257/AB/R, para. 51. The requirements for establishing the same elements must
be reflected in the national legislation of each WTO Member. For example, the European
Communities has reflected these two elements in art. 2 Council Regulation (EC) No 2026/97
of 6 October 1997 on protection against subsidized imports from countries not members of
the European Community, OJ 1997 L 288/1 (hereafter, EC Subsidy Regulation).
10
E.g., WT/DS46/AB/R, para. 156. See also Jackson, 296.
11
See, e.g., WT/DS22/AB/R, 13, sec. IV.C.
12
See, e.g., WT/DS296/AB/R, para. 205, n. 377.
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428 article 1 scma
II. Financial Contribution (Art. 1.1(a)(1) SCMA)

9 A financial contribution within the meaning of art. 1.1 SCMA is one of
the necessary elements of a subsidy, and it refers to the type of government
action/measure providing support to industry. The drafting history of the
SCMA reveals that only government actions defined as financial contribu-
tions were intended to be subject to the multilateral disciplines on subsidies.
Accordingly, the WTO panels and Appellate Body have expressly recognized
that not all government measures that conferred a benefit could be consid-
ered subsidies but only those that also involved a financial contribution.13
10 Art. 1.1(a)(1) SCMA lists several types of government actions which con-
stitute a financial contribution. These are as follows: (1) the direct transfer
of funds by a government (e.g., grants, loans, equity infusion) or potential
direct transfer of funds or liabilities (e.g., loan guarantees); (2) the forego-
ing or not collecting of public revenue that is otherwise due (e.g., duty or
tax exemptions); (3) in-kind contributions of financial value, i.e., govern-
mental provision of goods or services other than general infrastructure or
governmental purchases of goods; and (4) indirect government actions,
i.e., making payments to a funding mechanism or entrusting or directing a
private body to make a financial contribution of the types listed above, if
this would normally be vested in the government and such practice differs
in no real sense from practices followed by governments.14
11 The list of types of financial contribution in art. 1.1(a)(1) SCMA should be
considered exhaustive; otherwise, the definition of subsidy in art. 1 SCMA
would lose its intended purpose. Such an interpretation is supported by
the ordinary meaning of the introductory provision of art. 1.1 SCMA:
“For the purpose of this Agreement, a subsidy shall be deemed to exist
if ” and the text of art. 1.2 SCMA: “A subsidy as defined in paragraph 1”.
Art. 1.1(a)(1)(iv) SCMA containing the text “one or more of the . . . functions
illustrated in (i) to (iii) above” also supports this view. Such an interpreta-
tion has been confirmed in panel and Appellate Body reports on several
occasions.15
13
This approach has been applied consistently by panels and the Appellate Body. See,
e.g., WT/DS257/AB/R, para. 52, n. 35; WT/DS296/AB/R, para. 114; WT/DS194/R,
WT/DS194/R/Corr.2, para. 8.65. For an ample illustration of the negotiating history of
the term “financial contribution”, see WT/DS194/R, paras 8.70–8.72.
14
By way of example, EC law lists the same government actions as constituting a financial
contribution. See art. 2(1) EC Subsidy Regulation.
15
See, e.g., WT/DS194/R, WT/DS194/R/Corr.2, para. 8.69; WT/DS296/AB/R, para.
108.
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article 1 scma 429
In any financial contribution there is a transfer of economic value from 12

the government to the recipient either in the form of a monetary transfer
or a transfer in kind.16
The concept of financial contribution relates to the existence and nature 13
of the governmental action but is not concerned with its effects.17 In par-
ticular, the financial contribution is neutral as to whether its recipient has
benefited more than other economic operators in the marketplace. This latter
element of a subsidy is dealt with through the notion of “benefit . . . con-
ferred” in art. 1.1(b) SCMA.
The financial contribution must be made “by a government or any public 14
body” as stated in the introductory paragraph of art. 1.1(a)(1) SCMA.
These notions have to be understood broadly. According to art. 1.1(a)(1)
SCMA, the term “government” is intended to cover not only central/federal
government institutions but also sub-national governments, local/munici-
pal authorities, and other public bodies such as, inter alia, state-controlled
agencies or institutions, including financial institutions.18
Companies owned wholly or predominantly by the government should be 15
considered “public bodies”. However, in practice this determination ought
to be made on a case-by-case basis, taking into account the level of control
by the government over the particular company. The decisive factors in
this respect are the company’s internal organization and decision-making
procedures (the composition of the managing and supervisory board, the
adoption of business plans, the setting up of instructions for day-to-day
activities, etc.).19
The Appellate Body in Canada—Dairy has elaborated a definition of “gov- 16
ernment” in relation to subsidies under the AG Agreement, which can
be considered applicable also for the purposes of art. 1.1(a)(1) SCMA. In
particular, the Appellate Body interpreted the term “government” as the
effective power to (1) regulate; (2) control; or (3) supervise individuals; or
(4) otherwise restrain their conduct through the exercise of lawful authority.
A government agency is an entity which exercises powers vested in it by
a government for the purpose of performing (with a degree of discretion)
16
WT/DS257/AB/R, para. 52; WT/DS194/R, WT/DS194/R/Corr.2, paras 8.38–8.43,
n. 135. See, e.g., WT/DS103/AB/R, WT/DS113/AB/R, WT/DS103/AB/R/Corr.1, WT/
DS113/AB/R/Corr.1, paras 107, 112; WT/DS236/R, para. 7.24.
17
WT/DS194/R, paras 8.38, 8.42. The panel noted that if the concept of financial
contribution were about effects rather than the nature, the concepts of benefit and specificity
would be the sole determinants of the scope of the SCMA, which was not the intended
purpose of the agreement.
18
WT/DS273/R, paras 7.44–7.56. See also the discussion on the issue of public vs.
private body in sec. B.II.4 infra.
19
WT/DS273/R, paras 7.49–7.55.
ADAMANTOPOULOS
430 article 1 scma
functions of governmental character (regulate, restrain, supervise, or control

the conduct of private citizens).20
17 In this respect, the activities of the so-called “independent regulators”,
such as marketing boards for agricultural products or regulators for specific
markets which usually act independently of government authorities and set
minimum and/or maximum prices for certain products, would qualify them
as public bodies for the purposes of art. 1.1(a)(1) SCMA.21
18 A contribution made by a private body upon its own initiative would not
be considered as a financial contribution in the sense of art. 1.1 SCMA.22
However, if a government makes an indirect contribution by entrusting or
directing a private body to make a financial contribution within the meaning
of arts 1.1(a)(1)(i) to (iii) SCMA, such action would be considered a financial
contribution in accordance with art. 1.1(a)(1)(iv) SCMA.23
1. Direct Transfer of Funds (Art. 1.1(a)(1)(i) SCMA)

19 “Direct transfer of funds” implies contributions in which the government,
by way of its acts or omissions, provides funds (moneys) to the recipient.
This type of contribution ought to be distinguished from foregoing or not
collecting public revenue (art. 1.1(a)(1)(ii) SCMA) or a government pur-
chasing goods (art. 1.1(a)(1)(iii) SCMA), which are other types of financial
contribution listed in art. 1.1(a)(1) SCMA.
20 Such a contribution may take the form of various types of financial instru-
ments, such as actual direct transfers (grants, loans/credits, interest rate
support, capital/equity infusion, corporate bond purchases, debt-to-equity
swaps, investments, corporate debt forgiveness) or potential direct transfers
of funds or liabilities (loan guarantees, insurance, etc.).
21 For example, in Canada—Aircraft Credits and Guarantees, the panel acknowl-
edged that a range of export credits and loan guarantees provided by
the Canadian Export Development Corporation (through the so-called
“Canada Account” programme) constituted financial contributions under
art. 1.1(a)(1)(i) SCMA to the Canadian aircraft manufacturer Bombardier.
The programmes in question included, inter alia, loan guarantees, interest
rate support, equity guarantees, residual value guarantees and “first loss
20
WT/DS103/AB/R, WT/DS113/AB/R, para. 97.
21
E.g., ibid., paras 93–102.
22
WT/DS296/AB/R, para. 107. From a historical perspective, an unadopted GATT
panel report had stated that in order for a subsidy to exist, the challenged measure must
be attributed to a government action. SCM/185, paras 390, 393. It is said that this inter-
pretation influenced the drafting of the definition of subsidies in art. 1 SCMA. See, e.g.,
Matsushita et al., 267.
23
Please refer to the discussion on art. 1.1(a)(1)(iv) SCMA in paras 63–83 below.
ADAMANTOPOULOS
article 1 scma 431
deficiency guarantees” provided to facilitate export sales of Bombardier

aircraft.24
The following sections analyze in greater detail the types of financial contri- 22
butions under art. 1.1(a)(1) SCMA: (1) direct transfers of funds; (2) potential
direct transfers of funds; and (3) potential direct transfer of liabilities.
a) Direct and Potential Direct Transfer of Funds

The term “direct” is intended to distinguish the direct involvement of the 23
government in the provision of funds as opposed to the government acting
through its fiscal powers (art. 1.1(a)(1)(ii) SCMA) or indirectly through a
fund or private body (art. 1.1(a)(1)(iv) SCMA).25
In practice, a wide variety of financial instruments employed by govern- 24
ments, government agencies, or governmental financial institutions might
be covered by the notion “direct transfer of funds”. The general examples
provided in the text of art. 1.1(a)(1)(i) SCMA (i.e., grants, loans, and equity
infusions) are not exhaustive, and further elaboration of this concept is
conducted on a case-by-case basis.26 More specific examples may include
acquisition of shares or of corporate bonds, R&D grants, loans for restruc-
turing, interest rate equalization payments, credits sold and converted into
cash, debt-to-equity swaps, waivers of contractual or corporate debts, etc.
Potential direct transfers of funds often feature in cases involving the provi- 25
sion of loan guarantees or insurance programmes by the government or
other public bodies (typically government-controlled export credit agencies
or export insurance institutions). In those situations funds are not actually
provided to the recipient but are rather “guaranteed” in respect of the
recipient. They may become actual direct transfers upon the fulfilment
of certain conditions (occurrence of insured risks, insolvency of the recipi-
ent, etc.).
In EC—Countervailing Measures on DRAM Chips, the panel found that the 26
export insurance guarantees provided by the Korea Export Insurance Cor-
poration to manage the risk of overseas transactions constituted a potential
direct transfer of funds within the meaning of art. 1.1(a)(1)(i) SCMA.27
In Canada—Aircraft Credits and Guarantees, the panel stated that the so-called IQ 27
(Investissement Québec) equity guarantees provided under the programme
operated by the Province of Québec were “potential direct transfers of
24
WT/DS222/R, paras 7.64–7.66, 7.141–7.142, 7.184–7.185, 7.320, 7.392–7.393.
25
See also McGovern, International Trade Regulation, 11.31–11.34.
26
The following cases concerned government action found to be direct transfers of funds:
WT/DS222/R; WT/DS70/R; WT/DS46/RW/2.
27
WT/DS299/R, para. 7.87.
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432 article 1 scma
funds” within the meaning of art. 1.1(a)(1)(i) SCMA.28 Furthermore, in

Korea—Commercial Vessels, the panel accepted the EC’s argument that the
advance payment refund guarantees provided by the Export-Import Bank
of Korea are potential direct transfer of funds within the meaning of art.
1.1(a)(1)(i) SCMA.29
28 WTO dispute settlement practice has offered some linguistic interpretations
of the concept “potential direct transfer of funds” within the meaning of art.
1 SCMA. The term “potential” refers to possibility rather than probability,
the latter implying a higher degree of potentiality than that envisaged by
the drafters of the SCMA.30 Moreover, the Appellate Body has clarified
that the determination of the potentiality of a financial contribution does
not depend upon the granting of a benefit, as the financial contribution
and the benefit are separate legal elements.31
29 It is not necessary for a potential direct transfer of funds to materialize as an
actual direct transfer in order for a financial contribution to be established.
It would be sufficient to establish the potentiality of a direct contribution. In
this respect, the panel in Brazil—Aircraft has blurred the distinction between
actual and potential transfer by stating:
According to Article 1.1(a)(1)(i) a subsidy exists if a government practice
involves a direct transfer of funds or a potential direct transfer of funds and
not only when a government actually effectuates such a transfer or potential
transfer. . . . As soon as there is such a practice, a subsidy exists, and the ques-
tion whether the practice involves a direct transfer of funds or a potential
direct transfer of funds is not relevant to the existence of a subsidy. One or
the other is sufficient.32
The Appellate Body has not yet had the opportunity to scrutinize those
findings.
b) Potential Direct Transfer of Liabilities

30 The WTO panels and the Appellate Body have not expressly considered
the issue of potential transfer of liabilities. Nonetheless, it is only natural
to assume that the drafters of the SCMA, when referring to transfer of
liabilities implied a potential transfer of liabilities from the recipient to
the government and not from the government to the recipient. The latter
transfer would only increase the financial burden of the recipient rather
than make a financial contribution to it. In contrast, a potential transfer
of liabilities from the recipient to the government is evident in, e.g., a loan
28
WT/DS222/R, para. 7.320.
29
WT/DS273/R, para. 7.120.
30
31
Appellate Body Report, Brazil—Aircraft, WT/DS46/AB/R, para. 157.
32
WT/DS46/R, para. 7.13.
ADAMANTOPOULOS
article 1 scma 433
guarantee, in which the government may undertake to assume the liabili-

ties of the recipient in the event of the latter’s insolvency and to repay
its lenders directly rather than provide funds to the insolvent recipient.
Another example may be the transfer to the State of social security facili-
ties which would normally be borne by companies themselves in respect
of their employees. This type of measure may arise in restructuring plans
of companies operating in sectors currently subject to liberalization, such
as telecommunication, energy, post, and the like.
2. Government Revenue Foregone or Not Collected

(Art. 1.1(a)(1)(ii) SCMA)
This type of financial contribution relates to tax or duty incentive/exemption 31
measures, as well as other flexibilities practised by governments with respect
to the collection of public revenue in the exercise of their fiscal powers. Such
measures or flexibilities usually take the legal form of a special domestic
law on taxation or are an amendment to domestic customs law.
Fiscal powers of national or local governments touch upon the sovereignty 32
of WTO Members; hence, the SCMA does not prohibit a Member from
taxing or not taxing any particular category of revenues.33 However, in
exercising their sovereign fiscal powers, Members must observe the WTO
disciplines with respect to subsidies.34
The establishment of a financial contribution under art. 1.1(a)(1)(ii) SCMA 33
involves two parallel elements: (1) public revenue was foregone or not col-
lected and (2) the same public revenue was otherwise due.
Public revenue is “foregone” when a government, by a legal act or omission, 34
has chosen to give up its power to raise revenue; for instance, a government
has chosen by a legislative act to exempt from tax the revenues of a certain
category of enterprises. Alternatively, revenue is “not collected” when the
government has not implemented in full its power to raise revenue in the
course of the relevant revenue collection procedure. However, a financial
contribution does not arise solely on the basis of such government action.
It is also necessary to demonstrate that absent the government action at
issue, the revenue would have been due, hence the additional element
“revenue . . . otherwise due”.
The panel and Appellate Body in US—FSC have specified that in order to 35
establish a financial contribution under art. 1.1(a)(1)(ii) SCMA, it is neces-
sary to use a “normative benchmark”, reflecting the revenue normally due
33
According to the Appellate Body, “Members of the WTO are not obliged, by WTO
rules, to tax any categories of income, whether foreign- or domestic-source income”. WT/
DS108/AB/R, paras 90, 98.
34
Ibid., para. 90; WT/DS108/AB/RW, para. 86.
ADAMANTOPOULOS
434 article 1 scma
under the general domestic tax law of the Member. Such a benchmark
would allow a comparison between the revenue actually raised by the
government and the revenue that could have been raised otherwise.35 It is
only natural that the benchmark would strictly reflect the relevant generally
applicable domestic tax provisions of the Member in question and would
be determined on a case-by-case basis.
36 Such a comparison would require comparing similar taxpayers in like
situations.36 For instance, if the measure at issue relates to corporate tax,
the revenue cannot be established on the basis of the provisions relevant
to withholding tax. It has also been established that the required examina-
tion under art. 1.1(a)(1)(ii) SCMA must be sufficiently flexible to suit the
complexities of a Member’s taxation rules.37 Finally, the comparison must
be performed on the basis of actual substantive data, as the panels and
Appellate Body have ruled that it cannot be restricted to a formalistic
approach in the abstract.38
37 The findings of the panel and the Appellate Body in the US—FSC dispute
illustrate the application of the methodology described above to complex
practical situations.
38 The dispute concerned US measures exempting from tax certain income
of US companies’ subsidiaries established outside US territory. In particu-
lar, certain categories of extraterritorial income earned by US companies’
subsidiaries established and operated beyond US borders could be excluded
from the taxable income of US companies which, under the US taxation
system, is generally calculated on a worldwide basis. In order to qualify as
“excluded extraterritorial income”, the income of foreign-based subsidiaries
had to satisfy several selective qualitative and quantitative requirements (the
exclusions concerned certain designated sectors such as oil, gas, unprocessed
timber, or components of the income such as foreign labour content; the
products had to be used outside the US, etc.).
39 The EC as the complainant claimed, inter alia, that this kind of exclu-
sion of certain income from the taxable base of foreign-based subsidiaries
constituted a financial contribution within the meaning of art. 1.1(a)(1)(ii)
SCMA.
40 The US counter-argued that the fiscal measures in question aimed to des-
ignate certain categories of income that the US, in executing its sovereign
35
WT/DS108/AB/R, para. 90.
36
WT/DS108/AB/RW, paras 90, 92, 98.
37
Ibid., n. 66.
38
Panel Report, US—FSC, WT/DS108/RW, paras 8.37, 8.39; WT/DS139/AB/R,
ADAMANTOPOULOS
article 1 scma 435
powers, merely did not wish to tax. Thus, the US argued that the categories
of income at issue could not be qualified as being “otherwise due”.
The panel and the Appellate Body disagreed with the US’s arguments. The 41
WTO adjudicators considered in detail the factual situation and took as
the “normative benchmark” (i.e., as a basis for a comparison) the relevant
generally applicable US tax rules. They found, among other issues, that the
contested US measure, by way of its selective, qualitative, and quantita-
tive requirements, shielded a certain part of the gross income of the US
overseas companies which otherwise would be subject to taxation under
the generally applicable US taxation laws. In particular, the panel stated
that the US measure in question functioned as an effective departure from
a prevailing domestic standard.39
In another relevant dispute, Korea—Commercial Vessels, the EC as the appli- 42
cant asserted that certain special provisions in the Korean tax legislation
granted tax exemptions to Daewoo in relation to spin-offs of assets carried
out under a restructuring plan of the Korean company. The EC’s claim
based on information from the media was that such exemptions constituted
a financial contribution within the meaning of art. 1.1(a)(1)(ii) SCMA. The
EC further claimed that Daewoo, absent the contested tax provisions, would
normally have been required to pay additional taxes under the general
Korean corporate tax law and that this was the normative benchmark as
defined in US—FSC against which the existence of a financial contribution
should be assessed.40
The panel rejected the EC’s claims essentially on factual grounds. The 43
panel found that the contested Korean tax legislation provided for tax
exemptions in respect of spun-off entities only in the event that the lat-
ter entities “gained” on the value of assets transferred from the original
company. However, since the transfer of assets in the case of Daewoo’s
restructuring plan had taken place without changes in the value of assets
(at “book value”), such transfer did not result in any “gain” for the spun-
off companies. Therefore, there was no taxable event, no basis for any tax
exemption under the contested Korean provisions, and hence, no financial
contribution. The panel however did not find against the legal aspects of
the EC’s claim relating to the relevant normative benchmark.41
39
WT/DS108/RW, paras 8.25–8.26. The panel’s finding was essentially upheld by the
Appellate Body. The latter only found the relevant normative benchmark to be the US rules
of taxation regarding the foreign-source income of United States citizens or residents. See
WT/DS108/AB/RW, paras 98–106.
40
WT/DS273/R, paras 7.505–7.506.
41
Ibid., paras 7.507–7.510.
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436 article 1 scma
a) Footnote 1 to Art. 1.1(a)(1)(ii) SCMA

44 Footnote 1 to art. 1.1(a)(1)(ii) SCMA refers to and reproduces verbatim in
its substantive part the general interpretative note to art. XVI GATT 1994
(contained in annex I GATT). Footnote 1 SCMA specifies that the SCMA
does not regard as a subsidy the exemption of an exported product from
duties or taxes (or the remission of such duties or taxes in amounts not
in excess of those which have been collected) borne by the like product
when destined for consumption in the domestic market of the exporting
country. Therefore, a measure falling within footnote 1 SCMA falls outside
the scope of the SCMA.
45 A typical example of the situation referred to in footnote 1 SCMA is indirect
taxes (such as value added tax, sales/turnover tax, or excise duty) which
are levied with respect to the domestic sales of a product but which are
not imposed (or are zero-rated) with respect to export sales of the same
product. The underlying rationale is that the product must be subject to
indirect tax in the country where its use/consumption will take place and
not in the country where it has been manufactured or stored if different
from the country of consumption. Assuming that most WTO Members
enforce laws on indirect taxation, any product which has been exempt from
indirect tax on export would be taxed on import in the country where it
would be consumed and where it would enter into competition with like
goods. There would be no distortion of competition in the market of
the importing country if the like domestic product in such a country was
subject to the same tax as the imported product. Another example of the
potential scope of application of footnote 1 SCMA is customs procedures
with economic impact (e.g., inward processing) involving duty remission or
drawback.
46 If the amount of the duty or tax exemption/remission is greater than the
charge that the exported product would have to undergo if it were consumed
domestically in the exporting country, the difference will be considered a
prohibited export subsidy in accordance with paras (g), (h), or (i) of annex I
SCMA.42 Therefore, there is only a very fine line between a measure falling
under footnote 1 SCMA (and thus, outside the scope of the SCMA) and a
customs or fiscal measure constituting a prohibited subsidy.
47 The Appellate Body has made several clarifications with respect to the
scope of footnote 1 SCMA.
48 In Canada—Autos, the Appellate Body found that Canada had provided
import duty exemptions to certain companies in respect of specific types
of imported motor vehicles sold for consumption in Canada and concluded
42
See Adamantopolous & Akritidis, Article 3 SCMA.
ADAMANTOPOULOS
article 1 scma 437
that there was a financial contribution within the meaning of art. 1.1(a)(1)(ii)
SCMA. Canada argued that the situation at issue was “analogous” to the
situation described in footnote 1 SCMA. However, the Appellate Body
rejected the contentions of Canada based on the argument that footnote 1
SCMA explicitly refers to exported products, and thus, its scope is limited
only to exported products and does not include imported products.43
Similarly, in US—FSC, the Appellate Body clarified that footnote 1 SCMA 49
concerns only exemptions with respect to products and that it is not related
to tax exemptions made to income of corporations.44 Consequently, footnote
1 SCMA would not apply to direct taxes such as corporate income tax or
withholding tax.
Footnote 1 SCMA also refers to annexes I, II, and III SCMA. A panel has 50
stated that these annexes to the SCMA elaborate on the application of foot-
note 1 SCMA.45 This could be interpreted as meaning that these annexes
elaborate on the definition of prohibited export subsidies in the case of
customs or fiscal measures and thus facilitate the distinction between such
prohibited subsidies and measures falling under footnote 1 SCMA.46
3. Provision of Goods or Services and Purchase of Goods

(Art. 1.1(a)(1)(iii) SCMA)
Art. 1.1(a)(1)(iii) SCMA indicates that a financial contribution can be made 51
not only in terms of monetary contributions but also in the context of gov-
ernmental sales/deliveries or purchases of goods or services. This provision
contemplates two types of transactions: (1) governmental provision (by sale,
rent, or otherwise) of goods or services other than general infrastructure,
i.e., in-kind provision of resources of economic value as a result of which
the costs of production of the beneficiary are artificially lowered and
(2) governmental purchases of goods which artificially increase the benefi-
ciary’s revenues from sales of those goods.47
a) Provision of Goods or Services Other than General Infrastructure

The panels and the Appellate Body have interpreted the term “goods” under 52
this provision rather broadly. Any provision by a government of tangible or
fungible goods or other benefit in-kind resulting in transfer of resources or of
43
44
WT/DS108/AB/R, para. 93. Note that a similar provision is contained in art. VI:4
GATT the drafting history of which has revealed that income taxes were excluded from
that provision as it is concerned only with products. See Report of the Working Party on
the United States/Zenith Case, L/4508, 6 June 1977, para. 15.
45
WT/DS139/R, WT/DS142/R, para. 10.168.
46
The provisions of annexes I to III SCMA are examined in the context of prohibited
subsidies in Adamantopoulos & Akritidis, Article 3 SCMA.
47
ADAMANTOPOULOS
438 article 1 scma
rights over such goods or resources is potentially covered by art. 1.1(a)(1)(iii)

SCMA. The provision has been interpreted in the US—Softwood Lumber
disputes as encompassing even standing timber (living forests).48
53 The only qualification with respect to the terms “goods” and “services”
contained in art. 1.1(a)(1)(iii) SCMA is the text “other than general infra-
structure”. For instance, the panel in US—Softwood Lumber III, relying on the
textual interpretation of art. 1.1(a)(1)(iii) SCMA, ruled that art. 1.1(a)(1)(iii)
SCMA applies to in situ exploitation of natural resources/harvesting rights,
provided that such rights are not excluded from the scope of art. 1.1(a)(1)(iii)
SCMA in the same way as general infrastructure.49
54 In Canada—Aircraft Credits and Guarantees, Brazil claimed that the provision of
financing in the form of loans/credits would constitute provision of “services
other than general infrastructure” within the meaning of art. 1.1(a)(1)(iii)
SCMA. The panel avoided ruling on the issue by finding that it was not
necessary to consider Brazil’s claim to the extent that the same loans were
found to be direct transfer of funds under art. 1.1(a)(1)(i) SCMA.50 Therefore,
with respect to financial services that would qualify as actual or potential
direct transfer of funds (loans, export credits, interest rate support, loan
guarantees), a finding under art. 1.1(a)(1)(i) SCMA would take precedence
over art. 1.1(a)(1)(iii) SCMA. The panel may have applied the principle lex
specialis derogat legi generali, taking into account that art. 1.1(a)(1)(i) SCMA
expressly refers to “loans” and “loan guarantees” and therefore, may be
regarded as the specific norm in respect of the abovementioned financial
services, while art. 1.1(a)(1)(iii) SCMA is the overridden general norm relat-
ing to the provision of services by a government.
55 The Appellate Body in US—Softwood Lumber IV considered the meaning of
the term “provides”. It took the view that it would not make a difference
if “provides” is interpreted as “supplies”, “make available”, or “put at the
disposal of ” because what matters in determining whether a government
provides goods or services is the consequence of the transaction.51 In this
respect, in US—Softwood Lumber III, Canadian provincial governments
allowed the exercise of harvesting rights over living forests under stumpage
programmes, and this was considered to be “providing” standing timber to
the harvesting companies.52
48
See US—Export Restraints, WT/DS194; US—Section 129(c)(1) URAA, WT/DS221;
US—Softwood Lumber III, WT/DS236; US—Softwood Lumber IV, WT/DS257; US—Softwood
Lumber VI, WT/DS277; United States—Reviews of Countervailing Duty on Softwood Lumber from
Canada, WT/DS311.
49
WT/DS236/R, para. 7.26.
50
WT/DS222/R, para. 7.187, n. 153.
51
WT/DS257/AB/R, paras 68–75.
52
WT/DS236/R, para. 7.18.
ADAMANTOPOULOS
article 1 scma 439
Under art. 1.1(a)(1)(iii) SCMA, the provision of goods or services in the 56

form of infrastructure would be considered a financial contribution only
when it is found not to be of a “general” nature as provision of general
infrastructure is the sole applicable exception to the provision.53
The term “general infrastructure” is not defined in the SCMA and at 57
the time of writing, has not been given a definition by the panels and the
Appellate Body. However, the drafting history of the SCMA demonstrates
that the term “general infrastructure” was understood to include national
railways, highways, ports, telecommunication lines, etc. In addition, the
word “general” was understood to refer not to the type of infrastructure
but rather to the requisite of general availability of such infrastructure.
In this respect, the general availability of such infrastructure must not be
restricted by de jure or de facto limitations on its use.54
Some authors argue that the inclusion in art. 1.1(a)(1)(iii) SCMA of the 58
qualification “general infrastructure” is one dimension of the application
of the specificity requirement of arts 1.2 and 2 SCMA.55 In this respect, it
could be argued that the provisions of art. 2 SCMA may be used to clarify
and interpret the meaning of the term “general infrastructure”.
The anti-subsidy practice of some countries provides for examples clarifying 59
the meaning of “general infrastructure”. For example, in the anti-subsidy
investigation concerning steel products from Korea, the US Department
of Commerce found that the infrastructure provided at Kwangyang Bay
Industrial Estate (KBIE) in Korea benefited particular industrial plants rather
than society as a whole; therefore, it was not a “general infrastructure”.
Major items of the infrastructure provided by the Korean government at
the KBIE included: (1) an expansion of existing waterworks; (2) dredging
of the harbour and construction of harbour structures; (3) construction of
53
WT/DS257/AB/R, para. 60. See also WT/DS236/R, paras 7.23–7.24.
54
See, e.g., Negotiating Group on Subsidies and Countervailing Measures, Communica-
tion from Egypt, MTN.GNG/NG10/W/14, 30 November 1987, 2; Negotiating Group on
Subsidies and Countervailing Measures, Checklist of Issues for Negotiations, Note by the
Secretariat, Revision, MTN.GNG/NG10/W9/Rev.2, 2 December 1987, 10; Negotiating
Group on Subsidies and Countervailing Measures, Statement Made by the Delegation of
Canada at the Meeting Held on 28–29 June 1988, MTN.GNG/NG10/W/22, 7 July 1988, 2;
Negotiating Group on Subsidies and Countervailing Measures, Framework for Negotiations,
Communication from Canada, MTN.GNG/NG10/W/25, 28 June 1989, 7; Negotiating
Group on Subsidies and Countervailing Measures, Elements of the Framework for Nego-
tiations, Submission by the United States, MTN.GNG/NG10/W/29, 22 November 1989,
6; Negotiating Group on Subsidies and Countervailing Measures, Elements of the Nego-
tiating Framework, Submission by the European Community, MTN.GNG/NG10/W/31,
27 November 1989, 6; Negotiating Group on Subsidies and Countervailing Measures, Ele-
ments of the Framework for Negotiations, Submission by India, MTN.GNG/NG10/W/33,
30 November 1989, 2; Negotiating Group on Subsidies and Countervailing Measures, Ele-
ments of the Framework for Negotiations, Communication from the Republic of Korea,
MTN.GNG/NG10/W/34, 18 January 1990, 4.
55
See McGovern, International Trade Regulation, 11.31–11.36.
ADAMANTOPOULOS
440 article 1 scma
a road up to the boundary of the industrial estate; (4) construction of a

railroad spur up to the boundary of the estate; and (5) construction of 18
port berths.
b) Purchase of Goods
60 Governmental purchases of goods may result in a subsidy where a gov-
ernment or another public body procures goods from an enterprise at an
above-market price, which artificially increases the enterprise’s revenues
from sales of those goods.56
61 A practical example of such purchases would be deliveries of goods by an
enterprise to a public body under a public procurement contract. How-
ever, public procurement legislation in the domestic legal systems of many
WTO Members, in safeguarding the interests of taxpayers, aims to ensure
that public procurement of goods takes place at highly competitive prices.
Therefore, the risk of occurrence of subsidization in public procurement
contracts is minimal. Purchases of goods by a government have not yet
been subject to challenge under the rules of the SCMA.
62 The negotiating history of the SCMA reveals that a previous working draft
of this provision referred to government purchases not only of goods but
also of services.57 The elimination of the word “services” from the text of
the final draft provision implies a confirmation on the part of the SCMA’s
drafters that subsidization of service providers remains outside the scope
of the SCMA.58
4. The Anti-Circumvention Provision: Funding Mechanism and Private

Bodies (Art. 1.1(a)(1)(iv) SCMA)
63 Among the SCMA rules on financial contribution, art. 1.1(a)(1)(iv) SCMA
is often referred to as the anti-circumvention provision. It aims to prevent
governments from circumventing arts 1.1(a)(1)(i) to (iii) SCMA when provid-
ing the same types of financial contribution in an indirect way, by means
of a fund or a private body. As stated by the panel in US—Export Restraints,
this provision applies “to the situation in which the government executes a
particular policy by operating through a private body”.59
64 According to the text of the provision in question, financial contribution
under art. 1.1(a)(1)(iv) SCMA exists where the following five elements are
present: (1) a government “makes payments to a funding mechanism” or
56
57
Uruguay Round, Group of Negotiations on Goods, Negotiating Group on Subsidies
and Countervailing Measures, Draft Text by the Chairman, MTN.GNG/NG10/W/38/
Rev.2, 2 November 1990.
58
See also McGovern, International Trade Regulation, 11.31–11.36.
59
WT/DS194/R, para. 8.28.
ADAMANTOPOULOS
article 1 scma 441
“entrusts or directs” (2) “a private body” (3) carrying out “one or more of
the type of functions illustrated in [subparagraphs] (i) to (iii)”, (4) “which
would normally be vested in the government” and (5) “the practice, in no
real sense, differs from practices normally followed by governments.”60
a) Payments to a Funding Mechanism

By virtue of art. 1.1(a)(1)(iv) SCMA, a government may provide a financial 65
contribution indirectly where it “makes payments to a funding mechanism”.
This provision covers situations where a government, rather than making
a direct transfer of funds from its treasury to the targeted recipients as
described in art. 1.1(a)(1)(i) SCMA, instead provides funds to a financial
institution or a fund (e.g., an investment fund) for their subsequent re-
distribution to the final recipients.
In interpreting the text of art. 1.1(a)(1)(iv) SCMA, the panel in US—Export 66
Restraints stated that the governmental actions of making payments to a
funding mechanism and entrusting or directing a private body are equiva-
lent government actions, as both actions involve an intermediary (whether
a funding mechanism or a private body) to make a financial contribution
that otherwise would be made directly by the government.61
The phrase “makes payments” contained in this provision should be under- 67
stood in terms of a monetary contribution (as opposed to a payment in-kind)
and also in terms of an affirmative action (as opposed to an omission), given
the specific wording of the provision. Payments in-kind are dealt with by
art. 1.1(a)(1)(iv) SCMA in conjunction with art. 1.1(a)(1)(iii) SCMA.
The existing WTO dispute settlement practice has provided extensive inter- 68
pretations of the term “payment” contained in art. 9.1(c) AG Agreement
dealing with export subsidies in agriculture in the form of payments by
virtue of governmental action.62 In the authors’ opinion, those interpretations
may not be extended to art. 1.1(a)(1)(iv) SCMA, considering the different
contexts of these provisions as well as their respective wordings.
b) “Entrusts or Directs”
According to an important case on the issue, US—Countervailing Duty Investi- 69
gation on DRAMs, the terms “entrust” and “direct” determine the “instances
where seemingly private conduct may be attributable to a government for
60
Ibid., para. 8.25.
61
Ibid., para. 8.32.
62
WT/DS103/AB/RW, WT/DS113/AB/RW, paras 71, 76. See also WT/DS103/AB/R,
WT/DS113/AB/R, WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1, paras 113,
127.
ADAMANTOPOULOS
442 article 1 scma
the purposes of determining whether there has been a financial contribu-

tion within the meaning of the [SCMA]”.63
70 In this regard, the Appellate Body has interpreted the term “entrusts” as the
attribution of responsibility by a government to a private body to carry out
one of the functions listed in arts 1.1(a)(1)(i) to (iii) SCMA. In parallel, the
term “directs” has been interpreted as the exercise of authority or control
by a government over a private body.64
71 In US—Countervailing Duty Investigation on DRAMs the Appellate Body stated
that the interpretations used in the panel report on US—Export Restraints
of “entrust” as “delegation” and “directs” as “command” are too narrow
since “delegation” may be only one way among several by which a govern-
ment attributes responsibility while “command” appears to be only one way
in which a government can exercise its authority. However, the Appellate
Body qualified its statement in that the interpretation of art. 1.1(a)(1)(iv)
SCMA “cannot be so broad as to allow Members to apply countervail-
ing measures to products whenever a government is merely exercising its
general regulatory powers”.65 Therefore, when applied to specific facts, the
notions of “entrusts” and “directs” imply the presence of derogations from
a government’s standard regulatory practice.
72 Moreover, in order to satisfy the standard of art. 1.1(a)(1)(iv) SCMA, the
attribution of responsibility or exercise of authority should: (1) constitute
an explicit and affirmative action; (2) be addressed to a particular party;
and (3) have as its object a particular task or duty.66 There may be various
forms and means of the action.
73 Indirect or lateral effects of government actions, instances of “acts of
encouragement”, mere facilitations, or “by-products of government regu-
lation” would not qualify for the standard of entrustment or direction
since a proactive, more pronounced role of the government is required. A
demonstrable link between the action of the government and the conduct
of the private body is an essential requirement.67
63
64
Ibid., paras 110–111.
65
Ibid., para. 115.
66
Ibid., paras 110–111; WT/DS194/R, paras 8.28–8.30.
67
WT/DS296/AB/R, paras 112–114; WT/DS194/R, paras 8.31, 8.34–8.35, 8.42. Fur-
thermore, according to the EC anti-subsidy practice, the sole demonstration of government
encouragment or facilitation is not sufficient to find that the government “directs” and thus,
to establish a financial contribution under art. 1.1(a)(1)(iv) SCMA. However, such actions by
the government may be factors to be considered among others. See Council Regulation (EC)
No 1480/2003 of 11 August 2003 imposing a definitive countervailing duty and collecting
definitively the provisional duty imposed on imports of certain electronic microcircuits known
as DRAMs (dynamic random access memories) originating in the Republic of Korea, OJ
2003 L 212/1, rec. 15.
ADAMANTOPOULOS
article 1 scma 443
Based on such considerations, the panel in US—Export Restraints found 74

inconsistent with the SCMA the US countervailing legislation and practices
which allowed the US authorities to treat export restrictions imposed by
foreign governments on certain products as subsidization of their consumer
industries for such products. More particularly, the US legislation in ques-
tion considered that export restraints resulted in price decreases for such
input products on their domestic market. Such price decreases indirectly
benefited the respective downstream industries which purchased these inputs
locally from private producers and traders. Hence, export restraints allegedly
constituted financial contribution within the meaning of art. 1.1(a)(1)(iv)
SCMA whereby the government directed private producers and traders to
sell the products in question at lower prices.
However, the panel in US—Export Restraints found that export restraints 75
are measures of a general regulatory nature. They could not be viewed
as “explicit and affirmative action” and “addressed to a particular party
and for a particular task” and therefore, did not fall within the scope of
“entrusts or directs” under art. 1.1(a)(1)(iv) SCMA. The panel specified that
measures of a general regulatory nature may result in similar consequences
as measures qualifying under art. 1.1(a)(1)(iv) SCMA but that this did not
affect the distinction between the two categories.68
In US—Countervailing Duty Investigation on DRAMs, the Appellate Body noted 76
that a private entity’s refusal to carry out an entrusted or directed function
did not mean that the private body was not entrusted or directed. But it
further stated that the private body’s failure to carry out such a function
meant that economic value was not transferred, and thus, no financial
contribution existed.69
In any event, the analysis of entrustment or direction mandates a case- 77
by-case approach involving a careful analysis in light of the facts of the
particular case.70
c) Private Body
The panels and the Appellate Body have construed the term “private body” 78
as the counterpoint of the term “government and any public body” con-
tained in the introductory paragraph of art. 1.1(a)(1) SCMA.71 Thus, any
entity other than a government or a public body will be considered as a
private body.72 Such a broad interpretation of “private body” corresponds to
the purpose of art. 1.1(a)(1)(iv) SCMA as the anti-circumvention provision
68
WT/DS194/R, paras 8.31, 8.34, 8.44.
69
WT/DS296/AB/R, paras 110–111, 113, 116, 124–125.
70
E.g., ibid., para. 116.
71
See the discussion of the term “government or any public body” in sec. B.II supra.
72
WT/DS194/R, para. 8.49.
ADAMANTOPOULOS
444 article 1 scma
with respect to arts 1.1(a)(1)(i) to (iii) SCMA, while a narrow interpretation

would undermine that purpose.
d) Type of Functions
79 The words “one or more . . . type of functions illustrated in (i) to (iii) above”
emphasize that art. 1.1(a)(1)(iv) SCMA serves only the purpose of an anti-
circumvention provision in respect of the application of arts 1.1(a)(1)(i) to
(iii) SCMA and that it is not meant to provide for a new type of financial
contribution. The only difference between art. 1.1(a)(1)(iv) SCMA and arts
1.1(a)(1)(i) to (iii) SCMA is that the former provision deals with the appar-
ent identity of the actor (a private body acting as a proxy for a govern-
ment or a public body) rather than with the nature of the governmental
action (the financial contribution). WTO practice has also confirmed that
the provision in question does not expand the list of types of financial
contributions beyond the governmental functions listed in arts 1.1(a)(1)(i)
to (iii) SCMA.73
80 Accordingly, the words at issue confirm that the list of types of financial
contributions provided for in art. 1.1(a)(1) SCMA is exhaustive, as argued
above.
e) Normally Vested in or Followed by the Government

81 WTO dispute settlement practice has confirmed that the phrases “func-
tions . . . normally vested in the government” and “the practice . . . normally
followed by governments” refer to, inter alia, governmental functions of
revenue expenditure (in the form of loans and loan guarantees), public
revenue policy and collection of taxes, as well as regulatory powers.74
82 The above wording in art. 1.1(a)(1)(iv) SCMA suggests that the drafters of
the SCMA had a concern with regard to the potentially abusive application
of the anti-circumvention provision by complaining/importing Members.
However, if it has been established that a private body has indeed been
entrusted or directed by a government to perform one or more of the func-
tions listed in arts 1.1(a)(1)(i) to (iii) SCMA (e.g., to perform a direct transfer
of funds or provide goods or services), it would be difficult to imagine
that the words “normally vested in or followed by the government” would
shield such a private body and its government from the application of art.
1.1(a)(1)(iv) SCMA. Therefore, the wording in question is of a clarificatory
nature rather than qualifying or conditional.
83 Other examples of governmental functions or practices which would nor-
mally be “vested in” or “followed by” the government include those relat-
73
WT/DS296/AB/R, paras 108, 112. See also WT/DS194/R, para. 8.53.
74
WT/DS194/R, para. 8.72. See also WT/DS273/R, para. 7.30.
ADAMANTOPOULOS
article 1 scma 445
ing to regional development policies and the funding of specific regional

development projects, public procurement, as well as a number of other
state policies (energy, transport, industrial policy, research policy, etc.).
5. Income or Price Support (Art. 1.1(a)(2) SCMA)

The existence of any form of income or price support in the sense of art. 84
XVI GATT 1994 can also be an element of the definition of a subsidy
pursuant to art. 1.1(a)(2) SCMA. The connector “or” between arts 1.1(a)(1)
and 1.1(a)(2) SCMA clarifies that income or price support, where applicable,
could replace a financial contribution as its alternative.
The concept of income or price support relates mainly to governmental 85
measures in the agricultural sector. It encompasses a variety of measures
aiming either at stabilization of domestic prices for agricultural goods (e.g.,
the establishment of minimum, fixed, or reference prices; governmental
market interventions by purchases or sales; etc.) or at maintaining certain
levels of income of agricultural producers (e.g., direct payments, compensa-
tory payments, yield payments). Income or price support measures have the
effect of directly or indirectly affecting the volumes and prices of exports
or imports of agricultural goods.
The concept of income or price support first appeared in multilateral 86
negotiations even before the GATT came into existence in 1947 in the
early multilateral texts such as the London and Geneva drafts and the
Havana Charter. The concept was first incorporated in art. XVI:1 GATT
1947. During the Tokyo Round, it was inserted into art. 7.1 Tokyo Round
Subsidies Code (Notification of Subsidies). Following the Uruguay Round,
it formed part of art. 1.1(a) SCMA.
Under art. XVI:1 GATT 1947, income or price support was a specific 87
form of the general concept of subsidy but was not given any particular
definition. Art. XVI:1 GATT 1947 stated that income or price support
measures, like any other subsidy, operate directly or indirectly to increase
exports or reduce imports of the relevant product from the relevant domestic
territory.75 Income or price support programmes were subject to notifica-
tion to the other GATT Contracting Parties and moreover, in certain cases
could be subject to the rules on export subsidies, including those in respect
75
For further information on “income or price support” in the sense of art. XVI GATT
1947, please refer to Panel on Subsidies and State Trading, Report on Subsidies, L/1160,
23 March 1960, BISD 9S/188, 191. See also Analysis of the Drafting History of Article XVI
and of the Work of Past Panels and Working Parties as Regards Subsidies on Agricultural
Products, Note by the Secretariat, AG/W/4, 12 September 1983.
ADAMANTOPOULOS
446 article 1 scma
of primary products76 contained in art. XVI sec. B GATT 1947 and the
respective interpretative notes in ad art. XVI of annex I GATT.
88 Following the entry into force of the Uruguay Round agreements, and more
particularly the AG Agreement, the concept of income or price support
applicable to agricultural products appears to be of reduced relevance. In
particular, the subsidy-related provisions of the AG Agreement have sub-
jected the majority of price and income support programmes of Members
to the specially adapted disciplines for domestic support measures and
agricultural export subsidies. Domestic agricultural support programmes
in their vast majority are clear-cut subsidies, recognized as such by the
Members that granted them. Therefore, in the case of agricultural sup-
port programmes, the need to define a subsidy by relying on art. 1.1(a)(2)
SCMA would typically not arise. Such an opinion is supported only by
recently settled disputes.
89 In that regard, complaining Members have made submissions alleging that
certain government measures concerning agricultural goods involve income
or price support in the sense of art. 1.1(a)(2) SCMA. However, the panels
and the Appellate Body have not adjudicated upon such allegations but
instead, have made recommendations and rulings solely based on the AG
Agreement, relying on the principle of judicial economy, legal complexities,
or the absence of sufficient factual data. Cases such as Canada—Dairy77 and
EC—Export Subsidies on Sugar78 illustrate this point. It follows that the recent
dispute settlement practice has not provided any clarification with respect to
the meaning of the concept “income or price support” but would have only
strengthened the argument of those who support the view of its diminishing
relevance in the context of agricultural support programmes.
90 It is nonetheless considered that any form of income or price support in
the sense of art. XVI GATT 1994, as referred to in art. 1.1(a)(2) SCMA,
remains fully relevant for the purposes of notifications of subsidies under
art. 25 SCMA. The last article requires Members to “notify any subsidy as
defined in paragraph 1 of Article 1”. In that sense, art. 1.1(a)(2) SCMA in
76
Interpretative note 2 ad art. XVI sec. B annex I GATT 1947 defines “primary prod-
uct” as “any product of farm, forest or fishery, or any mineral, in its natural form or which
has undergone such processing as is customarily required to prepare it for marketing in
substantial volume in international trade”. It is evident from this definition that agricultural
products occupy an important part of the scope of primary products. Since subsidization of
agricultural products is currently regulated by the AG Agreement as well as by the SCMA,
the provisions of art. XVI GATT 1994 relating to primary products have a significantly
reduced relevance and scope of application.
77
Panel Report, Canada—Dairy, WT/DS103/RW, WT/DS113/RW, paras 5.144–
5.148.
78
Appellate Body Report, EC—Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/
AB/R, WT/DS283/AB/R, paras 321–341; Panel Report, EC—Export Subsidies on Sugar,
WT/DS283/R, paras 7.380–7.387.
ADAMANTOPOULOS
article 1 scma 447
conjunction with art. 25 SCMA has ensured that measures that were noti-
fied as forms of income and price support under art. XVI:1 GATT 1947
and art. 7.1 Tokyo Round Subsidies Code would continue to be notified
and subject to Members’ scrutiny under the SCMA procedures.
III. Benefit Conferred (Art. 1.1(b) SCMA)

A financial contribution in itself is not a subsidy unless it has resulted in 91
an economic advantage to the recipient. Therefore, the next step in the
definition of subsidy in art. 1 SCMA is to demonstrate the existence of a
“benefit conferred”, i.e., of such an advantage. Art. 1.1(b) SCMA requires
the simultaneous fulfilment of two conditions: (1) the existence of a “ben-
efit” and (2) that the benefit must have been conferred on the recipient of
the subsidy.
1. The Meaning of “Benefit”

The provisions of the SCMA do not define the term “benefit”.79 However, 92
the meaning of benefit has been clarified in dispute settlement practice
by the panels and the Appellate Body. For example, the panel in Canada—
Aircraft stated that “a financial contribution will only confer a ‘benefit’, i.e.,
an advantage, if it is provided on terms that are more advantageous than
those that would have been available to the recipient on the market”.80 In
other words, the benefit makes the recipient better off economically than
the latter would have been absent the financial contribution.81 Thus, the
benefit reflects the difference in economic value between what the recipient
has actually obtained as a result of the government’s financial contribution
and what the recipient would otherwise have obtained in the free market
in the absence of the governmental action in question. The panels and
Appellate Body have confirmed the approach adopted in Canada—Aircraft
on various occasions.82
According to the Appellate Body in Canada—Aircraft, the benefit does not 93
exist in the abstract, it always has a recipient. The recipient must have
received and enjoyed the benefit. Furthermore, the enquiry aiming at the
establishment of a benefit under art. 1.1(b) SCMA must be focused on the
recipient and not on the provider of the financial contribution.83 The concept
79
Art. 14 SCMA provides for guidelines for calculating the amount of the subsidy in
terms of the benefit conferred on the recipient and therefore, represents a relevant context
for interpreting art. 1.1(b) SCMA but does not explain the meaning of benefit as such.
80
WT/DS70/R, para. 9.112.
81
82
E.g., WT/DS257/R, para. 4.205.
83
ADAMANTOPOULOS
448 article 1 scma
of benefit also does not include a net cost to the government because a
benefit conferred concerns only the recipient and not the government.84
94 In order to determine the existence of a benefit and more particularly its
amount, it would be necessary to compare the economic value actually
received by the recipient with the conditions available in the relevant free
market represented by a specific market benchmark.85 For instance, taking
the financial services market as an example, a loan granted by the govern-
ment will be found to confer a benefit if the debtor has received the loan on
conditions that are more favourable than those offered by private financial
institutions for a similar transaction (e.g., below-market interest rate, lower
security, extended term). Similarly, in situations where the government is
acting as an investor, the provision of equity capital would confer a benefit
on the target company if the government’s investment decision would not
be made or would be made but at less favourable conditions by a private
market investor in similar circumstances.
95 For instance, in Canada—Aircraft Credits and Guarantees, the complainant Brazil
argued that a repayment term of more than 10 years stipulated in one of
the Canadian export credit programmes was ipso facto positive evidence
of a benefit as a term of 10 years was the maximum repayment term for
regional aircraft according to art. 21 Sector Understanding on Export
Credits for Civil Aircraft. However, the panel rejected this argument on
the basis that Canada had provided evidence that repayment terms up to
18.25 years were available in the credit market.86
96 The abovementioned situations which are relevant to calculating the amount
of a benefit in cases of provision of direct transfer of funds in the sense
of art. 1.1(a)(1)(i) SCMA as well as the determination of the amount of
benefit in other situations, such as indirect transfer of funds and provision
of goods and services, are dealt with by the provisions of arts 14(a) to (d)
SCMA, relevant for the purposes of applying countervailing measures in
accordance with part V SCMA.87
2. Recipient of the Benefit

97 According to the panels and the Appellate Body, the concept of recipi-
ent of a benefit (the person enjoying the subsidy) has been interpreted
84
In Canada—Aircraft, Canada’s “cost to the government” approach was explicitly rejected
by the Appellate Body. Ibid., paras 154–156. The Appellate Body made this finding despite
the text of para. 1 annex IV SCMA (Calculation of the Total Ad Valorem Subsidization
(Paragraph 1(A) of Article 6)), which states: “Any calculation of the amount of a subsidy
for the purposes of Paragraph 1(a) of Article 6 shall be done in terms of the cost to the
granting government”.
85
E.g., ibid., paras 157, 160.
86
WT/DS222/R, para. 7.235.
87
See Durling, Article 14 SCMA.
ADAMANTOPOULOS
article 1 scma 449
to include (1) a natural person; (2) a legal person; and/or (3) a group of
persons (natural and/or legal)88 involved in the manufacture and sale of
goods. The recipient is the entity itself and not the production and sales
operations of such entity.89
Furthermore, the Appellate Body in US—Countervailing Measures on Cer- 98
tain EC Products observed that it would be possible to confer a benefit
on a recipient company by providing a financial contribution to its owners/
shareholders.90
The benefit would not always be enjoyed by the formal recipient. The sec- 99
ond implementation review panel in Brazil—Aircraft concerned, inter alia, a
programme (PROEX III) under which loans for the purchase of Brazilian
regional aircraft were provided by private lenders to purchasers of regional
aircraft at below-market interest rates. At issue was the question whether
the financial contribution (buy-down of commercially available interest
rates in the form of non-refundable payments to the lenders) conferred
a benefit upon the lenders (providers of financial services) as argued by
Brazil, regional aircraft manufacturers as argued by Canada, or purchasers
of regional aircraft (typically, airlines).
The second implementation review panel in Brazil—Aircraft ruled that it 100
was appropriate to establish the impact of the financial contribution on the
purchasers of Brazilian regional aircraft and more particularly, whether it
resulted in terms and conditions more advantageous to them than those
available in the lending market. The rationale of this approach was that
if purchasers received more favourable conditions when buying Brazilian
regional aircraft as opposed to other nation’s regional aircraft, the benefit
would ultimately be enjoyed by Brazilian aircraft manufacturers since it
lowered the cost of their products’ purchases and made their product more
attractive (with the ensuing result of increased sales of aircraft).91 These
issues also touch upon the issue of the pass-through of a benefit.92
3. Conferral of the Benefit

The mere detection of a benefit in the financial contribution of the gov- 101
ernment is not sufficient for the purposes of art. 1.1(b) SCMA (we refer to
the first condition as noted in para. 91 above). For instance, it would not
88
E.g., WT/DS70/AB/R, para. 154; WT/DS212/AB/R, paras 108–110.
89
90
WT/DS212/AB/R, paras 107–115. However, the Appellate Body dismissed the panel’s
finding that a company and its shareholders are to be regarded as one for all purposes
in determining a benefit under the SCMA, as there may be cases in which the financial
contribution to the owners may not be conferred upon the company in which they hold
shares. See ibid., paras 116–118.
91
WT/DS46/RW/2, paras 5.27–5.29. See also WT/DS222/R, para. 7.229.
92
See infra paras 105–110.
ADAMANTOPOULOS
450 article 1 scma
be sufficient if the government had merely communicated to the recipient

that it was ready to provide a loan at a preferential interest rate. The exist-
ing benefit must also have been conferred on the recipient, i.e., the second
condition of art. 1.1(b) SCMA must also have been fulfilled. The Appellate
Body in Canada—Aircraft stated that the term “conferred” encompasses the
granting or bestowing of something and that the past participle in its pas-
sive form (“is conferred”)93 implied the accomplished result of the recipient
having received an advantage.
102 It is only natural that the conferral of the benefit would be linked to the
accomplishment of the financial contribution even if in a legal analysis,
these are two separate elements. Continuing the same example as above, the
loan at a preferential rate must have been made available to the recipient
in the requisite legal form and the recipient should have an unconditional
legal right to avail itself of that benefit.
103 Art. 1.1(b) SCMA does not appear to require that the benefit, once made
legally available to the recipient, must have been consumed by the recipient
following its conferral, either wholly or in part, in order for a subsidy to be
found to exist. In addition, WTO dispute settlement practice to date does
not suggest the presence of a consummation requirement in the meaning
of “conferred” under art. 1.1(b) SCMA. Such practice can be explained
by the fact that the consummation often does not concern the legal or
procedural aspects of the conferral of the benefit and is usually presumed
to happen following the conferral.
104 For instance, in US—Softwood Lumber IV the Canadian provincial governments
granted harvesting rights in respect of standing timber to certain companies
on advantageous conditions. The panel and Appellate Body found that such
harvesting rights conferred a pass-through benefit in respect of processed
timber regardless of when the standing timber was actually harvested and
processed. The benefit had been conferred with the accomplishment of the
financial contribution of providing standing timber and harvesting rights
thereupon at advantageous conditions.94
4. Pass-Through of Benefit
105 The term “pass-through” of benefit/subsidy under art. 1.1 SCMA relates
to situations in which a benefit found to exist and to have been conferred
on one entity has been passed on, in full or in part, to another entity, typi-
cally a downstream producer. These situations are also known as “indirect
subsidization”. The rationale is that the latter entity is also enjoying the
93
94
ADAMANTOPOULOS
article 1 scma 451
benefit and consequently, is also a recipient of the subsidy, with all the
consequences arising under the SCMA provisions.
The landmark case illustrating pass-through of benefit is US—Softwood 106
Lumber IV. In the facts of the dispute, Canadian provincial governments
provided Canadian timber harvester companies with forest lands on the
basis of timber tenure licenses. Those licenses provided harvesters with
harvesting rights and forest management obligations. Harvesters had the
right to harvest standing timber and own the timber material (logs). Some
timber harvesters processed the timber into lumber themselves, while others
sold the timber to independent downstream companies (lumber producers)
for processing into lumber. The processed lumber was then exported to
the US where it entered into competition with the like product of the US
softwood lumber industry.
The US authorities initiated an anti-subsidy investigation and imposed 107
countervailing measures on imports of lumber from Canada. The intention
of the US authorities was to countervail the subsidy granted by Canadian
provincial governments to the timber harvesters while measures of the
same level were imposed on lumber processed by both timber harvesters
and independent downstream processors.
The panels and the Appellate Body found, inter alia, that the imposition of 108
equal rates of countervailing duty with respect to both timber harvesters and
independent downstream processors was inconsistent with the SCMA. In
particular, the Appellate Body ruled that, in such situations, the investigating
authorities are required to demonstrate that the benefit conferred directly
on the producers of the input (standing timber) has been “passed through”,
at least in part, to the downstream lumber producers. The Appellate Body
further stated that the demonstration of the two elements in the definition
of a subsidy—financial contribution and benefit conferred—must be carried
out not only with respect to the producer of the input (the direct recipient)
but also with respect to the downstream processor (the indirect recipient),
especially when these two are unrelated entities.95
This way, in offsetting an indirect subsidy to downstream producers, an 109
investigating authority is compelled to: (1) demonstrate the existence of a
financial contribution; (2) show that a benefit has been conferred directly
on the upstream producer and its product and determine its amount;
(3) establish that the benefit thus determined has passed through to the
downstream producer and its product; and (4) determine the precise amount
of the pass-through benefit.
95
Ibid., paras 141–146, 154. In its analysis, the Appellate Body referred to art. VI:3 GATT
1994 and to Panel Report, US—Canadian Pork, BISD 38S/30, paras 4.3–4.6.
ADAMANTOPOULOS
452 article 1 scma
110 Issues similar to indirect subsidization have arisen also with respect to
recently privatized subsidy recipients. More specifically, these are situations
in which subsidies have been granted to a government-owned entity, which
has subsequently undergone a change to private ownership through priva-
tization. In US—Countervailing Measures on Certain EC Products, the Appellate
Body ruled that privatization at arm’s length and at a fair market value in
principle may extinguish benefits conferred by a non-recurring financial
contribution bestowed in the past to the state-owned entity. The Appellate
Body clarified that the above rule creates a rebuttable presumption, with
the burden lying on the investigating authority to collect evidence to the
contrary. Such determinations should be made on a case-by-case basis.96
IV. Specific and Non-Specific Subsidies (Art. 1.2 SCMA)

111 In addition to the elements “financial contribution/income or price sup-
port” and “benefit”, which, together, constitute the definition of a subsidy,
art. 1 SCMA introduces the concept of “specific subsidy”. Art. 1.2 SCMA
further specifies that the concept is defined in art. 2 SCMA.97 Only subsi-
dies which are proven to be specific could be subject to the disciplines on
prohibited subsidies in part II SCMA, actionable under part III SCMA,
or subject to countervailing measures in accordance with part V SCMA.
Finally, only specific subsidies are subject to notification requirements.98
Conversely, non-specific subsidies are not subject to the aforementioned
disciplines pursuant to art. 1.2 SCMA.
112 The fact that a subsidy is found not to be specific does not imply that the
governmental action is not a subsidy within the meaning of art. 1.2 SCMA
but merely that affected WTO Members would not be entitled to require
notification of such a subsidy or take corrective action against it. However,
as evident from the text of arts 24(3) and (4) SCMA, subsidies (both specific
and non-specific) could be the subject of discussions and advisory opinions
of the Committee on Subsidies and Countervailing Measures and the Per-
manent Group of Experts in accordance with part VI SCMA.99
96
See WT/DS212/AB/R, paras 126–127.
97
See Evtimov, Article 2 SCMA.
98
See art. 25.2 SCMA.
99
See Wolfram, Article 24 SCMA, paras 14–15.
ADAMANTOPOULOS
Article 2
Specificity
2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is

specific to an enterprise or industry or group of enterprises or industries (referred
to in this Agreement as “certain enterprises”) within the jurisdiction of the granting
authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the granting
authority operates, explicitly limits access to a subsidy to certain enterprises,
such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the granting
authority operates, establishes objective criteria or conditions2 governing the
eligibility for, and the amount of, a subsidy, specificity shall not exist, provided
that the eligibility is automatic and that such criteria and conditions are strictly
adhered to. The criteria or conditions must be clearly spelled out in law, regula-
tion, or other official document, so as to be capable of verification.
(c) If, notwithstanding any appearance of non-specificity resulting from the application
of the principles laid down in subparagraphs (a) and (b), there are reasons to
believe that the subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of certain
enterprises, predominant use by certain enterprises, the granting of dispropor-
tionately large amounts of subsidy to certain enterprises, and the manner in which
discretion has been exercised by the granting authority in the decision to grant
a subsidy.3 In applying this subparagraph, account shall be taken of the extent
of diversification of economic activities within the jurisdiction of the granting
authority, as well as of the length of time during which the subsidy programme
has been in operation.
2.2 A subsidy which is limited to certain enterprises located within a designated geo-
graphical region within the jurisdiction of the granting authority shall be specific. It
is understood that the setting or change of generally applicable tax rates by all levels
of government entitled to do so shall not be deemed to be a specific subsidy for the
purposes of this Agreement.
2.3 Any subsidy falling under the provisions of Article 3 shall be deemed to be
specific.
2.4 Any determination of specificity under the provisions of this Article shall be clearly
substantiated on the basis of positive evidence.
Footnote 2: Objective criteria or conditions, as used herein, mean criteria or conditions
which are neutral, which do not favour certain enterprises over others, and which are
economic in nature and horizontal in application, such as number of employees or size
of enterprise.
Footnote 3: In this regard, in particular, information on the frequency with which applica-
tions for a subsidy are refused or approved and the reasons for such decisions shall be
considered.
Bibliography
M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); J. H. Jackson, The
World Trade System (2nd ed. 1997); M. Matsushita et al., The World Trade Organization: Law,
Practice, and Policy (2003).
Case Law
Appellate Body Report, Brazil—Desiccated Coconut, WT/DS22/AB/R; Panel Report, Brazil—
Aircraft, WT/DS46/R; Panel Report, Indonesia—Autos, WT/DS54/R, WT/DS55/R, WT/
DS59/R, WT/DS64/R, WT/DS54/R/Corr.1, WT/DS55/R/Corr.1, WT/DS59/R/
Corr.1, WT/DS64/R/Corr.1, WT/DS54/R/Corr.2, WT/DS55/R/Corr.2, WT/DS59/R/
Corr.4, WT/DS64/R/Corr.4; Appellate Body Report, Canada—Aircraft, WT/DS70/AB/R;
Appellate Body Report, Canada—Autos, WT/DS139/AB/R, WT/DS142/AB/R; Appellate
EVTIMOV
454 article 2 scma
Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R; Panel Report, US—Export Restraints,

WT/DS194/R, WT/DS194/R/Corr.2; Panel Report, US—Offset Act (Byrd Amendment),
WT/DS217/R, WT/DS234/R; Appellate Body Report, US—Softwood Lumber IV, WT/
DS257/AB/R; Panel Report, US—Softwood Lumber IV, WT/DS257/R, WT/DS257/R/
Corr.1; Panel Report, US—Upland Cotton, WT/DS267/R, WT/DS267/R/Corr.1; Panel
Report, Korea—Commercial Vessels, WT/DS273/R; Appellate Body Report, US—Countervail-
ing Duty Investigation on DRAMs, WT/DS296/AB/R; Panel Report, US—Countervailing Duty
Investigation on DRAMs, WT/DS296/R; Panel Report, EC—Countervailing Measures on DRAM
Chips, WT/DS299/R.
Table of Contents
A. General 1
I. Overview 1
II. Historical Review 7
I. Art. 2.1 SCMA 11
1. The Chapeau 11
a) “Principles” 12
b) Enterprise and Industry Specificity 13
c) “Within the Jurisdiction of the Granting Authority” 22
2. De Jure Specificity (Art. 2.1(a) SCMA) 28
3. Objective Eligibility Criteria (Art. 2.1(b) SCMA) 31
4. De Facto Specificity (Art. 2.1(c) SCMA) 37
II. Regional Specificity (Art. 2.2 SCMA) 57
III. Specificity of Prohibited Subsidies (Art. 2.3 SCMA) 63
IV. Positive Evidence (Art. 2.4 SCMA) 67
V. Relationship with Art. 1 SCMA 71
A. General*
I. Overview
1 Only subsidies (established pursuant to the definition in art. 1 SCMA)
which are specific within the meaning of art. 2 SCMA (hereafter, “specific
subsidies”) can be subject to the disciplines on prohibited subsidies in part
II SCMA, actionable under part III SCMA, or subject to countervailing
measures in accordance with part V SCMA.1 Furthermore, only specific
subsidies are subject to notification and surveillance by WTO Members
in accordance with part VII SCMA. Hence, the correct understanding
and application of art. 2 SCMA play a key role in the effective and sound
implementation of the multilateral subsidy disciplines.
2 Specificity implies that the subsidy under consideration is intended to benefit
only certain enterprises as opposed to being generally available to all or the
* The author is grateful to Igor Danilov and Dora Castaneda for their useful contribu-
tions to the present chapter.
1
See art. 1.2 SCMA.
EVTIMOV
article 2 scma 455
predominant part of the economic operators in the territory or jurisdiction

of the granting authority.2
The rationale of the specificity criterion goes back to the intention of the 3
SCMA’s drafters to discipline only those subsidies that produce trade-dis-
torting effects and to avoid disciplining subsidies which are instruments of
the legitimate public policies and assisting measures of WTO Members.
Specific subsidies are deemed to distort trade since they are “targeting”
certain economic operators in order to reduce their costs of production
and hence, give them an advantage over their foreign competitors. In con-
trast, generally available subsidies are not targeting any specific economic
operators and therefore, are deemed to distort international trade only
marginally, if at all.3
Art. 2 SCMA provides for a legal definition of specificity. Consistently with 4
its provisions, subsidies that are either de jure or de facto limited to certain
enterprises to the exclusion of other enterprises within the jurisdiction of
the granting authority are considered to be specific. De jure specificity refers
to subsidies that are explicitly limited to certain enterprises, for instance, in
the text of a legislative measure or government decision. A de facto spe-
cific subsidy implies that on its face, the subsidy appears not to be specific
(its beneficiaries have not been identified explicitly), and the establishment
of specificity requires the examination of certain factors set out in art. 2
SCMA in light of the available facts of the case. Those factors are deemed
to provide a reliable indication that the subsidy has in fact been granted to
certain beneficiaries only.
Pursuant to art. 2 SCMA, specificity may take various forms: (1) enterprise 5
specificity, when the government subsidizes a particular enterprise or several
particular enterprises; (2) industry specificity, when the government subsi-
dizes a particular economic sector or several economic sectors; (3) regional
specificity, when the government subsidizes the economic operators within
a specific region or regions forming part of its territorial jurisdiction; and
(4) specificity of prohibited subsidies. By virtue of the irrebuttable presump-
tion in art. 2.3 SCMA, any prohibited export subsidy or any prohibited
import substitution subsidy established pursuant to art. 3 SCMA is auto-
matically considered specific.
2
During the Uruguay Round negotiations on the draft art. 2 SCMA, the term “specific”
was discussed as the counterpoint of the term “generally available”. Uruguay Round,
Group of Negotiations on Goods, Negotiating Group on Subsidies and Countervailing
Measures, Elements of the Negotiating Framework, Communication from Switzerland,
MTN.GNG/NG10/W/26, 13 September 1989, 5; Uruguay Round, Group of Negotia-
tions on Goods, Negotiating Group on Subsidies and Countervailing Measures, Elements
of the Framework for Negotiations, Submission by Australia, MTN.GNG/NG10/W/32,
30 November 1989, 5.
3
See also Benitah, 89–90; Jackson, 296–297.
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6 Yet, despite the existence of a legal definition of specificity in art. 2 SCMA,

the establishment of specificity in practice may often constitute a difficult
task. To that end, investigative authorities would typically enjoy a margin
of discretion in establishing specificity. Perhaps supporting such line of
reasoning, the panel in US—Upland Cotton stated as follows: “specificity is a
general concept, and its breadth or narrowness is not susceptible to a rigid
quantitative definition. Whether a subsidy is specific can only be assessed
on a case-by-case basis”.4
II. Historical Review

7 The GATT 1947 did not contain a reference to specificity or to any similar
notion. Art. XVI GATT 1947, the provision disciplining the granting of
subsidies by GATT Members, referred simply to “any subsidy” and “any
form of subsidy” which operates to increase exports or reduce imports
of a certain product. Art. VI:3 GATT 1947 governing the imposition of
countervailing duties likewise referred to “any bounty or subsidy bestowed,
directly, or indirectly, upon the manufacture, production or export of any
merchandise”.
8 Prior to finding its place in the multilateral legal framework, the concept
of specificity or other similar notions had already found application in the
national laws of certain major trading nations. For example, the EC Treaty
contained a rule on the control of aid granted by EC Member States to
private enterprises. The original art. 92 EC Treaty prohibited “any aid
granted by a Member State or through State resources in any form whatso-
ever which distorts or threatens to distort competition by favouring certain
undertakings”. In addition, the US Countervailing Duty Statute of 1979
incorporated the concept of specificity as a requirement for the applica-
tion of countervailing measures.5 The abovementioned EC Treaty and
US statutory provisions are considered as the precursors of the specificity
requirement subsequently introduced into the SCMA.
9 The Tokyo Round Subsidies Code marked a certain multilateral develop-
ment. Art. 11 Tokyo Round Subsidies Code, aimed at disciplining subsidies
other than export subsidies, moved closer to the concept of specificity. It
referred to subsidies granted to “specific regions”, “certain sectors”, sub-
sidies that could “adversely affect the conditions of normal competition”,
and “subsidies granted with the aim of giving an advantage to certain
enterprises”. However, the Tokyo Round Subsidies Code did not provide
4
WT/DS267/R, para. 7.1142.
5
The US provision under discussion stated that: “The following domestic subsidies, if
provided or required by government action to a specific enterprise or industry, or group of
enterprises or industries, whether publicly or privately owned”. See Jackson, 296.
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for a specificity requirement identical to the concept later incorporated in

the SCMA. Under the Tokyo Round Subsidies Code, the imposition of
countervailing duties in accordance with its art. 2 and consultations and
dispute settlement in accordance with its arts 12 and 13 were applicable
to all subsidies as defined in the GATT 1947.6
The notion of specificity was first discussed in the Uruguay Round negotia- 10
tions jointly with the definition of subsidy. The drafting history of the SCMA
reveals that the specificity of a subsidy was conceived and introduced as a
necessary condition in order for a subsidy to become actionable or subject
to countervailing measures.7
I. Art. 2.1 SCMA
1. The Chapeau
The chapeau of art. 2.1 SCMA specifies that in determining whether a 11
subsidy is specific “the principles [set forth in arts 2.1(a) to (c) SCMA] shall
apply”. In addition, the chapeau outlines the forms of specificity, already
referred to above in the overview (enterprise/industry specificity). Finally,
the chapeau sets out one key element in the concept of specificity, which
is that specificity is defined by reference to the jurisdiction of the granting
authority. Therefore, the following issues contained in the chapeau will be
6
See arts 2, 12, 13 Tokyo Round Subsidies Code. See also Jackson, 296.
7
Please refer to the negotiating history of the SCMA contained in the following docu-
ments: Uruguay Round, Group of Negotiations on Goods, Negotiating Group on Subsidies
and Countervailing Measures, Subsidies and Countervailing Measures, Note by the Secre-
tariat, MTN.GNG/NG10/W/4, 28 April 1987, 10; Uruguay Round, Group of Negotia-
tions on Goods, Negotiating Group on Subsidies and Countervailing Measures, Meeting
of 9 December 1987, Note by the Secretariat, MTN.GNG/NG10/5, 16 December 1987;
Uruguay Round, Group of Negotiations on Goods, Negotiating Group on Subsidies and
Countervailing Measures, Framework for Negotiations, Communication from Canada, MTN.
GNG/NG10/W/25, 28 June 1989, 3; Uruguay Round, Group of Negotiations on Goods,
Negotiating Group on Subsidies and Countervailing Measures, Meeting of 28–29 June 1989,
Note by the Secretariat, MTN.GNG/NG10/12, 14 July 1989, 2; Uruguay Round, Group
of Negotiations on Goods, Negotiating Group on Subsidies and Countervailing Measures,
Elements of the Framework for Negotiations, Submission by Japan, MTN.GNG/NG10/
W/27, 6 October 1989, 2; Uruguay Round, Group of Negotiations on Goods, Negotiating
Group on Subsidies and Countervailing Measures, Meeting of 26–27 September 1989, Note
by the Secretariat, MTN.GNG/NG10/13, 16 October 1989, 4; Uruguay Round, Group
Elements of the Framework for Negotiations, Submission by the Nordic Countries (Finland,
Iceland, Norway, Sweden), MTN.GNG/NG10/W/30, 27 November 1989, 3; Uruguay
Round, Group of Negotiations on Goods, Negotiating Group on Subsidies and Counter-
vailing Measures, Elements of the Negotiating Framework, Submission by the European
Community, MTN.GNG/NG10/W/31, 27 November 1989, 4.
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examined: (1) the reference to “principles”, (2) the forms of specificity, and
(3) the text “within the jurisdiction of the granting authority”.
a) “Principles”
12 Arts 2.1(a) to (c) SCMA are referred to in the chapeau as “principles”. Arts
2.1(a) to (c) SCMA themselves further clarify the concept of specificity and
more particularly specify the methods of establishing de jure and de facto
specificity. Consequently, the term “principles” in the chapeau is intended
to soften the criteria for establishing specificity provided for in arts 2.1(a)
to (c) SCMA. It provides the investigating authorities of WTO Members
with a certain degree of flexibility in the interpretation of the concepts of
de jure and de facto specificity and in their application to the specific facts
of a case.
b) Enterprise and Industry Specificity

13 Furthermore, the text of the chapeau explains that a “subsidy . . . [can be]
specific to an enterprise or industry or group of enterprises or industries”.
The chapeau thus helps to identify two forms of specificity, namely, enter-
prise specificity and industry specificity.
14 In practice, the investigating authorities face little difficulty in dealing with
enterprise specificity since the beneficiaries in such cases can only be a
specific company or a group of specific companies, typically identified
by name in the complaint in question. However, in investigating industry
specificity, authorities may often face complex situations. In particular,
it may be unclear how broadly or narrowly an industry or a group of
industries is defined. A typical question is whether a group of industries
would need to produce like or similar products in order to be considered a
group within the meaning of the chapeau. In this respect, the panels and
the Appellate Body have been cautious in ruling on the possible definition
of an “industry” or “group of industries” and have argued in favour of a
case-by case approach.
15 In US—Softwood Lumber IV, the panel accepted that the term “industry”
relates to producers of certain products, and therefore, an “industry” or
“group of industries” may generally be identified “by the type of products
they produce”.8 In other disputes, the WTO adjudicators have followed a
similar approach, e.g., in US—Upland Cotton.9
16 However, in US—Softwood Lumber IV, the panel rejected Canada’s argument
that specificity should be defined on the basis of specific end-products sold
by the allegedly subsidized industry or industries. Canada had argued that
8
WT/DS257/R, para. 7.120.
9
WT/DS267/R, paras 7.1140–7.1142.
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Canadian softwood lumber manufacturers produced more than 200 separate

lumber products which should have formed 23 separate industries. On that
basis, Canada assumed that 23 industries was too big a number to form a
“group of industries” and therefore, considered that the subsidy was too
widespread to be considered specific.10
However, the panel rejected those arguments by finding that even when an 17
industry (e.g., steel, textiles, and autos) produces a broad range of specific
end-products, it still remains an industry or group of industries (e.g., “steel
industries”) within the meaning of the chapeau of art. 2.1 SCMA. It further
found that the text of art. 2 SCMA does not require a detailed analysis of
the end-products since specificity must be determined at the industry level
rather than at the product level.11
In examining the possibility of “grouping” industries, the panel in US—Soft- 18
wood Lumber IV reasoned that industries should nonetheless produce “suffi-
ciently similar products in order to be considered as a ‘group’ of industries”.12
Accordingly, in this particular case, the US investigating authorities were
found to have correctly defined the group of “wood product industries” as
a “group of industries” for the purpose of establishing specificity. Therefore,
according to the panel, industry specificity is determined on the basis of
a general category of similar products (an industry sector) and not on the
basis of specific products within industry sectors.
More particularly, for the purposes of anti-subsidy investigations which are 19
conducted with respect to a specified imported product, a subsidy benefit-
ing the exporting producers of that product is considered specific even if
beneficiaries of the same subsidy are also certain other industries in the
exporting country.13 The same is valid if the investigated subsidy does not
specifically target the exporting producers of the investigated product. The
decisive issue is whether the subsidy benefits only certain industries and not
a wide range of industries since in the latter case it will not be specific.
10
WT/DS257/R, para. 7.117.
11
Ibid., paras 7.120–7.121.
12
Ibid., n. 188.
13
Ibid., para. 7.122; WT/DS267/R, para. 7.1148. The same approach is followed in the
practice of WTO Members. For example, in an EC anti-subsidy proceeding concerning
stainless steel wire, the investigating authority concluded: “It is considered to be irrelevant
that the scheme in question is not specific to the industry producing the product under
investigation as long as the programme is specific as such and its benefits can be related
to the production of the product concerned.” See Council Regulation (EC) No 1599/1999
of 12 July 1999 imposing a definitive countervailing duty and collecting definitively the
provisional duty imposed on stainless steel wires with a diameter of 1 mm or more origi-
nating in India and terminating the proceeding concerning imports of stainless steel wires
with a diameter of 1 mm or more originating in the Republic of Korea, OJ 1999 L 189/1,
rec. 48.
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20 When examining industry specificity outside the context of anti-subsidy

investigations, the panels and the Appellate Body are likely to consider how
many industries are beneficiaries as opposed to how many industries are not
beneficiaries of the same subsidy programme. For instance, in US—Upland
Cotton, the panel found specificity on the basis of the following indicators:
the subsidies were limited to a portion of industries within agriculture, and
those industries produced a specified number of commodity products (eight
or less). In addition, there were other agricultural industries and commodi-
ties that were not eligible for the subsidies at issue.14
21 The chapeau also introduces the collective term “certain enterprises” for
the purposes of art. 2 SCMA as a whole. “Certain enterprises” can refer to
either of the following: a certain enterprise, a group of certain enterprises,
a certain industry, or a group of certain industries. The term “certain
enterprises” is used in arts 2.1(a) to (c) and 2.2 SCMA.
c) “Within the Jurisdiction of the Granting Authority”

22 The phrase “specific . . . within the jurisdiction of the granting authority” in
the chapeau implies that specificity or general availability may exist either
by reference to the territory of a country as a whole (the jurisdiction of
the central government) or by reference to the sub-central jurisdiction of
a regional or local authority within a country.
23 In that context, establishing specificity of a subsidy granted by the central
government is a generally straightforward task. The subsidy is specific if the
central government has provided it only to certain enterprises or industries
within its country’s territory irrespective of whether the beneficiaries are
located in a certain region or in different regions. Conversely, the subsidy
would not be specific if the central government made the subsidy gener-
ally available to all or most enterprises or industries within the country’s
territory.
24 The task of establishing specificity when the subsidy benefits only enterprises
or industries within a sub-central jurisdiction may often present a challenge.
In this regard, art. 2.2 SCMA provides the following clarification:
A subsidy which is limited to certain enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be
specific. It is understood that the setting or change of generally applicable
tax rates by all levels of government entitled to do so shall not be deemed to
be a specific subsidy for the purposes of this Agreement.
14
WT/DS267/R, paras 7.1147–7.1148, 7.1150, 7.1152. See WT/DS257/R, para.
7.116.
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Extended to all situations (including but not limited to taxation), the phrase 25
“specific . . . within the jurisdiction of the granting authority” as clarified
by art. 2.2 SCMA means that a local or sub-central government’s subsidy,
which is made generally available within its local jurisdiction, should not be
considered specific. Conversely, if the subsidy granted by the local govern-
ment is not generally available within the local jurisdiction, it is specific.
In both cases, the granting authority is the local government. However, as
noted above, if a subsidy benefiting all enterprises within a region or local
jurisdiction was granted by the central government, this subsidy would be
considered specific because it was not generally available within the juris-
diction of the central government.
If both the central and the local authority have participated in the granting 26
of a regional subsidy, such subsidy should be regarded as being granted by
the central authority if it is established that the subsidy would not have taken
place in the absence of the central authority. In such case the subsidy should
be considered specific even if it is generally available in the region.
Therefore, the chapeau of art. 2.1 SCMA emphasizes the importance in 27
specificity analysis of the hierarchy level and territorial jurisdiction of the
granting authority. The analysis of the issue of regional specificity is com-
pleted in the discussion on art. 2.2 SCMA below.
2. De Jure Specificity (Art. 2.1(a) SCMA)

De jure specificity refers to measures taken by or at the behest of the cen- 28
tral or local government that explicitly limit access to a subsidy to certain
enterprises.15 Accordingly, art. 2.1(a) SCMA states that a subsidy is de jure
specific if: (1) the granting authority itself or (2) the legislation pursuant to
which the granting authority operates explicitly limits access to the subsidy
to one or more enterprises or industries.16
In their analysis of de jure specificity, WTO adjudicators would typically 29
base their conclusions on the textual analysis of the measure or legislation
at issue. For instance, in US—Upland Cotton, the panel analyzed the text of
the legislation pursuant to which the granting authority in the US oper-
ated and found that the legislation explicitly referred to the producers of
upland cotton. On that basis, the panel concluded that the subsidies were
“specific” within the meaning of art. 2.1(a) SCMA.17
15
WT/DS217/R, WT/DS234/R, para. 7.109.
16
Ibid.; Uruguay Round, Group of Negotiations on Goods, Negotiating Group on Sub-
sidies and Countervailing Measures, Status of Work in the Negotiating Group, Report of
the Chairman to the GNG, MTN.GNG/NG10/W/38, 18 July 1990, 3.
17
WT/DS267/R, paras 7.1146–7.1147, 7.1150.
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30 Arguably, an allegation of de jure specificity pursuant to art. 2.1(a) SCMA

is unlikely to be successful unless the measure or legislation at issue clearly
spells out the beneficiary enterprises or industries or the specific products
which the beneficiaries produce. All other situations of specificity (where
there is no explicit reference to the beneficiaries or products) ought to be
covered by the concept of de facto specificity examined below.
3. Objective Eligibility Criteria (Art. 2.1(b) SCMA)

31 Art. 2.1(b) SCMA refers to situations where access to a subsidy is limited by
way of objective criteria or conditions which govern eligibility and/or the
amount of the subsidy, and there is no explicit reference to the beneficiary
enterprises or products. In such situations, the subsidy would not be consid-
ered specific provided that: (1) the eligibility is automatic upon satisfaction
of the criteria; (2) the criteria or conditions are strictly adhered to by the
granting authority; and (3) the criteria and conditions are clearly spelled out
in the law or in an official document and are capable of verification.
32 It can be observed that in allowing for a special exception from the notion
of specificity for subsidies which, absent this provision, would be considered
specific, art. 2.1(b) SCMA establishes a “safe haven” for the granting of
subsidies by governments. Therefore, this provision has significant impor-
tance for the relevant policies of governments.
33 Footnote 2 to art. 2.1(b) SCMA defines the notion of objective eligibility
criteria or conditions. According to footnote 2 SCMA, the criteria or condi-
tions should be neutral in the sense that they should not be discriminatory
and should not favour or lead to the favouring of certain enterprises or
industries over others.
34 Furthermore, according to footnote 2 SCMA, the criteria or conditions
should be economic in nature and horizontal in application. The footnote
sets out two examples of these criteria, namely, “number of employees” or
“size” of enterprises. These examples are not exhaustive given the use of
the connector “such as” in the text of art. 2.1(b) SCMA, and other objec-
tive and neutral criteria may also be used.
35 Earlier drafts of the same provision circulated during the Uruguay Round
of multilateral negotiations referred to other examples, such as levels of
unemployment, average per capita income, amount of equity or revenues,
incidence of pollution, and health and safety standards.18 In examining such
additional criteria, a case-by-case approach is advised since the different
levels of diversification of the economy of WTO Members may lead to
substantially different findings.
18
See, e.g., MTN.GNG/NG10/W/38, n. 3.
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The WTO dispute settlement practice occasionally presents other aspects of 36

the concept “objective criteria and conditions”. In US—Softwood Lumber IV,
Canada had argued that a subsidy consisting of the provision of an input
good (within the meaning of art. 1.1(a)(1)(iii) SCMA), which can only be
used as an input by a particular downstream industry, should not be consid-
ered specific with respect to that industry unless the granting authority has
deliberately limited its use to a certain subgroup of enterprises within that
industry. The panel rejected Canada’s argument by noting, inter alia, that
whenever the availability of a subsidy is “limited by the inherent charac-
teristics of the good [such as its predominant use by a certain downstream
industry], the subsidy cannot be considered to have been limited by ‘objec-
tive’ criteria” in the sense of art. 2.1(b) SCMA.19
4. De Facto Specificity (Art. 2.1(c) SCMA)

It is normal practice for governments of WTO Members to grant subsi- 37
dies to businesses or industries as instruments of policies on international
competitiveness and industrial and/or regional development. In most cases,
such subsidies are either truly non-specific or due to their limited amounts
or nature, do not produce major effects on international trade (and hence,
would generally not raise concerns with other WTO Members).
However, in certain cases, governments may be compelled, for various policy 38
reasons, to grant a specific subsidy even when they are aware that such a
subsidy would have substantial trade-distorting effects. It is only natural to
anticipate that the interests of other WTO Members would be affected.
Consequently, in such cases, the granting authority would attempt to dis-
simulate the specificity of such a subsidy and make it appear non-specific.
Such disguised specific subsidies are known as de facto specific subsidies.
The drafters of the SCMA have taken such risks into account by including 39
the text of art. 2.1(c) SCMA. The provision at issue protects the interests
of other WTO Members by allowing them to take action against de facto
specific subsidies. Thus, even when access to a subsidy is not explicitly
limited in accordance with art. 2.1(a) SCMA and the subsidy appears to
be generally available or is granted in accordance with certain eligibility
criteria, such subsidy could still be found to be specific in accordance with
art. 2.1(c) SCMA.
In order to establish de facto specificity, the investigating authorities face a 40
complex task. In order to facilitate this task, art. 2.1(c) SCMA provides for
a list of factors the analysis of which in light of the facts of the case would
show whether or not the subsidy is specific in fact. In particular, art. 2.1(c)
SCMA in the relevant part sets out the following:
19
WT/DS257/R, paras 7.115–7.116, n. 179.
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If . . . there are reasons to believe that the subsidy may in fact be specific, other
factors may be considered. Such factors are: use of a subsidy programme by a
limited number of certain enterprises, predominant use by certain enterprises,
the granting of disproportionately large amounts of subsidy to certain enter-
prises, and the manner in which discretion has been exercised by the granting
authority in the decision to grant a subsidy. (Footnote omitted)
41 As can be seen from the above, art. 2.1(c) SCMA lists the following four
factors: (1) the use of a subsidy programme by a limited number of certain
enterprises (the last term being defined in the chapeau); (2) the predomi-
nant use by certain enterprises; (3) the granting of disproportionately large
amounts of subsidy to certain enterprises; and (4) the manner in which
discretion has been exercised by the granting authority in the decision to
grant a subsidy.
42 The list of factors at issue raises the following questions: (1) whether these
factors are cumulative or alternative and (2) whether the list of four factors
is exhaustive or whether additional factors may also be considered.
43 With respect to the first question, the panel in US—Softwood Lumber IV found
that the factors are alternative and not cumulative. The panel explained
as follows:
The use of the verb “may” rather than “shall”, in our view, indicates that if
there are reasons to believe that the subsidy may in fact be specific, an authority
may want to look at any of the four factors or indicators of specificity. . . . In
our view, if the drafters had wanted to impose a formalistic requirement to
examine and evaluate all four factors mentioned in Article 2.1 (c) SCM Agree-
ment in all cases, they would have equally explicitly provided so as they have
done elsewhere in the SCM Agreement.
Thus, the panel supported the US’s view that there was no obligation on the
US authorities to examine all four factors in cumulation.20 In another WTO
dispute, EC—Countervailing Measures on DRAM Chips, the panel approved the
approach of the EC investigating authority which included an analysis of
all four factors in order to reach a finding of de facto specificity.21 Thus, it
follows from the practice on art. 2.1(c) SCMA that an investigating author-
ity may examine any one, several, or all of the four factors listed therein
depending on the relevance or irrelevance of each factor to the facts of
the case.
44 With regard to the second question on whether the list is exhaustive, the
panels and the Appellate Body have not yet made a relevant finding. It
is the author’s view in the first instance that the list of four factors is suf-
ficiently developed and workable so as to allow investigating authorities to
20
Ibid., para. 7.123.
21
WT/DS299/R, para. 7.230.
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make findings on de facto specificity without the need to examine additional

factors. The WTO dispute settlement practice to date, notably US—Softwood
Lumber IV and EC—Countervailing Measures on DRAM Chips referred to above,
supports such a view. Thus, the question whether the list is exhaustive would
rarely arise in practice.
However, should an investigating authority ever have recourse to analysis of 45
factors additional to the four listed in art. 2.1(c) SCMA, the author believes
that this approach should be considered consistent with art. 2 SCMA pro-
vided that such additional factors are reasonable and clearly demonstrate
that the subsidy is, in fact, specific to certain enterprises or industries. This
is supported by the text of art. 2.1(c) SCMA which refers to “other factors”
and “such factors” as opposed to, for instance, “the following factors” and
“those factors”.
In addition, the object and purpose of art. 2.1(c) SCMA are to prevent 46
WTO Members granting subsidies from disguising specific subsidies as
non-specific and to allow affected WTO Members to defend their interests.
The object and purpose of art. 2.1(c) SCMA would be jeopardized if the
granting authorities were able to “circumvent” the four factors. Arguably,
such circumvention would be rendered easier if the list of four factors were
considered exhaustive.
A brief review of the practical application of the four factors is also 47
appropriate.
As far as the first three factors are concerned (the use of a subsidy pro- 48
gramme by a limited number of certain enterprises, the predominant use
by certain enterprises, and the granting of disproportionately large amounts
of subsidy to certain enterprises), these involve a finding based directly on
the available facts and figures.
For instance, in EC—Countervailing Measures on DRAM Chips, the panel agreed 49
with the EC investigating authority’s analysis of the Korean government’s
subsidy programme benefiting the Korean DRAMs producer Hynix. The
analysis was based on the foregoing three factors as follows
(1) the subsidy programme was used by a very limited number of companies,
as only six out of an eligible two hundred companies used the programme;
(2) that it was predominantly used by the Hyundai group companies among
which Hynix; and (3) that a disproportionate 41 per cent of the total subsidy
amount of KRW 2.9 trillion was granted to Hynix. (Footnote omitted)22
22
Ibid., para. 7.226.
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50 The fourth factor (the manner in which discretion has been exercised by
the granting authority in the decision to grant a subsidy) may raise more
complex issues when applied in practice.23 In this respect, footnote 3 to
art. 2.1(c) SCMA states: “In this regard, in particular, information on the
frequency with which applications for a subsidy are refused or approved
and the reasons for such decisions shall be considered”.
51 The phrase “in particular” in footnote 3 SCMA suggests that investigating
authorities should not necessarily limit their findings under the fourth fac-
tor strictly to the circumstances described in the footnote. For instance, in
EC—Countervailing Measures on DRAM Chips, the EC investigating authority
had considered with respect to the subsidy to Hynix that “after the partici-
pants to the programmes had been announced, there was a lot of criticism
within Korea from companies in similarly difficult situations complaining
about the lack of transparency and the eligibility criteria”. The panel
accepted that the EC’s investigating authority had considered the fourth
factor in this way,24 thus confirming that discrimination and lack of trans-
parency in the review of applications may also be relevant circumstances
for the purposes of applying the fourth factor.
52 The last sentence of art. 2.1(c) SCMA states that in determining whether a
subsidy may in fact be specific, “account shall be taken of [(1)] the extent of
diversification of economic activities within the jurisdiction of the granting
authority, as well as of [(2)] the length of time during which the subsidy
programme has been in operation.”
53 The text under (1) above envisages situations common to developing coun-
tries in which the diversification of economy is poor, i.e., the entire economy
or a region thereof may be limited to one or several enterprises or industries.
In such cases, subsidies that are generally available are, paradoxically, also
limited to only a few enterprises or industries for the simple reason that
other major enterprises or industries barely, if at all, exist in that country
or region. Therefore, a sound application of the text at issue to poorly
diversified economies should give preference to findings of non-specificity.
54 Conversely, if the granting authority operates in a diversified developed
economy, the text at issue would hardly be favourable to it. For instance,
in US—Softwood Lumber IV, Canada argued that the US authorities had
not properly considered the extent of the diversification of the economy
in certain Canadian forest-rich provinces. The panel however agreed with
the approach of the US authorities, inter alia, by finding that it is a
23
See also Matsushita et al., 271.
24
WT/DS299/R, para. 7.226.
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article 2 scma 467
publicly known fact that the Canadian economy and the Canadian provincial
economies in particular are diversified economies. Although we understand
the wood product industry to be an important industry for Canada, it is clear
that the Canadian economy is more than just wood products alone.25
Furthermore, consistently with the text under (2) in para. 52 above, the 55
period used in the analysis of specificity of a subsidy programme should be
representative, i.e., sufficiently extended to demonstrate a reliable pattern for
the decisions of the granting authority and the incidence of beneficiaries.
If the period considered is quite short (e.g., only several weeks or months
since the start of the subsidy programme), this may make the findings of
de facto specificity unreliable and thus, susceptible to challenge under art.
2.1(c) SCMA.
Finally, a word of caution: each finding of de facto specificity should be 56
made on a case-by-case basis following a careful analysis of the available
facts of the case.
II. Regional Specificity (Art. 2.2 SCMA)

In substance, regional specificity (specificity of a regional subsidy) is dis- 57
cussed at some length above in the section devoted to the chapeau of art.
2.1 SCMA concerning the notion “within the jurisdiction of the granting
authority”. The present section would therefore examine regional specificity
only to the extent that the concept is reflected in art. 2.2 SCMA.
Art. 2.2 SCMA is intended to clarify the concept of specificity as applied 58
to regional subsidies. If the text of art. 2.2 SCMA is developed further by
adding the terms “central government” and “regional government”, the
provision would read that a regional subsidy is specific under the following
circumstances:
(1) the subsidy is provided by the central government to enterprises or
industries situated within a designated region regardless of whether the
beneficiaries are all or only certain enterprises or industries within that
region or
(2) the subsidy is provided by a regional government and access to it is
limited only to certain enterprises or industries situated within that region
while other enterprises or industries in the same region are excluded.
Conversely, if a subsidy granted by a regional government is made gener- 59
ally available within the region (the beneficiaries are all or essentially all
enterprises or industries within the regional government’s jurisdiction), such
a regional subsidy should not be considered specific.
25
WT/DS257/R, para. 7.124.
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468 article 2 scma
60 In the same context, an interesting example of the more distant past is a

US anti-subsidy investigation of the 1980s concerning the functioning of
the European Communities’ state aid system. The affected US industry
complained of the Dutch government’s investment insurance programme
approved by the European Commission. The US investigating authority
had found that the programme complained of was not specific because it
considered that the programme was funded by the Dutch government itself
and that the subsidy was generally available throughout the Netherlands.
61 Subsequently, the decision of the US investigating authority was heavily
criticized by independent experts based on the fact that the European Com-
mission, not the Dutch government, was the relevant granting authority,
and the European Communities was the relevant jurisdiction. Indeed, the
European Commission was in charge of approval of industrial aid granted
by all Member States. In particular, it would have been unlawful under EC
law for the Dutch government to grant investment insurance premiums
under the programme without prior administrative approval of such aid by
the Commission. Therefore, the Commission should have been considered
as having jurisdiction over the investment insurance programme and this
should have led to a finding of regional specificity.26
62 The second sentence of art. 2.2 SCMA contains a specific clarification with
respect to tax incentives in the context of regional subsidies. The second
sentence provides that the setting or changing of generally applicable pref-
erential tax rates or tax incentives (as opposed to selective preferential tax
rates) by all levels of government entitled to do so shall not be considered a
specific subsidy. In other words, if the national constitution or the national
or federal tax code empowers the regional authorities in a country to impose
regional taxes, then all regional tax incentives granted by such a regional
authority which are made generally available in its respective regional fis-
cal jurisdiction shall not be considered a specific subsidy. Conversely, those
regional tax incentives which are either granted by the central government
or by the regional government but are not generally available within the
region shall be specific.
III. Specificity of Prohibited Subsidies (Art. 2.3 SCMA)

63 In accordance with the irrebuttable presumption in art. 2.3 SCMA, pro-
hibited subsidies as defined in art. 3 SCMA (i.e., subsidies contingent upon
export performance within the meaning of art. 3.1(a) SCMA and subsidies
26
See Benitah, 261, citing J. L. Panzarella, Is the Specificity Test Generally Applicable?, Law &
Pol’y Int’l Bus. 18 (1986), 417, 433.
EVTIMOV
article 2 scma 469
contingent upon the use of domestic over imported goods within the mean-
ing of art. 3.1(b) SCMA) are automatically deemed to be specific.27
It is well-settled practice in WTO dispute settlement that once a prohibited 64
subsidy is established pursuant to art. 3 SCMA, the complaining party need
not additionally demonstrate specificity since the prohibited subsidies are
specific per se.28
For instance, in the more recent US—Upland Cotton case, the panel found 65
that one particular US subsidy programme (i.e., user marketing (Step 2)
payments to domestic users and exporters under sec. 1207(a) FSRI Act of
2002) was a prohibited subsidy under arts 3.1(a) and (b) SCMA and con-
sequently, that it was a specific subsidy pursuant to art. 2.3 SCMA. The
panel also found that the other challenged US subsidy programme (user
marketing (Step 2) payments to domestic users and exporters under sec. 136
FAIR Act of 1996) was also a specific subsidy pursuant to art. 2.3 SCMA,
basing this second finding merely on the similarity of the latter programme
with the programme under the FSRI Act of 2002.29
Moreover, some defending parties in WTO dispute settlements have 66
attempted to argue that subsidies found to be specific under art. 2.3 SCMA
can be considered specific only for purposes of claims based on art. 3
SCMA and that claims based on other SCMA articles require a finding of
specificity under other paragraphs of art. 2 SCMA. However, the WTO
adjudicators have rejected such arguments by finding that subsidies which
are specific pursuant to art. 2.3 SCMA are considered specific for purposes
of the entire SCMA.30 Thus, art. 2.3 SCMA is relevant for all remedies
available under the SCMA: part II (Prohibited Subsidies), part III (Action-
able Subsidies), and part V (Countervailing Measures) SCMA.
IV. Positive Evidence (Art. 2.4 SCMA)

The provision of art. 2.4 SCMA requires investigating authorities to make 67
a determination of specificity of a subsidy which is “clearly substantiated
on the basis of positive evidence”.
27
The equivalent provision in EC law is art. 3.4 Council Regulation (EC) No 2026/97
of 6 October 1997 on protection against subsidized imports from countries not members
of the European Community, OJ 1997 L 288/1, as subsequently amended. The equivalent
provision in US law is 19 USC § 1677(5A)(A). On arts 3.1(a) and (b) SCMA, see Adaman-
topoulos & Akritidis, Article 3 SCMA, paras 16–44.
28
See WT/DS267/R, para. 7.1153; WT/DS273/R, paras 7.192, 7.308; WT/DS54/R,
WT/DS55/R, WT/DS59/R, WT/DS64/R, para. 14.155; WT/DS46/R, para. 7.13.
29
WT/DS267/R, para. 7.1153.
30
E.g., WT/DS273/R, para. 7.514.
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470 article 2 scma
68 While the expression “clearly substantiated” is self-explanatory, the term

“positive evidence” requires some clarification. It is a term used elsewhere
in the SCMA31 as well as in the ADA and therefore, is a term of WTO
law and jurisprudence more generally. The meaning of “positive evidence”
has been explained in some detail by the Appellate Body in US—Hot-Rolled
Steel in relation to art. 3.1 ADA. Thus, according to the Appellate Body, the
term “positive evidence” relates “to the quality of evidence that authori-
ties may rely upon when making a determination”. It also found that the
word “positive” means that “the evidence must be of an affirmative, objec-
tive and verifiable character, and that it must be credible”. The Appellate
Body further stated that the term “positive evidence” focuses on the facts
“underpinning and justifying” a given determination.32
69 The panel in EC—Countervailing Measures on DRAM Chips, a case examined
further above, has confirmed that the Appellate Body’s interpretation of
“positive evidence” in US—Hot-Rolled Steel is fully relevant for the pur-
poses of establishing specificity pursuant to art. 2 SCMA. Relying on the
Appellate Body’s clarifications, the panel in EC—Countervailing Measures on
DRAM Chips concluded that the facts and figures relied upon by the EC
investigating authority in the analysis of de facto specificity of the Korean
subsidy programme were uncontested and that they clearly constituted
“positive evidence”.33
70 Thus, the provision of art. 2.4 SCMA requires that each finding of specific-
ity pursuant to art. 2 SCMA must be based on sufficient factual evidence
that is of a clear, affirmative, objective, and verifiable character.
V. Relationship with Art. 1 SCMA

71 Arts 1 and 2 SCMA are intrinsically linked. The Appellate Body’s reversal
of a panel finding under art. 1 SCMA would generally automatically affect
the panel’s finding of specificity pursuant to art. 2 SCMA relating to the
same subsidy. This is valid also in cases where the Appellate Body rules
that the national investigating authority correctly determined the existence
of a subsidy, thus disagreeing with the panel’s findings pursuant to both
arts 1 and 2 SCMA.34 Following a similar logic, WTO adjudicators would
address the issue of specificity under art. 2 SCMA only in respect of mea-
sures that have already been found to be subsidies within the meaning of
art. 1 SCMA.35
31
The term “positive evidence” is found not only in art. 2.4 SCMA but also in arts 15.1
and 27.8 SCMA.
32
33
WT/DS299/R, para. 7.226, n. 191.
34
E.g., WT/DS296/AB/R, paras 206–207.
35
E.g., WT/DS273/R, para. 7.513.
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Article 3
Prohibition
3.1 Except as provided in the Agreement on Agriculture, the following subsidies, within
the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact,4 whether solely or as one of several other
conditions, upon export performance, including those illustrated in Annex I;5
(b) subsidies contingent, whether solely or as one of several other conditions, upon
the use of domestic over imported goods.
3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph 1.
Footnote 4: This standard is met when the facts demonstrate that the granting of a subsidy,
without having been made legally contingent upon export performance, is in fact tied
to actual or anticipated exportation or export earnings. The mere fact that a subsidy is
granted to enterprises which export shall not for that reason alone be considered to be
an export subsidy within the meaning of this provision.
Footnote 5: Measures referred to in Annex I as not constituting export subsidies shall not
be prohibited under this or any other provision of this Agreement.
Annex I
Illustrative List of Export Subsidies
(a) The provision by governments of direct subsidies to a firm or an industry contingent

upon export performance.
(b) Currency retention schemes or any similar practices which involve a bonus on
exports.
(c) Internal transport and freight charges on export shipments, provided or mandated by
governments, on terms more favourable than for domestic shipments.
(d) The provision by governments or their agencies either directly or indirectly through
government-mandated schemes, of imported or domestic products or services for
use in the production of exported goods, on terms or conditions more favourable
than for provision of like or directly competitive products or services for use in the
production of goods for domestic consumption, if (in the case of products) such
terms or conditions are more favourable than those commercially available57 on world
markets to their exporters.
(e) The full or partial exemption remission, or deferral specifically related to exports, of
direct taxes58 or social welfare charges paid or payable by industrial or commercial
enterprises.59
(f ) The allowance of special deductions directly related to exports or export performance,
over and above those granted in respect to production for domestic consumption, in
the calculation of the base on which direct taxes are charged.
(g) The exemption or remission, in respect of the production and distribution of exported
products, of indirect taxes58 in excess of those levied in respect of the production
and distribution of like products when sold for domestic consumption.
(h) The exemption, remission or deferral of prior-stage cumulative indirect taxes58 on
goods or services used in the production of exported products in excess of the
exemption, remission or deferral of like prior-stage cumulative indirect taxes on
goods or services used in the production of like products when sold for domestic
consumption; provided, however, that prior-stage cumulative indirect taxes may be
exempted, remitted or deferred on exported products even when not exempted,
remitted or deferred on like products when sold for domestic consumption, if the
prior-stage cumulative indirect taxes are levied on inputs that are consumed in the
production of the exported product (making normal allowance for waste).60 This item
shall be interpreted in accordance with the guidelines on consumption of inputs in
the production process contained in Annex II.
(i) The remission or drawback of import charges58 in excess of those levied on imported
inputs that are consumed in the production of the exported product (making normal
allowance for waste); provided, however, that in particular cases a firm may use a
quantity of home market inputs equal to, and having the same quality and character-
istics as, the imported inputs as a substitute for them in order to benefit from this
ADAMANTOPOULOS & AKRITIDIS

472 article 3 scma
provision if the import and the corresponding export operations both occur within
a reasonable time period, not to exceed two years. This item shall be interpreted in
accordance with the guidelines on consumption of inputs in the production process
contained in Annex II and the guidelines in the determination of substitution drawback
systems as export subsidies contained in Annex III.
(j) The provision by governments (or special institutions controlled by governments)
of export credit guarantee or insurance programmes, of insurance or guarantee
programmes against increases in the cost of exported products or of exchange risk
programmes, at premium rates which are inadequate to cover the long-term operating
costs and losses of the programmes.
(k) The grant by governments (or special institutions controlled by and/or acting under the
authority of governments) of export credits at rates below those which they actually
have to pay for the funds so employed (or would have to pay if they borrowed on
international capital markets in order to obtain funds of the same maturity and other
credit terms and denominated in the same currency as the export credit), or the pay-
ment by them of all or part of the costs incurred by exporters or financial institutions
in obtaining credits, in so far as they are used to secure a material advantage in the
field of export credit terms.
Provided, however, that if a Member is a party to an international undertaking on
official export credits to which at least twelve original Members to this Agreement are
parties as of 1 January 1979 (or a successor undertaking which has been adopted by
those original Members), or if in practice a Member applies the interest rates provi-
sions of the relevant undertaking, an export credit practice which is in conformity
with those provisions shall not be considered an export subsidy prohibited by this
Agreement.
(l) Any other charge on the public account constituting an export subsidy in the sense
of Article XVI of GATT 1994.
Footnote 57: The term “commercially available” means that the choice between domestic
and imported products is unrestricted and depends only on commercial considerations.
Footnote 58: For the purpose of this Agreement:
The term “direct taxes” shall mean taxes on wages, profits, interests, rents, royalties, and
all other forms of income, and taxes on the ownership of real property;
The term “import charges” shall mean tariffs, duties, and other fiscal charges not elsewhere
enumerated in this note that are levied on imports;
The term “indirect taxes” shall mean sales, excise, turnover, value added, franchise, stamp,
transfer, inventory and equipment taxes, border taxes and all taxes other than direct taxes
and import charges;
“Prior-stage” indirect taxes are those levied on goods or services used directly or indi-
rectly in making the product;
“Cumulative” indirect taxes are multi-staged taxes levied where there is no mechanism
for subsequent crediting of the tax if the goods or services subject to tax at one stage of
production are used in a succeeding stage of production;
“Remission” of taxes includes the refund or rebate of taxes;
“Remission or drawback” includes the full or partial exemption or deferral of import
charges.
Footnote 59: The Members recognize that deferral need not amount to an export subsidy
where, for example, appropriate interest charges are collected. The Members reaffirm the
principle that prices for goods in transactions between exporting enterprises and foreign
buyers under their or under the same control should for tax purposes be the prices which
would be charged between independent enterprises acting at arm’s length. Any Member
may draw the attention of another Member to administrative or other practices which may
contravene this principle and which result in a significant saving of direct taxes in export
transactions. In such circumstances the Members shall normally attempt to resolve their
differences using the facilities of existing bilateral tax treaties or other specific international
mechanisms, without prejudice to the rights and obligations of Members under GATT
1994, including the right of consultation created in the preceding sentence.

article 3 scma 473
Paragraph (e) is not intended to limit a Member from taking measures to avoid the double
taxation of foreign-source income earned by its enterprises or the enterprises of another
Member.
Footnote 60: Paragraph (h) does not apply to value-added tax systems and border-tax
adjustment in lieu thereof; the problem of the excessive remission of value-added taxes
is exclusively covered by paragraph (g).
Bibliography
K. Adamantopoulos & M. J. Pereyra-Friedrichsen, EU Anti-Subsidy Law and Practice (2nd ed.
2007); M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); J. H. Jackson,
The World Trade System (2nd ed. 1997); G. E. Luengo Hernández de Madrid, Regulation of
Subsidies and State Aids in WTO and EC Law (2007); M. Matsushita et al., The World Trade
Organization: Law, Practice, and Policy (2003); E. Vermulst & F. Graafsma, WTO Disputes: Anti-
Dumping, Subsidies and Safeguards (2002).
Case Law
Appellate Body Report, Brazil—Aircraft, WT/DS46/AB/R; Panel Report, Brazil—Aircraft,
WT/DS46/R; Panel Report, Brazil—Aircraft, WT/DS46/RW; Panel Report, Indonesia—Autos,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R; Appellate Body Report, Can-
ada—Aircraft, WT/DS70/AB/RW; Panel Report, Canada—Aircraft, WT/DS70/R; Appellate
Body Report, Canada—Dairy, WT/DS103/AB/RW, WT/DS113/AB/RW; Panel Report,
Canada—Dairy, WT/DS103/RW, WT/DS113/RW; Appellate Body Report, US—FSC, WT/
DS108/AB/RW; Panel Report, US—FSC, WT/DS108/R; Panel Report, Australia—Automo-
tive Leather II, WT/DS126/R; Appellate Body Report, Canada—Autos, WT/DS139/AB/R,
WT/DS142/AB/R; Panel Report, Canada—Aircraft Credits and Guarantees, WT/DS222/R;
Appellate Body Report, US—Upland Cotton, WT/DS267/AB/R; Panel Report, Korea—Com-
mercial Vessels, WT/DS273/R.
Table of Contents
A. General 1
I. Overview 1
II. Historical Review 8
I. General 14
II. Prohibited Export Subsidies (Art. 3.1(a) SCMA) 16
1. Contingency in Law or De Jure Contingency 22
2. Contingency in Fact or De Facto Contingency 25
3. Illustrative List of Export Subsidies (Annex I SCMA) 31
4. Relationship with Other SCMA Articles 37
III. Prohibited Domestic Content or Import Substitution Subsidies
(Art. 3.1(b) SCMA) 40
1. De Facto Contingency? 41
IV. Art. 3.2 SCMA 45
A. General∗
I. Overview
Art. 3 SCMA governs prohibited subsidies under the SCMA discipline. 1
The SCMA follows a three-fold categorization of subsidy measures under
* The authors are grateful to Sarah Spurling and Nikos Dimopoulos for their useful
contributions to this article.

474 article 3 scma
which subsidies are classified according to what has become known as the
“traffic light analogy” (also sometimes referred to as the “coloured basket
approach”). Under this classification which was proposed but rejected during
the Tokyo Round of negotiations, subsidies, as defined in art. 1 SCMA, fall
into one of the following categories—red light: prohibited subsidies; yellow
light: actionable subsidies; and green light: non-actionable subsidies.1
2 The only prohibited subsidies (or red light subsidies) are those identified in
art. 3 SCMA on prohibited subsidies, supplemented by annexes I, II, and
III thereto. This was confirmed by the Appellate Body in Canada—Aircraft
where the Appellate Body stated that
the granting of a subsidy is not, in and of itself, prohibited under the SCM
Agreement. Nor does granting a “subsidy”, without more, constitute an
inconsistency with that Agreement. The universe of subsidies is vast. Not all
subsidies are inconsistent with the SCM Agreement. The only “prohibited”
subsidies are those identified in Article 3 of the SCM Agreement[.]2
3 Art. 3.1(a) SCMA prohibits two broad categories of subsidies: (1) export
subsidies, which are contingent de jure or de facto upon export performance,
including those illustrated in annex I SCMA and (2) domestic content sub-
sidies, which are contingent, de jure or de facto, upon the use of domestic
over imported products. The list of prohibited subsidies contained in annex
I SCMA is indicative but the exceptions thereto must be interpreted strictly.
Annex I SCMA incorporates the Illustrative List of Export Subsidies in
the Tokyo Round Subsidies Code. Although it forms an indicative list, it
has substantial interpretative value, and in practice, it contains the most
frequently met types of prohibited export subsidies.
4 Prohibited subsidies under art. 3 SCMA are considered to be per se specific
under art. 2.1 SCMA and therefore, do not need to pass the specificity test
in art. 2 SCMA. Thus, they are automatically actionable at multilateral
level under part III SCMA or exposed to countervailing measures through
unilateral action in accordance with part V SCMA.3 As such, they are also
subject to notification and surveillance by WTO Members in accordance
with part VII SCMA.
5 The prohibition of export subsidies under art. 3.1(a) SCMA does not apply
to least developed countries and those developing countries with a GNP
1
The existence of green light subsidies under art. 8 SCMA has no practical importance
given that the validity of art. 8 SCMA was not renewed in 1999 as provided for under art.
31 SCMA. Since 2000, all green light subsidies are actionable and thus, potentially subject
to unilateral or multilateral trade remedies. See Rios Herran & Poretti, Article 8 SCMA, paras
1, 11; Rios Herran & Poretti, Article 31 SCMA, paras 1, 3. See also Luengo Hernández de
Madrid, 162 et seq.
2
WT/DS70/AB/RW, para. 47.
3
See art. 1.2 SCMA.

article 3 scma 475
per capita of less than USD1000 per annum which are listed in annex VII
SCMA.4 On the other hand, the prohibition of local content subsidies under
art. 3.1(b) SCMA fully applies to those countries as the relevant exceptions
have lapsed.5
Prohibited subsidies also apply to agricultural products. Pursuant to art. 6
1(e) AG Agreement, export subsidies are those which are contingent upon
export performance, including the export subsidies contained in art. 9 AG
Agreement. The term “contingent upon export performance” has been
interpreted in the same way in the SCMA.6 In contrast to the SCMA
though, the AG Agreement does not fully prohibit the granting of export
subsidies but rather restrains the Members’ ability to grant them.
Despite the clarity provided by art. 3 SCMA on prohibition, the level of 7
proof for de facto contingency is not deprived of problems. Establishing
the facts demonstrating that the subsidy, without having been made legally
contingent upon export performance, is in fact tied to actual or anticipated
exportation or export earnings may prove troublesome. As stated by the
Appellate Body in Canada—Aircraft, setting out which facts should be taken
into account in a particular case will depend on the totality of circumstances
surrounding that case and the evidence available.7
II. Historical Review

The GATT 1947 did not contain any reference to prohibited subsidies. 8
Art. XVI GATT 1947 only included an obligation to provide information
and initiate consultations both on export and domestic subsidies. In case
serious prejudice to the interests of any Contracting Party was caused or
threatened by such subsidization, art. XVI GATT 1947 provided for the
possibility of “limiting the subsidization”, without providing for any further
substantive guidance on the nature of such subsidization. Art. VI:3 GATT
1947, however, provided for the possibility of imposing countervailing duties,
defined as “a special duty levied for the purpose of offsetting any bounty or
subsidy bestowed, directly, or indirectly, upon the manufacture, production
or export of any merchandise”.
The reform in 1955 introduced important amendments to GATT 1947, 9
notably as far as export subsidies are concerned. Art. XVI:2 GATT then
read as follows:
4
Art. 27.2(a) SCMA. See also Avgoustidi & Ballschmiede, Article 27 SCMA, paras 21–25.
5
Art. 27.3 SCMA. See also Avgoustidi & Ballschmiede, Article 27 SCMA, n. 5.
6
Appellate Body Report, US—FSC, WT/DS108/AB/R, para. 141; WT/DS267/AB/R,
para. 571.
7
Appellate Body Report, Canada—Aircraft, WT/DS70/AB/R, paras 166–170.

476 article 3 scma
The Contracting Parties recognize that the granting by a Contracting Party

of a subsidy on the export of any product may have harmful effects for other
contracting parties, both importing and exporting, may cause undue distur-
bance to their normal commercial interests, and may hinder the achievement
of the objectives of this Agreement[,]
without, however, defining what a subsidy is. The 1955 reform introduced
further important novelties on subsidies, such as the obligation of Contract-
ing Parties to notify the GATT Secretariat of any subsidy that operates
directly or indirectly to increase exports of any product from or to reduce
imports of any product into their territory; seek to avoid granting export
subsidies for primary products; and stop granting subsidies to non-primary
products. Despite some progress, the practical importance of these provi-
sions was doubtful as Contracting Parties were reluctant to notify subsidies
for fear of retaliation by other Contracting Parties.
10 In 1960, the first non-exhaustive list of practices deemed to form export
subsidies prohibited under the GATT discipline was drafted by a Working
Group. That list included a prohibition upon governments on providing
direct subsidies to “exporters” in general without addressing the issue of
contingency.8
11 The Tokyo Round Subsidies Code contained a marked multilateral devel-
opment regarding prohibition and contingency. In an attempt to introduce
much needed clarification and consistency to the sphere of international
regulation of subsidies, the Tokyo Round Subsidies Code included an
Illustrative List of Export Subsidies which included prohibited measures (in
essence, export subsidies), as well as those which were excluded from prohi-
bition. The list formed a precursor to the SCMA’s traffic light approach to
prohibition. Although the list essentially copied the one of 1960 mentioned
in the previous paragraph, new prohibited practices were added and the
notion of contingency was introduced for the first time. Para. (a) of the list
read as follows: “The provision by Governments of direct subsidies to a firm
or an industry contingent upon export performance”. That non-exhaustive
list was re-introduced, with minor modifications, in annex I SCMA. Under
the Tokyo Round Subsidies Code, the imposition of countervailing duties
in accordance with its art. 2 and consultations or dispute settlement in
accordance with its arts 12 to 13 were applicable to all subsidies as defined
in the GATT 1947.9
8
Footnote 4 to art. 3 SCMA now clarifies that the mere fact that the subsidy is granted
to enterprises which export shall not, for that reason alone, be considered to be an export
subsidy within the meaning of this provision.
9
See arts 2, 12, 13 Tokyo Round Subsidies Code. See also Jackson, 296.

article 3 scma 477
The most significant additions to annex I SCMA are the references to 12

annexes II and III SCMA in annex I(h) and (i) SCMA, which provide
guidelines on the consumption of inputs and duty drawback systems for
import charges. By way of illustration, annex I(l) SCMA refers to “any other
charge on the public account constituting an export subsidy in the sense of
Article XVI of the GATT 1994” and was included in the illustrative list
of the Tokyo Round Subsidies Code as clarification but is not too relevant
within a system that has its own integral definition of subsidy. The SCMA
brought additional clarity to the definition of subsidy, “in an area where
clarity is badly needed”.10
Although there was a certain coherence in the early days of the world trad- 13
ing system on the regulation of subsidies, there was a lack of a systematic
remedial approach due to inefficiencies in the system of notifications, rel-
evant consultations, and trade remedies. The most important development
of that time was the adoption of the Illustrative List of Export Subsidies,
which still exists in annex I SCMA and provides invaluable guidance as
well as an evident consensus among the Contracting Parties (now Members)
on prohibited practices and the notion of contingency. The vast majority
of remedies at multilateral and unilateral levels today concerns behaviour
included in that list.11
10
See Matsushita et al., 298.
11
For a detailed presentation of the history of the SCMA, see Luengo Hernández de
Madrid, 35–95. Please also refer to the negotiating history of the SCMA contained in the
following documents: Uruguay Round, Group of Negotiations on Goods, Negotiating Group
on Subsidies and Countervailing Measures, Subsidies and Countervailing Measures, Note
by the Secretariat, MTN.GNG/NG10/W/4, 28 April 1987, 10; Uruguay Round, Group
Meeting of 9 December 1987, Note by the Secretariat, MTN.GNG/NG10/5, 16 December
1987; Uruguay Round, Group of Negotiations on Goods, Negotiating Group on Subsidies
and Countervailing Measures, Framework for Negotiations, Communication from Canada,
MTN.GNG/NG10/W/25, 28 June 1989, 3; Uruguay Round, Group of Negotiations on
Goods, Negotiating Group on Subsidies and Countervailing Measures, Meeting of 28–29
June 1989, Note by the Secretariat, MTN.GNG/NG10/12, 14 July 1989, 2; Uruguay
Round, Group of Negotiations on Goods, Negotiating Group on Subsidies and Countervail-
ing Measures, Elements of the Framework for Negotiations, Submission by Japan, MTN.
GNG/NG10/W/27, 6 October 1989, 2; Uruguay Round, Group of Negotiations on Goods,
Negotiating Group on Subsidies and Countervailing Measures, Meeting of 26–27 Septem-
ber 1989, Note by the Secretariat, MTN.GNG/NG10/13, 16 October 1989, 4; Uruguay
Round, Group of Negotiations on Goods, Negotiating Group on Subsidies and Counter-
vailing Measures, Elements of the Framework for Negotiations, Submission by the Nordic
Countries (Finland, Iceland, Norway, Sweden), MTN.GNG/NG10/W/30, 27 November
1989, 3; Uruguay Round, Group of Negotiations on Goods, Negotiating Group on Subsidies
and Countervailing Measures, Elements of the Negotiating Framework, Submission by the
European Community, MTN.GNG/NG10/W/31, 27 November 1989, 4.
478 article 3 scma
I. General
14 Art. 3 SCMA contains the “red light” category of subsidies, including two
types of prohibited subsidies:12 (1) export subsidies, defined as subsidies that
are contingent, in law or in fact,13 upon export performance and (2) the
so-called “import-replacement subsidies” or “local content subsidies”, which
includes those subsidies which are contingent upon the use of domestic
over imported goods.
15 Under art. 2.3 SCMA, red light subsidies are deemed to be specific per
se as they are presumed to distort trade and thus, do not need to pass the
specificity test of art. 2 SCMA.14
II. Prohibited Export Subsidies (Art. 3.1(a) SCMA)

16 Art. 3.1(a) SCMA contains prohibited export subsidies (following the defini-
tion of subsidies under art. 1 SCMA), i.e., those which are contingent in
law or in fact upon export performance, including those illustrated in annex
I SCMA. Just as art. 1 SCMA contains a broad definition of “subsidy”,
art. 3 SCMA establishes a broad definition of export subsidies, catching
subsidies which are “contingent, in law or in fact, whether solely or as one
of several other conditions, upon export performance”.
17 The panel in Canada—Aircraft Credits and Guarantees held that under art. 3.1(a)
SCMA, a Member must first prove the existence of a subsidy in the sense
of art. 1 SCMA, that the measure at issue forms a financial contribution
which confers a benefit, and thereafter, prove “contingency of that subsidy
upon export performance”.15
18 The Appellate Body in Canada—Aircraft underlined that “contingent” should
be interpreted as meaning “conditional” or “dependent for its existence
on something else”, continuing that “this common understanding of the
word ‘contingent’ is borne out by the text of Article 3.1(a), which makes an
explicit link between ‘contingency’ and ‘conditionality’ in stating that export
contingency can be the sole or ‘one of several other conditions’.” (Citation
omitted)16 The Appellate Body also confirmed that the legal implications
12
The only “prohibited” subsidies within the SCMA are those identified in art. 3 SCMA.
This was confirmed in Canada—Aircraft. WT/DS70/AB/RW. See para. 2 above.
13
Facts must demonstrate that the granting of a subsidy, without having been made
contingent upon export performance under the law, is de facto tied to actual or anticipated
exportation or export earnings.
14
See Adamantopoulos & Evtimov, Article 2 SCMA, paras 63–66.
15
WT/DS222/R, paras 7.310–7.311.
16

article 3 scma 479
of the term are the same whether it is used in the context of de facto or
de jure contingency.17
On the notion of contingency, in US—FSC, the Appellate Body cited the 19
Appellate Body reports in Canada—Aircraft18 and Canada—Autos,19 all of
which have examined the concept.20 In US—FSC, the Appellate Body held
that: (1) “[f ]ootnote 4 . . . describes the relationship of contingency by stat-
ing that the grant of a subsidy must be ‘tied to’ export performance”; and
(2) “export contingency may be the ‘sole [ ]’ condition governing the grant
of a prohibited subsidy or it may be ‘one of several other conditions’.”21
The ordinary meaning of “contingent” is “dependent on, upon”, as con- 20
firmed by the panel in Australia—Automotive Leather II, which interpreted
footnote 4 SCMA as follows: “The ordinary meaning of ‘tied to’ is to
‘restrain or constrain to or from an action; limit or restrict behaviour, loca-
tion, conditions, etc.’ ”22
The legal standard is essentially the same for de facto and de jure export 21
contingency.23
1. Contingency in Law or De Jure Contingency

The Appellate Body report in Canada—Autos assessed the de jure/de facto 22
distinction. To determine whether a subsidy is contingent upon export
performance in law, the question to be asked is whether one can ascertain
on the face of the law (or other legal instrument) that export contingency
exists.24 In other words, one must consider the terms of the legal instrument
rather than any external factual elements surrounding the case.
This case also underlined that the law need not expressly contain such 23
contingency. It is sufficient for an implied export condition to be contained
in the legal instrument insofar as it is clear. Such conditionality can also
be derived by necessary implication from the words actually used in the
measure.25
Canada—Aircraft offers a clear example of de jure contingency. In this case, 24
Canada stated that the mandate of one of its agencies was to offer a full
range of risk management services and financing products “for the purpose
17
Ibid., para. 167.
18
Ibid.; WT/DS70/AB/RW.
19
WT/DS139/AB/R, WT/DS142/AB/R.
20
WT/DS108/AB/RW.
21
Ibid., para. 111.
22
WT/DS126/R, para. 9.55.
23
WT/DS139/AB/R, WT/DS142/AB/R.
24
Ibid., para. 100.
25
Ibid.

480 article 3 scma
of supporting and developing, directly or indirectly, Canada’s export trade”.26

The Appellate Body confirmed that the de jure contingency is demonstrated
on the basis of the wording of the legislation, regulation, or other legal
instrument that is under scrutiny.27 The panel report in US—FSC confirmed
Canada—Aircraft and Canada—Autos on this very issue and is widely quoted
as an example of a de jure subsidy finding.28
2. Contingency in Fact or De Facto Contingency

25 As relatively straightforward a de jure contingency finding may be, proving
de facto contingency upon export performance is not without problems. The
panel in Australia—Automotive Leather II established a standard of close nexus
between the grant or maintenance of a subsidy and export performance.
Proof of de facto export contingency in fact will depend on the evidence
available and the facts, which should be established on a case-by-case basis,
including the nature of the subsidy, its structure and operation, and the
circumstance in which it was provided.29 The panel limited its consideration
of facts during the time that the conditions for the grant of payments were
established and not upon subsequent developments. The panel report in
Australia—Automotive Leather II gave rise to some criticism that Members had
no secure basis for understanding what would constitute de facto export
contingency.
26 The link between the subsidy and the export performance will essentially
involve a “but for test”, i.e., the subsidy was granted because it actually
increases exports or it is anticipated that it will increase exports or export
earnings. As the Appellate Body stated in Canada—Aircraft: “It does not suffice
to demonstrate solely that a government granting a subsidy anticipated that
exports would result. The prohibition in Article 3.1(a) applies to subsidies
that are contingent upon export performance.”30
27 The Appellate Body in Canada—Aircraft criticized the “but for” test estab-
lished by the panel on the basis of the term “tied to” in footnote 4 SCMA
as follows: “While we consider that the Panel did not err in its overall
approach to de facto export contingency, we, and the panels as well, must
interpret and apply the language actually used in the treaty”.31 Considering
the evidence required to prove de facto rather than de jure contingency,
the Appellate Body commented that “[p]roving de facto export contin-
gency is a much more difficult task” as “the existence of [a] relationship
of contingency . . . must be inferred from the total configuration of the facts
26
27
WT/DS70/AB/R.
28
WT/DS108/R.
29
WT/DS126/R, para. 9.57.
30
31
Ibid., n. 102.

article 3 scma 481
constituting and surrounding the granting of the subsidy, none of which

on its own is likely to be decisive in any given case.”32 In this regard, the
Appellate Body supported a broad and case-by-case analysis and rejected
the formulation of any systematic or generalized rule as regards the nature
of facts that should be taken into consideration. It supported the panel’s
interpretation, which held that footnote 4 SCMA refers to “facts” in general,
without any suggestion that certain factual considerations should prevail
over others: “[A]ny fact could be relevant provided it ‘demonstrates’ (either
individually or in conjunction with other facts) whether or not the subsidy
would have been granted but for anticipated exportation or export earn-
ings”.33 The Appellate Body supported this interpretation and underlined
that footnote 4 SCMA imposes three conditions for the determination of
de facto export contingency: (1) the granting of a subsidy; (2) that the sub-
sidy in question be tied to exports; and (3) the demonstration of a volume
of actual or anticipated exports. In essence, the Appellate Body confirmed
that as a consequence of the first element (“granting”), an analysis of de
facto contingency should not focus on any “reasonable knowledge” of the
recipient.34 As a consequence of the second element (contingency), the
Appellate Body agreed with the panel that any evidence that the govern-
ment anticipated exports is insufficient. As regards the third element (actual
or anticipated exportation), it held that the question should be answered
solely by reference to objective evidence and not be confused with the
question of contingency.
Accordingly, the awareness of a government that its domestic market is 28
unable to absorb the production of a subsidized product will be persua-
sive but not determinative in establishing de facto contingency.35 The fact
of anticipation of exports may also not form the sole determinant fact in
assessing de facto contingency.36 In addition, no single factual consideration
should prevail over another, but the closer a subsidy brings a product to sale
on the export market, the more likely it is that the facts will demonstrate
de facto contingency.37 However, the Appellate Body in Canada—Aircraft
cautioned that “while we agree that this nearness-to-the-export-market
factor may, in certain circumstances, be a relevant fact, we do not believe
that it should be regarded as a legal presumption”.38
32
Ibid., para. 167.
33
Ibid., para. 162, citing WT/DS70/R, para. 9.337.
34
35
WT/DS222/R, para. 7.372.
36
WT/DS126/R.
37
WT/DS70/R.
38

482 article 3 scma
29 The absence of penalties in the event of failure to export is also not a

determinative factor as the measures do not need to be conditional upon
exports actually taking place. In order not to deprive the anticipation of
export performance of substance, such anticipation of increased export
volumes or earnings would suffice to establish de facto contingency.39
30 By way of conclusion, the determinative factor in establishing de facto
contingency is the link between the prohibition of export subsidies and
the real effect of the instrument used, regardless of the form such export
contingency adopts in practice. The essential concern in this area of the
SCMA is to unveil prohibited subsidies which, although they are not laid
down in legal provisions, create in practice a nexus between the granting
of subsidy and export performance, thus avoiding cases of circumvention
of the Illustrative List of Export Subsidies in the Tokyo Round Subsidies
Code, which ignored the existence of practices that de facto led to the same
effect as the subsidy measures listed therein.40
3. Illustrative List of Export Subsidies (Annex I SCMA)

31 Annex I SCMA is directly linked to the provisions of art. 3.1(a) SCMA
and sets out 12 most common types of export subsidies which are expressly
prohibited. As stated above, the non-exhaustive list of prohibited export
subsidies contained in annex I SCMA forms precious substantive guidance
on prohibited subsidies as well as non-prohibited ones.41 However, as the
Appellate Body confirmed in US—FSC, a measure that is referred to in
annex I SCMA as not constituting an export subsidy is not thereby relieved
of its subsidy status and therefore, potentially falling within the scope of
other provisions of the SCMA such as art. 5 SCMA governing actionable
subsidies.42
32 The panel in Canada—Autos confirmed that the annex I SCMA list is not
exhaustive, and measures which are not included in the list may nonethe-
less fall within the prohibition.43 Having regard to the clear wording of art.
3.1(a) SCMA (stating “illustrated”), this conclusion is self-evident.
33 However, the fact that the list of prohibited subsidies in annex I SCMA
is a copy of the list in the Tokyo Round Subsidies Code when the multi-
39
The panel in Canada—Aircraft rejected the contention that the absence of penalties in
the event of no export sales indicated that the measures were not conditional upon export
performance by stating that “while this argument may be relevant in determining whether
a subsidy would not have been granted but for actual exportation or export earnings, we
find this argument insufficient to rebut a prima facie case that a subsidy would not have been
granted but for anticipated exportation or export earnings”. WT/DS70/R, para. 9.343.
40
See Luengo Hernández de Madrid, 145 et seq.
41
See n. 5 SCMA.
42
WT/DS108/AB/R.
43
Panel Report, Canada—Autos, WT/DS139/R, WT/DS142/R.

article 3 scma 483
lateral obligations on the regulation of subsidies were not crystallized to

the extent that they are now in the SCMA creates certain inconsistencies,
such as in the case of annex I(l) SCMA, which refers to “any other charge
on the public account”. Since the SCMA now defines what is a subsidy,
this provision seems to be obsolete.
A second question is related to the interpretation of footnote 5 SCMA, which 34
lays down the principle that measures referred to in annex I SCMA as not
constituting export subsidies shall not be prohibited under art. 3 SCMA
or any other provision of the SCMA. However, could such measures be
actionable under art. 5 SCMA? The answer was provided by the Appel-
late Body in US—FSC, where it stated that such measures are simply not
prohibited but other provisions may, however, still apply to them.44 Never-
theless, in the recourse to art. 21.5 DSU in US—FSC, the Appellate Body,
in contrast to the above view, stated that “the fifth sentence of footnote 59
constitutes an affirmative defence that justifies a prohibited export subsidy
when the measure in question is taken ‘to avoid the double taxation of
foreign-source income’.”45 Although these two views seem to be in conflict,
the most plausible solution seems to be that non-prohibited subsidies under
annex I SCMA could fall within the scope of art. 5 SCMA on actionable
subsidies and potentially, of other provisions of the SCMA.
A third issue emerging from the implementation of annex I SCMA is 35
the potentiality of an a contrario interpretation of its provisions by WTO
Members. The panel in Brazil—Aircraft offered a solution by stating that
WTO Members cannot find exceptions in the list by making an a contrario
interpretation of the various items included therein as footnote 5 SCMA
covers exceptions explicitly contained in the list.46 Further, the Appellate
Body was called in Brazil—Aircraft to interpret annex I(k) of the list, where
it seemed to indicate that it would be prepared to accept an a contrario
interpretation (although in this matter, it determined that such an argument
had not been effectively made) but then added that it was “not interpreting
footnote 5 of the SCM Agreement and [did] not opine on the scope of footnote
5”.47 More light was shed on that controversial conclusion by the panel in
Korea—Commercial Vessels, which clearly rejected any a contrario interpretation
of annex I( j) SCMA.48
44
45
WT/DS108/AB/RW, para. 133.
46
WT/DS46/R.
47
Appellate Body Report, Brazil—Aircraft, WT/DS46/AB/RW, para. 80.
48
WT/DS273/R.

484 article 3 scma
36 Specific interpretative guidance may be found in panel and Appellate Body

reports with regard to most items in annex I SCMA.49
4. Relationship with Other SCMA Articles

37 The panel in Canada—Dairy discussed the effect of a finding of violation
of art 3.1 SCMA on the more precise implementation requirements under
art. 4.7 SCMA.50
38 The panel in Brazil—Aircraft also addressed the relationship between art.
3.1(a) SCMA and the provisions of arts 27.2(b) and 27.4 SCMA on special
and differential treatment of developing country Members by stating that
“until non-compliance with the conditions set out in Article 27.4 is dem-
onstrated, there is also on the part of a developing country Member within
the meaning of Article 27.2(b), no inconsistency with Article 3.1(a).”51
39 In Brazil—Aircraft, the Appellate Body confirmed the above line of thinking
and underlined that
the conditions set forth in paragraph 4 are positive obligations for developing
country Members, not affirmative defences. If a developing country Member
49
Guidance on annex I(c), (d), ( j), and (k) SCMA can be found in Canada—Dairy where
the Appellate Body, by comparison with art. 9.1(c) AG Agreement, noted that these items
seem to imply the need to find “some kind of government mandate, direction or control”
when determining the existence of a subsidy. Appellate Body Report, Canada—Dairy, WT/
DS103/AB/RW2, WT/DS113/AB/RW2, para. 128.
On annex I(d) SCMA, the panel in Brazil—Aircraft described the test here as “a comparison
of the terms and conditions of the goods and services being provided by the government
with the terms and conditions that would otherwise be available to the exporters receiving
the alleged export subsidy”. It is not relevant whether the measure simply offsets competitive
advantages benefiting products from another Member. WT/DS46/R, para. 7.25.
On annex I(e), (f ), (g), (h), and (i) SCMA, the panel in Brazil—Aircraft (as similarly discussed
above) stated that “there is no hint that a tax advantage would not constitute an export
subsidy simply because it reduced the exporter’s tax burden to a level comparable to that
of foreign competitors”. Ibid.
On annex I( j) SCMA, the panel in Canada—Aircraft Credits and Guarantees stated that this
provision “sets out the circumstances in which the grant of loan guarantees is per se deemed
to be an export subsidy. . . . [but] does not provide . . . that all loan guarantees are per se pro-
hibited by item ( j)”. WT/DS222/R, para. 7.395.
On annex I(k) SCMA, setting aside the possibility of an a contrario interpretation, which
has been discussed in general terms above, the panel in Brazil—Aircraft suggested that a pay-
ment is used to “secure a material advantage in the field of export credit terms” when the
recipient gets export credits on more favourable terms than those which it would get on the
marketplace. It also suggested that “in the field of export credit terms” should be interpreted
as referring to items directly related to export credits such as interest rates, grace periods,
transaction costs, maturities, “and the like” but not the price at which the product is sold.
WT/DS46/R, para. 7.28. We note that although the Appellate Body did not comment on
this issue, it rejected the panel’s interpretation of “used to secure a material advantage”
made in the same context. WT/DS46/AB/R.
50
WT/DS103/RW, WT/DS113/RW.
51

article 3 scma 485
complies with the obligations in Article 27.4, the prohibition on export sub-
sidies in Article 3.1(a) simply does not apply.52
The burden of proof is, therefore, on the complaining party to demonstrate
that at least one of the elements of art. 27.4 SCMA does not apply. Under
such circumstances, the prohibition of art. 3.1(a) SCMA will apply.
III. Prohibited Domestic Content or Import Substitution Subsidies

(Art. 3.1(b) SCMA)
Prohibited domestic content of import substitution subsidies aim at reducing 40
imports of products from other Members, leading to favouring domestic
suppliers and overall production. The effect of such measures is similar to
raising tariff barriers on imported products, although subsidies are borne
by taxpayers whilst tariff duties form government income.53
1. De Facto Contingency?
Unlike the provisions of art. 3.1(a) SCMA, the wording of art. 3.1(b) SCMA 41
does not specifically address the issue of de jure and de facto contingency.
Art. 3.1(b) SCMA simply lays down a prohibition on subsidies contingent
upon the use of domestic over imported goods. The de jure contingency
is obviously caught by its provisions, thus leaving open the question of de
facto contingency.
The matter was discussed in Canada—Autos where the panel assessed that 42
it was not by accident that the drafters of art. 3 SCMA omitted the words
“in law or in fact” from the second paragraph of art. 3.1 SCMA. Since this
was, according to the panel, the intention of the drafters, art. 3.1(b) SCMA
intentionally omitted these words and therefore, art. 3.1(b) SCMA extends
only to contingency in law. The panel cited Japan—Alcoholic Beverages where
the Appellate Body had held that “omission must have some meaning”.54
The Appellate Body, however, came to the opposite conclusion, holding that 43
art. 3.1(b) SCMA should be read as including both de jure and de facto
contingency. It noted that art. III:4 GATT 1994 also addresses measures
that favour the use of domestic over imported goods and it covers de jure
and de facto provisions. The Appellate Body also held that the interpretation
opted for by the panel would be “contrary to the object and purpose of
the SCM Agreement because it would make circumvention of obligations
by Members too easy”.55
52
53
See Luengo Hernández de Madrid, 154, n. 149.
54
WT/DS139/R, WT/DS142/R, para. 10.221.
55

486 article 3 scma
44 In addition, with respect to the applicability of art. III GATT over the
SCMA and a certain overlap existing between the two provisions, the panel
in Indonesia—Autos held that the two sets of provisions have different purposes
and different coverage as well as offer different remedies, dispute settlement
time limits, and different implementation requirements. Concerning the
regulation of subsidies, the SCMA has precedence as it forms lex specialis
on the regulation of subsidies.56
IV. Art. 3.2 SCMA

45 Under art. 3.2 SCMA, Members are expressly prohibited from granting
and/or maintaining prohibited subsidies.57 This means that the provision of
any subsidies that fall within either art. 3.1(a) or (b) SCMA automatically
leads to a violation of art. 3.2 SCMA.58
46 In addressing Brazil’s challenge to certain Canadian subsidies in Canada—
Aircraft, the panel recalled the distinction between mandatory and dis-
cretionary legislation, emphasizing that it must “first determine whether
the . . . programme per se mandates the grant of prohibited export subsidies
in a manner inconsistent with Article 3.1(a) and 3.2 of the SCM Agree-
ment” and the distinction that GATT/WTO panels “have consistently
drawn between discretionary legislation and mandatory legislation”, the
indication being that the former could not be challenged “as such”, only
“as applied”.59
47 Concerning developing country Members, the panel held in Brazil—Aircraft
that the distinction between the existence of a subsidy and the moment of
its grant, though drawn in the context of art. 27.4 SCMA, should apply
equally to art. 3.2 SCMA:
[I]f the issue of when a subsidy is “granted” for the purposes of Article 27.4 is
legally distinct from when it “exists” for the purposes of Article 1, then it
follows that the issue of when the subsidy is granted for the purposes of Article
3.2 is also legally distinct from the issue when it . . . exists for the purposes of
Article 1.60
56
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, paras 14.33–14.39.
57
The prohibition is on the granting authority. WT/DS70/AB/R, para. 170.
58
Panel Report, US—Upland Cotton, WT/DS267/R, paras 7.947–7.948, 7.1098; WT/
DS267/AB/R, para. 552; Panel Report, US—FSC, WT/DS108/RW, para. 8.110.
59
WT/DS70/R, para. 9.124.
60
WT/DS46/RW, para. 6.14.

Article 4
Remedies
4.1 Whenever a Member has reason to believe that a prohibited subsidy is being granted
or maintained by another Member, such Member may request consultations with
such other Member.
4.2 A request for consultations under paragraph 1 shall include a statement of available
evidence with regard to the existence and nature of the subsidy in question.
4.3 Upon request for consultations under paragraph 1, the Member believed to be
granting or maintaining the subsidy in question shall enter into such consultations
as quickly as possible. The purpose of the consultations shall be to clarify the facts
of the situation and to arrive at a mutually agreed solution.
4.4 If no mutually agreed solution has been reached within 30 days6 of the request for
consultations, any Member party to such consultations may refer the matter to
the Dispute Settlement Body (“DSB”) for the immediate establishment of a panel,
unless the DSB decides by consensus not to establish a panel.
4.5 Upon its establishment, the panel may request the assistance of the Permanent
Group of Experts7 (referred to in this Agreement as the “PGE”) with regard to
whether the measure in question is a prohibited subsidy. If so requested, the PGE
shall immediately review the evidence with regard to the existence and nature of
the measure in question and shall provide an opportunity for the Member applying
or maintaining the measure to demonstrate that the measure in question is not a
prohibited subsidy. The PGE shall report its conclusions to the panel within a time-
limit determined by the panel. The PGE’s conclusions on the issue of whether or
not the measure in question is a prohibited subsidy shall be accepted by the panel
without modification.
4.6 The panel shall submit its final report to the parties to the dispute. The report shall
be circulated to all Members within 90 days of the date of the composition and the
establishment of the panel’s terms of reference.
4.7 If the measure in question is found to be a prohibited subsidy, the panel shall rec-
ommend that the subsidizing Member withdraw the subsidy without delay. In this
regard, the panel shall specify in its recommendation the time-period within which
the measure must be withdrawn.
4.8 Within 30 days of the issuance of the panel’s report to all Members, the report shall
be adopted by the DSB unless one of the parties to the dispute formally notifies
the DSB of its decision to appeal or the DSB decides by consensus not to adopt
the report.
4.9 Where a panel report is appealed, the Appellate Body shall issue its decision within
30 days from the date when the party to the dispute formally notifies its intention to
appeal. When the Appellate Body considers that it cannot provide its report within
30 days, it shall inform the DSB in writing of the reasons for the delay together with
an estimate of the period within which it will submit its report. In no case shall the
proceedings exceed 60 days. The appellate report shall be adopted by the DSB and
unconditionally accepted by the parties to the dispute unless the DSB decides by
consensus not to adopt the appellate report within 20 days following its issuance
to the Members.8
4.10 In the event the recommendation of the DSB is not followed within the time-period
specified by the panel, which shall commence from the date of adoption of the
panel’s report or the Appellate Body’s report, the DSB shall grant authorization
to the complaining Member to take appropriate9 countermeasures, unless the DSB
decides by consensus to reject the request.
4.11 In the event a party to the dispute requests arbitration under paragraph 6 of Article
22 of the Dispute Settlement Understanding (“DSU”), the arbitrator shall determine
whether the countermeasures are appropriate.10
4.12 For purposes of disputes conducted pursuant to this Article, except for time-periods
specifically prescribed in this Article, time-periods applicable under the DSU for the
conduct of such disputes shall be half the time prescribed therein.
Footnote 6: Any time-periods mentioned in this Article may be extended by mutual
agreement.
RIOS HERRAN & PORETTI

488 article 4 scma
Footnote 7: As established in Article 24.

Footnote 8: If a meeting of the DSB is not scheduled during this period, such a meeting
shall be held for this purpose.
Footnote 9: This expression is not meant to allow countermeasures that are disproportionate
in light of the fact that the subsidies dealt with under these provisions are prohibited.
Footnote 10: This expression is not meant to allow countermeasures that are dispro-
portionate in light of the fact that the subsidies dealt with under these provisions are
prohibited.
Bibliography
P. E. Clark et al., WTO Dispute Settlement Practice Relating to Subsidies and Countervailing Measures,
in: F. Ortino & E. U. Petersmann, The WTO Dispute Settlement System 1995–2003 (2004),
353–379; G. Goh & A. R. Ziegler, Retrospective Remedies in the WTO after Automotive Leather,
JIEL 6 (2003), 545–564; J. R. Magnus, World Trade Organization Subsidy Disciplines: Is This the
Retrenchment Round?, JWT 38 (2004), 985–1047; P. C. Mavroidis, Remedies in the WTO Legal
System: Between a Rock and a Hard Place, EJIL 11 (2000), 763–813.
Case Law
WT/DS46/R; Decision by the Arbitrators, Brazil—Aircraft, WT/DS46/ARB; Appellate
Body Report, Canada—Aircraft, WT/DS70/AB/R; Panel Report, Canada—Aircraft, WT/
DS70/RW; Panel Report, US—FSC, WT/DS108/R; Decision by the Arbitrators, US—FSC,
WT/DS108/ARB; Panel Report, Australia—Automotive Leather II, WT/DS126/RW; Panel
Report, Canada—Autos, WT/DS139/R, WT/DS142/R; Panel Report, Canada—Aircraft
Credits and Guarantees, WT/DS222/R; Decision by the Arbitrator, Canada—Aircraft Credits
and Guarantees, WT/DS222/ARB; Panel Report, US—Upland Cotton, WT/DS267/R; Panel
Report, Korea—Commercial Vessels, WT/DS273/R.
Documents
Negotiating Group on Rules, General Contribution to the Discussion of the Negotiating
Group on the Agreement on Subsidies and Countervailing Duty Measures, Submission
from Australia, TN/RL/W/85, 30 April 2003; Negotiating Group on Rules, Improved
Disciplines under the Agreement on Subsidies and Countervailing Measures, Communica-
tion from Canada, TN/RL/W/112, 6 June 2003; Negotiating Group on Rules, Further
Contribution to the Discussion of the Negotiating Group on Rules on the Agreement on
Subsidies and Countervailing Duties Measures, Submission from Australia, TN/RL/W/139,
18 July 2003.
Table of Contents
A. General 1
I. Overview 1
II. History 2
B. The Multilateral Procedure of Art. 4 SCMA 3
C. Mechanism 4
I. No Proof of Adverse Effects Necessary (Arts 4.1–4.3 SCMA) 5
II. Accelerated Timeframe (Arts 4.4, 4.6, 4.8, 4.11–4.12 SCMA) 6
III. Assistance of the Permanent Group of Experts (Art. 4.5 SCMA) 9
IV. Remedies (Arts 4.7 and 4.10 SCMA) 10
D. Special and Differential Treatment 15
E. Rules Negotiations 16
F. Outlook 17

article 4 scma 489
A. General
I. Overview
Art. 4 SCMA establishes the procedures to be followed by a Member which 1
considers its own interests affected by the use of prohibited subsidies by
other Members and seeks relief on a multilateral basis. Up to the present,
the use of the procedures contained in art. 4 SCMA has remained limited,
Members predominantly opting for the unilateral imposition of counter-
vailing measures.
II. History
Arts 12 and 13 Tokyo Round Subsidies Code contained elements similar to 2
the provisions of art. 4 SCMA. Their application, however, was limited to
export subsidies. Such approach was commonly referred to as the “Track II”
procedure in contrast to the imposition of countervailing duties or “Track
I” approach. The introduction of the SCMA and an articulated dispute
settlement system (DSU) as a result of the Uruguay Round significantly
strengthened the multilateral route.
B. The Multilateral Procedure of Art. 4 SCMA
The SCMA prohibits export and import substitutive subsidies.1 Like the 3
Tokyo Round Subsidies Code, the SCMA offers two different remedies
to Members which consider their interests affected by such measures of
support. The first consists in the multilateral procedures set out in art. 4
SCMA, leading, in the event of a successful claim, to the withdrawal of the
prohibited subsidy challenged. The second option available to Members is
to take unilateral action through the imposition of countervailing duties in
accordance with the procedures contained in part V SCMA. A complete
overview of the remedies at the disposal of Members against prohibited
subsidies therefore requires the consideration of both the multilateral and
the unilateral ways.
C. Mechanism
While sharing many commonalities with an ordinary dispute settlement 4

procedure, the multilateral track procedures for prohibited subsidies in art. 4
1
See art. 3 SCMA.

490 article 4 scma
SCMA derogate from the ordinary path in several circumstances. Important

differences reflecting the particularly trade distortive character of prohibited
subsidies also emerge from a comparison between the procedures of art. 4
SCMA and those of art. 7 SCMA applicable to actionable subsidies. For the
purpose of clarity, the description of the characteristics of the multilateral
procedure in art. 4 SCMA has been split into three groups which relate
respectively to: (1) the low burden of proof needed by the complaining party,
(2) the expedited timelines, and (3) the incisive remedies available.
I. No Proof of Adverse Effects Necessary (Arts 4.1–4.3 SCMA)

5 Pursuant to art. 4.1 SCMA, the Member that has reason to believe that
another Member is maintaining a prohibited subsidy within the meaning of
art. 3 SCMA may request consultations with the other Member. According
to art. 4.2 SCMA, for such request to be complete and therefore, initiate
the procedure contemplated in art. 4 SCMA, it only has to contain a state-
ment of the available evidence with regard to the existence and nature of
the subsidy in question. Contrary to the multilateral procedures applicable
to actionable subsidies contained in art. 7 SCMA, art. 4 SCMA does not
require the complaining party to prove the existence of adverse effects
caused by the prohibited subsidies.2 Art. 4.3 SCMA clarifies that consulta-
tions shall start as quickly as possible and that the purpose of consultations
is to clarify the facts and to arrive at a mutually agreed solution.
II. Accelerated Timeframe (Arts 4.4, 4.6, 4.8, 4.11–4.12 SCMA)

6 Art. 4 SCMA establishes an expedited timeframe for multilateral remedies
against prohibited subsidies. In this regard, art. 4.12 SCMA literally halves
the time periods prescribed by the DSU for disputes introduced under the
auspices of art. 4 SCMA.
7 Pursuant to art. 4.4 SCMA, where consultation does not lead to any mutu-
ally agreed solution, the establishment of a panel may be requested by
any of the parties to such consultation at anytime after 30 days from the
request for consultations, compared to 60 days under the DSU.3 Art. 4.6
SCMA states that once a panel is formed, it has to submit its final report
to the parties within 90 days of the establishment of the terms of refer-
ence, compared to the normal six-month deadline under the ordinary DSU
procedure.4 Pursuant to art. 4.8 SCMA, the panel report has to be adopted
within 30 days of its circulation to all Members unless appealed, while
2
Cf. art. 7.2 SCMA. See also Rios Herran & Poretti, Article 7 SCMA, para. 6.
3
Cf. art. 4.7 DSU.
4
Cf. art. 12.8 DSU.

article 4 scma 491
under the DSU, the panel report has to be adopted within 60 days.5 Art.
4.11 SCMA clarifies that in the event that a party to the dispute requests
arbitration under art. 22.6 DSU, the arbitrator shall determine whether the
countermeasures are appropriate.
According to art. 4.9 SCMA, in the event of an appeal, the Appellate 8
Body has to issue its decision within 30 days from the party’s formal appeal
notification, compared to the 60-day deadline under the DSU.6 Lastly, the
Appellate Body report shall be adopted within 20 days following its issu-
ance to the Members, compared to the 30 days allowed under the DSU.7
In addition, footnote 8 to art. 4.9 SCMA specifies that “if a meeting of
the DSB is not scheduled during this period, such a meeting shall be held
for this purpose”.8
III. Assistance of the Permanent Group of Experts (Art. 4.5 SCMA)

Pursuant to art. 4.5 SCMA, the panel can make use of the assistance of 9
the Permanent Group of Experts (PGE). The PGE shall review the evi-
dence and submit a report to the panel within a timeframe determined
by the panel. The conclusions reached on the issue of whether or not the
measure in question is a prohibited subsidy must be accepted by the panel
without modification.
IV. Remedies (Arts 4.7 and 4.10 SCMA)

The remedies at the disposal of Members choosing the multilateral track 10
procedure under art. 4 SCMA are more incisive than those available in the
context of actionable subsidies and under the general DSU framework.9
Where the measure in question is found to be a prohibited subsidy within the 11
meaning of art. 3 SCMA, art. 4.7 SCMA reinforces the ordinary provision
of art. 19 DSU by requiring the panel to recommend to the subsidizing
Member to “withdraw the subsidy without delay”. In its recommenda-
tion, the panel has to specify the period within which the measure must
be withdrawn. Art. 4.7 SCMA does not provide any further indication on
how to determine the period for the withdrawal of the prohibited subsidy.
In the overwhelming majority of disputes involving a prohibited export
subsidy, panels have recommended that the subsidy be withdrawn within
5
Cf. art. 16.4 DSU.
6
Cf. art. 17.5 DSU. The two provisions allow for an extension of the deadline for the
Appellate Body to issue its decision up to 60 and 90 days respectively.
7
Cf. art. 17.14 DSU.
8
Footnote 8 to art. 17.14 DSU contains an identical provision.
9
See art. 7.8 SCMA. See also Rios Herran & Poretti, Article 7 SCMA.

492 article 4 scma
90 days from the date of adoption of the panel report.10 Under specific
circumstances, governments have been granted longer periods of time in
which to withdraw their prohibited subsidies.11
12 In Australia—Automotive Leather II, besides recommending that Australia
“withdraw the subsidy”, the panel requested the complete repayment of
the export subsidy in question.12 The panel justified its decision with the
fact that
[a]n interpretation of Article 4.7 of the SCM Agreement which would allow
exclusively “prospective” action would make the recommendation to “withdraw
the subsidy” under Article 4.7 indistinguishable from the recommendation
to “bring the measure into conformity” under Article 19.1 of the DSU, thus
rendering Article 4.7 redundant.13
The panel’s request in Australia—Automotive Leather II goes beyond what panels
demanded in earlier disputes involving prohibited subsidies. Commentators
questioned the compatibility of the panel’s decision with the largely accepted
principle that WTO remedies are not retroactive but prospective only.14 In
Canada—Aircraft Credits and Guarantees, the panel had the chance to address
the issue of the retroactive vs. prospective nature of WTO remedies. It noted
that the prospective only approach is the result of a “policy choice by the
WTO Membership” and acknowledged that in certain circumstances, the
appropriate remedy is the repayment of the subsidy.15
13 According to art. 4.10 SCMA, in the event that the subsidizing Member
does not proceed with the withdrawal of the prohibited subsidy within
the period specified by the panel, the DSB “shall grant authorization to
the complaining Member to take appropriate countermeasures”. The only
guideline provided by the SCMA in this regard is contained in footnote 9 to
art. 4.10 SCMA and states that: “This expression [i.e., the authorization to
10
See WT/DS46/AB/R, paras 188–189; WT/DS222/R, paras 8.3–8.4; WT/DS70/RW,
paras 6.1–6.2; WT/DS139/R, WT/DS142/R, paras 11.6–11.7; WT/DS46/R, paras
8.4–8.5; WT/DS273/R, para. 8.700.
11
In the US—FSC case, for instance, the panel recommended a longer period for the
withdrawal of the prohibited subsidy on the basis of the legislative action required for imple-
mentation. It recognized that “being so, and acting in good faith, there is no way that this
could be described as a delay”. WT/DS108/R, para. 8.8. In US—Upland Cotton, the panel
recommended that the United States “withdraw the prohibited subsidies . . . without delay.
The time-period we specify must be consistent with the requirement that the subsidy be
withdrawn ‘without delay’. In any event, this is at the latest within six months of the date
of adoption of the Panel report by the Dispute Settlement Body or 1 July 2005 (whichever
is earlier)”. See WT/DS267/R, paras 8.3(b)–(c).
12
See WT/DS126/RW, paras 6.39–6.49.
13
Ibid., para. 6.31.
14
See Goh & Ziegler. Since the claimant did not request the repayment of the subsidy
found to be inconsistent with Australia’s SCMA obligations, the panel’s decision also raised
the question of respect for the non ultra petita principle. In accordance with customary inter-
national law, the judge is bound by what has been requested and cannot add to it.
15
See WT/DS222/R, para. 7.170. See also Clark et al., 365.

article 4 scma 493
take appropriate countermeasures,] is not meant to allow countermeasures

that are disproportionate in light of the fact that the subsidies dealt with
under this provisions are prohibited”.16
The case law involving prohibited subsidies provides helpful information 14
on how the term “appropriate countermeasures” has been interpreted in
practice by the two WTO adjudicative bodies. For instance, the arbitrators
in Brazil—Aircraft found that when dealing with a prohibited export sub-
sidy, an amount of countermeasures that corresponds to the total amount
of the subsidy is “appropriate”.17 In Canada—Aircraft Credits and Guarantees,
the arbitrators used the amount of the subsidy as a starting point for
determining the level of the appropriate countermeasures. In the same
dispute, the arbitrators increased the level of appropriate countermeasures
by 20 percent in order to “induce compliance” after Canada stated that
it would not withdraw the prohibited subsidy.18 In the US—FSC case, the
arbitrators proceeded to the interpretation of the meaning of “appropri-
ate countermeasures” in the light of the customary rules of interpretation
of public international law as contained in arts 31, 32, and 33 VCLT and
concluded that:
Not only is a Member entitled to take countermeasures that are tailored to offset
the original wrongful act and the upset of the balancing of rights and obliga-
tions which that wrongful act entails, but in assessing the “appropriateness”
of such countermeasures—in light of the gravity of the breach—, a margin
of appreciation is to be granted, due to the severity of that breach.19
D. Special and Differential Treatment
Since developing countries benefited from a temporary exemption from the 15

application of the general ban on export subsidies in art. 3.1(a) SCMA,20 art.
27.7 SCMA provides that complaints against export subsidies maintained
by developing country Members follow the procedures of art. 7 SCMA
instead of those of art. 4 SCMA.21
16
Art. 4.11 SCMA, referring to situations where a party to the dispute requests arbitra-
tion under art. 22(6) DSU contains an identical footnote.
17
See WT/DS46/ARB, paras 3.28–3.65.
18
See WT/DS222/ARB, paras 3.3–3.122.
19
See WT/DS108/ARB, para. 5.62.
20
See art. 27.2(b) SCMA. See also Avgoustidi & Ballschmiede, Article 27 SCMA, para.
63. The prohibition of art. 3.1(a) SCMA does not apply to developing country Members
referred to in annex VII SCMA.
21
This provision is still relevant because of the extension granted to several developing
countries after the expiry of the eight-year grace period in art. 27.3 SCMA. See Avgoustidi
& Ballschmiede, Article 27 SCMA, paras 36–41.

494 article 4 scma
E. Rules Negotiations
16 The debate on possible amendments to art. 4 SCMA takes place within the
Negotiating Group on Rules and so far, has involved some of the provision’s
still unclear aspects. Further clarification has been sought at the enforce-
ment level, in particular with regard to the concept of “withdrawal of the
subsidy”22 and the question whether a remedy should involve retrospectivity
or be prospective only.23 Other proposals focused on the possibility of recon-
ciling the special timeframe of art. 4 SCMA with that generally applicable
to WTO disputes established in the DSU in situations where other claims
of violation, in addition to those in respect of prohibited subsidies, are also
at issue and have also been discussed, as well as the functioning of the PGE
with a view to determining how its advisory and dispute settlement roles
may be improved.24 Proposals for amendments were also tabled with regard
to elements common to the two procedures of arts 4 and 7 SCMA.25
F. Outlook
17 So far, WTO Members have made limited use of the multilateral track
in art. 4 SCMA. In the meantime, between January 1995 and December
2004, they imposed a total of 108 countervailing measures on subsidized
products.26 This fact is questionable, particularly in the light of the fact that
contrary to the old GATT regime, the dispute settlement rules that entered
into force in 1995 de facto make the acceptance of panel and Appellate
Body reports automatic.27 Also, the remedial effects resulting from the
multilateral procedure are more far-reaching than the simple imposition of
countervailing measures. Obtaining the withdrawal of an export subsidy
means eliminating its trade distortive effects on the markets of all countries
to which the subsidized products is exported, including those markets where
the complainant is in competition with the defendant.
22
TN/RL/W/85.
23
Ibid. In particular, as pointed out by the panel in Australia—Automotive Leather II, “if
repayment is not permitted as a remedy, . . . there will be situations where the remedy of
withdrawal will have no deterrent effect. In particular, where a one-time subsidy has been
granted, the mere termination of a subsidy program would have no impact”. WT/DS126/
RW, para. 6.31.
24
TN/RL/W/112.
25
For a list of such proposals, see TN/RL/W/139; Magnus, 1006–1007.
26
More statistical information on the application of countervailing duties, broken down
by Members and categories of products subject to countervailing duties, is available on the
WTO official website, available at http://www.wto.org (accessed 2 October 2007).
27
See art. 16.4 DSU; art. 4.8 SCMA.

Article 5
Adverse Effects
No Member should cause, through the use of any subsidy referred to in paragraphs 1 and
2 of Article 1, adverse effects to the interests of other Members, i.e.:
(a) injury to the domestic industry of another Member;11
(b) nullification or impairment of benefits accruing directly or indirectly to other Members
under GATT 1994 in particular the benefits of concessions bound under Article II of
GATT 1994;12
(c) serious prejudice to the interests of another Member.13
This Article does not apply to subsidies maintained on agricultural products as provided
in Article 13 of the Agreement on Agriculture.
Footnote 11: The term “injury to the domestic industry” is used here in the same sense
as it is used in Part V.
Footnote 12: The term “nullification or impairment” is used in this Agreement in the same
sense as it is used in the relevant provisions of GATT 1994, and the existence of such
nullification or impairment shall be established in accordance with the practice of applica-
tion of these provisions.
Footnote 13: The term “serious prejudice to the interests of another Member” is used in
this Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT
1994, and includes threat of serious prejudice.
Case Law
Panel Report, US—Offset Act (Byrd Amendment), WT/DS217/R, WT/DS234/R; Appellate
Body Report, US—Upland Cotton, WT/DS267/AB/R.
Table of Contents
A. General 1
B. The Bases for Establishing Adverse Effects 3
A. General
The SCMA classifies subsidies meeting the definitions found under arts 1
1 and 2 SCMA into three categories: prohibited, actionable, or non-
actionable. Although prohibited or so-called “red light” subsidies carry a
presumption of WTO-inconsistency that leaves them open to immediate
challenge, “actionable” subsidies must satisfy a basic criterion—that they
cause “adverse effects”—before any Member may seek any recourse against
them. Art. 5 SCMA establishes the different bases for establishing adverse
effects. Art. 5 SCMA, however, is not the end of the analysis. Rather, it is
an introductory article that points to more specific standards under other
provisions of the agreement.
Art. 5 SCMA is the opening provision under part III SCMA which deals 2
specifically with actionable subsidies. It does not address expressly prohibited
subsidies that are the subject of part II SCMA. Although art. 5 SCMA also
states that it does not apply to subsidies maintained on agricultural products
that are the subject of art. 13 AG Agreement, the exemption applied only
throughout the implementation period for art. 13 AG Agreement, which
DURLING
496 article 5 scma
expired at the end of 2003.1 Agriculture domestic support and export sub-
sidies are now actionable based on the adverse effects they may cause.2
B. The Bases for Establishing Adverse Effects
3 Art. 5 SCMA sets forth three means to establish adverse effects: “injury”,
“nullification or impairment”, and “serious prejudice”, all of which direct
the reader to more specific standards under other provisions.
4 Art. 5(a) SCMA provides that “injury to the domestic industry of another
Member” will constitute adverse effects. “Injury” refers to the same injury
that must be established in the context of a domestic countervailing duty
proceeding permitted under part V SCMA. Namely, it is “injury” that
satisfies the specific standards specified under art. 15 SCMA concerning
subsidized imports. Those standards have been discussed at length in the
corresponding chapter addressing that provision.3
5 Art. 5(a) SCMA basically means that proving injury in the context of a
countervailing duty investigation also establishes adverse effects if the Mem-
bers also wanted to take action under the WTO. As a practical matter, this
would rarely happen. If a Member has established the right to impose a
countervailing duty, that trade barrier generally would eliminate the need
for any further action under other WTO mechanisms. Under footnote 35
SCMA, a complaining party can proceed under multiple avenues but only
one form of relief will be allowed to address the effects of any particular
subsidy.
6 Art. 5(b) SCMA provides that adverse effects may be also established by
demonstrating that the subsidies in question nullified or impaired benefits
accruing under GATT 1994. Though the emphasis of art. 5(b) SCMA is
on those concessions bound under art. II GATT 1994 (i.e., trade in goods),
it is not exclusive to nullification or impairment of those concessions.4
7 Art. 5(b) SCMA on its face could apply to any type of nullification or
impairment, but there are limits. For art. 5(b) SCMA purposes, the alleged
adverse effects must be proven. Art. 3.8 DSU provides a presumption of
1
Art. 1(f ) AG Agreement provides that the “implementation period” means the six-year
period commencing in the year 1995, except that, for the purposes of art. 13 AG Agree-
ment, it means the nine-year period commencing in 1995.
2
WT/DS267/AB/R.
3
See Durling, Article 15 SCMA.
4
WT/DS217/R, WT/DS234/R. This decision addressed Mexico’s art. 5(b) SCMA
challenge to the Byrd Amendment claiming nullification or impairment of benefits accruing
under art. VI GATT 1994 concerning anti-dumping and countervailing duties.
DURLING
article 5 scma 497
nullification or impairment based on the demonstrated violation of a WTO

obligation. One WTO panel has found that:
[R]eliance on the presumption of nullification or impairment resulting from
Article 3.8 DSU in the context of an Article 5 SCM claim would eliminate
the primary distinction between prohibited subsidies under Article 3 [SCMA],
where effects are presumed, and actionable subsidies under Article 5 [SCMA],
where the complaining party must demonstrate adverse effects.5
In other words, it is not enough to prove a WTO-inconsistency and then
presume nullification or impairment and thus, adverse effects. One must
prove the adverse effects.
Art. 5(c) SCMA provides that adverse effects may be established by demon- 8
strating that the subsidies in question caused serious prejudice to the interests
of another Member. “Serious prejudice” is subsequently defined under art.
6 SCMA in some detail. Those specific provisions are discussed in detail
in that chapter.6 Art. 5(c) SCMA is the most common basis of challenge in
WTO dispute settlement and has come up in numerous cases.7
5
Ibid., para. 7.119.
6
See Piérola, Article 6 SCMA.
7
See ibid.
DURLING
Article 6
Serious Prejudice
6.1 Serious prejudice in the sense of paragraph (c) of Article 5 shall be deemed to exist
in the case of:
(a) the total ad valorem subsidization14 of a product exceeding 5 per cent:15
(b) subsidies to cover operating losses sustained by an industry;
(c) subsidies to cover operating losses sustained by an enterprise, other than one-time
measures which are non-recurrent and cannot be repeated for that enterprise
and which are given merely to provide time for the development of long-term
solutions and to avoid acute social problems;
(d) direct forgiveness of debt, i.e. forgiveness of government-held debt, and grants
to cover debt repayment.16
6.2 Notwithstanding the provisions of paragraph 1, serious prejudice shall not be found
if the subsidizing Member demonstrates that the subsidy in question has not resulted
in any of the effects enumerated in paragraph 3.
6.3 Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case
where one or several of the following apply:
(a) the effect of the subsidy is to displace or impede the imports of a like product
of another Member into the market of the subsidizing Member;
(b) the effect of the subsidy is to displace or impede the exports of a like product
of another Member from a third country market;
(c) the effect of the subsidy is a significant price undercutting by the subsidized
product as compared with the price of a like product of another Member in
the same market or significant price suppression, price depression or lost sales
in the same market;
(d) the effect of the subsidy is an increase in the world market share of the sub-
sidizing Member in a particular subsidized primary product or commodity17 as
compared to the average share it had during the previous period of three years
and this increase follows a consistent trend over a period when subsidies have
been granted.
6.4 For the purpose of paragraph 3(b), the displacement or impeding of exports shall
include any case in which, subject to the provisions of paragraph 7, it has been
demonstrated that there has been a change in relative shares of the market to the
disadvantage of the non-subsidized like product (over an appropriately representative
period sufficient to demonstrate clear trends in the development of the market for
the product concerned, which, in normal circumstances, shall be at least one year).
“Change in relative shares of the market” shall include any of the following situa-
tions: (a) there is an increase in the market share of the subsidized product; (b) the
market share of the subsidized product remains constant in circumstances in which,
in the absence of the subsidy, it would have declined; (c) the market share of the
subsidized product declines, but at a slower rate than would have been the case in
the absence of the subsidy.
6.5 For the purpose of paragraph 3(c), price undercutting shall include any case in which
such price undercutting has been demonstrated through a comparison of prices
of the subsidized product with prices of a non-subsidized like product supplied to
the same market. The comparison shall be made at the same level of trade and
at comparable times, due account being taken of any other factor affecting price
comparability. However, if such a direct comparison is not possible, the existence
of price undercutting may be demonstrated on the basis of export unit values.
6.6 Each Member in the market of which serious prejudice is alleged to have arisen
shall, subject to the provisions of paragraph 3 of Annex V, make available to the
parties to a dispute arising under Article 7, and to the panel established pursuant
to paragraph 4 of Article 7, all relevant information that can be obtained as to the
changes in market shares of the parties to the dispute as well as concerning prices
of the products involved.
6.7 Displacement or impediment resulting in serious prejudice shall not arise under
paragraph 3 where any of the following circumstances exist18 during the relevant
period:
PIÉROLA
article 6 scma 499
(a) prohibition or restriction on exports of the like product from the complaining
Member or on imports from the complaining Member into the third country
market concerned;
(b) decision by an importing government operating a monopoly of trade or state
trading in the product concerned to shift, for non-commercial reasons, imports
from the complaining Member to another country or countries;
(c) natural disasters, strikes, transport disruptions or other force majeure substantially
affecting production, qualities, quantities or prices of the product available for
export from the complaining Member;
(d) existence of arrangements limiting exports from the complaining Member;
(e) voluntary decrease in the availability for export of the product concerned from
the complaining Member (including, inter alia, a situation where firms in the com-
plaining Member have been autonomously reallocating exports of this product
to new markets);
(f) failure to conform to standards and other regulatory requirements in the import-
ing country.
6.8 In the absence of circumstances referred to in paragraph 7, the existence of seri-
ous prejudice should be determined on the basis of the information submitted to
or obtained by the panel, including information submitted in accordance with the
provisions of Annex V.
6.9 This Article does not apply to subsidies maintained on agricultural products as pro-
vided in Article 13 of the Agreement on Agriculture.
Footnote 14: The total ad valorem subsidization shall be calculated in accordance with the
provisions of Annex IV.
Footnote 15: Since it is anticipated that civil aircraft will be subject to specific multilateral
rules, the threshold in this subparagraph does not apply to civil aircraft.
Footnote 16: Members recognize that where royalty-based financing for a civil aircraft
programme is not being fully repaid due to the level of actual sales falling below the level
of forecast sales, this does not in itself constitute serious prejudice for the purposes of
this subparagraph.
Footnote 17: Unless other multilaterally agreed specific rules apply to the trade in the
product or commodity in question.
Footnote 18: The fact that certain circumstances are referred to in this paragraph does not,
in itself, confer upon them any legal status in terms of either GATT 1994 or this Agree-
ment. These circumstances must not be isolated, sporadic or otherwise insignificant.
Annex IV:
Calculation of the Total Ad Valorem Subsidization (Paragraph 1(A) of
Article 6)62
1. Any calculation of the amount of a subsidy for the purpose of paragraph 1(a) of Article
6 shall be done in terms of the cost to the granting government.
2. Except as provided in paragraphs 3 through 5, in determining whether the overall rate
of subsidization exceeds 5 per cent of the value of the product, the value of the product
shall be calculated as the total value of the recipient firm’s63 sales in the most recent
12-month period, for which sales data is available, preceding the period in which the
subsidy is granted.64
3. Where the subsidy is tied to the production or sale of a given product, the value of
the product shall be calculated as the total value of the recipient firm’s sales of that
product in the most recent 12-month period, for which sales data is available, preced-
ing the period in which the subsidy is granted.
4. Where the recipient firm is in a start-up situation, serious prejudice shall be deemed to
exist if the overall rate of subsidization exceeds 15 per cent of the total funds invested.
For purposes of this paragraph, a start-up period will not extend beyond the first year
of production.65
5. Where the recipient firm is located in an inflationary economy country, the value of the
product shall be calculated as the recipient firm’s total sales (or sales of the relevant
PIÉROLA
500 article 6 scma
product, if the subsidy is tied) in the preceding calendar year indexed by the rate of
inflation experienced in the 12 months preceding the month in which the subsidy is
to be given.
6. In determining the overall rate of subsidization in a given year, subsidies given under
different programmes and by different authorities in the territory of a Member shall
be aggregated.
7. Subsidies granted prior to the date of entry into force of the WTO Agreement, the
benefits of which are allocated to future production, shall be included in the overall
rate of subsidization.
8. Subsidies which are non-actionable under relevant provisions of this Agreement shall not
be included in the calculation of the amount of a subsidy for the purpose of paragraph
1(a) of Article 6.
Footnote 62: An understanding among Members should be developed, as necessary, on
matters which are not specified in this Annex or which need further clarification for the
purposes of paragraph 1(a) of Article 6.
Footnote 63: The recipient firm is a firm in the territory of the subsidizing Member.
Footnote 64: In the case of tax-related subsidies the value of the product shall be calculated
as the total value of the recipient firm’s sales in the fiscal year in which the tax-related
measure was earned.
Footnote 65: Start-up situations include instances where financial commitments for product
development or construction of facilities to manufacture products benefiting from the
subsidy have been made, even though production has not begun.
Bibliography
M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); P. Clarke & G. Horlick,
The Agreement on Subsidies and Countervailing Measures, in: P. F. J. Macrory et al., The World Trade
Organization: Legal, Economic and Political Analysis (2005), 679–734; K. H. Cross, King Cotton,
Developing Countries and the “Peace Clause”: The WTO’s US Cotton Subsidies Decision, JIEL 9 (2006),
149–195; P. J. McDonough, Subsidies and Countervailing Measures, in: T. P. Stewart (ed.), The
GATT Uruguay Round, A Negotiating History (1993), 803–1007; F. Roessler, The Legal Structure,
Functions & Limits of the World Trade Order, A Collection of Essays (2000), 69–92; P. van Bossche,
The Law and Policy of the World Trade Organization, Text, Cases and Materials (2005), 551–574.
Case Law
Panel Report, EC—Sugar Exports (Australia), L/4833, BISD 26S/290; Panel Report, EC—Sugar
Exports (Brazil), L/5011, BISD 27S/69; Panel Report, EC—Citrus, L/5776, 7 February 1985,
unadopted; Panel Report, EC—Bananas III, WT/DS27/R; Panel Report, Indonesia—Autos,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R; Appellate Body Report,
Argentina—Footwear (EC), WT/DS121/AB/R; Appellate Body Report, US—Hot-Rolled Steel,
WT/DS184/AB/R; Appellate Body Report, US—Upland Cotton, WT/DS267/AB/R;
Panel Report, US—Upland Cotton, WT/DS267/R; Panel Report, Korea—Commercial Vessels,
WT/DS273/R.
Documents
Negotiation Group on Subsidies and Countervailing Measures, Elements of the Negotiating
Framework, Proposal for Improvement in Procedures for Dealing with Adverse Effects in
the Home Market of the Subsidizing Country and in Third-Country Markets, Submission
by the United States, MTN.GNG/NG10/W/40, 5 October 1990; Trade Negotiations
Committee, Draft Final Act Embodying the Results of the Uruguay Round of Multilateral
Trade Negotiations, MTN.TNC/W/FA, 20 December 1991.
Cross-References
Arts 1, 5(c), 7, 15.4, 15.7, 16, 27.8, 27.9, 31, footnote 13, footnote 46, annex V SCMA; Arts
III:4, III:8(b), XI, XVI, XVII, XXIII:1, ad art. XVI sec. B annex I GATT 1994; Arts 3.1,
14 ADA; Art. 13 AG Agreement; Arts 3.8, 11, 23.1, 23.2, 25, appendix 2 DSU; Art. 2.11,
annex 1 TBT Agreement; Annexes A, B SPS Agreement; Arts 4.2(a), 4.2(b) SA.
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Table of Contents
A. General 1
I. Definition of Serious Prejudice 1
II. Historical Background 8
B. Presumption of Serious Prejudice (Art. 6.1 SCMA) 14
C. Non-Existence of Serious Prejudice (Art. 6.2 SCMA) 24
D. Situations of Serious Prejudice (Arts 6.3 to 6.5 SCMA) 27
I. Displacement or Impeding of Imports in the Subsidizing Member
(Art. 6.3(a), Footnotes 14 to 16, and Annex IV SCMA) 41
II. Displacement or Impeding of Imports in Another Market (Arts 6.3(b)
and 6.4 SCMA) 47
III. Significant Price Undercutting or Significant Price Suppression, Depression,
or Lost Sales in the Same Market (Arts 6.3(c) and 6.5 SCMA) 54
1. Significant Price Undercutting 58
2. Significant Price Suppression, Price Depression, or Lost Sales in the
Market 62
IV. Increase in World Market Share (Art. 6.3(d) and Footnote 17 SCMA) 73
E. Gathering of Information (Art. 6.6 SCMA) 78
F. Exclusion of Serious Prejudice in Case of Displacement or
Impediment in the Subsidizing Member or a Third Country
(Art. 6.7 and Footnote 18 SCMA) 85
I. Prohibition or Restriction on Exports from the Complaining Member or on
Imports from the Complaining Member into a Third Country Market
(Art. 6.7(a) SCMA) 92
1. Prohibition or Restriction on Exports by Governmental Action 94
2. Prohibition or Restriction on Imports 97
II. Decision by an Importing Government Operating a Monopoly of Trade
or State Trading Not Based on Commercial Reasons (Art. 6.7(b) SCMA) 100
III. Force Majeure Events (Art. 6.7(c) SCMA) 103
IV. Arrangements Limiting Exports from the Complaining Member
(Art. 6.7(d) SCMA) 110
V. Voluntary Reduction of Export Capacity (Art. 6.7(e) SCMA) 115
VI. Failure to Conform to Standards and Other Regulatory Requirements
in the Importing Country (Art. 6.7(f ) SCMA) 119
G. Factual Basis in the Absence of the Circumstances in Art. 6.7
SCMA (Art. 6.8 SCMA) 126
H. Exclusion of Agricultural Products from the Disciplines on
Serious Prejudice (Art. 6.9 SCMA) (no longer in effect) 129
A. General
I. Definition of Serious Prejudice

Serious prejudice is an adverse effect caused to a Member’s product through 1
the granting of an “actionable” subsidy by another Member.1 Its meaning is
1
See art. 5(c) SCMA. When the SCMA entered into force on 1 January 1995, there
was a clear distinction between “actionable” and “non-actionable” subsidies, the former
being regulated under part III (arts 5, 6, and 7) SCMA and the latter under part IV (arts
8 and 9) SCMA. However, pursuant to art. 31 SCMA, the application of part IV SCMA
on non-actionable subsidies was time-bound “for a period of five years, beginning with the
date of entry into force of the WTO Agreement” unless an extension of its application
was granted. In the absence of such an extension, the application of part IV SCMA on
non-actionable subsidies lapsed on 31 December 1999. Therefore, from 1 January 2000, the
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the same as that provided in art. XVI:1 GATT 1994 and includes the threat
of serious prejudice.2 It is an adverse effect on the market performance of
a Member’s product with different expressions depending on the relevant
market-performance criterion that is adversely affected (i.e., relative position-
ing in the market, prices, or sales) and the market where the effect occurs
(i.e., the subsidizing Member’s market, a third country market, the same
market for the subsidized and affected products, or the world market). The
ultimate objective of a serious prejudice complaint through special WTO
dispute settlement proceedings3 is the removal of the adverse effects or the
withdrawal of the subsidy that is causing that effect.4
2 Serious prejudice must be distinguished from the two other types of adverse
effects that, according to art. 5 SCMA, an actionable subsidy may cause:
(1) injury to the domestic industry of a Member and (2) nullification or
impairment of benefits accruing directly or indirectly to a Member under
GATT 1994, in particular, the benefits of concessions bound under art. II
GATT 1994.5
3 Serious prejudice cannot be regarded as equivalent to the “injury to the
domestic industry”. Both have as a common element the fact that a Mem-
ber’s industry is harmed by the granting of a subsidy by another Member
to its competing industry. However, there are important differences between
the two. Injury to the domestic industry occurs within the customs territory
of the affected Member.6 In contrast, serious prejudice is an adverse effect
that may occur in different and multiple locations, including the territory of
distinction between “actionable” and “non-actionable” subsidies is no longer relevant. On

the absence of an extension to art. 31 SCMA, see WT/DS267/R, n. 1086. See also Clarke
& Horlick, 702; van den Bossche, 574.
2
Footnote 13 SCMA.
3
See art. 7 SCMA. Arts 7.2 to 7.10 and annex V SCMA on serious prejudice-related
proceedings are listed under appendix 2 DSU as “special or additional rules and procedures
contained in the covered agreements”. It must be noted that Members’ unilateral determina-
tions of the existence of serious prejudice are, arguably, not prohibited under arts 23.1 and
23.2(a) DSU unless such determinations are construed as contrary to “the attainment of
any objective of the covered agreements”, in this regard, the SCMA. However, a Member’s
taking of a countermeasure without the authorization of the WTO Dispute Settlement Body
(DSB) is definitely prohibited under arts 7.9 SCMA and 23.2(c) DSU.
4
See art. 7 SCMA.
5
In the context of the SCMA negotiations, the United States drew the distinction between
the three adverse effects by noting that “[m]aterial injury is a concept whose application is
limited to the importing country’s market, and nullification or impairment has thus far been
applied only in connection with tariff bindings. Therefore, ‘serious prejudice’ appears to
be the most obviously appropriate concept applicable to home and third country markets”.
Negotiation Group on Subsidies and Countervailing Measures, Elements of the Negotiating
Framework, Proposal for Improvement in Procedures for Dealing with Adverse Effects in
the Home Market of the Subsidizing Country and in Third-Country Markets, Submission
by the United States, MTN.GNG/NG10/W/40, 5 October 1990, 2. On art. 5 SCMA, see
Durling, Article 5 SCMA.
6
By virtue of footnote 11 SCMA, injury to the domestic industry must be construed
in relation to the art. 16 SCMA definition of domestic industry. This definition is based
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the subsidizing Member, a third country territory, and the world market.7
Furthermore, the determination of injury to the domestic industry requires
the examination of factors other than those that are relevant for the deter-
mination of serious prejudice; it requires not only the examination of the
effects of the subsidy on market performance (i.e., effects on prices, sales,
and relative positioning in the market) but also on production and financial
variables.8 Finally, the remedy for a claim of injury to the domestic industry
is usually sought at the domestic level through an administrative investiga-
tion process and if appropriate, through the imposition of countermeasures
in the form of countervailing duties.9 On the contrary, the remedy for a
serious prejudice claim must be sought at the multilateral level through
special WTO dispute settlement proceedings pursuant to art. 7 SCMA,10
the final result of which may be the removal of the adverse effect or of
the subsidy through recommendations and rulings of a WTO adjudicating
body, particularly a panel or the Appellate Body.11
Likewise, serious prejudice cannot be regarded as “nullification or impair- 4
ment of benefits” within the meaning of art. XXIII GATT 1994. Both
adverse effects may accrue in the same location under certain circumstances,
particularly when serious prejudice occurs in the market of the subsidiz-
ing Member and the nullification or impairment of benefits relates to that
Member’s concessions bound under art. II GATT 1994.12 However, even
in this context, nullification or impairment of benefits relates to an adverse
on the notion of domestic production as that production accruing in the territory of the
affected Member.
7
Art. 6.3 SCMA.
8
Compare the factors listed for the determination of serious prejudice under art. 6.3
SCMA in its various paragraphs and those required for the determination of injury to the
domestic industry under arts 15.4 and 15.7 (threat of injury) SCMA. Likewise, given the
serious nature of the prejudice, to determine the distinction between prejudice and injury,
a comparison may be made between serious prejudice under the SCMA and serious injury
under art. XIX:1 GATT 1994 and the SA. While the elements of serious prejudice vary
across the different provisions of art. 6.3 SCMA, excluding the overlapping elements of art.
6.3 SCMA and art. 4.2(a) SA, the notion of serious injury differs from serious prejudice in
that the former requires the showing of adverse effects on the rate and amount of increased
imports, production, productivity, capacity utilization, profits and losses, employment, and
all other relevant factors of an objective and quantifiable nature having a bearing on the
situation of the industry concerned.
9
It must be noted, however, that arts 7.1 and 7.2 SCMA expressly contemplate that
a Member may seek multilateral relief under the WTO dispute settlement proceedings
for a claim of injury to its domestic industry. Thus far, this possibility has never been
resorted to.
10
See supra n. 3.
11
In principle, nothing in the SCMA or the DSU prevents an arbitration established
pursuant to art. 25 DSU from examining a serious prejudice complaint.
12
While nullification or impairment complaints have been generally attached to conces-
sions, the notion of benefits may comprise benefits arising from other GATT 1994 obliga-
tions. In fact, in one instance, a GATT panel found the nullification or impairment of other
type of benefits. However, the panel report was not adopted. L/5776.
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effect modifying the conditions of access to the subsidizing Member’s market

and thereby altering the conditions of competition between domestic and
imported products in that market whereas serious prejudice relates to the
actual effects of the subsidy on the market, irrespective of the effect of a
subsidy on the conditions of competition between domestic and imported
products or the value of concessions. It must be noted, however, that in
the absence of disciplines on serious prejudice during the effectivity of the
GATT, nullification or impairment complaints were the means used to
address concerns that would otherwise relate now to serious prejudice.13
5 The other similarity is in the field of remedies given that remedies for both
types of adverse effects must be sought at the multilateral level through
WTO dispute settlement proceedings.14 Both are subject to special dispute
settlement proceedings15 and the ultimate remedy is the same: the removal
of the adverse effect or the subsidy.16
6 As discussed below, the demonstration of a case of serious prejudice for
certain art. 6.3 SCMA circumstances may require a cause and effect
approach. A complainant needs to demonstrate “that the measure is a
subsidy, that it is specific, and that it causes adverse effects to the interests
of another Member.”17
7 As clarified by jurisprudence, the cause is the effect of the subsidy,18 the
effect may be any of the specific situations spelled out in art. 6.3 SCMA.
II. Historical Background

8 The historical background of serious prejudice under arts 5(c) and 6 SCMA
may be found in art. XVI:1 GATT 1947. According to this provision:
In any case in which it is determined that serious prejudice to the interests
of any other contracting party is caused or threatened by any such subsidiza-
tion [export subsidies or domestic subsidies] the contracting party granting
the subsidy shall, upon request, discuss with the other contracting party or
parties concerned, or with the CONTRACTING PARTIES, the possibility
of limiting the subsidization.
13
See Roessler, 80.
14
See art. 23 DSU. Arts 23.1 and 23.2(a) DSU provide that Members cannot determine
nullification or impairment of benefits without resort to the dispute settlement proceedings
of the DSU. Art. 23.2(c) DSU provides that Members cannot take countermeasures to
address the failure to comply with rulings and recommendations of WTO adjudicating bod-
ies (including those relating to serious prejudice and nullification or impairment complaints)
without the authorization of the DSB.
15
Arts 7.2 to 7.10 SCMA in relation to appendix 2 DSU.
16
See art. 7.8 SCMA.
17
WT/DS273/R, para. 7.332.
18
WT/DS267/R, para. 7.12.
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The term “serious prejudice” was not defined in the GATT 1947. How- 9
ever, two GATT panels provided some guidance by determining a situation
where serious prejudice may arise.19 The GATT panel reports in EC—Sugar
Exports (Australia) and EC—Sugar Exports (Brazil) found that depression of
the world market price (to which a subsidy may have contributed) consti-
tutes a situation of serious prejudice within the meaning of art. XVI:1
GATT 1947.20 Furthermore, those two reports also stated that a situation
of threat may arise if the subsidy at issue constitutes a permanent source
of uncertainty in the market at issue and could therefore cause prejudice
to the complaining party.21
The Tokyo Round Subsidies Code provided further elaboration on serious 10
prejudice. Art. 8.3 Tokyo Round Subsidies Code, which was the predeces-
sor of art. 5 SCMA, provided:
Signatories further agree that they shall seek to avoid causing, through the
use of any subsidy
(a) injury to the domestic industry of another signatory,
(b) nullification or impairment of the benefits accruing directly or indirectly
to another signatory under the General Agreement, or
(c) serious prejudice to the interests of another signatory. (Footnotes omitted)
Art. 8.4 Tokyo Round Subsidies Code, which was the predecessor of art. 11
6.3 SCMA, regulated two of the situations that are currently provided in
art. 6.3 SCMA:
The adverse effects to the interests of another signatory required to demonstrate
nullification or impairment or serious prejudice may arise through
(a) the effects of the subsidized imports in the domestic market of the import-
ing signatory,
(b) the effects of the subsidy in displacing or impeding the imports of like
products into the market of the subsidizing country, or
(c) the effects of the subsidized exports in displacing the exports of like products
of another signatory from a third country market. (Footnotes omitted)
However, there was dissatisfaction with this provision. Some GATT Con- 12
tracting Parties claimed that the concept of serious prejudice was not
well described, that there was no operational elaboration on how the
serious prejudice situations provided for could be shown, and that there
was no indication of a process or mechanism for obtaining the evidence
19
McDonough, n. 18.
20
L/4833, BISD 26S/290, sec. V, para. (g); L/5011, BISD 27S/69, sec. V, para. (f ).
21
L/4833, BISD 26S/290, sec. V, para. (h); L/5011, BISD 27S/69, sec. V, para. (g).
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necessary to demonstrate serious prejudice in home markets or third country

markets.22
13 These concerns were addressed in the GATT Uruguay Round of Negotia-
tions. The Dunkel Draft established provisions that were finally embodied
in art. 6 SCMA.23
B. Presumption of Serious Prejudice (Art. 6.1 SCMA)
14 Art. 6.1 SCMA established a presumption of serious prejudice.24 If a subsidy

met certain qualitative and quantitative criteria set out in that provision,25
then serious prejudice was deemed to exist.26 The presumption established
in art. 6.1 SCMA is no longer in effect. However, art. 6.1 SCMA still
remains in the text of the SCMA and provides meaning27 and context to
other SCMA provisions in force.28
15 Pursuant to art. 31 SCMA on the provisional application of certain provi-
sions of the SCMA:
The provisions of paragraph 1 of Article 6 . . . 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 [SCM] Commit-
tee shall review the operation of those provisions, with a view to determining
22
See, e.g., MTN.GNG/NG10/W/40, 2.
23
MTN.TNC/W/FA, I.5–I.8.
24
In recognizing this presumption, the panel report in US—Upland Cotton stated that:
Under Article 6.1, “serious prejudice” was given meaning by reference to qualitative
and quantitative criteria pertaining to the particular types and characteristics of the
subsidies themselves. Serious prejudice was “deemed” to exist upon identification of
subsidies with such characteristics or qualities. As the titles of Articles 5 (“Adverse
Effects”) and 6 (“Serious Prejudice”) of the SCM Agreement indicate, the underlying
rationale of these provisions is to focus upon subsidies with adverse effects. Thus, the
subsidies of the nature enumerated in the sub-paragraphs of Article 6.1 were deemed
to have such effects.
WT/DS267/R, para. 7.1378.
25
Ibid.
26
The art. 6.1 SCMA presumption was, in a way, similar to the presumption of nul-
lification or impairment of benefits whereby this adverse effect is presumed to exist when a
measure is found to be WTO inconsistent. According to art. 3.8 DSU, “where there is an
infringement of the obligations assumed under a covered agreement, the action is considered
prima facie to constitute a case of nullification or impairment.” However, this presumption
has become irrefutable. See Roessler, 75.
27
As noted below, this is, for instance, the case of art. 27.9 SCMA which excludes devel-
oping countries from the scope of serious prejudice complaints that are based on subsidies
other than those contained in art. 6.1 SCMA. See infra paras 21–22.
28
As the panel in US—Upland Cotton acknowledged, “although Article 6.1 has lapsed, it
is nevertheless ‘helpful . . . in understanding the overall architecture of the Agreement with
respect to the different types of subsidies it sought to address.’ ” WT/DS267/R, n. 1292.
See also ibid., n. 1086.
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whether to extend their application, either as presently drafted or in a modified

form, for a further period.
Based on this mandate, the chairman of the SCM Committee announced 16
the existence of divergent views on the extension of art. 6.1 SCMA during
the meeting held on 1 and 2 November 199929 and noted that if there was
no consensus to grant that extension, all the provisions covered thereunder
would lapse on 31 December 1999.30 By 31 December 1999, Members had
not reached consensus on the extension, and the presumption provided for
in art. 6.1 SCMA lapsed on that date.31
The rationale of the art. 6.1 SCMA presumption is that subsidies with 17
certain characteristics or qualities were likely to cause serious prejudice.
As the panel in US—Upland Cotton noted, “the subsidies of the nature enu-
merated in the sub-paragraphs of Article 6.1 were deemed to have such
[adverse] effects.”32
By virtue of art. 6.1 SCMA, a complainant could establish a presumption 18
of serious prejudice if it demonstrated the existence of any of the circum-
stances listed in arts 6.1(a) to (d) SCMA:
(1) The total ad valorem subsidization of a product exceeded five percent
as calculated in accordance with annex IV SCMA. This annex provides
for specific calculation rules to determine the total ad valorem subsidization
of a product. It is not a comprehensive set of rules as footnote 62 SCMA
recognizes; there may be subsidization situations that are not regulated in
annex IV SCMA for which further negotiation may be required.
According to annex IV(1) SCMA, any calculation must be based on the cost
to the granting Member. Footnote 63 SCMA restricts the scope of these
rules to subsidies provided in the territory of the subsidizing Member. It
is unclear whether these rules may also apply by default to subsidies pro-
vided to recipients located out of the territory of that Member. Annex IV
SCMA makes the distinction between three different types of subsidies: (1)
29
This discussion also related to the extension of arts 8 and 9 SCMA as art. 31 SCMA
also contemplated the provisional application of these provisions.
30
Committee on Subsidies and Countervailing Measures, Minutes of the Regular Meeting
Held on 1–2 November 1999, G/SCM/M/24, 26 April 2000, para. 20. In answering the
specific question of a Member on “what would happen to the three provisions if the review
was not closed at the meeting or by 31 December 1999, i.e., if the review continued beyond
31 December 1999”, the chairman also stated that “the date of the end of the review was
31 December 1999. If there was no consensus to extend the provisions at that time, then
the provisions would lapse.” Ibid., paras 48–49.
31
As acknowledged in WT/DS267/R, n. 1292. See also Clarke & Horlick, 702; van den
Bosche, 573.
32
WT/DS267/R, para. 7.1378.
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508 article 6 scma
non-product-specific subsidies, (2) product-specific subsidies, and (3) start-

up subsidies.
For the first type of subsidies, annex IV(2) SCMA assumes that the value of
the product must be the value of the recipient’s sales in the year preceding
the granting of the subsidy based on data that are available. Footnote 64
SCMA states that for tax-related subsidies (e.g., fiscal incentives, including
tax credits), the preceding year must be the preceding fiscal year. It must be
noted that by considering that the value of the subsidized product is that
of the recipient’s sales, annex IV(2) SCMA allows levels of subsidization
higher than those that would accrue with a product-specific subsidy.
Annex IV(3) SCMA provides that for non-product-specific subsidies, the
value of the product must be the value of the recipient’s sales in the year
preceding the granting of the subsidy based on data that are available.
Finally, annex IV(4) SCMA departs from art. 6.1(a) SCMA by stating that
for start-up subsidies, the serious prejudice arises if subsidization is higher
than 15 percent of the invested funds, including (according to footnote 65
SCMA) situations where production has not begun. It appears, therefore, that
this provision addresses at least one instance of threat of serious injury.
Different subsidies may be accumulated (annex IV(6) SCMA) and the appli-
cation of these calculation rules apply retroactively to subsidies for future
production granted prior to the entry into force of the WTO Agreement
for the Member concerned (annex IV(7) SCMA).
(2) The subsidies cover operating losses sustained by an industry under any
circumstance.
(3) The subsidies at issue cover operating losses sustained by an enterprise
unless they were exceptional.33
These two types of subsidies guarantee recipients that, in all likelihood,
their activities in the relevant market with respect to the subsidized product
will be covered and provide them with incentives to take strategies that
they would not take otherwise or to take advantage of economies of scale
in production.
(4) The subsidies are in the form of direct forgiveness of debt, i.e., forgive-
ness of government-held debt, and grants to cover debt repayment.
19 The presumption could be rebutted and pursuant to art. 6.2 SCMA, it was
incumbent on the respondent to demonstrate that, while the subsidy at issue
33
The exception applied to “one-time measures which are non-recurrent and cannot be
repeated for that enterprise and which are given merely to provide time for the development
of long-term solutions and to avoid acute social problems”. Art. 6.1(c) SCMA.
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could have met any of the criteria of art. 6.1 SCMA, it did not result in
any of the adverse effects listed in art. 6.3 SCMA.
Furthermore, a complainant need not meet the art. 6.1 SCMA criteria in 20
order to prevail in a serious prejudice claim. In fact, to the extent that a com-
plainant could establish that a subsidy caused the adverse effects provided
in art. 6.3 SCMA, the art. 6.1 SCMA presumption becomes irrelevant.
An exception to this presumption was provided in art. 27.8 SCMA,34 accord- 21
ing to which, the presumption did not apply to a challenge of a subsidy
granted by a developing country. In that case, the complainant had to
demonstrate in accordance with art. 27.9 SCMA that the subsidy met the
criteria of art. 6.1 SCMA and the existence of any of the adverse effects
noted in art. 6.3 SCMA based on positive evidence in accordance with the
provisions of arts 6.3 to 6.8 SCMA.
As noted, even though the art. 6.1 SCMA presumption is no longer in effect, 22
art. 6.1 SCMA is still meaningful for the application of art. 27.9 SCMA.35
This provision excludes developing countries from the scope of serious
prejudice complaints relating to subsidies other than those contained in art.
6.1 SCMA. Therefore, if a serious prejudice complaint is brought against a
developing country, the threshold question is whether the challenged subsidy
qualifies as a subsidy described in art. 6.1 SCMA. If so, the challenge can
be pursued. If not, the challenge must be rejected and the subsidy can only
be challenged as a measure causing nullification or impairment or injury to
the domestic industry. It seems that the complainant bears the burden of
establishing that the subsidy meets the art. 6.1 SCMA criteria.
At present, in the absence of the art. 6.1 SCMA presumption, a complain- 23
ant must, in any case, establish that the subsidy at issue has the actual effect
of causing serious prejudice under any of the situations provided in art.
6.3 SCMA.
C. Non-Existence of Serious Prejudice (Art. 6.2 SCMA)
In the context of art. 6.1 SCMA, art. 6.2 SCMA provided a respondent with 24
the opportunity to rebut the art. 6.1 SCMA presumption by demonstrating
that none of the adverse effects in art. 6.3 SCMA existed.36
34
See Avgoustidi & Ballschmiede, Article 27 SCMA, para. 64.
35
On art. 27.9 SCMA, see ibid., para. 65.
36
As noted in US—Upland Cotton, “under Article 6.2, it was open to a subsidizing Member
to rebut the presumption of serious prejudice by showing that, despite its nature, in fact,
the subsidy did not actually cause any effect tantamount to serious prejudice. That is, that
the subsidy had not caused any of the effects enumerated in Article 6.3.” WT/DS267/R,
para. 7.1380.
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25 At present, in the absence of the art. 6.1 SCMA presumption, art. 6.2
SCMA merely confirms that a respondent may prevail in a challenge if it
successfully shows that none of the art. 6.3 SCMA situations prevail. Art.
6.2 SCMA impliedly clarifies the scope of art. 6.3 SCMA by stating what
a respondent needs to show to avoid a finding of serious prejudice.
26 It limits the options for raising a challenge to those listed in art. 6.3 SCMA.
Otherwise, a respondent may comply with art. 6.2 SCMA and nonetheless
still be required to defend itself from a challenge based on a situation other
than those listed in art. 6.3 SCMA. Consequently, it could also be argued
that because of art. 6.2 SCMA, art. 6.3 SCMA provides for an exhaustive
list of all situations in which serious prejudice may arise.37
D. Situations of Serious Prejudice (Arts 6.3 to 6.5 SCMA)
27 Art. 6.3 SCMA is the basic provision establishing the relevant criteria for
determining the existence of serious prejudice. Compared to art. 6.1 SCMA,
these criteria are effects-based regardless of the nature and characteristics
of the subsidies at issue.38 Art. 6.3 SCMA has two parts: the chapeau and
the four individual subparagraphs (arts 6.3(a) to (d) SCMA) establishing dif-
ferent situations of serious prejudice based on different market-performance
criteria and different relevant markets:
Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any
case where one or several of the following apply:
(a) the effect of the subsidy is to displace or impede the imports of a like
product of another Member into the market of the subsidizing Member;
(b) the effect of the subsidy is to displace or impede the exports of a like
product of another Member from a third country market;
(c) the effect of the subsidy is a significant price undercutting by the subsidized
product as compared with the price of a like product of another Member
37
It must be noted that in US—Upland Cotton, the panel suggested that “the term ‘may’
was, at least originally, intended to demonstrate that the list in Article 6.3 is illustrative and
not exhaustive. [ However, it also stated that] it is not necessary . . . to decide on whether or
not there may exist situations—other than those enumerated in Article 6.3—in which seri-
ous prejudice could be established.” Ibid., para. 7.1388.
38
The panel in US—Upland Cotton defined the scope of art. 6.3 SCMA as follows:
The qualitative and quantitative focus upon the types and characteristics of certain
subsidies in Article 6.1 contrasts with the effects-based focus of Article 6.3. For the
purposes of an Article 6.3 examination, there is thus no need to “deem” certain effects
to arise from subsidies of a certain nature, as there was in Article 6.1. Rather, Article
6.3 does not attempt to define any qualitative or quantitative aspects of the subsidy:
its effects-based focus embraces a subsidy of any nature that has the adverse effects
enumerated and is therefore “actionable”.
Ibid., para. 7.1383.
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in the same market or significant price suppression, price depression or lost

sales in the same market; [and]
(d) the effect of the subsidy is an increase in the world market share of the
subsidizing Member in a particular subsidized primary product or commodity
as compared to the average share it had during the previous period of three
years and this increase follows a consistent trend over a period when subsidies
have been granted. (Footnote omitted)
One issue that has arisen in case law is the question of the standing of the 28
complainant. Past experience in ordinary WTO dispute settlement proceed-
ings indicates that it is up to a complainant to self-determine whether it
considers itself affected by the measure at issue, and whether it wants to
bring a complaint.39 However, the panel in Indonesia—Autos stated that a
Member cannot bring a claim with respect to the serious prejudice suffered
by another Member as a result of subsidization. It based its position on art.
7.2 SCMA which requires that a Member requesting consultations must
state, inter alia, the serious prejudice that it is suffering from subsidization.
In the panel’s view, this clearly implies that serious prejudice complaints
may only be brought by the Member suffering the adverse effect.40 It fur-
ther confirmed this view by referring to art. 6.7 SCMA which allows a
subsidizing Member to raise a defence to a displacement/impedance claim
where “imports from the complaining Member” or “exports . . . from the
complaining Member” are affected by certain factors. Thus, art. 6.7 SCMA
assumes that products subject to a serious prejudice complaint based on
displacement or impedance must be imports or exports from the territory
of the complaining Member.41
The determination of the art. 6.3 SCMA adverse effects requires three sub- 29
determinations: (1) the existence of an actionable subsidy; (2) the existence
of an adverse effect as described in the art. 6.3 SCMA subparagraphs; and
(3) the existence of a causal link between the subsidy and the adverse effect.
The approach may resemble that of an ordinary trade remedy investiga-
tion. However, referring to a suggestion by the respondent to transpose the
methodologies and concepts applicable to countervailing duties investiga-
tions, the panel in US—Upland Cotton stated:
[W]hile they may provide contextual—and general conceptual—guidance, the
more precise quantitative concepts and methodologies found in Part V of the
SCM Agreement are not directly applicable in our examination of . . . actionable
subsidy claims under Part III of the SCM Agreement.42
39
WT/DS27/R, paras 7.49–7.50.
40
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, para. 14.202.
41
42
WT/DS267/R, para. 7.1167.
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Finally, the panel declined “to transpose directly the quantitative focus and
more detailed methodological obligations of Part V into the provisions of
Part III of the SCM Agreement”.43
30 With respect to the determination of the existence of an actionable subsidy,
the first step is the determination of the alleged subsidy. This determination
must be conducted in accordance with the definition of a subsidy under
art. 1.1 SCMA.44 Furthermore, in order for that subsidy to be subject to
the disciplines of part III SCMA on actionable subsidies, including art. 6
SCMA,45 it must be specific in accordance with art. 2 or art. 3 SCMA.46
The fact that a subsidy is prohibited does not preclude a challenge to that
subsidy as causing serious prejudice pursuant to arts 5(c) and 6 SCMA.47
31 Even though the subsidy at issue may have expired, the relevant issue
to be determined is whether its effects still linger. As the panel noted in
US—Upland Cotton, “[s]ubsidies granted under expired measures may have
had adverse effects at the time they were in effect, and may still have last-
ing adverse effects.”48
32 With respect to the determination of the adverse effects in arts 6.3(a) to (d)
SCMA, the underlying focus is on the effects of the subsidy on the relative
market performance of the complaining Member’s product49 and that of
the subsidized products.
33 The assessment cannot be done in the abstract and there are some general
parameters that must be defined prior to determining the existence of the
art. 6.3 SCMA adverse effects. The first is the definition of the relevant
market based on the definition of the products that are at issue and the
geographical location of the market where the effects take place.
43
44
See Adamantopoulos & Evtimov, Article 1 SCMA.
45
Pursuant to art. 1.2 SCMA, “[a] subsidy as defined in paragraph 1 shall be subject
to the provisions of . . . Part III . . . only if such a subsidy is specific in accordance with the
provisions of Article 2.”
46
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, para. 14.155; WT/
DS273/R, paras 7.512–7.514.
47
According to the panel in Korea—Commercial Vessels:
[T]he effect of Article 2.3 is not restricted to prohibited export subsidy claims. Rather,
we consider that Article 2.3 applies in respect of the entirety of the SCM Agreement.
Thus, a subsidy that is specific under Article 2.3 (as a result of export contingency)
is specific for the purpose of both Part II (prohibited export subsidy) and Part III
(actionable subsidy) claims.
WT/DS273/R, para. 7.51.
48
WT/DS267/R, para. 7.1201. In the same vein in Indonesia—Autos, the panel decided to
examine the “effects” of subsidies that had already expired. WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R, para. 14.206.
49
See supra para. 28.
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With respect to the definition of the market in terms of the relevant 34

products, all subparagraphs of art. 6.3 SCMA, except for situations of
price suppression, price depression, and lost sales in art. 6.3(c) SCMA,
explicitly identify a particular product scope.50 Thus, arts 6.3(a), (b), and
(c) (the last only with respect to price undercutting) SCMA require that
the complainant’s product must be “like” the subsidized product.51 On the
other hand, art. 6.3(d) SCMA requires that the effects of the subsidy relate
to the world market share of “a particular subsidized primary product or
commodity”. The applicable definition of like product is that contained in
footnote 46 SCMA which is to be used “[t]hroughout this Agreement”.52 “A
primary product or commodity” is defined in ad art. XVI sec. B(2) annex I
GATT 1994 as “any product of farm, forest or fishery, or any mineral, in
its natural form or which has undergone such processing as is customarily
required to prepare it for marketing in substantial volume in international
trade.”53 The determination of the like product in this context presupposes
the identification of the “subsidized product” in the first place, and one
panel has noted that “the logical reason to identify a product that is ‘like’
the ‘subsidized product’ would seem to be [so that a comparison can be
made between them].”54
With respect to the definition of the relevant market based on its location, 35
each subparagraph of art. 6.3 SCMA has a different market scope. The
ordinary meaning of the term “market”, which appears in all subparagraphs,
has been defined as
“a place . . . with a demand for a commodity or service”; “a geographical area
of demand for commodities or services”; “the area of economic activity in
which buyers and sellers come together and the forces of supply and demand
affect prices”. (Footnotes in the quotation within the quotation omitted)55
As the Appellate Body has stated: “This ordinary meaning does not, 36
of itself, impose any limitations on the ‘geographical area’ that makes
up any given market. . . . [T]he ‘degree to which a market is limited by
50
WT/DS273/R, para. 5.549.
51
Thus, in practice, the first step of the analysis in this context has been the determi-
nation of likeness. See WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, paras
14.163–14.193; WT/DS267/R, paras 7.1216–7.1223.
52
According to footnote 46 SCMA, “[t]hroughout this Agreement, the term ‘like product’
(‘produit similaire’) shall be interpreted to mean a product which is identical, i.e.[,] alike in
all respects to the product under consideration, or in the absence of such a product, another
product which, although not alike in all respects, has characteristics closely resembling those
of the product under consideration.”
53
See infra para. 74.
54
WT/DS273/R, paras 7.555–7.556.
55
WT/DS267/AB/R, para. 404; WT/DS267/R, para. 7.1236.
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geography will depend on the product itself and its ability to be traded
across distances’.”56
37 However, the term “market” is used in different geographical contexts in each
subparagraph. While arts 6.3(a) and (b) SCMA are confined to addressing
adverse effects occurring in particular domestic markets (the respondent’s
market and a third country market, respectively), the formulation of art.
6.3(c) SCMA is deliberately open (“in the same market”) and broad enough
to apply to any market in the world,57 and art. 6.3(d) SCMA applies only
to effects accruing in the world market.
38 The assessment of the effects must be done with respect to a concrete period
of time. A tacit criterion contained in art. 6.3 SCMA is that all relevant
situations cited in arts 6.3(a) to (d) SCMA are formulated in the present
tense (“the effect of the subsidy is . . .”).58 This would militate in favour of
using the most recent period for which data are available. With respect
to the appropriate representative period for each of the art. 6.3 SCMA
situations, the representative period for the assessment required under art.
6.3(d) SCMA shall be three years. With respect to art. 6.3(b) SCMA, some
guidance is provided for its assessment under art. 6.4 SCMA. According
to this provision, the relevant reference period for the art. 6.3(b) SCMA
determination shall be “an appropriately representative period sufficient to
demonstrate clear trends in the development of the market for the product
concerned, which in normal circumstances shall be at least one year.” With
respect to the representative period for the assessment of arts 6.3(a) and (c)
SCMA, the case law has established that two years and five months prior
to the establishment of the panel in one case59 and three years in another
were appropriate. In the latter case, it was considered that the three-year
period was relevant and not only the most recent year because:
56
57
“[T]he drafters did not intend to confine, a priori, the market examined under Article
6.3(c) to any particular area”. Ibid., para. 406; WT/DS267/R, paras 7.1247–7.1248.
58
In the context of trade remedies (e.g., safeguards and anti-dumping), panels and the
Appellate Body have given special significance to the use of the present tense in the substantive
provisions at issue in order to determine the appropriateness of the period of investigation
used by an investigating authority. Thus, in Argentina—Footwear (EC), the Appellate Body
stated that because the phrase “is being imported” in both art. 2.1 SA and art. XIX:1(a)
GATT 1994 is in the present tense, an assessment of increased imports had to relate to
recent imports, and accordingly, the appropriate period of investigation should be recent.
WT/DS121/AB/R, para. 129. With respect to anti-dumping, the Appellate Body has also
stated that since the purpose of anti-dumping measures is to counter an injury that “is”
causing injury to the domestic industry, the period of investigation chosen by the investigat-
ing authorities should be as recent as possible. Appellate Body Report, Mexico—Anti-Dumping
Measures on Rice, WT/DS295/AB/R, para. 165.
59
The panel was established on 12 June 1997 and data were provided for the period
1995, 1996, and January–May or January–August 1997. WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R, paras 14.212 passim.
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Consideration of developments over a period longer than one year, while

not necessarily required (at least in Articles 5(c) and 6.3(c)) provides a more
robust basis for serious prejudice evaluation than merely paying attention to
developments in a single recent year.60
Given the different situations to which each of the art. 6.3 SCMA sub- 39
paragraphs applies, a complaint based on various serious prejudice grounds
requires the conduct of separate serious prejudice assessments.
Once the existence of any of the art. 6.3 SCMA situations is verified, a 40
question that arises is whether that finding in itself is determinative of seri-
ous prejudice or whether a further analysis is required. The question arose
in case law because the chapeau of art. 6.3 SCMA indicates that serious
prejudice “may arise” should any of the art. 6.3 SCMA situations exist.
The phrase “may arise” implies that under certain circumstances serious
prejudice “may not arise” despite a positive finding under any art. 6.3 SCMA
subparagraph. Panels have acknowledged that the term “may” allows that
possibility. However, they have also noted that art. 6 SCMA imposes no
additional substantive requirements for a determination of serious prejudice,
and therefore, a positive finding on any of the art. 6.3 SCMA situations is
determinative of the existence of serious prejudice.61 This determinative
nature of a positive finding must be construed as allowing one exception:
when an exclusion of serious prejudice pursuant to art. 6.7 SCMA is found.
In that case, while a panel may find that the conditions of arts 6.3(a) and
(b) are met, it nevertheless cannot conclude that serious prejudice arises
because of the existence of any of the art. 6.7 SCMA circumstances.
I. Displacement or Impeding of Imports in the Subsidizing Member

(Art. 6.3(a), Footnotes 14 to 16, and Annex IV SCMA)
Art. 6.3(a) SCMA provides: “the effect of the subsidy is to displace or 41
impede the imports of a like product of another Member into the market
of the subsidizing Member”.
The terms “to displace or impede” have already been construed in WTO 42
cases. According to the panel in Indonesia—Autos, “displacement relates to
a situation where sales volume has declined, while impedance relates to a
situation where sales which otherwise would have occurred were impeded.”62
In context, these terms must reflect the same notions as those of “to dis-
place or impede” in art. 6.3(b) SCMA. One may be inclined to assimilate
these notions to the notion of decline in market share. However, the fact
that art. 6.3(d) SCMA expressly regulates a situation in which the relevant
60
WT/DS267/R, para. 7.1199.
61
See, e.g., ibid., paras 7.1368–7.1390.
62
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criterion is changes in market share (“world market share”) suggests that

the displacement or impeding of relevant transactions must be different
from variations in the relative market share.
43 Unlike art. 6.3(b) SCMA and art. 6.4 SCMA, art. 6.3(a) SCMA does not
have a provision that elaborates on the requirements to be met for a dem-
onstration of the existence of displacement or impedance in the market of
the subsidizing Member. On the contrary, a panel has submitted that the
type of art. 6.4 SCMA analysis is not appropriate in the case of an art.
6.3(a) SCMA claim.63
44 The assessment that must be carried out includes an assessment of the rela-
tive market shares between the subsidized product and the like imported
product and an assessment of whether sales of the imported product would
not have declined or would have been even greater but for the effects of
the subsidy.64 While the market share assessment appears to be rather
straightforward, the demonstration that sales may have been greater but
for the effects of the subsidy requires the demonstration of the causal link
between the subsidy and the displacement or impedance of entry into the
import market. A demonstration of this nature may require the assistance
of more elaborated tools, such as econometric modelling.65
45 Furthermore, given that the “but for” analysis is based on counterfactual
assumptions, those assumptions must be based on positive evidence and
not merely on speculation.66
46 With respect to “impeding”, art. 6.3(a) SCMA also regulates situations in
which the complainant’s product has not yet been introduced into the mar-
ket of the subsidizing Member. However, the effect of the subsidy may be
precisely to prevent the introduction of those products. In this context, it
is important to assess (1) whether there were concrete plans to import the
complainant’s product and (2) whether that product was not finally intro-
duced because of the effects of the subsidy on the subsidized product.67
63
Ibid., paras 14.209–14.210.
64
Ibid.
65
With respect to an allegation of serious prejudice under art. 6.3(c) SCMA, the panel
in US—Upland Cotton did not disregard the econometric modelling results that the complain-
ant submitted and stated that it had “attributed to them the evidentiary weight [it] deemed
appropriate.” WT/DS267/R, para. 7.1209.
66
67
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II. Displacement or Impeding of Imports in Another Market

(Arts 6.3(b) and 6.4 SCMA)
Art. 6.3(b) SCMA provides that “the effect of the subsidy is to displace or 47
impede the exports of a like product of another Member into the market
of the subsidizing Member”.
In turn, art. 6.4 SCMA provides: 48
For the purpose of paragraph 3(b), the displacement or impeding of exports
shall include any case in which, subject to the provisions of paragraph 7, it
has been demonstrated that there has been a change in relative shares of
the market to the disadvantage of the non-subsidized like product (over an
appropriately representative period sufficient to demonstrate clear trends in
the development of the market for the product concerned, which, in normal
circumstances, shall be at least one year). “Change in relative shares of the
market” shall include any of the following situations: (a) there is an increase
in the market share of the subsidized product; (b) the market share of the
subsidized product remains constant in circumstances in which, in the absence
of the subsidy, it would have declined; (c) the market share of the subsidized
product declines, but at a slower rate than would have been the case in the
absence of the subsidy.
As noted above, the phrase “to displace or impede” has already been 49
construed in the sense that “displacement relates to a situation where sales
volume has declined, while impedance relates to a situation where sales
which otherwise would have occurred were impeded.”68
However, art. 6.4 SCMA supplements the meaning of displacement or 50
impediment by including any case in which it has been demonstrated that
there has been a change in relative shares of the market to the disadvantage
of the non-subsidized like product. In turn, “change in relative shares of
the market” is defined as including: (1) “an increase in the market share
of the subsidized product”; (2) that “the market share of the subsidized
product remains constant in circumstances in which, in the absence of
the subsidy, it would have declined”; or (3) that “the market share of the
subsidized product declines, but at a slower rate than would have been the
case in the absence of the subsidy.”
In practice, the demonstration of this type of displacement or impeding 51
has been regarded as simpler than that required under art. 6.3(a) SCMA.
In effect, the panel in Indonesia—Autos suggested that pursuant to art. 6.4
SCMA, the demonstration of displacement or impedance may simply consist
68
See supra para. 42 citing WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R,
para. 14.218.
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of “demonstrating that the [relative] market share of a subsidized product

has increased over an appropriately representative period.”69
52 Relative market share must be construed as referring to the market share
of the subsidized product vis-à-vis the complainant’s. The relative change
must be assessed over the appropriate representative period which, as noted
above,70 should be as recent as possible.
53 This appropriate representative period must be sufficient to demonstrate
clear trends in the development of the market for the product concerned.
This requirement imposes on a panel the obligation to conduct a thorough
assessment of trends throughout the representative period rather than just
comparing the end points of that representative period.71 As the Appellate
Body noted, the requirement “suggests that the effect of a subsidy under
Article 6.4 must be examined over a sufficiently long period of time and is
not limited to the year in which it was paid.”72
III. Significant Price Undercutting or Significant Price

Suppression, Depression, or Lost Sales in the Same Market
(Arts 6.3(c) and 6.5 SCMA)
54 Art. 6.3(c) SCMA provides:
[T]he effect of the subsidy is a significant price undercutting by the subsidized
product as compared with the price of a like product of another Member
in the same market or significant price suppression, price depression or lost
sales in the same market.
55 Art. 6.3(c) SCMA contemplates four different situations. The first is signifi-
cant price undercutting by the subsidized product as compared to the price
of a like product of another Member in the same market. The second, third,
and fourth are significant price suppression, price depression, and lost sales
in the same market, respectively. The only situation that is further elaborated
in another provision is significant price undercutting (art. 6.5 SCMA).
56 Art. 6.3(c) SCMA focuses on competitive situations that arise “in the same
market”. As noted above, the notion of “market” is not circumscribed to any
particular geographical area.73 Therefore, with respect to the “same market”,
69
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, para. 14.209. In para.
14.215, the panel also stated: “If Article 6.4 of the SCM Agreement applied in this dispute,
this showing of a change in relative market shares to the disadvantage of the non-subsidized
like product might well have been sufficient to establish the European Communities’ prima
facie case of displacement or impedance.”
70
See supra para. 38.
71
In the context of safeguards, the Appellate Body was categorical in requiring this
thorough assessment. WT/DS121/AB/R, para. 129.
72
73
See supra para. 36.
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to the extent that two products “were engaged in actual or potential com-
petition in [a particular] market”, it could be submitted that those products
are “in the same market” even if they are not necessarily sold at the same
time and in the same place or country.74 Thus, the notion of “in the same
market” may refer to a domestic, regional, or the world market.75
Furthermore, all situations are qualified by the term “significant” (significant 57
price undercutting, significant price suppression, significant price depres-
sion, or significant lost sales). In the context of one of these instances,
the meaning of the term “significant” has been considered by a panel as
“relatively straightforward, in the sense that something that is ‘significant’
is important or consequential”.76
1. Significant Price Undercutting

With respect to significant price undercutting, art. 6.3(c) SCMA implies a 58
comparison between the price of the subsidized product and that of the
like product of the complainant in the same market. The requirement of
comparison is confirmed by art. 6.5 SCMA, which states:
For the purpose of paragraph 3(c), price undercutting shall include any case
in which such price undercutting has been demonstrated through a compari-
son of prices of the subsidized product with prices of a non-subsidized like
product supplied to the same market. The comparison shall be made at the
same level of trade and at comparable times, due account being taken of any
other factor affecting price comparability. However, if such a direct comparison
is not possible, the existence of price undercutting may be demonstrated on
the basis of export unit values.
Neither art. 6.3(c) nor art. 6.5 SCMA imposes a particular methodology for 59
the comparison. However, there are three criteria under art. 6.5 SCMA that
must be taken into consideration. The first is that the comparison must be
made “at the same level of trade”. “The same level of trade” is not expressly
defined, and those levels of trade may be determined in accordance with
the standard trade definitions most commonly used in international sales
contracts or the “incoterms”. Among the best known incoterms are EXW
(Ex works), FOB (Free on Board), CIF (Cost, Insurance and Freight), DDU
(Delivered Duty Unpaid), and CPT (Carriage Paid To).77 The second is that
the comparison must be made “at comparable times”. This requirement
must take into account that price undercutting should take place over the
appropriate representative period. The third is that the comparison must
74
75
Ibid.
76
WT/DS273/R, para. 7.570.
77
For more information about incoterms, see http://www.iccwbo.org/incoterms/id3045/
index.html (accessed 3 July 2007).
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take account of any other factor affecting price comparability. This may
include physical differences between the products concerned.78
60 The comparison must result in a margin of undercutting. However, the mere
existence of a positive margin of undercutting is not sufficient to determine
a situation of serious prejudice. As mandated by art. 6.3(c) SCMA, the price
undercutting must be “significant”.
61 As noted, the notion of “significant” price undercutting must be con-
strued as “important” or “consequential”.79 It must also be understood as
“intended to ensure that margins of undercutting so small that they could
not meaningfully affect suppliers of the imported product whose price was
being undercut are not considered to give rise to serious prejudice.”80 The
term “significant” has been understood as “a de minimis concept intended
to screen out very small, unimportant price effects that might be caused by
subsidies but that would have no real impact in the market.”81
2. Significant Price Suppression, Price Depression, or Lost

Sales in the Market
62 Although related or even overlapping in certain instances, the concepts of
“price suppression” and “price depression” are distinct.82 The same may
be noted with respect to “lost sales”. The ordinary meaning of “price sup-
pression” refers to a situation where prices have not increased when (or
have increased less than) they otherwise would have; whereas the ordinary
meaning of “price depression” refers to a situation where prices decline
when they should have remained stable or increased.83 In the words of the
panel in US—Upland Cotton, as upheld by the Appellate Body,
“price suppression” refers to the situation where “prices”—in terms of the
“amount of money set for sale of [the product concerned]” or the “value or
worth” of [that product]—either are prevented or inhibited from rising (i.e.
they do not increase when they otherwise would have) or they do actually
increase, but the increase is less than it otherwise would have been. Price
depression refers to the situation where “prices” are pressed down, or reduced.
(Footnote omitted)84
63 Another panel found that these terms imply an assessment of trends (i.e.,
that prices have not increased as expected or had an unexpected decline)
78
See, e.g., WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, paras 14.244–
14.253.
79
See supra para. 57.
80
WT/DS273/R, para. 14.254.
81
Ibid., para. 7.571.
82
83
WT/DS273/R, para. 7.533.
84
WT/DS267/R, para. 7.1277, quoted in WT/DS267/AB/R, para. 423.
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and a causation analysis, in that such contention (suppression) or decline

(depression) would not have occurred but for the subsidy:
[A]s a threshold issue the existence of lower than expected price increases, or
of price reductions, would have to be established as a matter of fact, as one
necessary condition for proving a claim of serious prejudice based on price
suppression or price depression caused by subsidies. . . . [H]owever, . . . trends
in prices would not themselves constitute price suppression or price depres-
sion: . . . we view these terms as implicitly including a certain built-in concept
of causation.85
The panel further elaborated that:
[T]he existence of a flat or declining price trend, on its own, would not
be a sufficient basis on which to conclude that prices were “suppressed” or
“depressed”. For such a conclusion to be reached, the causes of these observed
trends would need to be examined. In other words, price depression is not
simply a decline in prices but a situation where prices have been “pushed
down” by something. Price suppression is where prices have been restrained
by something. In other words, for a finding of “price suppression” or “price
depression” in the sense of SCM Article 6.3(c), there must not only be a flat-
tened or downward price trend as a prerequisite, but in addition this trend
must be the result of an exogenous factor, namely the subsidy or subsidies in
question. Thus, the analysis that seems to be called for by the Agreement (by
virtue of the concepts of price suppression and price depression themselves),
concerns what the price movements for the relevant ships would have been
in the absence of (i.e., “but for”) the subsidies at issue.86
On the other hand, the term “lost” is defined as “1. ruined, destroyed. 2. 64
not to be found; missing. 3. no longer held or possessed; parted with. 4.
no longer seen, heard, or known; . . . 5. not gained or won; attended with
defeat . . .”, and “lost sales” may be construed as referring to a situation
where sales are not taken advantage of when otherwise they would have
been expected to be made.87 It also appears that lost sales would contain the
built-in notion of causation and would require an assessment of whether (1)
the sales were lower than expected and (2) the lost sales could be attributed
to the subsidy.
Price suppression, price depression, and lost sales occur in a particular 65
market. In the context of this provision, this market must be the “same”,
and this notion has been defined by reference to the question of whether
the products concerned compete in that particular market.88 The provision
is silent as to whether the products concerned should be like, and a panel
has even stated that “like product” is not a legal requirement for a claim
85
WT/DS273/R, para. 7.534.
86
Ibid., para. 7.538.
87
Webster New Universal Unabridged Dictionary (1983), 1069.
88
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522 article 6 scma
of price suppression and price depression pursuant to art. 6.3(c) SCMA.89

However, this omission cannot attenuate the fact that the phrase “‘in the
same market’ suggests that the subsidized product in question . . . and the
relevant product of the complaining Member must be ‘in the same mar-
ket’”,90 and the Appellate Body has explicitly refrained from ruling on
“whether, in a claim of significant price suppression under Article 6.3(c),
the product identified by the complainant must be ‘like’ the relevant sub-
sidized product.”91
66 While the identification of the “same market” presupposes the identifica-
tion of the products concerned as competitors in a particular market,92 it
appears that the type of analysis for price suppression and price depres-
sion may not necessarily be a strict comparison between the prices of the
products concerned. In US—Upland Cotton, the Appellate Body accepted
that the relevant price for the assessment of suppression was that of the
defined “same market”, including the price of the complainant’s product.93
This issue was taken further in Korea—Commercial Vessels where the panel,
considering the absence of “like product” with respect to price suppression
and price depression, rejected the notion that the required analysis was an
individual price comparison between the products concerned:
[A] main focus of the analysis would be levels and trends in the price for
the product in question, as a whole, in the relevant market (i.e., “the same
market”), as a whole, and the various reasons behind them. . . . [T]his implies
that we are not required to base our assessment of the . . . claim of price
suppression/price depression on a product-by-product comparison of price
levels and trends for identified subsidized . . . products and corresponding like
products of [the complainant].94
67 In this regard, it would appear that the relevant assessment must be con-
ducted by reference to the prices or sales, as a whole, pertaining to the
market defined as “the same”.95
68 In determining the existence of price suppression or price depression,
the main considerations appear to be (1) the capacity of the subsidizing
Member—in terms of its volumes of production and/or export—to influ-
ence the evolution of the price in the market defined as “the same”; (2)
89
WT/DS273/R, paras 7.545–7.553.
90
91
Ibid., n. 453.
92
It must be noted that in Korea—Commercial Vessels, the panel stated that: “Given our
view that product is an inherent element of price, we do not find it necessary to read the
term ‘the same market’ in the context of price suppression/price depression as combining
both a geographic and a product element”. WT/DS273/R, n. 294.
93
94
WT/DS273/R, para. 7.557.
95
WT/DS267/R, paras 7.1265–7.1274, aff ’d, WT/DS267/AB/R, paras 416–417;
WT/DS273/R, paras 7.683, 7.688, 7.693.
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pricing trends over the appropriately representative period; and (3) the
features of the subsidies at issue in order to determine whether they may
have price suppressive or depressive effects.96 It is unclear whether this
price-based assessment would also apply to lost sales.
The term “significant” qualifies price suppression, price depression, and lost 69
sales. Given its meaning as “important” or “consequential”,97 the level of the
price depression, price suppression, or lost sales will be determinative for a
finding in this regard. As noted by the panel in Korea—Commercial Vessels, “a
price suppression or price depression that is unimportant, or inconsequential
would not be ‘significant’ in the sense of Article 6.3(c)”.98
Finally, in order to determine the causal link between the subsidy and the 70
significant price suppression, price depression, or lost sales, the assessment
to be conducted consists of two questions: (1) whether the situations at issue
are the effect of the subsidy and (2) whether there may be other possible
causal factors that may attenuate the causal link between the subsidy and
the significant price suppression, price depression, or lost sales (non-attribu-
tion analysis).99
With respect to the determination of whether significant price suppres- 71
sion, price depression, or lost sales is the effect of the subsidy, a counter-
factual analysis of what would have been the prices but for the subsidy is
required.100
As far as the non-attribution analysis is concerned, while there are no 72
provisions similar to those set out for trade remedy disputes,101 the main
consideration to bear in mind as developed by the case law102 is whether
any other factor may (1) attenuate the fact that the subsidy is the cause
of the price suppression, price depression, or lost sales or (2) while not
attenuating the causal link between the subsidy and the adverse situation,
render insignificant any price suppression, price depression, or lost sale. It
appears that the latter consideration would imply in turn (1) a separation of
the price suppression, price depression, or lost sales caused by the subsidy
from that caused by the other factor(s) and (2) an assessment of whether
that qualified price suppression, price depression, or lost sales still meets
the threshold of “significant”.
96
WT/DS267/R, para. 7.1280.
97
See supra para. 57.
98
99
WT/DS267/R, paras 7.1343–7.1346.
100
WT/DS273/R, paras 7.612–7.614.
101
WT/DS267/R, paras 7.1343–7.1346.
102
WT/DS273/R, paras 7.617–7.618.
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IV. Increase in World Market Share (Art. 6.3(d) and

Footnote 17 SCMA)
73 Art. 6.3(d) SCMA provides:
[T]he effect of the subsidy is an increase in the world market share of the
subsidizing Member in a particular subsidized primary product or commod-
ity17 as compared to the average share it had during the previous period of
three years and this increase follows a consistent trend over a period when
subsidies have been granted.
17
Unless other multilaterally agreed specific rules apply to the trade in the
product or commodity in question.
74 While all other art. 6.3 SCMA situations may concern any type of prod-
uct, art. 6.3(d) SCMA is limited to a situation concerning “a particular
subsidized primary product or commodity”. The definition of a primary
product or commodity is provided in ad art. XVI sec. B(2) annex I GATT
1994. According to this provision, “a ‘primary product’ is understood to be
any product of farm, forest or fishery, or any mineral, in its natural form or
which has undergone such processing as is customarily required to prepare
it for marketing in substantial volume in international trade.”
75 Footnote 17 SCMA is a provision that excludes from the application of
art. 6.3(d) SCMA a primary product or commodity on which there are
multilaterally agreed rules that provide otherwise.
76 The term “world market share” has been construed as “the share of the
world market supplied by the subsidizing Member” comprising world con-
sumption.103 The assessment of the increase in world market share must
be a comparison of the current situation with the situation prevailing in
the previous three years.
77 However, this comparison based on a “snapshot” must be combined with
an assessment of a “consistent” trend in the increase of world market share
over the period when the subsidies were granted. The use of the qualifier
“consistent” implies that the trend in increase must be regular. This assess-
ment appears to imply a simple temporal correlation between the subsidy
and the increase in world market share. However, because of the require-
ment that the increase must be the effect of the subsidy, a counterfactual
analysis and not a mere temporal correlation seems to be required.
103
WT/DS267/R, para. 7.1464.
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E. Gathering of Information (Art. 6.6 SCMA)
Art. 6.6 SCMA provides: 78

Each Member in the market of which serious prejudice is alleged to have arisen
shall, subject to the provisions of paragraph 3 of Annex V, make available to
the parties to a dispute arising under Article 7, and to the panel established
pursuant to paragraph 4 of Article 7, all relevant information that can be
obtained as to the changes in market shares of the parties to the dispute as
well as concerning prices of the products involved.
Art. 6.6 SCMA is a procedural obligation imposing on Members, even 79
those that are not involved in the dispute, an obligation to cooperate with
the panel’s fact-gathering activities to the extent that the alleged serious
prejudice occurs within their territories. This provision must be construed
as a complement to a panel’s right to seek information under art. 13 DSU.
The information that a panel may obtain through these means will ulti-
mately assist the panel in discharging its duty under art. 11 DSU to “make
an objective assessment of the matter before it, including an objective
assessment of the facts of the case.” However, the Members’ obligation
to cooperate with the panel in the panel’s seeking of information cannot
be construed as a provision absolving a complainant from its burden to
submit the evidence required to substantiate its allegations under any of
the subparagraphs of art. 6.3 SCMA.
The scope of the provision varies depending on the subparagraph that is at 80
issue. For an art. 6.3(a) SCMA claim, this obligation operates with respect
to the respondent, i.e., the subsidizing Member. For an art. 6.3(b) SCMA
claim, the obligation operates with respect to the third country in which
the displacement or impeding occurs. If these effects occur in the terri-
tory of various Members, the obligation operates with respect to all these
various Members. For an art. 6.3(c) SCMA claim, the obligation operates
with respect to the Member(s) where the “same market” is located. For an
art. 6.3(d) SCMA claim, the obligation would operate vis-à-vis all WTO
Members that, in the panel’s view, can provide relevant information on the
world market of the primary product or commodity at issue.
The purpose of the obligation is to make available information on market 81
shares and prices. It does not refer to sales data which are relevant for an
allegation of the displacement or impeding of imports in the subsidizing
Member under art. 6.3(a) SCMA.
This obligation is not unqualified and must be read in conjunction with 82
annex V(3) SCMA on Procedures for Developing Information concerning
Serious Prejudice. In the light of this provision, the obligation to make
available information must be construed with respect to the supply of
information
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526 article 6 scma
which is already available or can be readily obtained by this Member (e.g.

most recent statistics which have already been gathered by relevant statistical
services but which have not yet been published, customs data concerning
imports and declared values of the products concerned, etc.).
No unreasonable burden shall be imposed on this Member, and it will not be
expected to make a market or price analysis especially for that purpose.
83 Pursuant to annex V(5) SCMA, the information requested should be sub-
mitted within 60 days of the date on which the matter is referred to the
DSB under art. 7.4 SCMA.104
84 Pursuant to annex V(6) SCMA, failure to cooperate allows the panel to
base its findings on the best information available or in accordance with
annex V(7) SCMA, to draw adverse inferences in consultations with the
representative of the DSB assigned to facilitate the information-gathering
process pursuant to annex V(4) SCMA.105
F. Exclusion of Serious Prejudice in Case of Displacement or

Impediment in the Subsidizing Member or a Third Country
(Art. 6.7 and Footnote 18 SCMA)
85 Art. 6.7 SCMA regulates situations when the subsidy and other factors are
concurrent in the production of displacement or impedance of imports in
the market of the subsidizing Member or a third country:
[T]he situations listed in Article 6.7 as rebutting a finding of displacement or
impedance all are concerned with alternative reasons (including, for example,
prohibition or restriction on exports, and situations of force majeure affecting
production, qualities, quantities or prices of the product available for export)
for declines in the overall volume and/or market share of the complaining
Member in respect of the product at issue, that is, changes in trade flows.106
86 As noted above,107 serious prejudice with respect to displacement or imped-
ing of the complainant’s exports may arise when the relevant criteria in
art. 6.3(a) or (b) SCMA are met. However, if the panel also verifies the
existence of any of the factors listed under art. 6.7 SCMA, it cannot make
a finding of serious prejudice.
87 It appears that art. 6.7 SCMA assumes that the mere existence of those
situations affects the capacity of the complainant’s product to compete
effectively in the market of the subsidizing Member or the third country
104
See Rios Herran & Poretti, Article 7 SCMA.
105
See ibid.
106
WT/DS273/R, para. 7.586.
107
See supra para. 40.
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market and that those circumstances would be the very cause of the con-
sequential displacement or impedance.
In effect, this alleged assumption is consistent with the fact that art. 6.7 88
SCMA does not require the demonstration of a causal link between the
different factors in arts 6.7(a) to (f ) SCMA and the displacement or impeding
of the complainant’s product. As compared to the non-attribution analysis
required in the assessment of arts 6.3(a) to (d) SCMA, art. 6.7 SCMA only
requires a correlation in time “during the relevant period”. It appears that
the mere coexistence of an art. 6.7 SCMA factor and the relevant art.
6.3 SCMA situation excludes serious injury altogether regardless of the
impact of the art. 6.7 SCMA factor on the serious prejudice. However, as
footnote 18 SCMA notes, the art. 6.7 SCMA factors must not be isolated,
sporadic, or otherwise insignificant. It is unclear whether this rule would
exclude a finding of serious prejudice in its entirety when only part of the
displacement or impeding can be attributed to an art. 6.7 SCMA factor
(e.g., a decision by an import trading company that is not based on com-
mercial considerations and affects part of the displacement or impeding of
the complainant’s exports).
Art. 6.7 SCMA does not seem to apply to the situations of arts 6.3(c) and 89
(d) SCMA and therefore, would not provide a defence against a claim under
any of these provisions. A respondent may nevertheless find it useful to
consider in the context of the non-attribution analysis required under arts.
6.3(c) and (d) SCMA whether any of the art. 6.7 SCMA factors may be
causing the effect that is otherwise attributed to the subsidy.
Footnote 18 SCMA makes the proviso that the fact that certain circum- 90
stances are mentioned in art. 6.7 SCMA does not confer any particular
legal status to those circumstances in terms of their consistency with the
SCMA or GATT 1994. It is clear that there are situations that may be
inconsistent, inter alia, with arts XI:1 and XVII GATT 1994. However,
the fact that they may be relied upon by panels to reject serious prejudice
complaints cannot be construed as a tacit approval of their legal status. On
the other hand, while a panel may make a factual finding on the existence
of this type of situations, it should be cautious in making a finding that
may be construed as determining the WTO inconsistency of this type of
situations.
None of the art. 6.7 SCMA situations for the exclusion of serious prejudice 91
has ever been discussed in WTO jurisprudence. However, it appears that
if this provision were invoked by a respondent, it would be as a means of
defence. Therefore, the burden of proving any of the art. 6.7 SCMA situa-
tions would, in principle, rest on the respondent, and it may vary depending
on the situation invoked (e.g., it may be easier to prove the occurrence of
a strike or other force majeure than an export restraint agreement among
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528 article 6 scma
exporters). There is no provision analogous to art. 6.6 SCMA for the gath-
ering of information concerning these situations.
I. Prohibition or Restriction on Exports from the

Complaining Member or on Imports from the Complaining
Member into a Third Country Market (Art. 6.7(a) SCMA)
92 Art. 6.7(a) SCMA provides that serious prejudice cannot arise when, not-
withstanding the displacement or impediment of imports in the respondent’s
market (art. 6.3(a) SCMA) or in a third country market (art. 6.3(b) SCMA),
there are measures taken by the complainant itself in the form of a prohibi-
tion or restriction on its own exports or measures taken by a third country
in the form of a prohibition or restriction on imports including those of
the complainant.
93 This provision refers to certain actions of the complainant (prohibition or
restrictions on exports) or by a third country (prohibition or restrictions on
imports) that are likely to have a bearing on the occurrence of the arts 6.3(a)
and (b) SCMA situations. As noted, no causal link is required. However,
the underlying assumption is to avoid the attribution of the displacement
or impeding to the subsidy when the actual cause(s) may be others.
1. Prohibition or Restriction on Exports by Governmental

Action
94 A distinction must be drawn between prohibitions or restrictions on exports
imposed by governmental action which are addressed by the provision at
issue and those resulting from unilateral action taken by the private sector
which are addressed by arts 6.7(d) and (e) SCMA or by the private sector
and the government together which are addressed by art. 6.7(d) SCMA.
95 The rationale of this provision is that this type of measure, by definition,
limits the presence of the complainant’s product in the relevant export
market and is therefore the real cause of the displacement or impeding at
issue. Furthermore, a complainant cannot legally avail itself of a prejudice
that is caused in part by its own actions. In this regard, this provision may
resemble the principle of estoppel according to which, “a party is prevented
by his own acts from claiming a right to the detriment of other party who
was entitled to rely on such conduct and has acted accordingly.”108
96 If the export prohibition or restriction rests in the law, the evidentiary
burden that a respondent needs to meet is not as high as that which would
accrue if the export prohibition or restriction were de facto or consisted of
a practice. However, given that art. XI:1 GATT 1994 bans prohibitions or
108
Black’s Law Dictionary (1990), 551.
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restrictions on exports, it is unlikely that evidence of this type of measures

may be found in the law.
2. Prohibition or Restriction on Imports

These are also measures that are imposed by governmental action. There- 97
fore, except for decisions taken by an importing government operating a
monopoly of trade or state trading companies which are regulated under
art. 6.7(b) SCMA, private decisions not to buy the complainant’s product
(e.g., changes in consumers’ preferences) are not contemplated as situations
covered by art. 6.7(a) SCMA.
The rationale of this provision is that the displacement or the impeding of 98
exports in a third country cannot be attributed to the effects of the subsidy
when the actual cause is the action of that third country. With respect to
this type of action, there may be other legal means available under WTO
law.
As far as evidentiary requirements are concerned, the same considerations 99
that apply to export prohibitions or restrictions also apply in this respect.109
However, given that art. XI:1 GATT 1994 bans prohibitions or restric-
tions on imports, it might also be difficult to find evidence of this type of
measure in the law.
II. Decision by an Importing Government Operating

a Monopoly of Trade or State Trading Not Based on
Commercial Reasons (Art. 6.7(b) SCMA)
Art. 6.7(b) SCMA excludes from the finding of serious prejudice the dis- 100
placement or impeding of exports of the complainant’s product in a third
country when the displacement or impeding results from procurement
decisions taken by a state trading company or a government operating
an import monopoly, and these decisions are not based on commercial
considerations. There is no definition of commercial reasons in art. 6.7(b)
SCMA. However, contextual guidance may be found in art. XVII:1(b)
GATT 1994 which imposes non-discrimination obligations on the opera-
tion of state trading enterprises when conducting trade. According to art.
XVII:1(b) GATT 1994, “commercial considerations” include price, quality,
availability, marketability, transportation, and other conditions of purchase
or sale. “Non-commercial reasons” must be understood as any type of
consideration that is unrelated to the features of the good or the transac-
tion in general, such as political considerations.
109
See supra para. 96.
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101 If a government procurement process is based on commercial reasons,

the price of the product to be purchased is one of the most important
considerations in the decision to purchase. Therefore, if displacement or
impeding of exports results from commercially-based decisions, it is likely
that the subsidy that affected the price of the subsidized product may
have had a bearing on the decision to acquire the subsidized good at the
expense of the complainant’s product. If, on the contrary, such a decision
is not commercially-driven, it is likely that the price of imports (where the
subsidy plays a role) may not have had an impact on the displacement or
impeding of the complainant’s product.
102 As far as evidence is concerned, the burden of proving that the purchase
decision was not commercially-driven rests on the respondent. Given that
art. XVII:1(b) GATT 1994 requires that state enterprises make any pur-
chases solely in accordance with commercial considerations, it is unlikely
that documentary evidence of non-commercially-based decisions may be
found.
III. Force Majeure Events (Art. 6.7(c) SCMA)

103 Art. 6.7(c) SCMA contemplates the exclusion of serious prejudice when
the production, quality, quantity, or price of the complainant’s product is
substantially affected by an event of force majeure, such as natural disas-
ters, strikes, transport disruptions, or other force majeure, and this situation
occurs when the displacement or impeding of the complainant’s product
is taking place.
104 The provision establishes a non-exhaustive list of force majeure circum-
stances to the extent that they affect the production and export capacity
of the complainant. The meaning of force majeure is “[a]n event or effect
that can be neither anticipated nor controlled [including] acts of nature (e.g.
floods and hurricanes) and acts of people (e.g. riots, strikes, and wars).”110
Another feature of force majeure is that its occurrence does not depend
on any action of the parties involved.
105 In addition to the demonstration of a force majeure event, art. 6.7(c) SCMA
contains a requirement that such an event must affect production, qualities,
quantities, or prices of the complainant’s product available for export. In
a way, art. 6.7(c) SCMA contains a built-in requirement of causation in
that production, qualities, quantities, or prices must have been affected by
the force majeure.
110
Black’s Law Dictionary, 657.
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The rationale of this provision is that there may be situations which are out 106
of the control of the parties which affect the ability of the complainant’s
product to compete in a particular market. These conditions may be the
actual cause of displacement or impeding in those markets instead of the
effects of the subsidy.
This provision must be distinguished from situations where deliberate 107
actions of the exporter(s) may determine the displacement or impeding of
the complainant’s product (art. 6.7(e) SCMA). Increases in costs and prices
due to the exporters’ inefficiencies would, in principle, fall outside this cat-
egory as they are unlikely to qualify as force majeure events. Nonetheless,
a respondent may consider it appropriate to raise these issues under the
causation analysis of the relevant subparagraph of art. 6.3 SCMA.
This is a circumstance affecting volumes and prices in the market of the 108
subsidizing Member or any third market. However, it is unclear why this
factor is considered to be relevant only with respect to the displacement or
impeding of imports under arts 6.3(a) and (b) SCMA and not with respect
to significant price undercutting by the subsidized product, significant price
suppression, or significant price depression. In any event, with respect to
the price-related art. 6.3(c) SCMA situations, events of force majeure could
be addressed under the assessment of causation.
With respect to the evidentiary requirements, while the demonstration of 109
the force majeure factors may require a lower burden than that required
in the other art. 6.7 SCMA subparagraphs (e.g., a natural disaster, like an
earthquake or a storm, may not need to be demonstrated and a panel may
just take judicial notice of that event), the demonstration that such force
majeure factors affect the production, qualities, quantities, or prices of the
complainant’s product may be as demanding as a demonstration of causa-
tion, i.e., that production, qualities, quantities, or prices of the complainant’s
product would not have been affected but for the force majeure factor.
IV. Arrangements Limiting Exports from the Complaining

Member (Art. 6.7(d) SCMA)
Art. 6.7(d) SCMA excludes from an allegation of serious prejudice a dis- 110
placement or impeding that takes place when there is an arrangement
limiting the complainant’s exports.
An arrangement is defined as “[a] disposition or preparation for a future 111
event . . . something planned or agreed; a settlement or agreement between
the parties.”111 In this regard, this provision refers to a plan or decision
111
New Shorter Oxford Dictionary (1993), I, 117.
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532 article 6 scma
that may be exclusive to the private sector or eventually, jointly made by

the private sector and the government. This agreement must outline a
particular goal: the restraint of exports. The provision is silent as to what
would constitute limitation on exports. However, this may take place through
limitations on volumes or prices. Export cartels are good examples of this
type of arrangements.
112 The rationale of art. 6.7(d) SCMA is the same as that of arts 6.7(a)112 and
(e)113 SCMA. However, in this case the limitation may emerge from a deci-
sion by the complainant’s private sector. Arrangements limiting exports are
intended to limit the supply of the complainant’s product in the relevant
export market.
113 This type of situation must be distinguished from governmental export
prohibitions or restrictions under art. 6.7(a) SCMA.114 It must also be dis-
tinguished from a voluntary decrease in the availability for export of the
complainant’s product under art. 6.7(e) SCMA. Both situations concern
the private sector’s actions. However, arrangements limiting exports refer
to agreements or understandings having the effect of restricting trade,
whereas the voluntary decrease in the availability for export refers to a fac-
tual situation of limited export capacity resulting from a decision (whether
individual or not).
114 The demonstration of the existence of arrangements limiting exports is
complicated. Given that this type of arrangements may be in conflict with
certain domestic competition policies, it is likely that these arrangements
are not contained in documents or public statements.
V. Voluntary Reduction of Export Capacity (Art. 6.7(e) SCMA)

115 Art. 6.7(e) SCMA provides that a claim of serious prejudice under art.
6.3(a) or (b) SCMA cannot prevail if there is a voluntary decrease in the
availability for export of the complainant’s product. The provision cites an
example of this type of situation: a situation where the complainant’s firms
have been autonomously reallocating exports to new markets.
116 The rationale of this provision is the same as that of arts 6.7(a)115 and (f )116
SCMA. A deliberate limitation on export capacity is also likely to affect the
supply of the complainant’s product to the relevant market and thereby,
112
See supra para. 95.
113
See infra para. 115.
114
See supra para. 97.
115
See supra para. 95.
116
See infra para. 123.
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be the actual cause of any displacement or impeding in that market and

not the subsidy.
As noted above, this provision must be distinguished from export prohibi- 117
tions or restrictions taken by the complainant (art. 6.7(a) SCMA) and
arrangements limiting exports (art. 6.7(e) SCMA).117
The demonstration of this particular situation would entail a demonstration 118
that the export capacity of exporters in the territory of the complainant has
been reduced. As this type of information should, in principle, be in the
possession of the complainant’s exporters, it is likely that a respondent may
face difficulties in obtaining it. However, export statistics on volumes and
prices (to show the reallocation of exports) should be quite accessible.
VI. Failure to Conform to Standards and Other Regulatory

Requirements in the Importing Country (Art. 6.7(f ) SCMA)
Art. 6.7(f) SCMA provides that a serious prejudice claim cannot prevail if 119
the complainant’s product fails to conform to standards and other regula-
tory requirements in the importing country (either in the market of the
subsidizing Member or in the third country market).
The “standards and other regulatory requirements” formulation is not 120
defined in art. 6.7(f ) SCMA. However, guidance may be found in the
definition of “standard” in annex 1(2) TBT Agreement. According to this
definition, a standard is a:
Document approved by a recognized body, that provides, for common and
repeated use, rules, guidelines or characteristics for products or related pro-
cesses and production methods, with which compliance is not mandatory. It
may also include or deal exclusively with terminology, symbols, packaging,
marking or labelling requirements as they apply to a product, process or
production method.
Other types of regulatory requirements for the product at issue may be 121
sanitary and phytosanitary requirements as defined in annex A(1) SPS
Agreement.
The formulation is broad enough to cover any other type of regulatory 122
requirement to the extent that it relates to the characteristics, processes, or
production methods of the product at issue and not to other considerations,
inter alia, price or origin. This may also include measures that fall under
the scope of art. III:4 GATT 1994.
117
See supra paras 94, 113.
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534 article 6 scma
123 The rationale of this provision is that, in accordance with its regulatory
values, an importing government may impose certain technical requirements.
If compliance is not observed, then the supply in the complainant’s country
is affected, irrespective of whether a subsidy may produce a displacement
or impeding of the complainant’s product in the market at issue.
124 In the art. 6.7(f ) SCMA analysis, the WTO consistency of this type of
requirements is not at issue. What is at stake is the mere factual finding that
a product is unable to enter the importing country because of its failure
to comply with those standards or regulatory requirements, irrespective of
the WTO consistency of these measures.
125 In terms of evidence, the demonstration of this type of situations seems to
be less complicated than that accruing under the other factors of art. 6.7
SCMA. By virtue of general transparency provisions of WTO law (inter
alia, art. X:1 GATT 1994, art. 2.11 TBT Agreement, and annex B(1) SPS
Agreement), these standards and other regulatory requirements imposed
on imported products are required to be published in such a manner that
would enable Members and traders to be acquainted with them.
G. Factual Basis in the Absence of the Circumstances in

Art. 6.7 SCMA (Art. 6.8 SCMA)
126 Art. 6.8 SCMA provides that in the absence of the art. 6.7 SCMA cir-
cumstances, the evidentiary basis for determining the existence of serious
prejudice pursuant to arts 5(c) and 6.3 SCMA is the information submitted
to or obtained by the panel, including information submitted in accordance
with annex V SCMA.
127 It must be noted that in order to demonstrate the existence of serious
prejudice under art. 6.3 SCMA, the information submitted to or obtained
by the panel must consist of “positive evidence”.118 There is no definition
of “positive evidence” in art. 6 SCMA. However, contextual guidance may
be provided by another provision of the SCMA (art. 15.1) that establishes
that the injury to the domestic industry in a countervailing duty investiga-
tion must be based on “positive evidence”. In the context of the analogous
provision in the ADA (art. 3.1), “positive evidence” has been defined as
relating “to the quality of the evidence that authorities may rely upon in
making a determination. The word ‘positive’ means, to [them], that the
evidence must be of an affirmative, objective and verifiable character, and
that it must be credible.”119
118
Art. 29.8 SCMA.
119
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article 6 scma 535
This provision must be construed as confirming the obligation to use all 128
the information that is on the panel’s records and preventing a panel from
finding serious prejudice by implication when a respondent fails to sub-
stantiate its art. 6.7 SCMA defence. Rather, the panel should determine
whether serious prejudice still exists under art. 6.3 SCMA based on all
the information submitted or obtained in the course of the proceedings.
Furthermore, the provision cannot be construed as allowing, a contrario, a
lower evidentiary standard for the demonstration of the art. 6.7 SCMA
circumstances than that required for the demonstration of serious prejudice
under art. 6.3 SCMA. Art. 27.8 SCMA states that “serious prejudice . . . shall
be demonstrated by positive evidence, in accordance with the provisions of
paragraphs 3 through 8 of Article 6”.
H. Exclusion of Agricultural Products from the Disciplines on

Serious Prejudice (Art. 6.9 SCMA) (no longer in effect)
Art. 6.9 SCMA establishes that the provisions of art. 6 SCMA do not apply 129
to subsidies maintained on agricultural products as provided for in art. 13
AG Agreement.120
Art. 13 AG Agreement is a transitional provision that applied only during 130
the “implementation period” of the AG agreement. Art. 1(f ) AG Agree-
ment defines “the implementation period” for purposes of art. 13 AG
Agreement as “the nine-year period commencing in 1995.” If every year
is measured by calendar year, the implementation period expired by 31
December 2003. However, in US—Upland Cotton, there was disagreement on
this view as the respondent submitted that the nine-year period had to be
120
Art. 13 AG Agreement provides that:
During the implementation period, notwithstanding the provisions of GATT 1994 and
the [SCMA]:
....
(b) domestic support measures that conform fully to the provisions of Article 6 of this
Agreement including direct payments that conform to the requirements of paragraph
5 thereof, as reflected in each Member’s Schedule, as well as domestic support within
de minimis levels and in conformity with paragraph 2 of Article 6, shall be:
....
(ii) exempt from actions based on paragraph 1 of Article XVI of GATT 1994
or Articles 5 and 6 of the Subsidies Agreement, provided that such measures do
not grant support to a specific commodity in excess of that decided during the
1992 marketing year; . . .
(c) export subsidies that conform fully to the provisions of Part V of this Agreement,
as reflected in each Member’s Schedule, shall be:
....
(ii) exempt from actions based on Article XVI of GATT 1994 or Articles 3, 5
and 6 of the Subsidies Agreement.
PIÉROLA
536 article 6 scma
counted by marketing year, which is stated in each Member’s Schedule.121

While the question was not answered by the panel, as of the date of writing
this commentary, the implementation period for purposes of art. 13 AG
Agreement would have lapsed.122 Therefore, serious prejudice complaints
can also be presented with respect to allegations of serious prejudice in the
case of agricultural subsidies.
121
WT/DS267/R, n. 469. The panel did not make a finding on the expiry of the
implementation period for purposes of art. 13 AG Agreement.
122
See Cross, 162.
PIÉROLA
Article 7
Remedies
7.1 Except as provided in Article 13 of the Agreement on Agriculture, whenever a

Member has reason to believe that any subsidy referred to in Article 1, granted or
maintained by another Member, results in injury to its domestic industry, nullification
or impairment or serious prejudice, such Member may request consultations with
such other Member.
7.2 A request for consultations under paragraph 1 shall include a statement of available
evidence with regard to (a) the existence and nature of the subsidy in question,
and (b) the injury caused to the domestic industry, or the nullification or impair-
ment, or serious prejudice19 caused to the interests of the Member requesting
consultations.
7.3 Upon request for consultations under paragraph 1, the Member believed to be grant-
ing or maintaining the subsidy practice in question shall enter into such consultations
as quickly as possible. The purpose of the consultations shall be to clarify the facts
of the situation and to arrive at a mutually agreed solution.
7.4 If consultations do not result in a mutually agreed solution within 60 days,20 any
Member party to such consultations may refer the matter to the DSB for the estab-
lishment of a panel, unless the DSB decides by consensus not to establish a panel.
The composition of the panel and its terms of reference shall be established within
15 days from the date when it is established.
7.5 The panel shall review the matter and shall submit its final report to the parties to
the dispute. The report shall be circulated to all Members within 120 days of the
date of the composition and establishment of the panel’s terms of reference.
7.6 Within 30 days of the issuance of the panel’s report to all Members, the report shall
be adopted by the DSB21 unless one of the parties to the dispute formally notifies
the DSB of its decision to appeal or the DSB decides by consensus not to adopt
the report.
7.7 Where a panel report is appealed, the Appellate Body shall issue its decision within
60 days from the date when the party to the dispute formally notifies its intention to
appeal. When the Appellate Body considers that it cannot provide its report within
60 days, it shall inform the DSB in writing of the reasons for the delay together with
an estimate of the period within which it will submit its report. In no case shall the
proceedings exceed 90 days. The appellate report shall be adopted by the DSB and
unconditionally accepted by the parties to the dispute unless the DSB decides by
consensus not to adopt the appellate report within 20 days following its issuance to
the Members.22
7.8 Where a panel report or an Appellate Body report is adopted in which it is deter-
mined that any subsidy has resulted in adverse effects to the interests of another
Member within the meaning of Article 5, the Member granting or maintaining such
subsidy shall take appropriate steps to remove the adverse effects or shall withdraw
the subsidy.
7.9 In the event the Member has not taken appropriate steps to remove the adverse
effects of the subsidy or withdraw the subsidy within six months from the date when
the DSB adopts the panel report or the Appellate Body report, and in the absence
of agreement on compensation, the DSB shall grant authorization to the complaining
Member to take countermeasures, commensurate with the degree and nature of the
adverse effects determined to exist, unless the DSB decides by consensus to reject
the request.
7.10 In the event that a party to the dispute requests arbitration under paragraph 6 of
Article 22 of the DSU, the arbitrator shall determine whether the countermeasures
are commensurate with the degree and nature of the adverse effects determined to
exist.
Footnote 19: In the event that the request relates to a subsidy deemed to result in serious
prejudice in terms of paragraph 1 of Article 6, the available evidence of serious prejudice
may be limited to the available evidence as to whether the conditions of paragraph 1 of
Article 6 have been met or not.

538 article 7 scma
Footnote 20: Any time-periods mentioned in this Article may be extended by mutual
agreement.
Annex V: Procedures for Developing Information concerning Serious

Prejudice
1. Every Member shall cooperate in the development of evidence to be examined by a

panel in procedures under paragraphs 4 through 6 of Article 7. The parties to the dis-
pute and any third-country Member concerned shall notify to the DSB, as soon as the
provisions of paragraph 4 of Article 7 have been invoked, the organization responsible
for administration of this provision within its territory and the procedures to be used
to comply with requests for information.
2. In cases where matters are referred to the DSB under paragraph 4 of Article 7, the
DSB shall, upon request, initiate the procedure to obtain such information from the
government of the subsidizing Member as necessary to establish the existence and
amount of subsidization, the value of total sales of the subsidized firms, as well as
information necessary to analyze the adverse effects caused by the subsidized product.66
This process may include, where appropriate, presentation of questions to the govern-
ment of the subsidizing Member and of the complaining Member to collect information,
as well as to clarify and obtain elaboration of information available to the parties to a
dispute through the notification procedures set forth in Part VII.67
3. In the case of effects in third-country markets, a party to a dispute may collect infor-
mation, including through the use of questions to the government of the third-coun-
try Member, necessary to analyse adverse effects, which is not otherwise reasonably
available from the complaining Member or the subsidizing Member. This requirement
should be administered in such a way as not to impose an unreasonable burden on
the third-country Member. In particular, such a Member is not expected to make a
market or price analysis specially for that purpose. The information to be supplied is
that which is already available or can be readily obtained by this Member (e.g. most
recent statistics which have already been gathered by relevant statistical services but
which have not yet been published, customs data concerning imports and declared
values of the products concerned, etc.). However, if a party to a dispute undertakes a
detailed market analysis at its own expense, the task of the person or firm conducting
such an analysis shall be facilitated by the authorities of the third-country Member and
such a person or firm shall be given access to all information which is not normally
maintained confidential by the government.
4. The DSB shall designate a representative to serve the function of facilitating the informa-
tion-gathering process. The sole purpose of the representative shall be to ensure the
timely development of the information necessary to facilitate expeditious subsequent
multilateral review of the dispute. In particular, the representative may suggest ways
to most efficiently solicit necessary information as well as encourage the cooperation
of the parties.
5. The information-gathering process outlined in paragraphs 2 through 4 shall be com-
pleted within 60 days of the date on which the matter has been referred to the DSB
under paragraph 4 of Article 7. The information obtained during this process shall be
submitted to the panel established by the DSB in accordance with the provisions of
Part X. This information should include, inter alia, data concerning the amount of the
subsidy in question (and, where appropriate, the value of total sales of the subsidized
firms), prices of the subsidized product, prices of the non-subsidized product, prices
of other suppliers to the market, changes in the supply of the subsidized product to
the market in question and changes in market shares. It should also include rebuttal
evidence, as well as such supplemental information as the panel deems relevant in the
course of reaching its conclusions.
6. If the subsidizing and/or third-country Member fail to cooperate in the information-
gathering process, the complaining Member will present its case of serious prejudice,

article 7 scma 539
based on evidence available to it, together with facts and circumstances of the non-
cooperation of the subsidizing and/or third-country Member. Where information is
unavailable due to non-cooperation by the subsidizing and/or third-country Member,
the panel may complete the record as necessary relying on best information otherwise
available.
7. In making its determination, the panel should draw adverse inferences from instances
of non-cooperation by any party involved in the information-gathering process.
8. In making a determination to use either best information available or adverse infer-
ences, the panel shall consider the advice of the DSB representative nominated under
paragraph 4 as to the reasonableness of any requests for information and the efforts
made by parties to comply with these requests in a cooperative and timely manner.
9. Nothing in the information-gathering process shall limit the ability of the panel to seek
such additional information it deems essential to a proper resolution to the dispute,
and which was not adequately sought or developed during that process. However,
ordinarily the panel should not request additional information to complete the record
where the information would support a particular party’s position and the absence of
that information in the record is the result of unreasonable non-cooperation by that
party in the information-gathering process.
Footnote 66: In cases where the existence of serious prejudice has to be demonstrated.
Footnote 67: The information-gathering process by the DSB shall take into account the
need to protect information which is by nature confidential or which is provided on a
confidential basis by any Member involved in this process.
Bibliography
P. E. Clark et al., WTO Dispute Settlement Practice Relating to Subsidies and Countervailing Measures, in:
F. Ortino & E. U. Petersmann, The WTO Dispute Settlement System 1995–2003 (2004), 353–379;
J. R. Magnus, World Trade Organization Subsidy Disciplines: Is This the Retrenchment Round?, JWT
38(6) (2004), 985–1047; R. T. Steinberg & T. E. Josling, When the Peace Ends: The Vulnerability
of EC and US Agricultural Subsidies to WTO Legal Challenge, JIEL 6 (2003), 369–417.
Case Law
Decision by the Arbitrators, Brazil—Aircraft, WT/DS46/ARB; Appellate Body Report,
Canada—Aircraft, WT/DS70/AB/R; Appellate Body Report, US—Upland Cotton, WT/DS267/
AB/R; Panel Report, US—Upland Cotton, WT/DS267/R; Panel Report, Korea—Commercial
Vessels, WT/DS273/R.
Documents
Negotiating Group on Subsidies and Countervailing Measures, Elements for Dealing with
Adverse Effects in the Home Market of the Subsidizing Country and in Third-Country
Markets, Submission by the United States, MTN.GNG/NG10/W/40, 5 October 1990.
Table of Contents
A. General 1
I. Overview 1
II. History 2
B. Objectives and Purposes of Art. 7 SCMA 3
I. Proof of Adverse Effects 6
II. Expedited Timelines 7
III. Remedies 9
C. Special and Differential Treatment 12
D. Rules Negotiations 13
E. Annex V SCMA: Procedures for Developing Information concerning
Serious Prejudice 14
F. Outlook 16

540 article 7 scma
A. General
I. Overview
1 Art. 7 SCMA lays down the procedures a Member which considers its own
interests affected by another Member’s actionable subsidy has to follow when
seeking relief on a multilateral basis. Members have made a limited use
of art. 7 SCMA so far, showing a predominant preference for unilaterally
imposed countervailing measures.1
II. History
2 Under the Tokyo Round Subsidies Code, a multilateral track was available
for export subsidies only.2 The sole possibility at the disposal of the Con-
tracting Parties of redressing adverse effects caused by non-export subsidies
was through the imposition of countervailing duties as regulated in part I
Tokyo Round Subsidies Code.
B. Objectives and Purposes of Art. 7 SCMA
3 Art. 7 SCMA describes the multilateral procedure a Member has to follow

when seeking a remedy with regard to subsidies resulting in (1) injury to
its domestic industry, (2) a nullification or impairment of the complaining
Member’s benefits under the WTO Agreement, or (3) in case of serious
prejudice.
4 Since the expiry of the so-called “peace clause” at the end of 2003, agri-
cultural subsidies are no longer exempted from action under the SCMA.
These subsidies can therefore be challenged through the multilateral and
unilateral remedies of the SCMA, including the remedies provided by art.
7 SCMA.3
5 While not comparable to art. 4 SCMA, the procedure of art. 7 SCMA also
presents some significant differences when compared to the normal DSU
dispute procedure in terms of level of proof of adverse effects requested
from the claiming party, accelerated procedure, and reinforced remedies.
1
The rules to be followed when imposing countervailing duties are described in part V
SCMA.
2
See arts 12, 13 Tokyo Round Subsidies Code.
3
See WT/DS267/AB/R; WT/DS267/R. On the peace clause, see generally Steinberg
& Josling.

article 7 scma 541
I. Proof of Adverse Effects

The level of evidence a Member having recourse to art. 7 SCMA has to 6
submit is higher than under art. 4 SCMA and the normal DSU procedure.
It is not sufficient to “indicate the legal basis for the complaint”4 or provide
a statement of available evidence with regard to the existence and nature
of the subsidy in question.5 According to art. 7.2 SCMA, a Member has
to add to its request for consultation a statement of available evidence with
regard to (1) the existence and nature of the subsidy in question and (2) the
injury caused to the domestic industry, the nullification or impairment, or
serious prejudice caused to its interests.
II. Expedited Timelines

According to art. 7.3 SCMA, Members with which consultation is requested 7
have to enter into such consultations “as quickly as possible”. Where the
consultations do not arrive at any mutually agreed solution within a period
of 60 days, any party to the consultations may refer to the DSB for the
establishment of a panel, which has to be established with the terms of
reference within 15 days of the request.6
After its establishment, the panel has to circulate its report to all Members 8
within 120 days. This deadline is longer than the 90 days provided under
the art. 4 SCMA procedure but is significantly shorter than the six-month
time limit requested under the normal DSU limit procedure.7 Unless the
panel’s report is appealed or the DSB decides by consensus not to adopt it,
the report has to be adopted within 30 days from the moment it was issued
to all Members, compared to 60 days under the normal DSU procedure.8
If appealed, the Appellate Body has to notify its decision within 60 days
from the date of formal notification of appeal. The time at the disposal of
the Appellate Body can be extended but shall in no case exceed 90 days.9
4
See art. 4.4 DSU.
5
See art. 4.2 SCMA.
6
See art. 7.4 SCMA. The normal DSU procedure in art. 6.1 DSU provides that a panel
shall be established “at the latest at the DSB meeting following that at which the request first
appears”. In practice, due to the frequency at which the DSB meets, this means approxi-
mately 30 days after the request is made.
7
Cf. arts 4.6, 7.5 SCMA; art. 6.8 DSU. See Clark et al., 368.
8
Cf. art. 7.6 SCMA; art. 16.4 DSU. Thirty days is the period of time for adoption also
requested by art. 4.8. SCMA.
9
See art. 7.7 SCMA. Art. 17.5 DSU establishes an identical timeframe.

542 article 7 scma
III. Remedies
9 If the panel’s report confirms the complaining party’s allegations that
the subsidy challenged results in adverse effects to its interests within the
meaning of art. 5 SCMA, the losing party has a choice between taking the
appropriate steps necessary for the removal of such effects and withdraw-
ing the subsidy.10 Alternatively, art. 7.9 SCMA offers the possibility for the
parties involved in the dispute to agree on compensation.
10 If, within six months from the date of the DSB adoption of the panel or
Appellate Body report, the losing party has not taken the appropriate steps
to remove the adverse effects or withdrawn the subsidy and if the parties
have not agreed on compensation, the DSB may authorize countermea-
sures.11 As pointed out in art. 7.9 SCMA, such countermeasures have
to be “commensurate with the degree and nature of the adverse effects
determined to exist”.
11 The SCMA does not provide further guidelines on what can be consid-
ered to conform to the provisions of art. 7.9 SCMA. Neither panels nor
the Appellate Body have so far deemed it necessary to interpret the word
“countermeasures” within the meaning of art. 7.9 SCMA. In Brazil—Aircraft,
the arbitrators compared the meaning of the word countermeasures in arts
7.9 and 4.9 SCMA and confirmed the stricter character of the former.12
C. Special and Differential Treatment
12 Some of the SCMA special and differential treatment provisions refer to

the multilateral track procedures in art. 7 SCMA. Art. 27.9 SCMA imposes
stricter conditions for the actionability of subsidies provided by developing
country Members.13 The possibility of challenging developing countries’
subsidies under the procedure in art. 7 SCMA is further restricted by art.
27.13 SCMA which states that the provisions contained in part III SCMA
do not apply to direct forgiveness of debt, subsidies to cover social costs in
whatever form, including relinquishment of government revenue, and other
transfer of liabilities when such subsidies are granted within and directly
linked to a privatization programme of a developing country, provided that
both the programme and the subsidies involved are granted for a limited
period, are notified to the SCM Committee, and that the programme
10
See art. 7.8 SCMA.
11
See art. 7.9 SCMA.
12
The arbitrators found that “appropriate countermeasures” as referred to in art. 4.9
SCMA is not, contrary to art. 7.9 SCMA, limited to countermeasures commensurate with
the degree and nature of the adverse effects determined to exist. See WT/DS46/ARB.
13
See Avgoustidi & Ballschmiede, Article 27 SCMA, para. 65.

article 7 scma 543
actually results in the eventual privatization of the company concerned.14

Also, due to the developing countries’ temporary exemption from the
application of the general ban on export subsidies in art. 3.1(a) SCMA,
art. 27.7 SCMA makes the challenging of export subsidies maintained by
developing countries subject to the procedure under art. 7 SCMA rather
than that under art. 4 SCMA.15
D. Rules Negotiations
Negotiations on possible amendments to the SCMA include art. 7 SCMA. 13

Among the proposals tabled so far are the necessity to clarify the meaning
of “to remove the adverse effects” as contained in art. 7.8 SCMA16 and a
large array of questions focusing on elements common to the two SCMA
multilateral track procedures.17
E. Annex V SCMA: Procedures for Developing Information

concerning Serious Prejudice
Annex V SCMA contains the procedures governing the gathering of the 14

information necessary for a panel to issue its report in conformity with arts
7.4 to 7.6 SCMA. The gathering of information is facilitated by a repre-
sentative to be designated by the DSB18 and shall be completed within 60
days from the date on which the matter was referred to the DSB under
art. 7.4 SCMA.19 The range of information to be collected and submitted
to the panel is extremely broad. In this regard, guidelines are provided by
the illustrative list contained in annex V(5) SCMA.
As a deterrent to non-collaboration, annex V(7) SCMA recommends to 15
the panel to “draw adverse inferences from instances of non-cooperation”
14
See ibid., paras 72–73.
15
See ibid., para. 63. This provision remains relevant in the light of the extension of the
export subsidies general ban exemption granted to several developing countries after the
expiry of the eight-year grace period in art. 27.3 SCMA.
16
Negotiating Group on Rules, Subsidies Disciplines Requiring Clarification and Improve-
ment, Communication from the United States, TN/RL/W/78, 19 March 2003. In an attempt
to strengthen the multilateral track, it has also been proposed that the option requesting the
removal of the adverse effects be entirely eliminated and that the withdrawal of the subsidy
as exclusive remedy be established, similar to art. 4.7 SCMA.
17
A list of these proposals has been included in Negotiating Group on Rules, Further
Contribution to the Discussion of the Negotiating Group on Rules on the Agreement on
Subsidies and Countervailing Duty Measures, Submission from Australia, TN/RL/W/139,
18 July 2003. See also Magnus, 1006–1007.
18
See annex V(4) SCMA.
19
See annex V(5) SCMA.

544 article 7 scma
by any party involved in the information gathering process. Interestingly,

annex V SCMA exclusively applies to the multilateral procedure under art.
7 SCMA. The SCMA does not contain any similar provision for the panel
procedure under art. 4 SCMA on remedies against prohibited subsidies.
The Appellate Body in Canada—Aircraft recognized the lack of logical reason
behind such difference.20
F. Outlook
16 Like art. 4 SCMA, the Members’ recourse to the multilateral track offered
by art. 7 SCMA has been limited so far, in particular if compared to the
fact that between January 1995 and December 2004, WTO Members
imposed a total of 108 countervailing duty measures.21
20
See WT/DS70/AB/R, para. 202. Later, in Korea—Commercial Vessels, the panel deemed
it unnecessary to rule on whether annex V(7) SCMA also applies to claims brought under
art. 4 SCMA by stating that “in any event it is well established that WTO dispute settlement
panels retain a residual authority to draw adverse inferences outside of the circumstances
set forth in Annex V”. See WT/DS273/R, para. 7.162.
21
More statistical information on the application of countervailing duties, broken down
by reporting Members, exporting countries, and sectors, is available at the WTO website,
http://www.wto.org (accessed 18 July 2007).

Article 8
Identification of Non-Actionable Subsidies
8.1 The following subsidies shall be considered as non-actionable:23

(a) subsidies which are not specific within the meaning of Article 2;
(b) subsidies which are specific within the meaning of Article 2 but which meet all
of the conditions provided for in paragraphs 2(a), 2(b) or 2(c) below.
8.2 Notwithstanding the provisions of Parts III and V, the following subsidies shall be
non-actionable:
(a) assistance for research activities conducted by firms or by higher education or
research establishments on a contract basis with firms if:24, 25, 26 the assistance
covers27 not more than 75 per cent of the costs of industrial research28 or 50
per cent of the costs of pre-competitive development activity;29, 30 and provided
that such assistance is limited exclusively to:
(i) costs of personnel (researchers, technicians and other supporting staff
employed exclusively in the research activity);
(ii) costs of instruments, equipment, land and buildings used exclusively and
permanently (except when disposed of on a commercial basis) for the
research activity;
(iii) costs of consultancy and equivalent services used exclusively for the research
activity, including bought-in research, technical knowledge, patents, etc.;
(iv) additional overhead costs incurred directly as a result of the research
activity;
(v) other running costs (such as those of materials, supplies and the like),
incurred directly as a result of the research activity.
(b) assistance to disadvantaged regions within the territory of a Member given pursu-
ant to a general framework of regional development31 and non-specific (within
the meaning of Article 2) within eligible regions provided that:
(i) each disadvantaged region must be a clearly designated contiguous geographi-
cal area with a definable economic and administrative identity;
(ii) the region is considered as disadvantaged on the basis of neutral and objec-
tive criteria,32 indicating that the region’s difficulties arise out of more than
temporary circumstances; such criteria must be clearly spelled out in law,
regulation, or other official document, so as to be capable of verification;
(iii) the criteria shall include a measurement of economic development which
shall be based on at least one of the following factors:
– one of either income per capita or household income per capita, or GDP
per capita, which must not be above 85 per cent of the average for the
territory concerned;
– unemployment rate, which must be at least 110 per cent of the average
for the territory concerned;
as measured over a three-year period; such measurement, however, may
be a composite one and may include other factors.
(c) assistance to promote adaptation of existing facilities33 to new environmental
requirements imposed by law and/or regulations which result in greater con-
straints and financial burden on firms, provided that the assistance:
(i) is a one-time non-recurring measure; and
(ii) is limited to 20 per cent of the cost of adaptation; and
(iii) does not cover the cost of replacing and operating the assisted investment,
which must be fully borne by firms; and
(iv) is directly linked to and proportionate to a firm’s planned reduction of
nuisances and pollution, and does not cover any manufacturing cost savings
which may be achieved; and
(v) is available to all firms which can adopt the new equipment and/or produc-
tion processes.
8.3 A subsidy programme for which the provisions of paragraph 2 are invoked shall be
notified in advance of its implementation to the Committee in accordance with the
provisions of Part VII. Any such notification shall be sufficiently precise to enable
other Members to evaluate the consistency of the programme with the conditions
and criteria provided for in the relevant provisions of paragraph 2. Members shall

546 article 8 scma
also provide the Committee with yearly updates of such notifications, in particular
by supplying information on global expenditure for each programme, and on any
modification of the programme. Other Members shall have the right to request
information about individual cases of subsidization under a notified programme.34
8.4 Upon request of a Member, the Secretariat shall review a notification made pursuant
to paragraph 3 and, where necessary, may require additional information from the
subsidizing Member concerning the notified programme under review. The Secre-
tariat shall report its findings to the Committee. The Committee shall, upon request,
promptly review the findings of the Secretariat (or, if a review by the Secretariat has
not been requested, the notification itself ), with a view to determining whether the
conditions and criteria laid down in paragraph 2 have not been met. The procedure
provided for in this paragraph shall be completed at the latest at the first regular
meeting of the Committee following the notification of a subsidy programme, provided
that at least two months have elapsed between such notification and the regular
meeting of the Committee. The review procedure described in this paragraph shall
also apply, upon request, to substantial modifications of a programme notified in the
yearly updates referred to in paragraph 3.
8.5 Upon the request of a Member, the determination by the Committee referred to in
paragraph 4, or a failure by the Committee to make such a determination, as well as
the violation, in individual cases, of the conditions set out in a notified programme,
shall be submitted to binding arbitration. The arbitration body shall present its conclu-
sions to the Members within 120 days from the date when the matter was referred
to the arbitration body. Except as otherwise provided in this paragraph, the DSU
shall apply to arbitrations conducted under this paragraph.
Footnote 23: It is recognized that government assistance for various purposes is widely
provided by Members and that the mere fact that such assistance may not qualify for
non-actionable treatment under the provisions of this Article does not in itself restrict
the ability of Members to provide such assistance.
Footnote 24: Since it is anticipated that civil aircraft will be subject to specific multilateral
rules, the provisions of this subparagraph do not apply to that product.
Footnote 25: Not later than 18 months after the date of entry into force of the WTO
Agreement, the Committee on Subsidies and Countervailing Measures provided for in
Article 24 (referred to in this Agreement as “the Committee”) shall review the operation
of the provisions of subparagraph 2(a) with a view to making all necessary modifications
to improve the operation of these provisions. In its consideration of possible modifica-
tions, the Committee shall carefully review the definitions of the categories set forth in
this subparagraph in the light of the experience of Members in the operation of research
programmes and the work in other relevant international institutions.
Footnote 26: The provisions of this Agreement do not apply to fundamental research
activities independently conducted by higher education or research establishments. The
term “fundamental research” means an enlargement of general scientific and technical
knowledge not linked to industrial or commercial objectives.
Footnote 27: The allowable levels of non-actionable assistance referred to in this sub-
paragraph shall be established by reference to the total eligible costs incurred over the
duration of an individual project.
Footnote 28: The term “industrial research” means planned search or critical investigation
aimed at discovery of new knowledge, with the objective that such knowledge may be
useful in developing new products, processes or services, or in bringing about a significant
improvement to existing products, processes or services.
Footnote 29: The term “pre-competitive development activity” means the translation of
industrial research findings into a plan, blueprint or design for new, modified or improved
products, processes or services whether intended for sale or use, including the creation
of a first prototype which would not be capable of commercial use. It may further include
the conceptual formulation and design of products, processes or services alternatives
and initial demonstration or pilot projects, provided that these same projects cannot
be converted or used for industrial application or commercial exploitation. It does not

article 8 scma 547
include routine or periodic alterations to existing products, production lines, manufactur-

ing processes, services, and other on-going operations even though those alterations may
represent improvements.
Footnote 30: In the case of programmes which span industrial research and pre-competitive
development activity, the allowable level of non-actionable assistance shall not exceed
the simple average of the allowable levels of non-actionable assistance applicable to the
above two categories, calculated on the basis of all eligible costs as set forth in items (i)
to (v) of this subparagraph.
Footnote 31: A “general framework of regional development” means that regional subsidy
programmes are part of an internally consistent and generally applicable regional develop-
ment policy and that regional development subsidies are not granted in isolated geographical
points having no, or virtually no, influence on the development of a region.
Footnote 32: “Neutral and objective criteria” means criteria which do not favour certain
regions beyond what is appropriate for the elimination or reduction of regional disparities
within the framework of the regional development policy. In this regard, regional subsidy
programmes shall include ceilings on the amount of assistance which can be granted to
each subsidized project. Such ceilings must be differentiated according to the different
levels of development of assisted regions and must be expressed in terms of investment
costs or cost of job creation. Within such ceilings, the distribution of assistance shall be
sufficiently broad and even to avoid the predominant use of a subsidy by, or the granting
of disproportionately large amounts of subsidy to, certain enterprises as provided for in
Article 2.
Footnote 33: The term “existing facilities” means facilities which have been in operation for
at least two years at the time when new environmental requirements are imposed.
Footnote 34: It is recognized that nothing in this notification provision requires the provi-
sion of confidential information, including confidential business information.
Bibliography
M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); J. J. Croome, Reshaping
the World Trading System. A History of the Uruguay Round (1995).
Documents
Negotiating Group on Subsidies and Countervailing Measures, Communication from Swit-
zerland, MTN.GNG/NG10/W/17, 1 February 1988; Committee on Subsidies and Coun-
tervailing Measures, Format for Updates of Notifications under Article 8.3 of the Agreement
on Subsidies and Countervailing Measures, G/SCM/13, 3 November 1997; Committee
on Subsidies and Countervailing Measures, Format for Notifications under Article 8.3 of
the Agreement on Subsidies and Countervailing Measures, G/SCM/14, 31 March 1998;
Committee on Subsidies and Countervailing Measures, Procedures for Arbitration under
Article 8.5 of the Agreement on Subsidies and Countervailing Measures, G/SCM/19, 10
June 1998; Committee on Subsidies and Countervailing Measures, Minutes of the Regular
Meeting Held on 1–2 November 1999, G/SCM/M/24, 26 April 2000; Negotiating Group
on Rules, General Contribution to the Discussion of the Negotiating Group on Rules on the
Agreement on Subsidies and Countervailing Duties Measures, Submission from Australia,
TN/TRL/W/85, 30 April 2003.
Cross-References
Annex 2 AG Agreement; Art. 87.3 EC Treaty.

548 article 8 scma
Table of Contents
A. General 1
I. Completing the SCMA “Traffic Light” Approach 1
II. History 2
B. Non-Actionability and Specificity (Art. 8.1 SCMA) 3
C. Mechanism 5
I. Scope of Non-Actionable Subsidies (Art. 8.2 SCMA) 6
II. The Notification Requirement (Art. 8.3 SCMA) 8
III. Tasks of the Secretariat and SCM Committee (Art. 8.4 SCMA) 9
IV. Binding Arbitration (Art. 8.5 SCMA) 10
D. Review of the Operation of Art. 8 SCMA 11
I. The Mandate 11
II. The Outcome of the Review 12
E. Outlook 16
A. General
I. Completing the SCMA “Traffic Light” Approach

1 Besides the red (prohibited) and yellow (actionable) categories of subsidies,
the SCMA in its original form contained a third type of subsidies represent-
ing the green light of the so-called SCMA “traffic-light” approach. Subsidies
falling into this third category were not subject to countervailing duty action
or to other disciplines contained in the SCMA, hence their definition as
non-actionable subsidies.1 Falling into the green-light category of subsidies
were support for research,2 aid to disadvantaged regions,3 and assistance to
promote the adaptation of existing facilities to new environmental regula-
tions.4 This category of subsidies ceased to exist on 31 December 1999,
five years after the entry into force of the WTO Agreement.5
II. History
2 The Tokyo Round Subsidies Code did not contain any provision similar
to art. 8 SCMA, attenuating the countries’ ability to impose countervail-
ing duties. Members therefore enjoyed greater latitude, with the risk of an
1
Art. 9 SCMA nevertheless provided for some remedies in the event that non-actionable
subsidies resulted in serious adverse effects to the domestic industry of another Member. See
Rios Herran & Poretti, Article 9 SCMA, passim.
2
Art. 8.2(a) SCMA.
3
Art. 8.2(b) SCMA.
4
Art. 8.2(c) SCMA.
5
See art. 31 SCMA. During the meeting of the Committee on Subsidies and Countervail-
ing Measures on 1–2 November 1999, the chairman of the committee stated that if these
provisions are not extended by consensus of the Members, they will lapse by 31 December
1999. G/SCM/M/24, para. 20.
Subsidies which are not specific within the meaning of art. 2 SCMA remain non-
actionable.

article 8 scma 549
excessive use of the countervailing duties weapon against subsidies aimed

at fulfilling legitimate policy objectives.6 During the Uruguay Round, fol-
lowing an early proposal submitted by the Swiss representative, Members
started discussing the possibility of distinguishing among subsidies on the
basis of the different trade distorting effects attached to them.7 The result
of such negotiations was the adoption of a system, the SCMA “traffic light”
approach, distinguishing among red (or prohibited), yellow (or actionable),
and green light (or non-actionable) subsidies.
B. Non-Actionability and Specificity (Art. 8.1 SCMA)
Art. 8.1 SCMA provided that two kinds of subsidies shall not be actionable: 3
(1) those not specific within the meaning of art. 2 SCMA and (2) those
that, despite being specific within the meaning of art. 2 SCMA, fulfil all
the requirements contained in arts 8.2(a), (b), and (c) and 8.3 SCMA.8
It bears recalling that while specific measures that once benefited from the 4
more favourable legal treatment offered by art. 8 SCMA are now action-
able through the multilateral procedures in art. 7 SCMA or through the
imposition of countervailing duties, non-specific subsidies remain out of
the reach of unilateral and multilateral remedies.
C. Mechanism
Measures fulfilling the conditions contained in art. 8.2 SCMA and notified 5
in conformity with the procedural requirements of art. 8.3 SCMA benefited
from a preferential legal status and were safe from retaliatory actions from
other WTO Members. Members were therefore under a mutual obliga-
tion to tolerate the harmful effects that such measures of support would
nevertheless cause to their economies.9
I. Scope of Non-Actionable Subsidies (Art. 8.2 SCMA)

The SCMA negotiators agreed to leave Members wide latitude to imple- 6
ment their assistance policies in three areas: (1) research activities conducted
6
See Benitah, 91.
7
MTN.GNG/NG10/W/17. See also Croome, 62.
8
According to art. 8.2(d) SCMA, assistance to disadvantaged regions within the terri-
tory of a Member had to be non-specific (within the meaning of art. 2 SCMA) within the
eligible regions in order to benefit from the non-actionable status.
9
Art. 9 SCMA nevertheless allowed Members to seek a remedy for the harmful effects
of subsidies fully complying with the provisions of arts 8.2 and 8.3 SCMA. See Rios Herran
& Poretti, Article 9 SCMA, paras 2–5.

550 article 8 scma
by firms or by higher education or research establishments on a contract

basis with firms, (2) disadvantaged regions within the territory of a Member,
given pursuant to a general framework of regional development and non-
specific within the eligible regions, and (3) assistance to promote adapta-
tion by existing facilities to new environmental requirements imposed by
law and/or regulations which result in greater constraints and financial
burdens on firms.
7 Arts 8.2(a), (b), and (c) SCMA enumerated a series of conditions a subsidy
had to meet in order to be considered non-actionable. Such conditions,
which predominantly took the form of numerical limits and definitions, had
the effect of considerably narrowing down the scope of the non-actionable
category of subsidies.
II. The Notification Requirement (Art. 8.3 SCMA)

8 A unique feature of the green light category of subsidies consisted in
requiring granting Members to notify to the Committee on Subsidies and
Countervailing Measures (SCM Committee) subsidies for which they claimed
non-actionability prior to their implementation.10 Such ex ante notification
procedure was in clear contrast to the ex post notification in art. 25 SCMA.
The notification in art. 8.3 SCMA, however, cannot be compared to the
one required by the EC state aid regime where Members have to wait for
permission from the European Commission before proceeding with the
implementation of the notified support programmes.11 Art. 8.3 SCMA did
not impose a similar obligation and WTO Members remained free to imple-
ment their support programmes whenever they deemed appropriate. Upon
Members’ request, the SCM Committee would have carried out a detailed
analysis of the compatibility of the notified measure with the conditions
contained in the different subparagraphs of art. 8.2 SCMA.12
III. Tasks of the Secretariat and SCM Committee (Art. 8.4 SCMA)
9 Pursuant to art. 8.4 sentences 1 and 2 SCMA, the Secretariat was to review
the notification upon request, could require additional information if neces-
sary, and was to report its findings to the SCM Committee. In accordance
with the procedures laid down in art. 8.4 sentences 3 to 5 SCMA, the SCM
10
See art. 8.3 SCMA. Not a single non-actionable subsidy was notified during the exis-
tence of art. 8 SCMA.
11
See art. 88.3 EC Treaty. State aid under art. 87 EC Treaty must, as a rule, be notified
to the European Commission for approval before its implementation. Aid granted without
prior notification is illegal and the recipient can be ordered to pay it back.
12
See art. 8.4 SCMA.

article 8 scma 551
Committee was to determine whether a given subsidy met the conditions

and criteria laid down in art. 8.2 SCMA.
IV. Binding Arbitration (Art. 8.5 SCMA)

The SCM Committee’s determination under art. 8.3 SCMA and possible 10
violations of conditions set out in the notified programme were subject to
binding arbitration in accordance with art. 8.5 SCMA.
D. Review of the Operation of Art. 8 SCMA
I. The Mandate
According to art. 31 SCMA, the non-actionable category of subsidies in 11
art. 8 (along with arts 6 and 9) SCMA provisionally applied for a period
of five years beginning with the date of entry into force of the WTO
Agreement on 1 January 1995. The same provision required the SCM
Committee to review the operation of art. 8 SCMA not later than 180
days before the end of the provisional application period with a view to
determining whether to extend its application either in its original or in an
amended form for a further period of time. Art. 31 SCMA foresaw that,
in the absence of a consensus on extension, art. 8 SCMA would lapse on
31 December 1999.13
II. The Outcome of the Review

The minutes of the meeting of the Negotiating Group on Rules held on 12
1 and 2 November 1999, the last one before the Seattle Ministerial Con-
ference scheduled for the month of December of the same year, clearly
show the impossibility of bridging the diverging views of the Members on
the desirability and utility of maintaining a non-actionable category of
subsidies in the SCMA.14
Most developed countries and some developing countries supported the 13
extension of art. 8 SCMA mainly on the basis of the necessity to safeguard
the balanced structure created in the SCMA with the three categories of
subsidies and the persistent lack of experience in using them.15 On the
other hand, most developing and a limited number of developed countries
13
See note 5 and accompanying text above.
14
G/SCM/M/24.
15
See the views expressed by the representatives of Switzerland, ibid., para. 24; European
Communities, ibid., para. 39; Canada, ibid., para. 25; Chile, ibid., para. 27; and Korea, ibid.,
para. 34.

552 article 8 scma
opposed the possibility of having art. 8 SCMA extended, putting forward

the fact that green light subsidies specifically catered to developed countries
and therefore, represented one of the most flagrant examples of imbalance
in the WTO Agreements.16 Developing countries attempted to make their
acceptance of an extension of art. 8 SCMA conditional upon its amend-
ment so as to suit their specific needs better.17 An attempt was also made
to link the debate on the extension of art. 8 SCMA to the applicability of
the prohibition on using red light subsidies contained in art. 3.1 SCMA to
developing countries.18
14 Despite the widespread criticism, besides the general complaint that the
benchmarks set in each of the categories in art. 8.2 SCMA were too bur-
densome and thus, impossible to meet particularly for smaller economies
and developing countries facing resource constraints, few concrete examples
of the shortcomings of the mechanism in art. 8 SCMA were provided
during the review.19
15 With the Members unable to find a compromise on the extension of art. 8
SCMA during the run-up to the Seattle Ministerial Conference, the green
light category of subsidies ceased to exist at the end of 1999.
E. Outlook
16 The fact that during the five years of the existence of art. 8 SCMA no single
non-actionable subsidy has ever been notified according to the procedure
established by art. 8.3 SCMA automatically raises the question of why
neither developed nor developing countries took advantage of the more
favourable legal treatment offered by the green light category of subsidies.
As suggested by some Members during the rules negotiations, debates on
a possible reintroduction of a green light category of subsidies should start
from a thorough analysis of the reasons that led Members to ignore it.20
16
See the views expressed by the representatives of the Dominican Republic, ibid., para.
22, and Philippines, ibid., para. 30.
17
See the views expressed by the representative of Pakistan. Ibid., para. 31.
18
See ibid., para. 36.
19
See the position of the representative of Israel. Ibid., para. 42. In particular, the
provisions of art. 8.2(b) SCMA requiring non-specificity within eligible regions has been
recognized as particularly burdensome. See the position of the representative of Brazil.
Ibid., para. 45.
20
TN/TRL/W/85, 2.

Article 9
Consultations and Authorized Remedies
9.1 If, in the course of implementation of a programme referred to in paragraph 2 of

Article 8, notwithstanding the fact that the programme is consistent with the criteria
laid down in that paragraph, a Member has reasons to believe that this programme
has resulted in serious adverse effects to the domestic industry of that Member, such
as to cause damage which would be difficult to repair, such Member may request
consultations with the Member granting or maintaining the subsidy.
9.2 Upon request for consultations under paragraph 1, the Member granting or maintaining
the subsidy programme in question shall enter into such consultations as quickly as
possible. The purpose of the consultations shall be to clarify the facts of the situation
and to arrive at a mutually acceptable solution.
9.3 If no mutually acceptable solution has been reached in consultations under paragraph
2 within 60 days of the request for such consultations, the requesting Member may
refer the matter to the Committee.
9.4 Where a matter is referred to the Committee, the Committee shall immediately
review the facts involved and the evidence of the effects referred to in paragraph
1. If the Committee determines that such effects exist, it may recommend to the
subsidizing Member to modify this programme in such a way as to remove these
effects. The Committee shall present its conclusions within 120 days from the date
when the matter is referred to it under paragraph 3. In the event the recommenda-
tion is not followed within six months, the Committee shall authorize the requesting
Member to take appropriate countermeasures commensurate with the nature and
degree of the effects determined to exist.
Table of Contents
A. Introduction 1
B. Request for Consultations (Art. 9.1 SCMA) 2
C. Consultations (Art. 9.2 SCMA) 3
D. No Mutually Acceptable Solution (Art. 9.3 SCMA) 4
E. Referral to the SCM Committee (Art. 9.4 SCMA) 5
F. Implementation of Art. 9 SCMA 6
A. Introduction
Art. 31 SCMA provided that art. 9 SCMA was applicable for a period of 1
five years beginning on the date of entry into force of the WTO Agree-
ment and could be extended for a further period in its original form or as
modified based on a review to be conducted by the SCM Committee. Since
Members were unable to reach a consensus on the question of extension,
art. 9 SCMA (together with art. 8 SCMA) expired at the end of 1999.1
1
See art. 31 SCMA; art. XIV:1 sentence 3 WTO Agreement; Final Act Embodying the
Results of the Uruguay Round of Multilateral Trade Negotiations, LT/UR/A/1, 15 April
1994, para. 3. On 8 December 1994, the Preparatory Committee for the World Trade
Organization “confirmed 1 January 1995 as the date of entry into force of the WTO Agree-
ment”. See Preparatory Committee for the World Trade Organization, Minutes of Meeting
on 8 December 1994 on the Occasion of the Implementation Conference, PC/M/10, 19
December 1994, para. 4. During the meeting of the SCM Committee on 1–2 November
1999, the chairman of the committee stated that if these provisions are not extended by
consensus of the Members, they will lapse by 31 December 1999. Committee on Subsidies
and Countervailing Measures, Minutes of the Regular Meeting Held on 1–2 November

554 article 9 scma
B. Request for Consultations (Art. 9.1 SCMA)
2 Despite the non-actionable character of the green light subsidies in art. 8

SCMA,2 art. 9 SCMA nevertheless provided for some remedies in the event
that such subsidies resulted in serious adverse effects to the domestic industry
of another Member. The procedure in art. 9 SCMA started with a request
for consultations addressed by the Member whose domestic industry was
suffering serious adverse effects to the Member granting or maintaining the
subsidy (art. 9.1 SCMA).3
C. Consultations (Art. 9.2 SCMA)
3 Consultations had to be conducted with a view to clarifying the facts of the

situation and reaching a mutually acceptable solution (art. 9.2 SCMA).
D. No Mutually Acceptable Solution (Art. 9.3 SCMA)
4 If the consultations failed to reach any mutually acceptable solution within

60 days from request, the requesting Member was entitled to refer the matter
to the SCM Committee which would have reviewed the facts involved and
the evidence of the alleged serious adverse effects (arts 9.3 SCMA).
E. Referral to the SCM Committee (Art. 9.4 SCMA)
5 In the event of a determination of the existence of serious adverse effects,

the SCM Committee could have recommended that the granting Member
modify the subsidy in question so as to remove such effects (art. 9.4 SCMA).4
If the granting Member failed to comply with the SCM Committee’s rec-
ommendation within six months, the SCM Committee was to authorize the
1999, G/SCM/M/24, 26 April 2000, para. 20. See also Rios Herran & Poretti, Article 31
SCMA, paras 1–3.
2
See Rios Herran & Poretti, Article 8 SCMA, paras 1, 3, 6, 7.
3
Art. 9.1 SCMA referred to “serious adverse effects to the domestic industry . . ., such as
to cause damage which would be difficult to repair”. In the absence of jurisprudence on art.
9 SCMA, the practical meaning of “serious adverse effects” is destined to remain uncertain.
The use of the term “serious” and the structure of the SCMA nevertheless suggest that
the burden of proof requested by the SCM Committee and dispute settlement authorities
would have been heavier than the one applied to disputes brought under the auspices of
part III SCMA (actionable subsidies) referring to serious prejudice.
4
The SCM Committee had to review the effects and evidence of adverse effects imme-
diately and present its conclusions within 120 days of the matter being referred to it. See
art. 9.4 SCMA.

article 9 scma 555
requesting Member to take the appropriate countermeasures, which had to

be commensurate with the degree of adverse effects determined to exist.5
F. Implementation of Art. 9 SCMA
During its five years of existence, Members never made use of art. 9 6
SCMA.
5
See ibid.

Article 10
Application of Article VI of GATT 199435
Members shall take all necessary steps to ensure that the imposition of a countervailing
duty36 on any product of the territory of any Member imported into the territory of another
Member is in accordance with the provisions of Article VI of GATT 1994 and the terms
of this Agreement. Countervailing duties may only be imposed pursuant to investigations
initiated37 and conducted in accordance with the provisions of this Agreement and the
Agreement on Agriculture.
Footnote 35: The provisions of Part II or III may be invoked in parallel with the provisions
of Part V; however, with regard to the effects of a particular subsidy in the domestic
market of the importing Member, only one form of relief (either a countervailing duty,
if the requirements of Part V are met, or a countermeasure under Articles 4 or 7) shall
be available. The provisions of Parts III and V shall not be invoked regarding measures
considered non-actionable in accordance with the provisions of Part IV. However, mea-
sures referred to in paragraph 1(a) of Article 8 may be investigated in order to determine
whether or not they are specific within the meaning of Article 2. In addition, in the case
of a subsidy referred to in paragraph 2 of Article 8 conferred pursuant to a programme
which has not been notified in accordance with paragraph 3 of Article 8, the provisions
of Part III or V may be invoked, but such subsidy shall be treated as non-actionable if it
is found to conform to the standards set forth in paragraph 2 of Article 8.
Footnote 36: The term “countervailing duty” shall be understood to mean a special duty
levied for the purpose of offsetting any subsidy bestowed directly or indirectly upon the
manufacture, production or export of any merchandise, as provided for in paragraph 3
of Article VI of GATT 1994.
Footnote 37: The term “initiated” as used hereinafter means procedural action by which a
Member formally commences an investigation as provided in Article 11.
Bibliography
M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); R. Bhala & D. Gantz,
WTO Case Review 2000, Ariz. J. Int’l & Comp. L. 18 (2001), 1–101; T. J. McCartin, Red,
Yellow or Green: GATT 1994’s Traffic Light Subsidies Categories, in: The Commerce Department Speaks
on International Trade and Investment, PLI Corp. Law and Practice Course Handbook Series No. B-863
(1994), 611–657; C. Pitschas, Übereinkommen über Subventionen und Ausgleichsmaßnahmen, in: H. J.
Prieß & G. M. Berrisch (eds), WTO-Handbuch (2003), 429–478, paras 19–21; M. Sánchez
Rydelski, EG und WTO Antisubventionsrecht (2001); T. P. Stewart (ed.), The GATT Uruguay
Round. A Negotiating History (1999), vol. IV; T. P. Stewart & M. M. Burr, The WTO’s First Two
and a Half Years of Dispute Resolution, N.C. J. Int’l L. & Com. Reg. 23 (1998), 481–571; J. S.
Thomas & M. Meyer, The New Rules of Global Trade (1997).
Case Law
Desiccated Coconut, WT/DS22/R; Appellate Body Report, US—Lead and Bismuth II, WT/
DS138/AB/R; Panel Report, US—Lead and Bismuth II, WT/DS138/R; Appellate Body
Report, US—Offset Act (Byrd Amendment), WT/DS217/AB/R, WT/DS234/AB/R; Appel-
late Body Report, US—Softwood Lumber IV, WT/DS257/AB/R; Panel Report, US—Softwood
Lumber IV, WT/DS257/R.
Cross-Reference
Art. 1 ADA.
WOLFRAM
article 10 scma 557
Table of Contents
A. General 1
B. Countervailing Duties 2
I. Definition of the Term “Countervailing Duty” (Footnote 36 SCMA) 2
II. Relationship between Part V and Parts II and III SCMA
(Footnote 35 SCMA) 5
III. Relationship between Art. VI GATT 1994 and the SCMA
(Art. 10 Sentence 1 SCMA) 7
IV. Investigative Requirements (Art. 10 Sentence 2 and Footnote 37 SCMA) 9
C. Outlook 10
A. General
The SCMA provides two types of remedies against prohibited and action- 1
able subsidies: countervailing measures pursuant to part V SCMA based
on unilateral investigations by Members affected by a subsidy with the
primary purpose of offsetting the benefits of the subsidy (“Track I”) and
multilaterally sanctioned remedies pursuant to arts 4 and 7 SCMA based
on modified dispute settlement procedures with the objective of obliging
the subsidizing Member to remove the subsidy or its adverse effects (“Track
II”). Art. 10 SCMA defines the term “countervailing duty” (CVD) and
governs the relationship between Track I and Track II as well as between
art. VI GATT 1994 and the SCMA.1
B. Countervailing Duties
I. Definition of the Term “Countervailing Duty” (Footnote 36 SCMA)

Footnote 36 SCMA defines the term “countervailing duty” and mirrors the 2
definition in art. VI:3 sentence 2 GATT 1994.2
The term “special duty levied” in footnote 36 SCMA and art. VI:3 sen- 3
tence 2 GATT 1994 means definitive or final legal assessment or collection
of a duty or tax.3 As can be deduced from the wording “for the purpose
of offsetting any subsidy” in footnote 36 and art. 14 SCMA, the purpose of
1
The provisions of art. 10 SCMA are derived from art. 1 Tokyo Round Subsidies Code,
BISD 26S/56–83, and art. 10 Draft Final Act Embodying the Results of the Uruguay
Round of Multilateral Trade Negotiations, MTN.TNC/W/FA, 20 December 1991. For a
synopsis, see Stewart, vol. IV, annex.
2
WT/DS257/R, para. 7.90. Art. VI:3 sentence 2 GATT 1994 reads: “The term ‘coun-
tervailing duty’ shall be understood to mean a special duty levied for the purpose of offsetting
any bounty or subsidy bestowed, directly, or indirectly, upon the manufacture, production
or export of any merchandise.”
3
Compare the definition of “levy” in footnote 51 SCMA.
WOLFRAM
558 article 10 scma
this assessment or collection is to offset the benefits conferred by a subsidy

to the manufacturer, producer, or exporter of the merchandise subject to
the CVD.4 The term “offsetting any subsidy” demonstrates that a CVD
may only be imposed if a (countervailable) subsidy within the meaning of
art. 1 SCMA exists because there would be nothing to “offset” absent a
(countervailable) subsidy.5 For a CVD to be imposed on a specific product,
both footnote 36 SCMA and art. VI:3 sentence 2 GATT 1994 require that
there be a subsidy “bestowed directly or indirectly upon the manufacture,
production or export” of that product.6 If a subsidy is received by someone
other than the manufacturer, producer, or exporter of the product subject
to the CVD, then the Member imposing the CVD has to demonstrate
that the subsidy has been passed-through to the manufacturer, producer,
or exporter.7
4 Therefore, in sum, a CVD is the definitive or final legal assessment or
collection of a duty or tax on a product the manufacturer, producer, or
exporter of which directly or indirectly received a countervailable subsidy
with the purpose of offsetting the benefits conferred by this subsidy to the
manufacturer, producer, or exporter in question.
II. Relationship between Part V and Parts II and III SCMA

(Footnote 35 SCMA)
5 Footnote 35 SCMA governs the relationship between part V SCMA (“Track
I”) on the one hand and parts II and III SCMA (“Track II”) on the other.8
According to footnote 35 sentence 1 SCMA, a Member may invoke the
provisions of part V SCMA in parallel with those of part II or part III
SCMA. Thus, a Member may initiate unilateral investigations with a view
to taking countermeasures pursuant to part V SCMA in parallel with the
dispute settlement procedures pursuant to arts 4 and 7 SCMA. However,
pursuant to footnote 35 sentence 1 SCMA, a Member may not take coun-
termeasures pursuant to part V SCMA (i.e., CVDs pursuant to art. 19
SCMA, undertakings pursuant to art. 18 SCMA, or provisional measures
pursuant to art. 17 SCMA) in parallel with taking countermeasures pursu-
ant to art. 4.10 or art. 7.9 SCMA with respect to the effects of a particular
4
WT/DS138/R, para. 6.56.
5
Ibid.
6
WT/DS257/R, para. 7.90.
7
Ibid., para. 7.91 (“If it is not demonstrated that there has been such a pass-through
of subsidies from the subsidy recipient to the producer or exporter of the product, then
it cannot be said that subsidization in respect of that product, in the sense of Article 10,
footnote 36, and Article VI:3 of GATT 1994, has been found.”), aff ’d, WT/DS257/AB/R,
paras 141, 146; Bhala & Gantz, 67. Cf. WT/DS138/AB/R, paras 56–58.
8
Panel Report, US—Upland Cotton, WT/DS267/R, para. 7.1238; McCartin, 652–654.
WOLFRAM
article 10 scma 559
subsidy.9 Therefore, footnote 35 SCMA requires Members to choose between

countermeasures pursuant to part V SCMA and multilaterally sanctioned
countermeasures pursuant to art. 4.10 or art. 7.9 SCMA.10 It can also be
derived from footnote 35 SCMA that the types of remedies under the SCMA
against subsidies are limited to these types of countermeasures.11
Because arts 8 and 9 SCMA applied only until 31 December 1999 and 6
the SCM Committee did not extend their application pursuant to art. 31
sentence 2 SCMA,12 footnote 35 sentences 2, 3, and 4 SCMA are no longer
relevant in practice.
III. Relationship between Art. VI GATT 1994 and the SCMA

(Art. 10 Sentence 1 SCMA)13
Art. 10 sentence 1 SCMA governs the relationship between art. VI GATT 7
1994 and the SCMA and provides that the imposition of a CVD has to
comply with both art. VI GATT 1994 and the SCMA. Therefore, if the
SCMA applies to the imposition of a CVD, the imposition has to com-
ply with both art. VI GATT 1994 and the SCMA.14 If there is a conflict
between art. VI GATT 1994 and the provisions of the SCMA, the latter
prevail to the extent of the conflict pursuant to the General Interpretative
Note to Annex 1A.15
Neither art. 10 SCMA nor any other provision of the SCMA explicitly 8
answers the question whether and to what extent the imposition of a CVD
has to comply with art. VI GATT 1994 if the SCMA is not applicable to
that imposition. In Brazil—Desiccated Coconut, the panel and the Appellate
Body decided that if the SCMA does not apply to the imposition of a CVD,
art. VI GATT 1994 does not apply to that imposition either.16 According
to the panel and the Appellate Body, the rights and obligations under the
SCMA relating to CVDs are inseparable from the rights and obligations
under art. VI GATT 1994 relating to CVDs.17 Otherwise, if art. VI GATT
1994 were applicable to CVDs to which the SCMA does not apply, art.
9
WT/DS217/AB/R, WT/DS234/AB/R, para. 270; McCartin, 653–654.
10
WT/DS217/AB/R, WT/DS234/AB/R, para. 270; McCartin, 653–654; Pitschas,
paras 42, 113; Sánchez-Rydelski, 305; Thomas & Meyer, 163.
11
12
See Rios Herran & Poretti, Article 31 SCMA, para. 3.
13
See also Wolfram, Article 32 SCMA, para. 2; Benitah, 154–156.
14
WT/DS22/R, para. 237; WT/DS22/AB/R, sec. IV.E.2; Benitah, 155 et seq.
15
WT/DS22/AB/R, secs IV.E.2, IV.E.3; Benitah, 154; Stewart & Burr, 560.
16
WT/DS22/R, paras 243, 257, 278–279 (“Article VI of GATT 1994 does not apply
where the SCM does not apply.”), aff ’d, WT/DS22/AB/R, sec. IV.E.3. In the underly-
ing dispute, the SCMA did not apply due to art. 32.3 SCMA. See also Benitah, 155–156;
Stewart & Burr, 554.
17
WT/DS22/R, paras 232–281; WT/DS22/AB/R, secs IV.E.3, V. See also Benitah, 156;
Stewart & Burr, 552–554, 561.
WOLFRAM
560 article 10 scma
VI GATT 1994 would have different meanings depending on whether it

had to be interpreted independently or in conjunction with the SCMA as
required by art. 32.1 SCMA.18 This would contradict, inter alia, one of the
central purposes of the WTO Agreement as reflected in its preamble, to
“develop an integrated, more viable and durable multilateral trading system
encompassing the General Agreement on Tariffs and Trade, the results of
past liberalization efforts, and all of the results of the Uruguay Round of
Multilateral Trade Negotiations” and art. II:2 WTO Agreement provid-
ing that the multilateral trade agreements are integral parts of the WTO
Agreement and create a single undertaking.19 If art. IV GATT 1994 had
the same meaning independently of whether the SCMA applied or not,
the provisions of the SCMA resulting in the inapplicability of the SCMA
would be undermined.
IV. Investigative Requirements (Art. 10 Sentence 2 and Footnote 37

SCMA)
9 According to art. 10 sentence 2 SCMA, CVDs may only be imposed
pursuant to investigations initiated and conducted “in accordance with the
provisions of this Agreement and the Agreement on Agriculture”. The
text of this norm does not indicate that it applies only to “procedural” as
opposed to “substantive” aspects of an investigation. Rather, it provides
that an investigation must comply with both procedural and substantive
provisions of the mentioned agreements.20 Because if the SCMA applies,
CVDs may only be imposed in accordance with the SCMA and art. VI
GATT 1994,21 it seems reasonable to assume that “this Agreement” in art.
10 sentence 2 SCMA refers to both the SCMA and art. VI GATT 1994.22
Investigations also have to comply with the provisions of the AG Agreement
(in particular, art. 13 AG Agreement) to the extent that that agreement is
applicable. According to footnote 37 SCMA, an investigation is “initiated”
if a Member takes a procedural action by which it formally commences
an investigation as provided in art. 11 SCMA.23
18
WT/DS22/R, para. 240; Stewart & Burr, 552, 561.
19
WT/DS22/AB/R, sec. IV.E.3; WT/DS22/R, paras 240–244.
20
Cf. WT/DS22/R, para. 229, referring to art. 32.3 SCMA: “Article 32.3 . . . provides
that an investigation . . . shall be conducted in accordance with the provisions of the SCM
Agreement in its entirety—procedural and substantive.”
21
See infra para. 7.
22
This interpretation corresponds to the decisions of the panel and the Appellate Body in
Brazil—Desiccated Coconut pursuant to which, the term “this Agreement” in art. 32.3 SCMA
encompasses both the SCMA and art. VI GATT 1994. See WT/DS22/R, para. 234, aff ’d,
WT/DS22/AB/R, sec. IV.E.2.
23
Footnote 37 SCMA is corollary to footnote 1 ADA.
WOLFRAM
article 10 scma 561
C. Outlook
At present, there is no urgent need for reform of art. 10 SCMA.24 10
24
See also Negotiating Group on Rules, Draft Consolidated Chair Texts of the AD and
SCM Agreements, TN/RL/W/213, 30 November 2007, 52–53.
WOLFRAM
Article 11
Initiation and Subsequent Investigation
11.1 Except as provided in paragraph 6, an investigation to determine the existence,

degree and effect of any alleged subsidy shall be initiated upon a written application
by or on behalf of the domestic industry.
11.2 An application under paragraph 1 shall include sufficient evidence of the existence
of (a) a subsidy and, if possible, its amount, (b) injury within the meaning of Article
VI of GATT 1994 as interpreted by this Agreement, and (c) a causal link between
the subsidized imports and the alleged injury. Simple assertion, unsubstantiated by
relevant evidence, cannot be considered sufficient to meet the requirements of this
paragraph. The application shall contain such information as is reasonably available
to the applicant on the following:
(i) the identity of the applicant and a description of the volume and value of the
domestic production of the like product by the applicant. Where a written
application is made on behalf of the domestic industry, the application shall
identify the industry on behalf of which the application is made by a list of all
known domestic producers of the like product (or associations of domestic
producers of the like product) and, to the extent possible, a description of the
volume and value of domestic production of the like product accounted for by
such producers;
(ii) a complete description of the allegedly subsidized product, the names of the
country or countries of origin or export in question, the identity of each
known exporter or foreign producer and a list of known persons importing
the product in question;
(iii) evidence with regard to the existence, amount and nature of the subsidy in
question;
(iv) evidence that alleged injury to a domestic industry is caused by subsidized
imports through the effects of the subsidies; this evidence includes information
on the evolution of the volume of the allegedly subsidized imports, the effect
of these imports on prices of the like product in the domestic market and the
consequent impact of the imports on the domestic industry, as demonstrated
by relevant factors and indices having a bearing on the state of the domestic
industry, such as those listed in paragraphs 2 and 4 of Article 15.
11.3 The authorities shall review the accuracy and adequacy of the evidence provided in
the application to determine whether the evidence is sufficient to justify the initia-
tion of an investigation.
11.4 An investigation shall not be initiated pursuant to paragraph 1 unless the authori-
ties have determined, on the basis of an examination of the degree of support
for, or opposition to, the application expressed38 by domestic producers of the
like product, that the application has been made by or on behalf of the domestic
industry.39 The application shall be considered to have been made “by or on behalf
of the domestic industry” if it is supported by those domestic producers whose
collective output constitutes more than 50 per cent of the total production of the
like product produced by that portion of the domestic industry expressing either
support for or opposition to the application. However, no investigation shall be
initiated when domestic producers expressly supporting the application account
for less than 25 per cent of total production of the like product produced by the
domestic industry.
11.5 The authorities shall avoid, unless a decision has been made to initiate an investiga-
tion, any publicizing of the application for the initiation of an investigation.
11.6 If, in special circumstances, the authorities concerned decide to initiate an investiga-
tion without having received a written application by or on behalf of a domestic
industry for the initiation of such investigation, they shall proceed only if they have
sufficient evidence of the existence of a subsidy, injury and causal link, as described
in paragraph 2, to justify the initiation of an investigation.
11.7 The evidence of both subsidy and injury shall be considered simultaneously (a) in
the decision whether or not to initiate an investigation and (b) thereafter, during
the course of the investigation, starting on a date not later than the earliest date
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article 11 scma 563
on which in accordance with the provisions of this Agreement provisional measures

may be applied.
11.8 In cases where products are not imported directly from the country of origin but
are exported to the importing Member from an intermediate country, the provisions
of this Agreement shall be fully applicable and the transaction or transactions shall,
for the purposes of this Agreement, be regarded as having taken place between
the country of origin and the importing Member.
11.9 An application under paragraph 1 shall be rejected and an investigation shall be
terminated promptly as soon as the authorities concerned are satisfied that there
is not sufficient evidence of either subsidization or of injury to justify proceeding
with the case. There shall be immediate termination in cases where the amount
of a subsidy is de minimis, or where the volume of subsidized imports, actual
or potential, or the injury, is negligible. For the purpose of this paragraph, the
amount of the subsidy shall be considered to be de minimis if the subsidy is less
than 1 per cent ad valorem.
11.10 An investigation shall not hinder the procedures of customs clearance.
11.11 Investigations shall, except in special circumstances, be concluded within one year,
and in no case more than 18 months, after their initiation.
Footnote 38: In the case of fragmented industries involving an exceptionally large number
of producers, authorities may determine support and opposition by using statistically valid
sampling techniques.
Footnote 39: Members are aware that in the territory of certain Members employees of
domestic producers of the like product or representatives of those employees may make
or support an application for an investigation under paragraph 1.
Bibliography
J. F. Beseler & A.N. Williams, Anti-Dumping and Anti-Subsidy Law: The European Communities
(1986); G. M. Berrisch & M. Düerkop, Übereinkommen zur Durchführung des Artikel VI des Allge-
meinen Zoll- und Handelsabkommen 1994 (Antidumping—Übereinkommen), in: H. J. Priess & G. M.
Berrisch (eds), WTO Handbuch (2003), 337–381; P. A. Clarke et al., WTO Dispute Settlement
Practice Relating to Subsidies and Countervailing Measures, in: F. Ortino & E. U. Petersmann, The
WTO Dispute Settlement System 1995–2003 (2004), 353–379; A. de Lima-Campos, Nineteen Pro-
posals to Curb Abuse in Anti-Dumping and Countervailing Duty Proceedings, JWT 39 (2005), 239–280;
Mayer, Brown, Rowe & Maw, Evaluation of EC Trade Defense Instruments (2005); I. van Bael &
J. F. Bellis, Anti-Dumping and Other Trade Protection Laws of the EC (4th ed. 2004); E. Vermulst,
The WTO Anti-Dumping Agreement (2005).
Case Law
Appellate Body Report, Guatemala—Cement I, WT/DS60/AB/R; Panel Report, US—DRAMS,
WT/DS99/RW; Appellate Body Report, Thailand—H-Beams, WT/DS122/AB/R; Panel
Report, Thailand—H-Beams, WT/DS122/R; Panel Report, Mexico—Corn Syrup, WT/DS132/
R; Panel Report, US—1916 Act (EC), WT/DS136/R; Panel Report, EC—Bed Linen, WT/
DS141/R; Panel Report, Guatemala—Cement II, WT/DS156/R; Panel Report, US—1916
Act (Japan), WT/DS162/R; Appellate Body Report, US—Carbon Steel, WT/DS213/AB/R;
Panel Report, US—Carbon Steel, WT/DS213/R; Appellate Body Report, US—Offset Act
(Byrd Amendment), WT/DS217/AB/R, WT/DS234/AB/R; Panel Report, Argentina—Poultry
Anti-Dumping Duties, WT/DS241/R; Panel Report, US—Corrosion-Resistant Steel Sunset Review,
WT/DS244/R; Panel Report, Mexico—Anti-Dumping Measures on Rice, WT/DS295/R.
Cross-References
Art. 5 ADA; Art. 3 SA.
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564 article 11 scma
Table of Contents
A. General 1
B. Content 4
I. Application and Assessment by National Authorities (Arts 11.1–11.4 SCMA) 4
II. Initiation of Investigation (Arts 11.5–11.11 SCMA) 11
1. No Publicizing of the Application 12
2. Simultaneous Consideration of Evidence of Subsidization and Injury 13
3. De Minimis Rules 15
4. Time Limits 16
C. Outlook 17
A. General
1 The majority of art. 11 SCMA deals with requirements that must be fulfilled
in order for an investigation to be properly initiated. Art. 11 SCMA contains
a range of obligations of Members with respect to procedural rights and
obligations of a multiplicity of interested parties. They can be distinguished
as follows:1 (1) written application of the affected domestic industry (arts
11.1 and 11.2 SCMA); (2) assessment of the accuracy and adequacy of
the evidence of the application (art. 11.3 SCMA); and (3) initiation of an
investigation (arts 11.4, 11.5, 11.7, and 11.9 SCMA).
2 Other obligations on procedural rights of interested parties are laid down in
arts 12.1 (notice of information which the authorities require; mostly done
by way of questionnaires); 12.6 (with respect to on-the-spot investigations);
12.8 (information on the essential facts before a final determination); 21.2 and
21.3 (right of interested parties to request a review); 21.3 (normal termination
of countervailing duty after five years); 22.1 (public notice of initiation); and
22.2 SCMA (public notice of preliminary and final determination).
3 Findings of subsidies, injury, and causation by national authorities involve a
wide margin of discretion, which are hardly capable of being reviewed in
WTO dispute settlement proceedings without a de novo review by panels.
Panels do not engage in such reviews.2 The procedural provisions of the
SCMA are therefore the main limitations on the discretion of Members
applying countervailing duties.
1
Berrisch & Düerkop, 360–361.
2
See, e.g., WT/DS295/R, para 7.6 which circumscribed its task as follows: “If we find
that the Mexican investigating authorities have properly established the facts and evaluated
them in an unbiased and objective manner, and the determinations rest upon a permissible
interpretation of the relevant provisions, we will consider this measure to be consistent with
the relevant provisions of the AD Agreement”.
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article 11 scma 565
B. Content
I. Application and Assessment by National Authorities

(Arts 11.1–11.4 SCMA)
As a general rule, art. 11.1 SCMA provides that an investigation may be 4
initiated only upon a written application by or on behalf of the domestic
industry. National authorities may, however, in “special circumstances”,
decide to initiate an investigation without having received a written applica-
tion (“self-initiation”). In that event, they need to have sufficient evidence
of subsidization, injury, and a causal link (art. 11.2 SCMA).
According to art. 11.4 SCMA, verification of whether an application is made 5
“by or on behalf ” of the domestic industry requires national authorities
to examine “the degree of support for, or opposition to, the application
expressed by domestic producers of the like product”. Two conditions are
laid down. First, domestic producers expressly supporting the application
must account for at least 25 percent of total production of the like prod-
uct. Second, the application must be supported by those domestic produc-
ers whose collective output constitutes more than 50 percent of the total
production of the like product produced by that portion of the domestic
industry expressing their support for or opposition to the application (art.
11.4 SCMA). The practical result is that an application made by domestic
producers accounting for 25 percent of the total production suffices except
where domestic producers representing more than 50 percent of that pro-
duction oppose the application.3
National authorities must determine whether an application fulfils this 6
requirement. In contrast to the evidence on subsidies, injury, and causa-
tion, the accuracy and adequacy of which they must examine (art. 11.4
SCMA) and for which they may gather on their own additional evidence,4
it is arguably not up to national authorities to canvass domestic producers
in order for the application to meet the representativeness test.
The application must “include sufficient evidence” of subsidization, injury, 7
and causal link between the subsidized imports and the alleged injury. The
inclusion of the word “sufficient”, which does not form part of art. 5.2
ADA (the corresponding provision in the ADA), hints at a somewhat higher
threshold compared to the ADA. This may be explained by the import-
ing Member having the possibility to levy countervailing duties designed
3
Vermulst, 112; Berrisch & Düerkop, 361, consider that the percentage of the opposition
may not be higher than the support.
4
See infra para. 9.
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566 article 11 scma
to counteract the effects of government measures. However, it remains to

be seen whether WTO bodies are inclined to question the discretion of
Members’ administrations in this regard.5 It is clear however that “[s]imple
assertion, unsubstantiated by relevant evidence, cannot be considered suf-
ficient”. On the other hand, the application must contain only “such infor-
mation that is reasonably available to the applicant” (art. 11.2 SCMA).6
Arts 11.2(i) to (iv) SCMA list the topics on which the application must
contain evidence.
8 The requirements with respect to the application reflect the mixed nature
of the subsidies inquiry, which appears to be both adversarial and inquisi-
torial. While, as a rule, an application is needed which must meet certain
requirements, the verification and assessment of which by a national
authority would suffice for a finding of subsidization, injury, and causal
link. Even at the initiation stage, national authorities may themselves gather
additional evidence.7 Moreover, in the course of the investigation national
authorities do not limit themselves to verifying the available evidence; they
pro-actively investigate by seeking information, verifying it, and carrying
out on-the-spot investigations.
9 It is incumbent on national authorities before initiating the investigation to
“examine the accuracy and the adequacy of the evidence provided in the
application” (art. 11.3 SCMA). This is normally the first evidence that a
national authority receives with respect to a concrete case of subsidization,
injury, and causation. It must be “sufficient” for the purposes of initiation
and is logically of a different quality from the evidence required for a pre-
liminary finding following initiation and investigation.8
10 Many of the problems that could arise as a result of the requirements
with respect to the application and its assessment before the initiation are
effectively avoided by the practice of a number of national authorities of
encouraging potential applicants to discuss draft applications.9
5
Interestingly, in US—Steel Safeguards, the Appellate Body considered that the wide dis-
cretion that national administrations generally enjoy may nevertheless be open to scrutiny
in WTO dispute settlement procedures. Appellate Body Report, US—Steel Safeguards, WT/
DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/
AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R.
6
On “reasonably available”, see Panel Report, US—Softwood Lumber II, BISD 40S/358,
para. 7.54.
7
See infra para. 9.
8
See, e.g., WT/DS132/R, para. 7.94.
9
For the EC, see Mayer, Brown, Rowe & Maw, 3–5. The advice to the applying EC
industry of draft applications in the EC is given by a special unit within the Directorate
General for Trade of the European Commission. This process aims at avoiding the need
for decisions rejecting applications because of lack of standing or of sufficient evidence.
Van Bael & Bellis, 346.
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article 11 scma 567
II. Initiation of Investigation (Arts 11.5–11.11 SCMA)

Some of the following provisions (especially arts 11.7 and 11.9 SCMA) 11
apply not only to the initiation of an investigation but also to the investi-
gation itself.
1. No Publicizing of the Application

According to art. 11.5 SCMA, national authorities “shall avoid . . . any publi- 12
cizing of the application for the initiation of an investigation”. The wording
is “shall avoid” instead of, e.g., “the application shall not be publicized”.
Many Members refuse on that ground to disclose the existence of an appli-
cation. In the US, however, once an application is lodged, copies can be
obtained from the authorities. Whatever the rationale of this provision may
be,10 it is noteworthy that on its face, it imposes a similar duty neither on
the government of the exporting Member nor with respect to the domestic
industry filing the application. It should also be noted that art. 13.1 SCMA
requires notification by national authorities after an application under art.
11 SCMA is accepted but before the initiation of any investigation to the
exporting Member with the aim of clarifying the situation.
2. Simultaneous Consideration of Evidence of Subsidization

and Injury
As there needs to be evidence of both subsidization and injury to justify 13
an investigation, art. 11.7 SCMA requires a national authority to examine
the evidence on both these elements simultaneously when deciding whether
or not to initiate an investigation (and subsequently, in the course of the
investigation).11
Art. 11.8 SCMA clarifies an important point. If imports originated in a 14
country but were not imported directly from that country, they are neverthe-
less attributed to the originating country for the purposes of determining
whether a subsidy has been paid.
3. De Minimis Rules
A de minimis rule is set forth in art. 11.9 SCMA, which comes into 15
play either at the initiation or in the course of the investigation. Several
options exist: it is either the amount of the subsidy which is de minimis
or the volume of subsidized imports, actual or potential, is negligible. The
benchmark for such a determination is if the subsidy constitutes less than
one percent ad valorem.
10
For a critical comment, see Vermulst, 115.
11
This aspect was interpreted by a panel in the context of the ADA in Guatemala—Cement
II, WT/DS156/R, para. 8.67, and in Argentina—Poultry Anti-Dumping Duties, WT/DS241/R,
paras 7.118, 7.121.
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568 article 11 scma
Exceptional treatment is granted to developing countries, for which the de

minimis level of subsidy is two percent and negligibility is set at four percent
of the total imports of the like product unless imports from developing
countries together account for more than nine percent. A further exception
exists for annex VII SCMA countries (generally speaking, least developed
countries) for which the de minimis level is three percent.
In a rare pronouncement regarding this provision, the panel in US—Carbon
Steel found that there were three grounds for termination of CVD proceed-
ings, namely, (1) insufficient evidence of either subsidization or of injury;
(2) negligible volume of subsidized imports; and (3) negligible injury. It
furthermore clarified that CVD proceedings are limited to cases of injuri-
ous subsidization.12
4. Time Limits
16 Investigations shall normally be concluded within one year but in no case
more than 18 months after initiation. No time limit is provided for the
initiation following the filing of an application (art. 11.11 SCMA). Art.
11.10 SCMA clarifies that an investigation shall not hinder the procedures
of customs clearance.
C. Outlook
17 A series of proposals were tabled in the current Doha Round. By mid-2003,

they concerned initiation standards, such as providing for a neutralization
period for a new investigation following a prior negative finding, increas-
ing the required support of the domestic industry, guidelines for defining
the “special” situation justifying the ex officio initiation of an investigation,
raising the de minimis thresholds, and shorter periods of investigation. A
series of proposals were made designed to limit the cost of investigations.13
Subsequently, further proposals were made, inter alia, on standing require-
ments, a swift control mechanism of unjustified initiations, control over
related companies, and negligible imports.
18 At the time of writing, it is difficult to assess to what extent these proposals,
some of which are conflicting, will find a consensus.
12
WT/DS213/R, para. 8.63.
13
These and other proposals are listed in the Negotiating Group on Rules, Note by the
Chairman, Compilation of Issues and Proposals Identified by Participants in the Negotiating
Group on Rules, TN/RL/W/143, 22 August 2003.
BOURGEOIS & WAGNER

Article 12
Evidence
12.1 Interested Members and all interested parties in a countervailing duty investigation
shall be given notice of the information which the authorities require and ample
opportunity to present in writing all evidence which they consider relevant in respect
of the investigation in question.
12.1.1 Exporters, foreign producers or interested Members receiving question-
naires used in a countervailing duty investigation shall be given at least 30
days for reply.40 Due consideration should be given to any request for an
extension of the 30-day period and, upon cause shown, such an extension
should be granted whenever practicable.
12.1.2 Subject to the requirement to protect confidential information, evidence
presented in writing by one interested Member or interested party shall be
made available promptly to other interested Members or interested parties
participating in the investigation.
12.1.3 As soon as an investigation has been initiated, the authorities shall pro-
vide the full text of the written application received under paragraph 1 of
Article 11 to the known exporters41 and to the authorities of the export-
ing Member and shall make it available, upon request, to other interested
parties involved. Due regard shall be paid to the protection of confidential
information, as provided for in paragraph 4.
12.2 Interested Members and interested parties also shall have the right, upon justifica-
tion, to present information orally. Where such information is provided orally, the
interested Members and interested parties subsequently shall be required to reduce
such submissions to writing. Any decision of the investigating authorities can only
be based on such information and arguments as were on the written record of this
authority and which were available to interested Members and interested parties
participating in the investigation, due account having been given to the need to
protect confidential information.
12.3 The authorities shall whenever practicable provide timely opportunities for all
interested Members and interested parties to see all information that is relevant
to the presentation of their cases, that is not confidential as defined in paragraph
4, and that is used by the authorities in a countervailing duty investigation, and to
prepare presentations on the basis of this information.
12.4 Any information which is by nature confidential (for example, because its disclo-
sure would be of significant competitive advantage to a competitor or because its
disclosure would have a significantly adverse effect upon a person supplying the
information or upon a person from whom the supplier acquired the information),
or which is provided on a confidential basis by parties to an investigation shall, upon
good cause shown, be treated as such by the authorities. Such information shall not
be disclosed without specific permission of the party submitting it.42
12.4.1 The authorities shall require interested Members or interested parties
providing confidential information to furnish non-confidential summaries
thereof. These summaries shall be in sufficient detail to permit a reasonable
understanding of the substance of the information submitted in confidence.
In exceptional circumstances, such Members or parties may indicate that
such information is not susceptible of summary. In such exceptional cir-
cumstances, a statement of the reasons why summarization is not possible
must be provided.
12.4.2 If the authorities find that a request for confidentiality is not warranted and
if the supplier of the information is either unwilling to make the information
public or to authorize its disclosure in generalized or summary form, the
authorities may disregard such information unless it can be demonstrated
to their satisfaction from appropriate sources that the information is
correct.43
12.5 Except in circumstances provided for in paragraph 7, the authorities shall during the
course of an investigation satisfy themselves as to the accuracy of the information
supplied by interested Members or interested parties upon which their findings are
based.
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570 article 12 scma
12.6 The investigating authorities may carry out investigations in the territory of other
Members as required, provided that they have notified in good time the Member
in question and unless that Member objects to the investigation. Further, the
investigating authorities may carry out investigations on the premises of a firm and
may examine the records of a firm if (a) the firm so agrees and (b) the Member
in question is notified and does not object. The procedures set forth in Annex
VI shall apply to investigations on the premises of a firm. Subject to the require-
ment to protect confidential information, the authorities shall make the results
of any such investigations available, or shall provide disclosure thereof pursuant
to paragraph 8, to the firms to which they pertain and may make such results
available to the applicants.
12.7 In cases in which any interested Member or interested party refuses access to,
or otherwise does not provide, necessary information within a reasonable period
or significantly impedes the investigation, preliminary and final determinations,
affirmative or negative, may be made on the basis of the facts available.
12.8 The authorities shall, before a final determination is made, inform all interested
Members and interested parties of the essential facts under consideration which
form the basis for the decision whether to apply definitive measures. Such disclosure
should take place in sufficient time for the parties to defend their interests.
12.9 For the purposes of this Agreement, “interested parties” shall include:
(i) an exporter or foreign producer or the importer of a product subject to
investigation, or a trade or business association a majority of the members
of which are producers, exporters or importers of such product; and
(ii) a producer of the like product in the importing Member or a trade and busi-
ness association a majority of the members of which produce the like product
in the territory of the importing Member.
This list shall not preclude Members from allowing domestic or foreign parties
other than those mentioned above to be included as interested parties.
12.10 The authorities shall provide opportunities for industrial users of the product
under investigation, and for representative consumer organizations in cases where
the product is commonly sold at the retail level, to provide information which is
relevant to the investigation regarding subsidization, injury and causality.
12.11 The authorities shall take due account of any difficulties experienced by interested
parties, in particular small companies, in supplying information requested, and shall
provide any assistance practicable.
12.12 The procedures set out above are not intended to prevent the authorities of a
Member from proceeding expeditiously with regard to initiating an investigation,
reaching preliminary or final determinations, whether affirmative or negative, or
from applying provisional or final measures, in accordance with relevant provisions
of this Agreement.
Footnote 40: As a general rule, the time-limit for exporters shall be counted from the
date of receipt of the questionnaire, which for this purpose shall be deemed to have been
received one week from the date on which it was sent to the respondent or transmitted
to the appropriate diplomatic representatives of the exporting Member or, in the case
of a separate customs territory Member of the WTO, an official representative of the
exporting territory.
Footnote 41: It being understood that where the number of exporters involved is particularly
high, the full text of the application should instead be provided only to the authorities
of the exporting Member or to the relevant trade association who then should forward
copies to the exporters concerned.
Footnote 42: Members are aware that in the territory of certain Members disclosure pursu-
ant to a narrowly-drawn protective order may be required.
Footnote 43: Members agree that requests for confidentiality should not be arbitrarily
rejected. Members further agree that the investigating authority may request the waiving
of confidentiality only regarding information relevant to the proceedings.
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article 12 scma 571
Annex VI
Procedures for On-the-Spot Investigations pursuant to Paragraph 6 of
Article 12
1. Upon initiation of an investigation, the authorities of the exporting Member and the firms
known to be concerned should be informed of the intention to carry out on-the-spot
investigations.
2. If in exceptional circumstances it is intended to include non-governmental experts in
the investigating team, the firms and the authorities of the exporting Member should
be so informed. Such non-governmental experts should be subject to effective sanctions
for breach of confidentiality requirements.
3. It should be standard practice to obtain explicit agreement of the firms concerned in
the exporting Member before the visit is finally scheduled.
4. As soon as the agreement of the firms concerned has been obtained, the investigating
authorities should notify the authorities of the exporting Member of the names and
addresses of the firms to be visited and the dates agreed.
5. Sufficient advance notice should be given to the firms in question before the visit is
made.
6. Visits to explain the questionnaire should only be made at the request of an export-
ing firm. In case of such a request the investigating authorities may place themselves
at the disposal of the firm; such a visit may only be made if (a) the authorities of the
importing Member notify the representatives of the government of the Member in
question and (b) the latter do not object to the visit.
7. As the main purpose of the on-the-spot investigation is to verify information provided
or to obtain further details, it should be carried out after the response to the question-
naire has been received unless the firm agrees to the contrary and the government of
the exporting Member is informed by the investigating authorities of the anticipated
visit and does not object to it; further, it should be standard practice prior to the visit
to advise the firms concerned of the general nature of the information to be verified
and of any further information which needs to be provided, though this should not
preclude requests to be made on the spot for further details to be provided in the
light of information obtained.
8. Enquiries or questions put by the authorities or firms of the exporting Members and
essential to a successful on-the-spot investigation should, whenever possible, be answered
before the visit is made.
Bibliography
K. Adamantopoulos & M. J. Pereyra-Friedrichsen, EU Anti-Subsidy Law & Practice (2001);
M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); R. Bhala & D. A. Gantz,
WTO Case Review 2002, Ariz. J. Int’l & Comp. L. 20 (2003), 143–289; M. Clough, Subsidies
and the WTO Jurisprudence, Int’l T.L.R. 8 (2002), 109–117; J. Dunne, Delverde and the WTO’s
British Steel Decision Foreshadow More Conflict Where the WTO Subsidies Agreement, Privatization, and
United States Countervailing Duty Law Intersect, Am. U. Int’l L. Rev. 17 (2001/2002), 79–130;
C. Grave, Der Begriff der Subvention im WTO-Übereinkommen über Subventionen und Ausgleichsmaß-
nahmen (2002); D. M. Lopez, The Continued Dumping and Subsidy Offset Act of 2000: “Relief ”
for the U.S. Steel Industry, Trouble for the United States in the WTO, U. Pa. J. Int’l Econ. L. 23
(2002), 415–455; M. M. Slotboom, Subsidies in WTO Law and in EC Law: Broad and Narrow
Definitions, JWT 36 (2002), 517–542; I. van Bael & J. F. Bellis, Anti-Dumping and Other Trade
Protection Laws of the EC (4th ed. 2004); WTO, WTO Analytical Index, Guide to WTO Law and
Practice (2003), vols I–II.
Case Law
Appellate Body Report, Mexico—Anti-Dumping Measures on Rice, WT/DS295/AB/R; Panel
Report, US—Countervailing Duty Investigation on DRAMs, WT/DS296/R; Panel Report,
EC—Countervailing Measures on DRAM Chips, WT/DS299/R.
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572 article 12 scma
Table of Contents
A. General 1
I. Overview 1
B. Notice about the Required Information and Opportunity to Submit
Evidence (Art. 12.1 SCMA) 3
I. Thirty-Day Period for Questionnaire Replies (Art. 12.1.1 SCMA) 5
II. Access to Evidence (Art. 12.1.2 SCMA) 8
III. Access to the Application that Initiated the Investigation
(Art. 12.1.3 SCMA) 10
C. Oral Information (Art. 12.2 SCMA) 12
D. Access to Information (Art. 12.3 SCMA) 14
E. Confidential Information (Art. 12.4 SCMA) 16
F. Accuracy of Information (Art. 12.5 SCMA) 21
G. Investigations in the Territory of Other Members (Art. 12.6 SCMA) 23
I. Procedures for On-the-Spot Investigations pursuant to Art. 12.6 SCMA
(Annex VI SCMA) 26
1. Rules for the Preparation of an On-the-Spot Investigation 27
2. Provisions Relating to the Visit Itself 32
H. Determination Based on Facts Available (Art. 12.7 SCMA) 34
I. Essential Facts under Consideration (Art. 12.8 SCMA) 37
J. Definition of “Interested Party” (Art. 12.9 SCMA) 39
K. Information Provided by Industrial Users and Consumers’
Organizations (Art. 12.10 SCMA) 41
L. Assistance for Companies (Art. 12.11 SCMA) 43
M. Expeditious Proceedings (Art. 12.12 SCMA) 45
A. General
I. Overview
1 Art. 12 SCMA sets forth the evidentiary requirements and standards that
apply throughout a countervailing duty investigation. The rules of art. 12
SCMA reflect to a large extent the corresponding provisions on evidence
in art. 6 ADA. There are, however, several differences. For example, in
contrast to the ADA, the SCMA does not provide for disciplinary provisions
in case the investigating authorities intend to base their determinations on
“facts available”.
2 The panels and the Appellate Body have ruled on disputes relating to art.
6 ADA significantly more often than on art. 12 SCMA. However, given the
similarities between the two provisions, the case law relating to art. 6 ADA
may serve as an indicator of how to interpret the evidence rules under the
SCMA. The relevant cases and provisions are explained below.
B. Notice about the Required Information and Opportunity to

Submit Evidence (Art. 12.1 SCMA)
3 According to art. 12.1 SCMA, the investigating Member authorities have

to meet two requirements in a countervailing investigation: (1) they must
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article 12 scma 573
give notice to interested Members and interested parties about the infor-
mation that they are required to submit and (2) they must provide ample
opportunity for all interested Members and interested parties to present
in writing all evidence the parties consider relevant to the investigation
in question. In other words, art. 12.1 SCMA guarantees that interested
Members and interested parties are given notice of the kind of evidence
and information the investigating authorities expect them to submit in
order to defend their rights as well as sufficient time to prepare and carry
out their submissions.
While, for the time being, no decisions of the panels and the Appellate Body 4
have dealt with questions relating to art. 12.1 SCMA, several of their rul-
ings have concerned the requirements of art. 6.1 ADA1 (i.e., the provision
mirroring art. 12.1 SCMA in the ADA). The relevant decisions may help
in interpreting the rights guaranteed by art. 12.1 SCMA.
I. Thirty-Day Period for Questionnaire Replies (Art. 12.1.1 SCMA)

Art. 12.1.1 SCMA specifies that exporters, foreign producers, or interested 5
Members must be given at least a 30-day period for replies to questionnaires.
According to footnote 40 SCMA (to which art. 12.1.1 SCMA refers), this
time limit must be counted from the date of receipt of the questionnaire as
far as exporters are concerned. To this end, the date of receipt is deemed
to be one week from the date on which the questionnaire was: (1) sent to
the respondent; (2) transmitted to the appropriate diplomatic representa-
tives; or (3) in the case of a separate customs territory Member of the
WTO, sent to an official representative of the exporting country. Art. 12
SCMA further states that if a substantiated request for an extension of the
30-day period is received, the investigating authorities are required to: (1)
give due consideration to that request and (2) grant an extension whenever
practicable.
In Mexico—Anti-Dumping Measures on Rice, the US claimed that a Mexican 6
procedural provision was inconsistent with both the SCMA and the ADA
since it required exporters or foreign producers that were not sent a ques-
tionnaire at the initiation of the investigation to reply within 28 days from
the day following the publication of the initiating resolution. The Appellate
Body observed that the deadline set out in the Mexican provision implied
that, in cases where questionnaires were sent out following the notice of
publication, the exporters and foreign producers in question could not
be provided with 30 days in which to reply without having to request an
extension. Therefore, the Appellate Body concluded that the provision in
1
See Bellis, Article 6 ADA, paras 5–10.
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574 article 12 scma
question violated the requirement to grant a 30-day period from the date
of receipt in which to respond to questionnaires pursuant to arts 12.1.1
SCMA and 6.1.1 ADA.2
7 In a decision relating to an anti-dumping investigation, the panel moreover
made it clear that additional requests for information do not constitute
“questionnaires” within the meaning of art. 6.1.1 ADA and therefore, the
30-day deadline is not applicable.3 Given the virtually identical wording
of arts 6.1.1 ADA and 12.1.1 SCMA, an analogy would appear to be
reasonable.
II. Access to Evidence (Art. 12.1.2 SCMA)

8 According to art. 12.1.2 SCMA, written evidence that was presented by
one interested Member or interested party must be made promptly avail-
able to other interested Members or interested parties that participate in
the investigation. However, the investigating authorities may not disclose
any confidential information.
9 While there is no relevant case law with respect to the SCMA, the panels
have ruled on access to evidence under the ADA. Reference may be made
in this regard to the relevant case law.4
III. Access to the Application that Initiated the Investigation

(Art. 12.1.3 SCMA)
10 The Member authorities must provide the full text of the written application
received under art. 11.1 SCMA to the exporting Member and the known
exporters.5 If other interested parties request it, it must be made available
to them, too. The investigating authorities are required to respect the pro-
tection of confidential information in accordance with art. 12.4 SCMA.
If a particularly high number of exporters is involved, the investigating
Member authorities may forward the full text of the application only to the
authorities of the exporting Member or to the relevant trade association as
provided for in footnote 41 SCMA.
11 As shown in a panel’s ruling in an anti-dumping case, it may be assumed
that permitting access to the written application would be insufficient to
fulfil the requirement to provide the application. Rather, the investigating
2
3
See Bellis, Article 6 ADA, para. 15.
4
5
See Bourgeois & Wagner, Article 11 SCMA, para. 4.
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article 12 scma 575
authorities will be required to take “positive action” in order to comply

with their obligation.6
C. Oral Information (Art. 12.2 SCMA)
Pursuant to art. 12.2 SCMA, interested Members and interested parties may, 12
upon justification, present their information orally. If an oral presentation
has been made, the submitted information must subsequently be reduced
to writing. Art. 12.2 SCMA also stipulates that the investigating authorities
must base their decisions on information that is in the investigating authori-
ties’ written records and available to interested Members and interested
parties that participate in the proceeding, due account having been given
to the need to protect confidential information.
The requirement to have oral information reduced to writing is necessary 13
to guarantee full procedural rights to interested Members and interested
parties. Casu contrario, investigating authorities could base their determina-
tions on evidence that was unknown to interested Members and interested
parties.
D. Access to Information (Art. 12.3 SCMA)
Art. 12.3 SCMA determines that interested Members and interested par- 14
ties must be given a timely opportunity to access and use all information
that fulfils three requirements: (1) the information must be used by the
investigating authorities in a countervailing duty investigation; (2) it must
be relevant to the presentation of the respective interested Member’s or
interested party’s case; and (3) the information may not be confidential as
defined in art. 12.4 SCMA. Art. 12.3 SCMA also mandates that interested
parties must be given the opportunity to prepare presentations on the basis
of such information.
Since art. 12.3 SCMA deals with the protection of access to information 15
that must also be disclosed under other provisions of the SCMA, a viola-
tion of art. 12.3 SCMA may, at the same time, infringe other provisions,
for instance, art. 12.1.2 SCMA.7
6
7
Compare with case law relating to art. 6.4 ADA, which is the provision of the ADA
that corresponds to art. 12.3 SCMA. See Bellis, Article 6 ADA, paras 18, 28–31.
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576 article 12 scma
E. Confidential Information (Art. 12.4 SCMA)
16 Confidential information may not be disclosed by the investigating authori-

ties. According to art. 12.4 SCMA, investigating authorities must treat infor-
mation as being confidential if either (1) the information is, by its nature,
confidential or (2) the information was provided on a confidential basis
by parties to an investigation. Confidential treatment is conditional upon
good cause being shown by the party in question, irrespective of whether
the confidential information is, by its nature, confidential or whether it was
provided on a confidential basis.8
17 Art. 12.4 SCMA states that, for example, such information may be regarded
as confidential by its nature if its disclosure would be of significant competi-
tive advantage to a competitor or would have a significantly adverse effect
upon a person supplying the information or upon a person from whom the
supplier acquired the information.
18 Art. 12.4 SCMA furthermore provides that confidential information may
not be disclosed without the specific permission of the party that submitted
it. In this context, footnote 42 SCMA points out that in the territories of
some Members, disclosure pursuant to a narrowly-drawn protective order
may be required.
19 According to art 12.4.1 SCMA, interested Members and interested parties
have to furnish non-confidential summaries if they provide confidential
information. It is also determined that they must give sufficient detail to
permit a reasonable understanding of the substance of the information
submitted in confidence. However, there is one exception to the requirement
to provide non-confidential summaries: interested Members and interested
parties may indicate that information is not susceptible of summarization
if both (1) the circumstances are exceptional and (2) a statement of reasons
is submitted that details why such summarization is not possible.
20 Art. 12.4.2 SCMA provides for rules that apply where investigating authori-
ties find that a request for confidentiality is not warranted. Investigating
authorities are allowed to disregard information if three conditions are
met: (1) the authorities must find that the request for confidentiality is not
warranted; (2) the supplier of information must be unwilling to make the
information public or authorize its disclosure in generalized or summary
form; and (3) it cannot be demonstrated to the investigating authorities’
satisfaction that the information is correct. According to footnote 43 SCMA
(to which art. 12.4.2 SCMA refers), Members “agree” (1) not to reject arbi-
8
Cf. Panel Report, Korea—Certain Paper, WT/DS312/R, para. 7.335. See Bellis, Article 6
ADA, paras 32–37.
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article 12 scma 577
trarily requests for confidentiality and (2) that investigating authorities may
request the waiver of the confidentiality only with respect to information
that is relevant to the proceedings.
F. Accuracy of Information (Art. 12.5 SCMA)
Pursuant to art. 12.5 SCMA, the investigating authorities must satisfy 21

themselves as to the accuracy of the information supplied by interested
Members or interested parties if they want to base their findings on such
information. However, this provision does not apply to the circumstances
detailed in art. 12.7 SCMA.
Since art. 12.5 SCMA relates to the accuracy of information, this provision 22
may not be invoked in order to complain about the substantive relevance
of information.9
G. Investigations in the Territory of Other Members

(Art. 12.6 SCMA)
Art. 12.6 SCMA authorizes investigating authorities to carry out investi- 23

gations in the territory of other Members as required in order to verify
information provided or to obtain further details. Such investigations are,
however, subject to two conditions: (1) the investigating authorities must have
notified their intention to carry out such investigation in good time to the
Member in question and (2) the Member in question does not object.
In US—Countervailing Duty Investigation on DRAMs, Korea complained about 24
the way the US carried out countervailing duty investigations in its terri-
tory. It claimed that the US authorities conducted secret verification meet-
ings in Korea with unnamed “experts” although Korea had requested to
monitor these meetings in order to be able to comment on the experts’
degree of expertise and other issues. Korea asserted that it had no material
objections to the investigations but rather, a procedural objection: it had
only requested that counsel be allowed to observe the meetings. The panel
recalled that every Member had the right to object to the investigations
conducted within its territory and that such right could not be extended
9
Cf. Panel Report, Guatemala—Cement II, WT/DS156/R, para. 8.209. See Bellis, Article 6
ADA, para. 37. Furthermore, in US—DRAMS, the panel discussed the scope of the verification
investigating authorities have to carry out in anti-dumping investigations in order to satisfy
themselves about the veracity of evidence. Panel Report, US—DRAMS, WT/DS99/R, para.
6.78. See Bellis, Article 6 ADA, para. 40. Given the similarity of the respective provisions of
the ADA and the SCMA, an analoguous application of these cases to countervailing duty
investigations would seem to be reasonable.
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578 article 12 scma
to encompass a right to dictate the specific procedures to be followed dur-

ing the investigation proceedings. Since Korea did not object to the US
investigation, the investigating authorities’ decision to proceed with that
investigation was not inconsistent with art. 12.6 SCMA, and the panel
rejected Korea’s claim.10
25 Art. 12.6 SCMA also authorizes the investigating authorities to carry out
investigations on the premises of a firm and examine its records if (1)
the firm so agrees and (2) the Member in question is notified and does
not object. The procedures that must be followed in the course of such
investigations are described in annex VI SCMA to which art. 12.6 SCMA
refers. Art. 12.6 SCMA also requires the investigating authorities to inform
the investigated exporters of the results of the verification. Such disclosure
can be made either (1) by making the results available so that the export-
ers can see them if they so wish or (2) through final disclosure under art.
12.8 SCMA before a final decision is taken in the investigation. Disclosure
in accordance with art. 12.6 SCMA is subject to the restrictions imposed
by art. 12.4 SCMA.
I. Procedures for On-the-Spot Investigations pursuant to

Art. 12.6 SCMA (Annex VI SCMA)
26 Annex VI SCMA describes the procedures that, pursuant to art. 12.6
SCMA, must be followed when investigations are carried out on the prem-
ises of a company. Although several paragraphs of annex VI SCMA are
worded in the conditional, Members are not free to disregard them. In
fact, given that art. 12.6 SCMA stipulates that “the procedures set forth
in Annex VI shall apply”, the rules of annex VI SCMA must be strictly
followed by the Members.11
1. Rules for the Preparation of an On-the-Spot Investigation

27 The investigating authorities must ensure upon initiation of an investigation
that (1) the authorities of the exporting Member and the firms known to
be concerned are informed (annex VI(1) SCMA) and that (2) there is an
explicit agreement of the firms concerned in the exporting Member before
the visit is finally scheduled (annex VI(3) SCMA).
28 If, in exceptional circumstances, the investigating authorities intend to
include non-governmental experts in the investigating team, the firms
and the authorities of the exporting Member must be so informed. Non-
10
WT/DS296/R, paras 7.405–7.407.
11
Cf. Panel Report, US—Steel Plate, WT/DS206/R, para. 7.56, where the panel explained
the mandatory character of the provisions of annex II ADA. See Bellis, Article 6 ADA,
para. 56.
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article 12 scma 579
governmental experts must be subject to effective sanctions for breach of

confidentiality requirements (annex VI(2) SCMA).12
As soon as the agreement of the firms concerned has been obtained, the 29
investigating authorities must notify the authorities of the exporting Member
of (1) the names and addresses of the firms to be visited and (2) the dates
agreed (annex VI(4) SCMA). Further, sufficient advance notice must be given
to the firms in question before the visit is made (annex VI(5) SCMA).
Prior to the visit, the investigating authorities have to advise the companies 30
concerned (1) of the general nature of the information to be verified and
(2) of any further information which needs to be provided. Investigating
authorities are allowed to make additional requests on the spot for further
details to be provided in the light of the information obtained (annex VI(7)
SCMA). In other words, investigating authorities may also verify such infor-
mation that has been provided in the course of a verification visit.13
Whenever possible, the investigating authorities must answer enquiries or 31
questions put by the authorities or firms of the exporting Members and
essential to a successful on-the-spot investigation before the visit (annex VI(8)
SCMA). This shall ensure the timely resolution of queries which may be
raised in connection with an upcoming verification visit.
2. Provisions Relating to the Visit Itself

Since the main purpose of the on-the-spot investigation is to verify infor- 32
mation provided or to obtain further details, it must generally be carried
out after the response to the questionnaire has been received. An on-the-
spot investigation prior to the receipt of the response to the questionnaire
requires the fulfilment of three conditions: (1) the particular firm to be
investigated must agree to the anticipated visit; (2) the exporting Member
must have been informed accordingly by the investigating authorities; and
(3) the exporting Member does not object (annex VI(7) SCMA).
Visits to explain the questionnaire may only be made at the request of an 33
exporting company. If such a request is made, the investigating authorities
may make visits to explain a questionnaire only if (1) the authorities of
the importing Member notify the representatives of the government of the
Member in question and (2) the latter does not object to the visit (annex
VI(6) SCMA).
12
A panel has considered questions relating to the inclusion of non-governmental experts
in the verification team under the ADA. See Bellis, Article 6 ADA, para. 46.
13
The scope of annex I(7) ADA (the provision of the ADA that mirrors annex VI(7)
SCMA) has been interpreted in Guatemala—Cement II, WT/DS156/R. See Bellis, Article 6
ADA, para. 48.
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580 article 12 scma
H. Determination Based on Facts Available (Art. 12.7 SCMA)
34 Investigating authorities may make their preliminary and final determina-

tions, affirmative or negative, on the basis of the facts available if interested
Members or interested parties (1) refuse access to necessary information;
(2) otherwise do not provide necessary information within a reasonable
period;14 or (3) significantly impede the investigation.
35 The SCMA does not include any particular rules on the use of facts avail-
able. In contrast thereto, the ADA contains a specific annex (annex II ADA)
which stipulates detailed rules that must be followed in case authorities
intend to base their “final determinations” in anti-dumping investigations
on “facts available”.15 This asymmetry has the result that, in parallel anti-
dumping and countervailing duty investigations, the investigating authorities
may be obliged to follow guidelines on the treatment of the information
provided, i.e., the provisions under annex II ADA, in one investigation and
not in the other. However, as the Appellate Body has observed, “it would
be anomalous if Article 12.7 of the SCM Agreement were to permit the
use of ‘facts available’ in countervailing duty investigations in a manner
markedly different from that in anti-dumping investigations”.16 It is therefore
not surprising that in Mexico—Anti-Dumping Measures on Rice, the Appellate
Body has, amongst others, referred to annex II ADA to explain that there
are “limitations on an investigating authority’s use of ‘facts available’ in
countervailing duty investigations”.17
36 Furthermore, in Mexico—Anti-Dumping Measures on Rice, the US alleged that
a Mexican provision violated art. 6.8 and annex II ADA as well as art.
12.7 SCMA. The particular Mexican provision required the investigating
authorities to assign the highest margin calculated from the facts available to
producers that did not appear or that did not export the subject merchan-
dise during the period of investigation without considering whether other
evidence on record might prove more accurate. In its analysis regarding
art. 12.7 SCMA, the Appellate Body observed that
to the extent possible, an investigating authority using the “facts available” in
a countervailing duty investigation must take into account all the substantiated
facts provided by an interested party, even if those facts may not constitute the
complete information requested of that party. Secondly, the “facts available”
to the agency are generally limited to those that may reasonably replace the
14
In EC—Countervailing Measures on DRAM Chips, the panel concluded that “providing
only one page of a report of more than two hundred pages” was a failure to provide the
necessary information. WT/DS299/R, para. 7.259.
15
16
17
Ibid.
BELLIS
article 12 scma 581
information that an interested party failed to provide. In certain circumstances,

this may include information from secondary sources.
The Appellate Body eventually concluded that the Mexican provision was
inconsistent with both the ADA and the SCMA because
in all situations of incomplete information—including those of producers not
appearing in the investigation and producers not exporting the subject mer-
chandise during the period of investigation—we read [the Mexican provision]
as preventing [the investigating authorities] from engaging in the reasoned and
selective use of the facts available directed by Article 6.8 of the Anti-Dumping
Agreement, Annex II thereto, and Article 12.7 of the SCM Agreement.18
I. Essential Facts under Consideration (Art. 12.8 SCMA)
The investigating authorities are obliged to inform all interested Members 37

and interested parties of the essential facts under consideration which are
the basis for the decision on whether definitive measures will finally be
imposed. Art. 12.8 SCMA says that such information (1) must take place
before a final determination is made and (2) should leave parties sufficient
time to defend their interests.
The panels and the Appellate Body have not ruled on questions relating to 38
art. 12.8 SCMA. However, several rulings related to art. 6.9 ADA, which
mirrors the rules of art. 12.8 SCMA, have been rendered. The rulings in
question may provide guidance with respect to the information requirements
according to art. 12.8 SCMA.19
J. Definition of “Interested Party” (Art. 12.9 SCMA)
Art. 12.9 SCMA determines that the meaning of “interested party” includes: 39
(1) an exporter, foreign producer, or the importer of a product subject to
investigation or a trade or business association a majority of the members
of which are producers, exporters, or importers of such product and (2)
a producer of the like product in the importing Member or a trade and
business association a majority of the members of which produces the
like product in the territory of the importing Member. Art. 12.9 SCMA
furthermore authorizes Members to treat domestic or foreign parties other
than those mentioned as interested parties.
18
19
See Bellis, Article 6 ADA, paras 75–79.
BELLIS
582 article 12 scma
40 In contrast to the ADA, the definition of interested parties within the

meaning of the SCMA does not include interested Members. Therefore,
interested Members are specifically mentioned in the relevant provisions
of the SCMA, whereas in the ADA, they are already covered by the term
“interested parties”.
K. Information Provided by Industrial Users and Consumers’

Organizations (Art. 12.10 SCMA)
41 According to art. 12.10 SCMA, the authorities must provide opportunities

for (1) industrial users of the product under investigation and (2) representa-
tive consumers’ organizations in cases where the product is commonly sold
at the retail level to provide information which is relevant to the investigation
regarding subsidization, injury, and causality.
42 Industrial users and consumers’ organizations may have legitimate interests
in the outcome of trade remedy proceedings given that such proceedings
can result in duty increases and consequently, higher prices for imported
goods. Therefore, art. 12.10 SCMA authorizes them to make their point
of view known in countervailing duty investigations. In order to get access
to non-confidential information, however, industrial users and consumers’
organizations are obliged to obtain the status of an interested party in
accordance with domestic legislation if the relevant domestic legislation
provides for this.
L. Assistance for Companies (Art. 12.11 SCMA)
43 The authorities must take due account of any difficulties experienced by

interested parties, in particular small companies, in supplying information
requested and must provide any assistance practicable.
44 Art. 12.11 SCMA accommodates the potential needs of small and medium
sized companies of exporting countries. Such companies may indeed expe-
rience certain problems in defending their interests in an anti-dumping
investigation. Language skills and administrative resources may, for example,
be insufficient to enable them to manage questionnaires and other requests,
and employing legal personnel may be very expensive.
M. Expeditious Proceeding (Art. 12.12 SCMA)
45 Pursuant to art. 12.12 SCMA, the procedures set out in the SCMA are not
intended to prevent the authorities of a Member from proceeding expedi-
BELLIS
article 12 scma 583
tiously with regard to initiating an investigation; reaching preliminary or

final determinations, whether affirmative or negative; or applying provisional
or final measures in accordance with relevant provisions of this agreement.
In other words, Members should strive to carry out the countervailing duty
proceedings in question expeditiously subject, however, to the respect of
the rules set forth in the SCMA.
BELLIS
Article 13
Consultations
13.1 As soon as possible after an application under Article 11 is accepted, and in any
event before the initiation of any investigation, Members the products of which may
be subject to such investigation shall be invited for consultations with the aim of
clarifying the situation as to the matters referred to in paragraph 2 of Article 11
and arriving at a mutually agreed solution.
13.2 Furthermore, throughout the period of investigation, Members the products of which
are the subject of the investigation shall be afforded a reasonable opportunity to
continue consultations, with a view to clarifying the factual situation and to arriving
at a mutually agreed solution.44
13.3 Without prejudice to the obligation to afford reasonable opportunity for consultation,
these provisions regarding consultations are not intended to prevent the authorities
of a Member from proceeding expeditiously with regard to initiating the investiga-
tion, reaching preliminary or final determinations, whether affirmative or negative,
or from applying provisional or final measures, in accordance with the provisions
of this Agreement.
13.4 The Member which intends to initiate any investigation or is conducting such an
investigation shall permit, upon request, the Member or Members the products of
which are subject to such investigation access to non-confidential evidence, includ-
ing the non-confidential summary of confidential data being used for initiating or
conducting the investigation.
Footnote 44: It is particularly important, in accordance with the provisions of this paragraph,
that no affirmative determination whether preliminary or final be made without reasonable
opportunity for consultations having been given. Such consultations may establish the basis
for proceeding under the provisions of Part II, III or X.
Bibliography
W. Goode, Dictionary of Trade Policy Terms (4th ed. 2003), 391; P. Pescatore et al., Handbook
of WTO/GATT Dispute Settlement (loose-leaf ); T. P. Stewart & A. S. Dwyer, Handbook on WTO
Trade Remedy Disputes: The First Six Years (1995–2000) (2001); W. Trumble & L. Brown (eds),
Shorter Oxford English Dictionary (5th ed. 2002), 13, 2009, 2324; E. Vermulst & F. Graafsma,
WTO Disputes: Antidumping, Subsidies and Safeguards (2002); WTO, WTO Analytical Index: Guide
to WTO Law and Practice (2003), vols I–II.
Cross-Reference
Art. 3 Tokyo Round Subsidies Code.
Table of Contents
A. General 1
I. Overview 1
II. Drafting History 3
B. Consultations 4
I. Pre-Initiation Consultations (Art. 13.1 SCMA) 6
1. Initiation of Countervailing Duty Investigations (Arts 13.1 and 11 SCMA) 6
2. Purpose of Pre-Initiation Consultations (Art. 13.1 SCMA) 7
II. Continued Consultations (Art. 13.2 and Footnote 44 SCMA) 10
III. Consultations during Investigation (Art. 13.3 SCMA) 15
IV. Access to Non-Confidential Information (Art. 13.4 SCMA) 18
DWYER
article 13 scma 585
A. General
I. Overview
Countervailing duty investigations, unlike anti-dumping investigations, 1
involve the determination of the “existence, degree and effect” of alleged
subsidies provided by a Member to private parties.1 Art. 13 SCMA offers
the opportunity for the importing and exporting Members to engage in
consultations during countervailing duty investigations.2
Art. 1.1 DSU establishes an integrated dispute settlement system for covered 2
agreements, including the SCMA. According to art. 1.2 DSU, the rules and
procedures in the DSU apply subject to the special or additional rules and
procedures in appendix 2 DSU, which prevail to the extent that there is
a difference between them.3 Art. 13 SCMA is not included as a special or
additional rule or procedure in appendix 2 DSU, which includes arts 4.2
to 4.12, 6.6, 7.2 to 7.10, 8.5, 24.4, 27.7, footnote 35, and annex V SCMA.
Although art. 13 SCMA consultations are not necessarily a precursor to
formal dispute settlement proceedings, they “may establish the basis for
proceeding under the provisions of Part II, III or X” SCMA.4
II. Drafting History

In 1979, certain GATT Contracting Parties entered into the Tokyo Round 3
Subsidies Code.5 Art. 3 Tokyo Round Subsidies Code included almost
verbatim the same provisions on consultations subsequently included in
art. 13 SCMA.
B. Consultations
Neither WTO panels nor the Appellate Body have discussed the consultation 4
requirements in art. 13 SCMA. While there is no corresponding provision in
the ADA, art. XIX:2 GATT 1994 and art. 12.3 SA also require Members
proposing to apply or extend a safeguard measure to provide an adequate
1
See arts 1, 2, 11.1 SCMA.
2
In contrast, art. 4 DSU addresses consultations initiated by a Member to discuss mea-
sures that affect the operation of any covered agreement. Art. 4 DSU consultations can
be a precursor to a request for the establishment of a panel under art. 6 DSU to resolve
a dispute.
3
See Appellate Body Report, Guatemala—Cement I, WT/DS60/AB/R, para. 65; Appellate
Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R, paras 51–52.
4
See footnote 44 SCMA.
5
BISD 26S/56 (1980). See Appellate Body Report, Brazil—Desiccated Coconut, WT/DS22/
AB/R, n. 14. By the end of 1994, the Tokyo Round Subsidies Code had 24 signatories.
DWYER
586 article 13 scma
opportunity for prior consultations with those Members having a substantial

interest as exporters of the product concerned.
5 Art. 13 SCMA requires Members in the process of conducting countervail-
ing duty investigations to engage in consultations with exporting Members
of subject products for the purpose of clarifying the situation and arriv-
ing at a mutually agreed solution. Such consultations allow the exporting
Member’s government to be briefed on the allegations raised in the context
of a countervailing duty investigation which, if valid, could prompt the
latter to offer evidence leading to termination of the proceeding as per
art. 11.9 SCMA or to withdraw the countervailable subsidies as per art.
19.1 SCMA. Specifically, art. 11.9 SCMA requires an investigation to be
terminated promptly as soon as the authorities concerned are satisfied that
there is insufficient evidence of either subsidization or injury. Art. 19.1
SCMA further states that:
If, after reasonable efforts have been made to complete consultations, a Member
makes a final determination of the existence and amount of the subsidy and
that, through the effects of the subsidy, the subsidized imports are causing
injury, it may impose a countervailing duty in accordance with the provisions
of this Article unless the subsidy or subsidies are withdrawn.
I. Pre-Initiation Consultations (Art. 13.1 SCMA)
1. Initiation of Countervailing Duty Investigations (Arts 13.1 and 11

SCMA)
6 Art. 13.1 SCMA requires Members in the process of conducting countervail-
ing duty investigations to engage in consultations with exporting Members
whose products may be subject to such investigation. The invitation for
consultations must be sent “[a]s soon as possible” after an art. 11 SCMA
application has been accepted or “in any event before the initiation of any
investigation”. Pursuant to art. 11 SCMA, a countervailing duty investigation
may be initiated on the basis of a written application by or on behalf of
the domestic industry (art. 11.1 SCMA) or self-initiated by the investigating
authority (art. 11.6 SCMA).
2. Purpose of Pre-Initiation Consultations (Art. 13.1 SCMA)

7 According to art. 13.1 SCMA, the purpose of such pre-initiation consulta-
tions is to clarify the situation as to “the matters referred to in paragraph 2
of Article 11” and arrive at a “mutually agreed solution”. Art. 11.2 SCMA
establishes the evidentiary requirements for initiations on the basis of both
applications and self-initiations.6
6
See art. 11.6 SCMA.
DWYER
article 13 scma 587
The term “mutually agreed solution” is also used in arts 4.3, 4.4, 7.3, 7.4, 8
and 13.2 SCMA while the term “mutually acceptable solution” is used in
arts 9.2 and 9.3 SCMA. Both terms appear to be used interchangeably in
art. 3.7 DSU.7 According to art. 3.7 DSU:
The aim of the dispute settlement system is to secure a positive solution to a
dispute. A solution mutually acceptable to the parties to a dispute and con-
sistent with the covered agreements is clearly to be preferred. In the absence
of a mutually agreed solution, the first objective of the dispute settlement
mechanism is usually to secure the withdrawal of the measures concerned if
these are found to be inconsistent with the provisions of any of the covered
agreements.
Art. 3.6 DSU further requires that: “Mutually agreed solutions to matters
formally raised under the consultation and dispute settlement provisions
of the covered agreements . . . be notified to the DSB and the relevant
Councils and Committees, where any Member may raise any point relat-
ing thereto.”
Thus, in the context of art. 13.1 SCMA, the purpose of the pre-initiation 9
consultations is to arrive at a mutually agreed solution with respect to the
subsidy allegations.
II. Continued Consultations (Art. 13.2 and Footnote 44 SCMA)

Art. 13.2 SCMA requires Members to afford the exporting Members of 10
subject products a “reasonable opportunity to continue consultations”
throughout the investigation. Note that art. 19.1 SCMA further requires
“reasonable efforts” be made to complete consultations before a Member
can issue a final countervailing duty determination. In contrast, Members
proposing to apply or extend a safeguard measure are required to provide
“adequate opportunity for prior consultations” according to art. 12.3 SA.
In the context of the provisions on facts available in art. 6.8 ADA (similar 11
to art. 12.7 SCMA), the Appellate Body has interpreted the word “reason-
able” modifying “period” or “time” as implying “a degree of flexibility
that involves consideration of all of the circumstances of a particular case.
What is ‘reasonable’ in one set of circumstances may prove to be less than
‘reasonable’ in different circumstances.”8 The word “opportunity” means
7
The terms “mutually satisfactory solution” or “adjustment” are also used throughout
the DSU. See arts 4.3 (mutually satisfactory solution), 11 (mutually satisfactory solution), 12.7
(mutually satisfactory solution), 22.8 (mutually satisfactory solution), 26.1 (mutually satisfac-
tory adjustment) DSU. The term “mutually satisfactory resolution” is used in art. 17.3 ADA
while the term “mutually agreed solution” is used in art. 17.4 ADA.
8
DWYER
588 article 13 scma
a “time or condition favourable for a particular action or aim; occasion,

chance.”9
12 Thus, whether or not the art. 13.2 SCMA requirement has been satisfied
will likely depend on the facts of the case.10 Investigating authorities have
a deadline of 12 to 18 months to conduct highly complex investigations
of both dumping and injury with significant evidentiary and due process
requirements.11 Therefore, it is likely that any reasonable opportunity to
continue consultations during the investigation will diminish as the deadline
for a final determination approaches.
13 Unlike art. 13.1 SCMA which refers to consultations “with the aim of
clarifying the situation as to the matters referred to” in art. 11.2 SCMA,
art. 13.2 SCMA includes a different reference to consultations “with a view
to clarifying the factual situation”. According to both arts 13.1 and 13.2
SCMA, the ultimate purpose of such consultations would be to arrive “at
a mutually agreed solution”.
14 Footnote 44 to art. 13.2 SCMA emphasizes the importance of such consul-
tations by stating that “no affirmative determination whether preliminary
or final be made without reasonable opportunity for consultations having
been given.” Footnote 44 SCMA further clarifies that “[s]uch consultations
may establish the basis for proceeding under the provisions of Part II, III,
or X.” Part II SCMA provides remedies for prohibited subsidies preceded
by consultations and if unresolved, panel or Appellate Body consideration.
Part III SCMA provides remedies for actionable subsidies preceded by
consultations and if unresolved, panel or Appellate Body consideration.
Part X SCMA is entitled “Dispute Settlement” and authorizes consultations
and dispute settlement pursuant to the provisions of arts XXII and XXIII
GATT 1994 as elaborated and applied by the DSU.
III. Consultations during Investigation (Art. 13.3 SCMA)

15 Art. 13.3 SCMA states that, “[w]ithout prejudice” to the obligation in art.
13.2 SCMA, the provisions regarding consultations are not intended to
prevent investigating authorities from proceeding expeditiously with regard
to initiation, affirmative or negative preliminary or final determinations, or
provisional or final countervailing measures. Note that similar language is
9
Shorter Oxford English Dictionary, 2009.
10
See Appellate Body Report, US—Line Pipe, WT/DS202/AB/R, para. 111 (explain-
ing that because art. 12.3 SA does not specify precisely how much time should be made
available for consultations, the adequacy of time in any particular case must necessarily be
addressed on a case-by-case basis).
11
See art. 11.11 SCMA.
DWYER
article 13 scma 589
used in art. 12.12 SCMA regarding procedures for the collection, verifica-
tion, and treatment of “evidence” in countervailing duty proceedings.
Art 19.1 SCMA further states that: 16
If, after reasonable efforts have been made to complete consultations, a Member
makes a final determination of the existence and amount of the subsidy and
that, through the effects of the subsidy, the subsidized imports are causing
injury, it may impose a countervailing duty in accordance with the provisions
of this Article unless the subsidy or subsidies are withdrawn.
Thus, arts 13.2 and 13.3 SCMA elaborate on what may be considered
“reasonable efforts” within the meaning of art. 19.1 SCMA.
The term “without prejudice” in art. 13.3 SCMA means “without damage 17
to one’s own rights or claims”.12 Thus, art. 13.3 SCMA acknowledges that
countervailing duty investigations are subject to specific deadlines, such as
that in art. 11.11 SCMA, and provides additional context for the art. 13.2
SCMA obligation to afford exporting Members a “reasonable opportunity to
continue consultations” throughout the investigation and the art. 19 SCMA
authorization to make a final determination to impose a countervailing duty
after “reasonable efforts have been made to complete consultations”.
IV. Access to Non-Confidential Information (Art. 13.4 SCMA)

Art. 13.4 SCMA requires Members, upon request, to give the exporting 18
Member(s) “access to non-confidential evidence, including the non-confi-
dential summary of confidential data being used for initiating or conducting
the investigation.”
The definition of the word “access” includes “[a]dmittance (to the presence 19
or use of )” and “[t]he action or process of obtaining stored documents, data,
etc.”13 In contrast, art. 12.2 SA requires a Member proposing to apply or
extend a safeguard measure to “provide the Committee on Safeguards with
all pertinent information,” including specific types of evidence. Thus, the
use of the words “permit access to” in art. 13.4 SCMA does not require the
importing Member to provide copies of the non-confidential information
to the exporting Member but at least would require access to the importing
Member’s public files.
Art. 13.4 SCMA must also be read in the context of art. 22 SCMA which 20
already requires investigating authorities to provide public notices of initia-
tions, provisional measures, preliminary/final determinations, and definitive
duties or acceptance of undertaking. Unlike art. 22 SCMA which requires
12
Shorter Oxford English Dictionary, 2324. See Goode, 391.
13
Shorter Oxford English Dictionary, 13.
DWYER
590 article 13 scma
investigating authorities to furnish “explanations” of certain determinations,

art. 13.4 SCMA specifically refers to “evidence”.
21 Thus, art. 13.4 SCMA’s reference to “evidence” must be read in the context
of art. 12 SCMA entitled “Evidence”. Art. 12.3 SCMA states that investi-
gating authorities, whenever practicable, shall provide timely opportunities
for all interested Members and parties “to see” and “to prepare presenta-
tions on the basis of ” all information that is relevant to the presentation
of their cases, that is not confidential, and that is used by the investigating
authorities in a countervailing duty investigation. Art. 12.4 SCMA further
explains the requirements for furnishing “non-confidential summaries” of
confidential information.
22 In contrast to art. 12.3 SCMA which conditions access to relevant informa-
tion “whenever practicable”, art. 13.4 SCMA requires the importing Mem-
ber to permit access on only one condition: a request must be made. Based
on the phrases “intends to initiate” and “is conducting” in art. 13.4 SCMA,
such a request could be made either before or during the investigation. Thus,
art. 13.4 SCMA provides to exporting Member(s) of the subject products
broader and freer “access” to non-confidential evidence than envisioned for
interested Members and parties under art. 12.3 SCMA.14
14
See Bellis, Article 12 SCMA, para. 14.
DWYER
Article 14
Calculation of the Amount of a Subsidy in Terms of the Benefit to the
Recipient
For the purpose of Part V, any method used by the investigating authority to calculate the
benefit to the recipient conferred pursuant to paragraph 1 of Article 1 shall be provided
for in the national legislation or implementing regulations of the Member concerned and
its application to each particular case shall be transparent and adequately explained. Fur-
thermore, any such method shall be consistent with the following guidelines:
(a) government provision of equity capital shall not be considered as conferring a benefit,
unless the investment decision can be regarded as inconsistent with the usual invest-
ment practice (including for the provision of risk capital) of private investors in the
territory of that Member;
(b) a loan by a government shall not be considered as conferring a benefit, unless there
is a difference between the amount that the firm receiving the loan pays on the gov-
ernment loan and the amount the firm would pay on a comparable commercial loan
which the firm could actually obtain on the market. In this case the benefit shall be
the difference between these two amounts;
(c) a loan guarantee by a government shall not be considered as conferring a benefit,
unless there is a difference between the amount that the firm receiving the guarantee
pays on a loan guaranteed by the government and the amount that the firm would
pay on a comparable commercial loan absent the government guarantee. In this case
the benefit shall be the difference between these two amounts adjusted for any dif-
ferences in fees;
(d) the provision of goods or services or purchase of goods by a government shall not be
considered as conferring a benefit unless the provision is made for less than adequate
remuneration, or the purchase is made for more than adequate remuneration. The
adequacy of remuneration shall be determined in relation to prevailing market condi-
tions for the good or service in question in the country of provision or purchase
(including price, quality, availability, marketability, transportation and other conditions
of purchase or sale).
Case Law
Appellate Body Report, Canada—Aircraft, WT/DS70/AB/R; Appellate Body Report,
US—Lead and Bismuth II, WT/DS138/AB/R; Panel Report, US—Lead and Bismuth II, WT/
DS138/R; Panel Report, US—Export Restraints, WT/DS194/R; Appellate Body Report,
US—Countervailing Measures on Certain EC Products, WT/DS212/AB/R; Appellate Body Report,
US—Softwood Lumber IV, WT/DS257/AB/R; Panel Report, EC—Countervailing Measures on
DRAM Chips, WT/DS299/R.
Table of Contents
A. General 1
B. Cost vs. Advantage 4
C. Benefit Calculation Guidelines 6
I. Choosing a Market 11
II. Choosing a Benchmark 17
III. Choosing a Calculation Methodology 19
D. Conclusion 24
A. General
Art. 1 SCMA defines the requisite elements of a countervailable subsidy, 1

including the idea that a “benefit” has been conferred. The SCMA does
not define the term “benefit” although the Appellate Body has addressed
this issue on numerous occasions.
DURLING
592 article 14 scma
2 Art. 14 SCMA addresses the concept of “benefit” in the very specific context
of a countervailing duty case, providing a set of guidelines with which any
national laws must comply. Art. 14 SCMA provides important context for
interpreting the term benefit as used in art. 1 SCMA, including whether
and to what extent any such benefit actually exists.1
3 Art. 14 SCMA is also the key article in determining the impact of any
affirmative countervailable subsidy finding in terms of duties that may be
imposed as a result of that affirmative finding. Specifically, art. 14 SCMA
establishes the principles for determining the value of a subsidy benefit,
which in turn determines the maximum level of ad valorem duties a Mem-
ber may impose against imports of the product concerned under arts 17
and 19 SCMA.
B. Cost vs. Advantage
4 As the title to art. 14 SCMA states, this article concerns the “calculation
of the amount of a subsidy in terms of the benefit to the recipient”. The
very title of art. 14 SCMA, therefore, presents one of the bedrock prin-
ciples for calculating a subsidy benefit. Benefit is to be measured in terms
of the advantage provided to the recipient, not the cost to the government
in providing the advantage. This principle is repeated in the chapeau to
art. 14 SCMA, which introduces guidelines for the calculation of benefit,
both to define a subsidy for purposes of art. 1.1 SCMA and to determine
the level of countervailing duties under part V SCMA.
5 The Appellate Body has specifically addressed this issue of perspective
under art. 14 SCMA, finding that it also informs the proper interpretation
of the term benefit in art. 1 SCMA.2 In short, the benefit contemplated
under arts 1 and 14 SCMA is distinct from the financial contribution from
which it flows. Benefit could be equal to the financial contribution; it could
be more; it could be less; or it could even be non-existent depending upon
the specific circumstances of the case. Art. 14 SCMA serves to focus the
analysis, presenting guidelines for benchmarks from which to determine the
value of the benefit (or lack thereof ) along this continuum.
1
WT/DS70/AB/R, para. 155; WT/DS299/R, para. 7.173.
2
DURLING
article 14 scma 593
C. Benefit Calculation Guidelines
Arts 14(a) to (d) SCMA provides guidelines for measuring benefit under 6
four common financial scenarios involving: (1) equity investments; (2) loans;
(3) loan guarantees; and (4) the provision of goods or services. WTO dis-
pute settlement has addressed some but not all of these specific guidelines.
Nonetheless, between a plain reading of the guidelines and consideration
of both general and specific observations made by panels and the Appellate
Body, an overarching framework emerges on how these guidelines should
be interpreted.
First, there is a clear link between art. 14 and art. 1.1 SCMA with respect 7
to the existence of benefit. Under art. 1.1 SCMA, no subsidy exists if a
benefit is not conferred. Arts 14(a) to (d) SCMA each describe specific
instances where particular transactions “shall not be considered as conferring
a benefit.” Thus, art. 14 SCMA is not just about calculating the amount of
benefit already deemed to exist. Rather, art. 14 SCMA establishes whether
or not a benefit exists at all and thereafter, whether a subsidy exists, con-
sistent with art. 1.1 SCMA.
Second, interpreters should be wary of too liberal an interpretation of the 8
term “guidelines” contained in the chapeau to art. 14 SCMA. Although
this term indicates deference to the Member’s choice of methodology in
calculating a subsidy benefit, the guidelines contain some fairly explicit
and fundamental ground rules. For example, arts 14(a) to (d) SCMA rely
on unambiguous terms focused on the “usual” or “prevailing” conduct in
the market under investigation3 or “comparable” conduct4. With respect to
the amount of benefit, arts 14(b) and (c) SCMA, in particular, state that the
amount of benefit conferred “shall be the difference” in the costs of the
instruments compared. With respect to the provision of goods, art. 14(d)
SCMA requires a comparison of the goods or services provided versus the
adequate remuneration for such goods or services, which “shall be deter-
mined in relation to prevailing market conditions.” The results of dispute
settlement illustrate that these terms can be fairly restrictive and cannot be
easily ignored.
Third, each of the guidelines provided in arts 14(a) to (d) SCMA refer to 9
the “market” as the source of appropriate benchmarks for determining
the existence and amount of benefit. This textual basis underlies the now
established jurisprudence on art. 1.1(b) SCMA concerning the meaning of
3
See arts 14(a), 14(d) SCMA.
4
See arts 14(b), 14(c) SCMA.
DURLING
594 article 14 scma
the term “benefit”.5 An authority should endeavour to compare the govern-

ment financial contribution against some comparable private transaction.
10 The jurisprudence covering art. 1.1(b) SCMA and the proper interpretation
of the term benefit identify two questions: First, which market should be
the source of benchmarks for measuring benefit? Second, once the bench-
marks are established, how is the actual value of the benefit to the recipient
calculated? Art. 14 SCMA offers an explicit answer to these questions in
certain, but not all, instances.
I. Choosing a Market
11 With respect to the source market for deriving benchmarks to be used in the
calculation of benefit, both art. 14(a) SCMA concerning equity investments
and art. 14(d) SCMA concerning the provision or purchase of goods and
services expressly establish the territory of the Member under investigation
as the preferred source of any benchmark. As underscored by the Appellate
Body in the context of the provision of goods and services under art. 14(d)
SCMA, this market preference is not easily avoided in the name of discre-
tion. The market of provision may only be discarded when it is established
that the market is so distorted by a predominant government presence that
it cannot yield reliable benchmarks. Moreover, having established the pres-
ence of market distortion, an alternative benchmark must still be validated
by demonstrating that it relates or refers to, or is connected with, prevailing
market conditions in the country of provision.6
12 There has not been any specific WTO decision addressing art. 14(a) SCMA
concerning the appropriate market benchmark for equity investments.
Nevertheless, the language in art. 14(a) SCMA using “the usual investment
practice of private investors in the territory of that Member” suggests a
strong preference for “in country” benchmarks, whether for qualitative or
quantitative purposes.
13 Importantly, art. 14 SCMA does not set forth a “perfect market” or “perfect
investor” standard, suggesting recognition that investors may act differently
depending on the market in which they reside. The issue is comparability,
and in the context of either art. 14(a) or art. 14(d) SCMA, “comparable”
is expressly defined as the market of the Member under investigation.
14 In contrast to arts 14(a) and 14(d) SCMA, arts 14(b) and 14(c) SCMA
concerning loans and loan guarantees offer no explicit guidance on the
source of appropriate benchmarks beyond “comparable commercial loans”.
Moreover, like art. 14(a) SCMA, to date there is no detailed interpretative
5
6
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article 14 scma 595
analysis offered by dispute settlement panels or the Appellate Body. Thus, one
of two interpretations may apply. First, consistent with the ordinary mean-
ing to be given to the terms contained in arts 14(b) and 14(c) SCMA, one
interpretation is that no specific market is preferred beyond those markets
where a “comparable commercial loan” may be found. This interpretation
is supported by the fact that arts 14(a) and 14(d) SCMA specify a market,
indicating some intent by the drafters to be less specific with respect to arts
14(b) and 14(c) SCMA.
On the other hand, the term “comparable commercial loan” as used in arts 15
14(b) and 14(c) SCMA already implies a market benchmark through the use
of the term “commercial.” Thus, the clause “on the market” contained in
art. 14(b) SCMA as it relates to loans could also suggest that a more specific
market is intended, namely, the market of the Member under investigation.
After all, if the issue is comparability, what would be more comparable
than the experience of commercial actors in the market of the Member
under investigation? Note, however, that art. 14(c) SCMA regarding loan
guarantees lacks this additional “on the market” clause.
Overall, it makes little sense to find a specific market preference more rel- 16
evant in the context of equity investment or the sale or purchase of goods
and services under arts 14(a) and (d) SCMA than in the context of loans or
loan guarantees under arts 14(b) and (c) SCMA. It would be more logical
to apply this more specific preference across each of the art. 14 SCMA
guidelines. Indeed, the logic supporting such an approach is found in the
context of dispute settlement concerning art. 1 SCMA. Specifically, there
is a recognition that individual markets can and do operate differently
depending on a multitude of unique factors at play in each market, none
of which have anything to do with the effects of countervailable subsidies.7
Yet, these differences can result in very different and thereby, far less com-
parable, benchmarks. If the goal is comparability, then a specific market
preference should prevail in all situations.
II. Choosing a Benchmark

Once a market is chosen, a benchmark from that market must be selected 17
for the purposes of ascertaining what, if any, subsidy benefit is conferred by
the transaction under investigation. At the most fundamental level, the issue
is about creating a proper comparison, this time focusing on comparable
transactions, whether they involve equity, loans, loan guarantees, or goods
and services.8 If the transaction under investigation and the comparable
7
WT/DS194/R, para. 8.31.
8
Note that art. 14 SCMA does not include guidelines for simple grants though it is
entirely plausible that a scenario could exist in which a grant provided by a government
could be available from a private entity on comparable terms, suggesting that no benefit
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596 article 14 scma
transaction available on the market have the same terms, assuming no

other distinctions, there can be no benefit. Again, the market determines
the benefit or lack thereof.9
18 In making the comparison, Members are under some obligation to compare
apples with apples, as illustrated in a recent subsidies case involving DRAMs
from Korea. In that case, the EC authorities countervailed loans and equity
infusions at their face value, effectively treating those transactions as simple
grants, without consideration of the terms and obligations attached to the
loans and equity. A WTO dispute settlement panel determined that finding
a benefit in the total value of the loans and equity was prohibited by art.
14 SCMA, which demanded a more comparable benchmark. Indeed, the
panel’s conclusion was that the value of the benefit associated with the loans
and equity must be less than if the same value of these transactions was
given as a simple grant.10 The panel did recognize, however, that identifying
a comparable benchmark may not always be easy and that Members were
afforded considerable discretion in this regard, but any benchmark must
pass a reasonableness test.11
III. Choosing a Calculation Methodology

19 Once a Member has established comparable benchmarks, it must still turn
the general comparison required by art. 14 SCMA into a specific valuation
of benefit. It is here that Members have the widest latitude in the absence
of any specific rules.
20 With respect to loans and loan guarantees, arts 14(b) and 14(c) SCMA are
fairly explicit in terms of the initial calculation. In the case of loans, the
benefit is the difference between the cost of the loan received and the cost
of the loan available on the market. In the case of loan guarantees, the
benefit is the difference between the cost of the guaranteed loan and the
cost of a comparable commercial loan absent the guarantee, adjusted for
any differences in fees.
was conferred. Take the example of a common form of debt forgiveness practiced by
creditors dealing with a borrower and specifically, a discounted early cash buy-out of debt
by the borrower. If both government and private institutions participate in the buy-out on
the same terms, there is an argument that no benefit exists because the private institutions
could serve as a benchmark.
9
The market as the ultimate determinant is also seen in other contexts. For example,
for subsidies previously found to exist, if such subsidies are later part of an arm’s length
transaction for fair market value, there is a rebuttable presumption that those subsidies are
extinguished as a result of the transaction. WT/DS212/AB/R, para. 127.
10
WT/DS299/R, para. 7.212.
11
Ibid., para. 7.213.
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article 14 scma 597
Arts 14(a) and 14(d) SCMA, on the other hand, do not contain the same 21
explicit guidance, although the idea of a cost differential determining the
value of benefit would appear implicit in the context of art. 14 SCMA
and the basic interpretation of “benefit” as offered by the Appellate Body.
Nonetheless, the issue has not been fully examined in dispute settlement
and there may indeed be more than one way to measure benefit for both
equity and goods and services.12
Ultimately, there are a host of calculation issues simply not addressed by 22
art. 14 SCMA. In particular, issues related to the timing, duration, and
the time value of a benefit have been left largely to the discretion of the
Members. WTO dispute settlement panels and the Appellate Body have
demonstrated a reluctance to scrutinize any methodology beyond the con-
fines of what is explicitly prescribed in art. 14 SCMA and have effectively
endorsed certain practices.
For example, the Appellate Body has recognized the validity of a “non- 23
recurring” benefit that, once granted, may confer a benefit over a prolonged
period of time instead of just the year of receipt.13 In other words, the total
value of the benefit is allocated over time, with a distinct, calculated benefit
value applicable to each year of the allocation. A dispute settlement panel
has also refused to examine temporal issues related to the calculation of
benefit.14 In short, once markets and benchmarks are identified, method-
ological choices related to the calculation of the benefit have, thus far, been
left largely to the discretion of the Members.
D. Conclusion
In many respects, art. 14 SCMA is one of the most important and least 24
developed provisions of the SCMA as it relates to countervailing measures.
A clear understanding of the meaning and limits of the provision, particu-
larly with respect to specific benchmark and calculation issues, has yet to
be fully developed by dispute settlement cases.
12
See ibid., paras 7.211–7.213, n. 186.
13
WT/DS138/AB/R, para. 62; WT/DS212/AB/R, paras 84, 158.
14
WT/DS138/R, para. 6.74.
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Article 15
Determination of Injury45
15.1 A determination of injury for purposes of Article VI of GATT 1994 shall be based
on positive evidence and involve an objective examination of both (a) the volume
of the subsidized imports and the effect of the subsidized imports on prices in the
domestic market for like products46 and (b) the consequent impact of these imports
on the domestic producers of such products.
15.2 With regard to the volume of the subsidized imports, the investigating authorities
shall consider whether there has been a significant increase in subsidized imports,
either in absolute terms or relative to production or consumption in the import-
ing Member. With regard to the effect of the subsidized imports on prices, the
investigating authorities shall consider whether there has been a significant price
undercutting by the subsidized imports as compared with the price of a like product
of the importing Member, or whether the effect of such imports is otherwise to
depress prices to a significant degree or to prevent price increases, which otherwise
would have occurred, to a significant degree. No one or several of these factors
can necessarily give decisive guidance.
15.3 Where imports of a product from more than one country are simultaneously subject
to countervailing duty investigations, the investigating authorities may cumulatively
assess the effects of such imports only if they determine that (a) the amount of
subsidization established in relation to the imports from each country is more than
de minimis as defined in paragraph 9 of Article 11 and the volume of imports from
each country is not negligible and (b) a cumulative assessment of the effects of the
imports is appropriate in light of the conditions of competition between the imported
products and the conditions of competition between the imported products and
the like domestic product.
15.4 The examination of the impact of the subsidized imports on the domestic industry
shall include an evaluation of all relevant economic factors and indices having a
bearing on the state of the industry, including actual and potential decline in output,
sales, market share, profits, productivity, return on investments, or utilization of
capacity; factors affecting domestic prices; actual and potential negative effects on
cash flow, inventories, employment, wages, growth, ability to raise capital or invest-
ments and, in the case of agriculture, whether there has been an increased burden
on government support programmes. This list is not exhaustive, nor can one or
several of these factors necessarily give decisive guidance.
15.5 It must be demonstrated that the subsidized imports are, through the effects47 of
subsidies, causing injury within the meaning of this Agreement. The demonstration of
a causal relationship between the subsidized imports and the injury to the domestic
industry shall be based on an examination of all relevant evidence before the authori-
ties. The authorities shall also examine any known factors other than the subsidized
imports which at the same time are injuring the domestic industry, and the injuries
caused by these other factors must not be attributed to the subsidized imports.
Factors which may be relevant in this respect include, inter alia, the volumes and
prices of non-subsidized imports of the product in question, contraction in demand
or changes in the patterns of consumption, trade restrictive practices of and com-
petition between the foreign and domestic producers, developments in technology
and the export performance and productivity of the domestic industry.
15.6 The effect of the subsidized imports shall be assessed in relation to the domestic
production of the like product when available data permit the separate identifica-
tion of that production on the basis of such criteria as the production process,
producers’ sales and profits. If such separate identification of that production is not
possible, the effects of the subsidized imports shall be assessed by the examination
of the production of the narrowest group or range of products, which includes the
like product, for which the necessary information can be provided.
15.7 A determination of a threat of material injury shall be based on facts and not merely
on allegation, conjecture or remote possibility. The change in circumstances which
would create a situation in which the subsidy would cause injury must be clearly
foreseen and imminent. In making a determination regarding the existence of a
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article 15 scma 599
threat of material injury, the investigating authorities should consider, inter alia,
such factors as:
(i) nature of the subsidy or subsidies in question and the trade effects likely to
arise therefrom;
(ii) a significant rate of increase of subsidized imports into the domestic market
indicating the likelihood of substantially increased importation;
(iii) sufficient freely disposable, or an imminent, substantial increase in, capacity
of the exporter indicating the likelihood of substantially increased subsidized 2
exports to the importing Member’s market, taking into account the availability
of other export markets to absorb any additional exports;
(iv) whether imports are entering at prices that will have a significant depressing
or suppressing effect on domestic prices, and would likely increase demand for
further imports; and
(v) inventories of the product being investigated.
No one of these factors by itself can necessarily give decisive guidance but the
totality of the factors considered must lead to the conclusion that further subsidized
exports are imminent and that, unless protective action is taken, material injury
would occur.
15.8 With respect to cases where injury is threatened by subsidized imports, the
application of countervailing measures shall be considered and decided with special
care.
Footnote 45: Under this Agreement the term “injury” shall, unless otherwise specified,
be taken to mean material injury to a domestic industry, threat of material injury to a
domestic industry or material retardation of the establishment of such an industry and
shall be interpreted in accordance with the provisions of this Article.
Footnote 46: Throughout this Agreement the term “like product” (“produit similaire”)
shall be interpreted to mean a product which is identical, i.e. alike in all respects to
the product under consideration, or in the absence of such a product, another product
which, although not alike in all respects, has characteristics closely resembling those of
the product under consideration.
Footnote 47: As set forth in paragraphs 2 and 4.
Bibliography
J. Czako et al., A Handbook on Anti-Dumping Investigations (2003); J. P. Durling & M. R. Nicely,
Understanding the WTO Anti-Dumping Agreement: Negotiating History and Subsequent Development
(2002); E. Vermulst, The WTO Anti-Dumping Agreement: A Commentary (2005).
Case Law
Appellate Body Report, Thailand—H-Beams, WT/DS122/AB/R; Appellate Body Report,
Mexico—Corn Syrup, WT/DS132/AB/RW; Appellate Body Report, EC—Bed Linen, WT/
DS141/AB/RW; Appellate Body Report, EC—Bed Linen, WT/DS141/AB/R; Appellate
Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R; Appellate Body Report, EC—Tube
or Pipe Fittings, WT/DS219/AB/R; Panel Report, US—Softwood Lumber VI, WT/DS277/R;
Appellate Body Report, Mexico—Anti-Dumping Measures on Rice, WT/DS295/AB/R.
Cross-References
Art. VI GATT; Art. 3 ADA; Art. 16 SCMA; Art. 4.2 SA.
Table of Contents
A. General 1
B. Overall Framework for Injury Determinations (Art. 15.1 SCMA) 3
C. Volume and Price Effects (Art. 15.2 SCMA) 12
I. General 12
II. Volume Effects 17
III. Price Effects 24
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D. Cumulation of Several Import Sources (Art. 15.3 SCMA) 30

E. Impact on the Domestic Industry (Art. 15.4 SCMA) 41
I. General 41
II. “All Relevant Economic Factors” 43
F. Determining Causal Relationship (Art. 15.5 SCMA) 66
I. General 66
II. “Demonstrated” 70
III. “Subsidized Imports” 71
IV. “Causal Relationship” 74
V. “All the Relevant Evidence” 78
VI. “Must Not Be Attributed” 80
VII. “Factors Which May Be Relevant” 87
G. The Domestic Industry to Be Evaluated (Art. 15.6 SCMA) 99
H. Threat of Injury Determinations (Art. 15.7 SCMA) 103
I. Special Care for Threat Determinations (Art. 15.8 SCMA) 111
A. General
1 Art. 15 SCMA sets forth the rules for determining “material injury”. Such
a finding of injury represents one of the essential legal preconditions to
imposing a countervailing duty. Since every countervailing duty investigation
involves a determination of injury, these rules come up in every countervail-
ing duty investigation and have been the subject of some WTO litigation.
Because there has been only limited WTO litigation over art. 15 SCMA
specifically, this chapter also discusses and relies upon the more extensive
WTO decisions interpreting the nearly identical obligations under art. 3
ADA.
2 Injury determinations also occur in the context of other trade remedy
actions, and these other contexts are also important. Art. 3 ADA nearly
has identical obligations for imposing an anti-dumping duty. Art. 4 SA sets
forth analogous obligations for finding “serious injury” as a prerequisite
to imposing safeguard measures. The Appellate Body has confirmed that
although one must be sensitive to the different contexts in which these par-
allel obligations occur, one can draw interpretative guidance from textual
language and WTO precedent in these other areas. Whenever addressing a
problem under art. 15 SCMA, one should also consider these other provi-
sions and the WTO case law thereunder.
B. Overall Framework for Injury Determinations (Art. 15.1 SCMA)
3 Art. 15.1 SCMA provides an overview of the substantive elements of an

injury determination and foreshadows much of what comes in the later,
more specific provisions. This basic framework (at least with regard to
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article 15 scma 601
injury) appeared in the prior Tokyo Round Subsidies Code.1 The negotia-
tions also added the phrase “positive evidence”, which did not exist in the
prior text.
Footnote 45 to the heading of art. 15 SCMA makes it clear that “injury” 4
means “material injury”. This phrase “material injury” comes from art. VI
GATT and represents one of the few bits of textual guidance that art. VI
GATT provides in the area of injury determinations; most of the provision
addresses other issues, not how to determine “injury”. Most scholars and
practitioners believe that art. VI GATT uses “material injury” to signify
something less than the “serious injury” required to impose safeguard
measures under art. XIX GATT. On the other hand, how little injury will
qualify as “material”? Some have argued that “material” is anything that
is more than immaterial so that even negligible levels of injury can trigger
measures, which would set a very low standard. Others have argued that
“material” must connote something more than negligible. WTO juris-
prudence has never addressed exactly what “material” should mean, and
perhaps, it never will struggle with this semantic issue.
Footnote 46 SCMA provides a short definition of “like product”. This lan- 5
guage parallels the language of art. 2.6 ADA. The concept of “like product”
arises in various WTO contexts. The most extensive WTO litigation has
occurred in the context of art. III GATT dealing with national treatment,
and those cases should be considered as useful guidance on the concept.
This introductory provision mentions the volume and price effects of 6
imports, the impact of imports on the domestic industry, and the condition
of the domestic industry. Since the remainder of art. 15 SCMA discusses
these three substantive elements in much more detail, these overview provi-
sions of art. 15.1 SCMA have not had much impact. In theory, the precise
words under art. 15.1 SCMA may shed some interpretative light on the
meaning of the more detailed provisions set forth later. It is important always
to consider possible arguments about the proper interpretation of some
specific provision in light of the language of art. 15.1 SCMA. In practice,
however, the more detailed provisions generally stand on their own, and
art. 15.1 SCMA does not shed much light.
In contrast to the explicitly substantive elements, the evidentiary and pro- 7
cedural elements of art. 15.1 SCMA have proved much more significant.
Art. 15.1 SCMA requires that an injury determination be “based on positive
1
Agreement on Interpretation and Application of Articles VI, XVI and XXIII of
the General Agreement on Tariffs and Trade, MTN/NTM/W/236, 5 April 1979. For
a detailed discussion of the history of the parallel provision art. 3.1 ADA, see Durling &
Nicely, 115–117.
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602 article 15 scma
evidence” and “involve an objective examination” of the key substantive

elements. Under the GATT, there was little litigation about these key
phrases. Since the creation of binding dispute settlement in the WTO and
the increase in litigation overall, there has been a great deal of litigation
over the meaning of these two key phrases.
8 On one level, the obligations of “positive evidence” and “objective examina-
tion” have a narrow procedural meaning. Determinations must rest on actual
evidence, not conjecture or opinion. Authorities must review the evidence
objectively and not with any bias or preconceptions. The Appellate Body
has affirmed these purely procedural interpretations.
9 On another level, however, these seemingly evidentiary and procedural pro-
visions have taken on some substantive elements. When a WTO case finds
that a particular conclusion does not rest on sufficient “positive evidence”,
that finding creates an incentive for the administering authorities in future
cases to rely upon more or different kinds of evidence. When a WTO case
finds that a certain method of analysis does not represent “objective exami-
nation”, that finding creates a strong incentive for the authority not to use
the same method of analysis in the future. On the other hand, panels may
affirm other approaches as meeting the requirements of art. 15.1 SCMA.2
Over time, such rulings will inevitably shape, to some degree, how national
authorities develop their methodologies for finding injury.
10 Those seeking to challenge an injury determination will often use these
overarching general principles to challenge findings that may not be spe-
cifically addressed by other provisions of art. 15 SCMA. For example, the
Appellate Body has upheld as inconsistent with “positive evidence” and
“objective examination” the following decisions by administering authori-
ties: (1) ending a period of investigation 15 months before the initiation of
the case;3 (2) considering only certain months of each year in the period of
investigation;4 (3) assuming that exporters not investigated were engaged in
unfair practices because some, but not all, of the investigated exporters were
doing so;5 and (4) focusing too much on a particular market segment and
not sufficiently considering the industry as a whole.6 Although all of these
decisions involved anti-dumping cases, the underlying principles would be
exactly the same in a countervailing duty case. In all of these examples, the
Appellate Body could have found that since the text does not specifically
prohibit these approaches, they should be permitted. Instead, the Appellate
2
Panel Report, US—Countervailing Duty Investigation on DRAMs, WT/DS296/R, paras
7.210–7.306.
3
4
5
WT/DS141/AB/RW, paras 130–133.
6
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article 15 scma 603
Body made judgments that certain methodological decisions are not suf-
ficiently objective and unbiased and therefore, should be overturned.
Given this potential interplay between art. 15.1 SCMA and other provi- 11
sions of art. 15 SCMA, anyone seeking to understand or craft arguments
about the scope of these obligations should pay particular attention to the
interplay of art. 15.1 SCMA and the particular provision of interest.
C. Volume and Price Effects (Art. 15.2 SCMA)
I. General
Art. 15.2 SCMA requires national authorities to consider volume and price 12
effects in making an injury determination. Volume effects refer to the quan-
tity of imports entering a country. Price effects refer to how this volume of
imports may be affecting domestic price levels in a country. Volume and
price effects serve as the basic foundation of any injury finding.
This language is basically unchanged from the language of the prior Tokyo 13
Round Subsidies Code. Although there were efforts during the Uruguay
Round to clarify the relationship between adverse price effects and the
margin of dumping with regard to parallel provisions in the ADA, those
changes were not adopted.7
The text is not clear on exactly what the requirement to consider volume 14
and price effects really means, suggesting that authorities will have a con-
siderable degree of discretion in this area. One source of ambiguity is the
absence of any concrete rules or guidelines. Instead, the text states that “no
one or several of the factors can necessarily give decisive guidance”. This
provision seems to give the authorities discretion to decide what factors are
important in individual cases.
Another source of ambiguity is the phrase “the investigating authorities shall 15
consider”, which prefaces the discussion of both volume and price effects.
Some have argued that this language means that the authorities need not
make any findings with regard to volume and price effects and need only
“consider” those issues.8 If so, then the text of art. 15.2 SCMA has little
substantive meaning since authorities can make any determinations they
wish, subject only to the other obligations of art. 15 SCMA.
Art. 15.2 SCMA applies only to investigations of current injury and has not 16
been extended to other contexts. In one case, the complaining party tried to
7
Durling & Nicely, 142–144.
8
WT/DS296/R, para. 7.233, n. 224.
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604 article 15 scma
expand the obligations for finding threat of injury under art. 15.7 SCMA,
but a WTO panel declined to read any additional obligations into a find-
ing of threat.9 In another case, the complaining party tried to expand the
obligations for finding the likelihood of recurring injury in a sunset review
under art. 11.3 SCMA, but a WTO panel rejected this attempt as well.10
In yet another case, the complaining party argued that these obligations
must be met for individual countries before deciding to cumulate multiple
import sources under art. 15.3 SCMA, but this argument was rejected by
both the panel and the Appellate Body.11 Collectively, these cases suggest
that art. 15.2 SCMA applies only in a narrow context and cannot easily
be used to shed contextual light on other obligations.
II. Volume Effects

17 Art. 15.2 SCMA requires the authorities to consider whether there has
been a “significant increase” in imports but provides a broad range of ways
to show that significant increase. The text explicitly allows consideration
of either an absolute increase in imports or an increase relative to either
production or consumption. This range of alternatives makes it relatively
easy for the authorities to find some increase. After all, most countervail-
ing duty disputes begin precisely because there has been some noticeable
increase in imports that triggered the countervailing duty petition in the
first instance.
18 The text does not address whether the authorities must consider only import
quantities, or whether the value of imports can be used as an alternative
measure. The word “volume” seems to refer to quantities. But as a practi-
cal matter, many authorities collect and assess both the quantity and value
of imports.
19 The key issue in most cases will be determining whether the increase meets
the standard of “significant”. The text does not provide much help on this
issue. There have been a few WTO cases, but they often defer to what the
national authorities determined to be significant.12 It remains to be seen
whether the WTO jurisprudence will, over time, provide some substantive
content to this key concept of “significant” and create any disciplines.
9
WT/DS277/R, paras 7.97–7.112.
10
Panel Report, US—Oil Country Tubular Goods Sunset Reviews, WT/DS268/R, paras
7.278–7.279.
11
Panel Report, EC—Tube or Pipe Fittings, WT/DS219/R, paras 7.220–7.267; WT/
DS219/AB/R, paras 103–118.
12
Two panels have deferred to agency findings of significant increase notwithstanding
unique circumstances that questioned whether the increases should be deemed significant.
Panel Report, EC—Countervailing Measures on DRAM Chips, WT/DS299/R, paras 7.277–7.309;
WT/DS296/R, paras 7.219–7.249.
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article 15 scma 605
One example of substantive content involves the consideration of non- 20

subsidized imports in the analysis. Given that the text of both arts 15.1
and 15.2 SCMA refers specifically to the volume of “subsidized imports”,
one might expect authorities to pay particular attention to this issue. But
some have not. The Appellate Body has now confirmed that authorities
can consider only those imports properly found to have been “subsidized”
in their assessment of volume effects.13
In some cases, there may be serious disputes over which imports have, in 21
fact, been properly found to be subsidized. Companies investigated and
found not to have been subsidized must be excluded. But when there are
numerous companies and the authorities resort to sampling, the authority
must decide what to do about the non-sampled companies. In one case,
the authority simply found that all non-sampled companies were dumping
even though several of the sampled companies were specifically found not
to have dumped. The Appellate Body rejected this approach noting that
although the text does not specify any particular methodology, the meth-
odology chosen must still be objective.14 Assuming everyone is subsidized
is not objective.
A more interesting example of substantive content involves the period of 22
time for finding an increase. The text of art. 15.2 SCMA does not address
in any way the period of time over which the authorities should evalu-
ate an increase. In one dispute, the panel found and the Appellate Body
agreed that the national authority could not end a period of investigation
more than a year before the initiation of the case and assess any increase
over that older period of time.15 This approach to the period of investiga-
tion appeared to have been designed to create an increase even though
the more recent trend showed a decrease. In this case, however, the panel
and Appellate Body seemed more concerned with the lack of objectivity,
in violation of art. 15.1 SCMA obligations. But these findings provide an
example where substantive content is being added to art. 15.2 SCMA,
albeit somewhat indirectly.
When considering “significant”, what matters is whether the underlying facts 23
support a conclusion that the increase in volume of subsidized imports is,
in fact, significant during the investigation period. The word “significant”
13
WT/DS141/AB/RW, paras 101–146. See also Panel Report, Argentina—Poultry Anti-
Dumping Duties, WT/DS241/R, paras 7.295–7.307. These cases actually addressed “dumped
imports”, but the principle would be the same under art. 15.2 SCMA.
14
WT/DS141/AB/RW, paras 118, 130–133.
15
Panel Report, Mexico—Anti-Dumping Measures on Rice, WT/DS295/R, paras 7.50–7.65;
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606 article 15 scma
itself is not crucial, and an authority need not use this magic word in its
findings for those findings to be consistent with art. 15.2 SCMA.16
III. Price Effects

24 Price effects are generally more controversial than volume effects. It is rela-
tively easy to measure import levels against various benchmarks in order to
measure the size of any increase. Price comparisons are harder and involve
more subjective judgments by the national authorities. The text of art. 15.2
SCMA provides only limited help in resolving these issues.
25 Art. 15.2 SCMA sets out three categories of adverse price effects. The
first is price undercutting—when import prices are below the prices of the
domestic product. A finding of price undercutting depends very much on
what categories the authorities create for comparison, over what periods
of time, and at what level of detail. But at least in the end, the standard
is clear—assessing whether the import price is higher or lower than the
domestic price being used in the comparison.
26 The second category is price depression—when imports drive down the
domestic prices regardless of whether the import prices are higher or lower
than the domestic prices. This type of price effect is harder to assess. So
many times, the argument to the national authorities is simply that imports
increased, and the increased supply must have depressed the prices. The
authorities do not really consider carefully the price effects associated with
the imports, but many factors determine prices, and a change in supply
is just one factor. In many cases, the authorities consider these harder
questions under the issue of causation as prescribed by art. 15.5 SCMA
discussed below.
27 The final category is price suppression—when imports prevent the domestic
prices from increasing or increasing as much as they might otherwise have
increased. This type of price effect is the hardest to assess. In addition to
problems associated with analyzing price depression, the authorities have to
wrestle with the additional fact that domestic prices may be actually increas-
ing but at a lower rate than they would but for the effects of subsidized
imports. Claims of price suppression often arise when costs are increasing,
but domestic prices are not increasing as quickly as costs so the industry
experiences a so-called “price-cost” squeeze. In such cases, both the prices
and the costs respond to various factors. Sorting out the role, if any, of
imports is that much more challenging.
16
Panel Report, Thailand—H-Beams, WT/DS122/R, paras 7.153–7.215.
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article 15 scma 607
For all three types of price effects, art. 15.2 SCMA imposes the additional 28
requirement that the adverse price effect must be “significant”. This require-
ment parallels that for the volume effects, but once again, the text provides
no guidance as to what “significant” means.
In the WTO litigation over price effects, the key issue seems to have been 29
whether the authorities had a sufficient factual basis and made reasonable
inferences from those facts. Occasionally, the panels have found authorities
to have acted inconsistently with art. 15.2 SCMA by finding price effects
based on assumptions and not facts.17 In most cases, the panels found the
authorities to have acted reasonably enough and deferred to the authori-
ties’ findings of adverse price effects.18 The cases depend very much on the
specific facts and whether the authorities seem to have acted reasonably.
D. Cumulation of Several Import Sources (Art. 15.3 SCMA)
Cumulation has been a controversial issue in trade remedy law. For many 30
years, the prior versions of the anti-dumping and subsidies codes did not
discuss cumulation even though some countries followed this practice in
their national laws. Some argued that cumulation was GATT-inconsistent
since it allowed the imposition of countervailing duty against a country
regardless of the behaviour of that particular country and because of the
behaviour of other countries.
This debate spilled over into the Uruguay Round negotiations. The Tokyo 31
Round Subsidies Code did not have a provision on cumulation. The ini-
tial negotiating drafts of the ADA added proposed text for art. 3.3 ADA,
but later drafts removed the provision. The penultimate draft prepared by
Director General Dunkel (the Dunkel Draft) did not have this provision.
But the language was added back at the last minute in the final text.19 The
debate ended with the final adoption of art. 3.3 ADA, which approved the
practice of cumulation as WTO-consistent.
The text of art. 15.3 SCMA makes cumulation discretionary. Authorities 32
“may” cumulatively assess import volume but need not do so. As a practi-
cal matter, most national authorities will invoke cumulation if the domestic
industry so requests and any requirements under national law have been
met. Cumulation has become a common practice.
17
WT/DS295/R, paras 7.50–7.65, 7.113. This finding was upheld on appeal. WT/
DS295/AB/R, paras 189–206.
18
WT/DS299/R, paras 7.310–7.345; WT/DS296/R, paras 7.250–7.274; Panel Report,
Korea—Certain Paper, WT/DS312/R, paras 7.238–7.254; WT/DS219/R, paras 7.286–7.297;
Panel Report, Egypt—Steel Rebar, WT/DS211/R, paras 7.67–7.76.
19
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608 article 15 scma
33 Numerous issues can arise in deciding whether cumulation is appropriate

under art. 15.3 SCMA. Some issues are straightforward, while others are
more complex. The requirement that the amount of subsidization must be
above de minimis is straightforward. The text of art. 15.3 SCMA explicitly
imposes this requirement, and art. 11.9 SCMA provides the definition of
de minimis. The word “amount” of subsidization suggests a potentially
broader concept than the word “margin” of dumping used in art. 3.3 ADA.
In both cases, however, the definition of de minimis uses a percentage to
set the threshold.
34 The requirement that imports must be more than negligible is less straight-
forward. Art. 15.3 SCMA imposes this requirement, but the text does not
cross-reference art. 11.9 SCMA as does the requirement that dumping
margins must be above de minimis. This textual difference raises the issue
of whether the art. 15.3 SCMA notion of “negligible” should be something
other than—perhaps broader than—the definition in art. 11.9 SCMA. This
issue has not been definitively addressed although one panel report implies
that the art. 11.9 SCMA definition should apply to art. 15.3 SCMA.20 This
reading seems contextually correct, although the Appellate Body has been
known to assign great significance to seemingly minor textual differences.
35 The requirement of a sufficient degree of competitive overlap is phrased in
very broad and general terms. Art. 15.3 SCMA requires that the cumulative
assessment be “appropriate in light of the conditions of competition”. This
language invites broad discretion by national authorities. So the authorities
must at least consider the issue and have some factual basis for finding it
“appropriate” to cumulate the various import sources.
36 This requirement of competitive overlap has two distinct aspects. First, there
must be a sufficient degree of overlap among the various import sources. In
other words, the various sources of imports must be competitive with each
other to justify lumping them all together and effectively treating them as a
single source of imports. If one particular country sold only much higher
priced goods that were significantly different from those of other import
sources, one could argue that it would not be appropriate to combine that
distinctive country with the other import sources.21
20
See Panel Report, US—Corrosion-Resistant Steel Sunset Review, WT/DS244/R, paras
7.89–7.105.
21
The text raises an interesting issue by using the word “between”. Normally one would
expect the use of “among” in this context as the English word to describe a comparison
among two or more different items. “Between” implied a comparison between only two
items. This word choice suggests that the drafters may have intended the competitive over-
lap to be tested by each country compared one-to-one with each other country. Suppose
country A overlaps with country B but does not overlap with country C, but country B
overlaps with both country A and country C. It may be appropriate to evaluate country B
by looking at countries A, B, and C together. But country A can only be cumulated with
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article 15 scma 609
Second, there must be a sufficient degree of overlap between the various 37

import sources and the domestic like product. In other words, the imports
must overlap with the domestic like product. If some countries sold only
much higher priced goods that did not, in any meaningful way, compete
with the domestic industry, it might not make sense to combine those
countries with other lower priced import sources that did compete with
the domestic industry.
These determinations of the degree of competitive overlap are very fact- 38
specific. Given the broad discretion under art. 15.3 SCMA and the inten-
sively fact-specific nature of these issues, it is not surprising that there
have been few WTO challenges to the decisions by national authorities to
cumulate import sources.22 Such a challenge would be difficult unless the
national authority had made a particularly egregious determination in a
particular case. The one effort so far to challenge a decision to cumulate
multiple import sources failed.23
Beyond the need for competitive overlap among the products, there must 39
also be an overlap of the countervailing duty investigations. Art. 15.3
SCMA explicitly requires the products at issue to be “simultaneously sub-
ject to countervailing duty investigations”. Presumably, “subject to” does
not require the cases to be on precisely the same schedule, although as a
practical matter, most anti-dumping petitions will be filed against multiple
sources at the same time.
A related issue involves possible overlap with other types of trade remedy 40
proceedings. Domestic industries often file anti-dumping and countervailing
duty petitions against the same target countries. Art. 15.3 SCMA does not
address whether a country targeted by only an anti-dumping duty peti-
tion could be cumulated with a country targeted only by a countervailing
duty petition. As a practical matter, anti-dumping cases are much more
common, and most target countries would probably be included in the
dumping challenges. But depending on how the national authorities made
their determination, there might be a basis to challenge cumulation that
improperly merged anti-dumping and countervailing duty proceedings.
country B, and country C can only be cumulated with country B. This interpretation has
never been tested.
22
Most of the WTO cases have involved a discrete legal issue about whether the rules
of art. 3.3 ADA apply in the context of determinations under art. 11.3 ADA. The Appel-
late Body has repeatedly held that they do not. Appellate Body Report, US—Anti-Dumping
Measures on Oil Country Tubular Goods, WT/DS282/AB/R, paras 144–173.
23
WT/DS219/AB/R, paras 103–118. The Appellate Body rejected the Brazilian argu-
ment that the authorities must assess the import volumes under art. 3.2 ADA before deciding
to cumulate them under art. 3.3 ADA.
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610 article 15 scma
E. Impact on the Domestic Industry (Art. 15.4 SCMA)
I. General
41 Interestingly, art. 15.4 SCMA describes how to find “injury” but without
defining or even using the word “injury” anywhere in the text. Recognizing
the impossibility of defining “injury” in any meaningful way, art. 15.4 SCMA
simply describes a process for determining the “impact” of the imports on
the domestic industry—the authorities must run down a list of all of the
relevant factors, none of which are decisive, and then analyze and decide
whether those factors, considered as a whole, in fact demonstrate “injury”.
The process described is unchanged from the Tokyo Round Subsidies Code.
Unlike some other issues, for which the text provides an objective bright
line rule, injury determinations are more subjective.
42 But like in many other areas, the text of art. 15.4 SCMA describes more
specifically what the authorities should do—the authorities should “evalu-
ate” these various factors. Unlike the use of “consider” in art. 15.2 SCMA
or the use of “demonstrate” in art. 15.5 SCMA, art. 15.4 SCMA uses
the specific term “evaluate”. “Evaluate” seems to require more than just
“consider”. It requires analysis, assessment, and the exercise of judgment
by the authorities.24 Merely collecting the data without analyzing them does
not meet the requirement to “evaluate” the art. 15.4 SCMA factors.25 As a
practical matter, panels have reviewed case-by-case whether the data col-
lected and the evaluation of those data constitute meaningful and sufficient
“evaluation” for purposes of art. 15.4 SCMA.
II. “All Relevant Economic Factors”

43 Art. 15.4 SCMA sets forth a non-exhaustive list of specific factors. The
text also makes several points about this list of factors. First, the textual
reference to “all” factors means that authorities must address in some way
each of the specifically enumerated factors or at least explain why that
particular factor is not being addressed. The Appellate Body has upheld
findings that authorities acted inconsistently with WTO obligations because
one of the specifically enumerated factors had been left out.26 That being
said, the treatment of each factor need not be identical. In a later case,
the Appellate Body upheld a panel finding that implicit consideration of
a factor was sufficient in order to comply.27 Art. 15.4 SCMA requires that
24
Panel Report, EC—Bed Linen, WT/DS141/RW, para. 6.162.
25
WT/DS211/R, paras 7.43–7.48.
26
27
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article 15 scma 611
all factors be addressed but does not specify the way in which they must be
addressed, as long as each factor has been “evaluated” in some sense. The
Appellate Body seems to be trying to strike a balance between requiring a
complete and meaningful analysis without imposing an artificial “checklist”
requirement on determinations.
Second, the last sentence of art. 15.4 SCMA makes it clear that the list 44
of specifically enumerated factors is not exhaustive. As a practical matter,
this list includes most of the most relevant factors that authorities routinely
consider in actual cases. Indeed, that is undoubtedly how the drafters came
up with this list in the first instance. But in particular cases, other factors
may arise that tend either to show or disprove injury. Those factors must also
be considered. This requirement, however, does not mean that everything
is relevant. One panel declined to consider various factors as not “having
a bearing on the state of the industry” and considered those factors to be
more appropriately addressed as issues under causation.28
Third, the last sentence of art. 15.4 SCMA also makes it clear that no 45
one factor or set of factors is decisive. As a practical matter, authorities
tend to emphasize certain factors. For example, most authorities put great
weight on whether the domestic industry is making or losing money. This
factor may not be “decisive”, but it certainly seems to carry a great deal
of weight before most national authorities. The text of art. 15.4 SCMA
allows authorities to put their own weight on different factors.
The specific factors appear in no particular order of importance, and many 46
of the factors overlap to some degree. The text also uses simple words to
reflect sometimes very complex and illusive concepts. In any particular case,
it is important to understand the relationship of the various injury factors
and how they interrelate to describe the true condition of the domestic
industry.
“Output” reflects the quantities being produced by the domestic industry. 47
Output and sales address similar performance characteristics but with a
different focus. Output reflects a pure production measure. Output can be
high, but if sales remain weak, the output will turn into inventories. Simi-
larly, output can be falling, but if prices increase enough, sales can still be
increasing. Alternatively, output can be falling, but an industry selling off
inventory can still experience increasing sales.
“Sales” generally refers to the top line of a company’s financial state- 48
ment—the total revenue collected from selling the product at issue. Trends
in “sales” will reflect both the quantity of sales and the prices at which
the sales have been made. Declining sales would normally suggest injury,
28
WT/DS211/R, paras 7.60–7.64.
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612 article 15 scma
unless the domestic industry proved able to earn higher profits even while
sales were declining.
49 “Market share” is both an injury factor and also a key part in analyzing
causation. A declining market share suggests that the domestic industry may
be injured since lower market share generally means lower sales and often,
lower profits. But at the same time, market share reflects simultaneously
the performance of the domestic industry, the performance of the imports
being investigated, and the performance of other import sources, since all
three groups are part of the total market.
50 “Profits” can mean many things. Authorities sometimes consider gross pro-
fits (sales revenue minus manufacturing costs), operating profits (gross profits
minus selling and administrative expenses), or net profits (operating profits
minus other expenses). Different companies and different countries define
these terms in various ways. More importantly, companies allocate costs
and expenses among product lines in various ways. It is sometimes hard to
discern whether a particular product line is, in fact, profitable or not.
51 As a practical matter, many national authorities consider operating losses
to be a major injury factor, one that can trump other favourable trends. A
domestic industry that is losing money in the view of many national authori-
ties must be injured. A harder issue arises when profits have declined from
relative high levels, but the industry is still making money. It is less clear
whether declining profits should suggest injury or simply the emergence of
a more competitive market.
52 “Productivity” has different aspects. Productivity trends may reflect declining
output, and thus, lower productivity on the remaining output. Alternatively,
a drop in productivity could reflect ageing manufacturing equipment that
works less efficiently. In either event, the declining productivity could reflect
a more vulnerable domestic industry. As a practical matter, productivity is
usually not a major factor stressed by national authorities in their determi-
nations. Unlike some other injury factors, authorities perceive productivity
as being influenced by multiple factors, with imports typically playing a
relatively small role.
53 “Return on investment” is simply another aspect of profitability. This fac-
tor places profitability trends in the context of how much money needs to
be invested to achieve those profits. Profits can be large and growing but
perhaps, not growing fast enough to justify the large investments necessary.
This factor can be particularly important in situations involving high tech
or other capital-intensive industries.
54 “Utilization of capacity” reflects another aspect of output. By measur-
ing levels of production relative to the changing capacity of the domestic
industry, the authorities can see whether domestic industry expectations are
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article 15 scma 613
being met. But this factor also often relates to causation arguments. When
the domestic industry invests and builds too much capacity, it is often that
excess domestic capacity—and not imports—that causes other injury indi-
cators to become negative.
“Factors affecting domestic prices” appears as an art. 15.4 SCMA factor, 55
but its meaning is not very clear. The effects of imports on domestic prices
have already been considered under art. 15.2 SCMA in very specific ways.
The consequences of domestic prices trends have also already been captured
by considering “sales”, “profits”, and “return on investment”. One could
imagine the level of domestic prices—particularly if they are falling—being
indicia of injury. But it is hard to see how the “factors affecting” domestic
prices can be indicia of injury. “Factors affecting” prices seem more relevant
to the issue of causation under art. 15.5 SCMA. As a practical matter,
national authorities inevitably consider domestic pricing at great length in
all aspects of the injury/causation analysis and often point to falling prices
as evidence of injury.
“Cash flow” provides another measure of financial health of the industry. 56
Cash flow usually reflects operating profits but adding back expense (like
depreciation) that do not require the company to spend cash to cover
them. Cash flow essentially provides a more focused measure of short-term
financial health. Financial analysts often find this measure more useful than
profits, which may reflect many other factors. National authorities, however,
generally have less expertise in financial analysis and find profits a more
easily understood factor that matters more in their decisions.
“Inventories” provides another way of thinking about the relationship 57
between production and sales. When sales fall but production continues,
inventories will build up. Most industries require some level of inventories
in the normal course of business. So when evaluating inventories, the
authorities usually focus on how the inventories have changed over time.
Authorities often perceive increasing inventories as a sign of injury.
“Employment” may have little economic meaning but a great deal of emo- 58
tional impact. If a company is expanding sales and making money, does it
really matter if employment is falling? Improving productivity—the ability
to make more with less—is a sign of strength, not weakness. Nevertheless,
the emotional impact of decreasing jobs is often taken to be a sign of injury
by the national authorities.
“Wages”, like employment, may lack economic meaning but still has an 59
emotional impact. Since many authorities track total wages in the industry,
this factor often provides little more information than employment itself.
When the number of workers falls, so does the total level of wages paid.
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60 “Growth” is a vague concept in art. 15.4 SCMA since the text does not
specify growth of what. As a practical matter, if the authorities consider
each factor and how it has been changing over time, the authorities are
implicitly considering an industry’s growth.29
61 “Ability to raise capital or investments” has particular importance in high
tech industries where success requires continuing investment in new tech-
nologies and equipment. As a practical matter, most authorities focus on
the actual success of companies in raising funds, not on the “ability” to
raise funds.
62 “Increased burden on government support programmes” occurs as a factor
to consider only in the SCMA and has no counterpart in the ADA. This
issue arises in the agricultural sector where subsidized imports may force
national governments to pay more in farm supports to offset the lower prices.
As a practical matter, this issue has not arisen very often.
63 One of the most significant factors is the one left out. The “magnitude of
the margin of dumping” reflects a unique feature of art. 3.4 ADA. The
parallel language in art. 15.4 SCMA does not include any mention of the
margin of subsidization. On the one hand, this factor has questionable
relevance to the injury inquiry. After all, as opposed to whether import
price underselling is high or low (which has already been considered),
does it really matter whether the subsidy margin is high or low? Moreover,
relevance of the magnitude of subsidy will vary from industry to industry.
On the other hand, as a practical matter, the magnitude of the subsidy
margin matters to many national authorities, and high subsidy margins
tend to increase the likelihood of an affirmative injury finding, regardless
of how illogical this may be.
64 Note that although no one factor or set of factors should be decisive, that
discretion does not mean that authorities can make any finding they wish.
Depending on which factors are improving or worsening, a finding of
“injury” may be inconsistent with art. 15.4 SCMA. For example, in one
case, the authorities stressed adverse price trends to find injury. But the panel
found, and the Appellate Body affirmed, that the favourable financial and
operating trends (profits, return on investment, production, and capacity
utilization) trumped whatever adverse price trends might have been occur-
ring.30 The overall determination must seem reasonable to the reviewing
panel. In another case, the authorities had cited only negative trends and

29
Panel Report, Mexico—Corn Syrup, WT/DS132/RW, paras 6.24–6,36; WT/DS132/

30
AB/RW, paras 97–100.
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article 15 scma 615
had not really analyzed the contrary positive trends, so the panel found the
determination to be WTO-inconsistent.31
These factors apply primarily to the determination of current injury under 65
art. 15.4 SCMA but can apply elsewhere. In particular, these factors can
serve as the backdrop against which the authorities may evaluate threat of
injury under art. 15.7 SCMA. But unlike a determination under art. 15.4
SCMA, a determination under art. 15.7 SCMA need consider these fac-
tors only as a backdrop against which to evaluate what may be changing.
There is no need for a second exhaustive assessment of these factors in the
context of the threat determination.32
F. Determining Causal Relationship (Art. 15.5 SCMA)
I. General
In many ways, art. 15.5 SCMA represents the most important obligation 66
under art. 15 SCMA. In most trade remedy cases, the fiercest disagreements
occur over the issue of “causation” and whether the unfairly traded imports
should be deemed to have “caused” the adverse effects being suffered by
the domestic industry. These fights before the authorities under national
law have often become WTO disputes over what the authorities decided
and whether those decisions were consistent with the obligations under art.
15.5 SCMA. Whether one seeks the imposition of duties or seeks to avoid
the duties, causation will usually be the most important issue.
Claims under art. 15.5 SCMA often arise in parallel with other claims. 67
If an authority acts inconsistently with other parts of art. 15 SCMA, that
inconsistency will often also trigger an inconsistency with art. 15.5 SCMA.
For example, when the authorities cut off the investigation period too early,
15 months prior to the beginning of the investigation, both the panel and
the Appellate Body found this decision not to be an “objective examination”
under art. 15.1 SCMA but also found violations of arts 15.2, 15.4, and
15.5 SCMA.33 In another case, once the panel found that the authorities
had improperly found a risk of future increases in imports inconsistently
with art. 15.7 SCMA, the panel also found a parallel violation of art. 15.5
SCMA.34 If the authorities have made some broad error in their investiga-
tion, that error will probably infect the causation determination and trigger
an inconsistency with art. 15.5 SCMA.
31
WT/DS312/R, paras 6.271–6.273.
32
WT/DS277/R, paras 7.105–7.112.
33
WT/DS295/R, paras 7.64–7.65; WT/DS295/AB/R, paras 173–188.
34
WT/DS277/R, paras 7.119–7.122.
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68 Art. 15.5 SCMA poses interpretative challenges. Although art. 15.5 SCMA
seeks to impose meaningful disciplines, it does not provide much concrete
guidance on how the authorities should proceed in making this important
determination. The text did not change much during the Uruguay Round
negotiations. The revisions were merged into the main text and an additional
sentence was added stressing the need to examine “all relevant evidence”.35
This new sentence stressed the consideration of evidence “before the authori-
ties” and also that the obligation applied only to “known factors.” WTO
panels and the Appellate Body have therefore had to struggle to discern
from concrete cases when the authorities went too far or did too little and
thus, breached these obligations. Each sentence of art. 15.5 SCMA raises
important issues and must be considered carefully.
69 When addressing causation, it is also particularly important to consider
related areas of WTO jurisprudence. On the issue of causation, some of
the most important WTO precedents have arisen in the area of safeguards,
and these cases should be considered carefully.
II. “Demonstrated”
70 Art. 15.5 SCMA uses a particularly strong phrase—“it must be demon-
strated”. Compared to the requirement to “consider” in art. 15.2 SCMA
and the requirement to “examine” in art. 15.4 SCMA, the requirement to
“demonstrate” in art. 15.5 SCMA appears to impose the most demanding
requirement on the authorities. Although art. 15.5 SCMA also references
the need to “examine” the evidence and other possible factors, after that
examination, the authorities must still “demonstrate” the necessary causal
relationship. This need to “demonstrate” thus imposes another layer of
obligation on the part of the national authorities. It may be enough to
“examine” injury factors, but the authorities must go further and “demon-
strate” the causal relationship.
III. “Subsidized Imports”

71 The first sentence of art. 15.5 SCMA focuses the inquiry on “subsidized
imports”, which represents an important discipline. The authorities cannot
find injury from all imports, only those imports that have been properly
deemed to be “subsidized” in accordance with the SCMA. In many cases,
all the imports will be subsidized, and the distinction between all imports
and subsidized imports will not matter. But in some cases, only a portion
of the imports will be subsidized, and the issue will be very important.
35
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The first sentence also directs specific attention to the “effects of subsidies”. 72
In other words, the adverse volume and price effects set forth in art. 15.2
SCMA and the adverse consequences for the domestic industry set forth
in art. 15.4 SCMA must be linked to the “subsidy”. It is not enough for
the imports to be causing injury; the subsidized imports must be causing
the injury.
Moreover, the subsidized imports must be causing injury “through” the 73
effects of subsidies. This aspect of the text has not yet been explored care-
fully in the WTO jurisprudence. In some cases, imports may be deemed
subsidized because some portion has been subsidized, and the overall average
dumping is above the de minimis level even though another portion was
not subsidized. For example, in a case involving orange juice, the imported
frozen concentrated juice may be “subsidized”, but the imported fresh juice
may not be subsidized. In this example, if the increase in volume and loss
of domestic market share resulted from imports of fresh juice, it is not clear
that the injury resulted “through the effects of subsidies” even though the
overall margin of subsidy on all orange juice may be above de minimis.
IV. “Causal Relationship”

The obligation to find a “causal relationship” between the subsidized 74
imports and the material injury lies at the heart of art. 15.5 SCMA. Art.
VI GATT provides very little guidance on injury issues. Art. VI GATT
uses the word “causes”, which art. 15.5 SCMA then recasts as the need to
find a “causal relationship”.
Causation has a long history in law and arises in many different contexts 75
under both domestic and international law. Art. 15.5 SCMA does not itself
define the method by which the authorities are to find this “causal relation-
ship”. As the Appellate Body has repeatedly stated, authorities are free to
use any methodology they wish.36
National authorities in fact use a wide variety of approaches, but most of 76
them are rather simplistic. Modern economics provides many useful con-
ceptual and empirical tools to address the issue of causation, particularly
with regard to prices. Indeed, it is hard to imagine how any authority could
think about explaining the factors affecting domestic prices without using
economics to some degree. But although panels and the Appellate Body
recognize the relevance of economics to analyzing causation, they refuse to
impose any obligation to use economics when conducting this analysis.
36
WT/DS219/AB/R, para. 189; WT/DS184/AB/R, para. 224.
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77 The Appellate Body has provided only one piece of concrete guidance
in this area—the idea of a negative correlation. If the trends in imports
correlate negatively with the various indicia of injury, the Appellate Body
has indicated that it will be very difficult to establish a causal relationship.37
This principle emerged in a case involving safeguards, but the logic would
extend to determinations under art. 15.5 SCMA as well. Modern economics
has devoted a great deal of effort to finding ways to distinguish causation
from mere correlation. Modern economics has also developed techniques
to consider several factors at the same time and thus avoid the less useful
one-by-one comparison required by the Appellate Body’s “negative cor-
relation” approach. But given the lack of any other guidance so far, most
practitioners appreciate having at least one concept that can be used to
test a finding of causation.
V. “All the Relevant Evidence”

78 The second sentence of art. 15.5 SCMA imposes a specific requirement
to consider “all of the relevant evidence”. Although this requirement may
be implicit in the general requirement to make an “objective examination”
as required by art. 15.1 SCMA, the text underscores the importance of
considering all the evidence in examining causation. In those cases where
the authorities did not consider all the evidence, this failure contributed to
finding an inconsistency with art. 15.5 SCMA.38
79 The evidence, however, must be “before the authorities” for there to be
an obligation to consider the evidence. The scope of what evidence the
authorities must consider arises in several places in art. 15 SCMA and the
SCMA more generally. In art. 15.4 SCMA, for example, the authorities
must consider “all relevant economic factors” and does not impose any
specific limitation on those factors or the evidence to be considered. Yet art.
17.5(ii) ADA imposes a general requirement that panels consider only the
“facts made available in conformity with appropriate domestic procedures
to the authorities of the importing member.” As a practical matter, it will
be difficult to establish an inconsistency with art. 15.5 SCMA based on
information that was not before the authorities. One might have an argu-
ment that the authorities did not conduct an “objective examination” by
improperly excluding evidence, but that would be more properly framed
as a procedural argument under art. 15.1 SCMA.
37
Appellate Body Report, Argentina—Footwear (EC), WT/DS121/AB/R, paras 144–
145.
38
WT/DS295/R, paras 7.86–7.87 (authorities only considered data for half of each
year in the period of investigation).
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article 15 scma 619
VI. “Must Not Be Attributed”

The third sentence of art. 15.5 SCMA sets forth the important obligation of 80
non-attribution. The authorities cannot properly blame subsidized imports
for the problems caused by other factors. This sentence opens with an explicit
obligation that the authorities “shall” examine the other factors.
Notwithstanding the importance of this obligation, the text does not pre- 81
scribe any method for ensuring non-attribution. The Appellate Body has
repeatedly noted that authorities are free to use any methodology they wish
as long as they ensure that imports have not been improperly blamed.39
Non-attribution has come up in numerous cases, and the Appellate Body 82
has addressed this requirement repeatedly. Yet, the jurisprudence still does
not provide concrete and meaningful guidance to national authorities trying
to meet the obligation in the first instance or to panels trying to assess deci-
sions by authorities after the fact. Given that the WTO Members themselves
failed to provide anything more than general language, it is hard to fault
the Appellate Body for proceeding slowly itself. In this area, one has the
strong sense that the Appellate Body would like to let the cases develop
over time and let guidance emerge slowly from those cases.
The Appellate Body first confronted the non-attribution issue in the context 83
of safeguards, and that precedent is discussed elsewhere.40 Under the ADA,
the Appellate Body first addressed non-attribution in 2001 in US—Hot-Rolled
Steel. In that important case, the Appellate Body found that non-attribution
“must involve separating and distinguishing the injurious effects of the other
factors from the injurious effects of the dumped imports.”41 In adopting this
interpretation, the Appellate Body explicitly relied upon its own jurispru-
dence in recent safeguard cases and rejected arguments based on an older
GATT panel case that authorities should not have to “isolate” the role of
other factors.42 Having made this important interpretative statement and
reversed a panel that had found that authorities need not isolate the other
factors, the Appellate Body declined to complete the analysis and so did not
provide any example of how to separate and distinguish other factors.
The Appellate Body returned to this issue in 2003 in EC—Tube or Pipe Fit- 84
tings. The Appellate Body repeated its conclusion that the authorities must
separate and distinguish the effects of other factors. The Appellate Body
then addressed the issue of whether the authorities must consider the col-
lective effects of the other factors, finding that although art. 15.5 SCMA
39
WT/DS219/AB/R, para. 189; WT/DS184/AB/R, para. 224.
40
See Prost & Berthelot, Article 4 SA, paras 59–68.
41
WT/DS184/AB/R, para. 223. See also WT/DS219/AB/R, para. 188.
42
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620 article 15 scma
does not require the assessment of the collective effects in every case, there
may be particular cases that require such assessment of collective effects to
ensure proper non-attribution.43 But the Appellate Body then found that the
panel report did not provide any evidence with respect to the possible col-
lective effects in this particular case and declined so to find because of this
failure to address collective effects. So like US—Hot-Rolled Steel, the Appellate
Body avoided the need to address the specifics of when the authority has
adequately “separated and distinguished” other factors.
85 Various panels have addressed concrete situations, and their decisions provide
some limited guidance even without the benefit of Appellate Body review,
and most of the cases have involved the ADA. In one case, the panel found
a problem. Although the national authority had discussed other factors
generally as conditions of competition, the failure to address those factors
in concrete terms in the context of future trends rendered the threat of
injury determination based on future trends highly suspect.44 In two cases
specifically involving art. 15.5 SCMA, the WTO panel found some agency
explanations convincing but faulted as inadequate the effort to distinguish the
effect of declining demand45 or the effort to distinguish economic downturn,
overcapacity, and other non-subsidized imports.46 In most cases, however,
the panels have generally upheld findings by authorities that distinguished
the effects of imports from other causes of injury:
(1) When the domestic industry itself was importing unfairly traded imports,
a panel found that simply excluding those domestic companies importing
significant volumes, particularly when those imports had stopped by the end
of the period of investigation, properly ensured non-attribution.47
(2) As long as the authorities considered each of the arguments about imports
from countries not under investigation and reached reasonable conclusions,
the authorities will have ensured non-attribution.48
(3) Authorities could reasonably assume that imports kept prices low and
prevented the domestic industry from raising its prices enough to cover
increases in the industry costs and in doing so, properly attributed injury
to imports.49
43
44
WT/DS277/R, paras 7.133–7.137.
45
WT/DS296/R, paras 7.322–7.371.
46
WT/DS299/R, paras 7.322–7.437.
47
WT/DS312/R, paras 7.284–7.285.
48
WT/DS219/R, paras 7.381–7.399.
49
WT/DS141/RW, paras 6.238–6.239.
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article 15 scma 621
(4) Authorities reasonably addressed the arguments that domestic industry

capacity expansion was the true cause of the industry’s problems. The
authorities need only provide a plausible explanation of the facts.50
Notwithstanding the many cases, the precedent to date has produced little 86
concrete guidance. There is broad agreement that the imports under inves-
tigation need not be the sole cause of injury.51 As long as the authorities
addressed the specific causal factor being discussed and provided some
plausible explanation, reviewing panels seem to have been satisfied by quite
general and purely qualitative explanations. Part of the difficulty may be that
in many cases, the parties arguing before the authorities in the first instance
did not provide detailed arguments and evidence. In many countries, authori-
ties do not disclose the detailed information collected in the investigation to
the parties, and so the ability to develop effective arguments is quite limited.
The Appellate Body appears to have applied a more demanding standard
for the explanation required to establish WTO-consistency.
VII. “Factors Which May Be Relevant”

To ensure non-attribution, the authorities must decide what factors need to 87
be considered as possible alternative causes. In theory, any factor could be
relevant. But the text of art. 15.5 SCMA imposes various limitations.
First, as discussed earlier, any arguments about other factors must rest on 88
“evidence before the authorities”. In other words, parties cannot develop
new causation arguments based on new facts and then present those argu-
ments to the panel after the fact. The panel will decline to consider such
arguments.
Second, the authorities need only examine “any known factors”, not all 89
conceivable factors. Discerning a “known” factor sometimes raises issues. In
most cases, the factor will have been discussed before the authorities, and
the authorities will have ruled on the issue. But in other cases, the factor
may have been discussed only indirectly, and the “factor” being discussed
before the WTO panel may be framed differently from the factor discussed
before the authorities in the first instance. The Appellate Body has recog-
nized these uncertainties but so far, has not addressed them. The Appellate
Body has only ruled that once a factor is “known” by the authorities for
any purpose, it is “known” for all purposes.52
Third, the other factors must be injuring the domestic industry “at the same 90
time”. This requirement has not been explored in the WTO. As a practical
50
WT/DS211/R, paras 7.117–7.126.
51
52
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622 article 15 scma
matter, the timing of the subsidized imports and the other factors should
overlap in most cases. Any issues about the lack of the necessary overlap
would be resolved case by case.
91 The fourth sentence of art. 15.5 SCMA sets forth five specific examples
of other factors. This list of factors is not exclusive, and other factors may
be at issue in each particular case. The text also simply identifies factors,
without providing any concrete guidance on how to assess them.
92 “The volume and prices of non-subsidized imports”: This factor comes up
often, since in most cases only some imports are being challenged. When
the imports not being investigated represent a large volume and share of
the market and particularly when they are increasing rapidly, there may
be real questions about which source of imports is really causing problems
for the domestic industry. Authorities often distinguish this factor by simply
noting that the imports under investigation gained market share.
93 “Contraction of demand or changes in the pattern of consumption”:
Shrinking markets often trigger trade disputes. If imports hang on to
market share in the face of a declining market, the domestic industry will
frequently blame the imports. Authorities often distinguish this alternative
factor by simply noting that in spite of such changes, the imports under
investigation gained market share.
94 “Trade restrictive practices of and competition between the foreign and
domestic producers”: This factor rarely arises in actual cases. Moreover,
trade restrictive practices often lead to higher prices and less injury to the
domestic industry.
95 “Developments in technology”: This factor also rarely arises. Parties some-
times argue about the failure of the domestic industry to keep up with
technological advance in the industry, which leads to weaker performance.
Authorities often distinguish this factor by simply noting that a weakened
domestic industry is more vulnerable to injury.
96 “Export performance and productivity of the domestic industry”: This text
actually reflects two distinct factors. Weak domestic industry performance
in export markets may indicate an underlying problem other than imports.
This factor rarely comes up in cases, and when it does, the domestic industry
often points to competition in export markets with the same foreign com-
petitors being targeted by the countervailing duty case. Productivity of the
domestic industry is a different factor but often simply mirrors arguments
about domestic industry failings that have nothing to do with imports.
97 When compared to the variety of arguments raised in actual cases, art.
15.5 SCMA provides a rather limited list of issues to consider. Even more
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article 15 scma 623
troubling, however, is the absence of any useful guidance about what the
authorities should do with these other factors, once identified.
This lack of guidance is particularly troubling given the extent to which 98
modern economic scholarship has addressed this precise issue. Economic
theories about what factors affect domestic prices and econometric tech-
niques to measure the effect of various factors, while controlling for other
factors, provide a very useful and principled framework to address these
issues. When reading WTO decisions, however, one has the strong sense that
those with legal training are simply not comfortable embracing economic
thinking. It remains to be seen how these attitudes may evolve over time.
G. The Domestic Industry to Be Evaluated (Art. 15.6 SCMA)
Art. 15.6 SCMA speaks to the issue of how to match up the injury analysis 99
with the domestic industry producing the competing products. The language
from the Tokyo Round Subsidies Code was largely carried over to the cur-
rent SCMA with only some clarification of the language.53 Art. 15.6 SCMA
must be read in context with art. 16 SCMA, which defines the “domestic
industry” for purposes of the countervailing duty investigation.
In principle, art. 15.6 SCMA requires a comparison of imports to the 100
domestic like product. In many cases, the imports being investigated will
correspond to a well-defined segment of domestic production. For example,
imports of hot-rolled steel are compared to the domestic production of
hot-rolled steel. But the concept of like product can be broader than the
product being imported. For example, if the like product is flat panel com-
puter displays, imported active matrix LCD screens could be compared to
domestically-produced passive matrix LCD screens. The imported product
may be a more or less advanced version of the same basic product, but the
comparison can still be made.
The second sentence of art. 15.6 SCMA then provides an exception for 101
those cases when the domestic industry cannot separately identify data
for the like product. In those cases, art. 15.6 SCMA allows the national
authorities to use the narrowest category for which the domestic industry
can provide the necessary data. For example, if the like product is high
carbon hot-rolled steel, the domestic industry could provide data on the
broader category of all types of hot-rolled steel. As a practical matter, this
issue does not come up very often. In most cases, the domestic industry
defines the like product in terms that correspond to their business segments.
53
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624 article 15 scma
In addition, in most cases, companies can provide the necessary breakdown

of data. If the domestic industry complaining wants a narrower product
focus, it will typically have already collected the data to show a strong case
on that narrower basis.
102 Not surprisingly, these rules have triggered few WTO disputes. In one case,
a WTO panel rejected an argument that this obligation somehow justified a
national authority’s focus on certain product segments and not the domestic
industry as a whole.54 In another case, the Appellate Body addressed a law
allowing the domestic authority to focus primarily on the “merchant mar-
ket” sales (those sales to unrelated customers) and de-emphasize the sales
to the “captive market” (those sales consumed internally). Although the
panel had affirmed this law and its application in the particular case, the
Appellate Body reversed on other grounds. By considering only data on
the merchant market and data for the overall market and never considering
data only for the captive market, the national authority had not considered
the domestic industry “as a whole” as required.55 The basic rule in both of
these cases is that the authorities must consider in a balanced and objective
way all the market segments that make up the relevant domestic industry.
These cases, although interesting, do not shed much light on the core issues
raised by art. 15.6 SCMA.
H. Threat of Injury Determinations (Art. 15.7 SCMA)
103 Although most countervailing duty cases involve allegations of current injury,
art. 15 SCMA also contemplates allegations that the domestic industry is
threatened with future injury. Art. 15.7 SCMA sets forth the specific fac-
tors to be considered in making a determination of threat of injury. The
Tokyo Round Subsidies Code did not have any specific provision on threat
of injury, a discrepancy addressed by adding language to parallel the ADA
during the Uruguay Round.
104 Art. 15.7 SCMA makes several key points about threat of injury determina-
tions. First, the evidentiary standard is high—determinations must be based
on facts and “not merely on allegation, conjecture or remote possibility”.
All determinations under art. 15 SCMA must be based on facts, but art.
15.7 SCMA recognizes the risk that authorities may speculate about possible
future problems and too easily find threat of injury. The first sentence of
art. 15.7 SCMA tries to prevent this abuse.
54
Panel Report, Mexico—Corn Syrup, WT/DS132/R, paras 7.154–7.158.
55
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article 15 scma 625
Second, the time horizon is relatively short. The second sentence of art. 105
15.7 SCMA requires the change in circumstances to be “clearly foreseen
and imminent”. This requirement that the change be “imminent” is an
important limitation on how authorities can justify findings of threat. A
problem that may arise in two or three years will not meet the require-
ment that the change be “imminent”. The language in the second sentence
links imminent to any change in circumstances, and the language in the
final sentence of art. 15.7 SCMA emphasizes an imminent increase in the
volume of subsidized imports. Unlike in the ADA, there is no clarifying
example of “imminent” in a footnote.
Finally, like many other places in the SCMA, the text avoids making any 106
single factor decisive and instead calls on the authority to consider the
“totality of the factors” in making a decision. Although considering all
of the factors may be reasonable, such an approach would seem to make
it harder to craft meaningful disciplines and encourage deference to the
determinations by the national authorities.
Yet the experience to date suggests that panels have not been overly defer- 107
ential. Panels have now twice found threat of injury determinations to be
inconsistent with art. 15.7 SCMA based on insufficient facts and inadequate
reasoning. In one very high profile dispute, the WTO panel found a US
decision that Canadian softwood lumber imports were threatening the US
industry to be inconsistent with art. 15.7 SCMA. The panel found that
the facts of that case did not support the US authority’s conclusion that
Canadian imports would increase substantially.56 In another dispute, the
WTO panel and eventually, the Appellate Body found that Mexico had not
adequately analyzed the facts in concluding that high fructose corn syrup
imports from the United States would increase.57 Taken together, these two
disputes show that the WTO panels are not bashful about holding authori-
ties to a reasonably strict standard for finding threat of injury.
Art. 15.7 SCMA sets forth five specific factors to be considered, along with 108
any other facts and circumstances. The first factor addresses the “nature”
of the subsidy and trade effects. Subsidies likely to increase the level of
imports are more threatening than subsidies without any trade effects.
56
WT/DS277/R, paras 7.88–7.96. This case has had a complex history. The USITC
made a re-determination that the same panel then upheld as consistent with art. 3.7 ADA.
Panel Report, US—Softwood Lumber VI, WT/DS277/RW, paras 7.17–7.57. But the Appellate
Body then reversed that panel decision as overly and improperly deferential to the USITC
and inconsistent with the appropriate standard of review. Appellate Body Report, US—Soft-
wood Lumber VI, WT/DS277/AB/RW, paras 89–161. Since the Appellate Body concluded
that it could not complete the analysis, the long-running dispute on softwood lumber trade
continued until a settlement occurred in 2006.
57
WT/DS132/R, paras 7.163–7.178; WT/DS132/RW, paras 6.6–6.36; WT/DS132/
AB/RW, paras 77–101.
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626 article 15 scma
The remaining four factors have as the underlying concern whether the
volume of imports will increase and parallel the four factors listed in art.
3.7 ADA. As a practical matter, most threat cases are built on the fear of
increasing imports, which, although not yet injurious, are on the verge of
becoming injurious.
109 Although the specifically enumerated factors involve increases in imports,
the change in circumstances that poses the threat covers a wider range of
factors. One panel has confirmed this broad interpretation of the “change
in circumstances”, which can be a single event, series of events, or other
development affecting the industry.58 Another panel has found that the
changes in circumstances should also include the specific factors about the
condition of the domestic industry.59 But a later panel addressed the same
issue and clarified that the factors about the condition of the domestic
industry serve as context for evaluating what changes may be taking place
but do not impose a requirement for a second evaluation of the domestic
industry factors in the context of a threat determination under art. 15.7
SCMA.60
110 Note that art. 15.7 SCMA requires only that the authority “consider” the
five specifically enumerated factors. Given this particular term, one panel
found that the authorities need not make any specific findings under each
specific factor as long as the record shows that the factor has been consid-
ered.61 In the end, it will be the totality of the five specific factors, including
any other factors considered by the authority, that will decide whether a
threat determination is consistent with art. 15.7 SCMA.
I. Special Care for Threat Determinations (Art. 15.8 SCMA)

111 Art. 15.8 SCMA has little independent significance. The Tokyo Round
Subsidies Code did not have this language, but the Uruguay Round added
parallel language. The main point is to underscore that the authorities must
pay particular attention to findings of threat and will be held to a higher
standard of “special care”. But this special care will be with reference to
the more specific obligations in art. 15.7 SCMA. It is hard to imagine a
case where the authority would be found to have complied with art. 15.7
SCMA, yet found to have acted inconsistently with art. 15.8 SCMA.
58
WT/DS277/R, paras 7.45–7.60.
59
WT/DS132/R, paras 7.111–7.142. Although not directly addressed, the Appellate Body
seems to have agreed with this interpretation. WT/DS132/AB/RW, paras 112–118.
60
WT/DS277/R, paras 7.105–7.112.
61
Ibid., paras 7.66–7.68.
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Article 16
Definition of Domestic Industry
16.1 For the purposes of this Agreement, the term “domestic industry” shall, except as
provided in paragraph 2, be interpreted as referring to the domestic producers as
a whole of the like products or to those of them whose collective output of the
products constitutes a major proportion of the total domestic production of those
products, except that when producers are related48 to the exporters or importers
or are themselves importers of the allegedly subsidized product or a like product
from other countries, the term “domestic industry” may be interpreted as referring
to the rest of the producers.
16.2. In exceptional circumstances, the territory of a Member may, for the production
in question, be divided into two or more competitive markets and the producers
within each market may be regarded as a separate industry if (a) the producers
within such market sell all or almost all of their production of the product in ques-
tion in that market, and (b) the demand in that market is not to any substantial
degree supplied by producers of the product in question located elsewhere in the
territory. In such circumstances, injury may be found to exist even where a major
portion of the total domestic industry is not injured, provided there is a concentra-
tion of subsidized imports into such an isolated market and provided further that
the subsidized imports are causing injury to the producers of all or almost all of
the production within such market.
16.3 When the domestic industry has been interpreted as referring to the producers
in a certain area, i.e. a market as defined in paragraph 2, countervailing duties shall
be levied only on the products in question consigned for final consumption to that
area. When the constitutional law of the importing Member does not permit the
levying of countervailing duties on such a basis, the importing Member may levy
the countervailing duties without limitation only if (a) the exporters shall have been
given an opportunity to cease exporting at subsidized prices to the area concerned
or otherwise give assurances pursuant to Article 18, and adequate assurances in
this regard have not been promptly given, and (b) such duties cannot be levied only
on products of specific producers which supply the area in question.
16.4 Where two or more countries have reached under the provisions of paragraph
8(a) of Article XXIV of GATT 1994 such a level of integration that they have
the characteristics of a single, unified market, the industry in the entire area of
integration shall be taken to be the domestic industry referred to in paragraphs
1 and 2.
16.5 The provisions of paragraph 6 of Article 15 shall be applicable to this Article.
Footnote 48: For the purpose of this paragraph, producers shall be deemed to be related
to exporters or importers only if (a) one of them directly or indirectly controls the other;
or (b) both of them are directly or indirectly controlled by a third person; or (c) together
they directly or indirectly control a third person, provided that there are grounds for
believing or suspecting that the effect of the relationship is such as to cause the producer
concerned to behave differently from non-related producers. For the purpose of this para-
graph, one shall be deemed to control another when the former is legally or operationally
in a position to exercise restraint or direction over the latter.
Bibliography
M. Koulen, The New Anti-Dumping Code through Its Negotiating History, in: J. Bourgeois et al. (eds),
The Uruguay Round Results (1995), 151–233; W. Mueller et al., EC Anti-Dumping Law—A Commen-
tary on Regulation 384/96 (1998); I. van Bael & J. F. Bellis, Anti-Dumping and Other Trade Protection
Laws of the EC (4th ed. 2004); E. Vermulst, The WTO Anti-Dumping Agreement (2005).
Case Law
Panel Report, Mexico—Corn Syrup, WT/DS132/R; Appellate Body Report, US—1916 Act,
WT/DS136/AB/R, WT/DS162/AB/R; Panel Report, US—1916 Act (EC), WT/DS136/R;
Panel Report, EC—Bed Linen, WT/DS141/R; Panel Report, US—1916 Act (Japan), WT/
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628 article 16 scma
DS162/R; Appellate Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R; Panel Report,

Argentina—Poultry Anti-Dumping Duties, WT/DS241/R.
Cross-References
Arts 3.1, 3.4, 3.6, 4, 5.4 ADA.
Table of Contents
A. General 1
I. Introduction 1
II. History 2
B. Content 3
I. Definition (Art. 16.1 SCMA) 3
II. Exceptions to the Definition (Arts 16.2–16.3 SCMA) 4
1. Domestic Producers Related to Exporters or Importers 4
2. Regional Industry 7
III. Captive Production 10
IV. Single, Unified Market (Art. 16.4 SCMA) 11
V. Reference to Art. 15.6 SCMA (Art. 16.5 SCMA) 12
C. Outlook 13
A. General
I. Introduction
1 This article offers a substantive definition of “domestic industry”. It is
relevant for the purposes of the SCMA rules on who may apply for the
imposition of countervailing duties (art. 11.4 SCMA) and of the SCMA
rules on injury (art. 15 SCMA).
At the time of writing, no dispute settlement proceedings have involved
art. 16 SCMA. Therefore, reference is made to the largely parallel provi-
sion in the ADA (art. 4 ADA) as well as its interpretation through dispute
settlement bodies, where appropriate.
II. History
2 Prior to the coming into force of the WTO Agreement, there were no
definitions of the term “domestic industry” and when applications were
made “by or on behalf ” of it. In the course of the Uruguay Round nego-
tiations, there was broad agreement on the idea that national authorities
verify the extent to which an application is supported by domestic industry.
But there were many controversies on the extent of the support required.
The “on behalf ” criterion also led to controversies, centred on the US
demand that trade unions be given the right to apply for the initiation of
investigations.1
1
Koulen, 176–177.
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article 16 scma 629
B. Content
I. Definition (Art. 16.1 SCMA)

Domestic industry may refer to all domestic producers of the like product 3
or to domestic producers accounting for a major proportion of the total
domestic production of those products. A minimum representation of
domestic industry is required, as found by the panels in US—1916 Act in
the context of anti-dumping measures.2
According to the panel in Argentina—Poultry Anti-Dumping Duties, a major
proportion is not the major proportion provided that the domestic industry
considered represents “an important, serious or significant proportion of
total domestic production”.3 In that case, Argentina defined the domestic
industry as poultry producers representing 46 percent of total domestic
production. Once the domestic industry is defined in a certain way, that
definition must be followed throughout the proceedings.4
Logically, notwithstanding the definition referring to domestic producers
(plural), the panel in EC—Bed Linen considered “it indisputable that a single
domestic producer may constitute the domestic industry under the AD
Agreement and that the provisions concerning domestic industry under
Article 4 continue to apply in such a factual situation”.5 The same applies
in the context of the SCMA.
II. Exceptions to the Definition (Arts 16.2–16.3 SCMA)
1. Domestic Producers Related to Exporters or Importers

Footnote 48 to art. 16 SCMA clarifies when producers are deemed to be 4
related to exporters or importers. The footnote uses the concept of “con-
trol”, which it defines as putting a producer “legally or operationally in a
position to exercise restraint or direction over” another company. However,
when this is the case is not specified.6
2
WT/DS136/R, para. 6.214; WT/DS162/R, para. 6.261.
3
WT/DS241/R, para. 7.341.
4
WT/DS132/R, para. 7.153.
5
WT/DS141/R, para. 6.72. This interpretation was not reviewed by the Appellate
Body.
6
For example, in the EC, for the purpose of defining when a company is “related”,
reference is made to a regulation implementing the EC Customs Code, Commission Regu-
lation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation
of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code, OJ
1993 L 253/1, art. 143 of which provides, inter alia, that a person is “related” if it owns,
controls, or holds five percent of the shares.
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630 article 16 scma
5 The qualification “provided that there are grounds for believing or sus-
pecting that the effect of the relationship is such as to cause the producer
concerned to behave differently from non-related producers” leaves the
national authorities a wide margin of discretion in including or excluding
related domestic producers. For example, the EC will normally exclude from
the definition of domestic industry an EC producer that is a subsidiary of
a foreign-owned exporter even if it produces a few models in the EC. An
EC producer which is not a subsidiary of a foreign-owned exporter and
imports a few models from the exporting country to complement the product
range it produces in the EC will normally be included in the definition of
the EC industry.7
6 In circumstances where the exclusion, on that ground, of domestic producers
from the definition of domestic industry does not affect the admissibility of
a countervailing duty application and thus, are not “domestic industry” for
injury finding purposes, the excluded domestic producers will nonetheless
benefit from the effects on the market of the countervailing duties that will
eventually be taken.
2. Regional Industry
7 Art. 16.2 SCMA introduces another exception to the definition of domes-
tic industry by permitting the division of the territory of a Member into
two or more competitive markets and to regard the producers within each
market as a separate industry. This exception is subject to two cumulative
conditions: first, the producers within such a market must sell all or almost
all of their production of the relevant product in that market; and second,
the demand in that market must not, to any substantial degree, be supplied
by producers of the relevant product located elsewhere in the territory of
that Member.
In that event, art. 16.2 SCMA provides that injury may be found to exist,
even where a major proportion of the total domestic industry in the territory
of the Member is not injured. This is subject to two cumulative conditions:
first, subsidized imports must be concentrated into such an isolated market;
and second, the subsidized imports must be causing injury to the producers
of all or almost all of the production within that isolated market.
8 There is a consequence for the eventual countervailing duty measures.
According to art. 16.3 SCMA, countervailing duties may then be levied
only on the relevant products consigned for final consumption to that iso-
lated market. As art. 16.3 SCMA recognizes, the constitutional law of the
importing Member may not permit the application of countervailing duties
7
Mueller et al., 243–244.
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article 16 scma 631
on a regional basis. In that event, the practical solution is for the exporters
to offer an undertaking on prices to the isolated market.8
As a result of all these conditions, findings of a regional industry are rela- 9
tively rare and tend to be confined to large importing countries’ markets and
products such as cement which incur relatively high transportation costs.9
III. Captive Production

Should the part of production that is used internally (captive production) be 10
excluded or included in the definition of domestic industry? In US—Hot-
Rolled Steel, the Appellate Body dealt with a provision of US anti-dumping
law requiring the USITC to focus primarily on the merchant, as opposed to
the captive, market for the domestic like product in determining market share
and factors affecting financial performance. It upheld the panel’s finding that
the “captive production” provision is not, on its face, inconsistent with arts
3 and 4 ADA but held that the US acted inconsistently with arts 3.1 and
3.4 ADA in the application of that provision in that the USITC examined
the merchant market without also examining the captive market.10
IV. Single, Unified Market (Art. 16.4 SCMA)

Pursuant to art. 16.4 SCMA, where two or more countries have reached 11
such a level of integration under the provisions of art. XXIV:8 GATT that
they have the characteristics of a single, unified market, the industry in the
entire area shall be taken to be the domestic industry.
V. Reference to Art. 15.6 SCMA (Art. 16.5 SCMA)

Art. 16.5 SCMA declares that art. 15.6 SCMA also applies to art. 16 12
SCMA.11
C. Outlook
Quite a few proposals were tabled in the current Doha Round. By mid- 13
2003, they concerned, inter alia, a better definition of domestic industry
with clearer criteria for defining “major proportion”, the special circum-
stances where domestic and foreign producers have limited selling seasons,
8
This is the case for the EC. Mueller et al., 253; van Bael & Bellis, 206.
9
Vermulst, 73.
10
WT/DS184/AB/R, paras 209, 214, 215.
11
See generally, Durling, Article 15 SCMA.
BOURGEOIS & WAGNER

632 article 16 scma
whether to prohibit the practice of limiting injury analysis to those firms

that supported the application, and whether the provisions of the SCMA on
excluding from the domestic industry domestic producers that are importing
the like product from Members other than the exporting Member should
remain in place or whether they should be congruent to the provisions of
the ADA.12 Subsequently, further proposals were made, inter alia, on “major
proportion”, affiliated parties, and standards for exclusion from the defini-
tion of domestic industry.
14 At the time of writing, it is difficult to assess to what extent these proposals,
some of which are conflicting, will lead to a consensus.
12
These and other proposals are listed in Negotiating Group on Rules, Note by the
Chairman, Compilation of Issues and Proposals Identified by Participants in the Negotiat-
ing Group on Rules, TN/RL/W/143, 22 August 2003.
BOURGEOIS & WAGNER

Article 17
Provisional Measures
17.1 Provisional measures may be applied only if:

(a) an investigation has been initiated in accordance with the provisions of Article
11, a public notice has been given to that effect and interested Members and
interested parties have been given adequate opportunities to submit information
and make comments;
(b) a preliminary affirmative determination has been made that a subsidy exists and
that there is injury to a domestic industry caused by subsidized imports; and
(c) the authorities concerned judge such measures necessary to prevent injury being
caused during the investigation.
17.2 Provisional measures may take the form of provisional countervailing duties guaran-
teed by cash deposits or bonds equal to the amount of the provisionally calculated
amount of subsidization.
17.3 Provisional measures shall not be applied sooner than 60 days from the date of
initiation of the investigation.
17.4 The application of provisional measures shall be limited to as short a period as
possible, not exceeding four months.
17.5 The relevant provisions of Article 19 shall be followed in the application of provi-
sional measures.
Bibliography
Case Law
Panel Report, US—Softwood Lumber III, WT/DS236/R.
Table of Contents
A. General Overview 1
B. Requirements for the Application of Provisional Measures
(Art. 17.1 SCMA) 3
C. Form of Provisional Measures (Art. 17.2 SCMA) 8
D. Starting Date and Duration of Provisional Measures
(Arts 17.3–17.4 SCMA) 10
E. Application of the Relevant Provisions of Art. 19 SCMA
(Art. 17.5 SCMA) 12
A. General Overview
Provisional measures confer on Members the right to take rapid action 1

against illegal subsidies that cause injury to their domestic industries. Indeed,
such measures allow Members to protect their economic interests without
BELLIS
634 article 17 scma
having to await the outcome of a full-fledged investigation required for the

imposition of definitive countervailing duties.
2 Art. 17 SCMA sets out the conditions under which provisional measures may
be applied. The relevant provisions are explained in more detail below.
B. Requirements for the Application of Provisional Measures

(Art. 17.1 SCMA)
3 Pursuant to art. 17.1 SCMA, several conditions must be met in order that
provisional measures can be applied: (1) an investigation in accordance with
the provisions of art. 11 SCMA1 must have been initiated, the initiation of
this investigation must have been publicly notified, and interested Members
and interested parties must have been given adequate opportunity to submit
information and make comments; (2) a preliminary affirmative determination
must have been made that injury is being caused to a domestic industry due
to subsidized imports; and (3) the authorities concerned must judge such
measures to be necessary in order to prevent injury being caused during
the investigation period.
4 Accordingly, as a first step towards the imposition of provisional measures,
an investigation must have been initiated. Such investigation may be based
either on a “written application by or on behalf of the domestic industry”
or may, under “special circumstances”, be self-initiated in accordance with
the relevant requirements under art. 11 SCMA. In both cases, the investi-
gating authorities have to give public notice of the initiation.
5 While investigating the relevant facts, the authorities must keep in mind the
requirement to provide the companies allegedly benefiting from subsidies
and the Members concerned with opportunities to present their views and
submit information. To this end, investigating authorities may, for example,
organize hearings or invite the companies and Members concerned to
submit relevant information.
6 Eventually, the investigating authorities may come to a preliminary affirma-
tive determination that subsidized imports have caused injury to a domestic
industry. The extent of facts that have to be gathered and considered in
such determination is less important than in a final determination.
7 Based on the preliminary determination, the investigating authorities may
conclude that the imposition of provisional measures is necessary to prevent
further injury during the investigation period. If a Member finally decides
1
Art. 11 SCMA establishes the requirements that must be met to initiate an investigation.
See Bourgeois & Wagner, Article 11 SCMA.
BELLIS
article 17 scma 635
to apply provisional measures, it must comply with the disciplines imposed

on provisional measures by arts 17.2 to 17.5 SCMA.
C. Form of Provisional Measures (Art. 17.2 SCMA)
Art. 17.2 SCMA establishes that provisional measures may take the form 8
of provisional countervailing duties that are guaranteed by cash deposits or
bonds equal to the amount of the provisionally calculated amount of subsi-
dization. Accordingly, investigating authorities are prevented from guarantee-
ing their measures in an excessive way, for instance, by requiring importers
to make deposits higher than the established level of subsidization.
In contrast to the provisions of the ADA,2 art. 17.2 SCMA does not provide 9
for the final collection of duties but only authorizes investigating authorities
to “guarantee” such duties until the end of the investigation. This limita-
tion underlines the provisional character of measures imposed under art.
17.2 SCMA. The question whether the provisional duty may eventually
be collected remains a matter to be decided in a final determination in
accordance with art. 19 SCMA.
D. Starting Date and Duration of Provisional Measures

(Arts 17.3–17.4 SCMA)
Arts 17.3 and 17.4 SCMA impose two restrictions on the time frame for 10
provisional measures: (1) provisional measures may not be applied sooner
than 60 days from the date of initiation of the investigation (art. 17.3
SCMA)3 and (2) they may not exceed a period of four months (art. 17.4
SCMA). Furthermore, according to art. 17.4 SCMA, provisional measures
must be limited to as short a period as possible.
In US—Softwood Lumber III, the panel observed that the time limits defined 11
in arts 17.3 and 17.4 SCMA are “unambiguous”, i.e., clearly specified
and not subject to any exception under the SCMA.4 The panel found a
US provision violative of arts 17.3 and 17.4 SCMA. With regard to the
violation of art. 17.4 SCMA, it rejected the argument of the US that the
four-month period referred “to the period during which cash deposits or
bonds are taken”. Rather, it argued, the four-month period referred to “the
2
The ADA allows the definitive collection of provisional anti-dumping duties. See Bellis,
Article 7 ADA, paras 8–9.
3
As a consequence, it is not possible to initiate an investigation and to impose provisional
measures simultaneously.
4
WT/DS236/R, para. 7.199.
BELLIS
636 article 17 scma
period during which the affected imports enter for consumption”. Another
interpretation of art. 17.4 SCMA would have the effect of nullifying the
provision, the panel explained.5
E. Application of the Relevant Provisions of Art. 19 SCMA

(Art. 17.5 SCMA)
12 Art. 17.5 SCMA mandates that investigating authorities must follow the
relevant provisions of art. 19 SCMA in the application of provisional mea-
sures. Art. 19 SCMA establishes, amongst others, the general principle that
the imposition of countervailing duties is optional even if all the require-
ments for imposition have been met. It also states the desirability of the
application of a “lesser duty” rule.6 Furthermore, it can be deduced from
art. 19.3 SCMA that guarantees for provisional countervailing duties shall
be requested by investigating authorities on a non-discriminatory basis on
imports of the products concerned.
5
Ibid., para. 7.102.
6
See De Jager, Article 19 SCMA.
BELLIS
Article 18
Undertakings
18.1 Proceedings may49 be suspended or terminated without the imposition of provisional

measures or countervailing duties upon receipt of satisfactory voluntary undertakings
under which:
(a) the government of the exporting Member agrees to eliminate or limit the subsidy
or take other measures concerning its effects; or
(b) the exporter agrees to revise its prices so that the investigating authorities are
satisfied that the injurious effect of the subsidy is eliminated. Price increases
under such undertakings shall not be higher than necessary to eliminate the
amount of the subsidy. It is desirable that the price increases be less than the
amount of the subsidy if such increases would be adequate to remove the injury
to the domestic industry.
18.2 Undertakings shall not be sought or accepted unless the authorities of the import-
ing Member have made a preliminary affirmative determination of subsidization and
injury caused by such subsidization and, in case of undertakings from exporters,
have obtained the consent of the exporting Member.
18.3 Undertakings offered need not be accepted if the authorities of the importing Mem-
ber consider their acceptance impractical, for example if the number of actual or
potential exporters is too great, or for other reasons, including reasons of general
policy. Should the case arise and where practicable, the authorities shall provide
to the exporter the reasons which have led them to consider acceptance of an
undertaking as inappropriate, and shall, to the extent possible, give the exporter
an opportunity to make comments thereon.
18.4 If an undertaking is accepted, the investigation of subsidization and injury shall
nevertheless be completed if the exporting Member so desires or the importing
Member so decides. In such a case, if a negative determination of subsidization or
injury is made, the undertaking shall automatically lapse, except in cases where such
a determination is due in large part to the existence of an undertaking. In such
cases, the authorities concerned may require that an undertaking be maintained for
a reasonable period consistent with the provisions of this Agreement. In the event
that an affirmative determination of subsidization and injury is made, the undertaking
shall continue consistent with its terms and the provisions of this Agreement.
18.5 Price undertakings may be suggested by the authorities of the importing Member, but
no exporter shall be forced to enter into such undertakings. The fact that govern-
ments or exporters do not offer such undertakings, or do not accept an invitation
to do so, shall in no way prejudice the consideration of the case. However, the
authorities are free to determine that a threat of injury is more likely to be realized
if the subsidized imports continue.
18.6 Authorities of an importing Member may require any government or exporter from
whom an undertaking has been accepted to provide periodically information relevant
to the fulfilment of such an undertaking, and to permit verification of pertinent data.
In case of violation of an undertaking, the authorities of the importing Member may
take, under this Agreement in conformity with its provisions, expeditious actions
which may constitute immediate application of provisional measures using the best
information available. In such cases, definitive duties may be levied in accordance
with this Agreement on products entered for consumption not more than 90 days
before the application of such provisional measures, except that any such retro-
active assessment shall not apply to imports entered before the violation of the
undertaking.
Footnote 49: The word “may” shall not be interpreted to allow the simultaneous con-
tinuation of proceedings with the implementation of undertakings, except as provided in
paragraph 4.
DURLING
638 article 18 scma
Table of Contents
A. General 1
B. Standards (Art. 18.1 SCMA) 5
C. Procedures (Arts 18.2–18.6 SCMA) 13
A. General
1 The SCMA contemplates several possible ends to an investigation, includ-

ing a voluntary settlement called an “undertaking”. If the complaining
party cannot establish the necessary elements, the case should end with
a negative finding. If the necessary elements have been met, the case can
lead to the imposition of countervailing duties pursuant to art. 19 SCMA.
Instead of the imposition of duties, however, the proceedings can be sus-
pended if the foreign government or the exporters agree to a voluntary
“undertaking” to eliminate the subsidy or to revise prices as provided for
by art. 18 SCMA.
2 Although the SCMA provides a uniform framework for considering under-
takings, different countries have very different approaches. Some countries
like undertakings as a way to “split the difference” in a dispute and impose
some pricing discipline without shutting imports completely out of the
market. Historically, the EU has adopted a number of undertakings to
settle anti-dumping cases. Other countries fear that undertakings do not
provide effective protection for the domestic industry and avoid them when
possible. Historically, the United States initially had a more open mind
about undertakings but then became sceptical. Under current practice,
the United States will only rarely consider an undertaking and only then
when there are some special circumstances. The WTO framework allows
such diverging approaches.
3 As a matter of practice, undertakings in countervailing duty cases are
quite rare. Countervailing duty cases themselves are much more unusual
than anti-dumping cases. Over the 1995 to 2005 period, WTO Members
initiated 2851 anti-dumping investigations but only 182 countervailing
duty investigations. There have been many fewer opportunities to settle
countervailing duty investigations. Moreover, about 40 percent of these
investigations took place in the United States where the authorities have a
negative view of undertakings.
4 Exporters often prefer undertakings, which are generally less trade restric-
tive than countervailing duties. Moreover, a decision to raise export prices
often creates more economic benefit for the exporter than does the imposi-
tion of duties which only contributes revenue to the importing country’s
government.
DURLING
article 18 scma 639
B. Standards (Art. 18.1 SCMA)
In a countervailing duty investigation, the undertaking focuses on both the 5

foreign government and the foreign exporters. Unlike an anti-dumping
investigation in which the focus is entirely on the exporters, the foreign
government plays a much larger role in a countervailing duty investigation.
The text of art. 18.1 SCMA contemplates an undertaking either by the
foreign government or by the foreign exporters. As a matter of practice,
many national laws require both to participate in any undertaking to settle
a countervailing duty investigation.
Even in a situation in which the foreign exporters seek an undertaking on 6
their own, as a practical matter, undertakings often involve some activity
by the foreign government. Foreign governments often serve as the politi-
cal force necessary to persuade the authorities of the importing country to
agree to the undertaking in the first place.
To obtain an undertaking, the foreign government must agree to “eliminate 7
or limit the subsidy or take other measures concerning its effect”. If there is
an ongoing programme that provides some benefit, it is sometimes possible
to terminate it. In many situations, however, the alleged subsidy involves
some past action that has a continuing economic effect. For example, if the
government forgives a government loan in one year, that action may have
lingering economic effects for several years. In those cases, eliminating or
limiting the subsidy can be challenging.
The reference to “measures concerning its effect” partially addresses this 8
problem of lingering effects. Where a government cannot eliminate past
subsidies, it can impose some restriction to offset the benefit. An approach
that has been used in some cases involves an export tax. An appropriate
export tax can offset the effect of the subsidy. An export tax also has the
advantage that the exporting country collects the revenue, unlike a coun-
tervailing duty which leads to revenue for the importing country.
As an alternative to government action, an exporter must agree to “revise 9
its prices”. Unlike the ADA, there is no parallel option to “cease exports
to the area in question at [subsidized] prices”. Most national authorities
use the undertaking as a mechanism to negotiate some satisfactory price
level. In theory, one would think there is some price at which the goods are
no longer “subsidized”. In practice, however, there are so many subjective
judgments made in an analysis of alleged subsidization that the authorities
can pick a price level and then work backwards to find a rationale to justify
that price level as “necessary” under the countervailing law. The WTO
text does not provide enough detail to provide any meaningful discipline
on this process.
DURLING
640 article 18 scma
10 Any such agreement must also satisfy the national authorities that it will
eliminate the “injurious effects of the subsidy”. This second requirement
reinforces the desire of many national authorities to negotiate some accept-
able price level. In theory, the notion of “injurious effects” could require
an elaborate examination of the many factors that go into a determination
of “injury” under art. 15 SCMA. In practice, however, authorities typically
focus on the price level, what the domestic industry expects, and what profit
level will result. Some authorities simply negotiate an agreement with the
domestic industry on an acceptable margin of profitability and then push
import prices high enough to allow that level of profits to prevail.
11 The language of art. 18.1 SCMA is not completely one sided and does
have some pro-exporter features. The price revision “shall not be higher
than necessary to eliminate the amount of the subsidy”. This requirement
may seem to moderate the price increases necessary. In practice, however,
the “amount of subsidy” is an elastic enough concept to give the authorities
a great deal of discretion.
12 At the same time, art. 18.1 SCMA suggests that a lower price increase would
be better if such lower price increase would remove the injury. This new
language was added during the Uruguay Round negotiations to improve
the discipline.1 This idea mirrors the “lesser duty rule” in art. 19.2 SCMA
regarding the imposition of countervailing duties. The text makes this idea
discretionary with the authorities—although price increases “shall not be
higher” than necessary to eliminate subsidy, it is only “desirable” that the
price increases be no more than needed to eliminate the subsidy. During the
negotiation of this language, some drafts proposed the mandatory language
“shall”, but the final version reflected the softer language of “desirable.”
C. Procedures (Arts 18.2–18.6 SCMA)
13 The remainder of art. 18 SCMA sets forth various specific rules that must
be followed when negotiating an undertaking. The rules generally make
sense.
14 Before negotiating an undertaking, the authority must first make a prelimi-
nary finding of subsidization and injury. Given the substantive rules of art.
18.1 SCMA, this procedural requirement makes perfect sense. One cannot
set a non-subsidized, non-injurious price level without having first made at
least a preliminary investigation and finding. This provision also prevents
a countervailing duty petition from simply triggering an immediate effort
1
J. Durling & M. Nicely, Understanding the WTO Anti-Dumping Agreement: Negotiating History
and Subsequent Interpretation (2002), 421–423.
DURLING
article 18 scma 641
to negotiate price increases without any regard to whether the allegations

make any sense at all.
Note that unlike the parallel language in the ADA, art. 18.2 SCMA also 15
requires the consent of the government to any undertaking by the foreign
exporters. Given the extensive involvement of the foreign government in any
countervailing duty investigation, this consent requirement makes sense.
Undertakings are discretionary and need not be accepted by the authorities. 16
Some national authorities like undertakings. Others do not. The text of art.
18.3 SCMA also specifically authorizes authorities to reject undertakings
for no reason other than “general policy”, an indirect reference to the view
of US authorities that duties are better than undertakings.
The parallel language to art. 18.3 SCMA in the ADA (art. 8.3 ADA) has the 17
distinction of having triggered the only WTO dispute about undertakings. In
a challenge to a US law that authorizes payment of the anti-dumping duties
collected to the complaining domestic industry, several countries argued that
the US law gave the domestic industry the right to veto undertakings. The
panel dismissed this argument easily, finding that art. 8.3 ADA provides
such broad discretion that the US law could not mandate anything that
would be inconsistent with art. 8.3 ADA.2
Even if the parties negotiate any undertaking, the investigation can continue 18
to a final determination of subsidy and injury. This mandatory obliga-
tion—the investigation “shall nevertheless be completed”—represents a
significant benefit to exporters in some cases. The undertaking essentially
becomes a negotiated “insurance policy” of sorts, to allow some level of
market access. The exporter can then try to win the case and terminate
the need for the undertaking. In practice, however, the same authorities
that negotiate the undertaking often make the final determinations. Hav-
ing negotiated the price increases, the authorities are often reluctant to
render their own work moot by making a negative determination. Even in
countries like the United States where the injury determination is made
by a separate, independent agency, the authorities can avoid this problem
by sometimes insisting that they will only negotiate any undertaking if the
exporters waive their right to request a continuation of the case.
Authorities need not grant undertakings, and exporters cannot be forced 19
to accept undertakings. Art. 18.5 SCMA seems to provide some protection
to exporters. As a practical matter, exporters often prefer undertakings to
the countervailing duties. It usually makes more sense for the exporter to
2
Panel Report, US—Offset Act (Byrd Amendment), WT/DS217/R, WT/DS234/R, paras
7.71–7.82.
DURLING
642 article 18 scma
charge a higher price and recover some of the economic value rather than
pay duties to the government of the importing country.
20 Once negotiated, undertakings still require some review to ensure appro-
priate compliance. Authorities can require information necessary to assess
compliance. In the event that the undertaking has been violated, art. 18.6
SCMA allows the authorities to take rapid action, including the immediate
imposition of provisional measures. Authorities can even go so far as to
order retroactive provisional measures using the same 90–day rule found in
art. 20.6 SCMA. In the context of an undertaking, however, the retroactive
measures need not comply with the specific rules of art. 20.6 SCMA.
DURLING
Article 19
Imposition and Collection of Countervailing Duties
19.1 If, after reasonable efforts have been made to complete consultations, a Member
makes a final determination of the existence and amount of the subsidy and that,
through the effects of the subsidy, the subsidized imports are causing injury, it may
impose a countervailing duty in accordance with the provisions of this Article unless
the subsidy or subsidies are withdrawn.
19.2 The decision whether or not to impose a countervailing duty in cases where all
requirements for the imposition have been fulfilled, and the decision whether the
amount of the countervailing duty to be imposed shall be the full amount of the
subsidy or less, are decisions to be made by the authorities of the importing Mem-
ber. It is desirable that the imposition should be permissive in the territory of all
Members, that the duty should be less than the total amount of the subsidy if such
lesser duty would be adequate to remove the injury to the domestic industry, and
that procedures should be established which would allow the authorities concerned
to take due account of representations made by domestic interested parties50 whose
interests might be adversely affected by the imposition of a countervailing duty.
19.3 When a countervailing duty is imposed in respect of any product, such countervailing
duty shall be levied, in the appropriate amounts in each case, on a non-discriminatory
basis on imports of such product from all sources found to be subsidized and
causing injury, except as to imports from those sources which have renounced any
subsidies in question or from which undertakings under the terms of this Agree-
ment have been accepted. Any exporter whose exports are subject to a definitive
countervailing duty but who was not actually investigated for reasons other than
a refusal to cooperate, shall be entitled to an expedited review in order that the
investigating authorities promptly establish an individual countervailing duty rate for
that exporter.
19.4 No countervailing duty shall be levied51 on any imported product in excess of the
amount of the subsidy found to exist, calculated in terms of subsidization per unit
of the subsidized and exported product.
Footnote 50: For the purpose of this paragraph, the term “domestic interested parties” shall
include consumers and industrial users of the imported product subject to investigation.
Footnote 51: As used in this Agreement “levy” shall mean the definitive or final legal assess-
ment or collection of a duty or tax.
Bibliography
World Trade Organization, WTO Analytical Index: Subsidies and Countervailing Measures, Agreement
on Subsidies and Countervailing Measures, available at http://www.wto.org/english/res_e/booksp_e/
analytic_index_e/subsidies_e.htm (accessed 2 December 2007).
Case Law
Appellate Body Report, Mexico—Anti-Dumping Measures on Rice, WT/DS295/AB/R; Panel
Report, US—Softwood Lumber III, WT/DS236/R; Panel Report, US—Lead and Bismuth II,
WT/DS138/R; Panel Report, Australia—Automotive Leather II, WT/DS126/RW.
Table of Contents
A. When Countervailing Duties May Be Imposed (Art. 19.1 SCMA) 1
B. Decisions Relating to the Imposition of Countervailing Duties
(Art. 19.2 SCMA) 6
C. Imposition of Countervailing Duty (Art. 19.3 SCMA) 7
D. Ceiling on the Amount of Countervailing Duty That Can Be Levied
(Art. 19.4 SCMA) 11
E. Outlook 13
DE JAGER
644 article 19 scma
A. When Countervailing Duties May Be Imposed

(Art. 19.1 SCMA)
1 Art. 19.1 SCMA provides that WTO Members may impose countervailing
duties under certain conditions. First, reasonable efforts must have been
made to complete consultations. Second, WTO Members must establish
the existence and amount of the subsidies. Third, it must be established
that through the effects of the subsidy, the subsidized imports are causing
injury. Finally, countervailing duties may not be imposed if the subsidies
at issue have been withdrawn.1
2 The requirement to expend reasonable efforts to complete consultations
evinces the importance given to finding a mutually agreed solution between
or among conflicting Members. However, at what point the efforts may be
deemed sufficiently reasonable has not been answered yet under the SCMA.2
In the context of art. 6.8 ADA, the Appellate Body had the occasion to
clarify the meaning of “reasonable” in relation to “period” and stated that
“reasonable” implies “a degree of flexibility that involves consideration of
all of the circumstances of a particular case. What is ‘reasonable’ in one set
of circumstances may prove to be less than ‘reasonable’ in different circum-
stances.”3 Accordingly, the reasonableness of the efforts made to complete
consultations would likely depend on a case-by-case analysis.
3 Art. 19.1 SCMA (together with, among others, art. 19.4 SCMA) requires
the existence of a countervailable subsidy. In other words, a countervailing
duty cannot be imposed absent a countervailable subsidy.4
4 The issue of withdrawal of a subsidy was raised in Australia—Automotive
Leather II, in which the panel affirmed that repayment of the subsidy is
included in the concept of withdrawal of a subsidy. Such repayment would
allow the subsidizing Member to avoid an action from a complaining
Member.5
This article was completed with the assistance of Mylin M. Sapiera-Koebele (B.A., LL.B.,
University of the Philippines; LL.M., University of Michigan) and Jan Ole Voß (LL.M.,
Heidelberg/Santiago de Chile).
1
See WT/DS138/R, para 6.50. The panel in this case listed two conditions: (1) “the
Member must have made a final determination of the existence and amount of a counter-
vailable subsidy in respect of the imported products” (citation omitted) and (2) “the Member
must have made a final determination that the subsidized imports are causing injury to the
relevant domestic industry”. Ibid.
2
No significant WTO jurisprudence concerning “reasonableness” pursuant to art. 19.1
SCMA or in relation to “consultations” under art. 13 SCMA has been rendered to date.
3
Appellate Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R, para. 84.
4
WT/DS138/R, paras 6.52, 6.57.
5
DE JAGER
article 19 scma 645
Art. 19.1 SCMA tends to be invoked more generally in dispute settlement 5

proceedings, usually in conjunction with various other articles to claim
that the decision of a WTO Member to impose countervailing duties is
deficient.
B. Decisions Relating to the Imposition of Countervailing

Duties (Art. 19.2 SCMA)
Art. 19.2 SCMA largely mirrors art. 9.1 ADA by providing that (1) WTO 6
Members retain discretion in deciding whether or not to impose counter-
vailing duties when all the requirements for imposition are fulfilled and (2)
the duty imposed may be the full amount of the subsidy or less, especially
if such lesser duty compensates adequately for the injury caused to the
investigating WTO Member’s domestic industry. However, unlike art. 9.1
ADA, art. 19.2 SCMA further provides that procedures be established to
allow WTO Members’ authorities to consider the arguments of domestic
interested parties, including domestic consumers and industrial users of the
product concerned.6
C. Imposition of Countervailing Duty (Art. 19.3 SCMA)
Art. 19.3 SCMA corresponds to art. 9.2 ADA by establishing the principle of 7
non-discrimination in the collection of countervailing duties on imports of
the product concerned from all sources found to be subsidized and causing
injury.7 This principle does not apply to imports of the product concerned
from sources that have renounced the challenged subsidies or from which
undertakings have been accepted.
Unlike art. 9.2 ADA but similar to art. 9.5 ADA,8 art. 19.3 SCMA further 8
provides that exporters subject to definitive countervailing duties but who
were not actually investigated (for reasons other than a refusal to cooper-
ate) are entitled to an expedited review by WTO Members’ authorities to
establish individual countervailing duty rates for such exporters.
In Mexico—Anti-Dumping Measures on Rice, the Appellate Body considered 9
art. 19.3 SCMA. The Appellate Body ruled that the relevant article of
the Mexican Foreign Trade Act was inconsistent with art. 19.3 SCMA
because, by subjecting entitlement to a prompt review to a showing of
6
See De Jager, Article 9 ADA, para. 1.
7
See ibid., para. 2.
8
DE JAGER
646 article 19 scma
representative volumes of export sales, said article imposed an additional

requirement not provided for in art. 19.3 SCMA for exporters to be entitled
to an expedited review.9
10 In US—Softwood Lumber III, the panel found that a Member’s relevant regula-
tion which was silent on the issue of whether the authorities are prohibited
from conducting such reviews in aggregate cases did not mandate a finding
of a violation of art. 19.3 SCMA requiring the conduct of an expedited
review. Particularly, the fact that no provision regarding the case of aggregate
investigations existed did not imply that the Member is required by law to
deny any request for expedited review.10 As a result, the US regulation at
issue was held to be in accordance with art. 19.3 SCMA. Furthermore, the
panel noted that it cannot rule on a potential denial of request for review
if no such request has been made.11
D. Ceiling on the Amount of Countervailing Duty That Can

Be Levied (Art. 19.4 SCMA)
11 Art. 19.4 SCMA is partly similar to art. 9.3 ADA12 in providing that the
countervailing duties collected on imports of the product concerned from
a given country cannot exceed the amount of subsidy found to exist. Art.
19.4 SCMA specifies that the amount of subsidy in this context is that
calculated in terms of subsidization per unit of the subsidized and exported
product. A ceiling is thus established for the total amount of countervail-
ing duties that can be levied on imports of the product concerned from a
given country.
12 As stated above,13 art. 19.4 (together with, among others, art. 19.1 SCMA)
requires the establishment of a clear nexus between the existence of a
countervailable subsidy and the imposition of a countervailing duty.14
E. Outlook
13 In the Doha Round, there are several proposed amendments to art. 19

SCMA. These include the following: the inclusion of a de minimis rule; the
rule that no countervailing duties shall be collected when the amount of
subsidy found to exist is de minimis; payment of interest on excess monies
9
10
WT/DS236/R, paras 7.133, 7.136, 7.140–7.142.
11
Ibid., paras 7.156–7.157.
12
See De Jager, Article 9 ADA, para. 3.
13
See supra para. 3.
14
WT/DS138/R, paras 6.52–6.53, 6.56.
DE JAGER
article 19 scma 647
collected and held by the importing Member; rules on the refund or reim-
bursement of excess duties paid; eliminating the lesser-duty rule; and clarifi-
cation and amplification of the rules on art. 19.3 SCMA reviews, including
establishment of the allowed duration of reviews, procedures for notification
and consultation, and establishing symmetry between the grounds for art.
19.3 SCMA reviews and art. 9.5 ADA reviews.15 As of the date of writing,
it is not clear to what extent these proposals will be adopted.
15
Negotiating Group on Rules, Draft Consolidated Chair Texts of the AD and SCM
Agreements, TN/RL/W/213, 30 November 2007.
DE JAGER
Article 20
Retroactivity
20.1 Provisional measures and countervailing duties shall only be applied to products
which enter for consumption after the time when the decision under paragraph 1
of Article 17 and paragraph 1 of Article 19, respectively, enters into force, subject
to the exceptions set out in this Article.
20.2 Where a final determination of injury (but not of a threat thereof or of a material
retardation of the establishment of an industry) is made or, in the case of a final
determination of a threat of injury, where the effect of the subsidized imports
would, in the absence of the provisional measures, have led to a determination of
injury, countervailing duties may be levied retroactively for the period for which
provisional measures, if any, have been applied.
20.3 If the definitive countervailing duty is higher than the amount guaranteed by the
cash deposit or bond, the difference shall not be collected. If the definitive duty is
less than the amount guaranteed by the cash deposit or bond, the excess amount
shall be reimbursed or the bond released in an expeditious manner.
20.4 Except as provided in paragraph 2, where a determination of threat of injury or
material retardation is made (but no injury has yet occurred) a definitive counter-
vailing duty may be imposed only from the date of the determination of threat of
injury or material retardation, and any cash deposit made during the period of the
application of provisional measures shall be refunded and any bonds released in an
expeditious manner.
20.5 Where a final determination is negative, any cash deposit made during the period
of the application of provisional measures shall be refunded and any bonds released
in an expeditious manner.
20.6 In critical circumstances where for the subsidized product in question the authorities
find that injury which is difficult to repair is caused by massive imports in a relatively
short period of a product benefiting from subsidies paid or bestowed inconsistently
with the provisions of GATT 1994 and of this Agreement and where it is deemed
necessary, in order to preclude the recurrence of such injury, to assess countervail-
ing duties retroactively on those imports, the definitive countervailing duties may
be assessed on imports which were entered for consumption not more than 90
days prior to the date of application of provisional measures.
Bibliography
Case Law
Panel Report, US—Softwood Lumber III, WT/DS236/R.
Table of Contents
B. Principle of Non-Retroactivity (Art. 20.1 SCMA) 2
C. Provisions Allowing the Application of Retroactive Duties
(Arts 20.2 and 20.6 SCMA) 3
BELLIS
article 20 scma 649
D. Collection of Retroactive Duties Following a Final Determination

(Art. 20.3 SCMA) 7
E. Refund/Release of Securities Following a Final Determination
(Arts 20.4–20.5 SCMA) 8
A. General Overview
As a general rule, Members may not impose countervailing duties with 1

retroactive effect. Under certain conditions, however, the SCMA allows
exceptions to this principle. Art. 20 SCMA does not only state the specific
conditions that must be fulfilled in order to impose retroactive duties but
also prescribes, amongst others, the way retroactive duties are to be col-
lected. The pertinent provisions are further explained below.
B. Principle of Non-Retroactivity (Art. 20.1 SCMA)
Art. 20.1 SCMA stipulates the general principle of non-retroactivity: pro- 2

visional measures and definitive duties may only be applied to products
that enter for consumption after the decision to impose such measure, i.e.,
a preliminary affirmative determination for provisional measures or a final
determination for definitive duties, enters into force.
C. Provisions Allowing the Application of Retroactive Duties

(Arts 20.2 and 20.6 SCMA)
The framework for retroactive duties under art. 20 SCMA is twofold: besides 3
the basic provision that allows for the application of retroactive duties as
an exception to the principle of non-retroactivity (art. 20.2 SCMA), there
is also a possibility of extending the retroactive application if certain addi-
tional conditions are met (art. 20.6 SCMA).
The basic provision, art. 20.2 SCMA, states that retroactive measures may 4
be imposed only when the requirements of art. 20.2 SCMA are met. Pursu-
ant to art. 20.2 SCMA, retroactive duties may be applied (1) where a final
determination of injury is made or (2) in the case of a final determination
of a threat of injury where the effect of the subsidized imports would, in the
absence of the provisional measures, have led to a determination of injury.
In both situations, countervailing duties can thus be applied retroactively
for the period for which provisional measures, if any, have been applied.
In addition, art. 20.2 SCMA explicitly excludes those measures that are
based on (1) a mere threat of injury (i.e., no qualified threat as defined
BELLIS
650 article 20 scma
under art. 20.2 SCMA) or (2) a material retardation of the establishment

of an industry.
5 Where a final determination meets the requirements of art. 20.6 SCMA,
retroactive duties may be imposed in a more comprehensive way. In fact, art.
20.6 SCMA allows the retroactive application of duties on imports which
were entered up to 90 days prior to the date of application of provisional
measures. To apply measures pursuant to art. 20.6 SCMA, an assessment
of retroactive countervailing duties on imports must have been deemed
necessary to preclude the recurrence of injury because of the following
reasons: in critical circumstances and in a relatively short period, massive
imports that were inconsistent with both the GATT 1994 and the SCMA
must have caused injury which is difficult to repair.
6 In US—Softwood Lumber III, the panel had to clarify whether the retroactive
imposition of provisional measures by US authorities was in conformity with
art. 20.6 SCMA. The panel first observed that there were only two excep-
tions to the principle of non-retroactivity, i.e., arts 20.2 and 20.6 SCMA.
Since neither of these two provisions provides for the retroactive application
of provisional measures, the restrictions used by the US authorities were
found to be inconsistent with art. 20.6 SCMA.1
D. Collection of Retroactive Duties Following a Final

Determination (Art. 20.3 SCMA)
7 Art. 20.3 SCMA describes what has to be done following an affirmative

final determination within the meaning of art. 19 SCMA2 with securities
that have been provided by companies in order to guarantee a provisional
measure applicable to their imports. Where the countervailing duty is
found to be higher than the amount that was originally guaranteed by cash
deposit or bond, the difference may not be collected by the investigating
authorities. Where, on the other hand, the duty is found to be less than
the amount guaranteed, the investigating authorities must reimburse the
excess amount or release the bond expeditiously. This means that if the
injury that was established in a final determination exceeds the injury that
was found in a preliminary determination, investigating authorities may
not recoup the difference.
1
WT/DS236/R, paras 7.104–7.114.
2
See De Jager, Article 19 SCMA.
BELLIS
article 20 scma 651
E. Refund/Release of Securities Following a Final

Determination (Arts 20.4–20.5 SCMA)
Arts 20.4 and 20.5 SCMA establish the obligation of investigating authori- 8
ties in case no retroactive duties have been imposed in a final determina-
tion to return securities that have been provided by importers in order to
guarantee provisional measures.
Art. 20.4 SCMA clarifies that when a final determination reveals that duties 9
may only be applied from the date of the final determination (because no
exceptional circumstances as defined under art. 20.2 SCMA exist), cash
deposits must be refunded and bonds must be released expeditiously.
Similarly, art. 20.5 SCMA determines that, where importers have provided 10
cash deposits or bonds and a subsequent final determination turns out
to be negative, the relevant securities must be returned in an expeditious
manner.
BELLIS
Article 21
Duration and Review of Countervailing Duties and Undertakings
21.1 A countervailing duty shall remain in force only as long as and to the extent neces-
sary to counteract subsidization which is causing injury.
21.2 The authorities shall review the need for the continued imposition of the duty,
where warranted, on their own initiative or, provided that a reasonable period of
time has elapsed since the imposition of the definitive countervailing duty, upon
request by any interested party which submits positive information substantiating the
need for a review. Interested parties shall have the right to request the authorities
to examine whether the continued imposition of the duty is necessary to offset
subsidization, whether the injury would be likely to continue or recur if the duty
were removed or varied, or both. If, as a result of the review under this paragraph,
the authorities determine that the countervailing duty is no longer warranted, it
shall be terminated immediately.
21.3 Notwithstanding the provisions of paragraphs 1 and 2, any definitive countervailing
duty shall be terminated on a date not later than five years from its imposition (or
from the date of the most recent review under paragraph 2 if that review has cov-
ered both subsidization and injury, or under this paragraph), unless the authorities
determine, in a review initiated before that date on their own initiative or upon a
duly substantiated request made by or on behalf of the domestic industry within a
reasonable period of time prior to that date, that the expiry of the duty would be
likely to lead to continuation or recurrence of subsidization and injury.52 The duty
may remain in force pending the outcome of such a review.
21.4 The provisions of Article 12 regarding evidence and procedure shall apply to any
review carried out under this Article. Any such review shall be carried out expedi-
tiously and shall normally be concluded within 12 months of the date of initiation
of the review.
21.5 The provisions of this Article shall apply mutatis mutandis to undertakings accepted
under Article 18.
Footnote 52: When the amount of the countervailing duty is assessed on a retrospective
basis, a finding in the most recent assessment proceeding that no duty is to be levied shall
not by itself require the authorities to terminate the definitive duty.
Bibliography
Case Law
Appellate Body Report, US—Lead and Bismuth II, WT/DS138/AB/R; Appellate Body
Report, US—Countervailing Measures on Certain EC Products, WT/DS212/AB/R; Appellate
Body Report, US—Carbon Steel, WT/DS213/AB/R; Appellate Body Report, Mexico—Anti-
Dumping Measures on Rice, WT/DS295/AB/R.
BELLIS
article 21 scma 653
Table of Contents
B. Duration of Countervailing Duties (Art. 21.1 SCMA) 2
C. Review of Countervailing Duties (Art. 21.2 SCMA) 3
I. Rights Warranted by Art. 21.2 SCMA May Not Be Confined 5
1. No Additional Requirements for Requests to Review May Be Imposed 6
2. The Review Must Take into Account All Positive Information 8
D. Termination of Countervailing Duties (Art. 21.3 SCMA) 9
E. Evidence and Referral to Undertakings (Arts 21.4–21.5 SCMA) 15
A. General Overview
In order to guarantee that countervailing measures are not applied in an 1

abusive way, the SCMA provides for detailed provisions on the duration
of countervailing duties and establishes a review mechanism in art. 21
SCMA.
B. Duration of Countervailing Duties (Art. 21.1 SCMA)
As a basic rule, art. 21.1 SCMA provides that countervailing duties may 2
remain in place as long as and to the extent necessary to counteract subsidi-
zation that is causing injury. In other words, two requirements must be met
in order to maintain a countervailing duty: (1) the imports must still receive
subsidies and (2) the subsidized imports must still cause material injury to
the domestic industry. If both requirements are met, a countervailing duty
may remain in force for the time and up to the level necessary to counteract
subsidization that is responsible for injury.
C. Review of Countervailing Duties (Art. 21.2 SCMA)
To ensure that Members comply with the rule set out in art. 21.1 SCMA, 3
art. 21.2 SCMA provides for a review mechanism.1 If a review according
to art. 21.2 SCMA demonstrates that the requirements for the application
of countervailing duties are no longer warranted, they should be terminated
immediately.
The review mechanism of art. 21.2 SCMA provides that the investigating 4
authorities have to carry out reviews in the following two circumstances:
(1) where warranted, they have to review on their own initiative, at any
time, whether the continued imposition of duties is needed or (2) provided
1
BELLIS
654 article 21 scma
a reasonable period of time has elapsed since the imposition of the mea-
sures, the investigating authorities must conduct a review upon the request
of any interested party that submits positive information substantiating
the need for such a review. In their request, interested parties may ask the
investigating authorities to perform the review from a specific perspective:
they may request an examination of (1) whether the continued imposition
of the duty is necessary to offset the subsidization; (2) whether the injury
would continue or recur if the duty were removed or varied; or (3) request
an examination under both of these aspects. As will be seen in the follow-
ing, the extent of a review may influence the allowed maximum length of
countervailing duties.2
I. Rights Warranted by Art. 21.2 SCMA May Not Be Confined

5 The panels and the Appellate Body have highlighted in several decisions
that the provisions of art. 21.2 SCMA relating to the review of counter-
vailing duties and in particular, to the rights of interested parties must be
guaranteed during national review proceedings.
1. No Additional Requirements for Requests to Review May

Be Imposed
6 If the conditions for a review are satisfied, a sufficiently substantiated request
to review the countervailing measures may not be rejected by Members’
authorities. Consequently, national legislation may not prescribe additional
conditions for the initiation of review proceedings. In Mexico—Anti-Dump-
ing Measures on Rice, the US complained about a provision in the Mexican
legislation which required exporters or producers requesting reviews of final
anti-dumping and countervailing measures respectively to demonstrate that
the sales during the review period were “representative”. The Appellate
Body found this to be an additional requirement and as such, inconsistent
with arts 9.3 and 11.2 ADA and accordingly, art. 21.2 SCMA.3
7 In the same case, the US also complained that according to Mexican legisla-
tion, review proceedings concerning countervailing duties would have to be
suspended until the conclusion of judicial proceedings if such proceeding
was pending. The Appellate Body concluded that the Mexican provision
infringed, amongst others, art. 21.2 SCMA since Members’ authorities may
not reject review proceedings when requested to do so and certain well-
defined conditions pursuant to art. 21.2 SCMA are met.4
2
See paras 9–11 below.
3
4
BELLIS
article 21 scma 655
2. The Review Must Take into Account All Positive

Information
In review proceedings pursuant to art. 21.2 SCMA, the investigating 8
Member’s authorities must take into account all “positive information
substantiating the need for a review” that is submitted. Otherwise, their
review proceeding is inconsistent with art. 21.2 SCMA. In US—Countervailing
Measures on Certain EC Products, the EC claimed the illegality of the so-called
“same person method” that was regularly applied by the US authorities
during reviews of countervailing duties in order to analyze whether the
privatization of a subsidized entity had stopped the accrual of benefits from
the subsidization.5 Pursuant to that method, in a first step, the authorities
had to evaluate whether privatization resulted in the creation of a new
legal person. If they concluded that no new legal person was created, the
analysis of whether a benefit existed was immediately stopped.6 In such
cases, the US authorities thus concluded automatically and irrebuttably
that financial inflows continued after the privatization and disregarded any
further information submitted by interested parties.7 The Appellate Body
eventually rejected the “same person method” on the ground that it would
inevitably lead to predetermined conclusions and disregard positive informa-
tion submitted by interested parties in violation of art. 21.2 SCMA.8
D. Termination of Countervailing Duties (Art. 21.3 SCMA)
According to art. 21.3 SCMA, any definitive countervailing duty must be 9

terminated within five years from (1) its imposition or (2) the date of the
most recent review if that review covered both subsidization and injury.
Alternatively, investigating Members’ authorities may conclude in the course 10
of a review proceeding initiated prior to the measure’s date of expiry that
the expiry of the duty would likely lead to the continuation or recurrence of
subsidization and injury (“sunset review”), in which case, the measure may
be prolonged. It should also be noted that footnote 52, to which art. 21.3
SCMA refers, clarifies that if an amount of countervailing duty is assessed
on a retrospective basis, a finding in the most recent review that no duty is
to be levied does not by itself require authorities to terminate the duty. A
sunset review may be initiated either by the authorities themselves or upon
5
6
Ibid., para. 130.
7
See Bhala & Gantz, 386–390.
8
WT/DS212/AB/R, paras 146–147. See also WT/DS138/AB/R, paras 52–74 where
the Appellate Body came to the conclusion that the US authorities did not examine all the
relevant positive information to assess the effects of a privatization and therefore, violated
art. 21.2 SCMA.
BELLIS
656 article 21 scma
a duly substantiated request by the domestic industry within a reasonable

period of time prior to the date of expiry.
11 According to art. 21.3 SCMA, the countervailing measures may stay in
force pending the outcome of a sunset review even if the proceeding is
not terminated within the five-year limit. This allows Members to extend
their measures until the outcome of the review investigations that were
initiated shortly before expiry, which has been criticized by some Members
for creating an incentive for investigating authorities to proceed slowly with
their investigations.
12 Acts or provisions that were found to be inconsistent with art. 21.2 SCMA
may also infringe art. 21.3 SCMA or be inherently inconsistent with the
SCMA. For instance, in US—Countervailing Measures on Certain EC Products,
the Appellate Body held that besides being inconsistent with art. 21.2
SCMA, the application of the “same person method”9 also infringed art.
21.3 SCMA given that its application precluded relevant information from
being assessed during sunset reviews.10 The Appellate Body eventually
ruled that since the “same person method” was inconsistent with original
investigations, administrative reviews, and sunset reviews, it was “as such”
inconsistent with the SCMA.11
13 Art. 21.3 SCMA does not contain any de minimis standard for the initiation
of a review investigation. In particular, the art. 11.9 SCMA de minimis
standard of one percent (i.e., the minimum amount of subsidy that must
be met to justify the initiation of an investigation) is not implied in art.
21.3 SCMA as the Appellate Body observed in US—Carbon Steel.12 As a
consequence, national legislation may differ from the standard of art. 11.9
SCMA without being inconsistent with the SCMA.
14 Another issue that was discussed in US—Carbon Steel is whether a standard
for the initiation of expiry reviews pursuant to art. 21.3 SCMA exists. The
EC claimed that US provisions requiring US authorities to initiate sunset
reviews automatically were inconsistent with art. 21.3 SCMA given that
sunset reviews initiated by the investigating authorities would require “the
same level of evidence as would be required in a ‘duly substantiated request’
from the domestic industry”.13 The Appellate Body, however, stipulated that
art. 21.3 SCMA does not prescribe any evidentiary standards for the self-
initiation of reviews and therefore, rejected the EC’s complaint.14
9
See para. 8 above.
10
11
Ibid., para. 151.
12
13
Ibid., para. 99.
14
BELLIS
article 21 scma 657
E. Evidence and Referral to Undertakings

(Arts 21.4–21.5 SCMA)
According to art. 21.4 SCMA, the provisions of art. 12 SCMA regarding 15

evidence and procedure are applicable to reviews carried out under art. 21
SCMA.15 Art. 21.4 SCMA moreover mandates that reviews under art. 21
SCMA must be carried out expeditiously and should normally be concluded
within 12 months of the date of initiation of review. However, in practice,
reviews regularly exceed this time limit.
Finally, art. 21.5 SCMA determines that the provisions of art. 21 SCMA are 16
applicable to undertakings that have been accepted under art. 18 SCMA.16
This implies that price undertakings can also be subject to review. There-
fore, the reviews of price undertakings should altogether comply with the
requirements of art. 21 SCMA.
15
For more information on art. 12 SCMA, see Bellis, Article 12 SCMA.
16
For more information on art. 18 SCMA, see Durling, Article 18 SCMA.
BELLIS
Article 22
Public Notice and Explanation of Determinations
22.1 When the authorities are satisfied that there is sufficient evidence to justify the
initiation of an investigation pursuant to Article 11, the Member or Members the
products of which are subject to such investigation and other interested parties
known to the investigating authorities to have an interest therein shall be notified
and a public notice shall be given.
22.2 A public notice of the initiation of an investigation shall contain, or otherwise make
available through a separate report53, adequate information on the following:
(i) the name of the exporting country or countries and the product involved;
(ii) the date of initiation of the investigation;
(iii) a description of the subsidy practice or practices to be investigated;
(iv) a summary of the factors on which the allegation of injury is based;
(v) the address to which representations by interested Members and interested
parties should be directed; and
(vi) the time-limits allowed to interested Members and interested parties for making
their views known.
22.3 Public notice shall be given of any preliminary or final determination, whether affir-
mative or negative, of any decision to accept an undertaking pursuant to Article
18, of the termination of such an undertaking, and of the termination of a definitive
countervailing duty. Each such notice shall set forth, or otherwise make available
through a separate report, in sufficient detail the findings and conclusions reached
on all issues of fact and law considered material by the investigating authorities.
All such notices and reports shall be forwarded to the Member or Members the
products of which are subject to such determination or undertaking and to other
interested parties known to have an interest therein.
22.4 A public notice of the imposition of provisional measures shall set forth, or other-
wise make available through a separate report, sufficiently detailed explanations for
the preliminary determinations on the existence of a subsidy and injury and shall
refer to the matters of fact and law which have led to arguments being accepted or
rejected. Such a notice or report shall, due regard being paid to the requirement
for the protection of confidential information, contain in particular:
(i) the names of the suppliers or, when this is impracticable, the supplying countries
involved;
(ii) a description of the product which is sufficient for customs purposes;
(iii) the amount of subsidy established and the basis on which the existence of a
subsidy has been determined;
(iv) considerations relevant to the injury determination as set out in Article 15;
(v) the main reasons leading to the determination.
22.5 A public notice of conclusion or suspension of an investigation in the case of an
affirmative determination providing for the imposition of a definitive duty or the
acceptance of an undertaking shall contain, or otherwise make available through a
separate report, all relevant information on the matters of fact and law and rea-
sons which have led to the imposition of final measures or the acceptance of an
undertaking, due regard being paid to the requirement for the protection of confi-
dential information. In particular, the notice or report shall contain the information
described in paragraph 4, as well as the reasons for the acceptance or rejection of
relevant arguments or claims made by interested Members and by the exporters
and importers.
22.6 A public notice of the termination or suspension of an investigation following the
acceptance of an undertaking pursuant to Article 18 shall include, or otherwise make
available through a separate report, the non-confidential part of this undertaking.
22.7 The provisions of this Article shall apply mutatis mutandis to the initiation and
completion of reviews pursuant to Article 21 and to decisions under Article 20 to
apply duties retroactively.
Footnote 53: Where authorities provide information and explanations under the provisions
of this Article in a separate report, they shall ensure that such report is readily available
to the public.
HORLICK & SHIH

article 22 scma 659
Bibliography
J. P. Durling & M. R. Nicely, Understanding the WTO Anti-Dumping Agreement: Negotiating History
and Subsequent Interpretation (2002); E. Vermulst & F. Graafsma, WTO Disputes: Anti-Dumping,
Subsidies and Safeguards (2002).
Case Law
Panel Report, Korea—Resins, ADP/92, BISD 40S/205; Panel Report, Thailand—H-Beams,
WT/DS122/R; Panel Report, Mexico—Corn Syrup, WT/DS132/R; Panel Report, EC—Bed
Linen, WT/DS141/R; Panel Report, Guatemala—Cement II, WT/DS156/R; Panel Report,
EC—Tube or Pipe Fittings, WT/DS219/R; Panel Report, Argentina—Poultry Anti-Dumping Duties,
WT/DS241/R; Panel Report, US—Corrosion-Resistant Steel Sunset Review, WT/DS244/R.
Cross-References
Arts 3, 6, 10, 12 ADA.
Table of Contents
A. General 1
I. Overview 1
II. Purpose 3
B. Notice of Initiation (Art. 22.1 SCMA) 4
I. A Procedural Requirement, Not a Substantive One 5
II. Timing 6
III. Two Forms of Notice 9
IV. Interested Parties 12
V. Reasonable Efforts 13
C. Required Contents of the Notice of Initiation (Art. 22.2 SCMA) 14
I. Separate Report 15
II. Basis for the Allegation of Subsidization 17
III. Summary of the Factors on Which the Allegation Is Based 18
IV. Defences 19
1. Harmless Error Is Not a Defence 20
2. Acquiescence or Estoppel Is Not a Defence 21
3. Lack of Nullification or Impairment of Benefits Is Not a Defence 22
D. Notices Required under Art. 22.3 SCMA 23
I. “Material” Information 24
1. Relevance to the Decision 24
2. Previous Voluntary Disclosure of Information Does Not Render the
Same Information Material 26
II. Inconsistent Periods of Data Collection 27
III. Violations of the Substantive Articles Render Consideration of
Art. 22.3 SCMA Violations Unnecessary 28
E. Required Contents of Notice of the Imposition of Provisional
Measures (Art. 22.4 SCMA) 29
F. Required Contents of Notice of Final Determination
(Art. 22.5 SCMA) 33
I. Reasons for Initiation Not Required in the Notice 34
II. Confidentiality Concerns 35
III. Final Notice Itself Must Contain Full Explanations of Conclusions;
Explanations Found Elsewhere in the Record of the Case Insufficient 36
G. Public Notice and Non-Confidential Information (Art. 22.6 SCMA) 38
H. Mutatis Mutandis (Art. 22.7 SCMA) 39
I. Outlook 44
HORLICK & SHIH

660 article 22 scma
A. General
I. Overview
1 Art. 22 SCMA requires public notice of an initiation of an investigation,
preliminary or final determination, and undertaking. In general, investigat-
ing authorities must provide all interested parties, especially those whose
products are the subject of such investigations, information regarding, inter
alia, the countries and product(s) involved, the factors upon which the
injury allegation is based, the facts revealed during the investigation, and
the reasoning for any determination of injury.
2 The Appellate Body and the panels have not yet considered claims brought
under art. 22 SCMA in any substantive manner. Several panels, however,
have encountered and interpreted similar claims under art. 12 ADA, the
provision in the ADA which corresponds to art. 22 SCMA. As a result, the
cases highlighted in this chapter are exclusively panel decisions involving
the ADA.
II. Purpose
3 The purpose of the notice provision is to ensure greater transparency in
the investigation and duty imposition process so that investigating Members
will base any measures on fact and valid reasoning, and affected Members
can better defend their interests and “assess the fruitfulness of bringing a
WTO dispute settlement complaint.”1
B. Notice of Initiation (Art. 22.1 SCMA)
4 Art. 22.1 SCMA sets forth the general requirements regarding the appropri-
ate timing for the issuance of a notice, the forms that notice must take, and
who must be notified. Recent WTO jurisprudence dealing with a similar
provision in the ADA has helped to clarify these requirements as well as how
much effort an investigating authority must make to ensure that interested
parties are notified of the investigation. In general, these panel decisions
have been pragmatic interpretations of the text, occasionally favouring
interpretations that promote greater transparency.
1
WT/DS122/R, para. 7.151.
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article 22 scma 661
I. A Procedural Requirement, Not a Substantive One

The purpose of the notice is to notify parties that a decision has taken place. 5
It does not require the Member to publish the reasons why it believes that
an investigation is justified. The sufficiency of those reasons are evaluated
and governed by art. 11.3 SCMA.2
II. Timing
The duty to notify is triggered only after a Member has formally decided 6
to initiate an investigation. Arguments relying on a literal reading of the
text—that notice is required not after the decision to investigate but as
soon as a Member is “satisfied that there is sufficient evidence to justify the
initiation of an investigation”—have been unsuccessful.
In Guatemala—Cement II, Mexico had argued that Guatemala had violated 7
art. 12.1 ADA because notification did not take place immediately after the
completion of a report recommending an investigation but one month later,
after the government made the formal decision to investigate. The panel
rejected this claim.3 Since art. 22.1 SCMA is similarly worded as art. 12.1
ADA, this holding should also be applicable to the former.
With respect to the reference in art. 22.1 SCMA to art. 11 SCMA, a panel, 8
in interpreting the corresponding provisions in the ADA (arts 12.1 and 5
ADA, respectively), stated that this reference does not establish “any evi-
dentiary obligation” but “serve[s] a timing purpose: it explains when . . . the
public notice of initiation should be given”.4
III. Two Forms of Notice

Art. 22.1 SCMA imposes two separate notice obligations—the first is to 9
notify specific interested parties; the second is to give public notice typi-
cally through publication. In Argentina—Poultry Anti-Dumping Duties, the panel
rejected Argentina’s argument that the publication of a single announcement
in a journal fully met the requirements of art. 12.1 ADA, the provision
corresponding to art. 22.1 SCMA.5
Curiously however, the panel in Guatemala—Cement II held that public notice 10
was enough: “By issuing a public notice of initiation in the case before
us, the Guatemalan authorities complied with their procedural obligations
2
WT/DS132/R, para. 7.88.
3
WT/DS156/R, paras 8.84–8.88. Public notification was made two days after the official
decision to investigate.
4
WT/DS244/R, para. 7.32.
5
WT/DS241/R, para. 7.133.
HORLICK & SHIH

662 article 22 scma
under Article 12.1 [ADA] to notify known interested parties and publish a
public notice after they had decided to initiate an investigation.”6 But art.
22.1 SCMA lays down an obligation to notify certain interested parties
beyond the public notice.
11 This conflict should be resolved by definitively recognizing the two obliga-
tions: (1) to give general notice through publication and (2) direct notice
to the specific parties who are known to be affected. Such a resolution
would be most consistent with art. 22 SCMA’s two goals—ensuring that
“targets” of the investigation are definitively notified and also making the
WTO system more transparent to others with a possible interest (other
traders, competitors, scholars, legal specialists, etc.) in the developments of
the investigation.
IV. Interested Parties

12 “Interested parties” who must be notified include “exporters or foreign
producers of a product subject to investigation.”7
V. Reasonable Efforts
13 Investigating authorities must “make all reasonable efforts” to notify inter-
ested parties of the initiation of an investigation. Members should notify
not just the governments involved but also make good faith efforts to locate
and inform all producers and exporters known to be interested in the inves-
tigation. In Argentina—Poultry Anti-Dumping Duties which involved a similar
provision in the ADA, the panel held that contacting a national embassy
and “sending a very general request for assistance, without specifying the
exporters for which contact details are required does not satisfy the need
to make all reasonable efforts.”8
C. Required Contents of the Notice of Initiation

(Art. 22.2 SCMA)
14 Art. 22.2 SCMA lists the information that must be included: countries and
products involved, date of initiation, description of the subsidy practice(s)
subject of the investigation, “a summary of the factors on which the
allegation of injury is based”, the address to which comments from inter-
6
WT/DS156/R, para. 8.89.
7
WT/DS241/R, para. 7.131, referring to the definition of “interested parties” in art.
6.11 ADA which also includes the government of the exporting country and the local
producers.
8
Ibid., para 7.132.
HORLICK & SHIH

article 22 scma 663
ested parties must be directed, and a deadline for such comments. Such
information must be included either in the notice or in a separate report
that is referred to in the notice itself. WTO panels have also taken a hard
line against violations of art. 12.1.1 ADA, which has a similar wording as
art. 22.1 SCMA, rejecting defences of “harmless error” and emphasizing
the importance of complete information and transparency to an affected
country’s ability to defend its interests.
I. Separate Report
All of the information required by art. 22.2 SCMA need not be included 15
in the notice of initiation so long as it can be found in a separate report.
However, the notice of initiation itself must refer to the existence of a
separate report9 and indicate when, where, and how to obtain it.10
In Guatemala—Cement II, the panel found textual basis for this conclusion 16
since art. 12.1.1 ADA, which is similar to art. 22.1 SCMA, states that “the
public notice,” not the investigating authority, must “make available through
a separate report” the required information.11 Therefore, the existence of
a separate report is not adequate without some reference to that report in
the text of the notice of initiation.
II. Basis for the Allegation of Subsidization

Art. 22.2(iii) SCMA requires Members to state in the notice “a description 17
of the subsidy practice or practices to be investigated”. This requirement
includes both the factual and legal bases for the initiation of the investiga-
tion.12 In Guatemala—Cement II, Guatemala’s notice included only the legal
basis for its investigation. The panel found that the omission of the factual
basis was a violation of art. 12.1.1 ADA even though Guatemala claimed
that the information was available in a separate report because the public
notice did not mention the report.13 Since art. 22.2(iii) SCMA is similarly
worded as art. 12.1.1 ADA, this holding should also be applicable to the
former.
9
WT/DS156/R, para. 8.95.
10
Ibid., para. 8.96.
11
Ibid., para. 8.95.
12
Ibid., para. 8.93.
13
Ibid., para. 8.96.
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664 article 22 scma
III. Summary of the Factors on Which the Allegation

Is Based
18 Art. 22.2(iv) SCMA requires that the notice contain “a summary of the
factors on which the allegation of injury is based”. This requirement cannot
be read to include all explanations and reasons for the conclusions of fact
underlying a nation’s decision to investigate. For instance, in Mexico—Corn
Syrup, the panel rejected arguments that art. 12.1.1(iv) ADA, which corre-
sponds to art. 22.2(iv) SCMA, required an investigating country to provide
information in the notice about how and why it had excluded two domestic
companies from its definition of “relevant domestic industry.”14 According
to the panel, the provision requires a summary of the allegations (here, of
threat of injury) and the supporting evidence for those allegations, but it
does not require that the notice of initiation contain the authorities’ conclu-
sions as to those allegations, desirable though that may be.15
IV. Defences
19 WTO panels have not been sympathetic to arguments that violations of
art. 12 ADA and the other procedural ADA provisions (i.e., arts 5 to 12)
are less serious than violations of the substantive ADA provisions (i.e., arts
1 to 4). Recognizing the essential role that art. 12 ADA’s notice provisions
play in promoting transparency and enabling parties to fully defend their
interests, the WTO gives equal weight to violations of both the substantive
and procedural articles. In Guatemala—Cement II, the panel noted:
Where . . . a public notice is inadequate, the ability of the interested party to
take . . . steps [to defend its interest] is vitiated. . . . Thus, while there is a pos-
sibility that the investigation would have proceeded in the same manner had
Guatemala complied with its transparency obligations, we cannot state with cer-
tainty that the course of the investigation would not have been different.16
Given the similar wording and nature of art. 22 SCMA, the foregoing
holding should also be applicable to art. 22 SCMA.
1. Harmless Error Is Not a Defence

20 Since the concept of “harmless error” (in this context, a procedural flaw
not harming the other party) has not attained the status of a general
principle of public international law, such an argument is not an adequate
defence to an alleged infringement of a provision of the SCMA. In Gua-
temala—Cement II, the panel rejected Guatemala’s claim that a violation of
14
WT/DS132/R, para. 7.86.
15
Ibid., para. 7.90.
16
WT/DS156/R, para. 8.111 (footnote omitted).
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article 22 scma 665
art. 12.1.1 ADA’s notice provisions should be dismissed under the principle
of “harmless error.”17
2. Acquiescence or Estoppel Is Not a Defence

There is no opportunity for a Member affected by an investigation involving 21
subsidies to seek dispute resolution for claims of inadequate notice and a
violation of art. 22.1 SCMA as soon as they occur. A Member found to
be in violation of the notice provisions cannot argue in its defence that the
other party acquiesced to or “convalidated” the violations and therefore
surrendered its right to bring the complaint in future proceedings by failing
to protest right away.18
3. Lack of Nullification or Impairment of Benefits Is Not a

Defence
It is impossible to be certain that the parties would have acted differently had 22
they been given or received adequate notice of the investigation. Therefore,
a defence of lack of nullification or impairment of benefits cannot defeat
an art. 22.1 SCMA violation.19
D. Notices Required under Art. 22.3 SCMA
Art. 22.3 SCMA requires public notice of preliminary and final determina- 23
tions in countervailing cases, decisions to accept undertakings under art. 18
SCMA, and decisions to terminate undertakings or definitive countervailing
duties. There are slightly different requirements for notices of the imposi-
tion of provisional measures (art. 22.4 SCMA) and of final determinations
(art. 22.5 SCMA) as described below. The public notice, which must be
forwarded to the affected Members and other known interested parties,
should detail or otherwise make available in a separate report the find-
ings and conclusions reached on all issues of fact considered material by
the investigating authorities. Recent litigation involving the corresponding
ADA provision have hinged on disputes over what information could be
considered material.
17
Ibid., para. 8.22.
18
Ibid., para. 8.24.
19
Based on the holding of the panel in ibid., para. 8.111, involving a similar provision
in the ADA.
HORLICK & SHIH

666 article 22 scma
I. “Material” Information
1. Relevance to the Decision

24 A “material” issue is an issue “that has arisen in the course of the inves-
tigation that must be resolved in order for the investigating authorities to
reach their determination.”20
25 Deliberations that do not lead to “the imposition of final measures, or the
acceptance of a price undertaking” need not be included in the notice. For
instance, in EC—Tube or Pipe Fittings, the panel rejected Brazil’s argument
that the EC had violated art. 12.2 ADA (the provision corresponding to
art. 22.3 SCMA) by failing to make public its findings regarding construc-
tive remedies under art. 15 ADA. Since the text of art. 12.2 ADA requires
only a discussion of determinations of “dumping and injury” and “any
decision to accept an undertaking pursuant to Article 8 [ADA],” the panel
held that a discussion of art. 15 ADA in the public notice was not covered
by these requirements.21
2. Previous Voluntary Disclosure of Information Does Not

Render the Same Information Material
26 To be material, the previously disclosed information must have a causal
link to the injury under investigation. In EC—Tube or Pipe Fittings, the panel
held that the EC’s previous disclosure of export performance findings to
the Brazilian exporter under investigation was irrelevant for art. 12.2 ADA
purposes since the information disclosed also showed that the EC did not
consider export performance a causal factor for the injury. The mere fact
of previous disclosure did not make the information material.22
II. Inconsistent Periods of Data Collection

27 A Member whose data collection period is not consistent with guidelines set
by the national legislation, regulation, or other guidelines must explain such
inconsistencies in its notices of preliminary and final determination.23
III. Violations of the Substantive Articles Render

Consideration of Art. 22.3 SCMA Violations Unnecessary
28 Consistent with the judicial economy approach generally observed by
panels and the Appellate Body, once a violation of a substantive require-
20
WT/DS219/R, para. 7.424.
21
Ibid., paras 7.424–7.426.
22
Ibid., paras 7.439–7.442.
23
See Committee on Anti-Dumping Practices, Minutes of the Regular Meeting Held on
4 and 5 May 2000, G/ADP/M/16, 20 September 2000.
HORLICK & SHIH

article 22 scma 667
ment set forth in another article, such as art. 15.5 SCMA, has been found,
“the question of whether the notice of either the preliminary or affirmative
determination of injury is ‘sufficient’ . . . is immaterial.”24 In such cases, the
panel will, most likely, decline to decide whether or not a violation of art.
22.3 SCMA has occurred.25
E. Required Contents of Notice of the Imposition of

Provisional Measures (Art. 22.4 SCMA)
Art. 22.4 SCMA requires that the notice or a separate report referred to in 29
the notice contain (1) “sufficiently detailed explanations for the preliminary
determinations on the existence of a subsidy and injury” and (2) “the matters
of fact and law” which caused the acceptance or rejection of arguments.
This suggests that provisional measures require the same level of explana-
tion as the notice described in art. 22.3 SCMA. Art. 22.4 SCMA can be
read as part of the effort in art. 12 SCMA to ensure an opportunity for the
defence of interested parties’ interests. Arguably, the objective requirement
of “sufficiently detailed explanations” in art. 22.4 SCMA (and incorporated
into art. 22.5 SCMA) supplements the requirement in art. 22.3 SCMA for
the notice or the report to contain “in sufficient detail” of those issues of
law and fact considered material”.
The notice or report required by art. 22.4 SCMA particularly requires the 30
inclusion of: (1) the names of the suppliers or where this is impracticable,
the names of the supplying countries; (2) product description sufficient for
customs purposes; (3) the amount of the subsidy established; (4) the basis
for the determination of the existence of a subsidy; (5) the relevant consid-
erations for art. 15 SCMA injury determination; and (6) the main reasons
for the determination. This provision has not been the subject of panels’
or the Appellate Body’s rulings as of the time of writing.
Art. 22.4(iv) SCMA refers to the factors that are to be considered for the 31
determination of injury under art. 15 SCMA. In construing the connection
between arts 12.2 and 12.2.1 ADA (the provisions in the ADA corresponding
to arts 22.4 and 22.4(iv) SCMA) and art. 3 ADA (the provision in the ADA
mirroring art. 15 SCMA), the panel in EC—Tube or Pipe Fittings held that
what is required of an investigating Member is that “it must be discernible
from the published determination that an investigating authority reflect
24
WT/DS141/R, para. 6.259 (involving the similar provision of art. 12.2 ADA). See also
WT/DS156/R, para. 8.291.
25
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668 article 22 scma
[the] explanation as to the lack of relevance or significance” “of factors

determined not to be relevant or of significant weight”.26
32 In complying with the requirements of art. 22.4 SCMA, the investigating
authority is also required to observe the rules on the protection of confi-
dential information which is covered by art. 12.4 SCMA.27
F. Required Contents of Notice of Final Determination

(Art. 22.5 SCMA)
33 A notice of final determination must include or otherwise make available

through a separate report all relevant information regarding the decision
to impose a definitive duty or accept a price undertaking. The notice must
include the information required under art. 22.4 SCMA, all relevant infor-
mation relating to issues of fact and law, and the reasons which led the
authorities to impose final measures or accept an undertaking. Confidential
information, however, need to be protected in accordance with art. 12.4
SCMA.28
I. Reasons for Initiation Not Required in the Notice

34 The text of the article does not require publication of the reasons for the
initiation of the investigation. Therefore, a party that fails to include this
information in its notice is not in violation of art. 22.5 SCMA.29
II. Confidentiality Concerns

35 Art. 22.5 SCMA states that “due regard” be “paid to the requirement for
the protection of confidential information.” While a panel has allowed a
nation to claim confidentiality concerns when declining to publish infor-
mation in a final determination,30 the WTO has yet to offer any standards
for determining the legitimacy of any claim of confidentiality. Treatment
in a countervailing duty investigation of one entity’s information as “con-
fidential” makes it difficult for an opposing entity to defend itself since it
cannot respond fully to decisions which it cannot see completely. At the
same time, countervailing duty investigations cannot be used to make public
26
WT/DS219/R, para. 7.432.
27
For more details on confidential information and how they are to be treated under the
SCMA, see Bellis, Article 12 SCMA.
28
See ibid.
29
WT/DS141/R, para. 6.260.
30
Ibid., para. 7.427.
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article 22 scma 669
commercially or governmentally sensitive information.31 This is less of an

issue in Members, e.g., the United States, that apply footnote 39 to art.
11.4 SCMA to permit counsel for both sides to see almost all the relevant
confidential information.
III. Final Notice Itself Must Contain Full Explanations of

Conclusions; Explanations Found Elsewhere in the Record of
the Case Insufficient
In a case brought under the predecessor to art. 12.2 ADA in 1993, Korea 36
failed to include in its final notice the factual analysis behind a determina-
tion based on findings of “present material injury to a domestic industry;
threat of material injury; and material retardation of the establishment of
a domestic industry.”32
The panel rejected Korea’s argument that such analysis could have been 37
gleaned from transcripts of its discussions regarding the case, stating: “It was
only the public notice issued . . . not the administrative record per se, which
was relevant as a statement of reasons.”33 As a result, the panel found that
Korea failed to fulfil the final notice requirements.
G. Public Notice and Non-Confidential Information

(Art. 22.6 SCMA)
This article requires public notices of the termination or suspension of an 38

investigation following the acceptance of an undertaking pursuant to art.
18 SCMA to include the non-confidential part of the undertaking. It has
yet to be tested in any cases before a WTO panel.
H. Mutatis Mutandis (Art. 22.7 SCMA)
The public notice requirements of art. 22 SCMA also apply to decisions 39

to apply duties retroactively under art. 20 SCMA and to the initiation and
completion of reviews of countervailing duties and undertakings under
art. 21 SCMA.
31
For a discussion of the issues involving the right of interested parties to have their
confidential information protected and the right of other interested parties to have access to
information necessary for them to properly understand the investigation and prepare their
defence, see Bellis, Article 12 SCMA.
32
ADP/92, BISD 40S/205, para. 300(i).
33
Ibid., para. 212.
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670 article 22 scma
40 In Mexico—Corn Syrup, the panel held that art. 12.3 ADA required Mexico
to explain its findings and conclusions as prescribed in arts. 12.2 and 12.2.2
ADA on the issue of whether “the effect of the dumped imports would,
in the absence of the provisional measures, have led to a determination
of injury” before final anti-dumping duties could be levied under art. 10.2
ADA.34 Since art. 22.7 SCMA uses similar language as art. 12.3 ADA, this
statement is expected to be similarly applicable in case a similar question
is raised in relation to art. 20.2 SCMA, the provision that corresponds to
art. 10.2 ADA.
41 The use of the term “mutatis mutandis” in the mirror provision in the
ADA was interpreted by a panel as a recognition by the drafters of the
agreement that some of the provisions mandated to be applied mutatis
mutandis “could not be applied, at all, or at the very least not in an identi-
cal manner in . . . reviews.”35
42 The panel in US—Corrosion-Resistant Steel Sunset Review also discussed the
issue in relation to the ADA provisions corresponding to arts 22 and 11
SCMA. In this case, Japan argued that since art. 12.3 ADA required the
application of art. 12 ADA provisions to an art. 11 ADA sunset review, the
art. 5 ADA evidentiary standards mentioned in art. 12.1 ADA must also
apply to the United States’ sunset review.36
43 The panel rejected this argument. It held that in the same way that art. 12.1
ADA “does not . . . establish evidentiary standards applicable to the initia-
tion of investigations, so too it does not . . . establish evidentiary standards
applicable to the initiation of sunset reviews.”37
I. Outlook
44 As discussed above, panels have tended to take a pragmatic, transparency-

oriented approach to their interpretations of the provisions of art. 12 ADA,
the corresponding provision of art. 22 SCMA. Strict enforcement of each
notice provision—no matter how great or small—no doubt encourages
Members to disclose information as completely and as soon as possible. And
since the provisions of art. 22 SCMA mirror the provisions of art. 12 ADA,
the holdings of the panels on art. 12 ADA-related issues are expected to be
applicable in cases where similar issues are raised under art. 22 SCMA.
34
WT/DS132/R, para. 7.191.
35
WT/DS244/R, para. 7.33.
36
Ibid., para. 7.30.
37
Ibid., para. 7.33.
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Article 23
Judicial Review
Each Member whose national legislation contains provisions on countervailing duty measures
shall maintain judicial, arbitral or administrative tribunals or procedures for the purpose,
inter alia, of the prompt review of administrative actions relating to final determinations
and reviews of determinations within the meaning of Article 21. Such tribunals or proce-
dures shall be independent of the authorities responsible for the determination or review
in question, and shall provide all interested parties who participated in the administrative
proceeding and are directly and individually affected by the administrative actions with
access to review.
Bibliography
B. A. Garner (ed. in chief ), Black’s Law Dictionary (8th ed. 2004); I. van Bael & J. F. Bellis,
Anti-Dumping and Other Trade Protection Laws of the EC (4th ed. 2004).
Case Law
Appellate Body Report, EC—Selected Customs Matters, WT/DS315/AB/R; Panel Report,
EC—Selected Customs Matters, WT/DS315/R.
Cross-Reference
Art. 13 ADA.
Table of Contents
A. General 1
B. Review 5
C. Prompt 6
I. Wording 7
II. Factors to be Taken into Account 10
D. Independent of the Authorities Responsible for the Determination
or Review in Question 14
E. No Requirement to Establish Specialized Tribunals or Procedures 15
F. Directly and Individually Affected 18
A. General
Art. 23 SCMA lays down minimum standards for WTO Members con- 1
cerning judicial review of final, interim, and expiry review determinations.
This review must be conducted by tribunals or by way of procedures that
are independent of the authorities responsible for the subject-matter under
review, and such review must be prompt. Art. 23 SCMA leaves it to WTO
Members to decide whether such tribunals or procedures may be of a
judicial, arbitral, or administrative character.
Art. 23 SCMA exists to ensure that a trader who has been adversely affected 2
by a decision of an administrative agency has the ability to have that adverse
decision judicially reviewed.1 Art. 23 SCMA has a due process objective.
1
With regard to a similar provision in art. X:3(b) GATT 1994, cf. WT/DS315/AB/R,
para. 302; WT/DS315/R, para. 7.538.
HARTMANN
672 article 23 scma
3 Apart from the last part of the second sentence, art. 23 SCMA has the
same text as art. 13 ADA.
4 As of the time of writing, neither art. 13 ADA nor art. 23 SCMA has been
interpreted under the dispute settlement mechanism.
B. Review
5 Art. 23 SCMA uses the term “review” five times, once in the heading and
four times in the text. The term conveys different meanings.2 Used in the
heading of art. 23 SCMA as well as the first time and the last time in
the text, “review” refers to judicial review of the administrative measures.
The two other times, the word “review” is used to refer to reviews of
determination within the meaning of art. 21 SCMA.
C. Prompt
6 Although judicial review of administrative actions takes different lengths

of time in various WTO Members, the promptness of judicial review has
not yet been challenged under the DSU.
I. Wording
7 The Spanish version uses the term “la pronta revision”, and the French
version provides for an obligation “de réviser dans les moindres délais”.
While not having exactly the same connotations, all three linguistic versions
set strict demands for the period of time in which to review the measure
in question.
8 In similar instances, panels have referred to Black’s Law Dictionary to elucidate
further the meaning of such a legal term.3 The term “prompt” is defined
as “to act immediately, responding on the instant”, whereas “promptly” is
defined as
ready and quick to act as occasion demands. The meaning of the word depends
largely on the facts in each case, for what is “prompt” in one situation may not
be considered such under other circumstances or conditions. To do something
“promptly” is to do it without delay and with reasonable speed.4
2
Panel Report, US—Oil Country Tubular Goods Sunset Reviews, WT/DS268/R, Third Party
Submission of the European Communities, annex B-1, para. 100.
3
WT/DS315/R, para. 7.519.
4
HARTMANN
article 23 scma 673
Hence, the wording requires an analysis on a case-by-case basis, taking the 9

facts of each case into account. This raises the question of which factors
may be considered in determining whether an action qualifies as prompt.
II. Factors to Be Taken into Account

With regard to “promptness” under art. X:3(b) GATT 1994, the European 10
Communities in EC—Selected Customs Matters claimed that such factors may
include “the caseload, the factual and legal complexity of the case, the
behaviour of the complainant, the involvement of other parties, as well as
questions of administrative and judicial procedure and organization”.5 This
list stretches too far. Only in extraordinary circumstances may exceptional
caseload be a factor to be taken into account when determining whether
judicial review is prompt. By signing up to the WTO agreements, the WTO
Member has undertaken the responsibility to ensure that adequate resources
are available to meet the caseload. On the other side, the factual and legal
complexity of the case as well as the behaviour of the complainant are
factors that may be considered in determining “promptness”. Whether
a factor may be taken into account depends upon who is responsible for
it and whether the WTO Member has taken measures that are generally
adequate to ensure prompt judicial review.
In order to determine what is “prompt”, previous time periods taken in 11
similar cases, at least within the same WTO Member, are relevant in deter-
mining the reasonable time limit. Such previous time periods establish a
presumption. The WTO Member has to rebut this presumption in order
to demonstrate that exceptional circumstances justify a longer time period.
As the arbitrator in US—Gambling stated, previous measures taken under
comparable circumstances are relevant in determining whether a measure
is prompt.6 The same idea applies to the definition of “prompt” in art. 23
SCMA.
In EC—Selected Customs Matters, the European Communities claimed with 12
regard to promptness under art. X:3(b) GATT 1994 that a breach of this
obligation “cannot be established on the basis of isolated individual cases.
Rather, it would have to be established that there is a general pattern of
a lack of prompt review”.7 The European Communities argued that this
is so because a case-by-case analysis is required.8 Precisely for this reason,
however, any individual case may lead to a breach of the obligation to
5
WT/DS315/R, para. 4.446.
6
Award of the Arbitrator, US—Gambling, WT/DS285/13, para. 55.
7
WT/DS315/R, para. 4.447.
8
Ibid.
HARTMANN
674 article 23 scma
conduct a prompt review of administrative actions. It is not necessary to

establish a general pattern.9
13 Whether judicial review is prompt depends on the actual length of proceed-
ings, not on maximum time limits as set up in legal texts. The United States
in EC—Selected Customs Matters noted with regard to art. X:3(b) GATT 1994
that the European Communities code in question was silent on the issue of
timing.10 Art. X:3(b) GATT 1994 contains a provision concerning prompt
review similar to that in art. 23 SCMA. Neither the panel nor the Appellate
Body requested the European Communities to set up a code that explicitly
provides for “prompt” review. Hence, it is not required that the legislation
itself provides for prompt review, at least as long as the actual review is
conducted in a prompt manner. Art. 23 SCMA is neutral as to the means
which WTO Members employ for ensuring prompt review.
D. Independent of the Authorities Responsible for the

Determination or Review in Question
14 In interpreting the term “independent”, the panel in EC—Selected Customs

Matters referred to Black’s Law Dictionary and defined “independent” as “not
subject to the control or influence of another; not associated with another
(often larger) entity”.11 The panel in that case interpreted art. X:3(b) GATT,
but similar considerations apply to the same term in art. 23 SCMA. The
panel concluded that for tribunals or procedures to be independent, they
“must be free of control or influence from the administrative agencies
whose decisions are the subject of review”.12 According to the panel, the
independence of tribunals and procedures requires them “to have the ability
to conduct the review . . . with freedom in institutional and practical terms
from interference by the agencies whose decisions are being reviewed”.13
E. No Requirement to Establish Specialized Tribunals or

Procedures
15 Art. 23 SCMA does not require a central tribunal or procedure to appeal

administrative decisions in countervailing duty matters. In all three authen-
tic versions of the SCMA, art. 23 SCMA refers to judicial, arbitral, or
administrative tribunals and procedures in the plural. The reference to
9
Ibid., para. 4.464.
10
Ibid., para. 4.40.
11
Ibid., para. 7.520 quoting Black’s Law Dictionary (1999), 774.
12
Ibid.
13
Ibid.
HARTMANN
article 23 scma 675
“tribunals” and “procedures” in the plural suggests that WTO Members

are free to establish several review tribunals and procedures that have dif-
ferent substantive or geographic areas of competence.14
Art. 23 SCMA is neutral as to the means which WTO Members employ in 16
order to ensure prompt judicial review. It does not contain any requirements
regarding the institutional structure of the review mechanism required by
that article other than the requirement that the review be undertaken by
judicial, arbitral, or administrative tribunals.15 The SCMA does not require
specialized tribunals or procedures to be set up to hear countervailing duty
disputes.16
Correspondingly, the institutional structure in WTO Members differs. Some, 17
like the United States, have specialized courts dealing with such trade remedy
cases, such as the Court of International Trade and the Court of Appeals
for the Federal Circuit. For other WTO Members, such as the European
Communities, the review of countervailing duty measures takes place as
part of the general system for review of administrative decisions. In the
case of the European Communities, such cases fall within the jurisdiction
of the Court of Justice of the European Communities or of the Court of
First Instance.17
F. Directly and Individually Affected
Unlike the otherwise identical provision in art. 13 ADA, art. 23 SCMA 18

states that review shall be open “to all interested parties who participated
in the administrative proceeding and are directly and individually affected
by the administrative actions”.
This is the only time in the WTO agreements that reference is made to 19
“directly and individually affected” parties, and at the time of writing, there
is as yet no WTO case law interpreting these terms.
The two other linguistic versions require “directa e individualmente afectadas 20
por dicho procedimiento” and “directement et individuellement affectées
par les mesures administratives”.
14
With regard to a similar provision in art. X:3(b) GATT 1994, cf. WT/DS315/AB/R,
para. 297.
15
With regard to a similar provision in art. X:3(b) GATT 1994, cf. WT/DS315/R, para.
7.552. In this regard, the panel also referred to art. 4 Draft Articles on Responsibility of
States for Internationally Wrongful Acts. Ibid., n. 932.
16
With regard to a similar provision in art. 13 ADA, cf. E. Vermulst, The WTO Anti-
Dumping Agreement (2005), 214.
17
Cf. van Bael & Bellis, 462.
HARTMANN
676 article 23 scma
21 The term “directly” is defined as “immediate . . .; operating by an immediate

connection or relation, instead of operating through a medium . . .; without
any intervening medium, agency or influence”.18
22 The word “individually” means “separate and personally, as distinguished
from jointly . . ., and as opposed to collective or associate action or common
interest”.19
23 A similarly worded provision in the EC Treaty has given rise to a great
amount of case law interpreting the terms “direct and individual con-
cern”. Art. 230(4) EC Treaty provides that “[a]ny natural or legal person
may . . . institute proceedings . . . against a decision which, although in the
form of a regulation or a decision addressed to another person, is of direct
and individual concern to the former”.
24 In interpreting this provision, the European Court of Justice states that
for a person to be directly concerned by a . . . measure, the latter must directly
affect the legal situation of the individual and leave no discretion to the
addressees of that measure who are entrusted with the task of implementing
it, such implementation being purely automatic and resulting from Community
rules without the application of other intermediate rules[.]20
25 According to the European Court of Justice’s so-called Plaumann test, the
addressees of a decision can claim to be individually concerned only if the
decision affects them by reason of certain attributes which are peculiar to
them or by reason of circumstances in which they are differentiated from all
other persons and by virtue of those factors, distinguishes them individually
just as in the case of the person addressed.21
26 One of the objectives in providing access to review only to those who are
“directly and individually affected” is to exclude the actio popularis. This
concern, however, could already be dealt with if art. 23 SCMA mentioned
only those who are “individually affected”.
27 In addition, art. 23 SCMA contains the limitation to those who are “directly
affected”. Hence, “directly affected” has to be interpreted in a broader
sense than just to exclude the actio popularis which is already excluded by
the other requirement. With regard to its dictionary meaning, the term
“direct” refers to the absence of any intervening medium. If there were
an administration with a margin of discretion that could not be judicially
reviewed, this would qualify as such an intervening medium.
18
19
Ibid.
20
C-386/96, Dreyfus v. Commission, [1998] E.C.R. I-2309, rec. 43.
21
C-25/62, Plaumann v. Commission, [1963] E.C.R. 95, 107.
HARTMANN
article 23 scma 677
The stricter the admissibility criteria which WTO Members may apply in 28
accordance with art. 23 SCMA, the less stringent the requirements that art.
23 SCMA imposes upon the WTO Members. The partially overlapping
content of the two terms “directly” and “individually” speaks in favour of
allowing WTO Members to apply a strict test of admissibility.
HARTMANN
Article 24
Committee on Subsidies and Countervailing Measures and Subsidiary Bodies
24.1 There is hereby established a Committee on Subsidies and Countervailing Measures

composed of representatives from each of the Members. The Committee shall elect
its own Chairman and shall meet not less than twice a year and otherwise as envis-
aged by relevant provisions of this Agreement at the request of any Member. The
Committee shall carry out responsibilities as assigned to it under this Agreement
or by the Members and it shall afford Members the opportunity of consulting on
any matter relating to the operation of the Agreement or the furtherance of its
objectives. The WTO Secretariat shall act as the secretariat to the Committee.
24.2 The Committee may set up subsidiary bodies as appropriate.
24.3 The Committee shall establish a Permanent Group of Experts composed of five
independent persons, highly qualified in the fields of subsidies and trade relations. The
experts will be elected by the Committee and one of them will be replaced every
year. The PGE may be requested to assist a panel, as provided for in paragraph 5
of Article 4. The Committee may also seek an advisory opinion on the existence
and nature of any subsidy.
24.4 The PGE may be consulted by any Member and may give advisory opinions on the
nature of any subsidy proposed to be introduced or currently maintained by that
Member. Such advisory opinions will be confidential and may not be invoked in
proceedings under Article 7.
24.5 In carrying out their functions, the Committee and any subsidiary bodies may con-
sult with and seek information from any source they deem appropriate. However,
before the Committee or a subsidiary body seeks such information from a source
within the jurisdiction of a Member, it shall inform the Member involved.
Bibliography
K. Adamantopoulos, An Anatomy of the World Trade Organization (1997), 45–46; M. Beise, Die
Welthandelsorganisation (WTO) (1996); C. Grave, Der Begriff der Subvention im WTO-Übereinkommen
über Subventionen und Ausgleichsmaßnahmen (2002); M. Hilf, WTO: Organisationsstruktur und Verfahren,
in: M. Hilf & S. Oeter (eds), WTO-Recht—Rechtsordnung des Welthandels (2005), 141–165; J. H.
Jackson, The WTO “Constitution” and Proposed Reforms: Seven “Mantras” Revisited, JIEL 4 (2001),
67–78; T. Jäger, Streitbeilegung und Überwachung als Mittel der Durchführung des GATT (1992); A. L.
Mattice, The Fisheries Subsidies Negotiations in the WTO: A “Win-Win-Win” for Trade, the Envi-
ronment and Sustainable Development, Golden Gate U. L. Rev. 34 (2004), 573–586; M. Oesch,
Standards of Review in WTO Dispute Resolution (2003), 33–40; S. Ohlhoff, Streitbeilegung in der
WTO, in: H. J. Prieß & G. M. Berrisch (eds), WTO-Handbuch (2003), 677–750; C. Pitschas,
Übereinkommen über Subventionen und Ausgleichsmaßnahmen, in: H. J. Prieß & G. M. Berrisch
(eds), WTO-Handbuch (2003), 429–478; J. Y. Qin, WTO Regulation of Subsidies to State-Owned
Enterprises (SOEs)—A Critical Appraisal of the Chinese Accession Protocol, JIEL 7 (2004), 863–919;
F. Roessler, The Institutional Balance between the Judicial and the Political Organs of the WTO, in:
M. Bronckers & R. Quick (eds), New Directions in International Law, Essays in Honour of John H.
Jackson (2000), 325–345; M. Sánchez Rydelski, EG und WTO Antisubventionsrecht (2001); T. P.
Stewart (ed.), The GATT Uruguay Round. A Negotiating History (1993), vol. I; T. P. Stewart (ed.),
The GATT Uruguay Round. A Negotiating History (1999), vol. IV; T. P. Stewart et al., Opportuni-
ties in the WTO for Increased Liberalization of Goods: Making Sure the Rules Work for All and Special
Needs Are Addressed, Fordham Int’l L.J. 24 (2000), 652–723; T. P. Stewart & M. M. Burr, The
WTO’s First Two and a Half Years of Dispute Resolution, N.C. J. Int’l L. & Com. Reg. 23 (1998),
481–571; F. Wolfram, Staatliche Exportkreditförderung—Ein deutsch-amerikanischer Vergleich im Lichte
des WTO-Subventionsübereinkommens (2004); WTO, GATT Activities 1994–1995. A Review of the
Work of the GATT 1994 and 1995 (1996).
Documents
Committee on Subsidies and Countervailing Measures, Permanent Group of Experts, Deci-
sion Adopted by the Committee on 13 June 1995, G/SCM/4, 22 June 1995; Committee
on Subsidies and Countervailing Measures, Draft Rules of Procedure for the Permanent
Group of Experts, G/SCM/W/365, 18 April 1996; Committee on Subsidies and Counter-
vailing Measures, Draft Rules of Procedure for the Permanent Group of Experts, Revision,
WOLFRAM
article 24 scma 679
G/SCM/W/365/Rev. 1, 24 June 1996; Council for Trade in Goods, Rules of Procedure

for Meetings of the Committee on Subsidies and Countervailing Measures, G/L/144, 11
March 1997.
Cross-References
Art. 17 AG Agreement; Art. 12 SPS Agreement; Art. 8 ATC; Art. 13 TBT Agreement;
Art. 7 TRIMS Agreement; Art. 16 ADA; Art. 18, Annex II VALA; Art. 4, Annex I ROA;
Art. 13 SA; Art. 4 LIC Agreement.
Table of Contents
A. General 1
I. Position of the SCM Committee within the WTO 2
II. Purpose and Functions of the SCM Committee 3
B. The SCM Committee (Art. 24.1 SCMA) 4
I. Composition (Art. 24.1 Sentence 1 SCMA) 4
II. Meetings and Chairman (Art. 24.1 Sentence 2 SCMA) 7
III. Responsibilities (Art. 24.1 Sentence 3 SCMA) 9
IV. Secretariat (Art. 24.1 Sentence 4 SCMA) 11
C. Subsidiary Bodies (Art. 24.2 SCMA) 12
D. Permanent Group of Experts (Art. 24.3 SCMA) 13
E. Advice and Advisory Opinions for WTO Members (Art. 24.4 SCMA) 15
F. Consultations with and Information from Other Sources
(Art. 24.5 SCMA) 17
G. Outlook 19
A. General
The SCMA, like the Tokyo Round Subsidies Code,1 has established a 1
Committee on Subsidies and Countervailing Measures, referred to in the
SCMA as “the Committee”2 and hereafter as the “SCM Committee”. Art.
24 SCMA lays down the organizational framework of the SCM Commit-
tee. In addition to this general framework, the SCM Committee established
detailed rules of procedure for its meetings (hereafter referred to as Rules
of Procedure)3 pursuant to art. IV:6 WTO Agreement.4 To the extent that
the Rules of Procedure elucidate on the provisions of art. 24 SCMA, they
can provide some guidance for the interpretation of art. 24 SCMA.
1
The provisions of art. 24 SCMA are derived from art. 16 Tokyo Round Subsidies Code,
BISD 26S/55–83 (1980), and art. 24 Draft Final Act Embodying the Results of the Uruguay
Round of Multilateral Trade Negotiations, MTN.TNC/W/FA, 20 December 1991. For a
synopsis, see Stewart, vol. IV, annex. For more details on the historical background, see Stewart,
vol. I, 950–951; Stewart, vol. IV, 254–255; Stewart & Burr, 559–560; WTO, 79–80.
2
See the definition of the term “the Committee” in footnote 25 SCMA.
3
G/L/144.
4
The Council for Trade in Goods approved the Rules of Procedure on 22 May 1996
pursuant to art. IV:6 sentence 2 WTO Agreement. See Council for Trade in Goods, Min-
utes of Meeting Held in Centre William Rappard on 22 May 1996, G/C/M/10, 29 May
1996, 2, para. 1.1.
WOLFRAM
680 article 24 scma
I. Position of the SCM Committee within the WTO

2 The SCM Committee is a subsidiary body of the Council for Trade in
Goods, the latter operating under the general guidance of the General
Council of the WTO5 and overseeing the functioning of the multilateral
trade agreements in annex 1A WTO Agreement.6 The SCM Committee
shall establish its own rules of procedure subject to the approval of the
Council for Trade in Goods7 and report to the Council for Trade in Goods
on an annual basis.8 If the SCM Committee cannot arrive at a decision
by consensus, the matter at issue shall be referred to the Council for Trade
in Goods.9
II. Purpose and Functions of the SCM Committee

3 The purpose of the SCM Committee is to administer the SCMA on behalf
of the WTO and by consensus of the WTO Members. In accordance with
this administrative purpose, the following functions have been assigned
to the SCM Committee: receipt and review of notifications, reports, and
other information under the SCMA; the supervision of the application and
implementation of the SCMA; and the provision of a multinational forum
for consultations and discussions on SCMA issues.
5
Art. IV:5 sentence 1 WTO Agreement.
6
Art. IV:5 sentence 2 WTO Agreement; Adamantopoulos, 36.
7
Art. IV:6 sentence 2 WTO Agreement; Adamantopoulos, 38. The Rules of Procedure
are published in G/L/144.
8
Art. 32.7 sentence 2 SCMA; Adamantopoulos, 46. From 1995 to 2006, the following
annual reports to the Council for Trade in Goods have been published: Report (1995) of
the Committee on Subsidies and Countervailing Measures, G/L/31, 10 November 1995;
Report (1995) of the Committee on Subsidies and Countervailing Measures, Corrigendum,
G/L/31/Corr.1, 20 November 1995; Report (1996) of the Committee on Subsidies and
Countervailing Measures, G/L/126, 28 October 1996; Report (1997) of the Committee
on Subsidies and Countervailing Measures, G/L/201, 30 October 1997; Report (1998) of
Report (1999) of the Committee on Subsidies and Countervailing Measures, G/L/341, 5
November 1999; Report (1999) of the Committee on Subsidies and Countervailing Measures,
Corrigendum, G/L/341/Corr.1, 26 November 1999; Report (2000) of the Committee on
Subsidies and Countervailing Measures, G/L/408, 10 November 2000; Report (2001) of
November 2002; Report (2003) of the Committee on Subsidies and Countervailing Measures,
G/L/655, 4 November 2003; Report (2003) of the Committee on Subsidies and Counter-
vailing Measures, Corrigendum, G/L/655/Corr.1, 11 November 2003; Report (2004) of
October 2005; Report (2006) of the Committee on Subsidies and Countervailing Measures,
G/L/798, 8 November 2006.
9
G/L/144, 6, rule 33.
WOLFRAM
article 24 scma 681
B. The SCM Committee (Art. 24.1 SCMA)
I. Composition (Art. 24.1 Sentence 1 SCMA)

All WTO Members are ipso facto members of the SCM Committee.10 4
With respect to the EC, because both the EC and its members are WTO
Members,11 both the EC and its members are ipso facto members of the
SCM Committee.
According to art. 24.1 sentence 1 SCMA, the SCM Committee is composed 5
of “representatives” from each of the WTO Members, i.e., each WTO
Member is entitled to be represented in the SCM Committee by a delegate.
It accords with both general customs in international relations12 and the
Rules of Procedure13 that each representative shall be a delegate accredited
by the sending WTO Member. In general, two or more WTO Members
may accredit the same person as their representative.14 Not pursuant to
art. 24.1 sentence 1 SCMA but according to the Rules of Procedure, each
representative may be accompanied by such alternates and advisers as the
representative may require.15
Upon the invitation of the SCM Committee, representatives of States, 6
separate customs territories, or international intergovernmental organiza-
tions may attend the meetings of the SCM Committee as observers. In
contrast to representatives from WTO Members, observers have no right
to participate in decision-making, to make proposals, and to speak in the
meetings but may be invited by the SCM Committee to speak and shall
have access to the main WTO document series.16
II. Meetings and Chairman (Art. 24.1 Sentence 2 SCMA)

The SCM Committee shall have regular meetings at least twice a year and 7
special meetings as envisaged by relevant provisions of the SCMA at the
request of any WTO Member. The term “meetings” in art. 24.1 sentence 2
SCMA can be defined as assemblies of representatives of WTO Members
10
See G/L/31, para. 1; G/L/126, para. 1; G/L/201, para. 1; G/L/267, para. 1; WTO,
79.
11
Arts XI:1, XIV:1 sentence 1 WTO Agreement; Wolfram, 213; Grave, 63.
12
Cf. arts 4–5 Vienna Convention on Diplomatic Relations, done 18 April 1961, entered
into force 24 April 1964, 500 UNTS 95.
13
G/L/144, 2, rule 8.
14
Cf. art. 6 Vienna Convention on Diplomatic Relations, supra note 12.
15
G/L/144, 2, rule 9. Cf. annex II(5) sentences 2, 4 VALA; annex I(4) sentences 2, 4
ROA.
16
For more details on observers, see G/L/144, 2, rules 10–11, referring to General
Council, Rules of Procedure for Sessions of the Ministerial Conference and Meetings of
the General Council, WT/L/161, 25 July 1996, annexes 2–3.
WOLFRAM
682 article 24 scma
establishing the SCM Committee irrespective of whether observers, advis-

ers, or other persons are present at such assemblies. Detailed procedural
rules for these meetings are laid down in the Rules of Procedure.17 During
its meetings, the SCM Committee has to make its decisions by consensus
pursuant to art. IX:1 sentence 2 WTO Agreement and the Rules of Proce-
dure.18 The SCM Committee shall be deemed to have decided by consensus
if no representative of a WTO Member present at the meeting formally
objects to the proposed decision.19 Pursuant to the Rules of Procedure, the
matter at issue shall be referred to the Council for Trade in Goods if no
consensus can be achieved.20 “Relevant provisions” within the meaning of
art. 24.1 sentence 2 SCMA are arts 8.4 sentences 3 to 5, 9.4, 26.1 sentence
1, 27.4 sentences 3 and 4, 27.14, and 27.15 SCMA.
8 According to art. 24.1 sentence 2 SCMA, the SCM Committee shall elect
its own “chairman”, i.e., the person presiding over the SCM Committee.
Pursuant to the Rules of Procedure, the chairperson must be a representa-
tive of a WTO Member.21 Because the SCM Committee has to arrive at its
decisions by consensus,22 it has to “elect” its chairperson by consensus.23
III. Responsibilities (Art. 24.1 Sentence 3 SCMA)

9 Pursuant to art. 24.1 sentence 3 SCMA, the SCM Committee shall carry
out the responsibilities assigned to it under the SCMA or by the WTO
Members. For the responsibilities “assigned to it under this Agreement”,
please refer to the commentaries on the relevant provisions.24 Responsibilities
“assigned to it . . . by the Members” are all other functions assigned to the
SCM Committee by consensual decisions of the WTO Members.
10 The SCM Committee shall “afford Members the opportunity of consulting
on any matter relating to the operation of the [SCMA] or the furtherance
17
G/L/144. For these Rules of Procedure, see supra para. 1.
18
G/L/144, 6, rule 33. Cf. Adamantopoulos, 54.
19
Art. IX:1 footnote 1 WTO Agreement; Adamantopoulos, 54.
20
G/L/144, 6, rule 33.
21
See ibid., 3, rule 12, n. 1, referring to General Council, Guidelines for Appointment of
Officers to WTO Bodies, WT/L/31, 7 February 1995, 1, rule 1.1.
22
See supra para. 7.
23
More detailed rules on the election, appointment, and functions of the chairperson are
laid down in the Rules of Procedure, G/L/144, rules 6, 12–15, 17, 18, 21, 22, 24, 38, n. 1,
referring to the guidelines set forth in Guidelines for Appointment of Officers to WTO
Bodies, WT/L/31.
24
The relevant provisions are arts 8.3, 8.4, 9.3, 9.4, 24.1 sentence 3, 25.9 to 25.12, 26,
27.4, 27.6 last sentence, 27.11 to 27.15, 28.1(a), 29.3, 29.4, 31, 32.6, 32.7, and footnote 25
SCMA. In addition to this article, see Rios Herran & Poretti, Article 8 SCMA; Rios Herran
& Poretti, Article 9 SCMA; Horlick & Shoop, Article 25 SCMA; Wolfram, Article 26 SCMA;
Avgoustidi & Ballschmiede, Article 27 SCMA; Wolfram, Article 28 SCMA; Rios Herran & Poretti,
Article 29 SCMA; Rios Herran & Poretti, Article 31 SCMA; Wolfram, Article 32 SCMA.
WOLFRAM
article 24 scma 683
of its objectives”. Pursuant to this clause, the broad wording of which

indicates that it has to be interpreted extensively, the SCM Committee shall
provide its Members a multinational forum for consultations and discus-
sions on subsidy-related issues (e.g., it may invite Members to inform other
Members on specific subsidy-related matters).25
IV. Secretariat (Art. 24.1 Sentence 4 SCMA)

The WTO Secretariat also acts as the SCM Committee’s “secretariat”, i.e., 11
the administrative body dealing with the correspondence and clerical and
other administrative work of the SCM Committee.26
C. Subsidiary Bodies (Art. 24.2 SCMA)
The SCM Committee may set up subsidiary bodies as appropriate.27 The 12

term “subsidiary bodies” in art. 24.2 SCMA implies that such bodies shall
have the function of assisting the SCM Committee in carrying out its
responsibilities. The establishment of a subsidiary body is “appropriate” if
the subsidiary body to be established is suitable to assist the SCM Com-
mittee in carrying out its responsibilities.28
D. Permanent Group of Experts (Art. 24.3 SCMA)
The SCM Committee shall establish a Permanent Group of Experts, 13

referred to in the SCMA as the “PGE”.29 The SCM Committee approved
detailed rules on the term of office, selection, independence, qualifications,
conditions of service of the PGE’s members, and on the administrative
and technical support for the PGE.30 Pursuant to these rules, the PGE shall
25
Cf. Committee on Subsidies and Countervailing Measures, Recent International Finan-
cial Commitments by Certain WTO Members, G/SCM/17, 20 April 1998.
26
For details on the WTO Secretariat, see art. VI WTO Agreement. See also Adamanto-
poulos, 50–53; Hilf, paras 13–21.
27
In addition to such non-obligatory subsidiary bodies, the SCM Committee has to set
up the PGE (see art. 24.3 SCMA) and the Working Party on Subsidy Notifications (see
footnote 54 SCMA) as obligatory subsidiary bodies.
28
An example of such a subsidiary body is the Informal Group of Experts (IGE). The
IGE was established by the SCM Committee to assist it in the development of a common
understanding among WTO Members on matters which are not specified in annex IV
SCMA or which need further clarification for the purpose of art. 6.1(a) SCMA. See Com-
mittee on Subsidies and Countervailing Measures, Informal Group of Experts, Decision of
the Committee Adopted on 13 June 1995, G/SCM/5, 22 June 1995.
29
See the definition of the term “PGE” in art. 4.5 sentence 1 SCMA; Adamantopoulos,
45.
30
These rules are published in G/SCM/4.
WOLFRAM
684 article 24 scma
also develop more detailed rules of procedure for itself subject to approval
by the SCM Committee.31 Although the PGE developed such rules,32 they
have not been approved by the SCM Committee because no consensus
could be reached.33
14 The PGE may be requested by a panel to assist it pursuant to art. 4.5
SCMA or by the SCM Committee to give advisory opinions pursuant to
art. 24.3 sentence 4 SCMA and may be consulted by any WTO Member
pursuant to art. 24.4 SCMA. If the PGE assists a panel according to art.
4.5 SCMA, the PGE’s conclusion on whether the matter in question is a
prohibited subsidy is legally binding on that panel.34 In contrast, the PGE’s
advisory opinions to the SCM Committee pursuant to art. 24.3 sentence
4 SCMA and to Members pursuant to art. 24.4 SCMA are not legally
binding35 but provide an important indication of the compatibility of the
matter in question with the SCMA.
E. Advice and Advisory Opinions for WTO Members

(Art. 24.4 SCMA)
15 According to art. 24.4 sentence 1 SCMA, the PGE may be consulted by

any WTO Member on the nature of any subsidy proposed to be introduced
or currently maintained by that Member. However, in order to avoid a
conflict of competence between the DSB and the PGE, after the matter
in question has been referred to the DSB and the DSB has established a
panel pursuant to art. 4.4 SCMA, the PGE may only deal with the matter
in question if the panel has requested the PGE’s assistance pursuant to
art. 4.5 SCMA.36
16 After having been consulted by a Member, the PGE may advise and give
advisory opinions to the Member in question. According to art. 24.4 sentence
2 SCMA, such advisory opinions are confidential and may not be invoked
in proceedings under art. 7 SCMA. They may not be invoked in proceed-
ings under art. 7 SCMA because they are confidential and because panels
and Appellate Bodies have the responsibility to settle disputes in individual
cases. In order to avoid the undermining of the confidentiality obligation in
art. 24.4 sentence 2 SCMA and to avoid a conflict of competence between
the DSB and the PGE, advisory opinions given to Members may not be
invoked in proceedings under art. 4 SCMA also although art. 4 SCMA
31
See ibid., 2, rule 8.
32
See G/SCM/W/365; G/SCM/W/365/Rev. 1.
33
See G/L/126, 2, para. VII; G/L/201, 2, para. VI.
34
See art. 4.5 sentence 4 SCMA; Adamantopoulos, 45.
35
For more details on advisory opinions for WTO Members, see infra paras 15–16.
36
Pitschas, para. 51, n. 139.
WOLFRAM
article 24 scma 685
is not explicitly mentioned in art. 24.4 SCMA.37 Consequently, advisory

opinions given to Members pursuant to art. 24.4 sentence 1 SCMA are
not binding on panels and the Appellate Body deciding pursuant to arts
7.4 to 7.10 or 4.4 to 4.12 SCMA on the matter in question.
F. Consultations with and Information from Other Sources

(Art. 24.5 SCMA)
In carrying out their functions, the SCM Committee and its subsidiary 17
bodies are entitled to consult with and seek information from any source
they deem appropriate. Because of the broad wording “any source they
deem appropriate” and the purpose of art. 24.5 SCMA to enable the SCM
Committee and its subsidiary bodies to make objective assessments, the
term “any source they deem appropriate” is to be interpreted extensively.
It encompasses all individuals and private and public bodies to the extent
that their consultation or information is considered helpful by the SCM
Committee or its subsidiary bodies for making an objective assessment. This
corresponds to the extensive interpretation of the almost identical art. 13.1
DSU by the Appellate Body pursuant to which, panels have great discre-
tion as to the need, acceptability, relevance, and reliability of information
from other sources.38
However, before the SCM Committee or a subsidiary body seeks informa- 18
tion from a source within or under the jurisdiction of a WTO Member, the
SCM Committee or subsidiary body in question shall inform the Member
concerned.
G. Outlook
The SCM Committee is generally perceived by the WTO, its Members, 19

and commentators as an important body within the WTO, indispensable
for the administration of the SCMA.
37
Ibid. Cf. Oesch, 37–40 (discussing possible conflicts of competence between panels
and special bodies like the SCM Committee and arguing that panels in general have the
competence to reassess a matter even after a comprehensive examination of the same matter
by a special body); Roessler, 325–345.
38
Pitschas, para. 52. For an extensive interpretation of art. 13.1 DSU, see Appellate
Body Report, US—Shrimp, WT/DS58/AB/R, paras 102–110; Appellate Body Report,
Argentina—Textiles and Apparel, WT/DS56/AB/R, paras 84–86; Appellate Body Report,
EC—Hormones, WT/DS26/AB/R, WT/DS48/AB/R, para. 147; Oesch, 186–187; Ohlhoff,
paras 98–101.
WOLFRAM
686 article 24 scma
20 Nevertheless, some issues may have to be addressed in future discussions

on the reform of the SCMA. First, the SCM Committee has no effective
means of enforcing the notification requirements under the SCMA and
has difficulties in adequately reviewing notifications in a timely manner.39
Because the latter result not only from the tardiness of Members in fulfill-
ing their notification obligations but also from the workload generated by
such reviews, the SCM Committee decided to concentrate its resources
on the review of new and full notifications and to downplay the review of
updating notifications.40 However, because art. 26.1 SCMA still requires
the review of both kinds of notifications, the non-compliance of review
practice with the review requirements under the SCMA remains an issue
to be resolved. Possible solution strategies could include co-operation with
outside consultants.41 Another area of concern is that the decision-making
process in the SCM Committee can be hampered by the requirement to
make decisions by consensus and if no consensus can be achieved, to refer
the matter at issue to the Council for Trade in Goods.42 However, because
a change of the consensus principle requires a consensual decision of WTO
Members and because most WTO Members do not see a need to alter
the basic character of the WTO as a Member-driven organization with
its existing practice of making decisions by consensus,43 a change in this
practice seems rather unlikely.
39
See, e.g., Qin, 898; Mattice, 582; Stewart et al., 693; Sánchez Rydelski, 313; Committee
on Subsidies and Countervailing Measures, Frequency of Article 25 Subsidy Notifications,
G/SCM/W/421, 30 March 1999, paras 2–3; Committee on Subsidies and Countervailing
Measures, Note by the Secretariat, G/SCM/23, 30 July 1999, passim. For more details on
these difficulties, see Wolfram, Article 26 SCMA, paras 2–5. There was already a low compliance
with notification obligations under the Tokyo Round Subsidies Code. See Jäger, 160–161.
40
See Committee on Subsidies and Countervailing Measures, Minutes of the Regular
Meeting Held on 14 April 2005, G/SCM/M/53, 3 August 2005, paras 32–34. See also
Negotiating Group on Rules, Draft Consolidated Chair Texts of the AD and SCM Agree-
ments, TN/RL/W/213, 30 November 2007, 70.
41
See also Wolfram, Article 26 SCMA, paras 2–5, 12.
42
For example, the SCM Committee could not achieve consensus on the approval of
rules of procedure for the PGE, G/L/126, para. VII; G/L/201, para. VI, and on extensions
pursuant to art. 31 SCMA, G/L/408, para. 12. Cf. Jackson, 71, 75–77 (discussing pros
and cons of as well as alternatives to the consensus principle); Beise, 199–203 (discussing
alternatives to this principle); Hilf, para. 59.
43
See General Council, Minutes of Meeting Held in the Centre William Rappard on 17
and 19 July 2000, WT/GC/M/57, 14 September 2000, para. 134; Hilf, para. 59.
WOLFRAM
Article 25
Notifications
25.1 Members agree that, without prejudice to the provisions of paragraph 1 of Article
XVI of GATT 1994, their notifications of subsidies shall be submitted not later
than 30 June of each year and shall conform to the provisions of paragraphs 2
through 6.
25.2 Members shall notify any subsidy as defined in paragraph 1 of Article 1, which
is specific within the meaning of Article 2, granted or maintained within their
territories.
25.3 The content of notifications should be sufficiently specific to enable other Members
to evaluate the trade effects and to understand the operation of notified subsidy
programmes. In this connection, and without prejudice to the contents and form
of the questionnaire on subsidies54, Members shall ensure that their notifications
contain the following information:
(i) form of a subsidy (i.e. grant, loan, tax concession, etc.);
(ii) subsidy per unit or, in cases where this is not possible, the total amount or
the annual amount budgeted for that subsidy (indicating, if possible, the aver-
age subsidy per unit in the previous year);
(iii) policy objective and/or purpose of a subsidy;
(iv) duration of a subsidy and/or any other time-limits attached to it;
(v) statistical data permitting an assessment of the trade effects of a subsidy.
25.4 Where specific points in paragraph 3 have not been addressed in a notification,
an explanation shall be provided in the notification itself.
25.5 If subsidies are granted to specific products or sectors, the notifications should
be organized by product or sector.
25.6 Members which consider that there are no measures in their territories requiring
notification under paragraph 1 of Article XVI of GATT 1994 and this Agreement
shall so inform the Secretariat in writing.
25.7 Members recognize that notification of a measure does not prejudge either its legal
status under GATT 1994 and this Agreement, the effects under this Agreement,
or the nature of the measure itself.
25.8 Any Member may, at any time, make a written request for information on the
nature and extent of any subsidy granted or maintained by another Member (includ-
ing any subsidy referred to in Part IV), or for an explanation of the reasons for
which a specific measure has been considered as not subject to the requirement
of notification.
25.9 Members so requested shall provide such information as quickly as possible and in
a comprehensive manner, and shall be ready, upon request, to provide additional
information to the requesting Member. In particular, they shall provide sufficient
details to enable the other Member to assess their compliance with the terms of
this Agreement. Any Member which considers that such information has not been
provided may bring the matter to the attention of the Committee.
25.10 Any Member which considers that any measure of another Member having the
effects of a subsidy has not been notified in accordance with the provisions of
paragraph 1 of Article XVI of GATT 1994 and this Article may bring the matter
to the attention of such other Member. If the alleged subsidy is not thereafter
notified promptly, such Member may itself bring the alleged subsidy in question
to the notice of the Committee.
25.11 Members shall report without delay to the Committee all preliminary or final
actions taken with respect to countervailing duties. Such reports shall be available
in the Secretariat for inspection by other Members. Members shall also submit, on
a semi-annual basis, reports on any countervailing duty actions taken within the
preceding six months. The semi-annual reports shall be submitted on an agreed
standard form.
25.12 Each Member shall notify the Committee (a) which of its authorities are competent
to initiate and conduct investigations referred to in Article 11 and (b) its domestic
procedures governing the initiation and conduct of such investigations.
HORLICK & SHOOP

688 article 25 scma
Footnote 54: The Committee shall establish a Working Party to review the contents and
form of the questionnaire as contained in BISD 9S/193–194.
Bibliography
M. J. Anderson & G. Husisian, The Subsidies Agreement, in: T. Stewart (ed.), The World Trade
Organization: Multilateral Trade Framework for the 21st Century and U.S. Implementing Legislation
(1996), 320–322; K. Halverson, China’s WTO Accession: Economic, Legal, and Political Implications,
B.C. Int’l & Comp. L. Rev. 27 (2004) 319–370; G. Horlick, Subsidies Discipline under WTO
and US Rules, in: C. D. Ehlermann & M. Everson, European Competition Law Annual: 1999,
Selected Issues in the Field of State Aid (2001), 593–603; G. Horlick & P. Clarke, The Agreement
on Subsidies and Countervailing Measures, in: P. Macrory et al., The World Trade Organization: Legal,
Economic and Political Analysis (2005), 311–391; A. L. Mattice, The Fisheries Subsidies Negotia-
tions in the World Trade Organization: A “Win-Win-Win” for Trade, the Environment and Sustainable
Development, Golden Gate U. L. Rev. 34 (2004), 573, 579–585; Office of the United States
Trade Representative & U.S. Department of Commerce, Subsidies Enforcement Annual Report
to Congress, Joint Report (1999); J. Y. Qin, WTO Regulation of Subsidies to State-Owned Enterprises
(SOEs)—A Critical Appraisal of the China Accession Protocol, JIEL 7 (2004) 863–919; T. Stewart
et al., Opportunities in the WTO for Increased Liberalization of Goods: Making Sure the Rules Work for
All and That Special Needs Are Addressed, Fordham Int’l L.J. 24 (2000), 652, 691–699.
Case Law
Appellate Body Report, Brazil—Aircraft, WT/DS46/AB/R; Panel Report, Canada—Aircraft,
WT/DS70/R.
Documents
Uruguay Round Trade Negotiations Committee, Subsidies and Countervailing Measures,
Communication from the Permanent Delegation of Mexico, MTN.TNC/W/38, 26 Novem-
ber 1990; Committee on Subsidies and Countervailing Measures, Guidelines for Information
Provided in the Semi-Annual Reports, G/SCM/2, 22 June 1995; Committee on Subsidies and
Countervailing Measures, Minimum Information to Be Provided under Article 25.11 of the
Agreement in the Reports on All Preliminary or Final Countervailing Actions, G/SCM/3,
22 June 1995; Committee on Subsidies and Countervailing Measures, Members’ Difficulties
in Making Subsidy Notifications, and the Planned Subsidy Notification Seminar, Reply to
Questions in Document G/SCM/W/473, Paper Submitted by Indonesia, G/SCM/W/488,
7 February 2002; Committee on Subsidies and Countervailing Measures, Basis for Budget
Request for Planned Subsidy Notification Seminar for Capital Based Officials to be Held
in Geneva in November 2002, G/SCM/43, 7 May 2002; Report (2004) of the Committee
on Subsidies and Countervailing Measures, G/L/711, 9 November 2004; Committee on
Subsidies and Countervailing Measures, Semi-Annual Report under Article 25.11 of the
Agreement, European Communities, G/SCM/N/122/EEC, 9 March 2005; Committee on
Anti-Dumping Practices & Committee on Subsidies and Countervailing Measures, Com-
petent Authorities, Notifications pursuant to Articles 16.5 and 25.11 of the Agreements,
Addendum, G/ADP/N/14/Add.20, G/SCM/N/18/Add.20, 19 April 2005; Committee
on Subsidies and Countervailing Measures, New and Full Notification pursuant to Article
XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervail-
ing Measures, Singapore, G/SCM/N/123/SGP, 11 July 2005; Committee on Subsidies
and Countervailing Measures, New and Full Notification pursuant to Article XVI:1 of the
GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures,
Republic of Bulgaria, G/SCM/N/123/BGR, 12 July 2005; Committee on Subsidies and
Countervailing Measures, New and Full Notification pursuant to Article XVI:1 of the GATT
1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures, Norway,
G/SCM/N/123/NOR, 20 July 2005; WTO, Summary of the Final Act of the Uruguay
Round, available at http://www.wto.org/English/docs_e/legal_e/ursum_e.htm (accessed
2 June 2007); WTO, Notifications under the Agreement on Subsidies and Countervail-
ing Measures, available at http://wto.org/english/tratop_e/scm_e/SCM_e.htm (accessed
1 October 2007); Republic of the Philippines Tariff Commission, Section 302: Subsidies
and Countervailing Duties Law, available at http://www.tariffcommission.gov.ph/counterv1.
html (accessed 29 June 2007); New Zealand Ministry of Economic Development, Subsidy
HORLICK & SHOOP

article 25 scma 689
Investigation Guide, available at http://www.med.govt.nz/upload/9273/Subsidy%20Investi

gation%20Guide.pdf (accessed 2 June 2007).
Table of Contents
A. General 1
B. Notification of Subsidies (Arts 25.1 to 25.10 SCMA) 2
I. Timing of Notifications (Art. 25.1 SCMA) 2
II. Instances Triggering the Obligation to Notify (Art. 25.2 SCMA) 3
III. Content of Notifications (Art. 25.3 SCMA) 4
IV. Explanation of Points Not Addressed (Art. 25.4 SCMA) 5
V. Organization of Notifications (Art. 25.5 SCMA) 7
VI. Notification of the Non-Existence of Subsidies (Art. 25.6 SCMA) 8
VII. No Prejudice (Art. 25.7 SCMA) 9
VIII. Right to Information (Art. 25.8 SCMA) 11
IX. Provision of Additional Information (Art. 25.9 SCMA) 12
X. Failure to Notify (Art. 25.10 SCMA) 13
XI. Compliance 14
C. Countervailing Duties (Arts 25.11 and 25.12 SCMA) 15
I. Notifications (Art. 25.11 SCMA) 15
II. Investigations and Domestic Procedures (Art. 25.12 SCMA) 17
D. Recent Developments 19
E. Outlook 20
A. General
Art. 25 SCMA provides content and frequency requirements for both subsidy 1
and countervailing duty notifications by Member governments. Because the
text of art. 25 SCMA only requires notifications from Members, it excludes
coverage of subsidies by other international organizations such as the United
Nations or multilateral development banks (if such are possible).1
B. Notification of Subsidies (Arts 25.1 to 25.10 SCMA)
I. Timing of Notifications (Art. 25.1 SCMA)

Members are required to submit new and full subsidy notifications every two 2
years. As of July 2005, less than 30 countries had made such notifications.
While there has been some discussion about streamlining the notification
requirements,2 no changes have thus far been made. Art. 25.6 SCMA
provides that Members must inform the WTO Secretariat in writing even
if there are no notifications to be made under either the SCMA or art.
XVI GATT 1994. For example, Singapore notified that it does not grant
or maintain any art. 25 SCMA subsidies.3
1
See Horlick.
2
See G/SCM/43.
3
See G/SCM/N/123/SGP.
HORLICK & SHOOP

690 article 25 scma
II. Instances Triggering the Obligation to Notify

(Art. 25.2 SCMA)
3 Under art. 25.2 SCMA, a Member must notify if a benefit conferred by that
Member meets the definition of a subsidy under arts 1 and 2 SCMA.
III. Content of Notifications (Art. 25.3 SCMA)

4 Subsidy notifications attempt to permit other Members to learn about
subsidies they may wish to challenge. Art. 25.3 SCMA requires that at a
minimum, notifications include the form, duration, and purpose of the
subsidy; either subsidy per unit of product or total annual amount of the
subsidy; and an assessment of the projected trade effects, supported by
statistical data.
IV. Explanation of Points Not Addressed (Art. 25.4 SCMA)

5 If a Member fails to provide information in any one of these categories,
art. 25.4 SCMA requires a written explanation of the reasons for such lack
of information.
6 Many notifications are fairly oblique. For example, Bulgaria in its most
recent notification simply states that the trade effects are either unknown
or not available for all of its subsidies.4 Norway notifies the total amount of
grant aid it gives to small and medium-sized enterprises but does not give
an account of individual disbursements or average award given.5
V. Organization of Notifications (Art. 25.5 SCMA)

7 Members must notify all specific subsidies relating to goods in any sector,
including agriculture, and provided by any level of government. Art. 25.5
SCMA provides that such notifications be organized by specific product
or sector. This jurisdictional constraint reflects concerns stated by Mexico
during the drafting of the SCMA that any non-discrimination requirement
should apply only within the national territory of a Member.6 Mexico feared
that the United States would find Mexican energy prices that were lower
than United States energy prices to be subsidies.
4
See G/SCM/N/123/BGR.
5
See G/SCM/N/123/NOR.
6
See MTN.TNC/W/38.
HORLICK & SHOOP

article 25 scma 691
VI. Notification of the Non-Existence of Subsidies

(Art. 25.6 SCMA)
Art. 25.6 SCMA requires that Members who determine that they grant 8
no subsidies within the arts 1 and 2 SCMA definitions must so notify in
writing.
VII. No Prejudice (Art. 25.7 SCMA)

Subsidy notifications strive to promote transparency by requiring Mem- 9
bers to notify their subsidies without prejudging the legal status of those
subsidies.7 For example, the panel in Canada—Aircraft held that Canada’s
notification could not be used against it by Brazil as a prima facie case that
a non-repayable contribution was made by Canada.8
In the interest of transparency, Members are encouraged to err on the 10
side of notification.9 Notifications also attempt to instil subsidy discipline
through the use of transparency with respect to the granting of subsidies.10
All subsidy notifications are unrestricted documents and fully accessible to
the public unless the notifying Member specifically requests otherwise.11
VIII. Right to Information (Art. 25.8 SCMA)

Members have the right under art. 25.8 SCMA to ask for more information 11
regarding the nature and extent of a notified subsidy. They may also ask
for more information regarding measures taken by another Member that
may be subsidies but have not been notified.
IX. Provision of Additional Information (Art. 25.9 SCMA)

A Member that has been requested to provide more information must do 12
so as quickly and comprehensively as possible, and art. 25.9 SCMA requires
that requested information must be provided “in sufficient detail” in order
to assess compliance with art. 25 SCMA. There has been no interpretation
of what exactly is required to meet this standard.
7
See art. 25.7 SCMA.
8
See WT/DS70/R, para. 9.256.
9
See G/SCM/43.
10
See Horlick & Clarke.
11
See WTO, Notifications under the Agreement on Subsidies and Countervailing Mea-
sures.
HORLICK & SHOOP

692 article 25 scma
X. Failure to Notify (Art. 25.10 SCMA)

13 If a Member thinks that another Member has put into effect a measure
that is a subsidy but has not been so notified, it can directly open a dia-
logue with the non-notifying Member without first going to the committee
under art. 25.10 SCMA. If a direct exchange does not result in a timely
subsidy notification, the challenging Member can notify the Committee on
Subsidies and Countervailing Measures.
XI. Compliance
14 Less than half of WTO Members notified subsidies at all, much less regu-
larly. Most major economies do report while some developing countries have
complained of great difficulty in meeting the notification requirements.12
Where subsidies are notified, the depth of information provided is not
uniform. For example, since 1998,13 the United States has listed individual
state government subsidies but does not provide much detail.14 On the other
hand, the European Communities describes similar information in much
greater detail, probably because the EU can use the information from its
internal subsidies notification system.15 The United States federal govern-
ment does not routinely collect such information. To aid transparency, the
WTO should require Members to notify both the subsidy per unit and the
total amount budgeted, not one or the other as is currently the case. In
this way, Members will have a more accurate picture of the overall effect
on trade.
C. Countervailing Duties (Arts 25.11 and 25.12 SCMA)
I. Notifications (Art. 25.11 SCMA)

15 Each Member is required to report all countervailing duty measures on
a semi-annual basis using a standard form.16 Members should report all
information relevant to the determination of the subsidy and injury at issue,
including the volume of subsidized imports, the effect on domestic prices,
12
See G/SCM/W/488.
13
See Office of the United States Trade Representative & U.S. Department of Com-
merce.
14
See Horlick.
15
See Committee on Subsidies and Countervailing Measures, Subsidies, New and Full
Notification pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the Agreement
on Subsidies and Countervailing Measures, European Communities, Addendum, G/SCM/
N/95/EEC/Add.1, 15 December 2003.
16
See G/SCM/2.
HORLICK & SHOOP

article 25 scma 693
and evidence of the impact on the affected domestic industry.17 Members

should submit reports even if there is no action with respect to countervail-
ing duties during the reporting period. Notification of countervailing duties
permits traders, investors, and scholars to track the use of countervailing
duty instruments.
Information in the semi-annual reports is often incomplete. For instance, 16
the most recent report from the European Communities lists trade volume
and subsidized imports as a percentage of domestic consumption in only
one of the eleven instances.18
II. Investigations and Domestic Procedures (Art. 25.12 SCMA)

Art. 25.12 SCMA provides that a Member notify the committee as to which 17
of its authorities are competent to initiate and conduct investigations. As of
April 2005, less than half of the WTO Members have notified regarding
these authorities.19 Among the Members that have notified, the information
provided is far from uniform. For example, Canada gives detailed informa-
tion of the authorities competent for both preliminary determinations and
determinations of final injury as well as information on whom to contact
with general enquiries. On the other hand, Jamaica does not specify a gov-
ernment department but provides two addresses and telephone numbers.
No Member has provided the WTO with information on its domestic pro- 18
cedures for initiating investigations under art. 25.12 SCMA.20 At least a few
Members, including the Philippines and New Zealand, have included this
information in their official government websites.21 Some of that informa-
tion may be provided under art. 32.6 SCMA, which requires notification
of any countervailing duty legislation.22 Reports are required even if a
Member has no such legislation. As of November 2004, 96 Members had
made these notifications.23 The majority of countries failing to notify are
developing countries.24
17
See G/SCM/3.
18
See G/SCM/N/122/EEC.
19
See G/ADP/N/14/Add.20, G/SCM/N/18/Add.20.
20
Ibid.
21
See, e.g., Republic of the Philippines Tariff Commission; New Zealand Ministry of
Economic Development.
22
See art. 32.6 SCMA.
23
See G/L/711, sec. VI.
24
Ibid., annex C.
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694 article 25 scma
D. Recent Developments
19 China, now in its third year as a WTO Member, has provided no information
thus far with respect to subsidies as required by art. 25 SCMA.25 Both the
United States and the European Communities have voiced concerns about
this lack of notification, coupled with the fact that China has also failed to
notify its countervailing duty legislation.26 China has cited “administrative
difficulties” as the reason for its failure to make new and full notification,
although it has pointed out that notifications were made pursuant to the
Protocol of Accession of China.27
E. Outlook
20 Because notifications are now only a means of exchanging information

and have no legal effect, at present there is no real incentive for Members
to make regular notifications. Currently, the larger economies are the most
likely to notify. Some intended disciplinary effect may work because these
Members are likely to have resources both fully to notify their own subsidies
and properly to investigate countervailable subsidies of other Members.
Smaller countries who notify are in a comparably weak position because
they are likely to be the subject of countervailing investigations but at the
same time, are less likely to have the resources to investigate foreign sub-
sidies negatively affecting their own economies. Due to the pervasiveness
and sometimes sheer number of subsidies provided by a given Member,
the WTO will likely have to make a choice between requiring greater detail
which may result in a decrease in the number of notifications and simpli-
fying the process with the goal of achieving greater conformity. Increased
conformity may further the disciplinary effect of notifications.
25
See Committee on Subsidies and Countervailing Measures, Chairman’s Report to the
Council for Trade in Goods on Transitional Review of China, G/SCM/115, 22 November
2004.
26
Ibid.
27
Ibid.
HORLICK & SHOOP

Article 26
Surveillance
1. The Committee shall examine new and full notifications submitted under paragraph 1 of
Article XVI of GATT 1994 and paragraph 1 of Article 25 of this Agreement at special
sessions held every third year. Notifications submitted in the intervening years (updat-
ing notifications) shall be examined at each regular meeting of the Committee.
2. The Committee shall examine reports submitted under paragraph 11 of Article 25 at
each regular meeting of the Committee.
Bibliography
W. Benedek, Die Rechtsordnung des GATT aus völkerrechtlicher Sicht (1990); R. Blackhurst, GATT
Surveillance of Industrial Policies, Aussenwirtschaft 41 (1986), 361–378; R. Blackhurst, Strengthen-
ing GATT Surveillance of Trade-Related Policies, in: E. U. Petersmann & M. Hilf (eds), The New
GATT Round of Multilateral Trade Negotiations: Legal and Economic Problems (1988), 123–155;
T. Jäger, Streitbeilegung und Überwachung als Mittel der Durchführung des GATT (1992); A. L. Mattice,
The Fisheries Subsidies Negotiations in the WTO: A “Win-Win-Win” for Trade, the Environment and
Sustainable Development, Golden Gate U. L. Rev. 34 (2004), 573–586; M. Oesch, Standards of
Review in WTO Dispute Resolution (2003), 36–40; C. Pitschas, Übereinkommen über Subventionen und
Ausgleichsmaßnahmen, in: H. J. Prieß & G. M. Berrisch (eds), WTO-Handbuch (2003), 429–478;
J. Y. Qin, WTO Regulation of Subsidies to State-Owned Enterprises (SOEs)—A Critical Appraisal
of the Chinese Accesion Protocol, JIEL 7 (2004), 863–919; F. Roessler, The Institutional Balance
between the Judicial and the Political Organs of the WTO, in: M. Bronckers & R. Quick (eds), New
Directions in International Law, Essays in Honour of John H. Jackson (2000), 325–345; M. Sánchez
Rydelski, EG und WTO Antisubventionsrecht (2001); T. P. Stewart (ed.), The GATT Uruguay Round.
A Negotiating History (1993), vol. I; T. P. Stewart (ed.), The GATT Uruguay Round. A Negotiating
History (1999), vol. IV; T. P. Stewart et al., Opportunities in the WTO for Increased Liberalization
of Goods: Making Sure the Rules Work for All and Special Needs Are Addressed, Fordham Int’l L.J.
24 (2000), 652–723; X. Zhang, Implementation of the WTO Agreements: Framework and Reform,
Nw. J. Int’l L. & Bus. 23 (2003), 383–431.
Documents
Committee on Subsidies and Countervailing Measures, Questionnaire Format for Subsidy
Notifications under Article 25 of the Agreement on Subsidies and Countervailing Measures
and under Art. XVI of GATT 1994, G/SCM/6/Rev.1, 11 November 2003; Committee
on Subsidies and Countervailing Measures, Draft Procedure for Review of 2005 New and
Full Notifications, G/SCM/W/532, 2 March 2005.
Cross-Reference
Art. 13.1(f ) SA.
Table of Contents
A. General 1
B. Review of Notifications (Art. 26.1 SCMA) 2
I. Cycle of Reviews 2
II. Review of New and Full Notifications (Art. 26.1 Sentence 1 SCMA) 6
III. Review of Updating Notifications (Art. 26.1 Sentence 2 SCMA) 10
C. Review of Reports (Art. 26.2 SCMA) 11
D. Outlook 12
WOLFRAM
696 article 26 scma
A. General
1 Art. 26 SCMA requires the Committee on Subsidies and Countervailing

Measures (hereafter, SCM Committee)1 to examine both notifications of
subsidies and reports on countervailing duties.2 The objectives of these
reviews are (1) to enhance transparency of WTO Members’ trade policies,
(2) to understand the operation and evaluate the trade effects of subsidies
and countervailing actions, (3) to develop a common understanding among
WTO Members on the provisions of the SCMA, and (4) to evaluate the
compliance by Members with the SCMA. By pursuing these objectives,
the overall purpose of improving compliance by WTO Members with the
provisions of the SCMA will be achieved.3
B. Review of Notifications (Art. 26.1 SCMA)
I. Cycle of Reviews
2 Pursuant to art. 26.1 SCMA, new and full notifications shall be reviewed
every third year and updating notifications shall be examined at each regular
meeting of the SCM Committee. In addition, art. 25.1 SCMA requires
Members to notify their subsidies not later than by 30 June of each year.
Consequently, the existing provisions of the SCMA require at least triennial
submissions and reviews of new and full notifications and at least annual
submissions and reviews of updating notifications.4
3 In practice, however, this cycle of reviews has proven not to be efficient.
Experience has shown that at least three meetings of the SCM Committee
are necessary to review adequately new and full notifications.5 Practice has
also demonstrated that the submissions and reviews of updates are almost as
1
For more details on the SCM Committee, see Wolfram, Article 24 SCMA, paras 1–20.
2
The provisions of art. 26 SCMA are derived from art. 26 Draft Final Act Embodying
the Results of the Uruguay Round of Multilateral Trade Negotiations, MTN.TNC/W/FA,
20 December 1991. For a synopsis, see Stewart, vol. IV, annex. For more details on the
drafting history, see Stewart, vol. I, 950–951; Stewart, vol. IV, 254–255. For the historical
development of notification and review procedures from 1979 to 1995, see Working Group
on Notification Obligations and Procedures, Background Note by the Secretariat on Notifica-
tion Procedures in the GATT since 1979, G/NOP/W/1, 30 June 1995; Zhang, 402–403;
Blackhurst, Strengthening GATT Surveillance, 131–135, 145–149; Blackhurst, GATT Surveillance,
365–368, 373–376.
3
Cf. Zhang, 391, 404–405; Oesch, 37; Jäger, 50 et seq.; Blackhurst, Strengthening GATT
Surveillance, 130–131; Blackhurst, GATT Surveillance, 364–365; Benedek, 303–306.
4
Committee on Subsidies and Countervailing Measures, Frequency of Article 25 Sub-
sidy Notifications, G/SCM/W/421, 30 March 1999, para. 1; Committee on Subsidies
and Countervailing Measures, Minutes of the Special Meeting Held on 31 May 2001,
G/SCM/M/30, 14 August 2001, para. 6.
5
See, e.g., G/SCM/W/421, paras 2–3 (statement of the EC).
WOLFRAM
article 26 scma 697
burdensome as those of new and full notifications.6 Despite poor compliance

by WTO Members with the notification requirements under the SCMA,7
the sheer volume of notifications by more than 140 WTO Members and
the time required for translation, printing, follow-up questions, and follow-
up answers make it difficult for the SCM Committee and its Members to
review the notifications adequately and in a timely manner, i.e., before the
next updating notification is due.8 Due to these difficulties, proposals have
been made to change the cycle of reviews provided for in art. 26.1 SCMA
by abolishing or at least playing down the submission and review of annual
updates and concentrating resources on the submission and review of new
and full notifications.9
In order to solve the difficulties outlined above, the SCM Committee reached 4
an understanding in May 2001 pursuant to which new and full notifications
shall be submitted and reviewed biennially and the submission and review
of updates shall be played down for a trial period of two years beginning
on 30 June 2003.10 Following a subsequent trial period from 2003 to 2005,11
the SCM Committee decided in April 2005 to continue the arrangement
for the period from 2005 to 2007 and then to extend it automatically for
further successive two-year periods (beginning in 2007) unless any Member
expresses a desire to revisit the arrangement at the regular SCM Commit-
tee meeting in the spring preceding the 30 June deadline for new and full
subsidy notifications in odd years.12
In practice, therefore, the cycle of reviews provided for in art. 26.1 SCMA 5
has been changed to biennial reviews of new and full notification and to
the deregulation of reviews of updating notifications.
6
See G/SCM/M/30, para. 3 (statement of the representative of Brazil).
7
See, e.g., Qin, 898; Mattice, 582; Stewart et al., 693; Sánchez Rydelski, 313; Committee
on Subsidies and Countervailing Measures, Note by the Secretariat, G/SCM/23, 30 July
1999, passim; G/SCM/W/421, paras 2–3 (statement of the EC); G/SCM/M/30, para. 6
(statement of the chairman of the SCM Committee). There was already poor compliance
with notification obligations under art. XVI:1 GATT 1947, see Jäger, 158, and under the
Tokyo Round Subsidies Code, see ibid., 160–161.
8
See, e.g., G/SCM/W/421, para. 2 (statement of the EC); G/SCM/M/30, para. 6
(statement of the chairman of the SCM Committee).
9
See, e.g., G/SCM/W/421, para. 4 (proposal of the EC); G/SCM/M/30, para. 6 (pro-
posal of the chairman of the SCM Committee).
10
G/SCM/M/30, paras 6–7.
11
Committee on Subsidies and Countervailing Measures, Minutes of the Regular Meet-
ing Held on 8 May 2003, G/SCM/M/46, 23 July 2003, paras 43–44.
12
Held on 14 April 2005, G/SCM/M/53, 3 August 2005, paras 32–34.
WOLFRAM
698 article 26 scma
II. Review of New and Full Notifications

(Art. 26.1 Sentence 1 SCMA)
6 The term “new and full notifications” in art. 26.1 sentence 1 SCMA
encompasses all notifications of subsidies not previously notified (“new
notifications”) and fulfilling the requirements of art. XVI:1 GATT 1994
and art. 25.1 SCMA (“full notifications”).13
7 Art. 26.1 sentence 1 SCMA requires the SCM Committee to “examine”
these notifications at special sessions but does not specify the objectives of
the review and according to which procedural rules the review shall be
carried out. As to the objectives of the review, it can be inferred from arts
25.3 sentence 1 and 25.9 sentence 2 SCMA that the objectives are (1) to
enhance transparency in the area of subsidies, (2) to understand the opera-
tion of notified subsidies and to evaluate their trade effects, (3) to develop
a common understanding among WTO Members on the provisions of the
SCMA, (4) to assess compliance by WTO Members with the SCMA, and by
pursuing these objectives, (5) to improve compliance by Members with the
SCMA.14 As to the procedural rules, the SCM Committee adopted detailed
rules of procedure for the review of new and full notifications (hereafter,
Rules of Review).15 Pursuant to the Rules of Review, the review is to be
held on the basis of a written procedure (i.e., on the basis of written ques-
tions and written answers),16 followed by an examination in special sessions
of the SCM Committee. The purpose of the written procedure is not to
replace the special sessions required by art. 26.1 sentence 1 SCMA but to
allow more focused and meaningful discussion in such sessions.
8 Art. 26.1 sentence 1 SCMA requires the SCM Committee to review the
new and full notifications in “special sessions”. Pursuant to the Rules of
Review, the special sessions are to be held in conjunction with the regular
meetings of the SCM Committee following the notifications and the written
review procedure,17 and their length will be determined by the chairman
13
“Full notifications” must, in particular, provide the information listed in G/SCM/6/
Rev.1, 2, points 1–9. See G/SCM/6/Rev.1, n. 2. Notifications are published in the WTO
document series G/SCM/N/, followed by the reference number for the type of notified
subsidy and the country code of the notifying WTO Member.
14
Cf. Zhang, 405.
15
G/SCM/W/532, which was adopted by the SCM Committee on 14 April 2005. See
G/SCM/M/53, para. 37. Apart from changes in the procedural deadlines, the Rules of
Review are identical to those adopted for the reviews of new and full notifications in 2003,
2001, and 1998.
16
For more details on this written procedure, see G/SCM/W/532, paras 2–5. The written
questions and answers are treated confidentially for a period of six months and may be pub-
lished after this period if no WTO Member objects to the publication. If no WTO Member
objects to the publication, they are published in the WTO document series G/SCM/Q2/,
followed by the country code of the notifying Member. Pitschas, para. 58, n. 152.
17
G/SCM/W/532, para. 2. For details on the regular meetings of the SCM Committee,
see Wolfram, Article 24 SCMA, para. 7.
WOLFRAM
article 26 scma 699
of the SCM Committee.18 In order to allow meaningful discussions during

these special sessions, the Rules of Review require WTO Members to make
maximum efforts to bring responsible and competent officials to the reviews
of their notifications.19 To achieve the objectives of the review mentioned
above,20 the SCM Committee may seek advisory opinions on the nature
of a notified subsidy pursuant to art. 24.3 SCMA21 and may consult with
and seek information from any source it deems appropriate pursuant to art.
24.5 SCMA.22 However, if the nature of a notified subsidy is in dispute, the
SCM Committee can hardly decide the dispute by a binding decision or
recommendation because it has to arrive at its decisions by consensus.23
Both the written review procedure and the review in special sessions may 9
encompass not only purely legal but also economic and political consider-
ations.24 The results of the reviews are documented in the minutes of the
special meetings.
III. Review of Updating Notifications (Art. 26.1 Sentence 2

SCMA)
The term “updating notifications” in art. 26.1 sentence 2 SCMA encom- 10
passes all notifications of subsidies which were previously notified.25 Following
the decision of the SCM Committee to deregulate the review of updating
notifications,26 the SCM Committee and its Members concentrate their
resources on the review of new and full notifications.27 Hence, the review
of updates does not play an essential role in practice anymore and will not
be discussed in more detail here.
18
G/SCM/W/532, para. 2. To the extent that the Rules of Review do not set forth
additional special rules for these special sessions, the following procedural rules also apply
to the special sessions: Council for Trade in Goods, Rules of Procedure for Meetings of
the Committee on Subsidies and Countervailing Measures, G/L/144, 11 March 1997
(hereafter, Rules of Procedure). For details on these Rules of Procedure, see Wolfram, Article
24 SCMA, paras 1, 7–8.
19
G/SCM/W/532, para. 5.
20
See supra para. 7.
21
For more details on art. 24.3 SCMA, see Wolfram, Article 24 SCMA, para. 14.
22
Zhang, 405. For more details on art. 24.5 SCMA, see Wolfram, Article 24 SCMA, paras
17–18.
23
Cf. Wolfram, Article 24 SCMA, paras 7, 20; Oesch, 37.
24
Oesch, 37; Roessler, 325 et seq.
25
“Updating notifications” must, in particular, provide the information listed in G/
SCM/6/Rev.1, 2, points 1–9. However, the information listed in G/SCM/6/Rev.1, 2, points
3 to 6 and 8 may be limited to indicating any modifications from the previous notification.
See G/SCM/6/Rev.1, n. 2.
26
See supra para. 4.
27
See supra paras 2–5.
WOLFRAM
700 article 26 scma
C. Review of Reports (Art. 26.2 SCMA)
11 The term “reports” in art. 26.2 SCMA refers to both the reports on pre-
liminary and final countervailing actions pursuant to art. 25.11 sentence 1
SCMA and the semi-annual reports on countervailing actions pursuant to
art. 25.11 sentence 3 SCMA.28 Art. 26.2 SCMA requires the SCM Com-
mittee to “examine” both kinds of reports. The objectives of these reviews
correspond to those of the reviews pursuant to art. 26.1 SCMA, i.e., (1) to
enhance transparency in the area of countervailing actions, (2) to understand
the operation of notified countervailing actions and to evaluate their trade
effects, (3) to develop a common understanding by WTO Members of the
provisions of the SCMA, (4) to assess compliance among WTO Members
with the SCMA, and by pursuing the aforementioned objectives, (5) to
improve compliance by WTO Members with the SCMA. In order to achieve
these objectives, the SCM Committee may seek advisory opinions on the
existence and nature of subsidies pursuant to art. 24.3 SCMA29 and may
consult with and seek information from any source it deems appropriate
pursuant to art. 24.5 SCMA.30 In contrast to the reviews conducted pursu-
ant to art. 26.1 SCMA, the reviews of reports are made in the “regular
meetings” of the SCM Committee held at least twice a year pursuant to
art. 24.1 sentence 2 SCMA31 and are generally not held on the basis of
written answers and written questions in advance of the meetings32 but in
the relevant meetings. The SCM Committee reports on its reviews in the
minutes of the regular meetings.33
D. Outlook
12 The reviews required by art. 26 SCMA are indispensable to maintaining and

improving transparency in the area of subsidies and countervailing actions.
Nevertheless, future discussions on the reform of the review mechanism
have to address the SCM Committee’s difficulties in adequately reviewing
notifications in a timely manner. The SCM Committee’s solution to change
the review cycle for new and full notifications and to deregulate the review
28
The information provided in the semi-annual reports is to comply with the guidelines in
Committee on Subsidies and Countervailing Measures, Guidelines for Information Provided
in the Semi-Annual Reports, G/SCM/2, 22 June 1995. See Pitschas, para. 56, n. 148.
29
For more details on art. 24.3 SCMA, see Wolfram, Article 24 SCMA, para. 14.
30
For more details on art. 24.5 SCMA, see ibid., paras 17–18.
31
For more details on the regular meetings, see ibid., paras 7–8.
32
For the written procedure applicable to the reviews pursuant to art. 26.1 SCMA, see
supra para. 7.
33
See, e.g., G/SCM/M/53, paras 18–26; G/SCM/M/46, paras 19–23; Committee on
Subsidies and Countervailing Measures, Minutes of the Regular Meeting Held on 2–3 May
2001, G/SCM/M/28, 14 August 2001, paras 47–51.
WOLFRAM
article 26 scma 701
of updating notifications34 is practical but deviates from the requirements

laid down in art. 26.1 SCMA. Apart from adapting art. 26.1 SCMA to the
existing review practice, other solution strategies could include improved
technical and personal support for the SCM Committee by WTO Mem-
bers as well as closer co-operation by the SCM Committee with outside
consultants.35
34
35
See the proposal of the Negotiating Group on Rules, Draft Consolidated Chair Texts
of the AD and SCM Agreements, TN/RL/W/213, 30 November 2007, 70.
WOLFRAM
Article 27
Special and Differential Treatment of Developing Country Members
27.1 Members recognize that subsidies may play an important role in economic develop-
ment programmes of developing country Members.
27.2 The prohibition of paragraph 1(a) of Article 3 shall not apply to:
(a) developing country Members referred to in Annex VII.
(b) other developing country Members for a period of eight years from the date
of entry into force of the WTO Agreement, subject to compliance with the
provisions in paragraph 4.
27.3 The prohibition of paragraph 1(b) of Article 3 shall not apply to developing country
Members for a period of five years, and shall not apply to least developed country
Members for a period of eight years, from the date of entry into force of the WTO
Agreement.
27.4 Any developing country Member referred to in paragraph 2(b) shall phase out its
export subsidies within the eight-year period, preferably in a progressive manner.
However, a developing country Member shall not increase the level of its export
subsidies,55 and shall eliminate them within a period shorter than that provided for
in this paragraph when the use of such export subsidies is inconsistent with its
development needs. If a developing country Member deems it necessary to apply
such subsidies beyond the 8-year period, it shall not later than one year before
the expiry of this period enter into consultation with the Committee, which will
determine whether an extension of this period is justified, after examining all the
relevant economic, financial and development needs of the developing country
Member in question. If the Committee determines that the extension is justified,
the developing country Member concerned shall hold annual consultations with
the Committee to determine the necessity of maintaining the subsidies. If no such
determination is made by the Committee, the developing country Member shall
phase out the remaining export subsidies within two years from the end of the last
authorized period.
27.5 A developing country Member which has reached export competitiveness in any
given product shall phase out its export subsidies for such product(s) over a period
of two years. However, for a developing country Member which is referred to in
Annex VII and which has reached export competitiveness in one or more products,
export subsidies on such products shall be gradually phased out over a period of
eight years.
27.6 Export competitiveness in a product exists if a developing country Member’s exports
of that product have reached a share of at least 3.25 per cent in world trade of
that product for two consecutive calendar years. Export competitiveness shall exist
either (a) on the basis of notification by the developing country Member having
reached export competitiveness, or (b) on the basis of a computation undertaken
by the Secretariat at the request of any Member. For the purpose of this paragraph,
a product is defined as a section heading of the Harmonized System Nomenclature.
The Committee shall review the operation of this provision five years from the
date of the entry into force of the WTO Agreement.
27.7 The provisions of Article 4 shall not apply to a developing country Member in the
case of export subsidies which are in conformity with the provisions of paragraphs
2 through 5. The relevant provisions in such a case shall be those of Article 7.
27.8 There shall be no presumption in terms of paragraph 1 of Article 6 that a subsidy
granted by a developing country Member results in serious prejudice, as defined
in this Agreement. Such serious prejudice, where applicable under the terms of
paragraph 9, shall be demonstrated by positive evidence, in accordance with the
provisions of paragraphs 3 through 8 of Article 6.
27.9 Regarding actionable subsidies granted or maintained by a developing country Mem-
ber other than those referred to in paragraph 1 of Article 6, action may not be
authorized or taken under Article 7 unless nullification or impairment of tariff conces-
sions or other obligations under GATT 1994 is found to exist as a result of such a
subsidy, in such a way as to displace or impede imports of a like product of another
Member into the market of the subsidizing developing country Member or unless
injury to a domestic industry in the market of an importing Member occurs.
AVGOUSTIDI & BALLSCHMIEDE

article 27 scma 703
27.10 Any countervailing duty investigation of a product originating in a developing coun-

try Member shall be terminated as soon as the authorities concerned determine
that:
(a) the overall level of subsidies granted upon the product in question does not
exceed 2 per cent of its value calculated on a per unit basis; or
(b) the volume of the subsidized imports represents less than 4 per cent of the
total imports of the like product in the importing Member, unless imports
from developing country Members whose individual shares of total imports
represent less than 4 per cent collectively account for more than 9 per cent
of the total imports of the like product in the importing Member.
27.11 For those developing country Members within the scope of paragraph 2(b) which
have eliminated export subsidies prior to the expiry of the period of eight years
from the date of entry into force of the WTO Agreement, and for those developing
country Members referred to in Annex VII, the number in paragraph 10(a) shall
be 3 per cent rather than 2 per cent. This provision shall apply from the date that
the elimination of export subsidies is notified to the Committee, and for so long
as export subsidies are not granted by the notifying developing country Member.
This provision shall expire eight years from the date of entry into force of the
WTO Agreement.
27.12 The provisions of paragraphs 10 and 11 shall govern any determination of de
minimis under paragraph 3 of Article 15.
27.13 The provisions of Part III shall not apply to direct forgiveness of debts, subsidies
to cover social costs, in whatever form, including relinquishment of government
revenue and other transfer of liabilities when such subsidies are granted within
and directly linked to a privatization programme of a developing country Member,
provided that both such programme and the subsidies involved are granted for a
limited period and notified to the Committee and that the programme results in
eventual privatization of the enterprise concerned.
27.14 The Committee shall, upon request by an interested Member, undertake a review
of a specific export subsidy practice of a developing country Member to examine
whether the practice is in conformity with its development needs.
27.15 The Committee shall, upon request by an interested developing country Member,
undertake a review of a specific countervailing measure to examine whether it
is consistent with the provisions of paragraphs 10 and 11 as applicable to the
developing country Member in question.
Footnote 55: For a developing country Member not granting export subsidies as of the
date of entry into force of the WTO Agreement, this paragraph shall apply on the basis
of the level of export subsidies granted in 1986.
Annex VII: Developing Country Members Referred to in Paragraph 2(A) of

Article 27
The developing country Members not subject to the provisions of paragraph 1(a) of Article
3 under the terms of paragraph 2(a) of Article 27 are:
(a) Least-developed countries designated as such by the United Nations which are
Members of the WTO.
(b) Each of the following developing countries which are Members of the WTO shall
be subject to the provisions which are applicable to other developing country
Members according to paragraph 2(b) of Article 27 when GNP per capita has
reached $1,000 per annum:68 Bolivia, Cameroon, Congo, Côte d’Ivoire, Dominican
Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco,
Nicaragua, Nigeria, Pakistan, Philippines, Senegal, Sri Lanka and Zimbabwe.
Footnote 68: The inclusion of developing country Members in the list in paragraph (b) is
based on the most recent data from the World Bank on GNP per capita.
Bibliography
M. Benitah, The Law of Subsidies under the GATT/WTO System (2003); R. Bhala & K. Kennedy,

704 article 27 scma
World Trade Law, The GATT-WTO System, Regional Arrangements and U.S. Law (2000); B. M.
Carl, Trade and the Developing World in the 21st Century (2001); P. Gallagher, Guide to the WTO and
Developing Countries (2000); R. K. Gupta, Anti-Dumping and Countervailing Measures—The Complete
Reference (2000); E. McGovern, International Trade Regulation (1995); E. McGovern, International
Trade Regulation—GATT, the United States and the European Community (1986); C. Pitschas, Das
Übereinkommen über Subventionen und Ausgleichsmassnahmen, in: H. J. Priess & G. M. Berrisch (eds),
WTO-Handbuch (2003); R. Senti & P. Conlan, WTO—Regulation of World Trade after the Uruguay
Round (1998); J. S. Thomas & M. A. Meyer, The New Rules of Global Trade—A Guide to the World
Trade Organization (1998); M. J. Trebilcock & R. Howse, The Regulation of International Trade
(2000); D. Ünsal, Die Ausnahmen von der Meistbegünstigungsklausel zugunsten der Entwicklungsländer
im Rahmen des GATT (1999); W. Weiss & C. Herrmann, Welthandelsrecht (2003).
Case Law
WT/DS46/R; Panel Report, Brazil—Aircraft, WT/DS46/RW; Panel Report, Indonesia—Autos,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R.
Documents
Committee on Subsidies and Countervailing Measures, Questionnaire Format for Subsidy
Notifications under Article 25 of the Agreement on Subsidies and Countervailing Measures
and under Article XVI of GATT 1994, G/SCM/6, 9 August 1995; Committee on Trade
and Development, Implementation of Special and Differential Treatment Provisions in
WTO Agreement and Decisions, Note by the Secretariat, WT/COMTD/W/77, 25 October
2000; Committee on Trade and Development, Special and Differential Treatment: Imple-
mentation and Proposals, WT/COMTD/W/85, 14 May 2001; Committee on Subsidies
and Countervailing Measures, Chairman’s Report on the Implementation-Related Issues
Referred to the Committee at the Request of the Chairman of the General Council on
2 August and 15 October 2001 and in the 15 December 2000 Decision of the General
Council, G/SCM/38, 26 October 2001; Committee on Subsidies and Countervailing
Measures, Proposed Procedures for Extensions under Article 27.4 for Certain Developing
Country Members, Communications from the Chairman, Revision, G/SCM/W/471/Rev.1,
13 November 2001; Committee on Subsidies and Countervailing Measures, Procedures
for Extensions under Article 27.4 for Certain Developing Country Members, G/SCM/39,
20 November 2001; Ministerial Conference, Fourth Session, Doha, 9–14 November
2001, Implementation-Related Issues and Concerns, Decision of 14 November 2001,
WT/MIN(01)/17, 20 November 2001; Committee on Trade and Development, Special
Session, Special and Differential Treatment Provisions, Joint Communication from Cuba,
Dominican Republic, Honduras, India, Indonesia, Kenya, Pakistan, Sri Lanka, Tanzania
and Zimbabwe, TN/CTD/W/1, 14 May 2002; Committee on Trade and Development,
Special Session, Special and Differential Treatment Provisions: Joint Communication from
the African Group in the WTO, Revision, TN/CTD/W/3/Rev.1, 24 June 2002; Negoti-
ating Group on Rules, Special and Differential Treatment and the Subsidies Agreement,
Communication from the United States, TN/RL/W/33, 2 December 2002; Committee
on Trade and Development, Special Session, Approach to Facilitate Deliberations on the
Agreement-Specific S&D Proposals, Communication from the United States, TN/CTD/
W/27, 13 February 2003; Committee on Subsidies and Countervailing Measures, Subsi-
dies, Annex VII(b) of the Agreement on Subsidies and Countervailing Measures Updating
GNP Per Capita for Members Listed in Annex VII(b) as Foreseen in Paragraph 10.1 of
the Doha Ministerial Decision and in Accordance with the Methodology in G/SCM/38,
G/SCM/110, 20 October 2003; Committee on Subsidies and Countervailing Measures,
Article 27.4 of the Agreement on Subsidies and Countervailing Measures, Decision of
the Committee of 27 July 2007, WT/L/691, 31 July 2007; Committee on Subsidies and
Countervailing Measures, Subsidies, Continuation of Extension under SCM Article 27.4 of
the Transition Period for the Elimination of Export Subsidies Pursuant to the Procedures
Contained in the General Council Decision in Document WT/L/691, G/SCM/N/163
series, 27 August–20 September 2007.

article 27 scma 705
Table of Contents
A. Introduction and Structural Overview 1
I. Special and Differential Treatment in the SCMA 1
II. Classification of the Different Paragraphs according to the WTO Scheme 4
III. Evolution from the Tokyo Round Subsidies Code to the SCMA 7
B. The Scope of Application of Art. 27 SCMA 11
I. Significance of Subsidies for Developing Countries (Art. 27.1 SCMA) 11
II. Exemption from Art. 3.1(a) SCMA in Accordance with the Country
Classification (Arts 27.2(a) and (b) and Annex VII SCMA) 14
1. Least-Developed Countries (Art. 27.2(a) and Annex VII(a) SCMA) 16
2. Countries with a Certain GNP (Art. 27.2(a) and Annex VII(b) SCMA) 21
a) Assessment under Annex VII(b) SCMA 22
3. Other Developing Countries (Art. 27.2(b) SCMA) 26
4. Developing Country Members Using Extension Procedures
(Arts 27.2(b) and 27.4 SCMA) 27
a) Art. 27.4 SCMA Procedure 27
b) Additional Procedure 29
i) Eligibility of the Country 31
ii) Eligibility of the Subsidy Programme 32
iii) Transparency 33
iv) Standstill 34
v) Favourability 35
vi) Duration of the Extension 36
III. Relationship to Art. 3 SCMA 42
IV. Export Subsidies (Art. 27.4 SCMA) 47
1. Preliminary Remarks 47
2. Progressive Phasing Out 48
3. No Increase in the Level of Subsidies 49
a) “Granting” of Subsidies for the Purpose of Art. 27.4 SCMA 50
b) Constant Measuring Unit 51
c) Benchmark Period 52
d) Actual Expenditures 55
4. Assessment of the “Development Needs” 57
5. Burden of Proof 59
V. Export Competitiveness (Arts 27.5 and 27.6 SCMA) 61
1. Accelerated “Phasing Out” (Art. 27.5 SCMA) 61
2. Definition of Export Competitiveness (Art. 27.6 SCMA) 62
VI. Countermeasures against Export Subsidies (Art. 27.7 SCMA) 63
VII. Countermeasures against Actionable Subsidies (Art. 27.8 SCMA) 64
VIII. Qualified Burden of Evidence (Art. 27.9 SCMA) 65
IX. Specific Framework for Unilateral Countermeasures (Arts 27.10 and
27.15 SCMA) 66
1. Product-Related De Minimis Value (Arts 27.10(a) and 27.11 SCMA) 67
2. Import Volume-Related De Minimis Value (Art. 27.10(b) SCMA) 69
3. Verification Procedure under Art. 27.15 SCMA 70
X. Qualified Assessment under Art. 15.3 SCMA (Art. 27.12 SCMA) 71
XI. Privatization Programmes (Art. 27.13 SCMA) 72
XII. SCM Committee Procedures (Arts 27.14 and 27.15 SCMA) 74
C. Outlook 77

706 article 27 scma
A. Introduction and Structural Overview
I. Special and Differential Treatment in the SCMA

1 Art. 27 SCMA provides for special and differential treatment of developing
country Members. In principle, the WTO Members, especially the developed
country Members, recognize that subsidies may play an important role in
the economic development programmes of such Members.1 However, some
developed countries left no doubt that over time, all countries will be sub-
ject to a single set of disciplines. Consequently, the special and differential
treatment provisions are not intended to be in effect forever.2
2 Under the different provisions of art. 27 SCMA, developing countries and
lesser-developed3 countries are granted exemptions from the general pro-
hibition on subsidies that are contingent upon export performance (export
subsidies)4 or upon the use of domestic over imported goods (import substi-
tution goods).5 Art. 27 SCMA provides qualified rules regarding “actionable
subsidies” as well. In accordance with the general conception of the SCMA,
specific rules for both tracks, i.e., the multilateral action and the unilateral
action in the form of countervailing duties, are set forth.6
3 The structure of art. 27 SCMA ensues a simple principle: the lower the
level of development of a Member, the more favourable is the treatment in
respect of consideration given to subsidies granted by developing country
Members.7 Laterally reversed, this principle means: the lower the level of
development of the Member concerned, the more difficult it is for developed
countries to challenge subsidies granted by such Member.
II. Classification of the Different Paragraphs according to the

WTO Scheme
4 The WTO has classified the so-called special and differential provisions
into six categories, i.e., (1) provisions aimed at increasing the trade oppor-
tunities of developing country Members; (2) provisions under which WTO
1
See the wording of art. 27.1 SCMA.
2
See TN/RL/W/33.
3
In the strict sense, art. 27 SCMA distinguishes more than two categories of developing
countries.
4
See art. 3.1(a) SCMA.
5
The “transition periods” provided in art. 27.3 SCMA expired definitely on 31 December
2002. Accordingly, developing countries (including the least developed countries) fall under
the scope of art. 3.1(b) SCMA.
6
See Pitschas, sec. B.I.12; Adamantopoulos & Pereyra-Friedrichsen, chs 2–3 (for a general
overview of the SCMA).
7
See Adamantopoulos & Pereyra-Friedrichsen, 23.

article 27 scma 707
Members should safeguard the interests of developing country Members;

(3) the flexibility of commitments, action, and use of policy instruments; (4)
transitional time periods; (5) technical assistance; and (6) provisions relating
to the least developed country (LDC) Members.8
The SCMA contains 16 special and differential treatment provisions, some 5
of which fall into more than one of the categories established by the Com-
mittee on Trade and Development.9
Arts 27.1 and 27.15 SCMA fall under the category of provisions under 6
which WTO Members should safeguard the interests of developing country
Members.10 Arts 27.2(a) 27.4, 27.7 to 27.13, and annex VII SCMA fall
under the category of flexibility of commitments, action, and use of policy
instruments.11 Arts 27.2(b), 27.3 to 27.6, 27.11, and 27.14 provide transi-
tional time periods. It should be noted that arts 27.4, 27.6, and 27.11 fall
under the flexibility of commitments, action, and use of policy instruments
and transitional time periods categories as their hybrid nature combines
characteristics of both these categories.12
III. Evolution from the Tokyo Round Subsidies Code to the

SCMA
The 1947 GATT did not contain any specific provisions protecting the 7
interests of developing countries in the field of subsidies.13 This issue was
treated for the first time during the Tokyo Round.14 The United States
had initially put pressure on the most advanced developing countries (i.e.,
developing countries with a GNP per capita exceeding $1000 per annum)
to sign these codes as they stood without any observance of developing
country interests.15 This attempt failed given that the developing countries
refused to sign an agreement that ignored their specific interests.
Finally, the signatories to the Tokyo Round Subsidies Code recognized that 8
“subsidies are an integral part of economic development programmes of
8
See WT/COMTD/W/77.
9
See WT/COMTD/W/85, 15.
10
11
See ibid., 55.
12
See ibid.
13
For more details, see Development Division, World Trade Organization, Background
Document, High Level Symposium on Trade and Development, 17–18 March 1999, annex
I. The paper provides a detailed chronology of principal provisions, measures, and other
initiatives in favour of developing countries and LDCs in the GATT and the WTO since
1955.
14
For a short overview of the negotiations on the Tokyo Round Subsidies Code, see
Pitschas, 432.
15
Benitah, 36.

708 article 27 scma
developing countries”16 and acknowledged that developing country gov-

ernments may play an important role in promoting economic growth and
development.17 Consequently, they agreed to insert a clause for differential
and more favourable treatment.18
9 The Tokyo Round Subsidies Code contained an exemption for developing
countries in its art. 9.19 This exemption was qualified by a clause appear-
ing in art. 14.5 Tokyo Round Subsidies Code stipulating that a develop-
ing country signatory “should endeavour to enter into a commitment to
reduce or eliminate export subsidies when the use of such export subsidies
is inconsistent with its competitive and development needs”.20
10 With regard to any subsidies other than export subsidies granted by a
developing country, art. 14.7 Tokyo Round Subsidies Code established
different and less stringent rules by limiting multilateral causes of action
against developing countries, providing that:
[An] action may not be authorized or taken under Parts II and VI of this
Agreement [(i.e., in a multilateral forum)] unless nullification or impairment
of tariff concessions or other obligations under the General Agreement is
found to exist as a result of such subsidy, in such a way as to displace or
impede imports of like products into the market of the subsidizing country,
or unless injury to domestic industry in the importing market of a signatory
occurs in terms of Article VI of the General Agreement, as interpreted and
applied by this Agreement.21
B. The Scope of Application of Art. 27 SCMA
I. Significance of Subsidies for Developing Countries

(Art. 27.1 SCMA)
11 The recognition by WTO Members that subsidies may play an important
role in economic development programmes of developing country Members
is carried out in art. 27.1 SCMA. This article is a programmatic provision
rather than a compulsory one providing precise obligations for the devel-
oped country Members.
16
See art. 14.1 Tokyo Round Subsidies Code.
17
See art. 14.7 sentence 2 Tokyo Round Subsidies Code.
18
Benitah, 36.
19
To this end, art. 14.2 Tokyo Round Subsidies Code specified that: “this Agreement
shall not prevent developing country signatories adopting measures and policies to assist their
industries, including those in the export sector. In particular the commitment of Article 9
shall not apply to developing country signatories.”
20
For more information, see Benitah, 37.
21
For more information, see ibid., 40.

article 27 scma 709
This conclusion finds support in the Brazil—Aircraft case where the panel 12
established a direct connection between art. 27.1 SCMA and the preamble
of the WTO Agreement which sets out primarily the programmatic objec-
tives of the WTO. The panel recalled that the preamble to the WTO
Agreement recognizes “that there is a need for positive efforts designed to
ensure that developing countries, and especially the least-developed among
them, secure a share in the growth in international trade commensurate
with the needs of their economic development”. According to the panel,
this overarching concern of the WTO Agreement finds ample reflection in
the SCMA, especially in its art. 27.1.22
According to some developing country Members, this provision lays down 13
the basis for special and differential treatment for developing countries.
However, the value of this recognition has been considerably diluted by the
use of the word “may”. Therefore, it was suggested that art. 27.1 SCMA
be modified into “Members recognize that subsidies play an important role
in economic development programmes of developing country Members.”23
However, it appears that up to now, this suggestion is yet to be adopted by
the Members.24
II. Exemption from Art. 3.1(a) SCMA in Accordance with the

Country Classification (Arts 27.2(a) and (b) and Annex VII
SCMA)
Art. 27.2 SCMA sets out an exemption from the prohibition on subsidies 14
covered by art. 3.1(a) SCMA.25
Art. 27 SCMA classifies developing countries into three different catego- 15
ries: (1) least-developed countries, (2) countries with a certain GNP, and
(3) other developing countries. The nature and extent of special and dif-
ferential treatment accorded to any given developing country depends on
the country classification.26
1. Least-Developed Countries (Art. 27.2(a) and Annex VII(a)

SCMA)
It should be noted that art. 27.2(a) SCMA is applicable to a subset of 16
developing countries listed in annex VII SCMA and not to developing
countries as a whole.27
22
See WT/DS46/RW, para. 6.47, n. 49.
23
See TN/CTD/W/1.
24
See TN/CTD/W/3/Rev.1, paras 10, 69. See also TN/CTD/W/27, para. 7, annex II,
summarizing the position of the US.
25
On art. 3.1(a) SCMA, see Adamantopoulos & Akritidis, Article 3 SCMA.
26
Gallagher, 169–170.
27

710 article 27 scma
17 According to art. 27.2(a) SCMA, the prohibition from granting export

subsidies or maintaining such subsidies shall not apply to the developing
country Members referred to in annex VII SCMA. Annex VII(a) SCMA
contains the LDCs designated as such by the United Nations which are
Members of the WTO.28 The Economic and Social Council of the United
Nations uses three criteria for the identification of LDCs.29 To be included
in the list, a country must satisfy all three criteria.
18 The first criterion is called the “low income criterion”. This criterion is
based on a three-year average estimate of the gross national income (GNI)
per capita. If the GNI per capita is under $750, the country is included in
the list of LDCs. As soon as the GNI per capita exceeds $900, the country
is graduated and deleted from the list.
19 The second criterion is called the “human resource weakness criterion”.
This criterion involves the so-called Human Assets Index which is based
on the following indicators: (1) nutrition; (2) health; (3) education; and (4)
adult literacy.
20 Finally, the United Nations uses a third criterion called the “economic vul-
nerability criterion”. This criterion involves the assessment of the so-called
Economic Vulnerability Index based on the following indicators: (1) the
instability of agricultural production; (2) the instability of exports of goods
and services; (3) the economic importance of non-traditional activities (share
of manufacturing and modern services in the gross domestic product); (4)
merchandise export concentration; (4) the handicap of economic smallness
(as measured through the population in logarithm); and (5) the percentage
of population displaced by natural disasters.
2. Countries with a Certain GNP (Art. 27.2(a) and

Annex VII(b) SCMA)
21 Annex VII(b) SCMA30 lists developing countries which shall be subject to
the provisions which are applicable to “other developing country Members”
according to art. 27.2(b) SCMA when their GNP per capita has reached
$1000 per annum. To that extent, annex VII(b) SCMA can be character-
ized as an “elevator provision” insofar as the classification into a specific
group of developing country Members depends on the overcoming or the
28
The list of the LDCs can be found at http://www.un.org/special-rep/ohrlls/ldc/default.
htm (accessed 2 October 2007).
29
See http://www.un.org/special-rep/ohrlls/ldc/ldc%20criteria.htm (accessed 2 October
2007).
30
Annex VII(b) SCMA lists the following developing country Members: Bolivia, Cam-
eroon, Congo, Côte d’Ivoire, Dominican Republic, Egypt, Ghana, Guatemala, Guyana,
India, Indonesia, Kenya, Morocco, Nicaragua, Nigeria, Pakistan, Philippines, Senegal, Sri
Lanka, and Zimbabwe.

article 27 scma 711
undershooting of the $1000 GNP per capita threshold. When a country

classified under annex VII(b) SCMA reaches the threshold of $1000, it
will be subject to a lesser favourable treatment under the SCMA insofar
as it will be classified under art. 27.2(b) SCMA (“downgrade”). Should
this country subsequently again fall below the threshold foreseen in annex
VII(b) SCMA, it will be subject to the far-reaching exemption under art.
27.2(a) SCMA (“upgrade”).
a) Assessment under Annex VII(b) SCMA

In para. 10.1 of the Implementation-Related Issues and Concerns, Deci- 22
sion of 14 November 2001,31 the ministers agreed that annex VII(b)
SCMA shall include the Members that are listed therein until their GNP
per capita reaches US$1000 in constant 1990 dollars for three consecutive
years. Furthermore, the ministers underlined that a Member shall not leave
annex VII(b) SCMA so long as its GNP per capita in current dollars has
not reached US$1000 based upon the most recent data from the World
Bank. In this context, it should be recalled that footnote 68 to annex VII
SCMA already provides that the inclusion of developing country Members
in the list of annex VII(b) SCMA shall be based on the most recent data
on GNP per capita from the World Bank.
The GNP calculation under annex VII(b) SCMA is carried out following 23
a methodology composed of four steps.32 The starting point for the calcu-
lation is regularly the dollar value of GNP per capita at 1995 prices and
exchange rates33 according to the Atlas method.34 These data are published
annually by the World Bank in World Development Indicators. In a second step,
the data identified under the abovementioned methodology are converted
to indices (1990=100). These indices are then applied to the dollar value of
1990 GNP per capita at 1990 prices and exchange rates. The secretariat will
subsequently update its calculations and inform the Committee on Subsidies
and Countervailing Measures (SCM Committee) of the results on an annual
basis upon the release of the World Development Indicators each year.
31
See WT/MIN(01)/17, para. 10.1.
32
See G/SCM/110.
33
Due to the fact that the World Bank does not publish GNP per capita figures in
constant 1990 dollars.
34
According to the World Bank, the Atlas method of calculating GNP per capita converts
national currency units to dollars at prevailing exchange rates, adjusted for inflation, and
averaged over three years. Full details on this methodology can be found at http://web.
worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20399244~
menuPK:1504474~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html (accessed
1 October 2007).

712 article 27 scma
24 The ministers recalled that if a Member has been excluded from the list in
annex VII(b) SCMA, “it shall be re-included in it when its GNP per capita
falls back below US$1,000”.35
25 In addition, it should be noted that if one of these Members reaches export
competitiveness in one or more products,36 export subsidies on such products
shall be gradually phased out over a period of eight years.37
3. Other Developing Countries (Art. 27.2(b) SCMA)

26 According to art. 27.2(b) SCMA, other developing countries are exempted
from the prohibition under art. 3.1(a) SCMA for a period of eight years
from the date of entry into force of the WTO Agreement, i.e., until 31
December 2002. These developing country Members are all those which do
not fall under annex VII. This exemption is conditioned on the fulfilment
of certain conditions which will be further elaborated on below.
4. Developing Country Members Using Extension Procedures

(Arts 27.2(b) and 27.4 SCMA)
a) Art. 27.4 SCMA Procedure

27 The eight-year transition period provided for in art. 27.2(b) SCMA in
principle expired on 31 December 2002. However, the third sentence of
art. 27.4 SCMA provides the possibility for interested developing country
Members to apply for an extension of the transition period. The application
should be lodged not later than one year before the expiry of the initial
period, i.e., on 31 December 2001.
28 In order to determine whether such an extension can be granted, the SCM
Committee assesses the relevant economic, financial, and development needs
of the developing country in question. If the SCM Committee determines
that the extension is justified, the developing country Member concerned
shall subsequently hold annual consultations with the SCM Committee to
determine whether it is necessary to maintain subsidies. If no such deter-
mination is made by the SCM Committee, the developing country Member
has to phase out the remaining export subsidies within two years from the
end of the last authorized period. The two-year grace period provided for
35
See WT/MIN(01)/17, para. 10.4. The Dominican Republic, Guatemala, and Morocco
were excluded from the list in 2003. See G/SCM/110. Honduras was included in the list
in 2003. See ibid. Honduras was apparently wrongly omitted from the initial list of annex
VII(b) SCMA countries. See WT/COMTD/W/85, 16.
36
Art. 27.6 sentence 3 SCMA provides: “For the purpose of this paragraph, a product
is defined as a section heading of the Harmonized System Nomenclature.”
37
Art. 27.5 sentence 2 SCMA. See Pitschas, sec. B.I.12, 445, n. 106.

article 27 scma 713
in art. 27.4 SCMA will only be granted if the SCM Committee at least
conceded the first application.38
b) Additional Procedure
The procedure provided for in art. 27.4 SCMA was complemented with a 29
“new alternative” for certain developing country Members during the fourth
Ministerial Conference in Doha.39 These additional procedures and the art.
27.4 SCMA extensions granted thereunder are without prejudice to any
request for extension under art. 27.4 SCMA that are not made pursuant
to those procedures.40
“The special procedures agreed to in Doha were designed—at the request 30
of certain developing countries—to provide a stable economic environment
beyond the single year extensions contemplated in” art. 27.4 SCMA.41
Consequently, the SCMA finally provides to four categories of developing
country Members the possibility to grant a subsidy programme if the fol-
lowing requirements are met.
i) Eligibility of the Country

This alternative is intended for developing countries (1) the share of which 31
of world merchandise export trade was no greater than 0.10 percent, (2) the
total GNI of which for the year 2000 as published by the World Bank was
below US$20 billion, and (3) which are otherwise eligible for the extension
pursuant to art. 27.4 SCMA.42
ii) Eligibility of the Subsidy Programme

The eligible developing countries are allowed to grant export subsidy pro- 32
grammes in the form of full or partial exemptions from import duties and
internal taxes which were in existence no later than 1 September 2001.43 The
eligible developing countries had the opportunity to initiate consultations
with respect to the eligible subsidy programmes until 31 December 2001.
38
See Pitschas, sec. B.I.12, 38, n. 109. Pitschas concludes that the “grace period” of
two years will only be granted after a first positive decision by the SCM Committee. This
conclusion is based on a detailed interpretation of the wording of art. 27.5 sentence 5
SCMA. The second part of the sentence “within two years from the last authorized period”
supports this interpretation.
39
See G/SCM/W/471/Rev.1.
40
Ibid.
41
See TN/RL/W/33.
42
See G/SCM/W/471/Rev.1.
43
See ibid.

714 article 27 scma
iii) Transparency44
33 The application of a given developing country Member has to be accompa-
nied by a detailed documentation identifying the programme and including
an explanatory statement showing that the extension is necessary in the
light of the Member’s economic, financial, and development needs. Fur-
thermore, the developing country has to submit to the SCM Committee
an initial notification providing detailed information about the programmes
for which extension was being sought.45
iv) Standstill
34 The programmes for which an extension is granted shall not be modified
during the period of extension so as to make them more favourable to the
applicant than they were as of 1 September 2001. The standstill should
be in respect of the package of benefits (intensity of subsidization) of the
programmes themselves and not in respect of the application of the pro-
grammes in any particular period.46
v) Favourability
35 These notifications are considered by the SCM Committee with a view to
understanding the nature and operation of the notified programmes, their
scope, coverage, and intensity of benefits. The favourability of a programme
would be determined on the basis of the underlying legal instruments, i.e.,
not on the basis of an absolute level of subsidization.47
vi) Duration of the Extension

36 The extensions granted by the SCM Committee are subject to annual
reviews in the form of consultations held between the committee and the
Members receiving extensions. These updated notifications must still fulfil
the transparency and standstill requirements. If they are met, the commit-
tee grants a new extension until the end of calendar year 2007, subject to
further annual reviews during that period.
37 During the last year, i.e., 2007, a Member that has received an extension
under these procedures shall have the possibility to seek continuation of the
extension for the programmes in question pursuant to art. 27.4 SCMA. The
committee shall consider any such requests at that year’s annual review on
the basis of the provisions of art. 27.4 SCMA, i.e., outside the framework
of these additional procedures.
44
See G/SCM/38.
45
The notification shall follow the agreed format for subsidy notifications under art. 25
SCMA found in G/SCM/6.
46
See G/SCM/38.
47
See ibid.

article 27 scma 715
If the committee does not allow such an extension (or does not allow such 38
an extension again) or if such an application is not submitted at all, the
developing country Members benefit from the final two-year phase out
period.
Accordingly, developing country Members can maintain their notified export 39
subsidy programmes at least until the end of the calendar year 2009. If
the committee decides that an extension be prolonged beyond the calen-
dar year 2007, the final date is delayed (at the latest, until 31 December
2009) for each year for which the committee grants a new extension for
the programme in question.48
Notwithstanding these specific procedures, arts 27.5 and 27.6 SCMA on 40
export competitiveness shall apply in respect of export subsidies for which
extensions are granted under these procedures.
The General Council has recently decided to renew the procedures for con- 41
tinuation of extensions pursuant to art. 27.4 SCMA for certain developing
country Members, “recognizing the economic, financial and development
needs of those Members”.49 These procedures are similarly designed as the
previous procedures established for the period 2001–200750 and will apply
for the period 2008–2012. According to the General Council’s decision, the
“last authorized period” referred to in the last sentence of art. 27.4 SCMA
shall not extend beyond 31 December 2013, and the final two-year phase
out period provided in the last sentence of art. 27.4 SCMA shall not end
later than 31 December 2015.51 The possibility to request further exten-
sions under art. 27.4 SCMA has been seized by the developing country
Members concerned.52
III. Relationship to Art. 3 SCMA

As already demonstrated, art. 27.2 SCMA provides two different schemes 42
of differential treatment depending on the classification of the developing
country Member under art. 27.2(a) (including annex VII) or art. 27.2(b)
SCMA. These rather technical considerations relating to art. 27.2 SCMA
give rise to no specific problems of interpretation whereas the relationship
between arts 27.2 and 3 SCMA gives reason for contradictory views.
48
See Pitschas, sec. B.I.12, para. 41.
49
See WT/L/691, annex 1.
50
See G/SCM/39.
51
As already stated in para. 40, arts 27.5 and 27.6 SCMA on export competitiveness
shall apply here again in respect of export subsidies for which extensions are granted under
these new procedures. See WT/L/691, 4.
52
The requests of the different Members applying for a further extension can be found
under the G/SCM/N/163 series.

716 article 27 scma
43 In the course of Brazil—Aircraft, the parties to the dispute disagreed on the

relationship between art. 27 SCMA and the general prohibition of export
subsidies provided in art. 3.1(a) SCMA. Brazil considered that art. 27 SCMA
is lex specialis to art. 3 SCMA insofar as it provides special rules with regard
to export subsidy programmes of developing country Members.53 According
to Brazil, the specific provisions of art. 27 SCMA relating to developing
country Members’ export subsidies displace the general provisions of art.
3.1(a) SCMA, and consequently, it would not be possible for developing
country Members to act inconsistently with art. 3 SCMA.54
44 The panel rejected the Brazilian argument. Referring to the ordinary mean-
ing of art. 27.2 SCMA, the panel considered that art. 27 SCMA does not
displace art. 3.1(a) SCMA unconditionally.55 Rather, the prohibition in art.
3.1(a) SCMA shall not apply subject to compliance with the provisions of
art. 27.4 SCMA.
45 In fact, the exemption provided in art. 27.2(b) SCMA for developing country
Members other than those referred to in annex VII SCMA from the prohi-
bition on export subsidies according to art. 3 SCMA is clearly conditional
on compliance with the provisions of art. 27.4 SCMA. Accordingly, where
the provisions of art. 27.4 SCMA have not been complied with, the art.
3.1(a) SCMA prohibition reappears.
46 This interpretation can be emphasized by reference to art. 27.7 SCMA.56
The compliance with the provisions of art. 27.4 SCMA required in art.
27.2(b) SCMA can be seen as analogous to the conformity with arts 27.2
to 27.5 SCMA required in art. 27.7 SCMA. This supports an interpreta-
tion of art. 27.2(b) SCMA to the effect that developing country Members
are excluded from the scope of application of the substantive obligation
provided that they comply with certain specified conditions.57
IV. Export Subsidies (Art. 27.4 SCMA)
1. Preliminary Remarks
47 The phasing out of export subsidies within the eight-year transition period
provided in art. 27.2(b) SCMA has to be carried out in compliance with
the three conditions set out in art. 27.4 SCMA, namely: (1) the phasing
out shall be carried out preferably in a progressive manner; (2) the level of
export subsidies shall not be increased during the transitional period; and
53
54
Ibid.
55
See ibid., para. 7.40.
56
57
Ibid.

article 27 scma 717
(3) the phasing out has to be accelerated as soon as the use of export sub-
sidies is inconsistent with the development needs of the developing country
Member. The third condition is clearly inspired by the philosophy of art.
14.5 Tokyo Round Subsidies Code.58
2. Progressive Phasing Out

It was alleged that the wording of the first sentence of art. 27.4 SCMA 48
reveals an internal contradiction created, on the one hand, by the mandatory
language providing that a developing country Member “shall phase out its
export subsidies” and on the other, by the hortatory language in the final
clause encouraging Members to perform their phasing out “in a progressive
manner”.59 The panel found that it was not necessary to resolve this issue. It
held that the wording of art. 27.4 SCMA does not specify how many phases
the elimination should take place and how these phased reductions should be
distributed within the eight-year period.60 Accordingly, a developing country
has merely to respect the expiration date of the transitional period in order
to comply with the stipulation provided in art. 27.4 SCMA.
3. No Increase in the Level of Subsidies

The assessment of whether a developing country Member has increased 49
its level of export subsidies contrary to art. 27.4 SCMA necessitates an
elaborated analysis of the financial support given during the transitional
period. This analysis comprises the assessment of different factors, such as
the general characteristics of the payment, a constant measuring unit, a
benchmark to determine the evolution of the payments, and a pre-defined
benchmark period.
a) “Granting” of Subsidies for the Purpose of Art. 27.4 SCMA

The Appellate Body agreed with the panel in Brazil—Aircraft that the pay- 50
ments made by a developing country Member can be considered to have
been granted where the unconditional legal right of the beneficiary to receive
payments has arisen even if the payments themselves have not yet been
made. The Appellate Body concluded for the purposes of art. 27.4 SCMA
that export subsidies are granted when all legal conditions that entitle the
beneficiary to receive the subsidies have been fulfilled.61
b) Constant Measuring Unit

In the course of Brazil—Aircraft, the panel used constant dollars instead of 51
nominal dollars in order to measure the alleged increase in subsidies. Canada
58
See supra para. 9.
59
60
Ibid., para. 7.81.
61
See WT/DS46/AB/R, para. 158.

718 article 27 scma
had argued that there was no explicit provision for the conversion of the
level of export subsidies to a constant value either in art. 27.4 or in footnote
55 SCMA. Furthermore, Canada asserted that, where the negotiators of
the SCMA intended to provide adjustments for inflation, they did so, but
such indexation is not provided in art. 27 SCMA. The panel considered
the use of constant dollars in this specific case as appropriate but noted
that the conclusion with respect to this issue would be the same whether
constant or nominal dollars had been used. This pragmatic approach was
approved by the Appellate Body, which made it clear that the panel did
not make a legal finding that the level of a developing country Member’s
export subsidies must be measured in every case using a constant value.
Furthermore, the Appellate Body underlined that to take account of inflation
in assessing the level of export subsidies granted by a developing country
Member would render the special and differential treatment provision of
art. 27 SCMA meaningless.62
c) Benchmark Period
52 During the Brazil—Aircraft case, the parties disagreed on the benchmark
period against which an examination of alleged increase in the level of
export subsidies should be made.63 The panel considered that logic would
suggest that the appropriate benchmark was the level of export subsidies
during the period immediately preceding the date of entry into force of
the WTO Agreement, i.e., immediately after 1 January 1995.
53 The panel asserted that the foregoing interpretation was confirmed by
footnote 55 SCMA.64 Footnote 55 SCMA recognizes that it would be inap-
propriate to impose an obligation not to increase the level of its export
subsidies above a zero level on a developing country which had autono-
mously eliminated—without a multilateral obligation to do so—its export
subsidies before the entry into force of the WTO Agreement.65 Rather, it
offers for such Members a ceiling level of export subsidies based on their
1986 level.66
62
See ibid., para. 160.
63
See WT/DS46/R, para. 7.161. Brazil asserted that the appropriate benchmark was 1991
because this was the year in which the financial support programme was first enacted. Canada
countered that the relevant benchmark was 1994 because the condition in art. 27.4 SCMA
not to increase the level of one’s export subsidies became effective on 1 January 1995.
64
Footnote 55 SCMA provides: “For a developing country Member not granting export
subsidies as of the date of entry into force of the WTO Agreement, this paragraph shall
apply on the basis of the level of export subsidies granted in 1986.”
65
66
Ibid. Moreover, the panel stated that: “Implicit in this explanation is that, absent foot-
note 55, a developing country which granted no export subsidies as of the date of entry into
force of the WTO Agreement would be prohibited from providing any export subsidies during
the eight-year transition period.” Ibid.

article 27 scma 719
Consequently, a developing country Member cannot unilaterally determine 54

variable benchmarks according to its respective support programmes. This
would seriously undermine the purpose of art. 27.4 SCMA, which aims to
provide a predictable and traceable framework for the assessment of the
evolution of the respective export subsidy practice of developing country
Members.
d) Actual Expenditures
Considering whether actual expenditures or budgeted amounts should be 55
used when assessing the exact level of export subsidies, the Brazil—Aircraft
panel found that the level of a Member’s export subsidies in its ordinary
meaning refers to “the level of subsidies actually provided, not the level of
subsidies which a Member planned or authorized its government to provide
through its budgetary process”.67
The Appellate Body agreed with this finding and added that “the word 56
‘granted’ used in this context means ‘something actually provided’ ”.68 Thus,
to determine the amount of export subsidies “granted” in a particular year,
the actual amounts provided by a government—not just those authorized
and appropriated in its budget for that year—are the proper measure.69
The Appellate Body recalled that “a government does not always spend the
entire amount appropriated in its annual budget for a designated purpose”.70
Therefore, in this case, to determine the level of export subsidies for the
purposes of art. 27.4 SCMA, the proper reference is to actual expenditure
by a government, not budgetary appropriations.71
4. Assessment of the “Development Needs”

On the occasion of the Brazil—Aircraft case, the parties disagreed on the 57
nature of the second sentence of art. 27.4 SCMA providing, inter alia, that a
developing country eliminate its export subsidies if their use “is inconsistent
with its development needs”.72
The panel found that 58
an examination as to whether export subsidies are inconsistent with a devel-
oping country Member’s development needs is an inquiry of a peculiarly
67
68
See WT/DS46/AB/R, para. 148.
69
Ibid.
70
Ibid.
71
Ibid.
72
See WT/DS46/R, paras 7.87–7.88. Canada considered that this is not a self-judging
provision and that it should be applied on the basis of objective standards. Brazil argued that
the burden is on the challenging Member, i.e., Canada, to demonstrate the inconsistency.

720 article 27 scma
economic and political nature and notably ill-suited for review by a panel
whose function is fundamentally legal.73
The panel considered that it is the developing country Member itself
which is in the best position to identify its development needs and to assess
whether its export subsidies are consistent with those needs and asserted
that panels should pay substantial deference to the views of the developing
country Member in question.74 Consequently, the panel concluded that, in
order to prevail on this issue, Canada had to present sufficient evidence
and argument to raise a presumption that the use of export subsidies by
Brazil was inconsistent with Brazil’s development needs.75 In this regard,
the panel followed its own findings regarding the general allocation of
the burden of proof in the context of art. 27.4 SCMA which is further
discussed in the next section.
5. Burden of Proof
59 In Brazil—Aircraft, the question was raised as to who bore the burden of
proof with respect to the conditions contained in art. 27.4 SCMA on
determining whether art. 3.1(a) SCMA applies to a developing country
Member.
60 The panel recalled the words of the Appellate Body in US—Wool Shirts
and Blouses that “a party claiming a violation of a provision of the WTO
Agreement by another Member must assert and prove its claim”.76 Apply-
ing this consideration to the question raised above, the panel considered
that, in order to assert and prove a claim of violation of art. 3.1(a) SCMA
with respect to a developing country Member,77 the Member asserting the
claim had to demonstrate that the substantive obligations contained in art.
3.1(a) SCMA applied to the Member in question.78 In order to do so, the
Member asserting the claim had to demonstrate that the developing country
Member concerned had not complied with the conditions stipulated in art.
27.4 SCMA.79
73
74
See ibid.
75
See ibid., paras 7.89–7.90.
76
See ibid., para. 7.56 citing Appellate Body Report, US—Wool Shirts and Blouses, WT/
DS33/AB/R, 16.
77
Developing country Members under art. 27.2(b) SCMA.
78
79
The Appellate Body upheld this finding in its report. See WT/DS46/AB/R, para.
141.

article 27 scma 721
V. Export Competitiveness (Arts 27.5 and 27.6 SCMA)
1. Accelerated “Phasing Out” (Art. 27.5 SCMA)

The first sentence of art. 27.5 SCMA narrows the exemption under art. 61
27.2(b) SCMA in stipulating that a developing country Member which has
reached “export competitiveness” in any given product shall phase out its
export subsidies for such product(s) over a period of two years.80 However,
according to the second sentence of art. 27.5 SCMA, for a developing
country Member which is referred to in annex VII SCMA and which has
reached export competitiveness in one or more products, export subsidies on
such products shall be gradually phased out over a period of eight years.
2. Definition of Export Competitiveness (Art. 27.6 SCMA)

Art. 27.6 SCMA provides a definition for “export competitiveness”. Export 62
competitiveness in a product exists if a developing country Member’s exports
of that product have reached a share of at least 3.25 percent in world trade
of that product for two consecutive calendar years. The determination of
“export competitiveness” results either from an accordant notification sub-
mitted by the concerned developing country Member (“self-announcement”)
or following an analysis carried out by the WTO Secretariat according to
a corresponding request of any Member.81
VI. Countermeasures against Export Subsidies

(Art. 27.7 SCMA)
Art. 27.7 SCMA excludes export subsidies granted by developing country 63
Members which are in compliance with arts 27.2 to 27.5 SCMA from the
proceeding under art. 4 SCMA.82 Nevertheless, they remain actionable under
the causes of action included in art. 7 SCMA83 if they produce one of the
adverse effects mentioned therein. In the latter context, however, there shall
be no presumption that a subsidy granted by a developing country Member
results in serious prejudice.84 Such serious prejudice shall be demonstrated
by positive evidence.85 This regime applies also to export subsidies for which
80
Benitah, 38, sec. 2.1.2.
81
See Pitschas, sec. B.I.12, para. 36, n. 102.
82
Art. 4 SCMA provides for an accelerated dispute settlement procedure in order to
proceed against export subsidies. See Rios Herran & Poretti, Article 4 SCMA, paras 6–8.
83
Art. 7 SCMA provides for a dispute settlement procedure for proceeding against action-
able subsidies. See Rios Herran & Poretti, Article 7 SCMA, para. 1.
84
See Benitah, 38, sec. 2.1.2. This interpretation seems to be based on the assumption
that art. 27.8 sentence 1 SCMA is also applicable to art. 27.7 SCMA.
85
Benitah, 39, sec. 2.1.2.

722 article 27 scma
the transition period was extended according to the Doha decision of the
fourth ministerial conference.86
VII. Countermeasures against Actionable Subsidies

(Art. 27.8 SCMA)
64 Art. 27.8 SCMA applies to actionable subsidies under art. 5(c) SCMA which
cause serious prejudice to the interest of another Member. Art. 27.8 SCMA
requires complainants to demonstrate serious prejudice87 by positive evidence
“in accordance with the provisions of paragraphs 3 through 8 of Article
6” rather than taking advantage of the rebuttable presumption of serious
prejudice that otherwise would have applied under art. 6.1(a) SCMA.88
VIII. Qualified Burden of Evidence (Art. 27.9 SCMA)

65 As far as actionable subsidies (other than those under art. 5(c) SCMA)
granted or maintained by a developing country are concerned, art. 27.9
SCMA provides that no action under art. 7 SCMA can be authorized
or taken unless nullification or impairment of tariff concessions or other
obligations under the GATT is found to exist as a result of such subsidy in
such a way as to displace or impede imports of a like product of another
Member into the market of the subsidizing developing country Member89
or injury to a domestic industry in the market of an importing Member
occurs.90
IX. Specific Framework for Unilateral Countermeasures

(Arts 27.10 and 27.15 SCMA)
66 Developing country Members benefit also from a differential and specific
treatment regarding unilateral countermeasures. Art. 27.10 SCMA imposes
the termination of the initiated investigation by the national authority when
it is established during the investigation that certain de minimis values are
not exceeded. In this respect, art. 27.10 SCMA distinguishes two different
de minimis values which are applied alternatively.
86
See G/SCM/W/471/Rev.1, para. 7(b).
87
See Durling, Article 5 SCMA, para. 8.
88
According to art. 31 SCMA, this provision ceased to apply on 31 December 1999.
Accordingly, art. 27.8 sentence 1 SCMA is likewise obsolete as of said date.
89
See Pitschas, para. 45, n. 121. Pitschas points out that this alternative combines the
elements provided in arts 6.3(a) and 5(b) SCMA.
90
See ibid., para. 45, n. 122. Pitschas points out that this alternative corresponds to art.
5(a) SCMA.

article 27 scma 723
1. Product-Related De Minimis Value (Arts 27.10(a) and 27.11

SCMA)
The first value refers to the overall level of subsidies granted upon the prod- 67
uct in question on a per unit basis. This level may not exceed two percent
under art. 27.10(a) SCMA and three percent under art. 27.11 SCMA.
According to art. 27.11 SCMA, the three percent threshold applies to the 68
least developed countries under annex VII(a) SCMA and the developing
country Members falling under art. 27.2(b) SCMA which have eliminated
export subsidies prior to the expiry of the period of eight years from the
date of entry into force of the WTO Agreement. However, this provision
expired on 31 December 2002. Accordingly, the two percent threshold
uniformly applies to all developing country Members from this date.
2. Import Volume-Related De Minimis Value (Art. 27.10(b)

SCMA)
The second value is related to the volume of the subsidized imports of the 69
like product. This value should be less than four percent. If the imports
from developing country Members the individual shares of which of total
imports represent less than four percent collectively account for more than
nine percent of the total imports of the like product in the importing
Member, the investigation may be continued by the national investigation
authorities.
3. Verification Procedure under Art. 27.15 SCMA

The observance of these two de minimis values during an investigation and 70
when applying a countervailing duty has to be verified by the SCM Commit-
tee following the request of the interested developing country Member.
X. Qualified Assessment under Art. 15.3 SCMA

(Art. 27.12 SCMA)
According to art. 27.12 SCMA, the abovementioned de minimis values 71
have to be applied in the context of art. 15.3 SCMA.91 Where imports of
a product from more than one country are simultaneously subject to coun-
tervailing duty investigations, the investigating authorities may cumulatively
assess the effects of such imports only if they determine that (1) the amount
of subsidization established in relation to the imports from each country
is more than the de minimis value of one percent and (2) the volume of
imports from each country is not negligible. According to art. 27.12 SCMA,
the value of one percent shall be replaced by the de minimis values stated
in arts 27.10(a) and 27.11 SCMA, i.e., two percent and three percent,
91
See Durling, Article 15 SCMA, paras 30–40.

724 article 27 scma
respectively. Furthermore, the volume of imports from each country can

be considered as not negligible if it exceeds four percent.
XI. Privatization Programmes (Art. 27.13 SCMA)

72 According to art. 27.13 SCMA, WTO Members are not allowed to initiate
an action under art. 7 SCMA against subsidies granted by a developing
country Member which are carried out within the scope of a concrete
privatization programme.92
73 This exemption applies to subsidies in the form of direct forgiveness of debts;
subsidies to cover social costs in whatever form, including the relinquish-
ing of government revenue; and other transfer of liabilities. The exclusion
of such subsidies from multilateral countervailing measures requires that
(1) both the relevant privatization programme and the linked subsidies
are granted for a limited period and notified to the SCM Committee
and (2) the programme results in eventual privatization of the enterprise
concerned.93
XII. SCM Committee Procedures (Arts 27.14 and 27.15

SCMA)
74 As discussed above94 in the context of art. 27.4 SCMA, a developing country
Member shall eliminate its export subsidies if their use is inconsistent with
its development needs.
75 In Brazil—Aircraft, the panel stated that a panel was not competent to
assess the economic and political considerations in this specific context as
its function was fundamentally legal.95 The panel preferred to refer to the
SCM Committee which, in its view, was far better equipped to perform this
examination than a panel.96 However, this consideration may not lead to
the conclusion that the procedure provided for in art. 27.14 SCMA has to
be integrated in a claim regarding art. 27.4 SCMA. Rather, this procedure
provides a specific assessment of a selective subsidy practice.
76 In this respect, art. 27.14 SCMA provides for the review by the SCM
Committee of whether a “specific export subsidy practice” by a develop-
ing country Member is in conformity with its development needs.97 This
language differs notably from that of art. 27.4 SCMA, which refers merely
92
See Benitah, 44, sec. 2.3; Pitschas, 448, sec. B.I.12, para. 46.
93
See Pitschas, 448, sec. B.I.12, para. 46.
94
95
96
See ibid., para. 7.89, n. 239.
97
See ibid., para. 7.92, n. 241.

article 27 scma 725
to “such export subsidies”, with “such” referring, presumably, back to the

export subsidies the level of which a Member is not to increase.98
C. Outlook
As already pointed out in the general introduction,99 the special and dif- 77
ferential treatment provisions are not intended to be in effect forever.
Especially regarding the non-least developed country Members, the entire
regime of the SCMA will become effective gradually. At present, it is dif-
ficult to anticipate the evolution of the special and differential treatment
within the SCMA.
Unlike the ADA, the SCMA does not contain any requirement that the 78
“special situation” of developing country Members should be taken into
account when adopting countervailing measures.100 The SCMA merely
recognizes that subsidies may play an important role in the economic
development programmes of developing country Members. In this respect,
the European Communities postulated that the Negotiation Group should
consider the incorporation of such provisions into art. 27 SCMA. This
would be in addition to the existing special and differential treatment already
provided for in art. 27 SCMA.101
The EC already proposed a new paragraph: 79
It is recognized that special regard must be given by developed country Mem-
bers to the special situation of developing country Members when considering
the application of countervailing measures under Part V of this Agreement.
Possibilities of constructive remedies shall be explored before applying coun-
tervailing duties where they would affect the essential interests of developing
country Members.102
However, it remains to be seen to what extent the developed country Mem- 80
bers will be willing to significantly improve the existing system of special and
differential treatment for developing country Members in the near future.
98
Ibid.
99
See supra para. 1.
100
See Avgoustidi & Ballschmiede, Article 15 ADA, para. 2.
101
See Negotiating Group on Rules, Countervailing Measures, Paper from the European
Communities, TN/RL/GEN/93, 18 November 2005.
102
Ibid., annex 5.

Article 28
Existing Programmes
28.1 Subsidy programmes which have been established within the territory of any Member
before the date on which such a Member signed the WTO Agreement and which
are inconsistent with the provisions of this Agreement shall be:
(a) notified to the Committee not later than 90 days after the date of entry into
force of the WTO Agreement for such Member; and
(b) brought into conformity with the provisions of this Agreement within three
years of the date of entry into force of the WTO Agreement for such Member
and until then shall not be subject to Part II.
28.2 No Member shall extend the scope of any such programme, nor shall such a pro-
gramme be renewed upon its expiry.
Bibliography
P. Didier, WTO Trade Instruments in EU Law (2002); C. Pitschas, Übereinkommen über Subven-
tionen und Ausgleichsmaßnahmen, in: H. J. Prieß & G. M. Berrisch (eds), WTO-Handbuch (2003),
429–478; T. P. Stewart (ed.), The GATT Uruguay Round. A Negotiating History (1999), vol. IV;
F. Wolfram, Staatliche Exportkredit-förderung—Ein deutsch-amerikanischer Vergleich im Lichte des WTO-
Subventionsübereinkommens (2004).
Case Law
Panel Report, Indonesia—Autos, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/
DS64/R.
Documents
Committee on Subsidies and Countervailing Measures, Notification pursuant to Article
28.1(a) of Subsidies Inconsistent with the Agreement, G/SCM/N/2, 30 January 1995;
Committee on Subsidies and Countervailing Measures, Notification pursuant to Article
28.1(a) of Subsidies Inconsistent with the Agreement, Corrigendum, G/SCM/N/2/Corr.1,
23 February 1995.
Table of Contents
A. General 1
B. Notification of and Transition Period for Existing Programmes
(Art. 28.1 SCMA) 2
C. Principle of Non-Extension and Non-Renewal (Art. 28.2 SCMA) 5
A. General
1 Art. 28 SCMA is a transitional provision for existing subsidy programmes

which are inconsistent with the provisions of the SCMA.1 It allows Mem-
bers to adapt their existing programmes to the new SCMA regime within
a reasonable period of time and during this transition period, protects the
interests of Members in supporting their respective domestic industries
through such programmes.
1
This article is derived from and basically identical to art. 28 Draft Final Act Embodying
the Results of the Uruguay Round of Multilateral Trade Negotiations, MTN.TNC/W/FA,
20 December 1991. For a synopsis, see Stewart, annex.
WOLFRAM
article 28 scma 727
B. Notification of and Transition Period for Existing

Programmes (Art. 28.1 SCMA)
The term “subsidy programme” in art. 28.1 SCMA means any legislation 2
or scheme pursuant to which subsidies as defined in art. 1.1 SCMA are
granted, as well as any export subsidy programme within the meaning of
annex I( j) SCMA which has to be considered as an export subsidy pursu-
ant to art. 3.1(a) SCMA.2 A subsidy programme is “inconsistent with the
provisions of this Agreement” if it does not conform to the provisions of
the SCMA applicable to that programme.3 To the extent that the provisions
of the SCMA are not applicable to that programme, the programme can-
not be inconsistent with such provisions.4 Art. 28.1 SCMA applies only to
those subsidy programmes that have been “established within the territory
of any Member before the date on which such a Member signed the WTO
Agreement”, i.e., the programmes had to be set up within the territory of
a Member before that Member signed the accession agreement pursuant
to art. XII:1 WTO Agreement or signed or otherwise accepted the WTO
Agreement pursuant to art. XIV:1 WTO Agreement. Subsidy programmes
fulfilling the aforementioned requirements of the chapeau of art. 28.1
SCMA shall hereafter be referred to as “existing subsidy programmes”.
All existing subsidy programmes must be notified pursuant to art. 28.1(a) 3
SCMA to “the Committee”, i.e., the SCM Committee provided in art. 24
SCMA.5 The notifications6 have to be submitted to the SCM Committee
not later than 90 days after the entry into force of the WTO Agreement for
such Member.7 Generally, a notification is deemed to have been submitted
2
For export subsidy programmes within the meaning of annex I(j) SCMA, see Wolfram,
310–330. Cf. Panel Report, EEC—Airbus, SCM/142, 2 March 1992, para. 5.2, unadopted
(referring to the term “exchange risk programme”).
3
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, para. 14.261. The term
“provisions of this Agreement” within the meaning of art. 28.1 SCMA also encompasses
the provisions of part II SCMA as can be inferred from art. 28.1(b) SCMA although exist-
ing subsidy programmes are not subject to part II SCMA during the three-year transition
period pursuant to art. 28.1(b) SCMA.
4
5
See the definition of the term “the Committee” in footnote 25 SCMA. For more details
on the SCM Committee, see Wolfram, Article 24 SCMA.
6
The recommended format for notifications pursuant to art. 28.1(a) SCMA is laid down
in Preparatory Committee for the WTO, Informal Contact Group on Anti-Dumping,
Subsidies, and Safeguards, PC/IPL/11, 2 December 1994, annex 4. This recommended
format is designed to facilitate the effective operation of the SCMA and does not constitute
authoritative interpretations of rights and obligations under art. 28.1(a) SCMA. See PC/
IPL/11, para. 3. See also G/SCM/N/2; G/SCM/N/2/Corr.1; WTO, Technical Coopera-
tion Handbook on Notification Requirements, WT/TC/NOTIF/SCM/1, 9 September
1996, part II, item 10.
7
For a Member acceding to the WTO Agreement, the date of entry into force is gov-
erned by the accession agreement pursuant to art. XII:1 WTO Agreement. For the date
of entry into force of the WTO Agreement for other Members, see Wolfram, Article 32
SCMA, para. 8.
WOLFRAM
728 article 28 scma
on the date it is transmitted to the SCM Committee, e.g., if by post, the

date indicated by the post office as the mailing date, regardless of when it
was received by the SCM Committee.
4 According to art. 28.1(b) SCMA, existing subsidy programmes “shall not be
subject to Part II” SCMA for a transition period of three years. Therefore,
during this transition period, existing subsidy programmes are not subject
to the prohibitions laid down in art. 3.1 SCMA and the remedies provided
for in art. 4 SCMA but subject to the provisions of part III SCMA on
actionable subsidies and part V SCMA on countervailing measures.8 How-
ever, subsidy programmes are subject to part II SCMA insofar as they are
extended or renewed in violation of art. 28.2 SCMA because they cannot
be considered as existing subsidy programmes to that extent.9 At the end
of the three-year transition period, existing subsidy programmes shall be
in conformity with all provisions of the SCMA to the extent that these
provisions apply to such programmes.
C. Principle of Non-Extension and Non-Renewal

(Art. 28.2 SCMA)
5 The term “any such programme” in art. 28.2 SCMA means any subsidy
programme fulfilling the requirements of the chapeau of art. 28.1 SCMA,10
i.e., any existing subsidy programme. Art. 28.2 SCMA prohibits the exten-
sion of the scope, personal or material, of any existing subsidy programme
as well as its renewal upon its expiry.11
8
Didier, 286 et seq.; Pitschas, sec. B.I.12, para. 31.
9
Pitschas, sec. B.I.12, para. 31.
10
11
Pitschas, sec. B.I.12, para. 31.
WOLFRAM
Article 29
Transformation into a Market Economy
29.1 Members in the process of transformation from a centrally-planned into a market,

free-enterprise economy may apply programmes and measures necessary for such
a transformation.
29.2 For such Members, subsidy programmes falling within the scope of Article 3, and
notified according to paragraph 3, shall be phased out or brought into conformity
with Article 3 within a period of seven years from the date of entry into force of
the WTO Agreement. In such a case, Article 4 shall not apply. In addition during
the same period:
(a) Subsidy programmes falling within the scope of paragraph 1(d) of Article 6 shall
not be actionable under Article 7;
(b) With respect to other actionable subsidies, the provisions of paragraph 9 of
Article 27 shall apply.
29.3 Subsidy programmes falling within the scope of Article 3 shall be notified to the
Committee by the earliest practicable date after the date of entry into force of the
WTO Agreement. Further notifications of such subsidies may be made up to two
years after the date of entry into force of the WTO Agreement.
29.4 In exceptional circumstances Members referred to in paragraph 1 may be given
departures from their notified programmes and measures and their time-frame
by the Committee if such departures are deemed necessary for the process of
transformation.
Bibliography
G. N. Horlick & K. H. Mowry, The Treatment of Activities of State Trading Enterprises under the
WTO Subsidies Rules, in: T. Cottier & P. Mavroidis (eds), State Trading in the Twenty-First Century
(1998), 97–113; J. H. Jackson, The Impact of China’s Accession on the WTO, in: D. Cass et al.
(eds), China and the World Trading System (2003), 19–30; R. H. Lantz, The Search for Consistency:
Treatment of Nonmarket Economies in Transition under the United States Antidumping and Countervailing
Duty Laws, 10 Am. U. J. Int’l L. & Pol’y 10 (1994–1995), 993–1073; A. Polouektov, Non-Market
Economy Issues in the WTO Antidumping Law and Accession Negotiation: Revival of a Two-Tier Member-
ship?, JWTL 36 (2002), 1–37; J. Y. Qin, WTO Regulation of Subsidies to State-Owned Enterprises
(SOEs)—A Critical Appraisal of the China Accession Protocol, JIEL 7 (2004), 863–919.
Documents
Committee on Subsidies and Countervailing Measures, Notifications under Article 29.3 of the
Agreement on Subsidies and Countervailing Measures, G/SCM/N/9/CZE, 24 July 1995;
Committee on Subsidies and Countervailing Measures, Notifications under Article 29.3 of the
Agreement on Subsidies and Countervailing Measures, G/SCM/N/9/HUN, 22 November
1995; Committee on Subsidies and Countervailing Measures, Notification under Article
29.3 of the Agreement on Subsidies and Countervailing Measures, G/SCM/N/9/POL,
23 February 1996; Committee on Subsidies and Countervailing Measures, Notifications under
Article 29.3 of the Agreement on Subsidies and Countervailing Measures—Corrigendum,
G/SCM/N/9/POL/Corr.1, 1 March 1996; Committee on Subsidies and Countervailing
Measures, Notifications under Article 29.3 of the Agreement on Subsidies and Countervail-
ing Measures—Hungary—Corrigendum, G/SCM/N/9/HUN/Corr.1, 11 March 1996;
Committee on Subsidies and Countervailing Measures, Notifications under Article 29.3
of the Agreement on Subsidies and Countervailing Measures—Hungary—Corrigendum,
G/SCM/N/9/HUN/Corr.2, 14 May 1996; Committee on Subsidies and Countervailing
Measures, Notification under Article 29.3 of the Agreement on Subsidies and Counter-
vailing Measures, G/SCM/N/9/ROM, 31 October 1996; Committee on Subsidies and
Countervailing Measures, Notification under Article 29.3 of the Agreement on Subsidies
and Countervailing Measures—Hungary—Supplement, G/SCM/N/9/HUN/Suppl.1,
8 January 1997; Committee on Subsidies and Countervailing Measures, Notifications under
Article 29.3 of the Agreement on Subsidies and Countervailing Measures—Romania—
Supplement, G/SCM/N/9/ROM/Suppl.1, 8 January 1997; Committee on Subsidies and
Countervailing Measures, Notifications under Article 29.3 of the Agreement on Subsidies
and Countervailing Measures—Jordan, G/SCM/N/9/JOR, 12 July 2000; Committee on

730 article 29 scma
Subsidies and Countervailing Measures, Notifications under Article 29.3 of the Agreement
on Subsidies and Countervailing Measures—Oman, G/SCM/N/9/OMN, 15 January
2001; WTO, Ministerial Conference—Fourth Session—Doha, 9–13 November 2001, Report
of the Working Party on the Accession of China, WT/MIN(01)/3, 10 November 2001;
Accession of the People’s Republic of China, Decision of 10 November 2001, WT/L/432,
23 November 2001; Committee on Subsidies and Countervailing Measures, Notifications
under Article 29.3 of the Agreement on Subsidies and Countervailing Measures—Saudi
Arabia, G/SCM/N/9/SAU, 12 October 2006.
Table of Contents
A. General 1
B. Specific Provisions of Art. 29 SCMA 8
I. Transformation Measures (Art. 29.1 SCMA) 8
II. Exemptions from the Ordinary SCMA Rules (Art. 29.2 SCMA) 10
III. Notification Requirement (Art. 29.3 SCMA) 16
IV. Departures in Exceptional Circumstances (Art. 29.4 SCMA) 18
C. Outlook 20
A. General
1 In a typical non-market economy (NME), the concept of government

subsidization will not apply despite the distortive effects that such subsi-
dization may have on external competition with other WTO Members’
non-subsidized exports. Thus, the identification and measurement of these
hidden subsidies become an important issue for a Member whose interests
are being affected by such schemes. In the absence of market benchmarks
and of any relevant indication in the SCMA, the identification and mea-
surement of subsidies are indeed complicated tasks to undertake. Individual
Members deal with these issues mainly by having recourse to their national
countervailing legislations.1
2 Art. 29 SCMA indicates the conditions under which subsidies granted by
transition economy Members which are “necessary” for the transforma-
tion of their economies could be exempted from WTO challenges for
a seven-year period. This transitional period ran from 1 January 1995 to
1
See Lantz. The Protocol on the Accession of the People’s Republic of China (hereafter,
China Accession Protocol) provides for country-specific NME methodologies for calculating
Chinese subsidies and authorizes a departure from the guidelines set forth in art. 14 SCMA
in the case of China. According to sec. 15(b) China Accession Protocol:
In proceedings under Parts II, III and V of the SCM Agreement, when addressing
subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the
SCM Agreement shall apply; however, if there are special difficulties in that application,
the importing WTO Member may then use methodologies for identifying and measur-
ing the subsidy benefit which take into account the possibility that prevailing terms
and conditions in China may not always be available as appropriate benchmarks. In
applying such methodologies, where practicable, the importing WTO Member should
adjust such prevailing terms and conditions before considering the use of terms and
conditions prevailing outside China.
WT/L/432.

article 29 scma 731
31 December 2001. Therefore, this exception benefited only those transi-

tion economies that were original Members2 of the WTO or that acceded
to the WTO before 31 December 2001.3
The seven-year exemption under art. 29 SCMA represented the partial 3
solution offered by the Uruguay Round negotiators to the emergence in
the early 1990s of a large number of transition economies with special
structural circumstances due to the large number of subsidies granted to
their state-owned enterprises (SOEs).4
The exemption contained in art. 29 SCMA is applicable to the use of 4
subsidies in favour of SOEs in transition economy and in NME Members.
The restructuring of the centrally-planned economies of such Members
is a major component of their economic reform and the extensive use of
subsidies is a widespread practice among them.5 Although state trading
(regulated by art. XVII GATT) and subsidization of SOEs are separate
issues, one can identify a connection between them.6
WTO subsidy disciplines are based on market economy norms and principles 5
under which substantially all decisions relating to the production, distribu-
tion, and sale of goods and services (including external trade) are influenced
by the interaction of the laws of supply and demand in the marketplace.
In an NME, the government takes such decisions alone since most of the
enterprises (if not all of them) are state-owned.
The WTO system is primarily concerned with the market structure in which 6
traders operate rather than the ownership of traders, and in this respect,
it follows an ownership-neutral philosophy without prescribing a particular
economic system for its Members. Unfortunately, thus far, the WTO system
has failed to address the issue of how to apply WTO subsidy disciplines
in trade with former NMEs and has opted instead to provide a limited
exemption (i.e., the seven-year transition period) for transition economy
Members under art. 29 SCMA.7
2
E.g., Cuba, Poland, Czechoslovakia, Romania, and Hungary.
3
E.g., Croatia, Mongolia, Bulgaria, Latvia, Estonia, the Kyrgyz Republic, Georgia,
Albania, Lithuania, Moldova, and China. More information on accessions are available at
http://www.wto.org/English/thewto_e/acc_e/acc_e.htm (accessed 23 March 2007).
4
In general, the WTO disciplines do not have separate rules on subsidization of SOEs
with the notable exception of the China Accession Protocol. See WT/L/432.
5
In order to prepare an SOE for privatization, the government may forgive government-
held debt or provide grants to cover such debt owed by the SOE. During the privatization
process, governments may transfer shares of an SOE to employees or outside buyers at a
discounted price, thus, making a financial contribution to the new owners of the privatized
entity.
6
See Horlick & Mowry.
7
See Polouektov.

732 article 29 scma
7 It bears recalling that the exemptions from the ordinary WTO subsidy
regime contained in art. 29 SCMA do not apply to countervailing measures
taken in accordance with part V SCMA.
B. Specific Provisions of Art. 29 SCMA
I. Transformation Measures (Art. 29.1 SCMA)

8 Art. 29.1 SCMA establishes the overall principle according to which Mem-
bers in the process of transformation from centrally-planned into market
economies are allowed to use subsidies necessary for such transformation.
9 The WTO adjudicatory bodies have never been asked to interpret the exact
meaning of art. 29.1 SCMA. Likewise, the notification procedure of art.
29.3 SCMA merely focuses on the description of the measures for which
Members requested the preferential legal treatment offered by art. 29 SCMA
and does not address the question whether or not they are necessary to the
transformation process or not.
II. Exemptions from the Ordinary SCMA Rules

(Art. 29.2 SCMA)
10 Art. 29.2 SCMA identifies the different types of subsidies benefiting from
the seven-year exemption from the ordinary SCMA rules. Three possibilities
were available to WTO Members engaged in the process of transforming
their economies to reflect market principles.
11 Pursuant to art. 29.2 SCMA, prohibited subsidies within the meaning of
art. 3 SCMA and notified according to the requirements set out in art. 29.3
SCMA were exempted from the scope of the remedies of art. 4 SCMA
for a period of seven years from the date of the entry into force of the
WTO Agreement.
12 Since the end of this transitional period, the ordinary rules of the SCMA
apply to prohibited subsidies which have not been brought into conformity
with art. 3 SCMA, i.e., where the contingency, “in law or in fact”, upon
export performance or upon the use of domestic over imported goods export
and import substitution conditions has not been removed.
13 Art. 29.2(a) SCMA provided that domestic subsidies which were presumed
to cause serious prejudice according to the situations illustrated in art. 6.1(d)
SCMA, i.e., direct forgiveness of government-held debt or grants to cover
debt repayment, were not actionable for a period of seven years. It bears
recalling that contrary to art. 29.2 SCMA, notification of such subsidies

article 29 scma 733
was not a requisite in order to benefit from the temporary exemption from
the ordinary regime set out in art. 7 SCMA.
According to art. 29.2(b) SCMA, all other forms of specific domestic sup- 14
port, i.e., neither prohibited subsidies within the meaning of art. 3 SCMA
nor subsidies causing serious prejudice according to the situations illustrated
in art. 6.1 SCMA, were only partially actionable during the same seven-
year period. Art. 29.2 SCMA explicitly refers to art. 27.9 SCMA. Under
art. 27.9 SCMA, subsidies granted by a developing country will not be
actionable when causing displacement of exports of another Member in a
third country or when causing displacement of imports in the subsidizing
developing country Member unless nullification or impairment of tariff
concessions or other obligations is caused by such subsidy.
Despite the lack of direct reference in art. 29 SCMA, the provision of art. 15
27.13 SCMA is also relevant to the question of SOEs and of the privatiza-
tion process ongoing in many former NMEs.8
III. Notification Requirement (Art. 29.3 SCMA)

To benefit from the seven-year exemption from the general ban on pro- 16
hibited subsidies provided for by art. 29.2 SCMA, notification is necessary
for subsidies within the meaning of art. 3 SCMA.
Pursuant to art. 29.3 SCMA, Members shall notify to the SCM Commit- 17
tee prohibited subsidies within the meaning of art. 3 SCMA at the earliest
practicable date after the date of entry into force of the WTO Agreement.
Art. 29.3 SCMA provided for an absolute deadline for notification fixed to
up to two years after the date of entry into force of the WTO Agreement.9
It bears recalling that notification was not required for actionable subsidies
which nevertheless benefited from the preferential legal treatment provided
for in arts 29.2(a) and (b) SCMA.
8
Pursuant to art. 27.13 SCMA, the SCMA rules on actionable subsidies contained in part
III of the agreement shall not apply to direct forgiveness of debts, subsidies to cover social
costs, in whatever form, including relinquishment of government revenue and other transfer
of liabilities when such subsidies are granted within and directly linked to a privatization
programme of a developing country Member, provided that both such programme and the
subsidies involved are granted for a limited period and notified to the Committee and that
the programme results in eventual privatization of the enterprise concerned.
9
See G/SCM/N/9/CZE, G/SCM/N/9/HUN, G/SCM/N/9/HUN/Corr.1, G/SCM/
N/9/HUN/Corr.2, G/SCM/N/9/HUN/Suppl.1, G/SCM/N/9/POL, G/SCM/N/9/
POL/Corr.1, G/SCM/N/9/ROM, G/SCM/N/9/ROM/Suppl.1, G/SCM/N/9/JOR,
G/SCM/N/9/OMN, G/SCM/N/9/SAU.

734 article 29 scma
IV. Departures in Exceptional Circumstances

(Art. 29.4 SCMA)
18 In special (“exceptional”) circumstances, Members engaged in the process
of transforming their economies may be authorized to deviate from their
notified subsidy programmes and applicable time frame when such deviation
is considered “necessary” for the process of transformation.
19 The WTO adjudicatory bodies have never been asked to define the practi-
cal meaning of “exceptional circumstances”.
C. Outlook
20 Existing WTO disciplines on subsidies do not make the distinction between

subsidization of SOEs and that of private enterprises with the notable excep-
tion of arts 27 (subsidies granted by developing countries under a privatiza-
tion programme) and 29 SCMA (which provides for a seven-year transition
period for the phasing out of subsidies in transition economies which are
considered necessary for the transformation of their economies).
21 Due to the structural characteristics of transition economies with a large
number of SOEs, art. 29 SCMA is particularly relevant to issues relating
to the granting of subsidies to them.
22 Since the seven-year transition period contemplated in art. 29 SCMA
ended on 31 December 2001, it is of great importance to the system to
devise alternatives to accommodate the existing needs and demands of cur-
rent Members engaged in the transformation of their economies (notably
China) and potential Members (mainly Russia, Kazakhstan, and Ukraine)
which may require some “re-thinking”10 of the subsidies disciplines of the
WTO.
23 Although China is the largest developing country as well as the largest
economy in transition, it received very little special and differential treatment
under the SCMA. Pursuant to sec. 10.3 China Accession Protocol, China
committed itself to eliminating all export subsidies upon accession, thus,
wiping out any of the transitional periods provided for developing countries
and economies in transition under arts 27 and 29 SCMA, respectively.
Further, with respect to domestic subsidies, China committed itself not to
invoke the special and differential treatment provisions of arts 27.8 and 27.9
SCMA and of the privatization exception of art. 27.13 SCMA.
10
Prof. Jackson has stated that “China’s government-owned, or state operated or owned,
enterprises are a big challenge to the system, and it is hard to believe that this will not shape
some of the thinking about subsidies.” See also Qin.

article 29 scma 735
The only measure of special and differential treatment that applies to 24

industrial subsidies maintained by China is the one contained in arts 27.10,
27.11, and 27.12 SCMA exempting de minimis subsidies from countervail-
ing duties action.11
11
See WT/MIN(01)/3, para. 171.

Article 30
The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by
the Dispute Settlement Understanding shall apply to consultations and the settlement of
disputes under this Agreement, except as otherwise specifically provided herein.
Bibliography
C. Ehlermann & N. Lockhart, Standard of Review in WTO Law: Part I—General Article, JIEL 7
(2004), 491, 501–503, 507–513; J. Kreier, Contingent Trade Remedies and WTO Dispute Settlement:
Some Particularities, in Key Issues, in: R. Yerxa & B. Wilson (eds), WTO Dispute Settlement: The
First Ten Years (2005), 46, 49–50; P. J. McDonough, Subsidies and Countervailing Measures, in:
T. P. Stewart (ed.), The GATT Uruguay Round: A Negotiating History (1986–1992) (1993), vol. I,
803, 836, 949, annex 2; P. J. McDonough, Subsidies and Countervailing Measures, in: T. P. Stewart
(ed.), The GATT Uruguay Round: A Negotiating History (1986–1994): The End Game (Part I) (1999),
vol. IV, 221, 228; D. Palmeter & P. C. Mavroidis, Dispute Settlement in the World Trade Organiza-
tion: Practice and Procedure (2nd ed. 2004), § 4.12; P. Pescatore et al., Handbook of WTO/GATT
Dispute Settlement (loose-leaf ); H. Spamann, Standard of Review for World Trade Organization Panels
in Trade Remedy Cases: A Critical Analysis, JWT 38 (2004), 509, 511, 517–518; T. P. Stewart &
A. S. Dwyer, Handbook on WTO Trade Remedy Disputes: The First Six Years (1995–2000) (2001);
E. Vermulst & F. Graafsma, WTO Disputes: Antidumping, Subsidies and Safeguards (2002); WTO,
WTO Analytical Index: Guide to WTO Law and Practice (2003), vol. I, 881; WTO Secretariat,
The WTO Dispute Settlement Procedures (2nd ed. 2001), 35–58.
Case Law1
Panel Report, Brazil—Aircraft, WT/DS46/R; Panel Report, Canada—Aircraft, WT/DS70/R;
Appellate Body Report, US—FSC, WT/DS108/AB/R; Panel Report, Australia—Automotive
Leather II, WT/DS126/R; Appellate Body Report, US—Lead and Bismuth II, WT/DS138/AB/
R; Appellate Body Report, Canada—Autos, WT/DS139/AB/R, WT/DS142/AB/R; Panel
Report, US—Export Restraints, WT/DS194/R; Appellate Body Report, US—Countervailing
Measures on Certain EC Products, WT/DS212/AB/R; Appellate Body Report, US—Carbon Steel,
WT/DS213/AB/R; Appellate Body Report, US—Softwood Lumber IV, WT/DS257/AB/R;
Panel Report, Korea—Commercial Vessels, WT/DS273/R; Panel Report, US—Softwood Lumber
VI, WT/DS277/R; Appellate Body Report, US—Countervailing Duty Investigation on DRAMs,
WT/DS296/AB/R.
Cross-References
Tokyo Round Subsidies Code; Ministerial Declaration on Dispute Settlement pursuant to the
Agreement on Implementation of Article VI of GATT 1994 or Part V of the Agreement on
Subsidies and Countervailing Measures, 15 April 1994, in: World Trade Organization, The
Results of the Uruguay Round of Multilateral Trade Negotiations (2001), 397; Arts 31–32 VCLT.
Table of Contents
A. General 1
I. Overview 1
II. Drafting History 3
III. Relationship with Dispute Settlement Provisions in Other Agreements 8
B. Requests for Consultations (Arts 4, 7, and 30 SCMA and
Art. 4 DSU) 12
C. Request for Panels (Arts 4, 7, and 30 SCMA and Art. 6 DSU) 18
D. Standard of Review for SCMA Disputes (Art. 30 SCMA and
Art. 11 DSU) 21
I. Factual Assessment (Art. 30 SCMA and Art. 11 DSU) 24
II. Legal Assessment (Art. 30 SCMA and Art. 11 DSU) 32
1
The cases used to formulate the following commentary on art. 30 SCMA primarily
consist of those WTO reports addressing SCMA disputes.
DWYER
article 30 scma 737
A. General
I. Overview
Art. 30 SCMA confirms the application of arts XXII and XXIII GATT 1
1994, as elaborated and applied by the DSU, to consultations and the settle-
ment of disputes under the SCMA. Pursuant to art. 3.1 DSU, “Members
affirm their adherence to the principles for the management of disputes
heretofore applied under Articles XXII and XXIII of GATT 1947, and the
rules and procedures as further elaborated and modified” in the DSU.
Art. 1.1 DSU establishes an integrated dispute settlement system for covered 2
agreements, including the SCMA. According to art. 1.2 DSU, the rules and
procedures of the DSU apply subject to the special or additional rules and
procedures in appendix 2 DSU, which prevail to the extent that there is a
difference between them.2 Appendix 2 DSU lists arts 4.2 to 4.12, 6.6, 7.2
to 7.10, 8.5, 24.4, 27.7, footnote 35, and annex V SCMA but not art. 30
SCMA as special or additional rules and procedures in the SCMA.
II. Drafting History

In 1979, certain GATT Contracting Parties entered into the Tokyo Subsidies 3
Code.3 Art. 18 Tokyo Subsidies Code included a dispute settlement provision
for GATT panel review of Tokyo Subsidies Code disputes. According to
art. 18.1 Tokyo Subsidies Code, the GATT Subsidies and Countervailing
Measures Committee was to decide whether to adopt and make recom-
mendations to the parties based on the panel’s findings.4
During the Uruguay Round, the GATT Secretariat observed that divisions 4
within the GATT Subsidies and Countervailing Measures Committee would
not permit the adoption of panel reports or the resolution of disputes
brought under the Tokyo Subsidies Code.5 Therefore, the United States
proposed to amend the Tokyo Subsidies Code provisions on dispute settle-
ment to address, inter alia, the scope and timing of review, the standard
of review, and the burden of proof, and other countries likewise supported
developing a more effective dispute settlement system.6 The 1991 Dunkel
2
See Appellate Body Report, Guatemala—Cement I, WT/DS60/AB/R, para. 65; Appellate
Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R, paras 51–52.
3
Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the
General Agreement on Tariffs and Trade, BISD 26S/56 (1980).
4
Ibid., art. 18.9. See McDonough, vol. I, 836–839.
5
McDonough, vol. I, 803, 836–39 citing Problems in the Area of Subsidies and Counter-
vailing Measures, Note by the Secretariat, MTN.GNG/NG10/W/3, 17 March 1987.
6
Ibid., 949, annex 2 citing Elements of the Framework for Negotiations, Submissions by
the United States, MTN.GNG/NG10/W/29, 22 November 1989, 9–10.
DWYER
738 article 30 scma
Draft’s art. 30 replaced the panel system established by the Tokyo Subsi-
dies Code with language that applied arts XXII and XXIII GATT and
the “understanding on Rules and Procedures governing the settlement of
Disputes under Articles XXII and XXIII of the General Agreement on
Tariffs and Trade” to consultations and the settlement of disputes under
the SCMA, except as otherwise provided.7
5 At the end of the Uruguay Round negotiations, Chairman Sutherland
explained that, as a result of the work done on the WTO and the DSU,
there was “a need to introduce consequential revisions” to several draft
texts. Moreover, the chairman observed that “[i]n the areas of subsidies,
countervailing measures and anti-dumping, it has long been the intention to
harmonise relevant language in the two agreements” and asked the Friends
of the Chair to produce revised texts to be tabled from 30 November 1993
onwards.8
6 In response to concerns that panels would misinterpret the lack of express
permission (or gaps) in the ADA as prohibitions, a standard of review provi-
sion (art. 17.6 ADA) was added to the ADA at the insistence of the United
States during the final days of the Uruguay Round negotiations.9 Without
time to make all corresponding changes in the SCMA, Members agreed
upon a declaration recognizing the “need for the consistent resolution of
disputes arising from anti-dumping and countervailing duty measures.”10
7 Thus, the final language of art. 30 SCMA largely mirrored the Dunkel
Draft language replacing the reference to the “understanding on Rules and
Procedures governing the settlement of Disputes under Articles XXII and
XXIII of the General Agreement on Tariffs and Trade” with a reference
to the DSU.
III. Relationship with Dispute Settlement Provisions in Other

Agreements
8 Identical or similar consultation and dispute settlement provisions are
included in the AG Agreement (art. 19), SPS Agreement (art. 11), TBT
Agreement (art. 14), TRIMS Agreement (art. 8), LIC Agreement (art. 6),
SA (art. 14), and the TRIPS Agreement (art. 64). Similar provisions on
7
Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade
Negotiations, 20 December 1991 (Dunkel Draft), reprinted in T. P. Stewart (ed.), The GATT
Uruguay Round: A Negotiating History (1986–1992) (1993), vol. III, 457, 562, 597.
8
McDonough, vol. IV, 227–228.
9
For a discussion of the negotiating history of art. 17.6 ADA, see paras 9–10.
10
Ministerial Declaration on Dispute Settlement pursuant to the Agreement on Imple-
mentation of Article VI of GATT 1994 or Part V of the Agreement on Subsidies and
Countervailing Measures, 15 April 1994, in: World Trade Organization, The Results of the
Uruguay Round of Multilateral Trade Negotiations (2001), 397.
DWYER
article 30 scma 739
consultations are included in the PSI Agreement (art. 7) and the ROA
(art. 7).11
There is no provision in the SCMA identical to art. 17 ADA (Consultation 9
and Dispute Settlement). Instead, the negotiators included a Ministerial
Declaration on Dispute Settlement pursuant to the Agreement on Imple-
mentation of Article VI of GATT 1994 or Part V of the Agreement on
Subsidies and Countervailing Measures recognizing “the need for the con-
sistent resolution of disputes arising from anti-dumping and countervailing
duty measures.”12
According to the Appellate Body, however, the “hortatory” language in the 10
declaration does not impose an obligation to apply the standard of review
in art. 17.6 ADA to disputes involving countervailing duty measures.13
Instead, the Appellate Body has chosen to apply the less deferential stan-
dard of review in art. 11 DSU to disputes involving countervailing duty
measures under the SCMA.14 In doing so, however, the Appellate Body did
not explain why the application of a different standard of review to resolve
countervailing duty disputes would not somehow frustrate the intentions of
the negotiators as expressed in the declaration. Nor did the Appellate Body
consider the context of the declaration which serves to bridge two similar
agreements with a number of nearly identical provisions.
With respect to claims involving factual questions, at least one panel has 11
recognized the similarity between art. 11 DSU and art. 17.6(i) ADA and
concluded that it was neither necessary nor appropriate to apply a dif-
ferent standard of review to a single injury determination involving both
subsidized and dumped imports.15 In contrast, the panel observed that art.
11 DSU and art. 17.6(ii) ADA require panels to follow the same rules of
treaty interpretation except that, if a panel finds more than one permissible
interpretation of an ADA provision, it may uphold a measure that rests on
one of those interpretations.16 Recognizing that application of the standards
in art. 11 DSU and art. 17.6(ii) ADA could lead to different results, the
panel did not find any instances where the question of violation turned on
whether there was more than one permissible interpretation of the text of
the relevant agreements.17
11
See generally WTO Secretariat, 35–58.
12
Ministerial Declaration on Dispute Settlement pursuant to the Agreement on Imple-
mentation of Article VI of GATT 1994 or Part V of the Agreement on Subsidies and
Countervailing Measures, in: World Trade Organization, The Results, 397.
13
14
Ibid., para. 51.
15
WT/DS277/R, paras 7.15–7.18.
16
Ibid., para. 7.22.
17
Ibid.
DWYER
740 article 30 scma
B. Requests for Consultations (Arts 4, 7, and 30 SCMA

and Art. 4 DSU)
12 Art. 30 SCMA states that arts XXII and XXIII GATT 1994, as elaborated
and applied by the DSU, shall apply to consultations and the settlement
of disputes arising under the SCMA. Just as arts XXII and XXIII GATT
1994 have been interpreted as permitting challenges to legislation, as such,
art. 30 SCMA permits challenges under the SCMA against legislation, as
such.18
13 Art. XXII GATT 1994 permits consultations with respect to “any matter
affecting the operation of this Agreement.” Art. 4 DSU provides additional
details concerning the requirement for requests for consultations. Art. 4.2
DSU provides for requests for consultations “regarding any representations
made by another Member concerning measures affecting the operation of
any covered agreement taken within the territory of the former.” Art. 4.3
DSU envisions requests for consultations “made pursuant to a covered agree-
ment.” According to art. 4.4 DSU, written requests for consultations must
give the reasons for the request, including identification of the measures at
issue and an indication of the legal basis for the complaint. Art. 30 SCMA
is further referred to in footnote 4 to art. 4.11 DSU as a “corresponding
consultation provision” like art. 17.2 ADA and art. 14 SA.
14 According to art. 1.2 DSU, the rules and procedures in the DSU apply
subject to the special or additional rules and procedures in arts 4.2 and 7.2
SCMA.19 Arts 4.2 and 7.2 SCMA establish special rules for consultations
concerning disputes alleging prohibited or actionable subsidies. Both require
requests for consultations to include a statement of available evidence of
the alleged subsidy. According to at least one panel, however, the scope of
evidence a panel may ultimately consider is not limited by the statement
of available evidence.20
15 Arts 4.2, 4.4, 7.2, and 7.4 SCMA complement and must be applied together
with arts 4.2 to 4.7 DSU, which prevent Members from requesting the
establishment of a panel with respect to a dispute on which consultations
were not requested.21 The Appellate Body has emphasized that the additional
requirement of “a statement of available evidence” under art. 4.2 SCMA
is distinct from and not satisfied by compliance with the requirements of
art. 4.4 DSU.22 Any objections to the adequacy of the “statement of avail-
18
See, e.g., Panel Report, Canada—Aircraft Credits and Guarantees, WT/DS222/R, paras 7.56,
7.62, 7.65; WT/DS194/R, paras 2.1, 8.4–8.5, 8.9, 8.11.
19
See WT/DS60/AB/R, para. 65; WT/DS184/AB/R, paras 51–52.
20
21
See WT/DS108/AB/R, para. 159; WT/DS273/R, para. 7.2.
22
DWYER
article 30 scma 741
able evidence” must be raised in a timely manner.23 Note that requests

for consultations concerning SCMA matters typically refer to both art. 30
SCMA and art. 4 DSU (Consultations).24
Footnote 44 to art. 13.2 SCMA further clarifies that consultations regard- 16
ing countervailing duty proceedings under art. 13 SCMA “may establish
the basis for proceeding under the provisions of Part II, III, or X.” Part X
SCMA is entitled “Dispute Settlement” and includes only art. 30 SCMA.
According to art. XXII GATT 1994, the purpose of consultations is to 17
“find a satisfactory solution” to the dispute. Art. XXIII:1 GATT 1994
further envisions that written representations or proposals regarding an
alleged nullification or impairment be made with “a view to the satisfactory
adjustment of the matter.” Art. 4.3 DSU likewise states that consultations
should be entered into in good faith “with a view to reaching a mutually
satisfactory solution.” According to art. 3.7 DSU:
The aim of the dispute settlement system is to secure a positive solution to a
dispute. A solution mutually acceptable to the parties to the dispute and con-
sistent with the covered agreements is clearly to be preferred. In the absence
of a mutually agreed solution, the first objective of the dispute settlement
mechanism is usually to secure the withdrawal of the measures concerned if
these are found to be inconsistent with the provisions of any of the covered
agreements.
Art. 3.6 DSU further requires that:
Mutually agreed solutions to matters formally raised under the consultation
and dispute settlement provisions of the covered agreements . . . be notified to
the DSB and the relevant Councils and Committees, where any Member may
raise any point relating thereto.
C. Request for Panels (Arts 4, 7, and 30 SCMA and

Art. 6 DSU)
Art. 30 SCMA states that arts XXII and XXIII GATT 1994, as elaborated 18
and applied by the DSU, shall apply to consultations and the settlement of
disputes arising under the SCMA, except as otherwise specifically provided
therein.
23
Ibid., paras 155, 165–166.
24
See, e.g., US—Countervailing Duty Investigation on DRAMs, WT/DS296/1, 8 July 2003;
US—Countervailing Duties on Steel Plate, WT/DS280/1, 27 January 2003. In Canada—Dairy,
the panel declined to consider the question whether it was sufficient to invoke art. 30 SCMA
in requests for consultations and the establishment of a panel instead of art. 4 SCMA to
obtain a recommendation with respect to a Member’s art. 3 SCMA claim. Panel Report,
Canada—Dairy, WT/DS103/R, WT/DS113/R, n. 515.
DWYER
742 article 30 scma
19 If consultations fail to settle the dispute, art. 6 DSU details panel request
requirements for disputes under the SCMA.25 According to art. 1.2 DSU,
the rules and procedures in the DSU apply subject to the special or addi-
tional rules and procedures in arts 4.4 and 7.4 SCMA.26 Arts 4.4 and 7.4
SCMA establish special rules concerning disputes alleging prohibited or
actionable subsidies. After the deadline for consultations expires, arts 4.4
and 7.4 SCMA specifically authorize requests for the establishment of
panels to review allegations of prohibited or actionable subsidies contrary
to arts 3 and 5 SCMA.
20 Note that there is no requirement in the SCMA comparable to art. 17.4
ADA. In disputes relating to the initiation and conduct of anti-dumping
investigations, art. 17.4 ADA, read together with art. 6.2 DSU, has been
interpreted as requiring panel requests to identify one of three types of anti-
dumping “measures”: (1) a definitive anti-dumping duty, (2) acceptance of a
price undertaking, or (3) a provisional measure.27 Once one of the three types
of measures listed in art. 17.4 ADA has been identified in the panel request,
“a Member may challenge the consistency of any preceding action by an
investigating authority in the course of the antidumping investigation.”28
Thus, the absence of a similar provision in the SCMA should mean that
requests for establishment of panels to review countervailing duty measures
are not required to identify similar types of final countervailing measures.
D. Standard of Review for SCMA Disputes

(Art. 30 SCMA and Art. 11 DSU)
21 The type of review conducted by panels under art. 30 SCMA will neces-
sarily depend on whether the panel is reviewing claims relating to subsidy
allegations under parts II (arts 3 and 4) and III (arts 5, 6, and 7) SCMA or
countervailing measures under part V SCMA. Because there is no specific
standard of review in the SCMA, art. 11 DSU has been identified as the
appropriate standard of review for disputes involving SCMA claims.29
22 Art. 11 DSU requires panels to make “an objective assessment of the
matter before it, including an objective assessment of the facts of the case
25
See, e.g., US—Countervailing Duty Investigation on DRAMs, WT/DS296/2, 21 November
2003.
26
See WT/DS60/AB/R, para. 65; WT/DS184/AB/R, paras 51–52.
27
WT/DS60/AB/R, paras 79–80. See Appellate Body Report, US—1916 Act, WT/
DS136/AB/R, WT/DS162/AB/R, paras 72–74; Appellate Body Report, US—Corrosion-
Resistant Steel Sunset Review, WT/DS244/AB/R, para. 83.
28
WT/DS136/AB/R, WT/DS162/AB/R, n. 39.
29
See WT/DS138/AB/R, paras 49–51; WT/DS296/AB/R, para. 184; Appellate Body
Report, EC—Hormones, WT/DS26/AB/R, WT/DS48/AB/R, paras 116–118. See generally
Palmeter & Mavroidis, § 4.12.
DWYER
article 30 scma 743
and the applicability of and conformity with the relevant covered agree-
ments”. An “objective assessment” under art. 11 DSU must be made in
light of the obligations of the particular agreement at issue “in order to
derive the more specific contours of the appropriate standard of review”.30
At least one panel has observed that application of the standard of review
for legal issues in art. 17.6(ii) ADA could result in a different conclusion
under the ADA than under the standard of review articulated in arts 3.2
and 11 DSU for the SCMA.31
Procedurally, any claim on appeal that a panel has failed to adhere to the 23
requirements of art. 11 DSU must be identified in the Notice of Appeal
in such a way “that will enable appellees to discern it and know the case
they have to meet.”32
I. Factual Assessment (Art. 30 SCMA and Art. 11 DSU)

Art. 11 DSU requires panels to make an “objective assessment of the mat- 24
ter before it, including an objective assessment of the facts of the case”.
In cases involving disputes concerning an alleged prohibited or actionable
subsidy allegation under parts II (arts 3 and 4) and III (arts 5, 6, and 7)
SCMA, a panel reviews the evidence de novo in making its objective assess-
ment of the facts.33
In contrast, when reviewing determinations made by investigating authori- 25
ties in countervailing duty proceedings pursuant to part V SCMA, a panel
is a reviewer of agency action, not the initial trier of fact.34 The panel’s
role is not to conduct a de novo review of the evidence or to substitute
its own conclusions for those of the investigating authorities. By the same
token, the panel is not required to accept simply the conclusions of the
competent authorities.35
A panel’s “objective assessment” of an investigating authority’s determina- 26
tion will depend on whether the agency provided a reasoned and adequate
explanation of (1) “how the evidence on the record supported its factual
findings” and (2) “how those factual findings supported the overall subsidy
determination.”36
30
31
WT/DS277/R, para. 7.22.
32
33
See Kreier, 49–50.
34
35
Ibid., para. 187; WT/DS277/R, para. 7.16 citing Appellate Body Report, US—Cotton
Yarn, WT/DS192/AB/R, para. 69, n. 42; Appellate Body Report, US—Lamb, WT/DS177/
AB/R, WT/DS178/AB/R, para. 106.
36
DWYER
744 article 30 scma
27 Art. 12.2 SCMA on evidence in countervailing duty proceedings requires

any decision of the investigating authorities to be based only on information
and arguments in the written record and available to interested Members
and parties, with due account being given to the need to protect confidential
information. According to the Appellate Body, “[t]here is no doubt that
a Member may not seek to defend its agency’s decision on the basis of
evidence not contained in the record of the investigation.”37
28 Art. 22.5 SCMA requires investigating authorities to prepare a public notice
regarding the imposition of a definitive duty or acceptance of an undertaking
which contains in the notice or a separate report all relevant information
on matters of fact and law and reasons for the decision. According to the
Appellate Body, however, art. 22.5 SCMA “does not require the agency to
cite or discuss every piece of supporting record evidence for each fact in
the final determination.”38 Thus, a panel must allow Members to rely on
evidence contained in the record even if not explicitly referred to in the
final determination as long as the evidence is not relied upon to support
new reasoning or rationale.39
29 Applying the standard of review expressed in art. 11 DSU, a panel review-
ing an investigating authority’s determination “may not fault the agency
for failing to take into account facts that it could not reasonably have
known.”40 Therefore, a panel’s objective assessment must be limited to “the
facts that the agency should have discerned from the evidence on record”
at the time of the investigation.41 In the absence of an allegation that the
investigating authority failed to investigate sufficiently or to collect certain
information, a panel must limit itself to the evidence before the agency
during the investigation, including all such evidence submitted by the par-
ties to the dispute.42
30 In reviewing a countervailing duty determination, a panel should normally
examine the probative value of a piece of evidence supporting that deter-
mination in a manner similar to that followed by the investigating authority
if the investigating authority’s approach is acceptable.43 For example, if an
investigating authority considers that the evidence in its totality, rather than
individually, supports a finding, the panel must consider the evidence in
its totality to assess its probative value with respect to the agency’s deter-
mination.44 A panel risks embarking on its own de novo evaluation of the
37
Ibid., para. 161.
38
Ibid., para. 164.
39
Ibid., paras 159, 164–165.
40
Ibid., para. 175.
41
Ibid.
42
Ibid., para. 187.
43
Ibid., para. 150.
44
Ibid., paras 150, 157.
DWYER
article 30 scma 745
investigating authority’s decision when it applies a different approach to

examining the evidence rather than reviewing the agency’s decision on its
own terms.45
With respect to claims involving factual questions, at least one panel has 31
recognized the similarity between art. 11 DSU and art. 17.6(i) ADA and
concluded that it was neither necessary nor appropriate to apply a different
standard of review to a single injury determination involving both subsidized
and dumped imports.46 In doing so, the panel relied on the guidance pro-
vided in the Declaration of Ministers calling for “the consistent resolution of
disputes arising from anti-dumping and countervailing duty measures.”47
II. Legal Assessment (Art. 30 SCMA and Art. 11 DSU)

Art. 11 DSU requires panels to make “an objective assessment of the 32
matter before it, including . . . an objective assessment of . . . the applicability
of and conformity with the relevant covered agreements”. Art. 3.2 DSU
explains that the dispute settlement system serves to “preserve the rights
and obligations of Members under the covered agreements, and to clarify
the existing provisions of those agreements in accordance with customary
rules of interpretation of public international law.”
Art. 3.2 DSU’s reference to “customary rules of interpretation of public 33
international law” has been interpreted to mean arts 31 and 32 VCLT.48
Art. 31.1 VCLT states that a treaty must be interpreted “in accordance
with the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose”. According to panel and
Appellate Body decisions, the purpose of the SCMA is to strengthen and
improve GATT disciplines relating to the use of both trade-distorting sub-
sidies and countervailing measures, while at the same time enabling WTO
Members whose domestic industries are harmed by subsidized imports to
use such remedies.49
In the context of construing the SCMA, however, the Appellate Body 34
in Canada—Autos has observed that “omissions in different contexts may
have different meanings, and omission, in and of itself, is not necessar-
ily dispositive” as to the meaning of the text.50 Acknowledging that the
silence of the SCMA text on a specific issue “must have some meaning,”
45
Ibid., paras 151, 188.
46
WT/DS277/R, paras 7.15–7.18.
47
Ibid.
48
49
WT/DS257/AB/R, paras 64, 95; WT/DS213/AB/R, para. 73. See WT/DS194/R,
paras 8.62–8.63; WT/DS46/R, para. 7.26; WT/DS70/R, para. 9.119.
50
WT/139/AB/R, WT/DS142/AB/R, para. 138.
DWYER
746 article 30 scma
the Appellate Body has explained that the task of interpreters is to look
beyond the silence:
[ T ]he task of ascertaining the meaning of a treaty provision with respect
to a specific requirement does not end once it has been determined that the
text is silent on that requirement. Such silence does not exclude the possibility
that the requirement was intended to be included by implication. (Citation
omitted.)51
Although the Appellate Body ultimately decided against implying a require-
ment into the SCMA with respect to one issue, no explanation was given as
to how obligations could ever be implied in covered agreements consistently
with arts 3.2 and 19.2 DSU, which prohibit panels from creating new rights
and obligations in covered agreements.52
35 In interpreting the SCMA, panels must also consider the extent to which
arts VI (Anti-dumping and Countervailing Duties) and XVI (Subsidies)
GATT 1994 impose obligations on Members with respect to the legal ques-
tion raised. If the SCMA provision and a GATT provision have identical
coverage, “the provision of the agreement ‘that deals specifically, and in
detail’ with a question should be examined first.”53
36 For example, a panel must consider whether countervailing duties are con-
sistent with the SCMA and art. VI GATT 1994.54 The SCMA has specific
provisions, such as arts 10 (Application of Article VI of GATT 1994) and
32.1, which address the relationship between GATT 1994 and the SCMA
concerning countervailing measures.55 In contrast, the Appellate Body has
found that the provisions of the SCMA do not provide explicit assistance
on the relationship between the SCMA’s export subsidy provisions and art.
XVI:4 GATT 1994.56 Given the significant differences between the obliga-
tions in art. XVI:4 GATT 1994 and art. 3.1(a) SCMA on export subsidies,
the Appellate Body has concluded that “whether or not a measure is an
export subsidy under Article XVI:4 of the GATT 1947 provides no guid-
ance in determining whether that measure is a prohibited export subsidy
under Article 3.1(a) of the SCM Agreement.”57
51
WT/DS213/AB/R, paras 65, 104.
52
Ibid., para. 91.
53
WT/DS257/AB/R, para. 134 citing Appellate Body Report, EC—Bananas III, WT/
DS27/AB/R, para. 204.
54
Ibid. citing Appellate Body Report, Brazil—Dessicated Coconut, WT/DS22/AB/R, 181.
55
56
Ibid., para. 117.
57
Ibid.
DWYER
Article 31
Provisional Application
The 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.
Documents
Held on 1–2 November 1999, G/SCM/M/24, 26 April 2000; Negotiating Group on Rules,
Improved Rules under the Agreement on Subsidies and Countervailing Measures—Non-
Actionable Subsidies, TN/RL/W/41, 17 December 2002; Negotiating Group on Rules,
Improved Rules under the Agreement on Subsidies and Countervailing Measures—Non-
Actionable Subsidies, TN/RL/W/41/Rev.1, 10 March 2003; Negotiating Group on
Rules, Second Contribution by Cuba and Venezuela to the Negotiating Group on Rules
Expanding on the Proposal concerning Non-Actionable Subsidies, TN/RL/W/131,
11 July 2003; Negotiating Group on Rules, Serious Prejudice, Communication from Canada,
TN/RL/GEN/14, 15 September 2004; Negotiating Group on Rules, Serious Prejudice,
Communication from Brazil, TN/RL/GEN/81, 16 November 2005.
Table of Contents
A. General 1
B. The Review of the Operation of Arts 6.1, 8, and 9 SCMA 2
C. Outlook 6
A. General
Art. 31 SCMA belongs to part IX SCMA containing the agreement’s final 1

provisions. It establishes the timeframe for the provisional application of arts
6.1, 8, and 9 SCMA. According to art. 31 SCMA, these three provisions
were to be temporarily applied for a period of five years starting from the
entry into force of the WTO Agreement on 1 January 1995 and ending
on 31 December 1999.1
1
See art. XIV:1 sentence 3 WTO Agreement; Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade Negotiations, LT/UR/A/1, 15 April 1994, para.
3. On 8 December 1994, the Preparatory Committee for the World Trade Organization
“confirmed 1 January 1995 as the date of entry into force of the WTO Agreement”. See Pre-
paratory Committee for the World Trade Organization, Minutes of Meeting on 8 December
1994 on the Occasion of the Implementation Conference, PC/M/10, 19 December 1994,
para. 4. During the meeting of the Committee on Subsidies and Countervailing Measures
on 1–2 November 1999, the chairman of the committee stated that if these provisions
were not extended by consensus of the Members, they would lapse by 31 December 1999.
G/SCM/M/24, para. 20.

748 article 31 scma
B. The Review of the Operation of Arts 6.1, 8, and 9 SCMA
2 Art. 31 SCMA requests the Committee on Subsidies and Countervailing

Measures to review not later than 180 days before the expiry of the provi-
sional application period the operation of arts 6.1, 8, and 9 SCMA “with a
view to determining whether to extend their application, either as presently
drafted or in a modified form, for a further period.”
3 During the review that took place in 1999, Members showed considerably
divergent views about whether the provisions should be extended either in
their current form or with some modification or not.2 Since no agreement
was reached, arts 6.1, 8, and 9 SCMA expired on 31 December 1999. A
detailed description of the content and outcome of such reviews can be
found in the sections dealing with the single provisions.3 Therefore, the
following paragraphs provide only a concise survey of the major stum-
bling blocks that prevented an extended application of arts 6.1, 8, and 9
SCMA.
4 A limited number of Members expressed concerns about the expiry of
art. 6.1 SCMA which established a series of criteria under which serious
prejudice caused by an actionable subsidy would be presumed. Among
the issues raised were the relevance, in particular for largely export-driven
economies with small domestic markets, of the legal presumption of seri-
ous prejudice as an important remedy and discipline against the negative
effects of subsidy practices resulting from a displacement of exports4 and
the risk of an increased race for subsidies among countries.5
5 Debates on the necessity of maintaining a category of non-actionable
subsidies proved to be more heated. The arguments put forward by most
developed countries and some developing countries in support of the exten-
sion of art. 8 SCMA mainly relied on the need to safeguard the balanced
structure created in the SCMA by the three categories of subsidies. Also,
in the view of the supporters of an extension of art. 8 SCMA beyond
31 December 1999, the expiry of the green light category of subsidies
seemed premature in the light of the absence of practical application.6 On
the contrary, most developing and a limited number of developed countries
opposed the possibility of having art. 8 SCMA extended, emphasizing the
fact that green light subsidies specifically catered to developed countries and
2
G/SCM/M/24, 5–9.
3
On art. 6.1 SCMA, see Piérola, Article 6 SCMA, paras 12–19. On art. 8 SCMA, see
Rios Herran & Poretti, Article 8 SCMA. On art. 9 SCMA, see Rios Herran & Poretti, Article
9 SCMA.
4
G/SCM/M/24, 6.
5
Ibid., 5.
6
See the views expressed by the representatives of Switzerland in ibid., para. 24; EC, ibid.,
para. 39; Canada, ibid., para. 25; Chile, ibid., para. 27; and Korea, ibid., para. 34.

article 31 scma 749
therefore, represented one of the most flagrant examples of imbalance in

the WTO agreements.7
C. Outlook
The current rules negotiations have so far seen limited discussion on the 6
possible reintroduction of a category of non-actionable subsidies8 and of
the presumption of serious prejudice in art. 6.1 SCMA.9
7
See the views expressed by the representatives of the Dominican Republic in ibid., para.
22, and the Philippines, ibid., para. 30.
8
TN/RL/W/41; TN/RL/W/41/Rev.1; TN/RL/W/131.
9
TN/RL/GEN/14; TN/RL/GEN/81.

Article 32
Other Final Provisions
32.1 No specific action against a subsidy of another Member can be taken except in accor-
dance with the provisions of GATT 1994, as interpreted by this Agreement.56
32.2 Reservations may not be entered in respect of any of the provisions of this Agree-
ment without the consent of the other Members.
32.3 Subject to paragraph 4, the provisions of this Agreement shall apply to investiga-
tions, and reviews of existing measures, initiated pursuant to applications which have
been made on or after the date of entry into force for a Member of the WTO
Agreement.
32.4 For the purposes of paragraph 3 of Article 21, existing countervailing measures shall
be deemed to be imposed on a date not later than the date of entry into force for a
Member of the WTO Agreement, except in cases in which the domestic legislation
of a Member in force at that date already included a clause of the type provided
for in that paragraph.
32.5 Each Member shall take all necessary steps, of a general or particular character,
to ensure, not later than the date of entry into force of the WTO Agreement for
it, the conformity of its laws, regulations and administrative procedures with the
provisions of this Agreement as they may apply to the Member in question.
32.6 Each Member shall inform the Committee of any changes in its laws and regu-
lations relevant to this Agreement and in the administration of such laws and
regulations.
32.7 The Committee shall review annually the implementation and operation of this
Agreement, taking into account the objectives thereof. The Committee shall inform
annually the Council for Trade in Goods of developments during the period covered
by such reviews.
32.8 The Annexes to this Agreement constitute an integral part thereof.
Footnote 56: This paragraph is not intended to preclude action under other relevant provi-
sions of GATT 1994, where appropriate.
Bibliography
M. Benitah, The Law of Subsidies under the GATT/WTO System (2001); P. Didier, WTO Trade
Instruments in EU Law (2002); J. H. Jackson, The World Trading System. Law and Policy of Interna-
tional Economic Relations (2000); C. Pitschas, Übereinkommen über Subventionen und Ausgleichsmaßnah-
men, in: H. J. Prieß & G. M. Berrisch (eds), WTO-Handbuch (2003), 429–478; T. P. Stewart
(ed.), The GATT Uruguay Round. A Negotiating History (1993), vol. I; T. P. Stewart (ed.), The
GATT Uruguay Round. A Negotiating History (1999), vol. IV; T. P. Stewart & M. M. Burr, The
WTO’s First Two and a Half Years of Dispute Resolution, N.C. J. Int’l L. & Com. Reg. 23 (1998),
481–571; W. K. Wilcox, GATT-Based Protectionism and the Definition of a Subsidy, B. U. Int’l
L.J. 16 (1998), 129–163; F. Wolfram, Staatliche Exportkreditförderung—Ein deutsch-amerikanischer
Vergleich im Lichte des WTO-Subventionsübereinkommens (2004).
Case Law
Desiccated Coconut, WT/DS22/R.
Documents
Committee on Subsidies and Countervailing Measures, Notification of Laws and Regula-
tions under Article 32.6 of the Agreement, G/SCM/N/1, 30 January 1995; Committee on
Subsidies and Countervailing Measures, Notification of Laws and Regulations under Article
32.6 of the Agreement, Supplement, G/SCM/N/1/Suppl.1, 2 March 1995; Committee
on Anti-Dumping Practices & Committee on Subsidies and Countervailing Measures, Note
from the Chairmen, G/ADP/W/284, G/SCM/W/293, 12 February 1996.
WOLFRAM
article 32 scma 751
Cross-References
Art. XVI WTO Agreement; Art. 21 AG Agreement; Art. 15 TBT Agreement; Art. 18
ADA; Arts 21–23 VALA.
Table of Contents
A. General 1
B. The Final Provisions of Art. 32 SCMA 2
I. Relationship between GATT 1994 and the SCMA (Art. 32.1 SCMA) 2
II. Reservations (Art. 32.2 SCMA) 3
III. Investigations and Reviews of Existing Measures (Art. 32.3 SCMA) 4
IV. Sunset Review of Existing Countervailing Measures (Art. 32.4 SCMA) 6
V. Implementation of the SCMA (Art. 32.5 SCMA) 7
VI. Notification of Laws and Regulations (Art. 32.6 SCMA) 9
VII. Annual Review and Report to the Council for Trade in Goods
(Art. 32.7 SCMA) 10
VIII. Annexes (Art. 32.8 SCMA) 11
C. Outlook 12
A. General
Art. 32 SCMA contains transitional and other final provisions. It is derived 1

from art. 19 Tokyo Round Subsidies Code1 and was added during the
Uruguay Round negotiations on the Dunkel Draft of the SCMA by the
secretariat’s April 1992 technical revision of the Dunkel Draft.2
B. The Final Provisions of Art. 32 SCMA
I. Relationship between GATT 1994 and the SCMA

(Art. 32.1 SCMA)3
Art. 32.1 SCMA makes it clear that where the SCMA applies to a specific 2
action against a subsidy of another Member, the meaning of the provisions
of GATT 1994 cannot be established without reference to the SCMA.4
Art. 32.1 SCMA refers to any “specific action against a subsidy of another
Member”. Hence, the action has to be directed against a specific practice
of subsidization by another Member. The text of art. 32.1 SCMA does not
require the action to be directed specifically against a subsidized product or
against entities connected to or responsible for the subsidized product such as
1
For a synopsis of art. 32 SCMA and art. 19 Tokyo Round Subsidies Code, see Stewart,
vol. IV, annex.
2
Stewart, vol. I, 951; Stewart, vol. IV, 259–260.
3
For the relationship between GATT 1994 and the SCMA, see Wolfram, Article 10 SCMA,
paras 7 et seq.
4
WT/DS22/R, para. 238; Stewart & Burr, 551. If there is a conflict between the pro-
visions of the SCMA and GATT 1994, the former shall prevail pursuant to the General
Interpretative Note to Annex 1A.
WOLFRAM
752 article 32 scma
exporters or foreign producers. Art. 32.1 SCMA also does not indicate that
it is limited to measures that act directly against subsidies. In conclusion, art.
32.1 SCMA applies to any definite measure that either directly or indirectly
has an adverse bearing on a specific practice of subsidization by another
Member.5 A primary test of whether a measure has an adverse bearing on
a specific practice of subsidization is to determine whether the measure has
an adverse impact on the conditions under which the subsidized product
competes with like domestic goods.6 To the extent that the SCMA applies
to such a measure, the measure may only be taken in accordance with the
provisions of GATT 1994 as interpreted by the SCMA. The relationship
between art. VI GATT 1994 and the SCMA is specifically governed by
art. 10 SCMA, pursuant to which the imposition of a CVD has to comply
with both art. VI GATT 1994 and the SCMA.7
II. Reservations (Art. 32.2 SCMA)

3 Art. 32.2 SCMA is an exception to the principle of non-reservation laid
down in art. II:2 WTO Agreement and as such, has to be interpreted nar-
rowly.8 To date, no reservation has been made pursuant to art. 32.2 SCMA.
The term “reservation” in art. 32.2 SCMA refers to a unilateral statement,
however phrased or named, made by a State or separate customs territory
when signing, ratifying, accepting, approving, or acceding to the WTO
Agreement whereby it purports to exclude or modify the legal effects of a
certain provision of the SCMA in its application to that State or separate
customs territory.9 If a Member has formulated a reservation in respect
of any provision of the SCMA with the consent of all other Members,
this provision is modified to the extent of the reservation for the reserving
Member in its relationship to all other Members and vice versa but not
for the other Members inter se.10 Without the consent of all Members, a
reservation precludes the entry into force of the SCMA for the reserving
State or customs territory. Because art. 32.2 SCMA has to be interpreted
narrowly, it seems reasonable to interpret the word “consent” restrictively
and in accordance with its ordinary meaning as “expressed agreement”.11
5
Cf. Panel Report, US—Offset Act (Byrd Amendment), WT/DS217/R, WT/DS234/R,
para. 7.33.
6
Cf. ibid., paras 7.35, 7.46.
7
For more details on the relationship between art. VI GATT 1994 and the SCMA, see
Wolfram, Article 10 SCMA, paras 7–8; Stewart & Burr, 549–563; Pitschas, paras 19–21.
8
Other exceptions from the principle of non-reservation are art. 72 TRIPS Agreement,
art. 18.2 ADA, art. 15.1 TBT Agreement, and art. 21 VALA.
9
Compare the definition of “reservation” in art. 2(1)(d) VCLT.
10
Cf. arts 21(1)–(2) VCLT.
11
Cf. Didier, 287 (who also interprets the term “consent” within the meaning of art. 32.2
SCMA restrictively as “unanimous consent”); art. 20(5) VCLT.
WOLFRAM
article 32 scma 753
III. Investigations and Reviews of Existing Measures

(Art. 32.3 SCMA)
The purpose of art. 32.3 SCMA is to prevent Members from having to redo 4
investigations and reviews begun before the entry into force of the WTO
Agreement in accordance with the new procedural requirements of “this
Agreement”.12 Therefore, art. 32.3 SCMA provides the general rule that
“this Agreement” applies to investigations and reviews only to the extent
that they have been initiated13 pursuant to applications made on or after
the date of entry force of the WTO Agreement for the investigating or
reviewing Member. Art. 32.3 SCMA also precludes in general the application
of “this Agreement” to the continued collection of CVDs resulting from
investigations initiated by applications made before the entry into force of
the WTO Agreement.14
Art. 32.3 SCMA is “subject to paragraph 4”, i.e., art. 32.4 SCMA, which 5
provides an exception to the general rule laid down in art. 32.3 SCMA. As
can be inferred from the context of art. 32.3 SCMA together with arts 10
and 32.1 SCMA, the phrase “this Agreement” in art. 32.3 SCMA means
the SCMA and art. VI GATT 1994 taken together.15 Because art. 32.3
SCMA does not differentiate between procedural and substantive aspects of
investigations and reviews, the terms “investigations, and reviews of existing
measures” include both aspects, and art. 32.3 SCMA requires that investi-
gations and reviews comply with the procedural and substantive provisions
of the SCMA and art. VI GATT 1994 if these investigations and reviews
have been initiated pursuant to applications made on or after the date of
entry into force of the WTO Agreement for the Member in question.16
IV. Sunset Review of Existing Countervailing Measures

(Art. 32.4 SCMA)
Art. 32.4 SCMA specifies the manner in which art. 21.3 SCMA enters 6
into force under the SCMA’s transitional regime17 and thereby provides an
12
WT/DS22/AB/R, sec. IV.E.3; WT/DS22/R, para. 229. The transition decisions
of the Tokyo Round SCM Committee did not modify the scope of rights and obligations
under the SCMA and GATT 1994 but provided for the termination of GATT 1947 and
the Tokyo Round Subsidies Code by 31 December 1995 and a continued operation of the
Tokyo Round SCM Committee until 31 December 1996 to deal with disputes arising out of
CVD investigations and reviews initiated pursuant to applications made prior to 1 January
1995. See WT/DS22/AB/R, sec. IV.E.3.
13
For a definition of the term “initiated”, see footnote 37 SCMA.
14
See WT/DS22/R, para. 230 (this finding was subsequently not addressed by the Appel-
late Body in WT/DS22/AB/R).
15
WT/DS22/AB/R, sec. IV.E.2; WT/DS22/R, para. 234.
16
WT/DS22/R, para. 229.
17
Ibid., para. 276.
WOLFRAM
754 article 32 scma
exception to art. 32.3 SCMA.18 Pursuant to art. 32.4 SCMA, any coun-
tervailing measure existing at the date of entry into force of the WTO
Agreement for the Member imposing the countervailing measure shall be
terminated or reviewed pursuant to art. 21.3 SCMA not later than five years
after the date of entry into force of the WTO Agreement for that Member.19
If the countervailing measure in question is not terminated but reviewed
pursuant to art. 21.3 SCMA, this review must comply with the procedural
and substantial provisions of the SCMA and art. VI GATT 1994.20 How-
ever, if the domestic legislation of a Member imposing a countervailing
measure in force on the date of entry into force of the WTO Agreement
for that Member already includes a clause of the type provided for in art.
21.3 SCMA, the termination or review of this countervailing measure is
not required pursuant to arts 32.4 and 21.3 SCMA.21
V. Implementation of the SCMA (Art. 32.5 SCMA)

7 It is self-evident that all measures applied by a Member in a specific case
or dispute have to comply with the provisions of the SCMA to the extent
that these provisions of the SCMA apply to the Member in question. How-
ever, the three measures “laws, regulations and administrative procedures”
referred to in art. 32.5 SCMA are not measures applied necessarily in a
specific case or dispute but measures that are applicable generally. Therefore,
art. 32.5 SCMA expands the types of measures subject to the obligations
under the SCMA and provides that legislation as such, independently of
its application in a specific case or dispute, can be inconsistent with the
SCMA.22
8 Pursuant to art. 32.5 SCMA, each Member has to ensure, “not later than
the date of entry into force of the WTO Agreement for it”, that its laws,
18
See the phrase “subject to paragraph 4” in art. 32.3 SCMA and para. 5 supra.
19
WT/DS22/R, para. 268, n. 68. If only the general rule laid down in art. 32.3 SCMA
were applicable for such a countervailing measure, the countervailing measure would not be
subject to the SCMA and art. VI GATT 1994 because it could not result from investiga-
tions initiated pursuant to applications made on or after the date of entry into force of the
WTO Agreement for the Member imposing the CVD.
20
Ibid.
21
See the exception clause at the end of art. 32.4 SCMA.
22
Cf. Panel Report, US—Section 301 Trade Act, WT/DS152/R, paras 7.41–7.42, refer-
ring to the term “laws, regulations and administrative procedures” in art. XVI:4 WTO
Agreement:
The three types of measures explicitly made subject to the obligations imposed in the
WTO Agreements—“laws, regulations and administrative procedures”—are measures
that are applicable generally; not measures taken necessarily in a specific case or dispute.
Article XVI:4 [WTO Agreement] . . . expands the type of measures made subject to
these obligations [under the WTO Agreements]. . . . Recent WTO panel reports confirm,
too, that legislation as such, independently from its application in a specific case, can
be inconsistent with WTO rules.
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article 32 scma 755
regulations, and administrative procedures comply with the provisions of

the SCMA as applicable to the Member in question. For original Members
which accepted the WTO Agreement before 1 January 1995, the WTO
Agreement entered into force on 1 January 1995.23 For original Members
which accepted the WTO Agreement after 1 January 1995, it came into force
30 days after the date of acceptance.24 For other Members which acceded
to the WTO Agreement, the date of entry into force and the applicability
of the WTO Agreement and the SCMA are governed by the accession
agreement between the WTO and the acceding Member.25
VI. Notification of Laws and Regulations (Art. 32.6 SCMA)

Art. 32.6 SCMA requires a Member to notify its laws and regulations 9
relevant to “this Agreement” ad hoc and promptly when such Member
establishes such laws and regulations or makes changes in such laws or
regulations or in the administration thereof.26 The “laws and regulations
relevant to this Agreement” within the meaning of art. 32.6 SCMA are
the domestic laws and regulations of the notifying Member referring to
countervailing measures and subsidies subject to “this Agreement”. As can
be inferred from the context of art. 32.6 SCMA together with arts 10,
32.1, and 32.3 SCMA, the phrase “this Agreement” in art. 32.6 SCMA
means both the SCMA and art. VI GATT 1994.27 The addressee of the
notifications is “the Committee”, i.e., the SCM Committee provided in
art. 24 SCMA.28 The SCM Committee reviews the notifications during its
23
See art. XIV:1 sentence 3 WTO Agreement; para. 3 Final Act Embodying the Results
of the Uruguay Round of Multilateral Trade Negotiations. On 8 December 1994, the
Preparatory Committee for the World Trade Organization “confirmed 1 January 1995 as
the date of entry into force of the WTO Agreement”. See Preparatory Committee for the
World Trade Organization, Minutes of Meeting on 8 December 1994 on the Occasion of
the Implementation Conference, PC/M/10, 19 December 1994, para. 4.
24
See art. XIV:1 sentence 4 WTO Agreement. The applicability of the SCMA to those
Members is governed by art. XIV:2 WTO Agreement.
25
See art. XII:1 sentence 1 WTO Agreement.
26
WTO, Technical Cooperation Handbook on Notification Requirements, WT/TC/
NOTIF/SCM/1, 9 September 1996, part I, sec. II.2(b)(ii).
27
Cf. WT/DS22/AB/R, sec. IV.E.2; WT/DS22/R, para. 234. Both decisions refer to
the term “this Agreement” in art. 32.3 SCMA.
28
See the definition of the term “the Committee” in footnote 25 SCMA. For more
details on the SCM Committee, see Wolfram, Article 24 SCMA. The recommended format
for notifications pursuant to art. 32.6 SCMA is laid down in Preparatory Committee for the
WTO, Informal Contact Group on Anti-Dumping, Subsidies, and Safeguards, PC/IPL/11,
2 December 1994, annex 6. This recommended format is designed to facilitate the effective
operation of the SCMA and does not constitute authoritative interpretations of rights and
obligations under art. 32.6 SCMA. PC/IPL/11, para. 3. See G/SCM/N/1; G/SCM/N/1/
Suppl.1; WT/TC/NOTIF/SCM/1, part II, item 12. The notifications pursuant to art.
32.6 SCMA are published in the document series G/SCM/N/1/, followed by the country
code of the notifying Member. Written questions and answers regarding these notifications
may be found in the document series G/SCM/Q1/, followed by the country code of the
notifying Member.
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756 article 32 scma
regular meetings and in accordance with the procedures laid down in the
Note from the Chairmen dated 12 February 1996.29
VII. Annual Review and Report to the Council for Trade in

Goods (Art. 32.7 SCMA)
10 “The Committee” mentioned in art. 32.7 SCMA is the SCM Committee
provided for in art. 24 SCMA.30 According to art. 32.7 sentence 1 SCMA,
the SCM Committee shall review annually the implementation and opera-
tion of the SCMA, “taking into account the objectives thereof ”, i.e., it shall
take into account that the purpose of the SCMA is to reduce the distorting
effects of subsidies on international trade and competition.31 As a conse-
quence, the objectives of the annual reviews pursuant to art. 32.7 sentence
1 SCMA are to evaluate not only to what extent the legal requirements
of the SCMA are fulfilled but also to what extent its operation helps to
achieve the purpose of the SCMA mentioned above. The results of these
reviews are summarized in the annual reports of the SCM Committee. In
order to “inform annually the Council for Trade in Goods” pursuant to
art. 32.7 sentence 2 SCMA, the SCM Committee submits these reports to
the Council for Trade in Goods.32
29
G/ADP/W/284, G/SCM/W/293.
30
See the definition of the term “the Committee” in footnote 25 SCMA. For more details
on the SCM Committee, see Wolfram, Article 24 SCMA.
31
For the objectives of the SCMA, see Panel Report, Brazil—Aircraft, WT/DS46/R,
para. 7.26 (“[T]he object and purpose of the SCM Agreement is to impose multilateral
disciplines on subsidies which distort international trade.”); Panel Report, Canada—Aircraft,
WT/DS70/R, para. 9.119 (“[T]he object and purpose of the SCM Agreement could . . . be
summarised as the establishment of multilateral disciplines ‘on the premise that some forms
of government intervention distort international trade, [or] have the potential to distort
[international trade]’.”); Jackson, 279 et seq.; Wolfram, 233.
32
From 1995 to 2006, the following annual reports have been submitted to the Coun-
cil for Trade in Goods in accordance with art. 32.7 sentence 2 SCMA: Report (1995) of
Report (1995) of the Committee on Subsidies and Countervailing Measures, Corrigendum,
G/L/31/Corr.1, 20 November 1995; Report (1996) of the Committee on Subsidies and
Countervailing Measures, G/L/126, 28 October 1996; Report (1997) of the Committee
on Subsidies and Countervailing Measures, G/L/201, 30 October 1997; Report (1998) of
Report (1999) of the Committee on Subsidies and Countervailing Measures, G/L/341,
5 November 1999; Report (1999) of the Committee on Subsidies and Countervailing Mea-
sures, Corrigendum, G/L/341/Corr.1, 26 November 1999; Report (2000) of the Committee
on Subsidies and Countervailing Measures, G/L/408, 10 November 2000; Report (2001) of
6 November 2002; Report (2003) of the Committee on Subsidies and Countervailing
Measures, G/L/655, 4 November 2003; Report (2003) of the Committee on Subsidies and
Countervailing Measures, Corrigendum, G/L/655/Corr.1, 11 November 2003; Report (2004)
of the Committee on Subsidies and Countervailing Measures, G/L/711, 9 November 2004;
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article 32 scma 757
VIII. Annexes (Art. 32.8 SCMA)

The annexes to the SCMA constitute an “integral part” of the SCMA, i.e., 11
they have to be considered as if they were provisions of the SCMA itself.
If there is a conflict between the SCMA and its annexes, the conflict has
to be solved by applying the general rules of treaty interpretation (such as
lex specialis derogat legi generali, argumentum e contraria, etc.). There is no general
rule pursuant to which the provisions of the SCMA supersede the provisions
of the annexes or vice versa in case of such conflict.33
C. Outlook
The final provisions in art. 32 SCMA basically reflect generally recog- 12

nized standards in international treaties and as such, do not require
amendment.34
31 October 2005; Report (2006) of the Committee on Subsidies and Countervailing Mea-
sures, G/L/798, 8 November 2006.
33
For the relationship between annex I and art. 3.1(a) SCMA, see, e.g., Panel Report,
Brazil—Aircraft, WT/DS46/RW, paras 6.28–6.67 (Annex I SCMA is not an exhaustive list
of prohibited export subsidies. Measures in accordance with para. 1 annex I(k) can violate
art. 3.1(a) SCMA.); WT/DS46/R, paras 7.15–7.37; Appellate Body Report, Brazil—Aircraft,
WT/DS46/AB/R, para. 187; Wolfram, 377–385; Benitah, 132–151; Wilcox, 137.
34
See also Negotiating Group on Rules, Draft Consolidated Chair Texts of the AD and
SCM Agreements, TN/RL/W/213, 30 November 2007, 74.
WOLFRAM

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Rüdiger Wolfrum, Peter-Tobias Stoll and Michael Koebele (eds), WTO-Trade Remedies.

© 2008 Koninklijke Brill NV. Printed in the Netherlands. pp. 423–452

AGREEMENT ON SUBSIDIES AND COUNTERVAILING

Canada—Dairy, WT/DS103/AB/R, WT/DS113/AB/R, WT/DS103/AB/R/Corr.1, WT/

I. Overview of Subsidies under the SCMA

SCMA. In addition, only subsidies which are specific as defined under

II. Historical Overview

I. Definition of a Subsidy (Art. 1.1 SCMA)

II. Financial Contribution (Art. 1.1(a)(1) SCMA)

In any financial contribution there is a transfer of economic value from 12

functions of governmental character (regulate, restrain, supervise, or control

1. Direct Transfer of Funds (Art. 1.1(a)(1)(i) SCMA)

deficiency guarantees” provided to facilitate export sales of Bombardier

a) Direct and Potential Direct Transfer of Funds

funds” within the meaning of art. 1.1(a)(1)(i) SCMA.28 Furthermore, in

b) Potential Direct Transfer of Liabilities

guarantee, in which the government may undertake to assume the liabili-

2. Government Revenue Foregone or Not Collected

a) Footnote 1 to Art. 1.1(a)(1)(ii) SCMA

3. Provision of Goods or Services and Purchase of Goods

a) Provision of Goods or Services Other than General Infrastructure

rights over such goods or resources is potentially covered by art. 1.1(a)(1)(iii)

Under art. 1.1(a)(1)(iii) SCMA, the provision of goods or services in the 56

a road up to the boundary of the industrial estate; (4) construction of a

4. The Anti-Circumvention Provision: Funding Mechanism and Private

a) Payments to a Funding Mechanism

the purposes of determining whether there has been a financial contribu-

Based on such considerations, the panel in US—Export Restraints found 74

with respect to arts 1.1(a)(1)(i) to (iii) SCMA, while a narrow interpretation

e) Normally Vested in or Followed by the Government

ing to regional development policies and the funding of specific regional

5. Income or Price Support (Art. 1.1(a)(2) SCMA)

III. Benefit Conferred (Art. 1.1(b) SCMA)

1. The Meaning of “Benefit”

2. Recipient of the Benefit

3. Conferral of the Benefit

be sufficient if the government had merely communicated to the recipient

IV. Specific and Non-Specific Subsidies (Art. 1.2 SCMA)

2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is

Body Report, US—Hot-Rolled Steel, WT/DS184/AB/R; Panel Report, US—Export Restraints,

predominant part of the economic operators in the territory or jurisdiction

6 Yet, despite the existence of a legal definition of specificity in art. 2 SCMA,

II. Historical Review

for a specificity requirement identical to the concept later incorporated in

I. Art. 2.1 SCMA

b) Enterprise and Industry Specificity

Canadian softwood lumber manufacturers produced more than 200 separate

20 When examining industry specificity outside the context of anti-subsidy

c) “Within the Jurisdiction of the Granting Authority”

2. De Jure Specificity (Art. 2.1(a) SCMA)

30 Arguably, an allegation of de jure specificity pursuant to art. 2.1(a) SCMA

3. Objective Eligibility Criteria (Art. 2.1(b) SCMA)

The WTO dispute settlement practice occasionally presents other aspects of 36

4. De Facto Specificity (Art. 2.1(c) SCMA)

make findings on de facto specificity without the need to examine additional

II. Regional Specificity (Art. 2.2 SCMA)

60 In the same context, an interesting example of the more distant past is a

III. Specificity of Prohibited Subsidies (Art. 2.3 SCMA)

IV. Positive Evidence (Art. 2.4 SCMA)

68 While the expression “clearly substantiated” is self-explanatory, the term

V. Relationship with Art. 1 SCMA

(a) The provision by governments of direct subsidies to a firm or an industry contingent

ADAMANTOPOULOS & AKRITIDIS