ELSA/WTOMOOTCOURT2015-16

Eriador–Measuresaffectingtheelectricitysector

BENCHMEMORANDUM

TableofContents

1.THECASE 1

2.TIMELINE 7

3.RELATIVEWEIGHTOFCLAIMS 8

4.THECLAIMS 9

4.1CLAIM(A):THEIFFGRANTASANEXPORTSUBSIDY 94.1.1BORDURIA’SLEGALCLAIM 94.1.2FINANCIALCONTRIBUTIONANDBENEFIT 94.1.3ARTICLE3.1(A):CONTINGENTUPONEXPORTPERFORMANCE 94.2CLAIM(B):THEIFFGRANTANDTHEERIBANKLOANCAUSESERIOUSPREJUDICE 124.2.1BORDURIA’SLEGALCLAIM 124.2.2ARTICLE1.1(A):FINANCIALCONTRIBUTIONBYAPUBLICBODY 124.2.3ARTICLE1.1(B):BENEFIT 144.2.4ARTICLE1.2ANDARTICLE2:SPECIFIC 164.2.5ARTICLE5AND6:SERIOUSPREJUDICE 184.3CLAIM(C):THEFEED-IN-TARIFFSCHEME 224.3.1BORDURIA’SLEGALCLAIM 224.3.2ARTICLE1.1(A):FINANCIALCONTRIBUTIONBYAPUBLICBODY 224.3.3ARTICLE1.1(B):BENEFIT 234.3.4ARTICLE1.2ANDARTICLE21:SPECIFIC 264.3.5ARTICLE5AND6:SERIOUSPREJUDICE 264.4GATTARTICLEXX 294.5THEFRAMEWORKCONVENTIONONTHEPROMOTIONOFRENEWABLEENERGY 314.5.1ASEVIDENCEOFFACT 314.5.2VCLTARTICLE31(2) 314.5.3VCLTARTICLE31(3) 324.5.4VCLTARTICLE41 334.5.5VCLTARTICLE40:LEXPOSTERIOR 34

5.SELECTEDCASELAWANDREADINGS 35

6.THESCMAGREEMENT 37

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1. TheCase(includingclarifications)1. Eriador is amajor industrialised country, and aMemberof theWTO,which isactivelyseekingtolimititsdependenceonfossilfuels,andtomoveitseconomytowardsfull reliance on sustainable and renewable energy sources. It is a party to theFrameworkConventiononthePromotionofRenewableEnergy2010(‘FCPRE’),alargemultilateral treatywith173statesparties.145countriesarebothWTOMembersandstatespartiestotheFCPRE.ThePreambletotheFCPREreads:

Recognisingthatexistingglobalenergymarketsaredistorted,duetothefailureofsuchmarketstointernalisethefullcostofcarbon,

whileArticle11requireseachStatespartyto‘useallavailablemeanstoencouragetherapiddevelopmentofrenewableenergy,withaviewtoensuringthatatleasthalfofitspopulation’senergyneedsaremetbyrenewableenergysuppliersby2020’.2. Electricity generation facilities in Eriador are all privately owned, and includeplantsrepresentingawiderangeofgenerationtechnologies(coal,naturalgas,nuclear,solar,wind,tidal,hydro).Theseelectricitygenerators,aswellassomeforeignsuppliers,sell theirenergy to theEriadorianElectricityCorporation(EEC),agovernmentagencywhosefunctionistoadministertheday-to-dayfunctioningofthegridintheinterestsofstabilityandefficiency.TheEECthensellstheenergydirectlytoconsumers.TheEECisunderanobligationtoensurethataspecified(andgraduallyincreasing)proportionoftheelectricityitpurchasesisgeneratedfromrenewablesources.In2015,themandatedproportion was 30%, and the actually achieved proportion was 41%. The actuallyachieved percentage of electricity produced from renewable sources has never fallenbelowthemandatedpercentage.3. Pricesatthewholesalelevelaresetbyacombinationoflong-termcontractsof20to30yearsduration(accountingforonethirdofsupply),medium-termcontractsof5to15yearsduration(accountingforanotherthird),andspotmarkettransactionsforthe remainder. Contracts are awarded through open competitive tendering processes.Pricesinspotmarketsaresetviatheauctionmethod.Electricityproducershavealwaysbeen treated equally by the EEC in its award of general contracts, and the standardtermsremainthesame,regardlessofthesourceoftheirelectricity.Astodispatch, thegeneral situation is that generation facilities are dispatched in order of their variableoperatingcosts,fromlowesttohighestcostaselectricitydemandincreases.4. CleanTechisalargetechnologycompanybasedinEriador,whichspecialisesinthedevelopmentandcommercialisationofcuttingedge,innovativetechnologiesfortherenewableenergysector.5. For many years, CleanTech has been conducting research into cold fusion, ameansofproducingenergythroughnuclearreactionat,orcloseto,roomtemperature,withoutthetoxicby-productsassociatedwithcurrentnuclear(fission)technology.Coldfusion is a carbon-free (or essentially carbon-free) process for the production ofelectricity. This research has been very successful. In just over a decade, CleanTechmanagedtodevelopcoldfusiontechnologyclosetothepointofcommercialisation,mostsignificantly through the invention of the Fusilliscope, a revolutionary device whichenables users temporarily to overcome repulsive forces between atomic particles, atcomparatively low energy cost. While the capital costs of Fusilliscopes are very high(higherthanforsolarenergy),Fusilliscopeshaverelativelylowvariableoperatingcosts

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(lowerthanforsolar),canbemoreeasilyaggregatedintogenerationfacilitiesofmuchhighercapacitythansolar,andareflexibleenoughtoprovidebase-, intermediate-andpeak-loadelectricityasrequired.6. In2008,CleanTechestablishedaproductionfacilityfortheFusilliscope.Initially,itsoughtfundsforthisprojectfromprivateinvestors,butwasunsuccessfulduetotheproject’sextremelyhighriskprofile,theunprovennatureofthetechnology,uncertaintyconcerningtheanticipatedcostsofelectricitygenerationusingthetechnology,andthehugecapitalinvestmentneeded.Instead,itobtaineda$750mloanonfavourabletermsfromEribank,anentitymajorityownedbytheEridorianstate.Eribankisgovernedbyaboard of directors appointed by the EriadorianMinistry of Commerce, but with eachappointee acting in his or her independent capacity. (Historically, the appointeddirectorshavehadamixofbackgrounds, some from thepublic sector, some from theprivatesector.Therearenoformalcriteriafortheirappointment,andappointmentsareconsideredintheusualmanner,byreferencetothequalificationsandexperienceofthecandidate,andtheneedsoftheorganisation.)Itisrunlargelyonacommercialbasis,butby its constitution is required to conduct its business ‘having regard to the strategicpolicy priorities of the Eriadorian state’ and ‘in consultation, as appropriate, withrelevantgovernmentministries’.Eribanktypically,butnotalways,followstheadviceoftheEriadoriangovernmentwhenitsupportsthegrantofaloan.InthecaseoftheloantoCleanTech,EribankconsultedwiththeEriadorianMinistryoftheEnvironmentastotheirviewofthecommercialviabilityofthisnewtechnology,aswellasitssignificanceforEriadorianeconomygenerally.TheMinistryoftheEnvironmentexpresslysupportedtheloan,whileacknowledgingthatthefinaldecisionwhetherornottograntitwasforEribankitself.Eribankisalso,separately,usedonoccasionasthevehiclethroughwhichtheEriadoriangovernmentdisbursesfundstoEriadorianbusinessesundergovernmentgrantprograms.7. CleanTech used the money provided by Eribank to construct the productionfacility. Over the next 12 months, CleanTech perfected its production process, mademinoramendmentstothedesignof theFusilliscope,anddevelopedrelationshipswithpotential users of the technology, as it prepared this division of its business for sale.Then, in early 2009, CleanTech sold the entire Fusilliscope business – including theproduction facility, as well as all intellectual property rights to the technology – toFuture Energy, a company incorporated in Eriador, whose core business is theconstruction and operation of power plants in Eriador. Future Energy has beenoperatingintheEriadorianmarketforsomeyears.ItisunrelatedtoCleanTech,andthepurchaseoftheFusilliscopebusinesswasatapricewhichreflecteditsfullmarketvalue,ascertifiedbyanindependentauditor.8. Future Energy quickly integrated the Fusilliscope into its domestic powergeneration facilities, and also began selling the Fusilliscope to electricity suppliersoperating in foreign markets. To safeguard its position as market leader in thecommercialisationofcoldfusiontechnologyinEriador,FutureEnergydoesnotsell,andisnotwilling to sell, Fusilliscopes toanyelectricityproducerswhich compete,ormaypotentiallycompete,withitintheEriadorianelectricitymarket.9. However, it soonbecameclear that thecostsofproducingelectricityusing theFusilliscope were considerably higher than the wholesale price of electricity in theEriadorianelectricitymarket. ItconsequentlyturnedtotheEriadoriangovernmentforassistance.10. Convinced of the long term viability of this technology, and of the potentialsignificanceofexportsofFusilliscopes fortheEriadorianeconomy,FutureEnergywas

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awardeda$500mgrantundertheEriadoriangovernment’s‘InnovationfortheFuture’program.OpentoanybusinessoperatinginanysectoroftheEriadorianeconomy,thisprogram seeks to provide financial assistance to projects which promise to make asignificant contribution to the sustainable growth and global integration of theEriadorian economy. When firms apply for grants under this scheme, they typicallyprovideinformationconcerningthetrackrecordofthecompanysofar,itsplansforthefutureemphasizingitscontributiontothegoalsoftheprogram,anditsspecificplansforthe grant money sought. The Eriadorian government considers all applications byreference to the criteria of whether and to what extent they are likely to ‘make asignificant contribution to the sustainable growth and global integration of theEriadorian economy’, andmakes awards to those projectswhich in its view aremostlikely to make the most significant contributions to those objectives. Different sizedgrantsareawarded todifferent successful candidates,basedon the requestmade, thebusiness plan on which the request is founded, and the judgment of the Eriadoriangovernment as to amountwhich ought to be awarded. Funds are disbursed in full tosuccessful applicants as soon as an award is made. The overall budget of the grantprogram isnot formally limited.While theregulationsestablishing thisgrantprogramdoesnotcontainaformalallocationofacertainamountoffundstoanyparticularsectororindustry,overthefiveyearsithasbeenrunning,90%offundsdisbursedunderthisscheme have gone to companies operating in the renewable energy sector. (TheapplicantpoolwasbroadlyrepresentativeoftheEriadorianeconomyasawhole–thatis, the share of applicants from different industries broadly reflected each industry’sshareoftheEriadorianeconomy.Eventhehighestestimateshavetherenewableenergysector representing significantly less than 5% of the highly diversified Eriadorianeconomy.)FutureEnergy’sgrantwasawardedanddisbursed inearly2010.Thegrantitselfcontainednoformal legalconditionspertainingtoexportperformance.Itdidnotrequire Future Energy to spend the grant money on a new production facility forFusilliscopes,thoughFutureEnergydidmakeclearthatthiswasamajorpartofitsplanin the application it made for the grant. The grant was disbursed directly by theEriadoriangovernment,notbyEribank.11. In addition, at the same time, the Eriadorian government implemented a newfeed-in-tariffschemetoincreasethesupplyofelectricityfromcoldfusion,pursuanttoaDirection from the Ministry of Commerce in the exercise of its statutory authority.Participants in the scheme are awarded contracts with the EEC, containing the samestandardterms,andof thesameduration,as longtermpurchaseagreementsbetweenthe EEC and other providers of both renewable and non-renewable energy. The onlysalientdifferenceisthepriceoffered.Underthisscheme,FutureEnergywasawardedalong term purchase agreement with EEC, under which EEC would pay a guaranteedpricetoFutureEnergy,forallelectricitygeneratedanddeliveredintothegridfromitscoldfusionplants,foraperiodof30years.Theguaranteedpriceunderthecontractwassetaccordingtothefollowingformula:

C=M+X*YwhereCisthedailycontractpriceforeachunitofelectricity,MistheaverageunitwholesaleelectricitypriceinEriadorforthatday,Xistheaveragenumberoftonsofcarbonemittedintheproductionofoneunitofelectricityplacedonthewholesalemarket,andYisthetruesocialcostofonetonofcarbon,initiallysetat$152/tonbyanindependentagencyonthebasisofpeer-reviewedpapersandinternationalpractice,butperiodicallyreviewed.Underthisformulaasitoperatesinpractice,thedailycontractpricereceivedbyFutureEnergy(C)issignificantlyhigherthantheaveragedailymarketprice(M),typicallybyatleast10%.TheformulawasdesignedtoensurethatthepricepaidtoFutureEnergycloselyapproximatesthe‘true’costofelectricity–

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namely,whatthewholesalecostofelectricitywouldbe,ifthefullsocialcostsofcarbonwerefullyinternalised.TheDirectionoftheMinistryofCommerceestablishingtheschemenotesthatithasbeenadoptedinaccordancewithEriador’sobligationsunderArticle11oftheFCPRE.Inprinciple,thisschemeisopentoallsuppliersofcoldfusionenergy(andonlythosesuppliers),butinpracticeitonlyappliestoFutureEnergy,asatpresentFutureEnergyistheonlysupplieroperatinginEriadorwiththattechnology.12. In the five years since these measures were put in place, Future Energy hassignificantly increased itsmarketshare inEriador’swholesaleelectricitymarket, from2% in 2010 to 36% in 2015. (In 2010, Future Energy supplied 2% of the Eriadorianmarket,andessentiallyallofthiscamefromnon-renewablesources.Thishasremainedunchanged from 2010-2015: it still supplies 2% of the market using non-renewableenergy in 2015, and did so in all the intervening years. Thus, Future Energy’s entireincreaseinmarketsharehascomeaboutasaresultofincreasingproductionofenergythrough cold fusion.) Future Energy has also built several more generation facilitiesusingcoldfusiontechnology,andsellsall itsenergyfromthemintothegridunderthetermsof the long termcontractualagreementoutlinedabove. Inaddition, ithasspent$500m constructing and commissioning an additional production facility forFusilliscopes,whichhasalloweditmassivelytoexpanditsexportsalesofFusilliscopes.The production facility was designed, built and commissioned over 2010-11, andbecameoperationalatfullcapacityin2012.Itwouldnothavebeenbuiltwereitnotforthe Innovation for theFuturegrant.FutureEnergynowexports this technologyunderlicence to electricity producers in over 50 countries worldwide. It does not sell anyFusilliscopes domestically, in part because thatmay increase the number of supplierscompetingforcontractsunderthegovernment’sfeed-in-tariffscheme.13. Borduria isan industrialisedcountry,andMemberof theWTO,whichsharesaborderwithEriador.LikeEriador,itisapartytotheFCPRE.TheElektricalgridsofthetwocountriesareinterconnected,suchthatBordurianelectricitygeneratorsareabletotransmit their electricity into theEriadorian grid, and sell into theEriadorianmarket.Borduria’stwoprimaryelectricityproducers,anditsonlyelectricityexporters–bothofwhom still operate only traditional coal-fired power stations – have complained thattheir share of the wholesale electricity market in Eriador has declined precipitouslysince 2010, from50% to just 23% in 2015, just as Future Energy’smarket share hasrisen,inaccordancewiththefollowingtable.

Company Nationality MarketShareFutureEnergy Eriador 2010:2%

2011:3%2012:15%2013:22%2014:29%2015:36%

BorduriaEnergyCorporation

Borduria 2010:20%2011:20%2012:16%2013:14%2014:12%2015:11%

ElectricityBorduria Borduria 2010:30%2011:30%2012:26%2013:21%

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2014:17%2015:12%

Other Eriador 2010:46%2011:45%2012:41%2013:41%2014:41%2015:40%

Other Other 2010:2%2011:2%2012:2%2013:2%2014:1%2015:1%

Priorto2010,bothcompanies’marketshareshadbeenstableforalongtime,atessentiallythesamelevelsasshownfor2010.NocompanyotherthanFutureEnergyhasgainedmarketshareintheperiodfrom2010-2015,andthesizeoftheoverallmarkethasstayedessentiallystableovertheperiod.Furthermore,thepercentageoftheEriadorianmarketsuppliedbyrenewableenergyotherthancoldfusionhasalsoremainedsteadyat7%from2010-2015.TheBorduriansupplierscomplainalsothattheircontractualarrangementswiththeEriadoriangovernmentforthewholesalesupplyofelectricityintotheEriadoriangridhavenotbeenrenewed,withfivemajorcontractsexpiringin2012,2013and2014(twofortheBordurianEnergyCorporation,andthreeforElectricityBorduria).TheynotethatinitsAnnualReportsofOperations,theEEChasreportedthatthiswasthedirectresultoftheunexpectedlylargesizeandcostsofthelong-termcontractsputinplacewithFutureEnergy.14. BorduriaisalsohometoSolarTech,aworldleadingcompanyspecialisingintheproduction and export of solar panels. In late 2012, it signed a Memorandum ofUnderstandingwith Elektrica, an electricity generation company based in the state ofCarpathia (also aMember of theWTO), for the supply of 40,000 solar panel units onterms to be agreed. This was an important contract for SolarTech, as 40,000 unitsrepresents approximately 10% of its overall annual sales of solar panels. In addition,Elektrica is a strategic customer for SolarTech, as Elektrica is looking to expand itsoverallproductionofrenewableenergyconsiderably inthecomingyears.However, in2013,Elektricabrokeoffnegotiationsintheirfinalstages,informingSolarTechthattheyhadbeenapproachedbyFutureEnergywithanofferforthesaleofFusilliscopesat50%of thepriceatwhich theywouldnormallybesold,andasa resulthaddecidedon thebasisof cost to refocus their investmentsaway from the creationofnewsolarenergyfacilities,towardscoldfusion,andtopurchaseFusilliscopesfromFutureEnergy.FutureEnergyregardstheCarpathianmarketasofstrategicinterest,andwishestoestablishamarket-leadingpositioninCarpathiaasquicklyaspossible.Italsobelievesthatalargepurchase of Fusilliscopes by Elektrica will reassure other potential purchasers thatFusilliscopesareamatureandreliableproduct.FutureEnergyfeltabletooffersuchalargediscountsince itsproductioncosts forFusilliscopeshave fallendramaticallyasaresult of economies of scale achieved through the addition of the second productionfacility,andasaresultof lessons learntover theyearssince it started tomanufactureFusilliscopes.

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LegalClaims15. Borduria requests consultationswith thegovernmentofEriador, in respectof:(a)theloanbyEribanktoCleanTech;(b)theFITscheme,andthecontractbetweenEECandFutureEnergyconcludedpursuanttoit;(c)the‘InnovationfortheFuture’granttoFutureEnergy.TheRequestwasaccompaniedbyaStatementofAvailableEvidence inthe form requiredbyArticles 4.2 and7.2 of theSCMAgreement. During the course ofthese consultations, both parties agreed to proceed on the basis that electricity is aproduct,notaservice.Eriadoralsomadeclearthat,itdoesnotcontestthattheEribankloanwouldconferabenefitwithin themeaningofArticle1.1(b) if itwereestablishedthat the loan was granted by a public body. The parties could not resolve theirdisagreementconcerningthelegalrelevancetothisdisputeoftheFCPRE.16. BorduriaconsidersthatthesemeasuresconstitutespecificsubsidieswithinthemeaningofArticles1and2oftheSCMAgreement,andclaimsthattheyareinconsistentwithEriador’sobligationsunderthatagreementasfollows:

a. thatthe‘InnovationfortheFuture’grantisinconsistentwithArticle3.1(a)oftheSCMAgreementbecauseitiscontingentinfactupontheexportbyFutureEnergyofequipmentforrenewableenergygeneration;

b. thattheloanbyEribankandthe‘InnovationfortheFuture’grant,

individuallyandcumulatively,causeseriousprejudicetotheinterestsofBorduriawithinthemeaningofArticle5(c)oftheSCMAgreementandArticleXVI:1oftheGATT1994,astheyhaveresultedinlostsalesofsolarpanelsinthemarketforenergygenerationequipmentinCarpathiawithinthemeaningofArticle6.3(c)oftheSCMAgreement;

c. thatthelongtermpurchaseagreementbetweenFutureEnergy

andEEC,concludedpursuanttotheFITScheme,causesseriousprejudicetotheinterestsofBorduriawithinthemeaningofArticle5(c)oftheSCMAgreementandArticleXVI:1oftheGATT1994,asithasdisplacedandimpededimportsofelectricityfromBorduriaintoEriadorwithinthemeaningofArticle6.3(a)oftheSCMAgreement.

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2. Timeline

2008

EribankloangrantedtoCleanTech.CleanTechestablishesfirstproductionfacilityforFusilliscopes.

2009 Early2009,CleanTechsellsFusilliscopebusinesstoFutureEnergy.FutureEnergybeginsproductionofFusilliscopesforexport,andproductionofelectricityforEriadorianmarketusingcoldfusion.

2010 Early2010,InnovationfortheFuturegrantawardedbytheEriadoriangovernmenttoFutureEnergy

2010-11 FutureEnergydesignsandbuildsasecondproductionfacilityforFusilliscopes.

2012 FutureEnergyFITcontractgranted.Late2012,MoUsignedbetweenElektricaandSolarTech.

2013 FutureEnergyisawardedcontractwithElektrica.

2011-2015 OverthisperiodFutureEnergyalsointegratesFusilliscopesintoseveralmoreofitselectricitygenerationfacilitiessupplyingtheEriadorianmarket.

2015 WTOdisputeinitiated.

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3. Relativeweightofclaims

Thefollowingtableindicatestherecommendedpointswhichmarkersshouldassigntodifferentclaimsandtheirelements.Thehigherthenumber,themoresignificanttheissue,themoretimeteamswillbeexpectedtospendonit,andthemorepointsshouldbeawardedforgoodargumentsmadeinrelationtoit.Whereanissueisassignedascoreof0.5,thisindicatesthatitisarelativelyinsignificantlegalissue:pointsshouldbeawardedforshowingknowledgeoftherelevantlegaltests,butbrevityinrespectofthesepointsshouldberewarded.OnedifficultyconcernsthepointsassociatedwithGATTArticleXX.Itwouldbeaperfectlyreasonabledecisionforteamsnottoarguethispointatallforstrategicreasons,intheirEriadoriansubmission.Itwouldbeevenmorereasonableforthecomplainantnottoraiseit,sinceitisnotforthemtoraise.Inprinciple,teamsshouldnotbepenalizedforsuchstrategicchoices,anditispartlyforthatreasonthatwehavekeptthepointsassignedtothisissuerelativelylow.

CONTENT

Claim(a)Financialcontribution 0.5Benefit 0.5Exportcontingency(includingArticle2.3(a)contingency) 3Claim(b)Financialcontribution

EribankloanArticle1.1(a)(1)(i) 3EribankloanArticle1.1(a)(1)(iv) 3IFFgrant 0.5

BenefitEribankloan(extinctionofbenefitissue) 3IFFgrant 0.5

SpecificityEribankloan 0.5IFFgrant 2

Article6.3(c):lostsales 3Claim(c)Financialcontribution 2Benefit 5Specificity 0.5Article6.3(a):displacementorimpedance 2GATTArticleXX 2Systemicissue:therelevanceoftheFCPRE 3STRUCTURE,ORGANIZATIONANDWEIGHTING 4CREATIVITYOFARGUMENTATION 4CLARITYANDTONEOFWRITTENEXPRESSION 4CORRECTUSEOFLEGALTERMINOLOGY,GRAMMARETC. 4TOTAL: 50

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4. Theclaims

[Note:writtenmemorandaneednotfollowpreciselythesamestructureasthismemo.Forexample,teamsmaychoosetoorganizebyelement(financialcontribution,benefit,specificity,etc)andaddresseachclaimunderthoseheadings.Theyshouldnotbepenalizedforthis.]

4.1. Claim(a):TheInnovationfortheFutureGrantasan

exportsubsidy4.1.1. Borduria’slegalclaim

Borduriaclaimsthatthe‘InnovationfortheFuture’grantisinconsistentwithArticle3.1(a)oftheSCMAgreementbecauseitiscontingentinfactupontheexportbyFutureEnergyofequipmentforrenewableenergygeneration.Inordertomakeoutthisclaim,Borduriamustinprincipleshowthat:

• thereisa‘financialcontributionbyagovernmentoranypublicbody’or‘incomeorpricesupport’withinthemeaningofSCMArticle1.1(a);

• a‘benefit’istherebyconferredwithinthemeaningofSCMArticle1.1(b);• thegrantis‘contingentinlaworinfact,whethersolelyorasoneof

severalotherconditions,uponexportperformance’withinthemeaningofSCMArticle3.1(a).1

4.1.2. Financialcontributionandbenefit

Thegrantrepresentsa‘financialcontribution’underArticle1.1(a)(i),thatitisgivenbyagovernment(asitisdirectlydisbursedbytheEriadoriangovernmentpursuanttostatutoryauthority),andthatgivinganon-repayablegranttoanenterpriseconfersa‘benefit’onthatenterprise.AllofthesepointsshouldbeconcededbyEriador,andBorduriashouldspendverylittlespacelayingoutthelegalstandardsforthesepointsandshowingtheyaremet.Theonlyquestiononwhichthereshouldbemeaningfulargumentiswhetherthegrantis‘contingentinlaworinfact,whethersolelyorasoneofseveralotherconditions,uponexportperformance’.Asnotedbelowinfootnote1,thequestionofspecificityistiedtothisquestionbyvirtueofArticle2.3.

4.1.3. Article3.1(a):‘contingentinlaworinfact…uponexportperformance’ SCMArticle3.1(a)prohibits‘subsidiescontingent,inlaworinfact,whether

solelyorasoneofseveralconditions,uponexportperformance,includingthoseillustratedinAnnexI’.Notethatthisprovisionprohibitsbothdejureanddefactocontingency.Astodefactoexportcontingency,footnote4totheagreementclarifiesthatthestandardof‘infact’contingency‘ismetwhenthefactsdemonstratethatthegrantingofasubsidy,withouthavingbeenmadelegallycontingentuponexportperformance,isinfacttiedtoactualoranticipatedexportationorexportearnings.’Thefootnotefurthernotesthat‘[t]hemerefactthatasubsidyisgrantedtoenterpriseswhichexportshallnotforthatreasonalonebeconsideredtobeanexportsubsidywithinthemeaningofthisprovision’.

1NotethatanysubsidyfallingwithinArticle3.1(a)isdeemedtobespecificbytheoperationofArticle2.3.

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Thestandardof‘contingency’,whichisthesameforbothdejureanddefactoclaims,requiresthecomplainanttodemonstrate‘arelationshipofconditionalityordependence’(Canada–Aircraft(AB),para171).Exportperformancemustthereforebeaconditionofthegrantormaintenanceofthesubsidy.Dejureexportcontingencyisdemonstratedonthebasisofthewordsoftherelevantlegislation,regulationorotherlegalinstrumentconstitutingthemeasure(Canada–Aircraft(AB),para167).Itcanbeexplicitorexistasanecessaryimplication(Canada–Autos(AB),para100).Caseswhichhavefoundexportcontingency‘inlaw’havesofarinvolvedsubsidieswhichareonlymadeavailableuponproofofactualexportation,orarenecessarilyonlyavailableinrespectofexporttransactions(eg,Canada–Autos,US–UplandCotton,Canada–Aircraft).Defactoexportcontingencycanbeestablishedbyshowingthat'thegrantingofthesubsidy[is]gearedtoinducethepromotionoffutureexportperformancebytherecipient'(EC–LargeCivilAircraft(AB),para1044).Defactoexportcontingencymustbeinferredfromthetotalconfigurationofthefactsconstitutingandsurroundingthegrantingofthesubsidy(Canada–Aircraft(AB),para167).Thismayincludethefollowingfactors:(i)thedesignandstructureofthemeasuregrantingthesubsidy;(ii)themodalitiesofoperationsetoutinsuchameasure;and(iii)therelevantfactualcircumstancessurroundingthegrantingofthesubsidythatprovidethecontextforunderstandingthemeasure’sdesign,structure,andmodalitiesofoperation(EC–LargeCivilAircraft(AB),para1048).Importantly,theAppellateBodyinEC–LargeCivilAircraftnotedthat‘[w]heretheevidenceshows,allotherthingsbeingequal,thatthegrantingofthesubsidyprovidesanincentivetoskewanticipatedsalestowardsexports,incomparisonwiththehistoricalperformanceoftherecipient…thiswouldbeanindicationthatthegrantingofthesubsidyisinfacttiedtoanticipatedexportation’(para1047).Conversely,‘[t]hegrantingofthesubsidywillnotbetiedtoanticipatedexportationif,allotherthingsbeingequal,theanticipatedratioofexportsalestodomesticsalesisnotgreaterthantheexistingratio’(para1048).Thisisanobjectivetestoftheincentivesprovidedbythesubsidy:Thestandardfordefactoexportcontingencywouldbemet'whenthesubsidyisgrantedsoastoprovideanincentivetotherecipienttoexportinawaythatisnotsimplyreflectiveoftheconditionsofsupplyanddemandinthedomesticandexportmarketsundistortedbythegrantingofthesubsidy'(para1045).Whilethesubjectivemotivationsofthegrantinggovernmentmayconstituterelevantevidence,suchmotivationsarenotsufficienttoprovedefactoexportcontingency(para1050).Borduriamayargue:

• thatthe‘InnovationfortheFuture’grantiscontingentinlawuponexportperformancebecauseoneofthecriteriafortheawardofthegrantconcernstheproject’santicipatedcontributiontothe‘globalintegration’oftheEriadorianeconomy,whichexplicitlylinkstheawardofthegranttoanticipatedexportperformance;

• thatthe‘InnovationfortheFuture’grantisdefactocontingentuponexportperformancebecausehistoricalandprojectedsalesfiguresareavailabletothegovernmentwhenmakinggrantdecisions,implyingthat

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projectsgeneratingthemostexportswillbethoseselectedforfunding,includingthegrantinquestion;2

• thatwhilethesubsidymaynotchangetheratioofFutureEnergy’sdomestictoexportsales(EC–LargeCivilAircraft,para1048),thistestisnotsuitableforsituationsinwhichthesubsidizedfirmexportsall(oressentiallyall)ofitsproduction,andthatinthiscasethetotalconfigurationoffactsdemonstratesthatthe‘InnovationfortheFuture’grantwasgearedtoincreasetheoverallvolumeofFutureEnergy’sexportsofFusilliscopes.

Eriadormayargue:

• thatthe‘InnovationfortheFuture’grantisnotcontingentinlawuponexportperformancebecause:(a)thegrantcontainsnoformalrequirementtoexport,ortofulfilsalestargets,asaconditionofitsdisbursement;(b)‘contributiontoglobalintegration’shouldnotbeequatedwith‘exportperformance’andinanycaseisnotapreconditionfortheawardofagrant;(c)whilethegovernmentmayonoccasionhaveexportperformancefiguresavailabletoitwheretheapplicantchoosestosubmitthem,submissionofsuchfiguresisnotarequirementofanapplicationandthereforeasystematiccomparativeevaluationofapplicationsonthismetricisimpossible;and(d)inanycase,pastandanticipatedfutureexportperformancecanonlyeverbeoneofmanyfactorswhichmay(butneednot)betakenintoaccountindecisionsonwhetherornottoawardagrant,anditisperfectlypossibletoobtainagrantintheabsenceofanypastoranticipatedfutureexportperformance;

• thatinthecaseofthespecificgranttoFutureEnergy,thereweremanyreasonsotherthanexportperformanceforgivingthegrant,includingthecontributiontheprojectmadetothe‘sustainablegrowth’oftheEriadorianeconomy;

• thatthegrantisnotcontingentinfactuponexportperformancebecausethesubsidydidnot‘skewanticipatedsalestowardsexports’,andFutureEnergy’sratioofexporttodomesticsalesisessentiallythesamebeforeandafterthesubsidy.

2cfCanada–Aircraft(21.5)(Brazil),para5.33.

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4.2. Claim(b):TheInnovationfortheFutureGrantandtheEribankloancauseseriousprejudice

4.2.1. Borduria’slegalclaim

BorduriaclaimsthattheloanbyEribankandthe‘InnovationfortheFuture’grantcauseseriousprejudicetotheinterestsofBorduriawithinthemeaningofArticle5(c)oftheSCMAgreementandArticleXVI:1oftheGATT1994,astheyhaveresultedinlostsalesofsolarpanelsinthemarketforenergygenerationequipmentinCarpathiawithinthemeaningofArticle6.3(c)oftheSCMAgreement.Inordertomakeoutthisclaim,Borduriamustshowthat:

• eachofthemeasuresrepresentsa‘financialcontributionbyapublicbody’or‘incomeorpricesupport’withinthemeaningofSCMArticle1.1(a);

• eachofthemeasuresconfersa‘benefit’withinthemeaningofSCMArticle1.1(b);

• eachofthemeasuresis‘specific’withinthemeaningofSCMArticle2;and

• theeffectoftheloanandthegrant,eitherindividuallyorcumulatively,is‘significant..lostsalesinthesamemarket’,withinthemeaningofSCMArticle6.3(c).

4.2.2. Article1.1(a):‘financialcontributionbyagovernmentoranypublicbody’

or‘incomeorpricesupport’

Article1.1(a)(1)envisagesthreedifferentpossibilitiesasregardsthenatureofthebodiesinvolvedinmakingafinancialcontribution.First,afinancialcontributionmaydirectlybemadebyagovernmentinitsownright.Second,thefinancialcontributionmaybemadebyapublicbody.Third,aprivatebodyisentrustedordirectedbythegovernmenttogivethefinancialcontribution.

(a) Article1.1(a)(1)(i)

Loansandgrantsasa‘directtransferoffunds’fallwithintheexamplesof‘financialcontribution’listedinSCMArticle1.1(a)(1)(i).TheInnovationfortheFuturegrantwasmadebyagovernment.BothofthesepointsshouldbeconcededbyEriador.Thereis,however,scopefordifferentargumentsonthequestionofwhethertheEribankloanwasmadebya‘publicbody’.TheAppellateBodyhasexplainedthatbeingvestedwith,orexercising,governmentalauthorityisthekeyfeatureofapublicbody–notonlythefactofgovernmentcontrol.Thatistosay,apublicbodymustbeanentitythatpossesses,exercisesorisvestedwithgovernmentalauthority(US–AD/CVD(AB),para317).Whethertheconductofanentityisthatofapublicbodymustineachcasebedeterminedonitsownmerits,withdueregardbeinghadtothecorecharacteristicsandfunctionsoftherelevantentity,itsrelationshipwiththegovernment,andthelegalandeconomicenvironmentprevailinginthecountryinwhichtheinvestigatedentityoperates.Forexample,evidenceregardingthescopeandcontentofgovernmentpoliciesrelatingtothesectorinwhichtheinvestigatedentityoperatesmayinformthequestionofwhethertheconductofanentityisthatofapublicbody.Itmayalsoberelevantwhetherthefunctions

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orconductoftheentityinquestionareordinarilyclassifiedasgovernmentalinthelegalorderoftherelevantMember,aswellaswithintheWTOMembershipgenerally.Theabsenceofanexpressstatutorydelegationofauthoritydoesnotnecessarilyprecludeadeterminationthataparticularentityisapublicbody.Inordertoshowthatabodyisapublicbody,itisnotsufficienttoshowmerelyformallinksbetweenthebodyandgovernment(eg,majoritygovernmentownership).Andwhileevidencethatagovernmentexercisesmeaningfulcontroloveranentityanditsconductmayserve,incertaincircumstances,asevidencethattherelevantentitypossessesgovernmentalauthority,itisnotthecasethatanyentitymeaningfullycontrolledbygovernmentisa‘publicbody’.Ininterpretingthemeaningof‘publicbody’,theexistenceofArticle1.1(a)(1)(iv)(onentrustmentordirection)isrelevantcontextbecauseitdemonstratesthatthereisadistinctionbetweenapublicbodyandaprivateentityentrustedordirectedforaspecificpurposebythegovernment.(SeegenerallyUS–AD/CVD(China)(AB),para282-322;US–CarbonSteel(India)(AB),para4.9-4.30;US–DRAMS(Korea).)Inthepresentcase,BorduriaislikelytopointtothefollowingfactorstosuggestthatEribankisa‘publicbody’:(a)Eribank’sconstitutionrequiresittoconductitsbusinesshavingregardtothestrategicpolicyprioritiesoftheEriadorianstatewhichimpliesadegreeofresponsibilityfortheimplementationofEriadorianindustrialpolicy;(b)thatEribankisusedonoccasiontodisbursegovernmentgrants,whichisanessentiallygovernmentalfunction;(c)theEriadoriangovernmentappointsEribank’sboard;and(d)thatEribankismajorityownedbythestate.Eriadormayarguethat:(a)mostofthefactspointtoadegreeofcontrolbythegovernmentoverEribank,butlittlebywayoftheexerciseorinvestitureofgovernmentalauthority;(b)thelinksbetweentheEriadoriangovernmentandEribank,asregardsownershipandthepowertoappointtheboard,areinthenatureof‘formalindiciaofcontrol’andareontheirowninsufficienttoshowthatEribankisapublicbody;(c)thatdisbursingfundsundergovernmentgrantsoughtnottobeconsideredanexerciseofgovernmentalauthority,asitconcernsmerelythetechnicalaspectsofadministeringagrant,notthepowertoawardthegrantsthemselves.(b) Article1.1(a)(1)(iv)

Afinancialcontributioncanalternativelybeshowntoexist,where‘agovernmentmakespaymentstoafundingmechanism,orentrustsordirectsaprivatebodytocarryoutoneormoreofthetypeoffunctionsillustratedin(i)to(iii)abovewhichwouldnormallybevestedinthegovernmentandthepractice,innorealsense,differsfrompracticesnormallyfollowedbygovernments’.Thisparagraphcoverssituationswhereaprivatebodyisbeingusedasaproxybythegovernment,andisintendedtoensurethatgovernmentsdonotevadetheirobligationsundertheSCMAgreementbyusingprivatebodiestotakeactionsthatwouldotherwisefallwithinArticle1.1(a)(1),weretheytobetakenbythegovernmentitself(US–CVDsonDRAMS(AB),paras108,113).TheAppellateBodyhasinterpreted"entrustment"torefertosituationsinwhichagovernmentgivesresponsibilitytoaprivatebody,and"direction"torefertosituationswhereagovernmentexercisesitsauthority,includingsomedegreeofcompulsion,overaprivatebody.Importantly,a‘direction’neednotalwaysinvolvethedegreeofobligationassociatedwitha‘command’:whilemerewords

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ofencouragementarenotenough,intherightcircumstancesgovernmental‘guidance’canconstitutedirection.Governmentshavebothinformalandformalmeansattheirdisposaltoexerciseauthorityoveraprivatebody,someofwhicharemoresubtlethanothers(seegenerallyUS–DRAMSCVDs(AB),para109-116).Incasesinterpretingthisprovision,anumberoffactorshavebeentakenintoaccount,including:theextentofcooperationbetweenthegovernmentandtheprivatebody;theextenttowhichtheactionsoftheprivatebodyare‘non-commercial’;thedegreetowhichthegovernmentisinapositiontoexerciseinfluenceovertheprivatebody;andevidenceoftheintentofthegovernment(see,eg,US–DRAMSCVDs;Japan–DRAMSCVDs;US–CountervailingMeasures(China);EC–DRAMSCVDs.)Borduriamayarguethat:

• theloantoCleanTechwasonnon-commercialterms;• thereisclearevidencethattheEriadoriangovernmentfavouredthe

grantingoftheloan,andcommunicatedthattoEribank;• theEriadoriangovernmentisinapositiontoexerciseinfluenceoverthe

decision-makingofEribank,bothdirectlythroughthemandatedconsultationprocessandthroughitsinfluenceovermanagementasmajorityshareholder,andindirectlybyvirtueofitspowerofappointmentoftheboard;

• EribankisrequiredbyitsconstitutiontomakeitsbusinessdecisionshavingregardtothestrategicprioritiesoftheEridorianstate,whichmakesEribankespeciallysusceptibletoinfluencefromthestate;

• EribankhasahistoryofcooperatingwiththeEriadoriangovernmentonsuchmatters;and

• asaresultitisappropriatetoinfereitherentrustmentordirection,orboth,onthebasisofthetotalityofthefacts.

Eriadormayarguethat:

• thenatureoftheinfluenceoftheEriadoriangovernmentoverEribank’slendingdecisionsisconstitutionallylimitedtothatofadviceandconsultation,

• directorsareexpresslyrequiredtoactintheirindependentcapacity,andthedecisioninrelationtotheEribankloanwasexpresslystatedtobeforEribankonly;and

• thereisnopositiveevidenceofanyactionbeyondtheseparameters,whetherbythreatorinducement,whichwouldelevateittothelevelofentrustmentordirection.

4.2.3. Article1.1(b):‘benefit’

UnderArticle1.1(b),asubsidyisdeemedtoexistonlyifthefinancialcontributionconfersa‘benefit’ontherecipient.TheAppellateBodyhasexplainedthatwhetherabenefithasbeenconferredshouldnormallybedeterminedbyassessingwhethertherecipienthasreceivedthefinancialcontributionontermsmorefavourablethanthoseavailabletotherecipientinthemarket(eg,Canada–Aircraft(AB),para157).ThereisnoquestionthattheInnovationfortheFutureGrantconfersabenefit,becauseitisanon-repayablegrant.Furthermore,EriadorhasconcededthattheEribankloanconferredabenefitonCleanTech(Case,para15).Theonlydifficultlegalquestion,therefore,iswhetherthebenefitoftheEribankloanwas

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extinguishedasaresultofthesaleoftheFusilliscopebusinessfromCleanTechtoFutureEnergy.Note:someteamsmaychoosetoraisethequestionofpassthroughatthestageofdeterminingcausationunderArticle6.Thisisperfectlypermissible,andaslongasthisissueisdiscussed,itdoesnotmatterinpracticaltermswhetheritisdonehere,oratthelaterstage.TheAppellateBodyhasmadeclearthatthereisarebuttablepresumptionthatprivatizationsofasubsidizedstate-ownedproduceratarm'slengthandforfairmarketvalueextinguishthebenefitofthesubsidy(eg,US–CVMeasuresonCertainECProductsAB),para127;US–LeadandBismuthII(AB),para68).However,inEC–LargeCivilAircraft,differentmembersoftheAppellateBodycouldnotagreeonwhetherthissameprincipleappliedinthecaseofprivate-to-privatesales(seepara726).Thispresumptionhasbeencriticizedinthesecondaryliterature.3Differentviewsonthisquestionrevolvetoalargeextentarounddifferentunderstandingsofthenatureofthe‘benefit’inquestion.Ifthe‘benefit’enjoyedbytherecipientofthesubsidyisunderstoodasanincreaseinitswealth,thenthepresumptionmakessense:thisincreaseinwealthisfullyretainedbytheselleronsaleofthebusinessatfairmarketvalue.However,ifthe‘benefit’isunderstoodasadecreaseinthemarginalcostofproduction(iethesubsidyallowsthesubsidizedproducertoproducemoreofthegoodatlowercost),thenthepresumptiondoesnotmakesense.Thisisbecausethissortofbenefitmaywellalsobeenjoyedbythebuyerofthebusiness,forexamplewherethesubsidyresultedinthecreationofanew,moreefficientproductionfacilitywhichwouldnototherwisehaveexisted.Discussionofthisissuewillrequireteamstothinkcarefullyabouttherationaleofthepresumption,andwhetherthisrationaleappliesequallyinthecontextofthepresentfacts,inlightofthebasicpurposeoftheSCMAgreement.PointsmaybeawardedforteamspersuasivelydisagreeingwiththeAB’sreasoningintheprivatizationcases.Borduriamayargue:

• thepresumptionoftheextinctionofthebenefitofasubsidyafterasaleatfairmarketvalueandatarm’slengthdoesnotapplytoprivate-to-privatesales;

• thattheEribankloanclearlyresultedinareductionofCleanTech’smarginalcostsofproduction,andanincreaseinitsoverallproductionofFusilliscopes,sincethefirstproductionfacilitywouldnothaveexistedatallabsenttheloan,andsincethecreationofthisfacilitypermittedCleanTechtomakeitsproductionprocessmoreefficient;and

• thatthisbenefit(thereductioninmarginalcostsofproductionandoverallincreaseinproduction,comparedtowhatotherwisewouldexist)continuedtoexistafterthesaleofthebusiness,andwaspassedontoFutureEnergywhenitpurchasedthefirstproductionfacility;and

3See,eg,GeneM.GrossmanandPetrosC.Mavroidis,‘UnitedStates–ImpositionofCountervailingDutiesonCertainHot-RolledLeadandBismuthCarbonSteelProductsOriginatingintheUnitedKingdom:HereToday,GoneTomorrow?PrivatizationandtheInjuryCausedbyNon-RecurringSubsidies’,inHenrikHornandPetrosC.Mavroidis(eds),TheWTOCaseLawof2001:TheAmericanLawInstituteReporters’Studies(Cambridge,UK:CambridgeUniversityPress,2001);Diamond,‘PrivatizationandTheDefinitionofSubsidy:ACriticalStudyofAppellateBodyTexturalism’(2008)11(3)JIEL649.

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• thatevenifthebenefitofthesubsidieswereextinguishedasaresultoftheprivate-to-privatesalestransaction,thisdoesnotnecessarilymeanthattheeffectsoftheextinguishedsubsidiesdonotcauseseriousprejudice.Inotherwords,thereisnoneedforthebenefitofasubsidytocoincidetemporarilywithitseffects-theremaybeatimelagbetweentheeffectsofasubsidyandtheexistenceofitsbenefit.(EC–LargeCivilAircraft(AB),paras.712,771).

Eriadormayargue:

• thatthepresumptionwhichtheAppellateBodyestablishedinitsprivatizationcasesappliesequallytoprivate-to-privatesales;

• thattheterm‘benefit’inSCMArticle1.1(b)referstoincreaseinwealthonthepartoftherecipientofthesubsidy,andthatthisbenefitwasclearlyextinguishedbythearm’slengthsaletoFutureEnergyatfairmarketvalue.

4.2.4. Article1.2andArticle2:‘specific’

ByvirtueofSCMArticle1.2,asubsidyissubjecttothePartIIIoftheagreementonlyifitis‘specific’inaccordancewiththeprovisionsofArticle2.Therequirementofspecificity‘servestoacknowledgethatsomesubsidiesarebroadlyavailableandwidelyusedthroughoutaneconomyandarethereforenotsubjecttotheAgreement’ssubsidydisciplines’(US–UplandCotton(Panel),para7.1143).Article2distinguishesbetweenthreedifferentcategoriesofspecificity:enterprise-specificity;industry-specificity;andregionalspecificity.TheteamswillbeexpectedtoapplyArticle2.1todeterminethespecificityofthetwosubsidiesatissuehere.ThesomewhatcomplexstructureofArticle2.1(reproducedattheendofthismemo)hasbeenexplainedbytheAppellateBodyasfollows:

Article2.1(a)establishesthatasubsidyisspecificifthegrantingauthority,orthelegislationpursuanttowhichthegrantingauthorityoperates,explicitlylimitsaccesstothatsubsidytoeligibleenterprisesorindustries.Article2.1(b)inturnsetsoutthatspecificity“shallnotexist”ifthegrantingauthority,orthelegislationpursuanttowhichthegrantingauthorityoperates,establishesobjectivecriteriaorconditionsgoverningtheeligibilityfor,andtheamountof,thesubsidy,providedthateligibilityisautomatic,thatsuchcriteriaorconditionsarestrictlyadheredto,andthattheyareclearlyspelledoutinanofficialdocumentsoastobecapableofverification.…Finally,Article2.1(c)setsoutthat,notwithstandinganyappearanceofnon-specificityresultingfromtheprincipleslaiddowninsub-paragraphs(a)and(b),otherfactorsmaybeconsiderediftherearereasonstobelievethatasubsidymay,infact,bespecificinaparticularcase.(US–AD/CVDs(China)(AB),para367)

Article2.1(a)thereforeapplieswherethereisalimitation,onthefaceofthelegislationorinotherstatementsormeansbywhichthegrantingauthorityexpressesitswill,thatexpresslyandunambiguouslyrestrictstheavailabilityofasubsidyto'certainenterprises'andasaresultdoesnotmakethesubsidy'sufficientlybroadlyavailablethroughoutaneconomy'(EC–LargeCivilAircraft(AB),para949;US–UplandCotton(Panel),para7.1142).The‘objectivecriteriaorconditions’referredtounderArticle2.1(b)aredefinedinfootnote2tomean‘criteriaorconditionswhichareneutral,whichdonotfavourcertainenterprises

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overothers,andwhichareeconomicinnatureandhorizontalinapplication,suchasnumberofemployeesorsizeofenterprise’.AstoArticle2.1(c),thefactorstobeconsideredare:‘useofasubsidyprogrammebyalimitednumberofcertainenterprises,predominantusebycertainenterprises,thegrantingofdisproportionatelylargeamountsofsubsidytocertainenterprises,andthemannerinwhichdiscretionhasbeenexercisedbythegrantingauthorityinthedecisiontograntasubsidy.’InapplyingArticle2.1(c),‘accountshallbetakenoftheextentofdiversificationofeconomicactivitieswithinthejurisdictionofthegrantingauthority,aswellasofthelengthoftimeduringwhichthesubsidyprogrammehasbeeninoperation.’(a) SpecificityoftheEribankloan

EriadorwouldbewisetoconcedethattheEribankloanisspecific.Itisinthenatureofaone-offloantransaction,notaloanissuedunderthetermsofabroaderprogramme.Itthereforefallstobeanalysedonitsownassingletransaction,andassuchisexplicitlyenterprise-specificunderArticle2.1(a).(b) SpecificityoftheInnovationfortheFuturegrant

ThefirstquestiontobedeterminediswhetherthespecificityoftheIFFgrantshouldbedeterminedatthelevelofthesubsidy,orthelevelofthesubsidyprogrammepursuanttowhichitisawarded.ThePanelinUS–LargeCivilAircraftstatedthatspecificitymustgenerallybeanalysedatthelevelofthesubsidyprogrammepursuanttowhichindividualpaymentsareprovided(wherethesubsidytakestheformofapayment,andwhereitisprovidedpursuanttoawiderprogramme),andnotatthelevelofeachindividualpaymenttakeninisolation,absentoneormorereasonsastowhyananalysisattheleveloftheentireprogrammeisnotappropriate(para7.1252).However,wheretheprogrammeitselfisnotfoundtobespecific,itmayinsomecircumstancesbepossiblestilltofindtheindividualtransactionspecific.ThePanelinJapan–DRAMS(Korea)statedthat

Anindividualtransactionwouldbe“specific”,though,ifitresultedfromaframeworkprogrammewhosenormaloperation(1)doesnotgenerallyresultinfinancialcontributions,and(2)doesnotpre-determinethetermsonwhichanyresultantfinancialcontributionsmightbeprovided,butratherrequires(a)consciousdecisionsastowhetherornottoprovidethefinancialcontribution(tooneapplicantoranother),and(b)consciousdecisionsastohowthetermsofthefinancialcontributionshouldbetailoredtotheneedsoftherecipientcompany.(para7.374)

Japan–DRAMS(Korea)concernedarestructuringarrangementdesignedtosaveaspecificindividualcompanyfrominsolvency,anditwasinpartthispoliticalintentwhichconvincedthePanelthatitwasappropriateinthatcasetoanalysethecaseattheleveloftheindividualtransaction(para7.373).Attheleveloftheprogramme,itwillbedifficultforBorduriatoarguethatthereisexplicitspecificityofanysortinthetermsoftheInnovationfortheFutureprogrammewithinthemeaningofArticle2.1(a).TheprogrammeisopentoallbusinessesoperatinginanysectoroftheEriadorianeconomy.LikeinUS-LargeCivilAircraft,4thecriteriaforawardofgrantsaresufficientlybroadandvague

4Theprogrammeinthatcasereferredto‘highrisk,highpay-off,emergingandenabling

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nottolimittheprogramtoanidentifiableindustryorgroupofindustries.Atthesametime,EriadorcannotarguethatArticle2.1(b)appliestotheIFFprogram:thecriteriaaccordingtowhichgrantsareawardedareprobablynot‘objective’,certainlydonotautomaticallytriggertheawardofagrant,donotcovertheamountofthegrant,andalmostcertainlydon’taccordwiththerequirementsofthefootnotetoArticle2.1(b).ArgumentwillthereforecentreontheapplicationofArticle2.1(c),relatingtodefactospecificity.Sinceteamshavenotbeengivendataconcerningthenatureandnumberoftheenterprisestowhomgrantshavebeenawarded,argumentsshouldonlyconcernindustry-specificity.Wherethegrantingofthesubsidyindicatesadisparitybetweentheexpecteddistributionofthatsubsidyanditsactualdistribution,apanelwillberequiredtoexaminethereasonsforthatdisparitysoasultimatelytodeterminewhethertherehasbeenagrantingofdisproportionatelylargeamountsofasubsidytocertainenterprises(US–LargeCivilAircraft(AB),para879).Averylargedisparitymayinitselfconstitutesufficientevidenceofspecificityintheabsenceofconvincingrebuttal(id,para888).Itisrelevanttoconsidernotonlytheactual,butalsothepotentialrecipientsofaparticularsubsidy(US–CountervailingMeasures(China)(AB)para4.140).Astotheconceptof‘industry’,thecasesindicatethatthatanindustry,or‘groupofindustries’,maybegenerallyreferredtobythetypeofproductstheyproduce:‘theconceptofan“industry”relatestoproducersofcertainproducts’(US–UplandCotton(Panel),para7.1142;US–AV/CVDs(China)(AB),para373).Borduriamayarguethat:

• thespecificityoftheIFFgrantshouldbedeterminedattheleveloftheindividualgrant,asinJapan–DRAMS(Korea);

• evenattheleveloftheIFFprogramme,‘therenewableenergysector’representsa‘groupofindustries’withinthemeaningofSCMArticle2.1(c),andthefactthat90%ofgrantrecipientsareintherenewableenergysector,whilethatsectorrepresentslessthan10%ofeligiblebusinessesacrossthehighlydiversifiedEriadorianeconomyasawhole,raisesastrongprimafaciecasethattheprogrammeisdefactospecifictoagroupofindustriesunderSCMArticle2.1(c);and

• therearenofactsavailableintheCasetoofferaconvincingrebuttalofthatprimafaciecase.

Eriadormayarguethat:

• thespecificityofthegrantshouldbedeterminedattheleveloftheprogramme,asthefactsofthiscasearedistinguishablefromJapan–DRAMS(Korea);

• ‘therenewableenergysector’istoobroadanddifferentiatedtorepresentan‘industry’or‘groupofindustries’withinthemeaningofSCMArticle2.1(c);

• whenaccountistakenofthelimiteddurationoftheprojectsofar,adegreeofdisproportionistobeexpected,whichislikelytoevenoutovertime;and

• takenasawhole,thefactsareinsufficienttoshowaprimafaciecaseofspecificity.

4.2.5. SCMArticle5andArticle6.3(c):‘theeffectofthesubsidyissignificant…

lostsalesinthesamemarket’technologies’.

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SCMArticle5providesthatnoMember‘shouldcause,throughtheuseofanysubsidyreferredtoinparagraphs1and2ofArticle1,adverseeffectstotheinterestsofotherMembers,i.e.:…(c)seriousprejudicetotheinterestsofanotherMember’.Footnote13tothatprovisionclarifiesthat‘theterm“seriousprejudicetotheinterestsofanotherMember”…includesthreatofseriousprejudice.’Article6.3(c)furtherprovidesthat‘Seriousprejudiceinthesenseofparagraph(c)ofArticle5mayariseinanycasewhere…(c)theeffectofthesubsidyis…significant…lostsalesinthesamemarket.’

BorduriamustthereforeshowthattheeffectoftheEribankloanandtheInnovationfortheFuturegrant,eitherindividuallyorcollectively,hasbeensignificantlostsalesonthepartoftheBordurianproducer(SolarTech),andthatSolarTech’sproductscompeteinthesamemarketasthesubsidizedproduct.Youshouldexpectmostoftheargumentatthispointintheanalysistofocusonthequestionofcausation:thatistosay,thequestionofwhetherthefailureofSolarTechtowinthecontractwithElektricaistheeffectofthesubsidiestoFutureEnergy,whetherindividuallyorcumulatively.

(a) ‘theeffectofthesubsidy…’

Borduriamustshowthereisa‘genuineandsubstantialrelationshipofcauseandeffect’betweentheloanandthegrant,ononehand,andthelostsalesbySolarTech,ontheother(EC–LargeCivilAircraft(AB),para1232).Thiscanbeshownthroughademonstrationthatthemeasuresinquestionareanecessaryandsubstantialcause,eveniftheyarenotasufficientcauseinthemselves(id,para1233).Thecausationtestwillnotbesatisfiediftheeffectofotherfactorsissuchastorendertheimpactofthesubsidiestooremoteorattenuated(seegenerally,EC–LargeCivilAircraft(AB),para1232-1233).Analysingtheeffectofthesubsidywillnecessarilyinvolvecounterfactualanalysis–thatis,acomparisonoftheexistingmarketsituationwiththemarketsituationwhichwouldhavearisenintheabsenceofthesubsidy(US–UplandCotton(21.5-Brazil)(AB),para351).Here,thatmayinvolveseekingtoascertainthelikelyoutcomeoftheElektricadealintheabsenceofthesubsidy(subsidies)inquestion.Generallyspeaking,itappearseasiertoshowthatsubsidiescontingentonexportperformancecontributetoadverseeffects,sinceintheirnaturetheymodifytheincentivesfacedbyadomesticproducer,rewarddiscriminationinfavourofproductionforexportmarketsoverthedomesticmarket,andtherebyreduceexportprices.Evenrelativelysmallsubsidiesmayhavesignificanteffects,dependingonthenatureofthesubsidies,andthecircumstancesinwhichthosesubsidiesarereceived,includingtherelevantmarketstructureandconditionsofcompetitioninthatmarket(US–LargeCivilAircraft(AB),para1253-1254).SinceBorduriaisallegingthatthelostsalesaretheresultoftwosubsidies,thequestionarisesastowhethertheeffectsofeachsubsidyaretobeanalysedseparately,ortogether.Itisperfectlypossibleforeachsubsidytobeanalysedseparatelyastowhethertheyindividuallyconstituteagenuineandsubstantivecause,thoughinthatcasecaremustbetakentoensurethat,asaresultofthisatomizedapproachnosubsidyatallisfoundtobeasubstantialcause(US–LargeCivilAircraft(AB),para1284).Asregardsanalyzingcollectivecausation,theAppellateBodyhasstatedthatthereareatleasttwopermissible

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approaches:aggregation(wheresufficientlysimilarsubsidiesaregroupedtogether,andtheeffectsofthegroupasawholearedetermined);andcumulation(whereasinglesubsidyisanalysedtodeterminewhetheritconstitutesagenuineandsubstantivecauseofadverseeffects,andothersubsidiesareanalysedtodeterminetheextenttowhichtheyhaveagenuinecausalconnectiontothesameeffects)(US–LargeCivilAircraft(AB),para1284ff).Bothapproachesareprobablyavailableinthepresentcase,butthebetterBordurianteamsshouldrealizethattheyarelikelytohaveamarginallyeasiertimearguingacaseforcumulation,asperthePanel’sapproachinEC–LargeCivilAircraft.Butthisisaminorpoint,andnottoomuchshouldbemadeofit.Argumentsaboutcausationareinevitablyfactintensive,andyoushouldexpectteamstoofferawiderangeofcreativeargumentsbasedonvariousinterpretationsofthesparsefactsintheproblem.Forthepurposesofthemoot,themostimportantthingisthattheteams:(a)demonstratethattheyunderstandandcanapplytheapplicablelegaltestsofcausation;and(b)showgoodjudgmentinselectingthemostplausibleandpersuasiveargumentsmadeavailablebythefactsoftheCase.Aslongastheseskillsaredemonstrated,pleasedotrytostopteamstakingtoomuchoftheirallottedtimeattemptingoverlycomplicatedcausalarguments,orspeculatingaboutfactswhicharenotgivenintheproblem.Borduriamayargue(muchliketheUSinEC–Aircraft):

• thatwithoutthesubsidiesFusilliscopeswouldnothaveenteredintoproductionatallbythetimeoftheElektricasale,oratleastwouldhavebeenanimmatureandtechnologicallylessadvancedproduct,andthatthereforeFutureEnergycouldnotpossiblyhavewontheElektricacontractwithoutthesubsidies;and

• evenifitisfoundthattheFusilliscopescouldorwouldhaveenteredproduction,thesubsidiesenabledFutureEnergytoreducedthemarginalcostsofproductionofFusilliscopes(byenablinglearningeffectsandeconomiesofscale),allowingittoofferapricediscountbelowthelevelthatwouldotherwisehavebeeneconomicallyjustifiable,whichwasdecisiveinElektrica’sdecisiontogivethecontracttoFutureEnergy;

• andthatthereforeevenifotherfactorscontributedtothelostsales,thesubsidies,individuallyand/orcumulatively,neverthelessstillconstituteda‘genuineandsubstantive’causeofthem.

Eriadormayargue:

• thatwithouttheEribankloan,CleanTech’sabilitytoconstructthefirstproductionwouldnothavebeenprecludedbutmerelydelayed,andthatitisverylikelythatproductionwouldhavestartedinanycasebythetimeoftheElektricadeal;

• thatFutureEnergywouldhaveofferedthe50%discounttoElektricaevenwithoutthesubsidies,giventhestrategicimportanceoftheCarpathianmarketandofElektricaasabusinesspartner;

• thatElektrica’sdecisiontoawardthecontracttoFutureEnergywasnotprimarilybasedonpricecompetition,butonothercompetitiveadvantagesofFusilliscopes,egtheirabilitytoprovideelectricityacrossdifferentloadtypes,theirbetterscalabilityascomparedtosolar;theirlowervariablecostsofelectricityproduction,andtheirstatusasanadvancedanddisruptivetechnology.

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(b)‘significant’lostsalesinthe‘samemarket’,and‘threatofseriousprejudice’ SomeEriadorianteamsmayoffertwofurther,somewhatweakerargumentsin

responsetothisclaim.First,theymaysuggestthat,evenifthesubsidiesledtothelostsalesinquestion,theselostsaleswerenot‘significant’.TheAppellateBodyhasnotedthattheterm‘significant’means"important,notableorconsequential",andhasbothquantitativeandqualitativedimensions(US—UplandCotton(Article21.5-Brazil)(AB),para.416).Lostsalescanhavesignificantbeyondtheirdirectrevenueeffects,forexample,totheextentthattheydelayamanufacturer'sabilitytobenefitfromtheimportantlearningeffectsandeconomiesofscaleinthisindustry(EC–LargeCivilAircraft(AB),para7.1845).Theymayalsohavelargersignificancewherethecustomerisstrategic(ibid.).Inthiscase,however,thefactsstronglysuggestthatthelostsalesaresignificant.Mostteamsarethereforelikelytoconcedethispoint.

SomeEriadorianteamsmayalsotrytomountanargumentthattheselostsales

werenotinthe‘samemarket’asrequiredbyArticle6.3(c).Salescanbelost"inthesamemarket",withinthemeaningofArticle6.3(c),onlyifthesubsidizedproductandthecomplainant’sproductscompeteinthesameproductmarket(US–UplandCotton(AB),para408-9;EC–LargeCivilAircraft(AB),para1119-1123).WhilethefactsoftheElektricadealthemselvesstronglysuggestthatsolarpanelsandFusilliscopescompeteforthesamecustomers,someteamsmayattempttoarguethatthesegenerationtechnologiesaresufficientlydifferentthattheyfallwithindistinctproductmarkets.AlthoughitisnotaformalelementofaclaimunderArticle6.3(c)(atleastasitrelatestolostsales–seeKorea–Vessels),neverthelessyoumayfindsometeamsreferringtotheconceptof‘likeproducts’atthispointintheargument.Itisnotunreasonabletosuggestthatproductsare‘inthesamemarket’iftheyare‘likeproducts’,andasaresulttheargumentsreferredtosection4.3.5belowmayberelevanthere.

SomeBordurianteamsmayalsomountasecondarycasethat,evenifthereisinsufficientevidenceofadverseeffects,neverthelessathreatoflostsalesstillexists,asperfootnote14totheSCMAgreementreferredtoabove.Thefactualbasisforsuchaclaimwouldbequitesparse,andasaresultfewteamsarelikelytospendahugeamountofspaceonit.Nevertheless,thosewhomakeapersuasivecaseonthisrelativelyadvancedpointmayberewarded.

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4.3. Claim(c):TheFeed-in-tariffscheme

Importantnote:fromthequestionswhicharoseintherequestsforclarifications,itisclearthatsometeamshavefocusedtheirattentiononthediscriminatoryaspectsofthismeasure.Tosomeextentthisisunderstandable:thereisanobviousproblemwiththeFITcontractasanattempttopromoterenewableenergyinEriador,namelythatitsinglesoutcoldfusionforspecialtreatment,whileofferingnosimilarassistanceatalltootherrenewableenergieswhichmaybeequallybeneficialfortheenvironment.Inotherwords,thereisastrongintuitiveargumentthatitisdiscriminatoryinsomesense.ButitisimportanttorememberthatevidenceofdiscriminationisatbestonlyindirectlyrelevantundertheSCMAgreement,andinrealitythisaspectwouldnormallybechallengedunderanotheragreement.Ifteamstrysomehowtobringinthemeasure’sdiscriminatoryaspectsintotheirargument,theymustclearlyandpersuasivelymakeacasefortheirrelevanceunderaspecificprovisionoftheSCMAgreement.

4.3.1. Borduria’slegalclaim

BorduriaclaimsthatthelongtermpurchaseagreementbetweenFutureEnergyandEEC,concludedpursuanttotheFITScheme,describedinpara11oftheCase,causesseriousprejudicetotheinterestsofBorduriawithinthemeaningofArticle5(c)oftheSCMAgreementandArticleXVI:1oftheGATT1994,asithasdisplacedandimpededimportsofelectricityfromBorduriaintoEriadorwithinthemeaningofArticle6.3(a)oftheSCMAgreement.Inordertomakeoutthisclaim,Borduriamustshowthat:

• theFITcontractrepresentsa‘financialcontributionbyagovernmentoranypublicbody’or‘incomeorpricesupport’withinthemeaningofSCMArticle1.1(a);

• theFITcontractconfersa‘benefit’withinthemeaningofSCMArticle1.1(b);

• theFITcontractis‘specific’withinthemeaningofSCMArticle2;and• theeffectoftheFITcontractisto‘displaceorimpedetheimportsofa

likeproduct’,withinthemeaningofSCMArticle6.3(a).

4.3.2. Article1.1(a):‘financialcontributionbyagovernmentoranypublicbody’or‘incomeorpricesupport

ThemeasureatissuehasbeendesignedtomirrorquitecloselytherelevantaspectsofthechallengedFITProgrammeinCanada–Feed-inTariff.Inthatcase,itwasfoundthatthemeasurewasa‘governmentpurchaseofgoods’underArticle1.1(a)(1)(iii),andthesameconclusionisappropriatehere.ThereisnograntaspecttothepaymentsundertheFITcontractbetweenEECandFutureEnergy:paymentsmadeunderthecontractareforelectricitydeliveredintothegrid.TheEECtakespossessionoftheelectricityforresaletoretailconsumers.TheEECisactingentirelyunderthecontroloftheEriadoriangovernmentinthisrespect,andinanycaseisapublicbodyitself.NotealsothatEriadorandBorduriahavebothagreedtoproceedonthebasisthatelectricityisa‘good’nota‘service’.EriadorwouldthereforebewisetoconcedethattheFITschemeisa‘governmentpurchaseofgoods’.SometeamsontheBorduriansidemayseektomaketheclaimthatthemeasureisalsoa‘formofincomeorpricesupport’underArticle1.1(b).Thisisarguable,

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andthepossibilitywasleftopenbythePanelinCanada–FIT.However,thebetterteamsshouldnotspendtoomuchspaceonthispoint,asthemeasureisa‘governmentpurchaseofgoods’,anditisbettertospendmorespaceonthemoredifficultandinterestingquestionof‘benefit’.

4.3.3. Article1.1(b):‘benefit’

Thisisthemostimportantandperhapsthemostconceptuallydifficultquestionoflawinthisclaim,andasignificantamountofspaceshouldbespentonargumentsconcerningit.UnderArticle1.1(b),asubsidyisdeemedtoexistonlyifthefinancialcontributionconfersa‘benefit’ontherecipient.Asnotedabove,theAppellateBodyhasstatedthatwhetherabenefithasbeenconferredshouldbedeterminedbyassessingwhethertherecipienthasreceiveda‘financialcontributionontermsmorefavourablethanthoseavailabletotherecipientinthemarket’(Canada–Aircraft(AB),para157).UsingArticle14(d)asinterpretivecontext,onewaytoassessthisquestionhereistoexaminewhethertheremunerationobtainedbycoldfusiongeneratorsundertheFITschemeis"morethanadequate"whencomparedtotheremunerationthesamegeneratorswould,inthelightofthe"prevailingmarketconditions",otherwisereceiveontherelevant"market"forelectricityinEriador.ThiswastheapproachadoptedinCanada–FIT.Theanalysisthereforeproceedsintwosteps:first,definingtherelevantmarket;andsecond,determiningtherelevantbenchmarkpriceinthatmarket.(a) Whatistherelevant‘market’?Thefirstquestiontheteamswillhavetoaddressisthedefinitionofthemarketinquestion,fromwhichabenchmarkistobediscerned.ThiswasamajorissueintheCanada–FITdispute,onwhichtherewasanimportantdisagreementbetweenthePanelandtheAppellateBody.ThePaneldefinedtherelevantmarketasthewholesaleelectricitymarketasawhole;whiletheAppellateBodydefineditmorenarrowlyasthewholesalemarketforwind-andsolar-PVgeneratedelectricity.TheAppellateBody’spositionhasbeenheavilycriticizedinthesecondaryliterature,5andassuchitisopentoteamstodisagreewiththeABonthispoint,and/ortodistinguishtheAB’srulinginthatcaseonthebasisofitsfacts.Importantly,thefactsofthiscasehavebeendesignedtomakeitinbothsides’interesttodefinethemarketinbroadtermsasthemarketforwholesaleelectricityasawhole.ThisisprimarilybecauseEriador’sbenchmarkpriceinitsFITcontractsiscalculatedonthebasisofasinglemarketforwholesaleelectricityasawhole.Nevertheless,youshouldexpectsometeamstoarguethispoint.

5See,eg,Rubini,‘‘TheGood,theBadandtheUgly.’LessonsonMethodologyinLegalAnalysisfromtheRecentWTOLitigationonRenewableEnergySubsidies’(2014)48(5)JWT895-938;CharnovitzandFischer,‘Canada–RenewableEnergy:ImplicationsforWTOLawonGreenandNot-so-GreenSubsidies’(2015)14(2)WorldTradeReview177-210;Pal,‘HastheAppellateBody’sDecisioninCanada–RenewableEnergy/Canada–Feed-InTariffProgramOpenedtheDoorforProductionSubsidies’,(2014)17(1)JIEL125-137;CosbeyandMavroidis,‘ATurquoiseMess:GreenSubsidies,BlueIndustrialPolicyandRenewableEnergy:TheCaseforRedraftingtheSubsidiesAgreementoftheWTO’(2014)17(1)JIEL11-47.

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Thefollowingfactorspointtotheexistenceinthiscaseofasinglewholesalemarketforelectricity:(a)thereisfulldemand-sidesubstitutabilityattheretaillevelbetweenallelectricityregardlessofhowitisproduced;(b)therearenophysicaldifferencesbetweendifferentformsofelectricitydependingonhowitisproduced;(c)thereisstrongsupply-sidesubstitutability,ascoldfusioniscapableofproducingbase-,intermediate-andpeak-loadelectricity,makingitpotentiallycompetitivewithallothergenerationtechnologies;(d)priortotheFITscheme,theEECdidnotdistinguishinitspricingpracticesbetweendifferentgenerationtechnologies,andstillmakesnodistinctionbetweenrenewableandnon-renewablegenerationtechnologiesoutsidetheFITscheme;(e)theFITformulaiscalculatedonthebasisthatthereisasinglewholesaleelectricitymarket;(f)thesamebroadcontracttypesareequallyappliedtoallgeneratorsinthemarket,regardlessofgenerationtechnology;(g)thefactthat7%oftheEriadorianmarketwassuppliedbyrenewableenergy,withoutspecificsupportforthesegenerators,suggeststhatgovernmentinterventionisnotnecessarytocreateamarketforrenewableenergygenerally(asopposedtocoldfusionspecifically).Thefollowingfactorspointtotheexistenceofaseparatemarketforelectricityderivedfromcoldfusion(andothercomparablerenewableenergytechnologies);(a)thefactssuggestthatamarketforcoldfusionelectricitywouldnotexistabsenttheFITscheme;(b)theproductioncoststructureforcoldfusion(highcapitalcosts,lowvariableoperatingcosts)issimilartosolarandwind,anddifferentfromtraditionalnon-renewablesources;(c)thegovernmentmandatedsupplymixhastheconsequencethattheEECmustmakeadistinctioninitspurchasingdecisionsbetweendifferentgenerationtechnologies,thusreducingthesubstitutabilityinpracticebetweenthem.Thefollowinganalysisproceedsonthebasisthatthe‘market’inthiscaseisthemarketforwholesaleelectricityasawhole,takingthegovernment-mandatedsupplymixasgiven,whichisthebetterviewonthefactsofthiscase.Importantly,whichevermarketisdeterminedtobetheappropriateone,itisclearthatthemarketmustbedefinedtakingthegovernment-mandatedsupplymixasgiven(Canada–FIT(AB),para5.190). (b) IdentificationoftherelevantbenchmarkpriceinthedefinedmarketOncethemarkethasbeendefined,thenexttaskistoidentifyanappropriatebenchmarkpriceinthatmarket.Forthepurposesofthepresentcase,thekeyprinciplesforthedeterminationofanappropriatebenchmarkareasfollows.First,properbenchmarkpriceswouldnormallyemanatefromthemarketforthegoodinquestioninthecountryofprovision(US–CarbonSteel(India)(AB),para4.151).ThestartingpointofanalysisisthereforetheelectricitypricesintheEriadorianmarketasdeterminedbythecombinationofgeneralcontractsandspotmarkets.

Second,however,thesepricesmayinsomecircumstancesberejectedasinappropriate.TheAppellateBodyhasmadeclearthatexistingin-countrypricesmayinsomecircumstancesberejectedasbenchmarksifthereisasufficientlysignificantpricedistortioninthedomesticmarket,suchthatthedomesticpricesarenotinrealitymarketdetermined(seeUS–AD/CVDs(Chinas)(AB)para446);US–CountervailingMeasures(China)(AB),para4.50;US–CarbonSteel(India)(AB);para4.155;US–SoftwoodLumberIV(AB),para100).Yetimportantly,inall

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ofthesecases,thedistortionarosefromtheactionsofgovernmentasamarketparticipantaffectingmarketpricesthroughtheexerciseofmarketpower.Thisisnotthecasehere,wherethedistortionresultsfromthefactthatpricesonthewholesalemarketdonotaccountforthenegativeexternalityofcarbonemissions,andtheinvolvementofgovernmentinthecreationandmaintenanceofthatdistortionisofadifferentkind.Itisthereforenotclearwhetherthedistortioninthepresentcaseisattributabletogovernmentactioninthesamewayasinthecasescitedabove,andifnot,whetherthislineofjurisprudenceapplies.

Third,ifexistingin-countrypricesareappropriatelyrejectedasdistorted,thequestionthenbecomeshowtoconstructanalternativebenchmark.Differentapproachesarepossible:datafromothercountriesmaybeused,orproxypricesmaybeconstructedusingvariousmethods,providedthattheyreflecttheprevailingmarketconditionsforthegoodorserviceinquestioninthecountryofprovisionorpurchase.InCanada–FIT,thePanelsuggestedthatabenchmarkbasedonproductioncosts,withareasonablerateofreturn,maybeappropriate.TheAppellateBodyexpressednoviewonthemeritsofthiscomparison,butsuggestedotherpossibilities(para5.217,5.227ff).Importantly,however,thefactsinthiscasearenotsufficienttoconstructreliablebenchmarksonthebasisofeitherforeigncountrymarkets,orproductioncosts,andteamswillthereforehavetobasetheirargumentsprimarilyontheappropriatenessoftheproxyconstructedbyEriador,replicatedintheFITformula.SomeBordurianteamsmaywellrealizethattheireasiestlineofattackmightbetochallengethespecificsoftheFITformulaitself,whichhasanumberofflawsifitspurposeistoapproximatethecostofelectricityinanundistortedmarket.Therearemanyreasonswhythedetailsofthisformulamightbeproblematic,eg:shouldMbeanaveragepriceorshoulditbetiedtospotmarkettransactions?shouldFutureEnergy’ssupplybeexcludedfromthecalculationoftheaverageM?IsMrealisticgiventhatthesupplymixwhichwouldactuallyexistinatrulycompetitivemarketmightbeverydifferentfromtheexistingmarket?Isthepricegiventoonetonofcarbonreasonable,oritisoverestimated?Followingtheseprinciples,Borduriamayargue:

• thatactuallyexistingin-countrypricesoutsideoftheFITSchemeareappropriatebenchmarks,astheyaredeterminedbymarketcompetition(competitivetenderinthecaseofgeneralcontracts,anddirectcompetitioninthecaseofspotmarkettransactions);

• thatwhilethedomesticelectricitymarketisdistortedbythenegativeexternalitiesassociatedwithcarbonemissions,thisisnotapricedistortioncausedbygovernmentalintervention,andthereforeisnotareason(underthecurrentjurisprudence)forrejectingin-countrypricesasbenchmarks;

• thatevenifitispermissibletoconstructabenchmarkbycorrectingforthisdistortion,theFITformuladoesnotcorrectlydoso,andinfactsystematicallyover-estimatestheelectricitypricewhichwouldexistintheEriadorianmarketifitwerenotdistorted,andprovidesmorethanadequateremuneration;

• thatitisnotappropriatetoadoptamarketbenchmarkwhichcorrectsforonlyonedistortion,andnotthemanyotherswhicharguablybesetenergymarkets;

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• evenifthePanelfindsthatexistingmarketpriceswouldnotsustainthegovernment-mandatedsupplymix,andthatthepriceforcoldfusionelectricitywouldthereforehavetobehigherthanmarketpricestosustainthissupplymix,neverthelesstheFITformulaisclearlytoohighasitresultsinaproportionofrenewableenergywellinexcessofthedefinedminimum.

Eriadormayargue:

• thatactuallyexistingmarketpricesinEriador(otherthanFITprices)arenotappropriatebenchmarksbecausetheexistingmarketisdistortedsinceitdoesnotaccountforthenegativeexternalityofcarbonemissions,andthatthisdistortionhasbeenrecognizedassignificantbyallpartiestotheFCPRE;

• that,furthermore,actuallyexistingmarketpricesshouldberejectedbecausetheycannotsustainthesupplymixdefinedbytheEriadoriangovernment,whichmustbetakenasagivenforthepurposesofbenefitanalysis;

• thatthelackofavailablereliableinformationprecludesconstructingalternativebenchmarksbasedon,eg,foreignmarketsorproductioncosts+reasonableratesofreturn;

• thatthebestavailablebenchmarkisthereforeaproxybasedonexistingmarketpricesinEriador,correctedtoremovethedistortion;

• thatwhiletheFITformulamaynotperfectlyemulatethepricewhichwouldexistinanundistortedmarket,noworkableformulacandoso,andtheFITformulaisareasonableandunbiasedapproximation.

4.3.4. Article1.2andArticle2:‘specific’

EriadorislikelytoconcedethattheFITschemeis‘specific’withinthemeaningofSCMArticles1.2and2.Borduriawillnotethattheschemeisonlyavailabletogeneratorsofcoldfusionenergy,andisthereforeexplicitlylimitedto‘certainenterprises’underSCMArticle2.1(a).Inanycase,itisdefactoonlyusedbyoneenterprise,FutureEnergy.

4.3.5. SCMArticle5andArticle6.3(a):‘theeffectofthesubsidyistodisplaceorimpedetheimportsofalikeproductofanotherMemberintothemarketofthesubsidizingMember’

BorduriamustshowthattheeffectoftheFITschemehasbeentodisplaceorimpedetheimportsoflikeproductsfromBorduriaintothemarketofEriador.Themarket:A‘market’withinthemeaningofArticle6.3(a)is‘asetofproductsinaparticulargeographicalareathatareinactualorpotentialcompetitionwitheachother’.Consequently,theapplicationofArticle6.3(a)requiresthedefinitionoftherelevantproductmarketinordertodeterminewhetherparticularproductscanbetreatedasformingpartofasingleproductmarketorseveralproductmarketsforpurposesofananalysisofdisplacementandimpedance(EC–LargeCivilAircraft(AB),para1123).Inthiscase,argumentsconcerningthedefinitionoftherelevantmarketarelikelytomirrorthosesetoutinsection4.3.3above,andarecloselyrelatedalsotothequestionoflikeproduct.Likeproducts:Borduriamustshowthattheelectricityprovidedbyitsproducersis‘like’theelectricityproducedbyFutureEnergy.Footnote46totheagreement

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notesthat‘[t]hroughoutthisAgreementtheterm“likeproduct”…shallbeinterpretedtomeanaproductwhichisidentical,i.e.alikeinallrespectstotheproductunderconsideration,orintheabsenceofsuchaproduct,anotherproductwhich,althoughnotalikeinallrespects,hascharacteristicscloselyresemblingthoseoftheproductunderconsideration.’Thisdefinitionof‘likeproducts’isspecifictotheSCMAgreement,andwasinterpretedbythePanelinIndonesia–Autos.Inthatcase,thePanelfoundthatusefulguidancecanbederivedfromtheinterpretationof‘likeproducts’fromotherWTOagreements(para14.174).Itfoundphysicaldifferencesbetweenproductstobehighlyrelevant,particularlytotheextentthattheyhadanimpactonthepriceoftheproductsinquestion,theusestowhichtheyareput,andtheirsubstitutability(para14.173).Italsofounditrelevanttoconsiderthewaysinwhichproducersthemselvesanalysemarketsegmentation(para14.177).Importantly,theABhasmadeclearthatacentralaspectoftheapplicationofArticle6.3(a)isanassessmentofthecompetitiverelationshipbetweenspecificproductsinthemarketplace(EC–LargeCivilAircraft(AB),para1123).Displacementorimpedance:‘Displacement’arisesunderArticle6.3(a)wheretheeffectofthesubsidyisthatimportsofalikeproductofthecomplainingMemberaresubstitutedbythesubsidizedproductinthemarketofthesubsidizingMember.‘Impedance’referstosituationswheretheexportsorimportsofthelikeproductofthecomplainingMemberwouldhaveexpandedhadtheynotbeen“obstructed”or“hindered”bythesubsidizedproduct.ItcouldalsorefertoasituationwheretheexportsorimportsofthelikeproductofthecomplainingMemberdidnotmaterializeatallbecauseproductionwasheldbackbythesubsidizedproduct.(SeegenerallyEC–LargeCivilAircraft(AB),paras1160-1162).Causation:Borduriamustshowthatthisdisplacementorimpedanceisaneffectofthesubsidy.Todothis,itmustshowthereisa‘genuineandsubstantialrelationshipofcauseandeffect’betweentheFITschemeandthelossofmarketsharebyElectricityBorduriaandtheBordurianElectricityCorporation.ThiscanbeshownthroughademonstrationthattheFITschemeisanecessaryandsubstantialcause,evenifitisnotasufficientcauseinitself.ThecausationtestwillnotbesatisfiediftheeffectofotherfactorsissuchastorendertheimpactoftheFITschemetooremoteorattenuated.Analysingtheeffectofthesubsidywillnecessarilyinvolvecounterfactualanalysis–thatis,acomparisonoftheexistingmarketsituationwiththemarketsituationwhichwouldhavearisenintheabsenceofthesubsidy.Borduriamayargue:

• thatelectricityfromBorduriais‘like’electricityproducedfromcoldfusionbecausethe‘productcharacteristics’ofelectricityareidenticalregardlessofthetechnologyusedtogenerateit,andbecausethereisasinglemarketforwholesaleelectricityinEriador,inwhichallgenerationtechnologiescompetewithoneanother,forthereasonsgivenunder4.3.3above;

• thattheFITschemeprovidedastrongincentiveforFutureEnergytoincreaseproduction,andthatitdidso,withthedirectresultthatitincreaseditsmarketshare;

• thatBEC’sandEB’slossofmarketshareissubstantiallyattributabletoFutureEnergy’sincreasedproduction,asevidencedbythemarketsharedata,combinedwiththestatementintheEEC’sAnnualReports;

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• thatevenifthegovernmentmandatedsupplymixwasalsoacontributingfactortothislossofmarketshare,theFITschemeisstillasubstantialcause,giventhattheachievedmarketshareofrenewableenergyissubstantiallyhigherthanthemandatedminimum;

• that,evenifthereisinsufficientevidenceofdisplacementorimpedance,neverthelessathreatofdisplacementorimpedancestillexists.

Eriadormayargue:

• thatproductionmethodscanberelevanttothedeterminationofthelikenessofproducts,wheretheyhaveaneffectonthecompetitiverelationshipbetweenthemandtheindiciaoflikeness,andthatinthiscasetherelevantproductiontechnologiesareradicallydifferentintheirnatureandeffects;

• thatcoldfusionenergydoesnotcompeteinthesamemarketasnon-renewableenergyforthereasonssetoutin4.3.3above;and

• thatBEC’sandEB’slossofmarketshareshouldbeattributedtothegovernmentmandatedsupplymix,whichrequiredrenewableenergytoconstitute30%ofsupplyby2015,andthereforewouldinanycasehaveledtoalossofmarketshareonthepartofnon-renewablesuppliers.Asaresult,thereisno‘genuineandsubstantialrelationshipofcauseandeffect’betweentheFITSchemeandthelossofmarketshare.

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4.4. GATTArticleXX

AlthoughthisproblemisdesignedtobefocussedalmostexclusivelyontheSCMAgreement,andtheclaimsareexplicitlylimitedtoclaimsunderthatagreement,itremainsanopenquestionunderthepresentstateofthejurisprudencewhetherGATTArticleXXisavailableasadefencetoallclaimsundertheSCMAgreement.Wemightthereforeexpectsometeamstoarguethis–particularlyasoneoftheClarificationsquestionsexplicitlyconcernedthisissue.Thisisarelativelyadvancedpointoflaw,soteamsshouldbegiventhespacetoshowtheirabilitytodiscussanddevelopitiftheywishto.Atthesametime,itwouldbeamistaketospendtoomuchspaceonthisquestiontotheexclusionofextendeddiscussionoftheSCMAgreementitself.Asaresulttheissueisonlybrieflycanvassedhere.(a) ApplicabilityofGATTArticleXXtoclaimsundertheSCMAgreementTheAppellateBodyhasconsideredtheapplicabilityofGATTArticleXXtonon-GATTobligationsinanumberofcases,andhasruleditinapplicableinrelationtosome,applicableinrelationtoothers,anddeclinedtodecideinrelationtoothersstill(China–RawMaterials;China–Audiovisuals;US–MeasuresrelatingtoShrimpfromThailand;US–Poultry).IthasneverconsidereditsapplicabilitytotheSCMAgreement.EriadormayclaimthatArticleXXGATTisapplicabletoclaimsundertheSCMAgreementbecause:

• theobjectandpurposeoftheSCMAgreementistoelaborate,interpretandimprovetherelevantGATTdisciplinesrelatingtotheuseofsubsidies(ieGATTArticleXVI),andtheseGATTdisciplinesarethemselvessubjecttoGATTArticleXX;

• thereareanumberoftextualhooksintheSCMAgreementwhichrefertotheGATT(egArt5,Fn12,13…)

• thatthereisnoexplicitindicationinthetext,ornegotiatinghistory,oftheSCMAgreementwhichexcludestheoperationofGATTArticleXX;and

• thattherearestrongreasonsofpolicyandprinciple,includingthefundamentalrightofstatestoregulate,toapplyGATTArticleXXtoclaimsundertheSCMAgreement.

Borduriamayargue:

• that,asageneralproposition,theGATTandthespecializedAnnex1Aagreements(includingtheSCMAgreement)applycumulatively(Argentina–FootwearSafeguards,para80ff);

• theuseoftheterm‘thisagreement’inGATTArticleXXpresumptivelyprecludesitsapplicationtootheragreementsintheabsenceofclearreasonstothecontrary;

• that,whilePartVoftheSCMAgreementimplementsGATTArticleVI,PartsIIandIIIcontainobligationswhichareindependentof,andadditionalto,GATTobligationsrelatingtosubsidies;

• that,unlikeotherspecializedagreements,theSCMAgreementcontainsnoexplicitreferencetoArticleXX,andthattheremustbeareasonforthisdecisionnottoincludeit;and

• thattheSCMAgreementcontainscertainlimitedcarveoutsfornon-

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actionablesubsidiesunderPartIV,whichimplicitlyexcludestheoperationofgeneralexceptionsunderArticleXX.

(b) ApplicationofGATTArticleXXtotheFITclaimGATTArticleXXstates,inrelevantpart:

Subjecttotherequirementthatsuchmeasuresarenotappliedinamannerwhichwouldconstituteameansofarbitraryorunjustifiablediscriminationbetweencountrieswherethesameconditionsprevail,oradisguisedrestrictiononinternationaltrade,nothinginthisAgreementshallbeconstruedtopreventtheadoptionorenforcementbyanycontractingpartyofmeasures:…(b)necessarytoprotecthuman,animalorplantlifeorhealth;…(g)relatingtotheconservationofexhaustiblenaturalresourcesifsuchmeasuresaremadeeffectiveinconjunctionwithrestrictionsondomesticproductionorconsumption

EvenifEriadorsucceedsinmakingitscasethatArticleXXisapplicable,itfacesconsiderabledifficultiesinshowingthatitpassesallthehurdlescontainedinthatprovision.Inbrief:

• underArticleXX(g),aquestionmayariseastowhethertheFITschemehasbeen‘madeeffectiveinconjunctionwithrestrictionsondomesticproductionorconsumption’;

• underArticleXX(b),whichcontainsanecessitytest,Eriadorwillbevulnerabletotheclaimthattherealesstraderestrictivemeansofachievingitsobjective,e.g.throughtheuseofanon-discriminatoryconsumersubsidyfortheconsumptionofrenewableenergy(orcoldfusionenergy);

• underthechapeau,thereisastrongargumentthattheapplicationoftheFITschemeonlytocoldfusionis‘arbitraryandunjustifiablediscrimination;asiteffectivelysinglesoutoneEriadorianproducerforspecialtreatment,anddoesnotofferthesameorsimilararrangementforanyotherrenewableenergysupplierswhichpresumablymayhaveacomparablybeneficialclimateimpact(see,e.g.US-Shrimp(AB)),includingforeignsupplierswhomaywishtosupplyrenewableenergyintotheEriadorianmarketnoworinthefuture;and

• underthechapeau,EriadorwillalsobevulnerabletotheclaimthatthepriceformulacontainedintheFITcontractconstitutes‘arbitraryandunjustifiablediscrimination’sinceitsystematicallyoverestimatesthepriceofelectricityinanundistortedmarket,forallthereasonssetoutabove.Asaresult,theformularesultsinanarbitrarycompetitiveadvantagebeinggiventothosecompanieswhichreceiveanFITcontract–arbitrarybecauseitisnotcommensuratewiththeproblemitseekstoaddress,northecontributionofthosecompaniestoitssolution.

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4.5. TheFrameworkConventiononthePromotionof

RenewableEnergy

TheinclusionoftheFrameworkConventiononthePromotionofRenewableEnergyinthefactsofthiscaseprovidesteamswithanopportunitytoturntheirmindstosystemicquestionsofWTOlawoutsidetheconfinesoftheSCMAgreement,andmorespecificallytodemonstratetheirknowledgeofsomebasicpropositionsabouttherelationshipbetweenWTOlawandnon-WTOlawinthecontextofWTOdisputesettlementproceedings.ThissectionlooksinturnatanumberofwaysinwhichEriadormayseektorelyontheFCPRE.Giventhattimeislimited,thereshouldbenopenaltyforteamsstrategicallychoosingnottorefertotheFCPRE,particularlyiftheyshowgoodknowledgeoftherelevantlawunderquestioning.

4.5.1. Asevidenceoffact First,EriadormayseektorelyonthePreambleoftheFCPREassupportforits

claim,setoutinsection4.3.3above,thattheelectricitymarketinEriadorissignificantlydistorted,asamatteroffact.InthatPreamble,all173statespartiestotheFCPREexplicitlyacknowledgethatfact,aswellasitsimportance.

Thisisunlikelytobeatallcontroversial.Non-WTOlawhasbeenusedtosupport

findingsoffactinthisfashionbeforeinWTOproceedings.Thefactthatelectricitymarketsaredistortedasaresultofcarbonexternalitiesiswellaccepted.AndinanycasetheevidentiaryvalueoftheFCPREhereisonlysecondaryandsupportive.

4.5.2. VCLTArticle31(2):asinterpretivecontext

DSUArticle3.2providesthatWTOagreementsaretobeinterpretedinaccordancewithcustomaryrulesofinterpretationofpublicinternationallaw.ManyofthesecustomaryrulesarecodifiedinArticles31and32oftheViennaConventionontheLawofTreaties1969.AccordingtoVCLTArticle31(1),atreaty‘shallbeinterpretedingoodfaithinaccordancewiththeordinarymeaningtobegiventothetermsofthetreatyintheircontextandinthelightofitsobjectandpurpose’.Article31(2)thenprovidesthat‘thecontextofatreatyshallcomprise,inadditiontoitstext,includingitspreambleandannexes:(a)anyagreementrelatingtothetreatywhichwasmadebetweenallthepartiesinconnexionwiththeconclusionofthetreaty;and(b)anyinstrumentwhichwasmadebyoneormorepartiesinconnexionwiththeconclusionofthetreatyandacceptedbytheotherpartiesasaninstrumentrelatedtothetreaty.’Themostnotableexampleofa‘non-WTO’treatybeingacceptedascontextfortheinterpretationofWTOagreementsintheHarmonizedSystem,whichisrelevanttotheinterpretationoftariffheadingsinschedules(seeEC–ChickenCuts;China–AutoParts;EC–ComputerEquipment).However,thiswasonthebasisoftheextremelycloselinkbetweentheHSandtheGATT/WTOagreements,includingtheexistenceofabroadconsensusamongstWTOMemberstousetheHSasabasisfortheirSchedules(seeEC–ChickenCuts(AB),paras197-199).ThereisnoequivalentlinkbetweentheWTOagreementsand

32

theFCPRE–indeed,theFCPREwasnotinexistenceatthetimetheWTOagreementswerenegotiated.ItisthereforehardtoseehowtheFCPREcouldfallwithineitherofthedefinitionsofcontextsetoutinVCLTArticle31(2),asanagreementmade‘inconnexionwiththeconclusionofthetreaty.’

4.5.3. VCLTArticle31(3) Article31(3)(c)oftheViennaConventionontheLawofTreatiesstatesthat,in

theinterpretationofatreaty,‘[t]hereshallbetakenintoaccount,togetherwiththecontext…[a]nyrelevantrulesofinternationallawapplicableintherelationsbetweentheparties.’Eriadormayarguethatthisprovision(coupledwithDSUArticle3.2)requiresthepaneltotakeintoaccounttheFCPREinitsinterpretationoftheSCMAgreement.

ThefirstquestioniswhethertheFCPREis‘applicableintherelationsbetween

theparties’withinthemeaningofVCLTArticle31,giventhatnotallWTOMembersarepartytotheFCPRE.(SometeamsmayarguethattheFCPREisacodificationofcustomaryinternationallaw,thoughthiswillbedifficultforthemtoshow.)OntheapproachofthepanelinEC–Biotech,itwouldnot.Inthatcase,thePaneldeterminedthatthephrase‘theparties’shouldbeinterpretedtomeanallpartiestotheWTOagreement.However,theteamswouldbeexpectedtodebatethemeaningandsignificanceofthefollowingmorerecentpassagefromtheAppellateBody’sdecisioninEC–LargeCivilAircraft:

Aninterpretationof"theparties"inArticle31(3)(c)shouldbeguidedbytheAppellateBody'sstatementthat"thepurposeoftreatyinterpretationistoestablishthecommonintentionofthepartiestothetreaty."ThissuggeststhatonemustexercisecautionindrawingfromaninternationalagreementtowhichnotallWTOMembersareparty.Atthesametime,werecognizethataproperinterpretationoftheterm"theparties"mustalsotakeaccountofthefactthatArticle31(3)(c)oftheViennaConventionisconsideredanexpressionofthe"principleofsystemicintegration"which,inthewordsoftheILC,seekstoensurethat"internationalobligationsareinterpretedbyreferencetotheirnormativeenvironment"inamannerthatgives"coherenceandmeaningfulness"totheprocessoflegalinterpretation.InamultilateralcontextsuchastheWTO,whenrecourseishadtoanon-WTOruleforthepurposesofinterpretingprovisionsoftheWTOagreements,adelicatebalancemustbestruckbetween,ontheonehand,takingdueaccountofanindividualWTOMember'sinternationalobligationsand,ontheotherhand,ensuringaconsistentandharmoniousapproachtotheinterpretationofWTOlawamongallWTOMembers.(para845)

Inafootnotetothispassage,theABalsoobservedthat:

WenotethatArticle31(3)(b)requiresatreatyinterpretertotakeintoaccount,togetherwithcontext,"anysubsequentpracticeintheapplicationofthetreatywhichestablishestheagreementofthepartiesregardingitsinterpretation".(emphasisadded)AccordingtotheAppellateBodyinEC–ChickenCuts,Article31(3)(b)requirestheagreement,whetherexpressortacit,ofallWTOMembersforapracticetoqualifyunderthatprovision.TheAppellateBodyrecognizedthattheagreementofthepartiesregardingatreaty'sinterpretationmaybededuced,notonlyfromtheactionsofthoseactuallyengagedinthe

33

relevantpractice,butalsofromtheacceptanceofotherpartiestothetreatythroughtheiraffirmativereactions,ordependingontheattendantcircumstances,theirsilence.(footnote1916)

AfurtherquestionunderArticle31(3)(c)iswhethertheFCPREis‘relevant’totheinterpretationoftheSCMAgreement,ifsoinwhatspecificrespects.Aruleis"relevant"ifitconcernsthesamesubjectmatteroftheprovisionbeinginterpreted(EC–LargeCivilAircraft(AB),para846;US–AD/CVDs(China)(AB),para308).6EriadormayarguethatthePreambletotheFCPREisrelevanttotheinterpretationoftheterm‘benefit’inSCMArticle1.1(b).Morespecifically,itmayarguethatthedeterminationofthemarketbenchmarkunderthatprovisionoughttotakeintoaccounttheclearstatementintheFCPREthatexistingmarketdistortionscausedbycarbonemissionsareofglobalsignificanceandinternationalconcern.Thiswouldarguablysupporttheconclusionthatpricesdrawnfromsuchdistortedmarketsoughttoberejectedasanappropriatebenchmarkforbenefitanalysis.

4.5.4. VCLTArticle41 Article41oftheViennaConventionontheLawofTreatiesaddressesthe

situationinwhichtwoormorepartiestoamultilateralagreementmayconcludeanagreementtomodifythetermsofthemultilateralagreementasbetweenthemselvesonly.Itstates:

Article41AgreementstoModifyMultilateralTreatiesbetweenCertainof

thePartiesOnly1. Twoormoreofthepartiestoamultilateraltreatymayconclude

anagreementtomodifythetreatyasbetweenthemselvesaloneif:

(a) Thepossibilityofsuchamodificationisprovidedforbythetreaty;or

(b) Themodificationinquestionisnotprohibitedbythetreatyand:(i) Doesnotaffecttheenjoymentbytheotherpartiesof

theirrightsunderthetreatyortheperformanceoftheirobligations;

(ii) Doesnotrelatetoaprovision,derogationfromwhichisincompatiblewiththeeffectiveexecutionoftheobjectandpurposeofthetreatyasawhole.

2. Unlessinacasefallingunderparagraph1(a)thetreatyotherwiseprovides,thepartiesinquestionshallnotifytheotherpartiesoftheirintentiontoconcludetheagreementandofthemodificationtothetreatyforwhichitprovides.

GivenrecentattemptstoargueArticle41beforetheAppellateBodyinPeru–

AgriculturalProducts,itmaybethatsomeEriadorianteamsseektorelyonArticle41toarguethatEriadorandBorduriahaveeffectivelyenteredintoanagreementtomodifytheWTOAgreementsintersebyvirtueoftheiragreementtoArticle11oftheFCPRE.

6ThisdecisionisalsonoteworthyforthewayinwhichitusedtheILCArticlesonStateResponsibilitywithoutanexplicitfindingthattheyrepresentcustomaryinternationallaworgeneralprinciplesoflaw.

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Thisargumentwouldconfrontanumberofdifficulties.Oneisthat,onitsface,Article41onlyapplieswhereallthepartiestothemodifyingagreementarepartiestotheagreementbeingmodified.ThisisnotthecaseinrespectoftheFCPRE.Anotheristhat,evenifitwereadmittedthattheFCPREmodifiestheWTOAgreementstopermittheuseofsubsidiestorenewableenergyproviders,itishardtoseehowthiswouldsatisfytherequirementsofVCLTArticle41(1)(b)(i).AsubsidyofthisnaturewouldnecessarilyhavethepotentialtoaffecttheenjoymentofallotherWTOMembersoftheirrightsundertheWTOagreement.Andthird,theAppellateBodyhasrecentlydecided,perhapscontroversially,thatWTOMembershaveinanycasecontractedoutofArticle41,atleastinthecontextofFTAsandcustomsunions,byputtinginplacespecificrulesregardingamendmentsandwaivers(Peru–AgriculturalProducts(AB),para5.112).Thesamemayormaynotapplytoothertypesofinternationalagreements.

4.5.5. VCLTArticle30:lexposterior

Finally,EriadormayarguethatitsobligationsunderFCPREArticle11to‘useallavailablemeanstoencouragetherapiddevelopmentofrenewableenergy’directlyconflictwithitsobligationsundertheSCMAgreement,andthatintheeventofsuchaconflictthelatertreatyprevailsunderVLCTArticle30,withtheconsequencethattheFCPRElimitstheapplicationoftheSCMAgreementtotheextentofanyconflict.Whilethereremainssomescholarlydisagreementonthisissue,thebestindicationsfromthecurrentjurisprudencearethatthisargumentisunlikelytosucceed.InEC–Hormones,forexample,theAppellateBodyrejectedtheideathattheprecautionaryprinciple,evenifitwereacceptedasanestablishedprincipleofcustomaryinternationallaw,couldbeuseddirectlyinWTOproceedingstomodifytheeffectofthecleartermsoftheSPSAgreement,saying:

‘theprecautionaryprincipledoesnot,byitself,andwithoutacleartextualdirectivetothateffect,relieveapanelfromthedutyofapplyingthenormalprinciplesoftreatyinterpretationinreadingtheprovisionsoftheSPSAgreement’.(para124)

Then,inMexico–SoftDrinks,theAppellateBodyrejectedanargumentfromMexicoonthebasisthatitwouldrequiretheAppellateBodytodetermine‘whethertheUnitedStateshasactedconsistentlyorinconsistentlywithitsNAFTAobligations’.TheAppellateBodysaw‘nobasisintheDSUforpanelsandtheAppellateBodytoadjudicatenon-WTOdisputes’(para56).TotheextentthatEriador’sargumentwouldrequirethePaneltointerpretandapplyEriador’sobligationsundertheFCPRE,thesamereasoningwouldarguablyapply.

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5. SelectedcaselawAppellateBodyReport,UnitedStates–DefinitiveAnti-Dumpingand

CountervailingDutiesonCertainProductsfromChina,WT/DS379/AB/R,adopted25March2011

PanelReport,UnitedStates–DefinitiveAnti-DumpingandCountervailingDutieson

CertainProductsfromChina,WT/DS379/R,adopted25March2011,asmodifiedbyAppellateBodyReportWT/DS379/AB/R.

AppellateBodyReport,UnitedStates–CountervailingMeasuresonCertainHot-

RolledCarbonSteelFlatProductsfromIndia,WT/DS436/AB/R,adopted19December2014.

PanelReport,UnitedStates–CountervailingMeasuresonCertainHot-Rolled

CarbonSteelFlatProductsfromIndia,WT/DS436/RandAdd.1,adopted19December2014,asmodifiedbyAppellateBodyReportWT/DS436/AB/R.

AppellateBodyReports,Canada–CertainMeasuresAffectingtheRenewable

EnergyGenerationSector/Canada–MeasuresRelatingtotheFeed-inTariffProgram,WT/DS412/AB/R/WT/DS426/AB/R,adopted24May2013.

PanelReports,Canada–CertainMeasuresAffectingtheRenewableEnergy

GenerationSector/Canada–MeasuresRelatingtotheFeed-inTariffProgram,WT/DS412/RandAdd.1/WT/DS426/RandAdd.1,adopted24May2013,asmodifiedbyAppellateBodyReportsWT/DS412/AB/R/WT/DS426/AB/R.

AppellateBodyReport,EuropeanCommunitiesandCertainMemberStates

–MeasuresAffectingTradeinLargeCivilAircraft,WT/DS316/AB/R,adopted1June2011.

PanelReport,EuropeanCommunitiesandCertainMemberStates–Measures

AffectingTradeinLargeCivilAircraft,WT/DS316/R,adopted1June2011,asmodifiedbyAppellateBodyReport,WT/DS316/AB/R.

AppellateBodyReport,UnitedStates–MeasuresAffectingTradeinLargeCivil

Aircraft(SecondComplaint),WT/DS353/AB/R,adopted23March2012PanelReport,UnitedStates–MeasuresAffectingTradeinLargeCivilAircraft

(SecondComplaint),WT/DS353/R,adopted23March2012,asmodifiedbyAppellateBodyReportWT/DS353/AB/R.

AppellateBodyReport,UnitedStates–ImpositionofCountervailingDutieson

CertainHot-RolledLeadandBismuthCarbonSteelProductsOriginatingintheUnitedKingdom,WT/DS138/AB/R,adopted7June2000

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PanelReport,UnitedStates–ImpositionofCountervailingDutiesonCertainHot-RolledLeadandBismuthCarbonSteelProductsOriginatingintheUnitedKingdom,WT/DS138/RandCorr.2,adopted7June2000,upheldbyAppellateBodyReportWT/DS138/AB/R

AppellateBodyReport,Peru–AdditionalDutyonImportsofCertainAgricultural

Products,WT/DS457/AB/RandAdd.1,adopted31July2015PanelReports,EuropeanCommunities–MeasuresAffectingtheApprovaland

MarketingofBiotechProducts,WT/DS291/R,Add.1toAdd.9andCorr.1/WT/DS292/R,Add.1toAdd.9andCorr.1/WT/DS293/R,Add.1toAdd.9andCorr.1,adopted21November2006

AppellateBodyReport,UnitedStates–CountervailingMeasuresConcerning

CertainProductsfromtheEuropeanCommunities,WT/DS212/AB/R,adopted8January2003

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6. Annex:TheSCMAgreement

AGREEMENTONSUBSIDIESANDCOUNTERVAILINGMEASURESMembersherebyagreeasfollows:

PARTI:GENERALPROVISIONS

Article1

DefinitionofaSubsidy1.1 ForthepurposeofthisAgreement,asubsidyshallbedeemedtoexistif:

(a)(1) thereisafinancialcontributionbyagovernmentoranypublicbodywithintheterritoryofaMember(referredtointhisAgreementas"government"),i.e.where:

(i) agovernmentpracticeinvolvesadirecttransferoffunds

(e.g.grants,loans,andequityinfusion),potentialdirecttransfersoffundsorliabilities(e.g.loanguarantees);

(ii) governmentrevenuethatisotherwisedueisforegoneor

notcollected(e.g.fiscalincentivessuchastaxcredits)7;

(iii) agovernmentprovidesgoodsorservicesotherthangeneralinfrastructure,orpurchasesgoods;

(iv) agovernmentmakespaymentstoafundingmechanism,or

entrustsordirectsaprivatebodytocarryoutoneormoreofthetypeoffunctionsillustratedin(i)to(iii)abovewhichwouldnormallybevestedinthegovernmentandthepractice,innorealsense,differsfrompracticesnormallyfollowedbygovernments;

or

7InaccordancewiththeprovisionsofArticleXVIofGATT1994(NotetoArticleXVI)andtheprovisionsofAnnexesIthroughIIIofthisAgreement,theexemptionofanexportedproductfromdutiesortaxesbornebythelikeproductwhendestinedfordomesticconsumption,ortheremissionofsuchdutiesortaxesinamountsnotinexcessofthosewhichhaveaccrued,shallnotbedeemedtobeasubsidy.

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(a)(2) thereisanyformofincomeorpricesupportinthesenseofArticleXVIofGATT1994;

and

(b) abenefitistherebyconferred.

1.2 Asubsidyasdefinedinparagraph1shallbesubjecttotheprovisionsofPartIIorshallbesubjecttotheprovisionsofPartIIIorVonlyifsuchasubsidyisspecificinaccordancewiththeprovisionsofArticle2.

Article2

Specificity2.1 Inordertodeterminewhetherasubsidy,asdefinedinparagraph1ofArticle1,isspecifictoanenterpriseorindustryorgroupofenterprisesorindustries(referredtointhisAgreementas"certainenterprises")withinthejurisdictionofthegrantingauthority,thefollowingprinciplesshallapply:

(a) Wherethegrantingauthority,orthelegislationpursuanttowhichthegrantingauthorityoperates,explicitlylimitsaccesstoasubsidytocertainenterprises,suchsubsidyshallbespecific.

(b) Wherethegrantingauthority,orthelegislationpursuanttowhich

thegrantingauthorityoperates,establishesobjectivecriteriaorconditions8governingtheeligibilityfor,andtheamountof,asubsidy,specificityshallnotexist,providedthattheeligibilityisautomaticandthatsuchcriteriaandconditionsarestrictlyadheredto.Thecriteriaorconditionsmustbeclearlyspelledoutinlaw,regulation,orotherofficialdocument,soastobecapableofverification.

(c) If,notwithstandinganyappearanceofnon-specificityresulting

fromtheapplicationoftheprincipleslaiddowninsubparagraphs(a)and(b),therearereasonstobelievethatthesubsidymayinfactbespecific,otherfactorsmaybeconsidered.Suchfactorsare:useofasubsidyprogrammebyalimitednumberofcertainenterprises,predominantusebycertainenterprises,thegrantingofdisproportionatelylargeamountsofsubsidytocertainenterprises,andthemannerinwhichdiscretionhasbeenexercisedbythegrantingauthorityinthedecisiontogranta

8Objectivecriteriaorconditions,asusedherein,meancriteriaorconditionswhichareneutral,whichdonotfavourcertainenterprisesoverothers,andwhichareeconomicinnatureandhorizontalinapplication,suchasnumberofemployeesorsizeofenterprise.

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subsidy.9Inapplyingthissubparagraph,accountshallbetakenoftheextentofdiversificationofeconomicactivitieswithinthejurisdictionofthegrantingauthority,aswellasofthelengthoftimeduringwhichthesubsidyprogrammehasbeeninoperation.

2.2 Asubsidywhichislimitedtocertainenterpriseslocatedwithinadesignatedgeographicalregionwithinthejurisdictionofthegrantingauthorityshallbespecific.ItisunderstoodthatthesettingorchangeofgenerallyapplicabletaxratesbyalllevelsofgovernmententitledtodososhallnotbedeemedtobeaspecificsubsidyforthepurposesofthisAgreement.2.3 AnysubsidyfallingundertheprovisionsofArticle3shallbedeemedtobespecific.2.4 AnydeterminationofspecificityundertheprovisionsofthisArticleshallbeclearlysubstantiatedonthebasisofpositiveevidence.

PARTII:PROHIBITEDSUBSIDIES

Article3

Prohibition3.1 ExceptasprovidedintheAgreementonAgriculture,thefollowingsubsidies,withinthemeaningofArticle1,shallbeprohibited:

(a) subsidiescontingent,inlaworinfact10,whethersolelyorasoneofseveralotherconditions,uponexportperformance,includingthoseillustratedinAnnexI11;

(b) subsidiescontingent,whethersolelyorasoneofseveralother

conditions,upontheuseofdomesticoverimportedgoods.3.2 AMembershallneithergrantnormaintainsubsidiesreferredtoinparagraph1.

9Inthisregard,inparticular,informationonthefrequencywithwhichapplicationsforasubsidyarerefusedorapprovedandthereasonsforsuchdecisionsshallbeconsidered.10Thisstandardismetwhenthefactsdemonstratethatthegrantingofasubsidy,withouthavingbeenmadelegallycontingentuponexportperformance,isinfacttiedtoactualoranticipatedexportationorexportearnings.Themerefactthatasubsidyisgrantedtoenterpriseswhichexportshallnotforthatreasonalonebeconsideredtobeanexportsubsidywithinthemeaningofthisprovision.11MeasuresreferredtoinAnnexIasnotconstitutingexportsubsidiesshallnotbeprohibitedunderthisoranyotherprovisionofthisAgreement.

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Article4

Remedies4.1 WheneveraMemberhasreasontobelievethataprohibitedsubsidyisbeinggrantedormaintainedbyanotherMember,suchMembermayrequestconsultationswithsuchotherMember. 4.2 Arequestforconsultationsunderparagraph1shallincludeastatementofavailableevidencewithregardtotheexistenceandnatureofthesubsidyinquestion.4.3 Uponrequestforconsultationsunderparagraph1,theMemberbelievedtobegrantingormaintainingthesubsidyinquestionshallenterintosuchconsultationsasquicklyaspossible.Thepurposeoftheconsultationsshallbetoclarifythefactsofthesituationandtoarriveatamutuallyagreedsolution.4.4 Ifnomutuallyagreedsolutionhasbeenreachedwithin30days12oftherequestforconsultations,anyMemberpartytosuchconsultationsmayreferthemattertotheDisputeSettlementBody("DSB")fortheimmediateestablishmentofapanel,unlesstheDSBdecidesbyconsensusnottoestablishapanel.4.5 Uponitsestablishment,thepanelmayrequesttheassistanceofthePermanentGroupofExperts13(referredtointhisAgreementasthe"PGE")withregardtowhetherthemeasureinquestionisaprohibitedsubsidy.Ifsorequested,thePGEshallimmediatelyreviewtheevidencewithregardtotheexistenceandnatureofthemeasureinquestionandshallprovideanopportunityfortheMemberapplyingormaintainingthemeasuretodemonstratethatthemeasureinquestionisnotaprohibitedsubsidy.ThePGEshallreportitsconclusionstothepanelwithinatime-limitdeterminedbythepanel.ThePGE'sconclusionsontheissueofwhetherornotthemeasureinquestionisaprohibitedsubsidyshallbeacceptedbythepanelwithoutmodification.4.6 Thepanelshallsubmititsfinalreporttothepartiestothedispute.ThereportshallbecirculatedtoallMemberswithin90daysofthedateofthecompositionandtheestablishmentofthepanel'stermsofreference.4.7 Ifthemeasureinquestionisfoundtobeaprohibitedsubsidy,thepanelshallrecommendthatthesubsidizingMemberwithdrawthesubsidywithoutdelay.Inthisregard,thepanelshallspecifyinitsrecommendationthetime-periodwithinwhichthemeasuremustbewithdrawn.

12Anytime-periodsmentionedinthisArticlemaybeextendedbymutualagreement.13AsestablishedinArticle24.

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4.8 Within30daysoftheissuanceofthepanel'sreporttoallMembers,thereportshallbeadoptedbytheDSBunlessoneofthepartiestothedisputeformallynotifiestheDSBofitsdecisiontoappealortheDSBdecidesbyconsensusnottoadoptthereport.4.9 Whereapanelreportisappealed,theAppellateBodyshallissueitsdecisionwithin30daysfromthedatewhenthepartytothedisputeformallynotifiesitsintentiontoappeal.WhentheAppellateBodyconsidersthatitcannotprovideitsreportwithin30days,itshallinformtheDSBinwritingofthereasonsforthedelaytogetherwithanestimateoftheperiodwithinwhichitwillsubmititsreport.Innocaseshalltheproceedingsexceed60days.TheappellatereportshallbeadoptedbytheDSBandunconditionallyacceptedbythepartiestothedisputeunlesstheDSBdecidesbyconsensusnottoadopttheappellatereportwithin20daysfollowingitsissuancetotheMembers.144.10 IntheeventtherecommendationoftheDSBisnotfollowedwithinthetime-periodspecifiedbythepanel,whichshallcommencefromthedateofadoptionofthepanel’sreportortheAppellateBody’sreport,theDSBshallgrantauthorizationtothecomplainingMembertotakeappropriate15countermeasures,unlesstheDSBdecidesbyconsensustorejecttherequest.4.11 Intheeventapartytothedisputerequestsarbitrationunderparagraph6ofArticle22oftheDisputeSettlementUnderstanding("DSU"),thearbitratorshalldeterminewhetherthecountermeasuresareappropriate.164.12 ForpurposesofdisputesconductedpursuanttothisArticle,exceptfortime-periodsspecificallyprescribedinthisArticle,time-periodsapplicableundertheDSUfortheconductofsuchdisputesshallbehalfthetimeprescribedtherein.

PARTIII:ACTIONABLESUBSIDIES

Article5

AdverseEffects

14IfameetingoftheDSBisnotscheduledduringthisperiod,suchameetingshallbeheldforthispurpose.15Thisexpressionisnotmeanttoallowcountermeasuresthataredisproportionateinlightofthefactthatthesubsidiesdealtwithundertheseprovisionsareprohibited. 16Thisexpressionisnotmeanttoallowcountermeasuresthataredisproportionateinlightofthefactthatthesubsidiesdealtwithundertheseprovisionsareprohibited.

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NoMembershouldcause,throughtheuseofanysubsidyreferredtoinparagraphs1and2ofArticle1,adverseeffectstotheinterestsofotherMembers,i.e.:

(a) injurytothedomesticindustryofanotherMember17;

(b) nullificationorimpairmentofbenefitsaccruingdirectlyorindirectlytootherMembersunderGATT1994inparticularthebenefitsofconcessionsboundunderArticleIIofGATT199418;

(c) seriousprejudicetotheinterestsofanotherMember.19

ThisArticledoesnotapplytosubsidiesmaintainedonagriculturalproductsasprovidedinArticle13oftheAgreementonAgriculture.

Article6

SeriousPrejudice6.1 Seriousprejudiceinthesenseofparagraph(c)ofArticle5shallbedeemedtoexistinthecaseof:

(a) thetotaladvaloremsubsidization20ofaproductexceeding5percent21;

(b) subsidiestocoveroperatinglossessustainedbyanindustry;

(c) subsidiestocoveroperatinglossessustainedbyanenterprise,

otherthanone-timemeasureswhicharenon-recurrentandcannotberepeatedforthatenterpriseandwhicharegivenmerelytoprovidetimeforthedevelopmentoflong-termsolutionsandtoavoidacutesocialproblems;

17Theterm"injurytothedomesticindustry"isusedhereinthesamesenseasitisusedinPartV.18Theterm"nullificationorimpairment"isusedinthisAgreementinthesamesenseasitisusedintherelevantprovisionsofGATT1994,andtheexistenceofsuchnullificationorimpairmentshallbeestablishedinaccordancewiththepracticeofapplicationoftheseprovisions.19Theterm"seriousprejudicetotheinterestsofanotherMember"isusedinthisAgreementinthesamesenseasitisusedinparagraph1ofArticleXVIofGATT1994,andincludesthreatofseriousprejudice.20ThetotaladvaloremsubsidizationshallbecalculatedinaccordancewiththeprovisionsofAnnexIV.21Sinceitisanticipatedthatcivilaircraftwillbesubjecttospecificmultilateralrules,thethresholdinthissubparagraphdoesnotapplytocivilaircraft.

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(d) directforgivenessofdebt,i.e.forgivenessofgovernment-helddebt,andgrantstocoverdebtrepayment.22

6.2 Notwithstandingtheprovisionsofparagraph1,seriousprejudiceshallnotbefoundifthesubsidizingMemberdemonstratesthatthesubsidyinquestionhasnotresultedinanyoftheeffectsenumeratedinparagraph3.6.3 Seriousprejudiceinthesenseofparagraph(c)ofArticle5mayariseinanycasewhereoneorseveralofthefollowingapply:

(a) theeffectofthesubsidyistodisplaceorimpedetheimportsofalikeproductofanotherMemberintothemarketofthesubsidizingMember;

(b) theeffectofthesubsidyistodisplaceorimpedetheexportsofa

likeproductofanotherMemberfromathirdcountrymarket;

(c) theeffectofthesubsidyisasignificantpriceundercuttingbythesubsidizedproductascomparedwiththepriceofalikeproductofanotherMemberinthesamemarketorsignificantpricesuppression,pricedepressionorlostsalesinthesamemarket;

(d) theeffectofthesubsidyisanincreaseintheworldmarketshareof

thesubsidizingMemberinaparticularsubsidizedprimaryproductorcommodity23ascomparedtotheaverageshareithadduringthepreviousperiodofthreeyearsandthisincreasefollowsaconsistenttrendoveraperiodwhensubsidieshavebeengranted.

6.4 Forthepurposeofparagraph3(b),thedisplacementorimpedingofexportsshallincludeanycaseinwhich,subjecttotheprovisionsofparagraph7,ithasbeendemonstratedthattherehasbeenachangeinrelativesharesofthemarkettothedisadvantageofthenon-subsidizedlikeproduct(overanappropriatelyrepresentativeperiodsufficienttodemonstratecleartrendsinthedevelopmentofthemarketfortheproductconcerned,which,innormalcircumstances,shallbeatleastoneyear)."Changeinrelativesharesofthemarket"shallincludeanyofthefollowingsituations:(a)thereisanincreaseinthemarketshareofthesubsidizedproduct;(b)themarketshareofthesubsidizedproductremainsconstantincircumstancesinwhich,intheabsenceofthesubsidy,itwouldhavedeclined;(c)themarketshareofthesubsidizedproductdeclines,butataslowerratethanwouldhavebeenthecaseintheabsenceofthesubsidy.

22Membersrecognizethatwhereroyalty-basedfinancingforacivilaircraftprogrammeisnotbeingfullyrepaidduetothelevelofactualsalesfallingbelowthelevelofforecastsales,thisdoesnotinitselfconstituteseriousprejudiceforthepurposesofthissubparagraph.23Unlessothermultilaterallyagreedspecificrulesapplytothetradeintheproductorcommodityinquestion.

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6.5 Forthepurposeofparagraph3(c),priceundercuttingshallincludeanycaseinwhichsuchpriceundercuttinghasbeendemonstratedthroughacomparisonofpricesofthesubsidizedproductwithpricesofanon-subsidizedlikeproductsuppliedtothesamemarket.Thecomparisonshallbemadeatthesameleveloftradeandatcomparabletimes,dueaccountbeingtakenofanyotherfactoraffectingpricecomparability.However,ifsuchadirectcomparisonisnotpossible,theexistenceofpriceundercuttingmaybedemonstratedonthebasisofexportunitvalues.6.6 EachMemberinthemarketofwhichseriousprejudiceisallegedtohavearisenshall,subjecttotheprovisionsofparagraph3ofAnnexV,makeavailabletothepartiestoadisputearisingunderArticle7,andtothepanelestablishedpursuanttoparagraph4ofArticle7,allrelevantinformationthatcanbeobtainedastothechangesinmarketsharesofthepartiestothedisputeaswellasconcerningpricesoftheproductsinvolved.6.7 Displacementorimpedimentresultinginseriousprejudiceshallnotariseunderparagraph3whereanyofthefollowingcircumstancesexist24duringtherelevantperiod:

(a) prohibitionorrestrictiononexportsofthelikeproductfromthecomplainingMemberoronimportsfromthecomplainingMemberintothethirdcountrymarketconcerned;

(b) decisionbyanimportinggovernmentoperatingamonopolyof

tradeorstatetradingintheproductconcernedtoshift,fornon-commercialreasons,importsfromthecomplainingMembertoanothercountryorcountries;

(c) naturaldisasters,strikes,transportdisruptionsorotherforce

majeuresubstantiallyaffectingproduction,qualities,quantitiesorpricesoftheproductavailableforexportfromthecomplainingMember;

(d) existenceofarrangementslimitingexportsfromthecomplaining

Member;

(e) voluntarydecreaseintheavailabilityforexportoftheproductconcernedfromthecomplainingMember(including,interalia,asituationwherefirmsinthecomplainingMemberhavebeenautonomouslyreallocatingexportsofthisproducttonewmarkets);

24Thefactthatcertaincircumstancesarereferredtointhisparagraphdoesnot,initself,conferuponthemanylegalstatusintermsofeitherGATT1994orthisAgreement.Thesecircumstancesmustnotbeisolated,sporadicorotherwiseinsignificant.

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(f) failuretoconformtostandardsandotherregulatoryrequirementsintheimportingcountry.

6.8 Intheabsenceofcircumstancesreferredtoinparagraph7,theexistenceofseriousprejudiceshouldbedeterminedonthebasisoftheinformationsubmittedtoorobtainedbythepanel,includinginformationsubmittedinaccordancewiththeprovisionsofAnnexV.6.9 ThisArticledoesnotapplytosubsidiesmaintainedonagriculturalproductsasprovidedinArticle13oftheAgreementonAgriculture.

Article7

Remedies7.1 ExceptasprovidedinArticle13oftheAgreementonAgriculture,wheneveraMemberhasreasontobelievethatanysubsidyreferredtoinArticle1,grantedormaintainedbyanotherMember,resultsininjurytoitsdomesticindustry,nullificationorimpairmentorseriousprejudice,suchMembermayrequestconsultationswithsuchotherMember.7.2 Arequestforconsultationsunderparagraph1shallincludeastatementofavailableevidencewithregardto(a)theexistenceandnatureofthesubsidyinquestion,and(b)theinjurycausedtothedomesticindustry,orthenullificationorimpairment,orseriousprejudice25causedtotheinterestsoftheMemberrequestingconsultations.7.3 Uponrequestforconsultationsunderparagraph1,theMemberbelievedtobegrantingormaintainingthesubsidypracticeinquestionshallenterintosuchconsultationsasquicklyaspossible.Thepurposeoftheconsultationsshallbetoclarifythefactsofthesituationandtoarriveatamutuallyagreedsolution.7.4 Ifconsultationsdonotresultinamutuallyagreedsolutionwithin60days26,anyMemberpartytosuchconsultationsmayreferthemattertotheDSBfortheestablishmentofapanel,unlesstheDSBdecidesbyconsensusnottoestablishapanel.Thecompositionofthepanelanditstermsofreferenceshallbeestablishedwithin15daysfromthedatewhenitisestablished.7.5 Thepanelshallreviewthematterandshallsubmititsfinalreporttothepartiestothedispute.ThereportshallbecirculatedtoallMemberswithin

25Intheeventthattherequestrelatestoasubsidydeemedtoresultinseriousprejudiceintermsofparagraph1ofArticle6,theavailableevidenceofseriousprejudicemaybelimitedtotheavailableevidenceastowhethertheconditionsofparagraph1ofArticle6havebeenmetornot.26Anytime-periodsmentionedinthisArticlemaybeextendedbymutualagreement.

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120daysofthedateofthecompositionandestablishmentofthepanel’stermsofreference.7.6 Within30daysoftheissuanceofthepanel’sreporttoallMembers,thereportshallbeadoptedbytheDSB27unlessoneofthepartiestothedisputeformallynotifiestheDSBofitsdecisiontoappealortheDSBdecidesbyconsensusnottoadoptthereport.7.7 Whereapanelreportisappealed,theAppellateBodyshallissueitsdecisionwithin60daysfromthedatewhenthepartytothedisputeformallynotifiesitsintentiontoappeal.WhentheAppellateBodyconsidersthatitcannotprovideitsreportwithin60days,itshallinformtheDSBinwritingofthereasonsforthedelaytogetherwithanestimateoftheperiodwithinwhichitwillsubmititsreport.Innocaseshalltheproceedingsexceed90days.TheappellatereportshallbeadoptedbytheDSBandunconditionallyacceptedbythepartiestothedisputeunlesstheDSBdecidesbyconsensusnottoadopttheappellatereportwithin20daysfollowingitsissuancetotheMembers.287.8 WhereapanelreportoranAppellateBodyreportisadoptedinwhichitisdeterminedthatanysubsidyhasresultedinadverseeffectstotheinterestsofanotherMemberwithinthemeaningofArticle5,theMembergrantingormaintainingsuchsubsidyshalltakeappropriatestepstoremovetheadverseeffectsorshallwithdrawthesubsidy.7.9 IntheeventtheMemberhasnottakenappropriatestepstoremovetheadverseeffectsofthesubsidyorwithdrawthesubsidywithinsixmonthsfromthedatewhentheDSBadoptsthepanelreportortheAppellateBodyreport,andintheabsenceofagreementoncompensation,theDSBshallgrantauthorizationtothecomplainingMembertotakecountermeasures,commensuratewiththedegreeandnatureoftheadverseeffectsdeterminedtoexist,unlesstheDSBdecidesbyconsensustorejecttherequest.7.10 Intheeventthatapartytothedisputerequestsarbitrationunderparagraph6ofArticle22oftheDSU,thearbitratorshalldeterminewhetherthecountermeasuresarecommensuratewiththedegreeandnatureoftheadverseeffectsdeterminedtoexist.

PARTIV:NON-ACTIONABLESUBSIDIES

Article8

IdentificationofNon-ActionableSubsidies

27IfameetingoftheDSBisnotscheduledduringthisperiod,suchameetingshallbeheldforthispurpose.28IfameetingoftheDSBisnotscheduledduringthisperiod,suchameetingshallbeheldforthispurpose.

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8.1 Thefollowingsubsidiesshallbeconsideredasnon-actionable29:

(a) subsidieswhicharenotspecificwithinthemeaningofArticle2;

(b) subsidieswhicharespecificwithinthemeaningofArticle2butwhichmeetalloftheconditionsprovidedforinparagraphs2(a),2(b)or2(c)below.

8.2 NotwithstandingtheprovisionsofPartsIIIandV,thefollowingsubsidiesshallbenon-actionable:

(a) assistanceforresearchactivitiesconductedbyfirmsorbyhighereducationorresearchestablishmentsonacontractbasiswithfirmsif:30,31,32

theassistancecovers33notmorethan75percentofthecostsofindustrialresearch34or50percentofthecostsofpre-competitivedevelopmentactivity35,36;andprovidedthatsuchassistanceislimitedexclusivelyto:

29ItisrecognizedthatgovernmentassistanceforvariouspurposesiswidelyprovidedbyMembersandthatthemerefactthatsuchassistancemaynotqualifyfornon-actionabletreatmentundertheprovisionsofthisArticledoesnotinitselfrestricttheabilityofMemberstoprovidesuchassistance.30Sinceitisanticipatedthatcivilaircraftwillbesubjecttospecificmultilateralrules,theprovisionsofthissubparagraphdonotapplytothatproduct.31Notlaterthan18monthsafterthedateofentryintoforceoftheWTOAgreement,theCommitteeonSubsidiesandCountervailingMeasuresprovidedforinArticle24(referredtointhisAgreementas"theCommittee")shallreviewtheoperationoftheprovisionsofsubparagraph2(a)withaviewtomakingallnecessarymodificationstoimprovetheoperationoftheseprovisions.Initsconsiderationofpossiblemodifications,theCommitteeshallcarefullyreviewthedefinitionsofthecategoriessetforthinthissubparagraphinthelightoftheexperienceofMembersintheoperationofresearchprogrammesandtheworkinotherrelevantinternationalinstitutions.32TheprovisionsofthisAgreementdonotapplytofundamentalresearchactivitiesindependentlyconductedbyhighereducationorresearchestablishments.Theterm"fundamentalresearch"meansanenlargementofgeneralscientificandtechnicalknowledgenotlinkedtoindustrialorcommercialobjectives.33Theallowablelevelsofnon-actionableassistancereferredtointhissubparagraphshallbeestablishedbyreferencetothetotaleligiblecostsincurredoverthedurationofanindividualproject.34Theterm"industrialresearch"meansplannedsearchorcriticalinvestigationaimedatdiscoveryofnewknowledge,withtheobjectivethatsuchknowledgemaybeusefulindevelopingnewproducts,processesorservices,orinbringingaboutasignificantimprovementtoexistingproducts,processesorservices.35Theterm"pre-competitivedevelopmentactivity"meansthetranslationofindustrialresearchfindingsintoaplan,blueprintordesignfornew,modifiedorimprovedproducts,processesorserviceswhetherintendedforsaleoruse,

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(i) costsofpersonnel(researchers,techniciansandother

supportingstaffemployedexclusivelyintheresearchactivity);

(ii) costsofinstruments,equipment,landandbuildingsused

exclusivelyandpermanently(exceptwhendisposedofonacommercialbasis)fortheresearchactivity;

(iii) costsofconsultancyandequivalentservicesused

exclusivelyfortheresearchactivity,includingbought-inresearch,technicalknowledge,patents,etc.;

(iv) additionaloverheadcostsincurreddirectlyasaresultof

theresearchactivity;

(v) otherrunningcosts(suchasthoseofmaterials,suppliesandthelike),incurreddirectlyasaresultoftheresearchactivity.

(b) assistancetodisadvantagedregionswithintheterritoryofa

Membergivenpursuanttoageneralframeworkofregionaldevelopment37andnon-specific(withinthemeaningofArticle2)withineligibleregionsprovidedthat:

(i) eachdisadvantagedregionmustbeaclearlydesignated

contiguousgeographicalareawithadefinableeconomicandadministrativeidentity;

includingthecreationofafirstprototypewhichwouldnotbecapableofcommercialuse.Itmayfurtherincludetheconceptualformulationanddesignofproducts,processesorservicesalternativesandinitialdemonstrationorpilotprojects,providedthatthesesameprojectscannotbeconvertedorusedforindustrialapplicationorcommercialexploitation.Itdoesnotincluderoutineorperiodicalterationstoexistingproducts,productionlines,manufacturingprocesses,services,andotheron-goingoperationseventhoughthosealterationsmayrepresentimprovements.36Inthecaseofprogrammeswhichspanindustrialresearchandpre-competitivedevelopmentactivity,theallowablelevelofnon-actionableassistanceshallnotexceedthesimpleaverageoftheallowablelevelsofnon-actionableassistanceapplicabletotheabovetwocategories,calculatedonthebasisofalleligiblecostsassetforthinitems(i)to(v)ofthissubparagraph.37A"generalframeworkofregionaldevelopment"meansthatregionalsubsidyprogrammesarepartofaninternallyconsistentandgenerallyapplicableregionaldevelopmentpolicyandthatregionaldevelopmentsubsidiesarenotgrantedinisolatedgeographicalpointshavingno,orvirtuallyno,influenceonthedevelopmentofaregion.

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(ii) theregionisconsideredasdisadvantagedonthebasisofneutralandobjectivecriteria38,indicatingthattheregion'sdifficultiesariseoutofmorethantemporarycircumstances;suchcriteriamustbeclearlyspelledoutinlaw,regulation,orotherofficialdocument,soastobecapableofverification;

(iii) thecriteriashallincludeameasurementofeconomic

developmentwhichshallbebasedonatleastoneofthefollowingfactors:

- oneofeitherincomepercapitaorhouseholdincome

percapita,orGDPpercapita,whichmustnotbeabove85percentoftheaveragefortheterritoryconcerned;

- unemploymentrate,whichmustbeatleast110per

centoftheaveragefortheterritoryconcerned;

asmeasuredoverathree-yearperiod;suchmeasurement,however,maybeacompositeoneandmayincludeotherfactors.

(c) assistancetopromoteadaptationofexistingfacilities39tonew

environmentalrequirementsimposedbylawand/orregulationswhichresultingreaterconstraintsandfinancialburdenonfirms,providedthattheassistance:

(i) isaone-timenon-recurringmeasure;and

(ii) islimitedto20percentofthecostofadaptation;and

38"Neutralandobjectivecriteria"meanscriteriawhichdonotfavourcertainregionsbeyondwhatisappropriatefortheeliminationorreductionofregionaldisparitieswithintheframeworkoftheregionaldevelopmentpolicy.Inthisregard,regionalsubsidyprogrammesshallincludeceilingsontheamountofassistancewhichcanbegrantedtoeachsubsidizedproject.Suchceilingsmustbedifferentiatedaccordingtothedifferentlevelsofdevelopmentofassistedregionsandmustbeexpressedintermsofinvestmentcostsorcostofjobcreation.Withinsuchceilings,thedistributionofassistanceshallbesufficientlybroadandeventoavoidthepredominantuseofasubsidyby,orthegrantingofdisproportionatelylargeamountsofsubsidyto,certainenterprisesasprovidedforinArticle2.39Theterm"existingfacilities"meansfacilitieswhichhavebeeninoperationforatleasttwoyearsatthetimewhennewenvironmentalrequirementsareimposed.

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(iii) doesnotcoverthecostofreplacingandoperatingtheassistedinvestment,whichmustbefullybornebyfirms;and

(iv) isdirectlylinkedtoandproportionatetoafirm'splanned

reductionofnuisancesandpollution,anddoesnotcoveranymanufacturingcostsavingswhichmaybeachieved;and

(v) isavailabletoallfirmswhichcanadoptthenewequipment

and/orproductionprocesses.8.3 Asubsidyprogrammeforwhichtheprovisionsofparagraph2areinvokedshallbenotifiedinadvanceofitsimplementationtotheCommitteeinaccordancewiththeprovisionsofPartVII.AnysuchnotificationshallbesufficientlyprecisetoenableotherMemberstoevaluatetheconsistencyoftheprogrammewiththeconditionsandcriteriaprovidedforintherelevantprovisionsofparagraph2.MembersshallalsoprovidetheCommitteewithyearlyupdatesofsuchnotifications,inparticularbysupplyinginformationonglobalexpenditureforeachprogramme,andonanymodificationoftheprogramme.OtherMembersshallhavetherighttorequestinformationaboutindividualcasesofsubsidizationunderanotifiedprogramme.408.4 UponrequestofaMember,theSecretariatshallreviewanotificationmadepursuanttoparagraph3and,wherenecessary,mayrequireadditionalinformationfromthesubsidizingMemberconcerningthenotifiedprogrammeunderreview.TheSecretariatshallreportitsfindingstotheCommittee.TheCommitteeshall,uponrequest,promptlyreviewthefindingsoftheSecretariat(or,ifareviewbytheSecretariathasnotbeenrequested,thenotificationitself),withaviewtodeterminingwhethertheconditionsandcriterialaiddowninparagraph2havenotbeenmet.TheprocedureprovidedforinthisparagraphshallbecompletedatthelatestatthefirstregularmeetingoftheCommitteefollowingthenotificationofasubsidyprogramme,providedthatatleasttwomonthshaveelapsedbetweensuchnotificationandtheregularmeetingoftheCommittee.Thereviewproceduredescribedinthisparagraphshallalsoapply,uponrequest,tosubstantialmodificationsofaprogrammenotifiedintheyearlyupdatesreferredtoinparagraph3.8.5 UpontherequestofaMember,thedeterminationbytheCommitteereferredtoinparagraph4,orafailurebytheCommitteetomakesuchadetermination,aswellastheviolation,inindividualcases,oftheconditionssetoutinanotifiedprogramme,shallbesubmittedtobindingarbitration.ThearbitrationbodyshallpresentitsconclusionstotheMemberswithin120daysfromthedatewhenthematterwasreferredtothearbitrationbody.Exceptas

40Itisrecognizedthatnothinginthisnotificationprovisionrequirestheprovisionofconfidentialinformation,includingconfidentialbusinessinformation.

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otherwiseprovidedinthisparagraph,theDSUshallapplytoarbitrationsconductedunderthisparagraph.

Article9

ConsultationsandAuthorizedRemedies9.1 If,inthecourseofimplementationofaprogrammereferredtoinparagraph2ofArticle8,notwithstandingthefactthattheprogrammeisconsistentwiththecriterialaiddowninthatparagraph,aMemberhasreasonstobelievethatthisprogrammehasresultedinseriousadverseeffectstothedomesticindustryofthatMember,suchastocausedamagewhichwouldbedifficulttorepair,suchMembermayrequestconsultationswiththeMembergrantingormaintainingthesubsidy.9.2 Uponrequestforconsultationsunderparagraph1,theMembergrantingormaintainingthesubsidyprogrammeinquestionshallenterintosuchconsultationsasquicklyaspossible.Thepurposeoftheconsultationsshallbetoclarifythefactsofthesituationandtoarriveatamutuallyacceptablesolution.9.3 Ifnomutuallyacceptablesolutionhasbeenreachedinconsultationsunderparagraph2within60daysoftherequestforsuchconsultations,therequestingMembermayreferthemattertotheCommittee.9.4 WhereamatterisreferredtotheCommittee,theCommitteeshallimmediatelyreviewthefactsinvolvedandtheevidenceoftheeffectsreferredtoinparagraph1.IftheCommitteedeterminesthatsucheffectsexist,itmayrecommendtothesubsidizingMembertomodifythisprogrammeinsuchawayastoremovetheseeffects.TheCommitteeshallpresentitsconclusionswithin120daysfromthedatewhenthematterisreferredtoitunderparagraph3.Intheeventtherecommendationisnotfollowedwithinsixmonths,theCommitteeshallauthorizetherequestingMembertotakeappropriatecountermeasurescommensuratewiththenatureanddegreeoftheeffectsdeterminedtoexist.

PARTV:COUNTERVAILINGMEASURES

Article10

ApplicationofArticleVIofGATT199441

41TheprovisionsofPartIIorIIImaybeinvokedinparallelwiththeprovisionsofPartV;however,withregardtotheeffectsofaparticularsubsidyinthedomesticmarketoftheimportingMember,onlyoneformofrelief(eitheracountervailingduty,iftherequirementsofPartVaremet,oracountermeasureunderArticles4or7)shallbeavailable.TheprovisionsofPartsIIIandVshallnotbeinvokedregardingmeasuresconsiderednon-actionableinaccordance

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Membersshalltakeallnecessarystepstoensurethattheimpositionofacountervailingduty42onanyproductoftheterritoryofanyMemberimportedintotheterritoryofanotherMemberisinaccordancewiththeprovisionsofArticleVIofGATT1994andthetermsofthisAgreement.Countervailingdutiesmayonlybeimposedpursuanttoinvestigationsinitiated43andconductedinaccordancewiththeprovisionsofthisAgreementandtheAgreementonAgriculture.

Article11

InitiationandSubsequentInvestigation11.1 Exceptasprovidedinparagraph6,aninvestigationtodeterminetheexistence,degreeandeffectofanyallegedsubsidyshallbeinitiateduponawrittenapplicationbyoronbehalfofthedomesticindustry.11.2 Anapplicationunderparagraph1shallincludesufficientevidenceoftheexistenceof(a)asubsidyand,ifpossible,itsamount,(b)injurywithinthemeaningofArticleVIofGATT1994asinterpretedbythisAgreement,and(c)acausallinkbetweenthesubsidizedimportsandtheallegedinjury.Simpleassertion,unsubstantiatedbyrelevantevidence,cannotbeconsideredsufficienttomeettherequirementsofthisparagraph.Theapplicationshallcontainsuchinformationasisreasonablyavailabletotheapplicantonthefollowing:

(i) theidentityoftheapplicantandadescriptionofthevolumeandvalueofthedomesticproductionofthelikeproductbytheapplicant.Whereawrittenapplicationismadeonbehalfofthedomesticindustry,theapplicationshallidentifytheindustryonbehalfofwhichtheapplicationismadebyalistofallknowndomesticproducersofthelikeproduct(orassociationsofdomesticproducersofthelikeproduct)and,totheextentpossible,

withtheprovisionsofPartIV.However,measuresreferredtoinparagraph1(a)ofArticle8maybeinvestigatedinordertodeterminewhetherornottheyarespecificwithinthemeaningofArticle2.Inaddition,inthecaseofasubsidyreferredtoinparagraph2ofArticle8conferredpursuanttoaprogrammewhichhasnotbeennotifiedinaccordancewithparagraph3ofArticle8,theprovisionsofPartIIIorVmaybeinvoked,butsuchsubsidyshallbetreatedasnon-actionableifitisfoundtoconformtothestandardssetforthinparagraph2ofArticle8.42Theterm"countervailingduty"shallbeunderstoodtomeanaspecialdutyleviedforthepurposeofoffsettinganysubsidybestoweddirectlyorindirectlyuponthemanufacture,productionorexportofanymerchandise,asprovidedforinparagraph3ofArticleVIofGATT1994.43Theterm"initiated"asusedhereinaftermeansproceduralactionbywhichaMemberformallycommencesaninvestigationasprovidedinArticle11.

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adescriptionofthevolumeandvalueofdomesticproductionofthelikeproductaccountedforbysuchproducers;

(ii) acompletedescriptionoftheallegedlysubsidizedproduct,the

namesofthecountryorcountriesoforiginorexportinquestion,theidentityofeachknownexporterorforeignproducerandalistofknownpersonsimportingtheproductinquestion;

(iii) evidencewithregardtotheexistence,amountandnatureofthe

subsidyinquestion;

(iv) evidencethatallegedinjurytoadomesticindustryiscausedbysubsidizedimportsthroughtheeffectsofthesubsidies;thisevidenceincludesinformationontheevolutionofthevolumeoftheallegedlysubsidizedimports,theeffectoftheseimportsonpricesofthelikeproductinthedomesticmarketandtheconsequentimpactoftheimportsonthedomesticindustry,asdemonstratedbyrelevantfactorsandindiceshavingabearingonthestateofthedomesticindustry,suchasthoselistedinparagraphs2and4ofArticle15.

11.3 Theauthoritiesshallreviewtheaccuracyandadequacyoftheevidenceprovidedintheapplicationtodeterminewhethertheevidenceissufficienttojustifytheinitiationofaninvestigation.11.4 Aninvestigationshallnotbeinitiatedpursuanttoparagraph1unlesstheauthoritieshavedetermined,onthebasisofanexaminationofthedegreeofsupportfor,oroppositionto,theapplicationexpressed44bydomesticproducersofthelikeproduct,thattheapplicationhasbeenmadebyoronbehalfofthedomesticindustry.45Theapplicationshallbeconsideredtohavebeenmade"byoronbehalfofthedomesticindustry"ifitissupportedbythosedomesticproducerswhosecollectiveoutputconstitutesmorethan50percentofthetotalproductionofthelikeproductproducedbythatportionofthedomesticindustryexpressingeithersupportfororoppositiontotheapplication.However,noinvestigationshallbeinitiatedwhendomesticproducersexpresslysupportingtheapplicationaccountforlessthan25percentoftotalproductionofthelikeproductproducedbythedomesticindustry.11.5 Theauthoritiesshallavoid,unlessadecisionhasbeenmadetoinitiateaninvestigation,anypublicizingoftheapplicationfortheinitiationofaninvestigation.

44Inthecaseoffragmentedindustriesinvolvinganexceptionallylargenumberofproducers,authoritiesmaydeterminesupportandoppositionbyusingstatisticallyvalidsamplingtechniques.45MembersareawarethatintheterritoryofcertainMembersemployeesofdomesticproducersofthelikeproductorrepresentativesofthoseemployeesmaymakeorsupportanapplicationforaninvestigationunderparagraph1.

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11.6 If,inspecialcircumstances,theauthoritiesconcerneddecidetoinitiateaninvestigationwithouthavingreceivedawrittenapplicationbyoronbehalfofadomesticindustryfortheinitiationofsuchinvestigation,theyshallproceedonlyiftheyhavesufficientevidenceoftheexistenceofasubsidy,injuryandcausallink,asdescribedinparagraph2,tojustifytheinitiationofaninvestigation.11.7 Theevidenceofbothsubsidyandinjuryshallbeconsideredsimultaneously(a)inthedecisionwhetherornottoinitiateaninvestigationand(b)thereafter,duringthecourseoftheinvestigation,startingonadatenotlaterthantheearliestdateonwhichinaccordancewiththeprovisionsofthisAgreementprovisionalmeasuresmaybeapplied.11.8 IncaseswhereproductsarenotimporteddirectlyfromthecountryoforiginbutareexportedtotheimportingMemberfromanintermediatecountry,theprovisionsofthisAgreementshallbefullyapplicableandthetransactionortransactionsshall,forthepurposesofthisAgreement,beregardedashavingtakenplacebetweenthecountryoforiginandtheimportingMember.11.9 Anapplicationunderparagraph1shallberejectedandaninvestigationshallbeterminatedpromptlyassoonastheauthoritiesconcernedaresatisfiedthatthereisnotsufficientevidenceofeithersubsidizationorofinjurytojustifyproceedingwiththecase.Thereshallbeimmediateterminationincaseswheretheamountofasubsidyisdeminimis,orwherethevolumeofsubsidizedimports,actualorpotential,ortheinjury,isnegligible.Forthepurposeofthisparagraph,theamountofthesubsidyshallbeconsideredtobedeminimisifthesubsidyislessthan1percentadvalorem.11.10 Aninvestigationshallnothindertheproceduresofcustomsclearance.11.11 Investigationsshall,exceptinspecialcircumstances,beconcludedwithinoneyear,andinnocasemorethan18months,aftertheirinitiation.

Article12

Evidence12.1 InterestedMembersandallinterestedpartiesinacountervailingdutyinvestigationshallbegivennoticeoftheinformationwhichtheauthoritiesrequireandampleopportunitytopresentinwritingallevidencewhichtheyconsiderrelevantinrespectoftheinvestigationinquestion. 12.1.1 Exporters,foreignproducersorinterestedMembers

receivingquestionnairesusedinacountervailingdutyinvestigationshallbegivenatleast30daysforreply.46Due

46Asageneralrule,thetime-limitforexportersshallbecountedfromthedateofreceiptofthequestionnaire,whichforthispurposeshallbedeemedtohavebeenreceivedoneweekfromthedateonwhichitwassenttotherespondentor

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considerationshouldbegiventoanyrequestforanextensionofthe30-dayperiodand,uponcauseshown,suchanextensionshouldbegrantedwheneverpracticable.

12.1.2 Subjecttotherequirementtoprotectconfidential

information,evidencepresentedinwritingbyoneinterestedMemberorinterestedpartyshallbemadeavailablepromptlytootherinterestedMembersorinterestedpartiesparticipatingintheinvestigation.

12.1.3 Assoonasaninvestigationhasbeeninitiated,the

authoritiesshallprovidethefulltextofthewrittenapplicationreceivedunderparagraph1ofArticle11totheknownexporters47andtotheauthoritiesoftheexportingMemberandshallmakeitavailable,uponrequest,tootherinterestedpartiesinvolved.Dueregardshallbepaidtotheprotectionofconfidentialinformation,asprovidedforinparagraph4.

12.2. InterestedMembersandinterestedpartiesalsoshallhavetheright,uponjustification,topresentinformationorally.Wheresuchinformationisprovidedorally,theinterestedMembersandinterestedpartiessubsequentlyshallberequiredtoreducesuchsubmissionstowriting.AnydecisionoftheinvestigatingauthoritiescanonlybebasedonsuchinformationandargumentsaswereonthewrittenrecordofthisauthorityandwhichwereavailabletointerestedMembersandinterestedpartiesparticipatingintheinvestigation,dueaccounthavingbeengiventotheneedtoprotectconfidentialinformation.12.3 TheauthoritiesshallwheneverpracticableprovidetimelyopportunitiesforallinterestedMembersandinterestedpartiestoseeallinformationthatisrelevanttothepresentationoftheircases,thatisnotconfidentialasdefinedinparagraph4,andthatisusedbytheauthoritiesinacountervailingdutyinvestigation,andtopreparepresentationsonthebasisofthisinformation.12.4 Anyinformationwhichisbynatureconfidential(forexample,becauseitsdisclosurewouldbeofsignificantcompetitiveadvantagetoacompetitororbecauseitsdisclosurewouldhaveasignificantlyadverseeffectuponapersonsupplyingtheinformationoruponapersonfromwhomthesupplieracquiredtheinformation),orwhichisprovidedonaconfidentialbasisbypartiestoaninvestigationshall,upongoodcauseshown,betreatedassuchbytheauthorities.

transmittedtotheappropriatediplomaticrepresentativesoftheexportingMemberor,inthecaseofaseparatecustomsterritoryMemberoftheWTO,anofficialrepresentativeoftheexportingterritory.47Itbeingunderstoodthatwherethenumberofexportersinvolvedisparticularlyhigh,thefulltextoftheapplicationshouldinsteadbeprovidedonlytotheauthoritiesoftheexportingMemberortotherelevanttradeassociationwhothenshouldforwardcopiestotheexportersconcerned.

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Suchinformationshallnotbedisclosedwithoutspecificpermissionofthepartysubmittingit.48 12.4.1 TheauthoritiesshallrequireinterestedMembersor

interestedpartiesprovidingconfidentialinformationtofurnishnon-confidentialsummariesthereof.Thesesummariesshallbeinsufficientdetailtopermitareasonableunderstandingofthesubstanceoftheinformationsubmittedinconfidence.Inexceptionalcircumstances,suchMembersorpartiesmayindicatethatsuchinformationisnotsusceptibleofsummary.Insuchexceptionalcircumstances,astatementofthereasonswhysummarizationisnotpossiblemustbeprovided.

12.4.2 Iftheauthoritiesfindthatarequestforconfidentialityis

notwarrantedandifthesupplieroftheinformationiseitherunwillingtomaketheinformationpublicortoauthorizeitsdisclosureingeneralizedorsummaryform,theauthoritiesmaydisregardsuchinformationunlessitcanbedemonstratedtotheirsatisfactionfromappropriatesourcesthattheinformationiscorrect.49

12.5 Exceptincircumstancesprovidedforinparagraph7,theauthoritiesshallduringthecourseofaninvestigationsatisfythemselvesastotheaccuracyoftheinformationsuppliedbyinterestedMembersorinterestedpartiesuponwhichtheirfindingsarebased.12.6 TheinvestigatingauthoritiesmaycarryoutinvestigationsintheterritoryofotherMembersasrequired,providedthattheyhavenotifiedingoodtimetheMemberinquestionandunlessthatMemberobjectstotheinvestigation.Further,theinvestigatingauthoritiesmaycarryoutinvestigationsonthepremisesofafirmandmayexaminetherecordsofafirmif(a)thefirmsoagreesand(b)theMemberinquestionisnotifiedanddoesnotobject.TheproceduressetforthinAnnexVIshallapplytoinvestigationsonthepremisesofafirm.Subjecttotherequirementtoprotectconfidentialinformation,theauthoritiesshallmaketheresultsofanysuchinvestigationsavailable,orshallprovidedisclosurethereofpursuanttoparagraph8,tothefirmstowhichtheypertainandmaymakesuchresultsavailabletotheapplicants.12.7 IncasesinwhichanyinterestedMemberorinterestedpartyrefusesaccessto,orotherwisedoesnotprovide,necessaryinformationwithinareasonableperiodorsignificantlyimpedestheinvestigation,preliminaryand

48MembersareawarethatintheterritoryofcertainMembersdisclosurepursuanttoanarrowly-drawnprotectiveordermayberequired.49Membersagreethatrequestsforconfidentialityshouldnotbearbitrarilyrejected.Membersfurtheragreethattheinvestigatingauthoritymayrequestthewaivingofconfidentialityonlyregardinginformationrelevanttotheproceedings.

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finaldeterminations,affirmativeornegative,maybemadeonthebasisofthefactsavailable.12.8 Theauthoritiesshall,beforeafinaldeterminationismade,informallinterestedMembersandinterestedpartiesoftheessentialfactsunderconsiderationwhichformthebasisforthedecisionwhethertoapplydefinitivemeasures.Suchdisclosureshouldtakeplaceinsufficienttimeforthepartiestodefendtheirinterests.12.9 ForthepurposesofthisAgreement,"interestedparties"shallinclude:

(i) anexporterorforeignproducerortheimporterofaproductsubjecttoinvestigation,oratradeorbusinessassociationamajorityofthemembersofwhichareproducers,exportersorimportersofsuchproduct;and

(ii) aproducerofthelikeproductintheimportingMemberoratrade

andbusinessassociationamajorityofthemembersofwhichproducethelikeproductintheterritoryoftheimportingMember.

ThislistshallnotprecludeMembersfromallowingdomesticorforeignpartiesotherthanthosementionedabovetobeincludedasinterestedparties.12.10 Theauthoritiesshallprovideopportunitiesforindustrialusersoftheproductunderinvestigation,andforrepresentativeconsumerorganizationsincaseswheretheproductiscommonlysoldattheretaillevel,toprovideinformationwhichisrelevanttotheinvestigationregardingsubsidization,injuryandcausality.12.11 Theauthoritiesshalltakedueaccountofanydifficultiesexperiencedbyinterestedparties,inparticularsmallcompanies,insupplyinginformationrequested,andshallprovideanyassistancepracticable.12.12 TheproceduressetoutabovearenotintendedtopreventtheauthoritiesofaMemberfromproceedingexpeditiouslywithregardtoinitiatinganinvestigation,reachingpreliminaryorfinaldeterminations,whetheraffirmativeornegative,orfromapplyingprovisionalorfinalmeasures,inaccordancewithrelevantprovisionsofthisAgreement.

Article13

Consultations13.1 AssoonaspossibleafteranapplicationunderArticle11isaccepted,andinanyeventbeforetheinitiationofanyinvestigation,Memberstheproductsofwhichmaybesubjecttosuchinvestigationshallbeinvitedforconsultationswiththeaimofclarifyingthesituationastothemattersreferredtoinparagraph2ofArticle11andarrivingatamutuallyagreedsolution.

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13.2 Furthermore,throughouttheperiodofinvestigation,Memberstheproductsofwhicharethesubjectoftheinvestigationshallbeaffordedareasonableopportunitytocontinueconsultations,withaviewtoclarifyingthefactualsituationandtoarrivingatamutuallyagreedsolution.5013.3 Withoutprejudicetotheobligationtoaffordreasonableopportunityforconsultation,theseprovisionsregardingconsultationsarenotintendedtopreventtheauthoritiesofaMemberfromproceedingexpeditiouslywithregardtoinitiatingtheinvestigation,reachingpreliminaryorfinaldeterminations,whetheraffirmativeornegative,orfromapplyingprovisionalorfinalmeasures,inaccordancewiththeprovisionsofthisAgreement.13.4 TheMemberwhichintendstoinitiateanyinvestigationorisconductingsuchaninvestigationshallpermit,uponrequest,theMemberorMemberstheproductsofwhicharesubjecttosuchinvestigationaccesstonon-confidentialevidence,includingthenon-confidentialsummaryofconfidentialdatabeingusedforinitiatingorconductingtheinvestigation.

Article14

CalculationoftheAmountofaSubsidyinTermsoftheBenefittotheRecipient

ForthepurposeofPartV,anymethodusedbytheinvestigatingauthoritytocalculatethebenefittotherecipientconferredpursuanttoparagraph1ofArticle1shallbeprovidedforinthenationallegislationorimplementingregulationsoftheMemberconcernedanditsapplicationtoeachparticularcaseshallbetransparentandadequatelyexplained.Furthermore,anysuchmethodshallbeconsistentwiththefollowingguidelines:

(a) governmentprovisionofequitycapitalshallnotbeconsideredasconferringabenefit,unlesstheinvestmentdecisioncanberegardedasinconsistentwiththeusualinvestmentpractice(includingfortheprovisionofriskcapital)ofprivateinvestorsintheterritoryofthatMember;

(b) aloanbyagovernmentshallnotbeconsideredasconferringa

benefit,unlessthereisadifferencebetweentheamountthatthefirmreceivingtheloanpaysonthegovernmentloanandtheamountthefirmwouldpayonacomparablecommercialloan

50Itisparticularlyimportant,inaccordancewiththeprovisionsofthisparagraph,thatnoaffirmativedeterminationwhetherpreliminaryorfinalbemadewithoutreasonableopportunityforconsultationshavingbeengiven.SuchconsultationsmayestablishthebasisforproceedingundertheprovisionsofPartII,IIIorX.

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whichthefirmcouldactuallyobtainonthemarket.Inthiscasethebenefitshallbethedifferencebetweenthesetwoamounts;

(c) aloanguaranteebyagovernmentshallnotbeconsideredas

conferringabenefit,unlessthereisadifferencebetweentheamountthatthefirmreceivingtheguaranteepaysonaloanguaranteedbythegovernmentandtheamountthatthefirmwouldpayonacomparablecommercialloanabsentthegovernmentguarantee.Inthiscasethebenefitshallbethedifferencebetweenthesetwoamountsadjustedforanydifferencesinfees;

(d) theprovisionofgoodsorservicesorpurchaseofgoodsbya

governmentshallnotbeconsideredasconferringabenefitunlesstheprovisionismadeforlessthanadequateremuneration,orthepurchaseismadeformorethanadequateremuneration.Theadequacyofremunerationshallbedeterminedinrelationtoprevailingmarketconditionsforthegoodorserviceinquestioninthecountryofprovisionorpurchase(includingprice,quality,availability,marketability,transportationandotherconditionsofpurchaseorsale).

Article15

DeterminationofInjury5115.1 AdeterminationofinjuryforpurposesofArticleVIofGATT1994shallbebasedonpositiveevidenceandinvolveanobjectiveexaminationofboth(a)thevolumeofthesubsidizedimportsandtheeffectofthesubsidizedimportsonpricesinthedomesticmarketforlikeproducts52and(b)theconsequentimpactoftheseimportsonthedomesticproducersofsuchproducts.15.2 Withregardtothevolumeofthesubsidizedimports,theinvestigatingauthoritiesshallconsiderwhethertherehasbeenasignificantincreaseinsubsidizedimports,eitherinabsolutetermsorrelativetoproductionorconsumptionintheimportingMember.Withregardtotheeffectofthesubsidizedimportsonprices,theinvestigatingauthoritiesshallconsiderwhethertherehasbeenasignificantpriceundercuttingbythesubsidized

51UnderthisAgreementtheterm"injury"shall,unlessotherwisespecified,betakentomeanmaterialinjurytoadomesticindustry,threatofmaterialinjurytoadomesticindustryormaterialretardationoftheestablishmentofsuchanindustryandshallbeinterpretedinaccordancewiththeprovisionsofthisArticle.52ThroughoutthisAgreementtheterm"likeproduct"("produitsimilaire")shallbeinterpretedtomeanaproductwhichisidentical,i.e.alikeinallrespectstotheproductunderconsideration,orintheabsenceofsuchaproduct,anotherproductwhich,althoughnotalikeinallrespects,hascharacteristicscloselyresemblingthoseoftheproductunderconsideration.

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importsascomparedwiththepriceofalikeproductoftheimportingMember,orwhethertheeffectofsuchimportsisotherwisetodepresspricestoasignificantdegreeortopreventpriceincreases,whichotherwisewouldhaveoccurred,toasignificantdegree.Nooneorseveralofthesefactorscannecessarilygivedecisiveguidance.15.3 Whereimportsofaproductfrommorethanonecountryaresimultaneouslysubjecttocountervailingdutyinvestigations,theinvestigatingauthoritiesmaycumulativelyassesstheeffectsofsuchimportsonlyiftheydeterminethat(a)theamountofsubsidizationestablishedinrelationtotheimportsfromeachcountryismorethandeminimisasdefinedinparagraph9ofArticle11andthevolumeofimportsfromeachcountryisnotnegligibleand(b)acumulativeassessmentoftheeffectsoftheimportsisappropriateinlightoftheconditionsofcompetitionbetweentheimportedproductsandtheconditionsofcompetitionbetweentheimportedproductsandthelikedomesticproduct.15.4 Theexaminationoftheimpactofthesubsidizedimportsonthedomesticindustryshallincludeanevaluationofallrelevanteconomicfactorsandindiceshavingabearingonthestateoftheindustry,includingactualandpotentialdeclineinoutput,sales,marketshare,profits,productivity,returnoninvestments,orutilizationofcapacity;factorsaffectingdomesticprices;actualandpotentialnegativeeffectsoncashflow,inventories,employment,wages,growth,abilitytoraisecapitalorinvestmentsand,inthecaseofagriculture,whethertherehasbeenanincreasedburdenongovernmentsupportprogrammes.Thislistisnotexhaustive,norcanoneorseveralofthesefactorsnecessarilygivedecisiveguidance.15.5 Itmustbedemonstratedthatthesubsidizedimportsare,throughtheeffects53ofsubsidies,causinginjurywithinthemeaningofthisAgreement.Thedemonstrationofacausalrelationshipbetweenthesubsidizedimportsandtheinjurytothedomesticindustryshallbebasedonanexaminationofallrelevantevidencebeforetheauthorities.Theauthoritiesshallalsoexamineanyknownfactorsotherthanthesubsidizedimportswhichatthesametimeareinjuringthedomesticindustry,andtheinjuriescausedbytheseotherfactorsmustnotbeattributedtothesubsidizedimports.Factorswhichmayberelevantinthisrespectinclude,interalia,thevolumesandpricesofnon-subsidizedimportsoftheproductinquestion,contractionindemandorchangesinthepatternsofconsumption,traderestrictivepracticesofandcompetitionbetweentheforeignanddomesticproducers,developmentsintechnologyandtheexportperformanceandproductivityofthedomesticindustry.15.6 Theeffectofthesubsidizedimportsshallbeassessedinrelationtothedomesticproductionofthelikeproductwhenavailabledatapermittheseparateidentificationofthatproductiononthebasisofsuchcriteriaastheproductionprocess,producers'salesandprofits.Ifsuchseparateidentificationofthatproductionisnotpossible,theeffectsofthesubsidizedimportsshallbeassessedbytheexaminationoftheproductionofthenarrowestgrouporrangeof

53Assetforthinparagraphs2and4.

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products,whichincludesthelikeproduct,forwhichthenecessaryinformationcanbeprovided.15.7 Adeterminationofathreatofmaterialinjuryshallbebasedonfactsandnotmerelyonallegation,conjectureorremotepossibility.Thechangeincircumstanceswhichwouldcreateasituationinwhichthesubsidywouldcauseinjurymustbeclearlyforeseenandimminent.Inmakingadeterminationregardingtheexistenceofathreatofmaterialinjury,theinvestigatingauthoritiesshouldconsider,interalia,suchfactorsas:

(i) natureofthesubsidyorsubsidiesinquestionandthetradeeffectslikelytoarisetherefrom;

(ii) asignificantrateofincreaseofsubsidizedimportsintothe

domesticmarketindicatingthelikelihoodofsubstantiallyincreasedimportation;

(iii) sufficientfreelydisposable,oranimminent,substantialincrease

in,capacityoftheexporterindicatingthelikelihoodofsubstantiallyincreasedsubsidizedexportstotheimportingMember'smarket,takingintoaccounttheavailabilityofotherexportmarketstoabsorbanyadditionalexports;

(iv) whetherimportsareenteringatpricesthatwillhaveasignificant

depressingorsuppressingeffectondomesticprices,andwouldlikelyincreasedemandforfurtherimports;and

(v) inventoriesoftheproductbeinginvestigated.

Nooneofthesefactorsbyitselfcannecessarilygivedecisiveguidancebutthetotalityofthefactorsconsideredmustleadtotheconclusionthatfurthersubsidizedexportsareimminentandthat,unlessprotectiveactionistaken,materialinjurywouldoccur.15.8 Withrespecttocaseswhereinjuryisthreatenedbysubsidizedimports,theapplicationofcountervailingmeasuresshallbeconsideredanddecidedwithspecialcare.

Article16

DefinitionofDomesticIndustry16.1 ForthepurposesofthisAgreement,theterm"domesticindustry"shall,exceptasprovidedinparagraph2,beinterpretedasreferringtothedomesticproducersasawholeofthelikeproductsortothoseofthemwhosecollectiveoutputoftheproductsconstitutesamajorproportionofthetotaldomestic

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productionofthoseproducts,exceptthatwhenproducersarerelated54totheexportersorimportersorarethemselvesimportersoftheallegedlysubsidizedproductoralikeproductfromothercountries,theterm"domesticindustry"maybeinterpretedasreferringtotherestoftheproducers.16.2. Inexceptionalcircumstances,theterritoryofaMembermay,fortheproductioninquestion,bedividedintotwoormorecompetitivemarketsandtheproducerswithineachmarketmayberegardedasaseparateindustryif(a)theproducerswithinsuchmarketsellalloralmostalloftheirproductionoftheproductinquestioninthatmarket,and(b)thedemandinthatmarketisnottoanysubstantialdegreesuppliedbyproducersoftheproductinquestionlocatedelsewhereintheterritory.Insuchcircumstances,injurymaybefoundtoexistevenwhereamajorportionofthetotaldomesticindustryisnotinjured,providedthereisaconcentrationofsubsidizedimportsintosuchanisolatedmarketandprovidedfurtherthatthesubsidizedimportsarecausinginjurytotheproducersofalloralmostalloftheproductionwithinsuchmarket.16.3 Whenthedomesticindustryhasbeeninterpretedasreferringtotheproducersinacertainarea,i.e.amarketasdefinedinparagraph2,countervailingdutiesshallbeleviedonlyontheproductsinquestionconsignedforfinalconsumptiontothatarea.WhentheconstitutionallawoftheimportingMemberdoesnotpermitthelevyingofcountervailingdutiesonsuchabasis,theimportingMembermaylevythecountervailingdutieswithoutlimitationonlyif(a)theexportersshallhavebeengivenanopportunitytoceaseexportingatsubsidizedpricestotheareaconcernedorotherwisegiveassurancespursuanttoArticle18,andadequateassurancesinthisregardhavenotbeenpromptlygiven,and(b)suchdutiescannotbeleviedonlyonproductsofspecificproducerswhichsupplytheareainquestion.16.4 Wheretwoormorecountrieshavereachedundertheprovisionsofparagraph8(a)ofArticleXXIVofGATT1994suchalevelofintegrationthattheyhavethecharacteristicsofasingle,unifiedmarket,theindustryintheentireareaofintegrationshallbetakentobethedomesticindustryreferredtoinparagraphs1and2.16.5 Theprovisionsofparagraph6ofArticle15shallbeapplicabletothisArticle.

54Forthepurposeofthisparagraph,producersshallbedeemedtoberelatedtoexportersorimportersonlyif(a)oneofthemdirectlyorindirectlycontrolstheother;or(b)bothofthemaredirectlyorindirectlycontrolledbyathirdperson;or(c)togethertheydirectlyorindirectlycontrolathirdperson,providedthattherearegroundsforbelievingorsuspectingthattheeffectoftherelationshipissuchastocausetheproducerconcernedtobehavedifferentlyfromnon-relatedproducers.Forthepurposeofthisparagraph,oneshallbedeemedtocontrolanotherwhentheformerislegallyoroperationallyinapositiontoexerciserestraintordirectionoverthelatter.

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Article17

ProvisionalMeasures17.1 Provisionalmeasuresmaybeappliedonlyif:

(a) aninvestigationhasbeeninitiatedinaccordancewiththeprovisionsofArticle11,apublicnoticehasbeengiventothateffectandinterestedMembersandinterestedpartieshavebeengivenadequateopportunitiestosubmitinformationandmakecomments;

(b) apreliminaryaffirmativedeterminationhasbeenmadethata

subsidyexistsandthatthereisinjurytoadomesticindustrycausedbysubsidizedimports;and

(c) theauthoritiesconcernedjudgesuchmeasuresnecessaryto

preventinjurybeingcausedduringtheinvestigation.17.2 Provisionalmeasuresmaytaketheformofprovisionalcountervailingdutiesguaranteedbycashdepositsorbondsequaltotheamountoftheprovisionallycalculatedamountofsubsidization.17.3 Provisionalmeasuresshallnotbeappliedsoonerthan60daysfromthedateofinitiationoftheinvestigation.17.4 Theapplicationofprovisionalmeasuresshallbelimitedtoasshortaperiodaspossible,notexceedingfourmonths.17.5 TherelevantprovisionsofArticle19shallbefollowedintheapplicationofprovisionalmeasures.

Article18

Undertakings18.1 Proceedingsmay55besuspendedorterminatedwithouttheimpositionofprovisionalmeasuresorcountervailingdutiesuponreceiptofsatisfactoryvoluntaryundertakingsunderwhich:

(a) thegovernmentoftheexportingMemberagreestoeliminateorlimitthesubsidyortakeothermeasuresconcerningitseffects;or

55Theword"may"shallnotbeinterpretedtoallowthesimultaneouscontinuationofproceedingswiththeimplementationofundertakings,exceptasprovidedinparagraph4.

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(b) theexporteragreestoreviseitspricessothattheinvestigatingauthoritiesaresatisfiedthattheinjuriouseffectofthesubsidyiseliminated.Priceincreasesundersuchundertakingsshallnotbehigherthannecessarytoeliminatetheamountofthesubsidy.Itisdesirablethatthepriceincreasesbelessthantheamountofthesubsidyifsuchincreaseswouldbeadequatetoremovetheinjurytothedomesticindustry.

18.2 UndertakingsshallnotbesoughtoracceptedunlesstheauthoritiesoftheimportingMemberhavemadeapreliminaryaffirmativedeterminationofsubsidizationandinjurycausedbysuchsubsidizationand,incaseofundertakingsfromexporters,haveobtainedtheconsentoftheexportingMember.18.3 UndertakingsofferedneednotbeacceptediftheauthoritiesoftheimportingMemberconsidertheiracceptanceimpractical,forexampleifthenumberofactualorpotentialexportersistoogreat,orforotherreasons,includingreasonsofgeneralpolicy.Shouldthecaseariseandwherepracticable,theauthoritiesshallprovidetotheexporterthereasonswhichhaveledthemtoconsideracceptanceofanundertakingasinappropriate,andshall,totheextentpossible,givetheexporteranopportunitytomakecommentsthereon.18.4 Ifanundertakingisaccepted,theinvestigationofsubsidizationandinjuryshallneverthelessbecompletediftheexportingMembersodesiresortheimportingMembersodecides.Insuchacase,ifanegativedeterminationofsubsidizationorinjuryismade,theundertakingshallautomaticallylapse,exceptincaseswheresuchadeterminationisdueinlargeparttotheexistenceofanundertaking.Insuchcases,theauthoritiesconcernedmayrequirethatanundertakingbemaintainedforareasonableperiodconsistentwiththeprovisionsofthisAgreement.Intheeventthatanaffirmativedeterminationofsubsidizationandinjuryismade,theundertakingshallcontinueconsistentwithitstermsandtheprovisionsofthisAgreement.18.5 PriceundertakingsmaybesuggestedbytheauthoritiesoftheimportingMember,butnoexportershallbeforcedtoenterintosuchundertakings.Thefactthatgovernmentsorexportersdonotoffersuchundertakings,ordonotacceptaninvitationtodoso,shallinnowayprejudicetheconsiderationofthecase.However,theauthoritiesarefreetodeterminethatathreatofinjuryismorelikelytoberealizedifthesubsidizedimportscontinue.18.6 AuthoritiesofanimportingMembermayrequireanygovernmentorexporterfromwhomanundertakinghasbeenacceptedtoprovideperiodicallyinformationrelevanttothefulfilmentofsuchanundertaking,andtopermitverificationofpertinentdata.Incaseofviolationofanundertaking,theauthoritiesoftheimportingMembermaytake,underthisAgreementinconformitywithitsprovisions,expeditiousactionswhichmayconstituteimmediateapplicationofprovisionalmeasuresusingthebestinformationavailable.Insuchcases,definitivedutiesmaybeleviedinaccordancewiththis

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Agreementonproductsenteredforconsumptionnotmorethan90daysbeforetheapplicationofsuchprovisionalmeasures,exceptthatanysuchretroactiveassessmentshallnotapplytoimportsenteredbeforetheviolationoftheundertaking.

Article19

ImpositionandCollectionofCountervailingDuties19.1 If,afterreasonableeffortshavebeenmadetocompleteconsultations,aMembermakesafinaldeterminationoftheexistenceandamountofthesubsidyandthat,throughtheeffectsofthesubsidy,thesubsidizedimportsarecausinginjury,itmayimposeacountervailingdutyinaccordancewiththeprovisionsofthisArticleunlessthesubsidyorsubsidiesarewithdrawn.19.2 Thedecisionwhetherornottoimposeacountervailingdutyincaseswhereallrequirementsfortheimpositionhavebeenfulfilled,andthedecisionwhethertheamountofthecountervailingdutytobeimposedshallbethefullamountofthesubsidyorless,aredecisionstobemadebytheauthoritiesoftheimportingMember.ItisdesirablethattheimpositionshouldbepermissiveintheterritoryofallMembers,thatthedutyshouldbelessthanthetotalamountofthesubsidyifsuchlesserdutywouldbeadequatetoremovetheinjurytothedomesticindustry,andthatproceduresshouldbeestablishedwhichwouldallowtheauthoritiesconcernedtotakedueaccountofrepresentationsmadebydomesticinterestedparties56whoseinterestsmightbeadverselyaffectedbytheimpositionofacountervailingduty.19.3 Whenacountervailingdutyisimposedinrespectofanyproduct,suchcountervailingdutyshallbelevied,intheappropriateamountsineachcase,onanon-discriminatorybasisonimportsofsuchproductfromallsourcesfoundtobesubsidizedandcausinginjury,exceptastoimportsfromthosesourceswhichhaverenouncedanysubsidiesinquestionorfromwhichundertakingsunderthetermsofthisAgreementhavebeenaccepted.Anyexporterwhoseexportsaresubjecttoadefinitivecountervailingdutybutwhowasnotactuallyinvestigatedforreasonsotherthanarefusaltocooperate,shallbeentitledtoanexpeditedreviewinorderthattheinvestigatingauthoritiespromptlyestablishanindividualcountervailingdutyrateforthatexporter.19.4 Nocountervailingdutyshallbelevied57onanyimportedproductinexcessoftheamountofthesubsidyfoundtoexist,calculatedintermsofsubsidizationperunitofthesubsidizedandexportedproduct.

56Forthepurposeofthisparagraph,theterm"domesticinterestedparties"shallincludeconsumersandindustrialusersoftheimportedproductsubjecttoinvestigation.57AsusedinthisAgreement"levy"shallmeanthedefinitiveorfinallegalassessmentorcollectionofadutyortax.

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Article20

Retroactivity

20.1 Provisionalmeasuresandcountervailingdutiesshallonlybeappliedtoproductswhichenterforconsumptionafterthetimewhenthedecisionunderparagraph1ofArticle17andparagraph1ofArticle19,respectively,entersintoforce,subjecttotheexceptionssetoutinthisArticle.20.2 Whereafinaldeterminationofinjury(butnotofathreatthereoforofamaterialretardationoftheestablishmentofanindustry)ismadeor,inthecaseofafinaldeterminationofathreatofinjury,wheretheeffectofthesubsidizedimportswould,intheabsenceoftheprovisionalmeasures,haveledtoadeterminationofinjury,countervailingdutiesmaybeleviedretroactivelyfortheperiodforwhichprovisionalmeasures,ifany,havebeenapplied.20.3 Ifthedefinitivecountervailingdutyishigherthantheamountguaranteedbythecashdepositorbond,thedifferenceshallnotbecollected.Ifthedefinitivedutyislessthantheamountguaranteedbythecashdepositorbond,theexcessamountshallbereimbursedorthebondreleasedinanexpeditiousmanner.20.4 Exceptasprovidedinparagraph2,whereadeterminationofthreatofinjuryormaterialretardationismade(butnoinjuryhasyetoccurred)adefinitivecountervailingdutymaybeimposedonlyfromthedateofthedeterminationofthreatofinjuryormaterialretardation,andanycashdepositmadeduringtheperiodoftheapplicationofprovisionalmeasuresshallberefundedandanybondsreleasedinanexpeditiousmanner.20.5 Whereafinaldeterminationisnegative,anycashdepositmadeduringtheperiodoftheapplicationofprovisionalmeasuresshallberefundedandanybondsreleasedinanexpeditiousmanner.20.6 IncriticalcircumstanceswhereforthesubsidizedproductinquestiontheauthoritiesfindthatinjurywhichisdifficulttorepairiscausedbymassiveimportsinarelativelyshortperiodofaproductbenefitingfromsubsidiespaidorbestowedinconsistentlywiththeprovisionsofGATT1994andofthisAgreementandwhereitisdeemednecessary,inordertoprecludetherecurrenceofsuchinjury,toassesscountervailingdutiesretroactivelyonthoseimports,thedefinitivecountervailingdutiesmaybeassessedonimportswhichwereenteredforconsumptionnotmorethan90dayspriortothedateofapplicationofprovisionalmeasures.

Article21

DurationandReviewofCountervailingDutiesandUndertakings

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21.1 Acountervailingdutyshallremaininforceonlyaslongasandtotheextentnecessarytocounteractsubsidizationwhichiscausinginjury.21.2 Theauthoritiesshallreviewtheneedforthecontinuedimpositionoftheduty,wherewarranted,ontheirowninitiativeor,providedthatareasonableperiodoftimehaselapsedsincetheimpositionofthedefinitivecountervailingduty,uponrequestbyanyinterestedpartywhichsubmitspositiveinformationsubstantiatingtheneedforareview.Interestedpartiesshallhavetherighttorequesttheauthoritiestoexaminewhetherthecontinuedimpositionofthedutyisnecessarytooffsetsubsidization,whethertheinjurywouldbelikelytocontinueorrecurifthedutywereremovedorvaried,orboth.If,asaresultofthereviewunderthisparagraph,theauthoritiesdeterminethatthecountervailingdutyisnolongerwarranted,itshallbeterminatedimmediately.21.3 Notwithstandingtheprovisionsofparagraphs1and2,anydefinitivecountervailingdutyshallbeterminatedonadatenotlaterthanfiveyearsfromitsimposition(orfromthedateofthemostrecentreviewunderparagraph2ifthatreviewhascoveredbothsubsidizationandinjury,orunderthisparagraph),unlesstheauthoritiesdetermine,inareviewinitiatedbeforethatdateontheirowninitiativeoruponadulysubstantiatedrequestmadebyoronbehalfofthedomesticindustrywithinareasonableperiodoftimepriortothatdate,thattheexpiryofthedutywouldbelikelytoleadtocontinuationorrecurrenceofsubsidizationandinjury.58Thedutymayremaininforcependingtheoutcomeofsuchareview.21.4 TheprovisionsofArticle12regardingevidenceandprocedureshallapplytoanyreviewcarriedoutunderthisArticle.Anysuchreviewshallbecarriedoutexpeditiouslyandshallnormallybeconcludedwithin12monthsofthedateofinitiationofthereview.21.5 TheprovisionsofthisArticleshallapplymutatismutandistoundertakingsacceptedunderArticle18.

Article22

PublicNoticeandExplanationofDeterminations

22.1 WhentheauthoritiesaresatisfiedthatthereissufficientevidencetojustifytheinitiationofaninvestigationpursuanttoArticle11,theMemberorMemberstheproductsofwhicharesubjecttosuchinvestigationandotherinterestedpartiesknowntotheinvestigatingauthoritiestohaveaninterestthereinshallbenotifiedandapublicnoticeshallbegiven.

58Whentheamountofthecountervailingdutyisassessedonaretrospectivebasis,afindinginthemostrecentassessmentproceedingthatnodutyistobeleviedshallnotbyitselfrequiretheauthoritiestoterminatethedefinitiveduty.

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22.2 Apublicnoticeoftheinitiationofaninvestigationshallcontain,orotherwisemakeavailablethroughaseparatereport59,adequateinformationonthefollowing:

(i) thenameoftheexportingcountryorcountriesandtheproductinvolved;

(ii) thedateofinitiationoftheinvestigation;

(iii) adescriptionofthesubsidypracticeorpracticestobe

investigated;

(iv) asummaryofthefactorsonwhichtheallegationofinjuryisbased;

(v) theaddresstowhichrepresentationsbyinterested

Membersandinterestedpartiesshouldbedirected;and

(vi) thetime-limitsallowedtointerestedMembersandinterestedpartiesformakingtheirviewsknown.

22.3 Publicnoticeshallbegivenofanypreliminaryorfinaldetermination,whetheraffirmativeornegative,ofanydecisiontoacceptanundertakingpursuanttoArticle18,oftheterminationofsuchanundertaking,andoftheterminationofadefinitivecountervailingduty.Eachsuchnoticeshallsetforth,orotherwisemakeavailablethroughaseparatereport,insufficientdetailthefindingsandconclusionsreachedonallissuesoffactandlawconsideredmaterialbytheinvestigatingauthorities.AllsuchnoticesandreportsshallbeforwardedtotheMemberorMemberstheproductsofwhicharesubjecttosuchdeterminationorundertakingandtootherinterestedpartiesknowntohaveaninteresttherein.22.4 Apublicnoticeoftheimpositionofprovisionalmeasuresshallsetforth,orotherwisemakeavailablethroughaseparatereport,sufficientlydetailedexplanationsforthepreliminarydeterminationsontheexistenceofasubsidyandinjuryandshallrefertothemattersoffactandlawwhichhaveledtoargumentsbeingacceptedorrejected.Suchanoticeorreportshall,dueregardbeingpaidtotherequirementfortheprotectionofconfidentialinformation,containinparticular:

(i) thenamesofthesuppliersor,whenthisisimpracticable,thesupplyingcountriesinvolved;

(ii) adescriptionoftheproductwhichissufficientforcustoms

purposes;

59WhereauthoritiesprovideinformationandexplanationsundertheprovisionsofthisArticleinaseparatereport,theyshallensurethatsuchreportisreadilyavailabletothepublic.

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(iii) theamountofsubsidyestablishedandthebasisonwhich

theexistenceofasubsidyhasbeendetermined;

(iv) considerationsrelevanttotheinjurydeterminationassetoutinArticle15;

(v) themainreasonsleadingtothedetermination.

22.5 Apublicnoticeofconclusionorsuspensionofaninvestigationinthecaseofanaffirmativedeterminationprovidingfortheimpositionofadefinitivedutyortheacceptanceofanundertakingshallcontain,orotherwisemakeavailablethroughaseparatereport,allrelevantinformationonthemattersoffactandlawandreasonswhichhaveledtotheimpositionoffinalmeasuresortheacceptanceofanundertaking,dueregardbeingpaidtotherequirementfortheprotectionofconfidentialinformation.Inparticular,thenoticeorreportshallcontaintheinformationdescribedinparagraph4,aswellasthereasonsfortheacceptanceorrejectionofrelevantargumentsorclaimsmadebyinterestedMembersandbytheexportersandimporters.22.6 ApublicnoticeoftheterminationorsuspensionofaninvestigationfollowingtheacceptanceofanundertakingpursuanttoArticle18shallinclude,orotherwisemakeavailablethroughaseparatereport,thenon-confidentialpartofthisundertaking.22.7 TheprovisionsofthisArticleshallapplymutatismutandistotheinitiationandcompletionofreviewspursuanttoArticle21andtodecisionsunderArticle20toapplydutiesretroactively.

Article23

JudicialReview EachMemberwhosenationallegislationcontainsprovisionsoncountervailingdutymeasuresshallmaintainjudicial,arbitraloradministrativetribunalsorproceduresforthepurpose,interalia,ofthepromptreviewofadministrativeactionsrelatingtofinaldeterminationsandreviewsofdeterminationswithinthemeaningofArticle21.Suchtribunalsorproceduresshallbeindependentoftheauthoritiesresponsibleforthedeterminationorreviewinquestion,andshallprovideallinterestedpartieswhoparticipatedintheadministrativeproceedingandaredirectlyandindividuallyaffectedbytheadministrativeactionswithaccesstoreview.

PARTVI:INSTITUTIONS

Article24

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CommitteeonSubsidiesandCountervailingMeasures

andSubsidiaryBodies24.1 ThereisherebyestablishedaCommitteeonSubsidiesandCountervailingMeasurescomposedofrepresentativesfromeachoftheMembers.TheCommitteeshallelectitsownChairmanandshallmeetnotlessthantwiceayearandotherwiseasenvisagedbyrelevantprovisionsofthisAgreementattherequestofanyMember.TheCommitteeshallcarryoutresponsibilitiesasassignedtoitunderthisAgreementorbytheMembersanditshallaffordMemberstheopportunityofconsultingonanymatterrelatingtotheoperationoftheAgreementorthefurtheranceofitsobjectives.TheWTOSecretariatshallactasthesecretariattotheCommittee.24.2 TheCommitteemaysetupsubsidiarybodiesasappropriate.24.3 TheCommitteeshallestablishaPermanentGroupofExpertscomposedoffiveindependentpersons,highlyqualifiedinthefieldsofsubsidiesandtraderelations.TheexpertswillbeelectedbytheCommitteeandoneofthemwillbereplacedeveryyear.ThePGEmayberequestedtoassistapanel,asprovidedforinparagraph5ofArticle4.TheCommitteemayalsoseekanadvisoryopinionontheexistenceandnatureofanysubsidy.24.4 ThePGEmaybeconsultedbyanyMemberandmaygiveadvisoryopinionsonthenatureofanysubsidyproposedtobeintroducedorcurrentlymaintainedbythatMember.SuchadvisoryopinionswillbeconfidentialandmaynotbeinvokedinproceedingsunderArticle7.24.5 Incarryingouttheirfunctions,theCommitteeandanysubsidiarybodiesmayconsultwithandseekinformationfromanysourcetheydeemappropriate.However,beforetheCommitteeorasubsidiarybodyseekssuchinformationfromasourcewithinthejurisdictionofaMember,itshallinformtheMemberinvolved.

PARTVII:NOTIFICATIONANDSURVEILLANCE

Article25

Notifications25.1 Membersagreethat,withoutprejudicetotheprovisionsofparagraph1ofArticleXVIofGATT1994,theirnotificationsofsubsidiesshallbesubmittednotlaterthan30Juneofeachyearandshallconformtotheprovisionsofparagraphs2through6.

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25.2 Membersshallnotifyanysubsidyasdefinedinparagraph1ofArticle1,whichisspecificwithinthemeaningofArticle2,grantedormaintainedwithintheirterritories.25.3 ThecontentofnotificationsshouldbesufficientlyspecifictoenableotherMemberstoevaluatethetradeeffectsandtounderstandtheoperationofnotifiedsubsidyprogrammes.Inthisconnection,andwithoutprejudicetothecontentsandformofthequestionnaireonsubsidies60,Membersshallensurethattheirnotificationscontainthefollowinginformation:

(i) formofasubsidy(i.e.grant,loan,taxconcession,etc.);

(ii) subsidyperunitor,incaseswherethisisnotpossible,thetotalamountortheannualamountbudgetedforthatsubsidy(indicating,ifpossible,theaveragesubsidyperunitinthepreviousyear);

(iii) policyobjectiveand/orpurposeofasubsidy;

(iv) durationofasubsidyand/oranyothertime-limitsattached

toit;

(v) statisticaldatapermittinganassessmentofthetradeeffectsofasubsidy.

25.4 Wherespecificpointsinparagraph3havenotbeenaddressedinanotification,anexplanationshallbeprovidedinthenotificationitself.25.5 Ifsubsidiesaregrantedtospecificproductsorsectors,thenotificationsshouldbeorganizedbyproductorsector.25.6 Memberswhichconsiderthattherearenomeasuresintheirterritoriesrequiringnotificationunderparagraph1ofArticleXVIofGATT1994andthisAgreementshallsoinformtheSecretariatinwriting.25.7 MembersrecognizethatnotificationofameasuredoesnotprejudgeeitheritslegalstatusunderGATT1994andthisAgreement,theeffectsunderthisAgreement,orthenatureofthemeasureitself.25.8 AnyMembermay,atanytime,makeawrittenrequestforinformationonthenatureandextentofanysubsidygrantedormaintainedbyanotherMember(includinganysubsidyreferredtoinPartIV),orforanexplanationofthereasonsforwhichaspecificmeasurehasbeenconsideredasnotsubjecttotherequirementofnotification.

60TheCommitteeshallestablishaWorkingPartytoreviewthecontentsandformofthequestionnaireascontainedinBISD9S/193-194.

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25.9 Memberssorequestedshallprovidesuchinformationasquicklyaspossibleandinacomprehensivemanner,andshallbeready,uponrequest,toprovideadditionalinformationtotherequestingMember.Inparticular,theyshallprovidesufficientdetailstoenabletheotherMembertoassesstheircompliancewiththetermsofthisAgreement.AnyMemberwhichconsidersthatsuchinformationhasnotbeenprovidedmaybringthemattertotheattentionoftheCommittee.25.10 AnyMemberwhichconsidersthatanymeasureofanotherMemberhavingtheeffectsofasubsidyhasnotbeennotifiedinaccordancewiththeprovisionsofparagraph1ofArticleXVIofGATT1994andthisArticlemaybringthemattertotheattentionofsuchotherMember.Iftheallegedsubsidyisnotthereafternotifiedpromptly,suchMembermayitselfbringtheallegedsubsidyinquestiontothenoticeoftheCommittee.25.11 MembersshallreportwithoutdelaytotheCommitteeallpreliminaryorfinalactionstakenwithrespecttocountervailingduties.SuchreportsshallbeavailableintheSecretariatforinspectionbyotherMembers.Membersshallalsosubmit,onasemi-annualbasis,reportsonanycountervailingdutyactionstakenwithintheprecedingsixmonths.Thesemi-annualreportsshallbesubmittedonanagreedstandardform.25.12 EachMembershallnotifytheCommittee(a)whichofitsauthoritiesarecompetenttoinitiateandconductinvestigationsreferredtoinArticle11and(b)itsdomesticproceduresgoverningtheinitiationandconductofsuchinvestigations.

Article26

Surveillance26.1 TheCommitteeshallexaminenewandfullnotificationssubmittedunderparagraph1ofArticleXVIofGATT1994andparagraph1ofArticle25ofthisAgreementatspecialsessionsheldeverythirdyear.Notificationssubmittedintheinterveningyears(updatingnotifications)shallbeexaminedateachregularmeetingoftheCommittee.26.2 TheCommitteeshallexaminereportssubmittedunderparagraph11ofArticle25ateachregularmeetingoftheCommittee.

PARTVIII:DEVELOPINGCOUNTRYMEMBERS

Article27

SpecialandDifferentialTreatmentofDevelopingCountryMembers

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27.1 MembersrecognizethatsubsidiesmayplayanimportantroleineconomicdevelopmentprogrammesofdevelopingcountryMembers.27.2 Theprohibitionofparagraph1(a)ofArticle3shallnotapplyto:

(a) developingcountryMembersreferredtoinAnnexVII.

(b) otherdevelopingcountryMembersforaperiodofeightyearsfromthedateofentryintoforceoftheWTOAgreement,subjecttocompliancewiththeprovisionsinparagraph4.

27.3 Theprohibitionofparagraph1(b)ofArticle3shallnotapplytodevelopingcountryMembersforaperiodoffiveyears,andshallnotapplytoleastdevelopedcountryMembersforaperiodofeightyears,fromthedateofentryintoforceoftheWTOAgreement.27.4 AnydevelopingcountryMemberreferredtoinparagraph2(b)shallphaseoutitsexportsubsidieswithintheeight-yearperiod,preferablyinaprogressivemanner.However,adevelopingcountryMembershallnotincreasethelevelofitsexportsubsidies61,andshalleliminatethemwithinaperiodshorterthanthatprovidedforinthisparagraphwhentheuseofsuchexportsubsidiesisinconsistentwithitsdevelopmentneeds.IfadevelopingcountryMemberdeemsitnecessarytoapplysuchsubsidiesbeyondthe8-yearperiod,itshallnotlaterthanoneyearbeforetheexpiryofthisperiodenterintoconsultationwiththeCommittee,whichwilldeterminewhetheranextensionofthisperiodisjustified,afterexaminingalltherelevanteconomic,financialanddevelopmentneedsofthedevelopingcountryMemberinquestion.IftheCommitteedeterminesthattheextensionisjustified,thedevelopingcountryMemberconcernedshallholdannualconsultationswiththeCommitteetodeterminethenecessityofmaintainingthesubsidies.IfnosuchdeterminationismadebytheCommittee,thedevelopingcountryMembershallphaseouttheremainingexportsubsidieswithintwoyearsfromtheendofthelastauthorizedperiod.27.5 AdevelopingcountryMemberwhichhasreachedexportcompetitivenessinanygivenproductshallphaseoutitsexportsubsidiesforsuchproduct(s)overaperiodoftwoyears.However,foradevelopingcountryMemberwhichisreferredtoinAnnexVIIandwhichhasreachedexportcompetitivenessinoneormoreproducts,exportsubsidiesonsuchproductsshallbegraduallyphasedoutoveraperiodofeightyears.27.6 ExportcompetitivenessinaproductexistsifadevelopingcountryMember'sexportsofthatproducthavereachedashareofatleast3.25percentinworldtradeofthatproductfortwoconsecutivecalendaryears.Exportcompetitivenessshallexisteither(a)onthebasisofnotificationbythe

61ForadevelopingcountryMembernotgrantingexportsubsidiesasofthedateofentryintoforceoftheWTOAgreement,thisparagraphshallapplyonthebasisofthelevelofexportsubsidiesgrantedin1986.

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developingcountryMemberhavingreachedexportcompetitiveness,or(b)onthebasisofacomputationundertakenbytheSecretariatattherequestofanyMember.Forthepurposeofthisparagraph,aproductisdefinedasasectionheadingoftheHarmonizedSystemNomenclature.TheCommitteeshallreviewtheoperationofthisprovisionfiveyearsfromthedateoftheentryintoforceoftheWTOAgreement.27.7 TheprovisionsofArticle4shallnotapplytoadevelopingcountryMemberinthecaseofexportsubsidieswhichareinconformitywiththeprovisionsofparagraphs2through5.TherelevantprovisionsinsuchacaseshallbethoseofArticle7.27.8 Thereshallbenopresumptionintermsofparagraph1ofArticle6thatasubsidygrantedbyadevelopingcountryMemberresultsinseriousprejudice,asdefinedinthisAgreement.Suchseriousprejudice,whereapplicableunderthetermsofparagraph9,shallbedemonstratedbypositiveevidence,inaccordancewiththeprovisionsofparagraphs3through8ofArticle6.27.9 RegardingactionablesubsidiesgrantedormaintainedbyadevelopingcountryMemberotherthanthosereferredtoinparagraph1ofArticle6,actionmaynotbeauthorizedortakenunderArticle7unlessnullificationorimpairmentoftariffconcessionsorotherobligationsunderGATT1994isfoundtoexistasaresultofsuchasubsidy,insuchawayastodisplaceorimpedeimportsofalikeproductofanotherMemberintothemarketofthesubsidizingdevelopingcountryMemberorunlessinjurytoadomesticindustryinthemarketofanimportingMemberoccurs.27.10 AnycountervailingdutyinvestigationofaproductoriginatinginadevelopingcountryMembershallbeterminatedassoonastheauthoritiesconcerneddeterminethat:

(a) theoveralllevelofsubsidiesgrantedupontheproductinquestiondoesnotexceed2percentofitsvaluecalculatedonaperunitbasis;or

(b) thevolumeofthesubsidizedimportsrepresentslessthan

4percentofthetotalimportsofthelikeproductintheimportingMember,unlessimportsfromdevelopingcountryMemberswhoseindividualsharesoftotalimportsrepresentlessthan4percentcollectivelyaccountformorethan9percentofthetotalimportsofthelikeproductintheimportingMember.

27.11 ForthosedevelopingcountryMemberswithinthescopeofparagraph2(b)whichhaveeliminatedexportsubsidiespriortotheexpiryoftheperiodofeightyearsfromthedateofentryintoforceoftheWTOAgreement,andforthosedevelopingcountryMembersreferredtoinAnnexVII,thenumberinparagraph10(a)shallbe3percentratherthan2percent.ThisprovisionshallapplyfromthedatethattheeliminationofexportsubsidiesisnotifiedtotheCommittee,andforsolongasexportsubsidiesarenotgrantedbythe

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notifyingdevelopingcountryMember.ThisprovisionshallexpireeightyearsfromthedateofentryintoforceoftheWTOAgreement.27.12 Theprovisionsofparagraphs10and11shallgovernanydeterminationofdeminimisunderparagraph3ofArticle15.27.13 TheprovisionsofPartIIIshallnotapplytodirectforgivenessofdebts,subsidiestocoversocialcosts,inwhateverform,includingrelinquishmentofgovernmentrevenueandothertransferofliabilitieswhensuchsubsidiesaregrantedwithinanddirectlylinkedtoaprivatizationprogrammeofadevelopingcountryMember,providedthatbothsuchprogrammeandthesubsidiesinvolvedaregrantedforalimitedperiodandnotifiedtotheCommitteeandthattheprogrammeresultsineventualprivatizationoftheenterpriseconcerned.27.14 TheCommitteeshall,uponrequestbyaninterestedMember,undertakeareviewofaspecificexportsubsidypracticeofadevelopingcountryMembertoexaminewhetherthepracticeisinconformitywithitsdevelopmentneeds.27.15 TheCommitteeshall,uponrequestbyaninteresteddevelopingcountryMember,undertakeareviewofaspecificcountervailingmeasuretoexaminewhetheritisconsistentwiththeprovisionsofparagraphs10and11asapplicabletothedevelopingcountryMemberinquestion.

PARTIX:TRANSITIONALARRANGEMENTS

Article28

ExistingProgrammes28.1 SubsidyprogrammeswhichhavebeenestablishedwithintheterritoryofanyMemberbeforethedateonwhichsuchaMembersignedtheWTOAgreementandwhichareinconsistentwiththeprovisionsofthisAgreementshallbe:

(a) notifiedtotheCommitteenotlaterthan90daysafterthedateofentryintoforceoftheWTOAgreementforsuchMember;and

(b) broughtintoconformitywiththeprovisionsofthisAgreement

withinthreeyearsofthedateofentryintoforceoftheWTOAgreementforsuchMemberanduntilthenshallnotbesubjecttoPartII.

28.2 NoMembershallextendthescopeofanysuchprogramme,norshallsuchaprogrammebereneweduponitsexpiry.

Article29

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TransformationintoaMarketEconomy

29.1 Membersintheprocessoftransformationfromacentrally-plannedintoamarket,free-enterpriseeconomymayapplyprogrammesandmeasuresnecessaryforsuchatransformation.29.2 ForsuchMembers,subsidyprogrammesfallingwithinthescopeofArticle3,andnotifiedaccordingtoparagraph3,shallbephasedoutorbroughtintoconformitywithArticle3withinaperiodofsevenyearsfromthedateofentryintoforceoftheWTOAgreement.Insuchacase,Article4shallnotapply.Inadditionduringthesameperiod:

(a) Subsidyprogrammesfallingwithinthescopeofparagraph1(d)ofArticle6shallnotbeactionableunderArticle7;

(b) Withrespecttootheractionablesubsidies,theprovisionsof

paragraph9ofArticle27shallapply.29.3 SubsidyprogrammesfallingwithinthescopeofArticle3shallbenotifiedtotheCommitteebytheearliestpracticabledateafterthedateofentryintoforceoftheWTOAgreement.FurthernotificationsofsuchsubsidiesmaybemadeuptotwoyearsafterthedateofentryintoforceoftheWTOAgreement.29.4 InexceptionalcircumstancesMembersreferredtoinparagraph1maybegivendeparturesfromtheirnotifiedprogrammesandmeasuresandtheirtime-framebytheCommitteeifsuchdeparturesaredeemednecessaryfortheprocessoftransformation.

PARTX:DISPUTESETTLEMENT

Article30 TheprovisionsofArticlesXXIIandXXIIIofGATT1994aselaboratedandappliedbytheDisputeSettlementUnderstandingshallapplytoconsultationsandthesettlementofdisputesunderthisAgreement,exceptasotherwisespecificallyprovidedherein.

PARTXI:FINALPROVISIONS

Article31

ProvisionalApplication

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Theprovisionsofparagraph1ofArticle6andtheprovisionsofArticle8andArticle9shallapplyforaperiodoffiveyears,beginningwiththedateofentryintoforceoftheWTOAgreement.Notlaterthan180daysbeforetheendofthisperiod,theCommitteeshallreviewtheoperationofthoseprovisions,withaviewtodeterminingwhethertoextendtheirapplication,eitheraspresentlydraftedorinamodifiedform,forafurtherperiod.

Article32

OtherFinalProvisions32.1 NospecificactionagainstasubsidyofanotherMembercanbetakenexceptinaccordancewiththeprovisionsofGATT1994,asinterpretedbythisAgreement.6232.2 ReservationsmaynotbeenteredinrespectofanyoftheprovisionsofthisAgreementwithouttheconsentoftheotherMembers.32.3 Subjecttoparagraph4,theprovisionsofthisAgreementshallapplytoinvestigations,andreviewsofexistingmeasures,initiatedpursuanttoapplicationswhichhavebeenmadeonorafterthedateofentryintoforceforaMemberoftheWTOAgreement.32.4 Forthepurposesofparagraph3ofArticle21,existingcountervailingmeasuresshallbedeemedtobeimposedonadatenotlaterthanthedateofentryintoforceforaMemberoftheWTOAgreement,exceptincasesinwhichthedomesticlegislationofaMemberinforceatthatdatealreadyincludedaclauseofthetypeprovidedforinthatparagraph.32.5 EachMembershalltakeallnecessarysteps,ofageneralorparticularcharacter,toensure,notlaterthanthedateofentryintoforceoftheWTOAgreementforit,theconformityofitslaws,regulationsandadministrativeprocedureswiththeprovisionsofthisAgreementastheymayapplytotheMemberinquestion.32.6 EachMembershallinformtheCommitteeofanychangesinitslawsandregulationsrelevanttothisAgreementandintheadministrationofsuchlawsandregulations.32.7 TheCommitteeshallreviewannuallytheimplementationandoperationofthisAgreement,takingintoaccounttheobjectivesthereof.TheCommitteeshallinformannuallytheCouncilforTradeinGoodsofdevelopmentsduringtheperiodcoveredbysuchreviews.32.8 TheAnnexestothisAgreementconstituteanintegralpartthereof.

62ThisparagraphisnotintendedtoprecludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.

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ANNEXI

ILLUSTRATIVELISTOFEXPORTSUBSIDIES

(a) Theprovisionbygovernmentsofdirectsubsidiestoafirmoranindustry

contingentuponexportperformance.(b) Currencyretentionschemesoranysimilarpracticeswhichinvolvea

bonusonexports.(c) Internaltransportandfreightchargesonexportshipments,providedor

mandatedbygovernments,ontermsmorefavourablethanfordomesticshipments.

(d) Theprovisionbygovernmentsortheiragencieseitherdirectlyor

indirectlythroughgovernment-mandatedschemes,ofimportedordomesticproductsorservicesforuseintheproductionofexportedgoods,ontermsorconditionsmorefavourablethanforprovisionoflikeordirectlycompetitiveproductsorservicesforuseintheproductionofgoodsfordomesticconsumption,if(inthecaseofproducts)suchtermsorconditionsaremorefavourablethanthosecommerciallyavailable63onworldmarketstotheirexporters.

(e) Thefullorpartialexemptionremission,ordeferralspecificallyrelatedto

exports,ofdirecttaxes64orsocialwelfarechargespaidorpayablebyindustrialorcommercialenterprises.65

63Theterm"commerciallyavailable"meansthatthechoicebetweendomesticandimportedproductsisunrestrictedanddependsonlyoncommercialconsiderations.64ForthepurposeofthisAgreement: Theterm"directtaxes"shallmeantaxesonwages,profits,interests,rents,royalties,andallotherformsofincome,andtaxesontheownershipofrealproperty; Theterm"importcharges"shallmeantariffs,duties,andotherfiscalchargesnotelsewhereenumeratedinthisnotethatareleviedonimports; Theterm"indirecttaxes"shallmeansales,excise,turnover,valueadded,franchise,stamp,transfer,inventoryandequipmenttaxes,bordertaxesandalltaxesotherthandirecttaxesandimportcharges; "Prior-stage"indirecttaxesarethoseleviedongoodsorservicesuseddirectlyorindirectlyinmakingtheproduct; "Cumulative"indirecttaxesaremulti-stagedtaxesleviedwherethereisnomechanismforsubsequentcreditingofthetaxifthegoodsorservicessubjecttotaxatonestageofproductionareusedinasucceedingstageofproduction; "Remission"oftaxesincludestherefundorrebateoftaxes; "Remissionordrawback"includesthefullorpartialexemptionordeferralofimportcharges.

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(f) Theallowanceofspecialdeductionsdirectlyrelatedtoexportsorexport

performance,overandabovethosegrantedinrespecttoproductionfordomesticconsumption,inthecalculationofthebaseonwhichdirecttaxesarecharged.

(g) Theexemptionorremission,inrespectoftheproductionanddistribution

ofexportedproducts,ofindirecttaxes58inexcessofthoseleviedinrespectoftheproductionanddistributionoflikeproductswhensoldfordomesticconsumption.

(h) Theexemption,remissionordeferralofprior-stagecumulativeindirecttaxes58ongoodsorservicesusedintheproductionofexportedproductsinexcessoftheexemption,remissionordeferraloflikeprior-stagecumulativeindirecttaxesongoodsorservicesusedintheproductionoflikeproductswhensoldfordomesticconsumption;provided,however,thatprior-stagecumulativeindirecttaxesmaybeexempted,remittedordeferredonexportedproductsevenwhennotexempted,remittedordeferredonlikeproductswhensoldfordomesticconsumption,iftheprior-stagecumulativeindirecttaxesareleviedoninputsthatareconsumedintheproductionoftheexportedproduct(makingnormalallowanceforwaste).66ThisitemshallbeinterpretedinaccordancewiththeguidelinesonconsumptionofinputsintheproductionprocesscontainedinAnnexII.(i) Theremissionordrawbackofimportcharges58inexcessofthoselevied

onimportedinputsthatareconsumedintheproductionoftheexportedproduct(makingnormalallowanceforwaste);provided,however,thatinparticularcasesafirmmayuseaquantityofhomemarketinputsequalto,andhavingthesamequalityandcharacteristicsas,theimported

65TheMembersrecognizethatdeferralneednotamounttoanexportsubsidywhere,forexample,appropriateinterestchargesarecollected.TheMembersreaffirmtheprinciplethatpricesforgoodsintransactionsbetweenexportingenterprisesandforeignbuyersundertheirorunderthesamecontrolshouldfortaxpurposesbethepriceswhichwouldbechargedbetweenindependententerprisesactingatarm'slength.AnyMembermaydrawtheattentionofanotherMembertoadministrativeorotherpracticeswhichmaycontravenethisprincipleandwhichresultinasignificantsavingofdirecttaxesinexporttransactions.InsuchcircumstancestheMembersshallnormallyattempttoresolvetheirdifferencesusingthefacilitiesofexistingbilateraltaxtreatiesorotherspecificinternationalmechanisms,withoutprejudicetotherightsandobligationsofMembersunderGATT1994,includingtherightofconsultationcreatedintheprecedingsentence. Paragraph(e)isnotintendedtolimitaMemberfromtakingmeasurestoavoidthedoubletaxationofforeign-sourceincomeearnedbyitsenterprisesortheenterprisesofanotherMember.66Paragraph(h)doesnotapplytovalue-addedtaxsystemsandborder-taxadjustmentinlieuthereof;theproblemoftheexcessiveremissionofvalue-addedtaxesisexclusivelycoveredbyparagraph(g).

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inputsasasubstitutefortheminordertobenefitfromthisprovisioniftheimportandthecorrespondingexportoperationsbothoccurwithinareasonabletimeperiod,nottoexceedtwoyears.ThisitemshallbeinterpretedinaccordancewiththeguidelinesonconsumptionofinputsintheproductionprocesscontainedinAnnexIIandtheguidelinesinthedeterminationofsubstitutiondrawbacksystemsasexportsubsidiescontainedinAnnexIII.

(j) Theprovisionbygovernments(orspecialinstitutionscontrolledby

governments)ofexportcreditguaranteeorinsuranceprogrammes,ofinsuranceorguaranteeprogrammesagainstincreasesinthecostofexportedproductsorofexchangeriskprogrammes,atpremiumrateswhichareinadequatetocoverthelong-termoperatingcostsandlossesoftheprogrammes.

(k) Thegrantbygovernments(orspecialinstitutionscontrolledbyand/or

actingundertheauthorityofgovernments)ofexportcreditsatratesbelowthosewhichtheyactuallyhavetopayforthefundssoemployed(orwouldhavetopayiftheyborrowedoninternationalcapitalmarketsinordertoobtainfundsofthesamematurityandothercredittermsanddenominatedinthesamecurrencyastheexportcredit),orthepaymentbythemofallorpartofthecostsincurredbyexportersorfinancialinstitutionsinobtainingcredits,insofarastheyareusedtosecureamaterialadvantageinthefieldofexportcreditterms.

Provided,however,thatifaMemberisapartytoaninternationalundertakingonofficialexportcreditstowhichatleasttwelveoriginalMemberstothisAgreementarepartiesasof1January1979(orasuccessorundertakingwhichhasbeenadoptedbythoseoriginalMembers),orifinpracticeaMemberappliestheinterestratesprovisionsoftherelevantundertaking,anexportcreditpracticewhichisinconformitywiththoseprovisionsshallnotbeconsideredanexportsubsidyprohibitedbythisAgreement.

(l) AnyotherchargeonthepublicaccountconstitutinganexportsubsidyinthesenseofArticleXVIofGATT1994.

ANNEXIIGUIDELINESONCONSUMPTIONOFINPUTSINTHEPRODUCTIONPROCESS67

I

67Inputsconsumedintheproductionprocessareinputsphysicallyincorporated,energy,fuelsandoilusedintheproductionprocessandcatalystswhichareconsumedinthecourseoftheirusetoobtaintheexportedproduct.

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1. Indirecttaxrebateschemescanallowforexemption,remissionordeferralofprior-stagecumulativeindirecttaxesleviedoninputsthatareconsumedintheproductionoftheexportedproduct(makingnormalallowanceforwaste).Similarly,drawbackschemescanallowfortheremissionordrawbackofimportchargesleviedoninputsthatareconsumedintheproductionoftheexportedproduct(makingnormalallowanceforwaste).2. TheIllustrativeListofExportSubsidiesinAnnexIofthisAgreementmakesreferencetotheterm"inputsthatareconsumedintheproductionoftheexportedproduct"inparagraphs(h)and(i).Pursuanttoparagraph(h),indirecttaxrebateschemescanconstituteanexportsubsidytotheextentthattheyresultinexemption,remissionordeferralofprior-stagecumulativeindirecttaxesinexcessoftheamountofsuchtaxesactuallyleviedoninputsthatareconsumedintheproductionoftheexportedproduct.Pursuanttoparagraph(i),drawbackschemescanconstituteanexportsubsidytotheextentthattheyresultinaremissionordrawbackofimportchargesinexcessofthoseactuallyleviedoninputsthatareconsumedintheproductionoftheexportedproduct.Bothparagraphsstipulatethatnormalallowanceforwastemustbemadeinfindingsregardingconsumptionofinputsintheproductionoftheexportedproduct.Paragraph(i)alsoprovidesforsubstitution,whereappropriate.

II Inexaminingwhetherinputsareconsumedintheproductionoftheexportedproduct,aspartofacountervailingdutyinvestigationpursuanttothisAgreement,investigatingauthoritiesshouldproceedonthefollowingbasis:1. Whereitisallegedthatanindirecttaxrebatescheme,oradrawbackscheme,conveysasubsidybyreasonofover-rebateorexcessdrawbackofindirecttaxesorimportchargesoninputsconsumedintheproductionoftheexportedproduct,theinvestigatingauthoritiesshouldfirstdeterminewhetherthegovernmentoftheexportingMemberhasinplaceandappliesasystemorproceduretoconfirmwhichinputsareconsumedintheproductionoftheexportedproductandinwhatamounts.Wheresuchasystemorprocedureisdeterminedtobeapplied,theinvestigatingauthoritiesshouldthenexaminethesystemorproceduretoseewhetheritisreasonable,effectiveforthepurposeintended,andbasedongenerallyacceptedcommercialpracticesinthecountryofexport.Theinvestigatingauthoritiesmaydeemitnecessarytocarryout,inaccordancewithparagraph6ofArticle12,certainpracticaltestsinordertoverifyinformationortosatisfythemselvesthatthesystemorprocedureisbeingeffectivelyapplied.2. Wherethereisnosuchsystemorprocedure,whereitisnotreasonable,orwhereitisinstitutedandconsideredreasonablebutisfoundnottobeappliedornottobeappliedeffectively,afurtherexaminationbytheexportingMemberbasedontheactualinputsinvolvedwouldneedtobecarriedoutinthecontextofdeterminingwhetheranexcesspaymentoccurred.Iftheinvestigating

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authoritiesdeemeditnecessary,afurtherexaminationwouldbecarriedoutinaccordancewithparagraph1.3. Investigatingauthoritiesshouldtreatinputsasphysicallyincorporatedifsuchinputsareusedintheproductionprocessandarephysicallypresentintheproductexported.TheMembersnotethataninputneednotbepresentinthefinalproductinthesameforminwhichitenteredtheproductionprocess.4. Indeterminingtheamountofaparticularinputthatisconsumedintheproductionoftheexportedproduct,a"normalallowanceforwaste"shouldbetakenintoaccount,andsuchwasteshouldbetreatedasconsumedintheproductionoftheexportedproduct.Theterm"waste"referstothatportionofagiveninputwhichdoesnotserveanindependentfunctionintheproductionprocess,isnotconsumedintheproductionoftheexportedproduct(forreasonssuchasinefficiencies)andisnotrecovered,usedorsoldbythesamemanufacturer.5. Theinvestigatingauthority'sdeterminationofwhethertheclaimedallowanceforwasteis"normal"shouldtakeintoaccounttheproductionprocess,theaverageexperienceoftheindustryinthecountryofexport,andothertechnicalfactors,asappropriate.TheinvestigatingauthorityshouldbearinmindthatanimportantquestioniswhethertheauthoritiesintheexportingMemberhavereasonablycalculatedtheamountofwaste,whensuchanamountisintendedtobeincludedinthetaxordutyrebateorremission.

ANNEXIII

GUIDELINESINTHEDETERMINATIONOFSUBSTITUTIONDRAWBACKSYSTEMSASEXPORTSUBSIDIES

I Drawbacksystemscanallowfortherefundordrawbackofimportchargesoninputswhichareconsumedintheproductionprocessofanotherproductandwheretheexportofthislatterproductcontainsdomesticinputshavingthesamequalityandcharacteristicsasthosesubstitutedfortheimportedinputs.Pursuanttoparagraph(i)oftheIllustrativeListofExportSubsidiesinAnnexI,substitutiondrawbacksystemscanconstituteanexportsubsidytotheextentthattheyresultinanexcessdrawbackoftheimportchargesleviedinitiallyontheimportedinputsforwhichdrawbackisbeingclaimed.

II InexamininganysubstitutiondrawbacksystemaspartofacountervailingdutyinvestigationpursuanttothisAgreement,investigatingauthoritiesshouldproceedonthefollowingbasis:

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1. Paragraph(i)oftheIllustrativeListstipulatesthathomemarketinputsmaybesubstitutedforimportedinputsintheproductionofaproductforexportprovidedsuchinputsareequalinquantityto,andhavethesamequalityandcharacteristicsas,theimportedinputsbeingsubstituted.TheexistenceofaverificationsystemorprocedureisimportantbecauseitenablesthegovernmentoftheexportingMembertoensureanddemonstratethatthequantityofinputsforwhichdrawbackisclaimeddoesnotexceedthequantityofsimilarproductsexported,inwhateverform,andthatthereisnotdrawbackofimportchargesinexcessofthoseoriginallyleviedontheimportedinputsinquestion.2. Whereitisallegedthatasubstitutiondrawbacksystemconveysasubsidy,theinvestigatingauthoritiesshouldfirstproceedtodeterminewhetherthegovernmentoftheexportingMemberhasinplaceandappliesaverificationsystemorprocedure.Wheresuchasystemorprocedureisdeterminedtobeapplied,theinvestigatingauthoritiesshouldthenexaminetheverificationprocedurestoseewhethertheyarereasonable,effectiveforthepurposeintended,andbasedongenerallyacceptedcommercialpracticesinthecountryofexport.Totheextentthattheproceduresaredeterminedtomeetthistestandareeffectivelyapplied,nosubsidyshouldbepresumedtoexist.Itmaybedeemednecessarybytheinvestigatingauthoritiestocarryout,inaccordancewithparagraph6ofArticle12,certainpracticaltestsinordertoverifyinformationortosatisfythemselvesthattheverificationproceduresarebeingeffectivelyapplied.3. Wheretherearenoverificationprocedures,wheretheyarenotreasonable,orwheresuchproceduresareinstitutedandconsideredreasonablebutarefoundnottobeactuallyappliedornotappliedeffectively,theremaybeasubsidy.InsuchcasesafurtherexaminationbytheexportingMemberbasedontheactualtransactionsinvolvedwouldneedtobecarriedouttodeterminewhetheranexcesspaymentoccurred.Iftheinvestigatingauthoritiesdeemeditnecessary,afurtherexaminationwouldbecarriedoutinaccordancewithparagraph2.4. Theexistenceofasubstitutiondrawbackprovisionunderwhichexportersareallowedtoselectparticularimportshipmentsonwhichdrawbackisclaimedshouldnotofitselfbeconsideredtoconveyasubsidy.5. Anexcessdrawbackofimportchargesinthesenseofparagraph(i)wouldbedeemedtoexistwheregovernmentspaidinterestonanymoniesrefundedundertheirdrawbackschemes,totheextentoftheinterestactuallypaidorpayable.

ANNEXIV

CALCULATIONOFTHETOTALADVALOREMSUBSIDIZATION

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(PARAGRAPH1(A)OFARTICLE6)681. Anycalculationoftheamountofasubsidyforthepurposeofparagraph1(a)ofArticle6shallbedoneintermsofthecosttothegrantinggovernment.2. Exceptasprovidedinparagraphs3through5,indeterminingwhethertheoverallrateofsubsidizationexceeds5percentofthevalueoftheproduct,thevalueoftheproductshallbecalculatedasthetotalvalueoftherecipientfirm's69salesinthemostrecent12-monthperiod,forwhichsalesdataisavailable,precedingtheperiodinwhichthesubsidyisgranted.703. Wherethesubsidyistiedtotheproductionorsaleofagivenproduct,thevalueoftheproductshallbecalculatedasthetotalvalueoftherecipientfirm'ssalesofthatproductinthemostrecent12-monthperiod,forwhichsalesdataisavailable,precedingtheperiodinwhichthesubsidyisgranted.4. Wheretherecipientfirmisinastart-upsituation,seriousprejudiceshallbedeemedtoexistiftheoverallrateofsubsidizationexceeds15percentofthetotalfundsinvested.Forpurposesofthisparagraph,astart-upperiodwillnotextendbeyondthefirstyearofproduction.715. Wheretherecipientfirmislocatedinaninflationaryeconomycountry,thevalueoftheproductshallbecalculatedastherecipientfirm'stotalsales(orsalesoftherelevantproduct,ifthesubsidyistied)intheprecedingcalendaryearindexedbytherateofinflationexperiencedinthe12monthsprecedingthemonthinwhichthesubsidyistobegiven.6. Indeterminingtheoverallrateofsubsidizationinagivenyear,subsidiesgivenunderdifferentprogrammesandbydifferentauthoritiesintheterritoryofaMembershallbeaggregated.7. SubsidiesgrantedpriortothedateofentryintoforceoftheWTOAgreement,thebenefitsofwhichareallocatedtofutureproduction,shallbeincludedintheoverallrateofsubsidization.

68AnunderstandingamongMembersshouldbedeveloped,asnecessary,onmatterswhicharenotspecifiedinthisAnnexorwhichneedfurtherclarificationforthepurposesofparagraph1(a)ofArticle6.69TherecipientfirmisafirmintheterritoryofthesubsidizingMember.70Inthecaseoftax-relatedsubsidiesthevalueoftheproductshallbecalculatedasthetotalvalueoftherecipientfirm'ssalesinthefiscalyearinwhichthetax-relatedmeasurewasearned.71Start-upsituationsincludeinstanceswherefinancialcommitmentsforproductdevelopmentorconstructionoffacilitiestomanufactureproductsbenefitingfromthesubsidyhavebeenmade,eventhoughproductionhasnotbegun.

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8. Subsidieswhicharenon-actionableunderrelevantprovisionsofthisAgreementshallnotbeincludedinthecalculationoftheamountofasubsidyfor

thepurposeofparagraph1(a)ofArticle6.

ANNEXV

PROCEDURESFORDEVELOPINGINFORMATIONCONCERNINGSERIOUSPREJUDICE

1. EveryMembershallcooperateinthedevelopmentofevidencetobeexaminedbyapanelinproceduresunderparagraphs4through6ofArticle7.Thepartiestothedisputeandanythird-countryMemberconcernedshallnotifytotheDSB,assoonastheprovisionsofparagraph4ofArticle7havebeeninvoked,theorganizationresponsibleforadministrationofthisprovisionwithinitsterritoryandtheprocedurestobeusedtocomplywithrequestsforinformation.2. IncaseswheremattersarereferredtotheDSBunderparagraph4ofArticle7,theDSBshall,uponrequest,initiatetheproceduretoobtainsuchinformationfromthegovernmentofthesubsidizingMemberasnecessarytoestablishtheexistenceandamountofsubsidization,thevalueoftotalsalesofthesubsidizedfirms,aswellasinformationnecessarytoanalyzetheadverseeffectscausedbythesubsidizedproduct.72Thisprocessmayinclude,whereappropriate,presentationofquestionstothegovernmentofthesubsidizingMemberandofthecomplainingMembertocollectinformation,aswellastoclarifyandobtainelaborationofinformationavailabletothepartiestoadisputethroughthenotificationproceduressetforthinPartVII.733. Inthecaseofeffectsinthird-countrymarkets,apartytoadisputemaycollectinformation,includingthroughtheuseofquestionstothegovernmentofthethird-countryMember,necessarytoanalyseadverseeffects,whichisnototherwisereasonablyavailablefromthecomplainingMemberorthesubsidizingMember.Thisrequirementshouldbeadministeredinsuchawayasnottoimposeanunreasonableburdenonthethird-countryMember.Inparticular,suchaMemberisnotexpectedtomakeamarketorpriceanalysisspeciallyforthatpurpose.TheinformationtobesuppliedisthatwhichisalreadyavailableorcanbereadilyobtainedbythisMember(e.g.mostrecentstatisticswhichhavealreadybeengatheredbyrelevantstatisticalservicesbutwhichhavenotyetbeenpublished,customsdataconcerningimportsanddeclaredvaluesoftheproductsconcerned,etc.).However,ifapartytoadisputeundertakesadetailedmarketanalysisatitsownexpense,thetaskofthepersonorfirmconductingsuchananalysisshallbefacilitatedbytheauthoritiesofthethird-country

72Incaseswheretheexistenceofseriousprejudicehastobedemonstrated.73Theinformation-gatheringprocessbytheDSBshalltakeintoaccounttheneedtoprotectinformationwhichisbynatureconfidentialorwhichisprovidedonaconfidentialbasisbyanyMemberinvolvedinthisprocess.

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Memberandsuchapersonorfirmshallbegivenaccesstoallinformationwhichisnotnormallymaintainedconfidentialbythegovernment.4. TheDSBshalldesignatearepresentativetoservethefunctionoffacilitatingtheinformation-gatheringprocess.Thesolepurposeoftherepresentativeshallbetoensurethetimelydevelopmentoftheinformationnecessarytofacilitateexpeditioussubsequentmultilateralreviewofthedispute.Inparticular,therepresentativemaysuggestwaystomostefficientlysolicitnecessaryinformationaswellasencouragethecooperationoftheparties.5. Theinformation-gatheringprocessoutlinedinparagraphs2through4shallbecompletedwithin60daysofthedateonwhichthematterhasbeenreferredtotheDSBunderparagraph4ofArticle7.TheinformationobtainedduringthisprocessshallbesubmittedtothepanelestablishedbytheDSBinaccordancewiththeprovisionsofPartX.Thisinformationshouldinclude,interalia,dataconcerningtheamountofthesubsidyinquestion(and,whereappropriate,thevalueoftotalsalesofthesubsidizedfirms),pricesofthesubsidizedproduct,pricesofthenon-subsidizedproduct,pricesofothersupplierstothemarket,changesinthesupplyofthesubsidizedproducttothemarketinquestionandchangesinmarketshares.Itshouldalsoincluderebuttalevidence,aswellassuchsupplementalinformationasthepaneldeemsrelevantinthecourseofreachingitsconclusions.6. Ifthesubsidizingand/orthird-countryMemberfailtocooperateintheinformation-gatheringprocess,thecomplainingMemberwillpresentitscaseofseriousprejudice,basedonevidenceavailabletoit,togetherwithfactsandcircumstancesofthenon-cooperationofthesubsidizingand/orthird-countryMember.Whereinformationisunavailableduetonon-cooperationbythesubsidizingand/orthird-countryMember,thepanelmaycompletetherecordasnecessaryrelyingonbestinformationotherwiseavailable.7. Inmakingitsdetermination,thepanelshoulddrawadverseinferencesfrominstancesofnon-cooperationbyanypartyinvolvedintheinformation-gatheringprocess.8. Inmakingadeterminationtouseeitherbestinformationavailableoradverseinferences,thepanelshallconsidertheadviceoftheDSBrepresentativenominatedunderparagraph4astothereasonablenessofanyrequestsforinformationandtheeffortsmadebypartiestocomplywiththeserequestsinacooperativeandtimelymanner.9. Nothingintheinformation-gatheringprocessshalllimittheabilityofthepaneltoseeksuchadditionalinformationitdeemsessentialtoaproperresolutiontothedispute,andwhichwasnotadequatelysoughtordevelopedduringthatprocess.However,ordinarilythepanelshouldnotrequestadditionalinformationtocompletetherecordwheretheinformationwouldsupportaparticularparty'spositionandtheabsenceofthatinformationintherecordistheresultofunreasonablenon-cooperationbythatpartyintheinformation-gatheringprocess.

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ANNEXVI

PROCEDURESFORON-THE-SPOTINVESTIGATIONSPURSUANTTO

PARAGRAPH6OFARTICLE121. Uponinitiationofaninvestigation,theauthoritiesoftheexportingMemberandthefirmsknowntobeconcernedshouldbeinformedoftheintentiontocarryouton-the-spotinvestigations.2. Ifinexceptionalcircumstancesitisintendedtoincludenon-governmentalexpertsintheinvestigatingteam,thefirmsandtheauthoritiesoftheexportingMembershouldbesoinformed.Suchnon-governmentalexpertsshouldbesubjecttoeffectivesanctionsforbreachofconfidentialityrequirements.3. ItshouldbestandardpracticetoobtainexplicitagreementofthefirmsconcernedintheexportingMemberbeforethevisitisfinallyscheduled.4. Assoonastheagreementofthefirmsconcernedhasbeenobtained,theinvestigatingauthoritiesshouldnotifytheauthoritiesoftheexportingMemberofthenamesandaddressesofthefirmstobevisitedandthedatesagreed.5. Sufficientadvancenoticeshouldbegiventothefirmsinquestionbeforethevisitismade.6. Visitstoexplainthequestionnaireshouldonlybemadeattherequestofanexportingfirm.Incaseofsucharequesttheinvestigatingauthoritiesmayplacethemselvesatthedisposalofthefirm;suchavisitmayonlybemadeif(a)theauthoritiesoftheimportingMembernotifytherepresentativesofthegovernmentoftheMemberinquestionand(b)thelatterdonotobjecttothevisit.7. Asthemainpurposeoftheon-the-spotinvestigationistoverifyinformationprovidedortoobtainfurtherdetails,itshouldbecarriedoutaftertheresponsetothequestionnairehasbeenreceivedunlessthefirmagreestothecontraryandthegovernmentoftheexportingMemberisinformedbytheinvestigatingauthoritiesoftheanticipatedvisitanddoesnotobjecttoit;further,itshouldbestandardpracticepriortothevisittoadvisethefirmsconcernedofthegeneralnatureoftheinformationtobeverifiedandofanyfurtherinformationwhichneedstobeprovided,thoughthisshouldnotprecluderequeststobemadeonthespotforfurtherdetailstobeprovidedinthelightofinformationobtained.8. EnquiriesorquestionsputbytheauthoritiesorfirmsoftheexportingMembersandessentialtoasuccessfulon-the-spotinvestigationshould,wheneverpossible,beansweredbeforethevisitismade.

ANNEXVII

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DEVELOPINGCOUNTRYMEMBERSREFERREDTO

INPARAGRAPH2(A)OFARTICLE27 ThedevelopingcountryMembersnotsubjecttotheprovisionsofparagraph1(a)ofArticle3underthetermsofparagraph2(a)ofArticle27are:

(a) Least-developedcountriesdesignatedassuchbytheUnitedNationswhichareMembersoftheWTO.

(b) Eachofthefollowingdevelopingcountrieswhichare

MembersoftheWTOshallbesubjecttotheprovisionswhichareapplicabletootherdevelopingcountryMembersaccordingtoparagraph2(b)ofArticle27whenGNPpercapitahasreached$1,000perannum74:Bolivia,Cameroon,Congo,Côted'Ivoire,DominicanRepublic,Egypt,Ghana,Guatemala,Guyana,India,Indonesia,Kenya,Morocco,Nicaragua,Nigeria,Pakistan,Philippines,Senegal,SriLankaandZimbabwe.

74TheinclusionofdevelopingcountryMembersinthelistinparagraph(b)isbasedonthemostrecentdatafromtheWorldBankonGNPpercapita.