AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES



A. SUMMARY OF PROVISIONS

The Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) strengthens discipline on trade distorting subsidies that other governments use to give their firms an unfair competitive advantage. Unlike the 1979 Tokyo Round Subsidies Code (Tokyo Round Code), which only 24 countries joined, all countries that become members of the WTO automatically will be subject to the Subsidies Agreement.

One of the most significant U.S. achievements in the Uruguay Round negotiations was to tighten the disciplines on the use of subsidies by foreign governments. Under the Tokyo Round Code, the only effective U.S. remedy against foreign subsidization has been application of the U.S. countervailing duty law. While that law is effective in addressing the effects of subsidized merchandise in the U.S. market, it is not designed to address the effects of subsidies in other markets. The Subsidies Agreement, together with the new WTO dispute settlement procedures, provide the substantive and procedural tools for addressing effectively the problems faced by U.S. companies confronting subsidized competition anywhere in the world, while enabling the United States to retain strong and effective legal remedies against subsidized imports that injure domestic industries.

Specifically, the Agreement improves on the Tokyo Round Code by:

defining, for the first time in any GATT agreement, certain key terms, such as "subsidy" and "serious prejudice";

prohibiting export subsidies and subsidies contingent on the use of domestic instead of imported goods, including de facto export subsidies that are tied to exports or export earnings in practice though not in law;

creating a special presumption of serious prejudice for certain egregious subsidies;

defining and significantly strengthening the procedures for showing when serious prejudice exists in foreign markets;

establishing a category of government assistance that will be non-actionable and non-countervailable only when strict conditions and criteria are satisfied;

requiring all developing countries, other than the least developed, to phase out export subsidies and import substitution subsidies, and accelerating the phase-out of export subsidies in situations where a developing country has achieved global export competitiveness in a particular product sector; and

applying the rapid, effective WTO dispute settlement mechanism, which will end the present ability of the losing, subsidizing government to block the adoption of panel reports.

1. Definition of a Subsidy; Specificity

The Subsidies Agreement begins by defining a subsidy. Article 1 requires two elements: (1) a "financial contribution by a government or any public body" within that government's territory and (2) consequent conferral of "a benefit." In order to be actionable either under WTO dispute settlement procedures or in a domestic countervailing duty (CVD) proceeding, a subsidy also must be "specific in accordance with the provisions of Article 2".

Article 1 specifies four categories of practices that constitute a financial contribution: (1) a direct transfer of funds (e.g., grants, loans, and equity infusions) or potential direct transfers of funds or liabilities (e.g., loan guarantees); (2) government revenue otherwise due that is foregone or not collected (e.g., fiscal incentives such as tax credits);

(3) government provision of goods or services other than general infrastructure; and (4) government purchase of goods.

Furthermore, Article 1 makes clear that a financial contribution can exist where, rather than acting directly, a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions described above, which normally would be vested in the government, and the practice, in no real sense, differs from practices normally followed by governments.

Article 1 also provides that a subsidy includes any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, the territory of a WTO member (see Article XVI:1 of GATT 1994).

While Article 1 identifies the practices that constitute a "financial contribution," it does not define "benefit" or set out criteria for measurement of whether a benefit is conferred, or its amount. Article 14 of the Agreement sets guidelines for methods used to calculate benefit. These guidelines follow the benefit-to-the-recipient methodology used in U.S. CVD proceedings. Article 14 explicitly equates the term "benefit" as used in Article 1 with application of the benefit-to-the-recipient methodology. (No other article draws a specific connection between "benefit" and a particular subsidy calculation methodology; the only other section of the Agreement that mandates a specific calculation methodology is Annex IV, which stipulates that the calculation of the total ad valorem subsidization of a product for purposes of the presumption of serious prejudice in Article 6.1(a) must be based on the cost to the government in providing the subsidy).

The guidelines set out in Article 14 are that:

government provision of equity capital confers a benefit where the investment decision can be regarded as inconsistent with the usual investment practice (including that regarding the provision of risk capital) of private investors in that member's territory;

a loan by a government confers a benefit where there is a difference between the amount that the firm receiving the loan pays on that loan and the amount the firm would pay on a comparable commercial loan that the firm could actually obtain on the market, with the benefit equal to the difference between these two amounts;

a loan guarantee by a government confers a benefit where there is a difference between the amount that the firm receiving the guarantee pays on that guaranteed loan and the amount that the firm would pay on a comparable commercial loan absent the government guarantee, with the benefit equal to the difference between these two amounts adjusted for any differences in fees; and

the provision of goods or services, or the purchase of goods, by a government confers a benefit where the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration, with the adequacy of remuneration determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation, and other conditions of purchase or sale).

Article 2 provides that to be actionable a subsidy must be specific to "certain enterprises" (i.e., to an enterprise or industry or group of enterprises or industries within the jurisdiction of the granting authority). Consistent with longstanding U.S. practice, government assistance that is both generally available and widely and evenly distributed throughout the jurisdiction of the subsidizing authority is not an actionable subsidy. However, Article 2.1 makes clear that a subsidy is specific not only when the subsidy is limited to certain enterprises by law (de jure) but also where, despite the existence of neutral and objective eligibility criteria, the subsidy is provided in fact (de facto) only to certain enterprises.

Notwithstanding the absence of de jure grounds for a finding of specificity, where there are reasons to believe that the subsidy may in fact be specific, other factors may be considered. They are: (1) the use of a subsidy program by a limited number of certain enterprises; (2) the predominant use by certain enterprises; (3) the grant of disproportionately large amounts to certain enterprises; and (4) the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy. In considering these four factors, the investigating authority is to take account of the diversification of economic activities within the relevant jurisdiction, as well as the length of time that a subsidy program has been in operation. Article 2.4 requires that any determination of specificity be clearly substantiated on the basis of positive evidence.

Under Article 2 all export subsidies and import substitution subsidies within the meaning of Article 3 of the Agreement are automatically deemed to be specific. Similar to longstanding U.S. CVD practice, the Agreement recognizes that subsidies granted by a state or province on a generally available basis within a state or province (i.e., not limited to certain enterprises within a state or province) are not specific, and therefore are not actionable. However, central government subsidies limited to a region (including a province or state) are specific, even if generally available throughout that region.

2. Classes of Subsidies

Articles 3 to 9 of the Agreement establish a three-class framework for the categorization of subsidies and subsidy remedies: (1) subsidies that are prohibited (the "red light" category); (2) subsidies that may be challenged in WTO dispute settlement proceedings and domestically countervailed if they cause adverse trade effects (the "yellow light" category, including "dark amber"); and (3) subsidies that are non-actionable and non-countervailable if they are structured according to criteria intended to limit their potential for causing trade distortions (the "green light" category).

a. Prohibited ("Red Light") Subsidies

Article 3 lists subsidies that are prohibited under all circumstances. To challenge such a subsidy successfully in WTO dispute settlement proceedings, a complaining country need only prove that the subsidy exists; there is no need to demonstrate that the subsidy has had adverse trade effects. CVD action under domestic law also may be taken against prohibited subsidies, but an affirmative injury determination still must be made.

Two types of subsidies are prohibited under Article 3:

subsidies contingent, in law or in fact, whether solely or as one of several other conditions, on export performance; and

subsidies contingent, whether solely or as one of several other conditions, on the use of domestic rather than imported goods. As compared to the Tokyo Round Code, the definition of prohibited subsidies significantly enhances subsidies discipline. It explicitly covers both de facto export subsidies and subsidies where export performance is but one of several criteria for eligibility.

An illustrative list of export subsidies is set out in Annex I to the Subsidies Agreement. It is largely the same as the list included in the Tokyo Round Code. One change, which is elaborated in Annex II, is that in the calculation of the permissible amount of taxes on inputs that may be rebated when a product is exported, the Agreement substitutes a "consumed in production" test for the previous "physical incorporation" test. This change addresses a narrow issue involving certain energy-intensive exports from a limited number of developing countries. It was not intended to expand significantly the right of countries to apply border adjustments for a broad range of taxes on energy, particularly in the developed world. U.S. and other developed-country negotiators discussed this matter during the negotiations and shared a common view that the economic and practical aspects of the provision regarding border adjustments for energy taxes would need to be explored further before any possibility of application on a broad basis. The Administration intends to pursue this matter as part of the ongoing work on Trade and the Environment in the Organization for Economic Cooperation and Development.

Article 28 permits WTO members to phase out prohibited subsidies that existed on April 15, 1994 (the date of signature of the Uruguay Round Final Act) within three years after the WTO Agreement enters into force if they notify the Subsidies Committee established under the Agreement of the existence of the subsidies in a timely manner. During the three-year period, these subsidies will not be prohibited outright. However, they will be actionable under either WTO dispute settlement procedures or domestic CVD proceedings if they are determined to cause adverse effects (injury or serious prejudice).

Article 4 establishes expeditious procedures for resolving disputes concerning prohibited subsidies. All that must be established is the existence of a prohibited subsidy. If a panel or the Appellate Body finds that a government is maintaining a prohibited subsidy, the Dispute Settlement Body of the WTO (DSB) must authorize countermeasures if the subsidy is not withdrawn expeditiously.

b. Actionable ("Yellow Light" and "Dark Amber") Subsidies

Article 5 sets out three types of adverse effects:

injury to the domestic industry of another WTO member (the standard used in U.S. CVD proceedings);

nullification or impairment of benefits accruing directly or indirectly to other WTO members (in particular, a country may not introduce or increase a subsidy that has the effect of negating the value of a tariff cut); and

serious prejudice to the interests of another member.

Serious prejudice applies with equal force and effect regardless of the market affected by the actionable subsidy (whether in an importing country, the subsidizing country, or a third-country market). Thus, it is the standard most often used to challenge subsidized competition in the subsidizing country or third-country markets.

Unlike the Tokyo Round Code, Article 6 of the Agreement defines "serious prejudice." This is a major improvement. The lack of criteria about serious prejudice in the Tokyo Round Code has been one of the major causes of the ineffectiveness of dispute settlement under that Code.

Under the Agreement, a determination of serious prejudice must be based on measurable, verifiable data. Serious prejudice arises where the effect of a subsidy is manifested in: import displacement or impediment in either the subsidizing-country or third-country markets; significant price undercutting, significant price suppression, price depression or lost sales in any market; or an increase in world market share. Articles 6.4 through 6.6 provide more detailed guidance on the criteria set out in Article 6.3. They do not, however, articulate any defenses to allegations of serious prejudice. (Such defenses are contained in Articles 6.7 and 6.8).

Annex V to the Subsidies Agreement sets out detailed rules and procedures regarding the development of information concerning serious prejudice in dispute settlement proceedings. It permits a WTO dispute settlement panel to draw adverse inferences when any party does not cooperate.

The Agreement refers to two kinds of actionable subsidies against which action can be taken in the WTO or in domestic CVD proceedings if adverse effects are established. The first type are those that are not otherwise dealt with by the Agreement as prohibited or non-actionable subsidies. The second (termed "dark amber" subsidies), listed in Article 6.1, are presumed to cause serious prejudice. Where serious prejudice is presumed, the burden is placed on the subsidizing government to demonstrate that serious prejudice did not result from the subsidization in question. The four "dark amber" subsidies are:

total subsidization of a product exceeding five percent ad valorem, which is calculated in accordance with Annex IV on a cost-to-the-government basis;

subsidies to cover operating losses sustained by an industry;

subsidies to cover operating losses sustained by an enterprise other than one-time measures that are non-recurrent and cannot be repeated for that enterprise and that are given merely to provide time for the development of long-term solutions and to avoid acute social problems; and

direct forgiveness of debt.

Footnotes 16 and 17 state that (1) the five-percent quantitative threshold for a presumption of serious prejudice, and (2) serious prejudice presumed solely on the basis of debt forgiveness arising out of misforecast royalty repayment schemes do not apply to civil aircraft. (Although the Agreement mentions anticipated multilateral rules for civil aircraft, the continued exception of civil aircraft from these provisions is not contingent on the conclusion of such negotiations).

In addition to making improvements in the substantive rules applying to this class of subsidies, Article 7 and Annex V establish expeditious and effective procedures for resolving disputes regarding "dark amber" and "yellow light" subsidies. The procedures are virtually identical to those for other WTO dispute settlement proceedings. Once a member requests consultations regarding such a subsidy, the Agreement allots 180 days for completion of the panel proceedings and the issuance of a decision by the DSB. The Agreement provides an additional 60 days for appeals of panel findings. The losing party cannot block adoption of an adverse panel or Appellate Body report and the DSB must authorize countermeasures where a signatory has not either withdrawn a subsidy found to be causing serious prejudice or eliminated its adverse effects within six months.

c. Non-Actionable ("Green Light") Subsidies

In return for all of the improvements in subsidies discipline, the United States agreed to the creation of a limited category of subsidies that would not be actionable when strict conditions and criteria were met. The Administration believes that the criteria defining these green light subsidies are sufficiently narrow to prevent any undermining of the gains in subsidies discipline described above. Moreover, Article 8 establishes procedures designed to ensure that governments do not abuse the limited right to use these types of subsidies. In addition, Article 9 provides a remedy that is available if a non-actionable subsidy causes serious adverse effects to the industry of another WTO member. Finally, under Article 31, Articles 8 and 9 (along with the presumed serious prejudice subsidy provision of Article 6.1) automatically expire at the end of five years unless all members of the Subsidies Committee agree to extend them.

Article 8.2 sets out the criteria and conditions under which three types of subsidies may be non-actionable: (a) government assistance for industrial research and pre-competitive development activity; (b) government assistance to disadvantaged regions; and (c) government assistance to adapt existing plant and equipment to new environmental requirements.

(1) Research Subsidies

Under Article 8.2(a), government assistance for research activities conducted by firms, or by higher education or research establishments on a contract basis with firms, is non-actionable if the assistance:

covers no more than 75% of the total eligible cost of industrial research, or no more than 50% of the eligible cost of pre-competitive development activity, over the life of an individual project, or the simple average of the two -- 62.5% -- for research programs that span the two categories; and

is limited to: (i) cost of personnel employed exclusively in the research activity; (ii) cost of instruments, equipment, land, and buildings used exclusively and permanently (except when disposed of on a commercial basis) for the research activity; (iii) cost of consultancy used exclusively for the research activity; (iv) additional overhead cost incurred directly as a result of the research activity; and (v) other running costs (such as those of materials, supplies, and the like), incurred directly as a result of the research activity.

Only government assistance for research up to the point of the first non-commercial prototype will be considered permissible. Government-funded development and production assistance will be actionable under both WTO dispute settlement and U.S. CVD proceedings. (Under footnote 24, the provisions of Article 8.2(a) do not apply to civil aircraft).

In footnotes to Article 8.2(a), the Agreement provides definitions of applicable terms, such as "fundamental research," "industrial research" and "pre-competitive development activity,"

The Agreement requires the Subsidies Committee to review the operation of Article 8.2(a), including its definitions, not later than 18 months after the effective date of the WTO Agreement and to make all necessary modifications. Unlike the five-year sunset provision of Article 31, action after this review will be on the basis of affirmative consensus; that is, a change can be made only if no member objects.

(2) Disadvantaged Regions

Under Article 8.2(b), government assistance to disadvantaged regions is non-actionable if:

it is part of a general regional development policy;

each region is a clearly designated, contiguous geographical area, and is not created solely as a conduit for aid;

the assistance is generally available to, and generally used by, all industries within eligible regions (i.e., it is not de facto specific within the meaning of Article 2);

the assistance is not for regions suffering only temporary disadvantage;

the eligibility criteria are clearly spelled out in law or regulation so as to be capable of verification; and

the eligibility criteria are neutral and objective, and include a measurement of economic development (based on either income or per capita GDP of not more than 85% of the country average or unemployment of at least 110% of the country average, as measured over a three-year period).

In addition, a regional development subsidy program cannot provide more aid than is appropriate for reduction of regional disparities and must include ceilings on the amount of assistance for each project (although the Agreement does not specify any monetary cap).

(3) Environmental Adaptation

Government assistance also will be considered permissible if it promotes adaptation of facilities in operation for at least two years to new environmental requirements that are imposed by law or regulation. To be permissible the new requirements must result in greater constraints and financial burdens on firms. In addition the assistance must:

constitute a one-time non-recurring measure;

be limited to 20 percent of the cost of adaptation;

not cover the cost of replacing and operating the assisted investment, which must be fully borne by the firm;

be directly linked to and proportionate to a firm's planned reduction of nuisances and pollution;

not cover any manufacturing cost savings that may be achieved; and

be available to all firms that can adopt the new equipment or production processes.

3. Review of Green Light Subsidies

Green light subsidies will be subject to review by the Subsidies Committee. Article 8.3 directs governments to notify the Subsidies Committee of subsidy programs for which non-actionable status is sought before such programs are implemented. This rule will provide the United States the opportunity to scrutinize rigorously all applications for non-actionable status. Articles 8.4 and 8.5 set out review procedures for these programs. On request, the WTO Secretariat will prepare a report to the Subsidies Committee analyzing whether a program meets the relevant criteria of Article 8.2. In preparing such a report, the Secretariat may seek whatever additional data it believes to be relevant. In addition, any member government may suggest additional information to be sought and may directly request information of the notifying government concerning individual subsidies provided under a notified program.

A program will not be considered non-actionable if the Committee determines that the relevant criteria have not been met. If the Committee fails to act in a timely manner or if any member is dissatisfied with the Committee's determination, the member may refer the matter to binding arbitration, which must be completed within 120 days of the referral.

Each member must file annual updates of its notifications of subsidy programs for which green light status has been granted by the Subsidies Committee. Whenever a member makes a substantive modification to a program granted green light status, the review process begins again. (The determination that a program has been modified may be according to information supplied by the subsidizing member or based on a Secretariat determination, which in turn may be based on the assertion of any member). If the Committee or the binding arbitration process determines that a subsidy program does not meet the criteria of Article 8.2, the program may be challenged in WTO dispute settlement proceedings under Article 7 of the Subsidies Agreement or through domestic CVD proceedings.

Even if a subsidy program meets the criteria of Article 8, it is actionable under Article 9 if it causes "serious adverse effects" to the domestic industry of another member, causing "damage which would be difficult to repair." This standard is higher than the normal serious prejudice or injury standard. The Subsidies Committee must determine within 120 days following unsuccessful consultations between the countries concerned whether the subsidy has caused serious adverse effects. If the Committee makes an affirmative determination and also finds that the subsidizing government should modify its subsidy program, the subsidizing country must act to eliminate the serious adverse effects within six months. If that member does not follow the Committee's recommendations within six months, the Committee must authorize countermeasures commensurate with the nature and degree of the serious adverse effects determined to exist.

Although Article 8 confers "green light" status only on those subsidies that have been notified, a footnote to Article 10 provides that a subsidizing government always has the right to demonstrate that a subsidy challenged in a WTO dispute settlement or a domestic CVD proceeding satisfies the criteria of Article 8.2, and therefore is non-actionable.

4. Rules Regarding Domestic Countervailing Duty Proceedings

Articles 10 through 23 establish rules for domestic CVD proceedings. Except for the rules set forth in Article 14 governing the benefit-to-the-recipient methodology for calculating a subsidy, the procedural, evidentiary, and injury provisions of the Agreement are, in the main, parallel to the provisions of the Agreement on Implementation of Article VI of the GATT 1994 (the Antidumping Agreement), which are described elsewhere in this Statement. However, in CVD investigations involving developed countries, the de minimis subsidy level is one percent (versus two percent in antidumping investigations) and the standard for determining negligible import levels is not expressed in specific import share terms. As described below, the Subsidies Agreement also contains special rules for developing countries.

5. Miscellaneous Provisions

Article 24 establishes a Committee on Subsidies and Countervailing Measures to carry out responsibilities under the Agreement. Articles 25 and 26 require all members to notify the Committee on a yearly basis of all subsidies they grant that are "specific" to an enterprise, industry or group thereof, and the Subsidies Committee is tasked to review those notifications. The criteria for notification require sufficient detail so other members may evaluate the trade effects and understand the operation of the notified programs. Any member may request additional information and may bring to the attention of the Committee subsidies that the member believes have not been notified.

6. Rules for Developing Countries

Article 27 applies multilateral subsidy disciplines to developing countries for the first time. Developing countries with annual GNP per capita at or above $1,000 must phase out all export subsidies progressively over eight to ten years, unless the Subsidies Committee extends the period. Each developing country also must phase out export subsidies in a given product sector over two years, whenever its share of world trade in that sector reaches 3.25 percent during two consecutive years. For least-developed countries and countries with GNP per capita below $1,000, the phase-out period for export subsidies for competitive products will be eight years. Developing countries will be allowed a five-year phase-out period, and the least-developed countries an eight-year period, to eliminate prohibited import substitution subsidies.

Developing countries will be exempt from the presumption of serious prejudice, but are subject to normal serious prejudice rules for those situations where presumptions would otherwise exist for developed countries. A member may challenge a developing-country subsidy in WTO dispute settlement proceedings if the subsidy nullifies or impairs tariff concessions or other GATT obligations (such as displacing or impeding exports into the developing country's market) or causes injury to a domestic industry in the challenging country. Developing countries will be exempt from WTO (but not domestic CVD) subsidy remedies for notified, time-limited subsidies linked to programs to privatize state-owned firms.

In CVD proceedings, the de minimis subsidy level will be two percent for developing countries. During the phase-out period for export subsidies, the de minimis subsidy level will be three percent for developing countries that eliminate export subsidies on an accelerated basis and for countries identified in Annex VII. Developing countries also enjoy a special provision for determining "negligible" imports that would warrant the termination of a CVD proceeding -- a proceeding must be terminated if imports of the product under investigation from a developing country account for less than four percent of total imports of the like product, unless imports from all developing countries subject to investigation with less than four percent import share collectively account for more than nine percent of total imports of that product.

The Agreement does not include criteria for determining which countries are developing countries. (Annex VII of the Agreement defines least developed countries and includes countries with per capita GNP of less than $1,000 per annum within the scope of the special provisions applicable to the least developed). Traditionally in the GATT, each Contracting Party decides whether it wishes to be considered as a developing country. Prior to the conclusion of the Uruguay Round negotiations, the European Union and the United States declared they would not consider Hong Kong, Korea or Singapore to be developing countries for purposes of the Subsidies Agreement.

7. Rules for Countries with Economies in Transition

Article 29 provides special transition rules for countries in the process of transformation from centrally-planned to market economies. Such countries may choose to be covered by this article in lieu of treatment under Article 27 as a developing country. For such economies in transition during the first seven years the WTO Agreement is in effect:

red light subsidies will be actionable, but not prohibited,

subsidies in the form of debt forgiveness will not be actionable in WTO dispute settlement; and

for all other actionable subsidies, other members may not pursue "serious prejudice" actions on the basis of effects in third-country markets.

Countries wishing to invoke the provisions of Article 29 must notify the Subsidies Committee of their red light subsidy programs no later than two years after entry into force of the WTO Agreement. The Administration intends to review such notifications closely to ensure that they do not undermine the disciplines of the Subsidies Agreement.



B. ACTION REQUIRED OR APPROPRIATE TO IMPLEMENT THE AGREEMENT

Certain amendments to the countervailing duty law are either required or appropriate to implement the Subsidies Agreement. Except where otherwise noted, the implementing bill amends Title VII of the Tariff Act of 1930 (the Act). Most of the amendments necessary or appropriate to implement the procedural provisions of the Subsidies Agreement are described in the portion of this Statement devoted to the Antidumping Agreement. Other amendments are described below.

1. Injury Test and Repeal of Section 303

Under existing law, in the case of a country that is a "country under the Agreement," countervailing duties may not be imposed unless the U.S. International Trade Commission (Commission) finds that a domestic industry is materially injured by reason of subsidized imports. A "country under the Agreement" can be a country (1) that has signed the Tokyo Round Code; (2) that has assumed obligations which are substantially equivalent to those imposed by the Tokyo Round Code; or (3) with which the United States has a treaty that requires unconditional most-favored-nation treatment with respect to articles imported into the United States. In addition, section 303 of the Act also imposes an "injury test" in the case of imports of duty-free merchandise from GATT Contracting Parties. Countries that are not signatories to the Tokyo Round Code, or that have not entered into agreements of the kind described in (2) or (3) above, normally would not receive an injury test in U.S. CVD investigations, even if the country were a GATT Contracting Party. Under the WTO Agreement and the Subsidies Agreement, all WTO members are entitled to an injury test in CVD investigations. Therefore, existing law must be amended.

Section 261 of the implementing bill repeals section 303 of the Act. Under existing law, section 303 applies in the case of a country which is not a "country under the Agreement" and contains its own definition of subsidy. In light of the new subsidy definition contained in the Subsidies Agreement, it is unnecessary and confusing to retain section 303. An amended section 701(c) indicates those findings which are not required in the case of a CVD investigation involving imports from a country which is not entitled to an injury test (i.e., a country which is not a Subsidies Agreement country).

Section 262 of the bill amends section 701(a) of the Act to provide that the injury test is applicable only to merchandise imported from a "Subsidies Agreement country." Section 701(b), in turn, is amended by replacing the definition of "country under the Agreement" with a definition of "Subsidies Agreement country." "Subsidies Agreement country" is defined as:

a state or customs territory to which the United States applies the WTO Agreement;

a country which has assumed obligations with respect to the United States which are substantially equivalent to obligations under the Subsidies Agreement, as determined by the President; or

a country to which the United States does not apply the WTO Agreement, but with which the United States has a treaty which requires unconditional most-favored-nation treatment and does not expressly permit certain specified actions.

The Administration expects that virtually all of the major trading partners of the United States will accede to the WTO Agreement. However, there may be cases in which legal accession is difficult, although the substantive obligations of the Subsidies Agreement nevertheless are assumed. That is why the second category (a country which has assumed substantially equivalent obligations) is included.

The third category covers countries which are not WTO members but with which the United States has treaties which require unconditional most-favored-nation treatment. Countries which would qualify under these criteria are: Estonia, Latvia, Liberia, Lithuania, Saudi Arabia, and Yemen. All except Liberia and Yemen have applied for accession to the GATT/WTO, but their accession negotiations still are at a preliminary stage.

Section 701(c) of the Act, which currently authorizes the U.S. Trade Representative to revoke the status of a foreign country as a "country under the Agreement," is repealed. Countries with which the United States negotiated bilateral commitments to phase out the use of export subsidies in conjunction with that country's accession to the Tokyo Round Code will have to become members of the WTO in order to maintain their right to an injury test under U.S. countervailing duty law.

2. Definition of Subsidy

Although the Subsidies Agreement largely tracks existing U.S. law and practice, section 251 of the implementing bill revises the definition of "subsidy" in section 771(5) to reflect:

Articles 1, 2, 8 and 14 of the Subsidies Agreement, which define a countervailable subsidy; and

the organization of the Subsidies Agreement.

In general, the Administration intends that the definition of "subsidy" will have the same meaning that administrative practice and courts have ascribed to the term "bounty or grant" and "subsidy" under prior versions of the statute, unless that practice or interpretation is inconsistent with the definition contained in the bill. Absent such inconsistency, and subject to other relevant changes enacted in the implementing bill (e.g., rules regarding non-countervailable subsidies and de minimis countervailable subsidies), practices countervailable under the current law will be countervailable under the revised statute.

a. Basic Definition

Section 771(5)(A) provides the basic definition of the terms "subsidy" and "countervailable subsidy." With respect to the term "subsidy," section 771(5)(B) tracks the language of Article 1 of the Agreement. It provides that a subsidy exists where a government or any public body within the territory of a country:

provides a financial contribution;

makes payments to a funding mechanism for purposes of providing a financial contribution, or entrusts or directs a private body to provide a financial contribution, where the provision of such a contribution normally would be vested in the government and the practice does not differ in substance from practices normally followed by governments; or

provides any form of income or price support in the sense of Article XVI of the GATT 1994; and a benefit is conferred through one of these enumerated acts.

The Administration intends that the term "entity" in section 771(5)(B)(iii) and other sections of the CVD law have the same meaning as the term "body" in Article 1.1(a)(1)(iv) of the Subsidies Agreement. Section 771(5)(B) and other sections use the term "person" to identify the commercial entity, such as a firm or industry, to which the government or public body provides a financial contribution. Section 771(5A)(D) uses the term "enterprise or industry" as it is used in Article 2 of the Agreement for purposes of determining whether a subsidy is specific. The fact that "person" and "enterprise or industry" are used in this manner is meant only to clarify that, in certain instances, the recipient of a subsidy in a given proceeding may not be the only commercial entity to which the subsidy is specifically provided.

One of the definitional elements of a subsidy under the Subsidies Agreement is the provision by a government or any public body of a "financial contribution" as defined by the Agreement, including the provision of goods or services. Moreover, the Subsidies Agreement specifically states that the term "financial contribution" includes situations where the government entrusts or directs a private body to provide the subsidy. (It is the Administration's view that the term "private body" is not necessarily limited to a single entity, but can include a group of entities or persons.) Additionally, Article VI of the GATT 1994 continues to refer to subsidies provided "directly or indirectly" by a government. Accordingly, the Administration intends that the "entrusts or directs" standard shall be interpreted broadly. The Administration plans to continue its policy of not permitting the indirect provision of a subsidy to become a loophole when unfairly traded imports enter the United States and injure a U.S. industry.

In the past, the Department of Commerce (Commerce) has countervailed a variety of programs where the government has provided a benefit through private parties. (See, e.g., Certain Softwood Lumber Products from Canada, Leather from Argentina, Lamb from New Zealand, Oil Country Tubular Goods from Korea, Carbon Steel Wire Rod from Spain, and Certain Steel Products from Korea). The specific manner in which the government acted through the private party to provide the benefit varied widely in the above cases. Commerce has found a countervailable subsidy to exist where the government took or imposed (through statutory, regulatory or administrative action) a formal, enforceable measure which directly led to a discernible benefit being provided to the industry under investigation.

In cases where the government acts through a private party, such as in Certain Softwood Lumber Products from Canada and Leather from Argentina (which involved export restraints that led directly to a discernible lowering of input costs), the Administration intends that the law continue to be administered on a case-by-case basis consistent with the preceding paragraph. It is the Administration's view that Article 1.1(a)(1)(iv) of the Subsidies Agreement and section 771(5)(B)(iii) encompass indirect subsidy practices like those which Commerce has countervailed in the past, and that these types of indirect subsidies will continue to be countervailable, provided that Commerce is satisfied that the standard under section 771(5)(B)(iii) has been met.

Section 771(5)(C) provides that in determining whether a subsidy exists, Commerce is not required to consider the effect of the subsidy. In Certain Softwood Lumber Products from Canada, USA-92-1904-02, a three-member majority ruled that in order to find certain government practices to be subsidies, Commerce must determine that the practice has an effect on the price or output of the merchandise under investigation. In so ruling, the majority misinterpreted the holding in Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986), which was limited to the reasonable proposition that the CVD law cannot be applied to imports from nonmarket economy countries. Although this panel decision would not be binding precedent in future cases, the Administration wants to make clear its view that the new definition of subsidy does not require that Commerce consider or analyze the effect (including whether there is any effect at all) of a government action on the price or output of the class or kind of merchandise under investigation or review.

The existing definition of "country" in section 771(3) is retained so as to include actions by governments at the sub-national level, such as state or provincial governments. In addition, as in existing law, it is irrelevant whether (1) the recipient of the subsidy is publicly or privately owned; and (2) the subsidy is provided directly or indirectly.

Section 771(5)(D) lists the four broad generic categories of government practices that constitute a "financial contribution." The examples of particular types of practices falling under each of the categories are not intended to be exhaustive. The Administration believes that these generic categories are sufficiently broad so as to encompass the types of subsidy programs generally countervailed by Commerce in the past, although determinations with respect to particular programs will have to be made on a case-by-case basis.

Section 771(5)(E) provides the standard for determining the existence and amount of a benefit conferred through the provision of a subsidy. It states that "a benefit shall normally be treated as conferred where there is a benefit to the recipient," providing examples of how a benefit is to be established under various types of subsidy instruments. Thus, subparagraph (E) reflects the "benefit-to-the-recipient" standard which long has been a fundamental basis for identifying and measuring subsidies under U.S. CVD practice, and which is expressly endorsed by Article 14 of the Subsidies Agreement. In using the word "normally" in this subparagraph, the Administration intends only to indicate that in the case of certain types of subsidy programs, such as export insurance schemes, the use of the benefit-to-the-recipient standard may not be appropriate. The use of "normally" should not be construed as suggesting that, in addition to identifying the benefit to the recipient, Commerce should or must consider the effect of the subsidy; section 771(5)(C) already makes this clear. However, neither section 771(5)(C) nor section 771(5)(E) detract from the existing requirements of section 771A(a)(2) and (3) for determining when an upstream subsidy is "passed through" to a downstream producer.

With respect to the provision of goods or services, current law relies on a standard of "preferentiality" to determine the existence and amount of a benefit. Section 771(5)(E)(iv) replaces this standard with the standards from Article 14 of the Subsidies Agreement -- "less than adequate remuneration" (in the case of the provision of goods or services) and "more than adequate remuneration" (in the case of the procurement of goods).

In determining a benefit from a loan guarantee, Commerce's practice has been inconsistent over the years. In some cases, Commerce has compared the cost charged by a foreign government for a loan guarantee to the price for a comparable guarantee charged by a commercial guarantor. In more recent cases, Commerce has compared the difference in interest payments by a firm on a government-guaranteed loan and a loan not guaranteed by the government. This latter method is specified in Article 14(c) of the Subsidies Agreement and incorporated in the implementing bill.

Unlike existing section 771(5)(A)(i), new section 771(5) does not incorporate the Illustrative List of Export Subsidies into the statute. The Illustrative List, an annex to the Tokyo Round Code, continues in modified form as Annex I to the Subsidies Agreement. However, the Illustrative List has no direct application to the CVD portion of the Subsidies Agreement, and items (k) and (l) of the Illustrative List use a cost-to-the-government standard which is inappropriate for CVD purposes. It is the Administration's intent that Commerce adhere to the Illustrative List except where the List is inconsistent with the principles set forth in the implementing bill.

Article 14 of the Subsidies Agreement provides that any method used to calculate the benefit to the recipient conferred pursuant to a subsidy must be provided for in national legislation or implementing regulations. To comply with this article, Commerce will issue regulations setting forth the details of the methodologies used to identify and measure the benefit of a subsidy.

Section 771(5)(F) provides that a change in the ownership of "all or part of a foreign enterprise" (i.e., a firm or a division of a firm) or the productive assets of a firm, even if accomplished through an arm's-length transaction, does not by itself require Commerce to find that past countervailable subsidies received by the firm no longer continue to be countervailable. For purposes of section 771(5)(F), the term "arm's-length transaction" means a transaction negotiated between unrelated parties, each acting in its own interest, or between related parties such that the terms of the transaction are those that would exist if the transaction had been negotiated between unrelated parties.

Section 771(5)(F) is being added to clarify that the sale of a firm at arm's-length does not automatically, and in all cases, extinguish any prior subsidies conferred. Absent this clarification, some might argue that all that would be required to eliminate any countervailing duty liability would be to sell subsidized productive assets to an unrelated party. Consequently, it is imperative that the implementing bill correct and prevent such an extreme interpretation.

The issue of the privatization of a state-owned firm can be extremely complex and multifaceted. While it is the Administration's intent that Commerce retain the discretion to determine whether, and to what extent, the privatization of a government-owned firm eliminates any previously conferred countervailable subsidies, Commerce must exercise this discretion carefully through its consideration of the facts of each case and its determination of the appropriate methodology to be applied.

b. Countervailable Subsidy

As described above, the Subsidies Agreement distinguishes between actionable and non-actionable subsidies. Because existing U.S. law does not distinguish subsidies on this basis, it is necessary to amend the Act to reflect this distinction. Therefore, section 251(a) of the bill adds a new section 771(5)(A) defining the term "countervailable subsidy." With the exception of particular types of subsidies which are non-countervailable pursuant to section 771(5B), a subsidy is countervailable if it (a) constitutes a subsidy under the basic definition in section 771(5), and (b) is specific within the meaning of section 771(5A). In order to conform to this new definition, where appropriate to the context, the term "countervailable subsidy" is substituted for the term "subsidy" where the latter term currently appears in other provisions of Title VII of the Act.

c. Specificity

Section 771(5A) implements the provisions of Article 2 of the Subsidies Agreement dealing with specificity. Article 2 essentially reflects U.S. practice, so the substance of the specificity test in section 771(5A) generally reflects existing law and practice. However, the organizational structure of Article 2 is used in section 771(5A) because it is clearer than that of the existing law.

Section 771(5A)(A) provides that export subsidies and import substitution subsidies are deemed to be specific. "Export subsidies" are defined as those subsidies which are contingent in law or in fact, whether solely or as one of several other conditions, upon export performance. This definition is more expansive than the one used in existing U.S. law and practice. Commerce intends to issue regulations, based on Article 3.1(a) and note 4 of the Subsidies Agreement, which will elaborate on the criteria for identifying export subsidies on the basis of this expanded definition. "Import substitution subsidies" are defined in section 771(5A)(C) as those subsidies which are contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods.

(1) Specificity of Domestic Subsidies.

Section 771(5A)(D), dealing with the specificity of domestic subsidies, replaces section 771(5)(B). The issue of whether a subsidy is specific has been one of the most heavily litigated issues under the CVD law. To clarify future application, this Statement describes in some detail how the Administration intends to administer section 771(5A)(D).

The Administration intends to apply the specificity test in light of its original purpose, which is to function as an initial screening mechanism to winnow out only those foreign subsidies which truly are broadly available and widely used throughout an economy. In the leading case of Carlisle Tire & Rubber Co. v. United States, 564 F. Supp. 834 (Ct. Int'l Trade 1983), Judge Maletz explained that all governments, including the United States, intervene in their economies to one extent or another, and to regard all such interventions as countervailable subsidies would produce absurd results. Judge Maletz stated:

Thus, included in Carlisle's category of countervailable benefits would be such things as public highways and bridges, as well as a tax credit for expenditures on capital investment even if available to all industries and sectors. * * * To suggest, as Carlisle implicitly does here, that almost every import entering the stream of American commerce be countervailed simply defies reason.

564 F. Supp. at 838.

The specificity test was intended to function as a rule of reason and to avoid the imposition of countervailing duties in situations where, because of the widespread availability and use of a subsidy, the benefit of the subsidy is spread throughout an economy. Conversely, the specificity test was not intended to function as a loophole through which narrowly focussed subsidies provided to or used by discrete segments of an economy could escape the purview of the CVD law.

(2) De Jure Specificity

Sections 771(5A)(D)(i) and (ii) cover de jure specificity. They are consistent with existing Commerce practice. Clause (i) provides, as does existing law, that specificity exists where a government expressly limits eligibility for a subsidy to an enterprise, industry, or group thereof. Although it has long been established that intent to target benefits is not a prerequisite for a countervailable subsidy, the de jure prong of the specificity test recognizes that where a foreign government expressly limits access to a subsidy to a sufficiently small number of enterprises, industries or groups thereof, further inquiry into the actual use of the subsidy is unnecessary.

As under existing law, clause (i) does not attempt to provide a precise mathematical formula for determining when the number of enterprises or industries eligible for a subsidy is sufficiently small so as to properly be considered specific. A proposal to establish such quantitative criteria was made during the Uruguay Round negotiations, and was quickly rejected by the United States and many other participants. Commerce can only make this determination on a case-by-case basis.

Clause (ii) is a corollary of the de jure test; it also reflects existing practice. Under clause (ii), a subsidy would not be deemed to be de jure specific merely because it was bestowed pursuant to certain eligibility criteria. However, the eligibility criteria or conditions must be objective, clearly documented, capable of verification, and strictly followed. In addition, eligibility for the subsidy must be automatic where the criteria are satisfied. Finally, the objective criteria or conditions must be neutral, must not favor certain enterprises or industries over others, and must be economic in nature and horizontal in application, such as the number of employees or the size of the enterprise.

(3) De Facto Specificity

Section 771(5A)(D)(iii) lists the factors to be examined with respect to de facto specificity. These factors, found in Article 2.1(c) of the Subsidies Agreement, and corresponding to the factors analyzed by Commerce under existing practice, are: (1) the number of enterprises, industries or groups thereof which actually use a subsidy;

(2) predominant use of a subsidy by an enterprise, industry, or group; (3) the receipt of disproportionately large amounts of a subsidy by an enterprise, industry, or group; and (4) the manner in which the authority providing a subsidy has exercised discretion in its decision to grant the subsidy.

The Administration intends that Commerce seek and consider information relevant to all of these factors. However, given the purpose of the specificity test as a screening mechanism, the weight accorded to particular factors will vary from case to case. For example, where the number of enterprises or industries using a subsidy is not large, the first factor alone would justify a finding of specificity, because the absurd results envisioned by Carlisle would not be threatened if specificity were found. On the other hand, where the number of users of a subsidy is very large, the predominant use and disproportionality factors would have to be assessed. Because the weight accorded to the individual de facto specificity factors is likely to differ from case to case, clause (iii) makes clear that Commerce shall find de facto specificity if one or more of the factors exists.

The Administration intends to continue existing Commerce practice of according the least significance to the factor regarding the exercise of discretion. In the Administration's view, if the actual users of the subsidy are too large in number to reasonably be considered as a specific group, and if there is no evidence of dominant or disproportionate use, the fact that a foreign authority administering a subsidy program may have exercised discretion in selecting the recipients of the subsidy is insufficient to justify a finding of de facto specificity. The discretion factor would have more value in connection with an analysis of other de facto specificity criteria.

Consistent with Article 2.1(c) of the Subsidies Agreement, the implementing bill also requires Commerce, in analyzing the four de facto specificity factors, to take account of (1) the extent of diversification of economic activities within the economy in question; and (2) the length of time during which the subsidy program in question has been in operation. The Administration intends that these additional criteria serve to inform the application of, rather than supersede or substitute for, the enumerated specificity factors. (That is, while they are not additional indicators of whether specificity exists, these criteria may provide a clearer context within which the de facto factors would be analyzed). Thus, for example, with respect to economic diversification, in determining whether the number of industries using a subsidy is small or large, Commerce could take account of the number of industries in the economy in question.

The Administration interprets the criterion concerning the duration of a subsidy program to mean that where a new subsidy program is recently introduced, it is unreasonable to expect that use of the subsidy will spread throughout the economy in question instantaneously. On the other hand, the Administration does not intend that this criterion be used to excuse de facto specificity.

The discretion factor plays a particularly important role in situations involving brand new subsidy programs. Where the users of a new subsidy program appear to be small in number due to the recent introduction of the program, but an analysis of the discretion factor indicates that the authority administering the program may be favoring certain enterprises or industries over others, a finding of de facto specificity would be appropriate.

As under existing law and Commerce practice, evidence of government intent to target or otherwise limit benefits would be irrelevant in de facto specificity analysis. Similarly, as under existing law, where a government confers a subsidy through the provision of a good or service, the fact that use of the subsidy may be limited due to the inherent characteristics of the good or service in question would be irrelevant for purposes of a de facto specificity analysis.

(4) Regional Specificity

Section 771(5A)(D)(iv), which corresponds to Article 2.2 of the Subsidies Agreement, essentially codifies Commerce's current "regional specificity test." Under this test, subsidies granted by a state or province that are not limited to a specific enterprise, industry or group thereof within the state or province are not considered specific, and, therefore, are not countervailable. However, subsidies provided by a central government to particular regions (including a province or a state) are specific regardless of the degree of availability or use within the region. Likewise, state and provincial subsidies that are limited to particular regions within the state or province are specific.

(5) Evidentiary Standard

Article 2.4 of the Subsidies Agreement requires that specificity determinations "be clearly substantiated on the basis of positive evidence." In the view of the Administration, the requirements of Article 2.4 are more than satisfied by section 516A(b)(1)(B) of the Act, which requires that determinations be supported by substantial evidence on the record. In addition, Article 2.4 does not affect the ability of Commerce, pursuant to Article 12.7 of the Subsidies Agreement, to make specificity determinations on the basis of the facts available where a foreign firm or government refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation.

d. Green Light Subsidies

Section 771(5B) sets forth the criteria for determining whether industrial research and pre-competitive development subsidies, subsidies to disadvantaged regions, and subsidies for adaptation of existing facilities to meet new environmental requirements, respectively, qualify as non-countervailable. These criteria correspond to those found in Article 8.2(a)-(c) of the Subsidies Agreement.

In some instances, the terms and conditions set forth in the Subsidies Agreement for determining whether a subsidy is non-countervailable are expressed ambiguously. To prevent the possibility that such general terminology could open a door to the abuse of the green light provisions, the Administration believes that certain terms and conditions require clarification as to their intended interpretation and application.

(1) Industrial Research and Pre-Competitive Development

With respect to subsidies for industrial research and pre-competitive development activity, the Administration considers it critical to draw a careful, sharp distinction between genuinely pre-competitive activity and later-stage development and production aid. In this regard, Commerce should not accord green light status to assistance for pre-competitive development activity unless the pre-competitive nature of the research is well established. In particular, the term "pre-competitive development activity" must be strictly construed in order to prevent circumvention of the intent of the provision. The Administration intends to apply the following guidelines in analyzing claims that assistance is for pre-competitive development activity rather than for development or production support:

The translation of industrial research into a plan, blueprint or design is limited to a system design and excludes detailed design of a commercial product.

A prototype which would not be capable of commercial use may have varying meanings in different industrial settings. As a rule, however, this term should not be so narrowly construed as to include prototypes which would require only minor modifications to be made into commercial products. Rather, the prototype must undergo substantial or material modification to be capable of any commercial use.

Conceptual formulation and design of products is limited to conceptual design or formulation only.

Demonstration or pilot projects must not be used for any purpose other than to understand or compare conceptual formulas or design characteristics.

It also is important that there be strict adherence to the Subsidies Agreement's requirements as to which research costs may be assisted. For example, the use of equipment or buildings for any purpose other than the research for which green light status was sought will disqualify such cost items from coverage under the green light provisions. In the same vein, the term "other operating costs" as used in section 771(5B)(B)(i)(V) should be viewed as encompassing only those items which are directly consumed in the non-actionable research activity.

(2) Disadvantaged Regions

The green light provision governing assistance for disadvantaged regions also must be strictly construed in order to prevent circumvention of the intent of the provision. Footnote 33 to Article 8.2(b) of the Subsidies Agreement states that "[a] 'general framework of regional development' means that regional subsidy programs are part of an internally consistent and generally applicable regional development policy and that regional development subsidies are not granted in isolated geographical points having no, or virtually no, influence on the development of a region." Therefore, to be non-countervailable, the government assistance must be directed both by law and in practice toward the development of the region as a whole. This requirement is further reinforced by the stipulation that the assistance cannot be provided in a "specific" manner to an enterprise, industry, or group of enterprises or industries located within eligible regions. Aid which is provided to a limited number of recipients; or which is provided in a disproportionate manner to a specific enterprise, industry or group thereof; or which is predominantly used by a specific enterprise, industry or group thereof within the regions eligible for green light aid, will be considered as fully countervailable.

At the same time, evidence indicating that an "eligible region" was created for purposes of the regional development program, and that did not otherwise have an independently discernible economic and administrative identity, would be sufficient grounds to deny non-countervailable treatment to any assistance to that region. In short, the Administration will not tolerate regional development "gerrymandering" in its application of the green light rules.

Sections 771(5A)(C)(ii)(I) and (II) refer to percentage-based indicators of economic development (per capita income, household per capita income, per capita gross domestic product, and unemployment rate) that are gauged in relation to averages for "the country subject to investigation or review." Where a CVD investigation or review involves a member of a customs union, the term "country" as used in these sections will refer either to the member state or the union as a whole depending on the structure of the regional assistance program. It is possible to have an investigation concerning a product from Luxembourg (for example) which includes investigation of a subsidy received under a regional development program administered by the European Union and available to disadvantaged regions throughout the Union. In such a situation, the appropriate measures of economic development would be determined on the basis of averages for the EU as a whole, as opposed to averages based exclusively on conditions in Luxembourg.

(3) Environmental Subsidies

Section 771(5B)(D) provides that a non-countervailable environmental subsidy may be provided only to assist an enterprise in meeting "new environmental requirements that are imposed by statute or by regulation, and that result in greater constraints and financial burdens on the recipient of the subsidy." In the Administration's view, strict application of these requirements is essential in order to limit the scope of the provision to only those situations which clearly warrant non-countervailable treatment.

In this regard, the term "new environmental requirements" cannot be interpreted in a manner which would permit governments marginally to adjust or modify existing requirements so as to provide additional non-countervailable aid. Rather, the concept of a "new environmental requirement" encompasses only those measures where substantial and distinct new requirements are imposed, such that the obligation imposed upon firms could not have been reasonably foreseen in advance of the requirement's adoption. The requirement must be imposed through force of law or regulation. Staged implementation of the requirement would not give rise to multiple "new" requirements at each stage of implementation.

The term "one time non-recurring measure" also must be carefully construed to prevent repeated non-countervailable subsidizing of the costs of individual new environmental requirements. Non-actionable subsidies which offset the costs of environmental compliance therefore shall be limited to one such subsidy per "new environmental requirement" and per facility. It is acknowledged that within one "new environmental requirement", there may be a diverse array of individual standards requiring compliance. Subsidies would be non-actionable to the extent that they offset 20 percent of the adaptation costs necessary to comply with the "new environmental requirement."

It also should be emphasized that the term "existing facilities" has been defined in the Subsidies Agreement as "facilities which have been in operation for at least two years at the time when new environmental requirements are imposed." The intention of this definition clearly is to restrict the scope of non-countervailable aid to facilities of a certain maturity; recently-built or new facilities would not be permitted to benefit from non-countervailable environmental subsidies in order to conform to new environmental requirements. In a similar vein, the Administration believes that although Article 8.2(c) of the Subsidies Agreement does not explicitly limit non-countervailable assistance only to one time per facility, a reasonable reading of the provision would not allow subsidizing authorities to impose a multitude of cosmetically different environmental requirements in order to provide a vehicle for the repeated subsidization of a particular facility.

Similarly, the phrase "that result in greater constraints and financial burdens on the recipient of the subsidy" must be given tangible meaning in order to ensure that abuse does not occur. Therefore, it should be clear that to claim non-countervailable status for assistance provided for purposes of compliance with a new environmental requirement, it is in fact necessary to make a new investment, and the investment must entail identifiable additional costs associated with satisfying the new requirement. Further, any autonomous costs of operating the new investment cannot be included within the 20 percent of adaptation cost limitation on non-countervailable government assistance, just as the subsequent cost of replacing new equipment cannot be covered. The Administration also considers that any calculation of the "cost of adaptation" must include a full crediting of manufacturing and production cost savings which have been or are expected to be achieved as a result of the adaptation.

e. Determining Non-Countervailable Status

As described above, green light status can be achieved in two different ways: (1) a country can notify a subsidy program before its implementation pursuant to Article 8.3 of the Subsidies Agreement; or (2) a country can decline to notify, but can establish in the context of a CVD or WTO dispute settlement proceeding that a particular subsidy satisfies all of the criteria for non-countervailable treatment. (The latter method was added at the insistence of the United States).

Section 771(5B)(A) establishes a general rule regarding those subsidies for which there has not been notification pursuant to Article 8.3. Only Subsidies Agreement countries can obtain non-countervailable status. It is appropriate to distinguish between Subsidies Agreement countries and other countries in this regard. The establishment of categories of green light subsidies is the product of a negotiation pursuant to which, in return for agreeing to the establishment of these categories, the United States obtained greater discipline over the use of other types of subsidies, particularly prohibited subsidies and those types of subsidies for which serious prejudice is presumed. Thus, although the implementing bill repeals section 303 of the Act and establishes a single definition of subsidy, the Administration believes that the benefits of non-countervailable status should not be available to those countries which have not also assumed the disciplines of the Subsidies Agreement and which are not otherwise entitled to unconditional MFN treatment.

In addition, section 771(5B)(A) provides that in order to obtain non-countervailable status, Commerce must determine that all of the criteria of subparagraphs (B), (C), or (D), as the case may be, have been satisfied. Thus, for example, if Commerce found that an environmental subsidy accounted for 21 percent of the cost of adaptation, the entire subsidy would be countervailable in full. By the same token, in a CVD investigation or administrative review involving a subsidy program that has not been notified under Article 8 of the Subsidies Agreement, the respondent has the burden of presenting evidence demonstrating compliance with all of the specific criteria for non-countervailable status. In the absence of substantial evidence demonstrating compliance with all of the criteria relevant to one of the three types of green light subsidies, Commerce will determine that the criteria have not been met.

Commerce will not limit its analysis of an alleged green light subsidy program to a narrow review of the technical criteria of Article 8 of the Subsidies Agreement, but will analyze all aspects of the subsidy program and its implementation to ensure that the purposes and terms of Article 8 have been respected. For example, in the case of research subsidies, Commerce will seek, inter alia, to ensure that other features of the subsidy program do not result in an ostensible pre-competitive development subsidy in fact being a production subsidy. In the case of subsidies to disadvantaged regions, Commerce will seek, for example, information regarding the operation of the entire regional subsidy program to ensure that assistance is not de jure or de facto specific within the assisted region. In the case of subsidies for adaptation to environmental requirements, Commerce will seek to ensure that other features of the program do not in fact provide operational assistance for the new investment.

Section 771(5B)(E) contains a special rule for green light subsidies notified pursuant to Article 8.3 of the Subsidies Agreement. In accordance with footnote 37 of the Subsidies Agreement, subparagraph (E)(i) provides that such subsidies may not be investigated or reviewed by Commerce. However, it is important that the countervailing duty remedy be applied quickly where violations of Article 8 are determined to exist. Thus, section 281(e)(1)(D) requires the Office of the U.S. Trade Representative (USTR) to notify Commerce whenever a green light subsidy has been challenged successfully pursuant to the challenge procedures of Article 8.4 or 8.5 of the Subsidies Agreement. Such subsidies are countervailable under subparagraph (E)(ii), provided, of course, that the subsidy is specific within the meaning of section 771(5A). As noted elsewhere, it is the Administration's intent to use the green light challenge procedures in the Subsidies Agreement aggressively in order to ensure that Article 8 is not abused.

f. Agricultural Subsidies

Section 771(5B)(F) implements Article 13(a) of the Agreement on Agriculture. It provides that domestic support measures provided with respect to agricultural products listed in Annex 1 to the Agreement on Agriculture, shall be non-countervailable if Commerce determines that the measures conform fully to the provisions of Annex 2 of the Agreement on Agriculture.

g. Provisional Application

Under Article 31 of the Subsidies Agreement, Article 8 expires in five years unless there is an agreement to extend its application. The implementing bill provides that the United States can agree to such an extension only if Congress passes legislation approving the extension. In order to implement this provision, section 771(5B)(G)(i) provides that subparagraphs (B)-(E) shall cease to have any effect 66 months after the WTO Agreement enters into force unless the provisions of those subparagraphs are extended pursuant to section 282(c) of the implementing bill.

Pursuant to Article 13 of the Agreement on Agriculture, Annex 2 domestic support measures are non-actionable only for the duration of the implementation period, which, pursuant to Article 1(f) of that Agreement, is the nine-year period commencing in 1995. Under Article 1(i) of that Agreement, "year" means "the calendar, financial or marketing year specified [by each WTO] Member." Because the precise date on which the implementation period expires will vary from member to member, subparagraph (G)(ii) provides that subparagraph (F) shall cease to have effect as of the date designated by USTR for each WTO member, and that USTR shall notify Commerce of such dates. It also should be noted that Article 13 of the Agreement on Agriculture provides that authorities exercise due restraint in initiating CVD investigations during the implementation period. The Administration understands this requirement to entail a commitment to refrain from self-initiating CVD investigations with respect to products subject to Annex 2 domestic support measures during this period.

3. De Minimis Countervailable Subsidies and Developing Countries

Under existing U.S. law, aggregate subsidies at a de minimis level are non-countervailable. The Subsidies Agreement establishes three different standards of de minimis. They are reflected in an amended section 703(b)(4), contained in section 263 of the implementing bill.

a. De Minimis Subsidies

Section 703(b)(4)(A) provides that Commerce shall disregard as de minimis net countervailable subsidies determined to be less than one percent ad valorem in the case of merchandise from developed countries, thereby implementing Article 11.9 of the Subsidies Agreement. In accordance with Article 27.10(a) of the Subsidies Agreement, in the case of merchandise from developing countries, subparagraph (B) provides that subsidies determined not to exceed two percent ad valorem are de minimis. As under existing practice, Commerce would apply these de minimis standards on an aggregate, rather than a program-by-program, basis.

Finally, in accordance with Article 27.11 of the Subsidies Agreement, subparagraph (C) provides that in the case of merchandise from certain developing countries, subsidies not in excess of three percent shall be regarded as de minimis. Two categories of developing countries are eligible for this special de minimis standard. The first category consists of the countries identified in Annex VII of the Subsidies Agreement. For them, this special de minimis standard will exist for eight years after the date the WTO Agreement enters into force, corresponding to the period within which developing countries are supposed to eliminate their export subsidies. The second category consists of developing countries that, according to a notice from USTR to Commerce, have eliminated their export subsidies on an expedited basis pursuant to Article 27.11 of the Subsidies Agreement. The extension of a higher de minimis standard to this second category of countries provides an incentive for them to eliminate their export subsidies expeditiously. Accordingly, for these countries this special de minimis standard will exist for not longer than eight years after entry into force of the WTO, but only for so long as they continue not to grant any export subsidies. (In both instances, the eight-year period runs from the date the WTO Agreement enters into force, not from the date any particular country becomes a WTO member).

The de minimis requirements of Articles 11.9, 27.10 and 27.11 of the Subsidies Agreement are applicable only to initial CVD investigations. Thus, under section 705(a)(3) these standards are not applicable to reviews of CVD orders. In such reviews, the Administration intends that Commerce will continue its present practice of waiving the collection of estimated deposits if the deposit rate is below 0.5 percent ad valorem, the existing regulatory standard for de minimis. Because the United States accepted slightly higher de minimis thresholds for developing countries in return for the more stringent subsidies disciplines embodied in the Subsidies Agreement, the bill makes the new de minimis standards of two and three percent applicable only in investigations involving merchandise from a Subsidies Agreement country which qualifies for one of these special de minimis standards under Article 27 of the Agreement and section 703(b)(4)(B) or (C) of the Act.

Conversely, the new de minimis standard of one percent applies to all other countries, irrespective of whether the country is a Subsidies Agreement country, as do the new numerical standards for determining negligible imports in investigations involving countries which are not developing countries. This is required in order to ensure that the conditions necessary for a cumulative injury analysis that are set forth in Article 15.2 of the Agreement are respected in any investigation involving a Subsidies Agreement country. Under Article 15.2, investigating authorities may not cumulatively assess the effects of imports from more than one country subject to simultaneous investigation unless the level of subsidization established with respect to each country is not de minimis, as defined in Article 11.9 (i.e., one percent), and the volume of imports from each country is not negligible. Application of the normal de minimis and negligibility standards to imports from countries which are not Subsidies Agreement countries will reduce the likelihood that a decision to cumulate imports from Agreement and non-Agreement countries could be challenged by a Subsidies Agreement country as inconsistent with the requirements of Article 15.2 of the Agreement.

b. Developing Countries

Several provisions under the Subsidies Agreement afford differential treatment to least developed and developing countries. While Annex VII to the Agreement defines least-developed countries and those countries which are to receive least-developed country treatment, it does not define developing countries. In accordance with Annex VII, the implementing bill defines least developed countries as (1) least developed countries within the meaning of paragraph (a) of Annex VII and (2) other countries listed in Annex VII to the extent that these other countries have a GNP per capita of less than $1,000 per annum as measured by the most recent data from the World Bank.

Traditionally in GATT, the designation of a country as developing is by self-election. However, using self-election in the context of CVD proceedings is inappropriate given the unacceptable risk of abuse. Accordingly, section 267 of the implementing bill provides guidance for designating both least developed and developing countries for purposes of the CVD law. It makes clear that this designation is solely for purposes of the CVD law and has no force or effect for any other purpose. In other words, designation for purposes of the CVD law has no particular weight in determining which countries are developing countries under other Uruguay Round agreements or under other provisions of U.S. law.

Section 267 adds a new paragraph 771(36) to the Act, authorizing USTR to designate which countries are developing and least developed countries for purposes of the CVD law. In the case of developing countries, it authorizes USTR to use such economic, trade and other factors as may be deemed appropriate, including the level of economic development, per capita GNP and the country's share of world trade. The bill makes clear that the USTR is not limited to these factors, and that the factors considered need not be limited to economic ones.

USTR intends to use factors that will ensure that the de minimis standard and other differential provisions applicable to developing countries in CVD proceedings are available only to truly developing economies. USTR is required to publish in the Federal Register and update as necessary its designations. It will revise the designations as necessary to ensure that current conditions are reflected. However, USTR also will ensure that the designation procedure enables Commerce, the Commission, and all interested parties to reasonably determine the status to be accorded any given country at the outset, and during the course, of a proceeding.

Consistent with the position taken by the United States during the negotiations, USTR will not designate as developing countries those countries that more properly should be considered as newly industrialized countries. In this regard, the United States and the European Union explicitly cited Hong Kong, the Republic of Korea, and Singapore as countries which would not be entitled to benefit from the special and differential treatment accorded to developing countries under the Subsidies Agreement. Accordingly, USTR will not designate Hong Kong, Korea or Singapore as developing countries.

4. Upstream Subsidies

Section 268 of the bill amends section 771A(a) of the Act to establish the criteria for determining the existence of an upstream subsidy (i.e., a subsidy bestowed on an input which is passed through to a downstream product). Under existing law, only domestic subsidies bestowed on the upstream product are capable of being treated as upstream subsidies. In light of the rearrangement of the statutory definition of subsidy and the addition of the new category of import substitution subsidies, it is necessary to amend the definition. Accordingly, section 771A provides that any countervailable subsidy, other than an export subsidy, bestowed on an input used in the manufacture or production of the subject merchandise is capable of constituting an upstream subsidy.

5. Company-Specific Subsidy Rates and Expedited Reviews

Pursuant to existing section 706(a)(2), Commerce normally calculates a country-wide rate applicable to all exporters unless there is a significant differential in CVD rates between companies or if a state-owned company is involved. Article 19.3 of the Subsidies Agreement provides that any exporter whose exports are subject to a CVD order, but which was not actually investigated for reasons other than a refusal to cooperate, shall be entitled to an expedited review to establish an individual CVD rate for that exporter.

Several changes must be made to the Act to implement the requirements of Article 19.3 of the Subsidies Agreement. The Administration has used the amendments being made to implement the Antidumping Agreement as a model for amending the CVD law.

a. Individual Countervailing Duty Rates

Section 265(1) of the implementing bill repeals section 706(a)(2). It eliminates the presumption in favor of a single country-wide CVD rate and amends section 777A of the Act to establish a general rule in favor of individual CVD rates for each exporter or producer individually investigated. Section 777A(e)(2) provides for an exception from this general rule in cases involving a large number of exporters or producers. In such situations, Commerce may limit its examination to a reasonable number of exporters or producers by (1) using statistically valid sampling techniques or (2) examining those exporters and producers accounting for the largest volume of the subject merchandise that Commerce determines can be reasonably examined. In addition, instead of examining a limited number of individual exporters and producers, section 777A(e)(2)(B) would permit Commerce to calculate, on the basis of aggregate data, a single country-wide subsidy rate to be applied to all exporters and producers of the subject merchandise.

Section 264(a) of the bills amends section 703(d)(1) to provide that when Commerce issues an affirmative preliminary CVD determination, it will determine an individual countervailable subsidy rate to be applied to each exporter and producer individually investigated and an "all-others" rate to be applied to those exporters and producers who were not individually investigated. Where Commerce has used the approach authorized under section 777A(e)(2)(B), Commerce would apply a country-wide rate to all firms. Section 705(c)(1)(B) would apply similar rules to affirmative final CVD determinations.

b. All-others Rate

Section 264(b)(2) of the bill amends section 705(c) of the Act to establish rules for calculating the all-others rate and the country-wide subsidy rate. Where Commerce has examined a limited number of individual companies, section 705(c)(5)(A)(i) provides that the all-others rate would be an amount equal to the weighted average individual countervailable subsidy rates established for exporters and producers individually investigated, exclusive of zero and de minimis rates and any rates determined entirely on the basis of the facts available. Where the countervailable subsidy rates for all exporters and producers examined are zero or de minimis, or are determined entirely on the basis of the facts available, section 705(c)(5)(A)(ii) authorizes Commerce to use any reasonable method to establish an all-others rate. Where Commerce has used the approach authorized under section 777A(e)(2)(B), Commerce would calculate the single country-wide rate based on aggregate industry-wide data regarding the use of countervailable subsidies.

6. Provision of Injury Test for Outstanding Orders and Pending Investigations Under Section 303

As noted above, all Subsidies Agreement countries are entitled to an injury test in CVD investigations, and countervailing duties may not be levied absent an affirmative determination of injury. In order to implement this obligation, the bill provides for an injury test with respect to outstanding CVD orders, pending CVD investigations under section 303(a)(1) of the Act, and those pending CVD investigations under section 303(a)(2) as to which no injury test previously was required (section 303 cases).

a. Outstanding Orders

(1) Injury Determination

Section 271(a) of the bill adds a new section 753, modeled on sections 102 and 104 of the Trade Agreements Act of 1979, to create a mechanism for providing an injury test for outstanding CVD orders issued under former section 303(a). An injury determination will be provided only when a country becomes a Subsidies Agreement country. Thus, countries eligible for original membership in the WTO will not be entitled to an injury determination under this section during the two-year grace period until they actually have become members.

For CVD orders which are in effect on the date a country becomes a Subsidies Agreement country, a domestic interested party may request that the Commission initiate an investigation to determine whether an industry in the United States is likely to be materially injured by reason of imports of the merchandise subject to the CVD order if the order is revoked. The request would have to be made within six months of the date the country becomes a Subsidies Agreement country. For CVD orders issued pursuant to court order after the country becomes a Subsidies Agreement country, the request would have to be made within six months of the issuance of the CVD order. To ensure that domestic interested parties have an opportunity to request an injury determination, the Administration intends that Commerce directly notify domestic interested parties known to have an interest in the CVD order as soon as possible after the request opportunity arises.

(2) Liquidation of Entries

Under section 753(a)(4), liquidation of entries subject to a CVD order is suspended automatically on (1) the date on which the country becomes a Subsidies Agreement country, or (2) where a CVD order is issued pursuant to court order, the date of issuance of the CVD order. Under section 753(b)(4), if the Commission does not receive a request for an injury determination within the stipulated six-month period, Commerce will revoke the order and refund, with interest, any estimated countervailing duties collected during the period liquidation was suspended under this section.

(3) Standard for Commission Determination

In determining whether an industry in the United States is likely to be materially injured by reason of imports of merchandise subject to a CVD order if the order is revoked, the Commission will perform a prospective analysis similar to that required in sunset injury reviews under section 751(c). To the extent relevant, the Commission generally will consider the factors set forth in section 751(c) regarding the likelihood of injury.

(4) Expedited Sunset Review Upon Request

Section 753(e) permits the domestic interested party requesting an injury determination for a section 303 case also to request that "sunset reviews" under section 751(c) of outstanding antidumping and CVD orders involving the same or comparable merchandise be expedited so that these reviews are conducted contemporaneously with the investigation for the section 303 case.

The Administration does not intend "same or comparable merchandise" to be a term of art. In determining whether a request under section 753(c) pertains to the same or comparable merchandise, Commerce, in consultation with the Commission, should apply the same general principles the Commission develops for grouping sunset reviews under section 751(c). Commerce's determination on this issue will not restrict the Commission's discretion with respect to its determinations on the issues of like product and cumulation.

When Commerce notifies domestic interested parties of their opportunity to request an injury determination for a section 303 case, it also will inform them of their opportunity to request an expedited "sunset review" of any outstanding CVD orders which might appropriately be reviewed in conjunction with the section 753 injury investigation. Commerce may decline to provide an expedited review in cases where the requesting party is related to a foreign producer or exporter of subject merchandise, or is itself an importer of the subject merchandise.

Section 753(e)(2) allows the Commission to cumulatively assess the volume and effect of imports of the merchandise subject to a sunset review and an investigation of a section 303 case. Nor does the Administration view this subsection as broadening the legal bases for cumulation. In determining whether cumulation is appropriate in these cases, the Commission should be guided, to the extent appropriate, by its practice regarding cumulation in the context of sunset reviews under section 751(c). If the Commission determines that cumulation is not warranted under the standards established in section 752(a)(7), as added by the implementing bill, the Commission still would complete the sunset review under the standards of section 751(c). Whether or not the Commission determines that cumulation is appropriate for purposes of an investigation of a section 303 case and a sunset review, it will apply the appropriate injury standard to each proceeding. In a section 303 case, the standard would be whether an industry in the United States is likely to be materially injured if the order is revoked. For a sunset review, it would be whether material injury would be likely to continue or recur if the order was revoked.

(5) Procedures and Schedules

Section 753(b) provides procedures and schedules for Commission and Commerce action. Under section 753(b)(1)(A), the Commission would apply the normal procedures applicable to final CVD investigations, except as otherwise provided in this section. Section 753(b)(1)(B) requires the Commission to complete its investigation of a section 303 case within one year to the extent possible. In general, however, the Administration expects that such investigations will take less than one year to complete. The phrase "to the extent possible" is used to clarify that the Commission has discretion to take the overall number of investigations into account in setting the schedule for a particular investigation.

Section 753(b)(1)(C) provides special rules for section 303 cases in which an injury investigation under this section is requested within one year after the date on which the WTO Agreement enters into force with respect to the United States. The section gives the Commission the flexibility to stagger the commencement of these investigations in a manner which permits the completion of all such cases within four years from the date of entry into force of the WTO Agreement with respect to the United States. Each individual investigation still will be subject to the requirement that investigations be completed within one year to the extent possible. This provision is intended to ensure that investigations in transitional section 303 cases may be initiated promptly and resolved prior to the time the Commission's workload of sunset reviews will be at its heaviest.

(6) Net Countervailable Subsidy

Section 753(b)(2) requires Commerce to provide the Commission with the net countervailable subsidy that is likely to prevail if the CVD order is revoked. In providing this rate, Commerce normally will choose from the rates determined in the original final determination or in subsequent administrative reviews of the order. If the Commission considers the magnitude of the net countervailable subsidy, it will use the net countervailable subsidy provided by Commerce. Commerce will inform the Commission of the nature of the net countervailable subsidy and whether the subsidy is a prohibited subsidy or a subsidy for which serious prejudice is presumed within the meaning of the Subsidies Agreement.

(7) Effect of Commission Determination

Under section 753(b)(3), if the Commission's determination is affirmative, the CVD order will remain in place, and the date of publication of the Commission's affirmative determination will be deemed to be the date of issuance of the order for purposes of future sunset reviews. If the Commission's determination is negative, Commerce will revoke the order; order liquidation, without regard to countervailing duties, of entries made on or after the date on which liquidation was suspended pursuant to section 753(a)(4); and order the refund, with interest, of any estimated duties deposited on such entries.

Section 753(d) requires Commerce and the Commission to publish in the Federal Register notice of any initiation, determination, or revocation made pursuant to section 753. In addition, section 271(b) of the bill amends section 516A of the Act to provide for judicial review of such determinations.

b. Pending Countervailing Duty Investigations

Section 753(c) establishes transition rules for CVD investigations under section 303: (1) that are pending as of the effective date of the implementing bill, (2) that involve a Subsidies Agreement country, and (3) with respect to which an injury determination was not required under section 303(a). Under section 753(c)(1), if such a CVD investigation is in progress, the Commission will make an injury determination within 75 days of an affirmative final determination, if any, by Commerce.

In the case of a CVD investigation that is resumed following the termination of a suspension agreement, if Commerce did not complete its original investigation, the Commission will make an injury determination within (1) 120 days after receiving notice from Commerce of the resumption of the investigation, or (2) 45 days after an affirmative final determination, if any, by Commerce, whichever is later. However, if Commerce had completed its original investigation, and, thus, is required under section 704(i)(1)(C) to issue a CVD order, the order would be treated as if it were issued pursuant to court order under section 753(a)(1)(B)(ii). In other words, unless a domestic interested party requested an investigation by the Commission within 6 months, the order would be revoked.



C. ACTION REQUIRED OR APPROPRIATE TO IMPLEMENT THE AGREEMENT ON AGRICULTURE

Certain amendments to sections 701, 702 and 703 of the Trade Agreements Act of 1979 (the 1979 Act) are either required or appropriate in order to implement the Agreement on Agriculture. Sections 701 and 703 of the 1979 Act currently impose certain non-tariff restrictions on the importation of specified dairy products into the United States. Section 701 provides that the President will, by proclamation, limit the annual amount of imports of certain defined cheeses (termed "cheese subject to an in-quota rate of duty" in the implementing bill). The bill treats such a proclamation as a proclamation made pursuant to section 22 of the Agricultural Adjustment Act of 1933. Section 703 mandates that the President limit by proclamation the annual amount of chocolate crumb imported into the United States from Australia and from New Zealand. Such restrictions also are considered as having been imposed pursuant to section 22.

As a result of the Uruguay Round negotiations, the United States is obligated to convert any existing non-tariff barriers on agricultural products into ordinary customs duties as part of the comprehensive "tariffication" process. Article 4.2 of the Agreement on Agriculture obliges countries not to maintain, revert to, or resort to measures of the type that are required to be converted into ordinary tariffs. The footnote to Article 4.2 identifies both quantitative import restrictions and minimum import price systems as types of measures that are subject to this rule.

Because the provisions of the Agreement on Agriculture regarding tariffication permit continuation of the terms and conditions of access with respect to the quota amounts that receive the lower tier tariff treatment, the United States can establish, consistent with its obligations, a tariff rate quota for cheese subject to the conditions of section 702. This means that the United States may continue to impose fees on the quota amounts of cheese where the price undercutting conditions of section 702 exist. In submitting its Uruguay Round schedule of concessions, the United States explicitly noted this condition in connection with its tariff rate quota offers for cheeses.

Since, in its Uruguay Round offer, the United States tariffied the restrictions for certain types of cheese and for chocolate crumb, sections 701 and 703 of the 1979 Act must be repealed. However, the protection that historically has been afforded to U.S. producers has been reflected in the calculation of tariff equivalents which will serve as the bases for the out-of-quota tariff rates applicable to imports both of the varieties of cheeses previously under quota, and of chocolate crumb. In addition, the maximum levels for imports for these quantities established under sections 701 and 703 served as the basis for negotiations of the quantities of these products that will be subject to the lower first-tier duty under the new tariff rate quota regime.

Section 702 of the 1979 Act -- the so-called "cheese price undercutting" statute -- provides that any imported quota cheese which is: (1) sold at duty-paid wholesale prices less than the wholesale price of comparable cheese produced in the United States, and (2) benefits from a foreign government subsidy, either can be subject to the imposition of a special fee or can be prohibited from entry into the United States. The implementing bill amends this section to maintain conformity with U.S. obligations under the Agreement on Agriculture. A new subsection (b)(4) to section 702 defines "cheese subject to an in-quota rate of duty." In subsections (c)(3)(B) and (e), the phrase "or quantitative limitation" is being deleted.

D. ENFORCEMENT OF UNITED STATES RIGHTS UNDER THE SUBSIDIES AGREEMENT

The Administration believes that, overall, the Subsidies Agreement constitutes a major improvement in subsidies discipline and provides U.S. firms with additional effective remedies which will enhance their ability to compete in world markets. In order to derive the maximum benefit from the Subsidies Agreement, the United States must use these instruments vigorously, intelligently, and efficiently. Part 4 of Subtitle B to Title II of the bill provides the means for enforcement of United States rights under the Subsidies Agreement, establishes a mechanism for reviewing the operation of provisions in the Agreement relating to green light subsidies, and makes changes to the Act to ensure prompt and effective implementation of successful dispute settlement proceedings brought under Article 8 and other provisions of the Subsidies Agreement.

1. Coordination of Subsidies Enforcement Efforts

The Administration believes the United States should coordinate its use of the CVD law with its new rights under the Subsidies Agreement. Historically, there has been little connection between domestic enforcement of the CVD law and multilateral enforcement of subsidies obligations. To a large extent, this is due to the fact that multilateral disciplines have been quite ineffective.

Section 281(a) of the bill makes Commerce responsible for coordinating the countervailing duty and multilateral subsidies enforcement efforts. Given the experience and expertise acquired by Commerce's Office of Import Administration in administering the CVD law, the Administration intends that it serve as a focal point for responding to private sector inquiries regarding the remedies and benefits available under the Subsidies Agreement.

Commerce's primary mission will be to assist the private sector by monitoring foreign subsidies and identifying instances of subsidization which can be remedied under the provisions of the Subsidies Agreement. To this end, Import Administration will make available to the public all non-confidential information concerning foreign subsidies which it obtains independently or through other agencies and sources, including information acquired through the administration of the CVD law. All such information will be maintained in the Subsidies Library, which Commerce maintains pursuant to section 777(a)(1) of the Act. The Administration does not expect that substantial additional resources will be required to meet these new enforcement responsibilities. Instead, the Administration believes that Commerce will be able to draw largely upon existing resources to fulfill the objectives of this part of the bill.

To ensure that the United States is able to take full advantage of its rights under the Subsidies Agreement, section 281(g) of the bill provides that Commerce may request the assistance of, and information from, other agencies of the Federal government. It is expected that agencies such as the Department of State (particularly through U.S. embassies abroad), as well as other parts of Commerce, such as the U.S. and Foreign Commercial Service, would have information relevant to subsidies enforcement and monitoring.

2. Red Light Subsidies

Under section 281(b) of the bill, if, during a CVD proceeding, Commerce determines that a WTO member government has bestowed a subsidy the use of which is prohibited by the Subsidies Agreement, Commerce will inform USTR of that fact, along with the information on which Commerce's determination was based. In addition, if, outside the context of a CVD proceeding, a domestic interested party believes that a WTO member government has provided a subsidy prohibited by the Subsidies Agreement, that party can submit information to Commerce for an evaluation of its claim. Based on this information and other reasonably available information, if Commerce determines that there is reason to believe that a prohibited subsidy has been provided in violation of the Subsidies Agreement, Commerce will notify USTR and provide supporting information. Upon receiving notification from Commerce and considering other information it may have or obtain, and after consulting with the interested party concerned, if USTR determines that there is reason to believe that a prohibited subsidy is being used in violation of the Subsidies Agreement, it will invoke the procedures of Article 4 of the Subsidies Agreement, unless the interested party objects. USTR would take this action under the authority of section 301 of the Trade Act of 1974.

Section 281(d) of the bill directs USTR to make its decision on initiation of an investigation "as expeditiously as possible." Because Commerce already will have analyzed the matter, it is expected that in virtually all cases the decision on whether to initiate should take less than the 45 days permitted under section 301. Where an investigation is initiated, the dispute settlement mechanism under the Subsidies Agreement and the WTO will be pursued, as provided in section 301. Where a foreign country does not implement a dispute settlement decision within the allotted time and the DSB authorizes retaliation, section 301 provides the needed domestic authority to carry out that retaliation. No new legislative authority is necessary.

The Administration does not intend to impose undue burdens or overly formalistic requirements on domestic industries seeking to obtain relief from subsidized competition through the multilateral process. For that reason, the bill states that interested parties may "request" that Commerce determine whether there is a reason to believe there is a violation of the Agreement. The Administration intends merely that domestic industries provide Commerce with sufficient information in order to ensure that multilateral procedures are not invoked in frivolous or meritless cases.

3. Yellow Light and Dark Amber Subsidies

Section 281(c) of the bill contains similar procedures in the case of subsidies that are actionable under the Subsidies Agreement, except that to the extent information is derived from CVD proceedings, Commerce would notify USTR only where it determined that there was reason to believe that a subsidy was of a type described in Article 6.1 of the Subsidies Agreement (i.e., a "dark amber" subsidy). In the case of subsidies described by Article 6.1(a), Commerce will recalculate those subsidies which it investigates in CVD proceedings using a cost-to-the-government methodology to determine whether there is reason to believe that particular merchandise benefits from subsidies in excess of five percent ad valorem.

Where an interested party submits information regarding the existence of adverse effects, Commerce may draw on the expertise of the Commission in evaluating the claim. As in the case of prohibited subsidies, USTR will evaluate the information and decide whether to initiate a WTO dispute settlement proceeding. Under this section USTR may request the assistance of Commerce or the Commission in preparing a case for presentation to a WTO dispute settlement panel or the Appellate Body. Such assistance may, at the option of USTR, include informal consultation with staff, written advice, provision of factual information, or support for USTR in the presentation of a case to such a panel or the Appellate Body.

4. Green Light Subsidies

The Administration intends to use the notification process aggressively to police the operation of the green light provisions. Under section 281(e)(1) of the bill, Commerce would be the focal point for ensuring that (1) foreign governments do not abuse the limited privilege accorded by the Subsidies Agreement to use green light subsidies, and (2) the United States takes full advantage of its rights under Article 8. USTR would provide Commerce with subsidy notifications and accompanying information, and Commerce would analyze this material. As discussed in section B.2.e. of this Statement, in determining whether a particular subsidy program satisfies the relevant criteria of Article 8, Commerce will not limit its analysis to a narrow review of the technical criteria of that article, but will analyze all aspects of the subsidy program and its implementation to ensure that the purposes and terms of Article 8 have been respected. Where appropriate, Commerce would recommend that USTR seek additional information regarding a notified program or an individual subsidy; and it would notify USTR if it had reason to believe that a violation of Article 8 existed.

If a U.S. industry believes that there is a violation of Article 8, it could submit information to Commerce for an evaluation of its claim. If Commerce determines that there is reason to believe that a violation exists, it will notify USTR and provide supporting information. USTR will analyze the information provided and such other information as it may have or obtain and consult with the domestic industry concerned. Whenever USTR determines that a subsidy program does not satisfy the conditions and criteria required for a non-actionable subsidy program under Article 8.2 of the Subsidies Agreement, the implementing bill, and this Statement, it will invoke the appropriate procedures under Article 8. Given the importance of policing the use of green light subsidies, objections by domestic industry would not necessarily preclude USTR from invoking the challenge procedures of Article 8 pursuant to this section.

With regard to U.S. programs believed to be consistent with the green light criteria, the decision as to which programs to notify will be made by USTR after consultation with: (1) the Departments of Commerce and Defense and other interested agencies; (2) interested private parties; and (3) the Senate Finance Committee, the House Ways and Means Committee, and other appropriate Congressional Committees.

5. Article 9 Procedures

In order to take advantage of Article 9 of the Agreement, which allows a member to challenge a green light subsidy that has serious adverse effects on a domestic industry, section 281(e)(2) of the bill provides that a U.S. industry may submit a request to Commerce alleging the existence of serious adverse effects. Although Commerce will be responsible for evaluating the request, the Administration expects, given the focus and nature of the remedy, that Commerce will draw on the expertise of the Commission in analyzing the economic impact of trade flows. The Commission's assistance normally will be in the form of informal staff consultations, but may, if Commerce requests, include formal advice on particular issues. Where the subsidy program at issue has been the subject of a prior CVD investigation or review, Commerce will take into account the written opinions of Commerce and the Commission and the public record underlying such determinations, even if the investigation was terminated prior to issuance of a final determination by one or both agencies. Commerce will complete its analysis as expeditiously as possible.

Within 90 days after receipt of the request, Commerce will determine whether there is reason to believe that serious adverse effects exist. Where Commerce's determination is affirmative, it will notify USTR and provide USTR with supporting information. USTR will analyze the information provided and such other information as it may have or obtain. As expeditiously as possible, but not later than 30 days after receipt of the notification by Commerce, USTR will determine whether there is reason to believe that the subsidy program is causing serious adverse effects. Section 281(e)(2)(C) directs USTR to make an affirmative determination unless it finds that the notification by Commerce is not supported by the facts.

If USTR's determination is affirmative, unless the domestic industry concerned objects, USTR will invoke the procedures of Article 9 of the Subsidies Agreement and request consultations under Article 9.2. Unless the consultations result in a mutually satisfactory solution within 60 days of the date of the request, USTR will refer the matter to the Subsidies Committee pursuant to Article 9.3 of the Agreement.

Where the Subsidies Committee makes a recommendation under Article 9.4 of the Subsidies Agreement with which a foreign country does not comply within six months, the bill directs USTR to make a determination under section 304(a)(1) as to what action to take under section 301(a)(1)(A) of the Trade Act of 1974 to carry out the permitted retaliation. Specific statutory direction is included because proceedings under Article 9 entail a review by the Subsidies Committee rather than WTO dispute settlement. As a result, there is no need to invoke section 301 authority at any point earlier than that at which retaliation has been authorized by the Subsidies Committee.

In order to remove the decision as to the existence of serious adverse effects from political considerations as much as possible, the Administration will propose to the WTO Subsidies Committee that in reviews under Article 9:



the WTO Secretariat should review any allegation of serious adverse effects and prepare a report; and

the Permanent Group of Experts established under the Subsidies Agreement should review the report of the Secretariat and provide an opinion on the allegation to the Committee.

Blockage by the subsidizing country of a finding of serious adverse effects by the Subsidies Committee, or any other frustration of the ability of the Subsidies Committee to come to a decision regarding serious adverse effects within 120 days, would seriously harm the credibility of the multilateral system. The language "by reason of the refusal of the Subsidies Agreement country granting or maintaining the subsidy program at issue to join in an affirmative consensus that such effects exist" in section 281(e)(2)(E)(i) of the bill is not intended to limit the discretion of USTR to find that such blockage is occurring in situations in which USTR believes that additional Subsidies Agreement countries are objecting at the request or instigation of the country granting or maintaining the subsidy program at issue. (The European Union will be considered as a single Subsidies Agreement country for purposes of this provision).

The Administration will not tolerate any unilateral blockage of an Article 9 finding or remedy recommendation, or frustration of the ability of the Subsidies Committee to come to a decision within 120 days. If such a situation were to occur -- where the United States and the vast majority of the Subsidies Committee agree that serious adverse effects have been established -- the Administration considers that the United States would be entitled to demand the removal of the serious adverse effects and to act if they were not removed. Within 30 days of a determination by USTR that such unilateral blockage had occurred, USTR would make a determination under section 304(a)(1) as to what action to take under section 301(a)(1)(A) of the Trade Act of 1974.

6. Publication and Consultation About Notified Green Light Subsidy Programs

Section 281(f) of the bill directs USTR promptly to submit to all appropriate congressional committees all reports and other information provided to the WTO Subsidies Committee pursuant to Articles 8.3 and 8.4 of the Agreement regarding notified subsidy programs. Commerce is directed to publish regularly in the Federal Register a summary notice of all such reports and information. USTR and Commerce will consult promptly with congressional committees and interested private sector representatives regarding such reports and other information.

On February 1 of each year beginning in 1996, Commerce and USTR jointly will issue a report detailing the subsidies practices of major trading partners of the U.S., including prohibited subsidies, subsidies believed to cause serious prejudice, and green light subsidies. The report also will detail all monitoring and enforcement activities of Commerce and USTR relating to subsidies during the preceding year.

7. Miscellaneous Amendments to Title VII

Section 281(h) of the bill contains definitions. Section 281(i) authorizes Commerce to share proprietary information with USTR that USTR considers relevant to carry out its responsibilities under this part. USTR must protect such information from public disclosure.

Section 283(a) of the bill amends section 703(b) of the Act to require Commerce to make a preliminary CVD determination within 60 days, rather than the normal 65 days, if the only subsidy under consideration in a CVD investigation is a subsidy or subsidy program with respect to which Commerce, prior to initiation, received notice of a violation of Article 8. Under Article 17.3 of the Subsidies Agreement, provisional measures (e.g., suspension of liquidation and posting of bonds) may not be imposed earlier than 60 days after the initiation of an investigation.

Section 283(b) amends section 775 in order to clarify that Commerce will treat a notice of violation of Article 8 in the same manner as it treats a countervailable subsidy practice it discovers during a CVD proceeding. Commerce will include the subsidy or subsidy program found to have been in violation of Article 8 in the investigation or review then in progress if it appears that the subsidy is benefitting the merchandise under investigation or review.

Section 283(c) amends section 751 by adding a new subsection (g). Subsection (g)(1) provides for an expedited review of a CVD order or suspended investigation where Commerce is notified by USTR of a violation of Article 8, but there is no review in progress. If Commerce has reason to believe that merchandise subject to the existing CVD order or suspension agreement benefits from a subsidy or subsidy program found to have been in violation of Article 8, it will commence an expedited review. The purpose of the expedited review would be to adjust the cash deposit rate or modify the terms of the suspension agreement to account for the subsidy which, as a result of the finding of a violation, has become actionable.

8. Modification or Revocation of a Duty Order

Section 751(g)(2) deals with situations in which the United States has taken countermeasures pursuant to the provisions of the Subsidies Agreement. Under footnote 35 of the Agreement, if a member believes that subsidized imports are causing adverse effects in its domestic market, it may pursue relief through both a CVD investigation and a WTO dispute settlement proceeding. However, the Subsidies Agreement provides that only one form of relief may be imposed. Section 751(g) gives Commerce the ability to modify or revoke a CVD order if countermeasures are taken under WTO auspices in order to avoid violating this prohibition against dual remedies. Section 751(g) also applies in cases where a foreign government has withdrawn a countervailable subsidy giving rise, in whole or in part, to a CVD order.

Section 751(g)(3) requires Commerce to conduct an expedited review of a CVD order in these situations to determine whether the rate established for the deposit of estimated countervailing duties should be modified or the order should be revoked. The fact that a foreign government has withdrawn a subsidy does not necessarily mean that the cash deposit rate should be modified, particularly in the case of subsidies whose benefits extend over time. Instead, Commerce would have to analyze the impact of the withdrawal of a subsidy on a case-by-case basis. In addition, the establishment of this type of expedited review is not intended to interfere with Commerce's current practice of accounting for program-wide changes in foreign subsidy programs.

9. Review of the Subsidies Agreement

The mechanisms described above are designed to take advantage of the rights possessed by the United States under the Subsidies Agreement. To achieve the maximum amount of subsidies discipline possible, the United States must build on the gains achieved in the Uruguay Round.

a. Objectives of the United States

Section 282 of the bill provides for an ongoing review of the Subsidies Agreement and establishes general and specific objectives with respect to that review. The general objectives are to ensure that: (1) the provisions of the Subsidies Agreement regarding red light, dark amber and yellow light subsidies are effective; and (2) the provisions of the Subsidies Agreement regarding green light subsidies do not undermine the benefits derived from the other portions of the Subsidies Agreement.

Specifically, the United States should seek to create a mechanism that will provide for an ongoing review, within the framework of the Subsidies Committee, of the green light subsidies. Footnote 25 of the Subsidies Agreement already contemplates that within 18 months of the date of entry into force of the WTO, the Subsidies Committee will review the operation of the provisions of the Subsidies Agreement dealing with the green light category of research subsidies. The bill requires the United States to seek to expand this commitment to include a review of the operation of all of the provisions of Article 8, as well as of Article 9.

b. Extension of Articles 6.1(a), 8, and 9

In order to provide the United States with leverage to accomplish the objectives described above, the United States must be able to take advantage of the provisional nature of certain key portions of the Subsidies Agreement. As noted above, Article 6.1(a) (subsidies deemed to cause serious prejudice) and Articles 8 and 9 (green light subsidies) will cease to apply within five years of the date of entry into force of the WTO Agreement, unless there is agreement to extend their application, either as presently drafted or in a modified form, for a further period. In order to ensure that our trading partners take the objectives described above seriously, the United States must be prepared to refuse to agree to an extension of Articles 6.1(a), 8 and 9 if, contrary to current expectations, these provisions operate to weaken, rather than strengthen, subsidies disciplines.

Accordingly, section 282(c) provides that the provisions in question expire 66 months after the entry into force of the WTO unless extended by Congress. Before the decision of the Subsidies Committee, USTR is directed to consult with the Senate Finance and House Ways and Means Committees. (The Administration will not limit its consultations to those committees, but will ensure that it consults with all interested committees, as well as the private sector). Should the Subsidies Committee decide to extend Articles 6.1, 8 and 9 of the Agreement, either as presently drafted or in modified form, the Administration, after further consultations with relevant committees and the private sector, will submit legislation to implement the agreed extension. A bill to provide for such an extension would be eligible for consideration under "fast track" procedures. If Articles 6.1, 8 and 9 are not extended, section 282(c)(5) of the bill directs USTR to submit a report to Congress setting forth the provisions of this bill which should be repealed or modified as a result of the sunset of these Articles.

In order to ensure that an informed judgment can be made regarding any extension of Articles 6.1, 8 and 9, section 282(d) of the bill requires Commerce to undertake an ongoing review of the operation of the Subsidies Agreement. In particular, the review would address: (1) the effectiveness of the new remedies provided by the Subsidies Agreement regarding prohibited and actionable subsidies; and (2) the extent to which the provisions of the Subsidies Agreement regarding green light subsidies may have offset the gains conferred by other portions of the Subsidies Agreement. No later than six months prior to the date on which the provisional articles are set to expire under Article 31 of the Subsidies Agreement, Commerce must provide a report to Congress on the results of its review.