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
creating a special presumption of serious prejudice for certain
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
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;
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;
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
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
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
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"
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
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
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
the eligibility criteria are clearly spelled out in
law or regulation so as to be capable of verification;
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
(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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.