elsa/wto moot court 2015-16 · elsa/wto moot court 2015-16 eriador – measures affecting the...

ELSA/WTOMOOTCOURT2015-16

Eriador–Measuresaffectingtheelectricitysector

BENCHMEMORANDUM

TableofContents

1.THECASE 1

2.TIMELINE 7

3.RELATIVEWEIGHTOFCLAIMS 8

4.THECLAIMS 9

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

5.SELECTEDCASELAWANDREADINGS 35

6.THESCMAGREEMENT 37

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

Recognisingthatexistingglobalenergymarketsaredistorted,duetothefailureofsuchmarketstointernalisethefullcostofcarbon,

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

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

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

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

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

Company Nationality MarketShareFutureEnergy Eriador 2010:2%

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

BorduriaEnergyCorporation

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

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

2014:17%2015:12%

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

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

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

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

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

b. thattheloanbyEribankandthe‘InnovationfortheFuture’grant,

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

c. thatthelongtermpurchaseagreementbetweenFutureEnergy

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

2. Timeline

EribankloangrantedtoCleanTech.CleanTechestablishesfirstproductionfacilityforFusilliscopes.

2009 Early2009,CleanTechsellsFusilliscopebusinesstoFutureEnergy.FutureEnergybeginsproductionofFusilliscopesforexport,andproductionofelectricityforEriadorianmarketusingcoldfusion.

2010 Early2010,InnovationfortheFuturegrantawardedbytheEriadoriangovernmenttoFutureEnergy

2010-11 FutureEnergydesignsandbuildsasecondproductionfacilityforFusilliscopes.

2012 FutureEnergyFITcontractgranted.Late2012,MoUsignedbetweenElektricaandSolarTech.

2013 FutureEnergyisawardedcontractwithElektrica.

2011-2015 OverthisperiodFutureEnergyalsointegratesFusilliscopesintoseveralmoreofitselectricitygenerationfacilitiessupplyingtheEriadorianmarket.

2015 WTOdisputeinitiated.

3. Relativeweightofclaims

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

CONTENT

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

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

BenefitEribankloan(extinctionofbenefitissue) 3IFFgrant 0.5

SpecificityEribankloan 0.5IFFgrant 2

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

4. Theclaims

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

4.1. Claim(a):TheInnovationfortheFutureGrantasan

exportsubsidy4.1.1. Borduria’slegalclaim

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

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

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

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

4.1.2. Financialcontributionandbenefit

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

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

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

1NotethatanysubsidyfallingwithinArticle3.1(a)isdeemedtobespecificbytheoperationofArticle2.3.

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

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

• thatthe‘InnovationfortheFuture’grantisdefactocontingentuponexportperformancebecausehistoricalandprojectedsalesfiguresareavailabletothegovernmentwhenmakinggrantdecisions,implyingthat

projectsgeneratingthemostexportswillbethoseselectedforfunding,includingthegrantinquestion;2

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

Eriadormayargue:

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

• thatinthecaseofthespecificgranttoFutureEnergy,thereweremanyreasonsotherthanexportperformanceforgivingthegrant,includingthecontributiontheprojectmadetothe‘sustainablegrowth’oftheEriadorianeconomy;

• thatthegrantisnotcontingentinfactuponexportperformancebecausethesubsidydidnot‘skewanticipatedsalestowardsexports’,andFutureEnergy’sratioofexporttodomesticsalesisessentiallythesamebeforeandafterthesubsidy.

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

4.2. Claim(b):TheInnovationfortheFutureGrantandtheEribankloancauseseriousprejudice

4.2.1. Borduria’slegalclaim

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

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

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

• eachofthemeasuresis‘specific’withinthemeaningofSCMArticle2;and

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

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

or‘incomeorpricesupport’

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

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

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

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

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

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

• theloantoCleanTechwasonnon-commercialterms;• thereisclearevidencethattheEriadoriangovernmentfavouredthe

grantingoftheloan,andcommunicatedthattoEribank;• theEriadoriangovernmentisinapositiontoexerciseinfluenceoverthe

decision-makingofEribank,bothdirectlythroughthemandatedconsultationprocessandthroughitsinfluenceovermanagementasmajorityshareholder,andindirectlybyvirtueofitspowerofappointmentoftheboard;

• EribankisrequiredbyitsconstitutiontomakeitsbusinessdecisionshavingregardtothestrategicprioritiesoftheEridorianstate,whichmakesEribankespeciallysusceptibletoinfluencefromthestate;

• EribankhasahistoryofcooperatingwiththeEriadoriangovernmentonsuchmatters;and

• asaresultitisappropriatetoinfereitherentrustmentordirection,orboth,onthebasisofthetotalityofthefacts.

Eriadormayarguethat:

• thenatureoftheinfluenceoftheEriadoriangovernmentoverEribank’slendingdecisionsisconstitutionallylimitedtothatofadviceandconsultation,

• directorsareexpresslyrequiredtoactintheirindependentcapacity,andthedecisioninrelationtotheEribankloanwasexpresslystatedtobeforEribankonly;and

• thereisnopositiveevidenceofanyactionbeyondtheseparameters,whetherbythreatorinducement,whichwouldelevateittothelevelofentrustmentordirection.

4.2.3. Article1.1(b):‘benefit’

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

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

• thepresumptionoftheextinctionofthebenefitofasubsidyafterasaleatfairmarketvalueandatarm’slengthdoesnotapplytoprivate-to-privatesales;

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

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

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

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

Eriadormayargue:

• thatthepresumptionwhichtheAppellateBodyestablishedinitsprivatizationcasesappliesequallytoprivate-to-privatesales;

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

4.2.4. Article1.2andArticle2:‘specific’

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

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

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

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

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

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

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

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

4Theprogrammeinthatcasereferredto‘highrisk,highpay-off,emergingandenabling

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

• thespecificityoftheIFFgrantshouldbedeterminedattheleveloftheindividualgrant,asinJapan–DRAMS(Korea);

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

• therearenofactsavailableintheCasetoofferaconvincingrebuttalofthatprimafaciecase.

Eriadormayarguethat:

• thespecificityofthegrantshouldbedeterminedattheleveloftheprogramme,asthefactsofthiscasearedistinguishablefromJapan–DRAMS(Korea);

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

• whenaccountistakenofthelimiteddurationoftheprojectsofar,adegreeofdisproportionistobeexpected,whichislikelytoevenoutovertime;and

• takenasawhole,thefactsareinsufficienttoshowaprimafaciecaseofspecificity.

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

lostsalesinthesamemarket’technologies’.

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

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

(a) ‘theeffectofthesubsidy…’

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

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

• thatwithoutthesubsidiesFusilliscopeswouldnothaveenteredintoproductionatallbythetimeoftheElektricasale,oratleastwouldhavebeenanimmatureandtechnologicallylessadvancedproduct,andthatthereforeFutureEnergycouldnotpossiblyhavewontheElektricacontractwithoutthesubsidies;and

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

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

Eriadormayargue:

• thatwithouttheEribankloan,CleanTech’sabilitytoconstructthefirstproductionwouldnothavebeenprecludedbutmerelydelayed,andthatitisverylikelythatproductionwouldhavestartedinanycasebythetimeoftheElektricadeal;

• thatFutureEnergywouldhaveofferedthe50%discounttoElektricaevenwithoutthesubsidies,giventhestrategicimportanceoftheCarpathianmarketandofElektricaasabusinesspartner;

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

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

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

SomeEriadorianteamsmayalsotrytomountanargumentthattheselostsales

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

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

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

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

4.3.1. Borduria’slegalclaim

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

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

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

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

likeproduct’,withinthemeaningofSCMArticle6.3(a).

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

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

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

4.3.3. Article1.1(b):‘benefit’

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

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

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

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

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

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

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

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

• thatevenifitispermissibletoconstructabenchmarkbycorrectingforthisdistortion,theFITformuladoesnotcorrectlydoso,andinfactsystematicallyover-estimatestheelectricitypricewhichwouldexistintheEriadorianmarketifitwerenotdistorted,andprovidesmorethanadequateremuneration;

• thatitisnotappropriatetoadoptamarketbenchmarkwhichcorrectsforonlyonedistortion,andnotthemanyotherswhicharguablybesetenergymarkets;

• evenifthePanelfindsthatexistingmarketpriceswouldnotsustainthegovernment-mandatedsupplymix,andthatthepriceforcoldfusionelectricitywouldthereforehavetobehigherthanmarketpricestosustainthissupplymix,neverthelesstheFITformulaisclearlytoohighasitresultsinaproportionofrenewableenergywellinexcessofthedefinedminimum.

Eriadormayargue:

• thatactuallyexistingmarketpricesinEriador(otherthanFITprices)arenotappropriatebenchmarksbecausetheexistingmarketisdistortedsinceitdoesnotaccountforthenegativeexternalityofcarbonemissions,andthatthisdistortionhasbeenrecognizedassignificantbyallpartiestotheFCPRE;

• that,furthermore,actuallyexistingmarketpricesshouldberejectedbecausetheycannotsustainthesupplymixdefinedbytheEriadoriangovernment,whichmustbetakenasagivenforthepurposesofbenefitanalysis;

• thatthelackofavailablereliableinformationprecludesconstructingalternativebenchmarksbasedon,eg,foreignmarketsorproductioncosts+reasonableratesofreturn;

• thatthebestavailablebenchmarkisthereforeaproxybasedonexistingmarketpricesinEriador,correctedtoremovethedistortion;

• thatwhiletheFITformulamaynotperfectlyemulatethepricewhichwouldexistinanundistortedmarket,noworkableformulacandoso,andtheFITformulaisareasonableandunbiasedapproximation.

4.3.4. Article1.2andArticle2:‘specific’

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

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

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

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

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

• thattheFITschemeprovidedastrongincentiveforFutureEnergytoincreaseproduction,andthatitdidso,withthedirectresultthatitincreaseditsmarketshare;

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

• thatevenifthegovernmentmandatedsupplymixwasalsoacontributingfactortothislossofmarketshare,theFITschemeisstillasubstantialcause,giventhattheachievedmarketshareofrenewableenergyissubstantiallyhigherthanthemandatedminimum;

• that,evenifthereisinsufficientevidenceofdisplacementorimpedance,neverthelessathreatofdisplacementorimpedancestillexists.

Eriadormayargue:

• thatproductionmethodscanberelevanttothedeterminationofthelikenessofproducts,wheretheyhaveaneffectonthecompetitiverelationshipbetweenthemandtheindiciaoflikeness,andthatinthiscasetherelevantproductiontechnologiesareradicallydifferentintheirnatureandeffects;

• thatcoldfusionenergydoesnotcompeteinthesamemarketasnon-renewableenergyforthereasonssetoutin4.3.3above;and

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

4.4. GATTArticleXX

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

• theobjectandpurposeoftheSCMAgreementistoelaborate,interpretandimprovetherelevantGATTdisciplinesrelatingtotheuseofsubsidies(ieGATTArticleXVI),andtheseGATTdisciplinesarethemselvessubjecttoGATTArticleXX;

• thereareanumberoftextualhooksintheSCMAgreementwhichrefertotheGATT(egArt5,Fn12,13…)

• thatthereisnoexplicitindicationinthetext,ornegotiatinghistory,oftheSCMAgreementwhichexcludestheoperationofGATTArticleXX;and

• thattherearestrongreasonsofpolicyandprinciple,includingthefundamentalrightofstatestoregulate,toapplyGATTArticleXXtoclaimsundertheSCMAgreement.

Borduriamayargue:

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

• theuseoftheterm‘thisagreement’inGATTArticleXXpresumptivelyprecludesitsapplicationtootheragreementsintheabsenceofclearreasonstothecontrary;

• that,whilePartVoftheSCMAgreementimplementsGATTArticleVI,PartsIIandIIIcontainobligationswhichareindependentof,andadditionalto,GATTobligationsrelatingtosubsidies;

• that,unlikeotherspecializedagreements,theSCMAgreementcontainsnoexplicitreferencetoArticleXX,andthattheremustbeareasonforthisdecisionnottoincludeit;and

• thattheSCMAgreementcontainscertainlimitedcarveoutsfornon-

actionablesubsidiesunderPartIV,whichimplicitlyexcludestheoperationofgeneralexceptionsunderArticleXX.

(b) ApplicationofGATTArticleXXtotheFITclaimGATTArticleXXstates,inrelevantpart:

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

EvenifEriadorsucceedsinmakingitscasethatArticleXXisapplicable,itfacesconsiderabledifficultiesinshowingthatitpassesallthehurdlescontainedinthatprovision.Inbrief:

• underArticleXX(g),aquestionmayariseastowhethertheFITschemehasbeen‘madeeffectiveinconjunctionwithrestrictionsondomesticproductionorconsumption’;

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

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

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

4.5. TheFrameworkConventiononthePromotionof

RenewableEnergy

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

4.5.1. Asevidenceoffact First,EriadormayseektorelyonthePreambleoftheFCPREassupportforits

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

Thisisunlikelytobeatallcontroversial.Non-WTOlawhasbeenusedtosupport

findingsoffactinthisfashionbeforeinWTOproceedings.Thefactthatelectricitymarketsaredistortedasaresultofcarbonexternalitiesiswellaccepted.AndinanycasetheevidentiaryvalueoftheFCPREhereisonlysecondaryandsupportive.

4.5.2. VCLTArticle31(2):asinterpretivecontext

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

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

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

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

ThefirstquestioniswhethertheFCPREis‘applicableintherelationsbetween

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

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

Inafootnotetothispassage,theABalsoobservedthat:

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

relevantpractice,butalsofromtheacceptanceofotherpartiestothetreatythroughtheiraffirmativereactions,ordependingontheattendantcircumstances,theirsilence.(footnote1916)

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

4.5.4. VCLTArticle41 Article41oftheViennaConventionontheLawofTreatiesaddressesthe

situationinwhichtwoormorepartiestoamultilateralagreementmayconcludeanagreementtomodifythetermsofthemultilateralagreementasbetweenthemselvesonly.Itstates:

Article41AgreementstoModifyMultilateralTreatiesbetweenCertainof

thePartiesOnly1. Twoormoreofthepartiestoamultilateraltreatymayconclude

anagreementtomodifythetreatyasbetweenthemselvesaloneif:

(a) Thepossibilityofsuchamodificationisprovidedforbythetreaty;or

(b) Themodificationinquestionisnotprohibitedbythetreatyand:(i) Doesnotaffecttheenjoymentbytheotherpartiesof

theirrightsunderthetreatyortheperformanceoftheirobligations;

(ii) Doesnotrelatetoaprovision,derogationfromwhichisincompatiblewiththeeffectiveexecutionoftheobjectandpurposeofthetreatyasawhole.

2. Unlessinacasefallingunderparagraph1(a)thetreatyotherwiseprovides,thepartiesinquestionshallnotifytheotherpartiesoftheirintentiontoconcludetheagreementandofthemodificationtothetreatyforwhichitprovides.

GivenrecentattemptstoargueArticle41beforetheAppellateBodyinPeru–

AgriculturalProducts,itmaybethatsomeEriadorianteamsseektorelyonArticle41toarguethatEriadorandBorduriahaveeffectivelyenteredintoanagreementtomodifytheWTOAgreementsintersebyvirtueoftheiragreementtoArticle11oftheFCPRE.

6ThisdecisionisalsonoteworthyforthewayinwhichitusedtheILCArticlesonStateResponsibilitywithoutanexplicitfindingthattheyrepresentcustomaryinternationallaworgeneralprinciplesoflaw.

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

4.5.5. VCLTArticle30:lexposterior

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

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

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

5. SelectedcaselawAppellateBodyReport,UnitedStates–DefinitiveAnti-Dumpingand

CountervailingDutiesonCertainProductsfromChina,WT/DS379/AB/R,adopted25March2011

PanelReport,UnitedStates–DefinitiveAnti-DumpingandCountervailingDutieson

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

AppellateBodyReport,UnitedStates–CountervailingMeasuresonCertainHot-

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

PanelReport,UnitedStates–CountervailingMeasuresonCertainHot-Rolled

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

AppellateBodyReports,Canada–CertainMeasuresAffectingtheRenewable

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

PanelReports,Canada–CertainMeasuresAffectingtheRenewableEnergy

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

AppellateBodyReport,EuropeanCommunitiesandCertainMemberStates

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

PanelReport,EuropeanCommunitiesandCertainMemberStates–Measures

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

AppellateBodyReport,UnitedStates–MeasuresAffectingTradeinLargeCivil

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

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

AppellateBodyReport,UnitedStates–ImpositionofCountervailingDutieson

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

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

AppellateBodyReport,Peru–AdditionalDutyonImportsofCertainAgricultural

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

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

AppellateBodyReport,UnitedStates–CountervailingMeasuresConcerning

CertainProductsfromtheEuropeanCommunities,WT/DS212/AB/R,adopted8January2003

6. Annex:TheSCMAgreement

AGREEMENTONSUBSIDIESANDCOUNTERVAILINGMEASURESMembersherebyagreeasfollows:

PARTI:GENERALPROVISIONS

Article1

DefinitionofaSubsidy1.1 ForthepurposeofthisAgreement,asubsidyshallbedeemedtoexistif:

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

(i) agovernmentpracticeinvolvesadirecttransferoffunds

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

(ii) governmentrevenuethatisotherwisedueisforegoneor

notcollected(e.g.fiscalincentivessuchastaxcredits)7;

(iii) agovernmentprovidesgoodsorservicesotherthangeneralinfrastructure,orpurchasesgoods;

(iv) agovernmentmakespaymentstoafundingmechanism,or

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

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

(a)(2) thereisanyformofincomeorpricesupportinthesenseofArticleXVIofGATT1994;

(b) abenefitistherebyconferred.

1.2 Asubsidyasdefinedinparagraph1shallbesubjecttotheprovisionsofPartIIorshallbesubjecttotheprovisionsofPartIIIorVonlyifsuchasubsidyisspecificinaccordancewiththeprovisionsofArticle2.

Article2

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

(a) Wherethegrantingauthority,orthelegislationpursuanttowhichthegrantingauthorityoperates,explicitlylimitsaccesstoasubsidytocertainenterprises,suchsubsidyshallbespecific.

(b) Wherethegrantingauthority,orthelegislationpursuanttowhich

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

(c) If,notwithstandinganyappearanceofnon-specificityresulting

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

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

subsidy.9Inapplyingthissubparagraph,accountshallbetakenoftheextentofdiversificationofeconomicactivitieswithinthejurisdictionofthegrantingauthority,aswellasofthelengthoftimeduringwhichthesubsidyprogrammehasbeeninoperation.

2.2 Asubsidywhichislimitedtocertainenterpriseslocatedwithinadesignatedgeographicalregionwithinthejurisdictionofthegrantingauthorityshallbespecific.ItisunderstoodthatthesettingorchangeofgenerallyapplicabletaxratesbyalllevelsofgovernmententitledtodososhallnotbedeemedtobeaspecificsubsidyforthepurposesofthisAgreement.2.3 AnysubsidyfallingundertheprovisionsofArticle3shallbedeemedtobespecific.2.4 AnydeterminationofspecificityundertheprovisionsofthisArticleshallbeclearlysubstantiatedonthebasisofpositiveevidence.

PARTII:PROHIBITEDSUBSIDIES

Article3

Prohibition3.1 ExceptasprovidedintheAgreementonAgriculture,thefollowingsubsidies,withinthemeaningofArticle1,shallbeprohibited:

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

(b) subsidiescontingent,whethersolelyorasoneofseveralother

conditions,upontheuseofdomesticoverimportedgoods.3.2 AMembershallneithergrantnormaintainsubsidiesreferredtoinparagraph1.

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

Article4

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

12Anytime-periodsmentionedinthisArticlemaybeextendedbymutualagreement.13AsestablishedinArticle24.

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

PARTIII:ACTIONABLESUBSIDIES

Article5

AdverseEffects

14IfameetingoftheDSBisnotscheduledduringthisperiod,suchameetingshallbeheldforthispurpose.15Thisexpressionisnotmeanttoallowcountermeasuresthataredisproportionateinlightofthefactthatthesubsidiesdealtwithundertheseprovisionsareprohibited. 16Thisexpressionisnotmeanttoallowcountermeasuresthataredisproportionateinlightofthefactthatthesubsidiesdealtwithundertheseprovisionsareprohibited.

NoMembershouldcause,throughtheuseofanysubsidyreferredtoinparagraphs1and2ofArticle1,adverseeffectstotheinterestsofotherMembers,i.e.:

(a) injurytothedomesticindustryofanotherMember17;

(b) nullificationorimpairmentofbenefitsaccruingdirectlyorindirectlytootherMembersunderGATT1994inparticularthebenefitsofconcessionsboundunderArticleIIofGATT199418;

(c) seriousprejudicetotheinterestsofanotherMember.19

ThisArticledoesnotapplytosubsidiesmaintainedonagriculturalproductsasprovidedinArticle13oftheAgreementonAgriculture.

Article6

SeriousPrejudice6.1 Seriousprejudiceinthesenseofparagraph(c)ofArticle5shallbedeemedtoexistinthecaseof:

(a) thetotaladvaloremsubsidization20ofaproductexceeding5percent21;

(b) subsidiestocoveroperatinglossessustainedbyanindustry;

(c) subsidiestocoveroperatinglossessustainedbyanenterprise,

otherthanone-timemeasureswhicharenon-recurrentandcannotberepeatedforthatenterpriseandwhicharegivenmerelytoprovidetimeforthedevelopmentoflong-termsolutionsandtoavoidacutesocialproblems;

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

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

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

(a) theeffectofthesubsidyistodisplaceorimpedetheimportsofalikeproductofanotherMemberintothemarketofthesubsidizingMember;

(b) theeffectofthesubsidyistodisplaceorimpedetheexportsofa

likeproductofanotherMemberfromathirdcountrymarket;

(c) theeffectofthesubsidyisasignificantpriceundercuttingbythesubsidizedproductascomparedwiththepriceofalikeproductofanotherMemberinthesamemarketorsignificantpricesuppression,pricedepressionorlostsalesinthesamemarket;

(d) theeffectofthesubsidyisanincreaseintheworldmarketshareof

thesubsidizingMemberinaparticularsubsidizedprimaryproductorcommodity23ascomparedtotheaverageshareithadduringthepreviousperiodofthreeyearsandthisincreasefollowsaconsistenttrendoveraperiodwhensubsidieshavebeengranted.

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

22Membersrecognizethatwhereroyalty-basedfinancingforacivilaircraftprogrammeisnotbeingfullyrepaidduetothelevelofactualsalesfallingbelowthelevelofforecastsales,thisdoesnotinitselfconstituteseriousprejudiceforthepurposesofthissubparagraph.23Unlessothermultilaterallyagreedspecificrulesapplytothetradeintheproductorcommodityinquestion.

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

(a) prohibitionorrestrictiononexportsofthelikeproductfromthecomplainingMemberoronimportsfromthecomplainingMemberintothethirdcountrymarketconcerned;

(b) decisionbyanimportinggovernmentoperatingamonopolyof

tradeorstatetradingintheproductconcernedtoshift,fornon-commercialreasons,importsfromthecomplainingMembertoanothercountryorcountries;

(c) naturaldisasters,strikes,transportdisruptionsorotherforce

majeuresubstantiallyaffectingproduction,qualities,quantitiesorpricesoftheproductavailableforexportfromthecomplainingMember;

(d) existenceofarrangementslimitingexportsfromthecomplaining

Member;

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

24Thefactthatcertaincircumstancesarereferredtointhisparagraphdoesnot,initself,conferuponthemanylegalstatusintermsofeitherGATT1994orthisAgreement.Thesecircumstancesmustnotbeisolated,sporadicorotherwiseinsignificant.

(f) failuretoconformtostandardsandotherregulatoryrequirementsintheimportingcountry.

6.8 Intheabsenceofcircumstancesreferredtoinparagraph7,theexistenceofseriousprejudiceshouldbedeterminedonthebasisoftheinformationsubmittedtoorobtainedbythepanel,includinginformationsubmittedinaccordancewiththeprovisionsofAnnexV.6.9 ThisArticledoesnotapplytosubsidiesmaintainedonagriculturalproductsasprovidedinArticle13oftheAgreementonAgriculture.

Article7

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

25Intheeventthattherequestrelatestoasubsidydeemedtoresultinseriousprejudiceintermsofparagraph1ofArticle6,theavailableevidenceofseriousprejudicemaybelimitedtotheavailableevidenceastowhethertheconditionsofparagraph1ofArticle6havebeenmetornot.26Anytime-periodsmentionedinthisArticlemaybeextendedbymutualagreement.

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

PARTIV:NON-ACTIONABLESUBSIDIES

Article8

IdentificationofNon-ActionableSubsidies

27IfameetingoftheDSBisnotscheduledduringthisperiod,suchameetingshallbeheldforthispurpose.28IfameetingoftheDSBisnotscheduledduringthisperiod,suchameetingshallbeheldforthispurpose.

8.1 Thefollowingsubsidiesshallbeconsideredasnon-actionable29:

(a) subsidieswhicharenotspecificwithinthemeaningofArticle2;

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

8.2 NotwithstandingtheprovisionsofPartsIIIandV,thefollowingsubsidiesshallbenon-actionable:

(a) assistanceforresearchactivitiesconductedbyfirmsorbyhighereducationorresearchestablishmentsonacontractbasiswithfirmsif:30,31,32

theassistancecovers33notmorethan75percentofthecostsofindustrialresearch34or50percentofthecostsofpre-competitivedevelopmentactivity35,36;andprovidedthatsuchassistanceislimitedexclusivelyto:

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

(i) costsofpersonnel(researchers,techniciansandother

supportingstaffemployedexclusivelyintheresearchactivity);

(ii) costsofinstruments,equipment,landandbuildingsused

exclusivelyandpermanently(exceptwhendisposedofonacommercialbasis)fortheresearchactivity;

(iii) costsofconsultancyandequivalentservicesused

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

(iv) additionaloverheadcostsincurreddirectlyasaresultof

theresearchactivity;

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

(b) assistancetodisadvantagedregionswithintheterritoryofa

Membergivenpursuanttoageneralframeworkofregionaldevelopment37andnon-specific(withinthemeaningofArticle2)withineligibleregionsprovidedthat:

(i) eachdisadvantagedregionmustbeaclearlydesignated

contiguousgeographicalareawithadefinableeconomicandadministrativeidentity;

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

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

(iii) thecriteriashallincludeameasurementofeconomic

developmentwhichshallbebasedonatleastoneofthefollowingfactors:

- oneofeitherincomepercapitaorhouseholdincome

percapita,orGDPpercapita,whichmustnotbeabove85percentoftheaveragefortheterritoryconcerned;

- unemploymentrate,whichmustbeatleast110per

centoftheaveragefortheterritoryconcerned;

asmeasuredoverathree-yearperiod;suchmeasurement,however,maybeacompositeoneandmayincludeotherfactors.

(c) assistancetopromoteadaptationofexistingfacilities39tonew

environmentalrequirementsimposedbylawand/orregulationswhichresultingreaterconstraintsandfinancialburdenonfirms,providedthattheassistance:

(i) isaone-timenon-recurringmeasure;and

(ii) islimitedto20percentofthecostofadaptation;and

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

(iii) doesnotcoverthecostofreplacingandoperatingtheassistedinvestment,whichmustbefullybornebyfirms;and

(iv) isdirectlylinkedtoandproportionatetoafirm'splanned

reductionofnuisancesandpollution,anddoesnotcoveranymanufacturingcostsavingswhichmaybeachieved;and

(v) isavailabletoallfirmswhichcanadoptthenewequipment

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

40Itisrecognizedthatnothinginthisnotificationprovisionrequirestheprovisionofconfidentialinformation,includingconfidentialbusinessinformation.

otherwiseprovidedinthisparagraph,theDSUshallapplytoarbitrationsconductedunderthisparagraph.

Article9

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

PARTV:COUNTERVAILINGMEASURES

Article10

ApplicationofArticleVIofGATT199441

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

Membersshalltakeallnecessarystepstoensurethattheimpositionofacountervailingduty42onanyproductoftheterritoryofanyMemberimportedintotheterritoryofanotherMemberisinaccordancewiththeprovisionsofArticleVIofGATT1994andthetermsofthisAgreement.Countervailingdutiesmayonlybeimposedpursuanttoinvestigationsinitiated43andconductedinaccordancewiththeprovisionsofthisAgreementandtheAgreementonAgriculture.

Article11

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

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

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

adescriptionofthevolumeandvalueofdomesticproductionofthelikeproductaccountedforbysuchproducers;

(ii) acompletedescriptionoftheallegedlysubsidizedproduct,the

namesofthecountryorcountriesoforiginorexportinquestion,theidentityofeachknownexporterorforeignproducerandalistofknownpersonsimportingtheproductinquestion;

(iii) evidencewithregardtotheexistence,amountandnatureofthe

subsidyinquestion;

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

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

44Inthecaseoffragmentedindustriesinvolvinganexceptionallylargenumberofproducers,authoritiesmaydeterminesupportandoppositionbyusingstatisticallyvalidsamplingtechniques.45MembersareawarethatintheterritoryofcertainMembersemployeesofdomesticproducersofthelikeproductorrepresentativesofthoseemployeesmaymakeorsupportanapplicationforaninvestigationunderparagraph1.

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

Article12

Evidence12.1 InterestedMembersandallinterestedpartiesinacountervailingdutyinvestigationshallbegivennoticeoftheinformationwhichtheauthoritiesrequireandampleopportunitytopresentinwritingallevidencewhichtheyconsiderrelevantinrespectoftheinvestigationinquestion. 12.1.1 Exporters,foreignproducersorinterestedMembers

receivingquestionnairesusedinacountervailingdutyinvestigationshallbegivenatleast30daysforreply.46Due

46Asageneralrule,thetime-limitforexportersshallbecountedfromthedateofreceiptofthequestionnaire,whichforthispurposeshallbedeemedtohavebeenreceivedoneweekfromthedateonwhichitwassenttotherespondentor

considerationshouldbegiventoanyrequestforanextensionofthe30-dayperiodand,uponcauseshown,suchanextensionshouldbegrantedwheneverpracticable.

12.1.2 Subjecttotherequirementtoprotectconfidential

information,evidencepresentedinwritingbyoneinterestedMemberorinterestedpartyshallbemadeavailablepromptlytootherinterestedMembersorinterestedpartiesparticipatingintheinvestigation.

12.1.3 Assoonasaninvestigationhasbeeninitiated,the

authoritiesshallprovidethefulltextofthewrittenapplicationreceivedunderparagraph1ofArticle11totheknownexporters47andtotheauthoritiesoftheexportingMemberandshallmakeitavailable,uponrequest,tootherinterestedpartiesinvolved.Dueregardshallbepaidtotheprotectionofconfidentialinformation,asprovidedforinparagraph4.

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

transmittedtotheappropriatediplomaticrepresentativesoftheexportingMemberor,inthecaseofaseparatecustomsterritoryMemberoftheWTO,anofficialrepresentativeoftheexportingterritory.47Itbeingunderstoodthatwherethenumberofexportersinvolvedisparticularlyhigh,thefulltextoftheapplicationshouldinsteadbeprovidedonlytotheauthoritiesoftheexportingMemberortotherelevanttradeassociationwhothenshouldforwardcopiestotheexportersconcerned.

Suchinformationshallnotbedisclosedwithoutspecificpermissionofthepartysubmittingit.48 12.4.1 TheauthoritiesshallrequireinterestedMembersor

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

12.4.2 Iftheauthoritiesfindthatarequestforconfidentialityis

notwarrantedandifthesupplieroftheinformationiseitherunwillingtomaketheinformationpublicortoauthorizeitsdisclosureingeneralizedorsummaryform,theauthoritiesmaydisregardsuchinformationunlessitcanbedemonstratedtotheirsatisfactionfromappropriatesourcesthattheinformationiscorrect.49

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

48MembersareawarethatintheterritoryofcertainMembersdisclosurepursuanttoanarrowly-drawnprotectiveordermayberequired.49Membersagreethatrequestsforconfidentialityshouldnotbearbitrarilyrejected.Membersfurtheragreethattheinvestigatingauthoritymayrequestthewaivingofconfidentialityonlyregardinginformationrelevanttotheproceedings.

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

(i) anexporterorforeignproducerortheimporterofaproductsubjecttoinvestigation,oratradeorbusinessassociationamajorityofthemembersofwhichareproducers,exportersorimportersofsuchproduct;and

(ii) aproducerofthelikeproductintheimportingMemberoratrade

andbusinessassociationamajorityofthemembersofwhichproducethelikeproductintheterritoryoftheimportingMember.

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

Article13

Consultations13.1 AssoonaspossibleafteranapplicationunderArticle11isaccepted,andinanyeventbeforetheinitiationofanyinvestigation,Memberstheproductsofwhichmaybesubjecttosuchinvestigationshallbeinvitedforconsultationswiththeaimofclarifyingthesituationastothemattersreferredtoinparagraph2ofArticle11andarrivingatamutuallyagreedsolution.

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

Article14

CalculationoftheAmountofaSubsidyinTermsoftheBenefittotheRecipient

ForthepurposeofPartV,anymethodusedbytheinvestigatingauthoritytocalculatethebenefittotherecipientconferredpursuanttoparagraph1ofArticle1shallbeprovidedforinthenationallegislationorimplementingregulationsoftheMemberconcernedanditsapplicationtoeachparticularcaseshallbetransparentandadequatelyexplained.Furthermore,anysuchmethodshallbeconsistentwiththefollowingguidelines:

(a) governmentprovisionofequitycapitalshallnotbeconsideredasconferringabenefit,unlesstheinvestmentdecisioncanberegardedasinconsistentwiththeusualinvestmentpractice(includingfortheprovisionofriskcapital)ofprivateinvestorsintheterritoryofthatMember;

(b) aloanbyagovernmentshallnotbeconsideredasconferringa

benefit,unlessthereisadifferencebetweentheamountthatthefirmreceivingtheloanpaysonthegovernmentloanandtheamountthefirmwouldpayonacomparablecommercialloan

50Itisparticularlyimportant,inaccordancewiththeprovisionsofthisparagraph,thatnoaffirmativedeterminationwhetherpreliminaryorfinalbemadewithoutreasonableopportunityforconsultationshavingbeengiven.SuchconsultationsmayestablishthebasisforproceedingundertheprovisionsofPartII,IIIorX.

whichthefirmcouldactuallyobtainonthemarket.Inthiscasethebenefitshallbethedifferencebetweenthesetwoamounts;

(c) aloanguaranteebyagovernmentshallnotbeconsideredas

conferringabenefit,unlessthereisadifferencebetweentheamountthatthefirmreceivingtheguaranteepaysonaloanguaranteedbythegovernmentandtheamountthatthefirmwouldpayonacomparablecommercialloanabsentthegovernmentguarantee.Inthiscasethebenefitshallbethedifferencebetweenthesetwoamountsadjustedforanydifferencesinfees;

(d) theprovisionofgoodsorservicesorpurchaseofgoodsbya

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

Article15

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

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

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

53Assetforthinparagraphs2and4.

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

(i) natureofthesubsidyorsubsidiesinquestionandthetradeeffectslikelytoarisetherefrom;

(ii) asignificantrateofincreaseofsubsidizedimportsintothe

domesticmarketindicatingthelikelihoodofsubstantiallyincreasedimportation;

(iii) sufficientfreelydisposable,oranimminent,substantialincrease

in,capacityoftheexporterindicatingthelikelihoodofsubstantiallyincreasedsubsidizedexportstotheimportingMember'smarket,takingintoaccounttheavailabilityofotherexportmarketstoabsorbanyadditionalexports;

(iv) whetherimportsareenteringatpricesthatwillhaveasignificant

depressingorsuppressingeffectondomesticprices,andwouldlikelyincreasedemandforfurtherimports;and

(v) inventoriesoftheproductbeinginvestigated.

Nooneofthesefactorsbyitselfcannecessarilygivedecisiveguidancebutthetotalityofthefactorsconsideredmustleadtotheconclusionthatfurthersubsidizedexportsareimminentandthat,unlessprotectiveactionistaken,materialinjurywouldoccur.15.8 Withrespecttocaseswhereinjuryisthreatenedbysubsidizedimports,theapplicationofcountervailingmeasuresshallbeconsideredanddecidedwithspecialcare.

Article16

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

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

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

Article17

ProvisionalMeasures17.1 Provisionalmeasuresmaybeappliedonlyif:

(a) aninvestigationhasbeeninitiatedinaccordancewiththeprovisionsofArticle11,apublicnoticehasbeengiventothateffectandinterestedMembersandinterestedpartieshavebeengivenadequateopportunitiestosubmitinformationandmakecomments;

(b) apreliminaryaffirmativedeterminationhasbeenmadethata

subsidyexistsandthatthereisinjurytoadomesticindustrycausedbysubsidizedimports;and

(c) theauthoritiesconcernedjudgesuchmeasuresnecessaryto

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

Article18

Undertakings18.1 Proceedingsmay55besuspendedorterminatedwithouttheimpositionofprovisionalmeasuresorcountervailingdutiesuponreceiptofsatisfactoryvoluntaryundertakingsunderwhich:

(a) thegovernmentoftheexportingMemberagreestoeliminateorlimitthesubsidyortakeothermeasuresconcerningitseffects;or

55Theword"may"shallnotbeinterpretedtoallowthesimultaneouscontinuationofproceedingswiththeimplementationofundertakings,exceptasprovidedinparagraph4.

(b) theexporteragreestoreviseitspricessothattheinvestigatingauthoritiesaresatisfiedthattheinjuriouseffectofthesubsidyiseliminated.Priceincreasesundersuchundertakingsshallnotbehigherthannecessarytoeliminatetheamountofthesubsidy.Itisdesirablethatthepriceincreasesbelessthantheamountofthesubsidyifsuchincreaseswouldbeadequatetoremovetheinjurytothedomesticindustry.

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

Agreementonproductsenteredforconsumptionnotmorethan90daysbeforetheapplicationofsuchprovisionalmeasures,exceptthatanysuchretroactiveassessmentshallnotapplytoimportsenteredbeforetheviolationoftheundertaking.

Article19

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

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

Article20

Retroactivity

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

Article21

DurationandReviewofCountervailingDutiesandUndertakings

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

Article22

PublicNoticeandExplanationofDeterminations

22.1 WhentheauthoritiesaresatisfiedthatthereissufficientevidencetojustifytheinitiationofaninvestigationpursuanttoArticle11,theMemberorMemberstheproductsofwhicharesubjecttosuchinvestigationandotherinterestedpartiesknowntotheinvestigatingauthoritiestohaveaninterestthereinshallbenotifiedandapublicnoticeshallbegiven.

58Whentheamountofthecountervailingdutyisassessedonaretrospectivebasis,afindinginthemostrecentassessmentproceedingthatnodutyistobeleviedshallnotbyitselfrequiretheauthoritiestoterminatethedefinitiveduty.

22.2 Apublicnoticeoftheinitiationofaninvestigationshallcontain,orotherwisemakeavailablethroughaseparatereport59,adequateinformationonthefollowing:

(i) thenameoftheexportingcountryorcountriesandtheproductinvolved;

(ii) thedateofinitiationoftheinvestigation;

(iii) adescriptionofthesubsidypracticeorpracticestobe

investigated;

(iv) asummaryofthefactorsonwhichtheallegationofinjuryisbased;

(v) theaddresstowhichrepresentationsbyinterested

Membersandinterestedpartiesshouldbedirected;and

(vi) thetime-limitsallowedtointerestedMembersandinterestedpartiesformakingtheirviewsknown.

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

(i) thenamesofthesuppliersor,whenthisisimpracticable,thesupplyingcountriesinvolved;

(ii) adescriptionoftheproductwhichissufficientforcustoms

purposes;

59WhereauthoritiesprovideinformationandexplanationsundertheprovisionsofthisArticleinaseparatereport,theyshallensurethatsuchreportisreadilyavailabletothepublic.

(iii) theamountofsubsidyestablishedandthebasisonwhich

theexistenceofasubsidyhasbeendetermined;

(iv) considerationsrelevanttotheinjurydeterminationassetoutinArticle15;

(v) themainreasonsleadingtothedetermination.

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

Article23

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

PARTVI:INSTITUTIONS

Article24

CommitteeonSubsidiesandCountervailingMeasures

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

PARTVII:NOTIFICATIONANDSURVEILLANCE

Article25

Notifications25.1 Membersagreethat,withoutprejudicetotheprovisionsofparagraph1ofArticleXVIofGATT1994,theirnotificationsofsubsidiesshallbesubmittednotlaterthan30Juneofeachyearandshallconformtotheprovisionsofparagraphs2through6.

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

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

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

(iii) policyobjectiveand/orpurposeofasubsidy;

(iv) durationofasubsidyand/oranyothertime-limitsattached

(v) statisticaldatapermittinganassessmentofthetradeeffectsofasubsidy.

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

60TheCommitteeshallestablishaWorkingPartytoreviewthecontentsandformofthequestionnaireascontainedinBISD9S/193-194.

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

Article26

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

PARTVIII:DEVELOPINGCOUNTRYMEMBERS

Article27

SpecialandDifferentialTreatmentofDevelopingCountryMembers

27.1 MembersrecognizethatsubsidiesmayplayanimportantroleineconomicdevelopmentprogrammesofdevelopingcountryMembers.27.2 Theprohibitionofparagraph1(a)ofArticle3shallnotapplyto:

(a) developingcountryMembersreferredtoinAnnexVII.

(b) otherdevelopingcountryMembersforaperiodofeightyearsfromthedateofentryintoforceoftheWTOAgreement,subjecttocompliancewiththeprovisionsinparagraph4.

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

61ForadevelopingcountryMembernotgrantingexportsubsidiesasofthedateofentryintoforceoftheWTOAgreement,thisparagraphshallapplyonthebasisofthelevelofexportsubsidiesgrantedin1986.

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

(a) theoveralllevelofsubsidiesgrantedupontheproductinquestiondoesnotexceed2percentofitsvaluecalculatedonaperunitbasis;or

(b) thevolumeofthesubsidizedimportsrepresentslessthan

4percentofthetotalimportsofthelikeproductintheimportingMember,unlessimportsfromdevelopingcountryMemberswhoseindividualsharesoftotalimportsrepresentlessthan4percentcollectivelyaccountformorethan9percentofthetotalimportsofthelikeproductintheimportingMember.

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

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

PARTIX:TRANSITIONALARRANGEMENTS

Article28

ExistingProgrammes28.1 SubsidyprogrammeswhichhavebeenestablishedwithintheterritoryofanyMemberbeforethedateonwhichsuchaMembersignedtheWTOAgreementandwhichareinconsistentwiththeprovisionsofthisAgreementshallbe:

(a) notifiedtotheCommitteenotlaterthan90daysafterthedateofentryintoforceoftheWTOAgreementforsuchMember;and

(b) broughtintoconformitywiththeprovisionsofthisAgreement

withinthreeyearsofthedateofentryintoforceoftheWTOAgreementforsuchMemberanduntilthenshallnotbesubjecttoPartII.

28.2 NoMembershallextendthescopeofanysuchprogramme,norshallsuchaprogrammebereneweduponitsexpiry.

Article29

TransformationintoaMarketEconomy

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

(a) Subsidyprogrammesfallingwithinthescopeofparagraph1(d)ofArticle6shallnotbeactionableunderArticle7;

(b) Withrespecttootheractionablesubsidies,theprovisionsof

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

PARTX:DISPUTESETTLEMENT

Article30 TheprovisionsofArticlesXXIIandXXIIIofGATT1994aselaboratedandappliedbytheDisputeSettlementUnderstandingshallapplytoconsultationsandthesettlementofdisputesunderthisAgreement,exceptasotherwisespecificallyprovidedherein.

PARTXI:FINALPROVISIONS

Article31

ProvisionalApplication

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

Article32

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

62ThisparagraphisnotintendedtoprecludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.

ANNEXI

ILLUSTRATIVELISTOFEXPORTSUBSIDIES

(a) Theprovisionbygovernmentsofdirectsubsidiestoafirmoranindustry

contingentuponexportperformance.(b) Currencyretentionschemesoranysimilarpracticeswhichinvolvea

bonusonexports.(c) Internaltransportandfreightchargesonexportshipments,providedor

mandatedbygovernments,ontermsmorefavourablethanfordomesticshipments.

(d) Theprovisionbygovernmentsortheiragencieseitherdirectlyor

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

(e) Thefullorpartialexemptionremission,ordeferralspecificallyrelatedto

exports,ofdirecttaxes64orsocialwelfarechargespaidorpayablebyindustrialorcommercialenterprises.65

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

(f) Theallowanceofspecialdeductionsdirectlyrelatedtoexportsorexport

performance,overandabovethosegrantedinrespecttoproductionfordomesticconsumption,inthecalculationofthebaseonwhichdirecttaxesarecharged.

(g) Theexemptionorremission,inrespectoftheproductionanddistribution

ofexportedproducts,ofindirecttaxes58inexcessofthoseleviedinrespectoftheproductionanddistributionoflikeproductswhensoldfordomesticconsumption.

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

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

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

inputsasasubstitutefortheminordertobenefitfromthisprovisioniftheimportandthecorrespondingexportoperationsbothoccurwithinareasonabletimeperiod,nottoexceedtwoyears.ThisitemshallbeinterpretedinaccordancewiththeguidelinesonconsumptionofinputsintheproductionprocesscontainedinAnnexIIandtheguidelinesinthedeterminationofsubstitutiondrawbacksystemsasexportsubsidiescontainedinAnnexIII.

(j) Theprovisionbygovernments(orspecialinstitutionscontrolledby

governments)ofexportcreditguaranteeorinsuranceprogrammes,ofinsuranceorguaranteeprogrammesagainstincreasesinthecostofexportedproductsorofexchangeriskprogrammes,atpremiumrateswhichareinadequatetocoverthelong-termoperatingcostsandlossesoftheprogrammes.

(k) Thegrantbygovernments(orspecialinstitutionscontrolledbyand/or

actingundertheauthorityofgovernments)ofexportcreditsatratesbelowthosewhichtheyactuallyhavetopayforthefundssoemployed(orwouldhavetopayiftheyborrowedoninternationalcapitalmarketsinordertoobtainfundsofthesamematurityandothercredittermsanddenominatedinthesamecurrencyastheexportcredit),orthepaymentbythemofallorpartofthecostsincurredbyexportersorfinancialinstitutionsinobtainingcredits,insofarastheyareusedtosecureamaterialadvantageinthefieldofexportcreditterms.

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

(l) AnyotherchargeonthepublicaccountconstitutinganexportsubsidyinthesenseofArticleXVIofGATT1994.

ANNEXIIGUIDELINESONCONSUMPTIONOFINPUTSINTHEPRODUCTIONPROCESS67

67Inputsconsumedintheproductionprocessareinputsphysicallyincorporated,energy,fuelsandoilusedintheproductionprocessandcatalystswhichareconsumedinthecourseoftheirusetoobtaintheexportedproduct.

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

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

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

ANNEXIII

GUIDELINESINTHEDETERMINATIONOFSUBSTITUTIONDRAWBACKSYSTEMSASEXPORTSUBSIDIES

I Drawbacksystemscanallowfortherefundordrawbackofimportchargesoninputswhichareconsumedintheproductionprocessofanotherproductandwheretheexportofthislatterproductcontainsdomesticinputshavingthesamequalityandcharacteristicsasthosesubstitutedfortheimportedinputs.Pursuanttoparagraph(i)oftheIllustrativeListofExportSubsidiesinAnnexI,substitutiondrawbacksystemscanconstituteanexportsubsidytotheextentthattheyresultinanexcessdrawbackoftheimportchargesleviedinitiallyontheimportedinputsforwhichdrawbackisbeingclaimed.

II InexamininganysubstitutiondrawbacksystemaspartofacountervailingdutyinvestigationpursuanttothisAgreement,investigatingauthoritiesshouldproceedonthefollowingbasis:

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

ANNEXIV

CALCULATIONOFTHETOTALADVALOREMSUBSIDIZATION

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

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

8. Subsidieswhicharenon-actionableunderrelevantprovisionsofthisAgreementshallnotbeincludedinthecalculationoftheamountofasubsidyfor

thepurposeofparagraph1(a)ofArticle6.

ANNEXV

PROCEDURESFORDEVELOPINGINFORMATIONCONCERNINGSERIOUSPREJUDICE

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

72Incaseswheretheexistenceofseriousprejudicehastobedemonstrated.73Theinformation-gatheringprocessbytheDSBshalltakeintoaccounttheneedtoprotectinformationwhichisbynatureconfidentialorwhichisprovidedonaconfidentialbasisbyanyMemberinvolvedinthisprocess.

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

ANNEXVI

PROCEDURESFORON-THE-SPOTINVESTIGATIONSPURSUANTTO

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

ANNEXVII

DEVELOPINGCOUNTRYMEMBERSREFERREDTO

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

(a) Least-developedcountriesdesignatedassuchbytheUnitedNationswhichareMembersoftheWTO.

(b) Eachofthefollowingdevelopingcountrieswhichare

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

74TheinclusionofdevelopingcountryMembersinthelistinparagraph(b)isbasedonthemostrecentdatafromtheWorldBankonGNPpercapita.

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