RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/483
6 February 2002
(02-0588)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
IMPLEMENTATION-RELATED ISSUES REFERRED
TO THE COMMITTEE BY MINISTERS
Replies from Brazil1 to Questions from Australia2, the European Communities3,
Colombia4, Canada5, Egypt6 and the United States7
The following communication, dated 5 February 2002, has been received from the Permanent
Mission of Brazil.
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In this document, Brazil provides answers to  questions posed by Members in documents
G/SCM/W/474 (Australia), G/SCM/W/475 (Eur opean Communities), G/SCM/W/476 (Colombia),
G/SCM/W/477 (Canada), G/SCM/W/478 (Egypt) an d G/SCM/W/479 (the United States).  These
questions refer to the proposals circulated by Brazil in document G/SCM/W/464, as regards
countervailing duty investigations, specifically in connection with Article 14 of the Agreement on
Subsidies and Countervailing Measures and “ de minimis ” provisions.
Topic number 1 of the list of issues raised by  Brazil and India concerning countervailing duty
investigations, as per the annex of the Chairman: Article 14 of the ASCM
(a) Bullets 1 and 2 of the list of issues raised by Brazil and India concerning
countervailing duty investigations, as per the annex of the Chairman
As regards bullets 1 and 2 of the list of issues, which relate to the chapeau of Article 14 of the
Agreement on Subsidies and Countervailing Measures (ASCM), Brazil has received questions or
comments from the United States, Canada, Colombia and Egypt.
Brazil has proposed that the “chapeau” of Article 14 of the SCM Agreement be interpreted to
require Members to include in their national legislation or implementing regulation any methods used
by the investigating authorities to calculate the am ount of the benefit to the recipient and that the
calculation of the amount of the subsidy be based on the benefit conferred to the producer/exporter.
                                                     
1 G/SCM/W/464
2 G/SCM/W/474
3 G/SCM/W/475
4 G/SCM/W/476
5 G/SCM/W/477
6 G/SCM/W/478
7 G/SCM/W/479G/SCM/W/483
Page 2
The questions that were received touch upon:
(a) the possible need for a change to the ASCM;(b) our proposals for clarification of points of the agreement that, according to some
countries, do not need further interpretation;
(c) a request to exemplify situations when the interpretation of the chapeau differs from
the line that Brazil is seeking to make explicit;
(d) the relationship between Article 14 and Articles 12, 21 and 22 of the Subsidies
Agreement; and
(e) the relationship between the proposal and previous panels.Brazil would like to start by stating that these two proposals do not require a change to the
ASCM.  They simply intend to clarify that the chapeau of its Article 14 should be strictly read inconjunction with the title of the same article, meaning that Members should fulfil all the three
requirements established both in the title and in the chapeau:  (a) the calculation of the amount of the
subsidy;  (b) its calculation in terms of the benefit to the recipient; and (c) the obligation to provide for
any method used to make that calculation in th e national legislation and implementing regulations.
Although other Members may consider that those requirements are clear enough in the ASCM
not to need clarification, Brazil deems it necessary in the light of the following circumstances:
(a) while in the title there is an explicit mention to the fact that the amount of the subsidy
must be calculated in terms of the benefit to the recipient, the chapeau simply does
not mention the specific word “amount”.  This may lead to the restrictive and
incorrect  interpretation that Article 14 requires Members only to determine whether a
benefit exists, but not to calculate the amount of the subsidy in terms of the benefit
conferred to the recipient;
(b) in practice, there have been situations wh ere Article 14 has been interpreted in such a
way as to allow for the calculation of the amount of a subsidy based not on the benefitto the recipient but, for example, on the cost to the government.
This would be, for instance, the case where the amount of the subsidy is calculated by
product, but not on the basis of the benefit conferred to the producer/exporter of that same product.
This would imply that a Member may apply the same level of a countervailing measure to variousexporters, even when the amount of the benefit conferred varies among them, or even when a certain
exporter has not benefited from the subsidy.
(c) According to that restrictive and incorrect interpretation of Art 14, a Member could
consider itself not to be required to include in its national legislation - orimplementing regulation - the method used to calculate the amount of the benefit
conferred to the recipient.
Some Members have also asked about the links between Article 14 and other articles of the
ASCM, namely Articles 12, 21 and 22. In Brazil’s view, the ASCM shall be interpreted as a whole,and, therefore, the provisions of Article 14 should apply, as appropriate, to the relevant procedures of
Articles 12, 21 and 22.G/SCM/W/483
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Finally, Canada asked if the Brazilian intention when presenting this proposal was not simply
to codify an existing WTO case law (trade in aircraft), which has held that Article 1.1(b) of the
ASCM does not admit a “cost to government” approach to determining a benefit.  In this respect, we
would like to state that Brazil’s proposal refers to the methodology for the calculation of the amount
of a subsidy for the purposes of Part V of the ASCM, that is, for the application of countervailingmeasures.  It does not refer to any other Part of the Agreement and it is not Brazil´s intent to “codify”
the case law mentioned above, but to establish, according to that interpretation, a clarification to
Article 14 of the ASCM.
However, Brazil agrees with this ruling. It is also our understanding that the ASCM does not
establish the “cost of government approach” to determ ining benefit, once it is illogical to calculate the
benefit to the exporter on the basis of the cost to another agent, that is, the government.  The ASCMonly establishes in Art. 6.1(a) that the total “ad  valorem” subsidization shall be calculated in
accordance with the provisions of Annex IV, that is, in terms of the cost to the granting government.
(b) Bullet 5 of the list of issues raised by Brazil and India concerning countervailing
duty investigations, as per the annex of the Chairman
Brazil has received, as regards this issue, comments and questions of both a general and of a
specific nature.  Starting with the general questions, Canada asked if Brazil was seeking further
elaboration of paragraphs (a) to (d) of Article 14 or if Brazil perceived deficiencies in coverage
beyond current Article 14. If so, what would those deficiencies be.
In response to this question, Brazil does not seek further elaboration to paragraphs (a) to (d).
The topics we want to cover are of a different nature (expenses, allocation of the amount of the
subsidy).  Similarly to letters (a) to (d), these topi cs also have to do with the definition of the criteria
for the calculation of the amount of the subsidy on the basis of the amount of the benefit conferred tothe recipient.  This being the case, the practice of  the countries has suggested the need that Members
agree to certain guidelines in reference to cases that are not explicitly mentioned in Article 14.
Colombia has made the suggestion to make mandatory the provision of Article 19.2 of the
Agreement, instead of seeking clarifications to Article 14. In this respect, given the fact that the
amount of the subsidy shall be calculated on the basis of the amount of the benefit conferred to the
recipient, we propose that certain deductions should be made from the amount of the subsidy.  This isa separate issue from the level of the countervailing duty that the relevant authorities decide to apply.
In Brazil’s view, however, the “lesser duty rule” of Article 19.2 is also a very important element to be
taken into consideration in the  definition of the level of the countervailing duty, and Brazil would be
willing to discuss any proposal in this line.
There are also several specific questions on these issues, which we will address:
“Bullet 5.1”
As for the issue related to the deduction of expenses (bullet 5.1), Australia asked if Brazil
agrees that expenses incurred by a recipient in order to obtain the subsidy should be deducted from the
amount of the countervailing duty.  The EC has asked if all expenses incurred should be deducted or
only expenses necessarily incurred in order to obtain the subsidy and Canada inquired about the
nature of the expenses that are mentioned by Brazil.
As stated previously, Brazil´s proposal refers to deductions to be made in the calculation of
the benefit conferred to the recipient and not in the amount of the countervailing duty.  It is also
Brazil’s view that only expenses necessarily incurred by a recipient shall be deducted from the
amount of the subsidy found to exist during the period of investigation.  These expenses are of anG/SCM/W/483
Page 4
administrative nature.  Export taxes intended to offset the level of the subsidy shall also be deducted
from the amount of the subsidy.
The United States asked the following questions:
(1) To what extent would Brazil’s proposal require a change to the ASCM?  If a
change to the agreement is not required, please explain, in Brazil’s view, how
this proposal should be effectuated.
Reply
Since Brazil understands that the calculation of the amount of the subsidy shall be based on
the amount of the benefit conferred to the recipient, costs necessarily incurred to accede to the subsidy
program shall naturally be deducted.  As it was mentioned in the response to the general question by
Canada, there is the need for Members to agree on some explicit guidelines on this issue.  This could
be effectuated either by means of an understanding or an amendment.
(2) Please provide a detailed list of the types of deductions/expenses which should be
deducted under this proposal.
Reply
As it was already mentioned, in Brazil’s view, only expenses incurred necessarily in order to
qualify for or obtain the subsidy shall be deducte d.  Our focus is to allow for the deduction of two
kinds of expenses incurred by the recipient:  (a) administrative charges (e.g. application fees) incurred
in the process of obtaining the subsidy and (b) export  taxes specifically intended to offset the subsidy.
The idea behind this proposal is that, in case this sort of expenses exists, the investigating authority
should calculate the amount of the subsidy based on the net benefit to the exporter.
(3) Please describe under what circumstances an investigating authority should be
required to make certain deductions from the subsidy amount?
Reply
This requirement should apply to the invest igating authorities only when the exporter
demonstrates that he has incurred in the type of costs mentioned above.
(4) Please explain the meaning of the phrase:  “applicable to the operation object of
the subsidy”?
Reply
By “operation object of the subsidy” we mean an export transaction of the product under
investigation.  The export tax to be deducted must have been imposed on the product that is beingallegedly exported with subsidies.
(5) Please discuss any differences between Brazil’s proposal and that suggested by
India in paragraph 23 of India’s tiret 80 submission (G/SCM/W/462).G/SCM/W/483
Page 5
Reply
We propose that deductions should be made from the amount of the subsidy, and not from the
level of the countervailing duty.  For the definition of the level of the duty to be applied, other
elements shall be considered, as for example the “lesser duty rule” of Article 19.2
“Bullet 5.2”
As regards subsidy programs that are not granted according to quantities produced, exported
or transported (bullet 5.2), the United States presented the following questions.
(1) To what extent would Brazil’s proposal require a change to the ASCM?  If a
change to the agreement is not required, please explain, in Brazil’s view, how
this proposal should be effectuated.
Reply
As in the previous case, guidelines are needed to be made explicit and agreed upon.  This
could be effectuated either by means of an understanding or an amendment
(2) Please explain the context of and circumstances behind this proposal, for
example, by describing any actual inst ances where subsidies were not calculated
in proportion to production, sale or export of the good.
Reply
In our view, the amount of the subsidy shall be calculated per unit , on the basis of the benefit
conferred to the recipient, and, therefore, the allocation of the amount of the subsidy shall be made
according to the quantity produced, sold or exported of the product under investigation, during the
period of investigation for subsidization.  We will provide examples about the meaning of our
proposal, in the response to question 4.
(3) Please explain how the phrase “is related to” should be interpreted?
Reply
The phrase “is related to” should be interpreted as a reference to the allocation of the value of
the benefit over the level of production, sales or exports of the product under investigation, during the
period of investigation for subsidization.
(4) Please provide a more detailed explanation of the type of calculation proposed,
including different examples reflecting different factual scenarios.
Reply
Example 1
A producer of a single product receives a su bsidy on energy, and he pays for the energy
consumed in the production process a price that is lower than the price paid by other producers.  Forinstance, instead of paying, in the period of investigation, $10,000, he pays $5,000, that is, a benefit of
$5,000 is conferred to that producer.  Taking into account that the reduced cost of energy benefits all
the volume of the production of the product under investigation, regardless whether it is destined to
exports or to the domestic market, the benefit of $5,000 should be allocated over  the level of the totalG/SCM/W/483
Page 6
production in the same period (5,000 ton.).  In this example, the amount of the subsidy granted would
be $1 per unit.
Example 2
A producer of a single product pays a lower price for the transportation of his production
either to domestic consumers or to the domestic port of destination of his exports.  In the period of
investigation, instead of paying $2,000 for transport costs, he paid $1,000 for the transportation of one
unit of the product.  He received a benefit, then, of $1,000 per unit.  If 2,000 units of the product were
sold (either to domestic market or exports), the amount of the subsidy would be 0.50 per unit.
Example 3
In this example the subsidy is granted by reference to exports.A producer of a single product receives a grant of $50,000 in 1987 to subsidize its exports to a
certain country.  The period of investigation is 1995.  In 1995 the income of the producer/exporterfrom the total sales of its product were $30,000,000.  The income from exports to that country was
$10,000,000.  The physical life period of the assets in the industry in question (which is the same for
the company investigated) is 10 years.  The amount of the subsidy in the investigation period, would
be calculated by spreading the total benefit conferred across the physical life period of the assets, what
would result in a benefit of $5,000 during the period of investigation, and then by allocating theamount so obtained over the value of the exports.  The amount of the subsidy conferred to the exports
of the product under investigation would be $0.0005 per unit.
As for the same issue, the EC asked the following question:
Can Brazil please explain the terms "corres ponding proportion" and "related" (para. 4
G/SCM/W/464), possibly using an example of subsidy calculation in such a case?
Reply
As it was already explained before, the idea is that in such cases the calculation of the amount
of the subsidy shall be made by allocating the valu e of the benefit actually conferred to the recipient
in an appropriate way, according to the characteristics of the subsidy granted, over the level of
production, sales or exports of the product under investigation, during the investigation period for
subsidization.
“Bullet 5.3”
As regards subsidies used to acquire capital goods (bullet 5.3), the US made the following
questions:
(1) To what extent would Brazil’s proposal require a change to the ASCM?  If a
change to the agreement is not required, please explain, in Brazil’s view, how
this proposal should be effectuated.
Reply
As in the previous case, guidelines are needed to be made explicit and agreed upon. This
could be effectuated either by means of an und erstanding or an amendment to the Agreement.G/SCM/W/483
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(2) Under this proposal, would the depreciation rules be applicable in instances
other than where a subsidy is granted to acquire capital goods (e.g., large, one-
time debt forgiveness, or the provision of equity capital not necessarily related ortied to, capital goods)?  If not, what ev idence should an inve stigating authority
require to establish whether subsidies were used to acquire capital goods?
Reply
We understand that depreciation rules apply to capital goods or other fixed assets. The
depreciation methodology is relevant to the calculation of the benefit to the recipient.  The amount of
the subsidy shall be calculated by spreading the subsidy across the period in which the normal
depreciation of the assets takes place. In cases where the assets are non-depreciating, the amount ofthe actionable subsidy would be calculated as a loan which confers a benefit, and the guidelines of
Article 14 (b) would be followed.  Appropriate evidence shall be collected from the responses to the
questionnaires sent to exporters.
(3) If the depreciation rules proposed by Brazil were to be applied with respect to
other subsidies, what are those other types?   If a very small subsidy is provided,
and it is related, or tied to, capital equipment, should the benefit still be allocated
over the relevant depreciation period?
Reply
As mentioned above, depreciation rules apply to subsidies to acquire capital goods and other
fixed assets.  If the subsidy is not linked to the acquisition of fixed assets, the amount of the benefit
received by the recipient during the investigation period shall, in principle, be attributed to this period.
It is not clear how the US delegation considers that the depreciation rules could be used in this case.
(4) Often there is a difference between the depreciation rules for accounting
purposes and the depreciation rules for tax purposes.  Please explain whether, in
Brazil’s view, one is preferable over the other?
Reply
In general terms, we consider that depreciation rules which reflect the standard of the national
legislation of the country of the producer/exporter being investigated should provide guidance.
(5) How should investigating authorities address instances where the industry
standard depreciation rules reflect extraneous tax policy considerations (e.g.,
accelerated depreciation) rather than th e actual expected physical life of the
assets?
Reply
Following the same reasoning of the previous answer, depreciation rules which reflect the
standard of the national legislation of the country at issue should be followed. In cases where the
depreciation periods actually applied by the producer/exporter differ from the industry-wide rules, the
investigation authorities should examine the reason s.  Brazil is ready to examine any proposal aimed
at developing detailed procedures for this case.
(6) Under what circumstances should invest igating authorities be allowed to use
company-specific depreciation rates?  Should the authorities be allowed to use
company-specific rates if they differed from the industry rates?G/SCM/W/483
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Reply
In our view, the investigating authorities shall always utilize the relevant legislation of the
country of the producer/exporter being investigated.  Brazil is ready to examine proposals to bringclarification to these procedures.
(7) How should investigating authorities address circumstances in which there are
no set rates for the particular industry at issue?
Reply
In cases where the national legislation of the country of the producer/exporter being
investigated does not establish any rules for the methodology or rates of depreciation, the investigated
country is normally a non-market  economy.
On the same general issue, the EC asked:
Could Brazil please explain the term "rules for depreciation of the good in the
industry"?  and
Would this exclude the use of depreciation periods actually applied by the exporting
producer(s) concerned if they differ from such industry-wide rules?
Reply
In Brazil’s view, the amount of the countervailable subsidy shall be calculated on the basis of
the benefit conferred to the producer/exporter being investigated.  In cases where the depreciation
periods actually applied by the producer/exporter differ from the industry-wide rules, the investigating
authority should examine the reasons thereof.  Brazil supports the development of detailed procedures
that address this situation.
Canada asked the following question:
What would Brazil’s preference be, e.g., company rates, country tax rates, etc.?
Depreciation expense is referred to Article 2.2.1.1 of the Anti-dumping Agreement.  Is Brazil
looking for a parallelism i.e., depreciation that  would be “in accordance with GAAP standards
of the exporting country and reasonably reflect th e costs associated with the production and sale
of the product under consideration.”
Reply
In general terms, we consider that the methodology for allocation of depreciation expenses
which reflect country-wide practices established by national legislation/regulation should provideguidance.
(c) Bullet 7 of the list of issues raised by Brazil and India concerning countervailing
duty investigations, as per the annex of the Chairman
In the case of our proposal to introduce sampling rules similar to those in the  Antidumping
Agreement, where the number of exporters under investigation is so large as to make a determination
impracticable, Brazil would like to state, in response to a question posed by the US, that in our view,G/SCM/W/483
Page 9
since sampling rules are not prohibited by the ASCM, they could be applied.  Nevertheless, the lack
of a provision establishing these procedures can lead to divergent practices among Members.
Canada asked if, as a “quid pro quo” for sampling, Brazil would envisage a requirement for
expedited reviews, where justified, to confer in dividual company rates.  As it was mentioned, the
purpose of this proposal is to develop a common understanding among Members about the
implementation of sampling procedures in CVD investigations. Therefore, we are open to discuss
such an approach.
Topic number 3 of the list of issues raised by  Brazil and India concerning countervailing duty
investigations, as per the annex of the Chairman: “ De minimis ”
Brazil’s proposal, in this case, seeks to interpret Article 19 of the Agreement on Subsidies and
Countervailing Measures in a way that is compatible with its Article 11.9.  The latter determines, inter
alia, that “there shall be immediate termination [o f an investigation] in cases where the amount of a
subsidy is de minimis ”.  However, when it comes to the imposition and collection of countervailing
duties, as set forth in Article 19 of the cited agreement, there is an omission of such a “ de minimis ”
clause.  If, for a certain reason, the amount of the subsidy is found to be less than the “ de minimis ”
threshold for a specific exporter, the text does not provide explicit guidance.  This lacuna, in practice,
may be interpreted as allowing the collection of duties even if the amount of the subsidy is below the
“de minimis ”.
As a reply to the comments of the US Delegation related to the “lack of express language in
the ASCM regarding this issue”, Brazil notes that  the very concept of “lacuna” implies the notion of
absence of something that needs to be created, built or provided for, in this instance language
referring to the prohibition of collecting duties when  the investigating authorities determine that the
amount of the subsidy is “ de minimis ”.
A mostly reasonable and effective manner to complete the ministerial mandate to interpret the
“lacunae in the text of the Agreement” is to add language able to eliminate doubts that Members may
have on the interpretation of existing provisions.
The specific proposal by Brazil does precisely so, since it does not establish a new provision
but sets forth the interpretation that Article 19 should be read in conjunction with Article 11.9, in sucha way that in the case where the investigating auth orities determine that the amount of the subsidy
effectively found is below the “ de minimis ” threshold as provided for in paragraph 9 of Article 11,
there will be no collection of the duty.
There is an important element in this discussion, that would be worth exploring: the
distinction between the moments of imposition and collection of the duty. In response to a question
posed by Australia, Brazil naturally considers that there would be no possibility to impose duties
when the amount of subsidy has been found to be “ de minimis ” during the investigating period.
However, in some cases, specially when the amount of the countervailing duty would be  assessed on
a retrospective basis, when it comes to the fina l assessment for the collection of the duty, some
countries would  not apply the “ de minimis ” rule.  Brazil’s position is that, in both systems
(prospective and retrospective), no countervailing duties should be collected when the amount of the
subsidy is found to be “ de minimis ”.
As regards the other questions posed under this topic, we would like to state that:In response to Australia: If the amount of a subsidy is found to be de minimis  for a specific
exporter, this exporter should  be excluded from the imposition of the measure.G/SCM/W/483
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In response to question 6 of the EC, there are several instances related to anti-dumping
investigations, where duties have been collected,  even though the actual dumping margin was “ de
minimis ”. As there exists a parallelism between the collection of antidumping and countervailing
duties, it is quite possible that this sort of si tuation might arise also regarding the collection of
countervailing duties.
Also, in response to question 7 of the EC, Brazil does not consider it to be “appropriate”, in
the meaning of Article 19.3,  for a country to collect a countervailing duty when the amount of the
subsidy is “ de minimis ”.
Canada made a comment in which a distinction is drawn between the importance of the “ de
minimis ” in the investigating phase and in the enforcement phase. In their view, while the importance
of the “ de minimis ” is undisputed in the former phase, the same does not apply to the latter.   In our
view, the relevance of the “ de minimis ”  clause is the same in the investigation as well as in the
enforcement stage (collection of duties).
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