RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/W/439
9 April 2001
(01-1807)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
QUESTIONS AND COMMENTS CONCERNING PROPOSALS
ON IMPLEMENTATION-RELATED ISSUES REFERRED TO
THE COMMITTEE IN THE 15 DECEMBER 2000
DECISION OF THE GENERAL COUNCIL
Questions and Comments of the European Communities
The following communication, dated 6 April 2001, has been received from the Permanent
Delegation of the European Commission.
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As discussed during the informal meeting of the Committee on 2 April 2001, the
European Communities submit the following questions concerning the submissions made with respect
to the implementation-related issues referr ed to the Committee for examination.  The
European Communities recall that these questions are posed only for reasons of clarification in order
to assist Members in their endeavour to address the problems identified, and do not prejudice their
position on the substance of the submissions.
I. EXPORT COMPETITIVENESS: Paper submitted by Cuba, Dominican Republic,
Honduras, India, Indonesia, Malaysia, Paki stan, Tanzania, Uganda and Zimbabwe
(G/SCM/W/431/Rev.1, 20 March 2001)
Questions to Cuba, Dominican Republic, Ho nduras, India, Indonesia, Malaysia, Pakistan,
Tanzania, Uganda and Zimbabwe
Articles 27.5 and 27.6 SCM Agreement have never been used and therefore important
practical questions arise concerning the actual working of these provisions.
Q1. How is "world trade" defined?  Does it include intra-Customs Union/FTA trade?
Q2. How long will be the reference period for re-entry, i.e. for how long does the share in world
trade have to be below 3.25 per cent?
Q3. How long will the phase-out period be once the country has graduated back over 3.25 per
cent?G/SCM/W/439
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II. AGGREGATE AND GENERALIZED RATES OF DUTY REMISSION:
Discussion paper submitted by India (G/SCM/W/430, 9 March 2001)
Questions to India
Q4. We understand India to propose an average system of duty remission rates by industry
category.  The application of such aggregate rates could lead to payments even if no customs duties
are paid by the exporter, i.e. if the exporter sources the inputs domestically.
While we understand from the Indian submission that in such a case the remission rates would
be reduced, we are uncertain how this could be done in practice. We would think that it would have to
involve identifying the source of inputs for the individual exporter concerned, something the proposed
general system wants to avoid in the first place in its aim to alleviate the procedural burden. Can India
please clarify this point?
Q5. We understand that under the system there would be no check that exporters which are more
efficient than the industry-average receive higher remissions than customs duties actually paid.  Howcould it be ensured that this does not result in excess remissions by individual companies?
Q6. Aggregate rates on a per-company basis based on historical company-specific data could very
well guarantee that there is no excess remission if such data is regularly updated and subject to
verification. Even if no such per-company system was in place, the government of the exportingcountry could prove on the basis of actual transactions that no excess remission had taken place in line
with a proper duty drawback scheme. This is al ready provided for in Annexes II and III of the
Subsidies Agreement.
Does India have any views on these points in the context of addressing any needs for
simplified procedures under duty drawback schemes?
III. DEFINITION OF INPUTS CONSUMED IN THE PRODUCTION PROCESS:
Papers submitted by Colombia (G/SCM/W/429, 7 March 2001) and India
(G/SCM/W/430, 9 March 2001)
Questions to Colombia and India
Q7. Items (h) and (i) limit the exemption, remission and deferral of prior-stage cumulative taxes,
and the remission or drawback of import charges, re spectively, to inputs consumed in the production
of the exported product. This limitation to "inputs consumed" allows a clear and verifiable linkbetween input and output since it is based on quantities.
Could India and Colombia explain how such an intrinsic and conspicuous link could be
established between capital goods and the exported product which would ensure that no excess
exemption or remission of prior-stage cumulative taxes or import charges occurs?
Q8. Introducing a "value" element in the purely "quantity" based system of duty
drawback/exemption schemes by linking depreciation of capital goods to export production not only
represents a significant change in the nature of such systems but could also lead to serious practical
difficulties. For example, how would the use of the capital good be measured?
Q9. How would, in practice, a certain portion of  the use of the capital good be linked to a certain
quantity of exported product?G/SCM/W/439
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Q10. Would the amount of exemption or remission of prior-stage cumulative taxes or import
charges on the capital good remain constant per quan tity of exported product?  If yes, how would this
be ensured in practice?
Q11. How would the apportionment of the use of  the capital good between domestic and export
production be conducted in practice to ensure that no excess remission occurs?
Question to Colombia
Q12. We understand the Colombian submission to argue that capital goods used in export
production can already now be exclusively exempted from prior-stage cumulative indirect taxes under
item (h) of Annex I of the SCM Agreement.
Can Colombia please clarify this point, in particular in view of the first sentence of item (h)
which reflects the principle of equal treatment  of exported products and products destined for
domestic consumption. In this respect, does Colombia agree that, in order to avoid being consideredan export subsidy, an exemption, remission or deferral of such taxes for capital goods must be ageneral one, regardless of whether the good is used for export or domestic production?
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