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World
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G/ADP/N/1/IND/2/Suppl.4 |
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(06-5303) |
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Committee on Anti-Dumping Practices Committee on Subsidies and Countervailing Measures |
Original: English |
notification of laws and regulations under
articles 18.5 and 32.6 OF The agreements
Supplement
The
following communication, dated
_______________
Vide Finance Bill 2006-07. an amendment has been made in
Amendment of Section 9A
In section 9A of the Customs Tariff Act, in sub-section (1), in the Explanation, in clause (c), in sub clause (i), for the words "meant for consumption", the words "destined for consumption" shall be substituted.
Vide
Amendment of Section 9
In Section 9 of the Customs Tariff Act, 1975 (hereinafter referred to as the Customs Tariff Act)
(a) in sub-section (1), in the Explanation, in clause (a) for the words "within the territory of the exporting or producing country", the words "in the exporting or producing country or territory" shall be substituted;
(b) after sub-section (7), the following sub-section shall be inserted, namely:
"(7A) Unless otherwise provided, the provisions of the Customs Act 1962 and the rules and regulations made thereunder, relating to the date for determination of rate of duty, non-levy, short-levy, refunds, interest appeals, offences and penalties shall, as far as may be, apply in relation to duties leviable under that Act".
Notification
No. 24/2006 (N.T.)
Customs Tariff (Identification, assessment and
collection of countervailing duty on
subsidies articles and for determination injury) Amendment Rules 2006
G.S.R. 123(E) - In exercise of the
powers conferred by sub-section (2) of section 9 of the Customs Tariff Act,
1975 (51 of 1975), the Central Government hereby makes the following rules to
amend the Customs Tariff (Identification, assessment and collection of
countervailing duty on subsidies articles and for determination injury) Rules
1995, namely:-
1. Short title and commencement (1) The Rule
may be called Customs Tariff (Identification, assessment and collection of
countervailing duty on subsidies articles and for determination injury) Amendment ) Rules 2006.
(2) They shall come into force on the date of
their publication in the Official Gazette.
2. In the said Customs Tariff
(Identification, assessment and collection of countervailing duty on subsidies
articles and for determination injury) Rules 1995,(herein
after referred to as the rules),
in rule 11, in sub-rule (1),-
(a) for clause (a), the clause shall be substituted, "(a)
relates to export performance including those illustrated in Annexure III to
these rules, or";
(b) the proviso shall be omitted.
3. In
the said rules, for rule 12, the following rule shall be substituted, namely;-
"12. Calculation of the amount of the
countervailable subsidy
(1) For the purposes of these rules, the amount of countervailable subsidies, shall be calculated in terms of the benefit conferred on the recipient which is found to exist during the investigation period for subsidization
(2) As regards the calculation of benefit to the recipient, the following factors shall apply, namely:-
(a) government provision of equity capital shall not be
considered to confer a benefit, unless the investment can be regarded as
inconsistent with the usual investment practice (including for the provision of
risk capital) of private investors in the territory of the country of origin or
export;
(b) a
loan by a government shall not be considered to confer a benefit, unless there
is a difference between the amount that the firm receiving the loan pays on the
government loan and the amount that the firm would pay for a comparable
commercial loan which the firm could actually obtain from the market and in
that event the benefit shall be the difference between these two amounts;
(c) a
loan guarantee by a government shall not be considered to confer a benefit,
unless there is a difference between the amount that the firm receiving the
guarantee pays on a loan guaranteed by the government and the amount that the
firm would pay for a comparable commercial loan in the absence of the
government guarantee and in such case the benefit shall be the difference
between these two amounts, adjusted for any differences in fees;
(d) the
provision of goods or services or purchase of goods by a government shall not
be considered to confer a benefit, unless the provision is made for less than
adequate remuneration or the purchase is made for more than adequate remuneration;
whereas, the adequacy of remuneration shall be determined in relation to
prevailing market conditions for the product or service in question in the
country of provision or purchase (including price, quality, availability,
marketability, transportation and other conditions of purchase or sale).
(3) The amount of the countervailable
subsidies shall be determined per unit of the subsidized product exported to
(a) any application fee, or other costs necessarily incurred in
order to qualify for, or to obtain, the subsidy;
(b) export taxes, duties or other charges levied on the export
of the product to
(4) Where the subsidy is not granted by
reference to the quantities manufactured, produced, exported or transported,
the amount of countervailable subsidy shall be determined by allocating the
value of the total subsidy, as appropriate, over the level of production, sales
or exports of the products concerned during the investigation period for
subsidization.
(5) Where the subsidy can be linked to the
acquisition or future acquisition of fixed assets, the amount of the
countervailable subsidy shall be calculated by spreading the subsidy across a
period which reflects the normal depreciation of such assets in the industry
concerned and the amount so calculated which is attributable to the
investigation period, including that which derives from fixed assets acquired
before this period, shall be allocated as described in sub-rule (4) and, where
the assets are non-depreciating, the subsidy shall be valued as an
interest-free loan, and be treated in accordance with clause (b) of sub-rule 2
(b) above.
(6) Where a subsidy cannot be linked to the
acquisition of fixed assets, the amount of the benefit received during the
investigation period shall in principle be attributed to this period, and
allocated as described in sub-rule (4), unless special circumstances justify
its attribution over a different period.
(7) The designated authority while
calculating the amount of subsidy in countervailing duty investigation shall
take into account, inter-alia, the guidelines laid down in Annexure IV to these
rules.";
4. In the said rules, after Annexure II,
the following Annexures shall be added, namely:-
"ANNEXURE III
PART- 1
ILLUSTRATIVE LIST OF EXPORT SUBSIDIES
(a) The
provision by governments of direct subsidies to a firm or an industry
contingent upon export performance.
(b) Currency
retention schemes or any similar practices which involve a bonus on exports.
(c) Internal
transport and freight charges on export shipments, provided or mandated by
governments, on terms more favourable than for domestic shipments.
(d) The
provision by governments or their agencies either directly or indirectly
through government-mandated schemes, of imported or domestic products or
services for use in the production of exported goods, on terms or conditions
more favourable than for provision of like or directly competitive products or
services for use in the production of goods for domestic consumption, if (in the
case of products) such terms or conditions are more favourable than those
commercially available on world markets to their exporters.
Explanation:
The term "commercially available" means that the choice between
domestic and imported products is unrestricted and depends only on commercial
considerations.
(e) The full or partial exemption remission, or deferral specifically related to exports, of direct
taxes or social welfare charges paid or payable by industrial or commercial
enterprises.
Explanation:
For the purpose of this paragraph:
(i)
the term "direct taxes"
shall mean taxes on wages, profits, interests, rents, royalties, and all other
forms of income, and taxes on the ownership of real property;
(ii)
the term "import charges"
shall mean tariffs, duties, and other fiscal charges not elsewhere enumerated
in this note that are levied on imports;
(iii)
the term "indirect taxes"
shall mean sales, excise, turnover, value added, franchise, stamp, transfer,
inventory and equipment taxes, border taxes and all taxes other than direct
taxes and import charges;
(iv) "Prior-stage" indirect taxes
are those levied on goods or services used directly or indirectly in making the
product;
(v) "Cumulative" indirect taxes
are multi-stage taxes levied where there is no mechanism for subsequent
crediting of the tax if the goods or services subject to tax at one stage of
production are used in a succeeding stage of production;
(vi)
"Remission" of taxes
includes the refund or rebate of taxes;
(vii)
"Remission or drawback"
includes the full or partial exemption or deferral of import charges.
(f) The
allowance of special deductions directly related to exports or export
performance, over and above those granted in respect to production for domestic
consumption, in the calculation of the base on which direct taxes are charged.
(g) The
exemption or remission, in respect of the production and distribution of
exported products, of indirect taxes in excess of those levied in respect of
the production and distribution of like products when sold for domestic
consumption.
(h) The
exemption, remission or deferral of prior-stage cumulative indirect taxes on
goods or services used in the production of exported products in excess of the
exemption, remission or deferral of like prior-stage cumulative indirect taxes
on goods or services used in the production of like products when sold for
domestic consumption; provided, however, that prior-stage cumulative indirect
taxes may be exempted, remitted or deferred on exported products even when not
exempted, remitted or deferred on like products when sold for domestic
consumption, if the prior-stage cumulative indirect taxes are levied on inputs
that are consumed in the production of the exported product (making normal
allowance for waste) and the item shall be interpreted in accordance with the
guidelines on consumption of inputs in the production process contained in Part
- 2 of this Annexure. This paragraph does not apply to value-added tax systems
and border-tax adjustment in lieu thereof; the problem of the excessive
remission of value-added taxes is exclusively covered by paragraph (g).
(i) The
remission or drawback of import charges in excess of those levied on imported
inputs that are consumed in the production of the exported product (making
normal allowance for waste); provided, however, that in particular cases a firm
may use a quantity of home market inputs equal to, and having the same quality
and characteristics as, the imported inputs as a substitute for them in order
to benefit from this provision if the import and the corresponding export
operations both occur within a reasonable time period, not to exceed two years
and the item shall be interpreted in accordance with the guidelines on consumption
of inputs in the production process contained in Part-2 of this Annexure and
the guidelines in the determination of substitution drawback systems as export
subsidies contained in Part-3 of this Annexure.
(j) The
provision by governments (or special institutions controlled by governments) of
export credit guarantee or insurance programmes, of insurance or guarantee
programmes against increases in the cost of exported products or of exchange
risk programmes, at premium rates which are inadequate to cover the long-term
operating costs and losses of the programmes.
(k) The
grant by governments (or special institutions controlled by or acting under the
authority of governments) of export credits at rates below those which they
actually have to pay for the funds so employed (or would have to pay if they
borrowed on international capital markets in order to obtain funds of the same
maturity and other credit terms and denominated in the same currency as the
export credit), or the payment by them of all or part of the costs incurred by
exporters or financial institutions in obtaining credits, in so far as they are
used to secure a material advantage in the field of export credit terms. Provided, that if a country is a party to an
international undertaking on official export credits to which at least twelve
original World Trade organization Members are parties as of 1 January 1979 (or
a successor undertaking which has been adopted by those original Members), or
if in practice a country applies the interest rates provisions of the relevant
undertaking, an export credit practice which is in conformity with those
provisions shall not be considered an export subsidy prohibited by these rules.
(l) Any
other charge on the public account constituting an export subsidy in the sense
of Article XVI of GATT 1994.
PART-2
GUIDELINES ON CONSUMPTION OF INPUTS IN THE
PRODUCTION PROCESS
I
1. Indirect tax rebate schemes can allow
for exemption, remission or deferral of prior-stage cumulative indirect taxes
levied on inputs that are consumed in the production of the exported product
(making normal allowance for waste). Similarly, drawback schemes can allow for
the remission or drawback of import charges levied on inputs that are consumed
in the production of the exported product (making normal allowance for waste).
2. The Illustrative List of Export
Subsidies in Part 1 of Annexure III of these rules makes reference to the term
"inputs that are consumed in the production of the exported product"
in paragraphs (h) and (i). Pursuant to paragraph (h), indirect tax rebate
schemes can constitute an export subsidy to the extent that they result in
exemption, remission or deferral of prior-stage cumulative indirect taxes in
excess of the amount of such taxes actually levied on inputs that are consumed
in the production of the exported product. Pursuant to paragraph (i), drawback
schemes can constitute an export subsidy to the extent that they result in a
remission or drawback of import charges in excess of those actually levied on inputs
that are consumed in the production of the exported product. Both paragraphs stipulate that normal
allowance for waste must be made in findings regarding consumption
of inputs in the production of the exported
product.
II
1. Inputs consumed in the production
process are inputs physically incorporated, energy, fuels and oil used in the
production process and catalysts which are consumed in the course of their use
to obtain the exported product. In
examining whether inputs are consumed in the production of the exported
product, as part of a countervailing duty investigation pursuant to these
rules, the designated authority should proceed on the following basis, namely:-
(1) Where it is alleged that an indirect tax
rebate scheme, or a drawback scheme, conveys a subsidy by reason of over-rebate
or excess drawback of indirect taxes or import charges on inputs consumed in
the production of the exported product, the designated authority should first
determine whether the government of the exporting country has in place and
applies a system or procedure to confirm which inputs are consumed in the
production of the exported product and in what amounts. Where such a system or
procedure is determined to be applied, the designated authority should then examine
the system or procedure to see whether it is reasonable, effective for the
purpose intended, and based on generally accepted commercial practices in the
country of export. The designated
authority may it necessary if he considers carry out certain practical tests in
order to verify information or to satisfy themselves that the system or
procedure is being effectively applied.
(2) Where there is no such system or
procedure, where it is not reasonable, or where it is instituted and considered
reasonable but is found not to be applied or not to be applied effectively, a
further examination by the exporting country based on the actual inputs
involved would need to be carried out in the context of determining whether an
excess payment occurred. If the designated
authority considers it necessary, a further examination would be carried out in
accordance with sub-paragraph 1 above.
2. The designated authority should treat
inputs as physically incorporated if such inputs are used in the production
process and are physically present in the product exported. An input need not be present in the final
product in the same form in which it entered the production process.
3. In determining the amount of a
particular input that is consumed in the production of the exported product, a
"normal allowance for waste" should be taken into account, and such
waste should be treated as consumed in the production of the exported product. The term "waste" refers to that
portion of a given input which does not serve an independent function in the
production process, is not consumed in the production of the exported product
(for reasons such as inefficiencies) and is not recovered, used or sold by the
same manufacturer.
4. The designated authority's determination
of whether the claimed allowance for waste is "normal" should take
into account the production process, the average experience of the industry in
the country of export, and other technical factors, as appropriate. The designated authority should bear in mind
that an important question is whether the authorities in the exporting country
have reasonably calculated the amount of waste, when such an amount is intended
to be included in the tax or duty rebate or remission.
PART-3
GUIDELINES IN THE DETERMINATION OF SUBSTITUTION
DRAWBACK SYSTEMS AS EXPORT SUBSIDIES
I
Drawback systems can allow for the
refund or drawback of import charges on inputs which are consumed in the
production process of another product and where the export of this latter
product contains domestic inputs having the same quality and characteristics as
those substituted for the imported inputs. Pursuant to paragraph (i) of the Illustrative
List of Export Subsidies in Part-1 of Annexure III substitution drawback
systems can constitute an export subsidy to the extent that they result in an
excess drawback of the import charges levied initially on the imported inputs
for which drawback is being claimed.
II
1. In examining any substitution drawback
system as part of a countervailing duty investigation pursuant to these rules,
the designated authority should proceed on the following basis, namely:-
(i) Paragraph
(i) of the Illustrative List of Export Subsidies of Part-1 of Annexure III
stipulates that home market inputs may be substituted for imported inputs in
the production of a product for export provided such inputs are equal in
quantity to, and have the same quality and characteristics as, the imported
inputs being substituted. The existence
of a verification system or procedure is important because it enables the
government of the exporting country to ensure and demonstrate that the quantity
of inputs for which drawback is claimed does not exceed the quantity of similar
products exported, in whatever form, and that there is not drawback of import
charges in excess of those originally levied on the imported inputs in
question.
(ii) Where
it is alleged that a substitution drawback system conveys a subsidy, the
designated authority should first proceed to determine whether the government of
the exporting country has in place and applies a verification system or
procedure. Where such a system or
procedure is determined to be applied, the designated authority should then
examine the verification procedures to see whether they are reasonable,
effective for the purpose intended, and based on generally accepted commercial
practices in the country of export. To
the extent that the procedures are determined to meet this test and are
effectively applied, no subsidy should be presumed to exist. The designated authority may, if he considers
necessary, carry out certain practical tests in order to verify information or
to satisfy themselves that the verification procedures
are being effectively applied.
(iii) Where
there are no verification procedures, where they are not reasonable, or where
such procedures are instituted and considered reasonable but are found not to
be actually applied or not applied effectively, there may be a subsidy. In such
cases a further examination by the exporting country based on the actual
transactions involved would need to be carried out to determine whether an
excess payment occurred. If the
investigating authorities deemed it necessary, a further examination would be
carried out in accordance with sub-paragraph (ii) of Part 3 of this Annexure.
(iv) The
existence of a substitution drawback provision under which exporters are
allowed to select particular import shipments on which drawback is claimed
should not of itself be considered to convey a subsidy.
(v) An
excess drawback of import charges in the sense of paragraph (i) would be deemed
to exist where governments paid interest on any monies
refunded under their drawback schemes, to the extent of the interest actually
paid or payable.
ANNEXURE IV
GUIDELINES FOR THE CALCULATION OF THE AMOUNT OF
SUBSIDY IN COUNTERVAILING DUTY INVESTIGATIONS
A. CALCULATION OF SUBSIDY PER UNIT/AD
VALOREM
The calculation of the benefit shall
reflect the amount of subsidy found to exist during the investigation period
and not simply the face value of the amount at the time it is transferred to
the recipient or foregone by the government. Thus, the face value of the amount of the
subsidy should be transformed into the value prevailing during the
investigation period through the application of the normal commercial interest
rate.
The objective of the calculation
should be to arrive at the amount of subsidy per unit of production during the
investigation period. In the case of
consumer products, such as television sets, the appropriate unit would be each
individual item. If bulk products, such
as fertilizers or chemicals, are involved, it would be appropriate to calculate
the subsidy, that is to say, per tonne, or other appropriate unit of
measurement. The per
unit subsidy can be converted into an ad valorem rate by expressing the per
unit subsidy as a percentage of export price. This may be used to establish whether the
subsidy amount is de minimis, since this is expressed ad valorem (1% for
imports from developed countries; 2 % for developing countries). In certain
circumstances, it may also be considered to be appropriate to express the
countervailing duty on an ad valorem basis.
B. CALCULATION OF CERTAIN TYPES OF SUBSIDY
(a) Grants
In the case of a grant (or equivalent)
where none of the money is repaid, the value of the subsidy should be the
amount of the grant corrected for any differences between the point in time of
its receipt and the investigation period, i.e. the period in which the
production or sales are allocated. Therefore,
if the grant is expensed during the investigation period, (that is, its amount
is entirely allocated to production or sales during this period), the interest
that would have accrued during that period should normally be added. If however, the grant is allocated over a
longer period than the investigation period, the interest may be added as
described in section C (a)(ii).
Any lump sum of revenue transferred
or foregone (e.g. income tax or duty exemption, rebates, money saved from preferential
provision of goods and services or gained from excessive prices for the
purchase of goods) should be considered as being equivalent to a grant.
(i) Direct transfer of funds
The amount of subsidy should be the
amount received by the company concerned (a subsidy to cover operating losses
would fall into this category).
(ii) Tax exemptions
The amount of subsidy should be the
amount of tax that would have been payable by the recipient company at the
standard applicable tax rate during the investigation period.
(iii) Tax reductions
The amount of subsidy should be the
difference between the amount of tax actually paid by the recipient company
during the investigation period and the amount that would have been paid at the
normal rate of tax.
(The same method should be applied
to all other exemptions and reduction of obligation, e.g. import duties, social
security contributions, redundancy payments)
(iv)
Accelerated depreciation
Accelerated depreciation of assets
under a government agreed programme should be considered as a tax reduction. The amount of subsidy should be the difference
between the amount of tax that would have been paid during the investigation
period under the normal depreciation schedule for the assets concerned, and the
amount actually paid under accelerated depreciation. To the extent that the accelerated
depreciation results in a tax saving for the company concerned during the
investigation period, there is a benefit.
(v) Interest rate subsidies
In the case of an interest rate
subsidy, the amount of subsidy should be the amount of interest saved by the
recipient company during the investigation period.
(b) Loans
(1) Basic methodology
(i) In
the case of a loan from the government (where repayment does take place) the
subsidy should be the difference between the amount of interest paid on the
government loan and the interest normally payable on a comparable commercial
loan during the investigation period.
(ii) A
comparable commercial loan would normally be a loan of a similar amount with a
similar repayment period obtainable by the recipient from a representative bank
operating on the domestic market.
(iii) In
this regard, the commercial interest rate should preferably be established on
the basis of the rate actually paid by the company concerned on comparable
loans from banks. If this is not
possible, the investigation should consider the interest paid on comparable
loans to companies in a similar financial situation in the same sector of the
economy, or, if information on such loans is not available, to any comparable
loan made to companies in a similar financial situation in any sector of the
economy.
(iv) If there
are no comparable commercial lending practices on the domestic market of the exporting
country, the interest rate on a commercial loan may be estimated with reference
to indicators of the economic situation prevailing at the time, (notably the
inflation rate) and the situation of the company concerned.
(v) If
all or part of a loan is forgiven or defaulted on, the amount not re-paid
should be treated as a grant depending on whether there was a guarantee.
(2) Specific cases
(i) It
should be noted that tax deferrals, or the deferral of any other financial
obligation, should be considered as interest-free loans and the amount of
subsidy calculated as above.
(ii) In
the case of reimbursable grants, these should also be considered as interest
free loans until they are reimbursed. If
they are not reimbursed, in whole or in part, they should be considered as
grants rather than interest-free loans from the date on which non-reimbursement
is established. From this date, the
normal grant methodology should apply. In
particular, if the grant is to be allocated over time, such allocation would
start on the established date of non-reimbursement. The amount of subsidy should be the amount of
the grant, minus any repayments.
(iii) The
same approach would apply to contingent-liability loans. To the extent that such loans are given at a
preferential rate of interest, the subsidy should be calculated as in paragraph
(i). However, if it were to be
determined that the loan would not be repaid, it should be treated as a grant
from the date on which non-repayment was established. The amount of subsidy should be the amount of
the loan, less any repayments.
(c) Loan
guarantees
(i) In
general, a loan guarantee, by eliminating to some extent the risk of default by
the borrower to the lender, will normally enable a firm to borrow more cheaply
than would otherwise be the case. If the
government provides the guarantee, the fact that loans are obtained at a lower
interest rate than would otherwise be the case does not mean there is a
subsidy, provided that the guarantee is financed on a commercial basis, since
the financing of such a viable guarantee by the company would be assumed to
offset any benefit of a preferential interest rate.
(ii) In
this situation, it is considered that there is no benefit to the recipient if
the fee which it pays to the guarantee programme is sufficient to enable the
programme to operate on a commercial basis, i.e. to cover all its costs and to
earn a reasonable profit margin. In such
a situation, it is presumed that the fee covers the risk element involved in obtaining
a lower interest rate. If the guarantee
programme is viable during the investigation period as a whole and the
recipient has paid the appropriate fee, there is no financial contribution from
the government and therefore no subsidy, even if the recipient involved were to
default on its loans during the period.
If
the scheme is not viable, the benefit to the recipient should be the difference
between the fees actually paid and the fees which should have been paid to make
the programme viable, or the difference between the amount the firm pays on the
guaranteed loan and the amount that it would pay for a comparable commercial
loan in the absence of the government guarantee, whichever is the lower.
(iii) In
the case of ad hoc guarantees (i.e. not part of a programme), it should first
be ascertained whether the fees paid correspond to those charged to other
companies in a similar position which benefit from viable loan guarantee
programmes. If so, there would normally
be no subsidy; if not, the method explained in (ii) above would apply.
(iv) If no fees
are paid by the recipient, the amount of subsidy should be the difference
between the amount the firm pays on the guaranteed loan and the amount that it
would pay for a comparable commercial loan in the absence of the government
guarantee.
(v) The
same calculation principles would apply to credit guarantees, i.e., where the
recipient is guaranteed against credit defaults by its customers.
(d) Provision
of goods and services by the government
Principle
(i) The
amount of subsidy as regards the provision of goods or services by the
government should be the difference between the price paid by firms for the
goods or service, and adequate remuneration for the product or service in
relation to prevailing market conditions, if the price paid to the government
is less than this amount.
Adequate
remuneration should normally be determined in the light of prevailing market
conditions on the domestic market of the exporting country, and the calculation
of the subsidy amount must reflect only that part of the purchases of goods or
services which are used directly in the production or sale of the like product
during the investigation period.
Comparison with private suppliers
(ii) As
a first step, it must be established whether the same goods or services
involved are provided both by the government and by private operators. If this is the case, the price charged by the
government body would normally constitute a benefit to the extent that it is
below the lowest price available from one of the private operators to the
company involved for a comparable purchase. The amount of subsidy should be the difference
between these two prices. If the company
involved has not made comparable purchases from private operators, details
should be obtained of the price paid by comparable companies in the same sector
of the economy or, if such data is not available, in the economy as a whole and
the amount of subsidy should be calculated as above.
Government monopoly suppliers
(iii) If,
however, the government is the monopoly supplier of the goods or services
involved, they are considered to be provided for less than adequate
remuneration if certain enterprises or sectors benefit from preferential
prices. The amount of subsidy should be
the difference between the preferential price and the normal price.
If
the goods and services in question are widely used in the economy, a subsidy
will only be specific or conferred on a limited number of persons if there is
evidence of preferential pricing to a particular firm or sector. It may be that per unit prices charged vary
according to neutral and objective criteria, for example large consumers pay
less per unit than small ones, as sometimes happens in the provision of gas and
electricity. In such situations, the
fact that certain enterprises benefit from more favourable prices than others
would not mean that the provision in this case was necessarily made for less
than adequate remuneration, provided that the pricing structure in question was
generally applied throughout the whole economy, without any preferential prices
being given to specific sectors or firms. The amount of subsidy should in principle be
the difference between the preferential price and the normal price charged to
an equivalent company, according to the normal structure.
(iv) However, if
the normal price is insufficient to cover the supplier's average total costs
plus a reasonable profit margin (based on sector averages), the amount of
subsidy should be the difference between the preferential price and the price
which would be required to cover the above costs and profit.
(v) If
the government is the monopoly supplier of the goods or services with a
specific use, e.g. television tubes, the question of preferential pricing does
not arise, and the amount of subsidy should be the difference between the price
paid by the firm involved and the price required to cover the supplier's costs
and profit margin.
(e) Purchase
of goods by government
(i) In
a situation where private operators purchase the kind of goods in question as
well as the government body, the amount of subsidy should be the extent to
which the price paid for the like product by the government exceeds the highest
price offered for a comparable purchase of the same goods by the private
sector.
(ii) If
the company involved has not made comparable sales to private operators,
details should be obtained of the price paid by private operators to comparable
companies in the same sector of the economy, or, if such data is not available,
in the economy as a whole. In such a case, the amount of subsidy should be
calculated as above.
(iii) If
the government has a monopoly for the purchase of the goods in question, the
amount of subsidy as regards the purchase of goods by the government should be
the extent to which the price paid for the goods exceeds adequate remuneration.
Adequate remuneration in this situation
is the average costs incurred by the firm selling the product during the investigation
period, plus a reasonable amount of profit, which will have to be determined on
a case-to-case basis.
The amount of subsidy should be the
difference between the price paid by the government and adequate remuneration
as defined above.
(f) Government provision of equity capital
(i) Government
provision of equity capital should not be considered as conferring a benefit,
unless the investment decision can be regarded as inconsistent with the usual
investment practice (including for the provision of risk capital) of private
investors in the exporting country concerned.
(ii) Therefore,
the provision of equity capital does not of itself confer a benefit. The criterion should be whether a private
investor would have put money into the company in the same situation in which
the government provided equity. On the
basis of this principle, the matter has to be dealt with on a case-to-case
basis.
(iii) If
the government buys shares in a company and pays above the normal market price
for these shares (taking account of any other factors which may have influenced
a private investor), the amount of subsidy should be the difference between the
two prices.
(iv) As a
general rule, in cases where there is no market in freely-traded shares, the
government's realistic expectation of a return on the price paid for equity
should be considered. In this regard,
the existence of an independent study demonstrating that the firm involved is a
reasonable investment should be considered the best evidence; if this is not
present, the onus should be on the government to demonstrate on what basis it
can justify its expectation of a reasonable return on investment.
(v) If
there is no market price and the equity injection is made as part of an ongoing
programme of such investments by the government, close attention should be paid
not just to the analysis of the firm in question, but to the overall record of
the programme over the last few years. If the records show that the programme has
earned a reasonable rate of return for the government, there should be a
presumption that the government is acting according to the usual investment
practice of private investors with regard to the case in question. If the programme has not generated a
reasonable return, the onus should be put on the government to demonstrate on
what basis it can justify its expectation of a reasonable return on investment.
(vi) The
existence of a subsidy should be determined by the information available to the
parties at the time the equity injection is made. Thus, if an investigation considers an equity
injection that was made several years before, the fact that the company has
performed less well than expected should not mean that a subsidy exists,
provided that the expectation of a reasonable return was justified in the light
of the facts know at the time of the provision of equity.
On
the other hand, a subsidy might exists even if a reasonable return has been
achieved, if at the equity injection the prospect of such a return was so
uncertain that no private party would have made the investment.
(vii) In
cases where there is no market price for the equity and there is a subsidy and
a benefit, i.e., the government has not acted according to the usual investment
practice of private investors, all or part of the equity provided must be
considered as a grant.
A
decision to consider all of the equity a grant should be made only in extreme
cases where it is determined that the government had no intention of receiving
any return on its investment and was in effect giving a disguised grant to the
firm in question.
A
decision on what portion of the equity to treat as a grant would depend on how
near the government has come to meeting the private investor standard. This determination should be made on a
case-to-case basis.
(g) Forgiveness
of government-held debt
Forgiveness of debt held by
government or government-owned banks relieves a company of its repayment
obligations and should therefore be treated as a grant. If the subsidy is to be allocated, the
allocation period should begin at the time of the forgiveness of the debt. The amount of subsidy should be the
outstanding amount of the debt forgiveness (including any interest accrued).
C. INVESTIGATION
PERIOD FOR SUBSIDY - CALCULATION OF EXPENSE VERSUS ALLOCATION
The amount of subsidy should be
established during an investigation period, which should normally be the most
recent financial year of the beneficiary enterprise. Although any other period of six months prior
to initiation may be used, it is preferable to use the most recent financial
year, since this will enable all appropriate data to be verified on the basis
of audited accounts.
As many subsidies have effects for a
number of years, subsidies granted before the investigation period should also
be investigated in order to determine what portion of such subsidy is
attributable to the investigation period.
(i) If
the subsidy is granted on a per unit basis, for example, an export rebate
granted per unit of product, the per unit calculation normally consists of
taking the weighted-average value of the rebate over the investigation period;
(ii) Other
kinds of subsidy are not readily expressed on a per unit basis, but involve a
global sum of money which has to be allocated to each unit of product as
appropriate. Two exercises may have to
be carried out, in this respect:
- Attribution to the investigation period of a portion of those
subsidies granted before the investigation period but whose effects extend over
a number of years.
- Allocation of the subsidy amount attributed to the investigation
period per unit of the like product. In this case, the appropriate denominator
for such allocation has to be selected.
(a) Attribution
of a subsidy amount to the investigation period
(i) Many
types of subsidy, e.g. tax incentives and preferential loans are recurring and
the effect is felt immediately after granting. Thus, the amount granted to the beneficiary
can be expensed in the investigation period. The expensed amount should normally be
increased by the annual commercial interest rate, to reflect the full benefit
to the recipient, on the assumption that the beneficiary would have had to
borrow the money at the beginning of the period and repay it at the end.
(ii) For
non-recurring subsidies, which can be linked to the acquisition of fixed
assets, the total value of the subsidy should be spread over the normal life of
the assets. Therefore the amount of
subsidy from, for example, a grant (for which it is assumed that it is used by
the beneficiary to improve its competitiveness in the long term, and thus to
purchase product assets of one kind or another), can be spread over the normal
period used in the industry involved for the depreciation of assets. This should normally be done using the
straight-line-method. For example, if
the normal depreciation period was five years, 20% of the value of the grant
should be allocated to the investigation period.
The
approach of allocating over time means that non-recurring subsidies granted
several years before the investigation period may still be countervailed
provided that they still have an effect during the investigation period.
This
kind of allocation is equivalent to a series of annual grants, each having en
equal amount. In order to determine the benefit to the recipient, the
appropriate annual commercial interest rate should be added to each grant, to
reflect the benefit of not having to borrow the money on the open market. In
addition, in order to reflect the full benefit to the recipient of having a
lump sum of money at its disposal from the beginning of the allocation period,
the amount of subsidy should be increased by the average amount of interest
which the recipient would expect to earn on the non-depreciated amount of total
grant over the whole period of allocation.
(iii) As
an exception to (ii), non-recurring subsidies which amount to less than 1% ad
valorem may normally be considered to be expensed, even if they are linked to
the purchase of fixed assets.
(iv) In the case of recurring subsidies linked to the acquisition of fixed assets, e.g.
import duty exemptions on machinery, which date back to before the
investigation period, the benefits accruing from previous years within the
depreciation period should be taken into account and the appropriate amount
attributed to the investigation period.
(v) In
addition, recurring subsidies granted in large, concentrated amounts prior to
the investigation period, may in certain circumstances be allocated over time
if it is determined that they are likely to be linked to the purchase of fixed
assets and still confer a benefit during the investigation period.
(vi) In the case of subsidies expensed as in paragraphs (i) and (iii) no subsidies granted
before the investigation period should be taken into account. For subsidies allocated over time, as in (ii),
(iv), and (v), subsidies granted prior to the
investigation period must be considered.
(b) Appropriate
denominator for allocation of subsidy amount
Once the subsidy amount to be
attributed to the investigation period has been established, the
per unit amount may be arrived at by allocating it over the appropriate
denominator, consisting of the volume of sales or exports of a product
concerned.
(i) As
regards export subsidies the appropriate denominator for allocation should be
the export volume during the investigation period, since such subsidies benefit
only exports;
(ii) For
non-export subsidies the total sales (domestic plus export) should normally be
used as the denominator, since such subsidies benefit both domestic and export
sales.
(iii) If
the benefit of a subsidy is limited to a particular product, the denominator
should reflect only sales of that product. If this is not the case, the denominator
should be the recipient's total sales.
D. DEDUCTION
FROM AMOUNT OF SUBSIDY
1. Only
the following may be deducted from the amount of subsidy:
(i) Any
application fee, or other costs necessarily incurred in order to qualify for,
or to obtain, the subsidy
It is up to the exporter in the
country concerned to claim a deduction; in the absence of such a claim
accompanied by verifiable proof, no deduction should be granted. The only fees or costs that may normally be
deducted are those paid directly to the government in the investigation period.
It must be shown that such payment is
compulsory in order to receive the subsidy. Neither the payments made to private parties,
e.g., lawyers, accountants, incurred in applying for subsidies, nor the
voluntary contributions the governments, for example donations, are not deductible.
(ii) Export
taxes, duties or other charges levied on the export of a product to India
specifically intended to offset the subsidy
Such
claims for deductions should only be accepted if the charges involved were
levied during the investigation period, and it is established that they
continue to be levied at the time when definitive measures are recommended.
2. No other deductions can normally be made
from the amount of subsidy. No allowance can be made for any tax effects of
subsidies or for any other economic or time value effect beyond that which is
specified in this communication."
F.No 523/5/2005-Cus(TU)
Note: The principal Rule were published in theGazette of India in part I, section 3, sub-section (i), vide notification No 1/95-Customs(N.T), dated the 1st January, 1995 vide G.S.R dated the 1 January, 1995.
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