(1) The designated authority while determining the subsidy shall ascertain as to whether the subsidy under investigation-

(a) relates to export performance, or

(b) relates to the use of domestic goods over imported goods in the export article, or

(c) it has been conferred on a limited number of persons, engaged in manufacturing, producing or exporting the article unless such a subsidy is for-


(i) research activities conducted by on behalf of persons engaged in the manufacture, production or export; or

(ii) assistance to disadvantaged regions within the territory of the exporting country; or

(iii) assistance to promote adaptation of existing facilities to new environmental requirements:

Provided that for the purposes of sub clauses (a) and (b), subsidies of a king mentioned in the Agreement on Agriculture, contained the Final Act of the Uruguay Round of Multilateral Trade Negotiations, shall not be taken into consideration.


Explanations. – (1) For the purposes of sub clause (i) of clause (c) the tem “subsidy for research activity” means assistance for research activities conducted by commercial organisations or by higher education or research establishment on a contract basis with the commercial organisations if the assistance covers not more than seventy five per cent of the costs of industrial research or fifty per cent of the costs of per-competitive development activity and provided that such assistance is limited exclusively to-

(i) costs of personnel (researchers, technicians and other supporting staff employed exclusively in the research activity);

(ii) costs of instruments, equipment, land and buildings used exclusively and permanently (except when disposed of on a commercial basis) for the research activity;

(iii) costs of consultancy and equivalent services used exclusively for the research activity, including bought in research, technical knowledge, patents, etc.:

(iv) additional overhead costs incurred directly as a result of the research activity; and

(v) other running costs (such as those of materials, supplies and the like), incurred directly as a result of the research activity.

(2) For the purposes of sub-clause (ii) of clause (c), the term “subsidy for assistance to disadvantaged regions” means assistance to disadvantage regions within the territory of the exporting country given pursuant to a general framework of regional development and such subsidy has not been conferred on limited number of enterprises within the eligible region:

Provided that-


(a) each disadvantaged region must be a clearly designated contiguous geographical area with a definable economic and administrative identity;

(b) the region is considered as disadvantaged on the basis of neutral and objective criteria, indicating that the region’s difficulties arise out of more than temporary circumstances; such criteria must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification;

(c) the criteria shall include a measurement of economic development, which shall be based on at least one of the following factors.-


(i) one of either income per capita or household income per capita, or Gross Domestic Product per capita, which must not be above eighty five per cent of the average for the territory concerned;

(ii) unemployment rate, which must be at least one hundred and ten per cent of the average for the territory concerned, as measured over a three-year period; such measurement, however, may be a composite one and may include other factors.

(3) For the purposes of sub-clause (iii) of clause (c), “subsidy for assistance to promote adaptation of existing facilities to new environmental requirements” means assistance to promote adaptation of existing facilities to new environmental requirements imposed by law and/or regulations which result in grater constraints and financial burden on commercial organizations:

Provided that the assistance-


(i) is a one-time non-recurring measure; and

(ii) is limited to twenty per cent of the cost of adaptation; and

(iii) does not cover the cost of replacing and operating the assisted investment, which must be fully borne by commercial organizations; and

(iv) is directly linked to and proportionate to a commercial organisation’s planned reduction of nuisances and pollution, and does not cover any manufacturing coast savings which may be achieved; and

(v) is available to all firms, which can adopt the new equipment and/or production processes.

(4) The designated authority while determining the subsidy of a king as referred to in sub-clause (c) to sub-rule (1) shall take into account, inter-alia the principles laid down in Annexure II to these rules.