DS: Australia — Subsidies Provided to Producers and Exporters of Automotive Leather

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.


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Summary of the dispute to date

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Complaint by the United States.

On 4 May 1998, the United States requested consultations with Australia in respect of prohibited subsidies allegedly provided to Australian producers and exporters of automotive leather, including subsidies provided to Howe and Company Proprietary Ltd. (or any of its affiliated and/or parent companies), which allegedly involve preferential government loans of about $A25 million and non‑commercial terms and grants of about $A30 million. The United States contended that these measures violate the obligations of Australia under Article 3 of the SCM Agreement.


Panel and Appellate Body proceedings

On 11 June 1998, the United States requested the establishment of a panel. At its meeting on 22 June 1998, the DSB established a panel (see also DS106). On 27 October 1998, the United States requested the Director-General to determine the composition of the panel. On 2 November 1998, the Panel was composed.

The panel report was circulated to Members on 25 May 1999. The Panel found that the loan from the Australian Government to Howe/ALH is not a subsidy contingent upon export performance within the meaning of Article 3.1(a) of the SCM Agreement, but that the payments under the grant contract are subsidies within the meaning of Article 1 of the SCM Agreement, which are contingent upon export performance within the meaning of Article 3.1(a) of that Agreement. At its meeting on 16 June 1999, the DSB adopted the panel report. Pursuant to Article 4.7 of the SCM Agreement, the panel considered that a 90-day period would be appropriate for the withdrawal of the measures and therefore had recommended in its report that the measures be withdrawn within that period.


Reasonable period of time

On 6 July 1999, and after stating it considered that the first sentence of Article 21.3 of the DSU does not apply to the panel report in that case, Australia informed the DSB that it intended to implement the DSB recommendations within the 90-day period provided for in the Panel report, which was based on Article 4.7 of the SCM Agreement.


Compliance proceedings

On 4 October 1999, the United States informed the DSB that it believed that the measures taken by Australia to comply with the rulings and recommendations of the DSB were not consistent with the Subsidies Agreement and the DSU, and therefore requested that the original panel be reconvened pursuant to Article 21.5 of the DSU. The Australian government had announced earlier in a media release on 15 September 1999 that it had implemented to Panel report's recommendation by terminating the grant contract with Howe and that Howe had repaid $A8.065 million of the $A30 million grant. Australia stated that this repayment constituted the “prospective element” of the grant because it was “the proportion of grant monies found to be applied to the sales performance targets contained in the Grant Contract for the period from 14 September 1999 until the end of the Grant Contract on 30 June 2000.” Australia further stated in the same media release that it was providing a new loan of $A13.65 million to Howe's parent company, Australian Leather Holdings Ltd. At its meeting on 14 October 1999 the DSB decided, in accordance with Article 21.5 of the DSU, to refer to the original panel the matter raised by the United States regarding compliance with the DSB recommendations. The European Communities and Mexico reserved their third-party rights. The United States and Australia had reached an agreement concerning certain procedures to be applicable in this case under Articles 21 and 22. That agreement provided, inter alia, that Australia will not raise any procedural objection to the establishment of a panel in accordance with Article 21.5 of the DSU, while the United States will not request authorization to suspend concessions pursuant to Article 22.2 of the DSU until after the compliance panel has circulated its report. Also, it has been agreed that neither party will appeal the compliance panel’s report.  On 1 November 1999, the compliance panel was composed.

The report of the compliance panel was circulated to Members on 21 January 2000. The compliance panel determined that Australia had failed to comply with the DSB’s recommendations within 90 days. The DSB adopted the compliance panel’s report on 11 February 2000.


Mutually agreed solution

On 24 July 2000, the parties notified the DSB that they had reached a mutually satisfactory solution in regard to implementation of the findings of the compliance panel.


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