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V. Article 4 back to top
A. Text
of Article 4
Article 4: Remedies
4.1 Whenever a Member has reason to believe that a prohibited subsidy
is being granted or maintained by another Member, such Member may request
consultations with such other Member.
4.2 A request for consultations under
paragraph 1 shall include a
statement of available evidence with regard to the existence and nature
of the subsidy in question.
4.3 Upon request for consultations under
paragraph 1, the Member
believed to be granting or maintaining the subsidy in question shall
enter into such consultations as quickly as possible. The purpose of the
consultations shall be to clarify the facts of the situation and to
arrive at a mutually agreed solution.
4.4 If no mutually agreed solution has been reached within 30
days(6)
of the request for consultations, any Member party to such consultations
may refer the matter to the Dispute Settlement Body (“DSB”) for the
immediate establishment of a panel, unless the DSB decides by consensus
not to establish a panel.
(footnote original)
6 Any time-periods mentioned in this
Article may be extended by mutual agreement.
4.5 Upon its establishment, the panel may request the assistance of
the Permanent Group of Experts(7) (referred to in this Agreement as the
“PGE”) with regard to whether the measure in question is a
prohibited subsidy. If so requested, the PGE shall immediately review
the evidence with regard to the existence and nature of the measure in
question and shall provide an opportunity for the Member applying or
maintaining the measure to demonstrate that the measure in question is
not a prohibited subsidy. The PGE shall report its conclusions to the
panel within a time-limit determined by the panel. The PGE’s
conclusions on the issue of whether or not the measure in question is a
prohibited subsidy shall be accepted by the panel without modification.
(footnote original)
7 As established in Article
24.
4.6 The panel shall submit its final report to the parties to the
dispute. The report shall be circulated to all Members within 90 days of
the date of the composition and the establishment of the panel’s terms
of reference.
4.7 If the measure in question is found to be a prohibited subsidy,
the panel shall recommend that the subsidizing Member withdraw the
subsidy without delay. In this regard, the panel shall specify in its
recommendation the time-period within which the measure must be
withdrawn.
4.8 Within 30 days of the issuance of the panel’s report to all
Members, the report shall be adopted by the DSB unless one of the
parties to the dispute formally notifies the DSB of its decision to
appeal or the DSB decides by consensus not to adopt the report.
4.9 Where a panel report is appealed, the Appellate Body shall issue
its decision within 30 days from the date when the party to the dispute
formally notifies its intention to appeal. When the Appellate Body
considers that it cannot provide its report within 30 days, it shall
inform the DSB in writing of the reasons for the delay together with an
estimate of the period within which it will submit its report. In no
case shall the proceedings exceed 60 days. The appellate report shall be
adopted by the DSB and unconditionally accepted by the parties to the
dispute unless the DSB decides by consensus not to adopt the appellate
report within 20 days following its issuance to the Members.(8)
(footnote original)
8 If a meeting of the DSB is not scheduled
during this period, such a meeting shall be held for this purpose.
4.10 In the event the recommendation of the DSB is not followed
within the time-period specified by the panel, which shall commence from
the date of adoption of the panel’s report or the Appellate Body’s
report, the DSB shall grant authorization to the complaining Member to
take appropriate(9) countermeasures, unless the DSB decides by consensus
to reject the request.
(footnote original)
9 This expression is not meant to allow
countermeasures that are disproportionate in light of the fact that the
subsidies dealt with under these provisions are prohibited.
4.11 In the event a party to the dispute requests arbitration under
paragraph 6 of Article 22 of the Dispute Settlement Understanding (“DSU”),
the arbitrator shall determine whether the countermeasures are
appropriate.(10)
(footnote original)
10 This expression is not meant to allow
countermeasures that are disproportionate in light of the fact that the
subsidies dealt with under these provisions are prohibited.
4.12 For purposes of disputes conducted pursuant to this Article,
except for time-periods specifically prescribed in this Article,
time-periods applicable under the DSU for the conduct of such disputes
shall be half the time prescribed therein.
B. Interpretation and Application of Article 4
1. General
(a) Accelerated procedure and the deadline for the submission of new
evidence, allegations and affirmative defences
188. The Panel in Canada — Aircraft rejected a request for a
preliminary ruling that the complaining party may not adduce new
evidence or allegations after the end of the first substantive meeting
of the Panel with the parties. Canada had argued that given the
accelerated procedure under Article 4 of the SCM
Agreement, the late
submission of allegations or evidence by Brazil, the complaining party,
would be prejudicial to Canada’s position, as Canada would effectively
be denied an adequate opportunity to respond to these allegations or
evidence.(292) The Panel referred to the Appellate Body’s finding in Argentina
— Textiles and Apparel that “neither Article 11 of the DSU, nor
the Working Procedures in Appendix 3 of the DSU, establish precise
deadlines for the presentation of evidence by parties to a dispute”,(293)
and concluded that “[t] here is nothing in the DSU, or in the Appendix
3 Working Procedures, to suggest that a different approach should be
taken in ‘fast-track’ cases under Article 4 of the SCM
Agreement.”(294)
189. The Panel in Canada — Aircraft followed the reasoning
set out in the previous paragraph regarding the submission of new
allegations and stated that “[w]e can see nothing in the DSU, or in
the Appendix 3 Working Procedures, that would require the submission of
new allegations to be treated any differently than the submission of new
evidence.”(295)
190. In the Panel proceedings in Canada — Aircraft, Brazil
requested the Panel not to accept any affirmative defences by Canada
which had not been submitted prior to the end of the first substantive
meeting,(296) on the basis that “this is particularly important in this
fasttrack proceeding.”(297) The Panel stated that “there is nothing in
the DSU, or in Appendix 3 Working
Procedures, to prevent a party
submitting new evidence or allegations after the first substantive
meeting. We can see no basis in the DSU to treat the submission of
affirmative defences after the first substantive meeting any
differently.”(298) However, the Panel added that “Brazil’s due
process rights would not be respected if Canada were able to submit an
affirmative defence … after the second substantive meeting with the
Panel.”(299)
2. Article 4.2
(a) “include a statement of available evidence”
191. The Panel in Canada — Aircraft stated that “although
Article 4.2 of the SCM Agreement requires the Member requesting
consultations to provide a ‘statement of available evidence’, there
is nothing in either the DSU or the SCM Agreement to suggest that
requests for establishment of panels for ‘fast-track’ cases should
be any more precise than requests for establishment of panels in ‘standard’
WTO dispute settlement cases.”(300)
192. The Panel in Australia — Automotive Leather II rejected
the argument that Article 4.2 “imposes an obligation on the
complainant to disclose in its request for consultations, not only
facts, but also the argumentation why such facts lead the complainant to
believe there is a violation of Article
3.1,”(301) and stated that “[t]he
ordinary meaning of the phrase ‘include a statement of available
evidence’ does not, on its face, require disclosure of arguments in
the request for consultations. Nothing in the context or object and
purpose of Article 4.2 … suggests a different conclusion.”(302) The
Panel in Australia — Automotive Leather II then addressed the
claim that Article 4.2 requires the disclosure of all facts and evidence
upon which the complaining Member intends to rely in the course of the
dispute settlement proceedings:
“Turning to the question of what is required as a ‘statement of
available evidence’, we note that Australia reads this to require
disclosure of all facts and evidence on which the complaining Member
will rely in the course of the dispute. Indeed, Australia asserts that
any exhibits should have been provided at the time consultations were
requested. The ordinary meaning of the phrase ‘statement of available
evidence’ does not support Australia’s position. The word ‘evidence’
is defined as ‘available facts, circumstances, etc., supporting or
otherwise a belief, proposition, etc.’ ‘Available’ is defined as
‘at one’s disposal’, and ‘statement’ is defined as ‘expression
in words’. Thus, based on the ordinary meaning of the terms, Article 4.2
requires a complaining Member to include in the request for
consultations an expression in words of the facts at its disposal at the
time it requests consultations in support of the conclusion that it has,
in the words of Article 4.1, ‘reason to believe that a prohibited
subsidy is being granted or maintained… .’
Moreover, nothing in the context or object and purpose of
Article 4.2 suggests to us that the statement of available evidence must be as
comprehensive as Australia would require. The mere fact that proceedings
under Article 4 of the SCM Agreement are accelerated by comparison to
dispute settlement proceedings under the DSU does not, in our view,
require us to read into Article 4.2 a requirement that the complainant
disclose all facts and arguments in its request for consultations. …
To the extent that the additional requirement of Article 4.2
can be
linked to the expedited nature of the proceedings, the additional
requirement of a statement of available evidence satisfies the need
adequately to apprise the responding Member of the information upon
which the complaining Member bases its request for consultations, and
serves in addition to inform the resulting consultations.”(303)
193. The Panel in Australia — Automotive Leather II also
rejected the arguments that “the requirement of Article 4.2, that a
request for consultations ‘include a statement of available evidence’,
in conjunction with the expedited nature of the proceedings, [requires]
a panel to limit the complaining Member to using the evidence and
arguments set forth in the request for consultations”,(304) and “that
to allow a complainant to come forward with additional facts and
arguments in its first submission is inconsistent with Article 4 SCM
Agreement”.(305) In so holding, the Panel referred to its obligation
under Article 11 of the DSU to conduct an objective assessment of the
matter before it; specifically, the Panel held that “a decision to
limit the facts and arguments that the United States may present during
the course of this proceeding to those set forth in the request for
consultations would make it difficult, if not impossible, for us to
fulfill our obligation to conduct an ‘objective assessment’ of the
matter before us.”(306)
194. In rejecting Australia’s claim that in the light of the
requirement under Article 4.2 to make a “statement of available
evidence”, a complainant was disallowed from coming forward with
additional facts and arguments in its first submission, the Panel in Australia
— Automotive Leather II did not rely exclusively on Article 11 of the DSU. The Panel also referred to the right of panels, under
Article
13.2 of the DSU, to seek information from any relevant source, a right
which, in the opinion of the Panel, is in no way curtailed by Article 4
of the SCM Agreement. Finally, the Panel also considered the
requirements with respect to the request for consultations:
“Article 4.2 does contain a requirement, not present in the DSU,
that a complainant include a ‘statement of available evidence’ in
its request for consultations. However, we do not consider that the
scope of the evidence that a panel may consider is limited in any way by
such a statement of available evidence. In this respect, we note Article
4.3 of the SCM Agreement, which explicitly states that one of the
purposes of consultations ‘shall be to clarify the facts of the
situation…’. (emphasis added) This provision implies that
additional facts or evidence will be developed during consultations.
Moreover, the Appellate Body has recognized that consultations play a
significant role in developing the facts in a dispute settlement
proceeding. For example, in India — Patents, the Appellate Body
observed that ‘the claims that are made and the facts that are
established during consultations do much to shape the substance and
the scope of subsequent panel proceedings’. (emphasis added) This is
consistent with the view that a central purpose of consultations in
general, and of consultations under Article 4 of the SCM Agreement in
particular, is to clarify and develop the facts of the situation.
Moreover, we note that panels have, under Article 13.2 of the DSU, a
general right to seek information ‘from any relevant source’.
Indeed, it is a common feature of panel proceedings for panelists to
question parties about the facts and arguments underlying their
positions. There is nothing in Article 4 SCM Agreement to suggest that
this right is somehow limited by the expedited nature of dispute
settlement proceedings conducted under that provision. If Australia’s
position were correct, a panel might be constrained from seeking out
replacement information from the party … that was limited to reliance
on the facts set forth in its request for consultations. Similarly,
under Australia’s view, the defending party might introduce
information during the panel proceedings, which the complaining party
… would not be able to rebut, as it would be limited to reliance on
the facts set forth in its request for consultations. We do not believe Article 4.2
requires this result.”(307)
195. The Panel in US — FSC, in a finding subsequently
confirmed by the Appellate Body,(308) considered the ordinary meaning of
the terms “statement of available evidence” and indicated that a
complainant must identify but need not annex available evidence to its
request for consultations. It also considered that there is no need to
use explicitly the words “statement of available evidence” provided
that the relevant evidence is itself referred to. The Panel stated:
“We note that the word ‘evidence’ has been defined as ‘available
facts, circumstances, etc., supporting or otherwise a belief,
proposition, etc.’, the word ‘available’ has been defined as ‘at
one’s disposal’, and the word ‘statement’ has been defined as
‘expression in words’.(309) Thus, in its ordinary meaning Article 4.2
requires that a Member include in its request for consultations an
expression in words of the facts at its disposal at the time it requests
consultations in support of its view that it has, in the words of
Article 4.1, ‘reason to believe that a prohibited subsidy is being
granted or maintained’. On the basis of the ordinary meaning of Article 4.2, it is evident that a complainant must identify, but need
not annex, available evidence to its request for consultations.
… Although the European Communities did not recite the formulation
‘statement of available evidence’ when referring to these materials,
we do not consider that the explicit use of that descriptive term is
necessary provided that the relevant evidence is itself referred to. It
is true, of course, that the European Communities in its first
submission referred to a variety of additional materials, primarily in
the form of secondary sources,(310) and that these additional materials
were not identified in the request for consultations. Even assuming that
these materials represent “evidence” and that a Member is required
to identify all available evidence in its request for
consultations, we are not in a position to determine whether as a
factual matter these materials were at the disposal of the European
Communities at the time it made its request for consultations and that
the European Communities knew at that time that it would rely on those
materials. In short, it may well be that the European Communities’
request for consultations does contain a statement of available
evidence.”(311)
196. In US — FSC, the Appellate Body rejected the United
States’ argument that a complaint should be dismissed because the
complainant failed to “include a statement of available evidence” in
its request for consultations. The Appellate Body pointed out a variety
of facts, for example, that “[f]ollowing the European Communities’
request for consultations, the United States and the European
Communities held three separate sets of consultations over a period of
nearly five months.”(312) The Appellate Body also invoked Article 3.10
of the DSU and the principle of good faith:
“Article 3.10
of the DSU commits Members of the WTO, if a dispute
arises, to engage in dispute settlement procedures ‘in good faith in
an effort to resolve the dispute’. This is another specific
manifestation of the principle of good faith which, we have pointed out,
is at once a general principle of law and a principle of general
international law.(313) This pervasive principle requires both complaining
and responding Members to comply with the requirements of the DSU (and
related requirements in other covered agreements) in good faith. By good
faith compliance, complaining Members accord to the responding Members
the full measure of protection and opportunity to defend, contemplated
by the letter and spirit of the procedural rules. The same principle of
good faith requires that responding Members seasonably and promptly
bring claimed procedural deficiencies to the attention of the
complaining Member, and to the DSB or the panel, so that corrections, if
needed, can be made to resolve disputes. The procedural rules of WTO
dispute settlement are designed to promote, not the development of
litigation techniques, but simply the fair, prompt and effective
resolution of trade disputes.”(314)
197. The Panel in US — FSC had found that the European
Communities’ request for consultations under Article 4.1 of the SCM
Agreement contained a sufficient statement of available evidence within
the meaning of Article 4.2, and, consequently, rejected the United
States’ request that the Panel dismiss the European Communities’
claim as not properly before it as a result of the alleged insufficiency
of the statement of available evidence. Upon appeal, the Appellate Body
rejected the United States’ appeal with respect to the second point
and, as a result, declined to rule on the United States’ appeal on the
first point, i.e. whether the European Communities had given a
sufficient statement of available evidence within the meaning of Article 4.2. In its analysis, the Appellate Body distinguished between the
requirements imposed on the complaining party under Article 4.4 of the
DSU and Article 4.2 of the SCM Agreement and held that the Panel had not
differentiated between these requirements carefully enough:
“Article 1.2 of the DSU states that ‘the rules and procedures of
the DSU shall apply subject to the special or additional rules and
procedures on dispute settlement contained in the covered agreements as
are identified in Appendix 2 to this Understanding’.
Article 4.2 of
the SCM Agreement is listed as a ‘special or additional rule or
procedure’ in Appendix 2 to the DSU. In our Report in Guatemala —
Cement, we said that ‘the rules and procedures of the DSU apply together
with the special or additional provisions of the covered agreement’
except that, ‘in the case of a conflict between them’,
the special or additional provision prevails.(315) Article 4.4 of the DSU
requires that all requests for consultations, under the covered
agreements, ‘give reasons for the request, including identification
of the measures at issue and an indication of the legal basis for
the complaint.’ (emphasis added) It is clear to us that Article 4.4 of the DSU
and Article 4.2 of the SCM Agreement can and
should be read and applied together, so that a request for consultations
relating to a prohibited subsidy claim under the SCM Agreement must
satisfy the requirements of both provisions.
Article 4 SCM Agreement provides for accelerated dispute
settlement procedures for claims involving prohibited subsidies under
Article 3 of the SCM Agreement. The determination of whether a
prohibited subsidy is being granted or maintained under C of the SCM
Agreement raises complex factual questions, particularly in the case
of subsidies that are claimed to be de facto contingent upon
export performance. Also, Article 4.5 of the SCM Agreement allows
a panel to request the assistance of the Permanent Group of Experts on
whether the measure is a prohibited subsidy. Given the accelerated
timeframes for disputes involving claims of prohibited subsidies, and
given that the issue of whether a measure is a prohibited subsidy often
requires a detailed examination of facts, it is important to stress the
requirement of Article 4.2 that there be ‘a statement of available
evidence with regard to the existence and nature of the subsidy in
question’ at the consultation stage in a dispute.
We emphasize that this additional requirement of ‘a statement of
available evidence’ under Article 4.2 of the SCM Agreement is
distinct from — and not satisfied by compliance with — the
requirements of Article 4.4 of the DSU. Thus, as well as giving the
reasons for the request for consultations and identifying the measure
and the legal basis for the complaint under Article 4.4 of the DSU, a
complaining Member must also indicate, in its request for consultations,
the evidence that it has available to it, at that time, ‘with regard
to the existence and nature of the subsidy in question’. In this
respect, it is available evidence of the character of the measure as a
‘subsidy’ that must be indicated, and not merely evidence of the
existence of the measure. We would have preferred that the panel give
less relaxed treatment to this important distinction.”(316)
198. In US — Upland Cotton, the Panel explained the scope of
the requirement set out in Article 4.2:
“This additional requirement in Article 4.2 of the SCM Agreement serves to provide a responding Member with a better understanding of
the matter in dispute and serves as the basis for consultations. The
statement of available evidence informs the responding Member of facts
at the disposal of the complaining Member at the time it requests
consultations about the prohibited subsidy it alleges is being granted
or maintained.
However, Article 4.2 does not require disclosure of all facts and
evidence upon which the complaining Member will ultimately rely in the
course of the dispute settlement proceedings. Article 4.3 explicitly
states that one of the purposes of consultations shall be to “clarify
the facts of the situation”. This implies that additional facts and
evidence will be developed during the consultations.(317)
This is
consistent with the view that a central purpose of consultation in
general, and of consultations under Article 4 of the SCM Agreement in
particular, is to clarify and develop the facts of the situation.
The statement of available evidence directs attention to the measures
concerned. It is the starting point for consultations, and for the
emergence of more evidence concerning the measures by reason of the
clarification of the “situation”. If the dispute proceeds to the
panel stage, additional evidence may well come to light by reason of the
parties’ participation in the panel procedures, including in response
to the panel’s questions and requests for information.”(318)
199. In US — Upland Cotton, the Appellate Body upheld the
Panel’s ruling that Brazil provided a statement of available evidence
as required by Article 4.2. In the course of its analysis, the Appellate
Body stated that:
“We recognize that the statement of available evidence plays an
important role in WTO dispute settlement. The adequacy of the statement
of available evidence must be determined on a case by case basis. As the
Panel stated, moreover, the “statement of available evidence … is
the starting point for consultations, and for the emergence of more
evidence concerning the measures by reason of the clarification of the
‘situation’”. It is, therefore, important to bear in mind that the
requirement to submit a statement of available evidence applies in the
earliest stages of WTO dispute settlement, and that the requirement is
to provide a “statement” of the evidence and not the evidence
itself.(319),(320)
(b) Relationship with other WTO Agreements
200. With respect to the different evidence to be submitted in the
course of consultations under Article 4.4 of the DSU and
Article 4.2 of
the SCM Agreement, respectively, see paragraph 197
above.
3. Article 4.3
(a) “shall be to clarify the facts of the situation”
201. With respect to this phrase, see
paragraph 194 above.
4. Article 4.4
(a) Relationship between the matter before a panel as defined by its
terms of reference and the matter consulted upon
202. In Brazil — Aircraft, the Panel considered whether and
to what extent a panel is limited in its consideration of the matter
identified in its terms of reference by the scope of the matter with
respect to which consultations were held.(321) The Appellate Body agreed
with the Panel’s finding in this regard and stated as follows:
“In our view, Articles 4 and
6 of the DSU, as well as paragraphs 1
to 4 of Article 4 SCM Agreement, set forth a process by which a
complaining party must request consultations, and consultations must be
held, before a matter may be referred to the DSB for the establishment of
a panel. Under Article 4.3 of the SCM Agreement, moreover, the
purpose of consultations is ‘to clarify the facts of the situation and
to arrive at a mutually agreed solution.’
We do not believe, however, that Articles 4 and
6 of the DSU, or
paragraphs 1 to 4 of Article 4 SCM Agreement, require a precise
and exact identity between the specific measures that were the
subject of consultations and the specific measures identified in the
request for the establishment of a panel.”(322)
203. The Panel in Canada — Aircraft adopted a very similar
approach to the relationship between a panel’s terms of reference and
the matter consulted upon:
“In our view, a panel’s terms of reference would only fail to be
determinative of a panel’s jurisdiction if, in light of Article 4.1
— 4.4 of the SCM Agreement applied together with
Article 4.2 — 4.7
of the DSU, the complaining party’s request for establishment were
found to cover a ‘dispute’ that had not been the subject of a
request for consultations. Article 4.4 of the SCM Agreement permits a
Member to refer a ‘matter’ to the DSB if ‘nomutually agreed
solution’ is reached during consultations. In our view, this provision
complements Article 4.7 of the DSU, which allows a Member to refer a ‘matter’
to the DSB if ‘consultations fail to settle a dispute’. Read
together, these provisions prevent a Member from requesting the
establishment of a panel with regard to a ‘dispute’ on which no
consultations were requested. In our view, this approach seeks to
preserve due process while also recognising that the ‘matter’ on
which consultations are requested will not necessarily be identical to
the ‘matter’ identified in the request for establishment of a panel.
The two ‘matters’ may not be identical because, as noted by the
Appellate Body in India — Patents, ‘the claims that are made
and the facts that are established during consultations do much to shape
the substance and the scope of subsequent panel proceedings’”.(323)
(b) Relationship with other WTO Agreements
204. With respect to the relationship between
Article 4 of the SCM
Agreement on the one hand and Articles 4 and
6 of the DSU on the other,
see paragraphs 202–203 above.
5. Article 4.5
(a) Relationship with other Articles
205. As regards the establishment of the Permanent Group of Experts
by Article 24.3, see paragraph 509
below.
6. Article 4.7
(a) “withdraw the subsidy”
206. The Appellate Body in Brazil — Aircraft (Article 21.5 —
Canada) analysed the meaning of the word “withdraw”, and stated
that: “we observe first that this word has been defined as ‘remove’,
or ‘take away’, and as ‘to take away what has been enjoyed; to take
from.’ This definition suggests that ‘withdrawal’ of a subsidy,
under Article 4.7 of the SCM Agreement, refers to the ‘removal’
or ‘taking away’ of that subsidy.”(324) Applied to the facts of the
dispute, the Appellate Body concluded that “[i]n our view, to continue
to make payments under an export subsidy measure found to be prohibited
is not consistent with the obligation to ‘withdraw’ prohibited
export subsidies, in the sense of ‘removing’ or ‘taking away’”.(325)
207. The Appellate Body in Brazil — Aircraft (Article 21.5 —
Canada) considered the argument by Brazil that Brazil had a
contractual obligation under domestic law to issue PROEX bonds pursuant
to commitments that had already been made, and that Brazil could be
liable for damages for breach of contract under Brazilian law if it
failed to respect its contractual obligations. The Appellate Body
considered that these issues were not relevant to the “issue of
whether the DSB’s recommendation to ‘withdraw’ the prohibited
export subsidies permitted the continued issuance of NTN-I bonds under
letters of commitment issued before [the date set by the Panel for the
withdrawal of the prohibited subsidies]”.(326)
208. In contrast to the findings of the Panel in Brazil —
Aircraft (Article 21.5 — Canada), the Panel in Australia —
Automotive Leather II (Article 21.5 — US) did not limit its
findings to a situation in which a Member continues to grant a
prohibited subsidy. Rather, the Panel addressed the issue whether the
term “withdraw the subsidy” is limited to a recommendation with
purely prospective effect, or whether it also encompasses repayment:
“Turning first to the ordinary meaning of the term, the word ‘withdraw’
has been defined as: ‘pull aside or back …; take away, remove …;
retract … This definition does not suggest that ‘withdraw the
subsidy’ necessarily requires only some prospective action. To the
contrary, it suggests that the ordinary meaning of ‘withdraw the
subsidy’ may encompass ‘taking away’ or ‘removing’ the
financial contribution found to give rise to a prohibited subsidy.
Consequently, an interpretation of ‘withdraw the subsidy’ that
encompasses repayment of the prohibited subsidy seems a straightforward
reading of the text of the provision.
… In the case of ‘actionable’ subsidies, Members whose trade
interests are adversely affected may, under Part III of the SCM
Agreement, pursue multilateral dispute settlement in order to establish
whether the subsidy in question has resulted in adverse effects to the
interests of the complaining Member. ‘If such a finding is made, the
subsidizing Member ‘shall take appropriate steps to remove the adverse
effects or shall withdraw the subsidy’. Alternatively, a Member
whose domestic industry is injured by subsidized imports may impose a
countervailing measure under Part V of the SCM
Agreement, ‘unless
the subsidy or subsidies are withdrawn’. In both cases, withdrawal
of the subsidy is an alternative, available to the subsidizing Member,
to some other action. Repayment of the subsidy would certainly
effectuate withdrawal of the subsidy by a subsidizing Member so as to
allow it to avoid action by the complaining Member. … Thus, the use of
the term ‘withdraw’ elsewhere in the SCM Agreement further supports
the suggestion that it may encompass repayment. (original emphasis)
…
… An interpretation of Article 4.7 of the SCM Agreement which would
allow exclusively ‘prospective’ action would make the recommendation
to ‘withdraw the subsidy’ under Article 4.7 indistinguishable from
the recommendation to ‘bring the measure into conformity’ under
Article 19.1 of the DSU, thus rendering Article 4.7 redundant.”(327)
209. After rejecting the argument that the phrase “withdraw the
subsidy” under Article 4.7 of the SCM Agreement refers to a
recommendation with exclusively “prospective effect,”(328) the Panel
in Australia — Automotive Leather II (Article 21.5 — US) also
rejected the notion that a repayment of portions of a subsidy which are
deemed allocated over future periods of time should be considered a “prospective”
remedy:
“[W]e do not find meaningful the distinction proposed … between
repayment of ‘prospective’ and ‘retrospective’ portions of past
subsidies in the context of Article 4.7 of the SCM
Agreement. We do not
agree that it is possible to conclude that repayment of the ‘prospective
portion’ of prohibited subsidies paid in the past is a remedy having
only prospective effect. In our view, where any repayment of any amount
of a past subsidy is required or made, this by its very nature is not
a purely prospective remedy. No theoretical construct allocating the
subsidy over time can alter this fact. In our view, if the term ‘withdraw
the subsidy’ can properly be understood to encompass repayment of any
portion of a prohibited subsidy, ‘retroactive effect’ exists.”(329)
210. The Panel in Brazil — Aircraft (Article 21.5 — Canada) rejected
Brazil’s contention that requiring Brazil to cease issuing bonds
pursuant to commitments made prior to the withdrawal date amounted to a
retroactive remedy. Rather, the Panel opined that “the obligation to
cease performing illegal acts in the future is a fundamentally
prospective remedy”.(330)
(b) Time-period for withdrawal of measures
211. The Panel in Brazil — Aircraft determined that “taking
into account the nature of the measures and the procedures which may be
required to implement our recommendation, on the one hand, and the
requirement that Brazil withdraw its subsidies ‘without delay’ on
the other, we conclude that Brazil shall withdraw the subsidies within
90 days.”(331) Agreeing with the Panel’s conclusion and
recommendation, the Appellate Body in Brazil — Aircraft noted
that “there is a significant difference between the relevant rules and
procedures of the DSU and the special or additional rules and procedures
set forth in Article 4.7 of the SCM Agreement. Therefore, the
provisions of Article 21.3 of the DSU are not relevant in determining
the period of time for implementation of a finding of inconsistency with
the prohibited subsidies provisions of Part II of the SCM Agreement.”(332)
212. In Australia — Automotive Leather II, Australia
suggested seven and a half months (half of what Australia considered the
“normal” period of time for implementation of panel decisions) as
the time-period for withdrawal under Article 4.7. The Panel disagreed:
“Even assuming Australia is correct in its consideration of fifteen
months as the ‘normal’ period of time for implementation of panel
decisions, a question we do not reach, we do not agree that one-half of
that period is appropriate in a dispute involving export subsidies. In
the first place, Article 4.12 specifically provides that ‘except for
time periods specifically prescribed in this Article’ the time periods
otherwise provided for in the DSU should be halved in export subsidy
disputes. Article 4.7, which provides that the subsidy shall be
withdrawn ‘without delay’, and that the panel shall specify the
time-period for withdrawal of the measure in its recommendation, in our
view establishes that the time-period for withdrawal is ‘specifically
prescribed in this Article’, that is, in Article 4 SCM Agreement
itself. Moreover, we do not, as a factual matter, believe that a period of
seven and one-half months can reasonably be described as corresponding
to the requirement that the measure must be withdrawn ‘without delay’.”(333)
213. In US — FSC (Article 21.5 — EC), the Appellate Body
clarified that the text of Article 4.7 requires withdrawal “without
delay”. The Appellate Body considered there was “no basis” for
extending the time-period prescribed for withdrawal: (1) either to
protect the contractual interests of private parties, or (2) to ensure
an orderly transition to the regime of the new measure. The Appellate
Body recalled that it had rejected similar arguments in Brazil —
Aircraft (Article 21.5 — Canada), because the obligation to
withdraw prohibited subsidies “without delay” is “unaffected by
contractual obligations that the Member itself may have assumed under
municipal law. The Appellate Body stated:
“Article 4.7 of the SCM Agreement requires prohibited
subsidies to be withdrawn ‘without delay’, and provides that a
time-period for such withdrawal shall be specified by the panel. We can
see no basis in Article 4.7 of the SCM Agreement for extending
the time-period prescribed for withdrawal of prohibited subsidies for
the reasons cited by the United States. In that respect, we recall that,
in Brazil — Aircraft (Article 21.5 — Canada), Brazil made a
similar argument to the one made by the United States in these
proceedings. Brazil argued that, after the expiration of the time period
for withdrawal of the prohibited export subsidies, it should be
permitted to continue to grant certain of these subsidies because it had
assumed contractual obligations, under municipal law, to do so.(334) We
rejected this argument, and observed that:
… to continue to make payments under an export
subsidy measure found
to be prohibited is not consistent with the obligation to ‘withdraw’
prohibited export subsidies, in the sense of ‘removing’ or ‘taking
away’.(335)
[A] Member’s obligation under Article 4.7 of the SCM Agreement
to
withdraw prohibited subsidies “without delay” is unaffected by
contractual obligations that the Member itself may have assumed under
municipal law. Likewise, a Member’s obligation to withdraw prohibited
export subsidies, under Article 4.7 of the SCM Agreement, cannot
be affected by contractual obligations which private parties may have
assumed inter se in reliance on laws conferring prohibited export
subsidies. Accordingly, we see no legal basis for extending the
time-period for the United States to withdraw fully the prohibited FSC
subsidies.”(336)
214. In the same vein, with regard to the concept of “without delay”
in Article 4.7, the Panel in Canada — Aircraft Credits and
Guarantees took the view that because it “[is] required to make
the recommendation provided for in Article 4.7 of the SCM
Agreement, …
[it] recommend[s] that Canada withdraw the subsidies identified above
without delay”(337) and further clarified that Article
4.7:
“[P]rovides that ‘the panel shall specify in its recommendation
the time-period within which the measure must be withdrawn’. In other
words, we are required to specify what period would represent withdrawal
‘without delay’. Taking into account the procedures that may be
required to implement our recommendation on the one hand, and the
requirement that Canada withdraw its subsidies “without delay” on
the other, we conclude that Canada shall withdraw the subsidies
identified in sub-paragraphs (e), (f), and (g) of paragraph within 90
days.”(338)
(c) Relationship with other Articles
(i) Article 7.8
215. The Panel in Australia — Automotive Leather II (Article
21.5 — US) referred to Article 7.8 in support of its finding in
relation to the phrase “withdraw the subsidy” under Article
4.7. The
Panel noted the wording of Article 7.8 that in case of a finding of
adverse effects to the interests of another Member within the meaning of
Article 5 SCM Agreement, the subsidizing Member “shall take
appropriate steps to remove the adverse effects or shall withdraw the
subsidy”. The Panel drew the conclusion that “withdrawal of the
subsidy is an alternative, available to the subsidizing Member, to some
other action. Repayment of the subsidy would certainly effectuate
withdrawal of the subsidy by a subsidizing Member so as to allow it to
avoid action by the complaining Member.”(339)
(ii) Article 19.1
216. The Panel in Australia — Automotive Leather II (Article
21.5 — US), in the context of considering whether Article 4.7
allowed “retroactive” remedies, rejected the argument that “Article
19.1 of the DSU, even in conjunction with Article 3.7 of the DSU,
requires the limitation of the specific remedy provided for in Article
4.7 of the SCM Agreement to purely prospective action. An interpretation
of Article 4.7 of the SCM Agreement which would allow exclusively ‘prospective’
action would make the recommendation to ‘withdraw the subsidy’ under
Article 4.7 indistinguishable from the recommendation to ‘bring the
measure into conformity’ under Article 19.1 of the DSU, thus rendering
Article 4.7 redundant.”(340)
(d) Relationship with other WTO Agreements
(i) DSU
217. In Brazil — Aircraft, the Appellate Body noted that “the
provisions of Article 21.3 of the DSU are not relevant in determining
the period of time for implementation of a finding of inconsistency with
the prohibited subsidies provisions of Part II of the SCM Agreement”.
218. The Panel in US — FSC (Article 21.5 — EC) found that
since the Member failed to comply with the required recommendations
under Article 4.7 of the SCM Agreement, it had also “failed to comply
with Article 21 of the DSU”. The Panel stated:
“Having found that the United States has not fully withdrawn the
FSC subsidies as required by the recommendations and rulings of the DSB
made pursuant to Article 4.7 SCM Agreement, we do not believe that
it is necessary to also determine whether the United States “failed to
comply with the DSB recommendations and rulings within the period of
time specified by the DSB and has therefore also failed to comply with
Article 21 DSU”.”(341)
(ii) Agreement on Agriculture
219. Regarding the relationship between the Agreement on Agriculture
and Article 4.7 of the SCM Agreement, see paragraph 153
above.
7. Article 4.9
220. For a table showing the length of time taken in Appellate Body
proceedings to date, see Article 17.5 of the
DSU.
8. Article 4.10
(a) Meaning of “appropriate countermeasures”
(i) Countermeasures
221. In Brazil — Aircraft (Article 22.6 — Brazil), the
Arbitrators looked at the word “countermeasure” as context for
finding a meaning for the word “appropriate”. The Arbitrators
disregarded the dictionary meaning of the word and preferred to refer to
its general meaning in international law and to the work of the
International Law Commission on state responsibility:
“While the parties have referred to dictionary definitions for the
term ‘countermeasures’, we find it more appropriate to refer to its
meaning in general international law(342) and to the work of the
International Law Commission (ILC) on state responsibility, which
addresses the notion of countermeasures.(343)
We note that the ILC work
is based on relevant state practice as well as on judicial decisions and
doctrinal writings, which constitute recognized sources of international
law.(344) When considering the definition of ‘countermeasures’ in
Article 47 of the Draft Articles,(345) we note that countermeasures are
meant to ‘induce [the State which has committed an internationally
wrongful act] to comply with its obligations under articles 41 to 46’.
We note in this respect that the Article
22.6 arbitrators in the EC —
Bananas (1999) arbitration made a similar statement.(346) We conclude that
a countermeasure is ‘appropriate’ inter alia if it
effectively induces compliance.”(347)
222. In US — FSC (Article 22.6 — US), the Arbitrators
looked into the ordinary meaning of the word “countermeasure”:
“Dictionary definitions of ‘countermeasure’ suggest that a
countermeasure is essentially defined by reference to the wrongful
action to which it is intended to respond. The New Oxford Dictionary
defines ‘countermeasure’ as ‘an action taken to counteract a
danger, threat, etc’.(348) The meaning of ‘counteract’ is to ‘hinder
or defeat by contrary action; neutralize the action or effect of’.(349)
Likewise, the term ‘counter’ used as a prefix is defined inter
alia as: ‘opposing, retaliatory’.(350) The ordinary meaning
of the term thus suggests that a countermeasure bears a relationship
with the action to be counteracted, or with its effects (cf. ‘hinder
or defeat by contrary action; neutralize the action or effect of’).(351)
In the context of Article 4 SCM Agreement, the term ‘countermeasures’
is used to define temporary measures which a prevailing Member may be
authorized to take in response to a persisting violation of Article 3 of
the SCM Agreement, pending full compliance with the DSB’s
recommendations. This use of the term is in line with its ordinary
dictionary meaning as described above: these measures are authorized to
counteract, in this context, a wrongful action in the form of an export
subsidy that is prohibited per se, or the effects thereof.
It would be consistent with a reading of the plain meaning of the
concept of countermeasure to say that it can be directed either at
countering the measure at issue (in this case, at effectively
neutralizing the export subsidy) or at counteracting its effects on the
affected party, or both.
We need, however, to broaden our textual analysis in order to
see whether we can find more precision in how counter measures are to be
construed in this context. We thus turn to an examination of the
expression ‘appropriate’ countermeasures with a view to
clarifying what level of countermeasures may be legitimately authorized.”(352)
223. In US — Upland Cotton (Article 22.6 — US I), the
Arbitrators began their analysis by interpreting the term “countermeasure”
in Article 4.10:
“We note at the outset that the term “countermeasures” is used
to designate retaliatory measures in the WTO Agreement only in the SCM
Agreement. This contrasts with the terms of Article 22 of the DSU,
which refers to the “suspension of concessions or other obligations”.
However, it is not argued by either party in these proceedings that the
term “countermeasures” would designate, in the SCM Agreement,
anything other than a temporary suspension of certain obligations, and
this is what we understand the term to refer to.
The prefix “counter-” can be defined as
meaning “against, in
return”.(353) The Oxford English Dictionary further cites the term “counter-measure”
as an illustration of a situation in which this prefix is used to
indicate something that is “[d]one, directed, or acting against, in
opposition to, as a rejoinder or reply to another thing of the same kind
already made or in existence”. Another dictionary defines the term “countermeasure”
as an “action or device designed to negate or offset another”.(354)
…
We are not convinced that the use of the term “countermeasures”
necessarily connotes, in and of itself, an intention to refer to
retaliatory action that “goes beyond the mere rebalancing of trade
interests”, as Brazil suggests. As noted above, the term indicates
that the action is taken in response to another, in order to “counter”
it. This does not necessarily connote, in our view, an intention to “go
beyond” a rebalancing of trade interests. Indeed, we are not convinced
that the dictionary meanings of the term, in and of themselves, provide
any compelling guidance as to the exact level of countermeasures
that may be permissible under Article 4.10 of the SCM Agreement.
We
note that the term “countermeasures” is also used in Article 7.9 of
the SCM Agreement, where the permissible level of countermeasures
is defined with reference to the adverse effects of the violating
measure.
…
We note that the term “countermeasures” is the general term used
by the ILC in the context of its Draft Articles on State
Responsibility, to designate temporary measures that injured States
may take in response to breaches of obligations under international law.(355)
We agree that this term, as understood in public international law,
may usefully inform our understanding of the same term, as used in the SCM
Agreement.(356) Indeed, we find that the term “countermeasures”,
in the SCM Agreement, describes measures that are in the nature
of countermeasures as defined in the ILC’s Draft Articles on State
Responsibility.
At this stage of our analysis, we therefore find that the term “countermeasures”
essentially characterizes the nature of the measures to be
authorized, i.e. temporary measures that would otherwise be contrary to
obligations under the WTO Agreement and that are taken in response to a
breach of an obligation under the SCM Agreement. This is also
consistent with the meaning of this term in public international law as
reflected in the ILC Articles on State Responsibility.
As to the permissible level of countermeasures that may be
authorized under Article 4.10 of the SCM Agreement, this is, in
our view, primarily defined through the term “appropriate” and the
wording of footnote 9.”(357)
(ii) “appropriate”
General
224. In Brazil — Aircraft (Article 22.6 — Brazil), Canada
had proposed adopting countermeasures based on the amount of subsidy per
aircraft granted by Brazil instead of basing them on the level of
nullification or impairment suffered. The Arbitrators examined the
meaning of the term appropriate and concluded that “a countermeasure
is ‘appropriate’ inter alia if it effectively induces
compliance”:
“In accordance with Article 3.2 of the DSU, we proceed with an
analysis of the meaning of the term ‘appropriate’ based on Article
31 of the Vienna Convention.
Examining only the ordinary meaning of the term ‘appropriate’
does not allow us to reply to the question before us, since dictionary
definitions are insufficiently specific. Indeed, the relevant dictionary
definitions of the word ‘appropriate’ are ‘specially suitable;
proper’.(358) However, they point in the direction of meeting a
particular objective.
The first context of the term ‘appropriate’ is the word ‘countermeasures’,
of which it is an adjective. While the parties have referred to
dictionary definitions for the term ‘countermeasures’, we find it
more appropriate to refer to its meaning in general international law(359)
and to the work of the International Law Commission (ILC) on state
responsibility, which addresses the notion of countermeasures.(360)
We
note that the ILC work is based on relevant state practice as well as on
judicial decisions and doctrinal writings, which constitute recognized
sources of international law.(361) When considering the definition of ‘countermeasures’
in Article 47 of the Draft Articles,(362) we note that countermeasures are
meant to ‘induce [the State which has committed an internationally
wrongful act] to comply with its obligations under articles 41 to 46’.
We note in this respect that the Article 22.6 arbitrators in the EC
— Bananas (1999) arbitration made a similar statement.(363) We
conclude that a countermeasure is ‘appropriate’ inter alia if
it effectively induces compliance.”(364)
225. Applying their general finding that a countermeasure is
appropriate inter alia if it effectively induces compliance, the
Arbitrators in Brazil — Aircraft (Article 22.6 — Brazil) found
that in the case of Article 4.7 of the SCM
Agreement, “inducing
compliance” meant “inducing the withdrawal of the prohibited subsidy”:
“In this respect, we recall that the measure in respect of which
the right to take countermeasures has been requested is a prohibited
export subsidy falling under Article 3.1(a) of the SCM
Agreement.
Article 4.7 of the SCM Agreement provides in this respect that if a
measure is found to be a prohibited subsidy, it shall be withdrawn
without delay. In such a case, effectively ‘inducing compliance’
means inducing the withdrawal of the prohibited subsidy.
In contrast, other illegal measures do not have to be withdrawn
without delay. As specified in Article 3.8 of the DSU, if a measure
violates a provision of a covered agreement, the measure is considered prima
facie to cause nullification or impairment. However, if the
defendant succeeds in rebutting the charge, no nullification or
impairment will be found in spite of the violation. Such a rebuttal may
be impossible to make in a number of cases. Yet, this does not change
the fact that the concept of nullification or impairment is not found in
Articles 3 and 4 of the SCM Agreement. The Arbitrators are of the view
that meaning must be given to the fact that the negotiators did not
include the concept of nullification or impairment in those articles,
whilst it is expressly mentioned in Article 5 of the SCM
Agreement,
which deals with the adverse effects of actionable subsidies.”(365)
226. The Arbitrators, in US — FSC (Article 22.6 — US),
considered the dictionary meaning of the word “appropriate” and
concluded that, as far as the amount or level of countermeasures is
concerned, the expression “appropriate” does not in and of itself
predefine the precise and exhaustive conditions for the application of
countermeasures.(366)
According to the Arbitrators, Article 4.10 and
4.11
are not designed to lay down a precise formula or otherwise quantified
benchmark or amount of countermeasures which might be legitimately
authorized in each and every instance.(367) The Arbitrators indicated:
“Based on the plain meaning of the word, this means that
countermeasures should be adapted to the particular case at hand. The
term is consistent with an intent not to prejudge what the circumstances
might be in the specific context of dispute settlement in a given case.
To that extent, there is an element of flexibility, in the sense that
there is thereby an eschewal of any rigid a priori quantitative
formula. But it is also clear that there is, nevertheless, an objective
relationship which must be absolutely respected: the countermeasures
must be suitable or fitting by way of response to the case at hand.”(368)
227. The Arbritrators in US — Upland Cotton (Article 22.6 — US
I) began by considering the ordinary meaning of “appropriate”,
before turning to the guidance provided in footnote
9:
“Article 4.10 of the SCM Agreement requires the
countermeasures that may be authorized in response to the absence of
timely withdrawal of a prohibited export subsidy to be “appropriate”.
This term is in turn informed by footnote 9, which clarifies that “this
expression [‘appropriate countermeasures’] is not intended to allow
countermeasures that would be disproportionate in light of the fact that
the subsidies at issue are prohibited”. We will first consider the
term “appropriate”, before turning to how it is informed by the
terms of footnote 9.
Dictionary definitions of the adjective “appropriate” include:
“Specially fitted or suitable, proper”(369) and “especially suitable
or compatible: fitting”.(370) “Fitting”, in turn, can be defined as
“of a kind appropriate to the situation”. The terms “fit,
suitable, meet, proper, appropriate, fitting, apt, happy, felicitous”
are further identified as synonyms that mean “right with respect to
some end, need, use, or circumstance”.(371)
“These definitions suggest that the adjective “appropriate”
conveys the notion of something being “adapted” or “suited” to
the particular situation at hand. This very general indication does not
provide explicit guidance as to the exact parameters that legitimately
may be taken into account in assessing the “appropriateness” of
countermeasures in the context of Article 4.10 of the SCM Agreement.
Rather, the term suggests that countermeasures should be “adapted”
to the particular circumstances, and thus that there may be a degree of
legitimate variability in what may be “appropriate”, depending on
the circumstances of the case. To that extent, we agree with the United
States that the term “appropriate” “connotes the close
relationship between countermeasures and the particular circumstances of
a particular case.
Brazil, for its part, likens the term “appropriate” to the term
“reasonable”, in that it “similarly involves ‘a degree of
flexibility’“, and that “the word requires the treaty interpreter
to consider all of the circumstances of a particular case in assessing
whether the respondent has demonstrated that proposed countermeasures
are inappropriate”. Leaving aside for now the question of the burden
to be discharged by the responding Member in arbitral proceedings, we
agree that the term “appropriate” suggests that “all of the
circumstances of a particular case” should be taken into account in
assessing the “appropriateness” of proposed countermeasures, and
that it also suggests a degree of flexibility in what might be
considered “appropriate” in a given case.”(372)
Footnote 9 of the SCM Agreement
228. In US — FSC (Article 22.6 — US), the Arbitrators
noted that the term “appropriate” countermeasures in Article 4.10 is
informed by footnote 9, which provides guidance as to what the
expression “appropriate” should be understood to mean. In the
Arbitrators’ view, “these two elements are part of a single
assessment and that the meaning of the expression ‘appropriate
countermeasures’ should result from a combined examination of these
terms of the text in light of its footnote”.(373) The Arbitrators thus
concluded that “[t]his footnote effectively clarifies further how the
term ‘appropriate’ is to be interpreted. We understand it to mean
that countermeasures that would be ‘disproportionate in light of the
fact that the subsidies dealt with under these provisions are prohibited’
could not be considered “appropriate” within the meaning of Article
4.10 of the SCM Agreement”.(374) After analysing the dictionary meaning
of the word “disproportionate” in footnote 9, the Arbitrators
considered that:
“[F]ootnote 9 further confirms that, while the notion of “appropriate
countermeasures” is intended to ensure sufficient flexibility of
response to a particular case, it is a flexibility that is distinctly
bounded. Those bounds are set by the relationship of appropriateness.
That appropriateness, in turn, entails an avoidance of disproportion
between the proposed countermeasures and, as our analysis to this point
has brought us, either the actual violating measure itself, the effects
thereof on the affected Member, or both.”(375)
229. In US — FSC (Article 22.6 — US), the Arbitrators
further looked at the text of the final part of footnote 9 and
considered that this text directed them “to consider the ‘appropriateness’
of countermeasures under Article 4.10 from this perspective of
countering a wrongful act and taking into account its essential nature
as an upsetting of the rights and obligations as between Members”.(376)
The Arbitrators further noted that that:
“[T]he negative formulation of the requirement under
footnote 9 is
consistent with a greater degree of latitude than a positive requirement
may have entailed: footnote 9 clarifies that Article 4.10 is not
intended to allow countermeasures that would be “disproportionate”.
It does not require strict proportionality.(377),(378)
230. The Arbitrators in US — Upland Cotton (Article 22.6 — US
I) considered footnote 9 in the context of interpreting the concept
of “appropriate” countermeasures:
“The very formulation of the footnote, i.e. “this expression is not
meant to allow countermeasures that are disproportionate”
(emphasis added) indicates, in our view, that it serves to guard against
an interpretation of the terms “appropriate countermeasures” that
would allow measures that are “disproportionate”. We therefore
understand this proportionality requirement to be a protection against
excessive countermeasures. In other words, while the expression “appropriate
countermeasures” allows a degree of flexibility in assessing what may
be “appropriate” in the circumstances of a given case, this
flexibility is not unbounded. As observed by the arbitrator on US —
FSC (Article 22.6 — US), “footnote 9 further confirms that,
while the notion of “appropriate countermeasures” is intended to
ensure sufficient flexibility of response to a particular case, it is a
flexibility that is distinctly bounded.”(379)
As noted earlier, countermeasures are an exceptional, “last resort”,
remedy within the WTO dispute settlement system. Footnote
9, in our
view, invites us to exercise caution and to ensure that the response is
“measured” and that the countermeasures to be authorized do not
result in a greater disruption in the trade relations among Members and
in the application of the WTO agreements than is warranted by the
circumstances of the case at hand.
This requirement confirms us in our view that countermeasures, in
order to be “appropriate”, should bear some relationship to the
extent to which the complaining Member has suffered from the
trade-distorting impact of the illegal subsidy. Countermeasures are in
essence trade restrictive measures to be taken in response to a Member’s
application of a trade-distorting measure that has been determined to
nullify or impair the benefits accruing to another Member.
Countermeasures that would ensure a relationship of proportionality
between the extent to which the trade opportunities of the Member
applying the countermeasures has been affected and the extent to which
the trade opportunities of the violating Member will in turn be
adversely affected would notionally restore the balance of rights and
obligations arising from the covered agreements that has been upset
between the parties. This would ensure a proper relationship between the
level of the countermeasures and the circumstances out of which the
dispute arises.”(380)
(iii) Same meaning in Articles 4.10 and 4.11
231. The Arbitrators in US — Upland Cotton (Article 22.6 — US
I) noted that in their decision, “reference is made to the terms
“appropriate countermeasures” as contained in Article 4.10 of the SCM
Agreement. It is understood that these terms are assumed to have the
same meaning also in Article 4.11 of the SCM
Agreement.”(381)
(b) Purpose of countermeasures under
Article 4.10
232. The Arbitrators in US — Upland Cotton (Article 22.6 — US
I) agreed with prior arbitrators that the objective of
countermeasures under Article 4.10 is to “induce compliance”:
“We note that the objective of “inducing compliance” in
relation to retaliatory measures was first recognized in the context of
proceedings under Article 22.4 of the DSU. The arbitrator on EC —
Bananas III (US) (Article 22.6 — EC) thus found that:
“[T]he overall objective of compensation or the suspension of
concessions or other obligations as described in Article
22.1:
‘Compensation and the suspension of concession or other obligations
are temporary measures available in the event that the recommendations
or rulings are not implemented within a reasonable period of time.
However, neither compensation nor the suspension of concessions or other
obligations is preferred to full implementation of a recommendation to
bring a measure into conformity with the covered agreements.
Compensation is voluntary and, if granted, shall be consistent with the
covered agreements.’
Accordingly, the authorization to suspend concessions or other
obligations is a temporary measure pending full implementation by the
Member concerned. We agree with the United States that this temporary
nature indicates that it is the purpose of countermeasures to induce
compliance. But this purpose does not mean that the DSB should grant
authorization to suspend concessions beyond what is equivalent to
the level of nullification or impairment. In our view, there is nothing
in Article 22.1 of the DSU, let alone in
paragraphs 4 and 7 of Article
22, that could be read as a justification for counter-measures of a punitive
nature.”(382)
As the cited passage makes clear, the arbitrator in that dispute did
not consider that the objective of “inducing compliance” implied
that this constituted the benchmark by which retaliatory measures may be
quantified. Rather, the objective of inducing compliance defined the purpose
of suspension of concessions or other obligations, while the
benchmark (in that case, Article 22.4 of the DSU) required that the level
of suspension of concessions or other obligations should be in line
with the trade effects of the illegal measure on the complainant.
This objective of suspension of concessions or other obligations
under Article 22.4 of the DSU has been recently confirmed by the
Appellate Body in US — Continued Suspension.(383) Prior
arbitrators have also found that the objective of countermeasures under
Article 4.10 of the SCM Agreement is to “induce compliance”.(384)
“We agree that countermeasures under
Article 4.10 of the SCM Agreement serve to “induce compliance”. However, it seems
abundantly clear that this purpose does not, in and of itself,
distinguish Article 4.10 from the other comparable provisions in the WTO
Agreement. “Inducing compliance” appears rather to be the common
purpose of retaliation measures in the WTO dispute settlement system,
including in the context of Article 22.4 of the DSU. The fact that
countermeasures under
Article 4.10 of the SCM Agreement serve to
induce compliance does not in and of itself provide specific indications
as to the level of countermeasures that may be permissible under
this provision.
This distinction is also found under general rules of international
law, as reflected in the ILC’s Articles on State Responsibility, which
have been referred to by Brazil in these proceedings. Article 49 of
these Draft Articles defines “inducing compliance” as the only
legitimate object of countermeasures, while a separate provision,
Article 51, addresses the question of the permissible level of
countermeasures, which is defined in relation to proportionality to the
injury suffered, taking into account the gravity of the breach.”(385),(386)
(c) Amount of subsidy as the basis for the calculation of
countermeasures
(i) General
233. The Arbritrators in US — Upland Cotton (Article 22.6 — US
I) discussed the approach of having recourse to the “amount of the
subsidy” as the basis for the calculation of “appropriate”
countermeasures:
“In the three prior cases in which countermeasures under
Article
4.10 of the SCM Agreement have been considered, the arbitrators
had recourse to the “amount of the subsidy” as the basis for the
calculation of “appropriate countermeasures”.(387) This is also the
principle on which Brazil purports to calculate the level of “appropriate
countermeasures” in these proceedings. The United States, as already
noted above, does not disagree, as a matter of principle, with the use
of the amount of the subsidy as a starting point for the Arbitrator’s
analysis in this case.
The use of the “amount of the subsidy” in prior cases does not
imply, however, that the arbitrators in these earlier cases necessarily
considered that the “amount of the subsidy” was the only basis on
which “appropriate countermeasures” might have been calculated. In
fact, as we understand it, the arbitrators in these cases took into
account the fact that the legal standard embodied in Article 4.10 of the
SCM Agreement
allows greater flexibility than those under Article
22.4 of the DSU or Article 7.9 of the SCM Agreement to tailor the
countermeasures to the specific circumstances of the case at hand, but
did not exclude trade effects as a relevant consideration. In fact, in
these decisions, some form of consideration was given to the trade
effects of the measure on the complaining Member.(388) As the United
States has acknowledged in these proceedings, “while prior arbitrators
considering requests for countermeasures for prohibited subsidies have
used an “amount of the subsidy” approach, they also have
acknowledged the “trade effects” approach”.
Subsidies may operate in a variety of ways, and, depending on the
design of the subsidy, as well as its actual operation on the market,
the trade effects of the subsidy may be complex to establish. This is
well illustrated by the Canada — Aircraft Credits and Guarantees
(Article 22.6 — Canada) and the US — FSC (Article 22.6 —
US) cases. As we have observed above, the terms of Article 4.10 of
the SCM Agreement allow some flexibility in the manner in which
“appropriate countermeasures” might be calculated.
This Arbitrator is not convinced, however, that an “amount of
subsidy” approach, of itself and without adjustment, will always be
consistent with the legal standard embodied in Article
4.10 of the SCM Agreement. Actually, we think that in most cases such an approach
will not be “appropriate”, notwithstanding its convenience, from a
calculation perspective, and its literal attraction, from a “withdraw
the subsidy” perspective. As we have determined above, a consideration
of the “appropriateness” of countermeasures, and in particular the
requirement for the countermeasures not to be “disproportionate”,
suggests that there should be a degree of relationship between the level
of countermeasures and the trade-distorting impact of the measure on the
complaining Member.
As noted above, we do not exclude that, in particular circumstances,
the complaining Member could perhaps rightly claim that a countermeasure
in the amount of the subsidy would be “appropriate”. However, in
most cases, the trade-distorting impact of the subsidy on one or several
other Members would not necessarily bear any particular relationship to
the amount of the subsidy. As observed by previous arbitrators, the
amount of the subsidy may in fact be lower than its trade effects, and
apportioning it would ordinarily exacerbate that likelihood.(389) This
amount therefore does not seem to us to be a priori appropriate,
nor is it necessarily proportionate to the extent to which the trade of
the Member concerned is adversely affected. In these circumstances, it
cannot be assumed that the total amount of the subsidy is an appropriate
measure of its trade effects, or even that it is necessarily a relevant
“proxy” for those effects.
Complaining Members do have choices with respect to the amount of
countermeasures they seek to impose, and it is the task of an arbitrator
to determine whether the choice leads to an appropriate outcome which is
consistent with the rights and obligations spelt out in the covered
Agreements, the nature of the subsidy concerned and the remedy which is
offered, and the balance struck between the rights of all Members. We
recall in this context our interpretation of “appropriateness” in
the case of countermeasures against prohibited subsidies, in particular
its less precise quantitative constraints. In particular, we note our
previous observation that a range of factors can be presented to an
arbitrator, together with a number of calculation methods. The
arbitrator need not calculate direct equivalence, but instead may accept
what the arbitrator feels to be within the bounds of what is appropriate
in the circumstances of the case. The legal approach must emanate from
the terms of the SCM Agreement, the economic principles applied
must be logical and unified, and the claims concerning the trade effects
must be relevant and reasonable.”(390)
(ii) Exception to the requirement of equivalence to level of nullification
or impairment
234. The Arbitrators in Brazil — Aircraft (Article 22.6 —
Brazil) rejected Brazil’s argument that the countermeasures must
be equivalent to the level of nullification or impairment pursuant to
Article 22.4 of the DSU, noting that the concept of nullification or
impairment is not found in Articles 3 and
4 of the SCM Agreement. The
Arbitrators explained:
“A first approach would be to consider that the concept of
nullification or impairment does not apply to Article 4 SCM
Agreement.
We note in this respect that, in relation to actionable subsidies,
Article 5 refers to nullification or impairment as only one of the three
categories of adverse effects. This could mean that another test than
nullification or impairment could also apply in the context of Article 4
SCM Agreement.
That said, we note that the Original Panel concluded that, since a
violation had been found, a prima facie case of nullification or
impairment had been made within the meaning of Article 3.8 of the
DSU,
which Brazil had not rebutted. In that context, we are more inclined to
consider that no reference was expressly made to nullification or
impairment in Article 4 SCM Agreement for the following reasons:
(a) a violation of
Article 3 of the SCM Agreement entails an
irrebuttable presumption of nullification or impairment. It is therefore
not necessary to refer to it;
(b) the purpose of
Article 4 is to achieve the withdrawal of
the prohibited subsidy. In this respect, we consider that the
requirement to withdraw a prohibited subsidy is of a different nature
than removal of the specific nullification or impairment caused to a
Member by the measure.(391) The former aims at removing a measure which is
presumed under the WTO Agreement to cause negative trade effects,
irrespective of who suffers those trade effects and to what extent. The
latter aims at eliminating the effects of a measure on the trade of a
given Member;
(c) the fact that nullification or impairment is established with
respect to a measure does not necessarily mean that, in the presence of
an obligation to withdraw that measure, the level of appropriate
countermeasures should be based only on the level of nullification or
impairment suffered by the Member requesting the authorisation to take
countermeasures.”(392)
235. In their finding that the concept of nullification or impairment
is not found in Articles 3 and
4 of the SCM Agreement, the Arbitrators
in Brazil — Aircraft (Article 22.6 — Brazil) also noted that
a different term than “appropriate countermeasures” was being used
in a comparable context in Articles 7.9 and 10 of the SCM
Agreement:
“We also note that, when the negotiators have intended to limit
countermeasures to the effect caused by the subsidy on a Member’s
trade, they have used different terms than ‘appropriate
countermeasures’. Article 7.9 and 10, which is the provision
equivalent for actionable subsidies to Article 4.9 and
10 for prohibited
subsidies, uses the terms ‘commensurate with the degree and nature of
the adverse effects determined to exist’. In that context, we do not
consider the arguments made by Brazil in its oral presentation and based
on the central position of the notion of nullification in the GATT to be
compelling. As we have seen above, the term ‘appropriate
countermeasures’ does not impose similar constraints.”(393)
236. Further, the Arbitrators in Brazil — Aircraft (Article 22.6
— Brazil) addressed the relevance of footnotes 9 and
10 to Article
4.10 and 4.11, respectively:
“We agree that, as those footnotes are drafted, it seems difficult
to clearly identify how the second part of the sentence (‘in light of
the fact that the subsidies dealt with under these provisions are
prohibited’) relates to the first part of the sentence (‘This
expression is not meant to allow countermeasures that are
disproportionate’). This is probably due to the use of the words ‘in
light of the fact that’. However, since the text of the treaty is
supposed to be the most achieved expression of the intent of the
parties, we should refrain from second guessing the negotiators at this
point. We can nonetheless note that the reference to the fact that the
subsidies dealt with are prohibited can most probably be considered more
as an aggravating factor than as a mitigating factor. We also find the
use of the word ‘disproportionate’ to be interesting in light of the
term ‘out of proportion’ used in Article 49 of the Draft Articles.
We do not draw any firm conclusions as to the meaning of footnotes 9 and
10. However, we note that footnotes 9 and
10 at least confirm that the
term ‘appropriate’ in Articles 4.10 and
4.11 of the SCM Agreement
should not be given the same meaning as the term ‘equivalent’ in
Article 22 of the DSU.(394),(395)
237. The Arbitrators in US — FSC (Article 22.6 — US) found
that an assessment of the proposed countermeasures in relation to the
initial violating measures was sufficient to conclude that the
countermeasures were appropriate. In this regard, they compared Articles
7.9 and 9.4 of the SCM Agreement with Article 10 and concluded that the
clear reference to trade effects in Article 7.9 “highlights” the
lack of any such indication in Article 4.10. The Arbitrators then
concluded that Article 4.10 does not “require” that trade effects be
the standard by which “appropriateness” is determined. However, they
found that Article 4.10 does not “preclude” a Member from adopting
countermeasures that are “tailored” to offset adverse “trade
effects”:
“Recourse to countermeasures is foreseen in three provisions of the
SCM Agreement: Article 4.10, which we are concerned with here,
Article 7.9 and Article 9.(396) As regards actionable subsidies,
Article 7.9 provides for authorization of countermeasures ‘commensurate with
the degree and nature of the adverse effects determined to exist …’.
In a similar vein, Article 9.4 provides, in relation to non-actionable
subsidies, for the authorization of countermeasures ‘commensurate with
the nature and degree of the effects determined to exist’. The
explicit precision of these indications clearly highlights the lack of
any analogous explicit textual indication in Article
4.10 and contrasts
with the broader and more general test of ‘appropriateness’ found in
Articles 4.10 and 4.11.
In short, as far as prohibited subsidies are concerned, there is no
reference whatsoever in remedies foreseen under Article 4 to such
concepts as ‘trade effects’, ‘adverse effects’ or ‘trade
impact’. Yet, by contrast, such a concept is to be found very clearly
in the context of remedies under Article 7, through the notion of ‘adverse
effects’.
We believe that this difference must be given a meaning and that we
should give due consideration to the fact that the drafters — who
obviously could have used other terms in order to quantify precisely the
permissible amount of countermeasures in the context of Article 4.10 —
chose not to do so. It is not our task to read into the treaty text
words that are not there.(397) We are also cognizant that the terms that
do appear in the text of the treaty must be presumed to have meaning and
must be read effectively.(398)
The implications of the use of the term
‘appropriate’ must therefore be acknowledged and we must give this
expression in Article 4.10 its full
meaning.(399)
…
This reading of the text in its context confirms us in our view that,
rather than there being any requirement to confine ‘appropriate
countermeasures’ to offsetting the effects of the measure on the
relevant Member, there is a clear rationale exhibited that reinforces
our textual interpretation that the Member concerned is entitled to take
countermeasures that are tailored to neutralizing the offending measure qua
measure as a wrongful act. The expression ‘appropriate
countermeasures’, in our view, would entitle the complaining Member to
countermeasures which would at least counter the injurious effect of the
persisting illegal measure on it. However, it does not require trade
effects to be the effective standard by which the appropriateness of
countermeasures should be ascertained. Nor can the relevant provisions
be interpreted to limit the assessment to this standard. Members
may take countermeasures that are not disproportionate in light of the
gravity of the initial wrongful act and the objective of securing the
withdrawal of a prohibited export subsidy, so as to restore the balance
of rights and obligations upset by that wrongful act.”(400)
238. In US — FSC (Article 22.6 — US), the Arbitrators
considered that, since Articles 4.10 and 4.11 of the SCM Agreement may
prevail over those of the DSU, there can be no presumption that the
drafters intended the standard under Article 4.10 to be necessarily
coextensive with that under Article
22.4:
“It should be recalled here that Articles 4.10 and
4.11 of the SCM
Agreement are ‘special or additional rules’ under Appendix 2 of
the DSU, and that in accordance with Article 1.2 of the DSU,
it is possible for such rules or procedures to prevail over those of the
DSU. There can be no presumption, therefore, that the drafters
intended the standard under Article 4.10 to be necessarily coextensive
with that under Article 22.4 so that the notion of ‘appropriate
countermeasures’ under Article 4.10 would limit such countermeasures
to an amount ‘equivalent to the level of nullification or impairment’
suffered by the complaining Member. Rather, Articles 4.10 and
4.11 of
the SCM Agreement use distinct language and that difference must
be given meaning.
Indeed, reading the text of Article 4.10 in its context, one might
reasonably observe that if the drafters had intended the provision to be
construed in this way, they could certainly have made it clear. Indeed,
relevant provisions both elsewhere in the SCM Agreement and in
the DSU use distinct terms to convey precisely such a standard as
described by the United States, in so many words. Yet the drafters chose
terms for this provision in the SCM Agreement different from
those found in Article 22.4 of the
DSU. It would not be consistent with
effective treaty interpretation to simply read away such differences in
terminology.
We therefore find no basis in the language itself or in the context
of Article 4.10 of the SCM Agreement to conclude that it can or
should be read as amounting to a ‘trade effect-oriented’ provision
where explicitly alternative language is to be read away in order to
conform it to a different wording to be found in Article 22.4 of the DSU.
We would simply add that, while we consider that the precise
difference in language must be given proper meaning, this goes no
further than that. Our interpretation of Article 4.10 of the SCM
Agreement as embodying a different rule from Article 22.4 of the DSU does not make the DSU otherwise inapplicable or redundant.”(401)
239. Finally, the Arbitrators in US — FSC (Article 22.6 — US) considered
that under Article 4.10, a Member is entitled to act with
countermeasures that properly take into account the seriousness and
nature of the breach. However, they warned that Article 4.10
“does not
amount to a blank cheque”. The Arbitrators concluded that from the
perspective of the measures’ trade effects on the part of the
complainant did not provide any reason to reach a different conclusion
from that already reached:(402)
“Thus, as we interpret Article 4.10 of the SCM Agreement, a
Member is entitled to act with countermeasures that properly take into
account the gravity of the breach and the nature of the upset in the
balance of rights and obligations in question. This cannot be reduced to
a requirement that constrains countermeasures to trade effects, for the
reasons we have set out above.
At the same time, Article 4.10 of the SCM Agreement does not
amount to a blank cheque. There is nothing in the text or in its context
which suggests an entitlement to manifestly punitive measures. On the
contrary, footnote 9 specifically guards us against such an unbounded
interpretation by clarifying that the expression ‘appropriate’
cannot be understood to allow ‘disproportionate’ countermeasures.
However, to read this indication as effectively reintroducing into that
provision a quantitative limit equivalent to that found in other
provisions of the SCM Agreement or Article 22.4 of the DSU would
effectively read the specific language of Article 4.10 of the SCM
Agreement out of the text. Countermeasures under Article 4.10 of the
SCM Agreement are not even, strictly speaking, obliged to be ‘proportionate’
but not to be ‘disproportionate’. Not only is a Member entitled to
take countermeasures that are tailored to offset the original wrongful
act and the upset of the balancing of rights and obligations which that
wrongful act entails, but in assessing the ‘appropriateness’ of such
countermeasures — in light of the gravity of the breach — a margin
of appreciation is to be granted, due to the severity of that breach.”(403)
(iii) Factors relevant for the calculation of countermeasures
240. The Arbitrators in Brazil — Aircraft (Article 22.6 —
Brazil) addressed Brazil’s argument that certain sales should be
excluded because competition was based upon factors other than price, or
that there was no competition with the Canadian manufacturer:
“Since we selected the amount of the subsidy as the basis for the
countermeasures and not the level of nullification or impairment
suffered by Canada, it is appropriate and logical to include in our
calculation all the sales of subsidised aircraft, whether they compete
or not with Bombardier’s production. However, consistent with our
approach on the burden of proof, we excluded all the sales where Brazil
demonstrated that no PROEX interest rate equalization payments had been
made and we assumed that future sales of the xxx xxxxxxx and xxx would
not benefit from the PROEX interest rate equalization payments.”(404)
241. The Arbitrators in Brazil — Aircraft (Article 22.6 —
Brazil) also rejected Brazil’s argument that only sales of
aircraft subsequent to the implementation period should be considered
although they were delivered after that period:
“We note that, in its report within the framework of the
proceedings under Article 21.5 of the DSU, the Appellate Body made the
following findings:
‘[the Appellate Body] upholds the conclusion of the
Article 21.5
Panel that as a result of the continued issuance by Brazil of NTN-I
bonds, after 18 November 1999, pursuant to letters of commitment issued
before 18 November 1999, Brazil has failed to implement the
recommendation of the DSB that it withdraw the prohibited export
subsidies under PROEX within 90 days’(405)
We, therefore, consider that we have to include in the calculation of
the appropriate countermeasures the firm sales for which PROEX letters
of commitment were issued before 18 November 1999 and which had not yet
been delivered (since the NTN-I bonds are issued at the time of the
delivery of the aircraft).(406) We do not consider the arguments based on
Brazil’s contractual obligations to be compelling. Obligations under
internal law are no justification for not performing international
obligations.(407),(408)
(d) Relationship with other Articles
242. With respect to the relationship with
Article 7.9, see paragraph
237 above.
(e) Relationship with other WTO Agreements
(i) DSU
243. As regards the requirement of equivalence of the suspension of
concessions to the level of nullification or impairment in Article 22.6
arbitrations, see Article 22.6 of the Chapter on the DSU.
9. Article 4.11
(a) Task of the Arbitrators under Article 4.11
244. In Brazil — Aircraft (Article 22.6 — Brazil), a case
which dealt with Canada’s request for authorization to take “appropriate
countermeasures” under Article 4.10 of the SCM
Agreement, the
Arbitrators described their task under Article 4.11 of the SCM Agreement
in the following terms:
“As to our task, we follow the approach adopted by previous
arbitrators under Article 22.6 of the
DSU.(409) We will have not only to
determine whether Canada’s proposal constitutes ‘appropriate
countermeasures’, but also to determine the level of countermeasures
we consider to be appropriate in case we find that Canada’s level of
countermeasures is not appropriate, if necessary by applying our own
methodology.”(410)
245. In US — Upland Cotton (Article 22.6 — US I), the
Arbitrators stated the following in respect of their mandate:
“We agree that, in the event that we find that Brazil’s proposed
countermeasures are not “appropriate” within the meaning of Article
4.10 of the SCM Agreement, we would be required also to determine
what would constitute “appropriate” countermeasures. This would
enable the complaining party to seek an authorization consistent with
our decision, as foreseen in Article 22.7 of the DSU. In order to fulfil
this part of our mandate, we may be required to adopt an approach or
methodology that differs from those proposed by the parties.”(411)
(b) Article 4.11 provisions as special or additional rules
246. In Brazil — Aircraft (Article 22.6 — Brazil), the
Arbitrators indicated that they read the provisions of Article 4.11 of
the SCM Agreement as special or additional rules:
“We read the provisions of Article 4.11 of
the SCM Agreement as
special or additional rules. In accordance with the reasoning of the
Appellate Body in Guatemala — Cement,(412) we must read the
provisions of the DSU and the special or additional rules in the SCM
Agreement so as to give meaning to all of them, except if there is a
conflict or a difference…”(413)
247. In US — FSC (Article 22.6 — US), the Arbitrators
recalled Article 30 of the SCM Agreement and concluded that
Article 22.6
of the DSU applies to arbitrations pursuant to Article 4.11 of the SCM
Agreement although this latter provision would prevail in case of
conflict:
“We also recall the terms of Article 30 of the SCM Agreement,
which clarifies that the provisions of the DSU are applicable to
proceedings concerning measures covered by the SCM Agreement.
Article 22.6 of the DSU therefore remains relevant to arbitral
proceedings under Article 4.11 of the SCM Agreement, as
illustrated by the textual reference made to Article 22.6 of the DSU in
that provision. However, the special or additional rules and procedures
of the SCM Agreement, including Articles 4.10 and
4.11, would
prevail to the extent of any difference between them.”(414),(415)
(c) Burden of proof
248. In Brazil — Aircraft (Article 22.6 — Brazil), Canada
requested that the DSB authorize it to take appropriate “countermeasures”
pursuant to Article 4.10 of the SCM Agreement, and
Article 22.2 of the
DSU, in the amount of Can$700 million, in relation to Brazil’s subsidy
granted to its domestic producer of aircraft. In response to Brazil’s
request, the DSB referred the matter to an arbitrator in accordance with
Article 22.6 of the DSU. With respect to the burden of proof, the
Arbitrators held that it was up to Brazil to demonstrate that the
countermeasures that Canada was proposing to take were not “appropriate”:
“In application of the well-established WTO practice on the burden
of proof in dispute resolution, it is for the Member claiming that
another has acted inconsistently with the WTO rules to prove that
inconsistency.(416) In the present case, the action at issue is the
Canadian proposal to suspend concessions and other obligations in the
amount of C$700 million as ‘appropriate countermeasures’ within the
meaning of Article 4.10 of the SCM Agreement.(417) Brazil challenges the
conformity of this proposal with Article 22 of the DSU and
Article 4.10
of the SCM Agreement. It is therefore up to Brazil to submit evidence
sufficient to establish a prima facie case or ‘presumption’
that the countermeasures that Canada proposes to take are not ‘appropriate’.
Once Brazil has done so, it is for Canada to submit evidence sufficient
to rebut that ‘presumption’. Should the evidence remain in equipoise
on a particular claim, the Arbitrators would conclude that the claim has
not been established. Should all evidence remain in equipoise, Brazil,
as the party bearing the original burden of proof, would lose the case.
An issue to be distinguished from the question of who bears the
burden of proof is that of the duty that rests on both parties to
produce evidence and to collaborate in presenting evidence to the
Arbitrators. This is why, even though Brazil bears the original burden
of proof, we expected Canada to come forward with evidence explaining
why its proposal constitutes appropriate countermeasures and we
requested it to submit a ‘methodology paper’ describing how it
arrived at the level of countermeasures it proposes.”(418),(419)
249. Along the same lines, the Arbritrators in US — Upland
Cotton (Article 22.6 — US I) stated that:
“We therefore find that the United States bears the initial burden
of establishing the countermeasures are not “appropriate”. If that
initial burden is discharged, Brazil will then have an opportunity of
rebutting the conclusion that the countermeasures are not appropriate.
This allocation of burden of proof does not alleviate the burden on
each party to establish the facts that it alleges during the
proceedings. As observed by the Arbitrator in US — FSC (Article
22.6 — US), “it is generally for each party asserting a fact,
whether complainant or respondent, to provide proof thereof”.(420)
Accordingly, it is also for Brazil to provide evidence in support of the
facts that it advances. The Arbitrator will consider all the evidence
and arguments provided by both parties (United States and Brazil) to
determine whether the proposed countermeasures are “appropriate”, in
line with the principles we have set out concerning burden, and the
evidence.”(421)
(d) Treatment of data supplied by private entities
250. In Brazil — Aircraft (Article 22.6 — Brazil), the
Arbitrators evaluated the trustworthiness of data supplied by Brazil,
and stated that they “could not treat statements from that company as
[they] would have if [the statements] had originated from a subject of
international law”:
“A related problem faced by the Arbitrators in this case was that,
in many instances, the original data necessary for the calculations or
assessments was solely in the hands of Brazil. When this information
originated in the Brazilian government, we assumed good faith and
accepted the information and the supporting evidence provided by Brazil
to the extent Canada also accepted it or did not provide sufficient
evidence to put in doubt the accuracy of Brazil’s statements and/or
evidence.
However, since this case relates to subsidies granted for the
purchase of aircraft produced by the Brazilian aircraft manufacturer,
Embraer, a large number of data essential for the resolution of our task
is only available to that company. We assumed that Embraer was
independent from the Brazilian government and, for that reason, we could
not treat statements from that company as we would have if they had
originated from a subject of international law.(422) When Brazil only
provided statements regarding information available solely to Embraer,
we requested that Brazil support those statements with materials usually
regarded as evidence, such as articles or statements reproduced in the
specialized press, company annual reports or any other certified
information originating in Embraer or other reliable sources. When
Brazil was not in a position to provide documentary evidence, we
requested a detailed explanation of the reasons why such evidence was
not available and expressed our willingness to consider written
declarations from authorised Embraer officials, if duly certified. We
then weighed this evidence against the evidence submitted by Canada.”(423)
(e) Relationship with other provisions
(i) SCM Agreement
Article 7.9
251. The Arbitrators in US — FSC (Article 22.6 — US) referred
to the wording of Articles 7.9 and 7.10 as context for the
interpretation of Article 4.10 and considered that “the explicit
precision of these indications [in Articles 7.9 and
7.10] clearly
highlights the lack of any analogous explicit textual indication in Article 4.10
and contrasts with the broader and more general test of “appropriateness”
found in Articles 4.10 and 4.11”. For the Arbitrators, such a
difference in the text “must be given a meaning.”(424)
252. The Arbitrators in US — Upland Cotton (Article 22.6 — US
I) contrasted the terms of Article 4.10
with the terms used in
Article 7.9:
“[W]ithin the context of the SCM Agreement, the terms of
Article 4.10 contrast with those of
Article 7.9, which foresees, in
relation to actionable subsidies, countermeasures “commensurate with
the degree and nature of the adverse effects determined to exist”.
Here too, the terms of
Article 7.9, through this reference to the “degree
and nature of the adverse effects determined to exist”, point to a
single specific benchmark as reference, and require the countermeasures
to be “commensurate” with this benchmark, which is carefully defined
in relation to the specific adverse effects that form the basis of the
underlying findings. These elements distinguish the terms of
Article 7.9 from the terms of Article 4.10. This difference can be understood in the
broader context of the SCM Agreement, where actionable subsidies
may only be challenged to the extent that they result in certain
enumerated adverse effects for other WTO Members. By contrast,
prohibited subsidies are prohibited independently of any demonstration
of adverse effects. In such cases, no specific “adverse effects”
will have been “determined to exist” prior to the request for
authorization to apply countermeasures, and therefore there are none
that could be referred to.(425)
(ii) DSU
Article 22.4
253. In Brazil — Aircraft (Article 22.6 — Brazil), the
Arbitrators addressed Canada’s request for authorization to take “appropriate
countermeasures” under Article 4.10 of the SCM
Agreement. Referring to
Article 22.4 of the DSU, Brazil argued that the “countermeasures”
must be equivalent to the level of nullification or impairment (this
argument was rejected by the Arbitrator as referenced in paragraphs 224–225
above). The Arbitrator explained the relationship between Article 4.11
of the SCM Agreement and Article 22.4 of the DSU by characterizing
Article 4.11 of the SCM Agreement as “special or additional rules”
and held that the concept of “nullification or impairment” was
absent from Articles 3 and 4 of the SCM Agreement and that the principle
of effectiveness would be counteracted if the “appropriate
countermeasures” had to be necessarily limited to the level of
nullification or impairment:
“We read the provisions of Article 4.11 of the SCM Agreement as
special or additional rules. In accordance with the reasoning of the
Appellate Body in Guatemala — Cement,(426) we must read the
provisions of the DSU and the special or additional rules in the SCM
Agreement so as to give meaning to all of them, except if there is a
conflict or a difference. While we agree that in practice there may be
situations where countermeasures equivalent to the level of
nullification of impairment will be appropriate, we recall that the
concept of nullification or impairment is absent from Articles 3 and
4
of the SCM Agreement. In that framework, there is no legal obligation
that countermeasures in the form of suspension of concessions or other
obligations be equivalent to the level of nullification or impairment.
On the contrary, requiring that countermeasures in the form of
suspension of concessions or other obligations be equivalent to the
level of nullification or impairment would be contrary to the principle
of effectiveness by significantly limiting the efficacy of
countermeasures in the case of prohibited subsidies. Indeed, as shown in
the present case,(427) other countermeasures than suspension of
concessions or obligations may not always be feasible because of their
potential effects on other Members. This would be the case of a
counter-subsidy granted in a sector where other Members than the parties
compete with the products of the parties. In such a case, the Member
taking the countermeasure may not be in a position to induce compliance.
We are mindful that our interpretation may, at a first glance, seem
to cause some risk of disproportionality in case of multiple
complainants. However, in such a case, the arbitrator could allocate the
amount of appropriate countermeasures among the complainants in
proportion to their trade in the product concerned. The ‘inducing’
effect would most probably be very similar.”(428)
254. The Arbitrators in US — Upland Cotton (Article 22.6 — US
I) contrasted the standard of “appropriate” countermeasures in Article 4.10
with the “equivalence” standard in Article 22.4 of the
DSU:
“We agree that the term “appropriate”, by contrast to the terms
“equivalent to the level of nullification or impairment”, does not
require us to engage in an exact exercise to work out the correspondence
between the level of countermeasures to be authorized and a specific
benchmark such as the level of nullification or impairment of benefits
suffered by the complainant. We agree that this difference in wording
must be given meaning. The term “appropriate” in Article 4.10 of the
SCM Agreement
suggests a degree of flexibility and adaptation to
the circumstances of the case that is not found in Article 22.4 of the
DSU.”(429)
Part III: Actionable
Subsidies
VI. Article 5
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A. Text of Article 5
Article 5: Adverse Effects
No Member should cause, through the use of any subsidy referred to in
paragraphs 1 and 2 of Article
1, adverse effects to the interests of
other Members, i.e.:
(a) injury to the domestic industry of another
Member(11);
(footnote original)
11 The term “injury to the domestic
industry” is used here in the same sense as it is used in Part
V.
(b) nullification or impairment of benefits accruing directly or
indirectly to other Members under GATT 1994 in particular the benefits
of concessions bound under Article II of GATT
1994(12);
(footnote original)
12 The term “nullification or impairment”
is used in this Agreement in the same sense as it is used in the
relevant provisions of GATT 1994, and the existence of such
nullification or impairment shall be established in accordance with the
practice of application of these provisions.
(c) serious prejudice to the interests of another
Member.(13)
(footnote original)
13 The term “serious prejudice to the
interests of another Member” is used in this Agreement in the same
sense as it is used in paragraph 1 of Article XVI of GATT
1994, and
includes threat of serious prejudice.
This Article does not apply to subsidies maintained on agricultural
products as provided in Article 13 of the Agreement on
Agriculture.
B. Interpretation and Application of Article 5
1. General
(a) Elements of a claim under Article 5
255. In US — Offset Act (Byrd Amendment), the Panel
explained that “a measure constitutes an actionable subsidy if it is a
subsidy, if it is “specific”, and if its use causes “adverse
effects.”(430)
(b) Temporal scope of Article 5
256. In EC and certain member States — Large Civil Aircraft,
the Appellate Body rejected the European Communities’ request to
exclude all alleged prohibited and actionable subsidies granted prior to
1 January 1995 from the temporal scope of the dispute. The Appellate
Body concluded that:
“In sum, we agree with the Panel that Article 5 addresses a “situation”
that consists of causing, through the use of any subsidy, adverse
effects to the interests of another Member. It is this “situation”,
which is subject to the requirements of Article 5 SCM Agreement,
that is to be construed consistently with the non-retroactivity
principle reflected in Article 28 of the Vienna Convention. The
relevant question for purposes of determining the temporal scope of
Article 5 is whether the causing of adverse effects has “ceased to
exist” or continues as a “situation”. We consequently disagree
with the European Union that, by virtue of Article 28 of the Vienna
Convention, no obligation arising out of Article 5 SCM Agreement is
to be imposed on a Member in respect of subsidies granted or brought
into existence prior to the entry into force of the SCM Agreement.
This may mean that a subsidy granted prior to 1 January 1995 falls
within the scope of Article 5 SCM Agreement, but this is only
because of its possible nexus to the continuing situation of causing,
through the use of this subsidy, adverse effects to which Article 5
applies. In reaching this conclusion, we are not saying that the
causing of adverse effects, through the use of pre-1995 subsidies, can
necessarily be characterized as a “continuing” situation in this
case. Rather, we simply find that a challenge to pre-1995 subsidies is
not precluded under the terms of the SCM Agreement.”(431)
(c) No requirement of “continuing” benefit
257. In EC and certain member States — Large Civil Aircraft,
the Appellate Body upheld the Panel’s finding that Articles 5 and
6 of
the SCM Agreement do not require that a complainant demonstrate that a
benefit “continues” or is “present” during the reference period
for purposes of an adverse effects analysis. The Appellate Body
emphasized, however, that “the effects of a subsidy will ordinarily
dissipate over time and will end at some point after the subsidy has
expired. Indeed, as with a subsidy that has a finite life and
materializes over time, so too do the effects of a subsidy accrue and
diminish over time.”(432)
(d) No requirement of “pass-through” in a claim under Article 5
of the SCM Agreement
258. In EC and certain member States — Large Civil Aircraft,
the Appellate Body upheld the Panel’s finding that the Appellate Body
upheld the Panel’s finding that the United States was not required to
demonstrate, as part of its prima facie case under Article 5 of
the SCM Agreement, that subsidies provided to the Airbus Industrie
consortium “passed through” to the current producer of Airbus LCA,
Airbus SAS.(433)
(e) Reference period for determining whether subsidies cause adverse
effects
259. In EC and certain member States — Large Civil Aircraft,
the Panel offered the following general observations regarding the use
of a “reference period” for the purpose of determining adverse
effects:
“Articles 5(a) and (c) and
6.3(a), (b) and
(c) do not specify any
particular time period for a panel to consider in evaluating whether the
subsidies in dispute cause adverse effects to the complaining Member’s
interests, either in the form of injury to the domestic industry of the
complaining Member, or in the form of serious prejudice. Article 6.4
does indicate that, for purposes of analysis of impedance or
displacement of exports under Article 6.3(b), a panel should examine
changes in relative market shares “over an appropriately
representative period sufficient to demonstrate clear trends in the
development of the market for the product concerned, which, in normal
circumstances, shall be at least one year.” However, while this
establishes a minimum period of data to be considered in normal
circumstances, it does not provide any guidance regarding either a
starting date, or an end date, of a relevant period. Nor does it provide
any guidance as to the appropriate length of a relevant period, so long
as a minimum of one year is generally respected in the context of an
analysis under Article 6.4.
It is clear that the finding we are required to make is whether there
are “present” adverse effects caused by the subsidies in dispute,
and the parties do not argue otherwise. Of course, it is impossible to
assess the “present” situation, as immediate data is not available,
and thus a review of the past is necessary to draw conclusions about
present adverse effects. The issue we must consider here is what
evidence we should take into account, what historical period we should
refer to, in drawing such conclusions. In our view, in the absence of
any specific guidance on this issue, we should avoid making an a
priori choice of reference period. The legal arguments of the
parties do not establish that a panel is either precluded from, or
required to, focus on either of the periods proposed by them, in the
sense of a limitation on the panel’s consideration of information in
the abstract. Rather, we consider that it is our responsibility, in
making a determination consistent with our obligations under Article 11
of the DSU, to examine the evidence put forward by the United States,
and the rebuttal evidence put forward by the European Communities,
including recent information where relevant and reliable, in determining
whether the United States has demonstrated that subsidies cause present
adverse effects within the meaning of Article 5 SCM
Agreement. While
this makes our task of assessment of the evidence more complicated, it
serves to ensure that we carry out an objective examination, as required
by Article 11 of the DSU, of all the evidence in reaching our
conclusions.”(434)
2. Article 5(a): injury to the domestic industry
260. In EC and certain member States — Large Civil Aircraft,
the United States claimed that the subsidies at issue caused injury to
its domestic industry within the meaning of Article
5(a). The Panel
explained that it would interpret “injury to the domestic industry”
in Article 5(a) harmoniously with the provisions of
Article 15 governing
countervailing duty investigations:
“In our view, the term “injury to the domestic industry”, which
we are to apply in the same way under Article 5(a) as an investigating
authority would in the context of a countervailing duty investigation,
includes the question of causation. Thus, we consider that a consistent
interpretation of the concept of “injury to the domestic industry”
requires us to examine, in considering causation, the effects of
subsidized imports as set forth in Articles 15.2 and
15.4 in our
analysis of material injury under Article 5(a). Any other conclusion
would, we believe, inappropriately establish a different legal standard
and obligations for analysis of injury in the context of Part III from
that developed under Part V of the SCM Agreement, which in our view
would be contrary to footnote 11.
…
Since in this case we are essentially fulfilling the role that would
be taken by the investigating authority in a countervailing or
anti-dumping duty investigation, this means that we must base our
examination and determination with respect to injury on positive
evidence and an objective examination of the various injury elements as
required by the more specific provisions of Article
15.”(435)
3. Article 5(b): “nullification or impairment”
(a) General
261. In US — Offset Act (Byrd Amendment), with respect to
“adverse effects,” Mexico made arguments of both violation and
non-violation nullification or impairment. In relation to claims of
violation nullification or impairment, the Panel stated that any
presumption arising under Article 3.8 of the DSU stemming from these
violations would relate to nullification or impairment caused by the
violation at issue. The Panel rejected the argument by Mexico on the
grounds that, for the purpose of Article 5(b) of the SCM
Agreement,
Mexico must demonstrate that “the use of a subsidy” caused
nullification or impairment.(436)
(b) Application of a measure
262. In US — Offset Act (Byrd Amendment), the Panel
clarified that the drafters of Article 5 SCM Agreement had envisaged the
possibility of nullification or impairment resulting from the “use”
of a subsidy. Furthermore, the Panel noted that Article 7.1 of the SCM
Agreement provides useful context by clarifying that the “use” of a
subsidy is to be equated with the grant or maintaining of a subsidy. In
this sense, the Panel stated “[e]ven if disbursements have not been
granted under the [Offset Act], the maintenance of the [offset
programme] constitutes ‘application’ of a measure for the purpose of
a ‘non-violation’ nullification or impairment claim under SCM
Article 5(b).”(437) The Panel went on to find that the existence of a
subsidy programme, and the potential use of that subsidy programme, is
sufficient for that programme to “apply.”(438)
(c) Existence of a benefit
263. The Panel in US — Offset Act (Byrd Amendment) explained
that there was no reason why the Panel should not find that the
requirement of existence of a benefit had been met, since the United
States had not disputed that benefits resulting from the negotiated
tariff concessions accrued to Mexico under Articles II and
VI of the
GATT 1994.(439)
(d) Nullification or impairment of a benefit
264. The Panel in US — Offset Act (Byrd Amendment) recalled
one adopted GATT panel report, namely EEC — Oilseeds, where the
panel “considered that non-violation nullification or impairment would
arise when the effect of a tariff concession is systematically offset or
counteracted by a subsidy programme.”(440) The Panel found the approach
of the Panel in EEC — Oilseeds to be reasonable.
4. Article 5 (c)
(a) “serious prejudice”
265. In addressing the issue of whether a finding that the “effect
of a subsidy” constitutes “significant price suppression” “in
the same market” following an analysis pursuant to Article 6.3(c) of
the SCM Agreement is conclusive in establishing “serious prejudice”
under Article 5(c), the Panel in US — Upland Cotton was of the
view that for the purposes of the dispute, the “significant price
suppression” that it found had occurred amounts to “serious
prejudice” pursuant to Article 5(c), even though the Panel did not
consider it needed to articulate a specific interpretation of the
definition of “serious prejudice” in Article
5(c):
“For the purposes of this dispute, we do not believe that it is
necessary to develop a fixed interpretation of the outer parameters of
what may constitute “serious prejudice” to the interests of another
Member within the meaning of Article 5(c) of the SCM Agreement. At
the very least, given the subject matter covered by the SCM Agreement
— government subsidies in respect of goods — the effects-based
situations identified in the sub-paragraphs of Article
6.3, and the
reference in the chapeau of Article 6.3 to serious prejudice “in the
sense of” Article 5(c), we believe that such “serious prejudice”
may involve the effects of subsidies on the complaining Member’s trade
in a given product. That is, it addresses the volumes and prices and
flows of such trade, which may, by logical extension, affect a producing
Member’s domestic production of that product. We therefore
consider that a detrimental impact on a complaining Member’s
production of, and/or trade in, the product concerned may fall within
the concept of “prejudice” in Article 5(c) of the SCM Agreement.
Moreover, the prejudice involved must be “serious”. In one of its
ordinary meanings, “serious” means “important” and “not slight
or negligible”. Thus, the prejudice in terms of the effect on Brazil’s
production of, and/or trade in, upland cotton must be such as to affect
Brazil’s production of upland cotton, to a degree that is “important”,
“not slight or negligible”, or meaningful.
We recall our conclusion that the price suppression is “significant”.
We note, moreover, Brazil has submitted evidence to substantiate its
assertions that there is a close relationship between movements of
Brazilian prices and movements in the A-Index and that Brazilian
producers have suffered from the suppressed price trends in the
Brazilian market and in Brazilian export markets, including in terms of
Brazilian producers having reduced production and investment.
In the particular facts and circumstances of this case, whether or
not we consider the impact and magnitude of the price suppression or the
materiality of effect upon Brazilian producers of upland cotton in terms
of the “significance” of the price suppression or in terms of the
question as to whether or not such “significant” price suppression
amounts to “serious prejudice” under the chapeau of Article
6.3, we
arrive at the same conclusion: such “significant price suppression”
amounts to “serious prejudice” within the meaning of Article 5(c) of
the SCM Agreement.”(441)
(b) “another Member”
266. In addressing the issue of whether serious prejudice to the
interests of “another Member” refers only to the interests of the
particular WTO Member bringing forth the claim of serious prejudice or
whether the term also includes Members other than the complainant in a
particular dispute, the Panel in US — Upland Cotton was of the
view that the relevant context of the SCM Agreement and the DSU does not
preclude it from taking into account the interest of all Members in the
dispute, though it emphasized that it did not base its finding on any
claims of serious prejudice caused to those other Members:
“For these reasons, in examining Brazil’s allegations under
Part
III of the SCM Agreement that it has suffered serious prejudice
to its interests within the meaning of Article
5(c), we take full
account of the interest of all Members — including those of
least-developed Members — in these dispute settlement proceedings in
accordance with the rights and obligations provided for in Part
III of the SCM Agreement. Pursuant to Article 3.2 of the DSU, we
are called upon to clarify the rights and obligations in this covered
agreement through application of customary principles of interpretation
of public international law.
Therefore, we have taken into account serious prejudice allegations
of other Members to the extent these constitute evidentiary support of
the effect of the subsidy borne by Brazil as a Member whose producers
are involved in the production and trade in upland cotton in the world
market. However, we have not based our decision on any alleged serious
prejudice caused to them.(442)
Therefore, we have taken into account serious prejudice allegations
of other Members to the extent these constitute evidentiary support of
the effect of the subsidy borne by Brazil as a Member whose producers
are involved in the production and trade in upland cotton in the world
market. However, we have not based our decision on any alleged serious
prejudice caused to them.”(443)
(c) Standing as complainant
267. The Panel in Indonesia — Autos considered whether “the
United States may claim that it has suffered serious prejudice as a
result of displacement/ impedance or of price undercutting with respect
to a product which does not originate in the United States solely on the
basis that the producer of that product is a ‘US company’.”(444) The
Panel drew a distinction between United States’ products and United
States’ companies/producers and rejected the claim that the
nationality of producers is relevant to establishing the existence of
serious prejudice:
“In our view, the text of Article XVI [of the GATT 1994] and of
Part III of the SCM Agreement make clear that serious prejudice may
arise where a Member’s trade interests have been affected by
subsidization. We see nothing in Article XVI or in
Part III that would
suggest that the United States may claim that it has suffered adverse
effects merely because it believes that the interests of US companies
have been harmed where US products are not involved. The
United States has cited no language in Article XVI:1 or
Part III
suggesting that the nationality of producers is relevant to establishing
the existence of serious prejudice. Accordingly, given that serious
prejudice may only arise in the case at hand where there is ‘displacement
or impedance of imports of a like product from another Member’ or
price undercutting ‘as compared with the like product of another
Member’, we do not consider that the United States can convert such
effects on products from the European Communities into serious prejudice
to US interests merely by alleging that the products affected were
produced by US companies.”(445)
5. Relationship with other Articles
(a) Article 6.3(c)
268. The Panel in Indonesia — Autos determined the existence
of serious prejudice within the meaning of Article 5(c) upon finding a
significant price undercutting under Article
6.3(c):
“We note that under Article
6.3(c) serious prejudice may arise only
where the price undercutting is ‘significant.’ Although the term ‘significant’
is not defined, the inclusion of this qualifier in Article
6.3(c) presumably was intended to ensure that margins of undercutting so small
that they could not meaningfully affect suppliers of the imported
product whose price was being undercut are not considered to give rise
to serious prejudice. This clearly is not an issue here. To the
contrary, it is our view that, even taking into account the possible
effects of these physical differences on price comparability, the price
undercutting by the Timor of the Optima and 306 cannot reasonably be
deemed to be other than significant.
For the foregoing reasons, we find that the effect of the subsidies
to the Timor pursuant to the National Car programme is to cause serious
prejudice to the interests of the European Communities in the sense of
Article 5(c) of the SCM Agreement through a significant price
undercutting as compared with the price of EC-origin like products in
the Indonesian market.”(446)
(b) Article 7.1
269. See paragraph 262
above.
VII. Article 6
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A. Text of Article 6
Article 6: Serious Prejudice
6.1 Serious prejudice in the sense of
paragraph (c) of Article 5
shall be deemed to exist in the case of:
(a) the total ad valorem
subsidization(14) of a product exceeding 5 per cent(15);
(footnote original)
14 The total ad valorem subsidization
shall be calculated in accordance with the provisions of Annex
IV.
(footnote original)
15 Since it is anticipated that civil
aircraft will be subject to specific multilateral rules, the threshold
in this subparagraph does not apply to civil aircraft.
(b) subsidies to cover operating losses sustained by an industry;
(c) subsidies to cover operating losses sustained by an enterprise,
other than one-time measures which are non-recurrent and cannot be
repeated for that enterprise and which are given merely to provide time
for the development of long-term solutions and to avoid acute social
problems;
(d) direct forgiveness of debt, i.e. forgiveness of government-held
debt, and grants to cover debt repayment.(16)
(footnote original)
16 Members recognize that where
royalty based financing for a civil aircraft programme is not being fully
repaid due to the level of actual sales falling below the level of
forecast sales, this does not in itself constitute serious prejudice for
the purposes of this subparagraph.
6.2 Notwithstanding the provisions of
paragraph 1, serious prejudice
shall not be found if the subsidizing Member demonstrates that the
subsidy in question has not resulted in any of the effects enumerated in
paragraph 3.
6.3 Serious prejudice in the sense of
paragraph (c) of Article 5 may
arise in any case where one or several of the following apply:
(a) the effect of the subsidy is to displace or impede the imports of
a like product of another Member into the market of the subsidizing
Member;
(b) the effect of the subsidy is to displace or impede the exports of
a like product of another Member from a third country market;
(c) the effect of the subsidy is a significant price undercutting by
the subsidized product as compared with the price of a like product of
another Member in the same market or significant price suppression, price
depression or lost sales in the same market;
(d) the effect of the subsidy is an increase in the world market
share of the subsidizing Member in a particular subsidized primary
product or commodity(17) as compared to the average share it had during
the previous period of three years and this increase follows a
consistent trend over a period when subsidies have been granted.
(footnote original)
17 Unless other multilaterally agreed
specific rules apply to the trade in the product or commodity in
question.
6.4 For the purpose of
paragraph 3(b), the displacement or impeding
of exports shall include any case in which, subject to the provisions of
paragraph 7, it has been demonstrated that there has been a change in
relative shares of the market to the disadvantage of the non-subsidized
like product (over an appropriately representative period sufficient to
demonstrate clear trends in the development of the market for the
product concerned, which, in normal circumstances, shall be at least one
year). “Change in relative shares of the market” shall include any
of the following situations: (a) there is an increase in the
market share of the subsidized product; (b) the market share of
the subsidized product remains constant in circumstances in which, in
the absence of the subsidy, it would have declined; (c) the
market share of the subsidized product declines, but at a slower rate
than would have been the case in the absence of the subsidy.
6.5 For the purpose of paragraph
3(c), price undercutting shall
include any case in which such price undercutting has been demonstrated
through a comparison of prices of the subsidized product with prices of
a nonsubsidized like product supplied to the same market. The comparison
shall be made at the same level of trade and at comparable times, due
account being taken of any other factor affecting price comparability.
However, if such a direct comparison is not possible, the existence of
price undercutting may be demonstrated on the basis of export unit
values.
6.6 Each Member in the market of which serious prejudice is alleged
to have arisen shall, subject to the provisions of paragraph 3 of Annex
V, make available to the parties to a dispute arising under Article
7,
and to the panel established pursuant to paragraph 4 of Article
7, all
relevant information that can be obtained as to the changes in market
shares of the parties to the dispute as well as concerning prices of the
products involved.
6.7 Displacement or impediment resulting in serious prejudice shall
not arise under paragraph 3 where any of the following circumstances
exist(18) during the relevant period:
(footnote original)
18 The fact that certain circumstances are
referred to in this paragraph does not, in itself, confer upon them any
legal status in terms of either GATT 1994 or this Agreement. These
circumstances must not be isolated, sporadic or otherwise insignificant.
(a) prohibition or restriction on exports of the like product from
the complaining Member or on imports from the complaining Member into
the third country market concerned;
(b) decision by an importing government operating
a monopoly of trade
or state trading in the product concerned to shift, for non-commercial
reasons, imports from the complaining Member to another country or
countries;
(c) natural disasters, strikes, transport disruptions or other force
majeure substantially affecting production, qualities, quantities or
prices of the product available for export from the complaining Member;
(d) existence of arrangements limiting exports from the complaining
Member;
(e) voluntary decrease in the availability for export of the product
concerned from the complaining Member (including, inter alia, a
situation where firms in the complaining Member have been autonomously
reallocating exports of this product to new markets);
(f) failure to conform to standards and other regulatory requirements
in the importing country.
6.8 In the absence of circumstances referred to in
paragraph 7, the
existence of serious prejudice should be determined on the basis of the
information submitted to or obtained by the panel, including information
submitted in accordance with the provisions of Annex
V.
6.9 This Article does not apply to subsidies maintained on
agricultural products as provided in Article 13 of the Agreement on
Agriculture.
B. Interpretation and Application of Article 6
1. Article 6.1
(a) Expiry of Article 6.1
270. This provision has lapsed pursuant to
Article 31. In this
respect, see paragraph 582 below.
(b) Relationship with other Articles
(i) Article 27
271. With regard to the relationship between
Article 6.1 and Article
27, see paragraph 568 below.
(ii) Article 31
272. With regard to the relationship between
Article 6.1 and Article
31, see paragraph 582 below.
2. Article 6.3
(a) General
(i) “Serious prejudice … may arise”
273. In Korea — Commercial Vessels, Korea argued, on the
basis of the word “may” in the chapeau of Article
6.3, that “a
two-step analysis is required to establish the existence of serious
prejudice, i.e. that the situations listed in Articles 6.3(a) through
(d) are necessary prerequisites to a finding of serious prejudice, but
that they do not in themselves constitute serious prejudice.” Rather,
Korea argued, serious prejudice “is a separate, distinct concept,
which must be a result of the situations in Articles 6.3(a) through
(d).”(447) According to the Panel, “the fundamental issue
raised by this aspect of Korea’s argument” is “whether, to
demonstrate the existence of serious prejudice, the SCM Agreement
requires additional elements beyond those referred to in Article
6, such
as injury to the domestic industry, and/or the importance of that
industry to the overall interests of the complaining party.” The Panel
noted that it found “neither textual nor contextual support for Korea’s
argument.” In this regard, the Panel stated:
“We see the fundamental issue raised by this aspect of Korea’s
argument to be whether, to demonstrate the existence of serious
prejudice, the SCM Agreement requires additional elements beyond
those referred to in Article 6, such as injury to the domestic industry,
and/or the importance of that industry to the overall interests of the
complaining party. In this respect, we find neither textual nor
contextual support for Korea’s argument that a finding of serious
prejudice requires the establishment of something like “serious injury”
to the domestic industry of the complaining Member, or of the relative
importance of the industry to that Member, and we note that Korea offers
none. Rather, Korea’s entire argument to this effect is based on the
premise that the word “serious” connotes something stronger than the
word “material”, that material injury is a lesser standard subsumed
within the standards of Articles 5 and 6, and that “serious”
prejudice cannot be easier to prove than “material” injury. As an
initial matter, given that the word “material” does not appear in
the serious prejudice provisions of the SCM Agreement, we fail to
see the relevance of the juxtaposition of terms proffered by Korea. Nor
do we agree that the absence of a requirement for an injury-type
analysis in the context of serious prejudice claims would necessarily
make it easier to prove serious prejudice than material injury. Rather,
we view these as two distinct concepts.”(448)
274. The Panel in Korea — Commercial Vessels acknowledged
that serious prejudice is an entirely different concept from injury and
it explained that the former rather than having to do with the condition
of a particular domestic industry within the territory of a Member, has
to do in the first instance with negative effects on a Member’s trade
interests in respect of a product caused by another Member’s
subsidization such as lost import or export volume or market share in
respect of a given product, adverse price effects, or some combination
thereof, in variously-defined markets.
“In short, we see serious prejudice as an entirely different
concept from injury. Rather than having to do with the condition of a
particular domestic industry within the territory of a Member (the
subject matter of injury analysis), in our view serious prejudice has to
do in the first instance with negative effects on a Member’s trade
interests in respect of a product caused by another Member’s
subsidization. Article 6.3 demonstrates this in providing that the
recognized “adverse effects” of subsidies on these interests
include, in the context of serious prejudice, lost import or export
volume or market share in respect of a given product (displacement or
impedance, more than equitable share), and adverse price effects
(implying lost trade revenue/income in respect of the product), or some
combination thereof, in variously-defined markets.”(449)
275. With regard to the use of the word “may,” the Panel Korea
— Commercial Vessels saw this word “as a general cross-reference
to other specific requirements elsewhere in Article 6 for the
establishment of serious prejudice on the basis of the price and/or
volume effects referred to in subparagraphs (a)-(d) of Article
6.3.”
Furthermore, it viewed the word “may” as a cross-reference to “significant”
in Article 6.3(c), “operating to rule out serious prejudice findings
where any price suppression or price depression resulting from a subsidy
is unimportant and inconsequential.”(450)
276. With respect to the nature of “serious prejudice”, the Panel
in Korea — Commercial Vessels noted that this notion is also
informed by another provision, i.e. Article 6.2, which established the
basis on which the now expired presumption of serious prejudice in
Article 6.1 could be rebutted:
“Article 6.2 provided that the subsidizer could rebut the
presumption (in the sense that “serious prejudice shall not be found”)
by demonstrating that the subsidy in question had not resulted in
any of the effects enumerated in Article 6.3 (displacement or impedance,
price undercutting, price suppression/depression, lost sales). We thus
view Article 6.2 as defining by implication the situations listed in
Article 6.3 to be in themselves serious prejudice.”(451)
277. Referring to past disputes involving an examination of serious
prejudice, in particular the GATT panel reports in EC — Sugar
Exports (Australia) and EC — Sugar Exports (Brazil), the
Panel in Korea — Commercial Vessels said that “in both of
these cases, the panels’ affirmative serious prejudice determinations
were based on a conception of serious prejudice the substance of which
was the effect of subsidies on markets, and on trade, in respect of the
product, rather than treating these effects simply as stepping stones to
a separate and distinct concept of serious prejudice.”(452)
278. The Panel in US — Upland Cotton (Article 21.5 — Brazil) agreed
that serious prejudice exists once the conditions set forth in Article
6.3(a)-(d) are fulfilled:
“Article 6.3(c) of the SCM Agreement provides that “serious
prejudice in the sense of paragraph (c) of Article 5 may arise in
any case where one or several of the following apply” (emphasis
added). The Panel considers that this phrase must be interpreted to mean
that “the situations listed in Article 6.3(a)-(d) in themselves
constitute serious prejudice”. As a consequence, a finding of
significant price suppression under Article 6.3(c) of the SCM
Agreement is a sufficient basis for a finding of serious prejudice
within the meaning of Article 5(c) of the SCM Agreement.”(453)
(ii) “the effect of the subsidy”
Genuine and substantial relationship of cause and effect
279. The Appellate Body repeatedly stated that to satisfy the
causation requirement under Articles 5(c) and
6.3, it must be shown that
there is a “genuine and substantial relationship of cause and effect”
between the subsidies and the alleged market phenomenon. In EC and
certain member States — Large Civil Aircraft, the Appellate Body
confirmed that the “genuine and substantial relationship of cause and
effect” standard applies in respect of all of the forms of serious
prejudice under Article 6.3:
“[T]he Appellate Body has observed that to satisfy the causation
requirement under Articles 5(c) and 6.3(c), it must be shown that there
is a “genuine and substantial relationship of cause and effect”
between the subsidies and the alleged market phenomenon.(454) In addition,
the Appellate Body has stated that panels assessing claims under Articles 5(c) and
6.3(c) must ensure that the effects of other factors
are not improperly attributed to the challenged subsidies.(455) The
Appellate Body’s guidance concerning the assessment of causation was
provided in the context of a dispute involving Article 6.3(c) of the SCM
Agreement. The language of subparagraphs (a) and
(b) of Article 6.3
of the SCM Agreement expresses the causation requirement in very
similar terms to those used in subparagraph (c). Under
subparagraphs (a)
and (b), displacement or impedance must be shown to be “the effect of
the subsidy”. We see no reason why the standard for causation and
non-attribution should be different under subparagraphs (a) and
(b) than
under subparagraph (c), and the participants and third participants have
not suggested that a different standard applies.”(456)
“But for” approach
280. The Panel in Korea — Commercial Vessels, noting that
Article 6.3(c) provides in relevant part that “the effect of the
subsidy is … significant price suppression [or] price depression …
in the same market”, said that “there must be a causal relationship
between the subsidy and the significant price suppression or
price depression.”(457)
To establish the existence of such a
relationship, the Panel, having recalled that “the text of
Article 6.3(c) implies a ‘but for’ approach to causation in respect of price
suppression/price depression”, concluded:
“Looking at a counterfactual situation, i.e. trying to determine
what prices would have been in the absence of the subsidy, seems to us
the most logical and straightforward way to answer this question.(458) …
The question to be answered in respect of the affirmative link between
subsidies and prices is, in the case of alleged price depression,
whether in the absence of the subsidies prices for ships would not have
declined, or would have declined by less than was in fact the case. For
price suppression, the question would be whether, in the absence of the
subsidies, ship prices would have increased, or would have increased by
more than was in fact the case.”(459)
281. The Panel in US — Upland Cotton (Article 21.5 — Brazil) adopted
a similar “but for” approach to causation. In particular, the Panel
determined whether, but for the relevant subsidies, the world
market price for upland cotton would have increased significantly, or
would have increased by significantly more than was in fact the case.(460)
The Appellate Body upheld the approach taken by the Panel:
“We recall that “a panel has a certain degree of discretion in
selecting an appropriate methodology for determining whether the ‘effect’
of a subsidy is significant price suppression”. Articles 5(c) and
6.3(c) of the SCM Agreement do not exclude, therefore, that a
panel could examine causation based on a “but for” approach. We have
explained that a price suppression analysis is counterfactual in nature.
The Panel’s choice of a “but for” approach reflects this. In
consequence, the Panel had to determine whether the world price of
upland cotton would have been higher in the absence of the subsidies
(that is, but for the subsidies).
In the original proceedings, the Appellate Body observed that:
… the ordinary meaning of the transitive verb “suppress”
implies the existence of a subject (the challenged subsidies) and an
object (in this case, prices in the world market for upland cotton).
This suggests that it would be difficult to make a judgement on
significant price suppression without taking into account the
effect of the subsidies. The Panel’s definition of price suppression,
explained above, reflects this problem; it includes the notion that
prices “do not increase when they otherwise would have” or
“they do actually increase, but the increase is less than it otherwise
would have been”. The word “otherwise” in this context refers
to the hypothetical situation in which the challenged subsidies are
absent. Therefore, the fact that the Panel may have addressed some of
the same or similar factors in its reasoning as to significant price
suppression and its reasoning as to “effects” is not necessarily
wrong. (original emphasis; footnotes omitted)
The Panel’s choice of a “but for” approach, therefore, is
consistent with the definition of price suppression endorsed by the
Appellate Body in the original proceedings, insofar as the
counterfactual determination of whether price suppression exists cannot
be separated from the analysis of the effects of the subsidies.
We note that Article 6.3(c) does not use the word “cause” but,
rather, provides that serious prejudice may arise where “the effect of
the subsidy is … significant price suppression”. The Appellate Body
stated in the original proceedings that the text of Article 6.3(c)
nevertheless requires the establishment of a causal link between the
subsidy and the significant price suppression. We agree that Article 6.3(c)
requires the establishment of a causal link, but we observe that,
while the term “cause” focuses on the factors that may trigger a
certain event, the term “effect of” focuses on the results of that
event. The effect — price suppression — must result from a chain of
causation that is linked to the impugned subsidy.”(461)
282. In EC and certain member States — Large Civil Aircraft,
the Appellate Body reiterated that the “genuine and substantial
relationship of cause and effect” standard applies in respect of all
of the forms of serious prejudice under Article
6.3, and then said this
about the “but for” approach:
“The Appellate Body has said furthermore that it may be possible to
assess whether the particular market phenomena are the effect of the
subsidies by recourse to a “but for” approach.(462) Thus, one possible
approach to the assessment of causation is an inquiry that seeks to
identify what would have occurred “but for” the subsidies. In some
circumstances, a determination that the market phenomena captured by
Article 6.3 of the SCM Agreement would not have occurred “but
for” the challenged subsidies will suffice to establish causation.
This is because, in some circumstances, the “but for” analysis will
show that the subsidy is both a necessary cause of the market phenomenon
and a substantial cause. It is not required that the “but for”
analysis establish that the challenged subsidies are a sufficient cause
of the market phenomenon provided that it shows a genuine and
substantial relationship of cause and effect. However, there are
circumstances in which a “but for” approach does not suffice. For
example, where a necessary cause is too remote and other intervening
causes substantially account for the market phenomenon. This example
underscores the importance of carrying out a proper non-attribution
analysis.
… As we noted above, a “but for” test is one possible approach
to the assessment of causation. Nevertheless, in applying a “but for”
test, a panel must ensure that the assessment demonstrates that the
subsidies are a “genuine and substantial” cause of the particular
market situation that is alleged. Thus, the Panel in this case should
have clearly indicated that, in applying a “but for” standard, it
would seek to establish whether there was a “genuine and substantial
relationship of cause and effect”(463) between the challenged subsidies
and the displacement and lost sales. Furthermore, it should have
indicated that, in doing so, it would also ensure that the effects of
other factors were not improperly attributed to the challenged
subsidies.”(464)
Complainant’s evidentiary burden
283. The Panel in Korea — Commercial Vessels observed that
the nature of the demonstration that the complainant will need to make
to establish causation in any given case, and the difficulty of doing
so, will depend on a number of factors and factual circumstances,
including but not limited to the breadth of the description of the
product on which the complainant brings its case, and that the burden is
on the complainant to furnish specific factual evidence affirmatively
demonstrating the causal link alleged:
“In this regard, we would observe that the nature of the
demonstration that the complainant will need to make to establish
causation in any given case, and the difficulty of doing so, will depend
on a number of factors and factual circumstances, including but not
limited to the breadth of the description of the product on which the
complainant brings its case. Such factors might include among others the
nature of the subsidy, the way in which the subsidy operates, the extent
to which the subsidy is provided in respect of a particular product or
products, conditions in the market, the conceptual distance between the
activities of the subsidy recipient and the products in respect of which
price suppression/price depression is alleged.(465) Whatever the factual
situation in a given case, the burden will be on the complainant to
furnish specific factual evidence affirmatively demonstrating the causal
link alleged, and the difficulty and ways of meeting this burden may be
very different from one case to another.(466) In all cases, if the
complainant fails to meet this evidentiary burden, its serious prejudice
claim will fail.”(467)
284. Referring to guidance from the Appellate Body in US —
Upland Cotton, the Panel in US — Upland Cotton (Article 21.5
— Brazil) found that “the existence of a correlation between a
subsidy and a particular level of prices is not in and of itself
sufficient to establish that the subsidy causes significant price
suppression.”(468)
Non-attribution
285. Regarding the need for a non-attribution analysis (i.e. an
analysis to ensure that adverse effects caused by other factors are not
attributed to subsidies) in the context of Article
6.3(c) of the SCM Agreement, the Appellate Body in US — Upland Cotton agreed with
the Panel “that it is necessary to ensure that the effects of other
factors on prices are not improperly attributed to the challenged
subsidies.”(469)
286. In terms of the manner in which non-attribution should be
ensured, the Appellate Body in US — Upland Cotton found no
legal error with the Panel’s approach of first examining whether or
not the “effect of the subsidy” constitutes significant price
suppression, and then considering whether other causal factors had the
effect of attenuating such causal link between the challenged subsidies
and significant price suppression:
“Pursuant to Article 6.3(c) of the SCM Agreement, “[s]
erious prejudice in the sense of paragraph (c) of Article 5 may arise”
when “the effect of the subsidy is … significant price
suppression”. (emphasis added) If the significant price suppression
found in the world market for upland cotton were caused by factors other
than the challenged subsidies, then that price suppression would not be
“the effect of” the challenged subsidies in the sense of Article
6.3(c). Therefore, we do not find fault with the Panel’s approach of
“examin[ing] whether or not ‘the effect of the subsidy’ is the
significant price suppression which [it had] found to exist in the same
world market” and separately “consider[ing] the role of other
alleged causal factors in the record before [it] which may affect [the]
analysis of the causal link between the United States subsidies and the
significant price suppression.”
287. Reflecting on whether and how to conduct a nonattribution
analysis, the Panel in Korea — Commercial Vessels noted the
logic and appropriateness of the US — Upland Cotton panel,
which analysed other possible causal factors, with a view to determining
whether such factors “would have the effect of attenuating [the]
causal link, or of rendering not ‘significant’ the effect of the
subsidy”.(470) Thus, in conducting its causation analysis, it would:
“[B]ear in mind the need to take into account the effects of
identified factors other than the subsidies, to determine whether such
factors would attenuate any affirmative causal link that we may find, or
render insignificant any price suppression or price depression effect of
the subsidy that we may find.”(471)
288. Having adopted a “but for” test for causation (see paragraph
281 above), the Panel in US — Upland Cotton (Article 21.5 —
Brazil) considered that it was “not necessary … to undertake a
comprehensive evaluation of factors affecting the world market price for
upland cotton”:(472)
“Rather the question is whether the evidence before the Panel
supports the conclusion that in the absence of the US marketing loan and
counter-cyclical subsidies the world market price would increase
significantly. The Panel considers, based on the evidence before it,
that while China may play a significant role in the market for upland
cotton, this does not diminish the significance of the impact of US
subsidies on the world price for upland cotton as a result of their
effect on US supply to the world market. Developments concerning the
role of China’s demand and supply do not change the fact that, with a
share of world exports of around 40 per cent, the United States is
capable of exerting a substantial proportionate influence on the world
market.”(473)
289. The United States appealed from the Panel’s decision not to
carry out a comprehensive evaluation of other factors affecting the
world market price for upland cotton. The Appellate Body upheld the
approach adopted by the Panel, on the basis that the Panel’s
counterfactual analysis for the purpose of the “but for” test was
sufficient to establish that significant price suppression was the
effect of the relevant subsidies, despite the existence of other
relevant causal factors:
“The Panel does not clearly articulate the standard implicated in
its “but for” approach. Brazil submits that the Panel’s “but for”
standard “effectively isolated the effects of [United States]
subsidies from the effects of other factors.” New Zealand asserts that
the Panel’s finding — that without the United States subsidies the
price of upland cotton would be higher — ”stands independent of any
other global factors that might also be suppressing world market prices”.
This may somewhat oversimplify the position. A subsidy may be necessary,
but not sufficient, to bring about price suppression. Understood in this
way, the “but for” test may be too undemanding. By contrast, the “but
for” test would be too rigorous if it required the subsidy to be the
only cause of the price suppression. Instead, the “but for” test
should determine that price suppression is the effect of the subsidy and
that there is a “genuine and substantial relationship of cause and
effect”.
The United States argues that the Panel was required to conduct a
non-attribution analysis as part of its “but for” approach. While we
agree that Article 6.3(c) requires the Panel to have ensured that the
effects of other factors on prices did not dilute the “genuine and
substantial” link between the subsidies and the price suppression, Article 6.3(c)
leaves some discretion to panels in choosing the
methodology used for this assessment. In the light of this flexibility,
it would not have been improper for the Panel to have assessed the
effect of other factors as part of its counterfactual analysis, rather
than conducting a separate analysis of non-attribution. In our view, the
Panel’s “but for” standard, understood as we have set out above,
is permissible under Article 6.3(c) of the SCM Agreement, and it
is consistent with the Panel’s counterfactual analysis of price
suppression.
… Therefore, while the Panel agreed with the United States that “China
may play a significant role in the market for upland cotton”,(474) it
properly concluded that this does not diminish price suppressing effects
of marketing loan and counter-cyclical payments.”(475)
Unitary vs. two-step approach
290. In the context of a case concerning alleged significant price
suppression, the Panel in US — Upland Cotton determined
in three separate analytical steps: (i) whether there was price
suppression in the world market for upland cotton; (ii) whether such
price suppression was significant; and (iii) whether a causal
relationship existed between such significant price suppression and the
effects of certain price-contingent subsidies. The Appellate Body in US
— Upland Cotton found no legal error with the Panel’s approach
of first determining whether there is “significant price suppression”
before addressing the issue of “the effect of the subsidy” on the
basis that nothing in the text of Article 6.3(c) precludes such an
approach.(476) Although the Appellate Body stated that it was possible for
the Panel to have focused on price developments in the world market of
upland cotton in its analysis of significant price suppression and then
address causal factors related to the subsidies in question, including
examining causal factors other than the subsidies in its “effects”
analysis, it nevertheless acknowledged that it would be difficult to
separate these two analyses in determining whether significant price
suppression has occurred and the fact that the Panel may have addressed
similar factors in both these analyses does not necessarily amount to a
legal error:
“One might contend that, having decided to separate its analysis of
significant price suppression from its analysis of the effects of the
challenged subsidies, the Panel’s price suppression analysis should
have addressed prices without reference to the subsidies and their
effects. For instance, in its significant price suppression analysis,
the Panel could have addressed purely price developments in the world
market for upland cotton, such as whether prices fell significantly
during the period under examination or whether prices were significantly
lower during that period than other periods. Then, in its “effects”
analysis, the Panel could have addressed causal factors related to the
nature of the subsidies, their relationship to prices, their magnitude,
and their impact on production and exports. In this causal analysis, the
Panel could also have addressed factors other than the challenged
subsidies that may have been suppressing the prices in question.
However, the ordinary meaning of the transitive verb “suppress”
implies the existence of a subject (the challenged subsidies) and an
object (in this case, prices in the world market for upland cotton).
This suggests that it would be difficult to make a judgement on
significant price suppression without taking into account the
effect of the subsidies. The Panel’s definition of price suppression,
explained above 522, reflects this problem; it includes the notion that
prices “do not increase when they otherwise would have” or
“they do actually increase, but the increase is less than it otherwise
would have been”. The word “otherwise” in this context refers
to the hypothetical situation in which the challenged subsidies are
absent. Therefore, the fact that the Panel may have addressed some of
the same or similar factors in its reasoning as to significant price
suppression and its reasoning as to “effects” is not necessarily
wrong.
The specific factors that the Panel examined in determining whether
or not “price suppression” had occurred were: “(a) the relative
magnitude of the United States’ production and exports in the world
upland cotton market; (b) general price trends; and (c) the nature of
the subsidies at issue, and in particular, whether or not the nature of
these subsidies is such as to have discernible price suppressive effects”.525
In the absence of explicit guidance on assessing significant price
suppression in the text of Article 6.3(c), we have no reason to reject
the relevance of these factors for the Panel’s assessment in the
present case. An assessment of “general price trends” is clearly
relevant to significant price suppression (although, as the Panel itself
recognized, price trends alone are not conclusive). The two other
factors — the nature of the subsidies and the relative magnitude of
the United States’ production and exports of upland cotton — are
also relevant for this assessment. We are not persuaded that the fact
that these latter factors were also considered in connection with the
Panel’s analysis of “the effect of the subsidy”528 amounts to
legal error for that reason alone.”(477)
291. By contrast, the Panel in US — Upland Cotton (Article 21.5
— Brazil) did not determine whether significant price suppression
existed separately from whether significant price suppression was the
effect of the subsidies at issue. Instead, that Panel adopted a “unitary”
approach to these issues,(478) on the basis of the finding of the
Appellate Body in the original proceedings that “it would be difficult
to make a judgement on significant price suppression without taking into
account the effect of the subsidies”.(479) The Appellate Body concluded
that, because “it is difficult to separate price suppression from its
causes”, the Panel’s unitary analysis “at least in respect of
identifying price suppression and its causes, has a sound foundation.”(480)
The Appellate Body cautioned, though, that the adoption of a unitary
approach “did not absolve the Panel from clearly explaining its
position on the question of ‘significance’.”(481)
292. In EC and certain member States — Large Civil Aircraft,
the Appellate Body recalled its past precedent that either a “unitary”
or a “two-step” approach may be taken, and reiterated its preference
for the unitary approach:
“The Appellate Body has found that panels may undertake an analysis
of serious prejudice under either a unitary or two-step approach.(482)
Under a unitary approach, the analysis of the particular market
phenomena identified in the subparagraphs of Article 6.3 of the SCM
Agreement is not conducted separately from the analysis of whether
there is a causal relationship between those market phenomena and the
challenged subsidies. By contrast, under a two-step approach like the
one adopted by the Panel, the analysis first seeks to identify the
market phenomena and then, as a second step, examines whether there is a
causal relationship. The Appellate Body has indicated a preference for
the unitary approach, observing that such approach “has a sound
conceptual foundation”(483) and explaining that it may be difficult to
ascertain the existence of some of the market phenomena in Article 6.3
without considering the effect of the subsidy at issue.(484)
In this case, the Panel justified its choice of a two-step approach
by stating that “the arguments and evidence advanced by the United
States (including in respect of price suppression) renders a two-step
approach entirely appropriate to assessing its claims under Articles
6.3(a),(b) and (c) in the present controversy.” There is no further
explanation by the Panel as to why such a two-step approach was “entirely
appropriate”. The Panel acknowledged the reservations concerning a
two-step approach expressed by the Appellate Body in US — Upland
Cotton, but the Panel did not indicate why it considered that those
reservations were not relevant.
Our view remains that a unitary approach that uses a counterfactual
will generally be the more appropriate approach to undertaking the
assessment required under Article 6.3 of the SCM Agreement. As we
further explain in section C below, it is difficult to understand the
market phenomena described in the various subparagraphs of Article 6.3
in isolation from the challenged subsidies. Rather, consideration of the
effects of the challenged subsidies is intrinsic to the identification
of those market phenomena. Any attempt to identify one of the market
phenomena in Article 6.3 without considering the subsidies at issue can
only be preliminary in nature since Article 6.3
requires that the market
phenomenon be the effect of the challenged subsidy. This also means that
a two-step approach simply defers the core of the analysis to the second
step. In other cases, the problem might be the opposite. By artificially
leaving aside the question of whether the market phenomenon is the
effect of the subsidy, one could overlook market phenomena that are in
fact occurring.”(485)
Counterfactual analysis
293. The Appellate Body in US — Upland Cotton (Article 21.5 —
Brazil) stated that both price depression and price suppression
should be established on the basis of counterfactual analyses:
“The identification of price suppression, therefore, presupposes a
comparison of an observable factual situation (prices) with a
counterfactual situation (what prices would have been) where one has to
determine whether, in the absence of the subsidies (or some other
controlling phenomenon), prices would have increased or would have
increased more than they actually did. Price depression, by contrast,
can be directly observed, in that falling prices are observable. The
determination of whether such falling prices are the effect of the
subsidies will require consideration of what prices would have been
absent the subsidies. Thus, counterfactual analysis is an inescapable
part of analyzing the effect of a subsidy under Article 6.3(c) of the SCM
Agreement.”(486)
294. The relevant subsidies in US — Upland Cotton (Article 21.5
— Brazil) were alleged to have affected pricing indirectly,
through their effects on production. The Appellate Body made the
following remarks at paragraphs 355–356 of its Report regarding the
nature of the counterfactual analysis required in such circumstances:
“In this case, the Panel was required to consider the impact of
marketing loan and counter-cyclical payments on the prices of upland
cotton on the world market. Brazil did not allege that marketing loan
and counter-cyclical payments to United States upland cotton farmers
have a direct impact on world market prices. Rather, these payments are
alleged to have had an impact on farmers’ planting decisions and,
consequently, on domestic upland cotton production levels. Thus, the
analysis should initially focus on the effects of the subsidies on
production levels by examining whether there was more production than
there otherwise would have been as a result of the marketing loan and
counter-cyclical payments. It is the marginal production attributable to
the marketing loan and counter-cyclical payments that matters. If there
were to be increased upland cotton production, the analysis would then
focus on whether that increase in supply had effects on prices in the
world market. All else being equal, the marginal production attributable
to the subsidy would be expected to have an effect on world prices,
particularly if the subsidy is provided in a country with a meaningful
share of world output.
Given the focus on production and price effects, an analysis of price
suppression would normally include a quantitative component. There is
some inherent difficulty in quantifying the effects of subsidies,
because, as we have indicated, the increase in prices, absent the
subsidies, cannot be directly observed. One way to undertake the
analysis is to use economic modelling or other quantitative techniques.
These techniques can be used to estimate whether there are higher levels
of production resulting from the subsidies and, in turn, the price
effects of that production. Economic modelling and other quantitative
techniques provide a framework to analyze the relationship between
subsidies, other factors, and price movements.”
295. The Panel in Korea — Commercial Vessels noted that
whereas it is “relatively simple” to show that prices have declined,
remained steady, or increased slightly, “it is likely to be more
difficult to show that prices should not have decreased, or should have
increased by more than they did.” For such a conclusion, it said, “the
causes of these observed trends would need to be examined,”
that is, “price depression is not simply a decline in prices but a
situation where prices have been ‘pushed down’ by something”
and “[p]rice suppression is where prices have been restrained by
something.” According to the Panel, “the analysis that seems to
be called for by the Agreement (by virtue of the concepts of price
suppression and price depression themselves), concerns what the price
movements for the relevant ships would have been in the absence
of (i.e. ‘but for’) the subsidies at issue.”(487)
296. In EC and certain member States — Large Civil Aircraft,
the Appellate Body explained that the use of a counterfactual analysis
provides an adjudicator with a useful analytical framework to isolate
and properly identify the effects of the challenged subsidies:
“The use of a counterfactual analysis provides an adjudicator with
a useful analytical framework to isolate and properly identify the
effects of the challenged subsidies. In general terms, the
counterfactual analysis entails comparing the actual market situation
that is before the adjudicator with the market situation that would have
existed in the absence of the challenged subsidies. This requires the
adjudicator to undertake a modelling exercise as to what the market
would look like in the absence of the subsidies. Such an exercise is a
necessary part of the counterfactual approach. As with other factual
assessments, panels clearly have a margin of discretion in conducting
the counterfactual analysis.(488),(489)
Quantification of the amount of the subsidy
297. According to the Appellate Body in US — Upland Cotton,
the text of Article 6.3(c) and the relevant context of the SCM Agreement
do not impose an obligation on a panel to quantify the amount of the
challenged subsidy:
“Beginning with the text of Article 6.3(c), we note that this
provision does not state explicitly that a panel needs to quantify the
amount of the challenged subsidy. However, in assessing whether “the
effect of the subsidy is … significant price suppression”, and
ultimately serious prejudice, a panel will need to consider the effects
of the subsidy on prices. The magnitude of the subsidy is an important
factor in this analysis. A large subsidy that is closely linked to
prices of the relevant product is likely to have a greater impact on
prices than a small subsidy that is less closely linked to prices. All
other things being equal, the smaller the subsidy for a given product,
the smaller the degree to which it will affect the costs or revenue of
the recipient, and the smaller its likely impact on the prices charged
by the recipient for the product. However, the size of a subsidy is only
one of the factors that may be relevant to the determination of the
effects of a challenged subsidy. A panel needs to assess the effect of
the subsidy taking into account all relevant factors.
…
The provisions of the SCM Agreement regarding quantification
of subsidies reveal that the methodological approaches to quantification
may be quite different, depending on the context and purpose of
quantification. The absence of any indication in Article 6.3(c)
as to
whether one of these methods, or any other method, should be used
suggests to us that no such precise quantification was envisaged as a
necessary prerequisite for a panel’s analysis under Article 6.3(c).
…
In sum, reading Article 6.3(c)
in the context of Article 6.8 and
Annex V suggests that a panel should have regard to the magnitude of the
challenged subsidy and its relationship to prices of the product in the
relevant market when analyzing whether the effect of a subsidy is
significant price suppression. In many cases, it may be difficult to
decide this question in the absence of such an assessment. Nevertheless,
this does not mean that Article 6.3(c) imposes an obligation on panels
to quantify precisely the amount of a subsidy benefiting the product at
issue in every case. A precise, definitive quantification of the subsidy
is not required.”(490)
Temporal considerations
298. The Panel in Indonesia — Autos rejected the argument
that it was precluded from considering the effects of a subsidy
programme which has expired when analysing whether the subsidies caused
serious prejudice to the interests of the complainants. The Panel
stated:
“[W]e must assess the ‘effect of the subsidies’ on the
interests of another Member to determine whether serious prejudice
exists, not the effect of ‘subsidy programmers’. We note that at any
given moment in time some payments of subsidies have occurred in the
past while others have yet to occur in the future. If we were to
consider that past subsidies were not relevant to our serious prejudice
analysis as they were ‘expired measures’ while future measures could
not yet have caused actual serious prejudice, it is hard to imagine any
situation where a panel would be able to determine the existence of
actual serious prejudice.”(491)
299. In addressing the issue of whether the effect of a subsidy may
continue beyond the year in which it is paid, the Appellate Body in US
— Upland Cotton found that neither the text of Article
6.3(c) nor
the immediate context precludes the possibility that the effect of a
subsidy may continue beyond the year it was paid out:
“The context of Article
6.3(c) within Part III of the SCM
Agreement does not support the suggestion that the effect of a
subsidy is immediate, short-lived, or limited to one year, regardless of
whether or not it is paid every year. Article 6.2 of the SCM
Agreement refers to the possibility of the subsidizing Member
demonstrating that “the subsidy in question has not resulted in
any of the effects enumerated in paragraph 3”. (emphasis added) The
word “resulted” in this sentence highlights the temporal
relationship between the subsidy and the effect, in that one might
expect a time lag between the provision of the subsidy and the resulting
effect. In addition, the use of the present perfect tense in this
provision implies that some time may have passed between the granting of
the subsidy and the demonstration of the absence of its effects.
Article 6.4 of the SCM Agreement is also relevant context for
interpreting Article 6.3(c). Article 6.4 requires that the displacement
or impeding of exports be demonstrated “over an appropriately
representative period”, which “shall be at least one year”, so
that “clear trends” in changes in market share can be demonstrated.
This suggests that the effect of a subsidy under Article 6.4 must be
examined over a sufficiently long period of time and is not limited to
the year in which it was paid. As the Panel has also pointed out in the
context of Article 6.3(c), “[c]onsideration of developments over a
period of longer than one year … provides a more robust basis for a
serious prejudice evaluation than merely paying attention to
developments in a single recent year”.(492)
300. On a related issue, the Appellate Body in US — Upland
Cotton (Article 21.5 — Brazil) asserted that:
“[N]othing in Article 6.3(c) of the SCM Agreement suggests
that the examination of the effect of a subsidy must focus exclusively
on the short-term perspective. Whether production of a particular
product is higher than it would have been in the absence of the subsidy
is often a critical issue in establishing whether the effect of the
subsidy is significant price suppression. In our view, the effect of a
subsidy on production can also be assessed on the basis of a long-term
perspective that focuses on how the subsidy affects decisions of
producers to enter or exit a given industry.”(493)
301. Regarding the relevant period of review for assessing the effect
of the subsidy, the Panel in US — Upland Cotton (Article 21.5 —
Brazil) noted that Article 6.3(c) of the SCM Agreement required an
analysis of whether “the effect of the subsidy … is … significant
price suppression”. According to the Panel, “the use of the present
tense logically implies the need to make a determination with respect to
the present period”.(494) For this reason, the Panel accepted to
consider evidence submitted by the United States regarding subsidies
provided during the marketing year in which the Panel proceeding
occurred. The Panel found:
“Given that our task is to decide whether or not significant price
suppression “is” the effect of the marketing loan and
counter-cyclical payments at issue in this proceeding we see no reason
to exclude data relating to MY 2006 to the extent that it is available.”(495)
302. In EC and certain member States — Large Civil Aircraft,
the European Communities argued that several of the subsidies in this
dispute were “decades old” and could not, for that reason, be
causing present serious prejudice to the United States’ interests. The
Appellate Body stated that:
“In previous sections of this Report, we have found that a
challenge to subsidies granted prior to 1 January 1995 is not precluded.
We have also found, however, that, in order properly to assess a claim
under Article 5 of the SCM Agreement, a panel must take into
account in its ex ante analysis how a subsidy is expected to
materialize over time. A panel is also required to consider whether the
life of a subsidy has ended, for example, by reason of the amortization
of the subsidy over the relevant period or because the subsidy was
removed from the recipient. Moreover, we have emphasized that the
effects of a subsidy will generally diminish and come to an end with the
passage of time.
Regarding the effects of subsidies over time, the Panel found that:
[w]hile the effect of a single subsidy may well dissipate over
time, … the fact that the subsidies at issue in this dispute were
repeatedly granted over the entire history of Airbus’ LCA development
with respect to that same product has had rather the opposite effect,
through the learning and spillover effects, and production synergies
that are inherent in this industry, which spread the effect of LA/MSF
for the development of one model of LCA, and of other subsidies, to both
subsequent and earlier models.
We do not agree that it is only the effect of a “single subsidy”
that would dissipate over time, while multiple subsidies may have the
“opposite effect”. To the contrary, in general, the effects of any
subsidy can be expected to diminish and eventually come to an end
with the passage of time. This is true for single as well as multiple
acts of subsidization. The question of whether there are residual
effects is a fact-specific matter that may have to be considered.”(496)
“subsidized product” vs. “effect of the subsidy”
303. The Panel in US — Upland Cotton rejected the argument
of the United States that the focal point of a serious prejudice
analysis under Article 6.3(c) of the SCM Agreement is the “subsidized
product” rather than the “effect of the subsidy”:
“Finally, to the extent that the United States argues that it is
the “subsidized product” — rather than the “effect of the
subsidy” — which must cause “significant price suppression”
within the meaning of Article 6.3(c) of the SCM Agreement, we
disagree. The text of Articles 5 and 6 of the SCM Agreement support
the conclusion that it is the effects of the United States subsidies —
not the effects of the “subsidized product” — that are at issue in
a claim of price suppression under Article
6.3(c). The chapeau of
Article 5 states: “No Member should cause, through the use of any
subsidy … adverse effects to the interests of another Member.”
(emphasis added) Similarly, Article 6.3(c) provides: “Serious
prejudice in the sense of paragraph (c) of Article 5 may arise in any
case where … (c) the effect of the subsidy is … significant price
suppression …”… . These references in Articles 5(c) and
6.3(c) to
the “effect of the subsidy” contrast with the language used in the
countervailing duty provisions in Part V of the
Agreement.(497)
(498)
Effect of each individual subsidy vs. aggregated analysis
304. In US — Upland Cotton, the Panel concluded that the
reference to the effect of the “subsidy” in the singular in Article
6.3(c), did not mean that a serious prejudice analysis of price
suppression must clinically isolate each individual subsidy and its
effects:
“We do not see the Article 6.3(c) reference to “the effect of the
subsidy” (in the singular, rather than the plural) as meaning that a
serious prejudice analysis of price suppression must clinically isolate
each individual subsidy and its effects. Rather, these textual
references to “any subsidy”, “the subsidy” and the “subsidized
product” in Articles 5(c) and 6.3(c) suggest that while due attention
must be paid to each subsidy at issue as it relates to the subsidized
product, a serious prejudice analysis may be integrated to the extent
appropriate in light of the facts and circumstances of a given case. In
our view, these textual references to “any subsidy” and “the
effect of the subsidy” permit an integrated examination of effects of
any subsidies with a sufficient nexus with the subsidized product and
the particular effects-related variable under examination. Thus, in our
price suppression analysis under Article 6.3(c), we examine one effects
related variable — prices — and one subsidized product — upland
cotton. To the extent a sufficient nexus with these exists among the
subsidies at issue so that their effects manifest themselves
collectively, we believe that we may legitimately treat them as a “subsidy”
and group them and their effects together. We derive contextual support
for this view from Article 6.1 and Annex
IV, which referred to the
concept of total ad valorem subsidization and envisaged that, “[i]n
determining the overall rate of subsidization in a given year, subsidies
given under different programmes and by different authorities in the
territory of a Member shall be aggregated”.”(499)
305. In EC and certain member States — Large Civil Aircraft,
the Panel considered it appropriate to undertake an analysis of the
effects of the subsidies on what it termed an “aggregated” basis.
Specifically, the Panel first analysed the effects of Launch Aid /
Member State Financing subsidies (LA/MSF) on Airbus’ ability to launch
and bring to the market particular models of LCA, and then sought to
determine whether non-LA/MSF subsidies had similar effects. On the
basis of a separate — and more abbreviated — assessment of the
collective effect of measures comprised under each group of non-LA/MSF
subsidies, the Panel came to the conclusion that the effect of LA/MSF
was “complemented and supplemented” by the other specific subsidies
it found to exist in this dispute.(500)
306. On appeal, the Appellate Body concluded that the Panel’s
analysis was not properly characterized as an “aggregated” analysis,
because the Panel did not actually undertake an analysis of the effects
of the subsidies on an aggregated basis. However, the Appellate Body
concluded that it was appropriate for the Panel to do what it actually
did, namely to focus its causation analysis on whether the non-LA/MSF
subsidies at issue — equity infusions, infrastructure measures, and
R&TD subsidies — “complemented and supplemented” the effects
of LA/MSF. The Appellate Body stated that:
“In the particular
circumstances of this dispute, the Panel chose first to discern the
effects of each of the LA/MSF measures, which according to the United
States were the primary subsidies benefiting Airbus. The Panel came to
the conclusion that each of the LA/MSF measures enabled Airbus to launch
and bring to the market each of its models of LCA as and when it did,
thus resulting in the displacement and significant lost sales of Boeing
LCA under Article 6.3(a), (b), and
(c) of the SCM Agreement. In
other words, a “genuine and substantial relationship of cause and
effect” had been established between the LA/ MSF measures and the
displacement and lost sales of Boeing LCA during the reference period.
The Panel then sought to determine whether the non-LA/MSF subsidies at
issue had similar effects by “shift[ing] costs of LCA development from
Airbus to the governments, giving Airbus an edge and allowing it to
enter the LCA market with new LCA models at a pace that would otherwise
not have been possible.” The Panel concluded that, insofar as the
three sets of non-LA/MSF subsidies “complemented and supplemented”
the “product effect” of LA/MSF, these subsidies “had the same
effect on Airbus’ ability to launch the LCA it launched at the time
that it did.”
We consider that the approach used by the Panel is permissible under
Article 6.3 of the SCM Agreement, provided that a genuine causal
link between the non-LA/MSF subsidies and the market phenomena alleged
under Article 6.3 is established. Having determined that each of the
LA/MSF measures enabled launches of particular Airbus LCA models and
therefore were a substantial cause of the displacement and significant
lost sales of Boeing LCA, the Panel sought to determine whether
non-LA/MSF subsidies “complemented and supplemented” the effects of
LA/MSF measures, even if each of the non-LA/MSF subsidies, taken
individually, would not have enabled launches of particular Airbus LCA
models, and therefore would not have been a substantial cause of the
displacement and significant lost sales. Once the Panel determined that
LA/MSF subsidies were a substantial cause of the observed displacement
and lost sales, it was not necessary to establish that non-LA/MSF
subsidies were also substantial causes of the same phenomena. Moreover,
the fact that LA/MSF subsidies were the substantial cause of adverse
effects does not exclude that non-LA/MSF subsidies had similar effects.
Rather, it was conceivable that non-LA/MSF subsidies complemented or
supplemented the effects of LA/MSF subsidies. For these reasons, we do
not agree with the European Union that Articles 5(c) and
6.3 of the SCM
Agreement preclude an affirmative finding that non-LA/MSF subsidies
cause adverse effects where they “complement and supplement” the
effects of LA/MSF subsidies that have been found to be a substantial and
genuine cause of adverse effects. Given that the Panel had determined
that LA/MSF subsidies were a substantial cause of the alleged market
phenomena, it was permissible and sufficient for the Panel to assess
whether a genuine causal connection between non-LA/MSF subsidies and the
same market phenomena existed such that these non-LA/MSF subsidies
complemented or supplemented the effects of LA/MSF. Contrary to the
European Union’s submission, the Panel was not required, in those
circumstances, to establish that non-LA/MSF subsidies were themselves a
substantial cause or “necessary to enable a launch decision at a
particular point in time.”
As we observed above, the Panel’s approach to the analysis of
causation did not absolve it from establishing a genuine causal link
between the different categories of non-LA/MSF subsidies and Airbus’
ability to launch and bring to the market its LCA models, thereby
similarly causing the displacement and significant lost sales of Boeing
LCA during the reference period. The fact that LA/MSF measures enabled
certain product launches, and therefore were a genuine and substantial
cause of displacement and lost sales during the reference period, does
not in and of itself establish that non-LA/MSF subsidies had similar
effects. Instead, the Panel had to establish that non-LA/MSF subsidies
had a genuine causal connection with Airbus’ ability to launch and
bring to the market its models of LCA, thus contributing to the adverse
effects of LA/MSF measures.”(501)
(b) Forms of serious prejudice
(i) “displaces” or “impedes”
307. The Panel in Indonesia — Autos explored the meaning of
the terms “displacement” and “impedance” and considered that :
“[A] complainant need not demonstrate a decline in sales in order
to demonstrate displacement or impedance. This is inherent in the
ordinary meaning of those terms. Thus, displacement relates to a
situation where sales volume has declined, while impedance relates to a
situation where sales which otherwise would have occurred were impeded.”(502)
308. The Panel in Indonesia — Autos addressed the argument
that “there is no reason why the type of analysis set forth in Article
6.4 should not be appropriate also in the case of claims of displacement
and impedance of imports from the market of the subsidizing country”.(503)
The Panel rejected this argument, but nevertheless agreed that market
share data may be “highly relevant” for an analysis pursuant to
Article 6.3(a):
“Article 6.4 is not relevant in this case. The drafting of the
provision is unambiguous, and the specific reference to Article 6.3(b)
creates a strong inference that an Article 6.4
type of analysis is not
appropriate in the case of Article 6.3 (a) claims. The complainants
have identified nothing in the context of the provision or the object
and purpose of the SCM Agreement that would suggest a different
conclusion.
Our conclusion does not of course mean that market share data are
irrelevant to the analysis of displacement or impedance into a
subsidizing Member’s market. To the contrary, market share data may be
highly relevant evidence for the analysis of such a claim. However, such
data are no more than evidence of displacement and impedance caused by
subsidization, and a demonstration that the market share of the
subsidized product in the subsidizing Member has increased does not ipso
facto satisfy the requirements of
Article 6.3(a).”(504)
309. In EC and certain member States — Large Civil Aircraft,
the Appellate Body considered the meaning of the terms “displace”
and “impede”, stating that:
“[W]e understand the term displacement to connote that there is a
substitution effect between the subsidized product and the like product
of the complaining Member.(505) This means that displacement arises under
subparagraph (a) of Article 6.3 where the effect of the subsidy is that
imports of a like product of the complaining Member are substituted by
the subsidized product in the market of the subsidizing Member.
Similarly, under subparagraph (b), displacement arises where exports of
the like product of the complaining Member are substituted in a third
country market by exports of the subsidized product.
We are not called upon in this appeal to interpret the term “impede”
in Article 6.3. Nevertheless, consideration of the term can provide
context for a better understanding of displacement. The term connotes a
broader array of situations than the term “displace”.(506) It refers
to situations where the exports or imports of the like product of the
complaining Member would have expanded had they not been “obstructed”
or “hindered” by the subsidized product. It could also refer to a
situation where the exports or imports of the like product of the
complaining Member did not materialize at all because production was
held back by the subsidized product.(507)
We recognize that it may be difficult to draw a clear demarcation
between the concepts of displacement and impedance. One possibility is
to draw a distinction similar to the one drawn by the Appellate Body in US
— Upland Cotton (Article 21.5 — Brazil) between the concepts of
“price depression” and “price suppression” in Article 6.3(c) of
the SCM Agreement.(508) On this approach, evidence that actual
sales have declined would be relevant for a determination of
displacement, whereas evidence that sales would have increased more than
they did, or would have declined less than they did, would be relevant
to a claim of impedance.(509) We do not need to resolve this issue in this
appeal because the United States premised its allegations of
displacement on there being an observable decline in Boeing’s market
share.”(510)
(ii) “significant”
310. In rejecting the United States contention that the Panel did not
provide a basic rationale as to the extent to which it considered price
suppression to be “significant”, the Appellate Body in US —
Upland Cotton found that the Panel had adequately provided its
reasoning in accordance with Article 12.7 of the DSU in support of its
conclusion that the price suppression was “significant”.(511)
Accordingly, the Panel examined the ordinary meaning of word “significant”
and its relevant context in finding that the United States subsidies in
question for the purposes of its serious prejudice analysis were “significant”
within the meaning of Article 6.3 (c). The Panel found that the ordinary
meaning of the word in its context refers to something “important,
notable or consequential”(512) before looking at the degree of
significance of price suppression:
“Such significance may be manifest in a number of ways. The “significance”
of any degree of price suppression may vary from case to case, depending
upon the factual circumstances, and may not solely depend upon a given
level of numeric significance. Other considerations, including the
nature of the “same market” and the product under consideration may
also enter into such an assessment, as appropriate in a given case.
We cannot believe that what may be significant in a market for upland
cotton would necessarily also be applicable or relevant to a market for
a very different product. We consider that, for a basic and widely
traded commodity, such as upland cotton, a relatively small decrease or
suppression of prices could be significant because, for example, profit
margins may ordinarily be narrow, product homogeneity means that sales
are price sensitive or because of the sheer size of the market in terms
of the amount of revenue involved in large volumes traded on the markets
experiencing the price suppression.”(513)
311. The Appellate Body in US — Upland Cotton (Article 21.5 —
Brazil) clarified that, in cases where a finding of significant
price suppression is based on several different factors, there is no
need to demonstrate that each such factor is “significant”:
“What Article 6.3(c) does require is that the price suppression be
“significant”, which the Appellate Body has understood as “connoting
something that can be characterized as “important, notable or
consequential”. However, the fact that the price suppression must be
“significant” does not mean that a panel examining various factors
that support a finding of significant price suppression, as did the
Panel, must make a determination precisely quantifying the effects of
each factor. A factor that itself is not “significant” may, together
with other factors (whether individually shown to be of a significant
degree or not), establish “significant price suppression”. What
needs to be significant is the degree of price suppression, not
necessarily the degree of each factor used as an indicator for
establishing its existence. Nor does each factor necessarily have to be
capable of demonstrating, to the same extent, significant price
suppression.”(514)
312. The Panel in Korea — Commercial Vessels deemed that the
approach taken by the US — Upland Cotton panel, which
considered that it is the price suppression itself that must be “significant”
and that it is useful to consider the degree of price suppression in the
context of the prices that have been affected, was broadly consistent
with that taken by the Indonesia — Autos panel, which read the
term “significant” as a de minimis concept intended to screen
out very small, unimportant price effects that might be caused by
subsidies but that would have no real impact in the market:
“We agree, and are of the view that only price suppression or price
depression of sufficient magnitude or degree, seen in the context
of the particular product at issue, to be able to meaningfully affect
suppliers should be found to be “significant” in the sense of SCM
Article 6.3(c).”(515)
313. In EC and certain member States — Large Civil Aircraft,
the Panel referred to several factors that it considered relevant to the
question of whether the lost sales at issue were “significant”:
“In our view, it is clear that Boeing lost sales to Airbus
involving purchases by easy Jet, Air Berlin, Czech Airlines, Air Asia,
Iberia, South African Airways, Thai Airways International, Singapore
Airlines, Emirates Airlines, and Qantas. Moreover, it is apparent to us
that if winning a particular sale is of “strategic importance” to
Airbus, as the European Communities asserts with respect to the easy Jet
campaign discussed above, the loss of that sale to Boeing is similarly
important, and can justifiably be considered a significant lost sale. In
addition, lost sales are important to the extent that they delay a
manufacturer’s ability to benefit from the important learning effects
and economies of scale in this industry, and thus have a significance
beyond their direct revenue effects. Moreover, both parties recognize
the advantages to being the incumbent supplier with a given customer
with respect to subsequent purchases, which also adds to the
significance of lost sales. While it is true that a manufacturer may be
able to recoup some of these disadvantages by finding another customer
to take advantage of delivery slots, this does not, in our view, detract
from the significance of a lost sale. Given the number of aircraft and
the dollar amounts involved in those sales, as well as the
considerations just described, we conclude that these lost sales are
significant.”(516)
(iii) “price undercutting”
314. The Panel in Indonesia — Autos stated the following on
the use of the term ‘significant’ in connection with the term “price
undercutting” in Article 6.3(c):
“Although the term ‘significant’ is not defined, the inclusion
of this qualifier in Article 6.3(c) presumably was intended to ensure
that margins of undercutting so small that they could not meaningfully
affect suppliers of the imported product whose price was being undercut
are not considered to give rise to serious prejudice.”(517)
(iv) “price suppression”
315. The Panel in US — Upland Cotton was of the view that
the text of Article 6.3(c) read in its context required it to examine
“whether upland cotton prices either were pressed down, prevented or
inhibited from rising, or while they did actually increase the degree
and magnitude of increase was less than it otherwise would have been”.(518)
In its assessment of whether “price suppression” has taken place in
the same “world market”, the Panel considered the following three
factors relevant: “(a) the relative magnitude of the United States’
production and exports in the world upland cotton market; (b) general
price trends; and (c) the nature of the subsidies at issue, and in
particular, whether or not the nature of these subsidies is such as to
have discernible price suppressive effects”.(519)
316. The Appellate Body in US — Upland Cotton agreed with
the Panel’s interpretation of the ordinary meaning of the term “price
suppression”.(520) According to the Panel, the ordinary meaning of “price
suppression” within the meaning of Article 6.3(c) of the SCM
Agreement refers to “the situation where “prices” — in terms
of the “amount of money set for sale of upland cotton” or the “value
or worth” of upland cotton — either are prevented or inhibited from
rising (i.e. they do not increase when they otherwise would have) or
they do actually increase, but the increase is less than it otherwise
would have been.”(521)
(v) “price depression”
317. The Appellate Body in US — Upland Cotton (Article 21.5 —
Brazil) distinguished price depression from price suppression in the
following terms:
“While price depression is a directly observable phenomenon, price
suppression is not so. Falling prices can be observed; by contrast,
price suppression concerns whether prices are less than they would
otherwise have been in consequence of various factors, in this case, the
subsidies.”(522)
318. The Panel in Korea — Commercial Vessels explained the
difference between price suppression and price depression thus:
“It may be relatively simple to establish that, as a threshold
factual matter, the price of a particular product has decreased.
Similarly, it may be relatively simple to establish that the price of a
product has been flat or has increased only slightly. Conceptually,
however, it is likely to be more difficult to show that prices should
not have decreased, or should have increased by more than they did.
In particular, the existence of a flat or declining price trend, on
its own, would not be a sufficient basis on which to conclude that
prices were ‘suppressed’ or ‘depressed’. For such a conclusion
to be reached, the causes of these observed trends would need to
be examined. In other words, price depression is not simply a decline in
prices but a situation where prices have been ‘pushed down’ by
something. Price suppression is where prices have been restrained by
something. In other words, for a finding of ‘price suppression’
or ‘price depression’ in the sense of SCM Article 6.3(c),
there must not only be a flattened or downward price trend as a
prerequisite, but in addition this trend must be the result of an
exogenous factor, namely the subsidy or subsidies in question. Thus, the
analysis that seems to be called for by the Agreement (by virtue of the
concepts of price suppression and price depression themselves), concerns
what the price movements for the relevant ships would have been in
the absence of (i.e. ‘but for’) the subsidies at issue.”(523)
(vi) “lost sales”
319. In EC and certain member States — Large Civil Aircraft,
the Appellate Body considered the meaning of “lost sales” in the
context of Article 6.3(c):
“We consider that a sale that is “lost” is one that a supplier
“failed to obtain”.(524) We further understand lost sales to be a
relational concept that includes consideration of the behaviour of both
the subsidized firm(s), which must have won the sales, and the competing
firm(s), which allegedly lost the sales.(525) In US — Upland Cotton,
the Appellate Body held that the phrase “in the same market” applied
to all four situations set forth in Article 6.3(c), including “lost
sales”.(526) According to the Appellate Body, the subsidized product and
the like product of the complaining Member will be in the same market
“if they were engaged in actual or potential competition in that
market.”(527) Thus, sales can be lost “in the same market” within
the meaning of Article 6.3(c) if the subsidized product and the like
product are competing products in the same product market.
The term “significant” in the second clause of
Article 6.3(c) appears before the terms “price suppression, price depression or lost
sales”.(528) We read the term “significant” as qualifying all three
situations. In other words, a complaining Member invoking Article 6.3(c)
must show that the alleged “lost sales” are “significant”.(529)
As with the other market phenomena referred to in Article 6.3 of the SCM
Agreement, the lost sales must be the “effect” of the challenged
subsidy. Thus, like the analysis of displacement under Article 6.3(a)
and (b), we believe that a useful and appropriate approach to assessing
whether lost sales are the effect of the challenged subsidy is through a
counterfactual analysis. This would involve a comparison of the sales
actually made by the competing firm(s) of the complaining Member with a
counterfactual scenario in which the firm(s) of the respondent Member
would not have received the challenged subsidies. There would be lost
sales where the counterfactual scenario shows that sales won by the subsidized
firm(s) of the respondent Member would have been made instead by the
competing firm(s) of the complaining Member, thus revealing the effect
of the challenged subsidies. It is not impermissible to assess lost
sales under Article 6.3(c) of the SCM Agreement using a two step
approach like the one adopted by the Panel. However, as we have
discussed above, any conclusions reached under the first step are
preliminary because they will show only who lost and who made the sales.
A definitive determination that the lost sales are the effect of the
challenged subsidy within the meaning of Article 6.3(c)
must await
completion of the second step of the analysis.
The United States directed its allegations of lost sales in this case
against specific sales campaigns and the Panel focused its analysis on
those sales campaigns. The European Union has not challenged the Panel’s
approach on appeal. We agree that an assessment of lost sales focused on
an examination of specific sales campaigns may be appropriate given the
particular characteristics of a market.(530) At the same time, we note
that Article 6.3(c) is concerned with lost sales “in the same market”.
It will sometimes be necessary to look beyond individual sales campaigns
fully to understand the competitive dynamics that are at play in a
particular market. Thus, an approach in which sales are aggregated by
supplier or by customer, or on a country-wide or global basis, rather
than examined individually, is also permissible.
We acknowledge that when looked at from this broader, market-wide
perspective, there could be some overlap between the concept of lost
sales and the concepts of displacement and impedance in Article 6.3(a)
and (b) of the SCM Agreement. Although the concepts of
displacement and impedance are presented from the perspective of imports
or exports under subparagraphs (a) and (b) of Article
6.3, those imports
or exports are a function of the firms’ sales. At the same time, we
see some distinctions between the concepts. First, the assessment of
displacement or impedance under subparagraphs (a) and
(b) of Article 6.3 has a well-defined geographic focus. By contrast, the reference to the
“same market” in subparagraph (c) allows more flexibility in
defining the relevant market, which can include the world market.(531)
Second, the requirement in Article 6.3(c) that the lost sales be “significant”
implies that the assessment can have quantitative and qualitative
dimensions. The assessment of displacement and impedance under Article
6.3(a) and (b) is primarily quantitative in nature.”(532)
320. In EC and certain member States — Large Civil Aircraft,
the Appellate Body summarized its analysis of “lost sales” as
follows:
“[W]e consider that, under Article
6.3(c), “lost sales” are
sales that suppliers of the complaining Member “failed to obtain”
and that instead were won by suppliers of the respondent Member. It is a
relational concept and its assessment requires consideration of the
behaviour of both the subsidized firm(s), which must have won the sales,
and the competing firm(s), which allegedly lost the sales. The
assessment can focus on a specific sales campaign when such an approach
is appropriate given the particular characteristics of the market or it
may look more broadly at aggregate sales in the market. The complainant
must show that the lost sales are significant to succeed in its claim.
Where lost sales are assessed under a two-step approach such as the one
adopted by the Panel in this case, the finding of lost sales in the
first step is necessarily preliminary and of limited significance in
coming to a conclusion under Article 6.3(c). Similarly to the phenomena
of displacement under Article 6.3(a) and (b), a definitive determination
under Article 6.3(c) must await consideration of whether such lost sales
are the effect of the challenged subsidy. While a two-step approach to
the assessment of lost sales is permissible, in our view, the most
appropriate approach to assess whether lost sales are the effect of
the challenged subsidy is through a unitary counterfactual analysis.
This would involve a comparison of the sales actually made by the
competing firm (s) of the complaining Member with a counterfactual
scenario in which the firm(s) of the respondent Member would not have
received the challenged subsidies. There would be lost sales where the
counterfactual analysis shows that, in the absence of the challenged
subsidy, sales won by the subsidized firm(s) of the respondent Member
would have been made instead by the competing firm(s) of the complaining
Member.”(533)
(vii) “in the same market”
321. The Appellate Body agreed with the interpretation of the Panel
in US — Upland Cotton that the phrase “same market” can
also refer to “a world market” for the purposes of a claim of
significant price suppression pursuant to Article 6.3(c) of the SCM
Agreement if the facts on the case warrant such a determination.(534)
The Appellate Body agreed with the Panel that the ordinary meaning of
the word “market” in Article 6.3(c) “neither requires nor excludes
the possibility of a national market or a world market”(535) when read
in the immediate context of the other three subparagraphs of Article
6.3, which contrastingly place a geographical limitation on the scope of
the relevant market.
322. With respect to the issue of when two products can be considered
as being “in the same market” within the meaning of Article 6.3(c)
of the SCM Agreement, the Appellate Body in US — Upland Cotton explained
that it would depend on the competitive nature of the subsidized product
at issue:
“However, recalling that one accepted definition of “market” is
“the area of economic activity in which buyers and sellers come
together and the forces of supply and demand affect prices”, it seems
reasonable to conclude that two products would be in the same market if
they were engaged in actual or potential competition in that market.
Thus, two products may be “in the same market” even if they are not
necessarily sold at the same time and in the same place or country. As
the Panel correctly pointed out, the scope of the “market”, for
determining the area of competition between two products, may depend on
several factors such as the nature of the product, the homogeneity of
the conditions of competition, and transport costs. This market for a
particular product could well be a “world market”. However, we agree
with the Panel that the fact that a world market exists for one product
does not necessarily mean that such a market exists for every product.
Thus the determination of the relevant market under Article 6.3(c) of
the SCM Agreement depends on the subsidized product in question.
If a world market exists for the product in question, Article 6.3(c)
does not exclude the possibility of this “world market” being the
“same market” for the purposes of a significant price suppression
analysis under that Article.
[…] As we have explained above, there is no per se geographical
limitation of a market under Article 6.3(c). It could well be a national
market, a world market, or any other market. It is for the complaining
party to identify the market where it alleges significant price
suppression and to establish that that market exists. In doing so, it is
for the complaining party to establish that the subsidized product and
its product are in actual or potential competition in that alleged
market. If that market is established to be a “world market”, it
cannot be said, for that reason alone, that the two products are not in
the “same market” within the meaning of Article 6.3(c).”(536)
323. The European Communities in Korea — Commercial Vessels argued
that “nothing in Article 6.3(c) would preclude defining the ‘world’
market as the ‘same market’ for purposes of price suppression/price
depression analysis.”(537) By contrast, Korea argued that ‘the same
market’ can only refer to a national market, not to the world market.
The Panel noted that Article 6.3(c) “places no geographic limitations
on the concept of the same market”:
“We find no basis in the text to construe this term as exclusively
referring to “national markets”. Nor are we persuaded that the
explicit references to particular national markets in Articles 6.3(a)
and 6.3(b), and the explicit reference to the “world market” in
Article 6.3(d) mean, by implication, that “the same market” in Article 6.3(c)
can only be a national market.
… Given the very specific and carefully crafted references to
particular geographic markets in the other subparagraphs of Article
6.3,
we do not find it plausible that the absence of such a reference in Article 6.3(c)
either was the result of an oversight by the drafters, or
was intended to imply that the market in question could only be a
national one.(538)
Our view is consistent with the approach taken in the two GATT Sugar
disputes,(539) and the US — Upland Cotton dispute, in all of
which serious prejudice was found based on suppression or depression of
world market prices.”(540)
324. The Panel in Korea — Commercial Vessels then stated,
“however defined, to be ‘the same market,’ the market in question
must be one in which the EC and Korea compete for sales of commercial
vessels of particular types.” In this regard, it said, “it would
seem to be for the EC first to substantiate the geographic scope in
which it alleges that the European and Korean industries compete in
respect of each of the three types of commercial vessels, rather than
necessarily having to prove as a general matter that the overall market
for commercial vessels is a global market.”(541)
325. In EC and certain member States — Large Civil Aircraft,
the Appellate Body elaborated on the concept of a “market”:
“An examination of the competitive relationship between products is
therefore required so as to determine whether such products form part of
the same market. We conclude therefore that a “market”, within the
meaning of Articles 6.3(a) and 6.3(b) of the SCM Agreement, is a
set of products in a particular geographical area that are in actual or
potential competition with each other. An assessment of the competitive
relationship between products in the market is required in order to
determine whether and to what extent one product may displace another.
Thus, while a complaining Member may identify a subsidized product and
the like product by reference to footnote
46, the products thereby
identified must be analyzed under the discipline of the product market
so as to be able to determine whether displacement is occurring.
Ordinarily, the subsidized product and the like product will form part
of a larger product market. But it may be the case that a complainant
chooses to define the subsidized and like products so broadly that it is
necessary to analyze these products in different product markets. This
will be necessary so as to analyze further the real competitive
interactions that are taking place, and thereby determine whether
displacement is occurring.(542)
Our interpretation is consistent with the fundamental economic
proposition that a market comprises only those products that exercise
competitive constraint on each other.(543) This is the case when the
relevant products are substitutable.(544) Although physical
characteristics, end-uses, and consumer preferences may assist in
deciding whether two products are in the same market, they should not
be treated as the exclusive factors to consider in deciding whether
those products are sufficiently substitutable so as to create
competitive constraints on each other. Indeed, whether two products
compete in the same market is not determined simply by assessing whether
they share particular physical characteristics or have the same general
uses; it may also be relevant to consider whether customers demand a
range of products or whether they are interested in only a particular
product type. In the former case, when customers procure a range of
products to satisfy their needs, this may give an indication that all
such products could be competing in the same market.
Demand-side substitutability — that is, when two products are
considered substitutable by consumers — is an indispensable, but not
the only relevant, criterion to consider when assessing whether two
products are in a single market. Rather, a consideration of
substitutability on the supply-side may also be required. For example,
evidence on whether a supplier can switch its production at limited or
prohibitive cost from one product to another in a short period of time
may also inform the question of whether two products are in a single
market.
Our analysis is supported by Appellate Body jurisprudence. In US
— Upland Cotton, the Appellate Body defined a “market” as “the
area of economic activity in which buyers and sellers come together and
the forces of supply and demand affect prices”, and considered that
“two products would be in the same market if they were engaged in
actual or potential competition in that market”.(545)
The Appellate
Body also agreed with the panel in that case that “the scope of the
‘market’, for determining the area of competition between two
products, may depend on several factors such as the nature of the
product, the homogeneity of the conditions of competition, and transport
costs.”(546) While the Appellate Body was, in that case, considering a
claim of price suppression under Article 6.3(c) of the SCM Agreement,
we believe that similar considerations would also be relevant in
assessing claims of serious prejudice brought under the remainder of
Article 6.3, including Articles 6.3(a) and
6.3(b). This is consistent
with the fact that each of the subparagraphs of Article 6.3 is concerned
with the effects of a subsidy in a market. In the absence of actual or
potential competition between two products in the marketplace, we fail
to see how the effect of a subsidy provided to one of those products
could be found to be the displacement of the other product.
In sum, we conclude, therefore, that the scope of the “market” to
be examined for the purposes of Articles 6.3(a) and
6.3(b) of the SCM
Agreement is likely to vary from case to case depending upon the
particular factual circumstances, including the nature of the products
at issue, as well as demand-side and supply-side factors. It should be
emphasized that the scope of the relevant product market in any given
case will depend on the nature and degree of competition between the
products of the complaining Member and the allegedly subsidized products
of the responding Member. In some cases, the entire product range
offered by the complainant may compete with the range of products of the
respondent that is allegedly subsidized. In other cases, an assessment
of the conditions of competition may reveal the existence of multiple
product markets in which particular products of the complaining Member
compete with particular subsidized products of the respondent. However,
it is important to note that whether or not a broad or narrow range of
products benefit from subsidization says little about whether all these
products compete in the same market. Indeed, products benefiting from
subsidies may compete in very different markets. A panel is therefore
required to make an objective assessment of the competitive relationship
between specific products in the marketplace and to define the relevant
product market in order to determine whether particular products can be
treated as forming part of a single product market or several product
markets for purposes of an analysis of displacement under Articles
6.3(a) and 6.3(b).”(547)
(viii) “increase in the world market share”
326. In US — Upland Cotton, the Appellate Body decided to
exercise judicial economy regarding the interpretation of the phrase “world
market share” in Article 6.3(d) of the SCM
Agreement. The Panel had
found that it did not refer to either a Member’s share of the world
market for exports as argued by Brazil, nor did it refer to all
consumption of upland cotton by a Member as contended by the United
States; rather, the phrase referred to the “share of the world market
supplied by the subsidizing member of the product concerned”.(548) In
finding that Brazil had failed to establish a prima facie case of
violation of Article 6.3(d) constituting serious prejudice within the
meaning of Article 5(c) of the SCM Agreement due to its erroneous legal
interpretation of the phrase “world market share”, the Panel
emphasized that this interpretation of the ordinary meaning of the
phrase read in its context and in light of the object and purpose of the
subsidy disciplines set out in the SCM Agreement “is clear and
unambiguous” and additionally, is confirmed by the drafting history of
the provision.(549)
VIII. Article 7
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A. Text of Article 7
Article 7: Remedies
7.1 Except as provided in
Article 13 of the Agreement on
Agriculture,
whenever a Member has reason to believe that any subsidy referred to in
Article 1, granted or maintained by another Member, results in injury to
its domestic industry, nullification or impairment or serious prejudice,
such Member may request consultations with such other Member.
7.2 A request for consultations under
paragraph 1 shall include a
statement of available evidence with regard to (a) the existence and
nature of the subsidy in question, and (b) the injury caused to the
domestic industry, or the nullification or impairment, or serious
prejudice(19) caused to the interests of the Member requesting
consultations.
(footnote original)
19 In the event that the request relates
to a subsidy deemed to result in serious prejudice in terms of paragraph
1 of Article 6, the available evidence of serious prejudice may be
limited to the available evidence as to whether the conditions of paragraph
1 of Article 6 have been met or not.
7.3 Upon request for consultations under
paragraph 1, the Member
believed to be granting or maintaining the subsidy practice in question
shall enter into such consultations as quickly as possible. The purpose
of the consultations shall be to clarify the facts of the situation and
to arrive at a mutually agreed solution.
7.4 If consultations do not result in a mutually agreed solution
within 60 days(20), any Member party to such consultations may refer the
matter to the DSB for the establishment of a panel, unless the DSB
decides by consensus not to establish a panel. The composition of the
panel and its terms of reference shall be established within 15 days
from the date when it is established.
(footnote original)
20 Any
time-periods mentioned in this Article may be extended by mutual
agreement.
7.5 The panel shall review the matter and shall submit its final
report to the parties to the dispute. The report shall be circulated to
all Members within 120 days of the date of the composition and
establishment of the panel’s terms of reference.
7.6 Within 30 days of the issuance of the panel’s report to all
Members, the report shall be adopted by the DSB(21) unless one of the
parties to the dispute formally notifies the DSB of its decision to
appeal or the DSB decides by consensus not to adopt the report.
(footnote original)
21 If a meeting of the DSB is not
scheduled during this period, such a meeting shall be held for this
purpose.
7.7 Where a panel report is appealed, the Appellate Body shall issue
its decision within 60 days from the date when the party to the dispute
formally notifies its intention to appeal. When the Appellate Body
considers that it cannot provide its report within 60 days, it shall
inform the DSB in writing of the reasons for the delay together with an
estimate of the period within which it will submit its report. In no
case shall the proceedings exceed 90 days. The appellate report shall be
adopted by the DSB and unconditionally accepted by the parties to the
dispute unless the DSB decides by consensus not to adopt the appellate
report within 20 days following its issuance to the Members.(22)
(footnote original)
22 If a meeting of the DSB is not
scheduled during this period, such a meeting shall be held for this
purpose.
7.8 Where a panel report or an Appellate Body report is adopted in
which it is determined that any subsidy has resulted in adverse effects
to the interests of another Member within the meaning of Article
5, the
Member granting or maintaining such subsidy shall take appropriate steps
to remove the adverse effects or shall withdraw the subsidy.
7.9 In the event the Member has not taken appropriate steps to remove
the adverse effects of the subsidy or withdraw the subsidy within six
months from the date when the DSB adopts the panel report or the
Appellate Body report, and in the absence of agreement on compensation,
the DSB shall grant authorization to the complaining Member to take
countermeasures, commensurate with the degree and nature of the adverse
effects determined to exist, unless the DSB decides by consensus to
reject the request.
7.10 In the event that a party to the dispute requests arbitration
under paragraph 6 of Article 22 of the
DSU, the arbitrator shall
determine whether the countermeasures are commensurate with the degree
and nature of the adverse effects determined to exist.
B. Interpretation and Application of Article 7
1. Article 7.8
(a) General
327. The Panel in Indonesia — Autos referred in its
conclusions and recommendations to the remedy in Article 7.8 as follows:
“With respect to the conclusion of serious prejudice to the
interests of the European Communities, Article 7.8 of the SCM Agreement
provides that, ‘[w]here a panel report or an Appellate Body report is
adopted in which it is determined that any subsidy has resulted in
adverse effects to the interests of another Member within the meaning of
Article 5, the Member granting or maintaining the subsidy shall take
appropriate steps to remove the adverse effects or shall withdraw the
subsidy.’”(550)
328. In the context of a claim regarding the scope of
Article 21.5 of
the DSU, the Panel in US — Upland Cotton (Article 21.5 — Brazil) addressed
the issue of whether it is only the adverse effects resulting from the
subsidies at issue in the original proceeding that need to be removed,
or whether the Article 7.8 obligation also requires the removal of
(additional) adverse effects resulting from the continued provision of
the same subsidies:
“Under Article 7.8 of the SCM Agreement the United States
was obligated, with respect to the subsidies subject to the “present”
serious prejudice finding of the original panel, to “take appropriate
steps to remove the adverse effects or … withdraw the subsidy”.
It is clear from the context that the adverse effects that must be
removed are the adverse effects of the subsidy that has been determined
to have resulted in adverse effects. Since the original panel made a
finding of present serious prejudice in respect of subsidies provided
during MY 1999–2002, the question arises whether the obligation to
take appropriate steps to remove the adverse effects only applies to
payments of subsidies made in those years.
It is not in dispute that the United States presently provides
marketing loan and counter-cyclical payments on the same legal basis and
subject to the same conditions and criteria as the marketing loan
payments and counter cyclical payments that were subject to the panel’s
finding of “present” serious prejudice. In a situation where the
subsidy in question has been found to be a prohibited one, the continued
use of the subsidy under the same conditions and criteria is
inconsistent with a Member’s obligation to “withdraw” the subsidy
under Article 4.7 of the SCM Agreement. Thus, the concept of “withdrawal”
must in any event be interpreted to mean that a Member must cease to act
in a WTO-inconsistent manner with respect to that subsidy. If a failure
to cease conduct inconsistent with a Member’s obligations under
Article 3 of the SCM Agreement is inconsistent with the
obligation to withdraw the subsidy in Article 4.7 of the SCM
Agreement, we see no logical reason why the same concept should not
also apply to the obligation that arises under Article 7.8 of the SCM
Agreement to withdraw the subsidy or to take appropriate steps to
remove the adverse effects of a subsidy that has been determined to
result in adverse effects. In our view, the remedy under Article 7.8
must be viewed in its relationship to the obligation in Article 5 not to
cause through the use of any subsidy referred to in Articles 1.1 and
1.2
of the SCM Agreement adverse effects to the interests of other
Members. It must serve to restore conformity with the Member’s
obligation to avoid causing adverse effects through the use of any
subsidy. As a consequence, a Member does not take appropriate steps to
remove adverse effects of a subsidy if it continues to provide payments
under the same conditions and criteria as the original subsidy in a
manner that causes adverse effects. The interpretation advocated by the
United States, whereby the obligation under Article 7.8 of the SCM
Agreement is limited to the removal of the adverse effects caused by
subsidies granted in a particular period of time, implies that it would
not be possible to review in an Article 21.5 proceeding whether a Member
causes adverse effects by continuing to grant subsidies under the same
conditions and criteria as the subsidies found to have caused adverse
effects. Such an interpretation fails to take into account the
relationship between Article 7.8 and Article 5 SCM Agreement and
thus fails to interpret Article 7.8 in its proper context.”(551)
329. The Appellate Body was in broad agreement with the Panel’s
approach to Article 7.8 of the SCM Agreement:
“Pursuant to Article 7.8, the implementing Member has two options
to come into compliance. The implementing Member: (i) shall take
appropriate steps to remove the adverse effects; or (ii) shall withdraw
the subsidy. The use of the terms “shall take” and “shall withdraw”
indicate that compliance with Article 7.8 of the SCM Agreement will
usually involve some action by the respondent Member. This affirmative
action would be directed at effecting the withdrawal of the subsidy or
the removal of its adverse effects. A Member would normally not be able
to abstain from taking any action on the assumption that the subsidy
will expire or that the adverse effects of the subsidy will dissipate on
their own.
The question then becomes: With respect to which subsidies must the
implementing Member take such action? Such action would certainly be
expected with respect to subsidies granted in the past and which may
have formed the basis of a panel’s determination of present serious
prejudice and adverse effects. However, we do not see the obligation in Article 7.8
as being limited to subsidies granted in the past. Article 7.8
expressly refers to a Member “granting or maintaining such subsidy”.
The verb “maintain” suggests, to us, that the obligation set forth
in Article 7.8 is of a continuous nature, extending beyond subsidies
granted in the past. This means that, in the case of recurring annual
payments, the obligation in Article 7.8 would extend to payments “maintained”
by the respondent Member beyond the time period examined by the panel
for purposes of determining the existence of serious prejudice, as long
as those payments continue to have adverse effects. Otherwise, the
adverse effects of subsequent payments would simply replace the adverse
effects that the implementing Member was under an obligation to remove.
Such a reading of Article 7.8 would not give meaning and effect to the
term “maintain”, which is distinct from the term “grant”, and
has also been included in that Article. Indeed, it would render the term
“maintain” redundant. In addition, it would fail to give meaning and
effect to the obligation to “take appropriate steps to remove the
adverse effects” in Article 7.8, and to the requirement under
Article
21.5 to “comply” with the DSB’s recommendations and rulings,
including the requirement to take the remedial action foreseen in Article 7.8
as a consequence of a finding of adverse effects.
Our interpretation of Article 7.8
is consistent with the context
provided by Article 4.7 of the SCM Agreement, which applies in
cases involving prohibited subsidies. In US — FSC (Article 21.5 —
EC II), the Appellate Body stated that, “if, in an Article 21.5
proceeding, a panel finds that the measure taken to comply with the
Article 4.7 recommendation made in the original proceedings does not
achieve full withdrawal of the prohibited subsidy — either
because it leaves the entirety or part of the original prohibited
subsidy in place, or because it replaces that subsidy with another
subsidy prohibited under the SCM Agreement — the implementing
Member continues to be under the obligation to achieve full withdrawal
of the subsidy”. Similarly, a Member would not comply with the
obligation in Article 7.8 to withdraw the subsidy if it leaves an
actionable subsidy in place, either entirely or partially, or replaces
that subsidy with another actionable subsidy. We recognize that, unlike
comply with the Article 4.7, Article 7.8
gives Members the option of
removing the adverse effects as an alternative to withdrawing the
subsidy. The availability of this option is arguably a consequence of
the fact that actionable subsidies are not prohibited per se;
rather, they are actionable to the extent they cause adverse effects.
Nevertheless, the option of removing the adverse effects cannot be read
as allowing a Member to continue to cause adverse effects by maintaining
the subsidies that were found to have resulted in adverse effects. As
observed earlier, if the contrary proposition were accepted, the adverse
effects of subsequent subsidies, especially in the case of recurrent
subsidies, would simply replace the adverse effects that the
implementing Member was required to remove, making the obligation in Article 7.8
to “take appropriate steps to remove the adverse effects”
meaningless.”(552)
(b) Relationship with other Articles
(i) Article 4.7
330. In the context of its finding that the phrase “withdraw the
subsidy” under Article 4.7 referred to retrospective remedies
(repayment), the Panel in Australia — Automotive Leather II
(Article 21.5 —US) considered Article 7.8
and the phrase
“ shall take appropriate steps to remove the adverse effects or shall
withdraw the subsidy” therein. See paragraph 208 above.
2. Article 7.9 and 7.10
(a) Meaning of “countermeasures … commensurate with the degree
and nature of the adverse effects determined to exist”
(i) “countermeasures”
331. The Arbitrators in US — Upland Cotton (Article 22.6 — US
II) developed a detailed interpretation of the expression “countermeasures
… commensurate with the degree and nature of the adverse effects
determined to exist”. With respect to the term “countermeasures”,
the Arbitrators stated that:
“We note at the outset that the term “countermeasures” is used
to designate retaliatory measures in the WTO Agreement only in the SCM
Agreement. This contrasts with the terms of Article 22 of the DSU,
which refers to the “suspension of concessions or other obligations”.
However, it is not argued by either party in these proceedings that the
term “countermeasures” would designate, in the SCM Agreement,
anything other than a temporary suspension of certain obligations, and
this is what we understand this term to refer to.
The prefix “counter-” can be defined as meaning “against, in
return”.(553) The Oxford English Dictionary further cites the term “counter-measure”
as an illustration of a situation in which this prefix is used to
indicate something that is “[d]one, directed, or acting against, in
opposition to, as a rejoinder or reply to another thing of the same kind
already made or in existence”. Another dictionary defines the term “countermeasure”
as an “action or device designed to negate or offset another”.(554)
…
We are not convinced that the use of the term “countermeasures”
necessarily connotes, in and of itself, an intention to refer to
retaliatory action that “goes beyond the mere rebalancing of trade
interests”, as Brazil suggests. As noted above, the term indicates
that the action is taken in response to another, in order to “counter”
it. This does not necessarily connote, in our view, an intention to “go
beyond” a rebalancing of trade interests. Indeed, we are not convinced
that the dictionary meanings of the term, in and of themselves, provide
any compelling guidance as to the exact level of countermeasures
that may be permissible under Article 7.9 of the SCM Agreement.
We also note that the term “countermeasures” is similarly used in
Article 4.10 of the SCM Agreement, where the permissible level of
countermeasures is defined differently, in terms of “appropriateness”.
…
We note that the term “countermeasures” is the general term used
by the ILC in the context of its Articles on State Responsibility to
designate temporary measures that injured States may take in response to
breaches of obligations under international law.(555) This has been noted
by arbitrators in the context of interpreting Article 4.10 of the SCM
Agreement.(556)
We agree that this term, as understood in public international law,
may usefully inform our understanding of the same term as used in the SCM
Agreement.(557) Indeed, we find that the term “countermeasures”,
in the SCM Agreement, describes measures that are in the nature
of countermeasures as defined in the ILC’s Articles on State
Responsibility.
At this stage of our analysis, we therefore find that the term “countermeasures”
essentially characterizes the nature of the measures to be
authorized, i.e. temporary measures that would otherwise be contrary to
obligations under the relevant WTO Agreement(s) and that are taken in
response to a breach of an obligation under the SCM Agreement.
This is also consistent with the meaning of this term in public
international law as reflected in the ILC Articles on State
Responsibility.”(558)
(ii) “commensurate with the degree and nature”
332. In the context of providing a detailed interpretation of the
expression “countermeasures … commensurate with the degree and
nature of the adverse effects determined to exist”, the Arbitrators in
US — Upland Cotton (Article 22.6 — US II) considered the term
“commensurate”:
“Dictionary definitions of this term include: “equal in measure
or extent: coextensive” and “corresponding in size, extent, amount,
or degree: proportionate,”(559) “of equal extent, coextensive”.(560)
In light of these elements, we agree that the term “commensurate”
essentially connotes a “correspondence” between two elements. In the
context of Article 7.9, the “correspondence” is between the
countermeasures and the “degree and nature of the adverse effects
determined to exist”.
…
We agree that the term “commensurate” does not suggest that exact
or precise equality is required, between the two elements to be
compared, i.e. in this case, the proposed countermeasures and the “degree
and nature of the adverse effects determined to exist”. To that
extent, we agree that the term “commensurate” connotes a less
precise degree of equivalence than exact numerical correspondence.
Nonetheless, the term “commensurate” does indicate, in our view, a
relationship of correspondence and proportionality between the
two elements, and not merely a relationship of “adequacy” or “harmony”
as suggested by Brazil. We do not exclude that this correspondence may be
qualitative as well as quantitative. The exact nature of the
correspondence at issue will further be informed by the identification
of what exactly the proposed countermeasures are required to be “commensurate”
with. This is defined through the terms “the degree and nature of the
adverse effects determined to exist”.”(561)
333. Regarding the terms “degree and nature”, the Arbitrators in US
— Upland Cotton (Article 22.6 — US II) stated that:
“We agree that the reference to both the “degree” and the “nature”
of the adverse effects determined to exist suggests that the
correspondence that is required to exist, between the proposed
countermeasures and the “degree and nature of the adverse effects”,
may encompass both quantitative and qualitative elements. The “degree”
of the effects could be understood as a quantitative element, whereas
the reference to the “nature” of the adverse effects seems to point
to something more qualitative.
…
We agree that the reference to the “nature” of the adverse
effects may be understood to refer to the different “types” of
adverse effects that are foreseen in Articles 5 and
6, and that this
therefore invites a consideration of the specific type of “adverse
effects” that have been determined to exist as a result of the
specific measure in relation to which countermeasures are being
requested. These effects could manifest themselves in a variety of ways,
each reflecting a specific type of trade distortion.
…
… In assessing the “commensurateness” of the proposed
countermeasures to the “degree and nature” of the adverse effects
determined to exist, we are entitled to take into account fully the “degree
and nature” of these adverse effects as they present themselves in the
case at hand, but we are not permitted to do more than that. In other
words, the “degree and nature” of the adverse effects determined to
exist in the case at hand constitute the entirety of what we may and
must consider in assessing the “commensurateness” of the proposed
countermeasures in that case.”(562)
(iii) “the adverse effects determined to exist”
334. The Arbitrators in US — Upland Cotton (Article 22.6 — US
II) considered that “the adverse effects determined to exist”
refers to the findings on adverse effects made by the Panel/Appellate
Body in the underlying proceedings:
“Brazil observes that the term “adverse effects determined to
exist” sends the treaty interpreter back to the precise findings on
adverse effects made by the panels and the Appellate Body as these
constitute the “adverse effects determined to exist”. We agree.
The expression “adverse effects determined to exist” refers us to
the specific “adverse effects” within the meaning of Articles 5 and
6 of the SCM Agreement that form the basis of the underlying
findings in the case at hand.
We note in this respect that Article 5 SCM Agreement identifies
three categories of “adverse effects to the interests of other Members”,
that “no Member should cause, through the use of any subsidy referred
to in paragraphs 1 and 2 of Article 1”. These are:
(a) injury to the domestic industry of another Member;
(b) nullification or impairment of benefits accruing directly or
indirectly to other Members under GATT 1994 in particular the benefits
of concessions bound under Article II of GATT
1994;
(c) serious prejudice to the interests of another Member.
Article 7.1
further provides the possibility for any WTO Member to request
consultations with another Member, whenever it has reason to believe
that “any subsidy referred to in Article
1, granted or maintained by
another Member, results in injury to its domestic industry,
nullification or impairment or serious prejudice”.
In principle, therefore, the “adverse effects determined to exist”
in the underlying proceedings ultimately leading to a request for
countermeasures under Article 7.9 of the SCM Agreement may be in
the form of injury to the domestic industry of a Member, nullification
or impairment, or serious prejudice to the interests of another Member.”(563)
(b) Purpose of countermeasures under Article 7.9
335. The Arbitrators in US — Upland Cotton (Article 22.6 — US
II) considered the purpose of countermeasures under Article 7.9 to
be essentially the same as countermeasures under Article 4.10 of the SCM
Agreement and retaliatory measures under Article 22.4 of the DSU:
“The question of the objective of retaliatory measures in the WTO
has been addressed in the context of proceedings under Article 22.4 of
the DSU. The arbitrator on EC — Bananas III (US) (Article 22.6 —
EC) thus found that:
“[T]he overall objective of compensation or the suspension of
concessions or other obligations as described in Article
22.1:
‘Compensation and the suspension of concession or other obligations
are temporary measures available in the event that the recommendations
or rulings are not implemented within a reasonable period of time.
However, neither compensation nor the suspension of concessions or other
obligations is preferred to full implementation of a recommendation to
bring a measure into conformity with the covered agreements.
Compensation is voluntary and, if granted, shall be consistent with the
covered agreements.’
Accordingly, the authorization to suspend concessions or other
obligations is a temporary measure pending full implementation by the
Member concerned. We agree with the United States that this temporary
nature indicates that it is the purpose of countermeasures to induce
compliance. But this purpose does not mean that the DSB should grant
authorization to suspend concessions beyond what is equivalent to
the level of nullification or impairment. In our view, there is nothing
in Article 22.1 of the DSU, let alone in
paragraphs 4 and 7 of Article
22, that could be read as a justification for countermeasures of a punitive
nature.”
This objective of suspension of concessions or other obligations
under Article 22.4 of the DSU has been recently confirmed by the
Appellate Body in US — Continued Suspension.(564) Arbitrators
have also found that the objective of countermeasures under Article 4.10
of the SCM Agreement is to “induce compliance”.(565)
We see no reason to assume that countermeasures under
Article 7.9 of
the SCM Agreement would serve a different purpose. The
authorization of countermeasures in relation to actionable subsidies
arises in circumstances comparable to those relating to countermeasures
under Article 4.10 of the SCM Agreement or
Article 22.4 of the
DSU, i.e. in a situation where the responding Member has failed to
comply with the recommendations and rulings of the DSB in the prescribed
time period. As under Article 22.4 of the DSU and
Article 4.10 of the SCM
Agreement, countermeasures under Article 7.9 of the SCM Agreement constitute temporary measures taken in response to a continued
breach of the obligations of the Member concerned, and pending full
compliance with the recommendations and rulings of the DSB. We consider,
therefore, that countermeasures under Article 7.9 of the SCM
Agreement also serve to “induce compliance”.”(566)
(c) Task of the Arbitrators
336. In US — Upland Cotton (Article 22.6 — US II), the
Arbitrators referred to Article 7.10 and described their mandate as
follows:
“In these proceedings, we are therefore called upon to determine
whether the countermeasures proposed by Brazil in relation to the
marketing loans and counter cyclical payments are “commensurate with
the degree and nature of the adverse effects determined to exist”
within the meaning of Article 7.9 of the SCM Agreement… .
…
We agree that, in the event that we find that Brazil’s proposed
countermeasures are not commensurate with the degree and nature of the
adverse effects determined to exist, we would be required also to
determine what would constitute such countermeasures. This would enable
the complaining party to seek an authorization consistent with our
decision, as foreseen in Article 22.7 of the DSU. In order to fulfil
this part of our mandate, we may be required to adopt an approach or
methodology that differs from those proposed by the parties.”(567)
(d) Burden of proof
337. In US — Upland Cotton (Article 22.6 — US II), the
Arbitrators considered that the approach taken to the burden of proof
under Article 4.11 was equally applicable in the context of
Article 7.10:
“In the context of proceedings under Article 4.11 of the SCM
Agreement and Article 22.6 of the DSU, arbitrators have consistently
determined that the party objecting to the proposed countermeasure bears
the burden to establish a prima facie case or presumption that
the countermeasures are not “appropriate” within the meaning of
Article 4.11 and that it is then up to the party proposing the
countermeasures to rebut such presumption.(568)
The same approach applies, in our view, to proceedings under
Article
22.6 of the DSU and Article 7.10 of the SCM Agreement. We
therefore find that the United States bears the initial burden of
establishing the countermeasures are not “commensurate with the degree
and nature of the adverse effects determined to exist” and that Brazil
bears the burden of rebutting such conclusions.
The Arbitrator is also of the view that this allocation of burden of
proof does not alleviate the burden on each party to establish the facts
that it alleges during the proceedings. As observed by the arbitrator on
US — FSC (Article 22.6 — EC), “it is generally for each
party asserting a fact, whether complainant or respondent, to provide
proof thereof”.(569) Accordingly, it is also for Brazil to provide
evidence in support of the facts that it advances. The Arbitrator will
consider all the evidence and arguments provided by both parties (United
States and Brazil) to determine whether the proposed countermeasures are
“commensurate with the degree and nature of the adverse effects
determined to exist”.”(570)
(e) Article 7.9 provisions as special or additional rules
338. In US — Upland Cotton (Article 22.6 — US II), the
Arbitrators were mindful that Article 7.9 establishes a special or
additional rule and procedure under Appendix 2 of the DSU:
“The terms of Article 7.9 of the SCM Agreement, as a “special
or additional rule and procedure”, should be interpreted on their own
terms. It is clear that they may embody different rules, which would
prevail in case of conflict. Nonetheless, Article 22.6 of the DSU
remains relevant, as the general legal basis under which the proceedings
are conducted. Indeed, Article 7.9 of the SCM Agreement refers
expressly to Article 22.6 of the DSU as the legal basis for arbitral
proceedings relating to countermeasures in relation to actionable
subsidies.”(571)
(f) Relationship with other Articles
(i) Article 4.10
339. The Arbitrators in US — FSC (Article 22.6 — US) referred
to the wording of Articles 7.9 and 7.10 as context for the
interpretation of Article 4.10 and considered that “the explicit
precision of these indications [in Articles 7.9 and
7.10] clearly
highlights the lack of any analogous explicit textual indication in
Article 4.10 and contrasts with the broader and more general test of “appropriateness”
found in Articles 4.10 and 4.11”. For the Arbitrators, such a
difference in the text “must be given a meaning.”(572)
340. The Arbitrators in US — Upland Cotton (Article 22.6 — US
I) contrasted the terms of Article 4.10 with the terms used in
Article 7.9:
“[W]ithin the context of the SCM Agreement, the terms of
Article 4.10 contrast with those of Article
7.9, which foresees, in
relation to actionable subsidies, countermeasures “commensurate with
the degree and nature of the adverse effects determined to exist”.
Here too, the terms of Article 7.9, through this reference to the “degree
and nature of the adverse effects determined to exist”, point to a
single specific benchmark as reference, and require the countermeasures
to be “commensurate” with this benchmark, which is carefully defined
in relation to the specific adverse effects that form the basis of the
underlying findings. These elements distinguish the terms of Article
7.9 from the terms of Article 4.10. This difference can be understood in the
broader context of the SCM Agreement, where actionable subsidies
may only be challenged to the extent that they result in certain
enumerated adverse effects for other WTO Members. By contrast,
prohibited subsidies are prohibited independently of any demonstration
of adverse effects. In such cases, no specific “adverse effects”
will have been “determined to exist” prior to the request for
authorization to apply countermeasures, and therefore there are none
that could be referred to.(573)
Part IV: Non-Actionable
Subsidies
IX. Article 8
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A. Text of Article 8
Article 8: Identification of Non-Actionable Subsidies
8.1 The following subsidies shall be considered as
non-actionable:(23)
(footnote original)
23 It is recognized that government
assistance for various purposes is widely provided by Members and that
the mere fact that such assistance may not qualify for non-actionable
treatment under the provisions of this Article does not in itself
restrict the ability of Members to provide such assistance.
(a) subsidies which are not specific within the meaning of
Article 2;
(b) subsidies which are specific within the meaning of
Article 2 but
which meet all of the conditions provided for in paragraphs
2(a), 2(b)
or 2(c) below.
8.2 Notwithstanding the provisions of
Parts III and V, the following
subsidies shall be non-actionable:
(a) assistance for research activities conducted by firms or by
higher education or research establishments on a contract basis with
firms if:(24), (25), (26)
(footnote original)
24 Since it is anticipated that civil
aircraft will be subject to specific multilateral rules, the provisions
of this subparagraph do not apply to that product.
(footnote original)
25 Not later than 18 months after the date
of entry into force of the WTO Agreement, the Committee on Subsidies and
Countervailing Measures provided for in Article 24 (referred to in this
Agreement as “the Committee”) shall review the operation of the
provisions of subparagraph 2(a) with a view to making all necessary
modifications to improve the operation of these provisions. In its
consideration of possible modifications, the Committee shall carefully
review the definitions of the categories set forth in this subparagraph
in the light of the experience of Members in the operation of research
programmes and the work in other relevant international institutions.
(footnote original)
26 The provisions of this Agreement do not
apply to fundamental research activities independently conducted by
higher education or research establishments. The term “fundamental
research” means an enlargement of general scientific and technical
knowledge not linked to industrial or commercial objectives.
the assistance covers(27) not more than 75 per cent of the costs of
industrial research(28) or 50 per cent of the costs of pre-competitive
development activity(29), (30);
(footnote original)
27 The allowable levels of non-actionable
assistance referred to in this subparagraph shall be established by
reference to the total eligible costs incurred over the duration of an
individual project.
(footnote original)
28 The term “industrial research”
means planned search or critical investigation aimed at discovery of new
knowledge, with the objective that such knowledge may be useful in
developing new products, processes or services, or in bringing about a
significant improvement to existing products, processes or services.
(footnote original)
29 The term “pre-competitive development
activity” means the translation of industrial research findings into a
plan, blueprint or design for new, modified or improved products,
processes or services whether intended for sale or use, including the
creation of a first prototype which would not be capable of commercial
use. It may further include the conceptual formulation and design of
products, processes or services alternatives and initial demonstration
or pilot projects, provided that these same projects cannot be converted
or used for industrial application or commercial exploitation. It does
not include routine or periodic alterations to existing products,
production lines, manufacturing processes, services, and other on-going
operations even though those alterations may represent improvements.
(footnote original)
30 In the case of programmes which span
industrial research and pre-competitive development activity, the
allowable level of non-actionable assistance shall not exceed the simple
average of the allowable levels of non-actionable assistance applicable
to the above two categories, calculated on the basis of all eligible
costs as set forth in items (i) to (v) of this
subparagraph.
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;
(v) other running costs (such as those of materials, supplies and the
like), incurred directly as a result of the research activity.
(b) assistance to disadvantaged regions within the territory of a
Member given pursuant to a general framework of regional development(31)
and non-specific (within the meaning of Article
2) within eligible
regions provided that:
(footnote original)
31 A “general framework of regional
development” means that regional subsidy programmes are part of an
internally consistent and generally applicable regional development
policy and that regional development subsidies are not granted in
isolated geographical points having no, or virtually no, influence on
the development of a region.
(i) each disadvantaged region must be a clearly designated contiguous
geographical area with a definable economic and administrative identity;
(ii) the region is considered as disadvantaged on the basis of
neutral and objective criteria(32), 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;
(footnote original) 32 “Neutral and objective criteria”
means criteria which do not favour certain regions beyond what is
appropriate for the elimination or reduction of regional disparities
within the framework of the regional development policy. In this regard,
regional subsidy programmes shall include ceilings on the amount of
assistance which can be granted to each subsidized project. Such
ceilings must be differentiated according to the different levels of
development of assisted regions and must be expressed in terms of
investment costs or cost of job creation. Within such ceilings, the
distribution of assistance shall be sufficiently broad and even to avoid
the predominant use of a subsidy by, or the granting of
disproportionately large amounts of subsidy to, certain enterprises as
provided for in Article 2.
(iii) the criteria shall include a measurement of economic
development which shall be based on at least one of the following
factors:
as measured over a three-year period; such measurement, however, may
be a composite one and may include other factors.
(c) assistance to promote adaptation of existing
facilities(33) to new
environmental requirements imposed by law and/or regulations which
result in greater constraints and financial burden on firms, provided
that the assistance:
(footnote original)
33 The term “existing facilities”
means facilities which have been in operation for at least two years at
the time when new environmental requirements are imposed.
(i) is a one-time non-recurring measure; and
(ii) is limited to 20 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 firms; and
(iv) is directly linked to and proportionate to a firm’s planned
reduction of nuisances and pollution, and does not cover any
manufacturing cost savings which may be achieved; and
(v) is available to all firms which can adopt the new equipment
and/or production processes.
8.3 A subsidy programme for which the provisions of
paragraph 2 are
invoked shall be notified in advance of its implementation to the
Committee in accordance with the provisions of Part
VII. Any such
notification shall be sufficiently precise to enable other Members to
evaluate the consistency of the programme with the conditions and
criteria provided for in the relevant provisions of paragraph 2. Members
shall also provide the Committee with yearly updates of such
notifications, in particular by supplying information on global
expenditure for each Other Members shall have the right to request
information about individual cases of subsidization under a notified
programme.(34)
(footnote original)
34 It is recognized that nothing in this
notification provision requires the provision of confidential
information, including confidential business information.
8.4 Upon request of a Member, the Secretariat shall review a
notification made pursuant to paragraph 3 and, where necessary, may
require additional information from the subsidizing Member concerning
the notified programme under review. The Secretariat shall report its
findings to the Committee. The Committee shall, upon request, promptly
review the findings of the Secretariat (or, if a review by the
Secretariat has not been requested, the notification itself), with a
view to determining whether the conditions and criteria laid down in paragraph 2
have not been met. The procedure provided for in this
paragraph shall be completed at the latest at the first regular meeting
of the Committee following the notification of a subsidy programme,
provided that at least two months have elapsed between such notification
and the regular meeting of the Committee. The review procedure described
in this paragraph shall also apply, upon request, to substantial
modifications of a programme notified in the yearly updates referred to
in paragraph 3.
8.5 Upon the request of a Member, the determination by the Committee
referred to in paragraph 4, or a failure by the Committee to make such a
determination, as well as the violation, in individual cases, of the
conditions set out in a notified programme, shall be submitted to
binding arbitration. The arbitration body shall present its conclusions
to the Members within 120 days from the date when the matter was
referred to the arbitration body. Except as otherwise provided in this
paragraph, the DSU shall apply to arbitrations conducted under this
paragraph.
B. Interpretation and Application of Article 8
1. General
(a) Expiry of Article 8
341. This provision has lapsed pursuant to
Article 31. In this
regard, see paragraph 582 below.
(b) The Doha Round
342.
Paragraph 10.2 of the Doha Ministerial Decision on
Implementation-Related Issues and Concerns(574) provides that the Doha
Ministerial Conference takes note of the proposal to treat certain
measures by developing countries with a view to achieving legitimate
development goals as non-actionable subsidies:
“Takes note of the proposal to treat measures implemented by
developing countries with a view to achieving legitimate development
goals, such as regional growth, technology research and development
funding, production diversification and development and implementation
of environmentally sound methods of production as non-actionable
subsidies, and agrees that this issue be addressed in accordance with
paragraph 13 below.(575) During the course of the negotiations, Members
are urged to exercise due restraint with respect to challenging such
measures.”
2. Article 8.2
(a) Article 8.2(a)
343. In US — Large Civil Aircraft
(2nd complaint), the Panel
rejected an argument that Article 8.2(a) gives rise to a necessary
implication that governmental purchases of R&D services are covered
by the SCM Agreement:
“We do not find this reasoning persuasive, and believe that the
European Communities’ argument is to some extent based on a misreading
of the text of Article 8.2(a), which concerns “assistance” for
research activities conducted by firms, including “assistance” for
higher education or research establishments that conduct research for
firms on a contract basis. In addition, Article 8.2(a)
does not state
that “government support of R&D on a contract basis” is a
subsidy. Rather, Article 8.2(a) refers to government assistance for
research activities conducted by firms “or by higher education or
research establishments on a contract basis with firms”. If the terms
of Article 8.2(a) gave rise to the necessary implication that certain
types of transactions necessarily constitute subsidies within the
meaning of the SCM Agreement, we would of course agree that those types
of transactions must logically involve a financial contribution within
the meaning of Article
1.1(a)(1). The problem with the European
Communities’ argument is that there does not appear to be anything in Article 8.2(a)
to suggest that governmental purchases of R&D
services from firms fall within the scope of the SCM Agreement. By its
own terms, Article 8.2(a) concerns “assistance” for research
conducted by firms. If the only manner in which a government could
provide “assistance” for research conducted by firms was by
purchasing R&D services from firms, then the European Communities
argument would rest on solid ground. However, this strikes us as a false
premise.”(576)
(b) Relationship with other Articles
(i) Article 8.3
344. Referring to the Format for Notifications under
Article 8.3,
issued by the SCM Committee,(577) the SCM Committee stated that “[w]ith
regard to the questions in this standard format on arrangements which
may exist for monitoring, auditing and evaluation of assistance under a
notified programme, it should be stressed that this standard format does
not add to or detract from the relevant legal requirements in Article
8.2 of the SCM Agreement”.(578)
3. Article 8.3
(a) “notified”
345. At its meeting of 22 February 1995, the SCM Committee adopted a
Format for Notifications under Article 8.3 of the Agreement on Subsidies
and Countervailing Measures,(579) to “assist WTO Members in making
notifications under the first sentence of Article 8.3”.(580)
(b) “updates of … notifications”
346. At its meeting of 23 October 1997, the SCM Committee adopted a
Format for Updates of Notifications under Article 8.3
of the Agreement
on Subsidies and Countervailing Measures,(581) which sets out the
information which should be provided for each programme notified under Article 8.3.(582)
4. Article 8.5
(a) Procedures for arbitration
347. At its meeting of 2 June 1998, the SCM Committee adopted
procedures for arbitration under Article 8.5 “with the aim of
facilitating the operation of arbitration proceedings and enhancing
transparency and predictability for all Members with respect to the
Application of Article 8 of the Agreement”.(583)
5. Relationship with other Articles
348. With respect to the relationship with
Article 31, see paragraph
582 below.
X. Article 9
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A. Text of Article 9
Article 9: Consultations and Authorized Remedies
9.1 If, in the course of implementation of a programme referred to in
paragraph 2 of Article 8, notwithstanding the fact that the programme is
consistent with the criteria laid down in that paragraph, a Member has
reasons to believe that this programme has resulted in serious adverse
effects to the domestic industry of that Member, such as to cause damage
which would be difficult to repair, such Member may request
consultations with the Member granting or maintaining the subsidy.
9.2 Upon request for consultations under
paragraph 1, the Member
granting or maintaining the subsidy programme in question shall enter
into such consultations as quickly as possible. The purpose of the
consultations shall be to clarify the facts of the situation and to
arrive at a mutually acceptable solution.
9.3 If no mutually acceptable solution has been reached in
consultations under paragraph 2 within 60 days of the request for such
consultations, the requesting Member may refer the matter to the
Committee.
9.4 Where a matter is referred to the Committee, the Committee shall
immediately review the facts involved and the evidence of the effects
referred to in paragraph 1. If the Committee determines that such
effects exist, it may recommend to the subsidizing Member to modify this
programme in such a way as to remove these effects. The Committee shall
present its conclusions within 120 days from the date when the matter is
referred to it under paragraph 3. In the event the recommendation is not
followed within six months, the Committee shall authorize the requesting
Member to take appropriate countermeasures commensurate with the nature
and degree of the effects determined to exist.
B. Interpretation and Application of Article 9
1. Expiry of Article 9
349. This provision has lapsed pursuant to
Article 31. See paragraph
582 below.
2. Relationship with other Articles
350. With respect to the relationship with
Article 31, see paragraph
582 below.
Part V: Countervailing
Measures
XI. Article 10
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A. Text of Article 10
Article 10: Application of Article VI of GATT
1994(35)
(footnote original) 35 The provisions of
Part II or III may be
invoked in parallel with the provisions of Part V; however, with regard
to the effects of a particular subsidy in the domestic market of the
importing Member, only one form of relief (either a countervailing duty,
if the requirements of Part V are met, or a countermeasure under
Articles 4 or 7) shall be available. The provisions of
Parts III and V
shall not be invoked regarding measures considered non-actionable in
accordance with the provisions of Part IV. However, measures referred to
in paragraph 1(a) of Article 8 may be investigated in order to determine
whether or not they are specific within the meaning of Article
2. In
addition, in the case of a subsidy referred to in paragraph 2 of Article
8 conferred pursuant to a programme which has not been notified in
accordance with paragraph 3 of Article 8, the provisions of
Part III or
V may be invoked, but such subsidy shall be treated as non-actionable if
it is found to conform to the standards set forth in paragraph 2 of
Article 8.
Members shall take all necessary steps to ensure that the imposition
of a countervailing duty(36) on any product of the territory of any Member
imported into the territory of another Member is in accordance with the
provisions of Article VI of GATT 1994 and the terms of this Agreement.
Countervailing duties may only be imposed pursuant to investigations
initiated(37) and conducted in accordance with the provisions of this
Agreement and the Agreement on Agriculture.
(footnote original)
36 The term “countervailing duty”
shall be understood to mean a special duty levied for the purpose of
offsetting any subsidy bestowed directly or indirectly upon the
manufacture, production or export of any merchandise, as provided for in
paragraph 3 of Article VI of GATT 1994.
(footnote original)
37 The term “initiated” as used
hereinafter means procedural action by which a Member formally commences
an investigation as provided in Article
11.
B. Interpretation and Application of Article 10
1. The Doha review mandate
351.
Paragraph 10.3 of the Doha Ministerial Decision on
Implementation-Related Issues and Concerns(584) mandates the SCM Committee
to continue the review of the countervailing duty provisions of the SCM
Agreement, and requests that the Committee report to the General Council
by 31 July 2002.
352. As regards the above requirement to report to the General
Council, the Chairman of the SCM Committee submitted a report(585) on 30
July 2002. The General Council took note of the report at its meeting on
8 and 31 July 2002.(586)
2. Footnote 36
(a) “offsetting”
353. Discussing the premise that “no countervailing duty may be
imposed absent (countervailable) subsidization,”(587)
the Panel in US
— Lead and Bismuth II considered that this premise “underlies
the very purpose of the countervailing measures envisaged by Part V of
the SCM Agreement.”(588) The Panel continued with the statement that “footnote
36 to Article 10 does not envisage the imposition of countervailing
duties when no (countervailable) subsidy is found to exist, for in such
cases there would be no (countervailable) subsidy to ‘offset’.”(589)
354. In US — Countervailing Measures on Certain EC Products,
the Panel noted that Article VI:3 of the GATT 1994 and
Article 10,
footnote 36 of the SCM Agreement refer to countervailing duties as “special
duties” levied for the purpose of “offsetting” a subsidy.
Furthermore, the Panel found that countervailing duties are not designed
to counteract all market distortions or resource misallocations which
might have been caused by subsidization.(590)
(b) “any subsidy bestowed directly or indirectly upon the
manufacture”: pass-through of benefit from subsidized inputs
355. In US — Softwood Lumber IV, in examining the “pass-through”
issue, the Appellate Body quoted inter alia Article
10, footnote
36 of the SCM Agreement as one of the relevant legal provisions. The
Appellate Body stated that the phrase “subsid[ies] bestowed … indirectly,”
as used in Article VI:3 of the GATT
1994, implies “that financial
contributions by the government to the production of inputs used
in manufacturing products subject to an investigation are not, in
principle, excluded from the amount of subsidies that may be offset
through the imposition of countervailing duties on the processed
product.”(591) Moreover, the Appellate Body stated:
“In our view, it would not be possible to determine whether
countervailing duties levied on the processed product are in excess of
the amount of the total subsidy accruing to that product, without
establishing whether, and in what amount, subsidies bestowed on the
producer of the input flowed through, downstream, to the producer of the
product processed from that input. Because Article VI:3 permits off
setting
through countervailing duties no more than the subsidy determined to
have been granted … directly or indirectly, on the manufacture [or]
production … of such products, it follows that Members must not
impose duties to offset an amount of the input subsidy that has not
passed through to the countervailed processed products. Rather, ‘[i]t
is only the amount by which an indirect subsidy granted to producers of
inputs flows through to the processed product, together with the amount
of subsidy bestowed directly on producers of the processed product, that
may be offset through the imposition of countervailing duties.’”(592)
3. Footnote 37: “initiated”
356. The Panel in Mexico — Olive Oil interpreted the term
“initiated” in the context of a claim brought under Article 13.1 of
the SCM Agreement. The Panel found that the meaning of the term would
vary based on the procedural actions defined in each Member’s
individual countervailing duty regime:
“We begin by examining the definition of “initiated” in
footnote 37 of the SCM Agreement. It is important to note that
the definition describes a “procedural action by which a Member formally
commences an investigation”, without specifying any particular action,
or any particular procedure, that a Member must undertake in this
regard. The European Communities admits that “the particular steps to
be taken [in regard to initiation] are largely left to Members”, and
that while “[i]t can be inferred from Footnote 37 that the process
will involve one element of formality … precisely what this should
consist of is not specified.”
The heart of this dispute is not over what constitutes a “procedural
action” as many steps within an investigation may qualify as such, but
rather which procedural action “formally commences” an
investigation. The Shorter Oxford English Dictionary defines “formally”
as “In prescribed or customary form; with the formalities required to
make an action valid or definite.” The Shorter Oxford English
Dictionary also defines “commence” as “make a start or beginning;
come into operation.” As footnote 37 states, we are concerned with “a
Member’s” initiation of an investigation. Because the SCM
Agreement does not contain any specific standards for determining
the validity of an action meant to start a countervailing duty
investigation, the date of “formal commencement” must be in
reference to the internal regime of the importing Member.
Other articles of the SCM Agreement that refer to initiation
provide context for interpreting the term “initiated” in footnote 37. For example,
Article 11 of the SCM Agreement contains a
number of substantive requirements that must be satisfied before an
importing Member may initiate a countervailing duty investigation.
Article 11 demonstrates that when the drafters intended to prescribe
that Members satisfy particular standards, they were perfectly able to
do so. Additionally, Article 22.2 requires investigating authorities to
give public notice of the initiation. Article 22.2
(ii) requires that
the investigating authority include in the published notice the “date
of initiation”. In our view, this confirms a reading of footnote 37
that leaves it up to the investigating authority to determine on what
date it “formally commenced” an investigation and to then make the
public aware of that date through the notice.
Finally, in terms of the object and purpose of the SCM Agreement,
we note that the deadline for completing an investigation in Article
11.11; the requirement to release the application to interested
exporters in Article 12.1.3; and the timeframes for imposing provisional
measures in Article 17.3 all flow from the date of initiation. We view a
reading whereby the date of initiation is based on the internal law of
the importing Member as ensuring predictability for the interested
parties in the investigation under the domestic system of each Member.
If WTO dispute settlement proceedings taking place considerably after
the termination of an investigation could revisit these procedural steps
in the absence of any specific requirements in the SCM Agreement,
this predictability would be substantially reduced.
Based on the foregoing analysis, we find that what constitutes “initiation”
within the meaning of the SCM Agreement will vary based on the
procedural actions defined in each Member’s individual regime.
Therefore, to determine the date on which Economía initiated the
investigation and whether Mexico sent the invitation to consultations
prior to initiation, as required by Article 13.1 of the SCM Agreement,
we must examine what constitutes the procedural act by which an
investigation is formally commenced in the Mexican system.”(593)
4. Relationship with Article VI of the GATT 1994
(a) Combined application of Article VI of the GATT 1994 and the SCM
Agreement
357. In its analysis of the relationship between Article VI of the
GATT 1994 and the SCM Agreement, the Appellate Body in Brazil —
Desiccated Coconut relied on Article 10 and stated that “[f]rom
reading Article 10, it is clear that countervailing duties may only be
imposed in accordance with Article VI of the GATT 1994 and the SCM
Agreement.”(594) In this determination, the Appellate Body relied
also on Articles 32.1 and
32.3 of the SCM Agreement; see
paragraph 583
below for Article 32.1 and
paragraphs 591–592 below for
Article 32.3 below.
(b) Pass-through: subsidized inputs
358. In US — Softwood Lumber IV, the Appellate Body
concluded that “in cases where logs are sold by a harvester/ sawmill
in arm’s-length transactions to unrelated sawmills, it may not be
assumed that benefits attaching to the logs (non-subject
products) automatically pass through to the lumber (the subject
product) produced by the harvester/sawmill.” Therefore, a pass-through
analysis is required in such situations.(595) The Appellate Body’s
analysis was based on Article VI:3 of the GATT 1994 and
footnote 36 to
Article 10 of the SCM Agreement. It was on this basis that the Appellate
Body upheld the Panel’s finding that the Department of Commerce’s
failure to conduct a pass-through analysis in respect of arm’s length
sales of logs by tenured harvesters/ sawmills to unrelated
sawmills is inconsistent with Articles 10 and 32.1 of the SCM Agreement
and Article VI of the GATT 1994.(596)
359. For a further discussion on the relationship between
Article VI
of the GATT 1994 and the SCM Agreement, see also
paragraphs 690–692
below.
5. Relationship with other Articles
360. With respect to the relationship with
Article 32.1 and 32.3, see
paragraph 583 below.
Footnotes:
292. Panel Report, Canada — Aircraft,
para. 9.70.
back to text
293. Panel Report, Canada — Aircraft,
para. 9.72.
back to text
294. Panel Report, Canada — Aircraft,
para. 9.72.
back to text
295. Panel Report, Canada — Aircraft,
para. 9.74.
back to text
296. Panel Report, Canada — Aircraft,
para. 9.75.
back to text
297. Panel Report, Canada — Aircraft,
para. 9.75.
back to text
298. Panel Report, Canada — Aircraft,
para. 9.77.
back to text
299. Panel Report, Canada — Aircraft,
para. 9.78.
back to text
300. Panel Report, Canada — Aircraft,
para. 9.29.
back to text
301. Panel Report, Australia — Automotive Leather II,
para. 9.17. back to text
302. Panel Report, Australia — Automotive Leather II,
para. 9.18. back to text
303. Panel Report, Australia — Automotive Leather II,
paras. 9.19–9.20. back to text
304. Panel Report, Australia — Automotive Leather II,
para. 9.24. back to text
305. Panel Report, Australia — Automotive Leather II,
para. 9.24. back to text
306. Panel Report, Australia — Automotive Leather II,
para. 9.25. back to text
307. Panel Report, Australia — Automotive Leather II,
para. 9.29. back to text
308. Appellate Body Report, US — FSC,
paras. 155–166.
back to text
309. (footnote original) Concise Oxford Dictionary, Ninth
edition, 1995. back to text
310. (footnote original) The materials in questions were
comprised of testimony before the US Congress, reports and other
descriptive materials relating to the FSC prepared by US government
officials, articles in tax, legal and business publications about the
FSC, copies of the requests for consultations and establishment of a
panel in this dispute, and excerpts from OECD Transfer Pricing
Guidelines for Multinational Enterprises and Tax Administrations.
All of these materials are explanatory of the FSC except for the OECD Guidelines,
which were submitted in support of the European Communities’ view of
the meaning of the concept of the “arm’s length” principle
referred to in footnote 59 to the SCM
Agreement. back to text
311. Panel Report, US — FSC,
paras. 7.5–7.6.
back to text
312. Appellate Body Report, US — FSC,
para. 162.
back to text
313. (footnote original) Appellate Body Report on US
— Shrimp, fn, 99. In that report, we addressed the issue of good
faith in the context of the chapeau of Article XX of the GATT
1994.
back to text
314. Appellate Body Report, US — FSC,
para. 166.
back to text
315. (footnote original) Appellate Body Report on Guatemala
— Cement, fn. 55. back to text
316. Appellate Body Report, US — FSC,
paras. 159–161.
back to text
317. (footnote original) Indeed, consultations may play a
significant role in developing the facts in a dispute settlement
proceeding. For example, the Appellate Body has observed that “[…]
the claims that are made and the facts that are established during
consultations do much to shape the substance and the scope of the
subsequent panel proceedings.” See Appellate Body Report, India
— Patents (US), para. 94. back to text
318. Panel Report, US — Upland Cotton,
paras. 7.98–7.100.
back to text
319. (footnote original) Panel Report, Australia — Automotive Leather II,
para. 9.19. back to text
320. Appellate Body Report, US — Upland Cotton,
para.
308. back to text
321. Panel Report, Brazil — Aircraft, para. 7.6.
back to text
322. Appellate Body Report, Brazil — Aircraft, paras.
131–132. See also Panel Report, Brazil — Aircraft, paras. 7.9–7.11.
back to text
323. Panel Report, Canada — Aircraft,
para. 9.12.
back to text
324. Appellate Body Report, Brazil — Aircraft (Article 21.5
— Canada), para. 45. back to text
325. Appellate Body Report, Brazil — Aircraft (Article 21.5
— Canada), para. 45. See also Panel Report, US — FSC (Article
21.5 — EC), para. 8.170. back to text
326. Appellate Body Report, Brazil — Aircraft (Article 21.5
— Canada), para. 45. back to text
327. Panel Report, Australia — Automotive Leather II (Article
21.5 — US), paras. 6.27–6.28 and 6.31. back to text
328. Panel Report, Australia — Automotive Leather II (Article
21.5 — US), para. 6.20. back to text
329. Panel Report, Australia — Automotive Leather II (Article
21.5 — US), para. 6.22. back to text
330. Panel Report, Brazil — Aircraft (Article 21.5 —
Canada), para. 6.15. back to text
331. Panel Report, Brazil — Aircraft, para. 8.5. See
also Panel Report, Canada — Aircraft,
para. 10.4.
back to text
332. Appellate Body Report, Brazil — Aircraft, para.
192. back to text
333. Panel Report, Australia — Automotive Leather II,
para. 10.6. back to text
334. (footnote original) Appellate Body Report, Brazil
— Aircraft (Article 21.5 — Canada), supra, footnote 86,
para. 46. back to text
335. (footnote original) Appellate Body Report, Brazil
— Aircraft (Article 21.5 — Canada), para. 45.
back to text
336. Appellate Body Report, US — FSC (Article 21.5 — EC),
paras. 229–230. back to text
337. Panel Report, Canada — Aircraft Credits and Guarantees,
para. 8.3. back to text
338. Panel Report, Canada — Aircraft Credits and Guarantees,
para. 8.4. back to text
339. Panel Report, Australia — Automotive Leather II
(Article 21.5 — US), para. 6.28. back to text
340. Panel Report, Australia — Automotive Leather II
(Article 21.5 — US), para. 6.31. back to text
341. Panel Report, US — FSC (Article 21.5 — EC), para.
8.171. back to text
342. (footnote original) See, e.g., the Naulilaa arbitral
award (1928), UN Reports of International Arbitral Awards, Vol. II, p.
1028 and Case Concerning the Air Services Agreement of 27 March 1946
(France v. United States of America) (1978) International Law
Reports, Vol. 54 (1979), p. 338. See also, inter alia, the Draft
Articles on State Responsibility With Commentaries Thereto Adopted by
the International Law Commission on First Reading (January 1997),
hereinafter the “Draft Articles” and the draft articles
provisionally adopted by the Drafting Committee on second reading,
A/CN.4/L 600, 11 August 2000. Even though the latter modify a number of
provisions of the Draft Articles, they do not affect the terms to which
we refer in this report. back to text
343. (footnote original) We also note that, on the basis of
the definition of “countermeasures” in the Draft Articles, the
notion of “appropriate countermeasures” would be more general than
the term “equivalent to the level of nullification or impairment”.
It would basically include it. Limiting its meaning to that given to the
term “equivalent to the level of nullification or impairment” would
be contrary to the principle of effectiveness in interpretation of
treaties. back to text
344. (footnote original) See Article 38 of the Statute of
the ICJ. back to text
345. (footnote original) We note that Canada objects to us
using the Draft Articles in this interpretation process. Canada argues
that the Draft Articles are not “relevant rules of international law
applicable to the relations between the parties” within the meaning of
Article 31.3(c) of the Vienna Convention. As already mentioned, we use
the Draft Articles as an indication of the agreed meaning of certain
terms in general international law. back to text
346. (footnote original) Op. Cit., para. 6.3. In
that case, the arbitrators had to determine the level of nullification
or impairment. Since the Article 22.6 arbitrators in the EC —
Bananas case considered that measures equivalent to the level of
nullification or impairment can induce compliance, it could be argued
that in the present case too, countermeasures equivalent to the level of
nullification or impairment should be sufficient to induce compliance.
However, the arbitrators in EC — Bananas were instructed by
Article 22.7 to determine whether the proposed measures were equivalent
to the level of nullification or impairment. back to text
347. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), para. 3.44. back to text
348. (footnote original) The New Shorter Oxford English
Dictionary (1993). back to text
349. (footnote original) Ibid. back to text
350. (footnote original) Webster’s New Encyclopaedic
Dictionary (1994). back to text
351. (footnote original) The New Shorter Oxford English
Dictionary (1993). back to text
352. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), paras. 5.4–5.7. back to text
353. (footnote original) Oxford English Dictionary,
at www.oed.com. back to text
354. (footnote original) Merriam Webster Dictionary,
at www.merriamwebster.com. back to text
355. (footnote original) http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf. back to text
356. (footnote original) We also note however that, by
their own terms, the Articles of the ILC on State Responsibility do not
purport to prevail over any specific provisions relating to the areas it
covers that would be contained in specific legal instruments. We note in
particular the following Commentary of the ILC:
In common with other
chapters of these articles, the provisions on countermeasures are
residual and may be excluded or modified by a special rule to the
contrary (see article 55). Thus, a treaty provision precluding the
suspension of performance of an obligation under any circumstances will
exclude countermeasures with respect to the performance of the
obligation. Likewise, a regime for dispute resolution to which States
must resort in the event of a dispute, especially if (as with the WTO
dispute settlement system) it requires an authorization to take measures
in the nature of countermeasures in response to a proven breach.
back to text
357. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), paras. 4.34–4.43. back to text
358. (footnote original) The New Shorter Oxford English
Dictionary (1993), p. 103; Webster’s New Encyclopedic Dictionary
(1994), p. 48. back to text
359. (footnote original) See, e.g., the Naulilaa arbitral
award (1928),UN Reports of International Arbitral Awards, Vol. II, p.
1028 and Case Concerning the Air Services Agreement of 27 March 1946
(France v. United States of America) (1978) International Law
Reports, Vol. 54 (1979), p. 338. See also, inter alia, the Draft
Articles on State Responsibility With Commentaries Thereto Adopted by
the International Law Commission on First Reading (January 1997),
hereinafter the “Draft Articles” and the draft articles
provisionally adopted by the Drafting Committee on second reading,
A/CN.4/L 600, 11 August 2000. Even though the latter modify a number of
provisions of the Draft Articles, they do not affect the terms to which
we refer in this report. back to text
360. (footnote original) We also note that, on the basis of
the definition of “countermeasures” in the Draft Articles, the
notion of “appropriate countermeasures” would be more general than
the term “equivalent to the level of nullification or impairment”.
It would basically include it. Limiting its meaning to that given to the
term “equivalent to the level of nullification or impairment” would
be contrary to the principle of effectiveness in interpretation of
treaties. back to text
361. (footnote original) See Article 38 of the Statute of
the ICJ. back to text
362. (footnote original) We note that Canada objects to us
using the Draft Articles in this interpretation process. Canada argues
that the Draft Articles are not “relevant rules of international law
applicable to the relations between the parties” within the meaning of
Article 31.3(c) of the Vienna Convention. As already mentioned, we use
the Draft Articles as an indication of the agreed meaning of certain
terms in general international law. back to text
363. (footnote original) Op. Cit., para. 6.3. In
that case, the arbitrators had to determine the level of nullification
or impairment. Since the Article 22.6 arbitrators in the EC —
Bananas case considered that measures equivalent to the level of
nullification or impairment can induce compliance, it could be argued
that in the present case too, countermeasures equivalent to the level of
nullification or impairment should be sufficient to induce compliance.
However, the arbitrators in EC — Bananas were instructed by
Article 22.7 to determine whether the proposed measures were equivalent
to the level of nullification or impairment. back to text
364. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 3.42–3.44. back to text
365. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 3.45–3.46. back to text
366. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.10. back to text
367. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.11. back to text
368. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.12. back to text
369. (footnote original) “appropriate, ppl. a. and n.”,
Oxford English Dictionary, at www.oed.com, definition 5.
back to text
370. (footnote original) www.merriam-webster.com.
back to text
371. (footnote original) www.merriam-webster.com.
back to text
372. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), paras. 4.44–4.47. back to text
373. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.8. 5.16. back to text
374. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. back to text
375. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.19. back to text
376. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.23. back to text
377. (footnote original) We note in this regard the view
of the commentator, Sir James Crawford, on the relevant Article of the
ILC text on State Responsibility, reflected in a resolution adopted on
12 December 2001 by the UN General Assembly (A/RES/56/ 83), which
expresses — but only in positive terms — a requirement of
proportionality for countermeasures:
“the positive formulation of the proportionality requirement is
adopted in Article 51. A negative formulation might allow too much
latitude.” (J. Crawford, The ILC’s Articles on State Responsibility,
Introduction, Text and Commentaries 2002, CUP, para. 5 on Article 51)
Article 51 of the ILC Articles on State responsibility (entitled “Proportionality”)
reads as follows:
“countermeasures must be commensurate with the
injury suffered, taking into account the gravity of the internationally
wrongful act and the rights in question”. (emphasis added)
We also
note in this respect that, while that provision expressly refers —
contrary to footnote 9 of the SCM Agreement — to the injury
suffered, it also requires the gravity of the wrongful act and the right
in question to be taken into account. This has been understood to entail
a qualitative element to the assessment, even where commensurateness
with the injury suffered is at stake. We note the view of Sir James
Crawford on this point in his Commentaries to the ILC Articles:
“Considering
the need to ensure that the adoption of countermeasures does not lead to
inequitable results, proportionality must be assessed taking into
account not only the purely “quantitative” element of the injury
suffered, but also “qualitative” factors such as the importance of
the interest protected by the rule infringed and the seriousness of the
breach. Article 51 relates proportionality primarily to the injury
suffered but “taking into account” two further criteria: the gravity
of the internationally wrongful act, and the rights in question. The
reference to “the rights in question” has a broad meaning, and
includes not only the effect of a wrongful act on the injured State but
also on the rights of the responsible State. Furthermore, the position
of other States which may be affected may also be taken into
consideration.” (Op. Cit., para. 6 of the commentaries on
Article 51). back to text
378. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 5.27. back to text
379. (footnote original) Decision by the Arbitrator, US
— FSC (Article 22.6 — US), para. 5.19. back to text
380. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), paras. 4.85–4.87. back to text
381. Decision by the Aribrators, US — Upland Cotton (Article
22.6 — US I), footnote 118. back to text
382. (footnote original) Decision by the Arbitrators, EC
— Bananas III (US) (Article 22.6 — EC), para. 6.3.
back to text
383. (footnote original) See Appellate Body Report, US
— Continued Suspension, para. 309. back to text
384. (footnote original) See Decision by the Arbitrator, US
— FSC (Article 22.6 — US), para. 5.57; Decision by the
Arbitrator, Canada — Aircraft Credits and Guarantees (Article 22.6
— Canada), paras. 3.11 and 3.47. back to text
385. (footnote original) http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf. back to text
386. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), paras. 4.109–4.113.
back to text
387. (footnote original) In Brazil — Aircraft
(Article 22.6 — Brazil), the full payments made under the
programme were used a basis for the calculation. In US — FSC
(Article 22.6 — US), the calculation was based on the annual
expenditure by the US Government. Finally, in the Canada — Aircraft
Credits and Guarantees (Article 22.6 — Canada) case, the amount of
the subsidy was calculated on the basis of the benefit conferred by the
loan, which was found to correspond to “the difference between the
amount Air Wisconsin pays on the loan from EDC and the amount Air
Wisconsin would pay on a comparable commercial loan which that company
could actually obtain on the market” (Decision by the Arbitrator, Canada
— Aircraft Credits and Guarantees (Article 22.6 — Canada), para.
3.60). back to text
388. (footnote original) In Brazil — Aircraft
(Article 22.6 — Brazil), both parties suggested that the
calculation could be based on the amount of the subsidy. The arbitrator
considered that this was “appropriate”. The arbitrator however also
noted that it was of the view that “a calculation based on the level
of nullification or impairment would, as suggested by the calculation of
Canada based on the harm caused to its industry, produce higher figures
than one based exclusively on the amount of the subsidy” (Decision by
the Arbitrators, Brazil — Aircraft (Article 22.6 — Brazil),
para. 3.54.)
In US — FSC (Article 22.6 — US), the requesting
Member sought an authorization to take countermeasures based on the
amount expended by the subsidizing Member (the United States) in
granting the subsidy. The arbitrator, having previously determined that
the terms of Article 4.10 of the SCM Agreement did not constrain
countermeasures to trade effects, first considered the proposed
countermeasures in relation to the prohibited subsidy, and considered
that the countermeasures proposed by the European Communities could be
considered “appropriate” within the meaning of Article 4.10 of the SCM
Agreement, “on the basis of their relation to the initial
violating measure”. The arbitrator nonetheless then continued its
analysis and considered the proposed countermeasures on the basis of
their relation to the trade effects of the subsidy on the European
Communities, recalling its earlier findings that it had not interpreted
Article 4.10 “to preclude a Member from taking countermeasures that
are tailored to counter the adverse effects it has suffered as a result
of the illegal measure” and that “the expression ‘appropriate
countermeasures’, in [its] view, would entitle the complaining Member
to countermeasures which would at least counter the injurious effect of
the persisting illegal measure on it.”
In Canada — Aircraft
Credits and Guarantees (Article 22.6 — Canada), the Arbitrator
first considered the approach proposed by the requesting Member
(Brazil), based on the adverse trade effects of the subsidy on Brazil on
the basis of lost sales/ competitive harm. It was only after determining
that the assumptions underlying the methodology proposed by the
requesting Member were not valid and that this proposed methodology did
not justify the level of countermeasures, that the arbitrator turned to
a calculation of the “appropriate” countermeasures based on the
amount of the subsidy. As we understand the ruling of the arbitrator in
that case, it did not exclude, a priori, that a calculation based on the
trade effects could be the basis for “appropriate countermeasures”.
Rather, it is only because it was not persuaded that the actual
calculation of trade effects proposed by the requesting Member
accurately reflected these trade effects, that it discarded the approach
based on trade effects as proposed by the requesting Member.
back to text
389. (footnote original) See Decision by the Arbitrators, Brazil
— Aircraft (Article 22.6 — Brazil), para. 3.54: “given that
export subsidies usually operate with a multiplying effect, (a given
amount allows a company to make a number of sales, thus gaining a
foothold in a given market with the possibility to expand and gain
market shares), we are of the view that a calculation based on the level
of nullification or impairment would, as suggested by the calculation of
Canada based on the harm caused to its industry, produce higher figures
than one based exclusively on the amount of the subsidy”. This passage
is also cited by the arbitrator in US — FSC (Article 22.6 — US),
at footnote 88 of its Decision. back to text
390. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), paras. 4.132–4.137.
back to text
391. (footnote original) We note that
Article 3.7 of the
DSU refers to the “withdrawal of the measures concerned” as a first
objective. However, we also note that, contrary to Article 3.7 of the
DSU, Article 4.7 of the SCM Agreement does not provide for any other
alternative than the withdrawal of the measure once it has been found to
be a prohibited subsidy. back to text
392. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 3.47–3.48. back to text
393. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), para. 3.49. back to text
394. (footnote original) We are mindful of the fact that,
from the point of view of a textual interpretation, “equivalent” and
“appropriate” should not be given the same meaning. Interpreters are
not permitted to assume such a thing. What we mean is that the term “appropriate”,
read in the light of footnotes 9 and 10, may allow for more leeway than
the word “equivalent” in terms of assessing the appropriate level of
countermeasures. A countermeasure remains “appropriate” as long as
it is not disproportionate, having also regard to the fact that
the measure at issue is a prohibited subsidy. back to text
395. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), para. 3.51. back to text
396. (footnote original) We are aware of the provisions of
Article 31 of the SCM Agreement and that Members took no action
to extend the application of the provisions of Articles 8 and
9 of the
Agreement concerning non-actionable subsidies beyond the period of five
years from the date of entry into force of the WTO Agreement.
However, these provisions can nevertheless be helpful, in our view, in
understanding the overall architecture of the Agreement with respect to
the different types of subsidies it sought and seeks to address.
back to text
397. (footnote original) See for example the reports of
the Appellate Body in India — Quantitative Restrictions,
WT/DS90/AB/R, DSR 1999:IV, 1763, para 94; EC — Hormones,
WT/DS26/AB/R, and WT/DS48/AB/R, DSR 1998:I, 135, para. 181; India —
Patents (US), WT/DS50/AB/R, DSR 1998:I, 9, para. 45.
back to text
398. (footnote original) See for example the reports of
the Appellate Body on US — Gasoline, WT/DS2/AB/R, DSR 1996:I,
3, at 21 and Korea — Dairy, WT/DS98/AB/R, DSR 2000:I, 3, para.
81. back to text
399. (footnote original) See paras. 4.24–4.26 above.
back to text
400. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), paras 5.32–5.34 and 5.41. back to text
401. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), paras. 5.47–5.50. back to text
402. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), paras. 6.31 and 6.60. back to text
403. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), paras. 5.61–5.62. back to text
404. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), para. 3.62. xxx indicates confidential
information. back to text
405. (footnote original) Appellate Body Report on Brazil
— Aircraft (Article 21.5 — Canada), para. 82(a).
back to text
406. (footnote original) This clarification is made in
relation to the use by the Arbitrators of the delivery data provided by
Brazil rather than on information relating specifically to the issuance
of the NTN-I bonds. Our choice is consistent with the factual finding of
the Original Panel (Op. Cit., para. 7.71) and the Appellate Body
report in the original proceedings (Op. Cit. para. 154).
back to text
407. (footnote original) See Article 27 of the Vienna
Convention:
“A party may not invoke the provisions of its internal law
as justification for the failure to perform a treaty. […]”
back to text
408. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 3.64–3.65. back to text
409. (footnote original) See Article 22.6 arbitrations in EC
— Hormones (Article 22.6 — EC), para. 12. back to text
410. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), para. 3.18. back to text
411. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), para. 4.25. back to text
412. (footnote original) Op. Cit., para. 65.
back to text
413. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), para. 3.57. back to text
414. (footnote original) On the notion of “difference”,
see Report of the Appellate Body on Guatemala — Anti-Dumping
Investigation Regarding Portland Cement from Mexico (“Guatemala
— Cement I”), WT/DS60/AB/R, adopted 25 November 1998, DSR
1998:IX, paras. 65 and 66. back to text
415. Decision by the Arbitrators, US — FSC (Article 22.6 —
US), para. 2.6. back to text
416. (footnote original) See also how this issue is
addressed in the decisions by the arbitrators in EC — Hormones
(Article 22.6 — EC), paras. 8 to 11. back to text
417. (footnote original) See WT/DS/46/16.
back to text
418. (footnote original) This approach is similar to those
followed in the arbitrators’ decisions in EC — Bananas (1999) and
EC — Hormones (Article 22.6 — EC). back to text
419. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 2.8–2.9. back to text
420. (footnote original) Decision by the Arbitrator, US
— FSC (Article 22.6 — US), para. 2.11. back to text
421. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), paras. 4.22–4.23. back to text
422. (footnote original) See preceding paragraph, where we
apply a presumption of good faith to statements and evidence originating
in subjects of international law (on production and appraisal of
evidence, see, inter alia, International Court of Justice (“ICJ”)
judgement of 9 April 1949 Corfu Channel Case, ICJ Reports 1949,
p. 32; ICJ judgement of 11 September 1992 Land, Island and Maritime
Frontier Dispute (El Salvador v. Honduras, Nicaragua intervening),
ICJ Reports 1992, p. 399, para. 63; ICJ judgement on merits Military
and Paramilitary Activities in and Against Nicaragua (Nicaragua v.
United States of America), ICJ Reports 1986, p. 40, para. 60.
back to text
423. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 2.10–2.11. back to text
424. Panel Report, US — FSC (Article 22.6 — US), paras.
5.32–5.34. back to text
425. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), para. 4.98. back to text
426. (footnote original) Appellate Body on Guatemala —
Cement I, para. 65. back to text
427. (footnote original) Canada mentioned that it could
have applied a counter-subsidy but refrained from doing so for a number
of reasons. back to text
428. Decision by the Arbitrators, Brazil — Aircraft (Article
22.6 — Brazil), paras. 3.57–3.59. back to text
429. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), para. 4.97. back to text
430. Panel Report, US — Offset Act (Byrd Amendment),
para. 7.106. back to text
431. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, para. 686. back to text
432. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, para. 713. back to text
433. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 769–777. back to text
434. Panel Report, EC and certain member States — Large Civil
Aircraft, paras. 7.1693–7.1694. back to text
435. Panel Report, EC and certain member States — Large Civil
Aircraft, paras. 7.2068, 7.2080. back to text
436. Panel Report, US — Offset Act (Byrd Amendment),
paras. 7.118–119. back to text
437. Panel Report, US — Offset Act (Byrd Amendment),
para. 7–122. back to text
438. Panel Report, US — Offset Act (Byrd Amendment),
para. 7–123. back to text
439. Panel Report, US — Offset Act (Byrd Amendment),
para. 7–124. back to text
440. Panel Report, US — Offset Act (Byrd Amendment),
para. 7–127. back to text
441. Panel Report, US — Upland Cotton,
paras. 7.1392–1395.
back to text
442. Panel Report, US — Upland Cotton,
paras. 7.1414–7.1415.
See also Panel Report, Korea — Commercial Vessels,
para. 7.525.
back to text
443. Panel Report, US — Upland Cotton,
paras. 7.1414–7.1415.
back to text
444. Panel Report, Indonesia — Autos,
para. 14.198.
back to text
445. Panel Report, Indonesia — Autos,
para. 14.201.
back to text
446. Panel Report, Indonesia — Autos,
paras. 14.254–14.255.
back to text
447. Panel Report, Korea — Commercial Vessels,
para.
7.572. back to text
448. Panel Report, Korea — Commercial Vessels,
para.
7.576. back to text
449. Panel Report, Korea — Commercial Vessels,
para.
7.578. back to text
450. Panel Report, Korea — Commercial Vessels,
para.
7.582. back to text
451. Panel Report, Korea — Commercial Vessels,
para.
7.583. back to text
452. Panel Report, Korea — Commercial Vessels,
para.
7.593. back to text
453. Panel Report, US — Upland Cotton,
para. 10.255.
back to text
454. (footnote original) Appellate Body Report, US — Upland Cotton,
para. 438; Appellate Body Report, US — Upland Cotton
(Article 21.5 — Brazil), para. 374. back to text
455. Appellate Body Report, US — Upland Cotton,
para.
437. back to text
456. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, para. 1232. back to text
457. Panel Report, Korea — Commercial Vessels,
para.
7.604. back to text
458. Panel Report, Korea — Commercial Vessels,
para.
7.612. back to text
459. Panel Report, Korea — Commercial Vessels,
para.
7.615. back to text
460. Panel Report, US — Upland Cotton,
para. 10.49.
back to text
461. Appellate Body Report, US — Upland
Cotton (Article 21.5
— Brazil), paras. 370–372. back to text
462. Appellate Body Report, US — Upland
Cotton (Article 21.5
— Brazil), paras. 374 and 375. The Appellate Body explained that a
“but for” test may be “too undemanding” if the subsidy is “necessary,
but not sufficient, to bring about” a market phenomenon, and “too
rigorous if it required the subsidy to be the only cause.” Instead,
the “but for” test should determine that there is a “genuine and
substantial relationship of cause and effect”. (Ibid., para.
374) back to text
463. (footnote original) Appellate
Body Report, US — Upland Cotton (Article 21.5 — Brazil), para. 374.
back to text
464. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1233–1234. back to text
465. (footnote original) Of course, factors such as these
presumably would be relevant in all types of serious prejudice cases.
back to text
466. (footnote original) For example, in a case involving
alleged significant suppression or depression of the price for a given
kind of narrowly-defined product due to product-specific subsidization
of a physically identical product produced by another Member, product
definition issues presumably would figure little if at all in respect of
the evidence necessary to demonstrate causation. The situation
presumably would be quite different where the alleged subsidy was in
respect of an input product, while significant price suppression or
depression was alleged in respect of a downstream product of the
complainant, or where a subsidy in respect of one product was alleged to
cause significant price suppression or depression in respect of a
completely unrelated product. Clearly in the latter two cases, product
definition issues would create a significant, if not insurmountable,
evidentiary hurdle in respect of causation. back to text
467. Panel Report, Korea — Commercial Vessels,
para.
7.560. back to text
468. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), para. 10.133. back to text
469. Appellate Body Report, US — Upland Cotton,
para.
437. back to text
470. Panel Report, Korea — Commercial Vessels,
para.
7.617. back to text
471. Panel Report, Korea — Commercial Vessels,
para.
7.618. back to text
472. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), para. 10.243. back to text
473. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), para. 10.243. back to text
474. (footnote original) Panel Report, para. 10.243.
back to text
475. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), paras. 373 — 375 and 378. back to text
476. Appellate Body Report, US — Upland Cotton,
para.
431. back to text
477. Appellate Body Report, US — Upland Cotton,
paras.
432–434. back to text
478. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), para. 10.46. back to text
479. Appellate Body Report, US — Upland Cotton,
para.
433. back to text
480. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), para. 354. back to text
481. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), para. 361. back to text
482. (footnote original) See Appellate Body Report, US — Upland Cotton,
para. 431; and Appellate Body Report, US —
Upland Cotton (Article 21.5 — Brazil), para. 354.
back to text
483. (footnote original) Appellate Body Report, US —
Upland Cotton (Article 21.5 — Brazil), para. 354.
back to text
484. (footnote original) The Appellate Body made that
statement in a case involving a claim of price suppression under Article
6.3(c) of the SCM Agreement. The Appellate Body also suggested
that the same difficulty could apply to claims of displacement or
impedance under Articles 6.3(a) and (b) of the SCM Agreement:
Similarly, it might be difficult to ascertain whether imports or exports
are “displace[d]” or “impede[d]” under paragraphs (a) or
(b) of
Article 6.3 of the SCM Agreement without considering the effect
of the challenged subsidy.
(Appellate Body Report, US — Upland Cotton, footnote 521 to para. 433) back to text
485. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1107–1109. back to text
486. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), para. 351. back to text
487. Panel Report, Korea — Commercial Vessels,
paras.
7.536–537. back to text
488. (footnote original) See Appellate Body Report, US
— Upland Cotton (Article 21.5 — Brazil), para. 357.
back to text
489. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, para. 1110. back to text
490. Appellate Body Report, US — Upland Cotton,
paras.
461, 465 and 467. back to text
491. Panel Report, Indonesia — Autos,
para. 14.206.
back to text
492. Appellate Body Report, US — Upland Cotton,
paras.
477–478. back to text
493. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), para. 392. back to text
494. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), para. 10.18. back to text
495. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), para. 10.18. The Panel added in footnote 199 of its Report
that “the failure to take into account relevant and available data
placed before us pertaining to the period since July 2006 would not be
consistent with the requirement under Article 11 of the DSU that a panel
“make an objective assessment of the matter before it, including an
objective assessment of the facts of the case…”.
back to text
496. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1236–1238. back to text
497. (footnote original) For example,
Article 15 of the SCM
Agreement deals with the determination of injury in a countervailing
duty investigation. Article 15.1 requires a determination of injury to
be based “on positive evidence and involve an objective examination of
both (a) the volume of the subsidized imports and the effect of the subsidized
imports on prices in the domestic market for like products and (b)
the consequent impact of these imports on the domestic producers
of such products.” (emphasis added, footnotes omitted). Article 15.2
states, in part: “… With regard to the effect of the subsidized
imports on prices, the investigating authorities shall consider
whether there has been a significant price undercutting by the
subsidized imports as compared with the price of a like product of the
importing Member, or whether the effect of such imports is
otherwise to depress prices to a significant degree or to prevent price
increases, which otherwise would have occurred, to a significant degree.”
(emphasis added) Similar additional references to the “effects of the
imports”; “impact of the subsidized imports”, “the effect of the
subsidized imports” also exist in Article 15.
Article 15.5 stipulates:
“It must be demonstrated that the subsidized imports are, through
the effects of subsidies, causing injury within the meaning
of this Agreement. The demonstration of a causal relationship between
the subsidized imports and the injury to the domestic industry shall be
based on an examination of all relevant evidence before the authorities.”
(emphasis added, footnotes omitted).
Other provisions in Part V of the SCM
Agreement contain similar references to “through the effects of
the subsidy, subsidized imports are causing injury …” e.g. Article
19.1. back to text
498. Panel Report, US — Upland Cotton,
para. 7.1227.
back to text
499. Panel Report, US — Upland Cotton,
para. 7.1192.
back to text
500. Panel Report, EC and certain member States — Large Civil
Aircraft, para. 7.1956. back to text
501. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1377–1379. back to text
502. Panel Report, Indonesia — Autos, para. 14.218.
back to text
503. Panel Report, Indonesia — Autos,
para. 14.208.
back to text
504. Panel Report, Indonesia — Autos,
paras. 14.210–14.211.
back to text
505. (footnote original) The term “displace” is
defined as to “remove; replace with something else[0]; take the place
of, supplant”. (The New Shorter Oxford English Dictionary, 4th
edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 698)
back to text
506. (footnote original) The term “impede” is defined
as to “obstruct, hinder”. (The New Shorter Oxford English
Dictionary, 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1,
p. 1319) back to text
507. (footnote original) There also could be situations
where displacement and impedance overlap. However, in the light of the
principle of effective treaty interpretation, a distinction needs to be
made as to the concepts covered by each term. (See Appellate Body
Report, US — Gasoline, p. 23, DSR 1996:I, 3, at 21; and
Appellate Body Report, Japan — Alcoholic Beverages II, p. 12,
DSR 1997:I, 97, at 106) back to text
508. (footnote original) Appellate Body Report, US —
Upland Cotton (Article 21.5 — Brazil), para. 351. In the original
proceedings, the panel described “price suppression” as the
situation where prices “either are prevented or inhibited from rising
(i.e. they do not increase when they otherwise would have) or they do
actually increase, but the increase is less than it otherwise would have
been”, and defined “price depression” as the situation where
prices “are pressed down, or reduced.” (Panel Report, US —
Upland Cotton, para. 7.1277). The Appellate Body recognized that
situations where prices are prevented or inhibited from rising and the
situation where “prices” are pressed down, or reduced, could
overlap, but it also pointed out that Article 6.3(c) mentioned price
suppression and price depression as distinct concepts.
In US —
Upland Cotton (Article 21.5 — Brazil), the Appellate Body noted
that “price depression is a directly observable phenomenon, [whereas]
price suppression is not so. Falling prices can be observed; by
contrast, price suppression concerns whether prices are less than they
would otherwise have been in consequence of various factors, in this
case, the subsidies. The identification of price suppression, therefore,
presupposes a comparison of an observable factual situation (prices)
with a counterfactual situation (what prices would have been)
where one has to determine whether, in the absence of the subsidies …,
prices would have increased or would have increased more than they
actually did. (Appellate Body Report, US — Upland Cotton (Article
21.5 — Brazil), para. 351 (emphasis added)) back to text
509. (footnote original) We note that there may be
situations in which the imports or exports of the like product of the
complaining Member are declining, but are declining by more than they
otherwise would. To the extent that there is an observable decline in
the imports or exports, it could be considered a situation of
displacement. At the same time, there is an aspect of the decline that
is not directly observable — the decline is sharper than it would
otherwise have been. In this respect, this situation could be considered
one of impedance. These issues, however, are not before us given the
manner in which the United States framed its case.
back to text
510. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1160–1162. back to text
511. Appellate Body Report, US — Upland Cotton, para.
490. back to text
512. Panel Report, US —
Upland Cotton, para. 7.1326.
back to text
513. Panel Report, US —
Upland Cotton, paras. 7.1329–7.1330.
back to text
514. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), para. 416. back to text
515. Panel Report, Korea — Commercial Vessels, para.
7.571. back to text
516. Panel Report, EC and certain member States — Large
Civil Aircraft, para. 7.1845. back to text
517. Panel Report, Indonesia — Autos,
para. 14.254.
back to text
518. Panel Report, US —
Upland Cotton, para. 7.1279.
back to text
519. Panel Report, US —
Upland Cotton, para. 7.1280.
back to text
520. Appellate Body Report, US — Upland Cotton,
para.
424. back to text
521. Panel Report, US —
Upland Cotton, para. 7.1277.
back to text
522. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), para. 351. back to text
523. Panel Report, Korea — Commercial Vessels,
paras.
7.536–537. back to text
524. (footnote original) The New Shorter Oxford English
Dictionary, 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1,
p. 1632. back to text
525. (footnote original) The United States asserted before
the Panel that a “‘lost’ sale is any sale that is captured by the
subsidized product instead of the product of the complaining Member.”
(Panel Report, para. 7.1797 (quoting United States’ first written
submission to the Panel, para. 776)) back to text
526. (footnote original) Appellate Body Report, US — Upland Cotton,
para. 407. back to text
527. (footnote original) Appellate Body Report, US — Upland Cotton,
para. 408. back to text
528. (footnote original) The term “significant” also
appears in the first clause of Article 6.3(c), which describes “price
undercutting”. back to text
529. (footnote original) At the oral hearing, both
participants agreed that the lost sales, within the meaning of Article
6.3(c) of the SCM Agreement, must be “significant”.
back to text
530. (footnote original) We recognize that
Article 6.3(c)
of the SCM Agreement refers to “lost sales” in the plural.
While the United States’ allegations of lost sales in this case
related to individual sales campaigns, each of these campaigns involved
the sale of a number of LCA. We are therefore in this case not faced
with the question whether Article 6.3(c) can be invoked in relation to
an allegedly lost sale of a single unit of a product.
back to text
531. (footnote original) As the Appellate Body explained
in US — Upland Cotton:
The only express qualification on the
type of “market” referred to in Article 6.3(c) is that it must be
“the same” market. Aside from this qualification … Article 6.3(c)
imposes no explicit geographical limitation on the scope of the relevant
market. This contrasts with the other paragraphs of Article 6.3… We
agree with the Panel that this difference may indicate that the drafters
did not intend to confine, a priori, the market examined under Article 6.3(c)
to any particular area. Thus, the ordinary meaning of the
word “market” in Article 6.3(c), when read in the context of the
other paragraphs of Article 6.3, neither requires nor excludes the
possibility of a national market or a world market.
(Appellate Body Report, US — Upland Cotton,
para. 406 (footnotes omitted))
back to text
532. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1214–1218. back to text
533. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, para. 1220. back to text
534. Appellate Body Report, US — Upland Cotton,
para.
410. back to text
535. Appellate Body Report, US — Upland Cotton,
para.
406. back to text
536. Appellate Body Report, US — Upland Cotton,
paras.
408–409. back to text
537. Panel Report, Korea — Commercial Vessels,
para.
7.562. back to text
538. Panel Report, Korea — Commercial Vessels,
para.
7.564. back to text
539. (footnote original) EC — Sugar Exports (Brazil) para.
V.(f), and EC — Sugar Exports (Australia), para. 4.9.
back to text
540. Panel Report, Korea — Commercial Vessels,
para.
7.565. back to text
541. Panel Report, Korea — Commercial Vessels,
para.
7.566. back to text
542. (footnote original) A similar argument can be made
with respect to impedance. back to text
543. (footnote original) The term “market” has been
defined as “[g]enerally, any context in which the sale and purchase
of goods and services takes place.” (Macmillan Dictionary of Modern
Economics, 4th edn, D. W. Pearce, J. Cairns, R. Elliot, I.
McAvinchey, R. Shaw (eds) (Palgrave McMillan, 1992), p. 266) Another
definition of the term “market” is “[a] collection of homogenous
transactions. A market is created whenever potential sellers of a
product are brought into contact with potential buyers and a means of
exchange.” (Dictionary of Economics, 2nd edn, G. Bannock, R. E.
Baxter, E. Davis (eds) (The Economist Books, 1999), p. 262). See also
European Court of Justice, Judgment, Case 27/76, United Brands
Company and United Brands Continental BV v. Commission [1978] ECR
207; and US Supreme Court, Brown Shoe Co., Inc. v. United
States, 370 US 294 (1962). The recently revised merger guidelines
issued by the US Department of Justice and the Federal Trade Commission
also provide a useful reference for understanding the word “market”.
(See US Department of Justice and the Federal Trade Commission, Horizontal
Merger Guidelines, 19 August 2010) The term “market” has also
been defined for purposes of EU competition law. (See European
Commission Notice on the definition of relevant market for the purposes
of Community competition law, published in the Official
Journal of the European Communities, C Series, No. 372 (9 December
1997)) One commentator submits that a market definition, both from a
product and geographical point of view, “is not of interest by itself,
but only as a preliminary step towards the objective of assessing the
market power of the firms under analysis.” (M. Motta, Competition
Policy: Theory and Practice, p. 101) Thus, since a market definition
“is instrumental only to the assessment of market power, the relevant
market should not be a set of products, which ‘resemble’ each other
on the basis of some characteristics, but rather the set of products
(and geographical areas) that exercise some competitive constraint on
each other.” (Ibid., p. 102) back to text
544. (footnote original) Motta, supra, footnote
562, p. 103. A test that is commonly used to ascertain whether two
products exercise competitive constraint on each other, and thus “should
guide the analysis of market definition in both the product and the
geographic dimension”, is the so-called “Small but Significant
Non-Transitory Increase in Prices” test (“SSNIP”, also described
as the “hypothetical monopolist” test). (Ibid., p. 102) Put
simply, this test asks whether or not a hypothetical seller of a certain
product would find it profitable to raise the price of that product by a
certain amount. If the price increase is found to be profitable, this
would generally indicate that the product does not face significant
competitive constraint from other products, and that it should therefore
be considered to be in a separate market. Conversely, if the increase in
price is found not to be profitable, this indicates that the product
should not be considered to be in a separate market, as there exist
other products that exercise competitive constraint on the seller. The
test should, in such cases, continue to consider a wider market until a
profitable hypothetical price increase is found, thus indicating the
scope of the relevant market. (Ibid., p. 105)
back to text
545. (footnote original) Appellate Body Report, US — Upland Cotton,
para. 408. back to text
546. (footnote original) Appellate Body Report, US — Upland Cotton,
para. 408. back to text
547. Appellate Body Report, EC and certain member States —
Large Civil Aircraft, paras. 1119–1123. back to text
548. Panel Report, US —
Upland Cotton, para. 7.1464.
back to text
549. Panel Report, US —
Upland Cotton, para. 7.1455.
back to text
550. Panel Report, Indonesia — Autos,
para. 15.3.
back to text
551. Panel Report, US — Upland Cotton (Article 21.5 —
Brazil), paras. 9.77–9.79. back to text
552. Appellate Body Report, US — Upland Cotton (Article 21.5
— Brazil), paras. 236–238. back to text
553. (footnote original) Oxford English Dictionary,
at www.oed.com. back to text
554. (footnote original) Merriam Webster Dictionary,
at www.merriamwebster.com. back to text
555. (footnote original) http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf. back to text
556. (footnote original) See Decision by the Arbitrator, US
— FSC (Article 22.6 — US), para. 5.58. back to text
557. (footnote original) We also note however that, by
their own terms, the Articles of the ILC on State Responsibility do not
purport to prevail over any specific provisions relating to the areas it
covers that would be contained in specific legal instruments. We note in
particular the following Commentary of the ILC:
“In common with other
chapters of these articles, the provisions on countermeasures are
residual and may be excluded or modified by a special rule to the
contrary (see article 55). Thus, a treaty provision precluding the
suspension of performance of an obligation under any circumstances will
exclude countermeasures with respect to the performance of the
obligation. Likewise, a regime for dispute resolution to which States
must resort in the event of a dispute, especially if (as with the WTO
dispute settlement system) it requires an authorization to take measures
in the nature of countermeasures in response to a proven breach.”
back to text
558. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.24–4.32. back to text
559. (footnote original) Merriam Webster Dictionary online,
at www.merriamwebster.com back to text
560. (footnote original) Shorter Oxford English
Dictionary, p. 459. back to text
561. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.36–4.39. back to text
562. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.41–4.47. back to text
563. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.49–4.53. back to text
564. (footnote original) See Appellate Body Report, US
— Continued Suspension, para. 309. back to text
565. (footnote original) See Decision by the Arbitrator, US
— FSC (Article 22.6 — US), para. 5.57; Decision by the
Arbitrator, Canada — Aircraft Credits and Guarantees (Article 22.6
— Canada), paras. 3.47–3.48; Decision by the Arbitrator, Brazil
— Aircraft (Article 22.6 — Brazil), paras. 3.44, 3.54, 3.57 and
3.58. back to text
566. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.57–4.59. back to text
567. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.8, 4.16. back to text
568. (footnote original) See Decision of the Arbitrator, Brazil
— Aircraft (Article 22.6 — Brazil), paras. 2.8–2.9.
back to text
569. (footnote original) Decision of the Arbitrator, US
— FSC (Article 22.6 — US), para. 2.11. back to text
570. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), paras. 4.12–4.14. back to text
571. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US II), para. 4.19. back to text
572. Panel Report, US — FSC (Article 22.6 — US), paras.
5.32–5.34. back to text
573. Decision by the Arbitrators, US — Upland Cotton
(Article 22.6 — US I), para. 4.98. back to text
574. WT/MIN(01)/17. back to text
575. (footnote original) paragraph 13 of the Doha
Ministerial Decision on Implementation reads as follows:
“13.
Outstanding Implementation Issues Agrees that outstanding implementation
issues be addressed in accordance with paragraph 12 of the Ministerial
Declaration (WT/MIN(01)/DEC/1).” back to text
576. Panel Report, US — Large Civil Aircraft (2nd complaint),
para 958. back to text
577. G/SCM/14. back to text
578. G/SCM/14, para. 3. back to text
579. G/SCM/14. back to text
580. G/SCM/14,
para. 1. back to text
581. G/SCM/13. back to text
582. G/SCM/13, para. 1. back to text
583. Procedures for Arbitration under Article 8.5 of the SCM
Agreement, G/SCM/19, para. 1. back to text
584. WT/MIN(01)/17. back to text
585. G/SCM/45. See also relevant sections of prior Chairman’s
reports in G/SCM/36 and G/SCM/38. back to text
586. WT/GC/M/75, Item 16. back to text
587. Panel Report, US — Lead and Bismuth II, para. 6.56.
back to text
588. Panel Report, US — Lead and Bismuth II,
para. 6.56.
back to text
589. Panel Report, US — Lead and Bismuth II,
para. 6.56.
back to text
590. Panel Report, US — Countervailing Measures on Certain
EC Products, paras. 7.41–7.43. back to text
591. Appellate Body Report, US — Softwood Lumber IV,
para. 140. back to text
592. Appellate Body Report, US — Softwood Lumber IV,
para. 141. For a discussion of this case law, see the Panel Report, Mexico
— Olive Oil, paras. 7.130 — 7.142. back to text
593. Panel Report, Mexico
— Olive Oil, paras. 7.24 —
7.28. back to text
594. Appellate Body Report, Brazil — Desiccated Coconut,
p. 15. back to text
595. Appellate Body Report, US — Softwood Lumber IV,
paras. 156–157. back to text
596. Appellate Body Report, US — Softwood Lumber IV,
para. 159. back to text
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