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A.1.1 Article 1(a) and Annex 3 —
“Aggregate Measurement of Support” back to top
A.1.1.1 Korea — Various Measures on Beef,
para. 115
(WT/DS161/AB/R,
WT/DS169/AB/R)
… for purposes of
determining whether a Member has exceeded its commitment levels, Base
Total AMS, and the commitment levels resulting or derived therefrom, are
not themselves formulae to be worked out, but simply absolute figures
set out in the Schedule of the Member concerned. As a result, Current
Total AMS which is calculated according to Annex 3, is compared to the
commitment level for a given year that is already specified as a given,
absolute, figure in the Member’s Schedule.
A.1.2 Article 1(a)(ii) and Annex 3 — “AMS
commitments” back to top
A.1.2.1 Korea — Various Measures on Beef,
para. 112
(WT/DS161/AB/R,
WT/DS169/AB/R)
Looking at the wording of
Article 1(a)(ii) itself, it seems to us that this provision attributes
higher priority to “the provisions of Annex 3” than to the “constituent
data and methodology”. From the viewpoint of ordinary meaning, the
term “in accordance with” reflects a more rigorous standard than the
term “taking into account”.
A.1.2.2 Korea — Various Measures on Beef,
para. 114
(WT/DS161/AB/R,
WT/DS169/AB/R)
In the circumstances of the
present case, it is not necessary to decide how a conflict between “the
provisions of Annex 3” and the “constituent data and methodology
used in the tables of supporting material incorporated by reference in
Part IV of the Member’s Schedule” would have to be resolved in
principle. As the Panel has found, in this case, there simply are no
constituent data and methodology for beef. Assuming arguendo that
one would be justified — in spite of the wording of Article 1(a)(ii)
— to give priority to constituent data and methodology used in the tables
of supporting material over the guidance of Annex 3, for products
entering into the calculation of the Base Total AMS, such a step would
seem to us to be unwarranted in calculating Current AMS for a product
which did not enter into the Base Total AMS calculation. …
A.1.3 Article 1(e) — “subsidy”
back to top
A.1.3.1 Canada — Dairy, para. 87
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
… Correspondingly, a “subsidy”
involves a transfer of economic resources from the grantor to the
recipient for less than full consideration. As we said in our Report in Canada
— Aircraft, a “subsidy”, within the meaning of Article 1.1 of
the SCM Agreement, arises where the grantor makes a “financial
contribution” which confers a “benefit” on the recipient, as
compared with what would have been otherwise available to the recipient
in the marketplace. …
A.1.3.2 US — FSC, para. 137
(WT/DS108/AB/R)
Therefore, in this case, we
will consider, first, whether the FSC measure involves a transfer of
economic resources by the grantor, which in this dispute is the
government of the United States, and, second, whether any transfer of
economic resources involves a benefit to the recipient.
A.1.3.3 US — FSC (Article 21.5
— EC), para. 194
(WT/DS108/AB/RW)
… We have rejected the
United States’ appeal regarding the proper characterization of the
measure under Article 3.1(a) of the SCM Agreement. The
Panel held, and we have upheld, that the measure involves the foregoing
of revenues that are otherwise due under Article 1.1(a)(ii) of the SCM Agreement. As we indicated in US — FSC, where a
government foregoes revenues that are otherwise due in relation to
agricultural products, a subsidy may arise under the Agreement on
Agriculture. The fiscal treatment of agricultural products, under
the measure, is not materially different from the fiscal treatment of
products falling within the scope of the SCM Agreement.
Accordingly, we see no reason to reach any conclusion under the Agreement
on Agriculture that differs from our conclusion under the SCM Agreement. …
A.1.3.4 EC — Export Subsidies on Sugar,
para. 269
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The chapeau of Article 9.1
provides: “The following export subsidies are subject to reduction
commitments”. Hence, Article 9.1 sets forth a list of practices that,
by definition, involve export subsidies. In other words, a measure
falling within Article 9.1 is deemed to be an export subsidy within the
meaning of Article 1(e) of the Agreement on Agriculture. We
observe that Article 9.1(c) requires no independent enquiry into the
existence of a “benefit”.
A.1.4 Article 1(e) — “contingent upon export
performance” back to top
A.1.4.1 US — FSC, para. 141
(WT/DS108/AB/R)
… We see no reason, and none
has been pointed out to us, to read the requirement of “contingent
upon export performance” in the Agreement on Agriculture
differently from the same requirement imposed by the SCM Agreement.
The two Agreements use precisely the same words to define “export
subsidies”. Although there are differences between the export subsidy
disciplines established under the two Agreements, those differences do
not, in our view, affect the common substantive requirement relating to
export contingency. Therefore, we think it appropriate to apply the
interpretation of export contingency that we have adopted under the SCM Agreement to the interpretation of export contingency under the Agreement
on Agriculture. …
A.1.4.2 US — Upland Cotton, para. 571
(WT/DS267/AB/R)
Although an export subsidy
granted to agricultural products must be examined, in the first place,
under the Agreement on Agriculture, we find it appropriate, as
has the Appellate Body in previous disputes, to rely on the SCM
Agreement for guidance in interpreting provisions of the Agreement
on Agriculture. Thus, we consider the export-contingency requirement
in Article 1(e) of the Agreement on Agriculture having regard to
that same requirement contained in Article 3.1(a) of the SCM
Agreement.
A.1.4.3 US — Upland Cotton, para. 582
(WT/DS267/AB/R)
In sum, we agree with the
Panel’s view that Step 2 payments are export-contingent and,
therefore, an export subsidy for purposes of Article 9 of the Agreement
on Agriculture and Article 3.1(a) of the SCM Agreement. The
statute and regulations pursuant to which Step 2 payments are granted,
on their face, condition payments to exporters on exportation. In order
to claim payment, an exporter must show proof of exportation. If an
exporter does not provide proof of exportation, the exporter will not
receive a payment. This is sufficient to establish that Step 2 payments
to exporters of United States upland cotton are “conditional upon
export performance” or “dependent for their existence on export
performance”. That domestic users may also be eligible to receive
payments under different conditions does not eliminate the fact that an
exporter will receive payment only upon proof of exportation.
A.1.4.4 US — Upland Cotton, para. 615
(WT/DS267/AB/R)
… Article 1(e) of the Agreement
on Agriculture defines “export subsidies” as “subsidies
contingent upon export performance, including the export
subsidies listed in Article 9 of this Agreement”. (emphasis added) The
use of the word “including” suggests that the term “export
subsidies” should be interpreted broadly and that the list of export
subsidies in Article 9 is not exhaustive. Even though an export credit
guarantee may not necessarily include a subsidy component, there is
nothing inherent about export credit guarantees that precludes such
measures from falling within the definition of a subsidy. An export
credit guarantee that meets the definition of an export subsidy would be
covered by Article 10.1 of the Agreement on Agriculture because
it is not an export subsidy listed in Article 9.1 of that Agreement.
A.1.4A Article 3.1 — “export subsidy
commitments” back to top
A.1.4A.1 EC — Export Subsidies on Sugar,
paras. 166-167
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
A preliminary question for our
consideration is what rules apply in interpreting export subsidy
commitments specified in a Member’s Schedule under the Agreement on
Agriculture. We observe that Article II:7 of the General
Agreement on Tariffs and Trade 1994 (the “GATT 1994”) provides
that the “Schedules annexed to this Agreement are hereby made an
integral part of Part I of this Agreement.” Furthermore, Article 3.1
of the Agreement on Agriculture provides that “export subsidy
commitments in Part IV of each Member’s Schedule … are hereby made
an integral part of [the] GATT 1994”.
The applicable rules for
interpreting the provisions of the GATT 1994 are the “customary rules
of interpretation of public international law”. The Appellate Body has
held that these rules are codified in the Vienna Convention on the
Law of Treaties (the “Vienna Convention”). As provisions
of a Member’s Schedule are “part of the terms of the treaty”, they
are subject to these same rules of treaty interpretation. …
A.1.4B Article 3.1 — “commitments limiting
subsidization” back to top
A.1.4B.1 EC — Export Subsidies on Sugar,
para. 209
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… We do not see Article 3.1
as permitting a Member to limit subsidization to whatever commitment it
chooses to specify in its Schedule without regard to Members’
obligations under the Agreement on Agriculture. Rather, with
respect to export subsidy commitments, we see Article 3.1 as requiring a
Member to limit its subsidization to the budgetary outlay and quantity
reduction commitments specified in its Schedule in accordance with the
provisions of the Agreement on Agriculture. …
A.1.5 Article 3.3 — “export subsidies”
back to top
A.1.5.1 US — FSC, para. 132
(WT/DS108/AB/R)
… A finding of inconsistency
with Article 3.3 of the Agreement on Agriculture is dependent on
the Member having provided export subsidies listed in Article 9.1.
…
A.1.5.2 US — FSC, para. 152
(WT/DS108/AB/R)
As regards scheduled
products, when the specific reduction commitment levels have been
reached, the limited authorization to provide export subsidies as
listed in Article 9.1 is transformed, effectively, into a prohibition
against the provision of those subsidies. …
A.1.5A Article 3.3 — “budgetary outlay and
quantity commitment levels” back to top
A.1.5A.1 EC — Export Subsidies on Sugar,
paras. 193-194
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
By its terms, Article 3.3 of
the Agreement on Agriculture prohibits the granting of export
subsidies (listed in Article 9.1) in excess of the budgetary outlay and
quantity commitment levels specified in a Member’s Schedule. Article 3.3 does not, however, explicitly state that export subsidy commitments
must be specified in a Member’s Schedule in terms of both budgetary
outlay and quantity commitment levels. At the same time, Article 3.3 does not explicitly state that a Member may specify its commitment
level in terms of either of the two forms of commitments. In our view,
the use of the conjunctive “and”, and the corresponding use of the
word “levels” in the plural, suggest that the drafters of the
Agreement intended that both types of commitments must be specified in a
Member’s Schedule in respect of any export subsidy listed in Article 9.1. Had the drafters intended that a Member could specify one or the
other of the two forms of commitments, they would have chosen the
disjunctive “or” and correspondingly used the word “level” in
the singular. Given the choice, Members would choose only one or the
other type of commitment, but not both, so as to minimize their
obligations. Therefore, it appears to us that the drafters intended to
ensure that export subsidy commitments are specified in Members’
Schedules in terms of both budgetary outlay and quantity commitments, by
using the word “and” as well as the word “levels” in the text of
Article 3.3.
We find contextual support for
the above interpretation in Article 9.2(b)(iv) of the Agreement on
Agriculture, which provides:
(iv) the Member’s budgetary outlays for
export subsidies and the quantities benefiting from such subsidies, at
the conclusion of the implementation period, are no greater than 64 per
cent and 79 per cent of the 1986-1990 base period levels, respectively.
For developing country Members these percentages shall be 76 and 86 per
cent, respectively.
This provision prescribes the
export subsidy commitment levels to be reached at the conclusion of the
implementation period (and to be maintained thereafter), and those
commitment levels are expressed in terms of both budgetary outlays and
quantities. We do not see how a Member could comply with Article 9.2(b)(iv), or for that matter Article 9.2(a), without having specified
its export subsidy commitments in terms of both budgetary outlays and
quantities. We also consider it significant that both Article 9.2(b)(iii) and Article 9.2(b)(iv) use the expression “budgetary
outlays for export subsidies and the quantities benefiting from such
subsidies”. (emphasis added) This shows the drafters’
recognition of the need to address the budgetary outlays and quantities
together.
A.1.5A.2 EC — Export Subsidies on Sugar,
para. 196
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Our interpretation that
Article 3.3 (as well as Article 9.2) requires that export subsidy
commitments in a Member’s Schedule must be expressed in terms of both
budgetary outlay and quantity commitment levels is also in consonance
with the object and purpose of the Agreement on Agriculture. We
note, as did the Panel, that the third paragraph of the Preamble to the
Agreement recognizes that the “long-term objective” of WTO Members,
in initiating a reform process to deal with the distortions in the world
agricultural markets, is “to provide for substantial progressive
reductions in agricultural support and protection”. Pursuant to this
objective, the fourth paragraph of the Preamble expresses the commitment
of the WTO Members “to achieving binding commitments” in the three
specified areas, including “export competition”. An interpretation
that export subsidy commitments must be expressed in a Member’s
Schedule in terms of both budgetary outlay and quantity commitment
levels is more in harmony with the objectives stated in the Preamble to
the Agreement than an interpretation that a Member is only obliged to
fulfil “whatever commitments” it chooses to specify in its Schedule.
A.1.5A.3 EC — Export Subsidies on Sugar,
para. 197
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
We are also of the view that
if an export subsidy commitment were allowed to be specified in only one
form, budgetary outlay or quantity, as a Member may choose, and its
conformity were measured on the basis of that one commitment alone, it
would undermine the export subsidy disciplines of the Agreement on
Agriculture. As we noted above, the drafters recognized the need to
deal with budgetary outlays and quantities together in order to restrain
subsidized exports. A commitment on budgetary outlay alone provides
little predictability on export quantities, while a commitment on
quantity alone could lead to subsidized exports taking place that would
otherwise have not taken place but for the budgetary support. This is
especially so given that the Agreement on Agriculture has
initiated a reform process in an environment of high levels of export
subsidies taking the form of budgetary outlays and quantities. …
A.1.5A.4 EC — Export Subsidies on Sugar,
para. 200
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we agree with the Panel
that Article 3.3 requires a Member to schedule both budgetary outlay and
quantity commitment levels in respect of export subsidies listed in
Article 9.1 of the Agreement on Agriculture. …
A.1.6 Articles 3.3 and 10.1 — “export
subsidy commitments” back to top
A.1.6.1 US — FSC, para. 145
(WT/DS108/AB/R)
Under Article 3, Members have
undertaken two different types of “export subsidy commitments”.
Under the first clause of Article 3.3, Members have made a commitment
that they will not “provide export subsidies listed in paragraph 1 of
Article 9 in respect of the agricultural products or groups of products
specified in Section II of Part IV of its Schedule in excess of the
budgetary outlay and quantity commitments levels specified therein”.
…
A.1.6.2 US — FSC, paras. 146-147
(WT/DS108/AB/R)
Under the second clause of
Article 3.3, Members have committed not to provide any
export subsidies, listed in Article 9.1, with respect to unscheduled
agricultural products. This clause clearly also involves “export
subsidy commitments” within the meaning of Article 10.1. …
… The term “export subsidy
commitments” has a wider reach that covers commitments and obligations
relating to both scheduled and unscheduled agricultural products.
A.1.6.3 EC — Export Subsidies on Sugar,
para. 211
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we examine whether the
claimed commitment in Footnote 1 “limiting” subsidization of exports
of sugar can prevail over the provisions of the Agreement on
Agriculture, despite such a commitment being inconsistent with
Articles 3.3 and 9.1 of the Agreement on Agriculture. …
A.1.6.4 EC — Export Subsidies on Sugar,
para. 222
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… Footnote 1, being part of
the European Communities’ Schedule, is an integral part of the GATT
1994 by virtue of Article 3.1 of the Agreement on Agriculture.
Therefore, pursuant to Article 21 of the Agreement on Agriculture,
the provisions of the Agreement on Agriculture prevail over
Footnote 1. …
A.1.7 Article 4 — “market access”
back to top
A.1.7.1 Chile — Price Band System, para. 200
(WT/DS207/AB/R)
… we turn now to Article 4,
which is the main provision of Part III of the Agreement on
Agriculture. As its title indicates, Article 4 deals with “Market
Access”. During the course of the Uruguay Round, negotiators
identified certain border measures which have in common that they
restrict the volume or distort the price of imports of agricultural
products. The negotiators decided that these border measures should be
converted into ordinary customs duties, with a view to ensuring enhanced
market access for such imports. Thus, they envisioned that ordinary
customs duties would, in principle, become the only form of border
protection. As ordinary customs duties are more transparent and more
easily quantifiable than non-tariff barriers, they are also more easily
compared between trading partners, and thus the maximum amount of such
duties can be more easily reduced in future multilateral trade
negotiations. The Uruguay Round negotiators agreed that market access
would be improved — both in the short term and in the long term — through bindings and reductions of tariffs and minimum access
requirements, which were to be recorded in Members’ Schedules.
A.1.8 Article 4.1 — Market access commitments
contained in Schedules. See also Tariff Quotas — Non-discriminatory Administration (T.2) back to top
A.1.8.1 EC — Bananas III, para. 156
(WT/DS27/AB/R)
Article 4.1 of the Agreement
on Agriculture provides as follows:
Market access concessions contained in
Schedules relate to bindings and reductions of tariffs, and to other
market access commitments as specified therein.
In our view, Article 4.1 does
more than merely indicate where market access concessions and
commitments for agricultural products are to be found. Article 4.1
acknowledges that significant, new market access concessions, in the
form of new bindings and reductions of tariffs as well as other market
access commitments (i.e. those made as a result of the tariffication
process), were made as a result of the Uruguay Round negotiations on
agriculture and included in Members’ GATT 1994 Schedules. These
concessions are fundamental to the agricultural reform process that is a
fundamental objective of the Agreement on Agriculture.
A.1.8.2 EC — Bananas III, para. 157
(WT/DS27/AB/R)
… we do not see anything in
Article 4.1 to suggest that market access concessions and commitments
made as a result of the Uruguay Round negotiations on agriculture can be
inconsistent with the provisions of Article XIII of the GATT 1994. There
is nothing in Articles 4.1 or 4.2, or in any other Article of the Agreement
on Agriculture, that deals specifically with the allocation of
tariff quotas on agricultural products. …
A.1.8.3 US — Upland Cotton, para. 548
(WT/DS267/AB/R)
Our approach in this case is
consistent with the Appellate Body’s approach in EC — Bananas III.
In that case, the European Communities relied on Article 4.1 of the Agreement
on Agriculture in arguing that the market access concessions it made
for agricultural products pursuant to the Agreement on Agriculture
prevailed over Article XIII of the GATT 1994. The Appellate Body,
however, found that “[t]here is nothing in Articles 4.1 or 4.2, or in
any other Article of the Agreement on Agriculture, that deals
specifically with the allocation of tariff quotas on agricultural
products”. It further explained that “[i]f the negotiators had
intended to permit Members to act inconsistently with Article XIII of
the GATT 1994, they would have said so explicitly”. The situation
before us is similar. We have found nothing in Article 6.3, paragraph 7
of Annex 3 or anywhere else in the Agreement on Agriculture that
“deals specifically” with subsidies that are contingent on the use
of domestic over imported agricultural products.
A.1.9 Article 4.2 and Footnote 1 — Conversion
of certain border measures into ordinary customs duties
back to top
A.1.9.1 Chile — Price Band System, paras. 206-207
(WT/DS207/AB/R)
… Article 4.2 of the Agreement
on Agriculture should be interpreted in a way that gives meaning to
the use of the present perfect tense in that provision — particularly in
the light of the fact that most of the other obligations in the Agreement
on Agriculture and in the other covered agreements are expressed in
the present, and not in the present perfect, tense. In general,
requirements expressed in the present perfect tense impose obligations
that came into being in the past, but may continue to apply at present.
As used in Article 4.2, this temporal connotation relates to the date by
which Members had to convert measures covered by Article 4.2 into
ordinary customs duties, as well as to the date from which
Members had to refrain from maintaining, reverting to, or resorting to,
measures prohibited by Article 4.2. The conversion into ordinary customs
duties of measures within the meaning of Article 4.2 began during
the Uruguay Round multilateral trade negotiations, because ordinary
customs duties that were to “compensate” for and replace converted
border measures were to be recorded in Members’ draft WTO Schedules by
the conclusion of those negotiations. These draft Schedules, in
turn, had to be verified before the signing of the WTO Agreement
on 15 April 1994. Thereafter, there was no longer an option to replace
measures covered by Article 4.2 with ordinary customs duties in excess
of the levels of previously bound tariff rates. Moreover, as of the date
of entry into force of the WTO Agreement on 1 January
1995, Members are required not to “maintain, revert to, or resort to”
measures covered by Article 4.2 of the Agreement on Agriculture.
If Article 4.2 were to read
“any measures of the kind which are required to be converted”,
this would imply that if a Member — for whatever reason — had failed, by
the end of the Uruguay Round negotiations, to convert a measure within
the meaning of Article 4.2, it could, even today, replace
that measure with ordinary customs duties in excess of bound tariff
rates. But, as Chile and Argentina have agreed, this is clearly not so.
It seems to us that Article 4.2 was drafted in the present perfect tense
to ensure that measures that were required to be converted as a result
of the Uruguay Round — but were not converted — could not be maintained,
by virtue of that Article , from the date of the entry into force of the WTO Agreement on 1 January 1995.
A.1.10 Article 4.2 and Footnote 1 — Measures
of the kind back to top
A.1.10.1 Chile — Price Band System, para. 208
(WT/DS207/AB/R)
Thus, contrary to what Chile
argues, giving meaning and effect to the use of the present perfect
tense in the phrase “have been required” does not suggest that the
scope of the phrase “any measures of the kind which have been required
to be converted into ordinary customs duties” must be limited only to
those measures which were actually converted, or were requested
to be converted, into ordinary customs duties by the end of the Uruguay
Round. Indeed, in our view, such an interpretation would fail to give
meaning and effect to the word “any” and the phrase “of
the kind”, which are descriptive of the word “measures” in
that provision. A plain reading of these words suggests that the
drafters intended to cover a broad category of measures. We do not see
how proper meaning and effect could be accorded to the word “any”
and the phrase “of the kind” in Article 4.2 if that provision were
read to include only those specific measures that were singled out to be
converted into ordinary customs duties by negotiating partners in the
course of the Uruguay Round.
A.1.10.2 Chile — Price Band System, para. 209
(WT/DS207/AB/R)
The wording of footnote 1 to
the Agreement on Agriculture confirms our interpretation. … the
use of the word “include” in the footnote indicates that the list of
measures is illustrative, not exhaustive. And, clearly, the existence of
footnote 1 suggests that there will be “measures of the kind which
have been required to be converted” that were not specifically
identified during the Uruguay Round negotiations. …
A.1.10.3 Chile — Price Band System, para. 216
(WT/DS207/AB/R)
Article 4.2 speaks of “measures
of the kind which have been required to be converted into
ordinary customs duties”. The word “convert” means “undergo
transformation”. The word “converted” connotes “changed in their
nature”, “turned into something different”. Thus, “measures
which have been required to be converted into ordinary customs duties”
had to be transformed into something they were not — namely, ordinary
customs duties. The following example illustrates this point. The
application of a “variable import levy”, or a “minimum import
price”, as the terms are used in footnote 1, can result in the levying
of a specific duty equal to the difference between a reference price and
a target price, or minimum price. These resulting levies or specific
duties take the same form as ordinary customs duties. However,
the mere fact that a duty imposed on an import at the border is in the
same form as an ordinary customs duty, does not mean that it is not
a “variable import levy” or a “minimum import price”. Clearly,
as measures listed in footnote 1, “variable import levies” and “minimum
import prices” had to be converted into ordinary customs duties
by the end of the Uruguay Round. The mere fact that such measures result
in the payment of duties does not exonerate a Member from the
requirement not to maintain, resort to, or revert to those measures.
A.1.10.4 Chile — Price Band System, para. 278
(WT/DS207/AB/R)
… we disagree with the Panel’s
definition of “ordinary customs duties” and, therefore, we reverse
the Panel’s finding, in paragraph 7.52 of the Panel Report, that the
term “ordinary customs duty”, as used in Article 4.2 of the Agreement
on Agriculture, is to be understood as “referring to a customs
duty which is not applied to factors of an exogenous nature”.
A.1.11 Article 4.2 and Footnote 1 — Minimum
import price back to top
A.1.11.1 Chile — Price Band System, paras. 236-237
(WT/DS207/AB/R)
The term “minimum import
price” refers generally to the lowest price at which imports of a
certain product may enter a Member’s domestic market. Here, too, no
definition has been provided by the drafters of the Agreement on
Agriculture. However, the Panel described “minimum import prices”
as follows:
[these] schemes generally operate in relation
to the actual transaction value of the imports. If the price of an
individual consignment is below a specified minimum import price, an
additional charge is imposed corresponding to the difference.
The Panel also said that
minimum import prices “are generally not dissimilar from variable
import levies in many respects, including in terms of their protective
and stabilization effects, but that their mode of operation is generally
less complicated.” The main difference between minimum import prices
and variable import levies is, according to the Panel, that “variable
import levies are generally based on the difference between the governmentally
determined threshold and the lowest world market offer price for the
product concerned, while minimum import price schemes generally operate
in relation to the actual transaction value of the imports.”
(emphasis added)
A.1.12 Article 4.2 and Footnote 1 — Similar
border measures back to top
A.1.12.1 Chile — Price Band System, para. 226
(WT/DS207/AB/R)
We agree with the first part
of the Panel’s definition of the term “similar” as “having a
resemblance or likeness”, “of the same nature or kind”, and “having
characteristics in common”. … The better and appropriate approach is
to determine similarity by asking the question whether two or more
things have likeness or resemblance sufficient to be similar to each
other. In our view, the task of determining whether something is similar
to something else must be approached on an empirical basis.
A.1.13 Article 4.2 and Footnote 1
— Variable
import levies back to top
A.1.13.1 Chile — Price Band System, para. 233
(WT/DS207/AB/R)
To determine what kind
of variability makes an import levy a “variable import levy”, we
turn to the immediate context of the other words in footnote 1. The term
“variable import levies” appears after the introductory phrase “[t]hese
measures include”. Article 4.2 — to which the footnote is
attached — also speaks of “measures”. This suggests that at
least one feature of “variable import levies” is the fact that the measure
itself — as a mechanism — must impose the variability of the
duties. Variability is inherent in a measure if the measure incorporates
a scheme or formula that causes and ensures that levies change
automatically and continuously. Ordinary customs duties, by contrast,
are subject to discrete changes in applied tariff rates that occur
independently, and unrelated to such an underlying scheme or formula.
The level at which ordinary customs duties are applied can be varied
by a legislature, but such duties will not be automatically and
continuously variable. To vary the applied rate of duty in the
case of ordinary customs duties will always require separate
legislative or administrative action, whereas the ordinary meaning of
the term “variable” implies that no such action is required.
A.1.13.2 Chile — Price Band System, para. 234
(WT/DS207/AB/R)
However, in our view, the
presence of a formula causing automatic and continuous variability of
duties is a necessary, but by no means a sufficient,
condition for a particular measure to be a “variable import levy”
within the meaning of footnote 1. “Variable import levies” have
additional features that undermine the object and purpose of Article 4,
which is to achieve improved market access conditions for imports of
agricultural products by permitting only the application of ordinary
customs duties. These additional features include a lack of transparency
and a lack of predictability in the level of duties that will result
from such measures. This lack of transparency and this lack of
predictability are liable to restrict the volume of imports. As
Argentina points out, an exporter is less likely to ship to a market if
that exporter does not know and cannot reasonably predict what the
amount of duties will be. …
A.1.13.3 Chile — Price Band System, para. 254
(WT/DS207/AB/R)
… we find nothing in Article 4.2 to suggest that a measure prohibited by that provision would be
rendered consistent with it if applied with a cap. Before the conclusion
of the Uruguay Round, a measure could be recognized as a “variable
import levy” even if the products to which the measure applied were
subject to tariff bindings. And, there is nothing in the text of Article 4.2 to indicate that a measure, which was recognized as a “variable
import levy” before the Uruguay Round, is exempt from the requirements
of Article 4.2 simply because tariffs on some, or all, of the products
to which that measure now applies were bound as a result of the
Uruguay Round.
A.1.14 Article 5 — special safeguard
back to top
A.1.14.1 EC — Poultry, para. 153
(WT/DS69/AB/R)
… we interpret the “price
at which the product concerned may enter the customs territory of the
Member granting the concession, as determined on the basis of the c.i.f.
import price” in Article 5.1(b) as the c.i.f. import price not
including ordinary customs duties. …
A.1.14.2 EC — Poultry, para. 168
(WT/DS69/AB/R)
… neither the text nor the
context of Article 5.5 of the Agreement on Agriculture permits us
to conclude that the additional duties imposed under the special
safeguard mechanism in Article 5 of the Agreement on Agriculture
may be established by any method other than a comparison of the c.i.f.
price of the shipment with the trigger price.
A.1.14.3 Chile — Price Band System, para. 217
(WT/DS207/AB/R)
Article 5, also found in Part
III of the Agreement on Agriculture on “Market Access”, lends
contextual support to our interpretation of Article 4.2. In our view,
the existence of a market access exemption in the form of a special
safeguard provision under Article 5 implies that Article 4.2 should not
be interpreted in a way that permits Members to maintain measures that a
Member would not be permitted to maintain but for Article 5, and,
much less, measures that are even more trade-distorting than special
safeguards. In particular, if Article 4.2 were interpreted in a way that
allowed Members to maintain measures that operate in a way similar to a
special safeguard within the meaning of Article 5 — but without
respecting the conditions set out in that provision for invoking such
measures — it would be difficult to see how proper meaning and effect
could be given to those conditions set forth in Article 5.
A.1.14A Article 6.3 — domestic support
commitments back to top
A.1.14A.1 US — Upland Cotton, para. 544
(WT/DS267/AB/R)
… Article 6.3 deals with
domestic support. It establishes only a quantitative limitation
on the amount of domestic support that a WTO Member can provide in a
given year. The quantitative limitation in Article 6.3 applies generally
to all domestic support measures that are included in a WTO Member’s
AMS. …
A.1.14A.2 US — Upland Cotton, para. 545
(WT/DS267/AB/R)
Article 6.3 does not authorize
subsidies that are contingent on the use of domestic over imported
goods. It only provides that a WTO Member shall be considered to be in
compliance with its domestic support reduction commitments if its
Current Total AMS does not exceed that Member’s annual or final bound
commitment level specified in its Schedule. It does not say that
compliance with Article 6.3 of the Agreement on Agriculture
insulates the subsidy from the prohibition in Article 3.1(b). …
A.1.14A.3 US — Upland Cotton, para. 546
(WT/DS267/AB/R)
… we find that paragraph 7
of Annex 3 and Article 6.3 of the Agreement on Agriculture do not
deal specifically with the same matter as Article 3.1(b) of the SCM
Agreement, that is, subsidies contingent upon the use of domestic
over imported goods.
A.1.14B Article 8 — “export competition
commitments” back to top
A.1.14B.1 EC — Export Subsidies on Sugar,
para. 216
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
It is clear from the plain
wording of Article 8 that Members are prohibited from providing export
subsidies otherwise than in conformity with the Agreement on
Agriculture and the commitments as specified in their Schedules.
Thus, compliance with both is obligatory. As compliance with the
provisions of the Agreement on Agriculture is obligatory, it is
clear that the commitments specified in a Member’s Schedule must be in
conformity with the provisions of the Agreement. …
A.1.14B.2 EC — Export Subsidies on Sugar,
para. 220
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we find no provision under
the Agreement on Agriculture that authorizes Members to depart,
in their Schedules, from their obligations under that Agreement. Indeed,
as we have noted, Article 8 requires that, in providing export
subsidies, Members must comply with the provisions of both the Agreement
on Agriculture and the export subsidy commitments specified in their
Schedules. This is possible only if the commitments in the Schedules are
in conformity with the provisions of the Agreement on Agriculture.
Thus, we see no basis for the European Communities’ assertion that it
could depart from the obligations under the Agreement on Agriculture
through the claimed commitment provided in Footnote 1.
A.1.14C Article 9.1 — “export subsidies”
back to top
A.1.14C.1 EC — Export Subsidies on Sugar,
para. 269
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The chapeau of Article 9.1
provides: “The following export subsidies are subject to reduction
commitments”. Hence, Article 9.1 sets forth a list of practices that,
by definition, involve export subsidies. In other words, a measure
falling within Article 9.1 is deemed to be an export subsidy within the
meaning of Article 1(e) of the Agreement on Agriculture. We
observe that Article 9.1(c) requires no independent enquiry into the
existence of a “benefit”.
Article 9.1 — Relationship with Article 10.1. See Agreement on Agriculture, Article 10.1 — Relationship with Article 9.1 (A.1.33) back to top
A.1.14D Article 9.1 — “subject to reduction
commitments” back to top
A.1.14D.1 EC — Export Subsidies on Sugar,
para. 206
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The chapeau of Article 9.1
says that the subsidies listed in that Article “are subject to
reduction commitments under this Agreement”. The export subsidies
given to ACP/India equivalent sugar, which admittedly fall within the
ambit of Article 9.1(a), are therefore subject to reduction commitments.
Furthermore, as noted by the Panel, the provisions of Article 9.2(b)(iv)
apply to Members that take advantage of the flexibility provisions of
Article 9.2(b). Article 9.2(b)(iv) specifies the reduction levels to be
achieved at the conclusion of the implementation period with respect to
both budgetary outlays and quantities. The provisions of Article 9.2(b)(iv) lend contextual support to the view that export subsidies
listed in Article 9.1 are subject to reduction commitments. We further
note that Article 9.2(a)(i) and (ii) also make it clear that both
budgetary outlay and quantity commitments specified in a Member’s
Schedule for each year of the implementation period are “reduction”
commitments. It follows that the export subsidies provided to ACP/India
equivalent sugar are subject to reduction commitments in terms of
Article 9.1 of the Agreement on Agriculture.
A.1.15 Article 9.1(a) — “direct subsidies,
including payments-in-kind” back to top
A.1.15.1 Canada — Dairy, para. 87
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
In our view, the term “payments-in-kind”
describes one of the forms in which “direct subsidies” may be
granted. Thus, Article 9.1(a) applies to “direct subsidies”, including
“direct subsidies” granted in the form of “payments-in-kind”. We
believe that, in its ordinary meaning, the word “payments”, in the
term “payments-in-kind”, denotes a transfer of economic resources,
in a form other than money, from the grantor of the payment to the
recipient. However, the fact that a “payment-in-kind” has been made
provides no indication as to the economic value of the transfer
effected, either from the perspective of the grantor of the payment or
from that of the recipient. A “payment-in-kind” may be made in
exchange for full or partial consideration or it may be made
gratuitously. Correspondingly, a “subsidy” involves a transfer of
economic resources from the grantor to the recipient for less than full
consideration. As we said in our Report in Canada — Aircraft, a
“subsidy”, within the meaning of Article 1.1 of the SCM Agreement,
arises where the grantor makes a “financial contribution” which
confers a “benefit” on the recipient, as compared with what would
have been otherwise available to the recipient in the marketplace. Where
the recipient gives full consideration in return for a “payment-in-kind”
there can be no “subsidy”, for the recipient is paying market-rates
for what it receives. It follows, in our view, that the mere fact that a
“payment-in-kind” has been made does not, by itself, imply
that a “subsidy”, “direct” or otherwise, has been granted.
A.1.16 Article 9.1(a) — “governments or
their agencies” back to top
A.1.16.1 Canada — Dairy, para. 97
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
… According to Black’s
Law Dictionary, “government” means, inter alia, “[t]he regulation,
restraint, supervision, or control which is
exercised upon the individual members of an organized jural society by
those invested with authority”. (emphasis added) This is similar
to meanings given in other dictionaries. The essence of “government”
is, therefore, that it enjoys the effective power to “regulate”, “control”
or “supervise” individuals, or otherwise “restrain” their
conduct, through the exercise of lawful authority. This meaning is
derived, in part, from the functions performed by a government
and, in part, from the government having the powers and authority
to perform those functions. A “government agency” is, in our view,
an entity which exercises powers vested in it by a “government” for
the purpose of performing functions of a “governmental” character,
that is, to “regulate”, “restrain”, “supervise” or “control”
the conduct of private citizens. As with any agency relationship, a “government
agency” may enjoy a degree of discretion in the exercise of its
functions.
A.1.16A Article 9.1(a) — “contingent on
export performance” back to top
A.1.16A.1 US — Upland Cotton, para. 582
(WT/DS267/AB/R)
In sum, we agree with the
Panel’s view that Step 2 payments are export-contingent and,
therefore, an export subsidy for purposes of Article 9 of the Agreement
on Agriculture and Article 3.1(a) of the SCM Agreement. The
statute and regulations pursuant to which Step 2 payments are granted,
on their face, condition payments to exporters on exportation. In order
to claim payment, an exporter must show proof of exportation. If an
exporter does not provide proof of exportation, the exporter will not
receive a payment. This is sufficient to establish that Step 2 payments
to exporters of United States upland cotton are “conditional upon
export performance” or “dependent for their existence on export
performance”. That domestic users may also be eligible to receive
payments under different conditions does not eliminate the fact that an
exporter will receive payment only upon proof of exportation.
A.1.17 Article 9.1(c) — “payments”
back to top
A.1.17.1 Canada — Dairy, para. 107
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
We have found that the word
“payments”, in the term “payments-in-kind” in Article 9.1(a),
denotes a transfer of economic resources. We believe that the same holds
true for the word “payments” in Article 9.1(c). The question which
we now address is whether, under Article 9.1(c), the economic resources
that are transferred by way of a “payment” must be in the form of
money, or whether the resources transferred may take other forms. As the
Panel observed, the dictionary meaning of the word “payment” is not
limited to payments made in monetary form. In support of this, the Panel
cited the Oxford English Dictionary, which defines “payment”
as “the remuneration of a person with money or its equivalent”.
(emphasis added) Similarly, the Shorter Oxford English Dictionary
describes a “payment” as a “sum of money (or other thing)
paid”. (emphasis added) Thus, according to these meanings, a “payment”
could be made in a form, other than money, that confers value, such as
by way of goods or services. A “payment” which does not take the
form of money is commonly referred to as a “payment in kind”.
A.1.17.2 Canada — Dairy, para. 108
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
We agree with the Panel that
the ordinary meaning of the word “payments” in Article 9.1(c) is
consistent with the dictionary meaning of the word. Under Article 9.1(c), “payments” are “financed by virtue of governmental action”
and they may or may not involve “a charge on the public account”.
Neither the word “financed” nor the term “a charge” suggests
that the word “payments” should be interpreted to apply solely to
money payments. A payment made in the form of goods or services is also
“financed” in the same way as a money payment, and, likewise, “a
charge on the public account” may arise as a result of a payment, or a
legally binding commitment to make payment by way of goods or services,
or as a result of revenue foregone.
A.1.17.3 EC — Export Subsidies on Sugar,
paras. 262-265
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Article 9.1(c) does not
qualify the term “payments” by reference to the entity making, or
the entity receiving the payment. This may be contrasted with, for
instance, Articles 9.1(a) and 9.1(b) of the Agreement on Agriculture,
which specifically refer to the entities making and also, in the case of
Article 9.1(a), to the entity receiving the alleged export subsidy.
Moreover, Article 9.1(c), on its face, does not qualify the meaning of
the term “payments”, other than by requiring that the alleged “payments”
be “on the export of an agricultural product” and “financed by
virtue of governmental action”.
As we noted above, the
European Communities submits, first, that a “payment” within the
meaning of Article 9.1(c) requires, by definition, the presence of two
distinct legal entities. We agree with the European Communities that a
“payment”, within the meaning of Article 9.1(c), certainly occurs
when one entity transfers economic resources to another entity. …
This, however, does not imply
that the term “payment” necessarily requires, in each and every
case, the presence of two distinct entities. In other words, contrary to
the European Communities’ argument, we do not see, a priori,
any reason why “payments”, within the meaning of Article 9.1(c),
cannot include, in the particular circumstances of this dispute,
transfers of resources within one economic entity. The “payment” in
this case is not merely a “purely notional” one but, rather,
reflects a very concrete transfer of economic resources to C sugar
production. In the specific dispute before us, C sugar is being sold on
the world market by European Communities’ sugar producers/exporters at
a price that does not “even remotely” cover its average total cost
of production. In the light of the enormous difference between the price
of C sugar and its average total cost of production, we do not see how
the “payment” identified by the Panel was “purely notional”.
The European Communities’
approach is, in our view, too formalistic. To illustrate, one could
envisage a scenario under which the producers of C sugar are legally
distinct from the producers of A and B sugar. In this situation, the
European Communities’ approach could recognize that a “payment”
under Article 9.1(c) could exist because there would be a transfer of
economic resources between different parties. If, however, these same
producers of A, B, and C sugar were integrated producers and organized
as single legal entities, a payment under Article 9.1(c) would not
exist, because the transfer would be merely “internal”. We do not
believe that the applicability of Article 9.1(c) should depend on how an
economic entity is legally organized.
A.1.17.4 EC — Export Subsidies on Sugar,
paras. 268-269
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… The European Communities
argues that, because the alleged “cross-subsidization” involves no
“transfer of resources” to the sugar producers, it confers no benefit
upon these producers and, therefore, cannot be considered to provide a
subsidy. The European Communities disagrees with the Panel’s finding
that Article 9.1(c) does not require the demonstration of a benefit for
a measure to constitute a “payment” within the meaning of that
provision.
The chapeau of Article 9.1
provides: “The following export subsidies are subject to reduction
commitments”. Hence, Article 9.1 sets forth a list of practices that,
by definition, involve export subsidies. In other words, a measure
falling within Article 9.1 is deemed to be an export subsidy within the
meaning of Article 1(e) of the Agreement on Agriculture. We
observe that Article 9.1(c) requires no independent enquiry into the
existence of a “benefit”.
A.1.18 Article 9.1(c) — Benchmark for
payments-in-kind back to top
A.1.18.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 73
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Although we did not have to
examine whether the benchmarks used by the panel in the original
proceedings were appropriate, our findings in those proceedings provide
guidance in identifying when “payments” are made under Article 9.1(c). We recall that we upheld the original panel’s finding that “the
provision of discounted milk to processors or exporters under
Special Classes 5(d) and 5(e) involves ‘payments’ within the meaning
of Article 9.1(c) of the Agreement on Agriculture.” (emphasis
added) In reaching this conclusion, we noted that, where milk is sold at
“reduced rates (that is, at below market-rates), ‘payments’
are, in effect, made to the recipient of the portion of the price that
is not charged.” (emphasis added) We noted that the producer of the
milk “foregoes” the uncharged portion of the price. In short, we
indicated that there are “payments” under Article 9.1(c) when the
price charged by the producer of the milk is less than the milk’s proper
value to the producer.
A.1.18.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 74
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Thus, the determination of
whether “payments” are involved requires a comparison between the
price actually charged by the provider of the goods or services — the
prices of CEM in this case — and some objective standard or benchmark
which reflects the proper value of the goods or services to their
provider — the milk producer in this case. We do not accept Canada’s
argument that as the producer negotiates freely the price with the
processor, and CEM prices are, therefore, market-determined, it is not
necessary to compare these prices with an objective standard.
A.1.18.3 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 75
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Article 9.1(c) of the Agreement
on Agriculture does not expressly identify any standard for
determining when a measure involves “payments” in the form of
payments-in-kind. The absence of an express standard in Article 9.1(c)
may be contrasted with several other provisions involving export
subsidies which do provide an express standard. Thus, for instance, even
within Article 9.1 itself, sub-paragraphs (b) and (e) expressly provide
that the domestic market constitutes the appropriate basis for
comparison.
A.1.18.4 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 76
(WT/DS103/AB/RW, WT/DS113/AB/RW)
We believe that it is
significant that Article 9.1(c) of the Agreement on Agriculture
does not expressly identify a standard or benchmark for determining
whether a measure involves “payments”. It is clear that the notion
of “payments” encompasses a diverse range of practices involving a
transfer of resources, either monetary or in-kind. Moreover, the “payments”
may take place in many different factual and regulatory settings.
Accordingly, we believe that it is necessary to scrutinize carefully the
facts and circumstances of a disputed measure, including the regulatory
framework surrounding that measure, to determine the appropriate basis
for comparison in assessing whether the measure involves “payments”
under Article 9.1(c).
A.1.18.5 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 81
(WT/DS103/AB/RW, WT/DS113/AB/RW)
… There can be little doubt,
however, that the administered price is a price that is favourable to
the domestic producers. Consequently, sale of CEM by the producer at
less than the administered domestic price does not, necessarily, imply
that the producer has foregone a portion of the proper value of the milk
to it. In the situation where the producer, rather than the government,
chooses to produce and sell CEM in the marketplace at a price it freely
negotiates, we do not believe it is appropriate to use, as a basis for
comparison, a domestic price that is fixed by the government.
A.1.19 Article 9.1(c) — Benchmark — world
market prices vs. domestic prices back to top
A.1.19.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 83
(WT/DS103/AB/RW, WT/DS113/AB/RW)
… If a producer wishes to
sell milk for export processing, it is obvious that the price of the
milk to the processor must be competitive with world market prices. If
it is not, the processor will not buy the milk, as it will not be able
to produce a final product that is competitive in export markets.
Accordingly, the range of world market prices determines the price which
the producer can charge for milk destined for export markets. World
market prices do, therefore, provide one possible measure of the value
of the milk to the producer.
A.1.19.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 84
(WT/DS103/AB/RW, WT/DS113/AB/RW)
However, world market prices
do not provide a valid basis for determining whether there are “payments”,
under Article 9.1(c) of the Agreement on Agriculture, for, it
remains possible that the reason CEM can be sold at prices competitive
with world market prices is precisely because sales of CEM involve
subsidies that make it competitive. Thus, a comparison between CEM
prices and world market prices gives no indication on the crucial
question, namely, whether Canadian export production has been given an
advantage. Furthermore, if the basis for comparison were world market
prices, it would be possible for WTO Members to subsidize domestic
inputs for export processing, while taking care to maintain the price of
these inputs to the processors at a level which equalled or marginally
exceeded world market prices. …
A.1.20 Article 9.1(c) — Benchmark — cost of
production back to top
A.1.20.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 87
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Although the proceeds from
sales at domestic or world market prices represent two possible measures
of the value of milk to the producer, we do not see these as the only
possible measures of this value. For any economic operator, the
production of goods or services involves an investment of economic
resources. In the case of a milk producer, production requires an
investment in fixed assets, such as land, cattle and milking facilities,
and an outlay to meet variable costs, such as labour, animal feed and
health-care, power and administration. These fixed and variable costs
are the total amount which the producer must spend in order to produce
the milk and the total amount it must recoup, in the long-term, to avoid
making losses. To the extent that the producer charges prices that do
not recoup the total cost of production, over time, it sustains a loss
which must be financed from some other source, possibly “by virtue of
governmental action”.
A.1.20.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 88
(WT/DS103/AB/RW, WT/DS113/AB/RW)
In our view, reliance upon the
total cost of production, in this dispute, as a basis for determining
whether there are “payments” within the meaning of Article 9.1(c),
is in harmony with the domestic support and export subsidies disciplines
of the Agreement on Agriculture. Under Article 3 of the Agreement
on Agriculture, WTO Members are entitled to provide “domestic
support” to agricultural producers within the limits of their
domestic support commitments. The same Article establishes separate
disciplines on export subsidies which prohibit WTO Members from
providing such subsidies in excess of their export subsidy commitments.
A.1.20.3 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 89
(WT/DS103/AB/RW, WT/DS113/AB/RW)
It is possible that the
economic effects of WTO-consistent domestic support in favour of
producers may “spill over” to provide certain benefits to export
production, especially as many agricultural products result from a
single line of production that does not distinguish whether the
production is destined for consumption in the domestic or export market.
A.1.20.4 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 90
(WT/DS103/AB/RW, WT/DS113/AB/RW)
We believe that it would erode
the distinction between the domestic support and export subsidies
disciplines of the Agreement on Agriculture if WTO-consistent
domestic support measures were automatically characterized as export
subsidies because they produced spill-over economic benefits for export
production. Indeed, this is another reason why we do not agree with the
Panel that sales of CEM at any price below the administered domestic
price for milk can be regarded as “payments” under Article 9.1(c) of
the Agreement on Agriculture. Such a basis for comparison would
tend to collapse the distinction between these two different
disciplines.
A.1.20.5 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 91
(WT/DS103/AB/RW, WT/DS113/AB/RW)
However, we consider that the
distinction between the domestic support and export subsidies
disciplines in the Agreement on Agriculture would also be eroded
if a WTO Member were entitled to use domestic support, without limit, to
provide support for exports of agricultural products. Broadly stated,
domestic support provisions of that Agreement, coupled with high levels
of tariff protection, allow extensive support to producers, as compared
with the limitations imposed through the export subsidies disciplines.
Consequently, if domestic support could be used, without limit, to
provide support for exports, it would undermine the benefits intended to
accrue through a WTO Member’s export subsidy commitments.
A.1.20.6 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 92
(WT/DS103/AB/RW, WT/DS113/AB/RW)
In our view, by relying upon
the total cost of production in this dispute, to determine whether there
are “payments”, the integrity of the two disciplines is best
respected. The existence of “payments” is determined by reference to
a standard that focuses upon the motivations of the independent economic
operator who is making the alleged “payments” — here the producer
— and not upon any government intervention in the marketplace. More
importantly, using this basis for comparison, the potential for WTO
Members to export their agricultural production is preserved, provided
that any export-destined sales by a producer at below the total cost of
production are not financed by virtue of governmental action. The export
subsidy disciplines of the Agreement on Agriculture will also be
maintained without erosion.
A.1.20.7 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 93
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Our approach is supported by
the standards used in items (j) and (k) of the Illustrative List of the SCM Agreement. Item (j) is concerned with export subsidies that arise
through the provision by the government of a variety of export credit
guarantee and insurance programmes. Under item (j), the provision of
such services by the government involves export subsidies when the
premium rates charged do not “cover the long-term operating costs
and losses of the programmes”. (emphasis added) Thus, the measure
of value under item (j) is the overall cost to the government, as the
service provider, of providing the service. Likewise, in item (k), where
the government provides export credits, the measure of the value of the
service provided by the government is the amount “which [governments]
actually have to pay for the funds so employed (or would have to pay if
they borrowed on international capital markets …)”. Again, the
measure of value is by reference to the cost to the government, as the
service provider, of providing the service. Therefore, items (j) and (k)
give contextual support and rationale, for using the cost of
production as a standard for determining whether there are “payments”
under Article 9.1(c) of the Agreement on Agriculture in these
proceedings.
A.1.20.8 Canada — Dairy (Article 21.5
— New
Zealand and US), paras. 94-95
(WT/DS103/AB/RW, WT/DS113/AB/RW)
A producer’s cost of
production may be measured in, at least, two ways. First, for any given
unit of production, for instance a hectolitre of milk, there is an
average total cost of production, which is the total cost of production
divided by the total number of units produced, regardless of whether the
production is destined for the domestic or export markets. The total
cost of production includes all fixed and variable costs incurred
in the production of all the units in question. Second, there is also
the marginal cost of production which includes only the additional costs
incurred by the producer in producing an extra unit of production.
Generally, the marginal cost of production does not include any amount
for the fixed costs of production. Although a producer may very well
decide to sell goods or services if the sales price covers its marginal
costs, the producer will make losses on such sales unless all of the
remaining costs associated with making these sales, essentially the
fixed costs, are financed through some other source, such as through
highly profitable sales of the product in another market.
In the ordinary course of
business, an economic operator chooses to invest, produce and sell, not
only to recover the total cost of production, but also in the hope of
making profits.
A.1.20.9 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 96
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Accordingly, in the
circumstances of these proceedings, where the alleged payment is made by
an independent economic operator and where the domestic price is
administered, we believe that the average total cost of production
represents the appropriate standard for determining whether sales of CEM
involve “payments” under Article 9.1(c) of the Agreement on
Agriculture. The average total cost of production would be
determined by dividing the fixed and variable costs of producing all
milk, whether destined for domestic or export markets, by the total
number of units of milk produced for both these markets.
A.1.20.10 Canada
— Dairy (Article 21.5 — New
Zealand and US), para. 97
(WT/DS103/AB/RW, WT/DS113/AB/RW)
… The export subsidy
described in Article 9.1(c) comprises of several elements, the first of
which is that there must be “payments”. But the “payments” will
be an export subsidy only when they are financed by virtue of
governmental action. Thus, on the basis of the standard of average total
cost of production, there will be an export subsidy only if the
below-cost portion of an export sale is “financed by virtue of
governmental action”.
A.1.20.11 EC — Export Subsidies on Sugar,
para. 266
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… In this respect, we are
also mindful of the fact that, in the ordinary course of business, an
economic operator makes a decision to produce and sell a product
expecting to recover the total cost of production and to make profits.
Clearly, sales below total cost of production cannot be sustained in the
long term, unless they are financed from some other sources. This is
especially true when the volume of the loss-making sales is substantial.
…
A.1.20.12 EC — Export Subsidies on Sugar,
para. 267
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Finally, we believe that the
Panel did not err when it applied, in ascertaining the existence of “payments”
under Article 9.1(c), the average total cost of production benchmark,
which the Appellate Body held was appropriate in the circumstances in Canada
— Dairy (Article 21.5 — New Zealand and US). Given the huge volumes
of C sugar exports and the price at which C sugar is being sold on the
world market, we concur with the Panel that such production quantities
cannot be deemed “incidental”. We note in this context that C sugar
represents between 11 and 21 per cent of the European Communities’
total quota production, and that between 1997 and 2002, exports ranged
between 1.3 and 3.3 million tonnes. As we have already noted, C sugar is
being sold on the world market for prices that do not “even remotely”
cover its average total cost of production.
A.1.20.13 EC — Export Subsidies on Sugar,
paras. 287-288
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The European Communities
argues that, even if the Appellate Body were to conclude that “cross-subsidization”
may constitute a “payment” within the meaning of Article 9.1(c), the
Panel’s finding is “seriously flawed”. The European Communities
contends that, in ascertaining the existence of “payments”, the
Panel erred in using as a benchmark the average total cost of production
of all sugar. According to the European Communities, the Panel
should have used, instead, the average total cost of producing C
sugar, because the beet used in the production of C sugar is
purchased at prices that are “generally lower” than the minimum
prices for A and B beet.
The average total cost of
production of sugar includes the cost of all economic resources used in
sugar production, which means the cost of all economic resources
invested in beet production, transport, and processing of beet into
sugar, which is only notionally classified into A, B, and C sugar. It is
for this reason that the Panel emphasized that “[s]ugar is sugar
whether or not produced under an EC created designation of A, B or C
sugar.” The Panel further emphasized that “A, B or C sugar are part
of the same line of production” and that “[t]here is no independent
production of C sugar.” It follows, in our view, that the average
total cost of production of C sugar must be the same as the average
total cost of production of all sugar. The European Communities’
argument is flawed because the price of C beet does not determine the
average total cost of production of C sugar. For these reasons, we do
not agree with the European Communities that the Panel’s use of the
average total cost of production of all sugar as a benchmark for
ascertaining the existence of payments was flawed in the particular
circumstances of this case.
A.1.21 Article 9.1(c) — Industry-wide vs.
Individual standard back to top
A.1.21.1 Canada — Dairy (Article 21.5
— New
Zealand and US II), paras. 96-97
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
We believe that the standard
for determining the existence of “payments”, under Article 9.1(c),
should reflect the fact that the obligation at issue is an international
obligation imposed on Canada. The question is not whether one or more
individual milk producers, efficient or not, are selling CEM at a price
above or below their individual costs of production. The issue is
whether Canada, on a national basis, has respected its WTO obligations
and, in particular, its commitment levels. It, therefore, seems to us
that the benchmark should be a single, industry-wide cost of production
figure, rather than an indefinite number of cost of production figures
for each individual producer. The industry-wide figure enables cost of
production data for producers, as a whole, to be aggregated into a
single, national standard that can be used to assess Canada’s
compliance with its international obligations.
By contrast, if the benchmark
were to operate at the level of each individual producer, there would be
a proliferation of standards, requiring individual-level inquiry and
application of Article 9.1(c), as if the obligations under the Agreement
on Agriculture involved rights and obligations of individual
producers, rather than WTO Members.
A.1.22 Article 9.1(c) — “imputed” costs
back to top
A.1.22.1 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 102
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
… the purpose of the COP
standard is precisely to determine whether supplies of CEM involve
payments-in-kind that are made in a form other than money. If the COP
standard were confined solely to cash costs, as Canada argues, this
would overlook the possibility of “payments” being made in the form
of non-cash resources invested in the production of milk. Thus, the COP
standard must cover all of the economic resources invested in the
production of milk and which may be transferred, irrespective of whether
the resources involve an actual cash cost.
A.1.22.2 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 103
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
We are satisfied that any
labour or management services provided by the farmer’s family to the
dairy enterprise are relevant economic resources invested in the
production of milk and must be included in the COP standard. For the
dairy farmer, and his or her family, the investment of services in the
dairy enterprise has an economic cost, as those services cannot be put
to an alternative remunerative use. … Moreover, we believe that
remuneration of family labour and management services is not part of the
profits of the dairy farm. Rather, profits are the proceeds remaining
after all costs, including such salary costs, have been accounted for.
A.1.22.3 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 104
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
The same is also true of any
equity the owner invests in the dairy enterprise. The allocation of such
capital is, clearly, an investment of economic resources and carries an
economic opportunity cost to the owner because the capital cannot
simultaneously be invested elsewhere. Again, the profits of the dairy
enterprise are the proceeds after all costs, including the cost of
equity, have been accounted for.
A.1.22.4 Canada — Dairy (Article 21.5
— New
Zealand and US II), paras. 107-108
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
Although it is clear that the
COP standard includes all economic costs, even if they are non-cash
costs, we acknowledge that a specific value cannot be as readily
ascribed to non-cash costs as it can to cash costs. …
In some situations, it may be
appropriate for a panel to value non-monetary costs using a methodology
set forth in a Member’s Generally Accepted Accounting Principles (“GAAP”).
In that respect, we observe that Canada did not contest the amounts the
Canadian Dairy Commission (the “CDC”) ascribed to depreciation using
the rules in Canadian GAAP. However, although GAAP provide an objective
valuation methodology for some non-monetary costs, they may not address
all such costs. If GAAP rules do not provide an appropriate basis for
valuing a particular cost, a panel should attempt to determine a value
for relevant non-monetary costs using an objective methodology that is
reasonable in the circumstances. Clearly, a panel must base itself on
the evidence before it, applying the applicable rules on burden of
proof.
A.1.23 Article 9.1(c) — Selling and quota
costs back to top
A.1.23.1 Canada — Dairy (Article 21.5
— New
Zealand and US II), paras. 113-114
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
We recall that the COP
standard represents the producer’s investment of economic resources in
milk and, hence, in these proceedings, the proper value of the milk to
the producer. In our view, costs incurred by the producer in selling
milk are as much a part of the economic resources the producer invests
in the milk as are farm-based production costs. Indeed, the costs
incurred to make sales are a vital part of the process by which the
producer earns revenues through producing milk. …
In addition, we can see no
reason to exclude the cost of quota from the COP standard. On the
contrary, to the extent that the acquisition or retention of quota
involves economic costs for the dairy producer, these costs should be
reflected in the COP standard. In that respect, we are not persuaded by
Canada that the cost of quota should be excluded from the COP standard
because it relates solely to the domestic market. In the first Article 21.5 proceedings, we held that the COP standard must be determined for
“all milk, whether destined for domestic or export markets”. Thus,
in principle, the costs of quota form part of the COP standard. …
A.1.24 Article 9.1(c) — “governmental action”
back to top
A.1.24.1 Canada — Dairy (Article 21.5
— New
Zealand and US), paras. 112-113
(WT/DS103/AB/RW, WT/DS113/AB/RW)
Although the phrase “financed
by virtue of governmental action” must be understood as a whole, it is
useful to consider separately the meaning of the different parts of this
phrase. Taking the words “governmental action” first, we observe
that the text of Article 9.1(c) does not place any qualifications on the
types of “governmental action” which may be relevant under Article 9.1(c). In the original proceedings, we stated that “[t]he essence of
‘government’ is… that it enjoys the effective power to ‘regulate’,
‘control’ or ‘supervise’ individuals, or otherwise ‘restrain’
their conduct, through the exercise of lawful authority.” In our
opinion the word “action” embraces the full-range of these
activities, including governmental action regulating the supply and
price of milk in the domestic market.
Mere governmental action is
not, however, sufficient for a finding that there is an export subsidy
under Article 9.1(c). The words “by virtue of” indicate that there
must be a demonstrable link between the governmental action at
issue and the financing of the payments, whereby the payments
are, in some way, financed as a result of, or as a consequence of, the
governmental action. In our view, the link between governmental action
and the financing of payments will be more difficult to establish, as an
evidentiary matter, when the payment is in the form of a payment-in-kind
rather than in monetary form, and all the more so when the
payment-in-kind is made, not by the government, but by an independent
economic operator. In any event, it will not be sufficient simply to
demonstrate that a payment occurs as a consequence of governmental
action because the word “financed”, in Article 9.1(c), must also be
given meaning.
A.1.24.2 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 87
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
… Article 9.1(c) of the Agreement
on Agriculture describes an unusual form of subsidy in that “payments”
can be made by private parties, and need not be made by government.
Moreover, “payments” need not be funded from government resources,
provided they are “financed by virtue of governmental action”.
Article 9.1(c), therefore, contemplates that “payments” may be made
and funded by private parties, without the type of governmental
involvement ordinarily associated with a subsidy. Furthermore, the
notion of payments encompasses a diverse range of practices involving
monetary transfers, or transfers-in-kind. We, therefore, determined
that, in identifying whether “payments” are made, it is necessary to
consider the particular features of the alleged “payments”, by whom
they are made, and in what circumstances. Thus, we found that the
standard for determining the existence of “payments” under Article 9.1(c) must be identified after careful scrutiny of the factual and
regulatory setting of the measure.
A.1.25 Article 9.1(c) — Governmental action
vs. Private action back to top
A.1.25.1 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 95
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
… under Article 9.1(c) of
the Agreement on Agriculture, it is not solely the conduct of WTO
Members that is relevant. We have noted that Article 9.1(c) describes an
unusual form of export subsidy in that “payments” can be made and
funded by private parties, and not just by government. The conduct of
private parties, therefore, may play an important role in applying
Article 9.1(c). Yet, irrespective of the role of private parties under
Article 9.1(c), the obligations imposed in relation to Article 9.1(c)
remain obligations imposed on Canada. It is Canada, and not private
parties, which is responsible for ensuring that it respects its export
subsidy commitments under the covered agreements. Thus, under the Agreement
on Agriculture, any “export subsidies” provided through private
party action in Canada are deemed to be provided by Canada, and count
towards Canada’s export subsidy commitment levels.
A.1.25.2 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 127
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
As regards “governmental
action”, we held in the first Article 21.5 proceedings that “the
text of Article 9.1(c) does not place any qualifications on the types of
‘governmental action’ which may be relevant under Article 9.1(c).”
Instead, the provision gives but one example of governmental action that
is “included” in Article 9.1(c) — however, this example is merely
illustrative. Accordingly, we stated that Article 9.1(c) “embraces the
full-range” of activities by which governments “‘regulate’, ‘control’
or ‘supervise’ individuals”. In particular, we said that
governmental action “regulating the supply and price of milk in the
domestic market” might be relevant “action” under Article 9.1(c).
Moreover, the governmental action may be a single act or omission, or a
series of acts or omissions.
A.1.25.3 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 128 and footnote 113
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
We observe that Article 9.1(c)
does not require that payments be financed by virtue of government “mandate”,
or other “direction”. Although the word “action” certainly
covers situations where government mandates or directs that payments be
made, it also covers other situations where no such compulsion is
involved.113
A.1.25.4 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 152
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
… Canada may act
inconsistently with [its] commitments [under the Agreement on
Agriculture] … even if some producers never make payments financed
by virtue of governmental action.
A.1.26 Article 9.1(c) — “by virtue of”
back to top
A.1.26.1 Canada — Dairy, para. 119
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
In assessing whether the Panel
erred in finding that the “payments” made under Special Classes 5(d)
and 5(e) are “financed by virtue of governmental action”, it
is appropriate to look to the “governmental” involvement as a whole
and not just to the role of the provincial milk marketing boards. The
functioning of the system depends on a complex regulatory web involving
the CDC and the CMSMC, acting together with the provincial milk
marketing boards. It is, therefore, the “action” of all these bodies
together which must be examined.
A.1.26.2 Canada — Dairy, para. 120
(WT/DS103/AB/R, WT/DS113/AB/R,
WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)
While the “cost of selling
milk at a reduced price for export is not borne by the government”,
“governmental action” is, in our view, indispensable to the transfer
of resources that takes place as a result of the operation of Special
Classes 5(d) and 5(e). The factors relied upon by the Panel, which we
have summarized above, demonstrate that at every stage in the
supply of milk under Special Classes 5(d) and 5(e), from the
determination of the volume and the authorization of the purchase of
milk for processing for export, to the calculation of the price of the
milk to the processors and the return to the producers, “governmental
action” is not simply involved; it is, in fact, indispensable to
enable the supply of milk to processors for export, and hence the
transfer of resources, to take place. In the regulatory framework, “government
agencies” stand so completely between the producers of the milk and
the processors or the exporters that we have no doubt that the transfer
of resources takes place “by virtue of governmental action”.
A.1.26.3 Canada — Dairy (Article 21.5
— New
Zealand and US II), paras. 130-131
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
The words “by virtue of”,
therefore, express the relationship between “governmental action”
and the “financing” of payments for the purpose of Article 9.1(c).
The essence of that relationship is the “nexus” or “link”
between “action” and “financing”.
Thus, although Article 9.1(c)
extends, in principle, to any “governmental action”, not every
governmental action will have the requisite nexus to the financing of
payments. …
A.1.26.4 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 134
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
These general remarks
illustrate well that “[i]t is extremely difficult … to define in the
abstract the precise character of the required link between the
governmental action and the financing of the payments, particularly
where payments-in-kind are at issue.” In each case, the alleged link
must be examined taking account of the particular character of the
governmental action at issue and its relationship to the payments made.
A.1.26.5 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 144
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
… We have agreed with the
Panel that a significant percentage of producers are likely to finance
sales of CEM at below the costs of production as a result of
participation in the domestic market. Canadian “governmental action”
controls virtually every aspect of domestic milk supply and management.
In particular, government agencies fix the price of domestic milk that
renders it highly remunerative to producers. Government action also
controls the supply of domestic milk through quota, thereby protecting
the administered price. The imposition by government of financial
penalties on processors that divert CEM into the domestic market is
another element of governmental control over the supply of milk.
Further, the degree of government control over the domestic market is
emphasized by the fact that government pools, allocates, and distributes
revenues to producers from all domestic sales. Finally, governmental
action also protects the domestic market from import competition through
tariffs.
A.1.26.6 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 145
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
In our view, the effect of
these different governmental actions is to secure a highly remunerative
price for sales of domestic milk by producers. In turn, it is due to
this price that a significant proportion of producers covers their fixed
costs in the domestic market and, as a result, has the resources
profitably to sell export milk at prices that are below the costs of
production.
A.1.26.7 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 146
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
Accordingly, we agree with the
Panel that “governmental action” in the domestic market plays a
critical part in the “financing” of payments made by a significant
percentage of producers on the sale of CEM. As such, we agree with the
Panel that payments made through the supply of CEM at below the COP
standard are financed by virtue of this governmental action. …
A.1.26.8 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 147
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
We do not agree with Canada
that the circumstances indicate that the Canadian government has merely
created a regulatory framework whereby it has enabled producers to sell
CEM at prices that are below the costs of production. Certainly,
producers decide for themselves whether and when to sell CEM. However,
governmental action in the domestic market goes further than simply
creating a regulatory environment in which producers choose to make
export payments using their own resources. Rather, as we have said,
Canadian governmental action is instrumental in providing a significant
percentage of producers with the resources that enable them to sell CEM
at below the costs of production.
A.1.26.9 EC — Export Subsidies on Sugar,
para. 237
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
With respect to the words “by
virtue of”, the Appellate Body has previously held that there must be
a “nexus” or “demonstrable link” between the governmental action
at issue and the financing of payments. The Appellate Body clarified
that not every governmental action will have the requisite “nexus”
to the financing of payments. For instance, the Appellate Body held that
the “demonstrable link” between “governmental action” and the
“financing” of payments would not exist in a scenario in which “governmental
action … establish[es] a regulatory framework merely enabling a
third person freely to make and finance ‘payments’.” In this
situation, the link between the governmental action and the financing of
payments would be “too tenuous”, such that the “payments” could
not be regarded as “financed by virtue of governmental action”
within the meaning of Article 9.1(c). Rather, according to the Appellate
Body, there must be a “tighter nexus” between the mechanism or
process by which the payments are financed (even if by a third person)
and governmental action. In this respect, the Appellate Body clarified
that, although governmental action is essential, Article 9.1(c)
contemplates that “payments may be financed by virtue of governmental
action even though significant aspects of the financing might not
involve government.” Thus, even if government does not fund the
payments itself, it must play a sufficiently important part in the
process by which a private party funds “payments”, such that the
requisite nexus exists between “governmental action” and the “financing”.
The alleged link must be examined on a case-by-case basis, taking
account of the particular character of the governmental action at issue
and its relationship to the payments made.
A.1.26.10 EC — Export Subsidies on Sugar,
paras. 238-239
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… in its finding that “payments”
in the form of sales of C beet below its total cost of production are
“financed by virtue of governmental action”, the Panel relied on a
number of aspects of the EC sugar regime. The Panel considered, inter
alia, that: the EC sugar regime regulates prices of A and B beet and
establishes a framework for the contractual relationships between beet
growers and sugar producers with a view to ensuring a stable and
adequate income for beet growers; C beet is invariably produced together
with A and B beet in one single line of production; a significant
percentage of beet growers are likely to finance sales of C beet below
the total cost of production as a result of participation in the
domestic market by making “highly remunerative” sales of A and B
beet; the European Communities “controls virtually every aspect of
domestic beet and sugar supply and management”, including through
financial penalties imposed on sugar producers that divert C sugar into
the domestic market; the European Communities’ Sugar Management
Committee “overviews, supervises and protects the [European
Communities’] domestic sugar through, inter alia, supply
management”; the growing of C beet is not “incidental”, but rather
an “integral” part of the governmental regulation of the sugar
market; and C sugar producers “have incentives to produce C
sugar so as to maintain their share of the A and B quotas”, while C
beet growers “have an incentive to supply as much as is requested by C
sugar producers with a view to receiving the high prices for A and B
beet and their allocated amount of … C beet”.
We agree with the Panel that,
in the circumstances of the present case, all of these aspects of the EC
sugar regime have a direct bearing on whether below-cost sales of C beet
are financed by virtue of governmental action. As a result, we are
unable to agree with the European Communities’ first argument on
appeal, namely, that the Panel applied a test under which an Article 9.1(c) subsidy was deemed to exist “simply because [governmental]
action ‘enabled’ the beet growers to finance and make payments”.
Rather, we believe that the Panel relied on aspects of the EC sugar
regime that go far beyond merely “enabling” or “permitting” beet
growers to make payments to sugar producers. …
A.1.26.11 EC — Export Subsidies on Sugar,
para. 244
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
We now turn to the European
Communities’ argument that governmental action under the EC sugar
regime is “less pervasive” than governmental action in Canada —
Dairy (Article 21.5 — New Zealand and the US II). We do not consider
it inherently useful to compare the governmental action at issue and the
governmental action in the context of a different dispute. The issue
before us is not a comparison between two governmental regimes, but
rather, whether “payments” under the EC sugar regime are “financed
by virtue of governmental action”. As the Appellate Body stated in Canada
— Dairy (Article 21.5 — New Zealand and the US), “the existence of
… a demonstrable link [between governmental action and the financing
of payments] must be identified on a case-by-case basis, taking
account of the particular governmental action at issue and its
effects on payments made by a third person.” …
A.1.27 Article 9.1(c) — “financed”
back to top
A.1.27.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 114
(WT/DS103/AB/RW, WT/DS113/AB/RW)
The word “financed” might
be given a rather specific meaning such that it would be confined to the
financing of “payments” in monetary form or to the funding of “payments”
from government resources. However, we have already recalled that “payments”,
under Article 9.1(c), include payments-in-kind, so the word “financed”
needs to cover both the financing of monetary payments and
payments-in-kind. In addition, Article 9.1(c) explicitly excludes a
reading of the word “financed” whereby payments must be funded from
government resources, as the provision states that payments can be
financed by virtue of governmental action “whether or not a charge on
the public account is involved”. Thus, under Article 9.1(c), it is not
necessary that the economic resources constituting the “payment”
actually be paid by the government or even that they be paid from
government resources. Accordingly, although the words “by virtue of”
render governmental action essential, Article 9.1(c) contemplates that
payments may be financed by virtue of governmental action even though
significant aspects of the financing might not involve government.
A.1.27.2 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 115
(WT/DS103/AB/RW, WT/DS113/AB/RW)
It is extremely difficult,
however, to define in the abstract the precise character of the required
link between the governmental action and the financing of the payments,
particularly where payments-in-kind are at issue. Governments are
constantly engaged in regulation of different kinds in pursuit of a
variety of objectives. For instance, we can envisage that governmental
action might establish a regulatory framework merely enabling a third
person freely to make and finance “payments”. In this situation, the
link between the governmental action and the financing of the payments
is too tenuous for the “payments” to be regarded as “financed
by virtue of governmental action” (emphasis added) within the meaning
of Article 9.1(c). Rather, there must be a tighter nexus between the
mechanism or process by which the payments are financed, even if
by a third person, and governmental action. In our opinion, the
existence of such a demonstrable link must be identified on a
case-by-case basis, taking account of the particular governmental action
at issue and its effects on payments made by a third person.
A.1.27.3 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 117
(WT/DS103/AB/RW, WT/DS113/AB/RW)
It is true that Canadian
governmental action establishes a regulatory regime whereby some milk
producers can make additional profits only if they choose to sell CEM.
However, even though Canadian governmental action prevents further
domestic sales, we do not see how producers are obliged or driven to
produce additional milk for export sale. As we said above, each producer
is free to decide whether or not to produce additional milk for sale as
CEM. Furthermore, as we also said, the majority of Canadian milk
producers choose not to sell CEM. For these reasons, we disagree with
the Panel’s characterization of the measure as “obliging producers,
at least de facto, to sell outside-quota milk for export”.
A.1.27.4 Canada — Dairy (Article 21.5
— New
Zealand and US II), paras. 132-133
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
… The word [“financing”]
refers generally to the mechanism or process by which financial
resources are provided to enable “payments” to be made. The word
could, therefore, be read to mean that government itself must provide
the resources for producers to make payments. However, Article 9.1(c)
expressly precludes such a reading, as it states that “payments”
need not involve “a charge on the public account”. This is borne out
by the fact that the text indicates that “financing” need only be
“by virtue of governmental action”, rather than “by government”
itself. Article 9.1(c), therefore, contemplates that “payments may be
financed by virtue of governmental action even though significant
aspects of the financing might not involve government.” Indeed, as we
have said, payments may be made, and funded, by private parties.
The word “financing” must,
nonetheless, be given meaning. Accordingly, even if government does not
fund the payments itself, it must play a sufficiently important part in
the process by which a private party funds “payments”, such that the
requisite nexus exists between “governmental action” and “financing”.
A.1.27.5 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 139
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
Where fungible goods, such as
milk, are produced using a single line of production, but sold in two
different markets, the fixed costs of production are, in principle,
shared between sales revenues from both markets. However, in the event
that one of the two markets offers much higher revenues, a
disproportionately large part, possibly even all, of the shared fixed
costs may be borne by sales made in the more remunerative market.
A.1.27.6 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 140
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
Where sales in the more
remunerative market bear more than their relative proportion of shared
fixed costs, sales in the other market do not need to cover their
relative proportion of the shared fixed costs in order to be profitable.
Rather, these sales can be made profitably below the average total cost
of production. If the more remunerative sales cover all fixed costs,
sales in the other market can be made profitably at any price above
marginal cost. In these situations, the higher revenue sales effectively
“finance” a part of the lower revenue sales by funding the
portion of the shared fixed costs attributable to the lower priced
products.
A.1.27.7 EC — Export Subsidies on Sugar,
para. 236
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Addressing the word “financed”,
the Appellate Body held that this word generally refers to the “mechanism”
or “process” by which financial resources are provided, such that
payments are made. Article 9.1(c), by stating “whether or not a charge
on the public account is involved”, expressly provides that the government
itself need not provide the resources for producers to make
payments. Instead, payments may be made and funded by private parties.
A.1.28 Article 9.1(c) — Cross-subsidization
back to top
A.1.28.1 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 148
(WT/DS103/AB/RW2, WT/DS113/AB/RW2)
Canada also objects that this
reasoning brings “cross-subsidization” under Article 9.1(c) of the Agreement
on Agriculture. We have explained that the text of Article 9.1(c)
applies to any “governmental action” which “finances” export “payments”.
The text does not exclude from the scope of the provision any particular
governmental action, such as regulation of domestic markets, to the
extent that this action may become an instrument for granting export
subsidies. Nor does the text exclude any particular form of financing,
such as “cross-subsidization”. Moreover, the text focuses on the
consequences of governmental action (“by virtue of which”) and not
the intent of government. Thus, the provision applies to governmental
action that finances export payments, even if this result is not
intended. As stated in our Report in the first Article 21.5 proceedings,
this reading of Article 9.1(c) serves to preserve the legal “distinction
between the domestic support and export subsidies disciplines of the Agreement
on Agriculture”. Subsidies may be granted in both the domestic and
export markets, provided that the disciplines imposed by the Agreement
on the levels of subsidization are respected. If governmental action in
support of the domestic market could be applied to subsidize export
sales, without respecting the commitments Members made to limit the
level of export subsidies, the value of these commitments would be
undermined. Article 9.1(c) addresses this possibility by bringing, in
some circumstances, governmental action in the domestic market within
the scope of the “export subsidies” disciplines of Article 3.3.
A.1.28.2 EC — Export Subsidies on Sugar,
paras. 263-265
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
As we noted above, the
European Communities submits, first, that a “payment” within the
meaning of Article 9.1(c) requires, by definition, the presence of two
distinct legal entities. We agree with the European Communities that a
“payment”, within the meaning of Article 9.1(c), certainly occurs
when one entity transfers economic resources to another entity. …
This, however, does not imply
that the term “payment” necessarily requires, in each and every
case, the presence of two distinct entities. In other words, contrary to
the European Communities’ argument, we do not see, a priori,
any reason why “payments”, within the meaning of Article 9.1(c),
cannot include, in the particular circumstances of this dispute,
transfers of resources within one economic entity. The “payment” in
this case is not merely a “purely notional” one but, rather,
reflects a very concrete transfer of economic resources to C sugar
production. In the specific dispute before us, C sugar is being sold on
the world market by European Communities’ sugar producers/exporters at
a price that does not “even remotely” cover its average total cost
of production. In the light of the enormous difference between the price
of C sugar and its average total cost of production, we do not see how
the “payment” identified by the Panel was “purely notional”.
The European Communities’
approach is, in our view, too formalistic. To illustrate, one could
envisage a scenario under which the producers of C sugar are legally
distinct from the producers of A and B sugar. In this situation, the
European Communities’ approach could recognize that a “payment”
under Article 9.1(c) could exist because there would be a transfer of
economic resources between different parties. If, however, these same
producers of A, B, and C sugar were integrated producers and organized
as single legal entities, a payment under Article 9.1(c) would not
exist, because the transfer would be merely “internal”. We do not
believe that the applicability of Article 9.1(c) should depend on how an
economic entity is legally organized.
A.1.28.3 EC — Export Subsidies on Sugar,
paras. 273-275
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
The European Communities
argues that the Panel misinterpreted the requirement that a payment be
“on the export” of an agricultural product, as contained in Article 9.1(c). …
… the Panel based its
findings on the following reasoning:
C sugar [can] only be sold for export. If not
reclassified, C sugar “may not be disposed of in the Community’s
internal market and must be exported without further processing.”
Because of that legal requirement, advantages, payments or subsidies to
C sugar, that must be exported, are subsidies “on the export” of
that product.
We agree with the Panel. Under
Article 13(1) of EC Regulation 1260/2001, C sugar “must be exported”.
It follows that payments in the form of “cross-subsidization” are,
by definition, “payments” “on the export”.
A.1.29 Article 9.1(d) — “costs of marketing”
back to top
A.1.29.1 US — FSC, paras. 130-131
(WT/DS108/AB/R)
The text of Article 9.1(d)
lists “handling, upgrading and other processing costs, and the costs
of international transport and freight” as examples of “costs of
marketing”. The text also states that “export promotion and advisory
services” are covered by Article 9.1(d), provided that they are not
“widely available”. These are not examples of just any “cost
of doing business” that “effectively reduce[s] the cost of marketing”
products. Rather, they are specific types of costs that are incurred as
part of and during the process of selling a product. They
differ from general business costs, such as administrative overhead and
debt financing costs, which are not specific to the process of putting a
product on the market, and which are, therefore, related to the
marketing of exports only in the broadest sense.
… Income tax liability under
the FSC measure arises only when goods are actually sold for export,
that is, when they have been the subject of successful marketing.
Such liability arises because goods have, in fact, been sold, and
not as part of the process of marketing them. Furthermore, at the
time goods are sold, the costs associated with putting them on the
market — costs such as handling, promotion and distribution costs — have
already been incurred and the amount of these costs is not altered by
the income tax, the amount of which is calculated by reference to the
sale price of the goods. In our view, if income tax liability arising
from export sales can be viewed as among the “costs of marketing
exports”, then so too can virtually any other cost incurred by a
business engaged in exporting. …
A.1.29A Article 9.2 — Budgetary outlay and
quantity commitment levels back to top
A.1.29A.1 EC — Export Subsidies on Sugar,
para. 194
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
We find contextual support for
the above interpretation in Article 9.2(b)(iv) of the Agreement on
Agriculture, which provides:
(iv) the Member’s budgetary outlays for
export subsidies and the quantities benefiting from such subsidies, at
the conclusion of the implementation period, are no greater than 64 per
cent and 79 per cent of the 1986-1990 base period levels, respectively.
For developing country Members these percentages shall be 76 and 86 per
cent, respectively.
This provision prescribes the
export subsidy commitment levels to be reached at the conclusion of the
implementation period (and to be maintained thereafter), and those
commitment levels are expressed in terms of both budgetary outlays and
quantities. We do not see how a Member could comply with Article 9.2(b)(iv), or for that matter Article 9.2(a), without having specified
its export subsidy commitments in terms of both budgetary outlays and
quantities. We also consider it significant that both Article 9.2(b)(iii) and Article 9.2(b)(iv) use the expression “budgetary
outlays for export subsidies and the quantities benefiting from such
subsidies”. (emphasis added) This shows the drafters’
recognition of the need to address the budgetary outlays and quantities
together.
A.1.29B Article 10 — General back to top
A.1.29B.1 US — Upland Cotton, para. 616
(WT/DS267/AB/R)
We find it significant that
paragraph 2 of Article 10 is included in an Article that is titled the
“Prevention of Circumvention of Export Subsidy Commitments”. As
Brazil correctly points out, each paragraph in Article 10 pursues this
aim. Article 10.1 provides that WTO Members shall not apply export
subsidies not listed in Article 9.1 of the Agreement on Agriculture
“in a manner which results in, or which threatens to lead to,
circumvention of export subsidy commitments; nor shall non-commercial
transactions be used to circumvent such commitments”. Article 10.3
pursues the aim of preventing circumvention of export subsidy
commitments by providing special rules on the reversal of burden of
proof where a Member exports an agricultural product in quantities that
exceed its reduction commitment level; in such a situation a WTO Member
is treated as if it has granted WTO-inconsistent export subsidies
for the excess quantities, unless the Member presents adequate evidence
to “establish” the contrary. Article 10.4 provides disciplines to
prevent WTO Members from circumventing their export subsidy commitments
through food aid transactions. Similarly, Article 10.2 must be
interpreted in a manner that is consistent with the aim of preventing
circumvention of export subsidy commitments that pervades Article 10.
Otherwise, it would not have been included in that provision.
A.1.30 Article 10.1 — “export subsidy
commitments” back to top
A.1.30.1 US — FSC, para. 144
(WT/DS108/AB/R)
The word “commitments”
generally connotes “engagements” or “obligations”. Thus, the
term “export subsidy commitments” refers to commitments or
obligations relating to export subsidies assumed by Members under
provisions of the Agreement on Agriculture, in particular, under
Articles 3, 8 and 9 of that Agreement.
A.1.31 Article 10.1 — “export subsidies”
not listed in Article 9.1 back to top
A.1.31.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 121
(WT/DS103/AB/RW, WT/DS113/AB/RW)
It is clear from the opening
clause of Article 10.1 that this provision is residual in character to
Article 9.1 of the Agreement on Agriculture. If a measure is an
export subsidy listed in Article 9.1, it cannot simultaneously be an
export subsidy under Article 10.1. In light of the facts available to
us, we have found that we are unable to determine whether the measure at
issue is an export subsidy listed in Article 9.1(c). However, it remains
possible that the measure is such an export subsidy. Clearly, in
that event, the opening clause of Article 10.1 means that the measure
could not also be an export subsidy under Article 10.1. In these
circumstances, where we are unable to determine the legal character of
the measure under Article 9.1 of the Agreement on Agriculture, we
are similarly unable to rule upon the legal character of the measure
under Article 10.1 of that Agreement.
A.1.32 Article 10.1 — Actual circumvention
back to top
A.1.32.1 US — FSC, para. 148
(WT/DS108/AB/R)
… The verb “circumvent”
means, inter alia, “find a way round, evade …”. Article 10.1 is designed to prevent Members from circumventing or “evading”
their “export subsidy commitments”. This may arise in many different
ways. …
A.1.32.1A US — FSC, para. 149
(WT/DS108/AB/R)
In determining whether the FSC
measure in this case is “applied in a manner which … threatens to
lead to circumvention of export subsidy commitments”, it is important
to consider the structure and other characteristics of that measure. The
FSC measure creates, in itself, a legal entitlement for
recipients to receive export subsidies, not listed in Article 9.1, with
respect to agricultural products, both scheduled and unscheduled. As we
understand it, that legal entitlement arises in the recipient when it
complies with the statutory requirements and, at that point, the
government of the United States must grant the FSC tax exemptions. There
is, therefore, no discretionary element in the provision by the
government of the FSC export subsidies. If the statutory eligibility
requirements are met, then an FSC is entitled by law to the statutorily
established tax exemption. Furthermore, there is no limitation on the
amount of exempt foreign trade income that may be earned by an FSC.
Therefore, the legal entitlement that the FSC measure establishes is
unqualified as to the amount of export subsidies that may be
claimed by FSCs. There is, in other words, no mechanism in the measure
for stemming, or otherwise controlling, the flow of FSC subsidies that
may be claimed with respect to any agricultural products. In this
respect, the FSC measure is unlimited.
A.1.32.2 US — FSC, para. 150
(WT/DS108/AB/R)
With respect to unscheduled
agricultural products, Members are prohibited under Article 3.3
from providing any export subsidies as listed in Article 9.1.
Article 10.1 prevents the application of export subsidies which “results
in, or which threatens to lead to, circumvention”
of that prohibition. Members would certainly have “found a way round”,
a way to “evade”, this prohibition if they could transfer, through
tax exemptions, the very same economic resources that they are
prohibited from providing in other forms under Articles 3.3 and 9.1. …
A.1.32.3 US — FSC, para. 151
(WT/DS108/AB/R)
… Given that the nature of
the “export subsidy commitment” differs as between scheduled and
unscheduled products, we believe that what constitutes “circumvention”
of those commitments, under Article 10.1, may also differ.
A.1.32.4 US — FSC, para. 152
(WT/DS108/AB/R)
… In our view, Members would
have found “a way round”, a way to “evade”, their commitments
under Articles 3.3 and 9.1, if they could transfer, through tax
exemptions, the very same economic resources that they were, at that
time, prohibited from providing through other methods under the
first clause of Article 3.3 and under 9.1.
A.1.32.5 US — Upland Cotton, para. 626
(WT/DS267/AB/R)
… Export credit guarantees
are subject to the export subsidy disciplines in the Agreement on
Agriculture only to the extent that such measures include an export
subsidy component. If no such export subsidy component exists, then the
export credit guarantees are not subject to the Agreement’s export
subsidy disciplines. Moreover, even when export credit guarantees
contain an export subsidy component, such an export credit guarantee
would not be inconsistent with Article 10.1 of the Agreement on
Agriculture unless the complaining party demonstrates that it is “applied
in a manner which results in, or which threatens to lead to,
circumvention of export subsidy commitments”. Thus, under the Agreement
on Agriculture, the complaining party must first demonstrate that an
export credit guarantee program constitutes an export subsidy. If it
succeeds, it must then demonstrate that such export credit guarantees
are applied in a manner that results in, or threatens to lead to,
circumvention of the responding party’s export subsidy commitments
within the meaning of Article 10.1 of the Agreement on Agriculture.
A.1.32.6 US — Upland Cotton, para. 692
(WT/DS267/AB/R)
We find nothing wrong in the
Panel having relied on an admission by the United States relating to
rice to conclude that the United States had failed to rebut Brazil’s
initial allegation of circumvention. This did not excuse the Panel,
however, from specifically analyzing Brazil’s claim in respect of the
other products. Consequently, we find no basis to support the Panel’s
finding that “[i]t has not been established, however, that such actual
circumvention has resulted in respect of the twelve other United States
scheduled commodities”.
A.1.32.7 US — Upland Cotton, para. 693
(WT/DS267/AB/R)
We must determine next whether
there are sufficient uncontested facts in the record to permit us to
complete the analysis with respect to the other commodities. In our
view, there are not. First, the parties disagree about the time period
covered by Brazil’s claim. The United States asserts that Brazil’s
claim was limited to the period July 2001 to June 2002, while Brazil
contends that its claim was not limited to that period. Second, as we
noted previously, different time periods are used for the sets of data
that have to be compared. The data regarding United States exports under
the export credit guarantee programs are maintained on a fiscal year
basis, which extends from 1 October to 30 September of the following
year. The United States’ export subsidy commitments are registered
based on a year that extends from 1 July to 30 June of the following
year. Both Brazil and the United States have sought to reconcile the
data. In each case, Brazil and the United States assert that the data
support their position. Given the differences between the participants
in respect of the data that we would have to examine to determine
whether the United States applied export credit guarantees in a manner
that results in circumvention of its export subsidy commitments for pig
meat and poultry meat, we do not believe there are sufficient undisputed
facts in the record to enable us to complete the analysis.
A.1.32A Article 10.1 — Threat of circumvention
back to top
A.1.32A.1 US — Upland Cotton, para. 704
(WT/DS267/AB/R)
The Appellate Body has
explained that “under Article 10.1, it is not necessary to demonstrate
actual ‘circumvention’ of ‘export subsidy commitments’
“. It suffices that “export subsidies” are “applied in a manner
which … threatens to lead to circumvention of export subsidy
commitments”. We note that the ordinary meaning of the term “threaten”
includes “[c]onstitute a threat to”, “be likely to injure” or
“be a source of harm or danger”. Article 10.1 is concerned not with
injury, but rather with “circumvention”. Accordingly, based on its
ordinary meaning, the phrase “threaten[] to lead to … circumvention”
would imply that the export subsidies are applied in a manner that is
“likely to” lead to circumvention of a WTO Member’s export subsidy
commitments. Furthermore, we observe that the ordinary meaning of the
term “threaten” refers to a likelihood of something
happening; the ordinary meaning of “threaten” does not connote a
sense of certainty.
A.1.32A.2 US — Upland Cotton, para. 705
(WT/DS267/AB/R)
The concept of “threat”
has been discussed by the Appellate Body within the context of the Agreement
on Safeguards and the Anti-Dumping Agreement. It has
explained that “threat” refers to something that “has not
yet occurred, but remains a future event whose actual materialization
cannot, in fact, be assured with certainty”. In US — Line Pipe,
the Appellate Body stated that there is a continuum that ascends from a
“threat of serious injury” up to the “serious injury” itself. We
emphasize that the Appellate Body’s discussion of the concept of “threat”
in previous appeals related to the interpretation of other covered
agreements that contain obligations relating to injury that differ from
those relating to circumvention of export subsidy reduction commitments
contained in Article 10.1 of the Agreement on Agriculture. Our
interpretation of “threat” in Article 10.1 of the Agreement on
Agriculture is consistent with the Appellate Body’s interpretation
of the term “threat” in these other contexts.
A.1.32A.3 US — Upland Cotton, para. 706
(WT/DS267/AB/R)
The Panel explained that, in
its view, “threat” of circumvention under Article 10.1 requires that
there be “an unconditional legal entitlement”. We see no basis for
this requirement in Article 10.1. The Panel also stated that “[i]n
order to pose a ‘threat’ within the meaning of Article 10.1 of the Agreement
on Agriculture, [it did] not believe that it is sufficient that an
export credit guarantee programme might possibly, or theoretically, be
used in a manner which threatens to lead to circumvention of export
subsidy commitments”. In both of these statements, the Panel seems to
conflate the phrase “threaten to lead to … circumvention” with
certainty that the circumvention will happen. We find it difficult,
moreover, to reconcile the Panel’s interpretation with the ordinary
meaning of the term “threaten”, which, as we indicated earlier,
connotes that something is “likely” to happen. We also find it
difficult to reconcile these statements of the Panel with its own view
that it did “not believe that the ‘mandatory/discretionary’
distinction is the sole legally determinative one for our examination of
whether or not ‘threat’ of circumvention of export subsidy
commitments within the meaning of Article 10.1 of the Agreement on
Agriculture has been proven to the required standard”.
A.1.32A.4 US — Upland Cotton, para. 707
(WT/DS267/AB/R)
Nor are we prepared to accept
Brazil’s suggestion that the concept of “threat” in Article 10.1
should be read in a manner that requires WTO Members to take “anticipatory
or precautionary action”. The obligation not to apply export subsidies
in a manner that “threatens to lead to” circumvention of their
export subsidy commitments does not extend that far. There is no basis
in Article 10.1 for requiring WTO Members to take affirmative,
precautionary steps to ensure that circumvention of their export subsidy
reduction commitments does not occur.
A.1.32A.5 US — Upland Cotton, para. 708
(WT/DS267/AB/R)
In concluding as it did, the
Panel appears to have relied on the Appellate Body Report in US — FSC
for guidance. In our view, however, the Panel misapplies that analysis.
We recall that, in US — FSC, the Appellate Body underscored the
importance of considering “the structure and other characteristics of
[the] measure” when examining whether the specific measure at issue is
“applied in a manner which … threatens to lead to circumvention of
export subsidy commitments”. The Appellate Body then went on to note
that the specific measure at issue in that dispute created “a legal
entitlement for recipients to receive export subsidies, not listed
in Article 9.1, with respect to agricultural products, both scheduled
and unscheduled”. This meant that there was “no discretionary
element in the provision by the government of the FSC export subsidies”.
Furthermore, the Appellate Body noted that the “legal entitlement that
the FSC measure establishes is unqualified as to the amount of
export subsidies that may be claimed”. This meant that the measure was
“unlimited” because there was “no mechanism in the measure for
stemming, or otherwise controlling the flow of … subsidies that may be
claimed with respect to any agricultural products”.
A.1.32A.6 US — Upland Cotton, paras. 709-710
(WT/DS267/AB/R)
A proper reading of the
Appellate Body’s statement in US — FSC, however, reveals that
it did not intend to provide an exhaustive interpretation of threat of
circumvention under Article 10.1 of the Agreement on Agriculture.
In noting that the measure at issue in that dispute created a “legal
entitlement” and had no “discretionary element”, the Appellate
Body was merely describing characteristics of the measure at issue in
that case that it found relevant for its analysis of “threat”. In
other words, the Appellate Body did not foreclose, in US — FSC,
the possibility that a measure that does not create a “legal
entitlement” or that has a “discretionary element” could be found
to “threaten[] to lead to circumvention” under Article 10.1 of the Agreement
on Agriculture.
We therefore modify the Panel’s
interpretation … of the phrase “threatens to lead to …
circumvention” in Article 10.1 of the Agreement on Agriculture
to the extent that the Panel’s interpretation requires “an
unconditional legal entitlement” to receive the relevant export
subsidies as a condition for a finding of threat of circumvention.
A.1.32A.7 US — Upland Cotton, para. 713
(WT/DS267/AB/R)
We are not persuaded that the
arguments put forward by Brazil establish that the United States’
export credit guarantee programs are applied in a manner that threatens
to lead to circumvention of the United States’ export subsidy
commitments in respect of scheduled products other than rice and
unscheduled products not supported under the programs. In our view, the
fact alone that exports of certain products are eligible for export
credit guarantees is not sufficient to establish a threat of
circumvention. This is particularly the case where there is no evidence
in the record that exports of such products have been “supported” by
export credit guarantees in the past. As we stated earlier, Article 10.1
of the Agreement on Agriculture does not require WTO Members to
take affirmative, precautionary steps to ensure that circumvention of
their export subsidy reduction commitments never happens. Nor is it
sufficient for Brazil to have alleged that the United States has
provided export credit guarantees to exports of other unscheduled
products or to exports of scheduled products in excess of its export
subsidy reduction commitments. Therefore, we agree with the Panel that
Brazil has not established that the United States applies its export
credit guarantee programs to scheduled agricultural products other than
rice and other unscheduled agricultural products (not “supported”
under the programs) “in a manner … which threatens to lead to …
circumvention” of the United States’ export subsidy commitments.
A.1.32A.8 US — Upland Cotton, para. 717
(WT/DS267/AB/R)
We believe the Panel was
within its discretion in declining to examine whether scheduled products
other than rice and unscheduled products supported by the programs are
applied in a manner that “threatens to lead to” circumvention. The
Panel had already found that the United States acted inconsistently with
Article 10.1 of the Agreement on Agriculture because it applied
its export credit guarantee program in a manner that “results in”
(actual) circumvention of its export subsidy commitments for these
products. We do not see why the Panel had to examine also whether the
United States acted inconsistently with the same provision in
respect of the same products, but on the basis of there being a threat
of circumvention, rather than actual circumvention.
A.1.32B Article 10.1 — “non-commercial
transactions” back to top
A.1.32B.1 US — Upland Cotton, para. 619
(WT/DS267/AB/R)
… International food aid is
covered by the second clause of Article 10.1 to the extent that it is a
“non-commercial transaction”. Article 10.4 provides specific
disciplines that may be relied on to determine whether international
food aid is being “used to circumvent” a WTO Member’s export
subsidy commitments. … WTO Members are free to grant as much food aid
as they wish, provided that they do so consistently with Articles 10.1
and 10.4. Thus, Article 10.4 does not support the United States’
reading of Article 10.2.
A.1.33 Article 10.1 — Relationship with
Article 9.1 back to top
A.1.33.1 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 158
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
As we have concluded that the
CEM scheme involves export subsidies under Article 9.1(c) of the Agreement
on Agriculture, those subsidies cannot, by definition,
simultaneously be export subsidies under Article 10.1. … In these
circumstances, both the Panel’s reasoning and its finding under
Article 10.1 of the Agreement on Agriculture are moot and of no
legal effect. …
A.1.33.2 US — Upland Cotton, para. 615
(WT/DS267/AB/R)
Although Article 10.2 commits
WTO Members to work toward the development of internationally agreed
disciplines on export credit guarantees, export credits and insurance
programs, it is in Article 10.1 that we find the disciplines that
currently apply to export subsidies not listed in Article 9.1. A plain
reading of Article 10.1 indicates that the only export subsidies that
are excluded from its scope are those “listed in paragraph 1 of
Article 9”. … Thus, to the extent that an export credit guarantee
meets the definition of an “export subsidy” under the Agreement
on Agriculture, it would be covered by Article 10.1. Article 1(e) of
the Agreement on Agriculture defines “export subsidies” as
“subsidies contingent upon export performance, including the
export subsidies listed in Article 9 of this Agreement”. (emphasis
added) The use of the word “including” suggests that the term “export
subsidies” should be interpreted broadly and that the list of export
subsidies in Article 9 is not exhaustive. Even though an export credit
guarantee may not necessarily include a subsidy component, there is
nothing inherent about export credit guarantees that precludes such
measures from falling within the definition of a subsidy. An export
credit guarantee that meets the definition of an export subsidy would be
covered by Article 10.1 of the Agreement on Agriculture because
it is not an export subsidy listed in Article 9.1 of that Agreement.
A.1.33A Article 10.2 — Export Credit
Guarantees back to top
A.1.33A.1 US — Upland Cotton, para. 607
(WT/DS267/AB/R)
Article 10.2 refers expressly
to export credit guarantee programs, along with export credits and
insurance programs. Under Article 10.2, WTO Members have taken on two
distinct commitments in respect of these three types of measures: (i) to
work toward the development of internationally agreed disciplines to
govern their provision; and (ii) after agreement on such disciplines, to
provide them only in conformity therewith. The text includes no temporal
indication with respect to the first commitment. There is no deadline
for beginning or ending the negotiations. The second commitment does
have a temporal connotation, in the sense that it is triggered only “after
agreement on such disciplines”. This means that “after”
international disciplines have been agreed upon, Members shall provide
export credit guarantees, export credits and insurance programs only in
conformity with those agreed disciplines. There is no dispute between
the parties that, to date, no disciplines have been agreed
internationally pursuant to Article 10.2.
A.1.33A.2 US — Upland Cotton, paras. 608-609
(WT/DS267/AB/R)
Article 10.2 does not,
however, expressly define the disciplines that currently apply to
export credits, export credit guarantees and insurance programs under
the Agreement on Agriculture. …
We agree with the Panel’s
view that Article 10.2 does not expressly exclude export credit
guarantees from the export subsidy disciplines in Article 10.1 of the Agreement
on Agriculture. As the Panel observes, were such an exemption
intended, it could have been easily achieved by, for example, inserting
the words “[n]otwithstanding the provisions of Article 10.1”, or
other similar language at the beginning of Article 10.2. Article 10.2
does not include express language suggesting that it is intended as an
exception, nor does it expressly state that the application of any
export subsidy disciplines to export credits or export credit guarantees
is “deferred”, as the United States suggests. Given that the
drafters were aware that subsidized export credit guarantees, export
credits and insurance programs could fall within the export subsidy
disciplines in the Agreement on Agriculture and the SCM
Agreement, it would be expected that an exception would have been
clearly provided had this been the drafters’ intention.
A.1.33A.3 US — Upland Cotton, para. 615
(WT/DS267/AB/R)
Although Article 10.2 commits
WTO Members to work toward the development of internationally agreed
disciplines on export credit guarantees, export credits and insurance
programs, it is in Article 10.1 that we find the disciplines that
currently apply to export subsidies not listed in Article 9.1. A plain
reading of Article 10.1 indicates that the only export subsidies that
are excluded from its scope are those “listed in paragraph 1 of
Article 9”. … Thus, to the extent that an export credit guarantee
meets the definition of an “export subsidy” under the Agreement
on Agriculture, it would be covered by Article 10.1. Article 1(e) of
the Agreement on Agriculture defines “export subsidies” as
“subsidies contingent upon export performance, including the
export subsidies listed in Article 9 of this Agreement”. (emphasis
added) The use of the word “including” suggests that the term “export
subsidies” should be interpreted broadly and that the list of export
subsidies in Article 9 is not exhaustive. Even though an export credit
guarantee may not necessarily include a subsidy component, there is
nothing inherent about export credit guarantees that precludes such
measures from falling within the definition of a subsidy. An export
credit guarantee that meets the definition of an export subsidy would be
covered by Article 10.1 of the Agreement on Agriculture because
it is not an export subsidy listed in Article 9.1 of that Agreement.
A.1.33A.4 US — Upland Cotton, para. 616
(WT/DS267/AB/R)
… Similarly, Article 10.2
must be interpreted in a manner that is consistent with the aim of
preventing circumvention of export subsidy commitments that pervades
Article 10. Otherwise, it would not have been included in that
provision.
A.1.33A.5 US — Upland Cotton, para. 617
(WT/DS267/AB/R)
The United States submits that
Article 10.2 contributes to the prevention of circumvention because it
commits WTO Members to work toward the development of internationally
agreed disciplines and to provide export credit guarantees, export
credits and insurance programs only in conformity with these disciplines
once an agreement has been reached. We are not persuaded by this
argument. The necessary implication of the United States’
interpretation of Article 10.2 is that, until WTO Members reach an
agreement on international disciplines, export credit guarantees, export
credits and insurance programs are subject to no disciplines at all.
In other words, under the United States’ interpretation, WTO Members
are free to “circumvent” their export subsidy commitments through
the use of export credit guarantees, export credits and insurance
programs until internationally agreed disciplines are developed,
whenever that may be. We find it difficult to believe that the
negotiators would not have been aware of and did not seek to address the
potential that subsidized export credit guarantees, export credits and
insurance programs could be used to circumvent a WTO Member’s export
subsidy reduction commitments. Indeed, such an interpretation would undermine
the objective of preventing circumvention of export subsidy commitments,
which is central to the Agreement on Agriculture.
A.1.33A.6 US — Upland Cotton, para. 619
(WT/DS267/AB/R)
… Article 10.4 provides
specific disciplines that may be relied on to determine whether
international food aid is being “used to circumvent” a WTO Member’s
export subsidy commitments. There is no contradiction in the Panel’s
approach to Article 10.2 and its approach to Article 10.4. The measures
in Article 10.2 and the transactions in Article 10.4 are both covered
within the scope of Article 10.1. …
A.1.33A.7 US — Upland Cotton, para. 623
(WT/DS267/AB/R)
We agree with the Panel that
the meaning of Article 10.2 is clear from the provision’s text, in its
context and in the light of the object and purpose of the Agreement
on Agriculture, consistent with Article 31 of the Vienna
Convention. The Panel did not think it necessary to resort to
negotiating history for purposes of its interpretation of Article 10.2.
Even if the negotiating history were relevant for our inquiry, we do not
find that it supports the United States’ position. This is because it
does not indicate that the negotiators did not intend to discipline
export credit guarantees, export credits and insurance programs at
all. To the contrary, it shows that negotiators were aware of the
need to impose disciplines on export credit guarantees, given their
potential as a mechanism for subsidization and for circumvention of the
export subsidy commitments under Article 9. Although the negotiating
history reveals that the negotiators struggled with this issue, it does
not indicate that the disagreement among them related to whether export
credit guarantees, export credits and insurance programs were to be
disciplined at all. In our view, the negotiating history suggests that
the disagreement between the negotiators related to which kinds of
specific disciplines were to apply to such measures. The fact that
negotiators felt that internationally agreed disciplines were necessary
for these three measures also suggests that the disciplines that
currently exist in the Agreement on Agriculture must apply
pending new disciplines because, otherwise, it would mean that
subsidized export credit guarantees, export credits, and insurance
programs could currently be extended without any limit or consequence.
A.1.33A.8 US — Upland Cotton, para. 625
(WT/DS267/AB/R)
We do not agree with the
United States’ submission in this regard. There could have been
several reasons why Members chose not to include export credit
guarantees, export credits and insurance programs under Article 9.1 of
the Agreement on Agriculture. One reason, for instance, may be
that they considered that their export credit guarantee, export credit
or insurance programs did not include a subsidy component, so that there
was no need to subject them to export subsidy reduction commitments.
There could have been other reasons. Thus, the fact that export credit
guarantees, export credits and insurance programs were not included in
Article 9.1 does not support the United States’ interpretation of
Article 10.2. We also observe that whether WTO Members with export
credit guarantee programs have reported them in their export subsidy
notifications is not determinative for purposes of our inquiry into the
meaning of Article 10.2. In any event, the United States and Brazil
disagree about whether such programs are subject to notification
requirements.
A.1.33A.9 US — Upland Cotton, para. 626
(WT/DS267/AB/R)
Accordingly, we do not believe
that Article 10.2 of the Agreement on Agriculture exempts export
credit guarantees, export credits and insurance programs from the export
subsidy disciplines in the Agreement on Agriculture. This does
not mean that export credit guarantees, export credits and insurance
programs will necessarily constitute export subsidies for purposes of
the Agreement on Agriculture. Export credit guarantees are
subject to the export subsidy disciplines in the Agreement on
Agriculture only to the extent that such measures include an export
subsidy component. If no such export subsidy component exists, then the
export credit guarantees are not subject to the Agreement’s export
subsidy disciplines. Moreover, even when export credit guarantees
contain an export subsidy component, such an export credit guarantee
would not be inconsistent with Article 10.1 of the Agreement on
Agriculture unless the complaining party demonstrates that it is “applied
in a manner which results in, or which threatens to lead to,
circumvention of export subsidy commitments”. Thus, under the Agreement
on Agriculture, the complaining party must first demonstrate that an
export credit guarantee program constitutes an export subsidy. If it
succeeds, it must then demonstrate that such export credit guarantees
are applied in a manner that results in, or threatens to lead to,
circumvention of the responding party’s export subsidy commitments
within the meaning of Article 10.1 of the Agreement on Agriculture.
A.1.33A.10 US — Upland Cotton, para. 628
(WT/DS267/AB/R)
Before proceeding further, we
refer to the order followed by the Panel in its analysis of Brazil’s
claims against the United States’ export credit guarantee programs. We
do not find that the Panel’s order of analysis was wrong or that it
constituted legal error. Nor has the United States made such a claim on
appeal. Nevertheless, we are struck by the fact that the Panel addressed
Article 10.2 only at the end of its analysis, especially given that this
provision constituted the core of the United States’ defence that the
disciplines of the Agreement on Agriculture currently do not
apply to export credit guarantees at all.
A.1.34 Article 10.3 — Reversal of Burden of
Proof. See also Burden of Proof, reversal (B.3.4)
back to top
A.1.34.1 Canada — Dairy (Article 21.5
— New
Zealand and US), para. 98
(WT/DS103/AB/RW, WT/DS113/AB/RW)
As we have reversed the Panel’s
findings regarding the standard for determining the existence of “payments”
and have, instead, identified the appropriate standard for these
proceedings, namely, the average total cost of production, we now
consider whether we can resolve this aspect of the dispute by completing
the analysis. The Panel found that, in these proceedings, Article 10.3
of the Agreement on Agriculture reverses the burden of proof so
that Canada must establish “that no export subsidy … has been
granted”. Although the burden of proof is on Canada, we must
nonetheless complete the analysis solely on the basis of factual
findings made by the Panel and uncontested facts in the Panel record.
A.1.34.2 Canada — Dairy (Article 21.5
— New
Zealand and US II), paras. 66, 68
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
… under the usual allocation
of the burden of proof, a responding Member’s measure will be treated
as WTO-consistent, until sufficient evidence is presented to
prove the contrary. We will not readily find that the usual rules on
burden of proof do not apply, as they reflect a “canon of evidence”
accepted and applied in international proceedings.
…
[Article 10.3] requires that a
specific Member, in defined circumstances, “establish that no export
subsidy … has been granted”. … The provision refers to a Member
making a “claim” that certain exports are “not [being]
subsidized”. Although the word “claim” usually refers to an
assertion by a complaining Member that a measure is WTO-inconsistent,
in this provision the word “claim” refers to an assertion by a
responding Member that a measure is WTO-consistent. The “claim”
to which Article 10.3 refers is, therefore, a defensive argument made by
the responding Member.
A.1.34.3 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 69
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
Article 10.3 does not impose
any substantive obligations regulating the grant of export subsidies
under the Agreement on Agriculture. Rather, Article 10.3 provides
a special rule for proof of export subsidies that applies in certain
disputes under Articles 3, 8, 9, and 10 of the Agreement on
Agriculture.
A.1.34.4 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 70
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
In identifying the nature of
the special rule, it is useful to analyze the character of claims
brought under these provisions. Pursuant to Article 3 of the Agreement
on Agriculture, a Member is entitled to grant export
subsidies within the limits of the reduction commitment specified in its
Schedule. Where a Member claims that another Member has acted
inconsistently with Article 3.3 by granting export subsidies in excess
of a quantity commitment level, there are two separate parts to
the claim. First, the responding Member must have exported an
agricultural product in quantities exceeding its quantity commitment
level. If the quantities exported do not reach the quantity commitment
level, there can be no violation of that commitment, under Article 3.3.
However, merely exporting a product in quantities that exceed the
quantity commitment level is not inconsistent with the commitment. The
commitment is an undertaking to limit the quantity of exports that may
be subsidized and not a commitment to restrict the volume or
quantity of exports as such. The second part of the claim is,
therefore, that the responding Member must have granted export subsidies
with respect to quantities exceeding the quantity commitment level.
There is, in other words, a quantitative aspect and an export
subsidization aspect to the claim.
A.1.34.5 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 71
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
Under the usual rules on
burden of proof, the complaining Member would bear the burden of proving
both parts of the claim. However, Article 10.3 of the Agreement on
Agriculture partially alters the usual rules. The provision cleaves
the complaining Member’s claim in two, allocating to different parties
the burden of proof with respect to the two parts of the claim we have
described.
A.1.34.6 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 73
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
… The language of Article 10.3 is clearly intended to alter the generally-accepted rules on burden
of proof. The verb “establish” is synonymous with the verbs “demonstrate”
and “prove”. Moreover, the auxiliary verb “must” conveys that
the responding Member has an obligation — or legal burden — to “establish”
or “prove” that “no export subsidy … has been granted”.
A.1.34.7 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 74
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
… The significance of
Article 10.3 is that, where a Member exports an agricultural product in
quantities that exceed its quantity commitment level, that Member will
be treated as if it has granted WTO-inconsistent export
subsidies, for the excess quantities, unless the Member presents
adequate evidence to “establish” the contrary. This reversal of the
usual rules obliges the responding Member to bear the consequences of
any doubts concerning the evidence of export subsidization. Article 10.3
thus acts as an incentive to Members to ensure that they are in a
position to demonstrate compliance with their quantity commitments under
Article 3.3.
A.1.34.8 Canada — Dairy (Article 21.5
— New
Zealand and US II), para. 75
(WT/DS103/AB/RW2,
WT/DS113/AB/RW2)
With respect to the export
subsidization part of the claim, the complaining Member, therefore, is
relieved of its burden, under the usual rules, to establish a prima
facie case of export subsidization of the excess quantity, provided
that this Member has established the quantitative part of the claim. …
A.1.34.9 US — Upland Cotton, para. 616
(WT/DS267/AB/R)
… Article 10.3 pursues the
aim of preventing circumvention of export subsidy commitments by
providing special rules on the reversal of burden of proof where a
Member exports an agricultural product in quantities that exceed its
reduction commitment level; in such a situation a WTO Member is treated
as if it has granted WTO-inconsistent export subsidies for the
excess quantities, unless the Member presents adequate evidence to “establish”
the contrary. …
A.1.34.10 US — Upland Cotton, para. 647
(WT/DS267/AB/R)
We agree with the United
States that Article 10.3 of the Agreement on Agriculture does not
apply to claims brought under the SCM Agreement. However, the
Panel did not make the error attributed to it by the United States. The
Panel made the statement relied on by the United States in the context
of its assessment of the United States’ export credit guarantee
program under the Agreement on Agriculture. Although the Panel
made use of the criteria set out in item (j) of the Illustrative List of
Export Subsidies annexed to the SCM Agreement (providing these
programs at premium rates inadequate to cover long-term operating costs
and losses) it did so as contextual guidance for its analysis under the Agreement
on Agriculture, and both the United States and Brazil appear to have
agreed with the appropriateness of this approach. Thus, the Panel’s
reference to Article 10.3 did not relate to its assessment of the United
States’ export credit guarantee programs under the SCM Agreement.
A.1.34.11 US — Upland Cotton, para. 652
(WT/DS267/AB/R)
We disagree with the Panel’s
view that Article 10.3 applies to unscheduled products. Under the
Panel’s approach, the only thing a complainant would have to do to
meet its burden of proof when bringing a claim against an unscheduled
product is to demonstrate that the respondent has exported that product.
Once that has been established, the respondent would have to demonstrate
that it has not provided an export subsidy. This seems to us an extreme
result. In effect, it would mean that any export of an unscheduled
product is presumed to be subsidized. In our view, the
presumption of subsidization when exported quantities exceed the
reduction commitments makes sense in respect of a scheduled
product because, by including it in its schedule, a WTO Member is
reserving for itself the right to apply export subsidies to that
product, within the limits in its schedule. In the case of unscheduled
products, however, such a presumption appears inappropriate. Export
subsidies for both unscheduled agricultural products and industrial
products are completely prohibited under the Agreement on Agriculture
and under the SCM Agreement, respectively. The Panel’s
interpretation implies that the burden of proof with regard to the same
issue would apply differently, however, under each Agreement: it would
be on the respondent under the Agreement on Agriculture, while it
would be on the complainant under the SCM Agreement.
A.1.34A Article 10.3 — Relationship with
Article 6.2 of the DSU back to top
A.1.34A.1 EC — Export Subsidies on Sugar,
para. 154
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… Article 6.2 of the DSU and
Article 10.3 of the Agreement on Agriculture address different
matters and apply at different stages of panel proceedings. A panel
request, on its face, must comply with the requirements of Article 6.2
of the DSU, whereas Article 10.3 of the Agreement on Agriculture
relates to a Member’s duty to adduce evidence to substantiate its
assertions during the course of the panel proceedings. …
A.1.34B Article 10.4 — “food aid”
back to top
A.1.34B.1 US — Upland Cotton, para. 616
(WT/DS267/AB/R)
… Article 10.4 provides
disciplines to prevent WTO Members from circumventing their export
subsidy commitments through food aid transactions. …
A.1.34B.2 US — Upland Cotton, paras. 618-619
(WT/DS267/AB/R)
The United States submits
that, under the Panel’s approach, international food aid transactions
would be subject to the “full array of export subsidy disciplines”
because they are not expressly excluded from Article 10.1. …
We are unable to subscribe to
the United States’ arguments because we do not see Article 10.4 as
excluding international food aid from the scope of Article 10.1.
International food aid is covered by the second clause of Article 10.1
to the extent that it is a “non-commercial transaction”. Article 10.4 provides specific disciplines that may be relied on to determine
whether international food aid is being “used to circumvent” a WTO
Member’s export subsidy commitments. There is no contradiction in the
Panel’s approach to Article 10.2 and its approach to Article 10.4. The
measures in Article 10.2 and the transactions in Article 10.4 are both
covered within the scope of Article 10.1. As Brazil submits, “Article 10.4 provides an example of specific disciplines that have been agreed
upon for a particular type of measure and that complement the general
export subsidy rules” but, like Article 10.2, it does not “establish
any exceptions for the measures that [it] covers”. WTO Members are
free to grant as much food aid as they wish, provided that they do so
consistently with Articles 10.1 and 10.4. Thus, Article 10.4 does not
support the United States’ reading of Article 10.2.
A.1.34C Article 13 — “due restraint”
(peace clause). See also Agreement on Agriculture, Relationship
between the Agreement on Agriculture and the GATT 1994 (A.1.37)
back to top
A.1.34C.1 SUBPARAGRAPH (B)
— APPLICATION
A.1.34C.1.1 US
— Upland Cotton, para. 319
(WT/DS267/AB/R)
… domestic support that
conforms fully to the provisions of Annex 2 — that is “green box”
support, which is exempt from the domestic support reduction obligations
of the Agreement on Agriculture — is also exempt, during the
implementation period, from actions based on Article XVI of GATT 1994
and the actionable subsidies provisions of Part III of the SCM
Agreement.
A.1.34C.1.2 US
— Upland Cotton, para. 342
(WT/DS267/AB/R)
… production flexibility
contract payments and direct payments are not “decoupled income
support” within the meaning of paragraph 6, are not green box measures
exempt from the reduction commitments by virtue of Annex 2 of the Agreement
on Agriculture, and are not, therefore, sheltered from challenge by
virtue of paragraph (a) of Article 13 of the Agreement on Agriculture.
Rather, these measures are support covered by the chapeau to paragraph
(b) of Article 13, and are to be taken into account in the analysis of
that provision.
A.1.34C.2 SUBPARAGRAPH (B)
— APPLICATION
A.1.34C.2.1 US
— Upland Cotton, para. 347
(WT/DS267/AB/R)
Subparagraph (ii) to Article 13(b) exempts non-green box domestic support measures described in the
chapeau from actions based on Article XVI:1 of GATT 1994 and Articles 5
and 6 of the SCM Agreement. This exemption is, however, subject
to a proviso and is thus made conditional upon a requirement that “such
measures do not grant support to a specific commodity in excess of that
decided during the 1992 marketing year”. …
A.1.34C.2.2 US
— Upland Cotton, para. 361
(WT/DS267/AB/R)
We turn to our analysis of the
phrase “such measures … grant[ing] support to a specific commodity”
in Article 13(b)(ii). The Panel found and the participants do not
dispute that the relevant United States measures grant “support”;
similarly, the Panel found and the participants agree that upland cotton
is a “commodity” in the sense of that provision.
A.1.34C.2.3 US
— Upland Cotton, para. 362
(WT/DS267/AB/R)
The key element … is the
significance of the qualifying word “specific” in this phrase. The
Panel described the ordinary meaning of the term “specific” as “clearly
or explicitly defined; precise; exact; definite” and as “specially
or peculiarly pertaining to a particular thing or person, or a class of
these; peculiar (to)”. In our view, the term “specific” in
the phrase “support to a specific commodity” means the “commodity”
must be clearly identifiable. The use of term “to” connecting “support”
with “a specific commodity” means that support must “specially
pertain” to a particular commodity in the sense of being conferred on
that commodity. In addition, the terms “such measures … grant”
indicates that a discernible link must exist between “such measures”
and the particular commodity to which support is granted. Thus, it is
not sufficient that a commodity happens to benefit from support, or that
support ends up flowing to that commodity by mere coincidence. Rather,
the phrase “such measures” granting “support to a specific
commodity” implies a discernible link between the support-conferring
measure and the particular commodity to which support is granted.
A.1.34C.2.4 US
— Upland Cotton, para. 363
(WT/DS267/AB/R)
Therefore, we agree with the
Panel insofar as it found that the ordinary meaning of the phrase “such
measures … grant[ing] support to a specific commodity” includes
“non-green box measures that clearly or explicitly define a commodity
as one to which they bestow or confer support”. This is because the
Panel’s test requires that a commodity be specified in the measure,
and that the support be conferred on that commodity. We believe,
however, that the terms of this definition do not exhaust the scope of
measures that may grant “support to a specific commodity”. We note
in this regard that the Panel looked, in applying its test, to factors
such as eligibility criteria and payment rates, as well as the
relationship between payments and current market prices of the commodity
in question. In our view, the Panel was correct to consider such
matters, as the requisite link between a measure granting support and a
specific commodity may be discerned not just from an explicit
specification of the commodity in the text of a measure, as the Panel’s
test — on its face — seems to imply, but also from an analysis of
factors such as the characteristics, structure or design of that
measure.
A.1.34C.2.5 US
— Upland Cotton, para. 367
(WT/DS267/AB/R)
… The proviso to Article 13(b)(ii) mentions only the term “such measures” granting support;
but the meaning of this term can be clarified by reference to the
chapeau of Article 13(b) because, as the Panel noted, “[t]he chapeau
of paragraph (b) and subparagraph (ii) form part of a single sentence.”
The chapeau identifies the categories of support measures covered by
that provision. These are:
… domestic support measures that conform
fully to the provisions of Article 6 of this Agreement including direct
payments that conform to the requirements of paragraph 5 thereof, as
reflected in each Member’s Schedule, as well as domestic support
within de minimis levels and in conformity with paragraph 2 of
Article 6 …
A.1.34C.2.6 US
— Upland Cotton, para. 368
(WT/DS267/AB/R)
Measures covered by Article 6
include both product-specific and non-product-specific amber box support
subject to reduction commitments. In addition, measures covered by the
chapeau also include product-specific and non-product-specific
support within de minimis levels. They further include blue box
support provided in accordance with Article 6.5, as well as development
box support, provided according to the provisions of Article 6.2, for
both of which the distinction between product-specific and non-product
specific support for purposes of the AMS calculation has little
practical relevance. Like the Panel, we believe that the use of the term
“such measures” in the proviso to Article 13(b)(ii) indicates that
all such measures identified in the chapeau of Article 13(b) may qualify
as granting “support to a specific commodity” and are eligible to be
included in the analysis. By contrast, under the United States’
argument, domestic support measures listed in the chapeau (with the
exception of product-specific amber box support) could not be “support
to a specific commodity” even if they confer support on a specific
commodity and there is a discernible link between the measure and that
commodity.
A.1.34C.3 SUBPARAGRAPH (B)
— APPLICATION
A.1.34C.3.1 US
— Upland Cotton, paras. 371-372
(WT/DS267/AB/R)
The proviso to Article 13(b)(ii) requires an assessment of whether the relevant United States
non-green box domestic support measures grant, during the implementation
period, “support to a specific commodity in excess of that decided
during the 1992 marketing year”.
As we have explained above,
the term “such measures … grant support to a specific commodity”
comprises two elements: first, a non-green box measure actually confers
support on the specific commodity in question; and second, there is a
discernible link between the measure and the commodity, such that the
measure is directed at supporting that commodity. Such a discernible
link may be evident where a measure explicitly defines a specific
commodity as one to which it bestows support. Such a link might also be
ascertained, as a matter of fact, from the characteristics, structure or
design of the measure under examination. Conversely, support that does
not actually flow to a commodity or support that flows to a commodity by
coincidence rather than by the inherent design of the measure cannot be
regarded as falling within the ambit of the term “support to a
specific commodity”.
A.1.34C.3.2 US
— Upland Cotton, paras. 375-376
(WT/DS267/AB/R)
We agree with the United
States that payments made with respect to historical upland cotton base
acres to commodities other than upland cotton or to producers who
produced no commodities at all cannot be deemed to be support granted to
upland cotton for purposes of the Article 13(b)(ii) comparison. The
Article 13(b)(ii) assessment must be limited to support conferred on
planted upland cotton; support flowing to other commodities that were
planted, or support that was given where no commodities were produced
must of course be removed from the assessment. We reject, therefore, the
Panel’s calculation methodology to the extent that it failed to limit
the Article 13(b)(ii) calculation to payments with respect to upland
cotton base acres corresponding to physical acres actually planted with
upland cotton.
We observe, however, that the
Panel acknowledged that a producer with upland cotton base acres may
plant any crop other than the excluded fruits, vegetables, and wild
rice, but it found that there was “a strongly positive relationship
between those recipients who hold upland cotton base acres and those who
continue to plant upland cotton, despite their entitlement to plant
other crops”. …
A.1.34C.3.3 US
— Upland Cotton, paras. 377-378
(WT/DS267/AB/R)
… The “cotton to cotton”
methodology limits the Article 13(b)(ii) calculation to payments with
respect to cotton base acres corresponding to physical acres that were
actually planted with upland cotton.
We turn next to the United
States’ contention that the mere fact that a measure is based on historical
production of upland cotton is not a sufficient basis for a finding that
the measure grants at present “support to [the] specific commodity”
upland cotton. We agree that none of the base acre dependent programs
expressly ties support to continued production of upland cotton.
However, the absence of an express reference in the legislation to
continued production of upland cotton does not mean that the payments do
not grant support to upland cotton. This is because a link between the
four measures at issue and the continued production of upland cotton is
discernible from the characteristics, structure and operation of those
measures.
A.1.34C.3.4 US —
Upland Cotton, para. 380
(WT/DS267/AB/R)
We underline that these Panel
findings do not pertain to all payments to current
producers of upland cotton, but rather are limited to payments to
producers with respect to historic upland cotton base acres.
Indeed, we see little in the Panel’s finding or on the record that
would allow us to discern a link between the support-conferring measures
with respect to non-cotton historical base acres and current production
of upland cotton. We do not, therefore, accept the methodology submitted
by Brazil that included, in the Article 13(b)(ii) calculation, payments
with respect to both cotton and non-cotton base acres flowing to current
production of upland cotton. We believe that only the “cotton to
cotton” methodology, included by the Panel in “Attachment to Section
VII:D” to its Report as an “appropriate” alternative calculation,
sufficiently demonstrates a discernible link between payments under base
acre dependent measures (related to upland cotton) and upland cotton.
A.1.34C.4 SUBPARAGRAPH (B)
— “GRANT” VS. “DECIDED”
A.1.34C.4.1 US
— Upland Cotton, paras. 381-382
(WT/DS267/AB/R)
Finally, we address the United
States’ argument that the calculation methodology under Article 13(b)(ii) must be based on only those factors that the government of a
Member can control, excluding, for example, producer decisions regarding
what crops to grow within the scope of production flexibility allowed by
the measures. In advancing this contention, the United States relies
upon the following statement of the Panel:
[If] the proviso [to Article 13(b)(ii)]
focused on where support was spent due to reasons beyond the control of
the government, such as producer decisions on what to produce within a
programme, it would introduce a major element of unpredictability into
Article 13, and render it extremely difficult to ensure compliance.
The United States finds
support for this view in the terms “grant” and “decided” in
Article 13(b)(ii), and claims that “the focus of the Peace Clause
comparison is on the support a Member decides”. We note that the verbs
“grant” and “decided” have distinct meanings. We agree with the
observation of the Panel that “ ’[d]ecided’ refers to what the
government determines, but ‘grant’ refers to what its measures
provide.” In Article 13(b)(ii), each of these words has been chosen to
govern one side of the comparison required by that proviso. In the light
of the distinct meanings of these words, and the distinct roles they
play in the context of Article 13(b)(ii), we reject the idea that the
word “grant”, which is applicable to implementation period support,
must be read to mean the same thing as “decided”, which is
applicable to the 1992 benchmark level of support.
A.1.34C.4.2 US
— Upland Cotton, para. 383
(WT/DS267/AB/R)
Moreover, we do not accept
that unpredictability of producer decisions under planting flexibility
rules, per se, could modify the specific requirements set out in
the proviso to Article 13(b)(ii). What is relevant for the comparison is
the support that the measure actually grants during the implementation
period. Indeed, we agree with Brazil that a certain degree of
unpredictability in the volume of the payments flowing to particular
commodities is inherent in many of the support measures disciplined by
the Agreement on Agriculture, including measures granting support
to a specific commodity. The existence of such unpredictability cannot
be a ground to alter the basis of comparison under the proviso to
Article 13(b)(ii) from what is actually “grant[ed]” in the
implementation period to what is only “decided”.
A.1.34C.5 SUBPARAGRAPH (B)
— CALCULATION METHOD
A.1.34C.5.1 US
— Upland Cotton, paras. 388-389
(WT/DS267/AB/R)
In addressing this issue, we — like the Panel
— note that Article 13(b)(ii) gives no specific guidance
regarding how the “support” that measures granted in the
implementation period or that was decided during the 1992 marketing year
should be calculated. The Panel therefore turned to the broader context
of the Agreement on Agriculture and chose to “apply the
principles of AMS methodology” in accordance with Annex 3 of the Agreement
on Agriculture, with certain modifications. We observe that, on
appeal, neither of the participants, nor indeed any of the third
participants that addressed this issue, suggested that the Panel erred
in seeking guidance for its calculations in the principles set out in
Annex 3.
Against this background, we
observe that paragraph 10 of Annex 3 provides that “non-exempt direct
payments … dependent on a price gap” may be measured using either
price gap methodology or budgetary outlay methodology. …
A.1.34D Annex 2 — “green box” back to top
A.1.34D.1 PARAGRAPH I
— “FUNDAMENTAL REQUIREMENT”
A.1.34D.1.1 US
— Upland Cotton, para. 333
(WT/DS267/AB/R)
We note that the first
sentence of paragraph 1 of Annex 2 lays down a “fundamental
requirement” for green box measures, such that they must have “no,
or at most minimal, trade-distorting effects or effects on production”.
The second sentence of paragraph 1 provides that, “[a]ccordingly”,
green box measures must conform to the basic criteria stated in that
sentence, “plus” the policy-specific criteria and conditions set out
in the remaining paragraphs of Annex 2, including those in paragraph 6.
A.1.34D.1.2 US
— Upland Cotton, para. 334
(WT/DS267/AB/R)
As we have noted, the Panel
found that the planting flexibility limitations in this case “significantly
constrain” production decisions. However one reads the “fundamental
requirement” in paragraph 1 of Annex 2, given the factual findings of
the Panel, the facts of this case do not present a situation in which
the planting flexibility limitations demonstrably have “no, or at most
minimal,” trade-distorting effects or effects on production.
A.1.34D.2 PARAGRAPH 6
— “DECOUPLED INCOME SUPPORT”
A.1.34D.2.1 US
— Upland Cotton, para. 321
(WT/DS267/AB/R)
Paragraph 6, entitled, “[d]ecoupled
income support” applies to one type of “direct payment” to
producers that may benefit from exemption from reduction commitments and
protection under the peace clause. Paragraph 6(a) sets forth that
eligibility for payments under a decoupled income support program must
be determined by reference to certain “clearly-defined criteria” in
a “defined and fixed base period”. Paragraph 6(b) requires the
severing of any link between the amount of payments under
such a program and the type or volume of production undertaken by
recipients of payments under that program in any year after the base
period. Paragraphs 6(c) and 6(d) serve to require that payments are also
decoupled from prices and factors of production employed
after the base period. Paragraph 6(e) makes it clear that “[n]o
production shall be required in order to receive … payments” under a
decoupled income support program.
A.1.34D.2.2 US
— Upland Cotton, para. 322
(WT/DS267/AB/R)
… the question before us
regarding the consistency of production flexibility contract payments
and direct payments with paragraph 6(b) of Annex 2 is a limited one. It
does not concern a measure requiring producers to grow certain
crops in order to receive payments; it also does not concern a measure
with complete planting flexibility that provides payments without
regard whatsoever to the crops that are grown. Indeed, it does not
concern a measure that requires the production of any crop at all; nor
does it involve a measure that totally prohibits the growing of
any crops as a condition for payments. The question before us in this
appeal thus concerns a measure with a partial exclusion combining
planting flexibility and payments with the reduction or elimination of
the payments when the excluded crops are produced, while providing
payments even when no crops are produced at all.
A.1.34D.2.3 US
— Upland Cotton, para. 323
(WT/DS267/AB/R)
In addressing the question of
the consistency of such a measure with paragraph 6(b), we note that
under this provision, for income support to be decoupled, the “amount
of such payments … shall not be related to … the type or volume of
production … undertaken by the producer in any year after the base
period”. …
A.1.34D.2.4 US
— Upland Cotton, para. 324
(WT/DS267/AB/R)
The ordinary meaning of the
term “related to” in paragraph 6(b) of Annex 2 denotes some degree
of relationship or connection between two things, here the
amount of payment, on the one hand, and the type or volume of
production, on the other. It covers a broader set of connections than
“based on”, which term is also used to describe the relationship
between two things covered by paragraph 6(b). Nothing in the ordinary
meaning of the term “related to” suggests that the connections
covered by this expression may not encompass connections of either a “positive”
nature (including directions or requirements to do something) or a “negative”
nature (including prohibitions or requirements not to do something) or a
combination of both. …
A.1.34D.2.5 US
— Upland Cotton, para. 325
(WT/DS267/AB/R)
Paragraph 6 of Annex 2,
entitled “[d]ecoupled income support”, seeks to decouple or de-link
direct payments to producers from various aspects of their production
decisions and thus aims at neutrality in this regard. Subparagraph (b)
decouples the payments from production; subparagraph (c) decouples
payments from prices; and subparagraph (d) decouples payments from
factors of production. Subparagraph (e) completes the process by making
it clear that no production shall be required in order to receive such
payments. Decoupling of payments from production under paragraph 6(b)
can only be ensured if the payments are not related to, or based upon,
either a positive requirement to produce certain crops or a negative
requirement not to produce certain crops or a combination of both
positive and negative requirements on production of crops.
A.1.34D.2.6 US
— Upland Cotton, para. 326
(WT/DS267/AB/R)
In contrast to the other
subparagraphs of paragraph 6, paragraph 6(e) does explicitly distinguish
between positive and negative production requirements, because it
prohibits positive requirements to produce. The Panel reasoned that “[i]f
paragraph 6(b) could be satisfied by ensuring that no production was
required to receive payments, paragraph 6(e) would be redundant”. We
agree with the Panel that the context provided by paragraph 6(e)
indicates that a measure that provided payments, even if a producer
undertook no production at all, would not, for that reason alone,
necessarily comply with paragraph 6(b). This is because other elements
of that measure might still relate the amount of payments to the type or
volume of production, contrary to the requirement of paragraph 6(b).
A.1.34D.2.7 US
— Upland Cotton, para. 327
(WT/DS267/AB/R)
The United States seems to
argue that the Panel’s interpretation of the relationship between
paragraphs 6(b) and 6(e) would subsume paragraph 6(e) within the scope
of paragraph 6(b), thereby rendering it redundant. In our view, however,
paragraph 6(e) continues to serve a purpose distinct from that of
paragraph 6(b). It highlights a different aspect of decoupling income
support. In prohibiting Members from making green-box measures
contingent on production, paragraph 6(e) implies that Members are
allowed, in principle, to require no production at all. Accordingly,
payments conditioned on a total ban on any production may qualify as
decoupled income support under paragraph 6(e). Even assuming that
payments contingent on a total production ban could be seen to relate
the amount of the payment to the volume of production within the
meaning of paragraph 6(b) — the volume of production being nil — giving
meaning and effect to both paragraphs 6(b) and 6(e) suggests a reading
of paragraph 6(b) that would not disallow a total ban on any production.
A.1.34D.2.8 US
— Upland Cotton, para. 329
(WT/DS267/AB/R)
We agree with the Panel that a
partial exclusion of some crops from payments has the potential to
channel production towards the production of crops that remain eligible
for payments. In contrast to a total production ban, the channelling of
production that may follow from a partial exclusion of some crops from
payments will have positive production effects as regards crops
eligible for payments. The extent of this will depend on the scope of
the exclusion. …
A.1.34D.2.9 US
— Upland Cotton, para. 340
(WT/DS267/AB/R)
… Our interpretation of
paragraph 6(b) would not prevent a WTO Member from making illegal the
production of certain crops. Nor would it prevent a Member from
providing decoupled income support while at the same time making the
production of certain crops illegal. As Brazil states, there is nothing
in the Agreement on Agriculture to suggest that the term “production”
in paragraph 6 of Annex 2 refers to anything other than lawful
production. In addition, we observe that specific provisions of the Agreement
on Agriculture recognize, and exempt from reduction commitments,
domestic support programs that address the problem of production of
illicit narcotic crops in developing countries or payments under certain
environmental programs.
A.1.34D.3 PARAGRAPH II
— “STRUCTURAL ADJUSTMENT ASSISTANCE”
A.1.34D.3.1 US
— Upland Cotton, para. 335
(WT/DS267/AB/R)
We find further support for
our interpretation of paragraph 6(b) in the context provided by
paragraph 11 of Annex 2, entitled “Structural adjustment assistance
provided through investment aids”. Several of the subparagraphs of
paragraph 11 are phrased in similar terms to those of paragraph 6.
Indeed, like paragraph 6(b), paragraph 11(b) requires that the “amount
of … payments … shall not be related to … the type or volume of
production … undertaken by the producer in any year after the base
period.” However, unlike paragraph 6(b), paragraph 11(b) ends with the
phrase “other than as provided for under criterion (e) below”.
Criterion 11(e) specifically envisages that “payments shall not
mandate or in any way designate the agricultural products to be produced
by the recipients except to require them not to produce a particular
product”.
A.1.34D.3.2 US
— Upland Cotton, para. 336
(WT/DS267/AB/R)
We note that the exception
provided by paragraph 11(e) and the link to paragraph 11(e) in paragraph
11(b) explicitlyauthorize the type of “negative” requirements
not to produce that the United States argues is implicitly permitted
by the terms of paragraph 6(b). In the light of the similarity of the
language chosen in paragraphs 6(b) and 11(b), like the Panel, we attach
significance to the fact that the drafters saw as necessary an explicit
authorization of negative requirements not to produce under paragraph
11(b). In our view, this indicates that the ordinary meaning of the
terms in paragraph 11(b) would otherwise exclude an interpretation
allowing such negative requirements. The use of identical language in
paragraphs 6(b) and 11(b), except for the reference in paragraph 11(b)
to paragraph 11(e), suggests that the meaning of the terms in paragraph
6(b) must be the same as in paragraph 11(b). Accordingly, a comparison
of these provisions confirms that the terms of paragraph 6(b) encompass
both positive as well as negative connections between the amount of
payments under a program and the type of production undertaken.
A.1.34E Annex 3, paragraph 7 — Measures
directed at agricultural processors benefitting producers
of agricultural products back to top
A.1.34E.1 US — Upland Cotton, para. 537
and footnote 777
(WT/DS267/AB/R)
… we will proceed with our
examination on the assumption that Step 2 payments to domestic
users of United States cotton are contemplated by paragraph 7 of Annex 3
of the Agreement on Agriculture.777
A.1.34E.2 US — Upland Cotton, para. 540
(WT/DS267/AB/R)
… The second sentence of
paragraph 7 recognizes situations where subsidies are not provided
directly to the agricultural producer, but rather to an agricultural
processor, yet the measures may benefit the producers of the basic
agricultural good. This sentence also clarifies that only the portion of
the subsidy that benefits the producers of the basic agricultural good,
and not the entire amount, shall be included in a Member’s AMS.
A.1.34E.3 US — Upland Cotton, para. 541
(WT/DS267/AB/R)
… There is nothing … in
the text of paragraph 7 [of Annex 3 of the Agreement on Agriculture]
that suggests that such measures, when they are import substitution
subsidies, are exempt from the prohibition in Article 3.1(b) of the SCM
Agreement. …
A.1.34E.4 US — Upland Cotton, para. 542
(WT/DS267/AB/R)
… paragraph 7 of Annex 3
refers more broadly to measures directed at agricultural processors that
benefit producers of a basic agricultural product and, contrary to the
United States’ assertion, it is not rendered inutile by the Panel’s
interpretation. WTO Members may still provide subsidies directed at
agricultural processors that benefit producers of a basic agricultural
commodity in accordance with the Agreement on Agriculture, as
long as such subsidies do not include an import substitution component.
A.1.34E.5 US — Upland Cotton, para. 546
(WT/DS267/AB/R)
… we find that paragraph 7
of Annex 3 and Article 6.3 of the Agreement on Agriculture do not
deal specifically with the same matter as Article 3.1(b) of the SCM
Agreement, that is, subsidies contingent upon the use of domestic
over imported goods.
A.1.35 Annex 3, paragraph 8 — “market price
support” back to top
A.1.35.1 Korea — Various Measures on Beef,
para. 120
(WT/DS161/AB/R,
WT/DS169/AB/R)
… the words “production eligible
to receive the applied administered price” in paragraph 8 of Annex 3
have a different meaning in ordinary usage from “production actually
purchased”. The ordinary meaning of “eligible” is “fit or entitled
to be chosen”. Thus, “production eligible” refers to production
that is “fit or entitled” to be purchased rather than production
that was actually purchased. In establishing its program for future
market price support, a government is able to define and to limit “eligible”
production. Production actually purchased may often be less than
eligible production.
A.1.36 Relationship between Domestic Support
and Export Subsidies Disciplines back to top
A.1.36.1 Canada — Dairy (Article 21.5
— New
Zealand and US), paras. 90-92
(WT/DS103/AB/RW, WT/DS113/AB/RW)
We believe that it would erode
the distinction between the domestic support and export subsidies
disciplines of the Agreement on Agriculture if WTO-consistent
domestic support measures were automatically characterized as export
subsidies because they produced spill-over economic benefits for export
production. Indeed, this is another reason why we do not agree with the
Panel that sales of CEM at any price below the administered domestic
price for milk can be regarded as “payments” under Article 9.1(c) of
the Agreement on Agriculture. Such a basis for comparison would
tend to collapse the distinction between these two different
disciplines.
However, we consider that the
distinction between the domestic support and export subsidies
disciplines in the Agreement on Agriculture would also be eroded
if a WTO Member were entitled to use domestic support, without limit, to
provide support for exports of agricultural products. Broadly stated,
domestic support provisions of that Agreement, coupled with high levels
of tariff protection, allow extensive support to producers, as compared
with the limitations imposed through the export subsidies disciplines.
Consequently, if domestic support could be used, without limit, to
provide support for exports, it would undermine the benefits intended to
accrue through a WTO Member’s export subsidy commitments.
In our view, by relying upon
the total cost of production in this dispute, to determine whether there
are “payments”, the integrity of the two disciplines is best
respected. The existence of “payments” is determined by reference to
a standard that focuses upon the motivations of the independent economic
operator who is making the alleged “payments” — here the producer
— and not upon any government intervention in the marketplace. More
importantly, using this basis for comparison, the potential for WTO
Members to export their agricultural production is preserved, provided
that any export-destined sales by a producer at below the total cost of
production are not financed by virtue of governmental action. The export
subsidy disciplines of the Agreement on Agriculture will also be
maintained without erosion.
A.1.36.2 EC — Export Subsidies on Sugar,
paras. 279-282
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… WTO Members are entitled
to provide “domestic support” to agricultural producers
within the limits of their domestic subsidy commitments. We observe,
however, that the Appellate Body has also held that economic effects of
WTO-consistent domestic support may “spill over” to benefit export
production. Such spill-over effects may arise, in particular, in
circumstances where agricultural products result from a single line of
production that does not distinguish between production destined for the
domestic market and production destined for the export market.
In this respect, the Appellate
Body has cautioned that, “if domestic support could be used, without
limit, to provide support for exports, it would undermine the benefits
intended to accrue through a WTO Member’s export subsidy commitments.”
We believe that these statements are relevant to the present case. In
this case, we note that C sugar is produced and exported in huge
quantities, and that there is a considerable difference between the
world market price and the average total cost of production of sugar in
the European Communities. As we have noted above, the subsidized
production and export of C sugar is not the incidental effect of the
domestic support system, but is a direct consequence of the EC sugar
regime.
We also disagree with the
European Communities’ argument that the Panel’s finding blurs the
distinction between domestic support and export subsidies; we disagree,
because the European Communities’ legislation requires the
exportation of C sugar, and prices obtained for C sugar on the world
market are significantly below the average total cost of production of
sugar in the European Communities. In our view, European Communities’
legislation leaves the sugar producer wishing to sell C sugar with no
choice but to export, short of the limited option of “carry over”.
We also note that the operation of the EC sugar regime enables sugar
producers to cover the fixed costs of producing sugar and to sell C
sugar profitably, even though the prices obtained for C sugar are
significantly below the average total cost of production of sugar.
Thus, we do not consider that
our interpretation erodes the boundary between “domestic support”
and “export subsidies” recognized under the Agreement on
Agriculture. Rather, our interpretation respects the boundary
between the two and operates to ensure that Members provide domestic
support and export subsidies in conformity with their obligations under
the Agreement on Agriculture. As we noted earlier, our
interpretation is based on the specific facts and circumstances of this
dispute.
A.1.37 Relationship between the Agreement on
Agriculture and the GATT 1994. See also Tariff Concessions,
Relationship between Member’s Schedules and the Agreement on
Agriculture (T.1.4) back to top
A.1.37.1 EC — Bananas III, para. 155
(WT/DS27/AB/R)
… The relationship between
the provisions of the GATT 1994 and of the Agreement on Agriculture
is set out in Article 21.1 of the Agreement on Agriculture:
The provisions of GATT 1994 and of other
Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall
apply subject to the provisions of this Agreement.
Therefore, the provisions of
the GATT 1994, including Article XIII, apply to market-access
commitments concerning agricultural products, except to the extent that
the Agreement on Agriculture contains specific provisions dealing
specifically with the same matter.
A.1.37.2 EC — Bananas III, para. 157
(WT/DS27/AB/R)
… we do not see anything in
Article 4.1 to suggest that market access concessions and commitments
made as a result of the Uruguay Round negotiations on agriculture can be
inconsistent with the provisions of Article XIII of the GATT 1994. …
we believe it is significant that Article 13 of the Agreement on
Agriculture does not, by its terms, prevent dispute settlement
actions relating to the consistency of market access concessions for
agricultural products with Article XIII of the GATT 1994. As we have
noted, the negotiators of the Agreement on Agriculture did not
hesitate to specify such limitations elsewhere in that agreement; had
they intended to do so with respect to Article XIII of the GATT 1994,
they could, and presumably would, have done so. We note further that the
Agreement on Agriculture makes no reference to the Modalities
document or to any “common understanding” among the negotiators of
the Agreement on Agriculture that the market-access commitments
for agricultural products would not be subject to Article XIII of the
GATT 1994.
A.1.37.3 EC — Export Subsidies on Sugar,
para. 211
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
… we examine whether the
claimed commitment in Footnote 1 “limiting” subsidization of exports
of sugar can prevail over the provisions of the Agreement on
Agriculture, despite such a commitment being inconsistent with
Articles 3.3 and 9.1 of the Agreement on Agriculture. …
A.1.37.4 EC — Export Subsidies on Sugar,
paras. 221-223
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
In any event, we note that
Article 21 of the Agreement on Agriculture provides that: “[t]he
provisions of [the] GATT 1994 and of other Multilateral Trade Agreements
in Annex 1A to the WTO Agreement shall apply subject to the provisions
of this Agreement.” In other words, Members explicitly recognized that
there may be conflicts between the Agreement on Agriculture and
the GATT 1994, and explicitly provided, through Article 21, that the Agreement
on Agriculture would prevail to the extent of such conflicts.
Similarly, the General interpretative note to Annex 1A to the WTO
Agreement states that, “[i]n the event of conflict between a
provision of the [GATT 1994] and a provision of another agreement in
Annex 1A…, the provision of the other agreement shall prevail to the
extent of the conflict.” The Agreement on Agriculture is
contained in Annex 1A to the WTO Agreement.
As we noted above, Footnote 1,
being part of the European Communities’ Schedule, is an integral part
of the GATT 1994 by virtue of Article 3.1 of the Agreement on
Agriculture. Therefore, pursuant to Article 21 of the Agreement
on Agriculture, the provisions of the Agreement on Agriculture
prevail over Footnote 1. …
As a separate matter, we note
that the European Communities asserts that Footnote 1 was “negotiated”
with its partners in the Uruguay Round negotiations and that it has been
“respected”. Accordingly, Footnote 1 forms part of the treaty
ratified by the WTO Members. Similarly, the ACP Countries allege that
Footnote 1 “was negotiated and agreed upon” or acquiesced in by the
Complaining Parties before the end of the Uruguay Round. The Panel
found, however, that “[t]he evidence and submissions produced by all
parties show that the Complainants did not agree to any European
Communities’ deviations from the Agreement on Agriculture.”
The Panel concluded that “participants in the Uruguay Round and WTO
Members did not agree to the European Communities’ inclusion of
Footnote 1 as an agreed departure from the European Communities’ basic
obligations under the Agreement on Agriculture.” Accordingly,
we see no basis in the Panel Reports for the contention of the European
Communities and the ACP Countries that the Complaining Parties or the
WTO Members negotiated or agreed to Footnote 1 as a departure from the
European Communities’ obligations under the Agreement on
Agriculture.
A.1.37A Relationship between the Agreement on
Agriculture and the Modalities Paper back to top
A.1.37A.1 EC — Bananas III, para. 157
(WT/DS27/AB/R)
… We note further that the Agreement
on Agriculture makes no reference to the Modalities document
or to any “common understanding” among the negotiators of the Agreement
on Agriculture that the market-access commitments for agricultural
products would not be subject to Article XIII of the GATT 1994.
A.1.37A.2 EC — Export Subsidies on Sugar,
para. 199
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
We do not find it necessary to
decide in this appeal on the relevance of the “Modalities Paper”.
The “Modalities Paper” is not an agreement among the WTO Members
and, by its terms, cannot be the basis of dispute settlement under the Marrakesh
Agreement Establishing the World Trade Organization (the “WTO
Agreement”). Furthermore, as the Appellate Body noted in EC —
Bananas III, “the Agreement on Agriculture makes no
reference to the Modalities document”. …
A.1.38 Relationship between the Agreement on
Agriculture and the SCM Agreement. See also Agreement on
Agriculture, Article 1(e) — “subsidy” (A.1.3); SCM Agreement,
Article 3.1 — “except as provided in the Agreement on Agriculture”
(S.2.11) back to top
A.1.38.1 Canada — Dairy (Article 21.5
— New
Zealand and US), paras. 123-124
(WT/DS103/AB/RW, WT/DS113/AB/RW)
The relationship between the Agreement
on Agriculture and the SCM Agreement is defined, in
part, by Article 3.1 of the SCM Agreement, which states
that certain subsidies are “prohibited” “[e]xcept as provided in
the Agreement on Agriculture”. This clause, therefore, indicates that
the WTO-consistency of an export subsidy for agricultural products has
to be examined, in the first place, under the Agreement on
Agriculture.
This is borne out by Article 13(c)(ii) of the Agreement on Agriculture, which provides that
“export subsidies that conform fully to the [export subsidy]
provisions of Part V” of the Agreement on Agriculture, “as
reflected in each Member’s Schedule, shall be … exempt from actions
based on Article XVI of GATT 1994 or Articles 3, 5 and 6 of the
Subsidies Agreement.”
A.1.38.2 US — Upland Cotton, paras. 532-533
(WT/DS267/AB/R)
We agree that Article 21.1
could apply in the three situations described by the Panel, namely:
… where, for example, the domestic support
provisions of the Agreement on Agriculture would prevail in the
event that an explicit carve-out or exemption from the disciplines in
Article 3.1(b) of the SCM Agreement existed in the text of
the Agreement on Agriculture. Another situation would be where it
would be impossible for a Member to comply with its domestic support
obligations under the Agreement on Agriculture and the Article 3.1(b) prohibition simultaneously. Another situation might be where
there is an explicit authorization in the text of the Agreement on
Agriculture that would authorize a measure that, in the absence of
such an express authorization, would be prohibited by Article 3.1(b) of
the SCM Agreement. [Panel Report, para. 7.1038 (original
emphasis)]
The Appellate Body has
interpreted Article 21.1 to mean that the provisions of the GATT 1994
and of other Multilateral Trade Agreements in Annex 1A apply, “except
to the extent that the Agreement on Agriculture contains specific
provisions dealing specifically with the same matter”. There could be,
therefore, situations other than those identified by the Panel where
Article 21.1 of the Agreement on Agriculture may be applicable.
The key issue before us is
whether the Agreement on Agriculture contains “specific
provisions dealing specifically with the same matter” as Article 3.1(b) of the SCM Agreement, that is, subsidies contingent upon
the use of domestic over imported goods. We, therefore, turn to the
relevant provisions of the Agreement on Agriculture.
A.1.38.3 US — Upland Cotton, para. 536
(WT/DS267/AB/R)
Before determining whether
Article 6.3 and paragraph 7 of Annex 3 of the Agreement on
Agriculture deal specifically with the same matter as Article 3.1(b)
of the SCM Agreement, we must address the question whether the
Step 2 payments to domestic users of United States upland cotton fall
within paragraph 7 of Annex 3 because the United States claims that they
are “[m]easures directed at agricultural processors” and “benefit
the producers of the basic agricultural products”. …
A.1.38.4 US — Upland Cotton, para. 538
(WT/DS267/AB/R)
We thus turn to the issue
raised by the United States’ appeal, that is, whether Article 6.3 and
paragraph 7 of Annex 3 of the Agreement on Agriculture are “specific
provisions dealing specifically with the same matter” as Article 3.1(b) of the SCM Agreement, namely, subsidies contingent upon
the use of domestic over imported goods.
A.1.38.5 US — Upland Cotton, para. 542
(WT/DS267/AB/R)
… Like the Panel, we do not
believe that the scope of paragraph 7 is limited to measures that have
an import substitution component in them. There could be other measures
covered by paragraph 7 of Annex 3 that do not necessarily have such a
component. Indeed, Brazil submits that if the Step 2 payments were
provided to United States processors of cotton, regardless of the origin
of the cotton, these processors “would still buy at least some
U.S. upland cotton, so producers would continue to derive some
benefit”. Thus, paragraph 7 of Annex 3 refers more broadly to measures
directed at agricultural processors that benefit producers of a basic
agricultural product and, contrary to the United States’ assertion, it
is not rendered inutile by the Panel’s interpretation. WTO Members may
still provide subsidies directed at agricultural processors that benefit
producers of a basic agricultural commodity in accordance with the Agreement
on Agriculture, as long as such subsidies do not include an import
substitution component.
A.1.38.6 US — Upland Cotton, para. 545
(WT/DS267/AB/R)
Article 6.3 does not authorize
subsidies that are contingent on the use of domestic over imported
goods. It only provides that a WTO Member shall be considered to be in
compliance with its domestic support reduction commitments if its
Current Total AMS does not exceed that Member’s annual or final bound
commitment level specified in its Schedule. It does not say that
compliance with Article 6.3 of the Agreement on Agriculture
insulates the subsidy from the prohibition in Article 3.1(b). …
A.1.38.7 US — Upland Cotton, para. 546
(WT/DS267/AB/R)
… we find that paragraph 7
of Annex 3 and Article 6.3 of the Agreement on Agriculture do not
deal specifically with the same matter as Article 3.1(b) of the SCM
Agreement, that is, subsidies contingent upon the use of domestic
over imported goods.
A.1.38.8 US — Upland Cotton, para. 547
(WT/DS267/AB/R)
We are mindful that the
introductory language of Article 3.1 of the SCM Agreement
clarifies that this provision applies “[e]xcept as provided in the
Agreement on Agriculture”. Furthermore, as the United States has
pointed out, this introductory language applies to both the export
subsidy prohibition in paragraph (a) and to the prohibition on import
substitution subsidies in paragraph (b) of Article 3.1. As we explained
previously, in our review of the provisions of the Agreement on
Agriculture [paragraph 7 of Annex 3 and Article 6.3 of the Agreement
on Agriculture] relied on by the United States, we did not find a
provision that deals specifically with subsidies that have an import
substitution component. By contrast, the prohibition on the provision of
subsidies contingent upon the use of domestic over imported goods in
Article 3.1(b) of the SCM Agreement is explicit and clear.
Because Article 3.1(b) treats subsidies contingent on the use of
domestic over imported products as prohibited subsidies, it would be
expected that the drafters would have included an equally explicit and
clear provision in the Agreement on Agriculture if they had
indeed intended to authorize such prohibited subsidies provided in
connection with agricultural goods. We find no provision in the Agreement
on Agriculture dealing specifically with subsidies contingent upon
the use of domestic over imported agricultural goods.
A.1.38.9 US — Upland Cotton, para. 548
(WT/DS267/AB/R)
Our approach in this case is
consistent with the Appellate Body’s approach in EC — Bananas III.
In that case, the European Communities relied on Article 4.1 of the Agreement
on Agriculture in arguing that the market access concessions it made
for agricultural products pursuant to the Agreement on Agriculture
prevailed over Article XIII of the GATT 1994. The Appellate Body,
however, found that “[t]here is nothing in Articles 4.1 or 4.2, or in
any other Article of the Agreement on Agriculture, that deals
specifically with the allocation of tariff quotas on agricultural
products”. It further explained that “[i]f the negotiators had
intended to permit Members to act inconsistently with Article XIII of
the GATT 1994, they would have said so explicitly”. The situation
before us is similar. We have found nothing in Article 6.3, paragraph 7
of Annex 3 or anywhere else in the Agreement on Agriculture that
“deals specifically” with subsidies that are contingent on the use
of domestic over imported agricultural products.
A.1.38.10 US — Upland Cotton, para. 549
(WT/DS267/AB/R)
We recall that the Agreement
on Agriculture and the SCM Agreement “are both
Multilateral Agreements on Trade in Goods contained in Annex 1A of the Marrakesh
Agreement Establishing the World Trade Organization (the ‘WTO
Agreement’), and, as such, are both ‘integral parts’ of the
same treaty, the WTO Agreement, that are ‘binding on all
Members’”. Furthermore, as the Appellate Body has explained, “a
treaty interpreter must read all applicable provisions of a treaty in a
way that gives meaning to all of them, harmoniously”. We agree
with the Panel that “Article 3.1(b) of the SCM Agreement can be
read together with the Agreement on Agriculture provisions
relating to domestic support in a coherent and consistent manner which
gives full and effective meaning to all of their terms”.
A.1.38.11 US — Upland Cotton, para. 570
(WT/DS267/AB/R)
In previous appeals, the
Appellate Body has explained that the WTO-consistency of an export
subsidy for agricultural products has to be examined, in the first
place, under the Agreement on Agriculture; the examination under
the SCM Agreement would follow if necessary. Turning, then, to
the Agreement on Agriculture, we note that Article 1(e) of that
Agreement defines “export subsidies” as “subsidies contingent upon
export performance, including the export subsidies listed in Article 9
of this Agreement”.
A.1.38.12 US — Upland Cotton, para. 571
(WT/DS267/AB/R)
Although an export subsidy
granted to agricultural products must be examined, in the first place,
under the Agreement on Agriculture, we find it appropriate, as
has the Appellate Body in previous disputes, to rely on the SCM
Agreement for guidance in interpreting provisions of the Agreement
on Agriculture. Thus, we consider the export-contingency requirement
in Article 1(e) of the Agreement on Agriculture having regard to
that same requirement contained in Article 3.1(a) of the SCM
Agreement.
A.1.38.13 US — Upland Cotton, paras. 629-630
(WT/DS267/AB/R)
… According to the United
States, “Article 3 of the SCM Agreement… is subject in its
application to Article 21.1 of the Agreement on Agriculture”.
The United States then argues that, because “export credit guarantees
are not subject to the disciplines of export subsidies for purposes of
the Agreement on Agriculture, Article 21.1 of that Agreement
renders Article 3.1(a) of the SCM Agreement inapplicable to such
measures”. …
… Therefore, because it is
premised on an incorrect interpretation of Article 10.2 of the Agreement
on Agriculture, we reject the United States’ argument. …
A.1.38.14 US — Upland Cotton, para. 647
(WT/DS267/AB/R)
We agree with the United
States that Article 10.3 of the Agreement on Agriculture does not
apply to claims brought under the SCM Agreement. However, the
Panel did not make the error attributed to it by the United States. The
Panel made the statement relied on by the United States in the context
of its assessment of the United States’ export credit guarantee
program under the Agreement on Agriculture. Although the Panel
made use of the criteria set out in item (j) of the Illustrative List of
Export Subsidies annexed to the SCM Agreement (providing these
programs at premium rates inadequate to cover long-term operating costs
and losses) it did so as contextual guidance for its analysis under the Agreement
on Agriculture, and both the United States and Brazil appear to have
agreed with the appropriateness of this approach. Thus, the Panel’s
reference to Article 10.3 did not relate to its assessment of the United
States’ export credit guarantee programs under the SCM Agreement.
A.1.38.15 EC — Export Subsidies on Sugar,
paras. 338-339 and footnote 537 to para. 339
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Turning to the specific case
before us, we note that the Complaining Parties argue that their claims
under the SCM Agreement are closely related to their claims under
the Agreement on Agriculture. We are not persuaded, however, that
Articles 3, 8, and 9.1 of the Agreement on Agriculture, on the
one hand, and Articles 3.1(a), 3.2, and items (a) and (d) of the
Illustrative List of the SCM Agreement, on the other hand, are
“closely related”, because the issues presented under the two
Agreements are different in several respects.
Furthermore, in the instant
case, we note that the Panel made reference to the limited arguments
made by the Complaining Parties under the SCM Agreement: …
Although, on appeal, the Complaining Parties did argue their claims
under the SCM Agreement to some extent, they did not address, in
a sufficient manner, the question whether Article 3 of the SCM
Agreement applies to export subsidies listed in Article 9.1 of the Agreement
on Agriculture that are provided to scheduled agricultural
products in excess of a responding Member’s commitment levels. We
believe that, in the light of Article 21 of the Agreement on
Agriculture and the chapeau of Article 3 of the SCM Agreement,
the question of the applicability of the SCM Agreement to the
export subsidies in this dispute raises a number of complex issues.537
We also consider that, in the absence of a full exploration of these
issues, completing the analysis might affect the due process rights of
the participants.
113. Article 9.1(c) of the Agreement on Agriculture may be contrasted
with Article 9.1(e) of the Agreement on Agriculture, as well as with
Article 1.1(a)(1)(iv) of the SCM Agreement, and items (c), (d),
(j), and (k) of the Illustrative List of Export Subsidies (the “Illustrative
List”) of the SCM Agreement. In these provisions, some kind of
government mandate, direction, or control is an element of a subsidy provided
through a third party. back to text
777. In this dispute we do not decide whether subsidies paid to textile
manufacturers on their purchases of cotton could be regarded as measures
directed at “agricultural processors” within the meaning of paragraph 7 of
Annex 3. back to text
537. These issues include, for instance, whether the Agreement on
Agriculture contains “specific provisions dealing specifically with the
same matter” (Appellate Body Report, US — Upland Cotton, paras. 532-533
(quoting Appellate Body Report, EC — Bananas III, para. 155; and
referring to Appellate Body Report, Chile — Price Band System, para. 186)); whether the SCM Agreement applies to the subsidy as a whole, or
whether it applies to the subsidy only to the extent that the subsidy exceeds
the responding Members’ commitment levels as specified in its Schedule; and
whether, in the event the SCM Agreement applies, a panel could make a
recommendation to withdraw the subsidy in whole, or whether that recommendation
would apply to the subsidy only to the extent that it exceeds the responding
Member’s commitment levels. back to text
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