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S.2.1 Object and Purpose back to top
S.2.1.1 US — Carbon Steel, paras. 73-74
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… we turn to the object and purpose of the SCM Agreement.
We note, first, that the Agreement contains no preamble to guide us in
the task of ascertaining its object and purpose. In Brazil — Desiccated
Coconut [Appellate Body Report, p. 17, DSR 1997:I, p. 167 at 181],
we observed that the “SCM Agreement contains a set of
rights and obligations that go well beyond merely applying and
interpreting Articles VI, XVI and XXIII of the GATT 1947.” The SCM
Agreement defines the concept of “subsidy”, as well as the
conditions under which Members may not employ subsidies. It establishes
remedies when Members employ prohibited subsidies, and sets out
additional remedies available to Members whose trading interests are
harmed by another Member’s subsidization practices. Part V of the SCM
Agreement deals with one such remedy, permitting Members to levy
countervailing duties on imported products to offset the benefits of
specific subsidies bestowed on the manufacture, production or export of
those goods. However, Part V also conditions the right to apply such
duties on the demonstrated existence of three substantive conditions
(subsidization, injury, and a causal link between the two) and on
compliance with its procedural and substantive rules, notably the
requirement that the countervailing duty cannot exceed the amount of the
subsidy. Taken as a whole, the main object and purpose of the SCM
Agreement is to increase and improve GATT disciplines relating to
the use of both subsidies and countervailing measures.
We thus believe that the Panel properly identified, as among the
objectives of the SCM Agreement, the establishment of a
framework of rights and obligations relating to countervailing duties,
and the creation of a set of rules which WTO Members must respect in the
use of such duties. Part V of the Agreement is aimed at striking a
balance between the right to impose countervailing duties to offset
subsidization that is causing injury, and the obligations that Members
must respect in order to do so. …
S.2.1.2 US — Softwood Lumber IV, para. 64
(WT/DS257/AB/R)
Moreover, to accept Canada’s interpretation of the term “goods”
would, in our view, undermine the object and purpose of the SCM Agreement,
which is to strengthen and improve GATT disciplines relating to the use
of both subsidies and countervailing measures, while, recognizing at the
same time, the right of Members to impose such measures under certain
conditions. It is in furtherance of this object and purpose that Article 1.1(a)(1)(iii) recognizes that subsidies may be conferred, not only
through monetary transfers, but also by the provision of non-monetary
inputs. Thus, to interpret the term “goods” in Article 1.1(a)(1)(iii) narrowly, as Canada would have us do, would permit the
circumvention of subsidy disciplines in cases of financial contributions
granted in a form other than money, such as through the provision of
standing timber for the sole purpose of severing it from land and
processing it.
S.2.1.3 US — Softwood Lumber IV, para. 95
(WT/DS257/AB/R)
… the Panel’s restrictive interpretation … frustrates the
object and purpose of the SCM Agreement, which includes
disciplining the use of subsidies and countervailing measures while, at
the same time, enabling WTO Members whose domestic industries are harmed
by subsidized imports to use such remedies … If the calculation of the
benefit yields a result that is artificially low, or even zero, as could
be the case under the Panel’s approach, then a WTO Member could not
fully offset, by applying countervailing duties, the effect of the
subsidy as permitted by the Agreement.
S.2.1.4 US — Softwood Lumber IV, para. 109
(WT/DS257/AB/R)
… This is because countervailing measures may be used only for the
purpose of offsetting a subsidy bestowed upon a product, provided that
it causes injury to the domestic industry producing the like product.
They must not be used to offset differences in comparative advantages
between countries.
S.2.2 Article 1.1 — “subsidy”.
See also SCM Agreement,
Article 15 — Determination of injury (S.2.25) back to top
S.2.2.1 US — FSC, para. 89
(WT/DS108/AB/R)
We start with the United States’ argument that the Panel erred by
failing to begin its examination of the European Communities’ claim
under Article 3.1(a) of the SCM Agreement with footnote 59
of that Agreement. Instead, the Panel began its examination with the
general definition of a “subsidy” that is set forth in Article 1.1
of the SCM Agreement. This definition applies throughout
the SCM Agreement, to all the different types of “subsidy”
covered by that Agreement. In our view, it was not a legal error for the
Panel to begin its examination of whether the FSC measure involves
export subsidies by examining the general definition of a “subsidy”
that is applicable to export subsidies in Article 3.1(a). …
S.2.2.2 US — FSC, para. 93
(WT/DS108/AB/R)
Article 1.1 sets forth the general definition of the term “subsidy”
which applies “for the purpose of this Agreement”. This definition,
therefore, applies wherever the word “subsidy” occurs throughout the
SCM Agreement and conditions the application of the
provisions of that Agreement regarding prohibited subsidies in
Part II, actionable subsidies in Part III, non-actionable
subsidies in Part IV and countervailing measures in Part V. By contrast,
footnote 59 relates to one item in the Illustrative List of Export
Subsidies. …
S.2.2.3 US — FSC (Article 21.5
— EC), paras. 85-86
(WT/DS108/AB/RW)
… Article 1.1 itself does not impose any obligation on Members with
respect to the subsidies it defines. It is the provisions of the SCM
Agreement which follow Article 1, such as Articles 3 and 5, which
impose obligations on Members with respect to subsidies falling within
the definition set forth in Article 1.1. …
… Article 1.1 of the SCM Agreement does not prohibit
a Member from foregoing revenue that is otherwise due under its rules of
taxation, even if this also confers a benefit under Article 1.1(b) of
the SCM Agreement. …
S.2.2.4 US — Carbon Steel, paras. 80-81
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… Article 1 of the SCM Agreement sets out a
definition of “subsidy” that applies to the whole of that Agreement.
This definition includes all such subsidies, regardless of their
amount. None of the provisions in the SCM Agreement that
uses the term “subsidization” confines the meaning of “subsidization”
to subsidization at a rate equal to or in excess of 1 percent ad
valorem, or to any other de minimis threshold. It is also
worth noting that, under Part of the SCM Agreement,
prohibited subsidies are prohibited regardless of the amount of the
subsidy.
Thus, in our view, the terms “subsidization” and “injury”
each have an independent meaning in the SCM Agreement
which is not derived by reference to the other. It is unlikely
that very low levels of subsidization could be demonstrated to cause
“material” injury. Yet such a possibility is not, per se,
precluded by the Agreement itself, as injury is not defined in the SCM
Agreement in relation to any specific level of subsidization.
S.2.3 Article 1.1(a)(1) — “financial contribution”
back to top
S.2.3.1 US — Softwood Lumber IV, para. 52 and footnote 35
(WT/DS257/AB/R)
An evaluation of the existence of a financial contribution involves
consideration of the nature of the transaction through which something
of economic value is transferred by a government. A wide range of
transactions falls within the meaning of “financial contribution” in
Article 1.1(a)(1). According to paragraphs (i) and (ii) of Article 1.1(a)(1), a financial contribution may be made through a direct
transfer of funds by a government, or the foregoing of government
revenue that is otherwise due. Paragraph (iii) of Article 1.1(a)(1)
recognizes that, in addition to such monetary contributions, a
contribution having financial value can also be made in kind
through governments providing goods or services, or through government
purchases. Paragraph (iv) of Article 1.1(a)(1) recognizes that
paragraphs (i) — (iii) could be circumvented by a government making
payments to a funding mechanism or through entrusting or directing a
private body to make a financial contribution. It accordingly specifies
that these kinds of actions are financial contributions as well. This
range of government measures capable of providing subsidies is broadened
still further by the concept of “income or price support” in
paragraph (2) of Article 1.1(a).35
S.2.4 Article 1.1(a)(1)(ii) — “government revenue … otherwise due”
back to top
S.2.4.1 US — FSC, para. 90
(WT/DS108/AB/R)
… In our view, the “foregoing” of revenue “otherwise
due” implies that less revenue has been raised by the government than
would have been raised in a different situation, or, that is, “otherwise”.
Moreover, the word “foregone” suggests that the government has given
up an entitlement to raise revenue that it could “otherwise” have
raised. This cannot, however, be an entitlement in the abstract, because
governments, in theory, could tax all revenues. There must,
therefore, be some defined, normative benchmark against which a
comparison can be made between the revenue actually raised and the
revenue that would have been raised “otherwise”. We, therefore,
agree with the Panel that the term “otherwise due” implies some kind
of comparison between the revenues due under the contested measure and
revenues that would be due in some other situation. We also agree with
the Panel that the basis of comparison must be the tax rules applied by
the Member in question. …
S.2.4.2 US — FSC, para. 91
(WT/DS108/AB/R)
The Panel found that the term “otherwise due” establishes a “but
for” test, in terms of which the appropriate basis of comparison for
determining whether revenues are “otherwise due” is “the situation
that would prevail but for the measures in question”. In the present
case, this legal standard provides a sound basis for comparison because
it is not difficult to establish in what way the foreign-source income
of an FSC would be taxed “but for” the contested measure. However,
we have certain abiding reservations about applying any legal standard,
such as this “but for” test, in the place of the actual treaty
language. Moreover, we would have particular misgivings about using a
“but for” test if its application were limited to situations where
there actually existed an alternative measure, under which the revenues
in question would be taxed, absent the contested measure. It would, we
believe, not be difficult to circumvent such a test by designing a tax
regime under which there would be no general rule that applied
formally to the revenues in question, absent the contested measures. We
observe, therefore, that, although the Panel’s “but for” test
works in this case, it may not work in other cases. …
S.2.4.3 Canada — Autos, para. 91
(WT/DS139/AB/R, WT/DS142/AB/R)
… We note, once more, that Canada has established a normal MFN duty
rate for imports of motor vehicles of 6.1 per cent. Absent the import
duty exemption, this duty would be paid on imports of motor vehicles.
Thus, through the measure in dispute, the Government of Canada has, in
the words of United States — FSC, “given up an
entitlement to raise revenue that it could ‘otherwise’ have raised.”
More specifically, through the import duty exemption, Canada has ignored
the “defined, normative benchmark” that it established for itself
for import duties on motor vehicles under its normal MFN rate and, in so
doing, has foregone “government revenue that is otherwise due”.
S.2.4.4 US — FSC (Article 21.5
— EC), paras. 88-89
(WT/DS108/AB/RW)
… the mere fact that revenues are not “due” from a fiscal
perspective does not determine that the revenues are or are not “otherwise
due” within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
… the treaty phrase “otherwise due” implies a comparison with a
“defined, normative benchmark”. … the comparison under Article 1.1(a)(1)(ii) of the SCM Agreement must necessarily be
between the rules of taxation contained in the contested measure and
other rules of taxation of the Member in question. …
S.2.4.5 US — FSC (Article 21.5
— EC), para. 90
(WT/DS108/AB/RW)
… In identifying the appropriate benchmark for comparison [under
Article 1.1(a)(1)(ii)], panels must obviously ensure that they identify
and examine fiscal situations which it is legitimate to compare. In
other words, there must be a rational basis for comparing the fiscal
treatment of the income subject to the contested measure and the fiscal
treatment of certain other income. In general terms, in this comparison,
like will be compared with like. …
S.2.4.6 S.2.4.6 US
— FSC (Article 21.5 — EC), para. 91
(WT/DS108/AB/RW)
… We do not, however, consider that Article 1.1(a)(1)(ii) always requires
panels to identify, with respect to any particular income, the “general”
rule of taxation prevailing in a Member. Given the variety and
complexity of domestic tax systems, it will usually be very difficult to
isolate a “general” rule of taxation and “exceptions” to that
“general” rule. Instead, we believe that panels should seek to
compare the fiscal treatment of legitimately comparable income to
determine whether the contested measure involves the foregoing of
revenue which is “otherwise due”, in relation to the income in
question.
S.2.5 Article 1.1(a)(1)(ii), Footnote 1 — Exemption from or remission
of internal taxes upon exportation back to top
S.2.5.1 Canada — Autos, para. 92
(WT/DS139/AB/R, WT/DS142/AB/R)
Canada argues that the measure is “analogous” to the situation
described in footnote 1 to the SCM Agreement, which
provides that “the exemption of an exported product from duties or
taxes borne by the like product when destined for domestic consumption,
or the remission of such duties or taxes in amounts not in excess of
those which have accrued, shall not be deemed to be a subsidy.” We do
not share Canada’s view. Footnote 1 to the SCM Agreement
deals with duty and tax exemptions or remissions for exported
products. The measure at issue applies, in contrast, to imports
of motor vehicles which are sold for consumption in Canada. For this
reason, we do not consider that footnote 1 bears upon the import duty
exemption at issue in this case.
S.2.6 Article 1.1(a)(1)(iii) — “Goods” provided by the government
back to top
S.2.6.1 US — Softwood Lumber IV, para. 53
(WT/DS257/AB/R)
Article 1.1(a)(1)(iii) of the SCM Agreement, … sets
forth that a financial contribution exists where a government “provides
goods or services other than general infrastructure, or purchases goods”.
As such, the Article contemplates two distinct types of transaction. The
first is where a government provides goods or services other than
general infrastructure. Such transactions have the potential to lower
artificially the cost of producing a product by providing, to an
enterprise, inputs having a financial value. The second type of
transaction falling within Article 1.1(a)(1)(iii) is where a government
purchases goods from an enterprise. This type of transaction has the
potential to increase artificially the revenues gained from selling the
product.
S.2.6.2 US — Softwood Lumber IV, para. 59
(WT/DS257/AB/R)
… we find that the ordinary meaning of the term “goods” in the
English version of Article 1.1(a)(1)(iii) of the SCM Agreement
should not be read so as to exclude tangible items of property, like
trees, that are severable from land.
S.2.6.3 US — Softwood Lumber IV, para. 60
(WT/DS257/AB/R)
We find that terms that accompany the word “goods” in Article 1.1(a)(1)(iii) support [an interpretation of that term that does not
exclude tangible items of property, like trees, that are severable from
land.] In Article 1.1(a)(1)(iii), the only explicit exception to the
general principle that the provision of “goods” by a government will
result in a financial contribution is when those goods are provided in
the form of “general infrastructure”. In the context of Article 1.1(a)(1)(iii), all goods that might be used by an enterprise to its
benefit — including even goods that might be considered infrastructure
— are to be considered “goods” within the meaning of the provision,
unless they are infrastructure of a general nature.
S.2.6.4 US — Softwood Lumber IV, para. 64
(WT/DS257/AB/R)
Moreover, to accept Canada’s interpretation of the term “goods”
would, in our view, undermine the object and purpose of the SCM Agreement,
which is to strengthen and improve GATT disciplines relating to the use
of both subsidies and countervailing measures, while, recognizing at the
same time, the right of Members to impose such measures under certain
conditions. It is in furtherance of this object and purpose that Article 1.1(a)(1)(iii) recognizes that subsidies may be conferred, not only
through monetary transfers, but also by the provision of non-monetary
inputs. Thus, to interpret the term “goods” in Article 1.1(a)(1)(iii) narrowly, as Canada would have us do, would permit the
circumvention of subsidy disciplines in cases of financial contributions
granted in a form other than money, such as through the provision of
standing timber for the sole purpose of severing it from land and
processing it.
S.2.7 Article 1.1(a)(1)(iii) — “Provision” of goods
back to top
S.2.7.1 US — Softwood Lumber IV, paras. 68, 71
(WT/DS257/AB/R)
… we now turn to consider what it means to “provide” goods, for
purposes of Article 1.1(a)(1)(iii) of the SCM Agreement.
…
…
… we do not see how the general governmental acts referred to by
Canada would necessarily fall within the concept of a government “making
available” services or goods. In our view, such actions would be too
remote from the concept of “making available” or “putting at the
disposal of”, which requires there to be a reasonably proximate
relationship between the action of the government providing the good or
service on the one hand, and the use or enjoyment of the good or service
by the recipient on the other. Indeed, a government must have some
control over the availability of a specific thing being “made
available”.
S.2.7.2 US — Softwood Lumber IV, paras. 73, 75
(WT/DS257/AB/R)
… in our view, it does not make a difference, for purposes of
applying the requirements of Article 1.1(a)(1)(iii) of the SCM Agreement
to the facts of this case, if “provides” is interpreted as “supplies”,
“makes available” or “puts at the disposal of”. What matters for
determining the existence of a subsidy is whether all elements of the
subsidy definition are fulfilled as a result of the transaction,
irrespective of whether all elements are fulfilled simultaneously.
…
… what matters, for purposes of determining whether a government
“provides goods” in the sense of Article 1.1(a)(1)(iii), is the
consequence of the transaction. Rights over felled trees or logs
crystallize as a natural and inevitable consequence of the harvesters’
exercise of their harvesting rights. Indeed, as the Panel indicated, the
evidence suggests that making available timber is the raison d’être
of the stumpage arrangements. Accordingly, like the Panel, we believe
that, by granting a right to harvest standing timber, governments
provide that standing timber to timber harvesters. …
S.2.8 Article 1.1(a)(1)(iv) — Payments to a funding mechanism
back to top
S.2.8.1 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
S.2.9 Article 1.1(b) — Conferral of a benefit to a recipient.
See
also SCM Agreement, Article 14 — Chapeau — Calculation of the
benefit to the “recipient” (S.2.22)
back to top
S.2.9.1 Canada — Aircraft, para. 154
(WT/DS70/AB/R)
A “benefit” does not exist in the abstract, but must be received
and enjoyed by a beneficiary or a recipient. Logically, a “benefit”
can be said to arise only if a person, natural or legal, or a group of
persons, has in fact received something. The term “benefit”,
therefore, implies that there must be a recipient. …
S.2.9.2 Canada — Aircraft, para. 157
(WT/DS70/AB/R)
We also believe that the word “benefit”, as used in Article 1.1(b), implies some kind of comparison. This must be so, for there can
be no “benefit” to the recipient unless the “financial
contribution” makes the recipient “better off” than it would
otherwise have been, absent that contribution. In our view, the
marketplace provides an appropriate basis for comparison in determining
whether a “benefit” has been “conferred”, because the
trade-distorting potential of a “financial contribution” can be
identified by determining whether the recipient has received a “financial
contribution” on terms more favourable than those available to the
recipient in the market.
S.2.9.3 US — Lead and Bismuth II, para. 58
(WT/DS138/AB/R)
We … agree with the Panel’s findings that benefit as used in
Article 1.1(b) is concerned with the “benefit to the recipient”,
[and] that such recipient must be a natural or legal person…
S.2.9.4 US — Lead and Bismuth II, para. 68
(WT/DS138/AB/R)
The question whether a “financial contribution” confers a “benefit”
depends, therefore, on whether the recipient has received a “financial
contribution” on terms more favourable than those available to the
recipient in the market. In the present case, the Panel made factual
findings that UES and BSplc/BSES paid fair market value for all the
productive assets, goodwill, etc., they acquired from BSC and
subsequently used in the production of leaded bars imported into the
United States in 1994, 1995 and 1996. We, therefore, see no error in the
Panel’s conclusion that, in the specific circumstances of this case,
the “financial contributions” bestowed on BSC between 1977 and 1986
could not be deemed to confer a “benefit” on UES and BSplc/BSES.
S.2.9.5 US — Countervailing Measures on Certain EC Products, para. 102
(WT/DS212/AB/R)
We agree with the United States that, irrespective of the price paid
by the new private owner, privatization does not remove the
equipment that a state-owned enterprise may have acquired (or received)
with a financial contribution and that, consequently, the same firm may
“continue[] to make the same products on the same equipment”.
However, this observation serves only to illustrate that, following
privatization, the utility value of equipment acquired as a
result of a financial contribution is not extinguished, because it is
transferred to the newly-privatized firm. But, the utility value
of such equipment to the newly-privatized firm is legally irrelevant for
purposes of determining the continued existence of a “benefit” under
the SCM Agreement. As we found in Canada — Aircraft
[Appellate Body Report, para. 157], the value of the “benefit” under
the SCM Agreement is to be assessed using the marketplace
as the basis for comparison. It follows, therefore, that once a fair
market price is paid for the equipment, its market value is
redeemed, regardless of the utility the firm may derive from the
equipment. Accordingly, it is the market value of the equipment
that is the focal point of analysis, and not the equipment’s utility
value to the privatized firm.
S.2.9.6 US — Countervailing Measures on Certain EC Products,
paras. 108, 110
(WT/DS212/AB/R)
… In Canada — Aircraft, we were asked whether the “cost
to government” was relevant to the interpretation of “benefit”
within the meaning of Article 1.1(b) of the SCM Agreement.
In finding the “cost to government” not to be the relevant benchmark
for identifying the “benefit”, we said that Article 14 of the SCM
Agreement prescribes the guidelines required to “calculate the
benefit to the recipient conferred pursuant to paragraph 1 of
Article 1”. (emphasis added) We concluded that this phrase in Article 14 necessarily provides relevant context for interpreting Article 1.1,
and we found that:
[a] “benefit” does not exist in the abstract, but must be received
and enjoyed by a beneficiary or a recipient. Logically, a “benefit”
can be said to arise only if a person, natural or legal, or a group
of persons, has in fact received something. The term “benefit”,
therefore, implies that there must be a recipient. (emphasis added)
[Appellate Body Report, para. 154]
Contrary to what has been argued here by the United States, when
referring to “a recipient” in Canada — Aircraft, we
did not exclude the possibility that “a recipient” could include
both a firm and its owner. A “group of persons” could include a
group of “natural persons”, or a group of “natural and legal
persons”, or a group exclusively of “legal persons”.
…
Contrary to the reading that has been suggested by the United States,
when we referred, in US — Lead and Bismuth II [paragraphs
56 and 58], to “legal or natural persons”, we were not
seeking to distinguish between a firm and its owners. … In our
reasoning, we simply explained that the focus of any analysis of whether
a “benefit” exists should be on “legal or natural persons” instead
of on productive operations; we did not rely in our reasoning on
what the United States describes as “normal corporate law principles”.
Moreover, there is nothing in these findings indicating that the “benefit”
of a financial contribution, as contemplated in Article 1.1(b) of the SCM
Agreement, should necessarily be “received and enjoyed” by
the same person or, put differently, there is nothing indicating
that the “benefit” cannot be “received and enjoyed” by two or
more distinct persons.
S.2.9.7 US — Countervailing Measures on Certain EC Products,
paras. 112-113
(WT/DS212/AB/R)
The SCM Agreement does not include a specific
definition of the “recipient” of a “benefit”. However, several
terms are used to refer to the “recipient” of a “benefit” in the
Agreement. Article 2 refers to “an enterprise or industry or group of
enterprises or industries”; Article 6.1(b) refers to “an industry”;
footnote 36 to Article 10 refers to subsidies “bestowed directly or
indirectly upon the manufacture, production or export of any merchandise”;
Article 14 refers to “the firm”; Article 11.2(ii) refers to “exporter
or foreign producer”; Article 19.3 refers to “sources found to be
subsidized”; Annex I refers to “a firm or an industry”; and Annex
IV refers to the “recipient firm”. This is not an exhaustive list,
but it certainly indicates that the SCM Agreement does not
identify the “recipient” of a “benefit” by using any particular
legal term of art. Rather, the SCM Agreement uses several
terms to describe the economic entity that receives a “benefit”.
Thus, the reliance by the United States on the list of financial
contributions in Article 1.1(a)(1) is not persuasive, because, when
viewed in the context of the SCM Agreement as a whole,
that list cannot be read to imply that the “recipient” is
necessarily defined as a “legal person”.
In addition, we observe that a transfer of funds could be provided
directly from the government to the legal person that is the producer of
the subsidized product, or it could be provided indirectly, say, through
an income tax concession to the natural persons that own the firm
(inasmuch as they invest in the legal person’s productive activities).
In both cases, the cost of raising capital for the legal person that is
the producer would be reduced. Hence, contrary to the contention of the
United States, it is possible to confer a “benefit” on a firm by
providing a financial contribution to its owners, whether natural or
legal persons, possibly holding property by means of shares. Moreover,
we note that Article VI:3 of the GATT 1994 and footnote 36 of Article 10
of the SCM Agreement contemplate this possibility by
providing that a subsidy may be bestowed “indirectly” upon
the manufacture, production or export of merchandise. (emphasis added)
S.2.9.8 US — Countervailing Measures on Certain EC Products,
paras. 115-116, 118
(WT/DS212/AB/R)
… the legal distinction between firms and their owners that may be
recognized in a domestic legal context is not necessarily relevant, and
certainly not conclusive, for the purpose of determining whether a “benefit”
exists under the SCM Agreement, because a financial
contribution bestowed on those investing in a firm may confer a benefit
“upon the manufacture, production or export of any merchandise, as
provided for in paragraph 3 of Article VI of GATT 1994.”
… we are of the view that the Panel went too far in stating, in
paragraph 7.54 of the Panel Report, that, “for the purpose of the
benefit determination under the SCM Agreement, no distinction
should be made [because] … [w]hen the SCM Agreement refers to the
recipient of a benefit it means the company and its shareholders
together”. (emphasis added) In so finding, the Panel adopted too
sweeping an interpretation of the SCM Agreement.
…
… we note that the Panel’s overly broad finding that a firm and
its owners are, for all purposes of the SCM Agreement,
virtually the same, could be interpreted as entitling investigating
authorities to assume, in all cases, that, for the purpose of
calculating the benefit, and irrespective of the means and conditions
imposed by a government for the provision of a financial contribution to
owners of the firm, that firm will receive a benefit equivalent to the
full financial contribution. This may or may not be so in all cases. We
do not express an opinion on this question, but we caution that this
finding of the Panel must not be interpreted as entitling authorities to
overlook the possibility that some of the financial contribution
provided to owners may not flow into the firm. …
S.2.9.9 US — Countervailing Measures on Certain EC Products,
paras. 126-127
(WT/DS212/AB/R)
We understand the Panel to be stating that privatization at arm’s
length and for fair market value privatization presumptively
extinguishes any benefit received from the non-recurring financial
contribution bestowed upon a state-owned firm. The effect of such a
privatization is to shift to the investigating authority the burden of
identifying evidence which establishes that the benefit from the
previous financial contribution does indeed continue beyond
privatization. In the absence of such proof, the fact of the arm’s-length,
fair market value privatization is sufficient to compel a conclusion
that the “benefit” no longer exists for the privatized firm, and,
therefore, that countervailing duties should not be levied. This is an
accurate characterization of a Member’s obligations under the SCM
Agreement.
Therefore, we find that the Panel erred in concluding that “[p]rivatizations
at arm’s length and for fair market value must lead to the
conclusion that the privatized producer paid for what he got and thus
did not get any benefit or advantage from the prior financial
contribution bestowed upon the state-owned producer.” (emphasis added)
Privatization at arm’s length and for fair market value may
result in extinguishing the benefit. Indeed, we find that there is a
rebuttable presumption that a benefit ceases to exist after such a
privatization. Nevertheless, it does not necessarily do so. There
is no inflexible rule requiring that investigating authorities,
in future cases, automatically determine that a “benefit”
derived from pre-privatization financial contributions expires following
privatization at arm’s length and for fair market value. It depends on
the facts of each case. …
S.2.9.10 US — Upland Cotton, para. 731
(WT/DS267/AB/R)
We need not decide, in this case, whether an export credit guarantee
program that meets the standard of item (j) of the Illustrative List of
Export Subsidies — because the premiums charged are adequate to cover
long-term operating costs and losses — may nevertheless be challenged as
a prohibited export subsidy under Article 3.1(a) on the basis that it
confers a benefit. This is because, even if we were to assume that such
a claim were possible, we would conclude that the Panel was within its
discretion in exercising judicial economy in respect of Brazil’s
claim.
S.2.10 Article 1.1 — Pass-through of indirect subsidies.
See also
SCM Agreement, Article VI.3 of the GATT 1994 — Subsidies (S.2.43)
back to top
S.2.10.1 US — Softwood Lumber IV, para. 142
(WT/DS257/AB/R)
[According to] the general definition of a “subsidy” in Article 1
of the SCM Agreement … a subsidy shall be deemed to
exist only if there is both a financial contribution by a
government within the meaning of Article 1.1(a)(1), and a benefit
is thereby conferred within the meaning of Article 1.1(b). If
countervailing duties are intended to offset a subsidy granted to the
producer of an input product, but the duties are to be imposed on the processed
product (and not the input product), it is not sufficient for
an investigating authority to establish only for the input
product the existence of a financial contribution and the conferral of a
benefit to the input producer. In such a case, the cumulative conditions
set out in Article 1 must be established with respect to the processed
product, especially when the producers of the input and the processed
product are not the same entity. The investigating authority must
establish that a financial contribution exists; and it must also
establish that the benefit resulting from the subsidy has passed
through, at least in part, from the input downstream, so as to benefit
indirectly the processed product to be countervailed.
S.2.10.2 US — Softwood Lumber IV, para. 143
(WT/DS257/AB/R)
… Thus, for a potentially countervailable subsidy to exist, there
must be a financial contribution by the government that confers a
benefit to a recipient. Where a subsidy is conferred on input
products, and the countervailing duty is imposed on processed products,
the initial recipient of the subsidy and the producer of the eventually
countervailed product, may not be the same. In such a case, there is a direct
recipient of the benefit — the producer of the input
product. When the input is subsequently processed, the producer of the processed
product is an indirect recipient of the benefit — provided it
can be established that the benefit flowing from the input subsidy is
passed through, at least in part, to the processed product. Where the
input producers and producers of the processed products operate at arm’s
length, the pass-through of input subsidy benefits from the direct
recipients to the indirect recipients downstream cannot simply be
presumed; it must be established by the investigating authority. In the
absence of such analysis, it cannot be shown that the essential elements
of the subsidy definition in Article 1 are present in respect of the processed
product. In turn, the right to impose a countervailing duty on the
processed product for the purpose of offsetting an input subsidy, would
not have been established in accordance with Article VI:3 of the GATT
1994, and, consequently, would also not have been in accordance with
Articles 10 and 32.1 of the SCM Agreement.
S.2.10.3 US — Upland Cotton, para. 471
(WT/DS267/AB/R)
The United States contends that the Appellate Body’s reasoning in US
— Softwood Lumber IV indicates that it cannot be presumed that a “subsidy”,
as defined in Article 1.1 of the SCM Agreement, provided to a
producer of an input (such as raw cotton) “passes through” to the
producer of the processed product (in this case, upland cotton lint).
However, the Appellate Body’s reasoning in that dispute focuses not on
the requirements for establishing serious prejudice under Articles 5(c)
and 6.3(c) of the SCM Agreement, but on the conduct of
countervailing duty investigations pursuant to Part V of the SCM
Agreement.
S.2.11 Article 3.1(a) — “except as provided in the Agreement on
Agriculture” — export subsidies back to top
S.2.11.1 Canada — Dairy (Article 21.5
— New Zealand and US),
paras. 123-125
(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.”
In this appeal, we are unable to determine whether the measure at
issue “conforms fully” to Articles 9.1(c) or 10.1 of Part V of the Agreement
on Agriculture. In these circumstances, we decline to examine the
claim made by the United States that the measure is inconsistent with
Article 3.1 of the SCM Agreement.
S.2.11.2 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. …
S.2.12 Article 3.1(a) — “contingent, in law or in fact, … upon
export performance” back to top
S.2.12.1 Canada — Aircraft, para. 166
(WT/DS70/AB/R)
… In our view, the key word in Article 3.1(a) is “contingent”.
As the Panel observed, the ordinary connotation of “contingent” is
“conditional” or “dependent for its existence on something else”.
This common understanding of the word “contingent” is borne out by
the text of Article 3.1(a), which makes an explicit link between “contingency”
and “conditionality” in stating that export contingency can be the
sole or “one of several other conditions”.
S.2.12.2 Canada — Aircraft, para. 167
(WT/DS70/AB/R)
Article 3.1(a) prohibits any subsidy that is contingent upon
export performance, whether that subsidy is contingent “in law or in
fact”. The Uruguay Round negotiators have, through the prohibition
against export subsidies that are contingent in fact upon export
performance, sought to prevent circumvention of the prohibition against
subsidies contingent in law upon export performance. In our view,
the legal standard expressed by the word “contingent” is the same
for both de jure or de facto contingency. There is a
difference, however, in what evidence may be employed to prove that a
subsidy is export contingent. …
S.2.12.2A Canada
— Aircraft, para. 171
(WT/DS70/AB/R)
The second substantive element in footnote 4 is “tied to”. The
ordinary meaning of “tied to” confirms the linkage of “contingency”
with “conditionality” in Article 3.1(a). Among the many meanings of
the verb “tie”, we believe that, in this instance, because the word
“tie” is immediately followed by the word “to” in footnote 4,
the relevant ordinary meaning of “tie” must be to “limit or
restrict as to … conditions”. This element of the standard set forth
in footnote 4, therefore, emphasizes that a relationship of
conditionality or dependence must be demonstrated. The second
substantive element is at the very heart of the legal standard in
footnote 4 and cannot be overlooked. In any given case, the facts must
“demonstrate” that the granting of a subsidy is tied to or contingent
upon actual or anticipated exports. It does not suffice to
demonstrate solely that a government granting a subsidy anticipated
that exports would result. The prohibition in Article 3.1(a) applies to
subsidies that are contingent upon export performance.
S.2.12.3 Canada — Aircraft (Article 21.5
— Brazil), para. 47
(WT/DS70/AB/RW)
It is worth recalling that the granting of a subsidy is not, in and
of itself, prohibited under the SCM Agreement. Nor does
granting a “subsidy”, without more, constitute an inconsistency with
that Agreement. The universe of subsidies is vast. Not all subsidies are
inconsistent with the SCM Agreement. The only “prohibited”
subsidies are those identified in Article 3 of the SCM Agreement;
Article 3.1(a) of that Agreement prohibits those subsidies that are “contingent,
in law or in fact, upon export performance”. We have stated previously
that “a subsidy is prohibited under Article 3.1(a) if it is ‘conditional’
upon export performance, that is, if it is ‘dependent for its
existence on’ export performance.” We have also emphasized that a
“relationship of conditionality or dependence”, namely that the
granting of a subsidy should be “tied to” the export performance,
lies at the “very heart” of the legal standard in Article 3.1(a) of
the SCM Agreement.
S.2.12.4 Canada — Aircraft (Article 21.5
— Brazil), paras. 48, 51
(WT/DS70/AB/RW)
To demonstrate the existence of this “relationship of
conditionality or dependence”, we have also stated that it is not
sufficient to show that a subsidy is granted in the knowledge, or with
the anticipation, that exports will result. Such knowledge or
anticipation does not, taken alone, demonstrate that the granting of the
subsidy is “contingent upon” export performance. The second sentence
of footnote 4 of the SCM Agreement stipulates, in this
regard, that the “mere fact that a subsidy is granted to
enterprises which export shall not for that reason alone be
considered to be an export subsidy …”. (emphasis added) That fact,
by itself, does not, therefore, compel the conclusion that there is a
“relationship of conditionality or dependence”, such that the
granting of a subsidy is “tied to” export performance. However, we
have also said that the export-orientation of a recipient “may be
taken into account as a relevant fact, provided it is one of
several facts which are considered and is not the only fact supporting a
finding” of export contingency. (underlining added)
…
For all these reasons, we find that Brazil has not sufficiently
established that the Canadian regional aircraft industry is “specifically
targeted” because of its high export-orientation.
S.2.12.4A US — FSC (Article 21.5
— EC), para. 110
(WT/DS108/AB/RW)
The United States appeals the Panel’s finding that the measure
involves the grant of a subsidy “contingent … upon export
performance”. The United States contends that, under Article 3.1(a) of
the SCM Agreement, export contingency is a necessary condition
of grant if a subsidy is to be export contingent. It points out that the
ETI measure is export-neutral as the tax exclusion is available with
respect to property that is not produced in the United States
and, therefore, not exported from the United States. Thus, it is argued,
the tax exclusion can be obtained without exportation so that export
performance is not a condition that must be satisfied in order to obtain
this exclusion. The Panel, however, overlooked this fact and “artificially
bifurcat[ed]” the ETI measure, examining it only as it relates to
property produced in the United States. The United States insists that
no such distinction exists under the ETI measure.
S.2.12.5 US — FSC (Article 21.5
— EC), paras. 114-115
(WT/DS108/AB/RW)
… The conditions for the grant of subsidy with respect to property
produced outside the United States are distinct from those
governing the grant of subsidy in respect of property produced within
the United States.
In our view, it is hence appropriate, indeed necessary, under Article 3.1(a) of the SCM Agreement, to examine separately the
conditions pertaining to the grant of the subsidy in the two different
situations addressed by the measure. … The measure itself identifies
the two situations which must be different since the very same property
cannot be produced both within and outside the United States.
S.2.12.6 US — FSC (Article 21.5
— EC), para. 119
(WT/DS108/AB/RW)
… Our conclusion that the ETI measure grants subsidies that are
export contingent in the first set of circumstances is not affected by
the fact that the subsidy can also be obtained in the second set of
circumstances. The fact that the subsidies granted in the second set of
circumstances might not be export contingent does not dissolve
the export contingency arising in the first set of circumstances.
Conversely, the export contingency arising in these circumstances has no
bearing on whether there is an export contingent subsidy in the second
set of circumstances. …
S.2.12.7 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.
S.2.12.8 US — Upland Cotton, para. 572
(WT/DS267/AB/R)
The Appellate Body has indicated, in this regard, that the ordinary
meaning of “contingent” is “conditional” or “dependent” and
that Article 3.1(a) of the SCM Agreement prohibits subsidies that
are conditional upon export performance, or are dependent for their
existence on export performance. It has also emphasized that “a ‘relationship
of conditionality or dependence’, namely that the granting of a
subsidy should be ‘tied to’ the export performance, lies at the ‘very
heart’ of the legal standard in Article 3.1(a) of the SCM Agreement”.
…
S.2.12.9 US — Upland Cotton, para. 578
(WT/DS267/AB/R)
Furthermore, we agree with the Panel’s conclusion that the fact
that the subsidy is also available to domestic users of upland cotton
does not “dissolve” the export-contingent nature of the Step 2
payments to exporters. The Panel’s reasoning is consistent with the
approach taken by the Appellate Body in US — FSC (Article 21.5 — EC).
In that case, the United States argued that the tax exclusion at issue
was not an export-contingent subsidy because it was available for both
(i) property produced within the United States and held for use outside
the United States and (ii) property produced outside the United States
and held for use outside the United States. The United States asserted
that, as the tax exemption was available in both circumstances, it was
“export-neutral”. According to the United States, the panel’s
separate examination of each situation in which the tax exemption was
available “artificially bifurcat[ed]” the measure.
S.2.12.10 US — Upland Cotton, para. 579
(WT/DS267/AB/R)
The Appellate Body rejected the United States’ contention in US
— FSC (Article 21.5 — EC) because it considered it necessary, under
Article 3.1(a) of the SCM Agreement, “to examine separately the
conditions pertaining to the grant of the subsidy in the two different
situations”. [Appellate Body Report, US — FSC (Article 21.5
— EC), para. 115] It then confirmed the Panel’s finding that the
tax exemption in the first situation, namely for property produced
within the United States and held for use outside the United States, is
an export-contingent subsidy. In its reasoning, the Appellate Body
explained that whether or not the subsidies were export-contingent in
both situations envisaged by the measure would not alter the conclusion
that the tax exemption in the first situation was contingent upon export
…
S.2.12.11 US — Upland Cotton, para. 580
(WT/DS267/AB/R)
As in US — FSC (Article 21.5 — EC), the Panel in this case
found that Step 2 payments are available in two situations, only one of
which involves export contingency. The Panel’s conclusion, therefore,
is consistent with the Appellate Body’s holding in US — FSC
(Article 21.5 — EC) quoted above that “the fact that the subsidies
granted in the second set of circumstances might not be export
contingent does not dissolve the export contingency arising in the first
set of circumstances”.
S.2.12.12 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.
S.2.13 Article 3.1(a) — Contingency in law
back to top
S.2.13.1 Canada — Autos, para. 100
(WT/DS139/AB/R, WT/DS142/AB/R)
… In our view, a subsidy is contingent “in law” upon export
performance when the existence of that condition can be demonstrated on
the basis of the very words of the relevant legislation, regulation or
other legal instrument constituting the measure. The simplest, and
hence, perhaps, the uncommon, case is one in which the condition of
exportation is set out expressly, in so many words, on the face of the
law, regulation or other legal instrument. We believe, however, that a
subsidy is also properly held to be de jure export contingent
where the condition to export is clearly, though implicitly, in the
instrument comprising the measure. Thus, for a subsidy to be de jure
export contingent, the underlying legal instrument does not always have
to provide expressis verbis that the subsidy is available only
upon fulfillment of the condition of export performance. Such
conditionality can also be derived by necessary implication from the
words actually used in the measure.
S.2.13.2 Canada — Autos, para. 104
(WT/DS139/AB/R, WT/DS142/AB/R)
… Like the Panel, we fail to see how a manufacturer with a
production-to-sales ratio of 100:100 could obtain access to the import
duty exemption — and still maintain its required production-to-sales
ratio — without exporting. … In our view, as the import duty exemption
is simply not available to a manufacturer unless it exports motor
vehicles, the import duty exemption is clearly conditional, or dependent
upon, exportation and, therefore, is contrary to Article 3.1(a) of the
SCM Agreement.
S.2.13.3 Canada — Autos, para. 107
(WT/DS139/AB/R, WT/DS142/AB/R)
Although we are not examining whether the subsidy in this case is
contingent “in fact” upon export performance, we note that footnote
4 to Article 3.1(a) uses the words “tied to” as a synonym for “contingent”
or “conditional”. As the legal standard is the same for de facto
and de jure export contingency, we believe that a “tie”,
amounting to the relationship of contingency, between the granting of
the subsidy and actual or anticipated exportation meets the legal
standard of “contingent” in Article 3.1(a) of the SCM Agreement.
S.2.13.4 Canada — Autos, para. 108
(WT/DS139/AB/R, WT/DS142/AB/R)
Even where the ratio requirement for a particular manufacturer is set
at less than 100:100, in our view, there is contingency “in law”
upon export performance because, as a result of the operation of the
MVTO 1998 and the SROs themselves, the granting of, or the entitlement
to, the import duty exemption is tied to the exportation of motor
vehicles by the manufacturer beneficiaries. By the very operation of the
measure, the more motor vehicles that a manufacturer exports, the more
motor vehicles it can import duty-free. In other words, a clear
relationship of dependency or conditionality exists between the granting
of the import duty exemption and the exportation of motor vehicles by
manufacturer beneficiaries. We find, therefore, that, even when the
ratio requirements are less than 100:100, the measure is “contingent
… in law … upon export performance”.
S.2.13.5 US — Upland Cotton, para. 572
(WT/DS267/AB/R)
… We are also mindful that in demonstrating export contingency in
the case of subsidies that are contingent in law upon export
performance, the “existence of that condition can be demonstrated on
the basis of the very words of the relevant legislation, regulation or
other legal instrument constituting the measure”.
S.2.14 Article 3.1(a) — Contingency in fact
back to top
S.2.14.1 Canada — Aircraft, para. 169
(WT/DS70/AB/R)
… We note that satisfaction of the standard for determining de
facto export contingency set out in footnote 4 requires proof of
three different substantive elements: first, the “granting of a
subsidy”; second, “is … tied to…”; and, third, “actual
or anticipated exportation or export earnings”. (emphasis added) …
S.2.14.2 Canada — Aircraft, para. 175
(WT/DS70/AB/R)
Having examined the legal standard set forth in footnote 4 for
determining de facto export contingency under Article 3.1(a), we
turn next to the Panel’s application of that legal standard to the
facts relating to assistance provided by TPC to the Canadian regional
aircraft industry. The Panel set out in some detail the various facts
that it took into account in concluding that TPC assistance was “contingent
… in fact … upon export performance”. Indeed, the Panel took into
account sixteen different factual elements, which covered a variety of
matters, including: TPC’s statement of its overall objectives; types
of information called for in applications for TPC funding; the
considerations, or eligibility criteria, employed by TPC in deciding
whether to grant assistance; factors to be identified by TPC officials
in making recommendations about applications for funding; TPC’s record
of funding in the export field, generally, and in the aerospace and
defence sector, in particular; the nearness-to-the-export-market of the
projects funded; the importance of projected export sales by applicants
to TPC’s funding decisions; and the export orientation of the firms or
the industry supported.
S.2.14A Article 3.1(b) — “except as provided in the Agreement on
Agriculture” — import substitution subsidies back to top
S.2.14A.1 US — Upland Cotton, para. 541
(WT/DS267/AB/R)
It may well be that a measure that is an import substitution subsidy
could fall within the second sentence of paragraph 7 as “[m]easures
directed at agricultural processors [that] shall be included [in the AMS
calculation] to the extent that such measures benefit the producers of
the basic agricultural products”. There is nothing, however, 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. We agree with the Panel that there is a clear distinction
between a provision that requires a Member to include a certain type of
payment (or part thereof) in its AMS calculation and one that would
authorize subsidies that are contingent on the use of domestic over
imported goods.
S.2.14A.2 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.
S.2.14A.3 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). …
S.2.14A.4 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.
S.2.14A.5 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.
S.2.14A.6 US — Upland Cotton, para. 549
(WT/DS267/AB/R)
… 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”.
S.2.14A.7 US — Upland Cotton, para. 550
(WT/DS267/AB/R)
In sum, we are not persuaded by the United States’ submission that
the prohibition in Article 3.1(b) of the SCM Agreement is
inapplicable to import substitution subsidies provided in connection
with products falling under the Agreement on Agriculture. WTO
Members may still provide domestic support that is consistent with their
reduction commitments under the Agreement on Agriculture. In
providing such domestic support, however, WTO Members must be mindful of
their other WTO obligations, including the prohibition in Article 3.1(b)
of the SCM Agreement on the provision of subsidies that are
contingent on the use of domestic over imported goods.
S.2.15 Article 3.1(b) — “contingent upon the use of domestic over
imported products” back to top
S.2.15.1 Canada — Autos, para. 123
(WT/DS139/AB/R, WT/DS142/AB/R)
In our discussion of Article 3.1(a) in Section VI of this Report, we
recalled that in Canada — Aircraft [Appellate Body Report,
para. 166] we stated that “the ordinary connotation of ‘contingent’
is ‘conditional’ or ‘dependent for its existence on something else’.”
Thus, a subsidy is prohibited under Article 3.1(a) if it is “conditional”
upon export performance, that is, if it is “dependent for its
existence on” export performance. In addition, in Canada — Aircraft,
we stated that contingency “in law” is demonstrated “on the basis
of the words of the relevant legislation, regulation or other
legal instrument.” (emphasis added) As we have already explained, such
conditionality can be derived by necessary implication from the words
actually used in the measure. We believe that this legal standard
applies not only to “contingency” under Article 3.1(a), but also to
“contingency” under Article 3.1(b) of the SCM Agreement.
S.2.15.2 Canada — Autos, paras. 131-132
(WT/DS139/AB/R, WT/DS142/AB/R)
In our view, the Panel’s examination of the CVA requirements for
specific manufacturers was insufficient for a reasoned determination of
whether contingency “in law” on the use of domestic over imported
goods exists. For the MVTO 1998 manufacturers and most SRO
manufacturers, the Panel did not make findings as to what the actual CVA
requirements are and how they operate for individual manufacturers.
Without this vital information, we do not believe the Panel knew enough
about the measure to determine whether the CVA requirements were
contingent “in law” upon the use of domestic over imported goods. We
recall that the Panel did make a finding as to the level of the CVA
requirements for one company, CAMI. The Panel stated that the CVA
requirements for CAMI are 60 per cent of the cost of sales of vehicles
sold in Canada. At this level, it may well be that the CVA requirements
operate as a condition for using domestic over imported goods. However,
the Panel did not examine how the CVA requirements would actually
operate at a level of 60 per cent.
The Panel’s failure to examine fully the legal instruments at issue
here and their implications for individual manufacturers vitiates its
conclusion that the CVA requirements do not make the import duty
exemption contingent “in law” upon the use of domestic over imported
goods. In the absence of an examination of the operation of the
applicable CVA requirements for individual manufacturers, the Panel
simply did not have a sufficient basis for its finding on the issue of
“in law” contingency. Thus, we conclude that the Panel erred in
conducting its “in law” contingency analysis.
S.2.15.3 US — Upland Cotton, para. 544
(WT/DS267/AB/R)
… Article 3.1(b) of the SCM Agreement prohibits subsidies
that are contingent — that is, “conditional” — on the use of
domestic over imported goods.
S.2.16 Article 3.1(b) — Contingent in law and contingent in fact
back to top
S.2.16.1 Canada — Autos, paras. 139-143
(WT/DS139/AB/R, WT/DS142/AB/R)
… we observe that the ordinary meaning of the phrase “contingent
… upon the use of domestic over imported goods” is not conclusive as
to whether Article 3.1(b) covers both subsidies contingent “in law”
and subsidies contingent “in fact” upon the use of domestic over
imported goods. Just as there is nothing in the language of Article 3.1(b) that specifically includes subsidies contingent “in fact”,
so, too, is there nothing in that language that specifically excludes
subsidies contingent “in fact” from the scope of coverage of this
provision. As the text of the provision is not conclusive on this point,
we must turn to additional means of interpretation. Accordingly, we look
for guidance to the relevant context of the provision.
Although we agree with the Panel that Article 3.1(a) is relevant
context, we believe that other contextual aspects should also be
examined. First, we note that Article III:4 of the GATT 1994 also
addresses measures that favour the use of domestic over imported goods,
albeit with different legal terms and with a different scope.
Nevertheless, both Article III:4 of the GATT 1994 and Article 3.1(b) of
the SCM Agreement apply to measures that require the use
of domestic goods over imports. Article III:4 of the GATT 1994 covers
both de jure and de facto inconsistency. Thus, it would be
most surprising if a similar provision in the SCM Agreement
applied only to situations involving de jure inconsistency.
Second, we recall our findings in European Communities
— Regime
for the Importation, Sale and Distribution of Bananas (“European
Communities — Bananas”) on whether or not Article of the
GATS covers cases of de facto discrimination. In that case, the
Panel found that Article XVII of the GATS provides relevant context for
determining whether Article of the GATS applies to both de jure
and de facto discrimination. On this issue, we said:
Article XVII of the GATS is merely one of many provisions in the WTO
Agreement that require the obligation of providing “treatment no
less favourable”. The possibility that the two Articles may not have
exactly the same meaning does not imply that the intention of the
drafters of the GATS was that a de jure, or formal, standard
should apply in Article of the GATS. If that were the intention, why
does Article not say as much? The obligation imposed by Article is
unqualified. The ordinary meaning of this provision does not exclude de
facto discrimination. [Appellate Body Report, para. 233]
We believe the same reasoning is applicable here. The fact that
Article 3.1(a) refers to “in law or in fact”, while those words are
absent from Article 3.1(b), does not necessarily mean that Article 3.1(b) extends only to de jure contingency.
Finally, we believe that a finding that Article 3.1(b) extends only
to contingency “in law” upon the use of domestic over imported goods
would be contrary to the object and purpose of the SCM Agreement
because it would make circumvention of obligations by Members too easy.
We expressed a similar concern with respect to the GATS in European
Communities — Bananas when we said:
Moreover, if Article was not applicable to de facto
discrimination, it would not be difficult — and, indeed, it would be a
good deal easier in the case of trade in services, than in the case of
trade in goods — to devise discriminatory measures aimed at
circumventing the basic purpose of that Article . [Appellate Body Report,
para. 233]
For all these reasons, we believe that the Panel erred in finding
that Article 3.1(b) does not extend to subsidies contingent “in fact”
upon the use of domestic over imported goods. We, therefore, reverse the
Panel’s broad conclusion that “Article 3.1(b) extends only to
contingency in law.”
S.2.17 Article 4, paragraphs 1 to 4 — Consultations
back to top
S.2.17.1 Brazil — Aircraft, paras. 131-132
(WT/DS46/AB/R)
In our view, Articles 4 and 6 of the DSU, as well as paragraphs 1 to
4 of Article 4 of the SCM Agreement, set forth a process
by which a complaining party must request consultations, and
consultations must be held, before a matter may be referred to the DSB
for the establishment of a panel. Under Article 4.3 of the SCM Agreement,
moreover, the purpose of consultations is “to clarify the facts of the
situation and to arrive at a mutually agreed solution.”
We do not believe, however, that Articles 4 and 6 of the DSU, or
paragraphs 1 to 4 of Article 4 of the SCM Agreement,
require a precise and exact identity between the specific
measures that were the subject of consultations and the specific
measures identified in the request for the establishment of a panel. …
S.2.18 Article 4.2 — “statement of available evidence”
back to top
S.2.18.1 US — FSC, para. 159
(WT/DS108/AB/R)
… It is clear to us that Article 4.4 of the DSU and Article 4.2 of
the SCM Agreement can and should be read and applied
together, so that a request for consultations relating to a prohibited
subsidy claim under the SCM Agreement must satisfy the
requirements of both provisions.
S.2.18.2 US — FSC, para. 161
(WT/DS108/AB/R)
We emphasize that this additional requirement of “a statement of
available evidence” under Article 4.2 of the SCM Agreement
is distinct from — and not satisfied by compliance with — the
requirements of Article 4.4 of the DSU. …
S.2.18.3 US — Upland Cotton, para. 308
(WT/DS267/AB/R)
We recognize that the statement of available evidence plays an
important role in WTO dispute settlement. The adequacy of the statement
of available evidence must be determined on a case by case basis. As the
Panel stated, moreover, the “statement of available evidence … is
the starting point for consultations, and for the emergence of more
evidence concerning the measures by reason of the clarification of the
‘situation’ “. It is, therefore, important to bear in mind that
the requirement to submit a statement of available evidence applies in
the earliest stages of WTO dispute settlement, and that the requirement
is to provide a “statement” of the evidence and not the evidence
itself.
S.2.19 Article 4.7 — “withdraw the subsidy without delay”
back to top
S.2.19.1 Brazil — Aircraft (Article 21.5
— Canada), para. 45
(WT/DS46/AB/RW)
Turning to the ordinary meaning of “withdraw”, we observe first
that this word has been defined as “remove” or “take away”, and
as “to take away what has been enjoyed; to take from.” This
definition suggests that “withdrawal” of a subsidy, under Article 4.7 of the SCM Agreement, refers to the “removal” or
“taking away” of that subsidy … In our view, to continue to make
payments under an export subsidy measure found to be prohibited is not
consistent with the obligation to “withdraw” prohibited export
subsidies, in the sense of “removing” or “taking away”. …
S.2.19.2 US — FSC (Article 21.5
— EC), para. 230
(WT/DS108/AB/RW)
… a Member’s obligation under Article 4.7 of the SCM Agreement
to withdraw prohibited subsidies “without delay” is unaffected by
contractual obligations that the Member itself may have assumed under
municipal law. Likewise, a Member’s obligation to withdraw prohibited
export subsidies, under Article 4.7 of the SCM Agreement,
cannot be affected by contractual obligations which private parties may
have assumed inter se in reliance on laws conferring prohibited
export subsidies. …
S.2.19.3 Brazil — Aircraft, para. 192
(WT/DS46/AB/R)
With respect to implementation of the recommendations or rulings of
the DSB in a dispute brought under Article 4 of the SCM Agreement,
there is a significant difference between the relevant rules and
procedures of the DSU and the special or additional rules and procedures
set forth in Article 4.7 of the SCM Agreement. Therefore,
the provisions of Article 21.3 of the DSU are not relevant in
determining the period of time for implementation of a finding of
inconsistency with the prohibited subsidies provisions of Part of the SCM
Agreement … Article 4.7 of the SCM Agreement,
which is applicable to this case, stipulates a time-period. …
S.2.19.4 EC — Export Subsidies on Sugar, paras. 333-335
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Pursuant to Article 1.2 of the DSU, the situation is different for
disputes brought under Part II of the SCM Agreement. The SCM
Agreement contains “special rules and additional procedures on
dispute settlement” in respect of subsidies prohibited under Article 3
of the SCM Agreement. …
Thus, where a panel finds that a complaining Member has established
that the subsidy in question is prohibited within the meaning of Article 3 of the SCM Agreement, it shall make an additional
recommendation as described in Article 4.7. Upon adoption, this
additional recommendation — that the subsidizing Member “withdraw the
subsidy without delay” — will become a recommendation or ruling of the
DSB.
In this case, the Panel’s findings under Articles 3 and 8 of the Agreement
on Agriculture were not sufficient to “fully resolve” the
dispute. This is because, in declining to rule on the Complaining
Parties’ claims under Article 3 of the SCM Agreement, the Panel
precluded the possibility of a remedy being made available to the
Complaining Parties, pursuant to Article 4.7 of the SCM Agreement,
in the event of the Panel finding in favour of the Complaining Parties
with respect to their claims under Article 3 of the SCM Agreement.
Moreover, in declining to rule on the Complaining Parties’ claims
under Article 3 of the SCM Agreement, the Panel failed to
discharge its obligation under Article 11 of the DSU by failing to make
“such other findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in the covered
agreements”, namely, a recommendation or ruling by the DSB pursuant to
Article 4.7. This constitutes false judicial economy and legal error.
S.2.19.5 EC — Export Subsidies on Sugar, para. 340
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)
Moreover, we do not have the requisite factual findings to complete
the legal analysis. In particular, we do not have sufficient facts
before us, as would be necessary to specify the period of time for
withdrawal, as required by Article 4.7 of the SCM Agreement. We
note in this respect that, when specifying what period would represent
“without delay”, panels have taken into account, inter alia,
“the nature of the measures and the difficulties likely to be faced in
implementing the recommendation”. Based on our reading of the Panel
Reports and the Panel record, we fail to see any evidence therein
regarding the nature of the measures that would be required to “withdraw”
the subsidy, which would permit us to make a recommendation under
Article 4.7. Hence, even if we were able to examine the
Complaining Parties’ claims under the SCM Agreement and, even
if we were to conclude that the SCM Agreement applies in the
circumstances of this dispute and that the European Communities acted
inconsistently with its obligations under the SCM Agreement, we
would not necessarily be in a position to make a recommendation under
Article 4.7 as to the time period for withdrawal of the subsidy.
S.2.19A Article 5 — “adverse effects” — Relationship with Article 6.3(c) back to top
S.2.19A.1 US — Upland Cotton, paras. 485-486
(WT/DS267/AB/R)
Having found that the effect of the price-contingent subsidies is
significant price suppression within the meaning of Article 6.3(c) of
the SCM Agreement, the Panel then considered whether the United
States had caused adverse effects in the form of serious prejudice to
the interests of Brazil through the use of these subsidies, contrary to
Article 5(c) of the SCM Agreement. The Panel found that the
significant price suppression it had found under Article 6.3(c) of the SCM
Agreement amounted to serious prejudice within the meaning of the
Article 5(c) of the SCM Agreement, based on [two alternative
reasons] …
… The Panel’s primary reason was that if the effect of a subsidy
is significant price suppression within the meaning of Article 6.3(c),
this is sufficient, without more, to conclude that the subsidizing
Member has caused serious prejudice to the interests of another Member
within the meaning of Article 5(c). The Panel’s alternative reason was
that, even if this is not sufficient, Brazil had fulfilled the burden of
demonstrating that the United States had caused serious prejudice to the
interests of Brazil within the meaning of Article 5(c).
S.2.19A.2 US — Upland Cotton, para. 488
(WT/DS267/AB/R)
As neither party has appealed the Panel’s finding … (regarding
the sufficiency of a finding of an effect under Article 6.3(c) for a
finding of serious prejudice under Article 5(c), in general terms) or
the Panel’s alternative finding … (regarding serious prejudice to
the interests of Brazil in the particular circumstances of this
dispute), we express no opinion on either of those findings. Nor do we
address the Panel’s consequential finding that the significant price
suppression that it had found to be the effect of the price-contingent
subsidies under Article 6.3(c) of the SCM Agreement amounted to
serious prejudice within the meaning of Article 5(c) of the SCM
Agreement. Accordingly, upon adoption of the Panel Report by the
DSB, the Panel’s findings in paragraphs 7.1390 and 7.1391 of the Panel
Report as mentioned above would stand, without endorsement or rejection
by the Appellate Body.
S.2.19B Article 6.3(c) — Serious Prejudice
back to top
S.2.19B.1 RELEVANT MARKET
S.2.19B.1.1 US
— Upland Cotton, para. 400
(WT/DS267/AB/R)
Turning to the question of the relevant “market”, we observe that
Article 6.3(c) of the SCM Agreement addresses the situation where
“the effect of the subsidy is … significant price suppression … in
the same market”. (emphasis added) As the Panel suggested, and
the parties agree, it is up to the complaining Member to identify the
market in which it alleges that the effect of a subsidy is significant
price suppression and to demonstrate that the subsidy has that effect
within the meaning of Article 6.3(c). …
S.2.19B.1.2 US
— Upland Cotton, para. 402
(WT/DS267/AB/R)
On appeal, the United States submits that the Panel erred in
interpreting the words “same market” in Article 6.3(c) of the SCM
Agreement as including a “world market”. It also submits that
the Panel’s finding that a “world market” exists for upland cotton
is inconsistent with certain of its other findings. The United States
also argues that, in any case, the Panel did not make a finding that
United States and Brazilian upland cotton compete in the world market
that it had identified for upland cotton. Brazil contends that
significant price suppression under Article 6.3(c) “may apply to any
‘market,’ from local to global, and everything in between”.
S.2.19B.1.3 US
— Upland Cotton, paras. 404-405
(WT/DS267/AB/R)
The Panel described the ordinary meaning of the word “market” as:
“a place … with a demand for a commodity or service”;1355
“a
geographical area of demand for commodities or services”; “the area
of economic activity in which buyers and sellers come together and the
forces of supply and demand affect prices”.1356
[Panel Report, para. 7.1236]
We accept that this is an adequate description of the ordinary
meaning of the word “market” for the purposes of this dispute, and
we do not understand the parties to dispute it. This ordinary meaning
does not, of itself, impose any limitation on the “geographical area”
that makes up any given market. Nor does it indicate that a “world
market” cannot exist for a given product. As the Panel indicated, the
“degree to which a market is limited by geography will depend on the
product itself and its ability to be traded across distances”.
S.2.19B.1.4 US
— Upland Cotton, para. 406
(WT/DS267/AB/R)
The only express qualification on the type of “market” referred
to in Article 6.3(c) is that it must be “the same” market. Aside
from this qualification (to which we return below), Article 6.3(c)
imposes no explicit geographical limitation on the scope of the relevant
market. This contrasts with the other paragraphs of Article 6.3:
paragraph (a) restricts the relevant market to “the market of the
subsidizing Member”; paragraph (b) restricts the relevant market to
“a third country market”; and paragraph (d) refers specifically to
the “world market share”. We agree with the Panel that this
difference may indicate that the drafters did not intend to confine, a
priori, the market examined under Article 6.3(c) to any particular
area. Thus, the ordinary meaning of the word “market” in Article 6.3(c), when read in the context of the other paragraphs of Article 6.3,
neither requires nor excludes the possibility of a national market or a
world market.
S.2.19B.1.5 US
— Upland Cotton, para. 407
(WT/DS267/AB/R)
Turning to the phrase “in the same market”, it is clear to us
from a plain reading of Article 6.3(c) that this phrase applies to all
four situations covered in that provision, namely, “significant price
undercutting”, “significant price suppression, price depression
[and] lost sales”. We read the Panel Report and the participants’
submissions as endorsing this interpretation. The phrase “in the same
market” suggests that the subsidized product in question (United
States upland cotton in this case) and the relevant product of the
complaining Member must be “in the same market”. In this appeal, the
Panel and the participants agree that United States upland cotton and
Brazilian upland cotton must be “in the same market” for Brazil’s
claim under Article 6.3(c) to succeed. Furthermore, the participants
agree that these are like products.
S.2.19B.1.6 US
— Upland Cotton, para. 408
(WT/DS267/AB/R)
When can two products be considered to be “in the same market”
for the purposes of a claim of significant price suppression under
Article 6.3(c)? Article 6.3(c) does not provide an explicit answer.
However, recalling that one accepted definition of “market” is “the
area of economic activity in which buyers and sellers come together and
the forces of supply and demand affect prices”, it seems reasonable to
conclude that two products would be in the same market if they were
engaged in actual or potential competition in that market. Thus, two
products may be “in the same market” even if they are not
necessarily sold at the same time and in the same place or country. As
the Panel correctly pointed out, the scope of the “market”, for
determining the area of competition between two products, may depend on
several factors such as the nature of the product, the homogeneity of
the conditions of competition, and transport costs. This market for a
particular product could well be a “world market”. However, we agree
with the Panel that the fact that a world market exists for one product
does not necessarily mean that such a market exists for every product.
Thus the determination of the relevant market under Article 6.3(c) of
the SCM Agreement depends on the subsidized product in question.
If a world market exists for the product in question, Article 6.3(c)
does not exclude the possibility of this “world market” being the
“same market” for the purposes of a significant price suppression
analysis under that Article .
S.2.19B.2 RELEVANT PRICE
S.2.19B.2.1 US
— Upland Cotton, paras. 416-417
(WT/DS267/AB/R)
… The question before us is whether it was sufficient for the Panel
to analyze the price of upland cotton in general in the world market or
whether the Panel was required to analyze the price of Brazilian upland
cotton in the world market and find significant price suppression with
respect to that price.
… Therefore, the Panel found that the A-Index adequately reflected
prices in the world market for upland cotton. The Panel also found that
“developments in the world upland cotton price would inevitably affect
prices” wherever Brazilian and United States upland cotton compete,
“due to the nature of the world prices in question and the nature of
the world upland cotton market, and the relative proportion of that
market enjoyed by the United States and Brazil”. It was not necessary,
in these circumstances, for the Panel to proceed to a separate analysis
of the prices of Brazilian upland cotton in the world market.
S.2.19B.3 ORDER OF ANALYSIS
S.2.19B.3.1 US
— Upland Cotton, paras. 431-433
(WT/DS267/AB/R)
As noted above, Article 6.3(c) is silent as to the sequence of steps
to be followed in assessing whether the effect of a subsidy is
significant price suppression. We note that Article 6.8 indicates that
the existence of serious prejudice pursuant to Articles 5(c) and 6.3(c)
is to be determined on the basis of information submitted to or obtained
by the panel, including information submitted in accordance with Annex V
of the SCM Agreement. Annex V provides some limited guidance
about the type of information on which a panel might base its assessment
under Article 6.3(c). But we find little other guidance on this issue.
The text of Article 6.3(c) does not, however, preclude the approach
taken by the Panel to examine first whether significant price
suppression exists and then, if it is found to exist, to proceed further
to examine whether the significant price suppression is the effect of
the subsidy. The Panel evidently considered that, in the absence of
significant price suppression, it would not need to proceed to analyze
the effect of the subsidy. We see no legal error in this approach.
One might contend that, having decided to separate its analysis of
significant price suppression from its analysis of the effects of the
challenged subsidies, the Panel’s price suppression analysis should
have addressed prices without reference to the subsidies and their
effects. …
However, the ordinary meaning of the transitive verb “suppress”
implies the existence of a subject (the challenged subsidies) and an
object (in this case, prices in the world market for upland cotton).
This suggests that it would be difficult to make a judgement on
significant price suppression without taking into account the
effect of the subsidies. The Panel’s definition of price suppression,
explained above, reflects this problem; it includes the notion that
prices “do not increase when they otherwise would have” or
“they do actually increase, but the increase is less than it otherwise
would have been”. The word “otherwise” in this context refers to
the hypothetical situation in which the challenged subsidies are absent.
Therefore, the fact that the Panel may have addressed some of the same
or similar factors in its reasoning as to significant price suppression
and its reasoning as to “effects” is not necessarily wrong.
S.2.19B.4 SIGNIFICANT PRICE SUPPRESSION
S.2.19B.4.1 US
— Upland Cotton, paras. 423-427
(WT/DS267/AB/R)
… In explaining [the term “price suppression”], the Panel
stated, in paragraph 7.1277 of the Panel Report:
Thus, “price suppression” refers to the situation where
“prices” — in terms of the “amount of money set for sale of upland
cotton” or the “value or worth” of upland cotton — either are
prevented or inhibited from rising (i.e. they do not increase when they
otherwise would have) or they do actually increase, but the increase is
less than it otherwise would have been. Price depression refers
to the situation where “prices” are pressed down, or reduced.1388
Although the Panel first identified “price suppression” and “price
depression” as two separate concepts in paragraph 7.1277, footnote
1388 of the Panel Report suggests that, for its analysis, the Panel used
the term “price suppression” to refer to both price suppression and
price depression. We recognize that “the situation where ‘prices’
… are prevented or inhibited from rising” and “the situation where
‘prices’ are pressed down, or reduced” may overlap. Nevertheless,
it would have been preferable, in our view, for the Panel to avoid using
the term “price suppression” as short-hand for both price
suppression and price depression, given that Article 6.3(c) of the SCM
Agreement refers to “price suppression” and “price depression”
as distinct concepts. We agree, however, that the Panel’s description
of “price suppression” in paragraph 7.1277 of the Panel Report
reflects the ordinary meaning of that term, particularly when read in
conjunction with the French and Spanish versions of Article 6.3(c), as
required by Article 33(3) of the Vienna Convention on the Law of
Treaties (the “Vienna Convention”).
The Panel described its task in assessing “price suppression”
under Article 6.3(c) as follows:
We need to examine whether these prices were suppressed, that is,
lower than they would have been without the United States subsidies in
respect of upland cotton. [Panel Report, para. 7.1288]
As regards the word “significant” in the context of “significant
price suppression” in Article 6.3(c), the Panel found that this word
means “important, notable or consequential”.
Article 6.3(c) does not set forth any specific methodology for
determining whether the effect of a subsidy is significant price
suppression. There may well be different ways to make this
determination. However, we find no difficulty with the Panel’s
approach in the particular circumstances of this dispute. We therefore
turn to an examination of how the Panel carried out its assessment.
S.2.19B.4.2 US
— Upland Cotton, para. 434
(WT/DS267/AB/R)
The specific factors that the Panel examined in determining whether
or not “price suppression” had occurred were: “(a) the relative
magnitude of the United States’ production and exports in the world
upland cotton market; (b) general price trends; and (c) the nature of
the subsidies at issue, and in particular, whether or not the nature of
these subsidies is such as to have discernible price suppressive effects”.
In the absence of explicit guidance on assessing significant price
suppression in the text of Article 6.3(c), we have no reason to reject
the relevance of these factors for the Panel’s assessment in the
present case. An assessment of “general price trends” is clearly
relevant to significant price suppression (although, as the Panel itself
recognized, price trends alone are not conclusive). The two other
factors — the nature of the subsidies and the relative magnitude of the
United States’ production and exports of upland cotton — are also
relevant for this assessment. We are not persuaded that the fact that
these latter factors were also considered in connection with the Panel’s
analysis of “the effect of the subsidy” amounts to legal error for
that reason alone.
S.2.19B.5 EFFECT OF THE SUBSIDY
— CAUSATION AND NON-ATTRIBUTION
S.2.19B.5.1 US
— Upland Cotton, paras. 435-436
(WT/DS267/AB/R)
Turning to the Panel’s assessment of the “effect of the subsidy”,
the Panel addressed the question whether there was a “causal link”
between the price-contingent subsidies and the significant price
suppression it had found. It then addressed the impact of “[o]ther
alleged causal factors”. We observe that Article 6.3(c) does not use
the word “cause”; rather, it states that “the effect of the
subsidy is … significant price suppression”. However, the ordinary
meaning of the noun “effect” is “[s]omething … caused or
produced; a result, a consequence”. The “something” in this
context is significant price suppression, and thus the question is
whether significant price suppression is “caused” by or is a “result”
or “consequence” of the challenged subsidy. The Panel’s conclusion
that “[t]he text of the treaty requires the establishment of a causal
link between the subsidy and the significant price suppression” is
thus consistent with this ordinary meaning of the term “effect”.
This is also confirmed by the context provided by Article 5(c) of the SCM
Agreement …
As the Panel pointed out, “Articles 5 and 6.3 … do not contain
the more elaborate and precise ‘causation’ and non-attribution
language” found in the trade remedy provisions of the SCM Agreement.
Part V of the SCM Agreement, which relates to the imposition of
countervailing duties, requires, inter alia, an examination of
“any known factors other than the subsidized imports which at the same
time are injuring the domestic industry”. However, such causation
requirements have not been expressly prescribed for an examination of serious
prejudice under Article 5(c) and Article 6.3(c) in Part III of the SCM
Agreement. This suggests that a panel has a certain degree of
discretion in selecting an appropriate methodology for determining
whether the “effect” of a subsidy is significant price suppression
under Article 6.3(c).
S.2.19B.5.2 US
— Upland Cotton, para. 437
(WT/DS267/AB/R)
Nevertheless, we agree with the Panel that it is necessary to ensure
that the effects of other factors on prices are not improperly
attributed to the challenged subsidies. Pursuant to Article 6.3(c) of
the SCM Agreement, “[s]erious prejudice in the sense of
paragraph (c) of Article 5 may arise” when “the effect of the
subsidy is … significant price suppression”. (emphasis added) If
the significant price suppression found in the world market for upland
cotton were caused by factors other than the challenged subsidies, then
that price suppression would not be “the effect of” the challenged
subsidies in the sense of Article 6.3(c). Therefore, we do not find
fault with the Panel’s approach of “examin[ing] whether or not ‘the
effect of the subsidy’ is the significant price suppression which [it
had] found to exist in the same world market” and separately “consider[ing]
the role of other alleged causal factors in the record before [it] which
may affect [the] analysis of the causal link between the United States
subsidies and the significant price suppression.”
S.2.19B.5.3 US
— Upland Cotton, para. 438
(WT/DS267/AB/R)
The Panel’s approach with respect to causation and non-attribution
is similar to that reflected in Appellate Body decisions in the context
of other WTO agreements. … It must be borne in mind that these
provisions of the Agreement on Safeguards and the Anti-Dumping
Agreement, as well as the provisions of Part V of the SCM
Agreement, relate to a determination of “injury” rather than “serious
prejudice”, and they apply in different contexts and with different
purposes. Therefore, they must not be automatically transposed into Part
III of the SCM Agreement. Nevertheless, they may suggest ways of
assessing whether the effect of a subsidy is significant price
suppression rather than it being the effect of other factors.
S.2.19B.5.4 US
— Upland Cotton, para. 451
(WT/DS267/AB/R)
… in our view, one would normally expect a discernible correlation
between significantly suppressed prices and the challenged subsidies if
the effect of these subsidies is significant price suppression.
Accordingly, this is an important factor in any analysis of whether the
effect of a subsidy is significant price suppression within the meaning
of Article 6.3(c). However, we recognize that mere correlation between
payment of subsidies and significantly suppressed prices would be
insufficient, without more, to prove that the effect of the subsidies is
significant price suppression.
S.2.19B.5.5 US
— Upland Cotton, para. 453
(WT/DS267/AB/R)
We agree with the general proposition of the United States that
variable costs may play a role in farmers’ decision-making as to
whether to plant upland cotton or some alternative crop, and how much of
each crop to plant. From a short-term perspective, variable costs may be
particularly important. However, from a longer-term perspective, total
costs may be relevant. … In the circumstances of this dispute, we do
not consider that the Panel’s reliance on total rather than variable
costs of production amounts to an error vitiating the Panel’s analysis
under Article 6.3(c).
S.2.19B.5.6 US
— Upland Cotton, paras. 457-458
(WT/DS267/AB/R)
… In sum, the Panel Report shows that it examined the other factors
raised by the United States. Although the Panel found that some of them
had price-suppressive effects, it did not attribute those effects to the
United States’ price-contingent subsidies.
Unlike in certain other instances under the WTO agreements, a panel
conducting an analysis under Article 6.3(c) of the SCM Agreement
is the first trier of facts, rather than a reviewer of factual
determinations made by a domestic investigating authority. Bearing this
in mind, we underline the responsibility of panels in gathering and
analyzing relevant factual data and information in assessing claims
under Article 6.3(c) in order to arrive at reasoned conclusions. In this
case, the voluminous evidentiary record before the Panel included
several economic studies, and substantial data and information. For its
part, the Panel posed a large number of questions to which the parties
submitted detailed answers. Overall, the Panel evidently conducted an
extensive analysis, but we believe that, in its reasoning, the Panel
could have provided a more detailed explanation of its analysis of the
complex facts and economic arguments arising in this dispute. The Panel
could have done so in order to demonstrate precisely how it evaluated
the different factors bearing on the relationship between the
price-contingent subsidies and significant price suppression.
Nevertheless, in the light of the Panel’s examination of the relevant
evidence, coupled with its legal reasoning, we find no legal error in
the Panel’s causation analysis.
S.2.19B.6 MAGNITUDE OF SUBSIDIES
S.2.19B.6.1 US
— Upland Cotton, para. 461
(WT/DS267/AB/R)
Beginning with the text of Article 6.3(c), we note that this
provision does not state explicitly that a panel needs to quantify the
amount of the challenged subsidy. However, in assessing whether “the
effect of the subsidy is … significant price suppression”, and
ultimately serious prejudice, a panel will need to consider the effects
of the subsidy on prices. The magnitude of the subsidy is an important
factor in this analysis. A large subsidy that is closely linked to
prices of the relevant product is likely to have a greater impact on
prices than a small subsidy that is less closely linked to prices. All
other things being equal, the smaller the subsidy for a given product,
the smaller the degree to which it will affect the costs or revenue of
the recipient, and the smaller its likely impact on the prices charged
by the recipient for the product. However, the size of a subsidy is only
one of the factors that may be relevant to the determination of the
effects of a challenged subsidy. A panel needs to assess the effect of
the subsidy taking into account all relevant factors.
S.2.19B.6.2 US
— Upland Cotton, paras. 463-464
(WT/DS267/AB/R)
In order for a panel to find that a subsidy has the effect of
significant price suppression, or some other effect mentioned in Article 6.3(c), the panel must determine that the payment is a specific subsidy
within the meaning of Articles 1 and 2 of the SCM Agreement. The
Panel did so in this dispute, and we do not understand the United States
to contest this conclusion. Rather, the United States argues that a
panel needs to quantify the amount of the “benefit” conferred on the
subsidized product by a challenged subsidy. However, the definitions of
a specific subsidy in Articles 1 and 2 do not expressly require the
quantification of the “benefit” conferred by the subsidy on any
particular product.
Turning to the context of Article 6.3(c), we note that Article 6.1(a)
— which has now expired — contains the only reference in Part III of the
SCM Agreement to a calculation of ad valorem subsidization
of a product. Footnote 14 to Article 6.1(a) explains that this
calculation is to be performed in accordance with Annex IV on the “Calculation
of the Total Ad Valorem Subsidization (Paragraph 1(a) of Article 6)”. No similar provisions are found in Article 6.3(c), which suggests
that no precise quantification is envisaged in that provision.
S.2.19B.6.3 US
— Upland Cotton, paras. 465-466
(WT/DS267/AB/R)
The provisions of the SCM Agreement regarding quantification
of subsidies reveal that the methodological approaches to quantification
may be quite different, depending on the context and purpose of
quantification. The absence of any indication in Article 6.3(c) as to
whether one of these methods, or any other method, should be used
suggests to us that no such precise quantification was envisaged as a
necessary prerequisite for a panel’s analysis under Article 6.3(c).
Pursuant to Article 6.8, “the existence of serious prejudice”
under Article 6.3(c) “should be determined on the basis of the
information submitted to or obtained by the panel, including information
submitted in accordance with the provisions of Annex V” of the SCM
Agreement. The United States is correct that Annex V refers to “information
… as necessary to establish the existence and amount of subsidization”
(in paragraph 2) and “data concerning the amount of the subsidy in
question” (in paragraph 5), but Annex V also refers to other
information. This demonstrates that the amount of the subsidy, as well
as other elements, are relevant for the assessment of whether price
suppression exists. But we do not read Annex V as mandating the precise
quantification of subsidies in order to determine their effect under
Article 6.3(c).
S.2.19B.6.4 US
— Upland Cotton, para. 467
(WT/DS267/AB/R)
In sum, reading Article 6.3(c) in the context of Article 6.8 and
Annex V suggests that a panel should have regard to the magnitude of the
challenged subsidy and its relationship to prices of the product in the
relevant market when analyzing whether the effect of a subsidy is
significant price suppression. In many cases, it may be difficult to
decide this question in the absence of such an assessment. Nevertheless,
this does not mean that Article 6.3(c) imposes an obligation on panels
to quantify precisely the amount of a subsidy benefiting the product at
issue in every case. A precise, definitive quantification of the subsidy
is not required.
S.2.19B.7 “PASS-THROUGH” ANALYSIS
S.2.19B.7.1 US
— Upland Cotton, para. 471
(WT/DS267/AB/R)
The United States contends that the Appellate Body’s reasoning in US
— Softwood Lumber IV [Appellate Body Report, US — Softwood Lumber
IV, paras. 140-142] indicates that it cannot be presumed that a “subsidy”,
as defined in Article 1.1 of the SCM Agreement, provided to a
producer of an input (such as raw cotton) “passes through” to the
producer of the processed product (in this case, upland cotton lint).
However, the Appellate Body’s reasoning in that dispute focuses not on
the requirements for establishing serious prejudice under Articles 5(c)
and 6.3(c) of the SCM Agreement, but on the conduct of
countervailing duty investigations pursuant to Part V of the SCM
Agreement.
S.2.19B.7.2 US
— Upland Cotton, para. 472
(WT/DS267/AB/R)
As we have already noted, the requirement in Article VI:3 of the GATT
1994 and Article 19.4 of the SCM Agreement that countervailing
duties on a product be limited to the amount of the subsidy accruing to
that product finds no parallel in the provisions on actionable subsidies
and pertinent remedies under Part III of the SCM Agreement.
Therefore, the need for a “pass-through” analysis under Part V of
the SCM Agreement is not critical for an assessment of
significant price suppression under Article 6.3(c) in Part III of the SCM
Agreement. Nevertheless, we acknowledge that the “subsidized
product” must be properly identified for purposes of significant price
suppression under Article 6.3(c) of the SCM Agreement. And if the
challenged payments do not, in fact, subsidize that product, this may
undermine the conclusion that the effect of the subsidy is significant
suppression of prices of that product in the relevant market.
S.2.19B.8 EFFECT OF SUBSIDIES OVER TIME
S.2.19B.8.1 US
— Upland Cotton, para. 475
(WT/DS267/AB/R)
We observe that the United States’ contention that the effect of a
subsidy must be “allocated” or “expensed” to the year in which
it is paid is confined to “recurring” subsidies, that is, subsidies
paid on an annual basis. The United States acknowledges that “non-recurring”
subsidies could be “allocated” to subsequent years as well. Article 6.3(c) of the SCM Agreement applies to a subsidy whether it is
“recurring” or “non-recurring”. This Article does not suggest
that the effect of a subsidy is limited to or continues only for a
specified period of time.
S.2.19B.8.2 US
— Upland Cotton, para. 476
(WT/DS267/AB/R)
In this appeal, we are asked to address the limited question of
whether the effect of a subsidy may continue beyond the year in which it
was paid, in the context of a significant price suppression analysis
under Article 6.3(c) of the SCM Agreement. Whether the effect of
a subsidy begins and expires in the year in which it is paid or begins
in one year and continues in any subsequent year, and how long a subsidy
can be regarded as having effects, are fact-specific questions. The
answers to these questions may depend on the nature of the subsidy and
the product in question. We see nothing in the text of Article 6.3(c)
that excludes a priori the possibility that the effect of a “recurring”
subsidy may continue after the year in which it is paid. Article 6.3(c)
deals with the “effect” of a subsidy, and not with the financial
accounting of the amount of the subsidy.
S.2.19B.8.3 US
— Upland Cotton, para. 477
(WT/DS267/AB/R)
The context of Article 6.3(c) within Part III of the SCM Agreement
does not support the suggestion that the effect of a subsidy is
immediate, short-lived, or limited to one year, regardless of whether or
not it is paid every year. Article 6.2 of the SCM Agreement
refers to the possibility of the subsidizing Member demonstrating that
“the subsidy in question has not resulted in any of the effects
enumerated in paragraph 3”. (emphasis added) The word “resulted”
in this sentence highlights the temporal relationship between the
subsidy and the effect, in that one might expect a time lag between the
provision of the subsidy and the resulting effect. In addition, the use
of the present perfect tense in this provision implies that some time
may have passed between the granting of the subsidy and the
demonstration of the absence of its effects.
S.2.19B.8.4 US
— Upland Cotton, para. 478
(WT/DS267/AB/R)
Article 6.4 of the SCM Agreement is also relevant context for
interpreting Article 6.3(c). Article 6.4 requires that the displacement
or impeding of exports be demonstrated “over an appropriately
representative period”, which “shall be at least one year”, so
that “clear trends” in changes in market share can be demonstrated.
This suggests that the effect of a subsidy under Article 6.4 must be
examined over a sufficiently long period of time and is not limited to
the year in which it was paid. As the Panel has also pointed out in the
context of Article 6.3(c), “[c]onsideration of developments over a
period of longer than one year … provides a more robust basis for a
serious prejudice evaluation than merely paying attention to
developments in a single recent year”.
S.2.19B.8.5 US
— Upland Cotton, para. 482
(WT/DS267/AB/R)
For these reasons, we are not persuaded by the United States’
contention that the effect of annually paid subsidies must be “allocated”
or “expensed” solely to the year in which they are paid and that,
therefore, the effect of such subsidies cannot be significant price
suppression in any subsequent year. We do not agree with the proposition
that, if subsidies are paid annually, their effects are also necessarily
extinguished annually.
S.2.19C Article 7.8 — Remedies.
See also Implementation
Recommendations — Article 19.1 of the DSU (I.0) back to top
S.2.19C.1 US — Upland Cotton, para. 273
(WT/DS267/AB/R)
… Article 7.8 of the SCM Agreement provides that, where it
has been determined that “any subsidy has resulted in adverse
effects to the interests of another Member”, the subsidizing Member
must “take appropriate steps to remove the adverse effects or
… withdraw the subsidy”. (emphasis added) The use of the word “resulted”
suggests that there could be a time-lag between the payment of a subsidy
and any consequential adverse effects. If expired measures underlying
past payments could not be challenged in WTO dispute settlement
proceedings, it would be difficult to seek a remedy for such adverse
effects. Further — in contrast to Articles 3.7 and 19.1 of the DSU —
the
remedies under Article 7.8 of the SCM Agreement for adverse
effects of a subsidy are (i) the withdrawal of the subsidy or
(ii) the removal of adverse effects. Removal of adverse effects through
actions other than the withdrawal of a subsidy could not occur if the
expiration of a measure would automatically exclude it from a panel’s
terms of reference.
Article 10 and Footnote 36
— Application of Article VI of the GATT
1994.
See SCM Agreement, Article 1.1 — Pass-through of indirect
subsidies (S.2.10); SCM Agreement, Article VI:3 of the GATT 1994 — Subsidies
(S.2.43)
*Article 11
— Initiation and subsequent investigation.
See SCM
Agreement, Article 21.4 — Relationship with Articles 11 and 12 (S.2.33)
S.2.20 Article 11.4 — Initiation of an investigation
back to top
S.2.20.1 US — Offset Act (Byrd Amendment), para. 283
(WT/DS217/AB/R, WT/DS234/AB/R)
A textual examination of Article 5.4 of the Anti-Dumping Agreement
and Article 11.4 of the SCM Agreement reveals that those
provisions contain no requirement that an investigating authority
examine the motives of domestic producers that elect to support an
investigation. Nor do they contain any explicit requirement that support
be based on certain motives, rather than on others. The use of the terms
“expressing support” and “expressly supporting” clarify that
Articles 5.4 and 11.4 require only that authorities “determine” that
support has been “expressed” by a sufficient number of domestic
producers. Thus, in our view, an “examination” of the “degree”
of support, and not the “nature” of support is required. In other
words, it is the “quantity”, rather than the “quality”, of
support that is the issue.
S.2.21 Article 11.9 — Termination of an investigation
back to top
S.2.21.1 US — Carbon Steel, paras. 67-68 and footnote 58
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
[Paragraph 9] is one of the eleven paragraphs of Article 11. The
various paragraphs set forth rules of a mainly procedural and
evidentiary nature. All of them relate to the authorities’ initiation
and conduct of a countervailing duty investigation, as would be
expected given the overall title of Article 11 — “Initiation and
Subsequent Investigation”. Paragraph 9 of Article 11 requires
authorities to terminate immediately investigative action in three
situations. One of these is when the authorities are satisfied that the
amount of the subsidy is less than 1 percent ad valorem.
Although the terms of Article 11.9 are detailed as regards the
obligations imposed on authorities thereunder, none of the words in
Article 11.9 suggests that the de minimis standard that it
contains is applicable beyond the investigation phase of a
countervailing duty proceeding.58
In particular, Article 11.9 does not
refer to Article 21.3, nor to reviews that may follow the imposition of
a countervailing duty.
S.2.21.2 US — Carbon Steel, para. 69
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… the technique of cross-referencing is frequently used in the SCM
Agreement … These cross-references suggest to us that, when the
negotiators of the SCM Agreement intended that the
disciplines set forth in one provision be applied in another context,
they did so expressly. In the light of the many express cross-references
made in the SCM Agreement, we attach significance to the
absence of any textual link between Article 21.3 reviews and the de
minimis standard set forth in Article 11.9. …
S.2.21.3 US — Carbon Steel, para. 83
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
To us, there is nothing in Article 11.9 to suggest that its de
minimis standard was intended to create a special category of “non-injurious”
subsidization, or that it reflects a concept that subsidization at less
than a de minimis threshold can never cause injury. For
us, the de minimis standard in Article 11.9 does no more than lay
down an agreed rule that if de minimis subsidization is found to
exist in an original investigation, authorities are obliged to terminate
their investigation, with the result that no countervailing duty can be
imposed in such cases.
Article 12
— Evidence.
See SCM Agreement, Article 21.4 — Relationship with Articles 11 and 12
(S.2.33)
S.2.22 Article 14 — Chapeau — Calculation of the benefit to the “recipient”.
See also SCM Agreement, Article 1.1(b) — Conferral of a benefit
to a recipient (S.2.9) back to top
S.2.22.1 US — Softwood Lumber IV, para. 91
(WT/DS257/AB/R)
… The chapeau of Article 14 requires that “any” method
used by investigating authorities to calculate the benefit to the
recipient shall be provided for in a WTO Member’s legislation or
regulations, and it requires that its application be transparent and
adequately explained. The reference to “any” method in the
chapeau clearly implies that more than one method consistent with
Article 14 is available to investigating authorities for purposes of
calculating the benefit to the recipient. …
S.2.22.2 US — Softwood Lumber IV, para. 92
(WT/DS257/AB/R)
… We agree with the Panel that the term “shall” in the last
sentence of the chapeau of Article 14 suggests that calculating benefit
consistently with the guidelines is mandatory. We also agree that the
term “guidelines” suggests that Article 14 provides the “framework
within which this calculation is to performed”, although the “precise
detailed method of calculation is not determined”. Taken together,
these terms establish mandatory parameters within which the benefit must
be calculated, but they do not require using only one methodology for
determining the adequacy of remuneration for the provision of goods by a
government. …
S.2.23 Article 14(d) — Calculation of adequacy of remuneration
back to top
S.2.23.1 US — Softwood Lumber IV, para. 84
(WT/DS257/AB/R)
… Article 14(d) establishes that the provision of goods by a
government shall not be considered as conferring a benefit unless the
provision is made for less than adequate remuneration. As the Panel
observed, the term “adequate” in this context means “sufficient,
satisfactory”. “Remuneration” is defined as “reward, recompense;
payment, pay”. Thus, a benefit is conferred when a government provides
goods to a recipient and, in return, receives insufficient payment or
compensation for those goods.
S.2.23.2 US — Softwood Lumber IV, para. 87
(WT/DS257/AB/R)
Turning first to the text of Article 14(d), we consider the
submission of the United States that the term “market conditions”
necessarily implies a market undistorted by the government’s financial
contribution … We agree with the Panel that “[t]he text of Article 14(d) [of the] SCM Agreement does not qualify in any way the ‘market’
conditions which are to be used as the benchmark … [a]s such, the text
does not explicitly refer to a ‘pure’ market, to a market ‘undistorted
by government intervention’, or to a ‘fair market value’.” …
S.2.23.3 US — Softwood Lumber IV, para. 89
(WT/DS257/AB/R)
As we see it, the phrase “in relation to” implies a comparative
exercise, but its meaning is not limited to “in comparison with”.
The phrase “in relation to” has a meaning similar to the phrases “as
regards” and “with respect to”. These phrases do not denote the
rigid comparison suggested by the Panel, but may imply a broader sense
of “relation, connection, reference”. Thus, the use of the phrase
“in relation to” in Article 14(d) suggests that, contrary to the
Panel’s understanding, the drafters did not intend to exclude any
possibility of using as a benchmark something other than private prices
in the market of the country of provision. This is not to say, however,
that private prices in the market of provision may be disregarded.
Rather, it must be demonstrated that, based on the facts of the case,
the benchmark chosen relates or refers to, or is connected with, the
conditions prevailing in the market of the country of provision.
S.2.23.4 US — Softwood Lumber IV, para. 90
(WT/DS257/AB/R)
Although Article 14(d) does not dictate that private prices are to be
used as the exclusive benchmark in all situations, it does
emphasize by its terms that prices of similar goods sold by private
suppliers in the country of provision are the primary benchmark that
investigating authorities must use when determining whether goods have
been provided by a government for less than adequate remuneration. In
this case, both participants and the third participants agree that the
starting-point, when determining adequacy of remuneration, is the prices
at which the same or similar goods are sold by private suppliers in arm’s
length transactions in the country of provision. This approach reflects
the fact that private prices in the market of provision will generally
represent an appropriate measure of the “adequacy of remuneration”
for the provision of goods. However, this may not always be the case. As
will be explained below, investigating authorities may use a benchmark
other than private prices in the country of provision under Article 14(d), if it is first established that private prices in that country
are distorted because of the government’s predominant role in
providing those goods.
S.2.23.5 US — Softwood Lumber IV, para. 93
(WT/DS257/AB/R)
Furthermore, the Panel’s interpretation is not supported by the
objective of Article 14 … Under the approach advocated by the Panel
(that is, private prices in the country of provision must be used
whenever they exist), however, there may be situations in which there is
no way of telling whether the recipient is “better off” absent
the financial contribution. …
S.2.24 Article 14(d) — Alternative benchmark for calculating the
adequacy of remuneration back to top
S.2.24.1 US — Softwood Lumber IV, paras. 97-98
(WT/DS257/AB/R)
Having established that prices in the market of the country of
provision are the primary, but not the exclusive, benchmark for
calculating benefit, we come to the next question that arises in our
analysis, namely, when an investigating authority may use a benchmark
other than private prices in the country of provision for purposes of
calculating the benefit under Article 14(d).
… the Panel … acknowledged that “it will in certain situations
not be possible to use in-country prices” as a benchmark, and gave two
examples of such situations … (i) where the government is the only
supplier of the particular goods in the country; and, (ii) where the
government administratively controls all of the prices for those goods
in the country. …
S.2.24.2 US — Softwood Lumber IV, para. 100
(WT/DS257/AB/R)
In analyzing this question, we have some difficulty with the Panel’s
approach of treating a situation in which the government is the sole
supplier of certain goods differently from a situation in which the
government is the predominant supplier of those goods. In terms of
market distortion and effect on prices, there may be little difference
between situations where the government is the sole provider of certain
goods and situations where the government has a predominant role in the
market as a provider of those goods. …
S.2.24.3 US — Softwood Lumber IV, paras. 101-102
(WT/DS257/AB/R)
… When private prices are distorted because the government’s
participation in the market as a provider of the same or similar goods
is so predominant that private suppliers will align their prices with
those of the government-provided goods, it will not be possible to
calculate benefit having regard exclusively to such prices.
We emphasize … the possibility under Article 14(d) for
investigating authorities to consider a benchmark other than private
prices in the country of provision is very limited … an allegation
that a government is a significant supplier would not, on its own, prove
distortion and allow an investigating authority to choose a benchmark
other than private prices in the country of provision. The determination
of whether private prices are distorted because of the government’s
predominant role in the market, as a provider of certain goods, must be
made on a case-by-case basis, according to the particular facts
underlying each countervailing duty investigation.
S.2.24.4 US — Softwood Lumber IV, para. 106
(WT/DS257/AB/R)
We agree with the submissions of the participants and third
participants that alternative methods for determining the adequacy of
remuneration could include proxies that take into account prices for
similar goods quoted on world markets, or proxies constructed on the
basis of production costs. We emphasize, however, that where an
investigating authority proceeds in this manner, it is under an
obligation to ensure that the resulting benchmark relates or refers to,
or is connected with, prevailing market conditions in the country of
provision, and must reflect price, quality, availability, marketability,
transportation and other conditions of purchase or sale, as required by
Article 14(d) … Nor are we required to determine the consistency with
Article 14(d) of all the alternative methods mentioned by the
participants and third participants; such assessment will depend on how
any such method is applied in a particular case. We, therefore, make no
findings on the WTO-consistency of any of these methods in the abstract.
S.2.24.5 US — Softwood Lumber IV, para. 108
(WT/DS257/AB/R)
… we observe that, when choosing an alternative method for
determining the adequacy of remuneration, it has to be kept in mind that
prices in the market of a WTO Member would be expected to reflect
prevailing market conditions in that Member; they are unlikely to
reflect conditions prevailing in another Member. Therefore, it cannot be
presumed that market conditions prevailing in one Member, for instance
the United States, relate or refer to, or are connected with, market
conditions prevailing in another Member, such as Canada for example.
Indeed, it seems to us that it would be difficult, from a practical
point of view, for investigating authorities to replicate reliably
market conditions prevailing in one country on the basis of market
conditions prevailing in another country. First, there are numerous
factors to be taken into account in making adjustments to market
conditions prevailing in one country so as to replicate those prevailing
in another country; secondly, it would be difficult to ensure that all
necessary adjustments are made to prices in one country in order to
develop a benchmark that relates or refers to, or is connected with,
prevailing market conditions in another country, so as to reflect price,
quality, availability, marketability, transportation and other
conditions of purchase or sale in that other country.
S.2.24.6 US — Softwood Lumber IV, para. 109
(WT/DS257/AB/R)
It is clear, in the abstract, that different factors can result in
one country having a comparative advantage over another with respect to
the production of certain goods. In any event, any comparative advantage
would be reflected in the market conditions prevailing in the country of
provision and, therefore, would have to be taken into account and
reflected in the adjustments made to any method used for the
determination of adequacy of remuneration, if it is to relate or refer
to, or be connected with, prevailing market conditions in the market of
provision. This is because countervailing measures may be used only for
the purpose of offsetting a subsidy bestowed upon a product, provided
that it causes injury to the domestic industry producing the like
product. They must not be used to offset differences in comparative
advantages between countries.
S.2.24.7 US — Softwood Lumber IV, paras. 119-120
(WT/DS257/AB/R)
… we … find … that an investigating authority may use a
benchmark other than private prices in the country of provision, when it
has been established that private prices of the goods in question in
that country are distorted, because of the predominant role of the
government in the market as a provider of the same or similar goods.
We emphasize, however, that when an investigating authority proceeds
in this manner, it is obliged, pursuant to Article 14(d), to ensure that
the alternative benchmark it uses relates or refers to, or is connected
with, prevailing market conditions in the country of provision,
(including price, quality, availability, marketability, transportation
and other conditions of purchase or sale), with a view to determining,
ultimately, whether the goods at issue were provided by the government
for less than adequate remuneration.
S.2.25 Article 15 — Determination of injury back to top
S.2.25.1 US — Carbon Steel, paras. 79, 81
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… Article 15 of the SCM Agreement, which deals with
injury and how it is to be determined, refers, in its paragraph 3, to
the de minimis standard in Article 11.9 only for the purpose of
cumulation of imports. Moreover, …
… In defining the concept of injury, footnote 45 does not make any
reference to the amount of subsidy involved.
…
Thus, in our view, the terms “subsidization” and “injury”
each have an independent meaning in the SCM Agreement
which is not derived by reference to the other. It is unlikely
that very low levels of subsidization could be demonstrated to cause
“material” injury. Yet such a possibility is not, per se,
precluded by the Agreement itself, as injury is not defined in the SCM
Agreement in relation to any specific level of subsidization.
S.2.26 Article 19.1 — Conditions for the imposition of countervailing
duties back to top
S.2.26.1 US — Countervailing Measures on Certain EC Products,
para. 147
(WT/DS212/AB/R)
… In an original investigation, an investigating authority must
establish all conditions set out in the SCM Agreement for
the imposition of countervailing duties. Those obligations, identified
in Article 19.1 of the SCM Agreement, read in conjunction
with Article 1, include a determination of the existence of a “benefit”.
…
S.2.27 Article 19.3 — Imposition of countervailing duties on a
non-discriminatory basis after aggregate investigation
back to top
S.2.27.1 US — Softwood Lumber IV, para. 152 and footnote 189
(WT/DS257/AB/R)
We agree with the United States that Article 19 of the SCM Agreement
authorizes Members to perform an investigation on an aggregate
basis. Article 19.3 requires that countervailing duties “shall be
levied, in the appropriate amounts in each case, on a non-discriminatory
basis on imports of such product from all sources found to be
subsidized and causing injury”. (emphasis added) Article 19.3 further
provides that “[a]ny exporter whose exports are subject to a
definitive countervailing duty but who was not actually investigated
… shall be entitled to an expedited review in order that the
investigating authorities promptly establish an individual
countervailing duty rate for that exporter.” (emphasis added)
Accordingly, countervailing duties shall be imposed, on a
non-discriminatory basis, on all sources found to be subsidized,
although no prior investigation of all individual
exporters or producers is required by Article 19. This implies that
countervailing duties may be imposed on imports of products subject to
the investigation, even though specific shipments from exporters or
producers that were not investigated individually might not at all be
subsidized, or not subsidized to an extent equal to a countervailing
duty rate calculated on an aggregate (country-wide) basis.189
S.2.27.2 US — Softwood Lumber IV, para. 154
(WT/DS257/AB/R)
We note, however, that country-wide or company-specific
countervailing duty rates may be imposed under Part V of the SCM Agreement
only after the investigating authority has determined the
existence of subsidization, injury to the domestic industry, and a
causal link between them. In other words, the fact that Article 19
permits the imposition of countervailing duties on imports from
producers or exporters not investigated individually, does not exonerate
a Member from the obligation to determine the total amount of subsidy
and the countervailing duty rate consistently with the provisions of the
SCM Agreement and Article VI of the GATT 1994. In this
respect, as the panel in US — Countervailing Measures on
Certain EC Products correctly stated, the “determination
of a benefit (as a component of subsidization) must be made before
countervailing duties can be imposed.” Therefore, turning to the issue
in this case, before being entitled to impose countervailing duties on a
processed product, for the purpose of offsetting an input subsidy, a
Member must first determine, in accordance with Article 1.1, that a
financial contribution exists, and that the benefit conferred directly
on the input producer has been passed through, at least in part, to the
producer of the processed product. …
S.2.28 Article 19.4 — Calculation of countervailing duty rates on per
unit basis back to top
S.2.28.1 US — Softwood Lumber IV, para. 153
(WT/DS257/AB/R)
We also observe that Article 19.4 requires the calculation of
countervailing duties in terms of “subsidization per unit of
the subsidized and exported product”. (emphasis added) In our view,
the reference to calculation of countervailing duty rates on a per unit
basis under Article 19.4 supports the interpretation that an
investigating authority is permitted to calculate the total amount and
the rate of subsidization on an aggregate basis.
S.2.29 Article 21 — Duration and review of countervailing duties
back to top
S.2.29.1 US — Countervailing Measures on Certain EC Products,
para. 139
(WT/DS212/AB/R)
In considering these arguments, we begin by recalling that, under
Article 1.1 of the SCM Agreement, a “subsidy” is “deemed
to exist” only if a “financial contribution” confers a “benefit”.
Also, under Article VI:3 of the GATT 1994, investigating authorities,
before imposing countervailing duties, must ascertain the precise amount
of a subsidy attributed to the imported products under investigation. In
furtherance of this obligation, Article 10 of the SCM Agreement
provides that Members must “ensure” that duties levied for the
purpose of offsetting a subsidy are imposed only “in accordance with”
the provisions of Article VI:3 of the GATT 1994 and the SCM Agreement.
Moreover, Article 19.4 of the SCM Agreement, consistent
with the language of Article VI:3 of the GATT 1994, requires that “[n]o
countervailing duty shall be levied on any imported product in
excess of the amount of the subsidy found to exist”. (emphasis
added) Finally, Article 21.1 of the SCM Agreement provides
that “[a] countervailing duty shall remain in force only as long as
and to the extent necessary to counteract subsidization which is
causing injury.” (emphasis added) In sum, these provisions set out the
obligation of Members to limit countervailing duties to the amount and
duration of the subsidy found to exist by the investigating authority.
These obligations apply to original investigations as well as to
administrative and sunset reviews covered under Article 21 of the SCM
Agreement.
S.2.30 Article 21.1 — “only as long and to the extent necessary”
back to top
S.2.30.1 US — Carbon Steel, para. 70
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… The first paragraph of Article 21 stipulates that a
countervailing duty “shall remain in force only as long as and to the
extent necessary to counteract subsidization which is causing injury”.
We see this as a general rule that, after the imposition of a
countervailing duty, the continued application of that duty is subject
to certain disciplines. These disciplines relate to the duration
of the countervailing duty (“only as long as … necessary”), its magnitude
(“only … to the extent necessary”), and its purpose (“to
counteract subsidization which is causing injury”). Thus, the general
rule of Article 21.1 underlines the requirement for periodic review of
countervailing duties and highlights the factors that must inform such
reviews. …
S.2.31 Article 21.2 — Review of the need for continued imposition
back to top
S.2.31.1 US — Lead and Bismuth II, paras. 53-54
(WT/DS138/AB/R)
… Pursuant to [paragraph 2 of Article 21], the authorities of a
Member applying a countervailing duty must, where warranted, “review
the need for the continued imposition of the duty”. In carrying out
such a review, the authorities must “examine whether the continued
imposition of the duty is necessary to offset subsidization” and/or
“whether the injury would be likely to continue or recur if the duty
were removed or varied”. Article 21.2 provides a review mechanism to
ensure that Members comply with the rule set out in Article 21.1 of the SCM
Agreement, which stipulates:
A countervailing duty shall remain in force only as long as and to
the extent necessary to counteract subsidization which is causing
injury.
Setting aside the issue of injury, which does not arise in this case,
we note that in order to establish the continued need for countervailing
duties, an investigating authority will have to make a finding on subsidization,
i.e., whether or not the subsidy continues to exist. If there is no
longer a subsidy, there would no longer be any need for a countervailing
duty.
S.2.31.2 US — Lead and Bismuth II, paras. 61-62
(WT/DS138/AB/R)
… In an administrative review pursuant to Article 21.2, the
investigating authority may be presented with “positive information”
that the “financial contribution” has been repaid or withdrawn
and/or that the “benefit” no longer accrues. On the basis of its
assessment of the information presented to it by interested parties, as
well as of other evidence before it relating to the period of review,
the investigating authority must determine whether there is a continuing
need for the application of countervailing duties. The investigating
authority is not free to ignore such information. If it were free to
ignore this information, the review mechanism under Article 21.2 would
have no purpose.
Therefore, we agree with the Panel that while an investigating
authority may presume, in the context of an administrative review under
Article 21.2, that a “benefit” continues to flow from an untied,
non-recurring “financial contribution”, this presumption can never
be “irrebuttable”. …
S.2.31.3 US — Lead and Bismuth II, para. 63
(WT/DS138/AB/R)
… We do not agree with the Panel’s implied view that, in the
context of an administrative review under Article 21.2, an investigating
authority must always establish the existence of a “benefit”
during the period of review in the same way as an investigating
authority must establish a “benefit” in an original investigation.
We believe that it is important to distinguish between the original
investigation leading to the imposition of countervailing duties and the
administrative review. In an original investigation, the investigating
authority must establish that all conditions set out in the SCM
Agreement for the imposition of countervailing duties are
fulfilled. In an administrative review, however, the investigating
authority must address those issues which have been raised before it by
the interested parties or, in the case of an investigation conducted on
its own initiative, those issues which warranted the examination.
S.2.31.4 US — Carbon Steel, para. 71
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… the last sentence of Article 21.2 emphasizes the principle that
the countervailing duty must be terminated “immediately” when “the
authorities determine that the countervailing duty is no longer
warranted”. As we explained in our Report in US — Lead and
Bismuth II, the determination made in a review under Article 21.2
must be a meaningful one …
… the requirement of a rigorous review cannot be denied …
S.2.31.5 US — Carbon Steel, para. 108
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
Article 21.2 differs from Article 21.3 in that the former identifies
certain circumstances in which the authorities are under an obligation
to review (“shall review”) whether the continued imposition of the
countervailing duty is necessary. In contrast, the principal obligation
in Article 21.3 is not, per se, to conduct a review, but rather
to terminate a countervailing duty unless a specific
determination is made in a review. We note that Article 21.2 sets down
an explicit evidentiary standard for requests by interested parties for
a review under that provision. In order to trigger the authorities’
obligation to conduct a review, such requests must, inter alia,
include “positive information substantiating the need for review”.
Article 21.2 does not, on its face, apply this same standard to the
initiation by authorities “on their own initiative” of a review
carried out under that provision. Thus, Article 21.2 contemplates that,
for reviews carried out pursuant to that provision, the self-initiation
by the authorities of a review is not governed by the same standards
that apply to initiation upon request by other parties.
S.2.31.6 US — Countervailing Measures on Certain EC Products,
paras. 144, 146
(WT/DS212/AB/R)
… we reaffirm our finding in [US — Lead and Bismuth II]
that an investigating authority, in an administrative review, when
presented with information directed at proving that a “benefit” no
longer exists following a privatization, must determine whether
the continued imposition of countervailing duties is warranted in the
light of that information. This obligation is premised, not on
the creation of a new legal person, as the United States insists, but on
the possibility that such a change in ownership has affected the
continued existence of a benefit.
…
… under the “same person” method, when the USDOC determines
that no new legal person is created as a result of privatization, the
USDOC will conclude from this determination, without any further
analysis, and irrespective of the price paid by the new owners for
the newly-privatized enterprise, that the newly-privatized enterprise
continues to receive the benefit of a previous financial contribution.
This approach is contrary to the obligation in Article 21.2 of the SCM
Agreement that the investigating authority must take into account
in an administrative review “positive information substantiating the
need for a review.” Such information could relate to developments with
respect to the subsidy, privatization at arm’s length and for fair
market value, or some other information. …
S.2.31.7 US — Countervailing Measures on Certain EC Products,
para. 149
(WT/DS212/AB/R)
… [Article 21.2 of the SCM Agreement] requires an
investigating authority in an administrative review, upon
receiving information of a privatization resulting in a change in
ownership, to determine whether a “benefit” continues to exist. In
our view, the SCM Agreement, by virtue of Articles 10,
19.4, and 21.1, also imposes an obligation to conduct such a
determination on an investigating authority conducting a sunset
review. As we observed earlier, the interplay of GATT Article VI:3 and
Articles 10, 19.4 and 21.1 of the SCM Agreement prescribes
an obligation applicable to original investigations as well as to
reviews covered under Article 21 of the SCM Agreement to
limit countervailing duties to the amount and duration of the subsidy
found to exist by the investigating authority. …
S.2.32 Article 21.3 — Termination of countervailing duties unless
continued or recurrent subsidization and injury likely
back to top
S.2.32.1 US — Carbon Steel, para. 63
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
Article 21.3 imposes an explicit temporal limit on the maintenance of
countervailing duties. For countervailing duties that have been in place
for five years, the terms of Article 21.3 require their termination unless
certain specified conditions are met. Specifically, a Member is
permitted not to terminate such duties only if it conducts a
review and, in that review, determines that the prescribed conditions
for the continued application of the duty are satisfied. The prescribed
conditions are “that the expiry of the duty would be likely to lead to
continuation or recurrence of subsidization and injury”. If, in a
sunset review, a Member makes an affirmative determination that these
conditions are satisfied, it may continue to apply countervailing duties
beyond the five-year period set forth in Article 21.3. If it does not
conduct a sunset review, or, having conducted such a review, it does not
make such a positive determination, the duties must be terminated.
S.2.32.2 US — Carbon Steel, para. 69
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… the technique of cross-referencing is frequently used in the SCM
Agreement. … These cross-references suggest to us that, when
the negotiators of the SCM Agreement intended that the
disciplines set forth in one provision be applied in another context,
they did so expressly. In the light of the many express cross-references
made in the SCM Agreement, we attach significance to the
absence of any textual link between Article 21.3 reviews and the de
minimis standard set forth in Article 11.9. …
S.2.32.3 US — Carbon Steel, para. 87
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… original investigations and sunset reviews are distinct processes
with different purposes. The nature of the determination to be made in a
sunset review differs in certain essential respects from the nature of
the determination to be made in an original investigation. For example,
in a sunset review, the authorities are called upon to focus their
inquiry on what would happen if an existing countervailing duty were to
be removed. In contrast, in an original investigation, the authorities
must investigate the existence, degree and effect of any alleged subsidy
in order to determine whether a subsidy exists and whether such subsidy
is causing injury to the domestic industry so as to warrant the
imposition of a countervailing duty. …
S.2.32.4 US — Carbon Steel, para. 88
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… we wish to underline the thrust of Article 21.3 of the SCM
Agreement. An automatic time-bound termination of countervailing
duties that have been in place for five years from the original
investigation or a subsequent comprehensive review is at the heart of
this provision. Termination of a countervailing duty is the rule and its
continuation is the exception. The continuation of a countervailing duty
must therefore be based on a properly conducted review and a positive
determination that the revocation of the countervailing duty would “be
likely to lead to continuation or recurrence of subsidization and
injury.” Where the level of subsidization at the time of the review is
very low, there must be persuasive evidence that revocation of the duty
would nevertheless lead to injury to the domestic industry. Mere
reliance by the authorities on the injury determination made in the
original investigation will not be sufficient. Rather, a fresh
determination, based on credible evidence, will be necessary to
establish that the continuation of the countervailing duty is warranted
to remove the injury to the domestic industry.
S.2.32.5 US — Carbon Steel, para. 92
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… we are unable to conclude that the de minimis standard set
forth in Article 11.9 of the SCM Agreement is implied in
Article 21.3 of the Agreement. …
S.2.32.6 US — Carbon Steel, para. 103
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… Article 21.3 requires the termination of countervailing duties
within five years unless the prescribed determination is made in a
review. Article 21.3 contemplates initiation of this review in one of
two alternative ways, as is made clear through the use of the word “or”.
Either the authorities may make their determination “in a review
initiated … on their own initiative”; or, alternatively,
the authorities may make the determination “in a review initiated …
upon a duly substantiated request made by or on behalf of the
domestic industry …”. The words “duly substantiated” qualify
only the authorization to initiate a review upon request made by or on
behalf of the domestic industry. No such language qualifies the first
method for initiating a sunset review, namely self-initiation of a
review by the authorities.
S.2.32.7 US — Carbon Steel, paras. 116-117
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
In sum, our review of the context of Article 21.3 of the SCM Agreement
reveals no indication that the ability of authorities to self-initiate a
sunset review under that provision is conditioned on compliance with the
evidentiary standards set forth in Article 11 of the SCM Agreement
relating to initiation of investigations. Nor do we consider that any
other evidentiary standard is prescribed for the self-initiation of a
sunset review under Article 21.3.
This is not to say that authorities may continue the countervailing
duties after five years in the absence of evidence that the expiry of
the duty would be likely to lead to continuation or recurrence of
subsidization and injury. Article 21.3 prohibits the continuation of
countervailing duties unless a review is undertaken and the prescribed
determination, based on adequate evidence, is made.
S.2.33 Article 21.4 — Relationship with Articles 11 and 12
back to top
S.2.33.1 US — Carbon Steel, para. 72
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… Article 12 sets out obligations, primarily of an evidentiary and
procedural nature, that apply to the conduct of an investigation.
It comes immediately after Article 11, which sets forth a number of
procedural, evidentiary as well as substantive rules related to the
initiation and conduct of an investigation. Given that the
requirements of Articles 11 and 12 are placed consecutively in the
Agreement, and the fact that both Articles expressly set out obligations
in relation to investigations, we read the express reference in
Article 21.4 to Article 12, but not to Article 11, as an indication that
the drafters intended that the obligations in Article 12, but not those
in Article 11, would apply to reviews carried out under Article 21.3.
S.2.34 Article 22 — Public notice and explanation of determinations
back to top
S.2.34.1 US — Carbon Steel, paras. 111-112
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
Article 22.1 imposes notification and public notice obligations
upon Members that have decided, in accordance with all the requirements
of Article 11, that the initiation of a countervailing duty
investigation is justified. Article 22.1 does not itself establish any
evidentiary rule, but only refers to a standard established in Article 11.9.
Article 22.7 applies the provisions of Article 22 “mutatis
mutandis to the initiation and completion of reviews pursuant to
Article 21”. To us, in the same way that Article 22.1 imposes
notification and public notice requirements on investigating authorities
that have decided, in accordance with the standards set out in Article 11, to initiate an investigation, Article 22.1 (by virtue of
Article 22.7) also operates to impose notification and public notice
requirements on investigating authorities that have decided, in
accordance with Article 21, to initiate a review. Similarly, in
the same way that Article 22.1 does not itself establish
evidentiary standards applicable to the initiation of an investigation,
it does not itself establish evidentiary standards applicable to
the initiation of sunset reviews. Such standards, if they exist, must be
found elsewhere.
S.2.35 Article 27 — Special and differential treatment for developing
country Members back to top
S.2.35.1 PARAGRAPH 4 — PHASE-OUT OR STANDSTILL OF EXPORT SUBSIDIES
S.2.35.1.1 Brazil
— Aircraft, para. 140
(WT/DS46/AB/R)
The title of Article 27 is “Special and Differential Treatment of
Developing Country Members”. Paragraph 1 of that Article provides that
“Members recognize that subsidies may play an important role in
economic development programmes of developing country Members.” Both
from its title and from its terms, it is clear that Article 27 is
intended to provide special and differential treatment for developing
country Members, under certain specified conditions. In our view, too,
paragraph 4 of Article 27 provides certain obligations that developing
country Members must fulfill if they are to benefit from this special
and differential treatment during the transitional period. On reading
paragraphs 2(b) and 4 of Article 27 together, it is clear that the
conditions set forth in paragraph 4 are positive obligations for
developing country Members, not affirmative defences. If a
developing country Member complies with the obligations in Article 27.4,
the prohibition on export subsidies in Article 3.1(a) simply does not
apply. However, if that developing country Member does not comply
with those obligations, Article 3.1(a) does apply.
S.2.35.1.2 Brazil
— Aircraft, para. 150
(WT/DS46/AB/R)
… we uphold the finding of the Panel that the “proper point of
reference” in determining whether a Member has increased the level of
its export subsidies under Article 27.4 is actual expenditures, rather
than budgeted amounts or appropriations.
S.2.35.1.3 Brazil
— Aircraft, para. 156
(WT/DS46/AB/R)
… It is pursuant to the provisions of Article 27.4 that Brazil is
obliged not to increase “the level of its export subsidies”. And, to
ascertain the meaning of this phrase, it is necessary to look, again, at
footnote 55, which is affixed to Article 27.4 and which speaks of “the
level of export subsidies granted” (emphasis added) by a
developing country Member. …
S.2.35.1.4 Brazil
— Aircraft, para. 163
(WT/DS46/AB/R)
… in our view, to take no account of inflation in assessing the
level of export subsidies granted by a developing country Member would
render the special and differential treatment provisions of Article 27
meaningless. …
S.2.35.2 PARAGRAPHS 10 AND 11
— HIGHER DE MINIMIS SUBSIDIZATION THRESHOLD
S.2.35.2.1 US — Carbon Steel, para. 82
(WT/DS213/AB/R,
WT/DS213/AB/R/Corr.1)
… Articles 27.10 and 27.11 of the SCM Agreement …
require authorities, in a countervailing duty investigation, to apply a
higher de minimis subsidization threshold to imports from
developing country Members. To accept the Panel’s reasoning — that de
minimis subsidization is non-injurious subsidization — would imply
that, for the same product, imported into the same country, and
affecting the same domestic industry, the SCM Agreement
establishes different thresholds at which the same industry can be said
to suffer injury, depending on the origin of the product. …
S.2.36 Article 32.1 — Specific action against a subsidy.
See also
Anti-Dumping Agreement, Article 18.1 — Specific action against dumping
(A.3.61); SCM Agreement, Article 1.1 — Pass-through of indirect
subsidies (S.2.10); SCM Agreement, Article VI:3 of the GATT 1994 — Subsidies
(S.2.43) back to top
S.2.36.1 US — Offset Act (Byrd Amendment), para. 236
(WT/DS217/AB/R, WT/DS234/AB/R)
Looking to the ordinary meaning of the words used in these
provisions, we read them as establishing two conditions precedent that
must be met in order for a measure to be governed by them. The first is
that a measure must be “specific” to dumping or subsidization. The
second is that a measure must be “against” dumping or subsidization.
These two conditions operate together and complement each other. If they
are not met, the measure will not be governed by Article 18.1 of the Anti-Dumping
Agreement or by Article 32.1 of the SCM Agreement. If,
however, it is established that a measure meets these two conditions,
and thus falls within the scope of the prohibitions in those provisions,
it would then be necessary to move to a further step in the analysis and
to determine whether the measure has been “taken in accordance with
the provisions of GATT 1994”, as interpreted by the Anti-Dumping
Agreement or the SCM Agreement. If it is determined
that this is not the case, the measure would be inconsistent with
Article 18.1 of the Anti-Dumping Agreement or Article 32.1 of the
SCM Agreement.
S.2.36.2 US — Offset Act (Byrd Amendment), para. 237
(WT/DS217/AB/R, WT/DS234/AB/R)
… The Panel analyzed the terms “specific” and “against” in
Article 18.1 in the same manner as it did with respect to their use in
Article 32.1. We agree with the Panel’s approach. …
S.2.36.3 US — Offset Act (Byrd Amendment), para. 239
(WT/DS217/AB/R, WT/DS234/AB/R)
… a measure that may be taken only when the constituent elements of
dumping or a subsidy are present, is a “specific action” in response
to dumping within the meaning of Article 18.1 of the Anti-Dumping
Agreement or a “specific action” in response to subsidization
within the meaning of Article 32.1 of the SCM Agreement.
In other words, the measure must be inextricably linked to, or have a
strong correlation with, the constituent elements of dumping or of a
subsidy. Such link or correlation may, as in the 1916 Act, be derived
from the text of the measure itself.
S.2.36.4 US — Offset Act (Byrd Amendment), para. 240
(WT/DS217/AB/R, WT/DS234/AB/R)
… We recall that, in US — 1916 Act, we said the
constituent elements of dumping are found in the definition of dumping
in Article VI:1 of the GATT 1994, as elaborated in Article 2 of the Anti-Dumping
Agreement. As regards the constituent elements of a subsidy, we are
of the view that they are set out in the definition of a subsidy found
in Article 1 of the SCM Agreement.
S.2.36.5 US — Offset Act (Byrd Amendment), para. 253
(WT/DS217/AB/R, WT/DS234/AB/R)
… in Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement, there is no requirement that
the measure must come into direct contact with the imported product, or
entities connected to, or responsible for, the imported good such as the
importer, exporter, or foreign producer. …
S.2.36.6 US — Offset Act (Byrd Amendment), para. 254
(WT/DS217/AB/R, WT/DS234/AB/R)
Recalling the other two elements of the definition of “against”
from the New Shorter Oxford Dictionary relied upon by the United
States, namely “of motion or action in opposition” and “in
hostility or active opposition to”, to determine whether a measure is
“against” dumping or a subsidy, we believe it is necessary to assess
whether the design and structure of a measure is such that the measure
is “opposed to”, has an adverse bearing on, or, more specifically,
has the effect of dissuading the practice of dumping or the practice of
subsidization, or creates an incentive to terminate such practices. In
our view, the CDSOA has exactly those effects because of its design and
structure.
S.2.36.7 US — Offset Act (Byrd Amendment), para. 257
(WT/DS217/AB/R, WT/DS234/AB/R)
… in order to determine whether the CDSOA is “against” dumping
or subsidization, it was not necessary, nor relevant, for the Panel to
examine the conditions of competition under which domestic products and
dumped/subsidized imports compete, and to assess the impact of the
measure on the competitive relationship between them. An analysis of the
term “against”, in our view, is more appropriately centred on the
design and structure of the measure; such an analysis does not mandate
an economic assessment of the implications of the measure on the
conditions of competition under which domestic product and
dumped/subsidized imports compete.
S.2.36.8 US — Offset Act (Byrd Amendment), para. 258
(WT/DS217/AB/R, WT/DS234/AB/R)
… a measure cannot be against dumping or a subsidy simply because
it facilitates or induces the exercise of rights that are
WTO-consistent. …
S.2.36.9 US — Offset
Act (Byrd Amendment), para. 262
(WT/DS217/AB/R, WT/DS234/AB/R)
… Footnotes 24 and 56 are clarifications of the main provisions,
added to avoid ambiguity; they confirm what is implicit in Article 18.1
of the Anti-Dumping Agreement and in Article 32.1 of the SCM
Agreement, namely, that an action that is not “specific”
within the meaning of Article 18.1 of the Anti-Dumping Agreement
and of Article 32.1 of the SCM Agreement, but is
nevertheless related to dumping or subsidization, is not prohibited by
Article 18.1 of the Anti-Dumping Agreement or Article 32.1 of the
SCM Agreement.
S.2.36.10 US — Offset Act (Byrd Amendment), para. 269
(WT/DS217/AB/R, WT/DS234/AB/R)
… The GATT 1994 and the SCM Agreement provide four
responses to a countervailable subsidy: (i) definitive countervailing
duties; (ii) provisional measures; (iii) price undertakings; and (iv)
multilaterally-sanctioned countermeasures under the dispute settlement
system. No other response to subsidization is envisaged in the text of
the GATT 1994, or in the text of the SCM Agreement.
Therefore, to be “in accordance with the GATT 1994, as interpreted by”
the SCM Agreement, a response to subsidization must be in
one of those four forms.
S.2.36.11 US — Offset Act (Byrd Amendment), para. 273
(WT/DS217/AB/R, WT/DS234/AB/R)
In our view, Article VI:3 of the GATT 1994 and Part V of the SCM
Agreement encompass all measures taken against
subsidization. To be in accordance with the GATT 1994, as interpreted by
the SCM Agreement, a response to subsidization must be
either in the form of definitive countervailing duties, provisional
measures or price undertakings, or in the form of
multilaterally-sanctioned countermeasures resulting from resort to the
dispute settlement system. …
Article 32.3
— Temporal Scope of Application.
See SCM
Agreement, Relationship between the SCM Agreement and the GATT 1994 (S.2.41); Temporal Application of Rights and Obligations, SCM Agreement
(T.5.1)
Illustrative List of Export Subsidies: Items (c) and (d).
See
Agreement on Agriculture, Article 9.1(c) — Governmental action vs.
Private action (A.1.25)
S.2.37 Illustrative List of Export Subsidies: Item (e), footnote 59,
first sentence — “remission or deferral of direct taxes”
back to top
S.2.37.1 US — FSC, para. 97
(WT/DS108/AB/R)
… The first sentence of footnote 59 is specifically related to the
statement in item (e) of the Illustrative List that the “full or
partial exemption remission, or deferral specifically related to
exports, of direct taxes” is an export subsidy. The first sentence of
footnote 59 qualifies this by stating that “deferral need not amount
to an export subsidy where, for example, appropriate interest charges
are collected.” …
S.2.38 Illustrative List of Export Subsidies: Item (e), footnote 59,
fifth sentence — “double taxation” back to top
S.2.38.1 US — FSC (Article 21.5
— EC), para. 132
(WT/DS108/AB/RW)
The import of the fifth sentence of footnote 59 is that Members are
entitled to “take”, or “adopt” measures to avoid double taxation
of foreign-source income, notwithstanding that they may be, in
principle, export subsidies within the meaning of Article 3.1(a). The
fifth sentence of footnote 59, therefore, constitutes an exception to
the legal regime applicable to export subsidies under Article 3.1(a) by
explicitly providing that when a measure is taken to avoid the double
taxation of foreign-source income, a Member is entitled to adopt it.
S.2.38.2 US — FSC (Article 21.5
— EC), para. 133
(WT/DS108/AB/RW)
Accordingly, as we indicated in US — FSC [Appellate
Body Report, para. 101], the fifth sentence of footnote 59 constitutes
an affirmative defence that justifies a prohibited export subsidy when
the measure in question is taken “to avoid the double taxation of
foreign-source income”. In such a situation, the burden of proving
that a measure is justified by falling within the scope of the fifth
sentence of footnote 59 rests upon the responding party.
S.2.38.3 US — FSC (Article 21.5
— EC), para. 137
(WT/DS108/AB/RW)
We note at the outset that “double taxation” occurs when the same
income, in the hands of the same taxpayer, is liable to tax in different
States. The fifth sentence of footnote 59 applies to a measure taken by
a Member to avoid such double taxation of “foreign-source income”.
In examining the phrase “foreign-source income”, we observe that, in
ordinary usage, the word “source” can refer to the place where a
thing originates, and that the words “source” and “origin” can
be synonyms. We consider, therefore, that the word “source”, in the
context of the fifth sentence of footnote 59, has a meaning akin to “origin”
and refers to the place where the income is earned. This reading is
supported by the combination of the words “foreign” and “source”
as “foreign” also refers to the place where the income is earned.
Used in this way, the word “foreign” indicates a source which is
external to the Member adopting the measure at stake. Footnote 59,
therefore, applies to measures taken by a Member to avoid the double
taxation of income earned by a taxpayer of that Member in a “foreign”
State.
S.2.38.4 US — FSC (Article 21.5
— EC), para. 138
(WT/DS108/AB/RW)
… the term “foreign-source income” in footnote 59 refers to
income which is susceptible of being taxed in two States. …
S.2.38.5 US — FSC (Article 21.5
— EC), paras. 139-140
(WT/DS108/AB/RW)
… We have emphasized in previous appeals that Members have the
sovereign authority to determine their own rules of taxation, provided
that they respect their WTO obligations. Thus, subject to this important
proviso, each Member is free to determine the rules it will use to
identify the source of income and the fiscal consequences — to tax or
not to tax the income — flowing from the identification of source. We
see nothing in footnote 59 to the SCM Agreement which is
intended to alter this situation. We, therefore, agree with the Panel
that footnote 59 does not oblige Members to adopt any particular legal
standard to determine whether income is foreign-source for the purposes
of their double taxation-avoidance measures.
… however, footnote 59 does not give Members an unfettered
discretion to avoid double taxation of “foreign-source income”
through the grant of export subsidies. As the fifth sentence of footnote
59 to the SCM Agreement constitutes an exception to the
prohibition on export subsidies, great care must be taken in defining
its scope. …
S.2.38.6 US — FSC (Article 21.5
— EC), para. 142
(WT/DS108/AB/RW)
… In seeking to give meaning to the term “foreign-source income”
in footnote 59 to the SCM Agreement, which is a
tax-related provision in an international trade treaty, we believe that
it is appropriate for us to derive assistance from these widely
recognized principles which many States generally apply in the field of
taxation. …
S.2.38.7 US — FSC (Article 21.5
— EC), para. 143
(WT/DS108/AB/RW)
We recognize, of course, that the detailed rules on taxation of
non-residents differ considerably from State-to-State, with some States
applying rules which may be more likely to tax the income of
non-residents than the rules applied by other States. However, despite
the differences, there seems to us to be a widely accepted common
element to these rules. The common element is that a “foreign” State
will tax a non-resident on income which is generated by activities of
the non-resident that have some link with that State. Thus, whether a
“foreign” State decides to tax non-residents on income generated by
a permanent establishment or whether, absent such an establishment, it
decides to tax a non-resident on income generated by the conduct of a
trade or business on its territory, the “foreign” State taxes a
non-resident only on income generated by activities linked to the
territory of that State. As a result of this link, the “foreign”
State treats the income in question as domestic-source, under its source
rules, and taxes it. Conversely, where the income of a non-resident does
not have any links with a “foreign” State, it is widely accepted
that the income will be subject to tax only in the taxpayer’s State of
residence, and that this income will not be subject to taxation by a “foreign”
State.
S.2.38.8 US — FSC (Article 21.5
— EC), para. 145
(WT/DS108/AB/RW)
Accordingly, in our view, “foreign-source income”, in footnote 59
to the SCM Agreement, refers to income generated by
activities of a non-resident taxpayer in a “foreign” State which
have such links with that State so that the income could properly be
subject to tax in that State.
S.2.38.9 US — FSC (Article 21.5
— EC), para. 146
(WT/DS108/AB/RW)
… The avoidance of double taxation is not an exact science. Indeed,
the income exempted from taxation in the State of residence of the
taxpayer might not be subject to a corresponding, or any, tax in a “foreign”
State. Yet, this does not necessarily mean that the measure is not taken
to avoid double taxation of foreign-source income. Thus, we agree with
the Panel, and the United States, that measures falling under footnote
59 are not required to be perfectly tailored to the actual double tax
burden.
S.2.38.10 US — FSC (Article 21.5
— EC), para. 148
(WT/DS108/AB/RW)
We also recognize that Members are not obliged by the covered
agreements to provide relief from double taxation. Footnote 59 to the SCM
Agreement simply preserves the prerogative of Members to grant
such relief, at their discretion, for “foreign-source income”.
Accordingly, we do not believe that measures falling under footnote 59
must grant relief from all double tax burdens. Rather, Members
retain the sovereign authority to determine for themselves whether, and
to what extent, they will grant such relief.
S.2.38.11 US — FSC (Article 21.5
— EC), para. 175
(WT/DS108/AB/RW)
… However, in the absence of an established link between the income
of such taxpayers and their activities in a “foreign” State, we do
not believe that there is “foreign-source income” within the meaning
of footnote 59 of the SCM Agreement.
S.2.38.12 US — FSC (Article 21.5
— EC), para. 176
(WT/DS108/AB/RW)
… In our view, however, sales income cannot be regarded as “foreign-source
income”, under footnote 59, for the sole reason that the property,
subject-matter of the sale, is exported to another State, for use there.
The mere fact that the buyer uses property outside the United States
does not mean that the seller undertook activities in a “foreign”
State generating income there. Such an interpretation of footnote 59
would, in effect, allow Members to grant a tax exemption in favour of
export-related income on the ground that the exportation by itself of
the property renders the income “foreign-source”. In our view, this
reading would allow Members easily to evade the prohibition on export
subsidies in Article 3.1(a) of the SCM Agreement and
render this prohibition meaningless.
S.2.38.13 US — FSC (Article 21.5
— EC), para. 185
(WT/DS108/AB/RW)
Certainly, if the ETI measure were confined to those aspects which
grant a tax exemption for “foreign-source income”, it would fall
within footnote 59. However, the ETI measure is not so confined … We
have said that avoiding double taxation is not an exact science and we
recognize that Members must have a degree of flexibility in tackling
double taxation. However, in our view, the flexibility under footnote 59
to the SCM Agreement does not properly extend to allowing
Members to adopt allocation rules that systematically result in a tax
exemption for income that has no link with a “foreign” State and
that would not be regarded as foreign-source under any of the widely
accepted principles of taxation we have reviewed.
S.2.39 Illustrative List of Export Subsidies: Item (j)
— Export
credit guarantee or insurance.
See also Agreement on Agriculture,
Article 9.1(c) — Governmental action vs. Private action (A.1.25)
back to top
S.2.39.1 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.
S.2.39.2 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.
S.2.39.3 US — Upland Cotton, para. 648
(WT/DS267/AB/R)
… It is clear from this paragraph that the Panel placed the burden
of proof on Brazil and determined that Brazil met its burden of proving
that the United States’ export credit guarantees are provided at
premium rates that are inadequate to cover long-term operating costs and
losses. … The reference to Article 10.3 does not, by itself, change
the fact that the Panel ultimately placed the burden of proof on Brazil.
S.2.39.4 US — Upland Cotton, para. 656
(WT/DS267/AB/R)
In our view, none of these statements demonstrates that the Panel
improperly applied the rules on burden of proof. The United States is
selecting statements made by the Panel within its broader analysis of
how the United States’ export credit guarantee programs operate,
reading them in isolation, and disregarding the context in which they
were made. As indicated earlier, it is clear that the Panel imposed on
Brazil the overall burden of proving that the premiums charged under the
United States’ export credit guarantee programs are inadequate to
cover long-term operating costs and losses. This approach is consistent
with the usual rules on the allocation of the burden of proof whereby
the complaining party is responsible for proving its claim. …
S.2.39.5 US — Upland Cotton, para. 663
(WT/DS267/AB/R)
The United States has styled its claim as related to the
interpretation and application of item (j) of the Illustrative List of
Export Subsidies annexed to the SCM Agreement. According to the
United States, the Panel could not have reached a legal conclusion under
item (j) without having necessarily determined what were the long-term
operating costs and losses of the United States’ export credit
guarantee programs, and more specifically, made a determination in
respect of the treatment of rescheduled debt. We find no difficulty with
the United States’ approach. Its claim relates to the Panel’s
application of item (j) to the specific facts of the case. The United
States is not asking us to review the Panel’s factual findings, nor is
it arguing that the Panel’s assessment of the matter was not
objective. Instead, the United States’ claim relates to the
application of the legal standard set out in item (j) of the
Illustrative List of Export Subsidies to the specific facts of this
case. It is an issue of legal characterization. …
S.2.39.6 US — Upland Cotton, paras. 665-666
(WT/DS267/AB/R)
The Panel provided the following explanation of the examination that
is required under item (j) of the Illustrative List of Export Subsidies:
… item (j) calls for an examination of whether the premium rates of
the export credit guarantee programme at issue are inadequate to cover
the long-term operating costs and losses of the programmes. Beyond that,
item (j) does not set forth, or require us to use, any one particular
methodological approach nor accounting philosophy in conducting our
examination. Nor are we required to quantify precisely the amount by
which costs and losses exceeded premiums paid. [Panel Report, para. 7.804]
We agree with the Panel’s approach. The text of item (j) does not
suggest that this provision requires a Panel to choose one particular
basis for the calculation and then to make a precise quantification of
the difference between premiums and long-term operating costs and losses
on that basis. Indeed, at the oral hearing, the United States
acknowledged that the text of item (j) does not, by its own terms,
require precise quantification, but asserted that the Panel should have
precisely quantified the long-term operating costs and losses “in this
particular case”.
In our view, the focus of item (j) is on the inadequacy of the
premiums. To us, this focus suggests that what is required is a finding
on whether the premiums are insufficient and thus whether the specific
export credit guarantee program at issue constitutes an export subsidy,
and not a finding of the precise difference between premiums and
long-term operating costs and losses.
S.2.39.7 US — Upland Cotton, para. 672
(WT/DS267/AB/R)
In the light of the above, it is clear that the Panel undertook a
sufficiently detailed examination of the financial performance of the
United States’ export credit guarantee programs. Its analysis showed
that none of the methods proposed by the parties indicated that the
premiums charged under the United States’ export credit guarantee
programs are adequate to cover long-term costs and losses. In these
circumstances, we agree with the Panel that, in this particular case, it
was not necessary to choose a particular method nor determine the
precise amount by which long-term operating costs and losses exceeded
premiums. Although it did not provide a final figure for the long-term
operating costs and losses of the United States’ export credit
guarantee programs, as the United States suggests it should have, the
Panel found that the various methods put forward by the parties led to
the same conclusion, namely, that the premiums for the United States’
export credit guarantee programs are inadequate to cover the programs’
long-term operating costs and losses. The Panel’s decision not to
choose between methods or make a finding on the precise difference
between premiums and long-term costs and losses does not, in our view,
invalidate the Panel’s ultimate findings under Articles 3.1(a) and 3.2
of the SCM Agreement.
S.2.39.8 US — Upland Cotton, para. 731
(WT/DS267/AB/R)
We need not decide, in this case, whether an export credit guarantee
program that meets the standard of item (j) of the Illustrative List of
Export Subsidies — because the premiums charged are adequate to cover
long-term operating costs and losses — may nevertheless be challenged as
a prohibited export subsidy under Article 3.1(a) on the basis that it
confers a benefit. This is because, even if we were to assume that such
a claim were possible, we would conclude that the Panel was within its
discretion in exercising judicial economy in respect of Brazil’s
claim.
S.2.40 Illustrative List of Export Subsidies: Item (k)
— Export
credits.
See also Agreement on Agriculture, Article 9.1(c) — Governmental action vs. Private action
(A.1.25); SCM Agreement,
Illustrative List of Export Subsidies: Item (j) (S.2.39)
back to top
S.2.40.1 Brazil — Aircraft, para. 181
(WT/DS46/AB/R)
… the issue here is whether the export subsidies for regional
aircraft under PROEX “are used to secure” for Brazil “a material
advantage in the field of export credit terms” … the OECD Arrangement
can be appropriately viewed as one example of an international
undertaking providing a specific market benchmark by which to assess
whether payments by governments, coming within the provisions of item
(k), are “used to secure a material advantage in the field of export
credit terms”… in our view, the appropriate comparison to be made in
determining whether a payment is “used to secure a material advantage”,
within the meaning of item (k), is between the actual interest rate
applicable in a particular export sales transaction after deduction of
the government payment (the “net interest rate”) and the
relevant CIRR [Commercial Interest Reference Rate].
S.2.40.2 Brazil — Aircraft (Article 21.5
— Canada), para. 64
(WT/DS46/AB/RW)
… the CIRR is “one example” of a “market benchmark”
that may be used to determine whether a “payment” is used to “secure
a material advantage”. (emphasis added) The CIRR is a constructed
interest rate for a particular currency, at a particular time, that does
not always necessarily reflect the actual state of the credit markets.
Where the CIRR does not, in fact, reflect the rates available in the
marketplace, we believe that a Member should be able, in principle, to
rely on evidence from the marketplace itself in order to establish an
alternative “market benchmark”, on which it might rely in one or
more transactions. Thus, the CIRR is not, necessarily, the sole
“market benchmark” that may be used to determine whether a payment
“is used to secure a material advantage in the field of export credit
terms”, within the meaning of item (k) of the Illustrative List.
S.2.40.3 Brazil — Aircraft (Article 21.5
— Canada), paras. 68-69
(WT/DS46/AB/RW)
… Brazil contends, on this basis, that the revised PROEX is not
“used to secure a material advantage in the field of export credit
terms” within the meaning of the first paragraph of item (k) of the
Illustrative List.
To prove this argument, Brazil must establish both of two
elements: first, Brazil must prove that it has identified an appropriate
“market benchmark”; and, second, Brazil must prove that the net
interest rates under the revised PROEX are at or above that benchmark.
S.2.40.4 Brazil — Aircraft (Article 21.5
— Canada), para. 80
(WT/DS46/AB/RW)
If Brazil had demonstrated that the payments made under the revised
PROEX were not “used to secure a material advantage in the field of
export credit terms”, and that such payments were “payments” by
Brazil of “all or part of the costs incurred by exporters or financial
institutions in obtaining credits”, then we would have been prepared
to find that the payments made under the revised PROEX are justified
under item (k) of the Illustrative List. However, Brazil has not
demonstrated that those conditions of item (k) are met in this case. In
making this observation, we wish to emphasize that we are not
interpreting footnote 5 of the SCM Agreement, and we do
not opine on the scope of footnote 5, or on the meaning of any other
items in the Illustrative List.
Relationship between the SCM Agreement and the Anti-Dumping
Agreement.
See Anti-Dumping Agreement, Relationship between the
Anti-Dumping Agreement and the SCM Agreement (A.3.63)
S.2.41 Relationship between the SCM Agreement and the GATT 1994
back to top
S.2.41.1 Brazil — Desiccated Coconut, p. 16, DSR 1997:I, p. 167
at 181
(WT/DS22/AB/R)
… The ordinary meaning of these provisions taken in their context
leads us to the conclusion that the negotiators of the SCM Agreement
clearly intended that, under the integrated WTO Agreement,
countervailing duties may only be imposed in accordance with the
provisions of Part V of the SCM Agreement and
Article VI of the GATT 1994, taken together. If there is a conflict
between the provisions of the SCM Agreement and Article VI
of the GATT 1994, furthermore, the provisions of the SCM Agreement
would prevail as a result of the general interpretative note to Annex
1A.
S.2.41.2 Brazil — Desiccated Coconut, pp. 18-19, DSR 1997:I, p.
167 at 182-183
(WT/DS22/AB/R)
The fact that Article VI of the GATT 1947 could be invoked
independently of the Tokyo Round SCM Code under the
previous GATT system does not mean that Article VI of GATT 1994 can be
applied independently of the SCM Agreement in the context
of the WTO. The authors of the new WTO regime intended to put an end to
the fragmentation that had characterized the previous system. This can
be seen from the preamble to the WTO Agreement which
states, in pertinent part:
Resolved, therefore, to develop an integrated, more viable and
durable multilateral trading system encompassing the General Agreement
on Tariffs and Trade, the results of past trade liberalization efforts,
and all of the results of the Uruguay Round of Multilateral Trade
Negotiations.
Article II:2 of the WTO Agreement also provides that
the Multilateral Trade Agreements are “integral parts” of the WTO
Agreement, “binding on all Members”. The single undertaking
is further reflected in the Articles of the WTO Agreement
on original membership, accession, non-application, acceptance and
withdrawal. Furthermore, the DSU establishes an integrated
dispute settlement system which applies to all the “covered agreements”,
allowing all the provisions of the WTO Agreement relevant
to a particular dispute to be examined in one proceeding.
The Appellate Body sees Article 32.3 of the SCM Agreement
as a clear statement that for countervailing duty investigations or
reviews, the dividing line between the application of the GATT 1947
system of agreements and the WTO Agreement is to be
determined by the date on which the application was made for the
countervailing duty investigation or review. Article 32.3 has limited
application only in specific circumstances where a countervailing duty
proceeding, either an investigation or a review, was underway at the
time of entry into force of the WTO Agreement. This does
not mean that the WTO Agreement does not apply as of 1
January 1995 to all other acts, facts and situations which come within
the provisions of the SCM Agreement and Article VI of the
GATT 1994. However, the Uruguay Round negotiators expressed an explicit
intention to draw the line of application of the new WTO Agreement
to countervailing duty investigations and reviews at a different point
in time from that for other general measures. …
S.2.41.3 US — FSC, para. 117
(WT/DS108/AB/R)
… the provisions of the SCM Agreement do not provide
explicit assistance as to the relationship between the export subsidy
provisions of the SCM Agreement and Article XVI:4 of the
GATT 1994. In the absence of any such specific textual guidance, we must
determine the relationship between Articles 1.1(a)(1) and 3.1(a) of the SCM
Agreement and Article XVI:4 of the GATT 1994 on the basis of the
texts of the relevant provisions as a whole. It is clear from even a
cursory examination of Article XVI:4 of the GATT 1994 that it differs
very substantially from the subsidy provisions of the SCM Agreement,
and, in particular, from the export subsidy provisions of both the SCM
Agreement and the Agreement on Agriculture. First of all,
the SCM Agreement contains an express definition of the
term “subsidy” which is not contained in Article XVI:4. In fact, as
we have observed previously, the SCM Agreement contains a
broad package of new export subsidy disciplines that “go well beyond
merely applying and interpreting Articles VI, XVI and XXIII of the GATT
1947”. Next, Article XVI:4 prohibits export subsidies only when they
result in the export sale of a product at a price lower than the “comparable
price charged for the like product to buyers in the domestic market.”
In contrast, the SCM Agreement establishes a much broader
prohibition against any subsidy which is “contingent upon
export performance”. To say the least, the rule contained in Article 3.1(a) of the SCM Agreement that all subsidies which are
“contingent upon export performance” are prohibited is significantly
different from a rule that prohibits only those subsidies which result
in a lower price for the exported product than the comparable price for
that product when sold in the domestic market. Thus, whether or not a
measure is an export subsidy under Article XVI:4 of the GATT 1947
provides no guidance in determining whether that measure is a prohibited
export subsidy under Article 3.1(a) of the SCM Agreement.
Also, and significantly, Article XVI:4 of the GATT 1994 does not apply
to “primary products”, which include agricultural products.
Unquestionably, the explicit export subsidy disciplines, relating to
agricultural products, contained in Articles 3, 8, 9 and 10 of the Agreement
on Agriculture must clearly take precedence over the exemption
of primary products from export subsidy disciplines in Article XVI:4 of
the GATT 1994.
S.2.41.4 US — Softwood Lumber IV, para. 134
(WT/DS257/AB/R)
… we observe that provisions in both the GATT 1994 and the SCM
Agreement are relevant to this dispute. We note the Appellate
Body’s earlier ruling that a provision of an agreement included in
Annex 1A of the WTO Agreement (including the SCM Agreement),
and a provision of the GATT 1994, that have identical coverage, both
apply, but that the provision of the agreement that “deals
specifically, and in detail” with a question should be examined first.
… No conflict between Articles 10 and 32.1 of the SCM Agreement
on the one hand, and Article VI:3 of the GATT 1994 on the other hand, is
alleged in this appeal, nor do we see any such conflict. Therefore, the
requirements of these provisions of the SCM Agreement and
the GATT 1994 apply on a cumulative basis.
S.2.41.5 US — Softwood Lumber IV, para. 138
(WT/DS257/AB/R)
We note that, if we were to find that USDOC’s final determination
and the imposition of countervailing duties on Canadian imports of
softwood lumber products contravene the requirements of Article VI:3 of
the GATT 1994, the United States necessarily would not have “take[n]
all necessary steps to ensure that the imposition of a countervailing
duty … is in accordance with the provisions of Article VI of GATT 1994”,
as required by Article 10 of the SCM Agreement. The “specific
action against a subsidy” taken by the United States would also not,
as required by Article 32.1 of the SCM Agreement, be “in
accordance with the provisions of GATT 1994, as interpreted by the [SCM]
Agreement”. Consequently, any inconsistency of the United States’
imposition of countervailing duties on Canadian imports of softwood
lumber products with Article VI:3 of the GATT 1994, would necessarily
render this measure inconsistent also with Articles 10 and 32.1
of the SCM Agreement.
S.2.42 Article III:8 of the GATT 1994 — Subsidies
back to top
S.2.42.1 Canada — Periodicals, p. 34, DSR 1997:I, p. 449 at 478
(WT/DS31/AB/R)
… Indeed, an examination of the text, context, and object and
purpose of Article III:8(b) suggests that it was intended to exempt from
the obligations of Article III only the payment of subsidies which
involves the expenditure of revenue by a government.
S.2.43 Article VI:3 of the GATT 1994 — Subsidies.
See also
Anti-Dumping Agreement, Article 18.1 — Specific action against dumping
(A.3.61); SCM Agreement, Article 1.1 — Pass-through of indirect
subsidies (S.2.10); SCM Agreement, Article 32.1 — Specific action
against a subsidy (S.2.36) back to top
S.2.43.1 US — Softwood Lumber IV, para. 139
(WT/DS257/AB/R)
The Panel described the pass-through problem as follows: “[w]here
the subsidies at issue are received by someone other than the producer
of the investigated product, the question arises whether there is
subsidization in respect of that product.” In addressing this
question, we note that Article VI:3 prohibits levying countervailing
duties on an imported product “in excess of an amount equal to
the estimated … subsidy determined to have been granted, directly or
indirectly, on the manufacture, production or export of such product”.
(emphasis added) According to Article VI:3, countervailing duties are
“levied for the purpose of offsetting … subsid[ies] bestowed, directly
or indirectly, upon the manufacture, production or export
of any merchandise”. (emphasis added) The definition of the
term “countervailing duties” in footnote 36 to Article 10 of the SCM
Agreement is along the same lines.
S.2.43.2 US — Softwood Lumber IV, para. 140
(WT/DS257/AB/R)
The phrase “subsid[ies] bestowed … indirectly”, as used
in Article VI:3, implies that financial contributions by the government
to the production of inputs used in manufacturing products
subject to an investigation are not, in principle, excluded from the
amount of subsidies that may be offset through the imposition of
countervailing duties on the processed product. Where the
producer of the input is not the same entity as the producer of the
processed product, it cannot be presumed, however, that the subsidy
bestowed on the input passes through to the processed product. In such
case, it is necessary to analyze to what extent subsidies on inputs may
be included in the determination of the total amount of subsidies
bestowed upon processed products. For it is only the subsidies
determined to have been granted upon the processed products that
may be offset by levying countervailing duties on those products.
S.2.43.3 US — Softwood Lumber IV, para. 141
(WT/DS257/AB/R)
In our view, it would not be possible to determine whether
countervailing duties levied on the processed product are in excess
of the amount of the total subsidy accruing to that product, without
establishing whether, and in what amount, subsidies bestowed on the
producer of the input flowed through, downstream, to the producer of the
product processed from that input. Because Article VI:3 permits offsetting,
through countervailing duties, no more than the “subsidy determined to
have been granted … directly or indirectly, on the manufacture [or]
production … of such product”, it follows that Members must
not impose duties to offset an amount of the input subsidy that has not
passed through to the countervailed processed products. It is only the
amount by which an indirect subsidy granted to producers of inputs flows
through to the processed product, together with the amount of subsidy
bestowed directly on producers of the processed product, that may be
offset through the imposition of countervailing duties. The definition
of “countervailing duties” in footnote 36 to Article 10 of the SCM
Agreement supports this interpretation of the requirements of
Article VI:3 of the GATT 1994.
35. We note, however,
that not all government measures capable of conferring benefits would
necessarily fall within Article 1.1(a). If that were the case, there
would be no need for Article 1.1(a), because all government measures
conferring benefits, per se, would be subsidies. In this regard,
we find informative the discussion of the negotiating history of the SCM
Agreement contained in the panel report in US — Export
Restraints, which was not appealed. That panel, at paragraph 8.65 of
the panel report, said that the:
… negotiating history demonstrates … that
the requirement of a financial contribution from the outset was intended
by its proponents precisely to ensure that not all government measures
that conferred benefits could be deemed to be subsidies. This point was
extensively discussed during the negotiations, with many participants
consistently maintaining that only government actions constituting
financial contributions should be subject to the multilateral rules on
subsidies and countervailing measures. (footnote omitted)
back to text
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
1355. The New Shorter Oxford English
Dictionary (1993). back to text
1356. Merriam-Webster Dictionary online.
back to text
1388. In the remainder of
our analysis, we use the term “price suppression” to refer both to
an actual decline (which otherwise would not have declined, or would
have done so to a lesser degree) and an increase in prices (which
otherwise would have increased to a greater degree). (emphasis added)
back to text
58. We do not subscribe to
the view, expressed by Japan, that the use of the word “cases”
(rather than the word “investigation”) in the second sentence of
Article 11.9 means that the application of the de minimis
standard set forth in that provision must be applied in all
phases of countervailing duty proceedings — not only in investigations.
The use of the word “cases” does not alter the fact that the terms
of Article 11.9 apply the de minimis standard only to the
investigation phase. We note further that the panel in US — DRAMS
rejected a similar argument with respect to the meaning of the word “cases”
in Article 5.8 of the Anti-Dumping Agreement, a provision almost
identical to Article 11.9 of the SCM Agreement. (Panel
Report, US — DRAMS, para. 6.87) back to text
189. We note, in this
respect, as pointed out by the European Communities, that the first
sentence of Article 6.10 of the Anti-Dumping Agreement requires,
as a rule, a determination of an individual margin of dumping for each
known producer or exporter of the product under investigation, unless
this is rendered impracticable due to the high number of producers and
exporters or of the types of products involved. If that is the case, the
second sentence of Article 6.10 permits investigating authorities to
limit the investigation to a statistically valid sample, or the largest
percentage of the volume of exports that can reasonably be investigated.
By contrast, the SCM Agreement does not contain a similar
rule requiring Members, in principle, to determine an individual margin
of subsidization for each known producer or exporter of the subsidized
good. … back to text
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