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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 | 
