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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.2.1.5 US — Countervailing Duty Investigation on DRAMS, para.
115
(WT/DS296/AB/R)
… the object and purpose of the SCM Agreement … reflects a
delicate balance between the Members that sought to impose more
disciplines on the use of subsidies and those that sought to impose more
disciplines on the application of countervailing measures. … This
balance must be borne in mind in interpreting paragraph (iv), which
allows Members to apply countervailing measures to products in
situations where a government uses a private body as a proxy to provide
a financial contribution (provided, of course, that the other
requirements of a countervailable subsidy are proved as well). At the
same time, the interpretation of paragraph (iv) cannot be so broad so as
to allow Members to apply countervailing measures to products whenever a
government is merely exercising its general regulatory powers.
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 forgoing 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 per cent ad
valorem, or to any other de minimis threshold. It is also
worth noting that, under Part II 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 forgoing 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.2.3.2 US — Countervailing Duty Investigation on
DRAMS, para. 107
(WT/DS296/AB/R)
… situations involving exclusively private conduct — that is,
conduct that is not in some way attributable to a government or public
body — cannot constitute a “financial contribution” for purposes
of determining the existence of a subsidy under the SCM Agreement.
S.2.3A Article 1.1(a)(1) — “direct transfer of
funds” back to top
S.2.3A.1 Japan — DRAMs (Korea), paras. 250-252
(WT/DS336/AB/R,
WT/DS336/AB/R/Corr.1)
In our view, the term “funds” encompasses not only “money”
but also financial resources and other financial claims more generally.
The concept of “transfer of funds” adopted by Korea is too literal
and mechanistic because it fails to encapsulate how financial
transactions give rise to an alteration of obligations from which an
accrual of financial resources results. We are unable to agree that
direct transfers of funds, as contemplated in Article 1.1(a)(1)(i), are
confined to situations where there is an incremental flow of funds to
the recipient that enhances the net worth of the recipient. Therefore,
the Panel did not err in finding that the JIA properly characterized the
modification of the terms of pre-existing loans in the present case as a
direct transfer of funds.
We observe that the words “grants, loans, and equity infusion”
are preceded by the abbreviation “e.g.”, which indicates that
grants, loans, and equity infusion are cited examples of transactions
falling within the scope of Article 1.1(a)(1)(i). This shows that
transactions that are similar to those expressly listed are also covered
by the provision. Debt forgiveness, which extinguishes the claims of a
creditor, is a form of performance by which the borrower is taken to
have repaid the loan to the lender. The extension of a loan maturity
enables the borrower to enjoy the benefit of the loan for an extended
period of time. An interest rate reduction lowers the debt servicing
burden of the borrower. In all of these cases, the financial position of
the borrower is improved and therefore there is a direct transfer of
funds within the meaning of Article 1.1(a)(1)(i).
With respect to Korea’s argument that debt-to-equity swaps cannot
be considered as direct transfers of funds given that no money is
transferred thereby to the recipient, the Panel reasoned that “the
relinquishment and modification of claims inherent in such transactions
similarly result … in new rights, or claims, being transferred
to the former debtor”. Again, we see no error in the Panel’s
analysis. Debt-to-equity swaps replace debt with equity, and in a case
such as this, when the debt-to-equity swap is intended to address the
deteriorating financial condition of the recipient company, the
cancellation of the debt amounts to a direct transfer of funds to the
company.
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 “forgoing” 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 “forgone” 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 forgone
“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 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 forgoing 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, entrustment or direction to a private body 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.2.8.2 US — Countervailing Duty Investigation on
DRAMS, para. 108
(WT/DS296/AB/R)
… paragraph (iv) covers situations where a private body is being
used as a proxy by the government to carry out one of the types of
functions listed in paragraphs (i) through (iii). Seen in this light,
the terms “entrusts” and “directs” in paragraph (iv) identify
the instances where seemingly private conduct may be attributable to a
government for purposes of determining whether there has been a
financial contribution within the meaning of the SCM Agreement.
S.2.8.3 US — Countervailing Duty Investigation on
DRAMS, paras. 110-111
(WT/DS296/AB/R)
The term “entrusts” connotes the action of giving responsibility
to someone for a task or an object. In the context of paragraph (iv) of
Article 1.1(a)(1), the government gives responsibility to a private body
“to carry out” one of the types of functions listed in paragraphs (i)
through (iii) of Article 1.1(a)(1). As the United States acknowledges,
“delegation” (the word used by the Panel) may be a means by which a
government gives responsibility to a private body to carry out one of
the functions listed in paragraphs (i) through (iii). Delegation is
usually achieved by formal means, but delegation also could be informal.
Moreover, there may be other means, be they formal or informal, that
governments could employ for the same purpose. Therefore, an
interpretation of the term “entrusts” that is limited to acts of
“delegation” is too narrow.
As for the term “directs”, we note that some of the definitions
— such as “give authoritative instructions to” and “order (a
person) to do” — suggest that the person or entity that
“directs” has authority over the person or entity that is directed.
In contrast, some of the other definitions — such as “inform or
guide” — do not necessarily convey this sense of authority. In our
view, that the private body under paragraph (iv) is directed “to
carry out” a function underscores the notion of authority that is
included in some of the definitions of the term “direct”. This
understanding of the term “directs” is reinforced by the Spanish and
French versions of the SCM Agreement, which use the verbs
“ordenar” and “ordonner”, respectively. Both of these verbs
unambiguously convey a sense of authority exercised over someone. In the
context of paragraph (iv), this authority is exercised by a government
over a private body. A “command” (the word used by the Panel) is
certainly one way in which a government can exercise authority over a
private body in the sense foreseen by Article 1.1(a)(1)(iv), but
governments are likely to have other means at their disposal to exercise
authority over a private body. Some of these means may be more subtle
than a “command” or may not involve the same degree of compulsion.
Thus, an interpretation of the term “directs” that is limited to
acts of “command” is also too narrow.
S.2.8.4 US — Countervailing Duty Investigation on
DRAMS, para. 112
(WT/DS296/AB/R)
… As the panel [at paragraph 8.53] in US —
Export Restraints explained, this means that “the scope
of the actions … covered by subparagraph (iv) must be the same as
those covered by subparagraphs (i)—(iii)”. A situation where the
government entrusts or directs a private body to carry out a function
that is outside the scope of paragraphs (i) through (iii) would
consequently fall outside the scope of paragraph (iv). Thus, we agree
with the US — Export Restraints panel
that “the difference between subparagraphs (i)—(iii) on the one
hand, and subparagraph (iv) on the other, has to do with the identity of
the actor, and not with the nature of the action”. … We therefore agree with Korea that there must be a demonstrable
link between the government and the conduct of the private body.
S.2.8.5 US — Countervailing Duty Investigation on
DRAMS, para. 113
(WT/DS296/AB/R)
We recall, moreover, that Article 1.1(a)(1) of the SCM Agreement is
concerned with the existence of a financial contribution. Paragraph
(iv), in particular, is intended to ensure that governments do not evade
their obligations under the SCM Agreement by using private bodies
to take actions that would otherwise fall within Article 1.1(a)(1), were
they to be taken by the government itself. In other words, Article
1.1(a)(1)(iv) is, in essence, an anti-circumvention provision. A finding
of entrustment or direction, therefore, requires that the government
give responsibility to a private body — or exercise its authority over
a private body — in order to effectuate a financial contribution.
S.2.8.6 US — Countervailing Duty Investigation on
DRAMS, para. 114
(WT/DS296/AB/R)
It follows, therefore, that not all government acts necessarily
amount to entrustment or direction. We note that both the United States
and Korea agree that “mere policy pronouncements” by a government
would not, by themselves, constitute entrustment or direction for
purposes of Article 1.1(a)(1)(iv). Furthermore, entrustment and
direction — through the giving of responsibility to or exercise of
authority over a private body — imply a more active role than mere
acts of encouragement. Additionally, we agree with the panel in US —
Export Restraints that entrustment and direction do not
cover “the situation in which the government intervenes in the market
in some way, which may or may not have a particular result simply based
on the given factual circumstances and the exercise of free choice by
the actors in that market”. Thus, government “entrustment” or
“direction” cannot be inadvertent or a mere by-product of
governmental regulation. …
S.2.8.7 US — Countervailing Duty Investigation on
DRAMS, para. 115
(WT/DS296/AB/R)
… This balance [in the object and purpose of the SCM Agreement]
must
be borne in mind in interpreting paragraph (iv), which allows Members to
apply countervailing measures to products in situations where a
government uses a private body as a proxy to provide a financial
contribution (provided, of course, that the other requirements of a
countervailable subsidy are proved as well). At the same time, the
interpretation of paragraph (iv) cannot be so broad so as to allow
Members to apply countervailing measures to products whenever a
government is merely exercising its general regulatory powers.
S.2.8.8 US — Countervailing Duty Investigation on
DRAMS, para. 116
(WT/DS296/AB/R)
In sum, we are of the view that, pursuant to paragraph (iv),
“entrustment” occurs where a government gives responsibility to a
private body, and “direction” refers to situations where the
government exercises its authority over a private body. In both
instances, the government uses a private body as proxy to effectuate one
of the types of financial contributions listed in paragraphs (i) through
(iii). It may be difficult to identify precisely, in the abstract, the
types of government actions that constitute entrustment or direction and
those that do not. The particular label used to describe the
governmental action is not necessarily dispositive. Indeed, as Korea
acknowledges, in some circumstances, “guidance” by a government can
constitute direction. In most cases, one would expect entrustment or
direction of a private body to involve some form of threat or
inducement, which could, in turn, serve as evidence of entrustment or
direction. The determination of entrustment or direction will hinge on
the particular facts of the case.
S.2.8.9 US — Countervailing Duty Investigation on
DRAMS, para. 118
(WT/DS296/AB/R)
… We explained earlier that the terms “entrusts” and
“directs” in Article 1.1(a)(1)(iv) are not limited to
“delegation” and “command”, respectively. In our view, there may
be other means by which governments can give responsibility to or
exercise authority over a private body that may not fall within the
terms “delegation” and “command”, if these terms are strictly
construed. … We do not consider that these words, on their own, convey
what we understand by “entrusts” or “directs”, as used in
Article 1.1(a)(1)(iv), for the terms “delegation” and “command”,
as we have explained above, are too narrow. Therefore, we modify the
Panel’s interpretation of Article 1.1(a)(1)(iv) of the SCM
Agreement … to the extent that it may be understood as limiting
the terms “entrusts” and “directs” to acts of “delegation”
and “command”.
S.2.8.10 US — Countervailing Duty Investigation
on DRAMS, para. 122-125
(WT/DS296/AB/R)
… Korea explains that a finding of entrustment or direction under
Article 1.1(a)(1)(iv) requires that the private body carry out one
of the functions listed in that provision. “Mere direction without
action”, Korea submits, is not sufficient. …
… even assuming arguendo Korea is correct that a finding of
entrustment or direction requires that the function so entrusted or
directed be carried out, we are not persuaded that the basis for the
Panel’s finding is as narrow as that alleged by Korea.
In any event, a finding of entrustment or direction, by itself, does
not establish the existence of a financial contribution. Where a
government entrusts or directs a private body — by giving
responsibility to or exercising its authority over the private body —
it is likely that the function that is allegedly entrusted or directed
will indeed be carried out. The private body’s refusal to carry out
the function may be evidence that the government did not give it
responsibility for such function, or that the government did not
exercise the requisite authority over it such that the private body did
not heed the government. It does not, however, on its own, mean that the
private body was not entrusted or directed. Depending on the
circumstances, a private body may decide not to carry out a function
with which it was so entrusted or directed, despite the possible
negative consequences that may follow.
Still, this does not mean that it is possible to make a finding of a
financial contribution under Article 1.1(a)(1)(iv) where a private body
does not carry out the function allegedly entrusted or directed to it.
Failure by the private body to carry out one of the functions of the
types listed in paragraphs (i) through (iii) means that nothing of
economic value has been transferred from the grantor to the recipient.
Simply put, if the private body has not carried out the function
allegedly entrusted or directed to it, nothing will have changed hands.
Therefore, there is no financial contribution and, consequently, there
would be no right to apply countervailing measures.
S.2.8.11 US — Countervailing Duty Investigation
on DRAMS, paras. 192-193
(WT/DS296/AB/R)
… we have found it useful, nevertheless, to modify the Panel’s
interpretation of “entrusts” and “directs” in order to clarify
the meaning of these terms in accordance with the interpretation we set
out above. We have also found multiple errors in the Panel’s analysis
of the USDOC’s finding of entrustment or direction. In particular, we
have found that the Panel erred in (i) applying Article 1.1(a)(1)(iv) so
as to examine the USDOC’s evidence piecemeal rather than in its
totality, notwithstanding the Panel’s stated intention to follow the
USDOC’s approach; (ii) refusing to admit certain record evidence
submitted by the United States; and (iii) faulting the USDOC for its
failure to address facts that were not on the record of the
investigation. On the basis of these errors, we have found that the
Panel failed to apply the proper standard of review in accordance with
Article 11 of the DSU. In our view, these errors, taken together with
the modification we found necessary to the Panel’s interpretation of
the terms “entrusts” and “directs”, invalidate the basis for the
Panel’s conclusion, quoted above, that there was not sufficient
evidence to support the USDOC’s finding of entrustment or direction.
Because this conclusion is the sole basis for the Panel’s finding
of inconsistency with Article 1.1(a)(1)(iv) of the SCM Agreement,
we reverse the Panel’s findings, in paragraphs 7.178, 7.209,
and 8.1 of the Panel Report, that the USDOC’s determination of GOK
entrustment or direction of Hynix’s Group B and C creditors is
inconsistent with Article 1.1(a)(1)(iv) of the SCM Agreement.
S.2.8.12 Japan — DRAMs (Korea),
para. 138
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
We recognize that the commercial unreasonableness of the financial
transactions is a relevant factor in determining government entrustment
or direction under Article 1.1(a)(1)(iv) of the SCM Agreement,
particularly where an investigating authority seeks to establish
government intervention based on circumstantial evidence. However, this
does not mean that a finding of entrustment or direction can never be
made unless it is established that the financial transactions were on
non-commercial terms. A finding that creditors acted on the basis of
commercial reasonableness, while relevant, is not conclusive of the
issue of entrustment or direction. A government could entrust or direct
a creditor to make a loan, which that creditor then does on commercial
terms. In other words, as a conceptual matter, there could be
entrustment or direction by the government, even where the financial
contribution is made on commercially reasonable terms.
S.2.9 Article 1.1(b) — Conferral of a benefit on
a recipient. See also 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 [at
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 presumptively extinguishes any
benefit received from the nonrecurring 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
programme 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.2.9.11 US — Countervailing Duty Investigation
on DRAMS, para. 205 and footnote 377
(WT/DS296/AB/R)
Having reversed the Panel’s findings that the USDOC’s
determination of entrustment or direction is inconsistent with Article
1.1(a)(1)(iv), there is no basis for us to uphold the Panel’s finding
on benefit. Consequently, we also reverse the Panel’s finding
…that the USDOC’s benefit determination is inconsistent with Article
1.1(b) of the SCM Agreement.377
S.2.9.12 Japan — DRAMs (Korea),
para. 172
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
We do not consider the distinction between inside and outside
investors to be helpful in order to determine the appropriate benchmark
for calculating the amount of benefit under Articles 1.1(b) and 14 of
the SCM Agreement. The terms of a financial transaction must be
assessed against the terms that would result from unconstrained exchange
in the relevant market. The relevant market may be more or less
developed; it may be made up of many or few participants. By way of
example, there are now well-established markets in many economies for
distressed debt, and a variety of financial instruments are traded on
these markets. In some instances, the market may be more rudimentary. In
other instances, it may be difficult to establish the relevant market
and its results. But these informational constraints do not alter the
basic framework from which the analysis should proceed. We also do not
consider that there are different standards applicable to inside and to
outside investors. There is but one standard — the market standard —
according to which rational investors act.
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.2.10A Article 1.2 — Specificity back to top
S.2.10A.1 US — Countervailing Duty Investigation on DRAMS,
paras. 206-208
(WT/DS296/AB/R)
… In paragraph 7.206 of the Panel Report, the Panel explains its
view that “the [US]DOC’s finding of GOK entrustment cannot provide a
proper basis for a determination of specificity in respect of alleged
subsidies provided by Group B and C creditors”. The Panel provides no
other basis for its finding.
Accordingly, we reverse the Panel’s findings … that the
USDOC’s finding of specificity is inconsistent with Article 2 of the SCM
Agreement insofar as it relates to alleged subsidies by Group B and
C creditors.
… Consequently, there are neither sufficient findings by the Panel
nor undisputed facts contained in the record to allow us to conduct our
own analysis of Korea’s claims regarding benefit and specificity. We
recall that it is not sufficient to determine that there is a
“financial contribution by a government or any public body” in order
to find that there is a “subsidy” under Article 1.1 of the SCM
Agreement. This provision also requires that “a benefit is thereby
conferred”. Article 1.2 requires, in addition, that the subsidy be
“specific”. Because the Panel’s findings on benefit and
specificity were premised exclusively on its conclusion relating to
entrustment or direction, there is insufficient basis for us to examine
the consistency of the USDOC’s benefit and specificity determinations
with the SCM Agreement. Even though we reverse the Panel’s
findings, we offer no view as to the consistency of the USDOC’s
underlying determinations of benefit and specificity.
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 keyword 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
fulfilment 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 II 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 II 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 II of the GATS. If that were the intention, why
does Article II not say as much? The obligation imposed by Article II 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 II 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 II 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.2.19.6 US
— FSC (Article 21.5 — EC II), para. 82
(WT/DS108/AB/RW2)
It is clear from the text of Article 4.7 that, when a panel finds a
measure at issue to be a prohibited subsidy, the panel is required to
make a recommendation with two components: (i) that the subsidy be
withdrawn “without delay”; and (ii) that the time period within
which the subsidy must be withdrawn be specified by the Panel. When such
a recommendation is adopted by the DSB, it must be, by virtue of Article
17.14 of the DSU, “unconditionally accepted by the parties to the
dispute”, and it thus becomes effective and binding on the parties.
Pursuant to Article 4.10 of the SCM Agreement, if compliance with
an Article 4.7 recommendation is not achieved within the time period
specified, the DSB may authorize the imposition of appropriate
countermeasures upon the subsidizing Member.
S.2.19.7 US
— FSC (Article 21.5 — EC II), para. 83
(WT/DS108/AB/RW2)
We are of the view that the obligation of the subsidizing Member to
withdraw the prohibited subsidy “without delay”, and within the time
period specified, emanates from a finding of a violation of Article 3 of
the SCM Agreement and a consequent Article 4.7 recommendation
once adopted by the DSB. That recommendation under Article 4.7 remains
in effect until the Member concerned has fulfilled its obligation by fully
withdrawing the prohibited subsidy. Where a Member withdraws a
prohibited subsidy only in part, it has failed to comply fully with
its WTO obligation and the Article 4.7 recommendation continues to be in
effect with respect to the part of the subsidy that has not been
withdrawn. Similarly, full withdrawal of a prohibited subsidy
within the meaning of Article 4.7 of the SCM Agreement cannot be
achieved by a “measure taken to comply” that replaces the original
subsidy with yet another subsidy found to be prohibited. In both
instances, the Member cannot be said to have complied with the
obligation to withdraw fully the prohibited subsidy.
S.2.19.8 US
— FSC (Article 21.5 — EC II), para. 84
(WT/DS108/AB/RW2)
As a result, if, in an Article 21.5 proceeding, a panel finds that
the measure taken to comply with the Article 4.7 recommendation made in
the original proceedings does not achieve full withdrawal of the
prohibited subsidy — either because it leaves the entirety or part of
the original prohibited subsidy in place, or because it replaces that
subsidy with another subsidy prohibited under the SCM Agreement
— the implementing Member continues to be under the obligation to achieve
full withdrawal of the subsidy. The obligation to comply with an Article
4.7 recommendation remains in effect, even if several proceedings under
Article 21.5 become necessary, until the prohibited subsidy is fully
withdrawn.
S.2.19.9 US
— FSC (Article 21.5 — EC II), para. 85
(WT/DS108/AB/RW2)
These second Article 21.5 proceedings before us concern a situation
where the measure taken to comply with the DSB recommendations from the
original and first Article 21.5 proceedings — the Jobs Act — has in
large part withdrawn the prohibited subsidies. However, to the extent
that the Jobs Act, by virtue of its transition and grandfathering
provisions, does not fully withdraw the ETI subsidies found in the
previous proceedings to be prohibited under the SCM Agreement, it
was sufficient for the second Article 21.5 Panel to conclude that the
original Article 4.7 recommendation adopted by the DSB has not been
complied with entirely and remains in effect for the part that has not
been implemented.
S.2.19.10 US
— FSC (Article 21.5 — EC II), para. 86
(WT/DS108/AB/RW2)
Even if, arguendo, an Article 21.5 panel made a new Article
4.7 recommendation to withdraw the prohibited subsidy “without delay”,
it would presumably also “specify … the time period within which the
measure must be withdrawn”. If this were to result in an extension of
the time period set for withdrawal of the subsidy found to be prohibited
in the original proceedings, compliance proceedings could have the
effect of extending implementation periods through new Article 4.7
recommendations in successive Article 21.5 proceedings. This could lead
to a potentially “never-ending cycle” of dispute settlement
proceedings and inordinate delays in the implementation of
recommendations and rulings of the DSB.
S.2.19.11 US
— FSC (Article 21.5 — EC II), para. 89
(WT/DS108/AB/RW2)
In our view, whether the first Article 21.5 panel made or could make
a new Article 4.7 recommendation is not dispositive of the question
whether the original Article 4.7 recommendation continues to be in
effect until full compliance is achieved. Like the Panel, we see “no
material significance in the purported lack of an explicit ‘new’ …
recommendation under Article 4.7 of the SCM Agreement in the
first [Article 21.5] compliance proceeding”.
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.
Article 6.3
— Serious Prejudice.
See SCM Agreement,
Order of analysis — Use of assumptions (O.2.9); Article 5 — “Adverse
effects” — Relationship with Article 6.3(c) (S.2.19A); Article
6.3(c) — Serious Prejudice (S.2.19B); Article 15.5 — Causation
(S.2.25A); Review of “objective assessment” by the panel — Article
11 of the DSU (S.3.2.5); Issues of law vs. Issues of fact — Article
17.6 of the DSU (S.3.3.12); Need to address each issue raised — Article 17.12 of the DSU
(S.3.4); Article 11 of the DSU
— Objective
assessment of the facts (S.7.3.21)
S.2.19B Article 6.3(c)
— Serious prejudice back to top
S.2.19B.0 GENERAL
S.2.19B.0.1 US
— Upland Cotton (Article 21.5 — Brazil), para.
234
(WT/DS267/AB/RW)
We have some difficulty accepting the notion that a subsidy programme
and the payments provided under that programme can be assessed
separately. While the payments may cause adverse effects, the amount of
the payments, beneficiaries, and the terms and conditions of eligibility
will be provided in the subsidy programme or legislation authorizing
those payments. …
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, and footnotes
1355 and 1356
(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 analyse the price of upland cotton in general in the world market or
whether the Panel was required to analyse 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 analyse
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 shorthand 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.4.3 US
— Upland Cotton (Article 21.5 — Brazil), para.
351
(WT/DS267/AB/RW)
At a conceptual level, we see some differences between the concepts
of “price depression” and “price suppression” as defined in the
original proceedings. While price depression is a directly observable
phenomenon, price suppression is not so. Falling prices can be observed;
by contrast, price suppression concerns whether prices are less than
they would otherwise have been in consequence of various factors, in
this case, the subsidies. The identification of price suppression,
therefore, presupposes a comparison of an observable factual situation
(prices) with a counterfactual situation (what prices would have been)
where one has to determine whether, in the absence of the subsidies (or
some other controlling phenomenon), prices would have increased or would
have increased more than they actually did. Price depression, by
contrast, can be directly observed, in that falling prices are
observable. The determination of whether such falling prices are the
effect of the subsidies will require consideration of what prices would
have been absent the subsidies. Thus, counterfactual analysis is an
inescapable part of analysing the effect of a subsidy under Article
6.3(c) of the SCM Agreement.
S.2.19B.4.4 US
— Upland Cotton (Article 21.5 — Brazil), paras.
353-358
(WT/DS267/AB/RW)
… the Panel stated that it would adopt a “unitary” approach and
would not separate into three analytical steps whether there was price
suppression in the world market for upland cotton, whether this price
suppression was significant, and whether a causal relationship existed
between this significant price suppression and the subsidies. The Panel
found support for this approach in the finding of the Appellate Body in
the original proceedings that “it would be difficult to make a
judgement on significant price suppression without taking into account
the effect of the subsidies”.
Because of the counterfactual nature of price suppression, it is
difficult to separate price suppression from its causes. Hence, the
Panel’s “unitary analysis”, at least in respect of identifying
price suppression and its causes, has a sound conceptual foundation.
In this case, the Panel was required to consider the impact of
marketing loan and counter-cyclical payments on the prices of upland
cotton on the world market. Brazil did not allege that marketing loan
and counter-cyclical payments to United States upland cotton farmers
have a direct impact on world market prices. Rather, these payments are
alleged to have had an impact on farmers’ planting decisions and,
consequently, on domestic upland cotton production levels. Thus, the
analysis should initially focus on the effects of the subsidies on
production levels by examining whether there was more production than
there otherwise would have been as a result of the marketing loan and
counter-cyclical payments. It is the marginal production attributable to
the marketing loan and counter-cyclical payments that matters. If there
were to be increased upland cotton production, the analysis would then
focus on whether that increase in supply had effects on prices in the
world market. All else being equal, the marginal production attributable
to the subsidy would be expected to have an effect on world prices,
particularly if the subsidy is provided in a country with a meaningful
share of world output.
Given the focus on production and price effects, an analysis of price
suppression would normally include a quantitative component. There is
some inherent difficulty in quantifying the effects of subsidies,
because, as we have indicated, the increase in prices, absent the
subsidies, cannot be directly observed. One way to undertake the
analysis is to use economic modelling or other quantitative techniques.
These techniques can be used to estimate whether there are higher levels
of production resulting from the subsidies and, in turn, the price
effects of that production. Economic modelling and other quantitative
techniques provide a framework to analyse the relationship between
subsidies, other factors, and price movements.
… Because the examination of price suppression necessarily involves
an analysis of what would have been the case in the absence of an
intervening event, modelling exercises are likely to be an important
analytical tool that a panel should scrutinize. The relative complexity
of a model and its parameters is not a reason for a panel to remain
agnostic about them. Like other categories of evidence, a panel should
reach conclusions with respect to the probative value it accords to
economic simulations or models presented to it. This kind of assessment
falls within the panel’s authority as the initial trier of facts in a
serious prejudice case.
In the present case, … [w]hile the Panel appropriately examined the
model, the parameters used by each party, and the arguments made by the
parties, and noted the different results generated by the simulations
conducted by each party, the Panel could have gone further in its
evaluation and comparative analysis of the economic simulations and the
particular parameters used.
S.2.19B.4.5 US
— Upland Cotton (Article 21.5 — Brazil), paras.
361-364, 366
(WT/DS267/AB/RW)
The Panel adopted, as indicated, a “unitary” approach”. It did
not, as the original panel did, separate its analysis into three steps
to determine whether there was price suppression in the world market for
upland cotton, whether this price suppression was significant, and
whether a causal relationship existed between such significant price
suppression and the subsidies. Rather, in undertaking a unitary
analysis, the Panel considered both quantitative and qualitative
elements in its assessment. It made a quantitative assessment of
significance by evaluating the magnitude of the subsidies, the gap
between United States upland cotton producers’ revenues and costs of
production, the United States’ share of world production and exports,
and the economic simulations; and it made a qualitative assessment by
evaluating the structure, design, and operation of the subsidies. The
adoption of a unitary approach, however, did not absolve the Panel from
clearly explaining its position on the question of “significance”.
The Panel could have provided a clearer explanation of how the factors
that it examined supported its finding that the price suppression was
“significant”.
In our view, several of the factors evaluated by the Panel support
the proposition that the effect of the marketing loan and
counter-cyclical payments is “significant” price suppression in the
world market for upland cotton. …[the] magnitude of the marketing loan
and counter-cyclical payments is significant not only in absolute terms,
but also as a share of United States producers’ total revenues. …
Although the Panel did not quantify the effect of these subsidies on
upland cotton plantings and production, it established that the
marketing loan and counter-cyclical payments “affect the level of
[United States] upland cotton acreage and production as a result of
their mandatory and price-contingent nature and their
revenue-stabilizing effect”. Moreover, the Panel found that “there
exists a significant gap between the total costs of production of
[United States] upland cotton producers and their market revenue”. …
The effect of marketing loan and counter-cyclical payments on production
of upland cotton was confirmed in the economic simulations conducted by
the parties. …
The Panel also found that “the United States exerts a substantial
proportionate influence on the world market for upland cotton”. … We
understand the Panel’s finding to imply that, given the United States’
significant shares of world exports and production, the increased
production resulting from the marketing loan and counter-cyclical
payments would have an effect on the world market for upland cotton and
would be reflected in the world market price of upland cotton.
…
Therefore, we find that the evidence on the record supports the Panel’s
conclusion that the effect of the marketing loan and counter-cyclical payments
is “significant” price suppression, within the meaning of Article 6.3(c) of the SCM
Agreement.
S.2.19B.4.6 US
— Upland Cotton (Article 21.5 — Brazil), paras.
416-418
(WT/DS267/AB/RW)
… As the Appellate Body explained in the original proceedings, “Article
6.3(c) does not set forth any specific methodology for determining
whether the effect of a subsidy is significant price suppression” and,
consequently, “[t]here may well be different ways to make this
determination”. Accordingly, Article 6.3(c) does not specifically
require a panel to determine whether a subsidy “insulates”
producers, nor does it require a quantification of the degree of such
insulation. What Article 6.3(c) does require is that the price
suppression be “significant”, which the Appellate Body has
understood as “connoting something that can be characterized as “important,
notable or consequential”. However, the fact that the price
suppression must be “significant” does not mean that a panel
examining various factors that support a finding of significant price
suppression, as did the Panel, must make a determination precisely
quantifying the effects of each factor. A factor that itself is not “significant”
may, together with other factors (whether individually shown to be of a
significant degree or not), establish “significant price suppression”.
What needs to be significant is the degree of price suppression, not
necessarily the degree of each factor used as an indicator for
establishing its existence. Nor does each factor necessarily have to be
capable of demonstrating, to the same extent, significant price
suppression.
In the present case, the Panel examined market insulation as part of
its examination of the structure, design, and operation of the marketing
loan and countercyclical payments. The structure, design, and operation
of the payments, in turn, were one of several elements on which the
Panel based its conclusion that the effect of marketing loan and
counter-cyclical payments is “significant price suppression”.
Moreover, the Panel emphasized that, “in determining whether the
structure, design and operation of these subsidies support a finding of
significant price suppression under current factual conditions,
we need to consider this factor in conjunction with other facts”.
Article 6.3(c) requires a demonstration of “significant” price
suppression. It does not require that panels make a determination of “significance”
for each of the factors examined in its price suppression analysis. We
do not consider that the Panel erred by not determining the precise
degree of market insulation, which is but one factor in the Panel’s
overall analysis.
S.2.19B.4.7 US
— Upland Cotton (Article 21.5 — Brazil), para.
437
(WT/DS267/AB/RW)
… the Panel’s finding of significant price suppression did not
rest on the impact of the elimination of Step 2 payments. The Panel
found significant price suppression based on the following: its
examination of the structure, design, and operation of marketing loan
and counter-cyclical payments; the existence of a gap between United
States upland cotton producers’ costs of production and revenues; and
the large magnitude of the subsidies and the substantial proportionate
influence of the United States in the world market for upland cotton.
Therefore, the Panel’s finding of significant price suppression stands
independently of the impact of the elimination of Step 2 payments.
S.2.19B.4.8 US
— Upland Cotton (Article 21.5 — Brazil), para.
441
(WT/DS267/AB/RW)
… The Panel set out to determine whether the effect of marketing
loan and counter-cyclical payments was present serious prejudice in the
form of significant price suppression, and for this purpose conducted an
evaluation of several factors. There is no requirement in Article 6.3(c)
of the SCM Agreement that a panel follow a particular
methodology, much less a requirement that a panel adopt an approach that
involves subtracting the price suppressing effects of the repealed
measure (in this case, the Step 2 payments). We do not see why the Panel
could not have analysed the price suppressing effects of the remaining
marketing loan and counter cyclical payments instead of analysing the
effects of the bundle of price-contingent subsidies at issue in the
original proceedings and then subtracting the impact of the repeal of
the Step 2 payments programme. In any event, even if the Panel did not
precisely quantify the effect of the elimination of Step 2 payments, it
did examine the amount of Step 2 payments before their elimination, the
impact of the elimination upon export volumes, and the likely increase
and decrease in marketing loan and counter-cyclical payments resulting
from the elimination of Step 2 payments.
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
analysing 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.5.7 US
— Upland Cotton (Article 21.5 — Brazil), paras.
369-371
(WT/DS267/AB/RW)
The approach to causation and non-attribution taken by the Panel in
these Article 21.5 proceedings differs from the approach taken by the
original panel. In the original proceedings, the panel’s approach
consisted of “examin[ing] whether or not ‘the effect of the subsidy’
is significant price suppression which [it had] found to exist in the
same world market”. The original panel then separately “consider[ed]
the role of other alleged causal factors in the record before [it] which
may [have] affect[ed] [the] analysis of the causal link between the
United States subsidies and the significant price suppression”. The
Panel in these Article 21.5 proceedings “adopted a ‘but for’
approach to the question of whether the effect of [United States]
marketing loan and counter-cyclical subsidies to upland cotton producers
is significant price suppression within the meaning of Article 6.3(c) of
the SCM Agreement”. The Panel also considered that, having
adopted a “but for” approach, “it is not necessary in this respect
to undertake a comprehensive evaluation of factors affecting the world
market price for upland cotton”.
We recall that “a panel has a certain degree of discretion in
selecting an appropriate methodology for determining whether the ‘effect’
of a subsidy is significant price suppression”. Articles 5(c) and
6.3(c) of the SCM Agreement do not exclude, therefore, that a
panel could examine causation based on a “but for” approach. We have
explained that a price suppression analysis is counterfactual in nature.
The Panel’s choice of a “but for” approach reflects this. In
consequence, the Panel had to determine whether the world price of
upland cotton would have been higher in the absence of the subsidies
(that is, but for the subsidies).
… The Panel’s choice of a “but for” approach…is consistent
with the definition of price suppression endorsed by the Appellate Body
in the original proceedings, insofar as the counterfactual determination
of whether price suppression exists cannot be separated from the
analysis of the effects of the subsidies.
S.2.19B.5.8 US
— Upland Cotton (Article 21.5 — Brazil), para.
372
(WT/DS267/AB/RW)
We note that Article 6.3(c) does not use the word “cause” but,
rather, provides that serious prejudice may arise where “the effect of
the subsidy is …significant price suppression”. The Appellate Body
stated in the original proceedings that the text of Article 6.3(c)
nevertheless requires the establishment of a causal link between the
subsidy and the significant price suppression. We agree that Article
6.3(c) requires the establishment of a causal link, but we observe that,
while the term “cause” focuses on the factors that may trigger a
certain event, the term “effect of” focuses on the results of that
event. The effect — price suppression — must result from a chain of
causation that is linked to the impugned subsidy.
S.2.19B.5.9 US
— Upland Cotton (Article 21.5 — Brazil), paras.
374-375
(WT/DS267/AB/RW)
The Panel does not clearly articulate the standard implicated in its
“but for” approach. … A subsidy may be necessary, but not
sufficient, to bring about price suppression. Understood in this way,
the “but for” test may be too undemanding. By contrast, the “but
for” test would be too rigorous if it required the subsidy to be the
only cause of the price suppression. Instead, the “but for” test
should determine that price suppression is the effect of the subsidy and
that there is a “genuine and substantial relationship of cause and
effect”.
The United States argues that the Panel was required to conduct a
non-attribution analysis as part of its “but for” approach. While we
agree that Article 6.3(c) requires the Panel to have ensured that the
effects of other factors on prices did not dilute the “genuine and
substantial” link between the subsidies and the price suppression,
Article 6.3(c) leaves some discretion to panels in choosing the
methodology used for this assessment. In the light of this flexibility,
it would not have been improper for the Panel to have assessed the
effect of other factors as part of its counterfactual analysis, rather
than conducting a separate analysis of non-attribution. In our view, the
Panel’s “but for” standard, understood as we have set out above,
is permissible under Article 6.3(c) of the SCM Agreement, and it
is consistent with the Panel’s counterfactual analysis of price
suppression.
S.2.19B.5.10 US
— Upland Cotton (Article 21.5 — Brazil), paras. 378-379, 381
(WT/DS267/AB/RW)
As we review the United States’ arguments, we have considerable
difficulty understanding how China’s increasing consumption and
imports of cotton could have contributed to the suppression of the world
price of cotton. To the contrary, the additional demand from China’s
imports would have been likely to contribute positively to world prices.
… uncertainty about China’s demand may cause price volatility in the
world upland cotton market. However, we are not persuaded that the
evidence of volatility demonstrates prima facie that Chinese
consumption of cotton and policies have a suppressing effect on the
price of upland cotton in the world market. The effects of volatility
appear to be inconclusive. …
For these reasons, we find that the Panel did not err in finding that
the role of China’s trade in cotton “does not attenuate the link
between significant price suppression and the subsidies at issue in this
proceeding”.
…
… Although its analysis of China’s role may be succinct, the
Panel considered, “based on the evidence before it, that while
China may play a significant role in the market for upland cotton, this
does not diminish the significance of the impact of [United States]
subsidies on the world price for upland cotton as a result of their
effect on [United States] supply to the world market”. Moreover, we
stated above that the evidence submitted by the United States on the
role of China in the world cotton trade does not establish that China is
a factor that contributes to the suppression of world upland cotton
prices. We do not believe, therefore, that the Panel was required to
conduct a more thorough analysis of the role of China in the light of
the evidence… the Panel did take into account the evidence submitted
by the United States on the role of China and properly reached the
conclusion that China’s role in the world cotton trade did not impact
negatively on world upland cotton prices. For the same reasons, we also
do not believe that the Panel failed to provide a “reasoned and
adequate explanation” for its conclusions in the light of “possible
alternative explanations”, as alleged by the United States.
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 analysing 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.6.5 US
— Upland Cotton (Article 21.5 — Brazil), para.
443
(WT/DS267/AB/RW)
… the Panel linked the probative value of the magnitude of the
subsidies, for purposes of the analysis of significant price
suppression, to its findings on the structure, design, and operation of
the subsidies and on the gap between costs of production and market
revenues of United States upland cotton producers. We have already found
that the Panel did not err in its findings on the structure, design, and
operation of the marketing loan and counter-cyclical payments, including
its findings on the market-insulating effects of those payments, and on
the gap between producers’ revenues and costs. Therefore, given that
the United States has not offered any additional arguments that could
substantiate its challenge of the Panel’s findings on the magnitude of
the subsidies, we see no reason to disturb these findings.
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.2.19B.8.6 US
— Upland Cotton (Article 21.5 — Brazil), para.
392
(WT/DS267/AB/RW)
The United States’ argument appears to focus on the short-term
impact of marketing loan payments, that is, on how they affect
year-to-year planting decisions. However, nothing in Article 6.3(c) of
the SCM Agreement suggests that the examination of the effect of
a subsidy must focus exclusively on the short-term perspective. Whether
production of a particular product is higher than it would have been in
the absence of the subsidy is often a critical issue in establishing
whether the effect of the subsidy is significant price suppression. In
our view, the effect of a subsidy on production can also be assessed on
the basis of a long-term perspective that focuses on how the subsidy
affects decisions of producers to enter or exit a given industry. The
Panel considered, in this regard, that “the evidence on the record,
notably the evidence regarding the role of marketing loan and
counter-cyclical payments in covering the difference between the market
revenue of [United States] upland cotton producers and their costs of
production, supports the view that these subsidies have a long-term
impact on acreage and production of upland cotton by affecting decisions
of [United States] cotton farmers to enter or exit cotton farming”.
S.2.19B.8.7 US
— Upland Cotton (Article 21.5 — Brazil), paras.
422-423
(WT/DS267/AB/RW)
In US
— Softwood Lumber VI (Article 21.5 — Canada), the
Appellate Body noted that “doubts could arise about the objective
nature of an Article 21.5 panel’s assessment if, on a specific issue,
that panel were to deviate from the reasoning in the original panel
report in the absence of any change in the underlying evidence in the
record”. The only relevant difference between the situation before the
Panel and the original proceedings in this dispute is the length of the
review period considered to establish whether significant price
suppression exists: six years in the original proceedings (MY 1997-2002)
as opposed to five years in the Article 21.5 proceedings (MY 2002-2006).
In our view, this difference does not justify a departure from the costs
and revenues methodology used by the original panel, or from the medium
to long-term analysis contemplated in the original panel report,
considering also that compliance measures subject to Article 21.5
proceedings by their very nature will be in force for a shorter period
of time. Moreover, the marketing loan and counter-cyclical programmes
remained unchanged since the original proceedings. Therefore,
considering that relevant circumstances in the current proceedings have
not changed since the original proceedings, it was proper for the Panel
not to have deviated from the approach of the panel and the Appellate
Body in the original proceedings, which relied on total costs of
production, and did not to take into account off-farm income when
comparing production cost with revenues.
The Panel’s decision to undertake an analysis over the medium- to
long-term and, therefore, to compare market revenues with total costs,
rather than with variable costs, is consistent with the approach adopted
by the Appellate Body in Canada
— Dairy (Article 21.5 — New
Zealand and US). The Appellate Body explained, in that case, that
“fixed and variable costs are the total amount which the producer must
spend in order to produce [a commodity] and the total amount it must
recoup, in the long-term, to avoid making losses”. The fact that a
producer does not recover the total costs of production may indicate
that it is covering its losses from some other source, such as
subsidies. Consequently, we do not consider that the Panel erred in
using total costs of production when calculating whether there was a gap
between producers’ costs of production and revenues.
S.2.19B.9 THREAT OF SERIOUS PREJUDICE
S.2.19B.9.1 US
— Upland Cotton (Article 21.5 — Brazil), para.
244
(WT/DS267/AB/RW)
… However, a claim of serious prejudice may relate to a different
situation than a claim of threat of serious prejudice. A claim of
present serious prejudice relates to the existence of prejudice
in the past, and present, and that may continue in the future. By
contrast, a claim of threat of serious prejudice relates to
prejudice that does not yet exist, but is imminent such that it will
materialize in the near future. Therefore, a threat of serious prejudice
claim does not necessarily capture and provide a remedy with respect to
the same scenario as a claim of present serious prejudice. A distinction
between injury and threat of injury also exists in the context of
countervailing duty measures. Once a determination of present material
injury is made, a Member may impose countervailing duties on future
imports without any obligation to demonstrate a threat of material
injury.
S.2.19B.10 OTHER EFFECTS OF SUBSIDIES
S.2.19B.10.1 US
— Upland Cotton (Article 21.5 — Brazil), paras. 395-396
(WT/DS267/AB/RW)
The Panel, like the original panel, considered that the marketing
loan payments operate as a safety net, stabilizing producers’ revenue
and influencing producers’ decisions regardless of the level of
expected prices. This is so because, at the time of planting, upland
cotton producers know they will receive a payment should the actual
harvest price be below the loan rate. We find no flaws with this logic.
Furthermore, we do not see why the Panel was required to establish
whether producers, in fact, expected harvest prices to fall below the
loan rate. In any event, the Panel observed that “in most recent years
actual market prices have been lower than expected market prices at the
time of planting and… the adjusted world price has been below the
marketing loan rate”. In our view, it is not unreasonable to assume
that producers were aware of these historical trends and that, on this
basis, they would have expected to receive a payment in the event that
the price fell below the loan rate, even when the expected price was
above the loan rate.
We further observe that some of the United States’ arguments seem
to be premised on a particular understanding of the Panel’s finding:
that marketing loan and counter-cyclical payments completely insulate
United States producers from other factors that may affect planting
decisions. We do not consider that the Panel adopted such a rigid view
of market insulation. Instead, we understand the Panel to have taken the
position that marketing loan and counter-cyclical payments make United
States upland cotton producers less responsive to other factors that
affect planting decisions. This is evident from the Panel’s finding
that “the degree of price insulation that the original panel found is
now weaker”. Moreover, the Panel referred to the original panel’s
description of price-contingent subsidies (which include marketing loan
and counter-cyclical payments) as “numbing the response of United
States producers to production adjustment decisions when prices are low”.
The use of the term “numbing” also suggests that the Panel intended
“market insulation” to mean “lower responsiveness” rather than
complete insulation. While the Panel clearly took into account the new
evidence submitted by the parties, it did not find that market
insulation was reduced to such an extent that subsidies would no longer
have an effect on the production and prices of upland cotton.
S.2.19B.10.2 US
— Upland Cotton (Article 21.5 — Brazil), para.
414
(WT/DS267/AB/RW)
The difficulty in discerning a temporal coincidence between the
United States subsidies, the increase in United States exports, and the
drop in market prices, does not, in our view, necessarily undermine the
Panel’s finding on market insulation. The Panel did take into account
the fact that the share of United States production and exports was not
increasing, but it did not consider that this fact undermined its
conclusion regarding market insulation made on the basis of a number of
factors, such as their mandatory and price-contingent nature and their
revenue-stabilizing effect. Therefore, we do not consider that the Panel’s
finding on the difficulty of discerning a temporal coincidence between
the United States subsidies, upland cotton exports, and upland cotton
prices necessarily contradicts its finding on market insulation.
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.
S.2.19C.2 US
— Upland Cotton (Article 21.5 — Brazil), paras.
235-240
(WT/DS267/AB/RW)
… Article 7.8 is one of the “special or additional rules and
procedures on dispute settlement contained in the covered agreements”
that are identified in Article 1.2 and Appendix 2 of the DSU, which
prevail over the general DSU rules and procedures to the extent that
there is a difference between them. As we see it, Article 7.8 specifies
the actions that the respondent Member must take when a subsidy granted
or maintained by that Member is found to have resulted in adverse
effects to the interests of another Member. This means that, in order to
determine whether there is compliance with the DSB’s recommendations
and rulings in a case involving such actionable subsidies, a panel would
have to assess whether the Member concerned has taken one of the actions
foreseen in Article 7.8 of the SCM Agreement. We agree,
therefore, with the Panel that we must also take into account Article
7.8 of the SCM Agreement in order to determine the proper scope
of these Article 21.5 proceedings.
Pursuant to Article 7.8, the implementing Member has two options to
come into compliance. The implementing Member: (i) shall take
appropriate steps to remove the adverse effects; or (ii) shall withdraw
the subsidy. The use of the terms “shall take” and “shall withdraw”
indicate that compliance with Article 7.8 of the SCM Agreement will
usually involve some action by the respondent Member. This affirmative
action would be directed at effecting the withdrawal of the subsidy or
the removal of its adverse effects. A Member would normally not be able
to abstain from taking any action on the assumption that the subsidy
will expire or that the adverse effects of the subsidy will dissipate on
their own.
The question then becomes: With respect to which subsidies must the
implementing Member take such action? Such action would certainly be
expected with respect to subsidies granted in the past and which may
have formed the basis of a panel’s determination of present serious
prejudice and adverse effects. However, we do not see the obligation in
Article 7.8 as being limited to subsidies granted in the past. Article
7.8 expressly refers to a Member “granting or maintaining such subsidy”.
The verb “maintain” suggests, to us, that the obligation set forth
in Article 7.8 is of a continuous nature, extending beyond subsidies
granted in the past. This means that, in the case of recurring annual
payments, the obligation in Article 7.8 would extend to payments “maintained”
by the respondent Member beyond the time period examined by the panel
for purposes of determining the existence of serious prejudice, as long
as those payments continue to have adverse effects. Otherwise, the
adverse effects of subsequent payments would simply replace the adverse
effects that the implementing Member was under an obligation to remove.
Such a reading of Article 7.8 would not give meaning and effect to the
term “maintain”, which is distinct from the term “grant”, and
has also been included in that Article. Indeed, it would render the term
“maintain” redundant. In addition, it would fail to give meaning and
effect to the obligation to “take appropriate steps to remove the
adverse effects” in Article 7.8, and to the requirement under Article
21.5 to “comply” with the DSB’s recommendations and rulings,
including the requirement to take the remedial action foreseen in
Article 7.8 as a consequence of a finding of adverse effects.
… a Member would not comply with the obligation in Article 7.8 to
withdraw the subsidy if it leaves an actionable subsidy in place, either
entirely or partially, or replaces that subsidy with another actionable
subsidy. We recognize that, unlike Article 4.7, Article 7.8 gives
Members the option of removing the adverse effects as an alternative to
withdrawing the subsidy. The availability of this option is arguably a
consequence of the fact that actionable subsidies are not prohibited per
se; rather, they are actionable to the extent they cause adverse
effects. Nevertheless, the option of removing the adverse effects cannot
be read as allowing a Member to continue to cause adverse effects by
maintaining the subsidies that were found to have resulted in adverse
effects. As observed earlier, if the contrary proposition were accepted,
the adverse effects of subsequent subsidies, especially in the case of
recurrent subsidies, would simply replace the adverse effects that the
implementing Member was required to remove, making the obligation in
Article 7.8 to “take appropriate steps to remove the adverse effects”
meaningless.
Our interpretation of Article 7.8 is also consistent with the
approach taken under the SCM Agreement with respect to
countervailing duty measures. A determination that the existence of a
subsidy causes material injury provides a basis for the prospective
application of countervailing duty measures. Thus, even though the basis
for a countervailing duty determination is the injury determined to
exist in the past, the remedial measures are prospective.
… Article 7.8 informs the meaning and scope of the DSB’s
recommendations and rulings arising from the original proceedings. In
our view, Article 7.8 specifies the actions that the United States had
to take in order to comply with the DSB’s recommendations and rulings.
To the extent a WTO Member fails to comply with the requirement in
Article 7.8 that it take steps to remove the adverse effects or withdraw
the subsidy, because it maintains the subsidy, it cannot be said to have
achieved full compliance with these DSB recommendations and rulings.
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 per cent 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.
S.2.21A Article 11.11
— Time-limit for investigation back to top
S.2.21A.1 Mexico — Anti-Dumping Measures on Rice,
para. 282
(WT/DS295/AB/R)
… the time-limits [set out in Article 5.10 of the Anti-Dumping
Agreement and Article 11.11 of the SCM Agreement] for
completing an investigation serve to circumscribe the obligation in
Article 6.1.1 to provide all interested parties 30 days to reply
to a questionnaire. In our view, the same may be said with respect to
the identical obligation in Article 12.1.1 of the SCM Agreement.
…
Article 12
— Evidence.
See Evidence, Panel’s Review of
Evidence (E.3.2); SCM Agreement, Article 21.4 — Relationship with
Articles 11 and 12 (S.2.33)
S.2.21B Article 12.1
— Notice of information required and
opportunity to present evidence.
See also Anti-Dumping
Agreement, Article 6.1 (A.3.30) back to top
S.2.21B.1 Mexico
— Anti-Dumping Measures on Rice, para. 280
(WT/DS295/AB/R)
These provisions explicitly require that an investigating authority
provide at least 30 days for reply to all exporters and foreign
producers receiving a questionnaire, to be counted, “[a]s a general
rule”, from the date of receipt of the questionnaire. Article 6.1 of
the Anti-Dumping Agreement provides for all interested
parties in an antidumping investigation to receive a questionnaire from
the investigating authority. As we observed above, this includes not
only those referred to in the petition for anti-dumping duties, as
Mexico argues, but also those that made themselves known to the
investigating authority — further to the issuance of a public notice
of initiation or otherwise — and those that the investigating
authority might identify as a result of some inquiry of its own. We are
of the view that the same understanding applies to Article 12.1 of the SCM
Agreement. It follows, therefore, that the period of at least 30
days to reply to questionnaires, provided for in Article 6.1.1 of the Anti-Dumping
Agreement and Article 12.1.1 of the SCM Agreement, must be
extended to all such exporters and foreign producers, whether known to
the investigating authority at the outset of the investigation or at
some point thereafter.
S.2.21B.2 Mexico
— Anti-Dumping Measures on Rice, para. 282
(WT/DS295/AB/R)
… the time-limits [set out in Article 5.10 of the Anti-Dumping
Agreement and Article 11.11 of the SCM Agreement] for
completing an investigation serve to circumscribe the obligation in
Article 6.1.1 to provide all interested parties 30 days to reply
to a questionnaire. In our view, the same may be said with respect to
the identical obligation in Article 12.1.1 of the SCM Agreement.
…
S.2.21C Article 12.7
— Determinations on the basis of the facts
available.
See also Anti-Dumping Agreement, Article 6.8 and
Annex II (A.3.32 — 36) back to top
S.2.21C.1 Mexico
— Anti-Dumping Measures on Rice, paras. 293-294
(WT/DS295/AB/R)
… Article 12.7 is intended to ensure that the failure of an
interested party to provide necessary information does not hinder an
agency’s investigation. Thus, the provision permits the use of facts
on record solely for the purpose of replacing information that may be
missing, in order to arrive at an accurate subsidization or injury
determination.
In view of the above, we understand that recourse to facts available
does not permit an investigating authority to use any information in
whatever way it chooses. First, such recourse is not a licence to rely
on only part of the evidence provided. To the extent possible, an
investigating authority using the “facts available” in a
countervailing duty investigation must take into account all the
substantiated facts provided by an interested party, even if those facts
may not constitute the complete information requested of that party.
Secondly, the “facts available” to the agency are generally limited
to those that may reasonably replace the information that an interested
party failed to provide. In certain circumstances, this may include
information from secondary sources.
S.2.21D Article 12.8 and 12.9
— Interested parties back to top
S.2.21D.1 Japan — DRAMs (Korea), paras. 237-243
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
As noted above, Korea’s contention is that the JIA erred by
designating certain financial institutions as interested parties
although they had no “interest in the outcome of the proceeding”. We
observe that Article 12.9 of the SCM Agreement does not, by its
explicit terms, require that an investigating authority must establish
that a party has “an interest in the outcome of [a] proceeding”. Nor
do we see any provision of the SCM Agreement that defines the
nature of the interest required for an entity to be included as an
interested party.
Korea argues that the parties listed in subparagraphs (i) and (ii) of
Article 12.9, which are required to be included by an investigating
authority as interested parties — that is, exporters, importers,
foreign producers, domestic producers, and their associations — all
have a clear and direct interest in the outcome of a countervailing duty
investigation. For Korea, the types of entities included in the list
provide a “strong indication” that an entity cannot be an interested
party if it does not have such an interest. We agree that the entities
specified in subparagraphs (i) and (ii) — which are all involved in
the production, export, or import of the product under investigation, or
in the production of the like product in the importing country — are
likely to “have an interest in the outcome of the proceeding”, but
we find nothing in Article 12.9 to suggest that interested parties are
restricted to entities of this kind under the residual clause of Article
12.9. Although the term “interested party” by definition suggests
that the party must have an interest related to the investigation, the
mere fact that the lists in subparagraphs (i) and (ii) comprise entities
that may be directly interested in the outcome of the investigation does
not imply that parties that may have other forms of interest pertinent
to the investigation are excluded.
The last sentence of Article 12.9 provides that Members are not
precluded from allowing domestic or foreign parties other than
those listed in subparagraphs (i) and (ii) to be included as interested
parties. Korea takes issue with the Panel’s interpretation of the term
“allowing” in that sentence. Korea claimed before the Panel that the
term “allowing” had the meaning of “granting permission”. The
Panel found that, while the term could refer to an investigating
authority allowing an entity to be designated as an interested party
following a request, it could also refer to a Member “allowing,
through national legislation or implementing regulations, certain
parties to participate in investigations as interested parties”. The
Panel further explained that, since there are a number of provisions of
the SCM Agreement, for instance Article 21.2, that provide
specifically for the term “upon request” where such a requirement is
contemplated, the absence of this phrase in Article 12.9 supports the
interpretation that the inclusion of a party as an interested party is
not predicated on a request.
We agree with the Panel’s interpretation of the term “allowing”
in Article 12.9. While a response to a request is certainly one way by
which an investigating authority may allow an entity to be recognized as
an interested party, we do not believe this is the only way for a party
to be included. In our view, the term “allowing” in the residual
clause connotes the power or authority given to a Member to include
other parties as interested parties, rather than a restriction on such
power of inclusion to those parties that make a request.
Korea further argues that Articles 12.3 and 12.8 of the SCM
Agreement indicate that interested parties must have a case to
present and an interest to defend. We recognize that Articles 12.3 and
12.8 refer to rights that interested parties have in presenting their
cases and defending their interests in investigations. However, we see
differentiations in the nature of the interest that parties may have in
participating in an investigation. As the Panel correctly noted,
Articles 12.1 and 12.2 presuppose the existence of two groups of
interested parties, that is, those that may be initially involved
because they received questionnaires, but subsequently cease to
participate; and those that decide to participate actively, and choose
to present cases and defend interests, as provided for in Articles 12.3
and 12.8.We are therefore unable to accept Korea’s argument that
Articles 12.3 and 12.8 — which relate to parties participating in an
investigation — imply that entities must “have an interest in the
outcome of a proceeding” to be designated as “interested parties”.
We do not suggest that investigating authorities enjoy an unfettered
discretion in designating entities as interested parties regardless of
the relevance of such entities to the conduct of an objective
investigation. As we have observed, the term “interested party” by
definition suggests that the party must have some “interest” related
to the investigation. Although that interest may be in the
outcome of the investigation, a consideration of the interest should
also take account of the perspective of the investigating authority. An
investigating authority needs to have some discretion to include as
interested parties entities that are relevant for carrying out an
objective investigation and for obtaining information or evidence
relevant to the investigation at hand. Nonetheless, in designating
entities as interested parties, an investigating authority must be
mindful of the burden that such designation may entail for other
interested parties.
In this case, we do not believe that the JIA erred in designating the
16 financial creditor institutions of Hynix as interested parties. As
the JIA was investigating an allegation of entrustment or direction with
respect to the Restructurings, we consider that it was reasonable for
the JIA to seek information from Hynix’s creditor institutions. The
Panel noted that “the JIA had information indicating that the relevant
Other Creditors were, or had been, creditors of Hynix, and could
possibly have become shareholders in Hynix through the debt-to-equity
swaps in the two [R]estructurings at issue”. In these circumstances,
we see no error in the Panel’s statement that “at the very least the
JIA was entitled to treat these Other Creditors as interested parties
for the purpose of distributing its questionnaire. The Other Creditors
might then, in their responses, have provided the JIA with information
indicating that they no longer had an interest in the outcome of the
investigation.
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 on 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 be 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.2.22.3 Japan
— DRAMs (Korea), paras. 173-174
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
Article 14 of the SCM Agreement, entitled “Calculation of
the Amount of a Subsidy in Terms of the Benefit to the Recipient”,
provides guidance as to how the relevant market shall be identified.
Specifically, with respect to “government provision of equity capital”,
Article 14(a) stipulates that such equity infusions “shall not be
considered as conferring a benefit, unless the investment decision can
be regarded as inconsistent with the usual investment practice of
private investors in the territory of that Member”. In respect of
loans, Article 14(b) provides that “a loan by a government shall not
be considered as conferring a benefit, unless there is a difference
between the amount that the firm receiving the loan pays on the
government loan and the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain on the market”.
In the latter case, “the benefit shall be the difference between these
two amounts”. Thus, under Article 14(a), the benchmark is “the usual
investment practice of private investors”, and under Article 14(b),
the benchmark is “the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain on the market”.
Neither of these benchmarks makes a distinction between “outside” or
“inside” investors. Rather, they suggest that the investigating
authority calculate the amount of benefit conferred on the recipient by
comparing the terms of the financial contribution to the terms that the
relevant market — consisting of rational investors, be they inside or
outside investors or both — would have offered. As the Appellate Body
has previously said:
Article 14, which … is relevant context in interpreting Article
1.1(b), supports our view that the marketplace is an appropriate basis
for comparison. The guidelines set forth in Article 14 relate to equity
investments, loans, loan guarantees, the provision of goods or services
by a government, and the purchase of goods by a government. A “benefit”
arises under each of the guidelines if the recipient has received a “financial
contribution” on terms more favourable than those available to the
recipient in the market.
We therefore disagree with the Panel’s approach in this case, which
consisted only of examining “whether or not the JIA applied [the
inside investor] standard in an appropriate manner”. As we see it, the
Panel should have identified the appropriate benchmark to apply for the
purpose of assessing whether the JIA calculated the amount of benefit
for the October 2001 and December 2002 Restructurings consistently with
Articles 1.1(b) and 14 of the SCM Agreement. Instead, the Panel
held that, since the parties had agreed that the inside investor
standard constituted a valid benchmark, “there [was] no need for [the
Panel] to make any findings on whether or not the inside investor
perspective constituted [the] valid market benchmark” for purposes of
its analysis.
S.2.22.4 Japan
— DRAMs (Korea), paras. 177-178
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
… with respect to [the issue of whether the JIA erred in treating
the value of the equity that Hynix gave in return for the debt-to-equity
swaps as zero] the Panel stated:
We note that the JIA did not explicitly treat the debt-to-equity
swaps as grants. Nevertheless, the JIA did conclude that the value of
the equity was zero. We recall that the JIA did so because “the major
issue in the October 2001 Program and December 2002 Program was not to
recover the equity infusion, but to maximize the recovery of the credit”.
In doing so, the JIA addressed the issue from the perspective of Hynix’s
creditors, rather than from the position of Hynix itself. … [W]e
consider that such an approach erroneously overstates the amount of
benefit conferred on the recipient, for it overlooks the perspective of
the recipient, i.e., Hynix, which must dilute the ownership
interest of existing shareholders in return. (footnote omitted)
We see no error in this reasoning by the Panel. The JIA did not
sufficiently explain, in its determination, how it reached the
conclusion that the value of the shares was zero from the perspective of
Hynix, the recipient.
S.2.22.5 Japan
— DRAMs (Korea), paras. 179-181
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
We turn next to the Panel’s statement regarding dilution of
the ownership of existing shareholders. Japan submits that “dilution
is irrelevant to this case”, given that the Panel did not indicate any
evidence showing that dilution had in fact occurred, and that, even if
dilution had occurred, it would have taken place at the level of
shareholders, not at the level of Hynix.
By contrast, Korea submits that the Panel rightly found that the JIA
failed to take account of the fact that the additional shares issued to
creditors would dilute the ownership interest of existing shareholders.
Further, Korea submits that characterizing dilution as a cost to
shareholders but not to Hynix would mean that debt-to-equity swaps would
be considered as two separate transactions: one involving the company,
and the other involving existing shareholders.
Based on our reading of the Panel Report, we understand the Panel to
have referred to the issue of dilution merely to support its finding
that the JIA did not calculate the amount of benefit from the
perspective of the recipient. The Panel’s finding was not based on
whether or not dilution occurred in the circumstances of this case.
Instead, the Panel found that the JIA did not calculate the amount of
benefit from the perspective of either Hynix or its shareholders, and,
thereby, addressed the issue solely from the perspective of Hynix’s
creditors. As we see it, dilution of the rights of existing shareholders
does not appear to be a relevant issue on the facts of this case. Having
said this, we do not wish to exclude the possibility that there may be
circumstances in other cases in which the relationship between a company
and its shareholders might be relevant for calculating the amount of
benefit to the recipient.
S.2.22.6 Japan
— DRAMs (Korea), paras. 190-192
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
The chapeau of Article 14 sets out three requirements. The first is
that “any method used” by an investigating authority to calculate
the amount of a subsidy in terms of benefit to the recipient shall be
provided for in the national legislation or implementing regulations of
the Member concerned. The second requirement is that the “application”
of that method in each particular case shall be transparent and
adequately explained. The third requirement is that “any such method”
shall be consistent with the guidelines contained in paragraphs (a)—(d)
of Article 14.
The chapeau of Article 14 provides a WTO Member with some latitude as
to the method it chooses to calculate the amount of benefit. Paragraphs
(a)—(d) of Article 14 contain general guidelines for the calculation
of benefit that allow for the method provided for in the national
legislation or regulations to be adapted to different factual
situations. As the Appellate Body said in US
— Softwood Lumber IV:
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… 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.
… 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 be 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. (emphasis added)
We observe that the first requirement of the chapeau of Article 14 is
that the method used be provided for in a WTO Member’s national
legislation or implementing regulations. Although the chapeau of Article
14 states that the calculation of benefit must be consistent with the
guidelines in paragraphs (a)—(d) of that provision, it does not, in
our view, contemplate that the method be set out in detail. The
requirement of the chapeau would be met if the method used in a
particular case can be derived from, or is discernible from, the
national legislation or implementing regulations. We believe that this
view strikes an appropriate balance between the flexibility that is
needed for adapting the benefit calculation (consistent, however, with
the guidelines of paragraphs (a)—(d) of Article 14) to the particular
factual situation of an investigation, and the need to ensure that other
Members and interested parties are made aware of the method that will be
used by the Member concerned, under Article 14 of the SCM Agreement.
S.2.22.7 Japan
— DRAMs (Korea), paras. 194-195, 199-200
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
… In construing the ordinary meaning of the word “method”, the
Panel accepted the definition suggested by Japan and not contested by
Korea, that “method” means “a mode of procedure; a (defined or
systematic) way of doing a thing”. The Panel found that Formula 1 and
Formula 2 were “methods” within the meaning of the chapeau. The
Panel then examined whether Formula 1 and Formula 2 were “provided for”
in Japan’s Guidelines.
We are unable to agree with the Panel that Formula 1 and Formula 2,
in and of themselves, constitute the “method[s] used” by the JIA to
calculate the amount of subsidy in terms of benefit to the recipient within
the meaning of Article 14. Formula 1 was used to calculate a benchmark
interest rate; and Formula 2 was used to allocate benefit over
time. In our view, Formula 1 and Formula 2 constitute components
or elements of the methods used by the JIA to calculate the amount
of benefit conferred on Hynix. Neither, in isolation, was the complete
“method used” in calculating the amount of subsidy in the
transaction involved.
…
We agree with the Panel that, in accordance with the definition of
“method” accepted by the Panel, Formula 1 and Formula 2 can be
considered “methods” in the sense of a “mode of procedure”. But
it does not follow from this that they are the “method[s] used” for
calculating the amount of benefit in this case. Rather, they are
methods for allocating benefit once the amount of the benefit has
been determined, and for calculating interest rates for loans to
uncreditworthy companies where no comparable loans exist on the
commercial market. The Panel should have gone further to determine the
entire methodology used by the JIA in calculating the amount of benefit
for each type of transaction. If it had done so, the Panel could then
have properly proceeded to consider whether those methodologies, in
their entirety, were “provided for” under Japan’s Guidelines.
The Panel, however, treated Formula 1 and Formula 2 as if they were, by
themselves, the “method[s] used” to calculate the amount of benefit.
They were not.
We therefore find that the Panel erred in finding… that Formula 1
and Formula 2 were the “method[s] used” to calculate the amount of
benefit conferred on Hynix, within the meaning of the chapeau of Article
14.
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 analysing 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.2.25.2 US
— Softwood Lumber VI (Article 21.5 — Canada), paras. 154-155
(WT/DS277/AB/RW,
WT/DS277/AB/RW/Corr.1)
… The Appellate Body has considered the issue of whether the
non-attribution requirement of Article 3.5 of the Anti-Dumping
Agreement obliges investigating authorities to examine the collective
effects of “other known factors”, or whether it is sufficient to
look at the individual effects of several different “other
known factors”. The Appellate Body held that “Article 3.5 does not
compel, in every case, an assessment of the collective effects
of other causal factors”. At the same time, the Appellate Body
recognized that “there may be cases where, because of the specific
factual circumstances therein, the failure to undertake an examination
of the collective impact of other causal factors would result in the
investigating authority improperly attributing the effects of other
causal factors to dumped imports”.
Accordingly, answering the question whether the USITC was required to
conduct a non-attribution analysis of cumulated third-country imports,
or of the collective effect of cumulated third-country imports and
United States oversupply, requires an examination of the particular
facts of this case. It follows that this argument of Canada is also
essentially directed at the appreciation of the evidence on the record.
S.2.25A Article 15.5
— Causation back to top
S.2.25A.1 US — Softwood Lumber VI (Article 21.5 — Canada), paras. 131-132
(WT/DS277/AB/RW, WT/DS277/AB/RW/Corr.1)
… The Panel… seems to have assumed that … having found that one
fundamental element (injury) of the causal analysis is consistent with
the Agreements, … the entire causal analysis must also be consistent
with the Agreements. This is not the case. The Panel had a duty to
examine, first, whether the USITC’s finding, in the Section 129
Determination, of a likely imminent substantial increase in imports, was
consistent with the requirements of Article 3.7 of the Anti-Dumping
Agreement and Article 15.7 of the SCM Agreement; and,
secondly, whether the USITC’s analysis of causation was consistent
with the requirements of Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement. That the USITC chose to
conduct an “integrated” or “unitary” analysis of threat of
injury and causation did not relieve the USITC of the need to comply
with each of the requirements set out in these provisions, nor did it
relieve the Panel of its duty to examine whether the Section 129
Determination demonstrated how compliance with these distinct sets of
obligations had been achieved.
… this part of the Panel’s analysis makes no mention of the
positive requirement, in Article 3.5 of the Anti-Dumping Agreement and
Article 15.5 of the SCM Agreement, that an investigating
authority demonstrate that further dumped/subsidized imports would cause
injury. … In particular, the Panel did not examine whether the USITC
identified and explained the positive evidence establishing a genuine
and substantial relationship of cause and effect between imports and
threat of injury. …
S.2.25A.2 Japan
— DRAMs (Korea), paras. 262-266
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
Article 15.5 as a whole deals with the causal relationship between
subsidized imports and injury to the domestic industry. The first
sentence of Article 15.5 requires that an investigating authority
demonstrate that “the subsidized imports are, through the effects of
subsidies, causing injury” to the domestic industry. The second
sentence emphasizes that the demonstration of the causal relationship
between the subsidized imports and the injury shall be based on all
relevant evidence before the investigating authority. In both sentences,
the subject to which the phrase “are causing injury” applies, or in
respect of which “a causal relationship” is to be established, is
“the subsidized imports”.
By virtue of footnote 47 to Article 15.5, which forms an integral
part of the first sentence, the demonstration of the causal relationship
envisaged in the first two sentences of Article 15.5 is to be carried
out by following the analysis set forth in Articles 15.2 and 15.4 for
examining the “effects” of the subsidized imports. According to
these paragraphs, such an examination will comprise of: (i) whether
there has been a significant increase in subsidized imports; (ii) the
effect of the subsidized imports on prices; and (iii) the consequent
impact of the subsidized imports on the domestic industry.
It is clear from the architecture of Articles 15.2, 15.4, and 15.5
that, for determining whether the “subsidized imports are, through the
effects of subsidies, causing injury” to the domestic industry, what
is required is the examination of the effects of the subsidized imports
as set forth in Articles 15.2 and 15.4. These paragraphs neither
envisage nor require the two distinct types of examinations suggested by
Korea, namely, an examination of the effects of the subsidized imports
as per Articles 15.2 and 15.4; and, a second examination of the effects
of the subsidies as distinguished from the effects of the subsidized
imports on a case-by-case basis.
Korea’s argument that the effects of subsidies must be
distinguished from the effects of the subsidized imports is based on the
premise that the increase in the volume of subsidized imports or the
price at which they are sold on the importing Member’s market may not
have been caused by the subsidies received by the exporting company. To
illustrate its point, Korea has suggested that the increased volumes of
sales of the product may be due to better quality, design, innovation,
or customer preference, rather than the subsidy.
We are not persuaded by these arguments of Korea. In our view, they
would imply additional inquiry by an investigating authority into two
matters: first, the use to which the subsidies were put by the exporting
company; and, secondly, whether, absent the subsidies, the product would
have been exported in the same volumes or at the same prices. Such
additional examinations are not contemplated by Articles 15.2 and 15.4.
S.2.25A.3 Japan
— DRAMs (Korea), paras. 267-268
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
Furthermore, the “non-attribution” provisions contained in the
third sentence of Article 15.5 already address adequately the concern
that the injurious effects of any known factors other than subsidized
imports are not attributed to the subsidized imports. This ensures
that injuries that may have been caused by other known factors are not
attributed to the subsidized imports. The third sentence of Article 15.5
does not envisage the kind of additional enquiry implied in Korea’s
arguments.
We are therefore of the view that, if an investigating authority
carries out the examination required under Articles 15.2, 15.4, and
15.5, such examination suffices to demonstrate that “subsidized
imports are, through the effects of subsidies, causing injury” within
the meaning of the SCM Agreement.
S.2.25A.4 Japan
— DRAMs (Korea), paras. 269-271
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
Article 11.2 of the SCM Agreement provides contextual support
for our reading of the first sentence of Article 15.5. Article 11.2 sets
forth guidance as to what may constitute “sufficient evidence” for
purposes of an application for the initiation of a countervailing duty
investigation and further describes the type of evidence that should be
included in the application. …
…
We agree with the Panel that Article 11.2 thus indicates that
information relating to the volume effects, the price effects, and the
consequent impact of the subsidized imports on the domestic industry
serves as evidence to demonstrate that injury is caused by the “subsidized
imports through the effects of subsidies”. By its terms, Article 11.2
does not require an applicant to provide specific evidence regarding the
effects that the subsidies may have on import volumes and prices so as
to cause injury.
Korea argues that there is nothing in the SCM Agreement “that
indicates that the standard for initiating an investigation under
Article 11.2 is the same as the standard for making an affirmative
injury determination under Article 15”. Korea further argues that
Article 11.2 does not prohibit investigating authorities from requiring
additional information “to satisfy the ‘through the effects of
subsidies’ requirement” in the context of making an affirmative
injury determination. We are not persuaded by this argument. If a
demonstration of an additional causal link between the effect of the
subsidy and injury is to be established as a prerequisite for an injury
determination, as Korea contends, there is no reason why Article 11.2
would not have prescribed submission of evidence for that purpose.
S.2.25A.5 Japan
— DRAMs (Korea), para. 272
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
Korea further argues that the “through the effects of subsidies”
language in Article 15.5 should be interpreted as requiring the same
type of causation analysis that has been developed in dispute settlement
practice for the “effect of the subsidy” language in Article 6.3 of
the SCM Agreement. However, in our view, the Panel rightly
rejected Korea’s argument in this regard. Like the Panel, we do not
see how the terms of Article 6.3 or prior panel reports interpreting
this provision that relate to the different concepts of “serious
prejudice” and “adverse effects” in Part III of the SCM
Agreement support Korea’s interpretation of Article 15.5 in Part V
on countervailing measures. In view of the difference between the text,
context, rationale, and object of the provisions in Part III and Part V
of the SCM Agreement, we see no basis for importing the specific
obligations of Part III into the provisions of Part V of the SCM
Agreement. Although both Articles 6.3 and 15.5 refer to effects of
the subsidies, the meaning of this phrase must be interpreted in the
light of the substantive obligations within which the phrase is located.
Articles 6.3 and 15.5 deal with different subject matters and therefore
it is not appropriate to accord an identical meaning to the common
phrase in these Articles.
S.2.25A.6 Japan
— DRAMs (Korea), para. 273
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
We turn next to address Korea’s argument that the Panel’s
understanding of the context provided by Article VI:6(a) of the GATT
1994 effectively repeals the obligations under that Article. According
to Korea, that Article allows a Member to levy a countervailing duty
only if it determines that the effect of the subsidized imports is to
cause injury to the domestic industry. As we have observed above, if an
investigating authority carries out an examination as required under
Articles 15.2, 15.4, and 15.5 of the SCM Agreement, this suffices
to demonstrate that subsidized imports are, through the effects of
subsidies, causing injury. We do not see any inconsistency between our
interpretation of the first sentence of Article 15.5 and the provisions
of Article VI:6.We therefore do not consider that the Panel’s reading
of the first sentence of Article 15.5 repeals the obligations provided
for in Article VI:6 of the GATT 1994.
S.2.25A.7 Japan
— DRAMs (Korea), paras. 276-277
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
Korea submits, “more generally”, that the Panel’s
interpretation of the “through the effects of subsidies” language of
Articles 15.5 and 19.1 is also inconsistent with the object and purpose
of the SCM Agreement. According to Korea, “the object and
purpose of that Agreement is ‘to offset government subsidies that
distort trade, thereby causing injury to competing industries in other
countries’ ”. Therefore, for Korea, Article 15.5 does “not permit
countervailing duties to be imposed unless the effect of the
subsidies is to distort trade, by altering the volume or prices of the
imports in a manner that causes injury”. We see our interpretation of
the first sentence of Article 15.5 to be in harmony with the object and
purpose of the SCM Agreement.
As we have found above, if an investigating authority carries out the
examination required under Articles 15.2, 15.4, and 15.5 of the SCM
Agreement, such examination suffices to demonstrate that “subsidized
imports are, through the effects of subsidies, causing injury” within
the meaning of that Agreement. We have also found that there is no
additional requirement to examine the effects of the subsidies as
distinguished from the effects of the subsidized imports on a
case-by-case basis. In the light of our analysis, we uphold the
Panel’s finding, in paragraphs 7.425 and 8.1(g) of the Panel Report,
that the JIA did not act inconsistently with Articles 15.5 and 19.1 of
the SCM Agreement by not demonstrating separately that the
allegedly subsidized imports were, “through the effects of subsidies”,
causing injury within the meaning of the SCM Agreement.
S.2.25B Article 15.7
— Threat of material injury.
See also Anti-Dumping
Agreement, Article 3.7 — Threat of material injury (A.3.27); and
Safeguards Agreement, Article 4.1(b) — Threat of serious injury (S.1.24) back to top
S.2.25B.1 US
— Softwood Lumber VI (Article 21.5 — Canada),
paras. 107, 109-110
(WT/DS277/AB/RW, WT/DS277/AB/RW/Corr.1)
According to Canada,… the Panel wrongly “held the investigating
authority to a lower standard of care and explanation on the
grounds that it made a determination of threat rather than a
determination of current material injury” and… “the Panel’s own
review was conducted according to a more deferential standard because it
involved a threat of injury determination”. …
…
… we are not persuaded that the Panel’s statements amount to a
denial of the high standard that applies to a threat of injury
determination. In particular, the excerpt from the Panel Report relied
upon by Canada does not seem, to us, to be inconsistent with the
requirement that the reasoning set out by an investigating authority
making a determination of threat of injury must clearly disclose the
assumptions and extrapolations that were made, on the basis of the
record evidence, regarding future occurrences. Nor are the Panel’s
statements inconsistent with the requirements that the reasoning of the
investigating authority demonstrate that such assumptions and
extrapolations were based on positive evidence and not merely on
allegation, conjecture, or remote possibility; and show a high degree of
likelihood that projected occurrences will occur.
At the same time, the Panel’s reasoning does raise two concerns.
First, the Panel stated that “predictions based on the observed facts
may be less susceptible to being found, on review by a panel, to be
outside the range of conclusions that might be reached by an unbiased
and objective decision maker on the basis of the facts and in light of
the explanations given”. Taken at face value, this could imply a
greater likelihood of panels upholding a threat of injury
determination, as compared to a determination of current material
injury, when those determinations rest on the same level of evidence.
Any such implication would be erroneous, but we do not view the Panel’s
statement as having such an implication. Of somewhat greater concern,
however, is the Panel’s statement that the “possible range of
reasonable predictions of the future that may be drawn based on
the observed events of the period of investigation may be broader than
the range of reasonable conclusions concerning the present that might be
drawn based on those same facts”. We are not persuaded that, in making
this observation, the Panel intended to express the view that a threat
of injury determination must be upheld if the investigating authority’s
report discloses the occurrence of injury as one reasonable prediction
within the possible range of future occurrences. If this were the Panel’s
view, then it would be erroneous.
S.2.25B.2 US
— Softwood Lumber VI (Article 21.5 — Canada),
para. 137
(WT/DS277/AB/RW, WT/DS277/AB/RW/Corr.1)
… The Panel examined, separately, the various USITC findings
challenged by Canada, but did not undertake any assessment of whether
the totality of the factors and evidence considered supported the
ultimate finding of a threat of material injury. In neglecting this
aspect of its review, the Panel does not seem to have taken account of
the express requirement in Article 3.7 of the Anti-Dumping Agreement and
Article 15.7 of the SCM Agreement that “the totality of
the factors considered must lead to the conclusion that further
[dumped/subsidized] exports are imminent and that, unless protective
action is taken, material injury would occur” (emphasis added). This
neglect is particularly striking given that the original panel
recognized the need to undertake such an analysis, and the Panel asked
Canada a specific question in this regard.
S.2.25B.3 US
— Softwood Lumber VI (Article 21.5 — Canada),
paras. 146-147
(WT/DS277/AB/RW, WT/DS277/AB/RW/Corr.1)
Article 3.7(i) of the Anti-Dumping Agreement and Article
15.7(ii) of the SCM Agreement… lay emphasis on two aspects:
first, that there is a “significant” rate of increase in imports;
and secondly, that such a rate of increase reveals the likelihood of “substantially”
increased importation in the near future. Taken together, they refer to
the observed behaviour of the volume of imports.
Although the concept of a “rate” of increase implies measuring
the increase with reference to some time period, neither of these
provisions stipulates any specific time period or any specific
methodology for measuring the rate of increase of imports. As for Canada’s
argument at the oral hearing regarding market share, we observe that
these provisions do not prescribe that the measurement be done with
reference to market share of the imports or any other index. We,
therefore, agree with the Panel that Article 3.7(i) of the Anti-Dumping
Agreement and Article 15.7(ii) of the SCM Agreement do not
prescribe a specific methodology for determining the rate of increase in
imports. Whatever be the methodology followed by an investigating
authority, its determination must show, on the basis of positive
evidence and an objective examination, that the rate of increase of
dumped/subsidized imports is “significant” so as to indicate the
likelihood of “substantially” increased imports in the near future.
S.2.25B.4 US
— Softwood Lumber VI (Article 21.5 — Canada),
para. 151
(WT/DS277/AB/RW, WT/DS277/AB/RW/Corr.1)
Article 3.7(iii) of the Anti-Dumping Agreement and Article
15.7(iv) of the SCM Agreement… do not prescribe a particular
methodology for the examination of the price effects of
dumped/subsidized imports. Regardless of the methodology followed by an
investigating authority, it is clear from the plain language of these
provisions that the authority must examine: (i) the trends in the prices
at which “imports are entering”; (ii) the “effect” of those
prices on “domestic prices”; and (iii) the “demand for further
imports”. Discerning the “effect” of prices of imports on domestic
prices necessarily calls for an analysis of the interaction between the
two. Otherwise, the links between the prices of imports and the
depressing or suppressing effect on domestic prices, and the consequent
likelihood of a “demand for further imports” may not be properly
established.
S.2.25B.5 US
— Softwood Lumber VI (Article 21.5 — Canada),
footnote 221 to para. 152
(WT/DS277/AB/RW, WT/DS277/AB/RW/Corr.1)
… Canada stated that the “domestic prices” that should be
examined under Article 3.7(iii) of the Anti-Dumping Agreement and
Article 15.7(iv) of the SCM Agreement are exclusively the prices
of domestically produced goods, and do not include the prices of the
imported goods. In this case, the USITC relied on indexes of composite
prices, and explained that the indexes distinguished between the species
of trees used to produce softwood lumber and not by the country of
production. In our view, whether an investigating authority may properly
rely on a specific index in examining domestic prices will depend on the
particular facts of the case.
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.2.26.2 US
— Shrimp (Thailand) / US — Customs Bond Directive,
paras. 280-281
(WT/DS343/AB/R, WT/DS345/AB/R)
India’s appeal raises the question of whether a bond is a “duty”
within the meaning of Article 9 of the Anti-Dumping Agreement (or
Article 19 of the SCM Agreement). A bond under the Amended CBD
secures the payment of a duty. A bond, by itself, is not a duty as it
does not entail any transfer of money from the importer to the
government. Therefore, the [enhanced continuous bond requirement]
imposed pursuant to the Amended CBD cannot be characterized as a “duty”
within the meaning of Article 9 of the Anti-Dumping Agreement and
Article 19 of the SCM Agreement.
Accordingly, we agree with the Panel that bonds provided under the
Amended CBD are not anti-dumping duties or countervailing duties and
that, therefore, they fall outside the scope of Articles 9.1, 9.2, 9.3,
and 9.3.1 of the Anti-Dumping Agreement, as well as Article 19.2,
19.3, and 19.4 of the SCM Agreement. …
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.2.27.3 Mexico
— Anti-Dumping Measures on Rice, para. 322
(WT/DS295/AB/R)
… Article 19.3 requires that an investigating authority
carry out an expedited review for an exporter that (i) is subject to a
definitive countervailing duty; and (ii) was not examined during the
original investigation for reasons other than a refusal to cooperate.
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.2.28.2 Japan
— DRAMs (Korea), paras. 207, 210
(WT/DS336/AB/R, WT/DS336/AB/R/Corr.1)
… this issue relates to the question of whether countervailing
duties can be imposed, in the case of non-recurring subsidies, when the
determination made by the investigating authority indicates that the
subsidy will no longer exist at the time of imposition.
…
By its terms, Article 19.4 refers to a subsidy “found to exist”.
We see no requirement in Article 19.4 for an investigating authority to
conduct a new investigation or to “update” the determination at the
time of imposition of a countervailing duty in order to confirm the
continued existence of the subsidy. However, in the case of a
non-recurring subsidy, a countervailing duty cannot be imposed if the
investigating authority has made a finding in the course of its
investigation as to the duration of the subsidy and, according to that
finding, the subsidy is no longer in existence at the time that the
Member makes a final determination to impose a countervailing duty. This
is because, in such a situation, the countervailing duty, if imposed,
would be in excess of the amount of subsidy found to exist, contrary to
the provisions of Article 19.4.
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.2.29.2 US
— Softwood Lumber IV (Article 21.5 — Canada),
para. 82
(WT/DS257/AB/RW)
… We also note the argument of the United States that the SCM
Agreement recognizes that original countervailing duty
investigations are proceedings distinct from duty assessment reviews.
This does not, in our view, answer the question of whether the Panel was
entitled, in these proceedings under Article 21.5 of the DSU, to examine
the pass-through analysis conducted by the USDOC in the First Assessment
Review.
S.2.29.3 US
— Softwood Lumber IV (Article 21.5 — Canada),
footnote 149 to para. 93
(WT/DS257/AB/RW)
This dispute does not raise the issue of whether or to what extent
the obligations that apply in the context of an assessment review are
the same as the obligations that apply in an original countervailing
duty investigation. The United States did not argue before the Panel, or
before us, that it had no obligation, under the covered agreements, to
conduct the same pass-through analysis in an assessment review as it
must conduct in an original countervailing duty investigation.
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.2.31.8 Mexico
— Anti-Dumping Measures on Rice, para. 314
(WT/DS295/AB/R)
Article 11.2 requires an agency to conduct a review, inter
alia, at the request of an interested party, and to terminate the
anti-dumping duty where the agency determines that the duty “is no
longer warranted”. The interested party has the right to request the
authority to examine whether the continued imposition of the duty is
necessary to offset dumping, whether the injury would be likely to
continue or recur if the duty were removed or varied, or both. Article
11.2 conditions this obligation on (i) the passage of a reasonable
period of time since imposition of the definitive duty; and (ii) the
submission by the interested party of “positive information”
substantiating the need for a review. As the Panel correctly observed,
this latter condition may be satisfied in a particular case with
information not related to export volumes. Where the conditions in
Article 11.2 have been met, the plain words of the provision make it
clear that the agency has no discretion to refuse to complete a review,
including consideration of whether the duty should be terminated in the
light of the results of the review. We see no reason why the same
understanding does not apply in the context of countervailing duty
investigations, in particular given the identical language in Article
21.2 of the SCM Agreement.
S.2.31.9 Mexico
— Anti-Dumping Measures on Rice, paras. 344,
348
(WT/DS295/AB/R)
… Articles 9.3.2 and 11.2 of the Anti-Dumping Agreement, and
Article 21.2 of the SCM Agreement, place certain conditions —
stated in those provisions themselves — on an agency’s granting of
refunds requested by importers for duties paid in excess of dumping
margins, and on an agency’s review of anti-dumping and countervailing
duties when requested by interested parties. If those conditions are
met, the investigating authority must undertake a duty assessment review
and refund the excess duties paid, or carry out a review on the need for
continued imposition of the duty. …
…
… Articles 9.3.2 and 11.2 of the Anti-Dumping Agreement, and
Article 21.2 of the SCM Agreement, permit agencies to require
that duties be imposed on a product — in the sense that a final
determination be made, following an original investigation, with respect
to the anti-dumping/countervailing duty liability for entries of such
product — as a condition of the right to a refund or review of duties.
This condition is permitted by virtue of the proviso in Article 9.3.2 of
the Anti-Dumping Agreement that the product at issue be “subject
to [an] anti-dumping duty”, and the proviso in Article 11.2 of the Anti-Dumping
Agreement and Article 21.2 of the SCM Agreement that a
reasonable period of time elapse since the imposition of the “definitive
[anti-dumping or countervailing] duty”. Where duties have been
imposed, however, and the remaining conditions of these treaty
provisions have been satisfied, an investigating authority is not
permitted to decline a request for a duty assessment or changed
circumstances review.
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.2.34.2 US
— Countervailing Duty Investigation on DRAMS,
paras.
163-164
(WT/DS296/AB/R)
… We note, first, that the Panel itself did not seek to justify its
treatment of the United States’ evidence on the basis of Article 22.5.
Moreover, Korea does not allege that the facts for which the evidence at
issue here was introduced were not set out in the USDOC’s final
determination. Nor does Korea allege that those facts set out in the
final determination were asserted without citation of any supporting
evidence. Indeed, Korea could not so allege because the USDOC’s final
determination did set out those facts and did seek to
support those facts by referring to record evidence, even if not the
precise evidence the Panel refused to consider. Thus, insofar as it
relates to the evidence at issue here, the USDOC’s final determination
provided Korea with notice of the factual bases of the finding of
entrustment or direction, as well as notice of certain record evidence
underlying each of those facts.
In these circumstances, we are of the view that Article 22.5 does not
require the agency to cite or discuss every piece of supporting
record evidence for each fact in the final determination. …
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 fulfil 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 analysed 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 programme 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 programmes 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
programmes 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 programmes 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 programmes 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 programmes, 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 programme 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 programmes. Its analysis showed
that none of the methods proposed by the parties indicated that the
premiums charged under the United States’ export credit guarantee
programmes 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 programmes, 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 programmes are inadequate to cover the
programmes’ 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
programme 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.2.39.9 US
— Upland Cotton (Article 21.5 — Brazil), para.
278
(WT/DS267/AB/RW)
Thus, to the extent relevant data is available, an analysis under
item (j) will primarily involve a quantitative evaluation of the
financial performance of a programme. Such an analysis will focus on the
difference, if any, between the revenues derived from the premiums
charged under the programme and its long-term operating costs and
losses. An analysis under item (j) may examine both retrospective data
relating to a programme’s historical performance and projections of
its future performance. Evidence concerning a programme’s structure,
design, and operation may be relevant in situations where financial data
is not available. It may also serve as a supplementary means for
assessing the adequacy of premiums where relevant data are available. We
note that the Panel was presented with various financial data relating
to the performance of the revised GSM 102 programme. Thus, as a general
matter, we consider it appropriate for the Panel to have first examined
the evidence of a quantitative nature submitted by the parties before
evaluating evidence concerning the structure, design, and operation of
the programme as additional elements for appraisal.
S.2.39.10 US
— Upland Cotton (Article 21.5 — Brazil), para.
301
(WT/DS267/AB/RW)
Thus, the quantitative evidence submitted by Brazil and the United
States support two plausible conclusions that one could draw regarding
the profitability of the revised GSM 102 programme: (i) the CCC’s
Financial Statements indicate that the programme is making losses; and
(ii) the re-estimates data indicate that the programme is making
profits. Therefore, the critical quantitative data before the Panel give
rise to conflicting conclusions. The data also give rise to similar
probabilities that point to opposite conclusions as to the binary
outcome in item (j), that is, whether a programme is making a loss or
not. We recall, however, that the Panel also examined other evidence
adduced by Brazil, “which further convince[ d]” the Panel that the
premiums under the revised GSM 102 programme are inadequate to cover its
long-term operating costs and losses, within the meaning of item (j).
This evidence includes a comparison between fees under the revised GSM
102 programme and the OECD MPRs, and various elements relating to the
structure, design, and operation of the programme. We now turn to
examine the United States’ arguments regarding the Panel’s
consideration of this evidence in order to determine whether the
evidence as assessed by the Panel makes one of the two probable outcomes
that emerge from the quantitative evidence more likely than not.
S.2.39.11 US
— Upland Cotton (Article 21.5 — Brazil), paras.
303-306
(WT/DS267/AB/RW)
In our view, the United States exaggerates the importance the Panel
attached to the fee comparison of GSM 102 fees with the MPRs in its
overall analysis under item (j). … At the outset, the Panel made clear
that it did not consider the MPRs to be directly applicable in
determining whether an export credit guarantee programme falls within
the scope of item (j). The Panel emphasized that item (j) makes no
reference to the OECD Arrangement and that the MPRs do not provide a
legally binding benchmark for purposes of an analysis under item (j).
…
…
The Panel further noted that the OECD Arrangement does not cover
exports of agricultural commodities and applies only to government
support for credit terms of two years or more. Thus, the Panel did not
consider that the OECD MPRs constituted a valid benchmark under item
(j).
Although the Panel recognized that MPRs have no legal status in the
context of an analysis under item (j), it did consider them relevant “from
an evidentiary point of view”. In particular, what the Panel found
relevant was the magnitude of the difference between the MPRs and
the GSM 102 fees. … The magnitude of the difference in the fees is
repeatedly emphasized by the Panel in its reasoning. … The Panel
immediately cautioned that it was “not suggest[ing] that any difference
in this respect could be relied upon as an indication that an export
guarantee programme meets the criteria of item (j) of the Illustrative
List”.
S.2.39.12 US
— Upland Cotton (Article 21.5 — Brazil), paras.
310-314
(WT/DS267/AB/RW)
The United States further claims that the Panel erred in relying on
the comparison of “scaling” of fees under the revised GSM 102
programme and the Ex-Im Bank programmes for its analysis under item (j).
…
The United States submits that the Ex-Im Bank programmes are “fundamentally
dissimilar” to the GSM 102 programme. According to the United States,
“[i]n addition to the fact that [LCI and MTI] are subject to MPRs, and
that MTI is not available for agricultural goods, [LCI and MTI] differ
significantly in terms of interest and principal cover, as well as the
availability of recourse to a third party for uninsured amounts.”
Despite these dissimilarities, the United States argues, the Panel “acceded
to Brazil’s proffered adjustments to take into account these
differences and force a scaling comparison”.
We note that, rather than “forcing a comparison” despite the
dissimilarities between the programmes, the Panel specifically addressed
the dissimilarities by reviewing various adjustments made in the
evidence submitted by Brazil to render the LCI and the MTI more
analogous to the GSM 102 programme, and considered them to be “appropriate”.
Furthermore, the Panel did not focus on the differences between the
amount of fees charged under the GSM 102 programme and under the Ex-Im
Bank programmes. Rather, the comparisons were intended to show that, due
to the limitation placed by the one per cent fee cap, the revised GSM
102 fees increase much slower, in response to the increased risk, than
the rate of increase of the fees charged under the Ex-Im Bank programmes.
We therefore do not consider that it was improper for the Panel to
conclude that “[t]he fact that the financial products being compared
are not identical” did not fundamentally undermine the evidentiary
value of the comparisons regarding scaling of fees under the programmes.
… We agree that the analysis of risk is not expressly required by
the text of item (j) in assessing the adequacy of premiums of an export
credit guarantee programme. However, an export credit guarantee
programme exposed to risk of default is more likely to incur costs and
losses if its design and structure do not adequately safeguard against
such risk. Therefore, we consider that risk is a relevant factor in the
assessment of a programme’s structure, design, and operation under
item (j).
… We concur that item (j) does not impose a standard as to scaling.
The Panel did not impose such a standard. Rather, the Panel reviewed the
scaling comparison with the Ex-Im Bank programmes to appraise the effect
of the one per cent fee cap under the revised GSM 102 programme. The
Panel noted that the scaling comparisons “convincingly demonstrated
that the GSM 102 fees only minimally respond to increased country risk
and increased risk in the form of longer tenors”, as compared to the
LCI and the MTI fees. In particular, the Panel found that, “while the
fees for lowest country risk categories are relatively similar between
GSM 102 and the LCI and MTI, there is a sharp difference between the
fees charged by the Ex-Im Bank and the CCC for the highest risk
categories”.
S.2.39.13 US
— Upland Cotton (Article 21.5 — Brazil), paras.
319, 321
(WT/DS267/AB/RW)
… The United States maintains that, according to the Panel’s “overly-broad
approach, a government-backed export credit… program could never
satisfy the item (j) test because… the unlimited access to government
funds discourages the design of a programme that meets long-term
operating costs and losses”. We share the view that access to
government funds, alone, is not a significant factor for purposes of
determining profitability under item (j). The Panel, however, did not
seem to place much emphasis on this factor. Rather, the Panel recalled
that this was a factor taken into account by the original panel and
confirmed that the CCC still has the same access to government funds.
…
… we stated our view that the analysis under item (j) should
proceed primarily on the basis of quantitative evidence, where such
evidence is available. We have recognized, however, that evidence
relating to the structure, design, and operation has a supplementary
role to play in an assessment conducted under item (j). The Panel, in
this case, relied on several elements relating to the structure, design,
and operation of the revised GSM 102 programme, and we have not found
flaws in the Panel’s analysis of this evidence. The Panel recognized
that these elements are not in and of themselves dispositive.
Nonetheless, according to the Panel, the evidence on the structure,
design, and operation supports the proposition that the revised GSM 102
programme operates at a loss. We recall that we have found that the
quantitative data give rise to opposite conclusions with similar
probabilities as to the binary outcome in item (j). The Panel’s
finding on the structure, design, and operation, in the light of the two
plausible outcomes with similar probabilities that emerge from the
quantitative evidence, provides a sufficient evidentiary basis for the
conclusion that it is more likely than not that the revised GSM 102
programme operates at a loss. Therefore, we consider that Brazil has
succeeded in establishing that the revised GSM 102 programme is provided
at premiums that are inadequate to cover its long-term operating costs
and losses.
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 analyse 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
377. Because we have reversed the Panel’s findings of inconsistency
with Article 1.1(a)(1)(iv) and 1.1(b), we do not address whether a
Member may be found to be acting inconsistently with a definitional provision,
such as Article 1 of the SCM Agreement [Appellate Body Report, US
— FSC (Article 21.5 — EC), para.
85]. 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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