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Issues covered by the WTO’s committees and agreements

REPERTORY OF APPELLATE BODY REPORTS

SCM Agreement


ON THIS PAGE:

> Object and purpose
> Article 1.1 — “subsidy”. See also SCM Agreement, Article 15 — Determination of injury (S.2.24A)
> Article 1.1(a)(1) — “financial contribution”
> Article 1.1(a)(1) — “public body”
> Article 1.1(a)(1)(i) — “direct transfer of funds”
> Article 1.1(a)(1)(ii) — “government revenue … otherwise due”
> Article 1.1(a)(1)(ii), Footnote 1 — Exemption from or remission of internal taxes upon exportation
> Article 1.1(a)(1)(iii) — Goods or services provided by a government
> Article 1.1(a)(1)(iii) — Purchases of goods by a government
> Article 1.1(a)(1)(iv) — Payments to a funding mechanism, entrustment or direction to a private body
> Article 1.1(b) — Conferral of a benefit on a recipient. See also SCM Agreement, Article 14 — Chapeau — Calculation of the benefit to the “recipient” (S.2.22)
> Article 1.1(b) — Market benchmark. See also SCM Agreement, Article 6.3 — Serious prejudice, Relevant market (S.2.19B.1)
> Article 1.1(b) — Extinction of the benefit
> Article 1.1 — Pass-through of indirect subsidies. See also SCM Agreement, Article 32.1 — Specific action against a subsidy (S.2.36); SCM Agreement, Article VI.3 of the GATT 1994 — Subsidies (S.2.43)
> Articles 1.2 and 2 — Specificity
> Article 3.1(a) — “except as provided in the Agreement on Agriculture” — Export subsidies. See also Agreement on Agriculture, Relationship between the Agreement on Agriculture and the SCM Agreement (A.1.38)
> Article 3.1(a) — “contingent, in law or in fact, … upon export performance”
> Article 3.1(a) — Contingency in law
> Article 3.1(a) and Footnote 4 — Contingency in fact
> Article 3.1(b) — “except as provided in the Agreement on Agriculture” — Import substitution subsidies. See also Agreement on Agriculture, Relationship between the Agreement on Agriculture and the SCM Agreement (A.1.38)
> Article 3.1(b) — “contingent upon the use of domestic over imported products”
> Article 3.1(b) — Contingent in law and contingent in fact
> Article 4, paragraphs 1 to 4 — Consultations
> Article 4.2 — “statement of available evidence”
> Article 4.7 — “withdraw the subsidy without delay”. See also Implementation Recommendations (I.0)
> Article 5 — “adverse effects”
> Article 6.3 — Serious Prejudice. See Order of analysis — Use of assumptions (O.2); SCM Agreement, Article 5 — “Adverse effects” (S.2.19A); SCM Agreement, Article 15.5 — Causation (S.2.25A); Scope of Appellate Review, Review of “objective assessment” by the panel — Article 11 of the DSU (S.3.2); Scope of Appellate Review, Issues of law vs. Issues of fact (Article 17.6 of the DSU) (S.3.3); Scope of Appellate Review, Need to address each issue raised (Article 17.12 of the DSU) (S.3.4); Standard of Review, Article 11 of the DSU — Objective assessment of the facts (S.7.3)
> Article 7.8 — Remedies. See also Implementation Recommendations — Article 19.1 of the DSU (I.0)
> Actionable subsidies — Temporal scope. See also SCM Agreement, Article 6.3 — Serious Prejudice, Effect of subsidies over time (S.2.19B.8); Temporal Application of Rights and Obligations, SCM Agreement (T.5.1)
> Article 11.4 — Initiation of an investigation
> Article 11.9 — Termination of an investigation. See also Anti-Dumping Agreement, Article 5.8 — Termination of the investigation (A.3.28A)
> Article 11.11 — Time-limit for investigation
> Article 12.1 — Notice of information required and opportunity to present evidence. See also Anti-Dumping Agreement, Article 6.1 (A.3.30)
> Article 12.7 — Determinations on the basis of the facts available. See also Anti-Dumping Agreement, Article 6.8 and Annex II (A.3.33–36)
> Article 12.8 and 12.9 — “Interested parties” and disclosure of essential facts
> 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)
> Article 14(a) — Government provision of equity capital
> Article 14(b) — Government loans
> Article 14(d) — Provision of goods or services or purchases of goods — Calculation of adequacy of remuneration
> Article 14(d) — Alternative benchmark for calculating the adequacy of remuneration
> Article 15 — Determination of injury. See also Anti-Dumping Agreement, Article 3.1 — General (A.3.15); SCM Agreement, Article 1.1 — “subsidy” (S.2.2)
> Article 15.2 — Consideration of the volume of subsidized imports and their effects on prices. See also Anti-Dumping Agreement, Article 3.2 — Consideration of the volume of dumped imports and their effects on prices (A.3.20)
> Article 15.4 — Examination of the impact of subsidized imports on the domestic industry. See also Anti-Dumping Agreement, Article 3.4 (A.3.22–23)
> Article 15.5 — Causation. See also Anti-Dumping Agreement, Article 3.5 (A.3.23A–26); Safeguards Agreement, Article 4.2(b) (S.1.29–32)
> 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)
> Article 19.1 — Conditions for the imposition of countervailing duties
> Article 19.3 — Imposition of countervailing duties in the appropriate amounts and on a non-discriminatory basis. See also Anti-Dumping Agreement, Article 9.2 — Imposition of anti-dumping duties in the appropriate amounts and on a non-discriminatory basis, in respect of any product (A.3.40); SCM Agreement, Article VI:5 of the GATT 1994 — Anti-dumping and countervailing duties and “double remedies” (S.2.44)
> Article 19.4 — Calculation of countervailing duty rates on a per unit basis
> Article 21 — Duration and review of countervailing duties
> Article 21.1 — “only as long and to the extent necessary”
> Article 21.2 — Review of the need for continued imposition
> Article 21.3 — Termination of countervailing duties unless continued or recurrent subsidization and injury likely
> Article 21.4 — Relationship with Articles 11 and 12
> Article 22 — Public notice and explanation of determinations
> Article 27 — Special and differential treatment for developing country Members
> 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)
> Illustrative List of Export Subsidies: Item (e), Footnote 59, first sentence — “remission or deferral of direct taxes”
> Illustrative List of Export Subsidies: Item (e), Footnote 59, fifth sentence — “double taxation”
> 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); SCM Agreement, Illustrative List of Export Subsidies: Item (k) — Export credits (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) — Export credit guarantee or insurance (S.2.39)
> Annex V — Procedures for Developing Information Concerning Serious Prejudice. See also Inferences Drawn from the Refusal of a Party to Provide Information (I.1)
> Relationship between the SCM Agreement and the GATT 1994. See also National Treatment, Article III:8 of the GATT 1994 — Derogations from the National Treatment Obligation (N.1.11A); TRIMs Agreement (T.8A)
> Article III:8 of the GATT 1994 — Subsidies. See also National Treatment, Article III:8 of the GATT 1994 — Derogations from the National Treatment Obligation, Article III:8(b) — Subsidies to domestic producers (N.1.11A.2); TRIMs Agreement — Article 2.1 and the relationship with the GATT 1994 (T.8A.2); TRIMs Agreement — Article 2.2, the Illustrative List, and the relationship with the GATT 1994 and the SCM Agreement (T.8A.3)
> 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)
> Article VI:5 of the GATT 1994 — Anti-dumping and countervailing duties and “double remedies”. See also SCM Agreement, Article 19.3 — Imposition of countervailing duties in the appropriate amounts and on a non-discriminatory basis (S.2.27)
> Relationship between the SCM Agreement and the TRIMs Agreement. See also National Treatment, Article III:8 of the GATT 1994 — Derogations from the National Treatment Obligation (N.1.11A); TRIMs Agreement (T.8A)

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 BrazilDesiccated 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)
 

… 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.2.1.6 US — Anti-Dumping and Countervailing Duties (China), para. 301
(WT/DS379/AB/R)
 

We note, first, that the SCM Agreement does not contain a preamble or an explicit indication of its object and purpose. However, the Appellate Body has stated that the object and purpose of the SCM Agreement is “to increase and improve GATT disciplines relating to the use of both subsidies and countervailing measures”. Furthermore, in US — Softwood Lumber IV, the Appellate Body noted that the object and purpose of the SCM Agreement 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”. Finally, we note that, with respect to the object and purpose of the SCM Agreement, the Appellate Body stated in US — Countervailing Duty Investigation on DRAMS that 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”.
 

S.2.1.7 US — Anti-Dumping and Countervailing Duties (China), paras. 573–574
(WT/DS379/AB/R)
 

… The object and purpose of the SCM Agreement, as identified by the Appellate Body in [US — Carbon Steel and US — Softwood Lumber IV], sets important limitations to Members’ right to impose countervailing duties. Members’ right to impose countervailing duties to offset subsidies is not unfettered, but subject to compliance with the obligations set forth in the SCM Agreement. Such duties must be for the purpose of offsetting an injurious subsidy. The object and purpose of the SCM Agreement thus reveals that Members intended to allow for the use of countervailing duties to offset injurious subsidization under certain circumstances and subject to specific limitations.
 

We do not see that the object and purpose of the SCM Agreement provides clear indications as to the intentions of the drafters of the SCM Agreement in respect of double remedies in case of domestic subsidization. To the extent that the object and purpose of the SCM Agreement links the application of countervailing duties to their purpose — to offset injurious subsidization — this supports an interpretation of Article 19.3 that would render “inappropriate” the application of countervailing duties that, together with anti-dumping duties, exceed the full amount of the subsidy. We emphasize that we are not suggesting that the object and purpose of the SCM Agreement encompasses the imposition of disciplines on the use of anti-dumping duties. Rather, we simply consider that the object and purpose of the SCM Agreement is not inconsistent with an approach that would accept that, in fixing the amount of countervailing duties that will be imposed, it is appropriate to take account of anti-dumping duties that are being levied on the same products and that offset the same subsidization.
 

S.2.1.8 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.6
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… The SCM Agreement deals specifically with subsidies. It defines what government conducts constitute subsidies, classifies different kinds of subsidies, and establishes different regulations for each type of subsidy. The SCM Agreement also sets out the remedies available to WTO Members affected by subsidies and provides detailed guidance on how domestic countervailing duty investigations should be conducted. … Article 3.1(b) of the SCM Agreement … regulates so-called import-substitution subsidies, which are one of only two kinds of subsidies prohibited under the SCM Agreement. At the same time, the SCM Agreement regulates a broader universe of measures. …
 

S.2.2 Article 1.1 — “subsidy”. See also SCM Agreement, Article 15 — Determination of injury (S.2.24A)     back to top

S.2.2.1 US — FSC, para. 89
(WT/DS108/AB/R)
 

We start with the United States’ argument that the Panel erred by failing to begin its examination of the European Communities’ claim under Article 3.1(a) of the SCM Agreement with Footnote 59 of that Agreement. Instead, the Panel began its examination with the general definition of a “subsidy” that is set forth in Article 1.1 of the SCM Agreement. This definition applies throughout the SCM Agreement, to all the different types of “subsidy” covered by that Agreement. In our view, it was not a legal error for the Panel to begin its examination of whether the FSC measure involves export subsidies by examining the general definition of a “subsidy” that is applicable to export subsidies in Article 3.1(a). …
 

S.2.2.2 US — FSC, para. 93
(WT/DS108/AB/R)
 

Article 1.1 sets forth the general definition of the term “subsidy” which applies “for the purpose of this Agreement”. This definition, therefore, applies wherever the word “subsidy” occurs throughout the SCM Agreement and conditions the application of the provisions of that Agreement regarding prohibited subsidies in Part II, actionable subsidies in Part III, non-actionable subsidies in Part IV and countervailing measures in Part V. By contrast, Footnote 59 relates to one item in the Illustrative List of Export Subsidies. …
 

S.2.2.3 US — FSC (Article 21.5 — EC), paras. 85–86
(WT/DS108/AB/RW)
 

… Article 1.1 itself does not impose any obligation on Members with respect to the subsidies it defines. It is the provisions of the SCM Agreement which follow Article 1, such as Articles 3 and 5, which impose obligations on Members with respect to subsidies falling within the definition set forth in Article 1.1. …
 

… Article 1.1 of the SCM Agreement does not prohibit a Member from foregoing revenue that is otherwise due under its rules of taxation, even if this also confers a benefit under Article 1.1(b) of the SCM Agreement. …
 

S.2.2.4 US — Carbon Steel, paras. 80–81
(WT/DS213/AB/R, WT/DS213/AB/R/Corr.1)
 

… Article 1 of the SCM Agreement sets out a definition of “subsidy” that applies to the whole of that Agreement. This definition includes all such subsidies, regardless of their amount. None of the provisions in the SCM Agreement that uses the term “subsidization” confines the meaning of “subsidization” to subsidization at a rate equal to or in excess of 1 percent ad valorem, or to any other de minimis threshold. It is also worth noting that, under Part 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.2.2.5 EC and certain member States — Large Civil Aircraft, para. 708
(WT/DS316/AB/R)
 

… “[A] subsidy shall be deemed to exist” for purposes of Article 1.1 of the SCM Agreement if there is a “financial contribution by a government” and “a benefit is thereby conferred.” The word “thereby” indicates that it is the financial contribution that confers the benefit. A subsidy therefore comes into existence when a government provides a financial contribution that confers a benefit. However, the fact that a subsidy is “deemed to exist” under Article 1.1 once there is a financial contribution that confers a benefit does not mean that a subsidy does not continue to exist after the act of granting the financial contribution. This is confirmed, for example, by the text of Articles 4.7 and 7.8 of the SCM Agreement. The reference in those provisions to “withdrawing” the subsidy would be rendered meaningless if a subsidy did not continue to exist after its conferral on a recipient.
 

S.2.3 Article 1.1(a)(1) — “financial contribution”     back to top

S.2.3.1 US — Softwood Lumber IV, para. 52 and Footnote 35
(WT/DS257/AB/R)
 

An evaluation of the existence of a financial contribution involves consideration of the nature of the transaction through which something of economic value is transferred by a government. A wide range of transactions falls within the meaning of “financial contribution” in Article 1.1(a)(1). According to paragraphs (i) and (ii) of Article 1.1(a)(1), a financial contribution may be made through a direct transfer of funds by a government, or the foregoing of government revenue that is otherwise due. Paragraph (iii) of Article 1.1(a)(1) recognizes that, in addition to such monetary contributions, a contribution having financial value can also be made in kind through governments providing goods or services, or through government purchases. Paragraph (iv) of Article 1.1(a)(1) recognizes that paragraphs (i) — (iii) could be circumvented by a government making payments to a funding mechanism or through entrusting or directing a private body to make a financial contribution. It accordingly specifies that these kinds of actions are financial contributions as well. This range of government measures capable of providing subsidies is broadened still further by the concept of “income or price support” in paragraph (2) of Article 1.1(a).35
 

S.2.3.2 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.2.3.3 US — Anti-Dumping and Countervailing Duties (China), para. 284
(WT/DS379/AB/R)
 

With respect to the architecture of Article 1.1 of the SCM Agreement, we note that the provision sets out two main elements of a subsidy, namely, a financial contribution and a benefit. Regarding the first element, Article 1.1(a)(1) defines and identifies the governmental conduct that constitutes a financial contribution. It does so both by listing the relevant conduct, and by identifying certain entities and the circumstances in which the conduct of those entities will be considered to be conduct of, and therefore be attributed to, the relevant WTO Member. Two principal categories of entities are distinguished, those that are “governmental” in the sense of Article 1.1(a)(1): “a government or any public body … (referred to in this Agreement as ‘government’)”; and those in the second clause of subparagraph (iv): “private body”. If the entity is governmental (in the sense referred to in Article 1.1(a)(1)), and its conduct falls within the scope of subparagraphs (i)-(iii) or the first clause of subparagraph (iv), there is a financial contribution. When, however, the entity is a private body, and its conduct falls within the scope of subparagraphs (i)–(iii), then there is only a financial contribution if, in addition, the requisite link between the government and that conduct is established by a showing of entrustment or direction. Thus, the second clause of subparagraph (iv) requires an affirmative demonstration of the link between the government and the specific conduct, whereas all conduct of a governmental entity constitutes a financial contribution to the extent that it falls within subparagraphs (i)–(iii) and the first clause of subparagraph (iv).
 

S.2.3.4 US — Large Civil Aircraft (2nd complaint), paras. 565, 587–589, 591
(WT/DS353/AB/R)
 

The Panel found that a determination of whether a transaction is a purchase of services depends on:
 

… the nature of the work that Boeing was required to perform under the contracts, and more specifically, whether the R&D that Boeing was required to conduct was principally for its own benefit and use, or whether it was principally for the benefit and use of the U.S. Government (or unrelated third parties). …
 

...
 

We note that the Panel in this dispute did not ultimately arrive at a definitive characterization of the NASA procurement contracts and USDOD assistance instruments. According to the Panel, these measures are not purchases of services, nor grants. However, having rejected the characterization advocated by each party, the Panel never provided a definitive view on what it considered to be the correct characterization of these measures. …
 

The other curious feature about the Panel’s approach is that it framed its inquiry as one seeking to determine whether a category of measures not expressly mentioned (purchases of services) is “excluded” from the scope of Article 1.1(a)(1) of the SCM Agreement. It is not clear to us why, in the face of arguments by the European Communities that the payments under the contracts fall within the scope of Article 1.1(a)(1)(i) because they are grants — a category of financial contributions expressly mentioned in that provision — the Panel started from the premise that it was required to determine whether purchases of services — a category that is not mentioned in that provision — are excluded from its scope.
 

We consider that the Panel should first have examined the measures to determine their relevant characteristics, and then considered whether, in the light of a proper interpretation of Article 1.1(a)(1), these measures, properly characterized, fall within the scope of that provision. …
 

...
 

… As it turns out, the Panel’s test is of limited relevance to us given the analytical approach that we have adopted. We also recognize that neither participant directly challenged on appeal the test developed by the Panel to determine whether the measures could properly be characterized as purchases of services. Nevertheless, we wish to note some concerns that we have with the Panel’s test. We have difficulty understanding the legal basis of the test, which does not appear to us to be grounded in the terms of Article 1.1(a)(1) of the SCM Agreement. Moreover, formulated as it is, requiring an inquiry into the degree to which either party (Boeing, or the government/unrelated third parties) derives a disproportionate “benefit” from the transaction, we fear that the test risks conflating the financial contribution and benefit elements of a subsidy analysis. Finally, the Panel’s use of the term “benefit” in its “principally for the benefit and use” test is somewhat misleading, as this term has a particular legal meaning under Article 1.1(b) of the SCM Agreement.
 

S.2.3.5 US — Large Civil Aircraft (2nd complaint), para. 613 and Footnote 1287
(WT/DS353/AB/R)
 

Beginning with the general architecture and structure of the provision, we note that Article 1.1(a)(1) defines and identifies the government conduct that constitutes a financial contribution for purposes of the SCM Agreement. Subparagraphs (i)–(iv) exhaust the types of government conduct deemed to constitute a financial contribution. This is because the introductory chapeau to the subparagraphs states that “there is a financial contribution by a government …, i.e. where:”. Some of the categories of conduct — for instance those specified in subparagraphs (i) and (ii) — are described in general terms with illustrative examples that provide an indication of the common features that characterize the conduct referred to more generally. Article 1.1(a)(1), however, does not explicitly spell out the intended relationship between the constituent subparagraphs.1287 Finally, the subparagraphs focus primarily on the action taken by the government or a public body.
 

S.2.3.6 US — Large Civil Aircraft (2nd complaint), paras. 611, 624–625
(WT/DS353/AB/R)
 

We have carefully scrutinized the transactions under the NASA procurement contracts and under the USDOD assistance instruments and have been able to identify their principal characteristics. The transactions are composed of the following elements. The NASA procurement contracts and USDOD assistance instruments involve the commitment of resources from both parties. In the case of the NASA procurement contracts, NASA commits to provide financial resources and contributes the use of its facilities, equipment, and employees, while Boeing contributes the work of its scientists and engineers. Under the USDOD assistance instruments, the USDOD commits to provide financial resources and access to its facilities, and Boeing contributes the work of its scientists and engineers, as well as its own financial resources. Thus, both types of instruments involve monetary and non-monetary contributions. Moreover, the subjects to be researched are often determined collaboratively between NASA/USDOD and Boeing. The fruits of the research are shared between Boeing and NASA or Boeing and the USDOD. Boeing obtains title to inventions and rights to the data that allow use for commercial purposes, while the US Government obtains a royalty-free licence to use the technology or data for government purposes only. Accordingly, the transactions under the NASA procurement contracts and under the USDOD assistance instruments are akin to a species of joint venture.
 

...
 

… We have identified two contributions by NASA and the USDOD under the respective joint ventures. Both NASA and the USDOD provided payments to Boeing to undertake the research. These payments constitute a direct transfer of funds within the meaning of Article 1.1(a)(1)(i). In addition, Boeing was given access to NASA facilities, equipment, and employees and to USDOD facilities, which constitute the provision of goods or services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
 

… we find that the payments and access to facilities, equipment, and employees provided to Boeing under the NASA procurement contracts at issue constitute financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. We similarly find that the payments and access to facilities provided to Boeing under the USDOD assistance instruments at issue also constitute financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. We further recall that we have declared the Panel’s interpretation that transactions properly characterized as purchases of services are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement to be moot and of no legal effect.
 

S.2.3.7 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.118–5.119
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… the Panel found the measures at issue to be government “purchases [of] goods” under subparagraph (iii) of Article 1.1(a)(1). Then, the Panel rejected the complainants’ argument that the challenged measures could also be legally characterized as “direct transfer[s] of funds” under subparagraph (i). … the Panel went on to make the interpretative finding that it could not conclude that “government ‘purchases [of] goods’ could also be legally characterized as ‘direct transfer[s] of funds’ without infringing [the] principle [of effective treaty interpretation]”.
 

To the extent that this finding by the Panel means that the coverage of subparagraphs (i) and (iii) of Article 1.1(a)(1) is mutually exclusive, we disagree. …
 

S.2.3.8 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.120
(WT/DS412/AB/R, WT/DS426/AB/R)
 

When determining the proper legal characterization of a measure under Article 1.1(a)(1) of the SCM Agreement, a panel must assess whether the measure may fall within any of the types of financial contributions set out in that provision. In doing so, a panel should scrutinize the measure both as to its design and operation and identify its principal characteristics. Having done so, the transaction may naturally fit into one of the types of financial contributions listed in Article 1.1(a)(1). However, transactions may be complex and multifaceted. This may mean that different aspects of the same transaction may fall under different types of financial contribution. It may also be the case that the characterization exercise does not permit the identification of a single category of financial contribution and, in that situation, as described in the US — Large Civil Aircraft (2nd complaint) Appellate Body Report, a transaction may fall under more than one type of financial contribution. We note, however, that the fact that a transaction may fall under more than one type of financial contribution does not mean that the types of financial contributions set out in Article 1.1(a)(1) are the same or that the distinct legal concepts set out in this provision would become redundant, as the Panel suggests. We further observe that, in US — Large Civil Aircraft (2nd complaint), the Appellate Body did not address the question of whether, in the situation described above, a panel is under an obligation to make findings that a transaction falls under more than one subparagraph of Article 1.1(a)(1).
 

S.2.3.9 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.121
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… the Panel’s finding that subparagraphs (i) and (iii) are mutually exclusive is not consistent with the Appellate Body’s interpretations in US — Large Civil Aircraft (2nd complaint). Consequently, we declare moot and of no legal effect the Panel’s finding, in paragraph 7.246 of the Panel Reports, that “government ‘purchases [of] goods’ could [not] also be legally characterized as ‘direct transfer[s] of funds’ without infringing [the] principle [of effective treaty interpretation]”, inasmuch as it negates the possibility that a transaction may fall under more than one type of financial contribution under Article 1.1(a)(1) of the SCM Agreement.
 

S.2.3A Article 1.1(a)(1) — “public body”     back to top

S.2.3A.1 US — Anti-Dumping and Countervailing Duties (China), paras. 285–286 and 288–289
(WT/DS379/AB/R)
 

… In keeping with the customary rules of interpretation of public international law, we consider the ordinary meaning of the term “public body” in Article 1.1(a)(1) of the SCM Agreement. We note that, while it is not defined as a composite term, the individual words are defined in the dictionary. The word “public” is defined, inter alia, as “of or pertaining to the people as a whole; belonging to, affecting or concerning the community or nation”, as “carried out or made by or on behalf of the community as a whole”, or as “authorized by or representing the community”. The word “body” in the sense of an aggregate of individuals is defined as “an artificial person created by legal authority; a corporation; an officially constituted organization, an assembly, an institution, a society”. The composite term “public body” could thus refer to a number of different concepts, depending on the combination of the different definitional elements. As such, dictionary definitions suggest a rather broad range of potential meanings of the term “public body”, which encompasses a variety of entities, including both entities that are vested with or exercise governmental authority and entities belonging to the community or nation. We note that dictionary definitions of these words in Spanish and French would accommodate a similarly broad range of potential meanings of the term “public body”.
 

The term “government” is used twice in Article 1.1(a)(1). It appears, first, within the phrase “a government or any public body”. Second, “government” appears within a parenthetical phrase specifying that, for purposes of the SCM Agreement, this word refers collectively to “a government or any public body”. Where it is necessary to distinguish between these two uses of the term “government” for purposes of our analysis, we refer to the first use of the word as “government” in the narrow sense, and to the second use of the word as “government” in the collective sense, or the collective term “government”.
 

...
 

… Article 1.1(a)(1) of the SCM Agreement joins “government” in the narrow sense and “public body” under the collective term “government”. In contrast, Article 1 clearly juxtaposes the concepts of “government” (including “public body”) and “private body”. As we see it, the juxtaposition of the collective term “government” on the one side and “private body” on the other side, as well as the joining under the collective term “government” of both a “government” in the narrow sense and “any public body” in Article 1.1(a)(1) of the SCM Agreement, suggests certain commonalities in the meaning of the term “government” in the narrow sense and the term “public body” and a nexus between these two concepts. When Article 1.1(a)(1) stipulates that “a government” and “any public body” are referred to in the SCM Agreement as “government”, the collective term “government” is used as a superordinate, including, inter alia, “any public body” as one hyponym. Joining together the two terms under the collective term “government” thus implies a sufficient degree of commonality or overlap in their essential characteristics that the entity in question is properly understood as one that is governmental in nature and whose conduct will, when it falls within the categories listed in subparagraphs (i)–(iii) and the first clause of subparagraph (iv), constitute a “financial contribution” for purposes of the SCM Agreement.
 

We therefore disagree with the Panel’s reasoning that the use of the collective term “government” has no meaning besides facilitating the drafting of the Agreement. … The term “government” as a shorthand for “a government or any public body” may well have been employed as a drafting device. However, speculation that the use of the collective expression was “merely a device to simplify the drafting” and that, therefore, the collective expression has no interpretative significance, is not consonant with the principle of effective treaty interpretation. It ignores that the structure and the wording of the treaty is significant in determining the common intention of the parties.
 

S.2.3A.2 US — Anti-Dumping and Countervailing Duties (China), para. 290
(WT/DS379/AB/R)
 

Turning then to the question of what essential characteristics an entity must share with government in the narrow sense in order to be a public body and, thus, part of government in the collective sense, we note, that the term “government” is defined as the “continuous exercise of authority over subjects; authoritative direction or regulation and control”. In this vein, the Appellate Body found, in Canada — Dairy, that the essence of government is that it enjoys the effective power to regulate, control, or supervise individuals, or otherwise restrain their conduct, through the exercise of lawful authority. The Appellate Body further found that this meaning is derived, in part, from the functions performed by a government and, in part, from the government having the powers and authority to perform those functions. As we see it, these defining elements of the word “government” inform the meaning of the term “public body”. This suggests that the performance of governmental functions, or the fact of being vested with, and exercising, the authority to perform such functions are core commonalities between government and public body.
 

S.2.3A.3 US — Anti-Dumping and Countervailing Duties (China), paras. 291–294 and 296
(WT/DS379/AB/R)
 

… we consider next the context provided by Article 1.1(a)(1)(iv). As noted above, this provision introduces the concept of “private body”. The meaning of the term “private body” may be helpful in illuminating the essential characteristics of public bodies, because the term “private body” describes something that is not “a government or any public body”. The panel in US — Export Restraints made a similar point when it observed that the term “private body” is used in Article 1.1(a)(1)(iv) as a counterpoint to government or any public body, that is, any entity that is neither a government in the narrow sense nor a public body would be a private body.
 

… We note that both the definition of “public” and of “private” encompass notions of authority as well as of control. The definitions differ, most notably, with regard to the subject exercising authority or control.
 

We also consider that, because the word “government” in Article 1.1(a)(1)(iv) is used in the sense of the collective term “government”, … subparagraph (iv) envisages that a public body may “entrust” or “direct” a private body to carry out the type of functions or conduct illustrated in subparagraphs (i)–(iii).
 

… The Appellate Body has interpreted “direction” as referring to situations where a government exercises its authority, including some degree of compulsion, over a private body, and “entrustment” as referring to situations in which a government gives responsibility to a private body. Thus, pursuant to subparagraph (iv), a public body may exercise its authority in order to compel or command a private body, or govern a private body’s actions (direction), and may give responsibility for certain tasks to a private body (entrustment). As we see it, for a public body to be able to exercise its authority over a private body (direction), a public body must itself possess such authority, or ability to compel or command. Similarly, in order to be able to give responsibility to a private body (entrustment), it must itself be vested with such responsibility. If a public body did not itself dispose of the relevant authority or responsibility, it could not effectively control or govern the actions of a private body or delegate such responsibility to a private body. This, in turn, suggests that the requisite attributes to be able to entrust or direct a private body, namely, authority in the case of direction and responsibility in the case of entrustment, are common characteristics of both government in the narrow sense and a public body.
 

...
 

… we consider that whether a particular means of making a financial contribution is more commonly used by public or private entities has no direct bearing on, nor allows any inference regarding, the constituent elements of a public body in the context of Article 1.1(a)(1) of the SCM Agreement. On the contrary, we consider relevant that, while the types of conduct listed in Article 1.1(a)(1)(i) and (iii) can be carried out by a government as well as by private bodies, a decision to forego or not collect government revenue that is otherwise due, which is set out in subparagraph (ii), appears to constitute conduct inherently involving the exercise of governmental authority. Taxation, for instance, is an integral part of the sovereign function. Thus, if anything, the context of Article 1.1(a)(1)(i)–(iii) and in particular subparagraph (ii) lends support to the proposition that a “public body” in the sense of Article 1.1(a)(1) connotes an entity vested with certain governmental responsibilities, or exercising certain governmental authority.
 

S.2.3A.4 US — Anti-Dumping and Countervailing Duties (China), para. 297
(WT/DS379/AB/R)
 

This brings us to the next contextual element, namely, the phrase “which would normally be vested in the government” in subparagraph (iv). As we see it, the reference to “normally” in this phrase incorporates the notion of what would ordinarily be considered part of governmental practice in the legal order of the relevant Member. This suggests that whether the functions or conduct are of a kind that are ordinarily classified as governmental in the legal order of the relevant Member may be a relevant consideration for determining whether or not a specific entity is a public body. The next part of that provision, which refers to a practice that, “in no real sense, differs from practices normally followed by governments”, further suggests that the classification and functions of entities within WTO Members generally may also bear on the question of what features are normally exhibited by public bodies.
 

S.2.3A.5 US — Anti-Dumping and Countervailing Duties (China), paras. 302–303
(WT/DS379/AB/R)
 

As we see it, considerations of object and purpose are of limited use in delimiting the scope of the term “public body” in Article 1.1(a)(1). This is so because the question of whether an entity constitutes a public body is not tantamount to the question of whether measures taken by that entity fall within the ambit of the SCM Agreement. A finding that a particular entity does not constitute a public body does not, without more, exclude that entity’s conduct from the scope of the SCM Agreement. Such measures may still be attributed to a government and thus fall within the ambit of the SCM Agreement pursuant to Article 1.1(a)(1)(iv) if the entity is a private entity entrusted or directed by a government or by a public body.
 

… The Panel was concerned with what it saw as the implications of too narrow an interpretation. As we see it, however, too broad an interpretation of the term “public body” could equally risk upsetting the delicate balance embodied in the SCM Agreement because it could serve as a licence for investigating authorities to dispense with an analysis of entrustment and direction and instead find entities with any connection to government to be public bodies. Thus, in our view, considerations of the object and purpose of the SCM Agreement do not favour either a broad or a narrow interpretation of the term “public body”. …
 

S.2.3A.6 US — Anti-Dumping and Countervailing Duties (China), paras. 304, 309–311, and Footnote 222
(WT/DS379/AB/R)
 

In interpreting the term “public body”, we next turn to consider—in accordance with Article 31(3)(c) of the Vienna Convention—any relevant rules of international law applicable in the relations between the parties. …
 

...
 

… Both Article 1.1(a)(1), on the one hand, and Articles 4, 5, and 8 of the ILC Articles, on the other hand, set out rules relating to the question of attribution of conduct to a State. At the same time, we note certain differences in the approach reflected in these two sets of rules. The connecting factor for attribution pursuant to the ILC Articles is the particular conduct, whereas, the connecting factors in Article 1.1(a)(1) of the SCM Agreement are both the particular conduct and the type of entity. Under the SCM Agreement, if an entity is a public body, then its conduct is attributed directly to the State, provided that such conduct falls within the scope of subparagraphs (i)–(iii), or the first clause of subparagraph (iv). Conversely, if an entity is a private body in the sense of Article 1.1(a)(1)(iv), its conduct can be attributed to the State only indirectly through a demonstration of entrustment or direction of that body by the government or a public body. By contrast, the sole basis for attribution pursuant to the ILC Articles is the particular conduct at issue. Articles 4, 5, and 8 each stipulates the conditions in which conduct shall be attributed to a State.
 

… despite certain differences between the attribution rules of the ILC Articles and those of the SCM Agreement, our above interpretation of the term “public body” coincides with the essence of Article 5. … the commentary on Article 5 explains that Article 5 refers to the true common feature of the entities covered by that provision, namely that they are empowered, if only to a limited extent or in a specific context, to exercise specified elements of governmental authority. The commentary also states that the existence of a greater or lesser State participation in its capital, or ownership of its assets are not decisive criteria for the purpose of attribution of the entity’s conduct to the State. This corresponds to our above interpretation of the term “public body” in Article 1.1(a)(1). As we have said above, being vested with governmental authority is the key feature of a public body. State ownership, while not being a decisive criterion, may serve as evidence indicating, in conjunction with other elements, the delegation of governmental authority.
 

… the United States acknowledges that the ILC Articles might reflect customary international law to some extent. Yet, the United States contends that given the “fine line distinctions” constructed in Articles 5 to 8 of the ILC Articles, it remains an open and contested question whether all of these details and distinctions have risen to the status of customary international law. Our analysis, however, does not draw on any details or “fine line distinctions” that might exist under Article 5 of the ILC Articles. Rather, we see similarities in the core principles and functions of the respective provisions. Our consideration of Article 5 of the ILC Articles does not contradict our analysis of Article 1.1(a)(1) above. Rather, it lends further support to that analysis. Yet, because the outcome of our analysis does not turn on Article 5, it is not necessary for us to resolve definitively the question of to what extent Article 5 of the ILC Articles reflects customary international law.222
 

S.2.3A.7 US — Anti-Dumping and Countervailing Duties (China), paras. 317–319 and Footnote 230
(WT/DS379/AB/R)
 

… We see the concept of “public body” as sharing certain attributes with the concept of “government”. A public body within the meaning of Article 1.1.(a)(1) of the SCM Agreement must be an entity that possesses, exercises or is vested with governmental authority. Yet, just as no two governments are exactly alike, the precise contours and characteristics of a public body are bound to differ from entity to entity, State to State, and case to case. Panels or investigating authorities confronted with the question of whether conduct falling within the scope of Article 1.1.(a)(1) is that of a public body will be in a position to answer that question only by conducting a proper evaluation of the core features of the entity concerned, and its relationship with government in the narrow sense.
 

In some cases, such as when a statute or other legal instrument expressly vests authority in the entity concerned, determining that such entity is a public body may be a straightforward exercise. In others, the picture may be more mixed, and the challenge more complex. The same entity may possess certain features suggesting it is a public body, and others that suggest that it is a private body.230 We do not, for example, consider that the absence of an express statutory delegation of authority necessarily precludes a determination that a particular entity is a public body. What matters is whether an entity is vested with authority to exercise governmental functions, rather than how that is achieved. There are many different ways in which government in the narrow sense could provide entities with authority. Accordingly, different types of evidence may be relevant to showing that such authority has been bestowed on a particular entity. Evidence that an entity is, in fact, exercising governmental functions may serve as evidence that it possesses or has been vested with governmental authority, particularly where such evidence points to a sustained and systematic practice. It follows, in our view, that evidence that a government exercises meaningful control over an entity and its conduct may serve, in certain circumstances, as evidence that the relevant entity possesses governmental authority and exercises such authority in the performance of governmental functions. We stress, however, that, apart from an express delegation of authority in a legal instrument, the existence of mere formal links between an entity and government in the narrow sense is unlikely to suffice to establish the necessary possession of governmental authority. Thus, for example, the mere fact that a government is the majority shareholder of an entity does not demonstrate that the government exercises meaningful control over the conduct of that entity, much less that the government has bestowed it with governmental authority. In some instances, however, where the evidence shows that the formal indicia of government control are manifold, and there is also evidence that such control has been exercised in a meaningful way, then such evidence may permit an inference that the entity concerned is exercising governmental authority.
 

In all instances, panels and investigating authorities are called upon to engage in a careful evaluation of the entity in question and to identify its common features and relationship with government in the narrow sense, having regard, in particular, to whether the entity exercises authority on behalf of government. An investigating authority must, in making its determination, evaluate and give due consideration to all relevant characteristics of the entity and, in reaching its ultimate determination as to how that entity should be characterized, avoid focusing exclusively or unduly on any single characteristic without affording due consideration to others that may be relevant.
 

S.2.3A.8 US — Anti-Dumping and Countervailing Duties (China), paras. 344–346
(WT/DS379/AB/R)
 

We note that investigating authorities have a duty to seek out relevant information and to evaluate it in an objective manner. The reasoning of the authority must be coherent and internally consistent, and the conclusions reached and the inferences drawn by the authority must be based on positive evidence. Accordingly, in the present case, the USDOC was under an obligation to actively seek out information relevant to the analysis of whether a financial contribution had been made. This included information relevant to the potential characterization of [State-owned enterprises] as public bodies.
 

It is undisputed that the [State-owned enterprises] at issue are not part of government in the narrow sense. The question is whether they are public bodies or private bodies. We have found above that the determination of whether a particular conduct is that of a public body must be made by evaluating the core features of the entity and its relationship to government in the narrow sense. That assessment must focus on evidence relevant to the question of whether the entity is vested with or exercises governmental authority. As we have pointed out above, determining whether an entity is a public or private body may be a complex exercise, particularly where the same entity exhibits some characteristics that suggest it is a public body, and other characteristics that suggest that it is a private body.
 

… In response to questioning at the oral hearing in this appeal, the United States explained that the USDOC asked for ownership information but did not ask for other information. … To us, this indicates that the USDOC did not comply with its duty to seek out relevant information and to evaluate it in an objective manner in order to ensure that its determinations were based on a sufficient factual basis. The USDOC relied “principally” on information about ownership. In our view, this is not sufficient because evidence of government ownership, in itself, is not evidence of meaningful control of an entity by government and cannot, without more, serve as a basis for establishing that the entity is vested with authority to perform a governmental function. Accordingly, such evidence, alone, cannot support a finding that an entity is a public body.
 

S.2.3A.9 US — Anti-Dumping and Countervailing Duties (China), para. 352
(WT/DS379/AB/R)
 

… it was for the USDOC to establish, based on positive evidence, that [State-owned commercial banks] in China constitute public bodies. To the extent that the above statement that the parties in the OTR investigation had not demonstrated that the Chinese banking sector had significantly changed since the CFS Paper determination suggests that the initial burden was on China and the investigated OTR producers to adduce evidence that the [State-owned commercial banks] are not public bodies, that statement would reflect a misconception of the investigating authority’s task.
 

S.2.3A.10 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.124
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… Japan alleges that the characterization of the measures at issue should be informed by the fact that one government entity (the OPA) makes the payments for electricity, while a different government entity (Hydro One) receives and transmits electricity delivered by suppliers. Thus, in Japan’s view, the OPA serves as a financing entity, not a purchasing entity, because it never takes possession of electricity. We do not consider this argument to be persuasive. Ontario’s policy decision to unbundle its electricity system and to allocate responsibilities between different government entities does not undermine the conclusion that the Government of Ontario purchases electricity through the FIT Programme and Contracts. … Since in the present case all the entities involved are public bodies and thus their activities are attributable to the government, it is not relevant whether the Government of Ontario acts through one or several of these entities. Indeed, the Panel found that “the combined actions of all three ‘public bodies’” — the OPA, Hydro One, and the IESO — demonstrate that the Government of Ontario purchases electricity within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
 

S.2.3B Article 1.1(a)(1)(i) — “direct transfer of funds”     back to top

S.2.3B.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.2.3B.2 US — Large Civil Aircraft (2nd complaint), para. 614
(WT/DS353/AB/R)
 

Subparagraph (i) of Article 1.1(a)(1) identifies, as one type of financial contribution, a government practice involving “a direct transfer of funds”. It indicates action involving the conveyance of funds from the government to the recipient. The Appellate Body has endorsed a meaning of “funds” that includes not only money, but also financial resources and other financial claims more generally. The direct transfer of funds in subparagraph (i) therefore captures conduct on the part of the government by which money, financial resources, and/or financial claims are made available to a recipient.
 

S.2.3B.3 US — Large Civil Aircraft (2nd complaint), paras. 615–617 and Footnote 1290
(WT/DS353/AB/R)
 

Article 1.1(a)(1)(i) lists in brackets examples of direct transfers of funds (“e.g. grants, loans, and equity infusion”). … These examples, which are illustrative, do not exhaust the class of conduct captured by subparagraph (i). The inclusion of specific examples nevertheless provides an indication of the types of transactions intended to be covered by the more general reference to “direct transfer of funds”.1290 Indeed, in Japan — DRAMS (Korea), the Appellate Body found that transactions that are similar to those expressly listed in subparagraph (i) — in that case, debt forgiveness, the extension of a loan maturity, and debt-to-equity swaps — are also covered by that provision.
 

Turning to the first example — a “grant” — we note that, in such a transaction, money or money’s worth is given to a recipient, normally without an obligation or expectation that anything will be provided to the grantor in return. “Loans” and “equity infusions” are characterized by reciprocity. With a loan, the lender lends money or money’s worth on the basis that the principal, along with interest as may be agreed, is repaid. Under a loan, the lender will usually earn a return on the amount borrowed. In the case of an equity infusion, a government’s provision of capital to a recipient is made in return for the acquisition of shares. The provider of the capital thereby makes an investment in the recipient enterprise and will be entitled to the dividends or any capital gains attributable to that investment. The returns on the investment will depend on the success of the recipient enterprise. At the time the government provides the capital, it does not know how the recipient enterprise will perform. The equity investor enjoys a return on its capital to the extent the enterprise succeeds, and suffers losses in capital to the extent it fails.
 

It is clear from the examples in subparagraph (i) that a direct transfer of funds will normally involve financing by the government to the recipient. In some instances, as in the case of grants, the conveyance of funds will not involve a reciprocal obligation on the part of the recipient. In other cases, such as loans and equity infusions, the recipient assumes obligations to the government in exchange for the funds provided. Thus, the provision of funding may amount to a donation or may involve reciprocal rights and obligations.
 

S.2.3B.4 US — Large Civil Aircraft (2nd complaint), paras. 563, 620
(WT/DS353/AB/R)
 

… the Panel concluded that transactions properly characterized as purchases of services are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement.
 

...
 

The Panel in this dispute interpreted the omission of the term “services” from the second sub-clause of subparagraph (iii) as an indication that the drafters of the SCM Agreement did not intend measures constituting government purchases of services to be covered as financial contributions under Article 1.1(a)(1)(i). This interpretative issue does not need to be resolved by us because it is not relevant for purposes of resolving the dispute before us, that is, whether the NASA procurement contracts and USDOD assistance instruments, which we have found to resemble joint ventures, constitute financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. We therefore declare the Panel’s interpretation that “transactions properly characterized as purchases of services are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement” to be moot and of no legal effect.
 

S.2.3B.5 US — Large Civil Aircraft (2nd complaint), para. 624
(WT/DS353/AB/R)
 

… the particular characteristics of the NASA procurement contracts and USDOD assistance instruments before us are such that, in our view, they are most appropriately characterized as being akin to a species of joint venture. Furthermore, these joint venture arrangements between NASA/USDOD and Boeing have characteristics analogous to equity infusions, one of the examples of financial contributions included in Article 1.1(a)(1)(i) of the SCM Agreement. We recall that, under subparagraph (i), there is a financial contribution where “a government practice involves a direct transfer of funds”. Several examples of direct transfers of funds are provided. These examples are not exhaustive. Where, as here, there are measures that have sufficient characteristics in common with one of the examples in subparagraph (i), this commonality indicates to us that the measures fall within the concept of “direct transfers of funds” in Article 1.1(a)(1)(i). … Both NASA and the USDOD provided payments to Boeing to undertake the research. These payments constitute a direct transfer of funds within the meaning of Article 1.1(a)(1)(i). …
 

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 foregoing of revenue which is “otherwise due”, in relation to the income in question.
 

S.2.4.7 US — Large Civil Aircraft (2nd complaint), para. 811
(WT/DS353/AB/R)
 

In sum, the SCM Agreement recognizes that WTO Members are sovereign in determining the structure and rates of their domestic tax regimes. Also, because tax systems are not static, Members must have some flexibility to make adjustments to their systems. At the same time, the SCM Agreement recognizes that tax regimes may be used to achieve outcomes equivalent to the results that are achieved where a government provides a direct payment. This explains why the Agreement includes the foregoing of government revenue otherwise due among the measures that constitute financial contributions under Article 1.1(a)(1).
 

S.2.4.8 US — Large Civil Aircraft (2nd complaint), paras. 812–814 and Footnote 1667
(WT/DS353/AB/R)
 

The identification of circumstances in which government revenue that is otherwise due is foregone requires a comparison between the tax treatment that applies to the alleged subsidy recipients and the tax treatment of comparable income of comparably situated taxpayers. Accordingly, a panel examining a claim under Article 1.1(a)(1)(ii) of the SCM Agreement should first identify the tax treatment that applies to the income of the alleged recipients. Identifying such tax treatment will entail consideration of the objective reasons behind that treatment and, where it involves a change in a Member’s tax rules, an assessment of the reasons underlying that change.
 

As a second step, the Panel should identify a benchmark for comparison — that is, the tax treatment of comparable income of comparably situated taxpayers.1667 We recognize that this is not always a straightforward exercise, and may in some circumstances be exceedingly difficult. Identifying a benchmark involves an examination of the structure of the domestic tax regime and its organizing principles. In some cases, the principles will be ones well recognized in the tax regimes of Members; in other cases, they will be unique to the particular domestic regime. It may be that disparate tax measures, implemented over time, do not easily offer up coherent principles serving as a benchmark. In any event, the task of the panel is to develop an understanding of the tax structure and principles that best explains that Member’s tax regime, and to provide a reasoned basis for identifying what constitutes comparable income of comparably situated taxpayers. Evidence relied upon in such an analysis must be located in the “rules of taxation that each Member, by its own choice, establishes for itself”. In doing so, a Member will be held to account for the tax structure and principles that it itself employs. This is akin to the approach undertaken in the field of public finance for purposes of estimating what are known as “tax expenditures”.
 

Finally, as a third step, the panel should compare the reasons for the challenged tax treatment with the benchmark tax treatment it has identified after scrutinizing a Member’s tax regime. Such a comparison will enable a panel to determine whether, in the light of the treatment of the comparable income of comparably situated taxpayers, the government is foregoing revenue that is otherwise due in relation to the income of the alleged recipients.
 

S.2.4.9 US — Large Civil Aircraft (2nd complaint), para. 815
(WT/DS353/AB/R)
 

In the light of the demands of this inquiry, we recall the reservations expressed by the Appellate Body about the limitations inherent in identifying a general rule and exception relationship. In doing so, a panel might artificially create a rule and an exception where no such distinction exists. In addition, an approach that focuses too narrowly on the change effected by a tax measure could result in a finding that government revenue otherwise due has been foregone anytime the tax rate applicable to a recipient is lowered. This underscores the risk in identifying a benchmark solely by reference to historical rates, the very departure from which may reflect evidence of shifting norms within that regime. Moreover, we note that a domestic tax system may be so replete with exceptions that the rate applicable to the general category of income in fact no longer represents the “general rule” but, rather, the “exception”. The Appellate Body identified a similar concern in US — FSC when it expressed misgivings that a “but for” test could lead to circumvention “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”. For these reasons, while there may be circumstances in which scrutiny of a tax regime indicates the presence of a general rule and an exception, we would expect that such an indication will not ordinarily end the analysis. Rather, we would expect a panel to further examine the structure of the domestic tax regime and its organizing principles.
 

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 or services provided by a 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.2.6.5 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.2.6.6 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.2.6.7 EC and certain member States — Large Civil Aircraft, paras. 963–965
(WT/DS316/AB/R)
 

Article 1.1(a)(1)(iii) … stipulates that a financial contribution exists where a government provides goods or services other than general infrastructure. The ordinary meaning of the verb “provide” is to “[s]upply or furnish for use; make available”. The reference to “goods or services other than general infrastructure” indicates that the term “goods or services” encompasses certain types of infrastructure. Infrastructure that is “other than general” is covered by the definition of a financial contribution in Article 1.1(a)(1)(iii), whereas infrastructure that is “general” is not.
 

The European Union submits that government conduct in creating infrastructure is not disciplined by the SCM Agreement. … In the European Union’s view, “[o]nly the provision to an economic operator (as opposed to creation) of infrastructures ‘other than general infrastructures’ is captured by the notion of financial contribution since this government action is capable of distorting trade.” We agree that, when a good or service has not been provided by a government, there cannot be a financial contribution cognizable under Article 1.1(a)(1)(iii).
 

This proposition, however, differs in our view from the European Union’s corollary argument that focusing on a government’s provision of goods or services necessarily excludes considerations in respect of their creation. … While government action concerning the creation of a good or service may not be relevant if that good or service is not ultimately provided to a recipient, we do not understand on what basis such actions would necessarily be excluded in assessing what has been provided. Recalling the meaning of the term “provide” set out above — supply or furnish for use; make available — we consider that this term permits taking into account what was involved in supplying or furnishing that infrastructure. The creation of infrastructure is a precondition, and thus necessary, for the provision of that infrastructure. We therefore do not view the use of the term “provision” in Article 1.1(a)(1)(iii) as excluding the possibility that circumstances of the creation of infrastructure may be relevant to a proper characterization of what it is that is provided.
 

S.2.6.8 US — Large Civil Aircraft (2nd complaint), para. 618
(WT/DS353/AB/R)
 

… subparagraph (iii) of Article 1.1(a)(1) … contemplates two distinct types of transaction: the first is where a government “provides goods or services other than general infrastructure”; and the second relates to situations in which a government “purchases goods” from an enterprise. In the case of the provision of goods or services, subparagraph (iii) does not specify whether the goods or services are provided gratuitously or in exchange for money or other goods or services. Thus, the provision of goods or services may include transactions in which the recipient is not required to make any form of payment, as well as transactions in which the recipient pays for the goods or services. Therefore, what is captured in the first sub-clause of subparagraph (iii), as well as in subparagraph (i), is a government’s provision or goods or services, or of funds, irrespective of whether this is done gratuitously or in exchange for consideration. The difference between the two types of government conduct, however, lies in what is being transferred by the government. Under subparagraph (i), the government transfers financial resources, while under subparagraph (iii) (first sub-clause), the government provides a good or service.
 

S.2.6.9 US — Large Civil Aircraft (2nd complaint), para. 624
(WT/DS353/AB/R)
 

… the particular characteristics of the NASA procurement contracts and USDOD assistance instruments before us are such that, in our view, they are most appropriately characterized as being akin to a species of joint venture. … Boeing was given access to NASA facilities, equipment, and employees and to USDOD facilities, which constitute the provision of goods or services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
 

S.2.7 Article 1.1(a)(1)(iii) — Purchases of goods by a government     back to top

S.2.7.1 US — Large Civil Aircraft (2nd complaint), paras. 619–620 and Footnote 1295
(WT/DS353/AB/R)
 

With respect to the second sub-clause of subparagraph (iii) — where a government “purchases goods” — we note that the goods are provided to the government by the recipient, in contrast to the first sub-clause of that paragraph, where the goods are provided by the government. There are two additional differences between the first and second sub-clauses of subparagraph (iii). The second sub-clause uses the term “purchase”, which is usually understood to mean that the person or entity providing the goods will receive some consideration in return. The other difference is that, in contrast to the first sub-clause that addresses the provision of goods and services, the second sub-clause refers only to purchases of “goods”, and not of “services”.1295
 

The Panel in this dispute interpreted the omission of the term “services” from the second sub-clause of subparagraph (iii) as an indication that the drafters of the SCM Agreement did not intend measures constituting government purchases of services to be covered as financial contributions under Article 1.1(a)(1)(i). This interpretative issue does not need to be resolved by us because it is not relevant for purposes of resolving the dispute before us … . We therefore declare the Panel’s interpretation that “transactions properly characterized as purchases of services are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement” to be moot and of no legal effect.
 

S.2.7.2 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.124
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… Japan alleges that the characterization of the measures at issue should be informed by the fact that one government entity (the OPA) makes the payments for electricity, while a different government entity (Hydro One) receives and transmits electricity delivered by suppliers. Thus, in Japan’s view, the OPA serves as a financing entity, not a purchasing entity, because it never takes possession of electricity. We do not consider this argument to be persuasive. Ontario’s policy decision to unbundle its electricity system and to allocate responsibilities between different government entities does not undermine the conclusion that the Government of Ontario purchases electricity through the FIT Programme and Contracts. … Since in the present case all the entities involved are public bodies and thus their activities are attributable to the government, it is not relevant whether the Government of Ontario acts through one or several of these entities. Indeed, the Panel found that “the combined actions of all three ‘public bodies’” — the OPA, Hydro One, and the IESO — demonstrate that the Government of Ontario purchases electricity within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
 

S.2.7.3 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.126
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… Japan argues that the existence of private entities supplying electricity to consumers in Ontario shows that it is unnecessary for a governmental agency to take possession over (i.e. purchase) electricity in order to achieve its objectives. We disagree that this is of particular relevance for the proper characterization of the FIT Programme and Contracts under the SCM Agreement. Determining the proper legal characterization of the measures at issue under Article 1.1(a)(1) does not require assessing whether it is necessary for government entities to take possession of electricity to achieve Ontario’s objectives or whether or not private entities are permitted to supply electricity to consumers in Ontario. The issue is whether the FIT Programme and Contracts in fact involve purchases of electricity by the Government of Ontario and thus fall within subparagraph (iii) of Article 1.1(a)(1). …
 

S.2.7.4 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.127
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… Japan suggests that the Panel erred by assuming that, if a measure is characterized in a particular manner under domestic law (e.g. as a government purchase), it can never be characterized in a different manner under WTO law. … Japan is correct in arguing that the manner in which municipal law characterizes a measure is not determinative for its characterization under the covered agreements. … However, we do not consider that, in reaching its conclusion as to the proper characterization of the measures at issue under the SCM Agreement, the Panel relied exclusively on their characterization under Ontario law, as Japan contends. On the contrary, the Panel recognized that the label given to an instrument under municipal law is not dispositive of the analysis under WTO law and found that the measures at issue constitute government “purchases [of] goods” under Article 1.1(a)(1)(iii) for three main reasons. First, the OPA pays for electricity that is delivered into Ontario’s electricity grid. Second, the Government of Ontario takes possession over electricity and therefore purchases electricity. Third, only as “a relevant factor” in its analysis, the Panel took into account that “the Electricity Act of 1998, the Ministerial Direction, the FIT and microFIT Contracts and other documents, all in one way or another characterize the challenged measures as a procurement or purchase of electricity”. The Panel concluded that the legislative and regulatory framework of the FIT Programme, as well as the language found in certain clauses of the FIT and microFIT Contracts, “leave no doubt that the challenged measures are perceived by the Government of Ontario, and others in Ontario, as governmental activity that involves the procurement or purchase of electricity”. Consequently, we disagree with Japan that the Panel’s analysis was based on the proposition that the characterization of a measure under domestic law is dispositive of its legal characterization under WTO law.
 

S.2.7.5 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.131
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… Japan argued that the challenged measures are “direct transfer[s] of funds” because the OPA distributes funds to FIT generators from the amounts collected from consumers through the GA. Japan further argues that the fact that FIT and microFIT generators are entitled to guaranteed payments for all electricity generated for the duration of the FIT and microFIT Contracts makes the payments under these contracts “potential direct transfers of funds”. … Japan overlooks that all these aspects are part of a broader transaction that involves an exchange of rights and obligations, that is, the payment of consideration in return for electricity delivered into Ontario’s electricity system. Pursuant to this composite transaction, the Government of Ontario, through the OPA, enters into 20-year contracts with FIT and microFIT suppliers and pays them a Contract Price as consideration in exchange for electricity delivered into the system. We do not see in Japan’s arguments any aspects different from, or in addition to, those characteristics that led us to agree with the Panel that the transactions at issue constitute government “purchases [of] goods”. We are not persuaded that, on the basis of these arguments and features of the challenged measures, Japan has established that these measures should in addition be characterized as “direct transfer[s] of funds” or “potential direct transfers of funds”.
 

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, paras. 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.2.8.13 US — Anti-Dumping and Countervailing Duties (China), paras. 291–292
(WT/DS379/AB/R)
 

… The meaning of the term “private body” may be helpful in illuminating the essential characteristics of public bodies, because the term “private body” describes something that is not “a government or any public body”. The panel in US — Export Restraints made a similar point when it observed that the term “private body” is used in Article 1.1(a)(1)(iv) as a counterpoint to government or any public body, that is, any entity that is neither a government in the narrow sense nor a public body would be a private body.
 

… both the definition of “public” and of “private” encompass notions of authority as well as of control. The definitions differ, most notably, with regard to the subject exercising authority or control.
 

S.2.8.14 US — Anti-Dumping and Countervailing Duties (China), paras. 295–296
(WT/DS379/AB/R)
 

… subparagraph (iv) refers to entrustment or direction to carry out the type of functions illustrated in subparagraphs (i)–(iii) “which would normally be vested in the government”.
 

… we consider relevant that, while the types of conduct listed in Article 1.1(a)(1)(i) and (iii) can be carried out by a government as well as by private bodies, a decision to forgo or not collect government revenue that is otherwise due, which is set out in subparagraph (ii), appears to constitute conduct inherently involving the exercise of governmental authority. Taxation, for instance, is an integral part of the sovereign function. …
 

S.2.8.15 US — Anti-Dumping and Countervailing Duties (China), para. 297
(WT/DS379/AB/R)
 

This brings us to the next contextual element, namely, the phrase “which would normally be vested in the government” in subparagraph (iv). As we see it, the reference to “normally” in this phrase incorporates the notion of what would ordinarily be considered part of governmental practice in the legal order of the relevant Member. This suggests that whether the functions or conduct are of a kind that are ordinarily classified as governmental in the legal order of the relevant Member may be a relevant consideration for determining whether or not a specific entity is a public body. The next part of that provision, which refers to a practice that, “in no real sense, differs from practices normally followed by governments”, further suggests that the classification and functions of entities within WTO Members generally may also bear on the question of what features are normally exhibited by public bodies.
 

S.2.9 Article 1.1(b) — Conferral of a benefit on a recipient. See also SCM Agreement, Article 14 — Chapeau — Calculation of the benefit to the “recipient” (S.2.22)     back to top

S.2.9.1 Canada — Aircraft, para. 154
(WT/DS70/AB/R)
 

A “benefit” does not exist in the abstract, but must be received and enjoyed by a beneficiary or a recipient. Logically, a “benefit” can be said to arise only if a person, natural or legal, or a group of persons, has in fact received something. The term “benefit”, therefore, implies that there must be a recipient. …
 

S.2.9.2 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.2.9.3 US — Countervailing Measures on Certain EC Products, paras. 108, 110
(WT/DS212/AB/R)
 

… In CanadaAircraft, 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 CanadaAircraft, 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 USLead 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.2.9.4 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.2.9.5 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 the 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.2.9.6 EC and certain member States — Large Civil Aircraft, para. 974
(WT/DS316/AB/R)
 

The Appellate Body Report in Canada — Aircraft … stands for the proposition that a “benefit” is to be determined, not by reference to whether the transaction imposes a net cost on the government, but rather by reference to whether the terms of the financial contribution are more favourable to what is available to the recipient on the market. The manner in which an investigating authority or panel evaluates market evidence will be a function of the particular context of each case, and of what information is adduced by the parties to a dispute. In every instance, however, that analysis remains focused on locating a proper comparator in the market. …
 

S.2.9.7 EC and certain member States — Large Civil Aircraft, paras. 980–983
(WT/DS316/AB/R)
 

We acknowledge that, in certain circumstances, a seller’s costs may be a relevant factor to consider in assessing whether goods or services were provided for less than adequate remuneration. As we see it, however, the difficulty with the Panel’s analysis is not that it referred to these costs as a factor in its analysis, but rather as the sole basis for its findings. Indeed, the Panel stated that a government’s investment costs are the basis on which a market actor would determine the price, or the amount of rent, to be charged. We see no indication that the Panel relied on any considerations other than investment costs, and the Panel points to none, in arriving at its determination of a market benchmark. We therefore consider that, in its analysis, the Panel equated the government’s investment costs with market value. We moreover consider that the Panel’s conclusion that the relevant authorities did not recoup their investment is equivalent to stating that those investments conferred a benefit because they resulted in a net cost to the government. We reject this reasoning for the reasons expressed by the Appellate Body in Canada — Aircraft.
 

Moreover, we are concerned that the Panel’s determination of the value of the infrastructure measures on the market was made wholly in reference to, in this case, the perspective of the government as a seller or lessor. … The costs to the government of an investment in creating a particular good or service cannot itself determine the market price because actual expenditures by the government may not necessarily be redeemed, or be redeemable, on the market.
 

The Panel’s analysis does not adhere to this market logic. For example, the Panel stated in respect of the Mühlenberger Loch site that, “in [its] view, a market actor who invested [€]750 million in land, whether by purchasing it or by creating it through reclamation, would, in renting the property, seek a return on that investment”. The fact that a market actor would seek a return on its investment does not mean that it could necessarily obtain that return on the market. Indeed, the rent a market actor can charge will be constrained by market conditions even if the rent does not cover its costs. …
 

For the foregoing reasons, we consider that the investment costs borne by the relevant authorities in these circumstances are an insufficient basis upon which to establish the market value of the sale or lease of the infrastructure at issue, and that the Panel committed error in relying exclusively on those costs to establish the existence and amount of benefit. Whether characterized as a “return to government” or a “cost to government”, the Panel established that a benefit had been conferred because the government did not recover its costs in providing the infrastructure in question. This approach fails to comport with the requirement that a “benefit” be determined by reference to whether a financial contribution has been provided on terms more favourable than those available on the market. …
 

S.2.9.8 US — Large Civil Aircraft (2nd complaint), paras. 690–692
(WT/DS353/AB/R)
 

… having found that the NASA measures conferred a benefit on Boeing, the Panel did not proceed further to estimate the magnitude or amount of the benefit.
 

The Panel then proceeded, in a separate section of its Report, to estimate the “amount of the subsidy to Boeing’s LCA division”. The Panel did not explain what exactly was meant by “amount of the subsidy”. It would appear that the estimation exercise undertaken by the Panel is more closely related to the concept of financial contribution under Article 1.1(a)(1) than to the concept of benefit under Article 1.1(b) of the SCM Agreement. This is because the Panel was seeking to identify the amount of funds transferred by NASA to Boeing under the relevant contracts, as well as the value of Boeing’s access to NASA facilities, equipment, and employees. Had the Panel sought to estimate the amount of the benefit, it would have had to focus on the advantage conferred on Boeing as compared to what it would have obtained in a market transaction. We further note that … the Panel stated that its analysis of the amount of the subsidy was “properly characterized as one part of the serious prejudice analysis”.
 

Having reviewed the Panel’s analysis that is the focus of the United States’ allegations, it appears to us that the United States’ appeal is misdirected. Even assuming, for the sake of argument, that the Panel erred in its calculation of the “amount of the subsidy”, it is unclear that this would have been an error of interpretation or application of “benefit” under Article 1.1(b) of the SCM Agreement. The specific allegation made by the United States is that the Panel failed to exclude from the amount of the subsidy certain transactions that NASA had determined did not involve research that was relevant to LCA.
 

S.2.9.9 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.208–5.209
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In Canada — Aircraft and in its later jurisprudence, the Appellate Body did not equate the notions of “benefit” and “advantage”. The Appellate Body’s interpretation of “benefit” in Article 1.1(b) of the SCM Agreement clearly suggests that, while benefit involves some form of advantage, the former has a more specific meaning under the SCM Agreement. “Benefit” is linked to the concepts of “financial contribution” and “income or price support”, and its existence requires a comparison in the marketplace. The same cannot be said about an “advantage” within the meaning of the TRIMs Agreement. Paragraph 1 of the Illustrative List of the TRIMs Agreement simply refers to TRIMs that are necessary to obtain an advantage. The concept of “advantage” in the TRIMs Agreement has to be interpreted in the context of this Agreement and, without entering into the merit of such an interpretation, it seems to us that “advantage” under the TRIMs Agreement may take other forms than a “financial contribution” or a “benefit” under the SCM Agreement. In any event, a finding of an “advantage” under the TRIMs Agreement does not require a comparison with a benefit benchmark in the relevant market, as required for a benefit analysis under the SCM Agreement.
 

Thus, while we do not exclude that certain measures that provide an advantage within the meaning of paragraph 1 of the Illustrative List of the TRIMs Agreement may also confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement, it is conceivable that a measure that confers an advantage within the meaning of paragraph 1 of the Illustrative List of the TRIMs Agreement be found not to confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
 

S.2.9A Article 1.1(b) — Market benchmark. See also SCM Agreement, Article 6.3 — Serious prejudice, Relevant market (S.2.19B.1)     back to top

S.2.9A.1 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.2.9A.2 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.2.9A.3 US — Upland Cotton, para. 731
(WT/DS267/AB/R)
 

We need not decide, in this case, whether an export credit guarantee program that meets the standard of item (j) of the Illustrative List of Export Subsidies — because the premiums charged are adequate to cover long-term operating costs and losses — may nevertheless be challenged as a prohibited export subsidy under Article 3.1(a) on the basis that it confers a benefit. This is because, even if we were to assume that such a claim were possible, we would conclude that the Panel was within its discretion in exercising judicial economy in respect of Brazil’s claim.
 

S.2.9A.4 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.2.9A.5 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.2.9A.6 EC and certain member States — Large Civil Aircraft, para. 703
(WT/DS316/AB/R)
 

… The SCM Agreement does not define what constitutes a “benefit” for purposes of Article 1.1(b), and the meaning of that term has instead been elucidated through panel and Appellate Body jurisprudence. In its interpretation of Article 1.1(b), the Appellate Body has derived important contextual support from Article 14 of the SCM Agreement, even though the opening clause of Article 14 limits the scope of application of that provision to Part V of the SCM Agreement, which is concerned with countervailing measures.
 

S.2.9A.7 EC and certain member States — Large Civil Aircraft, paras. 704–707
(WT/DS316/AB/R)
 

In Canada — Aircraft, the Appellate Body clarified what must be demonstrated in order to establish that a “benefit is … conferred” within the meaning of Article 1.1(b). First, a benefit must be shown to have been conferred on a “recipient”. …
 

Second, whether a “benefit” has been “conferred” requires a panel to determine whether the recipient has been made “better off” than it would have been absent the financial contribution. …
 

The context provided by Article 14 of the SCM Agreement confirms that the marketplace is the appropriate basis for comparison. Article 14(a)–(d) sets out various guidelines and benchmarks for determining whether a “benefit” arises from a government’s provision of equity capital, loans, loan guarantees, goods or services, and its purchase of goods. Under a “benefit” analysis, a comparison is made between the terms and conditions of the financial contribution when it is granted with the terms and conditions that would have been offered on the market at that time. For instance, Article 14(a), which deals with the provision of equity capital, focuses on whether the investment decision comports with “the usual investment practice … of private investors”. Article 14(b) calls for a comparison of the “amount that the firm receiving the loan pays on the government loan” with “the amount the firm would pay on a comparable commercial loan which the firm could actually obtain in the market”. Article 14(c) requires a comparison between “the amount that the firm receiving the guarantee pays on a loan guaranteed by the government” with “the amount the firm would pay on a comparable commercial loan absent the government guarantee”. These provisions support the view that a panel’s assessment of benefit should focus on the relevant market benchmark at the time the financial contribution is granted to the recipient. That benchmark entails a consideration of what a market participant would have been able to secure on the market at that time. The market benchmark is predicated upon a projection as to the anticipated flow of returns that are expected to accrue as a result of the financial contribution. Consequently, the determination of benefit under Article 1.1(b) of the SCM Agreement is an ex ante analysis that does not depend on how the particular financial contribution actually performed after it was granted.
 

The ordinary meaning of Article 1.1, read in the light of Article 14 of the SCM Agreement, confirms, therefore, that a benefit analysis under Article 1.1(b) is forward-looking and focuses on future projections. The nature, amount, and projected use of the challenged subsidy may be relevant factors to consider in an assessment of the period over which the benefit from a financial contribution might be expected to flow. A panel may consider, for example, as part of its ex ante analysis of benefit, whether the subsidy is allocated to purchase inputs or fixed assets; the useful life of these inputs or assets; whether the subsidy is large or small; and the period of time over which the subsidy is expected to be used for future production.
 

S.2.9A.8 EC and certain member States — Large Civil Aircraft, paras. 833–834
(WT/DS316/AB/R)
 

Article 1.1(b) of the SCM Agreement does not set out a particular methodology to be used to determine whether a financial contribution has conferred a benefit. The calculation of benefit is addressed in Article 14 of the SCM Agreement … . The opening clause of Article 14 limits the scope of application of this provision to Part V of the SCM Agreement, which is about countervailing measures. Nevertheless, we consider that Article 14 provides useful context in the interpretation of the “benefit” requirement in Article 1.1(b) of the SCM Agreement.
 

… the most relevant “guideline” of Article 14 of the SCM Agreement [for “unsecured loans”] is that provided in subparagraph (b) … .
 

S.2.9A.9 EC and certain member States — Large Civil Aircraft, paras. 852–853
(WT/DS316/AB/R)
 

In the alternative, the European Union argues that the “existence and operation of Article 4 [of the 1992 Agreement] … [are] part of the facts to establish the relevant market benchmark at the time the [LA/]MSF was granted”. …
 

… We do not see how Article 4 of the 1992 Agreement is a “fact” that affected the market benchmark for assessing benefit at the time the LA/MSF was granted. Article 4 of the 1992 Agreement … determined how much support was provided by the member States and how Airbus was expected to pay it back. However, Article 4 has no direct bearing on the financial market that is meant to be used as the benchmark to determine benefit. This financial market is defined by the interaction between the economic agents that are willing to provide funds and those that seek to obtain funds. We do not see how this interaction would have been affected by the existence and operation of Article 4 of the 1992 Agreement. …
 

S.2.9A.10 EC and certain member States — Large Civil Aircraft, para. 854
(WT/DS316/AB/R)
 

… the United States refers to the fifth recital of the Preamble of the 1992 Agreement, which states that, upon entering into the 1992 Agreement, the European Economic Community and the United States intended to act “without prejudice to their rights and obligations under the GATT and under other multilateral agreements negotiated under the auspices of the GATT”. … the 1992 Agreement was negotiated against a background of differences on how to discipline subsidies to the aircraft sector. Accounts of the state of play of the Uruguay Round negotiations around 1992 suggest that the issue of disciplining such subsidies was one of the more difficult subjects dividing the European Communities and the United States, and that the relationship between the new SCM Agreement and the 1992 Agreement was contentious and ultimately remained unresolved. It was agreed in Article 12 of the 1992 Agreement to negotiate a multilateral agreement on trade in civil aircraft. The SCM Agreement itself reflects that, at the time of its conclusion, negotiations on multilateral rules on trade in the civil aircraft sector were anticipated. However, we note that no such multilateral rules were ever agreed, except for the incorporation of the 1979 Agreement as a plurilateral agreement in Annex 4 to the WTO Agreement. The fifth recital of the preamble of the 1992 Agreement expresses the intention of the European Economic Community and the United States that this Agreement be “without prejudice” to their rights and obligations under the GATT and other multilateral agreements negotiated under its auspices. This indicates that they did not intend that their rights and obligations under Article 1.1(b) of the SCM Agreement would be affected or modified by the 1992 Agreement.
 

S.2.9A.11 EC and certain member States — Large Civil Aircraft, para. 855
(WT/DS316/AB/R)
 

… we find that Article 4 of the 1992 Agreement is not a “relevant” rule of international law applicable in the relations between the parties, within the meaning of Article 31(3)(c) of the Vienna Convention, that informs the meaning of “benefit” under Article 1.1(b) of the SCM Agreement, and that Article does not form “part of the facts to establish the relevant market benchmark”.
 

S.2.9A.12 EC and certain member States — Large Civil Aircraft, para. 900
(WT/DS316/AB/R)
 

The Appellate Body has said that the conferral of a “benefit”, within the meaning of Article 1.1(b) of the SCM Agreement, means that “the ‘financial contribution’ makes the recipient ‘better off’ than it would otherwise have been, absent the contribution”. For such a comparison to be meaningful, the benchmark that is used to determine whether the recipient is “better off” must not itself be distorted by the financial contribution. Rather, the benchmark must reflect conditions in the market “absent the contribution”. Otherwise, it would not be possible to determine whether the financial contribution placed the recipient in an advantageous position, because the benchmark used in the comparison itself reflects the financial contribution. …
 

S.2.9A.13 EC and certain member States — Large Civil Aircraft, para. 975
(WT/DS316/AB/R)
 

We find instructive the Appellate Body’s consideration of Articles 1.1(b) and 14 because it underscores that every benefit determination requires a comparison of the terms of a financial contribution to a market benchmark. Article 14(d) stipulates that a benefit is not conferred so long as the good or service is provided for “adequate remuneration”. It moreover provides that the adequacy of remuneration is to be determined “in relation to prevailing market conditions”, and lists a number of such market conditions, including “price, quality, availability, marketability, transportation and other conditions of purchase or sale”. This language highlights that a proper market benchmark is derived from an examination of the conditions pursuant to which the goods or services at issue would, under market conditions, be exchanged.
 

S.2.9A.14 EC and certain member States — Large Civil Aircraft, paras. 981–982
(WT/DS316/AB/R)
 

… The marketplace to which the Appellate Body referred in Canada — Aircraft reflects a sphere in which goods and services are exchanged between willing buyers and sellers. A calculation of benefit in relation to prevailing market conditions thus demands an examination of behaviour on both sides of a transaction, and in particular in relation to the conditions of supply and demand as they apply to that market. A market price is not determined solely by reference to either supply-side or demand-side considerations without reference to the other. Even where a market is limited for a particular good or service, that market price is not dictated solely by the price a seller wishes to charge, or by what a buyer wishes to pay. Rather, the equilibrium price established in the market results from the discipline enforced by an exchange that is reflective of the supply and demand of both sellers and buyers in that market. …
 

… Accordingly, we do not consider that it is consistent with Articles 1.1(b) and 14(d) to establish a market benchmark for a good or service by referring to the demands or expectations only of a seller or lessor, or, alternatively, only of a buyer or lessee. The price of a good or service must reflect the interaction between the supply-side and demand-side considerations under prevailing market conditions.
 

S.2.9A.15 US — Large Civil Aircraft (2nd complaint), para. 636
(WT/DS353/AB/R)
 

… In [EC and certain member States — Large Civil Aircraft], the Appellate Body approached the enquiry of benefit as one that is financial in nature and in which the behaviour of the grantor and recipient of the alleged subsidy at issue are assessed against the behaviour of commercial actors in the market. The Appellate Body also explained that the assessment of benefit must examine the terms and conditions of the challenged transaction at the time it is made and compare them to the terms and conditions that would have been offered in the market at that time.
 

S.2.9A.16 US — Large Civil Aircraft (2nd complaint), paras. 641–644
(WT/DS353/AB/R)
 

The Panel’s benefit test is closely related to the test that the Panel had developed in its assessment of financial contribution to determine whether the NASA and USDOD measures could be characterized as purchases of services. Both the test for purchases of services and for benefit revolve around the question of which party to the transaction derives the “principal benefit and use” from the research. We see several problems with the Panel’s approach. First, … it risks conflating what are two separate elements of the definition of “subsidy” in Article 1.1 of the SCM Agreement. … A further problem with the Panel’s test is that the identification of the principal user or beneficiary of the research … does not capture the relevant inquiry under Article 1.1(b), which involves a consideration as to whether the measure is consistent with a market benchmark. Where a panel is confronted with a measure in which both the government and the commissioned firm have provided funding or made other contributions, and the results of their investments are shared between them, it may consider the relationship between what they have contributed and how the results thereof are shared. But the distribution of the returns under particular NASA procurement contracts and USDOD assistance instruments does not indicate by itself what the distribution of those returns would be in the market.
 

Second, we have difficulties with the Panel’s reasoning about the market benchmark. … The Panel’s finding as to the behaviour of a market actor was based exclusively on the Panel’s own view of how a commercial actor would behave and its inferences as to what a rational investor would do. The Panel did not indicate what evidence there was on the record to sustain its view that a private entity acting pursuant to commercial considerations would not provide payments (and access to its facilities and/or personnel) to another commercial entity where this other entity performs R&D activities principally for its own benefit and use, and that, at a minimum, it would be expected that some form of royalties or repayment would be required.
 

… We do not believe that panels can base determinations as to what would occur in the marketplace only on their own intuition of what rational economic actors would do. We recognize that a panel confronted with a measure of the kind at issue here may have intuitions as to the consistency of the measure with the market, based on economic theory. However, we would expect that in such circumstances the panel would at least explain the economic rationale or theory that supports its intuition. The Panel in this case did not do so. More importantly, we are of the view that a panel should test its intuitions empirically, especially where the parties have submitted evidence as to how market actors behave. …
 

… We believe that … the Panel could not have arrived at a conclusion as to whether a benefit was conferred within the meaning of Article 1.1(b) without empirically testing the views that it had about the market on the basis of the evidence submitted by the parties pertinent to relevant market benchmarks.
 

S.2.9A.17 US — Large Civil Aircraft (2nd complaint), para. 645
(WT/DS353/AB/R)
 

… we have further difficulties with the Panel’s treatment of the evidence. … the Panel stated that “it was not necessary for the European Communities to present benchmark evidence of the terms and conditions of specific market-based R&D financing in order to establish, at least on a prima facie basis, that these NASA transactions conferred a benefit upon Boeing”. The Panel did not explain how it reached the conclusion that the European Communities had established a prima facie case that the transaction would not take place in the market (for example, by referring to evidence on record of what was the prevailing commercial practice or otherwise reflects a market behaviour). Furthermore, … the Panel explained that “it would fall upon the United States, if it wished to rebut this prima facie case, to identify examples of transactions in which commercial entities have paid other commercial entities to perform R&D on these terms, i.e. to perform R&D that is principally for the benefit or use of the entity receiving the funding”. The Panel added that “[t]he United States has not provided any evidence or examples of commercial transactions in which one entity pays another entity to conduct R&D that is principally for the benefit and use of the entity receiving the funding”. However, like the European Communities, the United States had provided evidence of market transactions. The United States certainly had the burden of demonstrating any factual assertions that it had made and to rebut a prima facie case. Yet, the Panel’s reasoning does not reveal that the Panel engaged with the evidence submitted by the parties, and does not spell out the evidentiary basis for its conclusion that a benefit had been conferred.
 

S.2.9A.18 US — Large Civil Aircraft (2nd complaint), paras. 646–647
(WT/DS353/AB/R)
 

… we are not persuaded that, a priori, it can be excluded that two market actors would enter into a transaction with each other in circumstances where the returns are unequally distributed between them. Transactions between market actors may take place even when the returns earned by each party are asymmetric, as long as both parties earn a reasonable return on the investment. …
 

… the assessment of benefit requires a comparison with a market benchmark. Our discussion above has identified several flaws in the Panel’s approach and in its reasoning concerning the market benchmark. These flaws mean that the Panel did not make a proper comparison of the terms of the NASA procurement contracts and the USDOD assistance instruments with the terms of a market transaction as required under Article 1.1(b). In the light of this, the Panel’s reasoning as to whether the payments and support provided to Boeing under the NASA procurement contracts and the USDOD assistance instruments conferred a benefit within the meaning of Article 1.1(b) of the SCM Agreement cannot be sustained.
 

S.2.9A.19 US — Large Civil Aircraft (2nd complaint), para. 653
(WT/DS353/AB/R)
 

… For purposes of completing the analysis, we proceed below as if the Panel had treated the evidence submitted by the United States as accurate and probative. Thus, we will seek to determine whether the evidence submitted by the United States shows that the disposition of intellectual property rights under the NASA/USDOD measures at issue is consistent with what occurs in transactions between two market actors. In other words, we consider whether the Panel, even if it had treated the evidence submitted by the United States as accurate and probative, would have concluded that the NASA/USDOD measures at issue are not consistent with transactions between two market actors.
 

S.2.9A.20 US — Large Civil Aircraft (2nd complaint), paras. 662–663
(WT/DS353/AB/R)
 

… even assuming that the evidence submitted by the United States is accurate and uncontested, the allocation of intellectual property rights in the examples of market transactions on record has been more favourable to the commissioning party and less favourable to the commissioned party than under the NASA procurement contracts and USDOD assistance instruments before us. … In other words, Boeing obtained more and NASA and the USDOD obtained less than they would have obtained in the market. In our view, this conclusion is sufficient to establish that the provision by NASA and by the USDOD of funding and other support to Boeing on the terms of the joint venture arrangements that are before us conferred a benefit on Boeing within the meaning of Article 1.1(b) of the SCM Agreement.
 

… one of the salient features of the assistance instruments is that the USDOD and Boeing jointly fund the research projects and share, to some extent, the results of the research. … These are features of the USDOD measures that should be taken into account in identifying a market benchmark against which to compare those measures for purposes of determining whether a benefit has been conferred. … any monetary contribution made by the recipient to a joint research project affects the net value obtained by the firm from the project. If the contribution of the recipient firm to the project is neglected, there is a risk of overestimating the value obtained by the firm from the project and, hence, a finding of benefit could be made where a benefit did not in fact exist.
 

S.2.9A.21 US — Large Civil Aircraft (2nd complaint), para. 690
(WT/DS353/AB/R)
 

The conferral of a benefit is one of the two elements of the definition of a subsidy in Article 1.1 of the SCM Agreement. The Appellate Body has explained that “the word ‘benefit’, as used in Article 1.1(b), implies some kind of comparison”, and that “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.2.9A.22 US — Large Civil Aircraft (2nd complaint), para. 700
(WT/DS353/AB/R)
 

… the United States’ claim on appeal is that the Panel erred in the application of the concept of benefit under Article 1.1(b) of the SCM Agreement because the Panel did not exclude from its estimate of the amount of the subsidy the $280 million in expenditures for research that NASA had determined was unrelated to the European Communities’ claims. We have found that the Panel’s consideration of the amount of the subsidy was a factual assessment that fell within the Panel’s authority as the initial trier of facts. The United States, however, did not raise a claim under Article 11 with respect to the Panel’s consideration of the amount of the subsidy provided under the NASA measures at issue. We have additionally explained above that the United States’ appeal is misdirected, because the Panel did not attempt to estimate the value of the benefit conferred to Boeing under the NASA measures at issue. Accordingly, we reject the United States’ claim that the Panel erred in estimating the amount of the subsidy provided to Boeing’s LCA division pursuant to the NASA contracts and agreements under the eight R&D programmes at issue to be $2.6 billion over the period 1989–2006. We emphasize that this figure is only an estimate and should be treated as such.
 

S.2.9A.23 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.130
(WT/DS412/AB/R, WT/DS426/AB/R)
 

As a preliminary matter, we note that the characterization of a transaction under Article 1.1(a) of the SCM Agreement may have implications for the manner in which the assessment of whether a benefit is conferred is to be conducted. For instance, the context provided by Article 14 of the SCM Agreement presents different methods for calculating the amount of a subsidy in terms of benefit to the recipient depending on the type of financial contribution at issue. However, although different characterizations of a measure may lead to different methods for determining whether a benefit has been conferred, the issue to be resolved under Article 1.1(b) remains to ascertain whether a “financial contribution” or “any form of income or price support” has conferred a benefit to the recipient.
 

S.2.9A.24 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.163
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… in previous disputes under both Parts II and III of the SCM Agreement, the Appellate Body has relied on Article 14 as the relevant context for the interpretation of benefit under Article 1.1(b). Article 14(d) contains guidelines for determining whether government purchases of goods make a recipient “better off” than it would otherwise be in the marketplace. Article 14 is used in countervailing duties cases to calculate the amount of the subsidy in terms of the benefit to the recipient. Although Article 14 is in Part V of the SCM Agreement, the Panel was correct in pointing out that it is relevant context to the interpretation of Article 1.1(b) for the purpose of Part II of the SCM Agreement, and that it can be used as relevant context to determine whether a subsidy exists.
 

S.2.9A.25 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.164
(WT/DS412/AB/R, WT/DS426/AB/R)
 

We do not think that a different approach should be adopted when, as in the case of prohibited subsidies, one has to determine whether a benefit exists as opposed to its precise quantification. A market benchmark can tell us whether a benefit exists and usually its size. However, in the absence of a market benchmark, it will not be possible to establish if a subsidy exists at all. That a financial contribution confers an advantage on its recipient cannot be determined in absolute terms, but requires a comparison with a benchmark, which, in the case of subsidies, derives from the market. This is so, in our view, regardless of whether the advantage needs to be precisely quantified or not.
 

S.2.9A.26 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.165
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… We do not consider that the determination of the mere existence, as opposed to the amount, of the subsidy calls for a different interpretation of how to determine benefit under Article 1.1(b). A determination of the existence of a benefit under Article 1.1(b), read in the context of Article 14(d) of the SCM Agreement, requires a comparison between actual remuneration and a market-based benchmark or proxy, and thus between amounts, in order to determine the existence of a benefit.
 

S.2.9A.27 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.169
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… we are of the view that the Panel should have started, rather than concluding, its benefit analysis with the definition of the relevant market. The definition of the relevant market is central to, and a prerequisite for, a benefit analysis under Article 1.1(b) the SCM Agreement. The existence of a benefit can properly be established only by comparing the prices of goods and services in the relevant market where they compete. It would seem logical for a panel that is tasked with a benefit determination to begin its analysis by defining the relevant market, which will be used for the purposes of undertaking the benefit analysis. Instead, in this case, the Panel took note of the parties’ divergent views on the relevant market, and proceeded to analyze the benefit benchmarks put forward by the complainants, before taking a position on the relevant market for the benefit comparison. …
 

S.2.9A.28 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.170
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… on the one hand, the fact that electricity is physically identical, regardless of how it is generated, suggests that there is high demand-side substitutability between electricity generated through different technologies. On the other hand, however, there are additional factors that may be used to differentiate on the demand-side, which the Panel did not consider in its analysis of the relevant market. Factors such as the type of contract, the size of the customer, and the type of electricity generated (base-load versus peak-load) may differentiate the market.
 

S.2.9A.29 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.171–5.172, 5.174
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In addition, the Panel did not analyze supply-side factors in the definition of the relevant market. …
 

Had the Panel undertaken an analysis of demand-side and supply-side factors, and in particular supply-side factors, the significance of government intervention in the electricity market to the definition of the relevant market would have become evident. …
 

...
 

In the present disputes, supply-side factors suggest that windpower and solar PV producers of electricity cannot compete with other electricity producers because of differences in cost structures and operating costs and characteristics. …
 

S.2.9A.30 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.175
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In circumstances where the supply of electricity from different sources is blended and, for as long as the differences in costs for conventional and renewable electricity are so significant, markets for wind- and solar PV-generated electricity can only come into existence as a matter of government regulation. It is often the government’s choice of supply-mix of electricity generation technologies that creates markets for wind- and solar PV-generated electricity. A government may choose the supply-mix by setting administered prices (based on the principles of cost recovery and reasonable margin) for technologies that would not otherwise be able to recover their costs on the spot market. Alternatively, a government may require that private distributors or the government itself buy part of their requirements of electricity from certain specified generation technologies. As we consider further below, in both instances, the definition of a certain supply-mix by the government cannot in and of itself be considered as conferring a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
 

S.2.9A.31 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.176
(WT/DS412/AB/R, WT/DS426/AB/R)
 

We also note that the Panel’s analysis of the relevant market focused on the preferences of the final consumers and ignored that electricity is purchased by the Government of Ontario at the wholesale level and then resold to consumers at the retail level. Final consumers at the retail level may not distinguish between electricity on the basis of generation technology … . However, at the wholesale level, the government’s purchase decisions are shaped by its definition of the energy supply-mix. The decisions taken by the government on the energy supply-mix as including wind- and solar PV-generated electricity necessarily dictate its electricity purchase decisions at the wholesale level. In this respect, where government decisions require a certain supply-mix, electricity from different generation technologies is not substitutable at the wholesale level. Had the Panel distinguished between the conditions of supply and demand at the wholesale and retail levels, it would have reached conclusions on the relevant market definition that took into account the Government of Ontario’s choice of energy supply-mix.
 

S.2.9A.32 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.178
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In our view, … in its analysis of the relevant market, [the Panel] should also have considered that in Ontario the government definition of the energy supply-mix for electricity shapes the markets in which generators of electricity through different technologies compete. … Had the Panel more thoroughly scrutinized supply-side factors, it would have come to the conclusion that, even if demand-side factors weigh in favour of defining the relevant market as a single market for electricity generated from all sources of energy, supply-side factors suggest that important differences in cost structures and operating costs and characteristics among generating technologies prevent the very existence of windpower and solar PV generation, absent government definition of the energy supply-mix of electricity generation technologies. This, in turn, would have lead the Panel to conclude that the benefit comparison under Article 1.1(b) should not be conducted within the competitive wholesale electricity market as a whole, but within competitive markets for wind- and solar PV-generated electricity, which are created by the government definition of the energy supply-mix.
 

S.2.9A.33 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.181–5.182
(WT/DS412/AB/R, WT/DS426/AB/R)
 

First, the Panel remarked that “competitive wholesale electricity markets, although a theoretical possibility, will only rarely operate in a way that remunerates the mix of generators needed to secure a reliable electricity system with enough revenue to cover their all-in costs, let alone a system that pursues human health and environmental objectives through the inclusion of facilities using solar PV and wind technologies into the supply-mix”. Second, the Panel remarked that the prevailing conditions of supply and demand in Ontario suggest that a competitive wholesale electricity market would fail to attract the degree of investment in generating capacity needed to secure a reliable supply of electricity. The Panel was of the view that, “at present, this goal can only be achieved by means of government intervention in what would otherwise be unacceptable competitive market outcomes”.
 

… We understand these statements by the Panel to suggest that a benchmark for wind- and solar PV-generated electricity in Ontario should take into account the government’s definition of the energy supply-mix as including wind-power and solar PV generation. However, we do not consider that these statements should be interpreted as suggesting that the policy objectives underlying electricity production and supply entirely prevent a market-based approach to the determination of benefit. To do so would mean to read an exception into Article 1.1(b) based on the rationale of the subsidy that has no textual basis in the Agreement.
 

S.2.9A.34 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.185–5.186
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… while introducing legitimate policy considerations into the determination of benefit cannot be reconciled with Article 1.1(b) of the SCM Agreement, we do not think that a market-based approach to benefit benchmarks excludes taking into account situations where governments intervene to create markets that would otherwise not exist. For example, governments create electricity markets with constant and reliable supply. … Although this type of intervention has an effect on market prices, as opposed to a situation where prices are determined by unconstrained forces of supply and demand, it does not exclude per se treating the resulting prices as market prices for the purposes of a benefit analysis under Article 1.1(b) of the SCM Agreement. In fact, in the absence of such government intervention, there could not be a market with a constant and reliable supply of electricity.
 

Similarly, considerations relating to the choice of energy supply-mix by a government, including wind- and solar PV-generated electricity, may be crucial to the viability and sustainability of the electricity market in the long term. Governments intervene by reducing reliance on fossil energy resources and promoting the generation of electricity from renewable energy resources to ensure the sustainability of electricity markets in the long term. Fossil energy resources are exhaustible, and thus fossil energy needs to be replaced progressively if electricity supply is to be guaranteed in the long term. Government intervention in favour of the substitution of fossil energy with renewable energy today is meant to ensure the proper functioning or the existence of an electricity market with a constant and reliable supply of electricity in the long term. Like the government regulation that ensures the stability and reliability of supply in the electricity market, a government’s choice to include wind-power and solar PV generation in the energy supply-mix should not be considered as preventing the identification or adaptation of competitive benefit benchmarks for purposes of an analysis under Article 1.1(b) of the SCM Agreement.
 

S.2.9A.35 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.188
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… a distinction should be drawn between, on the one hand, government interventions that create markets that would otherwise not exist and, on the other hand, other types of government interventions in support of certain players in markets that already exist, or to correct market distortions therein. Where a government creates a market, it cannot be said that the government intervention distorts the market, as there would not be a market if the government had not created it. While the creation of markets by a government does not in and of itself give rise to subsidies within the meaning of the SCM Agreement, government interventions in existing markets may amount to subsidies when they take the form of a financial contribution, or income or price support, and confer a benefit to specific enterprises or industries.
 

S.2.9A.36 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.190
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In the light of the above, and in particular in view of the fact that the government’s definition of the energy supply-mix for electricity generation does not in and of itself constitute a subsidy, we believe that benefit benchmarks for wind- and solar PV-generated electricity should be found in the markets for wind- and solar PV-generated electricity that result from the supply-mix definition. Thus, where the government has defined an energy supply-mix that includes wind-power and solar PV electricity generation technologies, as in the present disputes, a benchmark comparison for purposes of a benefit analysis for windpower and solar PV electricity generation should be with the terms and conditions that would be available under market-based conditions for each of these technologies, taking the supply-mix as a given.
 

S.2.9A.37 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.197
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… if, as the Panel acknowledged, windpower and solar PV energy generation would not occur in Ontario absent the government’s definition of the energy supply-mix, a “but for” approach would be inapposite for establishing benefit, because such an approach would, by definition, not measure what the recipient could obtain in the marketplace for wind-power and solar PV energy generation. Benefit cannot be established on the basis of a “but for” market counterfactual, which presupposes that the relevant market is electricity generated from all energy sources, in a situation where the government defines its energy supply-mix as including wind- and solar PV-generated electricity, and accordingly creates separate markets for wind- and solar PV-generated electricity. Assuming that benefit could be established by determining whether or not windpower and solar PV generators would have entered the market “but for” the FIT Programme, the fundamental question that needs to be answered is “what” market provides the appropriate benchmark. Before answering the question of whether windpower and solar PV generators would have entered the market, the relevant market in which they would operate needs to be defined. It is in this market that the appropriate benchmark would need to be identified.
 

S.2.9A.38 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.199
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… We consider … that markets for wind- and solar PV-generated electricity exist in Ontario only because of government intervention. Thus, we do not consider that the Panel could have determined that benefit exists because FIT generators would not have entered the Ontario wholesale blended electricity market “but for” the FIT Programme. This is so because, as we have explained above, we do not consider that the relevant benchmark is to be found in the wholesale market for electricity generated from all sources of energy, but rather in the markets for wind- and solar PV-generated electricity, which are defined by the Government of Ontario’s choice of the energy supply-mix. Therefore, in our view, the relevant question is whether wind-power and solar PV electricity suppliers would have entered the wind- and solar PV-generated electricity markets absent the FIT Programme, not whether they would have entered the blended wholesale electricity market.
 

S.2.9A.39 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.215–5.216
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… We do not think that the Panel should have limited its analysis to the proposed benefit approach, and/or to the benchmarks that were part of the complainants’ principal argument, in a situation where the evidence and the arguments presented by the complainants, and the arguments in response by Canada, may have allowed it to develop its own reasoning and to make findings based on a benchmark that took into account the government’s definition of the energy supply-mix. Provided the complainants had presented relevant evidence and arguments to make a prima facie case, it was for the Panel to analyze the appropriate benchmark or proxy. …
 

In making a prima facie case of benefit under Article 1.1(b) of the SCM Agreement, the burden was on the complainants to identify a suitable benchmark and to make adjustments, where necessary. …
 

S.2.9A.40 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.218–5.219
(WT/DS412/AB/R, WT/DS426/AB/R)
 

The complainants’ principal benefit claims focused on benchmarks in the competitive wholesale blended electricity market. However, the European Union also presented arguments and evidence that would have allowed the Panel to compare the FIT remuneration with a benchmark reflecting competitive prices in generation technology-specific markets, provided that appropriate adjustments would have been proposed by the European Union and reviewed by the Panel. This could have allowed the Panel to conduct its benefit analysis on the basis of the appropriate benefit benchmark that it evoked … and that it later developed in its obiter dicta observations on an alternative approach to the question of benefit.
 

In the light of the above, we consider that the Panel committed an error in not conducting the benefit analysis on the basis of a market that is shaped by the government’s definition of the energy supply-mix, and of a benchmark located in that market reflecting competitive prices for wind-power and solar PV generation. …
 

S.2.9A.41 Canada — Renewable Energy / Canada — Feed-in Tariff Program, paras. 5.225, 5.227
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In the present disputes, the assessment of whether benefit is conferred would require … conducting a comparison with a benefit benchmark to determine whether the remuneration obtained by FIT generators confers on them an advantage as compared to the remuneration they would otherwise have been able to obtain in the marketplace. …
 

...
 

… the appropriate benchmark to establish whether the FIT remuneration confers a benefit within the meaning of Article 1.1(b) of the SCM Agreement should take into account that the Government of Ontario defines the energy supply-mix for electricity generation as including wind- and solar PV-generated electricity and the progressive phase-out of fossil fuels, in particular coal-based electricity generation. This is so because, as explained above, creating a market by defining the energy supply-mix as including wind-power and solar PV generation cannot in and of itself be considered as conferring a benefit. … Moreover, based on the guidelines contained in Article 14(d), an appropriate benchmark should first be sought in the windpower and solar PV generation markets in Ontario. If no suitable benchmark is available in Ontario, an appropriate benchmark outside Ontario or a proxy may also be considered.
 

S.2.9A.42 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.228
(WT/DS412/AB/R, WT/DS426/AB/R)
 

Government-administered prices such as FIT may or may not reflect what a hypothetical market would yield. Thus, the fact that the government sets prices does not in itself establish the existence of a benefit. In challenging a benefit comparison under Article 1.1(b) of the SCM Agreement, a complainant would have to show that such prices do not reflect what a market outcome would be. An analysis of the methodology that was used to establish the administered prices may provide evidence as to whether the price does or does not provide more than adequate remuneration. There may be circumstances where there is no information about the methodology that was used or the methodology used does not assist in determining whether the administered price is or is not reflective of what a market would yield. If it becomes necessary to identify a market benchmark or to construct a proxy, such benchmark or proxy may be administered prices for the same product (in the country of purchase or in other countries, subject to adjustments), provided that it is determined based on a price-setting mechanism that ensures a market outcome. Alternatively, such benchmark may also be found in price-discovery mechanisms such as competitive bidding or negotiated prices, which ensure that the price paid by the government is the lowest possible price offered by a willing supply contractor.
 

S.2.9A.43 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.235
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… in order to carry out a meaningful comparison of the FIT Programme and the RES initiative, it is necessary to ensure that the comparison is made between prices referring to the same period, the same type of generation technology, the same overall supply-mix, projects of the same or similar scale, and supply contracts of the same duration. If any of these conditions are not met by the proposed benchmark, adjustments in the light of the factors listed in Article 14(d) and of the supply-mix defined by the government may be necessary to ensure comparability. We believe that, on the basis of this approach, it should be possible to determine whether prices under RES constitute an appropriate benchmark for a comparison with FIT prices in order to establish the existence of benefit consistently with Article 1.1(b) of the SCM Agreement.
 

S.2.9B Article 1.1(b) — Extinction of the benefit     back to top

S.2.9B.1 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 CanadaAircraft [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.2.9B.2 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 non-recurring financial contribution bestowed upon a state-owned firm. The effect of such a privatization is to shift to the investigating authority the burden of identifying evidence which establishes that the benefit from the previous financial contribution does indeed continue beyond privatization. In the absence of such proof, the fact of the arm’s-length, fair market value privatization is sufficient to compel a conclusion that the “benefit” no longer exists for the privatized firm, and, therefore, that countervailing duties should not be levied. This is an accurate characterization of a Member’s obligations under the SCM Agreement.
 

Therefore, we find that the Panel erred in concluding that “[p]rivatizations at arm’s length and for fair market value must lead to the conclusion that the privatized producer paid for what he got and thus did not get any benefit or advantage from the prior financial contribution bestowed upon the state-owned producer” (emphasis added). Privatization at arm’s length and for fair market value may result in extinguishing the benefit. Indeed, we find that there is a rebuttable presumption that a benefit ceases to exist after such a privatization. Nevertheless, it does not necessarily do so. There is no inflexible rule requiring that investigating authorities, in future cases, automatically determine that a “benefit” derived from pre-privatization financial contributions expires following privatization at arm’s length and for fair market value. It depends on the facts of each case. …
 

S.2.9B.3 EC and certain member States — Large Civil Aircraft, paras. 723–725
(WT/DS316/AB/R)
 

The Appellate Body found in [US — Lead and Bismuth II and US — Countervailing Measures on Certain EC Products] that an investigating authority could treat benefits provided to the state-owned firm as having been “extinguished”, and therefore not passed to the new private owners, following the privatization of the firm through transactions conducted at arm’s length and for fair market value. … as the Appellate Body stated, “[i]t depends on the facts of each case”.
 

In the present case, we are not in a Part V context where the question arises as to the rate of subsidization present in the product that is being countervailed. Nor do any of the sales transactions in this dispute amount to a full privatization of a previously state-owned company. Instead, the issue is whether … sales of shares between private entities, and sales conducted in the context of partial privatizations, eliminate all or part of past subsidies, and whether this, in turn, results in a change that should be taken into account in assessing whether past subsidies are causing present adverse effects under Article 5 of the SCM Agreement.
 

Neither of the participants question that the past rulings in the privatization cases stand for the proposition that a presumption of extinction arises where there is a full privatization. We recall that, in both cases, the full privatizations involved sales at fair market value and at arm’s length, and that there was a complete transfer of ownership and control. In a partial privatization as well as in private-to-private sales, not all of the elements of a full privatization are present. Therefore, consistent with the Appellate Body’s guidance, a fact-intensive inquiry into the circumstances surrounding the changes in ownership would be required in order to determine the extent to which there are sales at fair market value and at arm’s length, accompanied by transfers of ownership and control, and whether a prior subsidy could be deemed to have come to an end. Moreover, a panel assessing claims under Part III of the SCM Agreement would have to examine whether the transactions are of a nature, kind, and amount so as to affect an adverse effects analysis and attenuate the link sought to be established by the complaining party under Articles 5 and 6 of the SCM Agreement between the alleged subsidies and their alleged effects.
 

S.2.9B.4 EC and certain member States — Large Civil Aircraft, subparagraph (a) to para. 726
(WT/DS316/AB/R)
 


 

(a) Noting that the Appellate Body has previously ruled in privatization cases that a full privatization, conducted at arm’s length and for fair market value involving a complete or substantial transfer of ownership and control, “extinguishes” prior subsidies, one Member is of the view that this rule does not apply to partial privatizations or to private-to-private sales.
 

S.2.9B.5 EC and certain member States — Large Civil Aircraft, subparagraph (b) to para. 726
(WT/DS316/AB/R)
 


 

(b) One Member noted that … the Appellate Body ruled in US — Countervailing Measures on Certain EC Products that, in the context of Part V of the SCM Agreement, full privatization at arm’s length and for fair market value may result in extinguishing the benefit received from the non-recurring financial contribution bestowed upon a state-owned firm. … [O]nce a fair market price is paid for the equipment, or more broadly the assets of a company, their market value is redeemed, regardless of the utility value a firm may derive therefrom… . [T]he Appellate Body agreed with the panel in US — Countervailing Measures on Certain EC Products that the new private owners are “profit-maximizers” who will seek to “recoup[] through the privatized company … a market return on the full amount of their investment”. Therefore, the new private owners may no longer benefit from any subsidies received by the company before its privatization. This Member considers the rationale underlying the Appellate Body’s case law on full privatization in the context of Part V of the SCM Agreement equally to apply in situations of partial privatization and private-to-private transactions and in the context of Part III of the SCM Agreement. However, this Member also notes that, as the Appellate Body emphasized in US — Countervailing Measures on Certain EC Products, there is “no inflexible rule” that a “benefit” derived from pre-privatization financial contributions expires following privatization at arm’s length and for fair-market value. Rather, as the Appellate Body stated, “[i]t depends on the facts of each case”. An important question in this context is to what extent the partial privatization or private-to-private transactions resulted in a transfer of control to new owners who paid fair market value for shares in the company.
 

S.2.9B.6 EC and certain member States — Large Civil Aircraft, subparagraph (c) to para. 726
(WT/DS316/AB/R)
 


 

(c) One Member of the Division, though affirming the general test that an extinction of benefit is to be determined upon a consideration of all relevant facts, entertains no small measure of doubt that an acquisition of shares, concluded at arm’s length and for fair market value, constitutes relevant circumstances warranting the conclusion that an extinction of benefit has taken place. A subsidy granted to a recipient company contributes to the net asset value of that company. The value of that asset permits the recipient to enjoy an enhanced stream of future earnings over the life of the asset. The asset is the property of the recipient. The recipient’s shareholders enjoy the right to the dividends that may be declared by the recipient and to any capital gains that arise from the enhanced earnings attributable to the recipient. When shares change hands on an arm’s-length basis and for fair market value, the buyer pays a price that, in the estimation of the buyer, places a proper value on the future earnings of the recipient. Those earnings derive from all the assets of the recipient, including the benefit of any subsidy paid to the recipient. One shareholder may not accurately value or properly manage the assets of the recipient. Precisely for this reason, sales of shares take place: the buyer believes that the assets, properly managed, will be worth more over time than the price paid, and the seller believes the opposite. Time will tell who is correct. The central point is that a sale of shares, whether or not it conveys control, transfers rights in the shares to a new owner. The assets of the company, to which the shares attach, do not change at all. Nor could it be otherwise, because the buyer would then not acquire the full benefit of the bargain: the buyer would pay for an asset (the subsidy) that had in the very sales transaction been “extinguished”. Shares in listed companies are traded on stock exchanges with great frequency and without any fear that sales on the market diminish the underlying value of the assets owned by these companies. The changing price of listed securities reflects the different valuations that buyers and sellers place upon companies and their underlying assets. However, nothing about these trades extracts the value of any asset, including the benefit of any subsidy granted. That subsidy continues to benefit the recipient, even if the ownership of the recipient’s shares changes from one day to another. Given that the Appellate Body in this case does not need to come to any final view on the issue of extinction in the context of a partial privatization or private-to-private sales, these matters do not require more definitive determination.
 

S.2.9B.7 EC and certain member States — Large Civil Aircraft, paras. 729, 733
(WT/DS316/AB/R)
 

The Panel’s approach to … “extinction” consisted essentially of examining whether the transactions at issue involved changes in ownership where (i) benefits resulting from a prior non-recurring financial contribution (ii) are bestowed on a state-owned enterprise (iii) following a privatization at arm’s length and for fair market value, and (iv) the government transfers all or substantially all the property and retains no controlling interest in the privatized producer. Since the Panel was of the view that none of the transactions … met all of these criteria for full privatization, it did not find that the sales transactions at issue “extinguished” prior benefits. …
 

...
 

… we do not consider the Panel to have sufficiently examined the circumstances surrounding the partial privatizations and private-to-private sales transactions at issue. In order properly to address the relevance of these transactions for purposes of the United States’ claims of adverse effects under Article 5, the Panel should have assessed whether each of the sales was on arm’s-length terms and for fair market value, and to what extent they involved a transfer in ownership and control to new owners. …
 

S.2.10 Article 1.1 — Pass-through of indirect subsidies. See also SCM Agreement, Article 32.1 — Specific action against a subsidy (S.2.36); 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 Articles 1.2 and 2 — Specificity     back to top

S.2.10A.1 GENERAL
 

S.2.10A.1.1 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.2.10A.2 ARTICLE 2.1 — SUBSIDIES SPECIFIC TO CERTAIN ENTERPRISES
 

S.2.10A.2.1 US — Anti-Dumping and Countervailing Duties (China), para. 366
(WT/DS379/AB/R)
 

The chapeau of Article 2.1 offers interpretative guidance with regard to the scope and meaning of the subparagraphs that follow. The chapeau frames the central inquiry as a determination as to whether a subsidy is specific to “certain enterprises” within the jurisdiction of the granting authority and provides that, in an examination of whether this is so, the “principles” set out in subparagraphs (a) through (c) “shall apply”. We consider that the use of the term “principles” — instead of, for instance, “rules” — suggests that subparagraphs (a) through (c) are to be considered within an analytical framework that recognizes and accords appropriate weight to each principle. Consequently, the application of one of the subparagraphs of Article 2.1 may not by itself be determinative in arriving at a conclusion that a particular subsidy is or is not specific.
 

S.2.10A.2.2 US — Anti-Dumping and Countervailing Duties (China), paras. 367–371
(WT/DS379/AB/R)
 

Article 2.1(a) establishes that a subsidy is specific if the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to that subsidy to eligible enterprises or industries. Article 2.1(b) in turn sets out that specificity “shall not exist” if the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, the subsidy, provided that eligibility is automatic, that such criteria or conditions are strictly adhered to, and that they are clearly spelled out in an official document so as to be capable of verification. These provisions thus set out indicators as to whether the conduct or instruments of the granting authority discriminate or not: Article 2.1(a) describes limitations on eligibility that favour certain enterprises, whereas Article 2.1(b) describes criteria or conditions that guard against selective eligibility. Finally, Article 2.1(c) sets out that, notwithstanding any appearance of non-specificity resulting from the principles laid down in subparagraphs (a) and (b), other factors may be considered if there are reasons to believe that a subsidy may, in fact, be specific in a particular case.
 

We observe that Article 2.1(a) and (b) identify certain common elements in the analysis of the specificity of a subsidy. For instance, these principles direct scrutiny to the eligibility requirements imposed by “the granting authority, or the legislation pursuant to which the granting authority operates”. This is a critical feature of both provisions as it situates the analysis for assessing any limitations on eligibility in the particular legal instrument or government conduct effecting such limitations. We also note that both provisions turn on indicators of eligibility for a subsidy. Article 2.1(a) thus focuses not on whether a subsidy has been granted to certain enterprises, but on whether access to that subsidy has been explicitly limited. This suggests that the focus of the inquiry is on whether certain enterprises are eligible for the subsidy, not on whether they in fact receive it. Similarly, Article 2.1(b) points the inquiry towards “objective criteria or conditions governing the eligibility for, and the amount of, a subsidy”. Article 2.1(b) also indicates other legal and practical considerations relevant to the analysis, all of which centre on the manner in which the criteria or conditions of eligibility are prescribed and adhered to.
 

Notwithstanding the fact that the principles under subparagraphs (a) and (b) may point to opposite results, there may be situations in which assessing the eligibility for a subsidy will give rise to indications of specificity and non-specificity as a result of the application of Article 2.1(a) and (b). This is because Article 2.1(a) identifies circumstances in which a subsidy is specific, whereas Article 2.1(b) establishes circumstances in which a subsidy shall be regarded as non-specific. We can conceive, for example, of situations in which an initial indication of specificity under Article 2.1(a) may need to be considered further if additional evidence demonstrates that the subsidy in question is available on the basis of objective criteria or conditions within the meaning of Article 2.1(b). This therefore suggests that, where the eligibility requirements of a measure present some indications pointing to subparagraph (a) and certain others pointing to subparagraph (b), the specificity analysis must accord appropriate consideration to both principles.
 

Furthermore, the introductory sentence of Article 2.1(c) establishes that “notwithstanding any appearance of non-specificity” resulting from the application of Article 2.1(a) and (b), a subsidy may nevertheless be found to be “in fact” specific. The reference in Article 2.1(c) to “any appearance of non-specificity” resulting from the application of Article 2.1(a) and (b) supports the view that the conduct or instruments of a granting authority may not clearly satisfy the eligibility requirements of Article 2.1(a) or (b), but may nevertheless give rise to specificity in fact. In such circumstances, application of the factors under Article 2.1(c) to factual features of a challenged subsidy is warranted. Since an “appearance of non-specificity” under Article 2.1(a) and (b) may still result in specificity in fact under Article 2.1(c) of the SCM Agreement, this reinforces our view that the principles in Article 2.1 are to be interpreted together.
 

Accordingly, we consider that a proper understanding of specificity under Article 2.1 must allow for the concurrent application of these principles to the various legal and factual aspects of a subsidy in any given case. Yet, we recognize that there may be instances in which the evidence under consideration unequivocally indicates specificity or non-specificity by reason of law, or by reason of fact, under one of the subparagraphs, and that in such circumstances further consideration under the other subparagraphs of Article 2.1 may be unnecessary. For instance, Article 2.1(c) applies only when there is an “appearance” of non-specificity. Likewise, a granting authority or authorizing legislation may explicitly limit access to a subsidy to certain enterprises within the meaning of Article 2.1(a), but not provide objective criteria or conditions that could be scrutinized under Article 2.1(b). We do, however, caution against examining specificity on the basis of the application of a particular subparagraph of Article 2.1, when the potential for application of other subparagraphs is warranted in the light of the nature and content of measures challenged in a particular case.
 

S.2.10A.2.3 US — Anti-Dumping and Countervailing Duties (China), para. 372
(WT/DS379/AB/R)
 

… The word “explicitly” qualifies the phrase “limits access to a subsidy to certain enterprises”. In its adverbial form, the term “explicitly” signifies “[d]istinctly expressing all that is meant; leaving nothing merely implied or suggested; unambiguous; clear”. Moreover, “express” is a synonym for “explicit”. We therefore consider that a subsidy is specific under Article 2.1(a) if the limitation on access to the subsidy to certain enterprises is express, unambiguous, or clear from the content of the relevant instrument, and not merely “implied” or “suggested”.
 

S.2.10A.2.4 US — Anti-Dumping and Countervailing Duties (China), para. 373
(WT/DS379/AB/R)
 

Furthermore, a subsidy is specific under Article 2.1(a) of the SCM Agreement when the explicit limitation reserves access to that subsidy to “certain enterprises”. The chapeau of Article 2.1 establishes that the term “certain enterprises” refers to “an enterprise or industry or group of enterprises or industries”. We first note that the word “certain” is defined as “[k]nown and particularized but not explicitly identified: (with sing. noun) a particular, (with pl. noun) some particular, some definite”. The word “group”, in turn, is commonly defined as “[a] number of people or things regarded as forming a unity or whole on the grounds of some mutual or common relation or purpose, or classed together because of a degree of similarity”. Turning to the nouns qualified by “certain” and “group”, we see that “enterprise” may be defined as “[a] business firm, a company”, whereas “industry” signifies “[a] particular form or branch of productive labour; a trade, a manufacture”. We note that the panel in US — Upland Cotton considered that “an industry, or group of ‘industries’, may be generally referred to by the type of products they produce”; that “the concept of an ‘industry’ relates to producers of certain products”; and that the “breadth of this concept of ‘industry’ may depend on several factors in a given case”. The above suggests that the term “certain enterprises” refers to a single enterprise or industry or a class of enterprises or industries that are known and particularized. We nonetheless agree with China that this concept involves “a certain amount of indeterminacy at the edges”, and with the panel in US — Upland Cotton that any determination of whether a number of enterprises or industries constitute “certain enterprises” can only be made on a case-by-case basis.
 

S.2.10A.2.5 US — Anti-Dumping and Countervailing Duties (China), paras. 376–378
(WT/DS379/AB/R)
 

Thus, the interpretative question before us is whether a subsidy is specific in the sense of Article 2.1(a) only if the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access both to the financial contribution and to its corresponding benefit, as China suggests, or whether, as the Panel found, an explicit limitation on access either to the financial contribution or to the benefit may prove sufficient for a subsidy to be specific under Article 2.1(a) of the SCM Agreement. …
 

We do not share China’s view that the use of the word “subsidy” in the chapeau of Article 2.1 of the SCM Agreement means that each of the definitional elements of a subsidy bears upon the question of whether a subsidy is specific under Article 2.1(a). Rather, what must be made explicit under Article 2.1(a) is the limitation on access to the subsidy to certain enterprises, regardless of how this explicit limitation is established. In this respect, we consider that, generally, a legal instrument explicitly limiting access to a financial contribution to certain enterprises, but remaining silent on access to the benefit, would nevertheless constitute an explicit limitation on access to that subsidy. This is because, in our view, an explicit limitation on access to a financial contribution would necessarily entail a limitation on access to the benefit conferred, since only the enterprises or industries eligible for that financial contribution would be eligible to enjoy the benefit resulting therefrom. We therefore agree with the Panel that “there are many ways in which access to a subsidy could be explicitly limited”, and that it is not the case “that both the financial contribution and the benefit necessarily would have to be set forth explicitly to effect such a limitation”.
 

For these reasons, we disagree with China that the relevant inquiry under Article 2.1(a) is whether the actual words of the legislation limit access to both the particular financial contribution and its associated benefit. The necessary limitation on access to the subsidy can be effected through an explicit limitation on access to the financial contribution, on access to the benefit, or on access to both.
 

S.2.10A.2.6 EC and certain member States — Large Civil Aircraft, paras. 942–945
(WT/DS316/AB/R)
 

The Appellate Body recently addressed certain relevant issues regarding the interpretation of Article 2.1 of the SCM Agreement in US — Anti-Dumping and Countervailing Duties (China). It noted that the chapeau of Article 2.1 frames the central inquiry as a determination as to whether a subsidy is specific to “certain enterprises” within the jurisdiction of the granting authority, and that “certain enterprises” refers to a single enterprise or industry or a class of enterprises or industries that are known and particularized. The Appellate Body further noted that the use of the term “principles” in the chapeau — instead of, for instance, “rules” — suggests that subparagraphs (a) through (c) are to be considered within an analytical framework that recognizes and accords appropriate weight to each principle. As a result, the application of one of the subparagraphs of Article 2.1 may not by itself be determinative in arriving at a conclusion that a particular subsidy is or is not specific.
 

The Appellate Body also observed that subparagraphs (a) and (b) of Article 2.1 set out indicators as to whether the conduct or instruments of the granting authority discriminate or not. Subparagraph (a) identifies circumstances in which a subsidy is specific because it describes limitations on eligibility that favour certain enterprises; whereas subparagraph (b) establishes circumstances in which a subsidy shall be regarded as non-specific because it describes criteria or conditions that guard against selective eligibility. At the same time, subparagraphs (a) and (b) identify certain common elements in the analysis of the specificity of a subsidy. For instance, the reference in both provisions to “the granting authority, or the legislation pursuant to which the granting authority operates” was viewed as critical because it situates the analysis for assessing any limitations on eligibility in the particular legal instrument or government conduct effecting such limitations. This also suggests a focus on whether certain enterprises are eligible for the subsidy, not on whether they in fact receive it. In addition, because both provisions turn on indicators of eligibility for a subsidy, there may be situations in which assessing the eligibility for a subsidy will give rise to indications of specificity and non-specificity as a result of the application of Article 2.1(a) and (b).
 

As the Appellate Body further noted, subparagraph (c) of Article 2.1 provides that, “notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b)”, other factors may be considered if there are reasons to believe that a subsidy may, in fact, be specific in a particular case. The reference in Article 2.1(c) to “any appearance of non-specificity” supports the view that the conduct or instruments of a granting authority may not clearly satisfy the eligibility requirements of Article 2.1(a) or (b), but may nevertheless give rise to specificity in fact. Since an “appearance of non-specificity” under Article 2.1(a) and (b) may still result in specificity in fact under Article 2.1(c), this reinforces the view that the principles in Article 2.1 are to be interpreted together.
 

The Appellate Body concluded in US — Anti-Dumping and Countervailing Duties (China) that a proper understanding of specificity under Article 2.1 must allow for the concurrent application of the principles set out in that Article to the various legal and factual aspects of a subsidy in any given case. While there may be instances in which the evidence under consideration unequivocally indicates specificity or non-specificity under one of the subparagraphs of Article 2.1, the Appellate Body cautioned against examining specificity on the basis of the application of a particular subparagraph of Article 2.1, when the potential for application of other subparagraphs is warranted in the light of the nature and content of measures challenged in a particular case.
 

S.2.10A.2.7 EC and certain member States — Large Civil Aircraft, paras. 949–951
(WT/DS316/AB/R)
 

… we do not consider that explicit limitations on access to a subsidy to entities active in one sector of the economy will produce a different result under Article 2.1(a) by virtue of the fact that separate groupings of entities have access to other pools of funding under that programme. Certainly, if access to the same subsidy is limited to some grouping of enterprises or industries, an investigating authority or panel would be required to assess whether the eligible recipients can be collectively defined as “certain enterprises”. Where access to certain funding under a subsidy programme is explicitly limited to a grouping of enterprises or industries that qualify as “certain enterprises”, this in our view leads to a provisional indication of specificity within the meaning of Article 2.1(a), irrespective of how other funding under that programme is distributed. …
 

It may be that a provisional indication in respect of specificity within the meaning of Article 2.1(a) will require further analysis under Article 2.1(b). As the Appellate Body stated in US — Anti-Dumping and Countervailing Duties (China), “an initial indication of specificity under Article 2.1(a) may need to be considered further if additional evidence demonstrates that the subsidy in question is available on the basis of objective criteria or conditions within the meaning of Article 2.1(b)”. We note that, in this case, neither party advanced arguments before the Panel concerning the applicability of Article 2.1(b) to the EC Framework Programmes.
 

We do not consider that the Panel record calls for a review of objective criteria or conditions within the meaning of Article 2.1(b). … In the absence of arguments or evidence reflecting the existence of objective criteria or conditions in respect of R&TD grants for aeronautics research, we do not see that application of Article 2.1(b) to the challenged measures alters the analysis in respect of specificity. Finally, because the foregoing analysis does not give rise to an “appearance of non-specificity”, we do not consider that further analysis under Article 2.1(c) is warranted.
 

S.2.10A.2.8 US — Large Civil Aircraft (2nd complaint), para. 739
(WT/DS353/AB/R)
 

The chapeau of Article 2.1 of the SCM Agreement states that the analysis of specificity is directed at “a subsidy, as defined in paragraph 1 of Article 1”. We understand that this is a reference to the measure that has been determined to be a subsidy under Article 1.1 because the measure is a financial contribution that confers a benefit. This suggests that the “subsidy, as defined in paragraph 1 of Article 1” is the starting point of the assessment of specificity. The analysis of specificity called for in Article 2.1 presupposes that the subsidy has already been found to exist. the assessment of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1 … .
 

S.2.10A.2.9 US — Large Civil Aircraft (2nd complaint), para. 748
(WT/DS353/AB/R)
 

Subparagraph (a) of Article 2.1 calls for a determination of whether access to a subsidy is limited to “certain enterprises”. The focus of this inquiry is thus on the class of subsidy recipients, and the manner in which access to that subsidy is limited to that class. These limitations must be “explicit”, which the Appellate Body has previously explained means that they must be “express, unambiguous, or clear from the content of the relevant instrument, and not merely ‘implied’ or ‘suggested’”. … the reference in subparagraphs (a) and (b) of Article 2.1 to “the granting authority, or the legislation pursuant to which the granting authority operates”, is critical because it situates the analysis for assessing any limitations on eligibility in the particular legal instrument or government conduct effecting such limitations. In other words, the source of any limitation is the legislation pursuant to which the granting authority operates, or the granting authority itself.
 

S.2.10A.2.10 US — Large Civil Aircraft (2nd complaint), para. 749
(WT/DS353/AB/R)
 

Article 2.1(a) refers to limitations on access to “a subsidy”. Although the use of this term in the singular might suggest a limited conception, we note that, if construed too narrowly, any individual subsidy transaction would be, by definition, specific to the recipient. Other context in Article 2.1 suggests a potentially broader framework within which to examine specificity. As we have noted, subparagraphs (a) and (b) of Article 2.1 refer to “the granting authority, or the legislation pursuant to which the granting authority operates”. The second sentence of subparagraph (c) refers both to “a subsidy” and to “a subsidy programme”. Similarly, examining economic diversification or the duration of a subsidy programme under the last sentence of Article 2.1(c) also entails consideration of the broader framework pursuant to which a particular challenged subsidy has been issued. We do not consider that the use of the term “granting authority” in the singular limits the inquiry. The use of the term “granting authority”, in our view, does not preclude there being multiple granting authorities. Rather, this is likely where a subsidy is part of a broader scheme.
 

S.2.10A.2.11 US — Large Civil Aircraft (2nd complaint), paras. 750–752
(WT/DS353/AB/R)
 

… the scope of the inquiry called for under Article 2.1(a) is not necessarily limited to the subsidy as defined in Article 1.1. Although the subsidy as defined in Article 1.1 is the starting point of the analysis under Article 2.1(a), the scope of the inquiry is broader in the sense that it must examine the legislation pursuant to which the granting authority operates, or the express acts of the granting authority. We note that a granting authority will normally administer subsidies pursuant to legislation. Thus, we would expect that most claims of specificity under Article 2.1(a) would focus on limitations set out in the legislation pursuant to which the granting authority operates. Members may design the legal framework for the distribution of subsidies in many ways. However, the choice of the legal framework by the respondent cannot predetermine the outcome of the specificity analysis. For instance, a Member may choose to authorize the distribution of subsidies to eligible enterprises or industries in the same legal instrument. In such cases, the inquiry may focus solely on that legal instrument. In other circumstances, a Member may set up a more complex regime by which the same subsidy is provided to different recipients through different legal instruments. It may also be that a Member may administer the distribution of subsidies through multiple granting authorities. In these cases, the inquiry may have to take into account this legal framework. This framework may be set out in laws, regulations, or other official documents, all of which may be part of the “legislation” pursuant to which the granting authority operates. We find support for this reading of “legislation” in Article 2.1(b), which provides that, “[w]here the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy”, these criteria or conditions “must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification”.
 

Having said that, the chapeau of Article 2.1 makes it clear that the assessment of specificity is framed by the particular subsidy found to exist under Article 1.1. This means that the assessment of specificity under Article 2.1 should not examine subsidies that are different from those challenged by the complaining Member. A subsidy, access to which is limited to “certain enterprises”, does not become non-specific merely because there are other subsidies that are provided to other enterprises pursuant to the same legislation.
 

Determining whether multiple subsidies are part of the same subsidy is not always a clear-cut exercise. As we have explained, it requires careful scrutiny of the relevant legislation — whether set out in one or several instruments — or the pronouncements of the granting authority(ies) to determine whether the subsidies are provided pursuant to the same subsidy scheme. Another factor that may be considered is whether there is an overarching purpose behind the subsidies. Of course, this overarching purpose must be something more concrete than a vague policy of providing assistance or promoting economic growth.
 

S.2.10A.2.12 US — Large Civil Aircraft (2nd complaint), para. 753
(WT/DS353/AB/R)
 

Once the proper subsidy scheme is identified, then the question is whether that subsidy is explicitly limited to “certain enterprises”, defined in the chapeau of Article 2.1 as “an enterprise or industry or group of enterprises or industries”. To be clear, such examination must seek to discern from the legislation and/or the express acts of the granting authority(ies) which enterprises are eligible to receive the subsidy and which are not. This inquiry focuses not only on whether the subsidy was provided to the particular recipients identified in the complaint, but focuses also on all enterprises or industries eligible to receive that same subsidy. Thus, even where a complaining Member has focused its complaint on the grant of a subsidy to one or more enterprises or industries, the inquiry may have to extend beyond the complaint to determine what other enterprises or industries also have access to that same subsidy under that subsidy scheme.
 

S.2.10A.2.13 US — Large Civil Aircraft (2nd complaint), para. 754
(WT/DS353/AB/R)
 

We further recall that an assessment of specificity may not end with a consideration of Article 2.1(a). The Appellate Body has cautioned against examining specificity on the basis of the application of a particular subparagraph of Article 2.1 “when the potential for application of other subparagraphs is warranted in the light of the nature and content of measures challenged in a particular case”. Thus, following an assessment under Article 2.1(a), a panel must also consider whether Article 2.1(b) and/or Article 2.1(c) are applicable.
 

S.2.10A.2.14 US — Large Civil Aircraft (2nd complaint), para. 756
(WT/DS353/AB/R)
 

… the analysis under Article 2.1 focuses on ascertaining whether access to the subsidy in question is limited to a particular class of eligible recipients. While the scope and operation of the granting authority is relevant to the question of whether such an access limitation with respect to a particular class of recipients exists, it is important to keep in mind that it is not the purpose of a specificity analysis to determine whether the authorities involved in granting the subsidies constitute a single subsidy grantor or several grantors.
 

S.2.10A.2.15 US — Large Civil Aircraft (2nd complaint), para. 757
(WT/DS353/AB/R)
 

A limitation on the access to the subsidy (or the absence of one) may result from the legislation pursuant to which the granting authority operates or from pronouncements or other actions of the granting authority. There may be a broad legislative framework and several authorities that are involved in its implementation; it is also conceivable that one granting authority administers several specific programs. Thus, regardless of how a complainant frames the subsidy measure it seeks to challenge, a panel must examine the broader legal framework pursuant to which the particular subsidy is granted and the relevant granting authorities operate. In this way, a panel can determine how a challenged measure operates, and whether one or more instruments or authorities individually or collectively limit access to a subsidy to particular recipients within the meaning of Article 2.1.
 

S.2.10A.2.16 US — Large Civil Aircraft (2nd complaint), para. 759
(WT/DS353/AB/R)
 

… it is our view that the assessment of specificity under Article 2.1 should not proceed on the basis of a binary choice between looking at the granting authority or looking at the legislation pursuant to which that granting authority operates. Rather, the assessment should normally look at both. At the same time, we agree that, once a panel has analyzed both elements, it may consider, in the circumstances of a given case, that the question of specificity or non-specificity can be more appropriately resolved on the basis of the pronouncements or actions of the granting authority or the legislation pursuant to which the authority operates.
 

S.2.10A.2.17 US — Large Civil Aircraft (2nd complaint), para. 760
(WT/DS353/AB/R)
 

In sum, the granting authority (which may amount to a number of such authorities) and the legislation pursuant to which such granting authority(ies) operate(s) must be assessed within the legal framework of the WTO Member concerned at various levels of government, legislation, and regulation. …
 

S.2.10A.2.18 US — Large Civil Aircraft (2nd complaint), paras. 773, 778–780, 782
(WT/DS353/AB/R)
 

The same regulations that apply to the USDOD apply to all other US Government departments and agencies, with the exception of NASA, which has its own regulations.
 

...
 

It is undisputed that, within the framework of the US patent regime, NASA’s patent waiver regulations are formally different and separate from the regulations that apply to other US Government departments or agencies. …
 

However, the waiver provisions of the NASA regulations are linked to the broader legislative and regulatory framework …
 

… The key point is that, both under the general regulations, which apply to the USDOD and other departments, and under a NASA waiver, ownership rights (title) over the invention will belong solely to the contractor through the allocation of patents under NASA and USDOD contracts and agreements, even though the mechanism for the initial allocation of patent rights is formally somewhat different.
 

...
 

The thrust of the European Union’s argument is that, because aerospace companies are the only ones eligible to receive NASA and USDOD funding, the patents that may result under the NASA/USDOD R&D contracts and agreements must also be specific. We have explained above, however, that the allocation of patent rights under NASA/USDOD contracts and agreements is a reflection of the broader legislative and regulatory framework that applies to the allocation of patent rights in US Government R&D contracts and agreements. … Once the legal framework for the allocation of patent rights under R&D contracts and agreements with the government is taken into account, it becomes clear that the eligibility to receive the alleged subsidy is not limited to the class of enterprises that conducts aerospace R&D.
 

S.2.10A.2.19 US — Large Civil Aircraft (2nd complaint), paras. 787–788
(WT/DS353/AB/R)
 

… In the case before us, the allocation of patent rights or waivers under the NASA/USDOD contracts and agreements operates within the legislative and regulatory framework that applies to R&D activities performed by all enterprises for US Government departments and agencies. …
 

… a general legislative framework may be administered by a number of granting authorities and … authority-specific regulations may merely be measures implementing the broader legislation pursuant to which those authorities operate. The SCM Agreement imposes disciplines on subsidies that are specific to a particular class (that is, certain enterprises). Where a legislative framework exists that does not explicitly limit the eligibility of the subsidy to a certain class of enterprises or industries, as is the case here, it is not the type of subsidy that the drafters intended to make “specific” under Article 2.1(a) of the SCM Agreement. …
 

S.2.10A.2.20 US — Large Civil Aircraft (2nd complaint), paras. 840–841
(WT/DS353/AB/R)
 

… we have set out our views on the scope of the inquiry under Article 2.1(a) of the SCM Agreement. We have explained that the focus of the inquiry under Article 2.1(a) is on the class of recipients, and the manner in which access to the subsidy is limited to the class. These limitations must be “explicit”, which means that they must be “express, unambiguous, or clear from the content of the relevant instrument, and not merely ‘implied’ or ‘suggested’”. Moreover, the source of any limitations under Article 2.1(a) is the legislation pursuant to which the granting authority operates, or the granting authority itself.
 

The scope of the inquiry called for under Article 2.1(a) is not necessarily limited to the subsidy as defined in Article 1.1. Although the subsidy as defined in Article 1.1 is the starting point of the analysis under Article 2.1(a), the scope of the inquiry is broader in the sense that it must examine the legislation pursuant to which the granting authority operates, or express acts of the granting authority. The outcome of that inquiry cannot be predetermined by the legal framework that a WTO Member chooses to establish and distribute the subsidies. At the same time, Article 2.1 makes it clear that the assessment of specificity is framed by the particular subsidy found to exist under Article 1.1. This means that the inquiry under Article 2.1 should not examine subsidies that are different from those challenged by the complaining Member. That inquiry requires careful scrutiny of the relevant legislation — whether set out in one or several instruments — to determine whether the subsidies are provided pursuant to the same subsidy scheme. Once a subsidy scheme is identified, then the question is whether that subsidy is explicitly limited to “certain enterprises”, defined in the chapeau to Article 2.1 as “an enterprise or industry or group of enterprises or industries”.
 

S.2.10A.2.21 US — Large Civil Aircraft (2nd complaint), paras. 851, 853–855
(WT/DS353/AB/R)
 

We share the Panel’s view that, where multiple subsidies are part of the same subsidy scheme, one would expect to find links or commonalities between those subsidies. …
 

...
 

… The fact that a series of differential tax rates are located in the same section of the tax code, while relevant, cannot be dispositive as to whether they constitute part of the same subsidy scheme for purposes of a specificity analysis under Article 2.1(a).
 

… The details of the differential tax rates examined by the Panel … support … the Panel’s statement that “the differential tax rates were introduced at a range of different times and for a variety of different purposes”. …
 

… Finally, we note that … the United States has not referred to any evidence on the Panel record to support the proposition that the B&O tax rate reduction applicable to commercial aircraft and component manufacturers and the other differential tax rates form part of the same subsidy scheme.
 

S.2.10A.2.22 US — Large Civil Aircraft (2nd complaint), para. 857
(WT/DS353/AB/R)
 

As the Appellate Body has explained, it may be that a provisional indication in respect of specificity within the meaning of Article 2.1(a) will require further analysis under Article 2.1(b). … neither party has advanced arguments in this case concerning the applicability of Article 2.1(b). … Moreover, … this measure appears expressly targeted so as to limit the application of a particular tax rate reduction to a discrete category of business activity carried out by certain enterprises within a particular industry. Thus, we do not see that application of Article 2.1(b) to the challenged measures alters the analysis in respect of specificity. Finally, because the foregoing analysis indicates that there is an explicit limitation on access to a subsidy to certain enterprises, we do not consider that further analysis under Article 2.1(c) is warranted.
 

S.2.10A.2.23 US — Large Civil Aircraft (2nd complaint), paras. 873–876
(WT/DS353/AB/R)
 

… subparagraphs (a) through (c) of Article 2.1 are to be considered within an analytical framework that recognizes and accords appropriate weight to each principle, and which allows for their concurrent application. We have also noted that the structure of Article 2.1 suggests that the specificity analysis will ordinarily proceed in a sequential order by which subparagraph (c) is examined following an assessment under subparagraphs (a) and (b).
 

In this dispute, although the European Communities did not present a claim of specificity with reference to subparagraphs (a) or (b), the Panel nevertheless proceeded to examine specificity within the meaning of Article 2.1(a). …
 

The Panel’s conclusion that the IRB subsidies are not specific within the meaning of Article 2.1(a) has not been raised on appeal. …
 

The Panel then proceeded to analyze whether there was a basis for finding specificity in fact under Article 2.1(c) of the SCM Agreement. … the application of Article 2.1(c) proceeds on the basis of the conclusions reached as a result of the application of the preceding subparagraphs of Article 2.1. We therefore consider that it was correct for the Panel to assess whether the legislation pursuant to which the IRBs were granted explicitly limited access to certain enterprises within the meaning of Article 2.1(a), even though it was not claimed by the European Communities. Having found that the IRB subsidies are not specific within the meaning of Article 2.1(a), analysis by the Panel under Article 2.1(b) was not necessary.
 

S.2.10A.3 ARTICLE 2.1(C) — DE FACTO SPECIFICITY
 

S.2.10A.3.1 US — Large Civil Aircraft (2nd complaint), paras. 796–797
(WT/DS353/AB/R)
 

The language of Article 2.1(c) — particularly the initial clause “notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b)” — indicates that the application of this provision will normally follow the application of the other two subparagraphs of Article 2.1. We recall that the subparagraphs of Article 2.1 are “principles”, and that the Appellate Body has previously said that a proper understanding of specificity under Article 2.1 must allow for their concurrent application. Yet, the structure of Article 2.1 suggests a sequence for their application in which application of the principles in subparagraphs (a) and (b) precedes the application of the principle in subparagraph (c). In other words, one will normally reach subparagraph (c) after it has been determined that there are no explicit limitations as to which enterprises or industries have access to the subsidy.
 

The analysis under Article 2.1(c) proceeds where there are “reasons to believe that the subsidy may in fact be specific”. While a conclusion that there is “an appearance of non-specificity” under Article 2.1(a)-(b) does not provide a panel license to refrain from examining claims under Article 2.1(c), a panel must consider whether, in the light of the arguments made by the parties, there are “reasons” for it to believe that an assessment under Article 2.1(c) is warranted. These “reasons” would have to relate to the factors mentioned in subparagraph (c). The panel, in turn, would be expected to assess objectively the reasons and arguments provided by the parties. Where the panel finds that the arguments and evidence submitted by the parties do not sufficiently demonstrate reasons to indicate specificity under Article 2.1(c), a more exhaustive analysis of the specificity factors set out in that provision may not be warranted.
 

S.2.10A.3.2 US — Large Civil Aircraft (2nd complaint), paras. 877–878
(WT/DS353/AB/R)
 

… Article 2.1(c) proceeds where “there are reasons to believe that the subsidy may in fact be specific”. This means that, having reached the conclusion that there is an “appearance of non-specificity” following the application of the principles set out in Article 2.1(a) and (b), a panel must consider whether, in the light of the arguments and evidence submitted by the parties, there are “reasons” for it to consider that an assessment under Article 2.1(c) is warranted. The inquiry under Article 2.1(c) thus focuses on whether a subsidy, although not apparently limited to certain enterprises from a review of the relevant legislation or express acts of a granting authority, is nevertheless allocated in a manner that belies the apparent neutrality of the measure. This inquiry requires a panel to examine the reasons as to why the actual allocation of “amounts of subsidy” differs from an allocation that would be expected to result if the subsidy were administered in accordance with the conditions for eligibility for that subsidy.
 

We have also explained that the “reasons to believe that the subsidy may in fact be specific” relate to the factors set out in subparagraph (c). The second sentence of Article 2.1(c) prescribes the following factors for consideration: (i) use of a subsidy programme by a limited number of certain enterprises; (ii) predominant use by certain enterprises; (iii) the granting of disproportionately large amounts of subsidy to certain enterprises; and (iv) the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy. The third sentence of Article 2.1(c) adds that, in applying this provision, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the subsidy programme has been in operation. These elements define the terrain for assessing whether subsidies, which may have appeared non-specific following the application of Article 2.1(a) and (b), are nevertheless specific in fact. Which elements are relevant to the analysis of specificity under Article 2.1(c) will be a function of what reasons there are to believe that the subsidy may in fact be specific. We would expect a panel to remain open to the applicability of each of the elements set out in Article 2.1(c), and to the possibility that a conclusion in respect of specificity in fact may, depending on the circumstances of the case, rely on an assessment of one, several, or all of those elements.
 

S.2.10A.3.3 US — Large Civil Aircraft (2nd complaint), para. 879
(WT/DS353/AB/R)
 

In this dispute, the Panel conducted an analysis of the IRBs under each of the factors set out in Article 2.1(c). However, the factor on which the Panel based its specificity finding, and which is directly at issue on appeal, concerns “the granting of disproportionately large amounts of subsidy to certain enterprises”. Article 2.1(c) does not offer clear guidance as to how to measure whether certain enterprises are “grant[ed] disproportionately large amounts of subsidy”. The language of Article 2.1(c) indicates that the first task is to identify the “amounts of subsidy” granted. Second, an assessment must be made as to whether the amounts of subsidy are “disproportionately large”. This term suggests that disproportionality is a relational concept that requires an assessment as to whether the amounts of subsidy are out of proportion, or relatively too large. When viewed against the analytical framework set out above regarding Article 2.1(c), this factor requires a panel to determine whether the actual allocation of the “amounts of subsidy” to certain enterprises is too large relative to what the allocation would have been if the subsidy were administered in accordance with the conditions for eligibility for that subsidy as assessed under Article 2.1(a) and (b). In our view, where the granting of the subsidy indicates a disparity between the expected distribution of that subsidy, as determined by the conditions of eligibility, and its actual distribution, a panel will be required to examine the reasons for that disparity so as ultimately to determine whether there has been a granting of disproportionately large amounts of subsidy to certain enterprises.
 

S.2.10A.3.4 US — Large Civil Aircraft (2nd complaint), paras. 884, 886–888
(WT/DS353/AB/R)
 

… the European Communities submitted to the Panel that Boeing and its successor, Spirit, received approximately 69% of all IRBs granted by the City of Wichita between 1979 and 2005. The Panel noted no objection by the United States to this ratio … . Even taking into account the fact that not all enterprises in Wichita would, at any given time, wish to enjoy the benefits of IRBs in respect of property development, we would nonetheless expect that the allocation of such benefits over the 25-year period between 1979 and 2005 would have produced a wider distribution of those benefits across different sectors of the Wichita economy. The fact that Boeing and its successor received over two thirds of all IRB property tax abatements from the City of Wichita over a 25-year period, in our view, provides a reason to believe that the IRB subsidies were granted in disproportionately large amounts to certain enterprises.
 

...
 

… the United States seeks to explain why the fact that Boeing and Spirit were granted 69% of IRB benefits does not indicate the granting of disproportionately large amounts of subsidy. …
 

We agree [with the United States] that examining qualifying investments would have been a reasonable basis on which to show why the 69% figure does not indicate that IRB subsidies were granted in disproportionately large amounts. In particular, such a showing may have explained why, for IRB benefits seemingly broadly available over a 25-year period to enterprises seeking to develop commercial or industrial property, one company and its successor received over two thirds of those benefits. However, we do not see on the Panel record that the United States provided evidence in support of such an explanation.
 

Instead, the United States advanced the generalized arguments that the Wichita economy is undiversified, that the “core industry of Wichita has focused on aircraft production”, and that Wichita is sometimes known as the “Air Capital of the World”. … we do not see that the United States provided sufficient reasons supported by evidence to undermine the assessment that the granting to Boeing and Spirit of 69% of the amounts of IRB subsidy represents an allocation at variance from what would have been expected from the allocation of IRBs in accordance with their conditions for eligibility.
 

S.2.10A.4 ARTICLE 2.2 — REGIONAL SPECIFICITY
 

S.2.10A.4.1 US — Anti–Dumping and Countervailing Duties (China), paras. 405–406
(WT/DS379/AB/R)
 

… the Panel considered that the claims raised by China posed two specific interpretative questions with respect to the scope and meaning of Article 2.2 of the SCM Agreement, namely: (i) whether the reference to “certain enterprises” means that, in order for a subsidy to be regionally specific, there must be a limitation to a subset of enterprises located within the designated geographical region, or whether, instead, a limitation on a purely geographical basis is sufficient; and (ii) whether a “designated geographical region” must necessarily have some sort of formal administrative or economic identity, or whether any identified tract of land within the territory of a granting authority can be a “designated geographical region” for the purposes of a finding of regional specificity. The Panel resolved these questions as follows:
 

… the term “certain enterprises” in Article 2.2 of the SCM Agreement refers to those enterprises located within, as opposed to outside, the designated geographical region in question, with no further limitation within the region being required. … a “designated geographic region” in the sense of Article 2.2 of the SCM Agreement can encompass any identified tract of land within the jurisdiction of a granting authority.
 

China has not appealed either of these interpretations by the Panel. Accordingly, they are not before us in this appeal and we neither endorse, nor reject, the Panel’s view as to the meaning of these two terms.
 

S.2.10A.4.2 US — Anti-Dumping and Countervailing Duties (China), paras. 411, 413
(WT/DS379/AB/R)
 

… China argues that … the Panel’s interpretation of Article 2.2 failed to require that there be a limitation on the access both to a financial contribution and to a benefit, and thus ignored “the express definition of the term ‘subsidy’”.
 

...
 

… We recall that the purpose of Article 2 of the SCM Agreement is not to identify the elements of the subsidy as set out in Article 1.1, but to establish whether the availability of the subsidy is limited inter alia by reason of the eligible recipients (Article 2.1(a)) or by reason of the geographical location of beneficiaries (Article 2.2). We also consider that a limitation on access to a subsidy may be established in many different ways and that, whatever the approach investigating authorities or panels adopt, they must ensure that the requisite limitation on access is clearly substantiated on the basis of positive evidence. We consider that, under Article 2.2, as under Article 2.1(a), a limitation on access to a financial contribution will also limit access to any resulting benefit, since only those obtaining the financial contribution can be beneficiaries of that subsidy.
 

S.2.11 Article 3.1(a) — “except as provided in the Agreement on Agriculture” — Export subsidies. See also Agreement on Agriculture, Relationship between the Agreement on Agriculture and the SCM Agreement (A.1.38)     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 the GATT 1994 or Articles 3, 5 and 6 of the Subsidies Agreement”.
 

In this appeal, we are unable to determine whether the measure at issue “conforms fully” to Articles 9.1(c) or 10.1 of Part V of the Agreement on Agriculture. In these circumstances, we decline to examine the claim made by the United States that the measure is inconsistent with Article 3.1 of the SCM Agreement.
 

S.2.11.2 US — Upland Cotton, paras. 629–630
(WT/DS267/AB/R)
 

… According to the United States, “Article 3 of the SCM Agreement … is subject in its application to Article 21.1 of the Agreement on Agriculture”. The United States then argues that, because “export credit guarantees are not subject to the disciplines of export subsidies for purposes of the Agreement on Agriculture, Article 21.1 of that Agreement renders Article 3.1(a) of the SCM Agreement inapplicable to such measures”. …
 

… Therefore, because it is premised on an incorrect interpretation of Article 10.2 of the Agreement on Agriculture, we reject the United States’ argument. …
 

S.2.12 Article 3.1(a) — “contingent, in law or in fact, … upon export performance”     back to top

S.2.12.1 Canada — Aircraft, para. 166
(WT/DS70/AB/R)
 

… In our view, the key word in Article 3.1(a) is “contingent”. As the Panel observed, the ordinary connotation of “contingent” is “conditional” or “dependent for its existence on something else”. This common understanding of the word “contingent” is borne out by the text of Article 3.1(a), which makes an explicit link between “contingency” and “conditionality” in stating that export contingency can be the sole or “one of several other conditions”.
 

S.2.12.2 Canada — Aircraft, para. 167
(WT/DS70/AB/R)
 

Article 3.1(a) prohibits any subsidy that is contingent upon export performance, whether that subsidy is contingent “in law or in fact”. The Uruguay Round negotiators have, through the prohibition against export subsidies that are contingent in fact upon export performance, sought to prevent circumvention of the prohibition against subsidies contingent in law upon export performance. In our view, the legal standard expressed by the word “contingent” is the same for both de jure or de facto contingency. There is a difference, however, in what evidence may be employed to prove that a subsidy is export contingent. …
 

S.2.12.2A Canada — Aircraft, para. 171
(WT/DS70/AB/R)
 

The second substantive element in Footnote 4 is “tied to”. The ordinary meaning of “tied to” confirms the linkage of “contingency” with “conditionality” in Article 3.1(a). Among the many meanings of the verb “tie”, we believe that, in this instance, because the word “tie” is immediately followed by the word “to” in Footnote 4, the relevant ordinary meaning of “tie” must be to “limit or restrict as to … conditions”. This element of the standard set forth in Footnote 4, therefore, emphasizes that a relationship of conditionality or dependence must be demonstrated. The second substantive element is at the very heart of the legal standard in Footnote 4 and cannot be overlooked. In any given case, the facts must “demonstrate” that the granting of a subsidy is tied to or contingent upon actual or anticipated exports. It does not suffice to demonstrate solely that a government granting a subsidy anticipated that exports would result. The prohibition in Article 3.1(a) applies to subsidies that are contingent upon export performance.
 

S.2.12.3 Canada — Aircraft (Article 21.5 — Brazil), para. 47
(WT/DS70/AB/RW)
 

It is worth recalling that the granting of a subsidy is not, in and of itself, prohibited under the SCM Agreement. Nor does granting a “subsidy”, without more, constitute an inconsistency with that Agreement. The universe of subsidies is vast. Not all subsidies are inconsistent with the SCM Agreement. The only “prohibited” subsidies are those identified in Article 3 of the SCM Agreement; Article 3.1(a) of that Agreement prohibits those subsidies that are “contingent, in law or in fact, upon export performance”. We have stated previously that “a subsidy is prohibited under Article 3.1(a) if it is ‘conditional’ upon export performance, that is, if it is ‘dependent for its existence on’ export performance”. We have also emphasized that a “relationship of conditionality or dependence”, namely that the granting of a subsidy should be “tied to” the export performance, lies at the “very heart” of the legal standard in Article 3.1(a) of the SCM Agreement.
 

S.2.12.4 Canada — Aircraft (Article 21.5 — Brazil), paras. 48, 51
(WT/DS70/AB/RW)
 

To demonstrate the existence of this “relationship of conditionality or dependence”, we have also stated that it is not sufficient to show that a subsidy is granted in the knowledge, or with the anticipation, that exports will result. Such knowledge or anticipation does not, taken alone, demonstrate that the granting of the subsidy is “contingent upon” export performance. The second sentence of Footnote 4 of the SCM Agreement stipulates, in this regard, that the “mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy …” (emphasis added). That fact, by itself, does not, therefore, compel the conclusion that there is a “relationship of conditionality or dependence”, such that the granting of a subsidy is “tied to” export performance. However, we have also said that the export-orientation of a recipient “may be taken into account as a relevant fact, provided it is one of several facts which are considered and is not the only fact supporting a finding” of export contingency. (underlining added)
 

...
 

For all these reasons, we find that Brazil has not sufficiently established that the Canadian regional aircraft industry is “specifically targeted” because of its high export-orientation.
 

S.2.12.4A US — FSC (Article 21.5 — EC), para. 110
(WT/DS108/AB/RW)
 

The United States appeals the Panel’s finding that the measure involves the grant of a subsidy “contingent … upon export performance”. The United States contends that, under Article 3.1(a) of the SCM Agreement, export contingency is a necessary condition of grant if a subsidy is to be export contingent. It points out that the ETI measure is export-neutral as the tax exclusion is available with respect to property that is not produced in the United States and, therefore, not exported from the United States. Thus, it is argued, the tax exclusion can be obtained without exportation so that export performance is not a condition that must be satisfied in order to obtain this exclusion. The Panel, however, overlooked this fact and “artificially bifurcat[ed]” the ETI measure, examining it only as it relates to property produced in the United States. The United States insists that no such distinction exists under the ETI measure.
 

S.2.12.5 US — FSC (Article 21.5 — EC), paras. 114–115
(WT/DS108/AB/RW)
 

… The conditions for the grant of subsidy with respect to property produced outside the United States are distinct from those governing the grant of subsidy in respect of property produced within the United States.
 

In our view, it is hence appropriate, indeed necessary, under Article 3.1(a) of the SCM Agreement, to examine separately the conditions pertaining to the grant of the subsidy in the two different situations addressed by the measure. … The measure itself identifies the two situations which must be different since the very same property cannot be produced both within and outside the United States.
 

S.2.12.6 US — FSC (Article 21.5 — EC), para. 119
(WT/DS108/AB/RW)
 

… Our conclusion that the ETI measure grants subsidies that are export contingent in the first set of circumstances is not affected by the fact that the subsidy can also be obtained in the second set of circumstances. The fact that the subsidies granted in the second set of circumstances might not be export contingent does not dissolve the export contingency arising in the first set of circumstances. Conversely, the export contingency arising in these circumstances has no bearing on whether there is an export contingent subsidy in the second set of circumstances. …
 

S.2.12.7 US — Upland Cotton, para. 571
(WT/DS267/AB/R)
 

Although an export subsidy granted to agricultural products must be examined, in the first place, under the Agreement on Agriculture, we find it appropriate, as has the Appellate Body in previous disputes, to rely on the SCM Agreement for guidance in interpreting provisions of the Agreement on Agriculture. Thus, we consider the export-contingency requirement in Article 1(e) of the Agreement on Agriculture having regard to that same requirement contained in Article 3.1(a) of the SCM Agreement.
 

S.2.12.8 US — Upland Cotton, para. 572
(WT/DS267/AB/R)
 

The Appellate Body has indicated, in this regard, that the ordinary meaning of “contingent” is “conditional” or “dependent” and that Article 3.1(a) of the SCM Agreement prohibits subsidies that are conditional upon export performance, or are dependent for their existence on export performance. It has also emphasized that “a ‘relationship of conditionality or dependence’, namely that the granting of a subsidy should be ‘tied to’ the export performance, lies at the ‘very heart’ of the legal standard in Article 3.1(a) of the SCM Agreement”. …
 

S.2.12.9 US — Upland Cotton, para. 578
(WT/DS267/AB/R)
 

Furthermore, we agree with the Panel’s conclusion that the fact that the subsidy is also available to domestic users of upland cotton does not “dissolve” the export-contingent nature of the Step 2 payments to exporters. The Panel’s reasoning is consistent with the approach taken by the Appellate Body in US — FSC (Article 21.5 — EC). In that case, the United States argued that the tax exclusion at issue was not an export-contingent subsidy because it was available for both (i) property produced within the United States and held for use outside the United States and (ii) property produced outside the United States and held for use outside the United States. The United States asserted that, as the tax exemption was available in both circumstances, it was “export-neutral”. According to the United States, the panel’s separate examination of each situation in which the tax exemption was available “artificially bifurcat[ed]” the measure.
 

S.2.12.10 US — Upland Cotton, para. 579
(WT/DS267/AB/R)
 

The Appellate Body rejected the United States’ contention in US — FSC (Article 21.5 — EC) because it considered it necessary, under Article 3.1(a) of the SCM Agreement, “to examine separately the conditions pertaining to the grant of the subsidy in the two different situations”. [Appellate Body Report, US — FSC (Article 21.5 — EC), para. 115] It then confirmed the Panel’s finding that the tax exemption in the first situation, namely for property produced within the United States and held for use outside the United States, is an export-contingent subsidy. In its reasoning, the Appellate Body explained that whether or not the subsidies were export-contingent in both situations envisaged by the measure would not alter the conclusion that the tax exemption in the first situation was contingent upon export …
 

S.2.12.11 US — Upland Cotton, para. 580
(WT/DS267/AB/R)
 

As in US — FSC (Article 21.5 — EC), the Panel in this case found that Step 2 payments are available in two situations, only one of which involves export contingency. The Panel’s conclusion, therefore, is consistent with the Appellate Body’s holding in US — FSC (Article 21.5 — EC) quoted above that “the fact that the subsidies granted in the second set of circumstances might not be export contingent does not dissolve the export contingency arising in the first set of circumstances”.
 

S.2.12.12 US — Upland Cotton, para. 582
(WT/DS267/AB/R)
 

In sum, we agree with the Panel’s view that Step 2 payments are export-contingent and, therefore, an export subsidy for purposes of Article 9 of the Agreement on Agriculture and Article 3.1(a) of the SCM Agreement. The statute and regulations pursuant to which Step 2 payments are granted, on their face, condition payments to exporters on exportation. In order to claim payment, an exporter must show proof of exportation. If an exporter does not provide proof of exportation, the exporter will not receive a payment. This is sufficient to establish that Step 2 payments to exporters of United States upland cotton are “conditional upon export performance” or “dependent for their existence on export performance”. That domestic users may also be eligible to receive payments under different conditions does not eliminate the fact that an exporter will receive payment only upon proof of exportation.
 

S.2.13 Article 3.1(a) — Contingency in law     back to top

S.2.13.1 Canada — Autos, para. 100
(WT/DS139/AB/R, WT/DS142/AB/R)
 

… In our view, a subsidy is contingent “in law” upon export performance when the existence of that condition can be demonstrated on the basis of the very words of the relevant legislation, regulation or other legal instrument constituting the measure. The simplest, and hence, perhaps, the uncommon, case is one in which the condition of exportation is set out expressly, in so many words, on the face of the law, regulation or other legal instrument. We believe, however, that a subsidy is also properly held to be de jure export contingent where the condition to export is clearly, though implicitly, in the instrument comprising the measure. Thus, for a subsidy to be de jure export contingent, the underlying legal instrument does not always have to provide expressis verbis that the subsidy is available only upon fulfillment of the condition of export performance. Such conditionality can also be derived by necessary implication from the words actually used in the measure.
 

S.2.13.2 Canada — Autos, para. 104
(WT/DS139/AB/R, WT/DS142/AB/R)
 

… Like the Panel, we fail to see how a manufacturer with a production-to-sales ratio of 100:100 could obtain access to the import duty exemption — and still maintain its required production-to-sales ratio — without exporting. … In our view, as the import duty exemption is simply not available to a manufacturer unless it exports motor vehicles, the import duty exemption is clearly conditional, or dependent upon, exportation and, therefore, is contrary to Article 3.1(a) of the SCM Agreement.
 

S.2.13.3 Canada — Autos, para. 107
(WT/DS139/AB/R, WT/DS142/AB/R)
 

Although we are not examining whether the subsidy in this case is contingent “in fact” upon export performance, we note that Footnote 4 to Article 3.1(a) uses the words “tied to” as a synonym for “contingent” or “conditional”. As the legal standard is the same for de facto and de jure export contingency, we believe that a “tie”, amounting to the relationship of contingency, between the granting of the subsidy and actual or anticipated exportation meets the legal standard of “contingent” in Article 3.1(a) of the SCM Agreement.
 

S.2.13.4 Canada — Autos, para. 108
(WT/DS139/AB/R, WT/DS142/AB/R)
 

Even where the ratio requirement for a particular manufacturer is set at less than 100:100, in our view, there is contingency “in law” upon export performance because, as a result of the operation of the MVTO 1998 and the SROs themselves, the granting of, or the entitlement to, the import duty exemption is tied to the exportation of motor vehicles by the manufacturer beneficiaries. By the very operation of the measure, the more motor vehicles that a manufacturer exports, the more motor vehicles it can import duty-free. In other words, a clear relationship of dependency or conditionality exists between the granting of the import duty exemption and the exportation of motor vehicles by manufacturer beneficiaries. We find, therefore, that, even when the ratio requirements are less than 100:100, the measure is “contingent … in law … upon export performance”.
 

S.2.13.5 US — Upland Cotton, para. 572
(WT/DS267/AB/R)
 

… We are also mindful that in demonstrating export contingency in the case of subsidies that are contingent in law upon export performance, the “existence of that condition can be demonstrated on the basis of the very words of the relevant legislation, regulation or other legal instrument constituting the measure”.
 

S.2.14 Article 3.1(a) and Footnote 4 — 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.2.14.3 EC and certain member States — Large Civil Aircraft, paras. 1037–1039
(WT/DS316/AB/R)
 

The Appellate Body explained in Canada — Aircraft that … the legal standard for export contingency expressed in Article 3.1(a) is the same for both de jure and de facto contingency. …
 

The Appellate Body found that the evidence that may demonstrate de jure export contingency is different from evidence that may reveal de facto export contingency. De jure contingency “can be demonstrated on the basis of the very words of the relevant legislation, regulation or other legal instrument constituting the measure”. Nonetheless, de jure export contingency does not have to be set out expressly, but can also be derived by “necessary implication” from the wording of a legal instrument. By contrast, the evidence needed to establish de facto export contingency goes beyond a legal instrument and includes a variety of factual elements concerning the granting of the subsidy in a specific case. In this respect, the Appellate Body stated [at para. 167 of its report in that dispute] that:
 

[p]roving de facto export contingency is a much more difficult task. There is no single legal document which will demonstrate, on its face, that a subsidy is “contingent … in fact … upon export performance”. Instead, the existence of this relationship of contingency, between the subsidy and export performance, must be inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy, none of which on its own is likely to be decisive in any given case. (original emphasis)
 

Moreover, the Appellate Body emphasized that, under the second sentence of Footnote 4, “merely knowing that a recipient’s sales are export-oriented does not demonstrate, without more, that the granting of a subsidy is tied to actual or anticipated exports”. Rather, “the export orientation of a recipient may be taken into account as a relevant fact, provided that it is one of several facts which are considered and is not the only fact supporting a finding”.
 

S.2.14.4 EC and certain member States — Large Civil Aircraft, paras. 1042–1043
(WT/DS316/AB/R)
 

… The interpretative issue before us, therefore, is what must be demonstrated in order to establish that a subsidy is “in fact tied to … anticipated exportation” within the meaning of Footnote 4 of the SCM Agreement.
 

We recall the Appellate Body’s finding that the word “anticipated” means “expected”. Therefore, whereas “actual exportation” in Footnote 4 refers to exportation that has occurred at the time a subsidy is granted, “anticipated exportation” means exportation that is expected to occur in the future. We also note that, in contrast to the term “actual exportation”, the term “anticipated exportation” inherently contains an element of uncertainty, in that an exportation expected to occur in the future may, or may not, actually occur. By referring to the “granting of a subsidy” that is tied to “anticipated” exportation, Footnote 4 describes the situation that exists at the time a subsidy is granted, but does not require that the anticipated exportation be realized after the subsidy is granted. Moreover, the term “anticipated exportation”, read in isolation, does not indicate by whom the exportation is anticipated. However, as the Appellate Body noted, by using the phrase “the granting of a subsidy”, the inquiry under Footnote 4 must focus on “whether the granting authority imposed a condition based on export performance in providing the subsidy”. Consistent with this understanding, it is the granting authority that “anticipates” that exportation will occur after the granting of the subsidy, and that grants a subsidy on the condition of such anticipated exportation.
 

S.2.14.5 EC and certain member States — Large Civil Aircraft, paras. 1044–1045
(WT/DS316/AB/R)
 

Because anticipated exportation “alone is not proof that the granting of the subsidy is tied to the anticipation of exportation”, the legal standard for de facto export contingency under Article 3.1(a) and Footnote 4 of the SCM Agreement further requires that there exists a relationship of conditionality between the granting of the subsidy and anticipated exportation. Where a subsidy is alleged to be “in fact tied to … anticipated exportation”, the relationship of conditionality is, unlike in the case of de jure export contingency, not expressly or by necessary implication provided in the terms of the relevant legal instrument granting the subsidy. Under such circumstances, we consider that the factual equivalent of such conditionality can be established by recourse to the following test: is the granting of the subsidy geared to induce the promotion of future export performance by the recipient?
 

In reaching this interpretation of the standard for de facto export contingency under Article 3.1(a) and Footnote 4 of the SCM Agreement, we do not suggest that the standard is met merely because the granting of the subsidy is designed to increase a recipient’s production, even if the increased production is exported in whole. We also do not suggest that the fact that the granting of the subsidy may, in addition to increasing exports, also increase the recipient’s domestic sales would prevent a finding of de facto export contingency. Rather, we consider that the standard for de facto export contingency under Article 3.1(a) and Footnote 4 of the SCM Agreement would be met when the subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the subsidy.
 

S.2.14.6 EC and certain member States — Large Civil Aircraft, paras. 1046–1047
(WT/DS316/AB/R)
 

The existence of de facto export contingency … “must be inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy”, which may include the following factors: (i) the design and structure of the measure granting the subsidy; (ii) the modalities of operation set out in such a measure; and (iii) the relevant factual circumstances surrounding the granting of the subsidy that provide the context for understanding the measure’s design, structure, and modalities of operation.
 

Moreover, where relevant evidence exists, the assessment could be based on a comparison between, on the one hand, the ratio of anticipated export and domestic sales of the subsidized product that would come about in consequence of the granting of the subsidy, and, on the other hand, the situation in the absence of the subsidy. The situation in the absence of the subsidy may be understood on the basis of historical sales of the same product by the recipient in the domestic and export markets before the subsidy was granted. In the event that there are no historical data untainted by the subsidy, or the subsidized product is a new product for which no historical data exists, the comparison could be made with the performance that a profit-maximizing firm would hypothetically be expected to achieve in the export and domestic markets in the absence of the subsidy. Where the evidence shows, all other things being equal, that the granting of the subsidy provides an incentive to skew anticipated sales towards exports, in comparison with the historical performance of the recipient or the hypothetical performance of a profit-maximizing firm in the absence of the subsidy, this would be an indication that the granting of the subsidy is in fact tied to anticipated exportation within the meaning of Article 3.1(a) and Footnote 4 of the SCM Agreement.
 

S.2.14.7 EC and certain member States — Large Civil Aircraft, para. 1049
(WT/DS316/AB/R)
 

In setting out this test, we do not suggest that the issue as to whether the granting of a subsidy is in fact tied to anticipated exportation could be based on an assessment of the actual effects of that subsidy. Rather, we emphasize that it must be assessed on the basis of the information available to the granting authority at the time the subsidy is granted.
 

S.2.14.8 EC and certain member States — Large Civil Aircraft, paras. 1050–1051
(WT/DS316/AB/R)
 

The standard for determining whether the granting of a subsidy is “in fact tied to … anticipated exportation” is an objective standard, to be established on the basis of the total configuration of facts constituting and surrounding the granting of the subsidy, including the design, structure, and modalities of operation of the measure granting the subsidy. Indeed, the conditional relationship between the granting of the subsidy and export performance must be objectively observable on the basis of such evidence in order for the subsidy to be geared to induce the promotion of future export performance by the recipient. The standard for de facto export contingency is therefore not satisfied by the subjective motivation of the granting government to promote the future export performance of the recipient. In this respect, we note that the Appellate Body and panels have, on several occasions, cautioned against undue reliance on the intent of a government behind a measure to determine the WTO-consistency of that measure. … In our view, the same understanding applies in the context of a determination on export contingency, where the requisite conditionality between the subsidy and anticipated exportation under Article 3.1(a) and Footnote 4 of the SCM Agreement must be established on the basis of objective evidence, rather than subjective intent. We note, however, that while the standard for de facto export contingency cannot be satisfied by the subjective motivation of the granting government, objectively reviewable expressions of a government’s policy objectives for granting a subsidy may, however, constitute relevant evidence in an inquiry into whether a subsidy is geared to induce the promotion of future export performance by the recipient.
 

Similarly, the standard does not require a panel to ascertain a government’s reason(s) for granting a subsidy. The government’s reason for granting a subsidy only explains why the subsidy is granted. It does not necessarily answer the question as to what the government did, in terms of the design, structure, and modalities of operation of the subsidy, in order to induce the promotion of future export performance by the recipient. Indeed, whether the granting of a subsidy is conditional on future export performance must be determined by assessing the subsidy itself, in the light of the relevant factual circumstances, rather than by reference to the granting authority’s reasons for the measure. This is not to say, however, that evidence regarding the policy reasons of a subsidy is necessarily excluded from the inquiry into whether a subsidy is geared to induce the promotion of future export performance by the recipient.
 

S.2.14.9 EC and certain member States — Large Civil Aircraft, para. 1052
(WT/DS316/AB/R)
 

Our interpretation of the terms “tied to … anticipated exportation” is supported by the context provided by the second sentence of Footnote 4[, which] … precludes a finding of de facto export contingency for the sole reason that the sales of the recipient of a subsidy involve export sales. Rather, where a subsidy is granted to a recipient that is expected to export, this fact must be considered together with other relevant factors, including the design, structure, and modalities of operation of the subsidy, as well as other relevant factual circumstances surrounding the granting of the subsidy, in order to determine whether the granting of subsidy is, as explained above, geared to induce the promotion of future export performance by the recipient, and therefore “in fact tied to … anticipated exportation”.
 

S.2.14.10 EC and certain member States — Large Civil Aircraft, para. 1053
(WT/DS316/AB/R)
 

We further recall that … [a] common feature of the examples provided in items (b) to (l) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement is that the subsidy gives certain advantages to exported products and favours exported products over products destined for domestic consumption. Export-contingent subsidies will indeed favour a recipient’s export sales over its domestic sales. Nonetheless, as discussed above, the fact that the granting of the subsidy may also increase the recipient’s domestic sales would not necessarily prevent a finding of de facto export contingency, so long as the measure is geared to induce a recipient to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the subsidy.
 

S.2.14.11 EC and certain member States — Large Civil Aircraft, para. 1054
(WT/DS316/AB/R)
 

The above interpretation of Article 3.1(a) and Footnote 4 of the SCM Agreement is also supported by the overall design and structure of that Agreement, which distinguishes between two kinds of subsidies: prohibited subsidies dealt with in Part II of the SCM Agreement, and actionable subsidies dealt with in Part III of the SCM Agreement. Only those subsidies that are conditioned on export performance or on import substitution are prohibited per se under Article 3 of Part II of the SCM Agreement. In contrast, … [a]mong the … category of … actionable subsidies — are those granted to an export-oriented recipient, without being contingent upon export performance. The mere fact that such subsidies may increase the company’s production sold in the export market does not bring them under the discipline of Part II of the SCM Agreement. Otherwise, the line drawn by the Agreement between prohibited export subsidies and actionable production subsidies would be blurred, contrary to the overall design and structure of the Agreement. …
 

S.2.14.12 EC and certain member States — Large Civil Aircraft, para. 1056
(WT/DS316/AB/R)
 

In sum, it is clear that a subsidy that is neutral on its face, or by necessary implication, and does not differentiate between a recipient’s exports and domestic sales cannot be found to be contingent, in law, on export performance within the meaning of Article 3.1(a) of the SCM Agreement. Such a subsidy may nonetheless constitute a subsidy contingent in fact upon export performance within the meaning of the same provision if it is “in fact tied to actual or anticipated exportation or export earnings” in accordance with Footnote 4 of the SCM Agreement. The interpretation set out above indicates that the granting of the subsidy may be tied to anticipated exportation, and thus contingent in fact upon export performance under Article 3.1 and Footnote 4 of the SCM Agreement if it is geared to induce the promotion of future export performance by the recipient. The issue of whether this standard is met must be assessed on the basis of an examination of the measure granting the subsidy and the facts surrounding the granting of the subsidy, including the design, structure, and modalities of operation of the measure. Finally, the fact alone that the recipient of a subsidy exports is insufficient for a finding of de facto export contingency. Rather, this fact must be considered together with all other relevant evidence relating to the granting of the subsidy for purposes of determining whether the subsidy is contingent in fact upon export performance.
 

S.2.14.13 EC and certain member States — Large Civil Aircraft, paras. 1060, 1063–1064, 1066–1067
(WT/DS316/AB/R)
 

… [The Panel used a standard] whereby export contingency could be established when it is demonstrated that “there is the anticipating of exports by the granting authority, and that, ‘because’ of such anticipating of exports a subsidy is granted”.
 

...
 

By using the word “because”, the Panel equated the standard of export contingency with the reason(s) for granting a subsidy. The Panel’s findings indicate a standard that requires anticipated exportation to be the reason for the granting of a subsidy. … [However,] the test is whether the granting of the subsidy is geared to induce the promotion of future export performance by the recipient. The authority’s reasons for the granting of the subsidy may provide some evidence to meet the correct standard, but it is not to be equated with that standard. The reason for granting the subsidy is not the same thing as whether the granting of the subsidy is geared to induce the promotion of future export performance by the recipient.
 

We note that there might, or might not, be some overlap between the concept of the reasons for granting a subsidy and that of the motivation for granting a subsidy. As we find above, the standard for de facto export contingency is not met simply by showing that anticipated exportation is the reason for granting the subsidy. We also find that the standard for de facto export contingency is not satisfied by the subjective motivation of the granting government to promote the future export performance of the recipient. …
 

...
 

… we consider that the Panel equated the reasons for granting a subsidy with the notion of export contingency, and thus erroneously interpreted Article 3.1(a). The reasons for granting a subsidy may be evidence of de facto export contingency, but do not constitute such contingency.
 

… We therefore reverse the Panel’s interpretation that, in order to find that the granting of a subsidy is in fact tied to anticipated exportation, a subsidy must be granted because of anticipated export performance.
 

S.2.14.14 EC and certain member States — Large Civil Aircraft, para. 1098
(WT/DS316/AB/R)
 

… all of the [Panel’s] factual findings, taken together, still leave the following question unanswered: At what level would Airbus be anticipated to sell in the domestic and export markets undistorted by the granting of the subsidies under the LA/MSF contracts in question? … The Panel’s factual findings and undisputed facts on the record … do not provide a sufficient basis for determining whether the LA/MSF subsidies under these contracts were granted so as to provide an incentive to the recipient to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of these subsidies.
 

S.2.14.15 EC and certain member States — Large Civil Aircraft, paras. 1099–1101
(WT/DS316/AB/R)
 

We recall our finding that, where such evidence exists, the assessment of whether the granting of a subsidy provides such an incentive could be made on the basis of a comparison between, on the one hand, the ratio of anticipated export and domestic sales of the subsidized product that would come about in consequence of the granting of the subsidy at issue, and, on the other hand, the situation in the absence of the subsidy. The situation in the absence of the subsidy may be understood on the basis of historical sales of the same product by the recipient in the domestic and export markets untainted by the subsidy. In this dispute, however, … no historical data of the same LCA model, in the absence of the granting of these particular types of LA/MSF subsidies, are available that could provide a basis for comparison.
 

We also recall our finding that, in the absence of historical data, the comparison could be made with the performance that a profit-maximizing firm would hypothetically be expected to achieve in the export and domestic markets in the absence of the granting of the subsidy in question. …
 

However, there is not a sufficient evidentiary basis on the record, nor are there relevant factual findings by the Panel, that would enable us to conduct an examination regarding the hypothetical performance of a profit-maximizing firm in the absence of the granting of the subsidy. Hence, in the absence of sufficient factual findings by the Panel and undisputed facts on the record, we are not in a position to apply the test enunciated in section C above and complete the analysis. Under such circumstances, it is not possible for us to determine whether the LA/MSF subsidies provide an incentive for Airbus to export in a way that is not simply reflective of the conditions of supply and demand in the domestic and export markets undistorted by the granting of the LA/MSF subsidies under the contracts at issue.
 

S.2.14A Article 3.1(b) — “except as provided in the Agreement on Agriculture” — Import substitution subsidies. See also Agreement on Agriculture, Relationship between the Agreement on Agriculture and the SCM Agreement (A.1.38)     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 CanadaAircraft [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 CanadaAircraft, 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 CommunitiesRegime for the Importation, Sale and Distribution of Bananas (“European CommunitiesBananas”) 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 CommunitiesBananas 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”. See also Implementation Recommendations (I.0)     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.2.19.12 EC and certain member States — Large Civil Aircraft, paras. 754, 756–758
(WT/DS316/AB/R)
 

We note that both Article 4.7 and Article 7.8 of the SCM Agreement provide a remedy of “withdrawal” following a panel’s determination that a subsidy is “prohibited” or “actionable”. In Brazil — Aircraft (Article 21.5 — Canada), the Appellate Body defined the term “withdraw” as to “remove” or “take away” and “to take away what has been enjoyed; to take from”. As the Appellate Body highlighted in that dispute, the “withdrawal” of a subsidy, under Article 4.7, refers to the “removal” or “taking away” of that subsidy. …
 

...
 

… the drafters of Articles 4.7 and 7.8 contemplated that the remedy of “withdrawal” would be available only after a panel and the Appellate Body have determined, in original proceedings, that subsidies are prohibited and/or actionable and causing adverse effects. … Therefore, a recommendation to “withdraw” subsidies pursuant to Article 4.7 is directed at subsidies that have been found to be prohibited; under Article 7.8, a recommendation to “withdraw” subsidies or remove their adverse effects is directed at actionable subsidies that have been found to cause adverse effects. We recall that, in this dispute, at the time the sales transactions and “cash extractions” took place, there had been no findings by a panel or the Appellate Body that alleged subsidies were either prohibited subsidies or actionable subsidies causing adverse effects. Therefore, we do not consider that the sales transactions and “cash extractions” resulted in the “withdrawal” of subsidies, within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.
 

Moreover, we understand the recommendations made by the Panel to be collective, in the sense that they concern all those subsidies ultimately found to be prohibited subsidies or actionable subsidies causing adverse effects. They do not concern subsidies that have been “extinguished” or “extracted”. Such recommendations request the European Union to withdraw those subsidies and/or remove adverse effects; panels or the Appellate Body are not required to make recommendations pursuant to Articles 4.7 and 7.8 with respect to subsidy measures that are found to be “extinguished” or “extracted”.
 

Finally, a determination as to whether any action taken to implement the recommendations made has actually resulted in the “withdrawal” of subsidies and has brought about a Member’s compliance with the SCM Agreement, is, if contested, best left to a compliance panel whose principal task is to assess whether a Member’s implementation measures bring it into compliance with its obligations under the SCM Agreement.
 

S.2.19.13 EC and certain member States — Large Civil Aircraft, para. 1104
(WT/DS316/AB/R)
 

… We are … not able to complete the analysis and determine whether the LA/MSF subsidies under the contracts at issue are geared to induce the promotion of future export performance by Airbus. Therefore, we are unable to make a finding as to whether the granting of the LA/MSF subsidies under these contracts is in fact tied to anticipated exportation within the meaning of Article 3.1(a) and Footnote 4 of the SCM Agreement. Consequently, the Panel’s recommendation under Article 4.7 of the SCM Agreement, that “the subsidizing Member granting each subsidy found to be prohibited withdraw it … within 90 days”, must be reversed.
 

S.2.19A Article 5 — “adverse effects”     back to top

S.2.19A.1 US — Upland Cotton, paras. 485–486
(WT/DS267/AB/R)
 

Having found that the effect of the price-contingent subsidies is significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement, the Panel then considered whether the United States had caused adverse effects in the form of serious prejudice to the interests of Brazil through the use of these subsidies, contrary to Article 5(c) of the SCM Agreement. The Panel found that the significant price suppression it had found under Article 6.3(c) of the SCM Agreement amounted to serious prejudice within the meaning of the Article 5(c) of the SCM Agreement, based on [two alternative reasons] …
 

… The Panel’s primary reason was that if the effect of a subsidy is significant price suppression within the meaning of Article 6.3(c), this is sufficient, without more, to conclude that the subsidizing Member has caused serious prejudice to the interests of another Member within the meaning of Article 5(c). The Panel’s alternative reason was that, even if this is not sufficient, Brazil had fulfilled the burden of demonstrating that the United States had caused serious prejudice to the interests of Brazil within the meaning of Article 5(c).
 

S.2.19A.2 US — Upland Cotton, para. 488
(WT/DS267/AB/R)
 

As neither party has appealed the Panel’s finding … (regarding the sufficiency of a finding of an effect under Article 6.3(c) for a finding of serious prejudice under Article 5(c), in general terms) or the Panel’s alternative finding … (regarding serious prejudice to the interests of Brazil in the particular circumstances of this dispute), we express no opinion on either of those findings. Nor do we address the Panel’s consequential finding that the significant price suppression that it had found to be the effect of the price-contingent subsidies under Article 6.3(c) of the SCM Agreement amounted to serious prejudice within the meaning of Article 5(c) of the SCM Agreement. Accordingly, upon adoption of the Panel Report by the DSB, the Panel’s findings in paragraphs 7.1390 and 7.1391 of the Panel Report as mentioned above would stand, without endorsement or rejection by the Appellate Body.
 

S.2.19A.3 EC and certain member States — Large Civil Aircraft, paras. 1303–1305
(WT/DS316/AB/R)
 

At the other oral hearing, the European Union suggested that the 1992 Agreement delineated the “interests” of the United States in the area of government measures relating to the LCA industry and thereby limited the ability of the United States to assert claims of adverse effects to its interests under the SCM Agreement. … [We see no] basis for the argument that a bilateral agreement serves to limit the interests of the parties under a subsequent multilateral agreement.
 

The European Union also asserts that “the circumstance that these [challenged] measures were in conformity with an agreement between the parties is a fact that the Panel was required to take into consideration in assessing whether adverse effects exist”. … Even assuming for the sake of argument that such a “fact” was indeed relevant, the European Union does not explain why such fact would preclude the United States from making a claim of adverse effects under the SCM Agreement.
 

In these circumstances, we do not consider that there is a basis for the European Union’s allegation that the Panel’s failure to consider the 1992 Agreement in the context of the assessment of adverse effects constitutes an error in the interpretation and application of Article 5(c) of the SCM Agreement or a violation of the Panel’s duties under Articles 12.7 and 11 of the DSU.
 

S.2.19A.4 US — Large Civil Aircraft (2nd complaint), paras. 1184–1185
(WT/DS353/AB/R)
 

… the United States contends that the Panel erred in relying on a presumption that subsidies found to be prohibited under Part II of the SCM Agreement cause adverse effects within the meaning of Part III. …
 

In our view, the Panel’s reasoning, considered in its totality, does not show that it applied a presumption of the sort claimed by the United States. … To the extent that the arguments raised by the United States on appeal suggest that the Panel was not “entitled” to attach significance to the export-contingent nature of the FSC/ETI subsidies, we disagree. We recall, in that connection, that the Panel found, and both parties accepted, that the nature of a challenged subsidy is a relevant factor to take into consideration in determining whether it has caused adverse effects. Indeed, we consider that an analysis of the export-contingent nature of a subsidy may reveal elements that are highly pertinent to an assessment of its trade effects; at the same time, a finding of export-contingency would not, by itself, establish the existence of adverse effects phenomena such as those at issue in this appeal.
 

S.2.19A.5 US — Large Civil Aircraft (2nd complaint), Footnote 2428 to para. 1186
(WT/DS353/AB/R)
 

The Panel referred to a statement by the Appellate Body in Canada — Aircraft contrasting actionable subsidies, which “may be illegal if they have certain trade effects”, with “prohibited export subsidies for which the adverse effects are presumed”. (Appellate Body Report, Canada — Aircraft, para. 202 …) This statement, which was made in the course of an analysis of how a panel should adjudicate a claim under Article 3.1(a) of the SCM Agreement, refers to the fact that a complainant bringing a claim under Article 3.1(a) of the SCM Agreement is entitled to a finding of inconsistency if it can establish that the challenged subsidy is contingent upon export performance. Unlike a complainant seeking to establish a claim of adverse effects under Part III of the SCM Agreement, a complainant raising an Article 3.1(a) claim is not required in addition to establish the effects of that subsidy.
 

S.2.19B Article 6.3 — Serious Prejudice. See Order of analysis — Use of assumptions (O.2); SCM Agreement, Article 5 — “Adverse effects” (S.2.19A); SCM Agreement, Article 15.5 — Causation (S.2.25A); Scope of Appellate Review, Review of “objective assessment” by the panel — Article 11 of the DSU (S.3.2); Scope of Appellate Review, Issues of law vs. Issues of fact (Article 17.6 of the DSU) (S.3.3); Scope of Appellate Review, Need to address each issue raised (Article 17.12 of the DSU) (S.3.4); Standard of Review, Article 11 of the DSU — Objective assessment of the facts (S.7.3)     back to top

S.2.19B.0 GENERAL
 

S.2.19B.0.1 US — Upland Cotton, para. 431
(WT/DS267/AB/R)
 

As noted above, Article 6.3(c) is silent as to the sequence of steps to be followed in assessing whether the effect of a subsidy is significant price suppression. We note that Article 6.8 indicates that the existence of serious prejudice pursuant to Articles 5(c) and 6.3(c) is to be determined on the basis of information submitted to or obtained by the panel, including information submitted in accordance with Annex V of the SCM Agreement. Annex V provides some limited guidance about the type of information on which a panel might base its assessment under Article 6.3(c). But we find little other guidance on this issue. The text of Article 6.3(c) does not, however, preclude the approach taken by the Panel to examine first whether significant price suppression exists and then, if it is found to exist, to proceed further to examine whether the significant price suppression is the effect of the subsidy. The Panel evidently considered that, in the absence of significant price suppression, it would not need to proceed to analyze the effect of the subsidy. We see no legal error in this approach.
 

S.2.19B.0.2 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.0.3 EC and certain member States — Large Civil Aircraft, paras. 1107, 1109
(WT/DS316/AB/R)
 

The Appellate Body has found that panels may undertake an analysis of serious prejudice under either a unitary or two-step approach. Under a unitary approach, the analysis of the particular market phenomena identified in the subparagraphs of Article 6.3 of the SCM Agreement is not conducted separately from the analysis of whether there is a causal relationship between those market phenomena and the challenged subsidies. By contrast, under a two-step approach like the one adopted by the Panel, the analysis first seeks to identify the market phenomena and then, as a second step, examines whether there is a causal relationship. The Appellate Body has indicated a preference for the unitary approach, observing that such approach “has a sound conceptual foundation” and explaining that it may be difficult to ascertain the existence of some of the market phenomena in Article 6.3 without considering the effect of the subsidy at issue.
 

...
 

Our view remains that a unitary approach that uses a counterfactual will generally be the more appropriate approach to undertaking the assessment required under Article 6.3 of the SCM Agreement. As we further explain in section C below, it is difficult to understand the market phenomena described in the various subparagraphs of Article 6.3 in isolation from the challenged subsidies. Rather, consideration of the effects of the challenged subsidies is intrinsic to the identification of those market phenomena. Any attempt to identify one of the market phenomena in Article 6.3 without considering the subsidies at issue can only be preliminary in nature since Article 6.3 requires that the market phenomenon be the effect of the challenged subsidy. This also means that a two-step approach simply defers the core of the analysis to the second step. In other cases, the problem might be the opposite. By artificially leaving aside the question of whether the market phenomenon is the effect of the subsidy, one could overlook market phenomena that are in fact occurring.
 

S.2.19B.0.4 EC and certain member States — Large Civil Aircraft, paras. 1110–1111
(WT/DS316/AB/R)
 

The use of a counterfactual analysis provides an adjudicator with a useful analytical framework to isolate and properly identify the effects of the challenged subsidies. In general terms, the counterfactual analysis entails comparing the actual market situation that is before the adjudicator with the market situation that would have existed in the absence of the challenged subsidies. This requires the adjudicator to undertake a modelling exercise as to what the market would look like in the absence of the subsidies. Such an exercise is a necessary part of the counterfactual approach. As with other factual assessments, panels clearly have a margin of discretion in conducting the counterfactual analysis.
 

Having said that, we recall that it is permissible for a panel to undertake the assessment of serious prejudice on the basis of a two-step approach. …
 

S.2.19B.0.5 US — Large Civil Aircraft (2nd complaint), paras. 1218–1221
(WT/DS353/AB/R)
 

… the Panel … found that it was impossible to ascertain the effects of the FSC/ETI subsidies from direct observation of market share and pricing trend data during the 2000–2006 period … .
 

The Panel then considered that it had to proceed in one of two ways. It could “decline to make a serious prejudice finding because of the difficulty of calculating with mathematical certitude the precise degree to which Boeing’s pricing of the 737NG and 777 families of aircraft was affected” by the tied tax subsidies. Alternatively, the Panel explained, it could “deduce” the effects of those subsidies on Airbus’ sales and prices during the reference period “based on commonsense reasoning and the drawing of inferences” from its conclusions regarding the nature of the subsidies, the duration of the FSC/ETI subsidies, and the nature of competition between Airbus and Boeing.
 

We are puzzled by the Panel’s apparent view that the particular circumstances of this dispute somehow forced upon it a choice between two diametrically opposed alternatives. Although such circumstances may have rendered the Panel’s task of assessing the European Communities’ claim of serious prejudice difficult, the Panel still could have assessed whether it had arguments and evidence before it that would have allowed it to estimate the effects of the subsidies on Boeing’s prices with something less than “mathematical certitude”. Even if it considered that further efforts to assess the effects of the subsidies in quantitative terms would not be fruitful, this would not have excused the Panel from evaluating whether the remainder of the extensive argumentation and evidence adduced by the European Communities could, to the extent that it was not rebutted by the competing arguments and evidence of the United States, have sufficed to support a finding of serious prejudice.
 

Nor do we see that the use of common sense and inferences in the course of adjudicating a claim can be characterized as somehow exceptional. The adjudication of a claim of serious prejudice must, like a panel’s adjudication of any other matter, be grounded in the application of the relevant provisions of the covered agreements, properly interpreted, to the relevant facts, properly identified and objectively assessed. To the extent that the Panel’s ultimate findings of displacement and impedance, significant price suppression, and significant lost sales were based on inferences drawn from conclusions it had reached on the nature of the subsidies, the duration of the FSC/ETI subsidies, and the nature of competition between Airbus and Boeing, it was incumbent on the Panel not only to state that it was drawing inferences and using commonsense reasoning, but to identify clearly the relevant conclusions upon which it was relying, what factual or legal inferences it drew on the basis of those conclusions, why it considered such inferences to be reasonable or necessary, and how those inferences supported its ultimate findings. Thus, although it is not uncommon for a panel to draw inferences and conclusions from the evidence, it has to provide reasoning engaging with the evidence to support those inferences and conclusions. …
 

S.2.19B.0.6 US — Large Civil Aircraft (2nd complaint), para. 1319
(WT/DS353/AB/R)
 

… [This dispute and EC and certain member StatesLarge Civil Aircraft each] involved very particular duopolistic markets, in which the market participants enjoyed some degree of market power in their product and pricing decisions. In such markets, it may be that the “product” or “technology” effects of subsidies can be examined separately from their “price” effects. We nevertheless question whether such a segmented analysis is capable of fully reflecting market dynamics and taking account of the scope for subsidies and their effects to interact in these types of markets. Moreover, in many other markets, the structure of competition will be such that it will simply be impossible meaningfully to conduct a separate analysis of, or distinguish between, “product” effects and “price” effects.
 

S.2.19B.1 RELEVANT MARKET.
 

SCM Agreement, Article 1.1(b) — Market benchmark (S.2.9A)
 

S.2.19B.1.1 US — Upland Cotton, para. 400
(WT/DS267/AB/R)
 

Turning to the question of the relevant “market”, we observe that Article 6.3(c) of the SCM Agreement addresses the situation where “the effect of the subsidy is … significant price suppression … in the same market” (emphasis added). As the Panel suggested, and the parties agree, it is up to the complaining Member to identify the market in which it alleges that the effect of a subsidy is significant price suppression and to demonstrate that the subsidy has that effect within the meaning of Article 6.3(c). …
 

S.2.19B.1.2 US — Upland Cotton, para. 402
(WT/DS267/AB/R)
 

On appeal, the United States submits that the Panel erred in interpreting the words “same market” in Article 6.3(c) of the SCM Agreement as including a “world market”. It also submits that the Panel’s finding that a “world market” exists for upland cotton is inconsistent with certain of its other findings. The United States also argues that, in any case, the Panel did not make a finding that United States and Brazilian upland cotton compete in the world market that it had identified for upland cotton. Brazil contends that significant price suppression under Article 6.3(c) “may apply to any ‘market,’ from local to global, and everything in between”.
 

S.2.19B.1.3 US — Upland Cotton, paras. 404–405
(WT/DS267/AB/R)
 

The Panel described the ordinary meaning of the word “market” as:
 

“a place … with a demand for a commodity or service”; “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”. [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.1.7 EC and certain member States — Large Civil Aircraft, para. 1118
(WT/DS316/AB/R)
 

The word “market” in Article 6.3 must be read together with the concept of “like product”. Articles 6.3(a) and 6.3(b) both refer to imports and exports of a “like product”. This reference indicates the need to identify a “subsidized product” that is “like” the product the importation or exportation of which is being displaced or impeded in a particular market. The term “like product” is defined in Footnote 46 of the SCM Agreement to mean “a product which is identical, i.e. alike in all respects to the product under consideration, or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration.” This suggests that identity or close resemblance of characteristics are one factor to consider in assessing whether products are in the same market.
 

S.2.19B.1.8 EC and certain member States — Large Civil Aircraft, paras. 1120–1121
(WT/DS316/AB/R)
 

… a market comprises only those products that exercise competitive constraint on each other. This is the case when the relevant products are substitutable. Although physical characteristics, end-uses, and consumer preferences may assist in deciding whether two products are in the same market, they should not be treated as the exclusive factors to consider in deciding whether those products are sufficiently substitutable so as to create competitive constraints on each other. Indeed, whether two products compete in the same market is not determined simply by assessing whether they share particular physical characteristics or have the same general uses; it may also be relevant to consider whether customers demand a range of products or whether they are interested in only a particular product type. In the former case, when customers procure a range of products to satisfy their needs, this may give an indication that all such products could be competing in the same market.
 

Demand-side substitutability — that is, when two products are considered substitutable by consumers — is an indispensable, but not the only relevant, criterion to consider when assessing whether two products are in a single market. Rather, a consideration of substitutability on the supply-side may also be required. For example, evidence on whether a supplier can switch its production at limited or prohibitive cost from one product to another in a short period of time may also inform the question of whether two products are in a single market.
 

S.2.19B.1.9 EC and certain member States — Large Civil Aircraft, para. 1122
(WT/DS316/AB/R)
 

Our analysis is supported by Appellate Body jurisprudence. … While the Appellate Body was, in [US — Upland Cotton], considering a claim of price suppression under Article 6.3(c) of the SCM Agreement, we believe that similar considerations would also be relevant in assessing claims of serious prejudice brought under the remainder of Article 6.3, including Articles 6.3(a) and 6.3(b). This is consistent with the fact that each of the subparagraphs of Article 6.3 is concerned with the effects of a subsidy in a market. In the absence of actual or potential competition between two products in the marketplace, we fail to see how the effect of a subsidy provided to one of those products could be found to be the displacement of the other product.
 

S.2.19B.1.10 EC and certain member States — Large Civil Aircraft, para. 1123
(WT/DS316/AB/R)
 

In sum, we conclude, therefore, that the scope of the “market” to be examined for the purposes of Articles 6.3(a) and 6.3(b) of the SCM Agreement is likely to vary from case to case depending upon the particular factual circumstances, including the nature of the products at issue, as well as demand-side and supply-side factors. It should be emphasized that the scope of the relevant product market in any given case will depend on the nature and degree of competition between the products of the complaining Member and the allegedly subsidized products of the responding Member. In some cases, the entire product range offered by the complainant may compete with the range of products of the respondent that is allegedly subsidized. In other cases, an assessment of the conditions of competition may reveal the existence of multiple product markets in which particular products of the complaining Member compete with particular subsidized products of the respondent. However, it is important to note that whether or not a broad or narrow range of products benefit from subsidization says little about whether all these products compete in the same market. Indeed, products benefiting from subsidies may compete in very different markets. A panel is therefore required to make an objective assessment of the competitive relationship between specific products in the marketplace and to define the relevant product market in order to determine whether particular products can be treated as forming part of a single product market or several product markets for purposes of an analysis of displacement under Articles 6.3(a) and 6.3(b).
 

S.2.19B.1.11 EC and certain member States — Large Civil Aircraft, para. 1128
(WT/DS316/AB/R)
 

As we see it, the Panel committed legal error by failing to adjudicate properly the United States’ subsidized product allegations and refusing to make its own independent assessment of whether all Airbus LCA compete in the same market or not. … in its analysis, the Panel deferred to the United States’ subsidized product allegations rather than making its own independent assessment of whether all Airbus LCA should be treated as a single subsidized product. In so doing, the Panel failed to make an objective assessment of the matter, including the “applicability of and conformity with the relevant covered agreements”, as required under Article 11 of the DSU. We wish to emphasize that the Panel’s failure to comply with its duties under Article 11 appears to flow directly from its erroneous interpretation of the requirements of Articles 6.3(a) and 6.3(b) of the SCM Agreement, which led it to believe that it lacked the power and was under no obligation to assess independently the “subsidized product” and the relevant product market. In the absence of such a determination, the Panel did not have a proper basis for assessing whether the alleged subsidized and like products compete in the same market or multiple markets, which is a prerequisite for assessing whether displacement within the meaning of Articles 6.3(a) and 6.3(b) could be found to exist as alleged by the United States.
 

S.2.19B.1.12 EC and certain member States — Large Civil Aircraft, paras. 1130–1131
(WT/DS316/AB/R)
 

… We agree with the Panel that Members of the WTO have the sovereign right to structure their complaints as they choose. It is important, however, to bear in mind the difference between a WTO Member’s freedom to formulate its complaint and the duty of a panel to scrutinize whether the complaint, so formulated, holds true and is a proper account of the phenomenon in question, be it displacement, impedance, or any other effect of a subsidy.
 

Clearly, there is no inhibition on how a complainant may choose to formulate its claim as to the scope of the “subsidized product”; it can do so as it thinks best comports with the adverse effects it seeks to challenge. This does not mean, however, that a panel has no duty to review the complainant’s formulation of the scope of the “subsidized product”. Rather, the panel has a duty to ascertain the relevant product market or markets in which the complainant’s and respondent’s products compete. The notion of “subsidized product” and “like product” is, in each case, to be analyzed as an integral part of a panel’s duty objectively to assess a particular claim of serious prejudice and its obligation to assess the relevant market under Articles 6.3(a) and 6.3(b). In the present case, the Panel was therefore required to make an independent and objective assessment of the serious prejudice claims put forward by the United States, including whether it was appropriate to examine all Airbus LCA as a single “subsidized product” and all Boeing LCA as a single “like product” for purposes of its adverse effects inquiry. The Panel was also required to assess the European Communities’ allegation that there are, in fact, five distinct product markets of Airbus and Boeing LCA, and should have reached a conclusion as to whether any of the parties’ or a different “product market” definition was appropriate for purposes of its displacement analysis.
 

S.2.19B.1.13 EC and certain member States — Large Civil Aircraft, para. 1133
(WT/DS316/AB/R)
 

… in reviewing a determination of an investigating authority, a panel may not engage in a de novo review and may not substitute its views for those of the investigating authority. By contrast, a panel’s mandate in assessing adverse effects claims brought under Part III of the SCM Agreement is different, in that a panel conducting an analysis under Article 6.3 of the SCM Agreement “is the first trier of facts, rather than a reviewer of factual determinations made by a domestic investigating authority”. The reasons for applying some degree of deference to the product definition resulting from adjudication by a neutral and objective investigating authority in the context of the Anti-Dumping Agreement or Part V of the SCM Agreement do not, in our view, apply to the product and market definition that a complainant proposes before a panel examining claims brought under Part III of the SCM Agreement. …
 

S.2.19B.1.14 EC and certain member States — Large Civil Aircraft, para. 1134
(WT/DS316/AB/R)
 

… the range of products that benefit from subsidies says little about whether these products compete in a single product market or several product markets. On the contrary, for purposes of assessing the serious prejudice claims before it, the Panel had the duty to define, in the light of the United States’ complaint, the relevant product market and the scope of the respondent’s subsidized product that is in competition with the complainant’s like product. It is not the scope of the product that allegedly benefits from subsidies that defines the degree of competition on the relevant product market or markets between the complainant’s products and the allegedly subsidized products of the respondent. Although some of the factors mentioned by the Panel in its alternative reasoning may be relevant for purposes of understanding the relevant product market, the Panel did not engage in a full and objective assessment of the question of the relevant product market, and in particular whether all Airbus LCA should be treated as a single subsidized product competing in a single product market for purposes of the United States’ claims of serious prejudice. For example, although certain findings made by the Panel suggest that there might be some supply-side substitutability in the LCA industry — for instance, the Panel observed that “the production and sales of one model of LCA support the development, production and sales of other LCA models” — an examination of this factor does not justify the Panel’s failure to consider properly demand-side substitutability, which it barely alluded to in its “alternative” analysis. Factors such as product homogeneity, flight ranges, seating capacities, prices, fuel efficiency, and other performance characteristics could have been relevant to such an analysis. However, the Panel looked at such factors only to ascertain which “like” product competed with the subsidized product, as defined by the United States, and thus assumed — but did not establish — that all LCA models compete in the same market. We consider this to be particularly problematic given that a consideration of demand-side substitutability is critical in order to assess properly the scope of the relevant market and products that compete in that market. Specifically, if two products are not substitutable on the demand side, this suggests that the relevant products are likely to compete in two distinct markets, rather than in a single market. We note also that the Panel failed to test, in any way, the scope of the market in particular countries by, for example, analyzing cross-price elasticity. Such an analysis would have assisted the Panel in reaching more solid conclusions as to the extent of the relevant market in this case.
 

S.2.19B.1.15 EC and certain member States — Large Civil Aircraft, para. 1136
(WT/DS316/AB/R)
 

In cases where, as here, an analysis of the conditions of competition reveals that all products are not engaged in direct competition for the same sales or orders — or where the competitive relationship between such products is, at most, indirect or remote — this must be properly accounted for in order to reach a meaningful finding of displacement. An analysis of the specific circumstances and dynamics of competition occurring in the relevant geographic market and the demands of customers in that market is therefore required when assessing claims under Articles 6.3(a) and 6.3(b) of the SCM Agreement.
 

S.2.19B.1.16 US — Large Civil Aircraft (2nd complaint), paras. 1076, 1079
(WT/DS353/AB/R)
 

… a “market”, within the meaning of Article 6.3(a) and (b) of the SCM Agreement, is a particular set of products that are in actual or potential competition with each other within a particular geographical area. … A plain reading of Article 6.3(b), however, reveals that a finding of displacement or impedance under that provision is to be limited to the territory of the third country at issue. Accordingly, findings of displacement and impedance are to be made only with respect to the territory of the third country involved, even though, from an economic perspective, the geographic market may not be national in scope. …
 

...
 

… While it is true that the Panel declined to accept an argument by the European Communities that a single LCA sales campaign could be considered a relevant market, in doing so it was considering the definition of “market” under Article 6.3(c), and not under Article 6.3(b), of the SCM Agreement. Under Article 6.3(b), the Panel was required to focus its analysis on sales occurring within the territory of each relevant third-country Member, irrespective of how many sales campaigns took place in that territory during the reference period.
 

S.2.19B.2 DISPLACEMENT/IMPEDANCE OF IMPORTS/EXPORTS
 

S.2.19B.2.1 EC and certain member States — Large Civil Aircraft, paras. 1115, 1117
(WT/DS316/AB/R)
 

This is the first time that the Appellate Body examines claims of displacement under subparagraphs (a) or (b) of Article 6.3 of the SCM Agreement. …
 

...
 

Subparagraph (a) of Article 6.3 refers to the situation where “the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member”. Subparagraph (b) refers to the situation where “the effect of the subsidy is to displace or impede the exports of a like product of another Member from a third country market”. Subparagraphs (a) and (b) each concerns the effect of a subsidy in a particular “market”. They refer respectively to: “the market of the subsidizing Member”; and “a third country market”. A plain reading of Articles 6.3(a) and 6.3(b) therefore reveals that an analysis of displacement or impedance under those provisions is limited to the territory of the “subsidizing Member” or the territory of any third country at issue. The manner in which the geographic dimension of a market is determined will depend on a number of factors: in some cases, the geographic market may extend to cover the entire country concerned; in others, an analysis of the conditions of competition for sales of the product in question may provide an appropriate foundation for a finding that a geographic market exists within that area, for example, a region. There may also be cases where the geographic dimension of a particular market exceeds national boundaries or could be the world market, even though Articles 6.3(a) and 6.3(b) would focus the analysis of displacement and impedance on the territory of the subsidizing Member or third countries involved.
 

S.2.19B.2.2 EC and certain member States — Large Civil Aircraft, para. 1119
(WT/DS316/AB/R)
 

As we see it, displacement is a situation where imports or exports of a like product are replaced by the sales of the subsidized product. The mechanism by which displacement operates is, in our view, essentially an economic mechanism, the existence of which is to be assessed by reference to events that occur in the relevant product market. We construe the concept of displacement as relating to, and arising out of, competitive engagement between products in a market. Aggressive pricing of certain products may, for example, lead to displacement of exports or imports in a particular market. This, however, can only be the case if those products compete in the same market. An examination of the competitive relationship between products is therefore required so as to determine whether such products form part of the same market. We conclude therefore that a “market”, within the meaning of Articles 6.3(a) and 6.3(b) of the SCM Agreement, is a set of products in a particular geographical area that are in actual or potential competition with each other. An assessment of the competitive relationship between products in the market is required in order to determine whether and to what extent one product may displace another. Thus, while a complaining Member may identify a subsidized product and the like product by reference to Footnote 46, the products thereby identified must be analyzed under the discipline of the product market so as to be able to determine whether displacement is occurring. Ordinarily, the subsidized product and the like product will form part of a larger product market. But it may be the case that a complainant chooses to define the subsidized and like products so broadly that it is necessary to analyze these products in different product markets. This will be necessary so as to analyze further the real competitive interactions that are taking place, and thereby determine whether displacement is occurring.
 

S.2.19B.2.3 EC and certain member States — Large Civil Aircraft, para. 1149
(WT/DS316/AB/R)
 

One Member on the Division wishes to set out a separate view on the issue of whether the Appellate Body can complete the legal analysis on the United States’ claims of displacement. While recognizing the particular circumstances in this case, this Member is of the opinion that the Appellate Body cannot complete the legal analysis on displacement. This Member recalls that we have found above … that, in the absence of an objective determination of the product market by the Panel, its conclusion that “there is a single subsidized product and a single corresponding like product” cannot stand. Consequently, we have reversed above the Panel’s finding of displacement on the basis of a single subsidized product and a single like product. Moreover, after a review of the relevant factual findings of the Panel and the undisputed evidence on the Panel record, we have concluded above that we are unable to complete the analysis … [and] make our own determination of what is (or are) the relevant product market(s). This Member is of the view that a finding on displacement requires a determination of the relevant product market(s). Therefore, this Member considers that, in the absence of such a determination, the Appellate Body cannot complete the analysis on displacement. According to this Member, this is so even in the particular circumstances of this case … . While this Member disagrees with the completion of the analysis on displacement, this Member agrees with the interpretation of the concept of displacement in Article 6.3(a) and (b) of the SCM Agreement, as set out in subsection (b) below.
 

S.2.19B.2.4 EC and certain member States — Large Civil Aircraft, para. 1160
(WT/DS316/AB/R)
 

… we understand the term displacement to connote that there is a substitution effect between the subsidized product and the like product of the complaining Member. This means that displacement arises under subparagraph (a) of Article 6.3 where the effect of the subsidy is that imports of a like product of the complaining Member are substituted by the subsidized product in the market of the subsidizing Member. Similarly, under subparagraph (b), displacement arises where exports of the like product of the complaining Member are substituted in a third country market by exports of the subsidized product.
 

S.2.19B.2.5 EC and certain member States — Large Civil Aircraft, para. 1161 and Footnote 2548
(WT/DS316/AB/R)
 

We are not called upon in this appeal to interpret the term “impede” in Article 6.3. Nevertheless, consideration of the term can provide context for a better understanding of displacement. The term connotes a broader array of situations than the term “displace”. It refers to situations where the exports or imports of the like product of the complaining Member would have expanded had they not been “obstructed” or “hindered” by the subsidized product. It could also refer to a situation where the exports or imports of the like product of the complaining Member did not materialize at all because production was held back by the subsidized product.2548
 

S.2.19B.2.6 EC and certain member States — Large Civil Aircraft, para. 1162 and Footnote 2550
(WT/DS316/AB/R)
 

We recognize that it may be difficult to draw a clear demarcation between the concepts of displacement and impedance. One possibility is to draw a distinction similar to the one drawn by the Appellate Body in US — Upland Cotton (Article 21.5 — Brazil) between the concepts of “price depression” and “price suppression” in Article 6.3(c) of the SCM Agreement. On this approach, evidence that actual sales have declined would be relevant for a determination of displacement, whereas evidence that sales would have increased more than they did, or would have declined less than they did, would be relevant to a claim of impedance.2550 We do not need to resolve this issue in this appeal because the United States premised its allegations of displacement on there being an observable decline in Boeing’s market share.
 

S.2.19B.2.7 EC and certain member States — Large Civil Aircraft, paras. 1163–1164
(WT/DS316/AB/R)
 

As we have explained … above, we believe that the most appropriate approach to assess the effect of a subsidy under Article 6.3 of the SCM Agreement is through a unitary counterfactual analysis. In the case of displacement and impedance, the counterfactual analysis would involve estimating what the sales of the complaining Member would have been in the absence of the challenged subsidy. The counterfactual sales of the complaining Member would then be compared to its actual sales. Displacement or impedance would arise where the counterfactual analysis shows that the sales of the complaining Member would have declined less or would have been higher in the absence of the challenged subsidy.
 

… As set out above, we have reservations about [the type of two-step approach adopted by the Panel in this case] because it may not gauge the particular phenomena described under Article 6.3(a) and (b) of the SCM Agreement as well as a unitary counterfactual analysis. We recognize, however, that a two-step approach is a permissible approach to assess the effects of the challenged subsidies under Article 6.3(a) and (b) of the SCM Agreement. Nevertheless, any conclusions under the first step of such a two-step approach are necessarily preliminary and of limited significance in coming to a conclusion under Article 6.3(a) or (b). This is so because it is only once the second step has been completed that it is possible to determine if the like product has been displaced by the subsidized product, as an effect of the challenged subsidies. This … is a function of substitutability in the relevant product market. Therefore, any definitive determination of displacement under Article 6.3(a) and (b) must await consideration of the effect of the subsidy.
 

S.2.19B.2.8 EC and certain member States — Large Civil Aircraft, para. 1165
(WT/DS316/AB/R)
 

In this case, the Panel examined trade volumes and market share data over a reference period. In the light of the manner in which the United States presented its case and the Panel’s two-step approach, the focus on trade volumes and market shares was appropriate. This is so because it is not sufficient to examine trade volumes to determine whether the imports or exports of the like product are being substituted by the subsidized product, in particular when total consumption in the market increases or decreases. Therefore, it is necessary to consider the relative movement of the volumes of the subsidized and the like product, that is, their market shares. In a duopoly situation, as in the present case, a decrease in the market share of one competitor will be reflected in an increase in the market share of the other competitor. The analysis is made more difficult where there are more than two competitors in the market, as it will be necessary to analyze more fully the market share data of various competitors in order to determine whether the substitution effect is between the subsidized product and the like product of the complaining Member. …
 

S.2.19B.2.9 EC and certain member States — Large Civil Aircraft, paras. 1166–1167
(WT/DS316/AB/R)
 

We further note that Article 6.4 of the SCM Agreement provides that the change in relative market shares shall be demonstrated “over an appropriately representative period sufficient to demonstrate clear trends in the development of the market for the product concerned”. This view was espoused by the Appellate Body in US — Upland Cotton, where it observed that Article 6.4 requires that “displacement or impeding of exports be demonstrated ‘over an appropriately representative period’ … so that ‘clear trends’ in changes in market share can be demonstrated”. For the Appellate Body, this suggested that the effect of a subsidy must be examined “over a sufficiently long period of time and is not limited to the year in which it was paid” because consideration of developments over a longer period “provides a more robust basis for a serious prejudice evaluation”. We further note that, in Argentina — Footwear (EC), the Appellate Body clarified, albeit in a safeguards context, that investigating authorities were required to consider “trends in imports over the period of investigation (rather than just comparing the end points)”, as this may mask trends developing in the intervening period. The Appellate Body concluded that “intervening trends” had not been considered adequately because of “the sensitivity of the analysis to the particular end points of the investigation period used”. Similarly, a panel assessing a claim of displacement would have to look at clearly discernible trends during the reference period.
 

The identification of a trend will be more accurate the larger the data set used in the analysis. … We agree with the Panel that the most recent available data should not be excluded from consideration. However, we disagree with other aspects of the Panel’s approach because the assessment of the claims of displacement put forward by the United States called for an examination of whether there were trends in the market shares during the reference period, rather than a mere comparison of market shares at the end points of that period.
 

S.2.19B.2.10 EC and certain member States — Large Civil Aircraft, para. 1168
(WT/DS316/AB/R)
 

Article 6.3(a) of the SCM Agreement is concerned with displacement in “the market of the subsidizing Member”, while Article 6.3(b) refers to displacement from “a third country market”. As discussed in section B above, there is both a geographic and product market component to the assessment of displacement. In the case of Article 6.3(a), the geographic market is the market of the subsidizing Member. The reference to the “like product of another Member” in Article 6.3(b) indicates that the third country referred to in that provision is a market other than the market of the complaining Member.
 

S.2.19B.2.11 EC and certain member States — Large Civil Aircraft, para. 1169
(WT/DS316/AB/R)
 

A further interpretative question that arises is whether subparagraphs (a) and (b) of Article 6.3 of the SCM Agreement contain a minimum threshold requirement for the establishment of displacement or impedance. … We note that neither subparagraph (a) nor (b) expressly qualifies the level or degree of displacement or impedance required for a finding under those provisions. By contrast, subparagraph (c) of Article 6.3 requires that the phenomena described in that provision be “significant”. While Article 6.3(a) and (b) does not expressly state that displacement must be significant, we agree with the European Union that the displacement must be discernible. Otherwise, we do not see how displacement could be clearly identified and amount to “serious prejudice” within the meaning of Articles 5(c) and 6.3 of the SCM Agreement.
 

S.2.19B.2.12 EC and certain member States — Large Civil Aircraft, para. 1170
(WT/DS316/AB/R)
 

To summarize, where a complainant puts forward a case based on the existence of displacement as a directly observable phenomenon and the panel opts to examine it under a two-step approach, as was done in this dispute, displacement arises under Article 6.3(a) of the SCM Agreement where imports of a like product of the complaining Member are declining in the market of the subsidizing Member, and are being substituted by the subsidized product. Similarly, under Article 6.3(b), displacement arises where exports from the like product of the complaining Member are declining in the third country market concerned, and are being substituted by exports of the subsidized product. As noted above, displacement must be discernible. The identification of displacement under this approach should focus on trends in the markets, looking at both volumes and market shares. The trend has to be clearly identifiable and an assessment based on a static comparison of the situation of the subsidized product and the like product at the beginning and at the end of the reference period would be inadequate. Where a two-step approach is used under Article 6.3(a) and (b), and displacement has been shown on a preliminary basis, the complaining Member will have to establish, in addition, that such displacement is the effect of the challenged subsidies.
 

S.2.19B.2.13 US — Large Civil Aircraft (2nd complaint), para. 1071
(WT/DS353/AB/R)
 

… we recall the meaning of the concepts of displacement and impedance as previously stated by the Appellate Body. In EC and certain member States — Large Civil Aircraft, the Appellate Body explained that “displacement” refers to an economic mechanism in which exports of a like product are replaced by the sales of the subsidized product. Specifically, it found that “displacement” connotes that there is “a substitution effect between the subsidized product and the like product of the complaining Member” and, in the context of Article 6.3(b), “displacement arises where exports of the like product of the complaining Member are substituted in a third country market by exports of the subsidized product”. The existence of displacement depends upon there being a competitive relationship between these two sets of products in that market and, when this is the case, certain behaviour such as “[a]ggressive pricing” may “lead to displacement of exports … in {that} particular market”. An analysis of displacement should assess whether this phenomenon is discernible by examining trends in data relating to export volumes and market shares over an appropriately representative period. With respect to “impedance”, the Appellate Body expressed the view that this concept may involve a broader range of situations than displacement and arises both in “situations where the exports or imports of the like product of the complaining Member would have expanded had they not been ‘obstructed’ or ‘hindered’ by the subsidized product”, as well as when such exports or imports “did not materialize at all because production was held back by the subsidized product”. While there may be some overlap between the concepts, “displacement” and “impedance” are therefore not interchangeable concepts.
 

S.2.19B.2.14 US — Large Civil Aircraft (2nd complaint), para. 1076
(WT/DS353/AB/R)
 

… a “market”, within the meaning of Article 6.3(a) and (b) of the SCM Agreement, is a particular set of products that are in actual or potential competition with each other within a particular geographical area. An assessment of the competitive relationship between products in the market is required in order to determine “whether and to what extent one product may displace another”. There is “both a geographic and product market component to the assessment of displacement” and, by implication, impedance. In principle, the manner in which the geographic dimension of a market is determined will depend on a number of factors: in some cases, the geographic market may extend to cover the entire country concerned; in others, an analysis of the conditions of competition for sales of the product in question may provide an appropriate foundation for a finding that a geographic market exists within that area, for example, a region. There may also be cases where the geographic dimension of a particular market exceeds national boundaries or could be the world market. A plain reading of Article 6.3(b), however, reveals that a finding of displacement or impedance under that provision is to be limited to the territory of the third country at issue. Accordingly, findings of displacement and impedance are to be made only with respect to the territory of the third country involved, even though, from an economic perspective, the geographic market may not be national in scope. Thus, … even in cases where the geographic dimension of a particular market exceeds national boundaries or is worldwide, a panel faced with a claim under Article 6.3(b) should “focus the analysis of displacement and impedance on the territory of the … third countries involved”.
 

S.2.19B.2.15 US — Large Civil Aircraft (2nd complaint), para. 1082
(WT/DS353/AB/R)
 

The Appellate Body’s analysis in EC and certain member States — Large Civil Aircraft suggests that the following characteristics will normally be necessary before a panel can reach a finding of displacement under Article 6.3(b): first, that at least a portion of the market share of the exports of the like product of the complaining Member must have been taken over or substituted by the subsidized product; and second, it must be possible to discern trends in volume and market share.
 

S.2.19B.2.16 US — Large Civil Aircraft (2nd complaint), para. 1085
(WT/DS353/AB/R)
 

In its discussion of displacement and impedance, the Panel did not distinguish between these concepts, even though the Appellate Body in EC and certain member States — Large Civil Aircraft stated that the principle of effective treaty interpretation suggests that there is a distinction between them. We also observe that, when making findings, the Panel always referred to both displacement and impedance. …
 

S.2.19B.2.17 US — Large Civil Aircraft (2nd complaint), para. 1086
(WT/DS353/AB/R)
 

… impedance refers to a situation where the exports or imports of the like product of the complaining Member would have expanded more had they not been “obstructed” or “hindered” by the subsidized product, or where exports or imports of the like product did not materialize at all because production was “held back” by the subsidized product. We observe that Article 6.4 of the SCM Agreement, which applies to both phenomena referred to in Article 6.3(a) and (b), requires that, as with displacement, a finding of impedance should be supported by evidence of changes in the relative market share in favour of the subsidized product, over a sufficiently representative period, to demonstrate “clear trends” in the development of the market concerned. Since, unlike with displacement, however, impedance may not be a visible phenomenon, evidence of trends may not be dispositive, or may hold less probative value, for a finding of impedance.
 

S.2.19B.2.18 US — Large Civil Aircraft (2nd complaint), paras. 1241–1242
(WT/DS353/AB/R)
 

We do not agree with the implication of the Panel’s reasoning that the phenomena of displacement and impedance necessarily follow from a finding of significant lost sales. In EC and certain member States — Large Civil Aircraft, the Appellate Body acknowledged the potential overlap of lost sales, and displacement and impedance, in that both phenomena relate to a firm’s sales. The Appellate Body, however, also identified distinctions between these concepts. For example, the Appellate Body observed that the assessment of displacement or impedance “has a well-defined geographic focus”, whereas the relevant geographic market for assessing lost sales is not similarly confined, and may even extend to the world market. The Appellate Body also noted that the fact that lost sales must be “significant” implies that the assessment must have both quantitative and qualitative dimensions, whereas the assessment of displacement and impedance is primarily quantitative in nature. We are similarly troubled by the Panel’s failure to distinguish in its analysis between the phenomena of displacement and impedance. As we have explained in section X.B, these market phenomena may overlap, but they are not interchangeable concepts.
 

In addition, we are concerned by the absence of any analysis by the Panel regarding the existence of displacement and impedance in particular third-country markets. … the Panel … referred only generally to “displacement and impedance of exports from third country markets” without specifying to which sales occurring in which markets its findings apply. Given the “well-defined geographic focus” of Article 6.3(b), a panel’s analysis of displacement and impedance must engage with the evidence of the particular third-country market or markets in which such market phenomena are alleged. …
 

S.2.19B.3 SIGNIFICANT LOST SALES
 

S.2.19B.3.1 EC and certain member States — Large Civil Aircraft, paras. 1213–1215
(WT/DS316/AB/R)
 

… this is the first time that the Appellate Body will examine claims of “lost sales” under Article 6.3(c) of the SCM Agreement.
 

We consider that a sale that is “lost” is one that a supplier “failed to obtain”. We further understand lost sales to be a relational concept that includes consideration of the behaviour of both the subsidized firm(s), which must have won the sales, and the competing firm(s), which allegedly lost the sales. In US — Upland Cotton, the Appellate Body held that the phrase “in the same market” applied to all four situations set forth in Article 6.3(c), including “lost sales”. According to the Appellate Body, the subsidized product and the like product of the complaining Member will be in the same market “if they were engaged in actual or potential competition in that market”. Thus, sales can be lost “in the same market” within the meaning of Article 6.3(c) if the subsidized product and the like product are competing products in the same product market.
 

The term “significant” in the second clause of Article 6.3(c) appears before the terms “price suppression, price depression or lost sales”. We read the term “significant” as qualifying all three situations. In other words, a complaining Member invoking Article 6.3(c) must show that the alleged “lost sales” are “significant”.
 

S.2.19B.3.2 EC and certain member States — Large Civil Aircraft, para. 1216
(WT/DS316/AB/R)
 

As with the other market phenomena referred to in Article 6.3 of the SCM Agreement, the lost sales must be the “effect” of the challenged subsidy. Thus, like the analysis of displacement under Article 6.3(a) and (b), we believe that a useful and appropriate approach to assessing whether lost sales are the effect of the challenged subsidy is through a counterfactual analysis. This would involve a comparison of the sales actually made by the competing firm(s) of the complaining Member with a counterfactual scenario in which the firm(s) of the respondent Member would not have received the challenged subsidies. There would be lost sales where the counterfactual scenario shows that sales won by the subsidized firm(s) of the respondent Member would have been made instead by the competing firm(s) of the complaining Member, thus revealing the effect of the challenged subsidies. It is not impermissible to assess lost sales under Article 6.3(c) of the SCM Agreement using a two-step approach like the one adopted by the Panel. However, as we have discussed above, any conclusions reached under the first step are preliminary because they will show only who lost and who made the sales. A definitive determination that the lost sales are the effect of the challenged subsidy within the meaning of Article 6.3(c) must await completion of the second step of the analysis.
 

S.2.19B.3.3 EC and certain member States — Large Civil Aircraft, paras. 1217–1218
(WT/DS316/AB/R)
 

… an assessment of lost sales focused on an examination of specific sales campaigns may be appropriate given the particular characteristics of a market. At the same time, we note that Article 6.3(c) is concerned with lost sales “in the same market”. It will sometimes be necessary to look beyond individual sales campaigns fully to understand the competitive dynamics that are at play in a particular market. Thus, an approach in which sales are aggregated by supplier or by customer, or on a country-wide or global basis, rather than examined individually, is also permissible.
 

We acknowledge that when looked at from this broader, market-wide perspective, there could be some overlap between the concept of lost sales and the concepts of displacement and impedance in Article 6.3(a) and (b) of the SCM Agreement. Although the concepts of displacement and impedance are presented from the perspective of imports or exports under subparagraphs (a) and (b) of Article 6.3, those imports or exports are a function of the firms’ sales. At the same time, we see some distinctions between the concepts. First, the assessment of displacement or impedance under subparagraphs (a) and (b) of Article 6.3 has a well-defined geographic focus. By contrast, the reference to the “same market” in subparagraph (c) allows more flexibility in defining the relevant market, which can include the world market. Second, the requirement in Article 6.3(c) that the lost sales be “significant” implies that the assessment can have quantitative and qualitative dimensions. The assessment of displacement and impedance under Article 6.3(a) and (b) is primarily quantitative in nature.
 

S.2.19B.3.4 EC and certain member States — Large Civil Aircraft, para. 1220
(WT/DS316/AB/R)
 

To summarize, we consider that, under Article 6.3(c), “lost sales” are sales that suppliers of the complaining Member “failed to obtain” and that instead were won by suppliers of the respondent Member. It is a relational concept and its assessment requires consideration of the behaviour of both the subsidized firm(s), which must have won the sales, and the competing firm(s), which allegedly lost the sales. The assessment can focus on a specific sales campaign when such an approach is appropriate given the particular characteristics of the market or it may look more broadly at aggregate sales in the market. The complainant must show that the lost sales are significant to succeed in its claim. Where lost sales are assessed under a two-step approach such as the one adopted by the Panel in this case, the finding of lost sales in the first step is necessarily preliminary and of limited significance in coming to a conclusion under Article 6.3(c). Similarly to the phenomena of displacement under Article 6.3(a) and (b), a definitive determination under Article 6.3(c) must await consideration of whether such lost sales are the effect of the challenged subsidy. While a two-step approach to the assessment of lost sales is permissible, in our view, the most appropriate approach to assess whether lost sales are the effect of the challenged subsidy is through a unitary counterfactual analysis. This would involve a comparison of the sales actually made by the competing firm(s) of the complaining Member with a counterfactual scenario in which the firm(s) of the respondent Member would not have received the challenged subsidies. There would be lost sales where the counterfactual analysis shows that, in the absence of the challenged subsidy, sales won by the subsidized firm(s) of the respondent Member would have been made instead by the competing firm(s) of the complaining Member.
 

S.2.19B.3.5 US — Large Civil Aircraft (2nd complaint), para. 1052
(WT/DS353/AB/R)
 

The Appellate Body has defined a “lost sale” as one that a supplier “failed to obtain”. The Appellate Body has understood that concept as “relational”, entailing consideration of “the behaviour of both the subsidized firm(s), which must have won the sales, and the competing firm(s), which allegedly lost the sales”, due to the effect of the subsidy. Sales can be lost “in the same market”, within the meaning of Article 6.3(c), only if the subsidized product and the like product compete in the same product market. With respect to the meaning of “significant”, the Appellate Body has noted that this term means “important, notable or consequential”, and has both quantitative and qualitative dimensions.
 

S.2.19B.3.6 US — Large Civil Aircraft (2nd complaint), para. 1230
(WT/DS353/AB/R)
 

… we are called upon to address the question of what level of specification is required of a panel in identifying and analyzing evidence supporting a finding of significant lost sales under Article 6.3(c). … in EC and certain member States — Large Civil Aircraft, the Appellate Body stated that “an examination of specific sales campaigns may be appropriate given the particular characteristics of a market”. At the same time, the Appellate Body considered that the reference in Article 6.3(c) to lost sales “in the same market” means that it may be necessary to look beyond individual sales campaigns to understand the competitive dynamics at play in a particular market. The Appellate Body thus concluded that “an approach in which sales are aggregated by supplier or by customer, or on a country-wide or global basis … is also permissible”. Thus, a lost sales claim may be supported with evidence of lost sales taking place throughout a geographical and product market, or with evidence of particular sales campaigns occurring within that market. A panel’s approach to the analysis of lost sales must therefore be keyed to the nature of the claim and evidence presented by a complainant, and the particular conditions of the market under scrutiny.
 

S.2.19B.3.7 US — Large Civil Aircraft (2nd complaint), para. 1272
(WT/DS353/AB/R)
 

… The term “significant” has been understood by the Appellate Body as “something that can be characterized as important, notable or consequential”. The Appellate Body has also expressed the view that an assessment of whether a lost sale is significant can have both quantitative and qualitative dimensions. … the SALE campaign involved 20 firm orders and 20 purchase rights, whereas the JAL campaign involved 30 firm orders and 10 options. … In addition, as we have noted above, these campaigns were highly price-competitive, not only because of the direct consequence for LCA manufacturers in terms of revenue and production effects associated with the sale of multiple LCA, but also because of the strategic importance of securing a sale from a particular customer. For these reasons, we consider that these lost sales campaigns are significant within the meaning of Article 6.3(c) of the SCM Agreement.
 

S.2.19B.4 SIGNIFICANT PRICE SUPPRESSION
 

S.2.19B.4.1 US — Upland Cotton, paras. 416–417
(WT/DS267/AB/R)
 

… The question before us is whether it was sufficient for the Panel to analyze the price of upland cotton in general in the world market or whether the Panel was required to analyze the price of Brazilian upland cotton in the world market and find significant price suppression with respect to that price.
 

… 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.4.2 US — Upland Cotton, paras. 423–427
(WT/DS267/AB/R)
 

… In explaining [the term “price suppression”], the Panel stated, in paragraph 7.1277 of the Panel Report:
 

Thus, “price suppression” refers to the situation where “prices” — in terms of the “amount of money set for sale of upland cotton” or the “value or worth” of upland cotton — either are prevented or inhibited from rising (i.e. they do not increase when they otherwise would have) or they do actually increase, but the increase is less than it otherwise would have been. Price depression refers to the situation where “prices” are pressed down, or reduced.1388
 

Although the Panel first identified “price suppression” and “price depression” as two separate concepts in paragraph 7.1277, Footnote 1388 of the Panel Report suggests that, for its analysis, the Panel used the term “price suppression” to refer to both price suppression and price depression. We recognize that “the situation where ‘prices’ … are prevented or inhibited from rising” and “the situation where ‘prices’ are pressed down, or reduced” may overlap. Nevertheless, it would have been preferable, in our view, for the Panel to avoid using the term “price suppression” as short-hand for both price suppression and price depression, given that Article 6.3(c) of the SCM Agreement refers to “price suppression” and “price depression” as distinct concepts. We agree, however, that the Panel’s description of “price suppression” in paragraph 7.1277 of the Panel Report reflects the ordinary meaning of that term, particularly when read in conjunction with the French and Spanish versions of Article 6.3(c), as required by Article 33(3) of the Vienna Convention on the Law of Treaties (the “Vienna Convention”).
 

The Panel described its task in assessing “price suppression” under Article 6.3(c) as follows:
 

We need to examine whether these prices were suppressed, that is, lower than they would have been without the United States subsidies in respect of upland cotton. [Panel Report, para. 7.1288]
 

As regards the word “significant” in the context of “significant price suppression” in Article 6.3(c), the Panel found that this word means “important, notable or consequential”.
 

Article 6.3(c) does not set forth any specific methodology for determining whether the effect of a subsidy is significant price suppression. There may well be different ways to make this determination. However, we find no difficulty with the Panel’s approach in the particular circumstances of this dispute.
 

S.2.19B.4.3 US — Upland Cotton, paras. 432–433
(WT/DS267/AB/R)
 

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.4.4 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.4.5 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 analyzing the effect of a subsidy under Article 6.3(c) of the SCM Agreement.
 

S.2.19B.4.6 US — Upland Cotton (Article 21.5 — Brazil), paras. 354–358
(WT/DS267/AB/RW)
 

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 analyze 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.4.7 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.4.8 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 counter-cyclical 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.4.9 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.4.10 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 analyzed the price suppressing effects of the remaining marketing loan and counter-cyclical payments instead of analyzing 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.4.11 US — Large Civil Aircraft (2nd complaint), para. 1092
(WT/DS353/AB/R)
 

Price suppression is … concerned with “whether prices are less than they would otherwise have been in consequence of … the subsidies”. For this reason, a counterfactual analysis is likely to be of particular utility for panels faced with claims that subsidies have caused price suppression.
 

S.2.19B.4.12 US — Large Civil Aircraft (2nd complaint), paras. 1116–1117 and Footnote 2280
(WT/DS353/AB/R)
 

… we understand the United States to argue that the Panel did not have a sufficient basis on which to base a finding of price suppression with respect to the Original A350, and to suggest that the Panel was required to rely on price trend data for the Original A350 to reach such a finding. We disagree. … In our view, evidence from sales campaigns accounting for about one third of Original A350 sales during the reference period constitutes direct and sufficiently representative evidence of what was happening to the prices of the Original A350 during the reference period. We see no reason why evidence relating to such sales could not, in this market, supply a sufficient basis upon which the Panel could conclude that there was price suppression with respect to the Original A350.
 

… [The Appellate Body’s statement in US — Upland Cotton] shows that, while the Appellate Body has found price trend data relevant, it has also declined to deem such evidence conclusive of the existence of price suppression. Moreover, we agree with the European Union that the Appellate Body’s statement in US — Upland Cotton that general price trends are “clearly relevant” was a function of the particular counter-cyclical and price-contingent nature of the subsidies at issue in that dispute.2280 Finally, we see some merit in the argument of the European Union that pricing trends for the Original A350 would not have been particularly probative in this dispute given that prices for the Original A350 were never unaffected by the existence of the 787. Since the Original A350 was launched in a market where the effects of the subsidies — through the presence of the 787 — were already being felt, any subsequent price trends would not have been particularly probative as to the effects on Airbus prices of the aeronautics R&D subsidies.
 

S.2.19B.4.13 US — Large Civil Aircraft (2nd complaint), paras. 1122–1123
(WT/DS353/AB/R)
 

… in support of its argument [that the Panel was required, but failed, to determine the existence of significant price suppression for the product “as a whole”], the United States relies on a finding of the panel in Korea — Commercial Vessels. In particular, it refers to a statement by the panel that, in an assessment of the existence of a causal relationship between the subsidy and the movements in prices of products of concern to the complaining party, a “main focus of the analysis would be levels and trends in the price for the product in question, as a whole, in the relevant market (i.e., ‘the same market’), as a whole, and the various reasons behind them”. We are not entirely persuaded of the United States’ interpretation of the panel’s reasoning in Korea — Commercial Vessels, nor, for that matter, of whether that panel’s reasoning should be applied outside the particular facts of that dispute.
 

Even assuming, however, that a finding of price suppression should have been made for Airbus’s “product as a whole” in the 200–300 seat LCA market, we do not see any error in the Panel’s approach in this dispute. It is true that the Panel’s ultimate finding of price suppression was based upon its analysis of the A330 and the Original A350, and not upon evidence as to price effects on the A350XWB-800. However, the United States does not point to any evidence on the Panel record suggesting that the sales or the price levels of the A350XWB-800 during the reference period were so significant that, had they been taken into account, they would have prevented the Panel from reaching the finding that it did on the basis of its examination of A330 and Original A350 prices. Indeed, … the A350XWB-800 was not launched until the very end of the reference period, … and thus was not present in the relevant market for virtually the entirety of the reference period. We fail to see, and the United States does not explain, how consideration of the A350XWB-800 could have altered the Panel’s analysis of, or findings regarding, price suppression in the 200–300 seat LCA market.
 

S.2.19B.4.14 US — Large Civil Aircraft (2nd complaint), paras. 1125–1126
(WT/DS353/AB/R)
 

… we identified certain considerations relevant to the evaluation of a price suppression claim, including the utility of a counterfactual analysis. We also consider that it will ordinarily be useful for a panel to take into account evidence relating to price trends in a price suppression analysis. At the same time, there may be circumstances in which such evidence is unavailable, unreliable, or unpersuasive. We do not exclude that, in such circumstances, it may nevertheless be possible to conduct an analysis and to reach a finding of significant price suppression, provided that such a finding is properly supported by other evidence on the record. …
 

… While we recognize that the fact that Boeing received FSC/ETI benefits over a long period might have made the Panel’s task more difficult because there was no prior, subsidy-free period against which to compare market share and price trend data occurring during the reference period, this does not mean that there is nothing to be gained from examining such data in a price suppression analysis. As we have noted, for example, the fact that prices of a subsidized product were lower during a period of lower subsidization might require further consideration or explanation in order to demonstrate a genuine and substantial relationship between the subsidies and any alleged price effects. …
 

S.2.19B.5 EFFECT OF THE SUBSIDY — CAUSATION AND NON-ATTRIBUTION
 

S.2.19B.5.1 US — Upland Cotton, paras. 435–436
(WT/DS267/AB/R)
 

Turning to the Panel’s assessment of the “effect of the subsidy”, the Panel addressed the question whether there was a “causal link” between the price-contingent subsidies and the significant price suppression it had found. It then addressed the impact of “[o]ther alleged causal factors”. We observe that Article 6.3(c) does not use the word “cause”; rather, it states that “the effect of the subsidy is … significant price suppression”. However, the ordinary meaning of the noun “effect” is “[s]omething … caused or produced; a result, a consequence”. The “something” in this context is significant price suppression, and thus the question is whether significant price suppression is “caused” by or is a “result” or “consequence” of the challenged subsidy. The Panel’s conclusion that “[t]he text of the treaty requires the establishment of a causal link between the subsidy and the significant price suppression” is thus consistent with this ordinary meaning of the term “effect”. This is also confirmed by the context provided by Article 5(c) of the SCM Agreement
 

As the Panel pointed out, “Articles 5 and 6.3 … do not contain the more elaborate and precise ‘causation’ and non-attribution language” found in the trade remedy provisions of the SCM Agreement. Part V of the SCM Agreement, which relates to the imposition of countervailing duties, requires, inter alia, an examination of “any known factors other than the subsidized imports which at the same time are injuring the domestic industry”. However, such causation requirements have not been expressly prescribed for an examination of serious prejudice under Article 5(c) and Article 6.3(c) in Part III of the SCM Agreement. This suggests that a panel has a certain degree of discretion in selecting an appropriate methodology for determining whether the “effect” of a subsidy is significant price suppression under Article 6.3(c).
 

S.2.19B.5.2 US — Upland Cotton, para. 437
(WT/DS267/AB/R)
 

Nevertheless, we agree with the Panel that it is necessary to ensure that the effects of other factors on prices are not improperly attributed to the challenged subsidies. Pursuant to Article 6.3(c) of the SCM Agreement, “[s]erious prejudice in the sense of paragraph (c) of Article 5 may arise” when “the effect of the subsidy is … significant price suppression” (emphasis added). If the significant price suppression found in the world market for upland cotton were caused by factors other than the challenged subsidies, then that price suppression would not be “the effect of” the challenged subsidies in the sense of Article 6.3(c). Therefore, we do not find fault with the Panel’s approach of “examin[ing] whether or not ‘the effect of the subsidy’ is the significant price suppression which [it had] found to exist in the same world market” and separately “consider[ing] the role of other alleged causal factors in the record before [it] which may affect [the] analysis of the causal link between the United States subsidies and the significant price suppression”.
 

S.2.19B.5.3 US — Upland Cotton, para. 438
(WT/DS267/AB/R)
 

The Panel’s approach with respect to causation and non-attribution is similar to that reflected in Appellate Body decisions in the context of other WTO agreements. … It must be borne in mind that these provisions of the Agreement on Safeguards and the Anti-Dumping Agreement, as well as the provisions of Part V of the SCM Agreement, relate to a determination of “injury” rather than “serious prejudice”, and they apply in different contexts and with different purposes. Therefore, they must not be automatically transposed into Part III of the SCM Agreement. Nevertheless, they may suggest ways of assessing whether the effect of a subsidy is significant price suppression rather than it being the effect of other factors.
 

S.2.19B.5.4 US — Upland Cotton, para. 451
(WT/DS267/AB/R)
 

… in our view, one would normally expect a discernible correlation between significantly suppressed prices and the challenged subsidies if the effect of these subsidies is significant price suppression. Accordingly, this is an important factor in any analysis of whether the effect of a subsidy is significant price suppression within the meaning of Article 6.3(c). However, we recognize that mere correlation between payment of subsidies and significantly suppressed prices would be insufficient, without more, to prove that the effect of the subsidies is significant price suppression.
 

S.2.19B.5.5 US — Upland Cotton, para. 453
(WT/DS267/AB/R)
 

We agree with the general proposition of the United States that variable costs may play a role in farmers’ decision-making as to whether to plant upland cotton or some alternative crop, and how much of each crop to plant. From a short-term perspective, variable costs may be particularly important. However, from a longer-term perspective, total costs may be relevant. … In the circumstances of this dispute, we do not consider that the Panel’s reliance on total rather than variable costs of production amounts to an error vitiating the Panel’s analysis under Article 6.3(c).
 

S.2.19B.5.6 US — Upland Cotton, paras. 457–458
(WT/DS267/AB/R)
 

… In sum, the Panel Report shows that it examined the other factors raised by the United States. Although the Panel found that some of them had price-suppressive effects, it did not attribute those effects to the United States’ price-contingent subsidies.
 

Unlike in certain other instances under the WTO agreements, a panel conducting an analysis under Article 6.3(c) of the SCM Agreement is the first trier of facts, rather than a reviewer of factual determinations made by a domestic investigating authority. Bearing this in mind, we underline the responsibility of panels in gathering and analyzing relevant factual data and information in assessing claims under Article 6.3(c) in order to arrive at reasoned conclusions. In this case, the voluminous evidentiary record before the Panel included several economic studies, and substantial data and information. For its part, the Panel posed a large number of questions to which the parties submitted detailed answers. Overall, the Panel evidently conducted an extensive analysis, but we believe that, in its reasoning, the Panel could have provided a more detailed explanation of its analysis of the complex facts and economic arguments arising in this dispute. The Panel could have done so in order to demonstrate precisely how it evaluated the different factors bearing on the relationship between the price-contingent subsidies and significant price suppression. Nevertheless, in the light of the Panel’s examination of the relevant evidence, coupled with its legal reasoning, we find no legal error in the Panel’s causation analysis.
 

S.2.19B.5.7 US — Upland Cotton (Article 21.5 — Brazil), paras. 353–354
(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.
 

S.2.19B.5.8 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.5.9 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.5.10 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.5.11 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 roleof 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.5.12 EC and certain member States — Large Civil Aircraft, paras. 1231–1232
(WT/DS316/AB/R)
 

The Appellate Body has found that Article 6.3(c) requires the establishment of a causal link between the subsidies and the particular market situations being claimed under that provision. …
 

Moreover, the Appellate Body has observed that to satisfy the causation requirement under Articles 5(c) and 6.3(c), it must be shown that there is a “genuine and substantial relationship of cause and effect” between the subsidies and the alleged market phenomenon. In addition, the Appellate Body has stated that panels assessing claims under Articles 5(c) and 6.3(c) must ensure that the effects of other factors are not improperly attributed to the challenged subsidies. The Appellate Body’s guidance concerning the assessment of causation was provided in the context of a dispute involving Article 6.3(c) of the SCM Agreement. The language of subparagraphs (a) and (b) of Article 6.3 of the SCM Agreement expresses the causation requirement in very similar terms to those used in subparagraph (c). Under subparagraphs (a) and (b), displacement or impedance must be shown to be “the effect of the subsidy”. We see no reason why the standard for causation and non-attribution should be different under subparagraphs (a) and (b) than under subparagraph (c), and the participants and third participants have not suggested that a different standard applies.
 

S.2.19B.5.13 EC and certain member States — Large Civil Aircraft, paras. 1233–1234
(WT/DS316/AB/R)
 

The Appellate Body has said furthermore that it may be possible to assess whether the particular market phenomena are the effect of the subsidies by recourse to a “but for” approach. Thus, one possible approach to the assessment of causation is an inquiry that seeks to identify what would have occurred “but for” the subsidies. In some circumstances, a determination that the market phenomena captured by Article 6.3 of the SCM Agreement would not have occurred “but for” the challenged subsidies will suffice to establish causation. This is because, in some circumstances, the “but for” analysis will show that the subsidy is both a necessary cause of the market phenomenon and a substantial cause. It is not required that the “but for” analysis establish that the challenged subsidies are a sufficient cause of the market phenomenon provided that it shows a genuine and substantial relationship of cause and effect. However, there are circumstances in which a “but for” approach does not suffice. For example, where a necessary cause is too remote and other intervening causes substantially account for the market phenomenon. This example underscores the importance of carrying out a proper non-attribution analysis.
 

… in applying a “but for” test, a panel must ensure that the assessment demonstrates that the subsidies are a “genuine and substantial” cause of the particular market situation that is alleged. …
 

S.2.19B.5.14 EC and certain member States — Large Civil Aircraft, paras. 1261, 1264–1267, 1270
(WT/DS316/AB/R)
 

… the Panel contemplated four distinct scenarios as to what the LCA industry would have looked like in the absence of the challenged subsidies. In scenarios 1 and 2, Airbus would not have entered the market without subsidies, and Boeing would have been a monopolist (scenario 1) or would have competed with another US LCA manufacturer (scenario 2). However, the Panel did not rule out entry into the market by a non-subsidized Airbus, either in competition only with Boeing (scenario 3) or with Boeing and another US LCA manufacturer (scenario 4). … The Panel described the first two scenarios as “plausible”. By contrast, the Panel described the third and fourth scenarios as being “unlikely”. …
 

...
 

Under scenarios 1 and 2, there was no need for the Panel to proceed further in its counterfactual analysis. Without the subsidies, Airbus would not have existed under these scenarios and there would be no Airbus aircraft on the market. None of the sales that the subsidized Airbus made would have occurred. As Boeing (or the other US manufacturer envisaged by the Panel) would be the only supplier(s) of LCA, it (or they) would have made the sales instead. Thus, the conclusion under scenarios 1 and 2 satisfies, without more, the “genuine and substantial relationship” standard articulated by the Appellate Body in US — Upland Cotton. This chain of reasoning establishes that the subsidies are a sufficient cause of the lost sales and the displacement. The additional questions that the European Union asserts the Panel should have considered would be moot. It would be pointless to attempt delineating the features of something that would not have existed without the subsidies. It would be unnecessary to consider: (i) what particular aircraft Airbus would have launched; (ii) their level of technology; (iii) prices; (iv) any commonality advantage or disadvantage; or (v) any non-attribution factors.
 

As regards the non-attribution factors in particular, we note that the effects of other factors can be assessed as part of a properly designed counterfactual that adjusts for the subsidies while maintaining everything else equal. … Moreover, we agree with the Panel that in the particular circumstances of this case the need to fully examine the particular non-attribution factors raised by the European Communities depended on whether a non-subsidized Airbus would have had any aircraft available to sell at the time the relevant sales were made. …
 

… in our view, the Panel’s findings that scenarios 1 and 2 were plausible, whereas scenarios 3 and 4 were unlikely, are important considerations in determining the extent to which the Panel was required to further pursue the counterfactual analysis.
 

Having said that, we agree with the European Union that the Panel could have provided a fuller analysis under scenarios 3 and 4. In particular, the Panel could have more fully explored how a non-subsidized Airbus would have developed during the more than 35 years that elapsed between 1969, when Airbus launched the A300, and the end of the reference period. Nonetheless, looking at the Panel’s analysis as a whole, we understand the Panel to have concluded that, under scenarios 3 and 4, a non-subsidized Airbus would have been significantly retarded in its efforts to develop LCA that were capable of competing in the market and that it would not have been able to overcome this competitive disadvantage by the end of the reference period.
 

...
 

As we see it, the Panel’s conclusion that a non-subsidized Airbus would not have “achieved the market presence it did over the period 2001 to 2006”, which followed from its views that a non-subsidized Airbus would be a “much weaker LCA manufacturer” with “at best a more limited offering of LCA models”, provided enough of a basis to establish a “genuine and substantial relationship of cause and effect” in this case.
 

S.2.19B.5.15 EC and certain member States — Large Civil Aircraft, paras. 1271–1272
(WT/DS316/AB/R)
 

In the case of displacement, the Panel’s conclusion clearly implies that the sales of a non-subsidized Airbus would have been lower than those actually made by Airbus during the reference period. … The Panel could have better explained how it saw the findings of displacement, in the first step of its analysis, and its findings on causation, in the second step, coming together. However, given that the Panel was satisfied that the sales of a non-subsidized Airbus would have been lower, we do not believe that it was necessary for the Panel to have made a precise quantification of the extent of the displacement caused by the LA/MSF subsidies.
 

We reach a similar conclusion as regards lost sales. … We read the Panel to have found not only that a non-subsidized Airbus would have had a smaller range of LCA, but also that any LCA that a non-subsidized Airbus could have offered during the reference period would be inferior to competing LCA. As a result, the Panel was not persuaded that a non-subsidized Airbus would have won the sales campaigns that the Panel concluded had been “lost” by Boeing. … In coming to our views as to the sufficiency of the Panel’s analysis, we have been mindful of the fact that the Panel found that scenarios 3 and 4 were “unlikely”.
 

S.2.19B.5.16 EC and certain member States — Large Civil Aircraft, para. 1376
(WT/DS316/AB/R)
 

As noted earlier, the Appellate Body has interpreted Article 6.3 of the SCM Agreement as requiring the establishment of a “genuine and substantial relationship of cause and effect” between the subsidies and the alleged market phenomena under that provision, and that such relationship is not diluted by the effects of other factors. The Appellate Body has further explained that the particular market phenomena alleged under Article 6.3(c) must “result from a chain of causation that is linked to the impugned subsidy” and the effects of other factors must not be attributed to the challenged subsidies. We have explained earlier in this Report that the interpretative guidance provided by the Appellate Body under Article 6.3(c) is equally relevant to the causation analysis under subparagraphs (a) and (b) of that provision. We also recall the Appellate Body’s view 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)”. The appropriateness of a particular method may have to be determined on a case-specific basis, depending on a number of factors and factual circumstances such as the nature, design, and operation of the subsidies at issue, the alleged market phenomena, and the extent to which the subsidies are provided in relation to a particular product or products, among others. However, a panel’s methodological discretion does not absolve it from having to establish a “genuine and substantial relationship of cause and effect” between the impugned subsidies and the alleged market phenomena under Article 6.3, and from ensuring that such causal link is not diluted by the effects of other factors.
 

S.2.19B.5.17 US — Large Civil Aircraft (2nd complaint), paras. 913–915
(WT/DS353/AB/R)
 

A plain reading of the language of Article 5 (“No Member should cause, through the use of any [specific subsidy] … (c) serious prejudice to the interests of another Member”); of Article 6.2 (“serious prejudice shall not be found if the subsidizing Member demonstrates that the subsidy in question has not resulted in any of the effects enumerated in [Article 6.3]”); and of Article 6.3 (which provides that serious prejudice may arise when “the effect of the subsidy” is one or more of the market phenomena listed in that provision) makes clear that, in disputes involving claims under Part III of the SCM Agreement, a complainant must demonstrate not only the existence of the relevant subsidies and the adverse effects to its interests, but also that the subsidies at issue have caused such effects. The Appellate Body has consistently articulated the causal link required as “a genuine and substantial relationship of cause and effect”. In other words, the subsidies must contribute, in a “genuine” and “substantial” way, to producing or bringing about one or more of the effects, or market phenomena, enumerated in Article 6.3.
 

When tasked with determining whether the causal link in question meets the requisite standard of a “genuine and substantial” causal relationship, a panel will often be confronted with multiple factors that may have contributed, to varying degrees, to that effect. Indeed, in some circumstances, it may transpire that factors other than the subsidy at issue have caused a particular market effect. Yet the mere presence of other causes that contribute to a particular market effect does not, in itself, preclude the subsidy from being found to be a “genuine and substantial” cause of that effect. Thus, as part of its assessment of the causal nexus between the subsidy at issue and the effect(s) that it is alleged to have had, a panel must seek to understand the interactions between the subsidy at issue and the various other causal factors, and make an assessment of their connections to, as well as the relative importance of the subsidy and of the other factors in bringing about, the relevant effects. In order to find that the subsidy is a genuine and substantial cause, a panel need not determine it to be the sole cause of that effect, or even that it is the only substantial cause of that effect. A panel must, however, take care to ensure that it does not attribute the effects of those other causal factors to the subsidies at issue, and that the other causal factors do not dilute the causal link between those subsidies and the alleged adverse effects such that it is not possible to characterize that link as a genuine and substantial relationship of cause and effect. The subsidy at issue may be found to exhibit the requisite causal link notwithstanding the existence of other causes that contribute to producing the relevant market phenomena if, having given proper consideration to all other relevant contributing factors and their effects, the Panel is satisfied that the contribution of the subsidy has been demonstrated to rise to that of a genuine and substantial cause.
 

Finally, we note that a demonstration that subsidies are a genuine and substantial cause of the alleged serious prejudice is a fact-intensive exercise, and one that inevitably involves extensive, case-specific evidence. The manner in which a complainant may seek to demonstrate the existence of the effects and the links between the subsidies at issue and those effects, and the type of supporting evidence that may be adduced, are likely to vary considerably. Even though each panel’s assessment will turn very much on the particular facts and circumstances of the case, it must not deviate from the requirements outlined above.
 

S.2.19B.5.18 US — Large Civil Aircraft (2nd complaint), para. 970
(WT/DS353/AB/R)
 

… we do not agree with the United States that the Panel improperly “extrapolated” the effects of the three composites programmes to the other NASA and USDOD programmes. The causal link found to exist between all of the R&D programmes at issue and the 787 technologies did not rest on extrapolation. Reasoning from “extrapolation” would imply an assumption that, because certain programmes gave rise to technologies that are used on the aircraft, other programmes automatically do the same. That was not the Panel’s reasoning. Rather, it was the Panel’s view that all of the programmes, to differing degrees, contributed to the process of technological development that eventually led to the commercialization of the 787 technologies. The Panel was clearly of the view that the three composites programmes that contributed to the development of the composites technologies were on the “causal pathway” to Boeing’s offering of the 787. However, this did not exhaust the Panel’s understanding of the relevant causal link. That causal connection encompassed even research conducted pursuant to programmes that resulted in failure, or were not directly related to the 787 technologies. Far from attenuating or diluting any link that might exist between the three composites programmes and the 787, the Panel’s assessment of the role of the remaining R&D programmes buttresses its overall finding that all of the aeronautics R&D subsidies contributed, albeit to differing degrees, to the development of the technologies used on the 787.
 

S.2.19B.5.19 US — Large Civil Aircraft (2nd complaint), para. 984
(WT/DS353/AB/R)
 

… As we have noted above, a panel that is tasked with determining whether the causal link in question meets the requisite standard of a “genuine and substantial” causal relationship will often be confronted with multiple factors that may have contributed, to varying degrees, to that effect. As part of its assessment of the causal nexus between the subsidy at issue and the effect(s) that it is alleged to have had, a panel must seek to understand the interactions between that subsidy and the various other causal factors, and make an assessment of their connections to, as well as the relative importance of the subsidy, and of the other factors, in bringing about, the relevant effect(s). In order to find that the subsidy is a genuine and substantial cause, a panel need not determine it to be the sole cause of that effect, or even that it is the only substantial cause of that effect. A panel must, however, take care to ensure that it does not attribute the effects of those other causal factors to the subsidy at issue, and that the other causal factors do not dilute the causal link between that subsidy and the alleged adverse effects such that it is not possible to characterize that link as a genuine and substantial relationship of cause and effect. We have also noted that a demonstration that subsidies are a genuine and substantial cause of the alleged serious prejudice is a fact-intensive and case-specific exercise.
 

S.2.19B.5.20 US — Large Civil Aircraft (2nd complaint), paras. 1019–1020
(WT/DS353/AB/R)
 

The provisions of Part III of the SCM Agreement that deal with causation — that is, Articles 5 and 6.3 — require a demonstration that the market phenomena specified in Article 6.3(a)–(d) be “caused” by, or be the “effect of”, the subsidy. Beyond this, these provisions do not prescribe the manner in which a panel must conduct its analysis of causation. A counterfactual analysis is a form of analysis that a panel may find useful in resolving questions of causation. The precise way in which counterfactual reasoning is deployed will vary depending on how the causal problem presents itself in a particular dispute. A counterfactual analysis may be highly quantitative, or predominantly qualitative in nature, or it may involve both quantitative and qualitative elements.
 

In seeking to discharge its burden of demonstrating the effects of relevant subsidies, a complaining party may elect to employ a counterfactual analysis. Indeed, a complaining party may well find it difficult to establish causation of certain Article 6.3 phenomena (for example, impedance and price suppression) without counterfactual argumentation. A panel evaluating the respective claims and defences of the parties will also have to give due consideration to the use of a counterfactual analysis, especially when such an analysis forms part of the arguments submitted by the parties. The panel might decide to accept the counterfactual scenario(s) proposed by one party as to the market situation that would have prevailed absent the subsidies, but it is not bound to do so. Rather, as part of its objective assessment of the matter, a panel will have to form its own view as to what a market unaffected by subsidies would have looked like and may find it appropriate to construct its own counterfactual scenario(s). A panel is not required to identify and explore every possible hypothetical market scenario, especially where the parties themselves have not elaborated upon, or substantiated the likelihood of, such possible scenarios. The extent to which a panel may or must elaborate upon the specific details of its constructed alternative will vary by case, but, having selected a reasonable scenario, a panel should pursue its counterfactual analysis in a coherent and consistent fashion.
 

S.2.19B.5.21 US — Large Civil Aircraft (2nd complaint), para. 1030
(WT/DS353/AB/R)
 

… The Panel’s causation analysis must be understood holistically as incorporating a counterfactual approach to causation. In that analysis, the Panel assessed whether, but for the subsidies, Boeing could have developed the 787 by 2004. In doing so, it expressly considered and engaged with arguments relating to Boeing’s own involvement in research alongside NASA, its access to research facilities, as well as its substantial financial capabilities. As we have noted above, while it took account of these factors and acknowledged their significance, the Panel still considered that the aeronautics R&D subsidies played an important role in accelerating the development of the 787 technologies, and allowing Boeing to overcome the significant disincentives it faced in investing in long-term, high-risk aeronautics R&D. …
 

S.2.19B.5.22 US — Large Civil Aircraft (2nd complaint), paras. 1208–1209
(WT/DS353/AB/R)
 

The Panel … reasoned that, because the FSC/ETI programme was in effect before the reference period, this made it impossible for it to determine the effects of the subsidies through direct observation of market share and price trend data. …
 

We do not agree with the suggestion of the Panel that considerations of market share and price trends during a period of sustained subsidization, and of “other factors” potentially contributing to such shares or trends, were of no assistance or relevance in analyzing the effects of the subsidies. As the Appellate Body has explained in the context of price suppression, although mere correlation between the payment of subsidies and significantly suppressed prices would be insufficient, without more, to prove the effects of the subsidies, “one would normally expect a discernible correlation between significantly suppressed prices and the challenged subsidies”. In this dispute, the United States asserts that there is no correlation between subsidy levels and LCA price trends before and during the reference period, and that this is evidence of the lack of a causal relationship between the tied tax subsidies and Boeing’s prices. We consider that, even if the FSC/ETI subsidies were provided over a long period, the question as to whether there was a discernible correlation between subsidy levels and price trends was still a relevant one. Moreover, the lack of such a correlation would seem to have called for some explanation as to why this did not detract from or preclude The Panel from reaching a finding of a genuine and substantial causal relationship in this dispute. The Panel, however, did not discuss these considerations in its analysis.
 

S.2.19B.6 MAGNITUDE OF SUBSIDIES
 

S.2.19B.6.1 US — Upland Cotton, para. 461
(WT/DS267/AB/R)
 

Beginning with the text of Article 6.3(c), we note that this provision does not state explicitly that a panel needs to quantify the amount of the challenged subsidy. However, in assessing whether “the effect of the subsidy is … significant price suppression”, and ultimately serious prejudice, a panel will need to consider the effects of the subsidy on prices. The magnitude of the subsidy is an important factor in this analysis. A large subsidy that is closely linked to prices of the relevant product is likely to have a greater impact on prices than a small subsidy that is less closely linked to prices. All other things being equal, the smaller the subsidy for a given product, the smaller the degree to which it will affect the costs or revenue of the recipient, and the smaller its likely impact on the prices charged by the recipient for the product. However, the size of a subsidy is only one of the factors that may be relevant to the determination of the effects of a challenged subsidy. A panel needs to assess the effect of the subsidy taking into account all relevant factors.
 

S.2.19B.6.2 US — Upland Cotton, paras. 463–464
(WT/DS267/AB/R)
 

In order for a panel to find that a subsidy has the effect of significant price suppression, or some other effect mentioned in Article 6.3(c), the panel must determine that the payment is a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement. The Panel did so in this dispute, and we do not understand the United States to contest this conclusion. Rather, the United States argues that a panel needs to quantify the amount of the “benefit” conferred on the subsidized product by a challenged subsidy. However, the definitions of a specific subsidy in Articles 1 and 2 do not expressly require the quantification of the “benefit” conferred by the subsidy on any particular product.
 

Turning to the context of Article 6.3(c), we note that Article 6.1(a) — which has now expired — contains the only reference in Part III of the SCM Agreement to a calculation of ad valorem subsidization of a product. Footnote 14 to Article 6.1(a) explains that this calculation is to be performed in accordance with Annex IV on the “Calculation of the Total Ad Valorem Subsidization (Paragraph 1(a) of Article 6)”. No similar provisions are found in Article 6.3(c), which suggests that no precise quantification is envisaged in that provision.
 

S.2.19B.6.3 US — Upland Cotton, paras. 465–466
(WT/DS267/AB/R)
 

The provisions of the SCM Agreement regarding quantification of subsidies reveal that the methodological approaches to quantification may be quite different, depending on the context and purpose of quantification. The absence of any indication in Article 6.3(c) as to whether one of these methods, or any other method, should be used suggests to us that no such precise quantification was envisaged as a necessary prerequisite for a panel’s analysis under Article 6.3(c).
 

Pursuant to Article 6.8, “the existence of serious prejudice” under Article 6.3(c) “should be determined on the basis of the information submitted to or obtained by the panel, including information submitted in accordance with the provisions of Annex V” of the SCM Agreement. The United States is correct that Annex V refers to “information … as necessary to establish the existence and amount of subsidization” (in paragraph 2) and “data concerning the amount of the subsidy in question” (in paragraph 5), but Annex V also refers to other information. This demonstrates that the amount of the subsidy, as well as other elements, are relevant for the assessment of whether price suppression exists. But we do not read Annex V as mandating the precise quantification of subsidies in order to determine their effect under Article 6.3(c).
 

S.2.19B.6.4 US — Upland Cotton, para. 467
(WT/DS267/AB/R)
 

In sum, reading Article 6.3(c) in the context of Article 6.8 and Annex V suggests that a panel should have regard to the magnitude of the challenged subsidy and its relationship to prices of the product in the relevant market when analyzing whether the effect of a subsidy is significant price suppression. In many cases, it may be difficult to decide this question in the absence of such an assessment. Nevertheless, this does not mean that Article 6.3(c) imposes an obligation on panels to quantify precisely the amount of a subsidy benefiting the product at issue in every case. A precise, definitive quantification of the subsidy is not required.
 

S.2.19B.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.6.6 EC and certain member States — Large Civil Aircraft, Footnote 1666 to para. 722
(WT/DS316/AB/R)
 

We recall that, in a Part V context, countervailing duties are “specific to individual companies” and require a more precise quantification of subsidization, as opposed to a Part III context, where the remedy “targets the effects of the subsidy more generally”. …
 

S.2.19B.6.7 US — Large Civil Aircraft (2nd complaint), paras. 1006–1007
(WT/DS353/AB/R)
 

The Appellate Body has stated previously that, while the magnitude of subsidies is important, precise quantification is not an indispensable part of a serious prejudice analysis. Moreover, the absolute value or size of a subsidy may not correspond directly to the impact that the subsidy may have in causing adverse effects. Subsidies of a relatively small magnitude may nevertheless have substantial effects in a particular case or market. We understand the Panel to have found this to be the case as regards the effects of the aeronautics R&D subsidies.
 

… the Panel itself recognized that the amount spent by NASA on the aeronautics R&D subsidies was not large as compared to Boeing’s revenues and its own R&D expenditures. However, the Panel stressed that the aeronautics R&D subsidies allowed Boeing to overcome the disincentives in investing in risky aeronautics R&D. For the Panel, the relative magnitude of the amounts spent by NASA and Boeing did nothing to reduce or diminish that important contribution. We see no reason to disagree.
 

S.2.19B.6.8 US — Large Civil Aircraft (2nd complaint), para. 1193
(WT/DS353/AB/R)
 

In our view, both the absolute and the relative magnitudes of subsidies are likely to be relevant to a panel’s analysis of the effects of subsidies on prices. Both considerations may shed light on the impact that those subsidies have on price, although the extent to which either or both considerations shed light on this relationship will depend on the particular subsidies, products, and markets at issue. Through scrutinizing magnitude in the light of and as part of an analysis of the particular subsidies, the particular products, and the particular characteristics of the market within which those products compete, a panel can gain an understanding of the effects that the subsidies have on prices, and of the relevance of the subsidies’ magnitude to such effects. In other words, what it means to take account of considerations of “magnitude” will also depend upon the circumstances of each case and the market phenomenon at issue. Depending on the circumstances of each case, an assessment of whether subsidy amounts are significant should not necessarily be limited to a mere inquiry into what those amounts are, either in absolute or per-unit terms. Rather, such an analysis may be situated within a larger inquiry that could, for instance, entail viewing these amounts against considerations such as the size of the market as a whole, the size of the subsidy recipient, the per-unit price of the subsidized product, the price elasticity of demand, and, depending on the market structure, the extent to which a subsidy recipient is able to set its own prices in the market, and the extent to which rivals are able or prompted to react to each other’s pricing within that market structure. Considerations of some of these elements formed part of the Appellate Body’s analysis of the magnitude of price-contingent subsidies in US — Upland Cotton (Article 21.5 — Brazil), and of the submissions that each of the parties made before the Panel in this dispute regarding the amount of the FSC/ETI subsidies relative to Boeing’s delivery and order revenues.
 

S.2.19B.6.9 US — Large Civil Aircraft (2nd complaint), para. 1194 and Footnote 2444
(WT/DS353/AB/R)
 

Like that of the panel in US — Upland Cotton,2444 the reasoning of the Panel in this dispute with respect to the magnitude of the subsidies is somewhat opaque, and could have been more clearly elaborated. It may well be that, in considering magnitude, the Panel relied primarily on its findings regarding the absolute amounts of the tied tax subsidies. In this case, however, the parties also presented arguments and evidence regarding the relative significance of the subsidies and, in particular, on the issue of whether those subsidies were of a size that, when considered in relation to product values or prices, could produce market effects amounting to serious prejudice. We do not exclude that subsidies of a relatively small magnitude in relation to product values or prices could have such effects, or that the Panel could have reasoned to that conclusion in the circumstances of this case. Instead, however, the Panel dismissed the evidence advanced by the parties as not “particularly informative or illustrative” of the capacity of these subsidies to affect Boeing’s prices, without explaining why it considered this to be so. Given that a comparison of the magnitude of the FSC/ETI subsidies in relation to LCA values was a relevant matter clearly put before the Panel, we consider that the Panel should have offered more of an explanation as to why it rejected the relevance of such data for its analysis.
 

S.2.19B.6.10 US — Large Civil Aircraft (2nd complaint), para. 1339
(WT/DS353/AB/R)
 

… the magnitude of the subsidy, while still a relevant consideration, is of somewhat less consequence when the issue is whether the effects of the subsidy can be cumulated with the effects of another group of subsidies that have been found to be a genuine and substantial cause of serious prejudice, rather than whether the subsidy itself caused the serious prejudice. …
 

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.7.3 EC and certain member States — Large Civil Aircraft, paras. 773–776
(WT/DS316/AB/R)
 

… in US — Softwood Lumber IV … [t]he Appellate Body upheld the panel’s findings that Article 10 of the SCM Agreement and Article VI:3 of the GATT 1994 required the USDOC to conduct a “pass-through” analysis in circumstances where a subsidy is received by the producer of an input product and the imported product subject to the countervailing duty investigation is a different, downstream product manufactured by an unrelated producer operating at arm’s length from the recipient of the subsidy.
 

… In [US — Upland Cotton], the Appellate Body found that a “pass-through” analysis was “not critical” for an assessment of price suppression under Article 6.3(c) of the SCM Agreement, in part due to the differing contexts and rationales of Part III and Part V of the SCM Agreement. As the Appellate Body explained, Part III of the SCM Agreement requires only proof that the subsidy causes “adverse effects” and does not require a precise quantification of the subsidies since, inter alia, the remedy for a finding of adverse effects “targets the effects of the subsidy … generally”.
 

… we do not consider that … the facts of this case give rise to a requirement to conduct an analysis of whether the benefit of subsidies provided to the Airbus Industrie consortium “passed through” to Airbus SAS. First, there is no suggestion here that subsidies were provided to a different “input product” that was separate or distinct from a downstream “subsidized product”, as was the case in US — Softwood Lumber IV. Second, … despite the changes to their “legal organization”, the “economic realities” of production of Airbus LCA demonstrated that the Airbus Industrie consortium … and Airbus SAS were the “same producer” of LCA. …
 

Finally, we do not consider that the relationship between the predecessor companies and Airbus SAS is one that can be characterized as a relationship between unrelated companies operating at “arm’s length”. Instead, the companies and Airbus SAS were related, at least to some extent, through common ownership. We conclude, therefore, that we are not faced with a situation where predecessor and successor companies are unrelated and operate at arm’s length and where a “pass-through” analysis might therefore be required.
 

S.2.19B.8 EFFECT OF SUBSIDIES OVER TIME. SEE ALSO SCM AGREEMENT, ACTIONABLE SUBSIDIES — TEMPORAL SCOPE (S.2.19D)
 

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.8.8 EC and certain member States — Large Civil Aircraft, paras. 713–714
(WT/DS316/AB/R)
 

… [the] effects of a subsidy will ordinarily dissipate over time and will end at some point after the subsidy has expired. Indeed, as with a subsidy that has a finite life and materializes over time, so too do the effects of a subsidy accrue and diminish over time.
 

The Panel was of the view that the concept of “continuing benefit” may be relevant for purposes of assessing how the effect of a subsidy is to be analyzed over time, and considered this to be an aspect of the causation analysis to be undertaken pursuant to Articles 5 and 6 of the SCM Agreement and part of an assessment of the “effects” of a subsidy under these provisions. It is relevant, in our view, to examine the trajectory of the life of a subsidy in order to determine whether a Member is causing, through the use of any subsidy, adverse effects to the interests of another Member within the meaning of Article 5 of the SCM Agreement. Moreover, a panel should consider, where relevant for the adverse effects analysis, that the effects of a subsidy will ordinarily dissipate over time and will come to an end.
 

S.2.19B.8.9 EC and certain member States — Large Civil Aircraft, paras. 1236, 1238
(WT/DS316/AB/R)
 

… a challenge to subsidies granted prior to 1 January 1995 is not precluded. … however, … in order properly to assess a claim under Article 5 of the SCM Agreement, a panel must take into account in its ex ante analysis how a subsidy is expected to materialize over time. A panel is also required to consider whether the life of a subsidy has ended, for example, by reason of the amortization of the subsidy over the relevant period or because the subsidy was removed from the recipient. Moreover, we have emphasized that the effects of a subsidy will generally diminish and come to an end with the passage of time.
 

...
 

We do not agree [with the Panel] that it is only the effect of a “single subsidy” that would dissipate over time, while multiple subsidies may have the “opposite effect”. To the contrary, in general, the effects of any subsidy can be expected to diminish and eventually come to an end with the passage of time. This is true for single as well as multiple acts of subsidization. The question of whether there are residual effects is a fact-specific matter that may have to be considered.
 

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.9.2 EC and certain member States — Large Civil Aircraft, para. 1171
(WT/DS316/AB/R)
 

… We note that neither subparagraph (a) nor (b) of Article 6.3 of the SCM Agreement expressly refers to “threat of displacement”. Nevertheless, we recall that the introductory paragraph of Article 6.3 states that “[s]erious prejudice in the sense of paragraph (c) of Article 5 may arise” where there is one of the market phenomena described in the subparagraphs listed under that provision, including (a) and (b). Footnote 13 to Article 5(c), in turn, clarifies that “[t]he term ‘serious prejudice to the interests of another Member’ is used in this Agreement in the same sense as it is used in paragraph 1 of Article XVI of {the} GATT 1994, and includes threat of serious prejudice”. Although Article 15.7 of the SCM Agreement concerns threat of material injury, we believe that it also provides relevant guidance for understanding the concept of threat of serious prejudice under Article 5(c). Thus, as with a determination of threat of material injury, we consider that it is reasonable to require that the determination of threat of serious prejudice “be based on facts and not merely on allegation, conjecture or remote possibility” and that “[t]he change in circumstances” that would create a situation in which the subsidy would cause displacement “must be clearly foreseen and imminent”.
 

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.2.19B.11 COLLECTIVE ASSESSMENT OF SUBSIDIES AND THEIR EFFECTS
 

S.2.19B.11.1 EC and certain member States — Large Civil Aircraft, paras. 1372–1374
(WT/DS316/AB/R)
 

Despite its statement that “it is appropriate to undertake our analysis of the effects of the subsidies on an aggregated basis in this dispute”, in our view, the Panel did not actually conduct an aggregated assessment of the effects of LA/MSF and non-LA/MSF subsidies. Had it done so, the Panel would have sought to determine from the outset whether the collective effect of LA/MSF and non-LA/MSF subsidies was to enable the launch of particular models of Airbus LCA.
 

Instead, the Panel conducted a separate analysis of the effects of LA/MSF on Airbus’ ability to launch and bring to the market particular models of LCA, and then sought to determine whether non-LA/MSF subsidies had similar effects. On the basis of a separate — and more abbreviated — assessment of the collective effect of measures comprised under each group of non-LA/MSF subsidies, the Panel came to the conclusion that the “‘product’ effect of LA/MSF is … complemented and supplemented by the other specific subsidies we have found to exist in this dispute”.
 

Insofar as the Panel separately assessed the effect of LA/MSF, and then came to the conclusion, on the basis of an individual assessment, that each set of non-LA/MSF subsidies had effects similar to LA/MSF, the Panel did not aggregate the challenged subsidies with a view to discerning their effects under Article 6.3 of the SCM Agreement. …
 

S.2.19B.11.2 EC and certain member States — Large Civil Aircraft, paras. 1375, 1378–1379
(WT/DS316/AB/R)
 

This brings us to the question of whether it was appropriate for the Panel to do what it actually did, namely to focus its causation analysis on whether the non-LA/MSF subsidies at issue … “complemented and supplemented” the effects of LA/MSF.
 

...
 

We consider that the approach used by the Panel is permissible under Article 6.3 of the SCM Agreement, provided that a genuine causal link between the non-LA/MSF subsidies and the market phenomena alleged under Article 6.3 is established. … Once the Panel determined that LA/MSF subsidies were a substantial cause of the observed displacement and lost sales, it was not necessary to establish that non-LA/MSF subsidies were also substantial causes of the same phenomena. Moreover, the fact that LA/MSF subsidies were the substantial cause of adverse effects does not exclude that non-LA/MSF subsidies had similar effects. Rather, it was conceivable that non-LA/MSF subsidies complemented or supplemented the effects of LA/MSF subsidies. For these reasons, we do not agree … that Articles 5(c) and 6.3 of the SCM Agreement preclude an affirmative finding that non-LA/MSF subsidies cause adverse effects where they “complement and supplement” the effects of LA/MSF subsidies that have been found to be a substantial and genuine cause of adverse effects. Given that the Panel had determined that LA/MSF subsidies were a substantial cause of the alleged market phenomena, it was permissible and sufficient for the Panel to assess whether a genuine causal connection between non-LA/MSF subsidies and the same market phenomena existed such that these non-LA/MSF subsidies complemented or supplemented the effects of LA/MSF. …[T]he Panel was not required, in those circumstances, to establish that non-LA/MSF subsidies were themselves a substantial cause or “necessary to enable a launch decision at a particular point in time”.
 

… the Panel’s approach to the analysis of causation did not absolve it from establishing a genuine causal link between the different categories of non-LA/MSF subsidies and Airbus’ ability to launch and bring to the market its LCA models, thereby similarly causing the displacement and significant lost sales of Boeing LCA during the reference period. The fact that LA/MSF measures enabled certain product launches, and therefore were a genuine and substantial cause of displacement and lost sales during the reference period, does not in and of itself establish that non-LA/MSF subsidies had similar effects. Instead, the Panel had to establish that non-LA/MSF subsidies had a genuine causal connection with Airbus’s ability to launch and bring to the market its models of LCA, thus contributing to the adverse effects of LA/MSF measures.
 

S.2.19B.11.3 EC and certain member States — Large Civil Aircraft, paras. 1407–1408
(WT/DS316/AB/R)
 

With respect to the other R&TD subsidies, [the Panel’s] general finding that they enabled Airbus to develop “features and aspects” of its LCA on a schedule that otherwise it would have been unable to accomplish does not provide a sufficient basis to determine that R&TD subsidies “complemented and supplemented” the “product effect” of LA/MSF in enabling Airbus to launch particular models of LCA. … R&TD subsidies will not have any impact on Airbus’s (and consequently on Boeing’s) sales unless they provide Airbus LCA with a competitive advantage in relation to Boeing LCA. Such competitive advantage, in our view, must be reflected either in technologies incorporated in models of LCA actually launched by Airbus, or in technologies that make the production process of those LCA more efficient. Without specific findings that technology or production processes funded by R&TD subsidies contributed to Airbus’ ability to launch and bring to the market particular models of LCA, the Panel did not have a sufficient basis to conclude that those subsidies “complemented and supplemented” the “product effect” of LA/MSF.
 

For these reasons, we find that the Panel erred under Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement when it found that the R&TD subsidies “complemented and supplemented” the “product effect” of LA/MSF without establishing a genuine causal link between those R&TD subsidies and Airbus’s ability to launch and bring to the market its models of LCA. In failing to provide a sufficient evidentiary basis for its finding that the effect of non-LA/MSF subsidies was the displacement of Boeing LCA from the EC and relevant third country markets and significant lost sales under Article 6.3(a), (b), and (c) of the SCM Agreement, the Panel failed to conduct an objective assessment of the matter, including an objective assessment of the facts, as required by Article 11 of the DSU.
 

S.2.19B.11.4 US — Large Civil Aircraft (2nd complaint), para. 1282
(WT/DS353/AB/R)
 

… two distinct means of undertaking a collective assessment of the effects of multiple subsidies have been used, namely: (i) an ex ante decision taken by a panel to undertake a single analysis of the effects of multiple subsidies whose structure, design, and operation are similar and thereby to assess in an integrated causation analysis the collective effects of such subsidy measures; and (ii) an examination undertaken by a panel after it has found that at least one subsidy has caused adverse effects as to whether the effects of other subsidies complement and supplement those adverse effects. The former type of approach was employed by the panel in US — Upland Cotton, and the latter approach was employed by the panel in EC and certain member States — Large Civil Aircraft. For the sake of convenience, we will refer to the first type of approach as a decision to “aggregate” the subsidies, or “aggregation”, and to the second type of approach as a decision to “cumulate” the effects of the subsidies, or “cumulation”.
 

S.2.19B.11.5 US — Large Civil Aircraft (2nd complaint), para. 1284
(WT/DS353/AB/R)
 

Articles 5(c) and 6.3 of the SCM Agreement do not require that a serious prejudice analysis “clinically isolate each individual subsidy and its effects”. Rather, the way in which a panel structures its evaluation of a claim that multiple subsidies have caused serious prejudice will necessarily vary from case to case. Relevant circumstances that will bear upon the appropriateness of a panel’s approach include the design, structure, and operation of the subsidies at issue, the alleged market phenomena, and the extent to which the subsidies are provided in relation to a particular product or products. A panel must also take account of the manner in which the claimant presents its case, and the extent to which it claims that multiple subsidies have similar effects on the same product, or that the effects of multiple subsidies manifest themselves collectively in the relevant market. A panel enjoys a degree of methodological latitude in selecting its approach to analyzing the collective effects of multiple subsidies for purposes of assessing causation. However, a panel is never absolved from having to establish a “genuine and substantial relationship of cause and effect” between the impugned subsidies and the alleged market phenomena under Article 6.3, or from assessing whether such causal link is diluted by the effects of other factors. Moreover, a panel must take care not to segment unduly its analysis such that, when confronted with multiple subsidy measures, it considers the effects of each on an individual basis only and, as a result of such an atomized approach, finds that no subsidy is a substantial cause of the relevant adverse effects. At least two ways of conducting a collective causation analysis may be pursued by panels.
 

S.2.19B.11.6 US — Large Civil Aircraft (2nd complaint), paras. 1285–1286 and Footnote 2067
(WT/DS353/AB/R)
 

First, a panel may group together subsidy measures that are sufficiently similar in their design, structure, and operation in order to ascertain their aggregated effects in an integrated causation analysis and determine whether there is a genuine and substantial causal relationship between these multiple subsidies, taken together, and the relevant market phenomena identified in Article 6.3 of the SCM Agreement (such as significant price suppression, lost sales, displacement or impedance). In such circumstances, the panel is not required to find that each subsidy measure is, individually, a genuine and substantial cause of the relevant phenomenon. Nor is it required to assess the relative contribution of each subsidy within the group to the resulting effects. When such an analysis is appropriate in the light of the design, structure, and operation of multiple subsidies, a panel may also add together the amounts of the subsidies as part of its analysis of the collective effects of that group of subsidies. Whether such an analysis is appropriate will depend upon the particular features of the subsidies at issue and the case presented by the complainant. The causal mechanism through which a subsidy produces effects is one criterion that will be relevant to the issue of whether aggregation is appropriate in any given instance.
 

The approach of the panel in US — Upland Cotton illustrates this first method of collectively assessing the effects of multiple subsidies (aggregation). … the panel divided the subsidies at issue into two general groups: “those that are directly price-contingent, and those that are not”. The panel identified certain characteristics shared by the price-contingent subsidies and found that they had “a nexus with the subsidized product and the single effects-related variable—world price”, so as to warrant consideration of their effects in the aggregate, given that such effects are “manifest in the movements in upland cotton prices in the same world market during the reference period.” In contrast, the panel identified certain characteristics of the non-price-contingent subsidies that suggested a much more attenuated nexus between those subsidies and the world price for cotton and, therefore, declined to aggregate the non-price-contingent subsidies with the price-contingent subsidies in its price suppression analysis.2607
 

S.2.19B.11.7 US — Large Civil Aircraft (2nd complaint), paras. 1287–1289
(WT/DS353/AB/R)
 

Second, a panel may begin by analyzing the effects of a single subsidy, or an aggregated group of subsidies, in order to determine whether it constitutes a genuine and substantial cause of adverse effects. Having reached that conclusion, a panel may then assess whether other subsidies — either individually or in aggregated groups — have a genuine causal connection to the same effects, and complement and supplement the effects of the first subsidy (or group of subsidies) that was found, alone, to be a genuine and substantial cause of the alleged market phenomena. The other subsidies have to be a “genuine” cause, but they need not, in themselves, amount to a “substantial” cause in order for their effects to be combined with those of the first subsidy or group of subsidies that, alone, has been found to be a genuine and substantial cause of the adverse effects.
 

This second way of collectively assessing the effects of multiple subsidies (cumulation) was adopted by the panel in EC and certain member States — Large Civil Aircraft, a dispute that involved challenges to a large number of subsidy measures. … In its adverse effects analysis, the panel first assessed the effects of one of the categories of subsidies — namely, LA/MSF subsidies — that the United States had contended were the primary subsidies affecting Airbus’ commercial behaviour. The panel determined that through their “product effect”—namely, enabling Airbus to launch each of its LCA models at the time that it did — the LA/MSF caused displacement of imports within the meaning of Article 6.3(a), displacement of exports within the meaning of Article 6.3(b), and significant lost sales within the meaning of Article 6.3(c) of the SCM Agreement. The panel then turned to assess the effects of non-LA/MSF subsidies, and considered whether the “product” effect of LA/MSF was “complemented and supplemented” by the remaining three types of subsidies. …
 

… The Appellate Body … considered that the approach that the panel had taken was in principle permissible provided that, in its analysis, the panel had established a genuine causal link between each group of non-LA/MSF subsidies and the relevant adverse effects. …
 

S.2.19B.11.8 US — Large Civil Aircraft (2nd complaint), para. 1290
(WT/DS353/AB/R)
 

Thus, at least two approaches to a collective assessment of the effects of multiple subsidy measures may be used, namely, aggregation and cumulation. Whether either, or both, or neither of these approaches is appropriate in a particular case will be a function of the specific subsidy measures at issue and their effects on prices and sales in the relevant market, as well as upon the manner in which a complainant presents its claim and the panel decides to structure its causation analysis. In deciding how to undertake its analysis of serious prejudice, however, a panel is subject to the constraint that it must employ an approach that will enable it to take due account of all of the subsidies that provide a relevant and identifiable competitive advantage to the recipient and its products in the market and that relate to alleged adverse effects phenomena. Only by doing so can a panel ensure a full appreciation of all of the challenged subsidies that may be contributing, or conducing, to the serious prejudice. At the same time, a panel must be careful not to combine multiple measures in such a way as to absolve a complainant of its burden of proving that each challenged measure is a genuine cause of, or genuinely contributes to producing, the market phenomena identified in Article 6.3 and that the challenged subsidies, taken together, are a genuine and substantial cause of such adverse effects.
 

S.2.19B.11.9 US — Large Civil Aircraft (2nd complaint), paras. 1291–1293
(WT/DS353/AB/R)
 

A decision to aggregate subsidies that share a similar design, structure, and operation is both a useful tool that a panel can use to avoid having to repeat the same analysis for each and every measure and a substantive recognition that the measures in question are of such kind that they are likely to conduce to the same result. Indeed, an aggregate analysis of such a group of subsidies may establish a genuine and substantial causal link in circumstances where no such link could have been established for each subsidy measure, analyzed in isolation. A decision by a panel to aggregate multiple subsidy measures represents an exercise of judgement by the panel to the effect that, given the degree of similarity among the subsidy measures, there is a reasonable likelihood that the examination of the causal relationship between each such subsidy and the alleged effects will be largely similar, and that it can be anticipated that the effects of the subsidy measures and their causal relationship to the serious prejudice alleged will be largely the same. In adopting such an approach, a panel must explain why it considers such similarity to exist. Such explanation should be grounded in the characteristics of the particular subsidies at issue, particularly the nature and design of those subsidy measures, the implications of that nature and design for the operation of the subsidies, their relationship to the subsidized product, and the structure of the market in which that product competes.
 

In contrast, a decision as to whether the effects of different subsidies can be cumulated can be taken only after there has been a determination, for at least one subsidy or group of aggregated subsidies, that it has a genuine and substantial link to the alleged market phenomena. Once such a causal link has been established, then a panel will have to address the question of whether other subsidies have a genuine connection to such phenomena. Considerations that may bear upon a panel’s assessment of whether a genuine causal connection exists include the design, structure, magnitude, and operation of the subsidy, as well as the nexus between the subsidy and the subsidized product. In our view, a genuine causal connection may be established in different ways. One way is to demonstrate that the subsidy or subsidies cause effects that follow the same causal pathway as a subsidy that has already been found to be a genuine and substantial cause of the alleged market phenomena under Article 6.3 of the SCM Agreement. We do not, however, consider that this is the only way in which the requisite genuine causal connection can be established. A genuine causal connection may also be found when a complainant succeeds in demonstrating that, even though other subsidies do not operate along the same causal pathway, those subsidies nevertheless, either singly or in combination, meaningfully contribute to, and thereby complement and supplement, the adverse effects, within the meaning of Article 6.3, caused by the first subsidy. In other words, the effects of such other subsidy or group of subsidies must be shown to be non-trivial in order to be found to supplement or complement effects for which a genuine and substantial connection has already been established.
 

We further observe that the characteristics of the market within which the subsidized products compete may affect the analysis of whether the effects of different subsidies complement and supplement each other, and that panels should give consideration to whether the specific market at issue enhances the scope for complementarity among subsidies — even those subsidies that differ in nature. For example, when a subsidy recipient exercises market power, it may be more likely to be able to take advantage of potential interaction between different subsidies, and to exploit these effects to the disadvantage of its competitors, than would be the case in a perfectly competitive market.
 

S.2.19B.11.10 US — Large Civil Aircraft (2nd complaint), para. 1319
(WT/DS353/AB/R)
 

In our view, the issue of whether cumulation of the effects of different types of subsidies is possible or appropriate is a question that must be answered in the light of the particular facts and circumstances of a given case, including the subsidies at issue and their nexus with the subsidized products, the effects produced, and their relationship to the alleged Article 6.3 market phenomena. We do not see any a priori reason — such as, that different subsidies operate through distinct causal mechanisms — why cumulation would be precluded outright. We are particularly hesitant to set out a rigid benchmark against which panels should test whether or not cumulation is appropriate based on the facts of this dispute or of EC and certain member StatesLarge Civil Aircraft. Each of these disputes involved very particular duopolistic markets, in which the market participants enjoyed some degree of market power in their product and pricing decisions. In such markets, it may be that the “product” or “technology” effects of subsidies can be examined separately from their “price” effects. We nevertheless question whether such a segmented analysis is capable of fully reflecting market dynamics and taking account of the scope for subsidies and their effects to interact in these types of markets. Moreover, in many other markets, the structure of competition will be such that it will simply be impossible meaningfully to conduct a separate analysis of, or distinguish between, “product” effects and “price” effects.
 

S.2.19B.11.11 US — Large Civil Aircraft (2nd complaint), paras. 1320–1321
(WT/DS353/AB/R)
 

We are of the view that the Panel should have, in this dispute, considered whether the effects of the B&O tax rate reductions complemented and supplemented the effects of the aeronautics R&D subsidies within the 200–300 seat LCA market, or, in other words, whether it would have been appropriate to cumulate their effects. We do not consider the mere fact that the two groups of subsidies operated through distinct causal mechanisms could, alone, have resolved the questions of whether each group had effects relevant to the serious prejudice alleged and whether those effects were capable of being combined in the Panel’s analysis of serious prejudice because they contributed similarly to the relevant market phenomena. This is since, as we have explained, for purposes of cumulating, the requisite genuine causal connection can be established even when the other subsidies do not operate along the same causal pathway as the subsidy found to be a genuine and substantial cause of Article 6.3 market phenomena, provided that those subsidies meaningfully contribute to the same market phenomena caused by the first subsidy. When that is so, the effects of such subsidies complement and supplement, and should be cumulated with, the effects of the subsidy that is a genuine and substantial cause of such phenomena.
 

By closing its mind to such an approach, “owing to the very different way” in which the two groups of subsidies operate and their “entirely distinct causal mechanisms”, the Panel failed to give full consideration to the possibility of cumulating the effects of these two groups of subsidies. We therefore find that the Panel erred in failing to consider whether the price effects of the B&O tax rate reductions complement and supplement the technology effects of the aeronautics R&D subsidies in causing significant lost sales and significant price suppression, and a threat of displacement and impedance, in the 200–300 seat LCA market. …
 

S.2.19B.11.12 US — Large Civil Aircraft (2nd complaint), paras. 1325–1326
(WT/DS353/AB/R)
 

As indicated above, the Panel did not explicitly address the question of whether it should have collectively assessed these two groups of subsidies and their effects. This is surprising given that the European Communities had consistently argued that all of the subsidies had effects on Boeing’s pricing, and that the Panel should have collectively assessed such effects. Accordingly, we simply do not know whether the Panel did not collectively assess these two groups of subsidies or their effects because … it considered that the two groups of subsidies operated through “distinct causal mechanisms”, or for some other reason.
 

Although the absence of any reasoning by the Panel is problematic, we consider that there is support on the record for the view that the Panel did not act outside the scope of its discretion by not conducting an aggregated analysis of these two groups of subsidies. Most importantly, the Panel’s explanations of the operation of the tied tax subsidies, on the one hand, and the remaining subsidies, on the other hand, strongly suggest that the Panel considered them to be different in nature. … For these reasons, we are unable to accept the European Union’s contention that the Panel erred in failing to conduct ex ante an aggregated analysis of these two groups of subsidies and their effects.
 

S.2.19B.11.13 US — Large Civil Aircraft (2nd complaint), paras. 1327–1330
(WT/DS353/AB/R)
 

We find more persuasive force in the European Union’s alternative argument, namely, that the Panel erred in failing to make a cumulative assessment of whether the remaining subsidies affected Boeing’s prices in a way similar to the tied tax subsidies, such that they complemented and supplemented the effects of the tied tax subsidies that the Panel had found to be a genuine and substantial cause of displacement and impedance, significant lost sales, and significant price suppression in the 100–200 seat and 300–400 seat LCA markets. The European Communities consistently maintained before the Panel that all of the subsidies … contributed to Boeing’s ability to reduce, and to the actual reduction of, its LCA prices and the consequent adverse effects on Airbus in the market. …
 

The Panel undertook only a cursory analysis of the alleged effects of the remaining subsidies. … having found that the tied tax subsidies were a genuine and substantial cause of Article 6.3 phenomena, the Panel failed to ascertain whether a genuine causal relationship existed between these phenomena and the remaining subsidies, and failed to consider whether the effects of the tied tax subsidies and those of the remaining subsidies could or should be cumulated.
 

For these reasons, we find that the Panel erred in concluding … that the remaining subsidies had not been shown to have affected Boeing’s prices in a manner giving rise to serious prejudice, without having considered whether those subsidies had a genuine relationship to, and effects on, such prices. Accordingly, we reverse that finding, which was reached without having given full consideration to the claim as presented by the European Communities.
 

We emphasize that, in reaching this conclusion, we are not suggesting that the mere fact that the Panel had found the tied tax subsidies affected Boeing’s prices and were a genuine and substantial cause of adverse effects means that the remaining subsidies necessarily had similar effects. Rather, we fault the Panel for failing to address this question at all, particularly given the European Communities’ consistent position that both groups of subsidies had similar effects on Boeing’s pricing and contributed to the same market phenomena.
 

S.2.19B.11.14 US — Large Civil Aircraft (2nd complaint), paras. 1331, 1334, 1336–1337, and Footnote 2677
(WT/DS353/AB/R)
 

The European Union requests us to complete the analysis and find that, together with the tied tax subsidies, the remaining subsidies cause adverse effects. …
 

...
 

… we have found that the FSC/ETI subsidies and the State of Washington B&O tax rate reduction were, through their effects on Boeing’s prices for its 737NG, a genuine and substantial cause of significant lost sales in the 100–200 seat LCA market. Accordingly, the question that we must address is whether the effects of the remaining subsidies complemented and supplemented these effects.
 

...
 

It is undisputed that none of the remaining subsidies was contingent upon the production or sale of particular LCA. The Panel noted that both parties accepted the proposition that the receipt of such subsidies “may still affect the behaviour of the recipient of the subsidy in a manner that causes serious prejudice, depending upon the context in which it is used”.2677 … we determined that Boeing was under particular pressure to reduce its prices in order to secure 737NG sales in the 2005 JAL and SALE campaigns, and we concluded that it used the FSC/ETI subsidies and the State of Washington B&O tax rate reduction to do so.
 

These findings are equally relevant to our analysis of whether the remaining subsidies had a genuine causal link to Boeing’s pricing of its 737NG in those two campaigns because they establish Boeing’s strong incentives to employ available means to lower its 737NG prices and secure those sales. Accordingly, we consider that, in the circumstances of those two sales campaigns, the necessary causal link will be established if there are uncontested facts or factual findings by the Panel linking the remaining subsidies, or any of them, to the 737NG. This will suffice to establish that the benefits of such subsidies were among the means available to Boeing in those campaigns and, thereby, to demonstrate a genuine nexus between such remaining subsidies and the 737NG.
 

S.2.19B.11.15 US — Large Civil Aircraft (2nd complaint), para. 1339
(WT/DS353/AB/R)
 

… the magnitude of the subsidy, while still a relevant consideration, is of somewhat less consequence when the issue is whether the effects of the subsidy can be cumulated with the effects of another group of subsidies that have been found to be a genuine and substantial cause of serious prejudice, rather than whether the subsidy itself caused the serious prejudice. In addition, the uncontested fact that the subsidies are not “tied” does not necessarily imply that none of them are “directly related to Boeing’s production or sale of LCA”. It is true, as the Panel appears to have recognized, that none of the remaining subsidies was “tied” to the production or sale of specific LCA, in the sense that we have used that term in this Report. In other words, receipt of the subsidy was not contingent on the production or sale of a particular product on a per-unit basis. Yet all of the remaining subsidies are subsidies intended to cover some portion of the fixed costs that Boeing incurs, for example, its costs for purchasing or improving manufacturing facilities for components, for purchasing computer hardware and software, for training workers, or for obtaining early access to its new corporate headquarters building in Chicago. Moreover, … some of these subsidies are more directly related to Boeing’s production of LCA and in particular to its production of the 737NG, than others.
 

S.2.19B.11.16 US — Large Civil Aircraft (2nd complaint), para. 1348
(WT/DS353/AB/R)
 

Like the Panel and, indeed, the participants, we have no difficulty accepting the general proposition that subsidies that are not directly contingent upon production or sale can nevertheless affect pricing decisions in some circumstances. We have also explained above the basis for our view that the circumstances of the JAL and SALE campaigns were such that we are satisfied that Boeing used the FSC/ETI subsidies and the State of Washington B&O tax rate reduction to lower its 737NG prices. Within this product market and in the circumstances of those campaigns, we are further satisfied that Boeing would have used all available means to reduce its prices to the extent necessary to secure those sales, including subsidy benefits directly linked to production of the 737NG. The IRBs cannot be considered trivial in terms of their overall magnitude or duration, and they have a genuine link to Boeing’s production of the 737NG. For these reasons, we consider that Boeing’s IRB benefits enhanced the pricing flexibility that it enjoyed by reason of the tied tax subsidies in the circumstances of those two sales campaigns. Accordingly, we find that the effects of the City of Wichita IRBs complemented and supplemented the price effects of the FSC/ETI subsidies and the State of Washington B&O tax rate reduction, thereby causing serious prejudice, in the form of significant lost sales, within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement, in the 100–200 seat LCA market.
 

S.2.19B.11.17 US — Large Civil Aircraft (2nd complaint), para. 1349
(WT/DS353/AB/R)
 

… we have found that the Panel erred in failing to consider whether the price effects of the B&O tax rate reductions complemented and supplemented the technology effects of the aeronautics R&D subsidies in causing significant lost sales and significant price suppression, and a threat of displacement and impedance in the 200–300 seat LCA market. We have further reversed the Panel’s finding, in paragraphs 7.1828 and 7.1855 of the Panel Report, that the remaining subsidies had not been shown to have affected Boeing’s prices in a manner giving rise to serious prejudice, because the Panel reached that finding without having considered whether those subsidies had a genuine relationship to, and effects on, those prices, such that they could be said to complement and supplement the price effects of the tied tax subsidies in the 100–200 seat and 300–400 seat LCA markets. Lastly, we completed the analysis and found that the effects of the City of Wichita IRBs complemented and supplemented the price effects of the FSC/ETI subsidies and the State of Washington B&O tax rate reduction, thereby causing serious prejudice, in the form of significant lost sales, within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement, in the 100–200 seat LCA market.
 

Article 6.6 and Article 6.8. See Annex V — Procedures for Developing Information Concerning Serious Prejudice (S.2.40A)
 

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.
 

S.2.19C.3 EC and certain member States — Large Civil Aircraft, paras. 756–757
(WT/DS316/AB/R)
 

… the drafters of Articles 4.7 and 7.8 contemplated that the remedy of “withdrawal” would be available only after a panel and the Appellate Body have determined, in original proceedings, that subsidies are prohibited and/or actionable and causing adverse effects. … Therefore, … under Article 7.8, a recommendation to “withdraw” subsidies or remove their adverse effects is directed at actionable subsidies that have been found to cause adverse effects. …
 

… the recommendations made by the Panel … concern all those subsidies ultimately found to be … actionable subsidies causing adverse effects. They do not concern subsidies that have been “extinguished” or “extracted”. … panels or the Appellate Body are not required to make recommendations pursuant to Articles 4.7 and 7.8 with respect to subsidy measures that are found to be “extinguished” or “extracted”.
 

S.2.19D Actionable subsidies — Temporal scope. See also SCM Agreement, Article 6.3 — Serious Prejudice, Effect of subsidies over time (S.2.19B.8); Temporal Application of Rights and Obligations, SCM Agreement (T.5.1)     back to top

S.2.19D.1 EC and certain member States — Large Civil Aircraft, paras. 680–681
(WT/DS316/AB/R)
 

The Panel expressed the view that Part III of the SCM Agreement generally is concerned with a situation that subsists and continues over time, rather than with specific acts performed by Members. According to the Panel:
 

[w]hile “cause” is used as a verb in Article 5, it does not connote specific action on the part of a Member. Rather, it describes a particular relationship between the antecedent conduct of a Member and subsequent events which ultimately are attributed to that Member.
 

We see no reason to disagree with the Panel. Article 5 reflects the notion that it is the causing, through the use of any subsidy, of adverse effects, rather than the granting of the subsidy that is the situation that is addressed by that provision. As we have noted above, Article 5 does not prohibit the granting or the use of a subsidy per se. Rather, Members are permitted to grant or maintain specific subsidies to the extent that they do not cause adverse effects within the meaning of Articles 5 and 6 of the SCM Agreement. The context of Article 5 also supports the notion that Part III generally is concerned with a situation that continues over time, rather than with specific acts. For instance, Article 6.4 contemplates that the displacement or impeding of exports, for purposes of Article 6.3(b), shall be demonstrated based on evidence relating to “an appropriately representative period sufficient to demonstrate clear trends in the development of the market for the product concerned, which, in normal circumstances, shall be at least one year”. In addition, Article 6.3(d) suggests that an increase in the world market share of the subsidizing Member is to be determined on the basis of “a consistent trend over a period when subsidies have been granted”.
 

S.2.19D.2 EC and certain member States — Large Civil Aircraft, para. 690
(WT/DS316/AB/R)
 

… we modify the Panel’s interpretation of Article 5 of the SCM Agreement and consider that the “causing, through the use of any subsidy, of adverse effects” is covered by Article 5 even if it arises out of subsidies granted or brought into existence prior to 1 January 1995, and that a challenge to such subsidies is not precluded under the terms of the SCM Agreement. Accordingly, we uphold the Panel’s conclusion, in paragraph 7.65 of the Panel Report, rejecting the European Communities’ request to exclude all subsidies granted prior to 1 January 1995 from the temporal scope of the dispute.
 

S.2.19D.3 EC and certain member States — Large Civil Aircraft, para. 709
(WT/DS316/AB/R)
 

We understand the participants to agree with the basic proposition that a subsidy has a life, which may come to an end, either through the removal of the financial contribution and/or the expiration of the benefit. In the particular context of Part III of the SCM Agreement, a panel is called upon to determine whether the complainant has demonstrated that the responding party is causing, through the use of any subsidy, adverse effects. The fact that Article 5 of the SCM Agreement speaks of “any subsidy referred to in paragraphs 1 and 2 of Article 1”, which in turn sets out the conditions under which a subsidy is “deemed to exist”, does not mean that the subsidy remains unchanged over time. At the time of the grant of a subsidy, the subsidy will necessarily be projected to have a finite life and to be utilized over that finite period. In order properly to assess a complaint under Article 5 that a subsidy causes adverse effects, a panel must take into account that a subsidy provided accrues and diminishes over time, and will have a finite life. The adverse effects analysis under Article 5 is distinct from the “benefit” analysis under Article 1.1(b) of the SCM Agreement and there is consequently no need to re-evaluate under Article 5 the amount of the benefit conferred pursuant to Article 1.1(b). Rather, an adverse effects analysis under Article 5 must consider the trajectory of the subsidy as it was projected to materialize over a certain period at the time of the grant. Separately, where it is so argued, a panel must assess whether there are “intervening events” that occurred after the grant of the subsidy that may affect the projected value of the subsidy as determined under the ex ante analysis. Such events may be relevant to an adverse effects analysis because they may affect the link that a complaining party is seeking to establish between the subsidy and its alleged effects.
 

S.2.19D.4 EC and certain member States — Large Civil Aircraft, para. 710
(WT/DS316/AB/R)
 

In sum, a panel’s analysis of the adverse effects must take into account how the subsidy has materialized over time. As part of this analysis, a panel must assess how the subsidy is affected, both by the depreciation of the subsidy that was projected ex ante and the “intervening events” referred to by a party that may have occurred following its grant.
 

S.2.19D.5 EC and certain member States — Large Civil Aircraft, paras. 712–713, 715 and Footnote 1651
(WT/DS316/AB/R)
 

The text of Articles 5 and 6 of the SCM Agreement, and in particular the use of the present tense in these provisions, does not support the proposition that there must be “present benefit” during the reference period. … the requirement that the effects of subsidies be felt in the reference period, does not mean that the subsidies, and in particular the benefit conferred, must also be present during that period. In focusing on the causing of adverse effects through the use of any subsidy, Article 5 envisages that the use of the subsidy and the adverse effects may not be contemporaneous. This is supported by the Appellate Body’s finding in US — Upland Cotton, that the provision of subsidies and their effects need not coincide temporally and that there may be a time lag.1651 … By its terms, Article 5 of the SCM Agreement imposes an obligation on Members not to cause adverse effects to the interests of other Members through the use of any subsidy as defined in Article 1. We disagree with the proposition that this obligation does not arise in respect of subsidies that have come to an end by the time of the reference period. In fact, we do not exclude that, under certain circumstances, a past subsidy that no longer exists may be found to cause or have caused adverse effects that continue to be present during the reference period.
 

For these reasons, we agree with the Panel that the United States was not required, under Article 5 of the SCM Agreement, to establish “that all or part of the ‘benefit’ found to have been conferred by the provision of a financial contribution continues to exist, or presently exists” during the reference period. We wish to emphasize, however, that effects of a subsidy will ordinarily dissipate over time and will end at some point after the subsidy has expired. Indeed, as with a subsidy that has a finite life and materializes over time, so too do the effects of a subsidy accrue and diminish over time.
 

...
 

… therefore, we … uphold the Panel’s ultimate finding … that Articles 5 and 6 of the SCM Agreement do not require that a complainant demonstrate that a benefit “continues” or is “present” during the reference period for purposes of an adverse effects analysis.
 

S.2.19D.6 EC and certain member States — Large Civil Aircraft, para. 744
(WT/DS316/AB/R)
 

… we do not a priori exclude the possibility that all or part of a subsidy may be removed from a firm by the removal of cash or cash equivalents. … This does not amount to saying … that every time cash leaves a company the benefit of prior financial contributions would be correspondingly diminished. Rather, a consideration of whether the cash removed from a company eliminates past subsidies is a fact-specific inquiry that must be assessed based on the circumstances of the case. That inquiry would consider matters such as whether the cash “extracted” was in the form of dividends representing the profits of a company, which both participants accept would not normally amount to an “extraction” of past subsidies.
 

S.2.19D.7 EC and certain member States — Large Civil Aircraft, paras. 745–746
(WT/DS316/AB/R)
 

… an adverse effects analysis under Article 5 requires a panel to take into account “intervening events” that may bring a subsidy to an end. …
 

… The European Union seems to suggest that, because a subsidy would be reflected in a company’s balance sheet, and cash is fungible, once cash is removed there is an adequate link established between the subsidies provided and the cash extracted. … at a minimum, the European Communities was required to explain how the specific subsidies received by Dasa and CASA were reflected in the balance sheets of those companies, and how the cash removed or “extracted” represented the remaining or unused value of these subsidies. The mere assertion by the European Communities, without more, that subsidies to Dasa and CASA increased the value of those companies and that therefore any cash taken out represents the subsidy or its “incremental value”, does not in our view satisfy the requirement of establishing a “causal relationship” between the “cash extraction” and the subsidy … .
 

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 32.1 — Specific action against a subsidy (S.2.36); SCM Agreement, Article VI:3 of the GATT 1994 — Subsidies (S.2.43)
 

Article 11 — Initiation and subsequent investigation. See also 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. See also Anti-Dumping Agreement, Article 5.8 — Termination of the investigation (A.3.28A)     back to top

S.2.21.1 US — Carbon Steel, paras. 67–68 and Footnote 58
(WT/DS213/AB/R, WT/DS213/AB/R/Corr.1)
 

[Paragraph 9] is one of the eleven paragraphs of Article 11. The various paragraphs set forth rules of a mainly procedural and evidentiary nature. All of them relate to the authorities’ initiation and conduct of a countervailing duty investigation, as would be expected given the overall title of Article 11 — “Initiation and Subsequent Investigation”. Paragraph 9 of Article 11 requires authorities to terminate immediately investigative action in three situations. One of these is when the authorities are satisfied that the amount of the subsidy is less than 1 percent ad valorem.
 

Although the terms of Article 11.9 are detailed as regards the obligations imposed on authorities thereunder, none of the words in Article 11.9 suggests that the de minimis standard that it contains is applicable beyond the investigation phase of a countervailing duty proceeding.58 In particular, Article 11.9 does not refer to Article 21.3, nor to reviews that may follow the imposition of a countervailing duty.
 

S.2.21.2 US — Carbon Steel, para. 69
(WT/DS213/AB/R, WT/DS213/AB/R/Corr.1)
 

… the technique of cross-referencing is frequently used in the SCM Agreement … These cross-references suggest to us that, when the negotiators of the SCM Agreement intended that the disciplines set forth in one provision be applied in another context, they did so expressly. In the light of the many express cross-references made in the SCM Agreement, we attach significance to the absence of any textual link between Article 21.3 reviews and the de minimis standard set forth in Article 11.9. …
 

S.2.21.3 US — Carbon Steel, para. 83
(WT/DS213/AB/R, WT/DS213/AB/R/Corr.1)
 

To us, there is nothing in Article 11.9 to suggest that its de minimis standard was intended to create a special category of “non-injurious” subsidization, or that it reflects a concept that subsidization at less than a de minimis threshold can never cause injury. For us, the de minimis standard in Article 11.9 does no more than lay down an agreed rule that if de minimis subsidization is found to exist in an original investigation, authorities are obliged to terminate their investigation, with the result that no countervailing duty can be imposed in such cases.
 

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 anti-dumping 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.3.33–36)     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” and disclosure of essential facts     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.2.21D.2 China — GOES, para. 240 and Footnote 390
(WT/DS414/AB/R)
 

At the heart of Articles 6.9 and 12.8 is the requirement to disclose, before a final determination is made, the essential facts under consideration which form the basis for the decision whether or not to apply definitive measures. As to the type of information that must be disclosed, these provisions cover “facts under consideration”, that is, those facts on the record that may be taken into account by an authority in reaching a decision as to whether or not to apply definitive anti-dumping and/or countervailing duties. We highlight that, unlike Articles 12.2.2 of the Anti-Dumping Agreement and 22.5 of the SCM Agreement, which govern the disclosure of matters of fact and law and reasons at the conclusion of anti-dumping and countervailing duty investigations, Articles 6.9 and 12.8 concern the disclosure of “facts” in the course of such investigations “before a final determination is made”. Moreover, we note that Articles 6.9 and 12.8 do not require the disclosure of all the facts that are before an authority but, instead, those that are “essential”; a word that carries a connotation of significant, important, or salient. In considering which facts are “essential”, the following question arises: essential for what purpose? The context provided by the latter part of Articles 6.9 and 12.8 clarifies that such facts are, first, those that “form the basis for the decision whether to apply definitive measures” and, second, those that ensure the ability of interested parties to defend their interests.390 Thus, we understand the “essential facts” to refer to those facts that are significant in the process of reaching a decision as to whether or not to apply definitive measures. Such facts are those that are salient for a decision to apply definitive measures, as well as those that are salient for a contrary outcome. An authority must disclose such facts, in a coherent way, so as to permit an interested party to understand the basis for the decision whether or not to apply definitive measures. In our view, disclosing the essential facts under consideration pursuant to Articles 6.9 and 12.8 is paramount for ensuring the ability of the parties concerned to defend their interests.
 

S.2.21D.3 China — GOES, paras. 241–242
(WT/DS414/AB/R)
 

We agree with the Panel that, “[i]n order to apply definitive measures at the conclusion of countervailing and anti-dumping investigations, an investigating authority must find dumping or subsidization, injury and a causal link” between the dumping or subsidization and the injury to the domestic industry. What constitutes an “essential fact” must therefore be understood in the light of the content of the findings needed to satisfy the substantive obligations with respect to the application of definitive measures under the Anti-Dumping Agreement and the SCM Agreement, as well as the factual circumstances of each case. These findings each rest on an analysis of various elements that an authority is required to examine, which, in the context of an injury analysis, are set out in, inter alia, Articles 3.1, 3.2, 3.4, and 3.5 of the Anti-Dumping Agreement and Articles 15.1, 15.2, 15.4, and 15.5 of the SCM Agreement. Articles 3.2 and 15.2 require investigating authorities to consider the effect of subject imports on prices. In particular, under the second sentence of these provisions, authorities must consider whether there has been a significant price undercutting by the dumped or subsidized imports as compared with the price of a like domestic product, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree.
 

Hence, in the context of the second sentence of Articles 3.2 and 15.2, we consider that the essential facts that investigating authorities need to disclose are those that are required to understand the basis for their price effects examination, leading to the decision whether or not to apply definitive measures, so that interested parties can defend their interests. …
 

S.2.21D.4 China — GOES, para. 251
(WT/DS414/AB/R)
 

In sum, MOFCOM was required to disclose the “essential facts” relating to the “low price” of subject imports on which it relied for its finding of significant price depression and suppression. This means that, in addition to the finding regarding the “low price” of subject imports, MOFCOM was also required to disclose the facts of price undercutting that were required to understand that finding. As the Panel found, the Preliminary Determination and the Final Injury Disclosure only state that subject imports were at a “low price”, without providing any facts relating to the price comparisons of subject imports and domestic products. We consider that these facts constituted “essential facts” within the meaning of Articles 6.9 and 12.8, which should have been disclosed to all interested parties. Consequently, we uphold the Panel’s finding in paragraphs 7.575 and 8.1(f) of the Panel Report that China acted inconsistently with Article 6.9 of the Anti-Dumping Agreement and Article 12.8 of the SCM Agreement.
 

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 discernable 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.2.22.8 US — Anti-Dumping and Countervailing Duties (China), paras. 436–437
(WT/DS379/AB/R)
 

Article 14 deals with the “Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient”. The Appellate Body found, in Canada — Aircraft, that a government financial contribution confers a benefit if the “‘financial contribution’ makes the recipient ‘better off’ than it would otherwise have been, absent that contribution”, and that “the marketplace provides an appropriate basis for comparison”. …
 

In US — Softwood Lumber IV, the Appellate Body found that, taken together, the terms of Article 14 “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”. Moreover, “the use of the term ‘guidelines’ in Article 14 suggests that paragraphs (a) through (d) should not be interpreted as ‘rigid rules that purport to contemplate every conceivable factual circumstance’”.
 

S.2.22.9 US — Large Civil Aircraft (2nd complaint), para. 697
(WT/DS353/AB/R)
 

… there is no obligation in the SCM Agreement to quantify the precise amount of the subsidy for purposes of an adverse effects claim, and the Panel’s finding of benefit under Article 1.1(b) in this case does not depend on the Panel’s quantification of the amount of the subsidy provided by NASA. The Appellate Body has previously stated that, while the magnitude of a subsidy may be relevant to the assessment of a claim of serious prejudice, a “precise, definitive quantification of the subsidy is not required” for purposes of a serious prejudice analysis. In the absence of such an obligation, it is not clear on what basis the Panel’s reluctance to go further in its calculations could constitute legal error. Furthermore, the Panel never purported that its calculations would be precise, since it indicated that the amount is an estimate.
 

S.2.22A Article 14(a) — Government provision of equity capital     back to top

S.2.22A.1 EC and certain member States — Large Civil Aircraft, para. 999
(WT/DS316/AB/R)
 

Article 14(a) states that equity capital provided by a government shall not be considered to confer a benefit unless it is inconsistent with what is termed the “usual investment practice” of private investors in the territory of that Member. The two words “usual” and “practice” are in a sense reinforcing, with the former signifying “[c]ommonly or customarily observed or practised” and the latter “usual or customary action or performance”. Thus, we understand the term “usual practice” to describe common or customary conduct of private investors in respect of equity investment. We also observe that Article 14(a) focuses the inquiry on the “investment decision”. This reflects an ex ante approach to assessing the equity investment by comparing the decision, based on the costs and expected returns of the transaction, to the usual investment practice of private investors at the moment the decision to invest is undertaken. The focus in Article 14(a) on the “investment decision” is thus critical, in our view, because it identifies what is to be compared to a market benchmark, and when that comparison is to be situated. …
 

S.2.22A.2 EC and certain member States — Large Civil Aircraft, para. 1019
(WT/DS316/AB/R)
 

… Article 14(a) of the SCM Agreement focuses the inquiry on the “investment decision”. This reflects an ex ante assessment of the equity investment, taking into account the costs and expected returns of the transaction as compared to the usual investment practice of private investors at the moment the decision to invest is undertaken. … the focus of Article 14(a) on the “investment decision” is a critical step in the analysis because it identifies what is to be compared to the market benchmark, and when that comparison is to be situated. …
 

S.2.22B Article 14(b) — Government loans     back to top

S.2.22B.1 US — Anti-Dumping and Countervailing Duties (China), paras. 475–476
(WT/DS379/AB/R)
 

We start by considering the constituent elements of a benchmark loan under Article 14(b), that is “comparable”, “commercial”, and a “loan which the firm could actually obtain on the market”.
 

A benchmark loan under Article 14(b) must be a loan that is “comparable” to the investigated government loan. Comparable is defined as “able to be compared”, “worthy of comparison”, and “fit to be compared (to)”. This, in our view, suggests that something can be considered “comparable”, when there are sufficient similarities between the things that are compared as to make that comparison worthy or meaningful. Thus, a benchmark loan under Article 14(b) should have as many elements as possible in common with the investigated loan to be comparable. The Panel noted that, ideally, an investigating authority should use as a benchmark a loan to the same borrower that has been established around the same time, has the same structure as, and similar maturity to, the government loan, is about the same size, and is denominated in the same currency. The Panel, however, also considered that, in practice, the existence of such an ideal benchmark loan would be extremely rare, and that a comparison should also be possible with other loans that present a lesser degree of similarity. We agree with both of these observations by the Panel.
 

S.2.22B.2 US — Anti-Dumping and Countervailing Duties (China), paras. 478–479
(WT/DS379/AB/R)
 

A loan only confers a benefit when and to the extent that it has been granted on terms that are not otherwise available in the marketplace. A key element in ensuring a meaningful comparison under Article 14(b) is that a benchmark loan be “commercial”. The comparison between an investigated loan and a commercial loan, therefore, reveals whether a benefit has been conferred, and its amount. We observe that the term “commercial” is defined as “interested in financial return rather than artistry; likely to make a profit; regarded as a mere matter of business”. Thus the term “commercial” does not speak of the identity of the provider of the loan.
 

… the Panel … stated that one possible interpretation of “commercial” could be that any loan made by the government would ipso facto not be “commercial”. In our view, it would not be correct to conclude that any loan made by the government (or by private lenders in a market dominated by the government) would ipso facto not be “commercial”. We see nothing to suggest that the notion of “commercial” is per se incompatible with the supply of financial services by a government. Therefore, the mere fact that loans are supplied by a government is not in itself sufficient to establish that such loans are not “commercial” and thus incapable of being used as benchmarks under Article 14(b) of the SCM Agreement. An investigating authority would have to establish that the government presence or influence in the market causes distortions that render interest rates unusable as benchmarks.
 

S.2.22B.3 US — Anti-Dumping and Countervailing Duties (China), para. 480
(WT/DS379/AB/R)
 

… a benchmark loan under Article 14(b) must be a “loan which the firm could actually obtain on the market”. The use of the conditional tense, “could”, suggests that a benchmark loan under Article 14(b) need not in every case be a loan that exists or that can in fact be obtained in the market. In this respect, we agree with the Panel that this refers “first and foremost” to the borrower’s risk profile, that is, whether the benchmark loan is one that could be obtained by the borrower receiving the investigated government loan. Thus, we consider that Article 14(b) does not preclude the possibility of using as benchmarks interest rates on commercial loans that are not actually available in the market where the firm is located, such as, for instance, loans in other markets or constructed proxies.
 

S.2.22B.4 US — Anti-Dumping and Countervailing Duties (China), paras. 482, 484
(WT/DS379/AB/R)
 

… under Article 14(b), the benchmark to measure benefit is “the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market”, while, under Article 14(d), it is the “prevailing market conditions for the good or service in question in the country of provision or purchase”. In contrast to Article 14(d), which clearly connects the relevant “market” to “the country of provision or purchase”, Article 14(b) does not specify expressly any geographical or national scope for what is the relevant “market” within which a comparable commercial loan should be identified. We, therefore, agree with China that the relevant question under Article 14(b) is not whether an investigating authority may resort to an “out-of-country” benchmark as opposed to an “in-country” benchmark. It is, rather, to what extent Article 14(b) requires strict and formalistic compliance with all of the conditions specified therein, even when doing so would frustrate the purpose of that provision and prevent any calculation of the benefit. Thus, the relevant question is whether there is enough flexibility in Article 14(b), as the Appellate Body found that there is in Article 14(d), to allow for the use of a benchmark other than one that is always, and in every respect, “a comparable commercial loan which the firm could actually obtain on the market”.
 

...
 

It seems to us that, notwithstanding the differences between Article 14(b) and (d), there may also be under Article 14(b) limited circumstances where an excessively formalistic interpretation of this provision could frustrate its purpose and prevent the calculation of the benefit. Reading Article 14(b) as always requiring a comparison with loans denominated in the same currency as the investigated loans, even in circumstances where all loans in the same currency are distorted by government intervention, would lead to a comparison with government distorted loans, thus frustrating the purpose of Article 14(b). If loans in a given market and in a given currency are distorted by government intervention, an investigating authority should be permitted, in certain circumstances also under Article 14(b), to use a benchmark other than “a comparable commercial loan which the firm could actually obtain on the market”. However, such a benchmark would have to approximate “a comparable commercial loan which the firm could actually obtain on the market”.
 

S.2.22B.5 US — Anti-Dumping and Countervailing Duties (China), paras. 485–487
(WT/DS379/AB/R)
 

… As the Panel stated, it is not reasonable to assume that, when there is no actually obtainable commercial loan that is comparable in every respect, an investigating authority must conclude that there is no benchmark, and that, therefore, no benefit amount can be determined. In the absence of an identical or nearly identical loan, an investigating authority should seek, in turn, other similar commercial loans held by the same borrower, then similar commercial loans granted to another borrower with a similar credit risk profile to the investigated borrower. In this process, an investigating authority will need to make adjustments to reflect differences from investigated loans, such as date of origination, size, maturity, currency, structure, or borrower’s credit risk. Yet, there may be situations where the actual differences between any of the existing commercial loans and the investigated government loan are so significant that it is not realistically possible to address them through adjustments. In such situations, the Panel considered that an investigating authority should be allowed to use proxies as benchmarks.
 

We agree that selecting a benchmark under Article 14(b) involves a progressive search for a comparable commercial loan, starting with the commercial loan that is closest to the investigated loan (a loan to the same borrower that is nearly identical to the investigated loan in terms of timing, structure, maturity, size and currency) and moving to less similar commercial loans while adjusting them to ensure comparability with the investigated loan.
 

We see no inherent limitations in Article 14(b) that would prevent an investigating authority from using as benchmarks interest rates on loans denominated in currencies other than the currency of the investigated loan, or from using proxies instead of observed interest rates, in situations where the interest rates on loans in the currency of the investigated loan are distorted and thus cannot be used as benchmarks. In fact, to read Article 14(b) as imposing such limitations on the selection of a benchmark would potentially frustrate the purpose of that provision, as no suitable benchmarks could be identified in situations where the interest rates on loans in a given currency were distorted by government presence or influence in the market and no loan in that currency exists in other markets. We further note that, as already discussed above, the possibility of resorting to a proxy under Article 14(b) is consistent with the use of the conditional tense: “would pay” and “could actually obtain on the market”. In the absence of an actual comparable commercial loan that is available on the market, an investigating authority should be allowed to use a proxy for what “would” have been paid on a comparable commercial loan that “could” have been obtained on the market.
 

S.2.22B.6 US — Anti-Dumping and Countervailing Duties (China), para. 488
(WT/DS379/AB/R)
 

We also consider that the further away an investigating authority moves from the ideal benchmark of the identical or nearly identical loan, the more adjustments will be necessary to ensure that the benchmark loan approximates the “comparable commercial loan which the firm could actually obtain on the market” specified in Article 14(b). As discussed above, we consider this to be consistent with, and parallel to, the requirement affirmed by the Appellate Body in US — Softwood Lumber IV under Article 14(d), that, in situations where an investigating authority does not use the private prices in the market of the country of provision, it should nevertheless select a method for calculating the benefit that relates or refers to, or is connected with, the prevailing market conditions in the country of provision.
 

S.2.22B.7 US — Anti-Dumping and Countervailing Duties (China), para. 489
(WT/DS379/AB/R)
 

In sum, we consider that, in spite of the different formulations used in Article 14(b) and (d), some of the reasoning of the Appellate Body in US — Softwood Lumber IV concerning the use of out-of-country benchmarks and proxies under Article 14(d) is equally applicable under Article 14(b). In particular, we are of the view that a certain degree of flexibility also applies under Article 14(b) in the selection of benchmarks, so that such selection can ensure a meaningful comparison for the determination of benefit. At the same time, when an investigating authority resorts to a benchmark loan in another currency or to a proxy, it must ensure that such benchmark is adjusted so that it approximates the “comparable commercial loan”. Moreover, in accordance with the chapeau of Article 14, any such method, as well as how it approximates the loan in another currency or the proxy to a “comparable commercial loan which the firm could actually obtain on the market”, must be transparent and adequately explained.
 

S.2.22B.8 US — Anti-Dumping and Countervailing Duties (China), paras. 498–501
(WT/DS379/AB/R)
 

We do not consider that the Panel was wrong in drawing a distinction between a government’s role in implementing monetary policy, on the one hand, and market distortions that may result from governmental participation and intervention in the commercial lending market, on the other hand. While the first is a necessary element of all commercial lending markets, the second may turn a competitive commercial loan market into a distorted one, whose interest rates cannot be used as benchmarks under Article 14(b) of the SCM Agreement.
 

… in our view, the government’s role in implementing monetary policy does not, in and of itself, eliminate the scope for a competitive lending market.
 

For example, governments may establish or act to influence the “discount rate”, that is, the interest rate on the loans that the central bank makes to banks. There is, however, a fundamental difference between the discount rate and the interest rates that banks charge to individual borrowers. The latter interest rates are based on the discount rate, but are determined by market forces. The rate a borrower is able to obtain in the market will depend on many factors including its risk profile, the size of the loan, its structure, its maturity, as well as what the borrower is able to negotiate with the lender. For instance, if the discount rate is set at 1 percent, a borrower may negotiate a loan for 1,000,000 currency units over 10 years at the fixed interest rate of 4 percent with one bank, while another bank may offer the same loan to the same borrower at 3.5 per cent. The mere fact that central banks establish discount rates does not in itself eliminate competition among lenders and thus make commercial rates distorted. Therefore, while it is true that governments, through their central banks, may effectively establish discount rates, by this fact alone governments do not establish the interest rates available to individual borrowers, which are, rather, determined by market forces.
 

… In our view, therefore, the central issue in applying Article 14(b) is not whether a “clear distinction” exists in the roles of government, but rather, whether there is evidence and reasoning demonstrating that the Chinese Government, by participating in the [Chinese renminbi]-lending market and by intervening in that market (beyond its monetary policy role), is able to and does in fact distort interest rates.
 

S.2.22B.9 US — Anti-Dumping and Countervailing Duties (China), paras. 505–508
(WT/DS379/AB/R)
 

… Based on US — Softwood Lumber IV, China argues that, for a benchmark interest rate to be rejected under Article 14(b), an investigating authority must have explained, on the basis of positive evidence, how government intervention causes interest rates to be artificially low.
 

We do not consider China’s understanding of US — Softwood Lumber IV on this issue to be correct. In US — Softwood Lumber IV, the Appellate Body found that, if private prices are aligned with government prices because of the government’s influence, “[t]he resulting comparison of prices … would indicate a ‘benefit’ that is artificially low, or even zero, such that the full extent of the subsidy would not be captured”. Therefore, in US — Softwood Lumber IV, the Appellate Body took account of the consequences for the calculation of the benefit that would flow from an interpretation of Article 14(d) of the SCM Agreement that would require a comparison of government prices with private prices aligned to government prices. The Appellate Body did not, however, establish a specific requirement that, to reject in-country prices, investigating authorities must show that government prices are artificially low.
 

Similarly, under Article 14(b) of the SCM Agreement, a comparison would not be meaningful if the investigated loans are compared to other loans, whether private or from the government, that are distorted due to government intervention in the market. Under Article 14(b), investigating authorities must show that government intervention as a whole distorts the market, not that each factor taken in isolation has that effect. When such distortion is demonstrated, however, it would frustrate the purpose of Article 14 to require nevertheless that observed market rates serve as the basis for comparison and, thereby, for the calculation of the benefit.
 

We do not consider, therefore, that the USDOC or the Panel was required to determine whether factors such as the government’s predominant role as a lender, government regulation of interest rates, evidence of undifferentiated interest rates, and government influence over [State-owned commercial bank]-lending decisions, each resulted in interest rates that were lower than they otherwise would have been. In our view, it was, as the Panel found, sufficient for the USDOC to establish that all of these factors taken together distorted the commercial lending market such that comparing the interest rates of the investigated loans with observed interest rates in the same market would not be meaningful for the purpose of Article 14(b).
 

S.2.22B.10 EC and certain member States — Large Civil Aircraft, paras. 834–838 and Footnotes 1893 and 1896
(WT/DS316/AB/R)
 

… the most relevant “guideline” of Article 14 of the SCM Agreement [for “unsecured loans”] is that provided in subparagraph (b) … . A panel relying on Article 14(b) would thus examine whether there is a difference between the amount that the recipient pays on the government loan and the amount the recipient would pay on a comparable commercial loan, which the recipient could have actually obtained on the market.1893 There is a benefit — and therefore a subsidy — where the amount that the recipient pays on the government loan is less than what the recipient would have paid on a comparable commercial loan that the recipient could have obtained on the market. There is no benefit — and therefore no subsidy — if what the recipient pays on the government loan is equal to or higher than what it would have paid on a comparable commercial loan. The amount the recipient would have paid on a commercial loan is a function of the size of the loan, the interest rate, the duration, and other relevant terms of the transaction. …
 

Article 14(b) of the SCM Agreement calls for a comparison of the “amount the firm receiving the loan pays on the government loan” with “the amount the firm would pay on a comparable commercial loan which the firm could actually obtain in the market”. … we read this as suggesting that the comparison is to be performed as though the loans were obtained at the same time. In other words, the comparable commercial loan is one that would have been available to the recipient firm at the time it received the government loan.
 

Because the assessment focuses on the moment in time when the lender and borrower commit to the transaction, it must look at how the loan is structured and how risk is factored in, rather than looking at how the loan actually performs over time. Such ex ante analysis of financial transactions is commonly used and appropriate financial models have been developed for these purposes. The analysis from a financial perspective proceeds as follows. The investor commits resources to an investment in the expectation of a future stream of earnings that will provide a positive return on the investment made. In deciding whether to commit resources to a particular investment, the investor will consider alternative investment opportunities. The investor will make its decision to invest on the basis of information available at the time the decision is made about market conditions and projections about how those economic conditions are likely to develop (future demand and price for the product, future costs, etc.). The information available will be, in most cases, imperfect. The investor does not have perfect foresight and thus there is always some likelihood, in some instances a sizeable one, that the investor’s projections will deviate significantly from what actually transpires. Hence, determining whether the investment was commercially rational is to be ascertained based on the information that was available to the investor at the time the decision to invest was made. The commercial rationality of an investment cannot be ascertained on the basis of how the investment in fact performed because such an analysis has nothing useful to say about the basis upon which the investment was made. The investment could have earned a rate of return that exceeded, or was less than, the going market rate, but it was not predetermined to do so.
 

We note, moreover, that from a practical perspective, a requirement to look at the actual performance of a loan would mean that such measures could not be challenged until performance is fully completed. In the case of long-term loans, this would mean that any challenge of such measures would have to be deferred for years. Requiring a WTO Member to wait so long to mount a challenge would limit the effectiveness of Part II and Part III of the SCM Agreement also in the light of the prospective nature of WTO remedies.1896
 

Therefore, in our view, the assessment of benefit must examine the terms and conditions of a loan at the time it is made and compare them to the terms and conditions that would have been offered by the market at that time. …
 

S.2.23 Article 14(d) — Provision of goods or services or purchases of goods — 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.2.23.6 EC and certain member States — Large Civil Aircraft, para. 975
(WT/DS316/AB/R)
 

We find instructive the Appellate Body’s consideration of Articles 1.1(b) and 14 [in Canada — Aircraft] because it underscores that every benefit determination requires a comparison of the terms of a financial contribution to a market benchmark. Article 14(d) stipulates that a benefit is not conferred so long as the good or service is provided for “adequate remuneration”. It moreover provides that the adequacy of remuneration is to be determined “in relation to prevailing market conditions”, and lists a number of such market conditions, including “price, quality, availability, marketability, transportation and other conditions of purchase or sale”. This language highlights that a proper market benchmark is derived from an examination of the conditions pursuant to which the goods or services at issue would, under market conditions, be exchanged.
 

S.2.23.7 EC and certain member States — Large Civil Aircraft, paras. 981–983
(WT/DS316/AB/R)
 

… we are concerned that the Panel’s determination of the value of the infrastructure measures on the market was made wholly in reference to, in this case, the perspective of the government as a seller or lessor. …
 

… The fact that a market actor would seek a return on its investment does not mean that it could necessarily obtain that return on the market. Indeed, the rent a market actor can charge will be constrained by market conditions even if the rent does not cover its costs. Accordingly, we do not consider that it is consistent with Articles 1.1(b) and 14(d) to establish a market benchmark for a good or service by referring to the demands or expectations only of a seller or lessor, or, alternatively, only of a buyer or lessee. The price of a good or service must reflect the interaction between the supply-side and demand-side considerations under prevailing market conditions.
 

… we consider that the investment costs borne by the relevant authorities in these circumstances are an insufficient basis upon which to establish the market value of the sale or lease of the infrastructure at issue, and that the Panel committed error in relying exclusively on those costs to establish the existence and amount of benefit. …
 

S.2.23.8 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.163
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… in previous disputes under both Parts II and III of the SCM Agreement, the Appellate Body has relied on Article 14 as the relevant context for the interpretation of benefit under Article 1.1(b). Article 14(d) contains guidelines for determining whether government purchases of goods make a recipient “better off” than it would otherwise be in the marketplace. Article 14 is used in countervailing duties cases to calculate the amount of the subsidy in terms of the benefit to the recipient. Although Article 14 is in Part V of the SCM Agreement, the Panel was correct in pointing out that it is relevant context to the interpretation of Article 1.1(b) for the purpose of Part II of the SCM Agreement, and that it can be used as relevant context to determine whether a subsidy exists.
 

S.2.23.9 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.164
(WT/DS412/AB/R, WT/DS426/AB/R)
 

We do not think that a different approach should be adopted when, as in the case of prohibited subsidies, one has to determine whether a benefit exists as opposed to its precise quantification. A market benchmark can tell us whether a benefit exists and usually its size. However, in the absence of a market benchmark, it will not be possible to establish if a subsidy exists at all. That a financial contribution confers an advantage on its recipient cannot be determined in absolute terms, but requires a comparison with a benchmark, which, in the case of subsidies, derives from the market. This is so, in our view, regardless of whether the advantage needs to be precisely quantified or not.
 

S.2.23.10 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.165
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… We do not consider that the determination of the mere existence, as opposed to the amount, of the subsidy calls for a different interpretation of how to determine benefit under Article 1.1(b). A determination of the existence of a benefit under Article 1.1(b), read in the context of Article 14(d) of the SCM Agreement, requires a comparison between actual remuneration and a market-based benchmark or proxy, and thus between amounts, in order to determine the existence of a benefit.
 

S.2.23.11 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.183
(WT/DS412/AB/R, WT/DS426/AB/R)
 

A benefit analysis under Article 1.1(b), read in the context of Article 14(d) of the SCM Agreement, involves a comparison with a market benchmark or proxy. Article 14(d) states, on the one hand, that purchases of goods should be considered as conferring a benefit if “the purchase is made for more than adequate remuneration” and, on the other hand, that the adequacy of remuneration has to be determined in relation to the “prevailing market conditions” for the good or service in question in the country of purchase. The adequacy of remuneration is only one aspect of the Article 14(d) comparison, the other being the “prevailing market conditions” in the country of purchase, which requires a comparison with a market benchmark.
 

S.2.23.12 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.184
(WT/DS412/AB/R, WT/DS426/AB/R)
 

That Article 14(d) requires a comparison with market conditions was confirmed by the Appellate Body in US — Softwood Lumber IV. The Appellate Body found that, in cases where the private prices of the goods in question in the country of provision are distorted, it is possible to resort to an out-of-country benchmark or to a constructed benchmark, provided that the necessary adjustments are made to reflect conditions in the market of purchase. The very purpose of resorting to an out-of-country or to a constructed benchmark is to replicate competitive market conditions that are absent in the country of purchase. Thus, resorting to a benchmark that does not reflect market conditions would not be consistent with the guidelines of Article 14(d), as interpreted by the Appellate Body in US — Softwood Lumber IV.
 

S.2.23.13 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.228
(WT/DS412/AB/R, WT/DS426/AB/R)
 

Government-administered prices such as FIT may or may not reflect what a hypothetical market would yield. Thus, the fact that the government sets prices does not in itself establish the existence of a benefit. In challenging a benefit comparison under Article 1.1(b) of the SCM Agreement, a complainant would have to show that such prices do not reflect what a market outcome would be. An analysis of the methodology that was used to establish the administered prices may provide evidence as to whether the price does or does not provide more than adequate remuneration. There may be circumstances where there is no information about the methodology that was used or the methodology used does not assist in determining whether the administered price is or is not reflective of what a market would yield. If it becomes necessary to identify a market benchmark or to construct a proxy, such benchmark or proxy may be administered prices for the same product (in the country of purchase or in other countries, subject to adjustments), provided that it is determined based on a price-setting mechanism that ensures a market outcome. Alternatively, such benchmark may also be found in price-discovery mechanisms such as competitive bidding or negotiated prices, which ensure that the price paid by the government is the lowest possible price offered by a willing supply contractor.
 

S.2.23.14 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.235
(WT/DS412/AB/R, WT/DS426/AB/R)
 

… in order to carry out a meaningful comparison of the FIT Programme and the RES initiative, it is necessary to ensure that the comparison is made between prices referring to the same period, the same type of generation technology, the same overall supply-mix, projects of the same or similar scale, and supply contracts of the same duration. If any of these conditions are not met by the proposed benchmark, adjustments in the light of the factors listed in Article 14(d) and of the supply-mix defined by the government may be necessary to ensure comparability. We believe that, on the basis of this approach, it should be possible to determine whether prices under RES constitute an appropriate benchmark for a comparison with FIT prices in order to establish the existence of benefit consistently with Article 1.1(b) of the SCM Agreement.
 

S.2.24 Article 14(d) — Alternative benchmark for calculating the adequacy of remuneration     back to top

S.2.24.1 US — Softwood Lumber IV, paras. 97–98
(WT/DS257/AB/R)
 

Having established that prices in the market of the country of provision are the primary, but not the exclusive, benchmark for calculating benefit, we come to the next question that arises in our analysis, namely, when an investigating authority may use a benchmark other than private prices in the country of provision for purposes of calculating the benefit under Article 14(d).
 

… the Panel … acknowledged that “it will in certain situations not be possible to use in-country prices” as a benchmark, and gave two examples of such situations … (i) where the government is the only supplier of the particular goods in the country; and, (ii) where the government administratively controls all of the prices for those goods in the country. …
 

S.2.24.2 US — Softwood Lumber IV, para. 100
(WT/DS257/AB/R)
 

In analyzing this question, we have some difficulty with the Panel’s approach of treating a situation in which the government is the sole supplier of certain goods differently from a situation in which the government is the predominant supplier of those goods. In terms of market distortion and effect on prices, there may be little difference between situations where the government is the sole provider of certain goods and situations where the government has a predominant role in the market as a provider of those goods. …
 

S.2.24.3 US — Softwood Lumber IV, paras. 101–102
(WT/DS257/AB/R)
 

… When private prices are distorted because the government’s participation in the market as a provider of the same or similar goods is so predominant that private suppliers will align their prices with those of the government-provided goods, it will not be possible to calculate benefit having regard exclusively to such prices.
 

We emphasize … the possibility under Article 14(d) for investigating authorities to consider a benchmark other than private prices in the country of provision is very limited … an allegation that a government is a significant supplier would not, on its own, prove distortion and allow an investigating authority to choose a benchmark other than private prices in the country of provision. The determination of whether private prices are distorted because of the government’s predominant role in the market, as a provider of certain goods, must be made on a case-by-case basis, according to the particular facts underlying each countervailing duty investigation.
 

S.2.24.4 US — Softwood Lumber IV, para. 106
(WT/DS257/AB/R)
 

We agree with the submissions of the participants and third participants that alternative methods for determining the adequacy of remuneration could include proxies that take into account prices for similar goods quoted on world markets, or proxies constructed on the basis of production costs. We emphasize, however, that where an investigating authority proceeds in this manner, it is under an obligation to ensure that the resulting benchmark relates or refers to, or is connected with, prevailing market conditions in the country of provision, and must reflect price, quality, availability, marketability, transportation and other conditions of purchase or sale, as required by Article 14(d) … Nor are we required to determine the consistency with Article 14(d) of all the alternative methods mentioned by the participants and third participants; such assessment will depend on how any such method is applied in a particular case. We, therefore, make no findings on the WTO-consistency of any of these methods in the abstract.
 

S.2.24.5 US — Softwood Lumber IV, para. 108
(WT/DS257/AB/R)
 

… we observe that, when choosing an alternative method for determining the adequacy of remuneration, it has to be kept in mind that prices in the market of a WTO Member would be expected to reflect prevailing market conditions in that Member; they are unlikely to reflect conditions prevailing in another Member. Therefore, it cannot be presumed that market conditions prevailing in one Member, for instance the United States, relate or refer to, or are connected with, market conditions prevailing in another Member, such as Canada for example. Indeed, it seems to us that it would be difficult, from a practical point of view, for investigating authorities to replicate reliably market conditions prevailing in one country on the basis of market conditions prevailing in another country. First, there are numerous factors to be taken into account in making adjustments to market conditions prevailing in one country so as to replicate those prevailing in another country; secondly, it would be difficult to ensure that all necessary adjustments are made to prices in one country in order to develop a benchmark that relates or refers to, or is connected with, prevailing market conditions in another country, so as to reflect price, quality, availability, marketability, transportation and other conditions of purchase or sale in that other country.
 

S.2.24.6 US — Softwood Lumber IV, para. 109
(WT/DS257/AB/R)
 

It is clear, in the abstract, that different factors can result in one country having a comparative advantage over another with respect to the production of certain goods. In any event, any comparative advantage would be reflected in the market conditions prevailing in the country of provision and, therefore, would have to be taken into account and reflected in the adjustments made to any method used for the determination of adequacy of remuneration, if it is to relate or refer to, or be connected with, prevailing market conditions in the market of provision. This is because countervailing measures may be used only for the purpose of offsetting a subsidy bestowed upon a product, provided that it causes injury to the domestic industry producing the like product. They must not be used to offset differences in comparative advantages between countries.
 

S.2.24.7 US — Softwood Lumber IV, paras. 119–120
(WT/DS257/AB/R)
 

… we … find … that an investigating authority may use a benchmark other than private prices in the country of provision, when it has been established that private prices of the goods in question in that country are distorted, because of the predominant role of the government in the market as a provider of the same or similar goods.
 

We emphasize, however, that when an investigating authority proceeds in this manner, it is obliged, pursuant to Article 14(d), to ensure that the alternative benchmark it uses relates or refers to, or is connected with, prevailing market conditions in the country of provision, (including price, quality, availability, marketability, transportation and other conditions of purchase or sale), with a view to determining, ultimately, whether the goods at issue were provided by the government for less than adequate remuneration.
 

S.2.24.8 US — Anti-Dumping and Countervailing Duties (China), paras. 438–439, 441
(WT/DS379/AB/R)
 

… we recall that, in US — Softwood Lumber IV, the Appellate Body posed and answered several questions with respect to the interpretation of Article 14(d), including two that are of particular relevance here. First, the Appellate Body asked whether that provision permits investigating authorities to use a benchmark other than private prices in the country of provision for determining if goods have been provided by a government for less than adequate remuneration. The Appellate Body answered that question in the affirmative, albeit subject to a number of qualifications. The Appellate Body considered that an interpretation of Article 14(d) that required the use of private prices in the country of provision as the exclusive benchmark in all situations would frustrate the purpose of Article 14, as well as the object and purpose of the SCM Agreement. The Appellate Body found, instead, that “prices in the market of the country of provision are the primary, but not the exclusive, benchmark for calculating benefit”.
 

Second, the Appellate Body addressed the question of when investigating authorities may use a benchmark other than private prices in the country of provision. The Appellate Body emphasized that such circumstances are “very limited” and found that:
 

… an investigating authority may use a benchmark other than private prices of the goods in question in the country of provision, when it has been established that those private prices are distorted, because of the predominant role of the government in the market as a provider of the same or similar goods.
 

...
 

According to China, in these two statements, the Appellate Body used the concepts of the government as a “significant supplier” and of “the government’s predominant role in the market, as a provider” interchangeably. … We, however, like the Panel, view the Appellate Body in US — Softwood Lumber IV as having intended to use the terms “predominant” and “significant” to refer to two different sets of circumstances, and not as interchangeable concepts. We read that Appellate Body report as indicating that, if the government is a significant supplier, this fact alone cannot justify a finding that prices are distorted. Instead, where the government is the predominant supplier, it is likely that private prices will be distorted, but a case-by-case analysis is still required.
 

S.2.24.9 US — Anti-Dumping and Countervailing Duties (China), paras. 442–444
(WT/DS379/AB/R)
 

… the Appellate Body considered that, as far as market distortion and effect on prices are concerned, “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”. The Appellate Body reasoned that “[w]henever the government is the predominant provider of certain goods, even if not the sole provider, it is likely that it can affect through its own pricing strategy the prices of private providers for those goods”.
 

This reasoning, in our view, excludes the application of a per se rule, according to which an investigating authority could properly conclude in every case, and regardless of any other evidence, that the fact that the government is the predominant supplier means that private prices are distorted. At the same time, we do not consider that, in cases in which the government is the “predominant” supplier, an investigating authority would be required to conduct the same type of analysis as in cases where the government is only a “significant” supplier. In both cases, the investigating authority would have to reach its conclusions based on all the evidence that is put on the record, including evidence regarding factors other than government market share. However, when the government is a “significant” supplier, evidence pertaining to factors other than government market share will be needed, as the government’s role as a significant supplier cannot, on its own, prove distortion of private prices.
 

With this, we are not suggesting that there is a threshold above which the fact that the government is the predominant supplier in the market alone becomes sufficient to establish price distortion, but clearly, the more predominant a government’s role in the market is, the more likely this role will result in the distortion of private prices. Moreover, we note that the concept of predominance does not refer exclusively to market shares, but may also refer to market power. We consider this conclusion to be consistent with the statement of the Appellate Body in US — Softwood Lumber IV that, when the “government’s role in providing the financial contribution is so predominant that it effectively determines the price at which private suppliers sell the same or similar goods, … the comparison contemplated by Article 14 would become circular”. Such influence on prices presupposes that sufficient market power exists.
 

S.2.24.10 US — Anti-Dumping and Countervailing Duties (China), para. 446
(WT/DS379/AB/R)
 

In sum, we are of the view that an investigating authority may reject in-country private prices if it reaches the conclusion that these are too distorted due to the predominant participation of the government as a supplier in the market, thus rendering the comparison required under Article 14(d) of the SCM Agreement circular. It is, therefore, price distortion that would allow an investigating authority to reject in-country private prices, not the fact that the government is the predominant supplier per se. There may be cases, however, where the government’s role as a provider of goods is so predominant that price distortion is likely and other evidence carries only limited weight. We emphasize, however, that price distortion must be established on a case-by-case basis and that an investigating authority cannot, based simply on a finding that the government is the predominant supplier of the relevant goods, refuse to consider evidence relating to factors other than government market share.
 

S.2.24.11 US — Anti-Dumping and Countervailing Duties (China), para. 453
(WT/DS379/AB/R)
 

We recall that, while a government’s predominant role as a supplier in the market makes it “likely” that private prices will be distorted, whether this is the case must be established “on a case-by-case basis, according to the particular facts underlying each countervailing duty investigation”. As explained above, we read this statement by the Appellate Body in US — Softwood Lumber IV to suggest that, even in cases in which the government is the predominant supplier, an investigating authority may not establish distortion of prices without considering evidence of other factors that have been presented to the authority as evidence. Instead, an investigating authority should always consider all evidence regarding other factors on the record, but the extent to which such evidence carries weight depends on how predominant the government’s role is and on the relevance of other factors.
 

S.2.24.12 US — Anti-Dumping and Countervailing Duties (China), para. 455
(WT/DS379/AB/R)
 

We observe that, with 96.1 percent market share, the position of the government in the market is much closer to a situation where the government is the sole supplier of the goods than to the situation where it is merely a significant supplier of the goods. This, in our view, makes it likely that the government as the predominant supplier has the market power to affect through its own pricing strategy the pricing by private providers for the same goods, and induce them to align with government prices. In such a situation, evidence of factors other than government market share will have less weight in the determination of price distortion than in a situation where the government has only a “significant” presence in the market. …
 

S.2.24.13 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.193
(WT/DS412/AB/R, WT/DS426/AB/R)
 

Having rejected all Ontario prices as distorted, the Panel, following the Appellate Body’s finding in US — Softwood Lumber IV, examined as possible benchmarks prices in four out-of-province electricity markets: Alberta, New York State, New England, and the PJM Interconnection. The Panel rejected Alberta because of the differences in the conditions of supply and demand as compared to Ontario. It rejected New York State, New England, and the PJM Interconnection because it found that generators in these markets also receive capacity payments. As we have considered above, after it had rejected all the benchmarks put forward by the complainants, the Panel found that the relevant market for the benefit comparison was the wholesale market in Ontario for electricity generated from all sources of energy.
 

S.2.24.14 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.216
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In making a prima facie case of benefit under Article 1.1(b) of the SCM Agreement, the burden was on the complainants to identify a suitable benchmark and to make adjustments, where necessary. While the complainants focused their main arguments before the Panel on blended electricity market benchmarks (the HOEP, the average wholesale rate, retail rates, import and export prices, as well as out-of-province rates), the European Union also presented arguments and evidence on electricity rates from renewable sources in Ontario and in Quebec in response to Canada’s argument that the relevant markets for the benefit comparison were the markets for wind- and solar PV-generated electricity. The European Union argued in its second written submission and in its opening oral statement at the second meeting of the Panel that benefit could be demonstrated by comparing the FIT remuneration with the terms and conditions under the Request for Proposals of Renewable Energy Supply (RES) I, II, and III and with the Quebec 2005 and 2008 competitive contracts for wind farms. Thus, if the Panel believed, as is evident from its Reports, that the appropriate benefit comparison could not take place in the competitive wholesale electricity market, it could have explored instead these arguments.
 

S.2.24.15 Canada — Renewable Energy / Canada — Feed-in Tariff Program, para. 5.217
(WT/DS412/AB/R, WT/DS426/AB/R)
 

In its “observations on one approach to the question of benefit”, the Panel proposed a benefit benchmark based on the Government of Ontario’s choice of the energy supply-mix as including wind- and solar PV-generated electricity. The Panel attempted to apply such benchmark by comparing the rates of return obtained by FIT generators with the average cost of capital in Canada for projects having a comparable risk profile in the same period, but found that there was not enough evidence on the record to make such a comparison. We express no views about the merits of a comparison between FIT rates of return and the average cost of capital in Canada. However, we note that the Panel did not even explore the possibility of an electricity supply-mix benchmark based on the evidence submitted by the complainants regarding previous renewable energy programmes in Ontario (RES) and out-of-province (Quebec).
 

S.2.24A Article 15 — Determination of injury. See also Anti-Dumping Agreement, Article 3.1 — General (A.3.15); SCM Agreement, Article 1.1 — “subsidy” (S.2.2)     back to top

S.2.24A.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.2.24A.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.2.24A.3 China — GOES, para. 127
(WT/DS414/AB/R)
 

In addition to setting forth the overarching obligation regarding the manner in which an investigating authority must conduct a determination of injury caused by subject imports to the domestic industry, [Article 3 of the Anti-Dumping Agreement and Article 15 of the SCM Agreement] also outline the content of such a determination, which consists of the following components: (i) the volume of subject imports; (ii) the effect of such imports on the prices of like domestic products; and (iii) the consequent impact of such imports on the domestic producers of the like products. The other paragraphs under Articles 3 and 15 further elaborate on the three essential components referenced in Articles 3.1 and 15.1. Articles 3.2 and 15.2 concern items (i) and (ii) above, and spell out the precise content of an investigating authority’s consideration regarding the volume of subject imports and the effect of such imports on domestic prices. Articles 3.4 and 15.4, together with Articles 3.5 and 15.5, concern item (iii), that is, the “consequent impact” of the same imports on the domestic industry. More specifically, Articles 3.4 and 15.4 set out the economic factors that must be evaluated regarding the impact of such imports on the state of the domestic industry, and Articles 3.5 and 15.5 require an investigating authority to demonstrate that subject imports are causing injury to the domestic industry.
 

S.2.24A.4 China — GOES, para. 128
(WT/DS414/AB/R)
 

The paragraphs of Articles 3 and 15 thus stipulate, in detail, an investigating authority’s obligations in determining the injury to the domestic industry caused by subject imports. Together, these provisions provide an investigating authority with the relevant framework and disciplines for conducting an injury and causation analysis. These provisions contemplate a logical progression of inquiry leading to an investigating authority’s ultimate injury and causation determination. This inquiry entails a consideration of the volume of subject imports and their price effects, and requires an examination of the impact of such imports on the domestic industry as revealed by a number of economic factors. These various elements are then linked through a causation analysis between subject imports and the injury to the domestic industry, taking into account all factors that are being considered and evaluated. Specifically, pursuant to Articles 3.5 and 15.5, it must be demonstrated that dumped or subsidized imports are causing injury “through the effects of” dumping or subsidies “[a]s set forth in paragraphs 2 and 4”. Thus, the inquiry set forth in Articles 3.2 and 15.2, and the examination required in Articles 3.4 and 15.4, are necessary in order to answer the ultimate question in Articles 3.5 and 15.5 as to whether subject imports are causing injury to the domestic industry. The outcomes of these inquiries thus form the basis for the overall causation analysis contemplated in Articles 3.5 and 15.5. As further explained below, the interpretation of Articles 3.2 and 15.2 should be consistent with the role these provisions play in the overall framework of an injury determination under Articles 3 and 15.
 

S.2.24A.5 China — GOES, para. 143
(WT/DS414/AB/R)
 

… the various paragraphs under Articles 3 and 15 provide an investigating authority with the relevant framework and disciplines for conducting an injury and causation analysis. These provisions contemplate a logical progression in an authority’s examination leading to the ultimate injury and causation determination. Moreover, by virtue of the phrase “through the effects of” dumping or subsidies “[a]s set forth in paragraphs 2 and 4”, Articles 3.5 and 15.5 make clear that the inquiries set forth in Articles 3.2 and 15.2, and the examination required in Articles 3.4 and 15.4, are necessary in order to answer the ultimate question in Articles 3.5 and 15.5 as to whether subject imports are causing injury to the domestic industry. The outcomes of these inquiries thus form the basis for the overall causation analysis contemplated in Articles 3.5 and 15.5.
 

S.2.24B Article 15.2 — Consideration of the volume of subsidized imports and their effects on prices. See also Anti-Dumping Agreement, Article 3.2 — Consideration of the volume of dumped imports and their effects on prices (A.3.20)     back to top

S.2.24B.1 China — GOES, paras. 129–131 and Footnote 217
(WT/DS414/AB/R)
 

… in Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement, an investigating authority is instructed to “consider” a series of specific inquiries. …
 

The notion of the word “consider”, when cast as an obligation upon a decision maker, is to oblige it to take something into account in reaching its decision. By the use of the word “consider”, Articles 3.2 and 15.2 do not impose an obligation on an investigating authority to make a definitive determination on the volume of subject imports and the effect of such imports on domestic prices.217 Nonetheless, an authority’s consideration of the volume of subject imports and their price effects pursuant to Articles 3.2 and 15.2 is also subject to the overarching principles, under Articles 3.1 and 15.1, that it be based on positive evidence and involve an objective examination. In other words, the fact that no definitive determination is required does not diminish the rigour that is required of the inquiry under Articles 3.2 and 15.2.
 

Furthermore, while the consideration of a matter is to be distinguished from the definitive determination of that matter, this does not diminish the scope of what the investigating authority is required to consider. The fact that the authority is only required to consider, rather than to make a final determination, does not change the subject matter that requires consideration under Articles 3.2 and 15.2, which includes “whether the effect of” the subject imports is to depress prices or prevent price increases to a significant degree. … Finally, an investigating authority’s consideration under Articles 3.2 and 15.2 must be reflected in relevant documentation, such as an authority’s final determination, so as to allow an interested party to verify whether the authority indeed considered such factors.
 

S.2.24B.2 China — GOES, paras. 135–136
(WT/DS414/AB/R)
 

… The definition of [the word “effect”] thus implies that an “effect” is “a result” of something else. Although the word “effect” could be used independently of the factors that produced it, this is not the case in Articles 3.2 and 15.2. Rather, these provisions postulate certain inquiries as to the “effect” of subject imports on domestic prices, and each inquiry links the subject imports with the prices of the like domestic products.
 

First, … with regard to significant price undercutting, Articles 3.2 and 15.2 expressly establish a link between the price of subject imports and that of like domestic products, by requiring that a comparison be made between the two. Second, … [b]y asking the question “whether the effect ofthe subject imports is significant price depression or suppression, the second sentence of Articles 3.2 and 15.2 specifically instructs an investigating authority to consider whether certain price effects are the consequences of subject imports. Moreover, the syntactic relation expressed by the terms “to depress prices” and “[to] prevent price increases” is of a subject (dumped or subsidized imports) doing something to an object (domestic prices). The language of Articles 3.2 and 15.2 thus expressly links significant price depression and suppression with subject imports, and contemplates an inquiry into the relationship between two variables, namely, subject imports and domestic prices. More specifically, an investigating authority is required to consider whether a first variable — that is, subject imports — has explanatory force for the occurrence of significant depression or suppression of a second variable — that is, domestic prices.
 

S.2.24B.3 China — GOES, para. 137
(WT/DS414/AB/R)
 

The two inquiries set out in the second sentence of Articles 3.2 and 15.2 are separated by the words “or” and “otherwise”. This indicates that the elements relevant to the consideration of significant price undercutting may differ from those relevant to the consideration of significant price depression and suppression. Thus, even if prices of subject imports do not significantly undercut those of like domestic products, subject imports could still have a price-depressing or price-suppressing effect on domestic prices.
 

S.2.24B.4 China — GOES, paras. 138–139
(WT/DS414/AB/R)
 

Given that Articles 3.2 and 15.2 contemplate an inquiry into the relationship between subject imports and domestic prices, it is not sufficient for an investigating authority to confine its consideration to what is happening to domestic prices for purposes of considering significant price depression or suppression. Thus, for example, it would not be sufficient to identify a downward trend in the price of like domestic products over the period of investigation when considering significant price depression, or to note that prices have not risen, even though they would normally be expected to have risen, when analyzing significant price suppression. Rather, an investigating authority is required to examine domestic prices in conjunction with subject imports in order to understand whether subject imports have explanatory force for the occurrence of significant depression or suppression of domestic prices. Moreover, the reference to “the effect of such [dumped or subsidized] imports” in Articles 3.2 and 15.2 indicates that the effect stems from the relevant aspects of such imports, including the price and/or the volume of such imports.
 

… The fact that the word “effect” is used as a noun does not mean that the link between domestic prices and subject imports expressly referenced in these provisions need not be analyzed.
 

S.2.24B.5 China — GOES, para. 140
(WT/DS414/AB/R)
 

… Articles 3.2 and 15.2 link the “effect” on domestic prices with the “particular prior event” leading to it, that is, the subject imports, by specifically requiring the investigating authority to consider whether the effect of subject imports is “to depress prices” or “[to] prevent price increases”. These infinitives — ”to depress” and “to prevent” — specify the way in which the subject imports may “affect” domestic prices. Therefore, the language used in Articles 3.2 and 15.2 does not simply refer to a “status quo”, but rather instructs the investigating authority to consider whether subject imports have explanatory force for certain specified consequences, that is, the significant depression or suppression of domestic prices.
 

S.2.24B.6 China — GOES, paras. 141–142
(WT/DS414/AB/R)
 

Our interpretation is reinforced by the very concepts of price depression and price suppression. Price depression refers to a situation in which prices are pushed down, or reduced, by something. An examination of price depression, by definition, calls for more than a simple observation of a price decline, and also encompasses an analysis of what is pushing down the prices. With regard to price suppression, Articles 3.2 and 15.2 require the investigating authority to consider “whether the effect of” subject imports is “[to] prevent price increases, which otherwise would have occurred, to a significant degree”. By the terms of these provisions, price suppression cannot be properly examined without a consideration of whether, in the absence of subject imports, prices “otherwise would have” increased. The concepts of price depression and price suppression thus both implicate an analysis concerning the question of what brings about such price phenomena.
 

Therefore, a consideration of significant price depression or suppression under Articles 3.2 and 15.2 encompasses by definition an analysis of whether the domestic prices are depressed or suppressed by subject imports. As a corollary of this understanding, Articles 3.2 and 15.2 would appear to make a unitary analysis of the effect of subject imports on domestic prices more appropriate, rather than a two-step analysis that first seeks to identify the market phenomena and then, as a second step, examines whether such phenomena are an effect of subject imports. In this regard, we recall that the concepts of price depression and price suppression also exist under Article 6.3 of the SCM Agreement. … [In that context,] the Appellate Body has found that consideration of the effect of the challenged subsidies is intrinsic to the identification of [the] market phenomena [specified in Article 6.3, including, inter alia, significant suppression or depression of the price of a like product of another Member in the same market]. Thus, “[a]ny attempt to identify one of the market phenomena in Article 6.3 without considering the subsidies at issue can only be preliminary in nature since Article 6.3 requires that the market phenomenon be the effect of the challenged subsidy”. Similarly, in the context of Articles 3.2 and 15.2, we consider that a unitary approach to the analysis of significant price depression and suppression would be preferred because it “has a sound conceptual foundation”. In this dispute, therefore, we consider the Panel’s finding of the “existence” of price depression and price suppression “per se” as being merely of a preliminary nature. Moreover, “[t]his also means that a two-step approach simply defers the core of the analysis to the second step”. Thus, a panel does not necessarily commit a legal error if it chooses to conduct a two-step analysis, as long as the panel also examines, as a second step, whether “the effect of” subject imports is significant price depression or suppression.
 

S.2.24B.7 China — GOES, paras. 143–144
(WT/DS414/AB/R)
 

… by virtue of the phrase “through the effects of” dumping or subsidies “[a]s set forth in paragraphs 2 and 4”, Articles 3.5 and 15.5 make clear that the inquiries set forth in Articles 3.2 and 15.2, and the examination required in Articles 3.4 and 15.4, are necessary in order to answer the ultimate question in Articles 3.5 and 15.5 as to whether subject imports are causing injury to the domestic industry. The outcomes of these inquiries thus form the basis for the overall causation analysis contemplated in Articles 3.5 and 15.5.
 

The context of Articles 3.2 and 15.2 thus makes clear that the analysis pursuant to these provisions is intended to develop an investigating authority’s overall examination under Articles 3 and 15 towards a definitive determination on the injury caused by subject imports to the domestic industry. In this regard, an investigating authority’s inquiry regarding the last two price effects listed in Articles 3.2 and 15.2 must provide it with a meaningful understanding of whether subject imports have explanatory force for the significant depression or suppression of domestic prices that may be occurring in the domestic market. This understanding, in turn, allows the authority to determine whether subject imports, through their price effects, are causing injury to the domestic industry within the meaning of Articles 3.5 and 15.5. Therefore, the context of Articles 3.2 and 15.2 also supports the view that, under these provisions, the authority must conduct an analysis of the relationship between subject imports and domestic prices, and, in particular, of whether such imports have explanatory force for the significant depression or suppression of domestic prices, in order to have a meaningful basis on which to conduct its causation analysis pursuant to Articles 3.5 and 15.5.
 

S.2.24B.8 China — GOES, para. 147
(WT/DS414/AB/R)
 

Interpreting Articles 3.2 and 15.2 as requiring a consideration of the relationship between subject imports and domestic prices does not result in duplicating the causation analysis under Articles 3.5 and 15.5. Rather, Articles 3.5 and 15.5, on the one hand, and Articles 3.2 and 15.2, on the other hand, posit different inquiries. The analysis pursuant to Articles 3.5 and 15.5 concerns the causal relationship between subject imports and injury to the domestic industry. In contrast, the analysis under Articles 3.2 and 15.2 concerns the relationship between subject imports and a different variable, that is, domestic prices. As discussed, an understanding of the latter relationship serves as a basis for the injury and causation analysis under Articles 3.5 and 15.5. In addition, Articles 3.5 and 15.5 require an investigating authority to demonstrate that subject imports are causing injury “through the effects of [dumping or subsidies]”, as set forth in Articles 3.2 and 15.2, as well as in Articles 3.4 and 15.4. … Thus, the examination under Articles 3.5 and 15.5 encompasses “all relevant evidence” before the authority, including the volume of subject imports and their price effects listed under Articles 3.2 and 15.2, as well as all relevant economic factors concerning the state of the domestic industry listed in Articles 3.4 and 15.4. The examination under Articles 3.5 and 15.5, by definition, covers a broader scope than the scope of the elements considered in relation to price depression and suppression under Articles 3.2 and 15.2.
 

S.2.24B.9 China — GOES, paras. 151–152
(WT/DS414/AB/R)
 

… As the Appellate Body has found, the non-attribution language of Articles 3.5 and 15.5 requires that “an assessment must involve separating and distinguishing the injurious effects of the other factors from the injurious effects of the dumped imports”. In contrast, Articles 3.2 and 15.2 require an investigating authority to consider the relationship between subject imports and domestic prices, so as to understand whether the former may have explanatory force for the occurrence of significant depression or suppression of the latter. For this purpose, the authority is not required to conduct a fully fledged and exhaustive analysis of all known factors that may cause injury to the domestic industry, or to separate and distinguish the injury caused by such factors.
 

This does not mean that an investigating authority may disregard evidence that calls into question the explanatory force of subject imports for significant depression or suppression of domestic prices. Rather, where an authority is faced with elements other than subject imports that may explain the significant depression or suppression of domestic prices, it must consider relevant evidence pertaining to such elements for purposes of understanding whether subject imports indeed have a depressive or suppressive effect on domestic prices. This understanding is also reinforced by the very concept of price suppression under Articles 3.2 and 15.2, which concerns prevention of price increases “which otherwise would have occurred”. Moreover, by taking into account evidence pertaining to such elements, an authority also ensures that its consideration of significant price depression and suppression under Articles 3.2 and 15.2 is properly based on positive evidence and involves an objective examination, as required by Articles 3.1 and 15.1.
 

S.2.24B.10 China — GOES, para. 154
(WT/DS414/AB/R)
 

In sum, … with regard to price depression and suppression under the second sentence of Articles 3.2 and 15.2, an investigating authority is required to consider the relationship between subject imports and prices of like domestic products, so as to understand whether subject imports provide explanatory force for the occurrence of significant depression or suppression of domestic prices. The outcome of this inquiry will enable the authority to advance its analysis, and to have a meaningful basis for its determination as to whether subject imports, through such price effects, are causing injury to the domestic industry. Moreover, the inquiry under Articles 3.2 and 15.2 does not duplicate the different and broader examination regarding the causal relationship between subject imports and injury to the domestic industry pursuant to Articles 3.5 and 15.5. Neither do Articles 3.2 and 15.2 require an authority to conduct an exhaustive and fully fledged non-attribution analysis regarding all possible factors that may be causing injury to the domestic industry. Rather, the investigating authority’s inquiry under Articles 3.2 and 15.2 is focused on the relationship between subject imports and domestic prices, and the authority may not disregard evidence that calls into question the explanatory force of the former for significant depression or suppression of the latter.
 

S.2.24B.11 China — GOES, para. 159
(WT/DS414/AB/R)
 

… we agree with the Panel that, because Articles 3.2 and 15.2 require an investigating authority to consider whether the effect of subject imports is to depress prices of like domestic products to a significant degree, “merely showing the existence of significant price depression does not suffice for the purposes of Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement”. … Articles 3.2 and 15.2 contemplate an inquiry into the relationship between two variables, whereby an authority must consider whether a first variable — that is, subject imports — has explanatory force for the occurrence of depression or suppression of a second variable — that is, domestic prices. Thus, as the Panel rightly found, it is not sufficient for an authority to confine its consideration to what is happening to domestic prices alone for purposes of the inquiry stipulated in Articles 3.2 and 15.2.
 

S.2.24B.12 China — GOES, paras. 200–201
(WT/DS414/AB/R)
 

… both participants agreed that an investigating authority must ensure comparability between prices that are being compared. Indeed, although there is no explicit requirement in Articles 3.2 and 15.2, we do not see how a failure to ensure price comparability could be consistent with the requirement under Articles 3.1 and 15.1 that a determination of injury be based on “positive evidence” and involve an “objective examination” of, inter alia, the effect of subject imports on the prices of domestic like products. Indeed, if subject import and domestic prices were not comparable, this would defeat the explanatory force that subject import prices might have for the depression or suppression of domestic prices. …
 

… we do not consider that the question of whether price adjustments are needed to ensure price comparability is to be determined by whether a respondent objects to the use of unadjusted prices. We have explained that a price effects finding is subject to the requirement that a determination of injury be based on “positive evidence” and involve an “objective examination”. As the Appellate Body stated in EC — Bed Linen (Article 21.5 — India), the obligations under Articles 3.1 and 3.2 “must be met by every investigating authority in every injury determination”. For these reasons, while we may agree with China that investigating authorities “have discretion to frame their investigations and analyses in light of the information gathered by the authorities and the arguments presented to the authorities by the parties”, authorities remain bound by their overarching obligation to conduct an objective examination on the basis of positive evidence, irrespective of how the issues were presented or argued during the investigation.
 

S.2.24B.13 China — GOES, para. 206
(WT/DS414/AB/R)
 

… the existence of a pricing policy by importers to undercut the prices of domestic producers could, when successful, lead to actual price undercutting. Even in the absence of price undercutting, however, a policy that aims to undercut a competitor’s prices may still be relevant to an examination of its price depressive or suppressive effects. Indeed, a policy aimed at price undercutting may very well depress and suppress domestic prices in instances where, as China asserts, “domestic producers were reacting to subject import competition and were lowering domestic prices so as to compete more effectively and minimize any further loss of market share”. In this respect, if an importer pursues a policy of undercutting a competitor, but that competitor anticipates or responds to that policy by lowering its price to win the sale, this may still reveal that subject imports have the effect of depressing, or preventing the increase of, domestic prices.
 

S.2.24B.14 China — GOES, para. 210
(WT/DS414/AB/R)
 

We can conceive of ways in which an observation of parallel price trends might support a price depression or suppression analysis. For instance, the fact that prices of subject imports and domestic products move in tandem might indicate the nature of competition between the products, and may explain the extent to which factors relating to the pricing behaviour of importers have an effect on domestic prices. …
 

S.2.24B.15 China — GOES, paras. 216, 220–221, and Footnote 364
(WT/DS414/AB/R)
 

… MOFCOM’s finding of significant price depression and suppression rested on an examination of the effect of both the prices and volume of subject imports on domestic prices. This approach is consistent with the requirements of Articles 3.2 and 15.2 whereby the effect of subject imports on domestic prices may be examined through the vector of subject import prices, subject import volumes, or both. However, in circumstances where an investigating authority relies on both subject import prices and volume, a panel must still allow for the possibility that either prices or volume was sufficient by itself to sustain a finding.364 We therefore do not consider that the focus of the Panel’s inquiry should have been on whether the effects of either subject import volume or prices was the primary basis for MOFCOM’s price effects finding.
 

...
 

[In its analysis,] we understand the Panel to have concluded that it was itself unable to disentangle the relative contribution of these effects in MOFCOM’s Final Determination without substituting its judgment for that of the authority. The Panel therefore refrained from conducting an analysis that, in its view, MOFCOM itself had not conducted. To have done so would have put the Panel at risk of engaging in a de novo review, which would have been inconsistent with a panel’s standard of review in assessing determinations of national authorities.
 

We therefore agree with the Panel that it was “not possible to conclude that MOFCOM’s finding that price depression was an effect of subject imports might be upheld purely on the basis of MOFCOM’s findings regarding the effect of the increase in the volume of subject imports”.
 

S.2.25 Article 15.4 — Examination of the impact of subsidized imports on the domestic industry. See also Anti-Dumping Agreement, Article 3.4 (A.3.22–23)     back to top

S.2.25.1 China — GOES, paras. 149–150
(WT/DS414/AB/R)
 

… [Article 3.4 of the Anti-Dumping Agreement and Article 15.4 of the SCM Agreement] are concerned with the relationship between subject imports and the state of the domestic industry, and this relationship is analytically akin to the type of link contemplated by the term “the effect of” under Articles 3.2 and 15.2. In other words, Articles 3.4 and 15.4 require an examination of the explanatory force of subject imports for the state of the domestic industry. In our view, such an interpretation does not duplicate the relevant obligations in Articles 3.5 and 15.5. As noted, the inquiry set forth in Articles 3.2 and 15.2, and the examination required under Articles 3.4 and 15.4, are necessary in order to answer the ultimate question in Articles 3.5 and 15.5 as to whether subject imports are causing injury to the domestic industry. The outcomes of these inquiries form the basis for the overall causation analysis contemplated in Articles 3.5 and 15.5. Thus, similar to the consideration under Articles 3.2 and 15.2, the examination under Articles 3.4 and 15.4 contributes to, rather than duplicates, the overall determination required under Articles 3.5 and 15.5.
 

Moreover, an investigating authority is required to examine the impact of subject imports on the domestic industry pursuant to Articles 3.4 and 15.4, but is not required to demonstrate that subject imports are causing injury to the domestic industry. Rather, the latter analysis is specifically mandated by Articles 3.5 and 15.5. The demonstration of the causal relationship under Articles 3.5 and 15.5 requires an investigating authority to examine “all relevant evidence” before it, and thus covers a broader scope than the examination under Articles 3.4 and 15.4. As discussed below, Articles 3.5 and 15.5 further impose a requirement to conduct a non-attribution analysis regarding all factors causing injury to the domestic industry. Given these intrinsic differences between Articles 3.4 and 15.4, on the one hand, and Articles 3.5 and 15.5, on the other hand, we do not consider that our interpretation leads to a “duplicative analysis of causation”, as China suggests.
 

S.2.25A Article 15.5 — Causation. See also Anti-Dumping Agreement, Article 3.5 (A.3.23A–26); Safeguards Agreement, Article 4.2(b) (S.1.29–32)     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.2.25A.8 China — GOES, para. 143
(WT/DS414/AB/R)
 

… by virtue of the phrase “through the effects of” dumping or subsidies “[a]s set forth in paragraphs 2 and 4”, Articles 3.5 and 15.5 make clear that the inquiries set forth in Articles 3.2 and 15.2, and the examination required in Articles 3.4 and 15.4, are necessary in order to answer the ultimate question in Articles 3.5 and 15.5 as to whether subject imports are causing injury to the domestic industry. The outcomes of these inquiries thus form the basis for the overall causation analysis contemplated in Articles 3.5 and 15.5.
 

S.2.25A.9 China — GOES, para. 147
(WT/DS414/AB/R)
 

… the examination under [Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement] encompasses “all relevant evidence” before the authority, including the volume of subject imports and their price effects listed under Articles 3.2 and 15.2, as well as all relevant economic factors concerning the state of the domestic industry listed in Articles 3.4 and 15.4. The examination under Articles 3.5 and 15.5, by definition, covers a broader scope than the scope of the elements considered in relation to price depression and suppression under Articles 3.2 and 15.2.
 

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 in the appropriate amounts and on a non-discriminatory basis. See also Anti-Dumping Agreement, Article 9.2 — Imposition of anti-dumping duties in the appropriate amounts and on a non-discriminatory basis, in respect of any product (A.3.40); SCM Agreement, Article VI:5 of the GATT 1994 — Anti-dumping and countervailing duties and “double remedies” (S.2.44)     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 USCountervailing 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.2.27.4 US — Anti-Dumping and Countervailing Duties (China), para. 541
(WT/DS379/AB/R)
 

… “[D]ouble remedies” may arise when both countervailing duties and anti-dumping duties are imposed on the same imported products. The term “double remedies” does not, however, refer simply to the fact that both an anti-dumping and a countervailing duty are imposed on the same product. Rather, as explained below, “double remedies”, also referred to as “double counting”, refers to circumstances in which the simultaneous application of anti-dumping and countervailing duties on the same imported products results, at least to some extent, in the offsetting of the same subsidization twice. “Double remedies” are “likely” to occur in cases where an NME methodology is used to calculate the margin of dumping.
 

S.2.27.5 US — Anti-Dumping and Countervailing Duties (China), paras. 550, 552–553
(WT/DS379/AB/R)
 

… the main interpretative question before us concerns the meaning of the phrase “in the appropriate amounts in each case” in Article 19.3 of the SCM Agreement and whether, as China contends, it would not be appropriate, within the meaning of that provision, to levy countervailing duties that result in, or are likely to result in, the imposition of double remedies.
 

...
 

The first sentence of Article 19.3 of the SCM Agreement contains two elements: first, a requirement that countervailing duties be levied in the appropriate amounts in each case, and, second, a requirement that these duties be levied on a non-discriminatory basis on imports of such product from all sources found to be subsidized and causing injury, except for imports from sources that have renounced the relevant subsidies or from which undertakings have been accepted. relevant dictionary definitions of the term “appropriate” … suggest that what is “appropriate” is not an autonomous or absolute standard, but rather something that must be assessed by reference or in relation to something else. They suggest some core norm — “proper”, “fitting”, “suitable” — and at the same time adaptation to particular circumstances. Within Article 19.3, the circumstance-specific quality of “the appropriate amounts” is further reinforced by the immediate context provided by the words “in each case”. We also note that the term “amount” is defined as something quantitative, a number, “a quantity or sum viewed as the total reached”.
 

We consider that the two requirements in the first sentence of Article 19.3 inform each other. Thus, it would not be appropriate for an importing Member to levy countervailing duties on imports from sources that have renounced relevant subsidies, or on imports from sources whose price undertakings have been accepted. Similarly, because the requirement that the duty be levied in “appropriate amounts” implies a certain tailoring of the amounts according to circumstances, this suggests that the requirement that the duty be imposed on a non-discriminatory basis on imports from all subsidized sources should not be read in an overly formalistic or rigid manner. The second sentence of Article 19.3 provides a specific example of circumstances in which it is permissible not to differentiate amongst individual exporters, as well as of when and how differentiated treatment in the establishment of a countervailing duty rate is required.
 

S.2.27.6 US — Anti-Dumping and Countervailing Duties (China), paras. 555–557
(WT/DS379/AB/R)
 

The Panel’s finding that countervailing duties are collected “in the appropriate amounts insofar as the amount collected does not exceed the amount of subsidy found to exist” points to Article 19.4 as the key determinant of what is an “appropriate” amount, for purposes of Article 19.3. We share the Panel’s view that Article 19.4 provides context relevant to the interpretation of Article 19.3. Yet, we are not persuaded, as the Panel seems to have been, that Article 19.4, alone, defines when the amount of duty is “appropriate”. Indeed, if any amount of countervailing duty that does not exceed the amount of the subsidy is an “appropriate” amount within the meaning of Article 19.3, then the requirement in Article 19.3 would be rendered redundant, as Article 19.4 already prescribes that duties not be levied in excess of the amount of the subsidy found to exist.
 

… Article 19.4 makes clear that the amount that could be “appropriate” cannot be more than the amount of the subsidy. However, Article 19.4 neither requires that the amount of countervailing duties equal the full amount of the subsidy found to exist, nor bears upon the question of whether there may be circumstances in which the “appropriate amount” of a countervailing duty will be an amount less than the full amount of the subsidy found to exist.
 

It is, rather, Article 19.2 of the SCM Agreement that appears more relevant to this question. While expressly leaving to the importing Member’s investigating authorities the decision as to whether the amount of the countervailing duty to be imposed shall be the full amount of the subsidy or less, Article 19.2 nevertheless states that it is “desirable” that “the duty should be less than the total amount of the subsidy if such lesser duty would be adequate to remove the injury”. Article 19.2 thus encourages such authorities to link the actual amount of the countervailing duty to the injury to be removed.
 

S.2.27.7 US — Anti-Dumping and Countervailing Duties (China), para. 558
(WT/DS379/AB/R)
 

Moreover, once a causal link between the subsidized imports and injury has been demonstrated, the imposition and levying of countervailing duties are not hermetically isolated from any consideration related to injury. In addition to Article 19.2, a link between the amount of the countervailing duty and the injury that the subsidized imports are found to be causing is reflected in Article 19.3 itself, which provides that a “countervailing duty shall be levied, in the appropriate amounts in each case … on imports of such product … found to be subsidized and causing injury” (emphasis added). Other provisions of the SCM Agreement also link the countervailing duty to the injury that the subsidized imports are found to be causing. Article 19.1 allows for the imposition of countervailing duties when subsidized imports “are causing injury”. The use of the present tense in this provision suggests that injury is a continuing prerequisite for the imposition and levying of countervailing duties. This is confirmed by Article 21.1 that states that “[a] countervailing duty shall remain in force only as long as and to the extent necessary to counteract subsidization which is causing injury”.
 

S.2.27.8 US — Anti-Dumping and Countervailing Duties (China), paras. 560–562
(WT/DS379/AB/R)
 

We believe that there are three main features of Article 10 of the SCM Agreement that are relevant to the interpretative task before us. First, Article 10 establishes that Part V of the SCM Agreement relates to the application of Article VI of the GATT 1994, and that countervailing duties must conform to the dictates of that provision as well as to the SCM Agreement. Second, by providing that “only one form of relief shall be available” for the effects of a subsidy, Footnote 35 makes clear that, at least within the four corners of the SCM Agreement, there can be no “double remedies” against the same subsidization. Third, Footnote 36 to Article 10 defines a “countervailing duty” as a special duty levied for the purpose of “offsetting” a subsidy.
 

The link between the GATT 1994 and the SCM Agreement also figures prominently in Article 32.1 of the SCM Agreement … .
 

Footnote 56 to Article 32.1 reaffirms the right of Members to take action under other relevant provisions of the GATT 1994, and at the same time recognizes that not all such action will be “appropriate”.
 

S.2.27.9 US — Anti-Dumping and Countervailing Duties (China), para. 563
(WT/DS379/AB/R)
 

In our view, therefore, Articles 10, 19.1, 19.2, 19.4, 21.1, and 32.1 all provide context relevant to the interpretation of Article 19.3. These provisions identify two situations in which the importing Member is prohibited from imposing two remedial measures as a response to the same subsidization. Importing Members are required to choose between accepting price undertakings or imposing countervailing duties, and between taking countermeasures under Parts II and III of the SCM Agreement or imposing countervailing measures under Part V of that Agreement. These provisions also confirm the close link between the GATT 1994, in particular its Article VI, and Part V of the SCM Agreement, and suggest that, among the purposes of countervailing duties are: to offset or counteract injurious subsidization, and to remove the injury to the domestic industry. Moreover, they indicate that the appropriateness of the amount of countervailing duties is not unrelated to the injury that is being caused. We note, in this connection, that the Anti-Dumping Agreement contains provisions that parallel Articles 10, 19.2, 19.3, 19.4, 21.1 and 32.1 in the context of anti-dumping duties … .
 

S.2.27.10 US — Anti-Dumping and Countervailing Duties (China), paras. 570–572
(WT/DS379/AB/R)
 

In our view, the references to Article VI of the GATT 1994 in Articles 10 and 32.1 of the SCM Agreement, Article VI itself, and the many parallels between the obligations that apply to Members imposing anti-dumping duties and those imposing countervailing duties, suggest that any interpretation of “the appropriate amounts” of countervailing duties within the meaning of Article 19.3 of the SCM Agreement must not be based on a refusal to take account of the context offered both by Article VI of the GATT 1994 and by the provisions of the Anti-Dumping Agreement. While we agree with the Panel that Articles 19.3 and 19.4 of the SCM Agreement are concerned with countervailing duties and not with anti-dumping duties, we are not persuaded that it necessarily follows that these provisions are, as the Panel noted, “oblivious to any potential concurrent imposition of anti-dumping duties”. Such an interpretative approach is difficult to reconcile with the notion that the provisions in the WTO covered agreements should be interpreted in a coherent and consistent manner, giving meaning to all applicable provisions harmoniously. Members have entered into cumulative obligations under the covered agreements and should thus be mindful of their actions under one agreement when taking action under another. We are reinforced in this view by the fact that, although the disciplines that apply to a Member’s use of anti-dumping duties and its use of countervailing duties are legally distinct, the remedies that result are, from the perspective of producers and exporters, indistinguishable. Both remedial actions increase the amount of duty that must be paid at the border.
 

… a proper understanding of the “appropriate amounts” of countervailing duties in Article 19.3 of the SCM Agreement cannot be achieved without due regard to relevant provisions of the Anti-Dumping Agreement and recognition of the way in which the two legal regimes that these agreements set out, and the remedies which they authorize Members to impose, operate. To us, the requirement that any amounts be “appropriate” means, at a minimum, that investigating authorities may not, in fixing the appropriate amount of countervailing duties, simply ignore that anti-dumping duties have been imposed to offset the same subsidization. Each agreement sets out strict conditions that must be satisfied before the authorized remedy may be applied. The purpose of each authorized remedy may be distinct, but the form and effect of both remedies are the same. Both the Anti-Dumping Agreement and the SCM Agreement contain provisions requiring that the amounts of anti-dumping and countervailing duties be “appropriate in each case”, as reflected in Articles 9.2 and 19.3 respectively. Both agreements also set ceilings on the maximum amount of duties that can be imposed to remedy dumping and subsidization, respectively. Article 19.4 of the SCM Agreement establishes that countervailing duties shall not exceed the amount of the subsidy found to exist and Article 9.3 of the Anti-Dumping Agreement establishes that anti-dumping duties shall not exceed the margin of dumping.
 

Only if these provisions are read in wilful isolation from each other can it be maintained that the respective rules on the imposition and levying of duties are complied with when double remedies are imposed. In contrast, reading the two agreements together suggests that the imposition of double remedies would circumvent the standard of appropriateness that the two agreements separately establish for their respective remedies. In other words, considering that each agreement sets forth a standard of appropriateness of the amount and establishes a ceiling for the respective duties, it should not be possible to circumvent the rules in each agreement by taking measures under both agreements to counteract the same subsidization. It is counterintuitive to suggest that, while each agreement sets forth rules on the amounts of anti-dumping duties and countervailing duties that can be levied, there is no obstacle to the levying of a total amount of anti-dumping and countervailing duties which, if added together, would not be appropriate and would exceed the combined amounts of dumping and subsidization found.
 

S.2.27.11 US — Anti-Dumping and Countervailing Duties (China), para. 574
(WT/DS379/AB/R)
 

We do not see that the object and purpose of the SCM Agreement provides clear indications as to the intentions of the drafters of the SCM Agreement in respect of double remedies in case of domestic subsidization. To the extent that the object and purpose of the SCM Agreement links the application of countervailing duties to their purpose — to offset injurious subsidization — this supports an interpretation of Article 19.3 that would render “inappropriate” the application of countervailing duties that, together with anti-dumping duties, exceed the full amount of the subsidy. We emphasize that we are not suggesting that the object and purpose of the SCM Agreement encompasses the imposition of disciplines on the use of anti-dumping duties. Rather, we simply consider that the object and purpose of the SCM Agreement is not inconsistent with an approach that would accept that, in fixing the amount of countervailing duties that will be imposed, it is appropriate to take account of anti-dumping duties that are being levied on the same products and that offset the same subsidization.
 

S.2.27.12 US — Anti-Dumping and Countervailing Duties (China), Footnote 559 to para. 580
(WT/DS379/AB/R)
 

… We do not agree with the Panel that the fact that China’s Accession Protocol does not explicitly address the issue of double remedies suggests that Articles 19.3 and 19.4 of the SCM Agreement do not address double remedies. In our view, the fact that China’s Accession Protocol does not exclude the application of countervailing duties to China while it remained an NME may equally be read as suggesting a shared understanding that China would be protected against the imposition of double remedies by the provisions of the SCM Agreement. On balance, however, we are not persuaded that the absence of a provision addressing double remedies in China’s Accession Protocol suggests anything regarding the interpretation of Articles 19.3 and 19.4 of the SCM Agreement.
 

S.2.27.13 US — Anti-Dumping and Countervailing Duties (China), para. 581
(WT/DS379/AB/R)
 

… we are not persuaded that the existence in a predecessor agreement of a provision prohibiting the concurrent imposition of anti-dumping and countervailing duties to imports from NMEs allows an interpreter to conclude, a contrario, that, in the SCM Agreement, Members intended to allow double remedies. … Article 15 of the Tokyo Round Subsidies Code does more than merely prohibit double remedies, in that it prohibits the concurrent application of anti-dumping and countervailing duties, regardless of whether they offset the same situation of subsidization. In the light of this, the absence of a provision like Article 15 of the Tokyo Round Subsidies Code in the SCM Agreement cannot be interpreted as indicating that Members intended to exclude from the scope of the SCM Agreement a different and narrower obligation, such as a prohibition on double remedies.
 

S.2.27.14 US — Anti-Dumping and Countervailing Duties (China), paras. 582–583
(WT/DS379/AB/R)
 

… Under Article 19.3 of the SCM Agreement, the appropriateness of the amount of countervailing duties cannot be determined without having regard to anti-dumping duties imposed on the same product to offset the same subsidization. The amount of a countervailing duty cannot be “appropriate” in situations where that duty represents the full amount of the subsidy and where anti-dumping duties, calculated at least to some extent on the basis of the same subsidization, are imposed concurrently to remove the same injury to the domestic industry. Dumping margins calculated based on an NME methodology are, for the reasons explained above, likely to include some component that is attributable to subsidization.
 

… We find … that the imposition of double remedies, that is, the offsetting of the same subsidization twice by the concurrent imposition of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement.
 

S.2.27.15 US — Anti-Dumping and Countervailing Duties (China), para. 599
(WT/DS379/AB/R)
 

We do not accept China’s contention that a finding of inconsistency of the measures at issue must directly follow from our reversal of the Panel’s interpretation of Article 19.3 of the SCM Agreement. We have expressed the view that, as a legal matter, this provision prohibits double remedies. But, we have not yet considered the question of when, as a factual matter, double remedies arise. In principle, we agree with the statement by the Panel that double remedies would likely result from the concurrent application of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, but we are not convinced that double remedies necessarily result in every instance of such concurrent application of duties. This depends, rather, on whether and to what extent domestic subsidies have lowered the export price of a product, and on whether the investigating authority has taken the necessary corrective steps to adjust its methodology to take account of this factual situation.
 

S.2.27.16 US — Anti-Dumping and Countervailing Duties (China), paras. 601–602
(WT/DS379/AB/R)
 

… We consider that a parallel can be drawn between the obligation of an investigating authority under Article VI:3 of the GATT 1994 to determine the precise amount of the subsidy, on the one hand, and the analogous obligations that an investigating authority has under Articles 19.3 and 19.4 of the SCM Agreement, on the other hand, to determine and levy countervailing duties in amounts that are appropriate in each case and that do not exceed the amount of the subsidy found to exist.
 

In the same way, therefore, as an investigating authority is subject to an affirmative obligation to ascertain the precise amount of the subsidy, so too is it subject to an affirmative obligation to establish the appropriate amount of the duty under Article 19.3. This obligation encompasses a requirement to conduct a sufficiently diligent “investigation” into, and solicitation of, relevant facts, and to base its determination on positive evidence in the record. We recall our finding above that, among the factors to be taken into account by an investigating authority, in establishing the “appropriate” amount of countervailing duty to be imposed, is evidence of whether and to what degree the same subsidies are being offset twice when anti-dumping and countervailing duties are simultaneously imposed on the same imported products. We also recall that such double remedies are “likely” when the concurrent anti-dumping duties are calculated on the basis of an NME methodology.
 

S.2.27.17 US — Anti-Dumping and Countervailing Duties (China), paras. 603–606
(WT/DS379/AB/R)
 

… the parties agreed “that where interested parties raised ‘double remedy’ arguments in the investigations at issue, the USDOC rejected them and that the USDOC did not take into consideration the anti-dumping duties imposed on the same products when it imposed countervailing duties corresponding to the full amount of subsidies found to have been conferred on each investigated producer”.
 

Thus, the USDOC made no attempt to establish whether or to what degree it would offset the same subsidies twice by imposing anti-dumping duties calculated under its NME methodology … .
 

In our view, by declining to address China’s claims concerning double remedies in the four countervailing duty investigations at issue, the USDOC failed to fulfil its obligation to determine the “appropriate” amount of countervailing duties within the meaning of Article 19.3 of the SCM Agreement.
 

Consequently, we find that, … by virtue of the USDOC’s imposition of anti-dumping duties calculated on the basis of an NME methodology, concurrently with the imposition of countervailing duties on the same products, without having assessed whether double remedies arose from such concurrent duties, the United States acted inconsistently with its obligations under Article 19.3 of the SCM Agreement.
 

S.2.28 Article 19.4 — Calculation of countervailing duty rates on a 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 USLead 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 [USLead 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 the 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.2.34.3 US — Anti-Dumping and Countervailing Duties (China), para. 354
(WT/DS379/AB/R)
 

In our view, merely incorporating by reference findings from one determination into another determination will normally not suffice as a reasoned and adequate explanation. Nonetheless, where there is close temporal and substantive overlap between the two investigations, such cross reference may, exceptionally, suffice. We do see substantive overlap between the CFS Paper and the OTR determinations, as both investigations were concerned with the nature of [State-owned commercial banks] in China. With respect to the temporal element, we note that there was only one year’s difference between the period of investigation in CFS Paper (calendar year 2005) and the period of investigation in OTR (calendar year 2006). We also note that, notwithstanding the USDOC’s express acknowledgement in CFS Paper that the “scope and extent of government control over [State-owned commercial banks] is changing”, China has not challenged, either before the Panel or before us, the USDOC’s reliance in the OTR investigation on its findings in CFS Paper. In the light of these considerations, we do not see that the USDOC’s reliance on its finding, in CFS Paper, was inconsistent with the USDOC’s obligations to base its public body determination on positive evidence and to provide a reasoned and adequate explanation of how the evidence on the record supported that determination.
 

S.2.34.4 US — Anti-Dumping and Countervailing Duties (China), para. 502
(WT/DS379/AB/R)
 

… We note that there was only one year’s difference between the period of investigation in CWP, LWS, and OTR and the period of investigation in CFS Paper, and that, in CFS Paper, the USDOC expressly acknowledged that “banking reforms in China may be starting to take effect” and that “the scope and extent of government control over [State-owned commercial banks] was changing”. Had a longer period of time elapsed between CFS Paper and the investigations at issue, we question whether it would have been appropriate or sufficient for the USDOC to simply incorporate by reference its earlier determination in CFS Paper, without explaining why, despite the passage of time, such determination remained valid. As indicated above, we are of the view that merely incorporating by reference findings from one determination into another will normally not suffice as a reasoned and adequate explanation.
 

S.2.34.5 China — GOES, para. 256
(WT/DS414/AB/R)
 

… [Articles 12.2.2 of the Anti-Dumping Agreement and Article 22.5 of the SCM Agreement require] that a public notice contain “all relevant information” on “matters of fact” “which have led to the imposition of final measures”. With regard to “matters of fact”, these provisions do not require authorities to disclose all the factual information that is before them, but rather those facts that allow an understanding of the factual basis that led to the imposition of final measures. The inclusion of this information should therefore give a reasoned account of the factual support for an authority’s decision to impose final measures. Moreover, we note that the obligations under Articles 12.2.2 and 22.5 come at a later stage in the process than the requirement to disclose the essential facts pursuant to Articles 6.9 and 12.8. While the disclosure of essential facts must take place “before a final determination is made”, the obligation to give public notice of the conclusion of an investigation within the meaning of Articles 12.2.2 and 22.5 is triggered once there is an affirmative determination providing for the imposition of definitive duties.
 

S.2.34.6 China — GOES, para. 257
(WT/DS414/AB/R)
 

… the imposition of final anti-dumping or countervailing duties requires that an authority finds dumping or subsidization, injury, and a causal link between the dumping or subsidization and the injury to the domestic industry. What constitutes “relevant information on the matters of fact” is therefore to be understood in the light of the content of the findings needed to satisfy the substantive requirements with respect to the imposition of final measures under the Anti-Dumping Agreement and the SCM Agreement, as well as the factual circumstances of each case. These findings each rest on an analysis of various elements that an authority is required to examine, which, in the context of an injury analysis, are set out in, inter alia, Articles 3.1, 3.2, 3.4, and 3.5 of the Anti-Dumping Agreement and Articles 15.1, 15.2, 15.4, and 15.5 of the SCM Agreement. Articles 3.2 and 15.2 require, inter alia, an investigating authority to consider the effect of the subject imports on prices by considering whether there has been significant price undercutting, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree. We note that Articles 12.2.2 and 22.5 further underscore the requirement of public notice of these elements by cross-referencing, respectively, to Articles 12.2.1 of the Anti-Dumping Agreement and 22.4 of the SCM Agreement, which require that the public notice or report contain considerations relevant to the injury determination as set out in Articles 3 and 15.
 

S.2.34.7 China — GOES, para. 258
(WT/DS414/AB/R)
 

Articles 12.2.2 and 22.5 are both situated in the context of provisions that concern the public notice and explanation of determinations in anti-dumping and countervailing duty investigations. In the case of an affirmative determination providing for the imposition of a definitive duty, Articles 12.2.2 and 22.5 provide that such notice shall contain all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures. Articles 12.2.2 and 22.5 capture the principle that those parties whose interests are affected by the imposition of final anti-dumping and countervailing duties are entitled to know, as a matter of fairness and due process, the facts, law and reasons that have led to the imposition of such duties. The obligation of disclosure under Articles 12.2.2 and 22.5 is framed by the requirement of “relevance”, which entails the disclosure of the matrix of facts, law and reasons that logically fit together to render the decision to impose final measures. By requiring the disclosure of “all relevant information” regarding these categories of information, Articles 12.2.2 and 22.5 seek to guarantee that interested parties are able to pursue judicial review of a final determination as provided in Article 13 of the Anti-Dumping Agreement and Article 23 of the SCM Agreement.
 

S.2.34.8 China — GOES, para. 259
(WT/DS414/AB/R)
 

With respect to the form in which the relevant information must be disclosed, Articles 12.2.2 and 22.5 allow authorities to decide whether to include the information in the public notice itself “or otherwise make [it] available through a separate report”. … When confidential information is part of the relevant information on the matters of fact within the meaning of Articles 12.2.2 and 22.5, the disclosure obligations under these provisions should be met by disclosing non-confidential summaries of that information.
 

S.2.34.9 China — GOES, para. 260
(WT/DS414/AB/R)
 

In sum, in the context of the second sentence of Articles 3.2 and 15.2, we consider that “all relevant information on the matters of fact” consists of those facts that are required to understand an investigating authority’s price effects examination leading to the imposition of final measures. …
 

S.2.34.10 China — GOES, para. 267
(WT/DS414/AB/R)
 

… MOFCOM was required to disclose “all relevant information on the matters of fact” relating to the “low price” of subject imports on which it relied for its finding of significant price depression and suppression. Consequently, in addition to the finding in its Final Determination that subject imports were at a “low price”, MOFCOM was also required to disclose the facts of price undercutting that were required to understand that finding. As the Panel found, the Final Determination only states that subject imports were at a “low price”, without providing any facts relating to the price comparisons of subject imports and domestic products. We consider that these facts constituted “relevant information on the matters of fact” within the meaning of Articles 12.2.2 and 22.5, which should have been included in MOFCOM’s 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 fulfill if they are to benefit from this special and differential treatment during the transitional period. On reading paragraphs 2(b) and 4 of Article 27 together, it is clear that the conditions set forth in paragraph 4 are positive obligations for developing country Members, not affirmative defences. If a developing country Member complies with the obligations in Article 27.4, the prohibition on export subsidies in Article 3.1(a) simply does not apply. However, if that developing country Member does not comply with those obligations, Article 3.1(a) does apply.
 

S.2.35.1.2 Brazil — Aircraft, para. 150
(WT/DS46/AB/R)
 

… we uphold the finding of the Panel that the “proper point of reference” in determining whether a Member has increased the level of its export subsidies under Article 27.4 is actual expenditures, rather than budgeted amounts or appropriations.
 

S.2.35.1.3 Brazil — Aircraft, para. 156
(WT/DS46/AB/R)
 

… It is pursuant to the provisions of Article 27.4 that Brazil is obliged not to increase “the level of its export subsidies”. And, to ascertain the meaning of this phrase, it is necessary to look, again, at Footnote 55, which is affixed to Article 27.4 and which speaks of “the level of export subsidies granted” (emphasis added) by a developing country Member. …
 

S.2.35.1.4 Brazil — Aircraft, para. 163
(WT/DS46/AB/R)
 

… in our view, to take no account of inflation in assessing the level of export subsidies granted by a developing country Member would render the special and differential treatment provisions of Article 27 meaningless. …
 

S.2.35.2 PARAGRAPHS 10 AND 11 — HIGHER DE MINIMIS SUBSIDIZATION THRESHOLD
 

S.2.35.2.1 US — Carbon Steel, para. 82
(WT/DS213/AB/R, WT/DS213/AB/R/Corr.1)
 

… Articles 27.10 and 27.11 of the SCM Agreement … require authorities, in a countervailing duty investigation, to apply a higher de minimis subsidization threshold to imports from developing country Members. To accept the Panel’s reasoning — that de minimis subsidization is non-injurious subsidization — would imply that, for the same product, imported into the same country, and affecting the same domestic industry, the SCM Agreement establishes different thresholds at which the same industry can be said to suffer injury, depending on the origin of the product. …
 

S.2.36 Article 32.1 — Specific action against a subsidy. See also Anti-Dumping Agreement, Article 18.1 — Specific action against dumping (A.3.61); SCM Agreement, Article 1.1 — Pass-through of indirect subsidies (S.2.10); SCM Agreement, Article VI:3 of the GATT 1994 — Subsidies (S.2.43)     back to top

S.2.36.1 US — Offset Act (Byrd Amendment), para. 236
(WT/DS217/AB/R, WT/DS234/AB/R)
 

Looking to the ordinary meaning of the words used in these provisions, we read them as establishing two conditions precedent that must be met in order for a measure to be governed by them. The first is that a measure must be “specific” to dumping or subsidization. The second is that a measure must be “against” dumping or subsidization. These two conditions operate together and complement each other. If they are not met, the measure will not be governed by Article 18.1 of the Anti-Dumping Agreement or by Article 32.1 of the SCM Agreement. If, however, it is established that a measure meets these two conditions, and thus falls within the scope of the prohibitions in those provisions, it would then be necessary to move to a further step in the analysis and to determine whether the measure has been “taken in accordance with the provisions of the GATT 1994”, as interpreted by the Anti-Dumping Agreement or the SCM Agreement. If it is determined that this is not the case, the measure would be inconsistent with Article 18.1 of the Anti-Dumping Agreement or Article 32.1 of the SCM Agreement.
 

S.2.36.2 US — Offset Act (Byrd Amendment), para. 237
(WT/DS217/AB/R, WT/DS234/AB/R)
 

… The Panel analyzed the terms “specific” and “against” in Article 18.1 in the same manner as it did with respect to their use in Article 32.1. We agree with the Panel’s approach. …
 

S.2.36.3 US — Offset Act (Byrd Amendment), para. 239
(