Annex A-2 Initial Brief from the United States (5 June 2003)
Annex A-3 Third Party Initial Brief from Argentina (10 June 2003)
Annex A-4 Third Party Initial Brief from Australia (10 June 2003)
Annex A-5 Third Party Initial Brief from the European Communities (10 June 2003)
Annex A-6 Third Party Initial Brief from India (10 June 2003)
Annex A-7 Third Party Initial Brief from New Zealand (10 June 2003)
Annex A-8 Third Party Initial Brief from Paraguay (10 June 2003)
Annex A-9 Comments of Brazil on the Initial Briefs (13 June 2003)
Annex A-10 Comments of the United States on the Initial Briefs (13 June 2003)
Brazil’s Brief on Preliminary Issue Regarding the “Peace Clause” of the Agreement on Agriculture
5 June 2003
TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY 2 II. ANALYSIS OF THE PHRASE "EXEMPT FROM ACTIONS" 3 III. THE CONTEXT OFF ARTICLE 13 DEMONSTRATES THAT THERE IS
NO LEGAL REQUIREMENT FOR THE PANEL TO FIRST MAKE A FINDING
ON THE PEACE CLAUSE BEFORE PERMITTING BRAZIL TO SET OUT
ITS ARGUMENT AND CLAIMS REGARDING US VIOLATIONS OF
THE SCM AGREEMENT 5 IV. RESOLUTION OF THRESHOLD ISSUES PRIOR TO PROVIDING
PARTIES THE OPPORTUNITY TO PRESENT ALL OF ITS EVIDENCE IS CONTRARY TO THE PRACTICE OF EARLIER PANELS 6
V. BRAZIL WILL BE PREJUDICED BY SEPARATE HEARINGS ON THE
PEACE CLAUSE ISSUE 8 VI. CONCLUSION 9
I. INTRODUCTION AND SUMMARY 1. Brazil responds to the Panel’s 28 May 2003 request for a briefing on the following issue:
Whether Article 13 of the Agreement on Agriculture precludes the Panel from considering Brazil’s claims under the Agreement on Subsidies and Countervailing Measures in these proceedings in the absence of a prior conclusion by the Panel that certain conditions of Article 13 remain unfulfilled.1
2. The short answer to this question is “no”. There is no procedural rule or legal requirement for a panel to make such a preliminary finding. The phrase “exempt from actions” in Article 13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture (AoA) means that if all the conditions of Article 13(b)(ii) and 13(c)(ii) are fulfilled (i.e., there is peace clause protection), a complaining Member cannot receive authorization from the DSB to obtain a remedy against another Member’s domestic and export support measures that otherwise would be subject to the disciplines of certain provisions of the Agreement on Subsidies and Countervailing Measures (ASCM or SCM Agreement) or Article XVI of GATT 1994. But neither the phrase “exempt from actions” nor AoA Article 13 compel the Panel to first make a peace clause finding before considering the substance of Brazil’s ASCM and GATT Article XVI claims.
3. Article 13 of the Agreement on Agriculture is not a “special and additional” rule set out in Appendix 2 to the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Article 19 of the AoA makes all DSU provisions applicable to the AoA. Pursuant to DSU Article 11, a panel must make an “objective assessment of the facts of the case”. Assessing and weighing all relevant facts – including rebuttal facts – obtained during the normal two meeting panel process is essential to resolve properly fact-intensive issues relating to the peace clause. This Panel should follow the lead of previous panels that made similar complex threshold findings in final panel reports.
4. Brazil will be prejudiced by delays in the process because a number of Brazil’s claims are not dependent on any resolution of the “peace clause”. Much of the proof required for demonstrating that the US has no peace clause protection under Articles 13(b)(ii) and 13(c)(ii) is the same evidence demonstrating US violations under the SCM Agreement. Requiring separate briefings, hearing, presentation of factual evidence and legal argument for such inter-connected “peace clause” issues would seriously disrupt Brazil’s presentation of its evidence, lead to duplication of its efforts, delay the proceeding, and increase Brazil’s financial and human resource costs.
II. ANALYSIS OF THE PHRASE “EXEMPT FROM ACTIONS”
1. The Panel has requested that Brazil address the meaning of the phrase “exempt from actions” in AoA Article 13. In the view of Brazil, this phrase means that a complaining Member cannot receive authorization from the DSB to obtain a remedy against another Member’s domestic or export support measures that otherwise would be subject to the disciplines of certain ASCM and GATT 1994 provisions if those measures are in compliance with the various peace clause provisions. It does not mean that a Panel may not hear evidence or consider Brazil’s ASCM or GATT 1994 claims while it decides whether all the peace clause conditions have been fulfilled. In sum, this phrase in no way suggests that a panel must make a finding that the peace clause provisions are unfulfilled before proceeding with the other claims.
2. The phrase “exempt from actions” is used, as relevant to this dispute, in AoA Articles 13(a), 13(b)(ii), and 13(c)(ii). The dictionary definition of “actions” is “the taking of legal steps to establish a claim or obtain a remedy.”2 In a multilateral system such as the WTO (like GATT 19473 before it), “actions” are taken collectively by Members. DSU Article 2.1 (last sentence) emphasizes this notion in stating that “only those Members that are parties to that Agreement may participate in decisions or actions taken by the DSB with respect to that dispute.” (emphasis added) “Actions” include decisions made by the Dispute Settlement Body (DSB) to adopt rulings and recommendations of panels and the Appellate Body. Article XVI:1 of GATT 1994 also provides for another action, a decision by the relevant WTO body to hold consultations with a subsidizing Member to discuss what steps that Member will take to remove the serious prejudice or threat caused by its subsidies.4 And “actions” also include the enforcement of remedies authorized by the DSB pursuant to DSU Article 22. In sum, “actions” are multilaterally agreed decisions of WTO bodies including the DSB.
3. The ordinary meaning of the word “exempt” is “grant immunity or freedom from liability to which others are subject”.5 The chapeau of Article 13 states that the period of exemption is “during the implementation period”, i.e., until 1 January 2004.
4. Combining these definitions of “actions” and “exempt,” the term “exempt from action” in Article 13(b)(ii) means that before 1 January 2004, a complaining Member cannot receive authorization from the DSB to obtain a remedy against another Member’s domestic support measures that otherwise would be subject to the disciplines of Article XVI:1 and ASCM Articles 5 and 6. And “exempt from action” in the context of Article XVI:1 would mean that the WTO could not take a decision to require a Member to consult with the WTO on how the Member will eliminate serious prejudice or the threat of serious prejudice caused by that subsidy. However, the immediate context of the phrase “exempt from actions” in Articles 13(a), 13 (b)(ii) and 13(c)(ii) make clear that the “exemption” is not absolute but rather subject to a number of conditions:
Article 13(a) only permits green box domestic subsidies to be exempt from the types of determinations listed in Article 13(a) (i), (ii) or (iii) if they “conform fully to the provisions of Annex 2” of the AoA. If a domestic support measure does not comply with one of a number of requirements of the “green box” provisions of Annex 2, then such domestic support would be evaluated under the peace clause provisions of Article 13(b) and could be subject to a remedy determination by the DSB and/or the WTO.
Under the provisions of peace clause Article 13(b)(ii), “amber” and “blue” box domestic support measures provided during any marketing year between 1995-2003 are only exempt from determinations by the DSB and/or the WTO relating to paragraph 1 of Article XVI of GATT 1994 (not Article XVI, paragraph 3) and Articles 5 and 6 (not Article 3) of the SCM Agreement “provided that such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year”. If the quantity of amber and/or blue box support granted in any marketing year from the 1995-2003 period is greater than that decided during marketing year 1992, then the subsidy programme is not “exempt” from such determinations.
Export subsidies under the peace clause provisions of AoA Article 13(c)(ii) are only exempt from determinations by the DSB and/or the WTO relating to Article XVI of GATT 1994 or Articles 3, 5 and 6 of the SCM Agreement if they “conform fully to the provisions of Part V of [the AoA]”. Thus, if export subsidy measures are inconsistent with the provisions of AoA Articles 8, 9 or 10, then they are no longer exempt from such determinations.
5. In sum, “exempt from actions” means that a complaining Member cannot receive authorization from the DSB to obtain a remedy against another Member’s domestic or export support measures that are “peace clause” protected. Yet, as described below, the phrase “exempt from actions” when viewed in the broader context of DSU provisions does not require the Panel to first make a peace clause compliance finding before hearing or considering any of the evidence or arguments relating to the various ASCM or GATT 1994 claims.
III. THE CONTEXT OF ARTICLE 13 DEMONSTRATES THAT THERE IS NO LEGAL REQUIREMENT FOR THE PANEL TO FIRST MAKE A FINDING ON THE PEACE CLAUSE BEFORE PERMITTING BRAZIL TO SET OUT ITS ARGUMENT AND CLAIMS REGARDING US VIOLATIONS OF THE SCM AGREEMENT 1. There is nothing in the text of Article 13 or other provisions of the AoA, the SCM Agreement, or any other WTO Agreement requiring the Panel to make a preliminary factual and legal finding on the applicability of the peace clause before examining Brazil’s evidence and argument regarding US violations of the SCM Agreement or GATT 1994.
2. First, and most importantly, Annex 2 of the DSU Agreement is the closed list of “special and additional” rules and procedures that trump the normal rules of dispute settlement. This list does not include Article 13 or any other AoA provisions. Thus, resolution of the “peace clause” issues, like other issues raised by Brazil’s request for establishment of a panel, must be resolved using normal DSU rules and procedures.
3. Second, AoA Article 13 does not exclude AoA Article 19 which states that the “provisions of Articles XXII and XXIII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding, shall apply to consultations and the settlement of disputes under this Agreement” (emphasis added). Among the DSU procedures applicable to AoA Article 13 is DSU Article 11 which provides, in part:
[a] panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements.
4. Article 11 contemplates that a panel must make an “objective assessment of the facts of the case”. It does not state that a panel must conduct such an assessment by first examining part of the facts of a case before it then examines other facts. Further, Article 11 contemplates that the parties will have the full opportunity to search for and present rebuttal facts. This is accomplished through the normal two meeting panel process – not in a single truncated meeting. It is also accomplished through the exchange of rebuttal submissions.
5. Review by a panel of all the facts including rebuttal facts is necessary before deciding whether the peace clause is applicable or not. This follows from the inter-related nature of the proof necessary to demonstrate the peace clause and ASCM actionable and prohibited export subsidy claims. As the Panel will discover shortly upon reviewing Brazil’s First Submission, the facts relevant to the application of the “peace clause” largely overlap with facts relevant to determining whether the programmes at issue are “actionable” or “prohibited export subsidies”. Consider the following:
Each of the domestic support subsidies at issue in Brazil’s actionable subsidy claims are also at issue in Brazil’s proof regarding the absence of US peace clause protection for marketing years 1999-2002. For the purposes of AoA Article 13(b)(ii) the “amber” box subsidies include marketing loan/loan deficiency payments; crop insurance payments; Step-2 payments; production flexibility contract payments; direct payments; marketing loss assistance payments; counter-cyclical payments, and cottonseed payments. Proof of both peace clause and actionable subsidies require the same detailed descriptions of the type, nature, extent, and history of each of these US domestic support programmes.
Brazil has made claims under the AoA and the ASCM regarding prohibited export subsidies under the US Step-2 programme and US export credit guarantee programmes. Brazil will demonstrate that these two export subsidies do not “conform fully to the provisions of Part V of this Agreement” in the sense of AoA Article 13(c); obviously, Brazil's evidence and argument regarding the lack of conformity of these two measures with Part V of the AoA largely overlaps with the evidence and argument necessary to demonstrate a violation of ASCM Articles 3.1(a) and (b).
6. This close overlap of proof for both peace clause and actionable and prohibited subsidy claims highlights the need for the Panel to examine all the “facts of the case” together – including rebuttal facts presented by Brazil to contest US assertions. Such a determination can only be made after collecting information in an iterative process.
7. DSU Article 11 also requires a panel to consider the “applicability” of the “relevant covered agreements”. This includes deciding whether actions are exempt from the covered agreements. But Article 11 contains no requirement for a special briefing, meeting or determination by a panel to resolve such applicability or exemption.
8. Of course, when fulfilling its obligations under DSU Article 11, the Panel may well need to organize its assessment of the facts in its final determination by first examining and deciding issues related to the peace clause. The Appellate Body in Brazil Aircraft held that this is what the panel should have done in deciding the very similar peace-clause-like issues under ASCM Articles 27.2(b) and 27.4.6 But there is nothing in DSU Article 11 or any other WTO provision mandating that Brazil present its evidence relating to the peace clause alone, divorced from factual evidence and argument relating to the SCM Agreement. As described below, such a requirement would be inconsistent with the previous practice of panels and prejudicial to Brazil’s efforts to make a coherent and unified presentation of its case.
IV. RESOLUTION OF THRESHOLD ISSUES PRIOR TO PROVIDING PARTIES THE OPPORTUNITY TO PRESENT ALL OF ITS EVIDENCE IS CONTRARY TO THE PRACTICE OF EARLIER PANELS
1. Many panels have faced preliminary threshold issues under DSU Article 6.2 and other WTO Agreements. These preliminary issues have involved whether panels have the jurisdiction to resolve and make recommendations concerning certain claims and measures. Many of these preliminary issues involved far less complex facts than are presented by the peace clause in this dispute. Despite this, many panels waited to resolve these threshold jurisdictional issues until the final determination after reviewing all the evidence and arguments.7 Other panels have decided these threshold issues after the first meeting of the panel with the parties where the complaining party had an opportunity to present its evidence.8
2. The closest case to the peace clause issue presented here was addressed in Brazil – Export Financing Programme for Aircraft.9That dispute involved Articles 27.2(b) and 27.4 of the SCM Agreement, which exempts certain developing country Members from obligations under ASCM Article 3.1(a) provided that such a Member has complied with certain stated condiditons.10 The Appellate Body discussed the application of this peace-clause-like provision in Brazil Aircraft.11
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. . . . 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. . . . If [. . .] non-compliance is demonstrated, then, and only then, does the prohibition of Article 3.1(a) apply to that developing country Member.12 (emphasis added)
3. The Appellate Body found that the panel should have considered first the threshold issue of whether Brazil was in compliance with Article 27.4 before deciding whether Brazil was in violation of ASCM Article 3.1(a).13 Yet, there was never a suggestion or finding that the Panel erred by not conducting a special briefing and special determination before even accepting arguments of Brazil and Canada regarding the ASCM Article 3.1(a) issue. A finding on the threshold issue in that case, as here, was conditioned upon other crucial determinations such as: the definition of subsidy; the moment when a subsidy was granted; the relevant level, etc. In that case, the threshold issue was decided by the Panel in the final report only after the parties had a chance to discuss all the related issues during the full course of the Panel proceedings.
4. There are a number of other threshold issues in WTO Agreements. No claim may be brought against a measure under the General Agreement on Trade in Services (GATS) unless the measure falls within the scope of the General Agreement on Trade in Services as defined in GATS Article I. No claim may be brought under Article 2 of the Agreement on Technical Barriers to Trade except in respect of a measure that is a “technical regulation” as defined by that agreement. Claims under the Agreement on Government Procurement may only be brought concerning procurement of an entity covered by Annex I of that agreement. While the language of these provisions differs, the effect is the same as the operation of the AoA Article 13 and ASCM Articles 27.2(b) and 27.4 – if the threshold objections are granted, the Panel cannot make a finding that the defending Member has acted contrary to the covered agreements. Yet none of these provisions have special and additional rules to provide for extraordinary preliminary briefings, meetings, and determinations prior to a panel hearing all of the claims presented.
V. BRAZIL WILL BE PREJUDICED BY SEPARATE HEARINGS AND BRIEFINGS ON THE PEACE CLAUSE ISSUE 1. Brazil has previously described in its letter of 23 May 2003 to the Panel the prejudice that will occur if special meetings and briefings are imposed to resolve peace clause issues. Such prejudice includes requiring Brazil to present the same evidence three – not two times – and in having to bring its legal and economic experts to Geneva for an extra meeting.
2. In addition, Brazil would note that such special proceedings would cause it prejudice because there would be significantly delays in the resolution of its claims – many of which do not implicate the peace clause. These non-peace clause claims include the following:
1. Article XVI:3 of GATT 1994 involving all domestic and export subsidies challenged by Brazil;
2. Article III:4 of GATT 1994 regarding Step-2 domestic payments;
1. Articles 3.1(b) and 3.2 of SCM Agreement regarding prohibited local content Step-2 domestic payments;
2. Articles 3.3 and 9.1(a) of the AoA regarding export subsidies including Step-2 export payments;
1. Articles 8 and 10.1 of the AoA regarding ETI measure (FSC replacement measure).
3. Moreover, Brazil’s proof of these claims involves evidence overlapping with that relevant to Brazil’s peace clause claims, as well as with its actionable and prohibited export subsidy claims. Given this overlap, a special proceeding on only the peace clause would negatively impact on Brazil’s ability to present a coherent and unified presentation of its case.
VI. CONCLUSION 1. For the reasons set forth above, Brazil requests that this Panel find that it is not precluded from hearing evidence and considering Brazil’s claims under the ASCM or Article XVI of GATT 1994 without first concluding that the peace clause conditions of AoA Article 13(b)(ii) and 13(c)(ii) remain unfulfilled.
INITIAL BRIEF OF THE UNITED STATES
ON THE QUESTION POSED BY THE PANEL
5 June 2003
1. The United States thanks the Panel for this opportunity to comment on the question concerning Article 13 of the Agreement on Agriculture (“Agriculture Agreement”) posed by the Panel in its fax of 28 May 2003. The Panel asked the parties to address:
[W]hether Article 13 of the Agreement on Agriculture precludes the Panel from considering Brazil’s claims under the Agreement on Subsidies and Countervailing Measures in these proceedings in the absence of a prior conclusion by the Panel that certain conditions in Article 13 remain unfulfilled. In particular, the Panel invites the parties to explain their interpretation of the words “exempt from actions” as used in Article 13 of the Agreement on Agriculture, as well as bringing to the Panel’s attention any other relevant provisions of the covered agreements and any other relevant considerations which the parties consider should guide the Panel’s consideration of this issue.
2. Article 13 (the “Peace Clause”) precludes the Panel from considering Brazil’s claims under Article XVI of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”) and the Agreement on Subsidies and Countervailing Measures (“Subsidies Agreement”) since the US support measures at issue conform with the Peace Clause. The Peace Clause “exempt[s]” conforming support measures “from actions based on” the corresponding provisions of the Subsidies Agreement and the GATT 1994.14 Read in accordance with the customary rules of interpretation of public international law, the phrase “exempt from actions” means “not exposed or subject to” a “legal process or suit” or the “taking of legal steps to establish a claim”. Therefore, Brazil cannot maintain any action – and the United States cannot be required to defend any such action – based on provisions specified in the Peace Clause15 since the US support measures for upland cotton conform to the Peace Clause. In light of the correct interpretation of the Peace Clause, the United States respectfully requests the Panel to organize its procedures to first determine whether Brazil may maintain any action based on provisions exempted by the Peace Clause.
3. Consider the alternative approach proposed by Brazil in its 23 May letter – that is, requiring the United States to defend the substantive claims at the same time as arguing the Peace Clause issues. If the Panel were to allow Brazil to proceed with its substantive claims under the Subsidies Agreement and GATT 1994 now, and only conclude later (for example, at the time of the issuance of its report) that the US measures at issue conform to the Peace Clause based on the facts of this dispute, US measures would already have been subject to Brazil’s action based on those claims. As the United States will explain, this would contradict the ordinary meaning of the phrase “exempt from actions” in Article 13, read in its context, and in light of the object and purpose of the Agriculture Agreement. Consequently, to allow Brazil to proceed with any action against these US measures that are exempt from actions based on such claims would contravene the Peace Clause and upset the balance of rights and obligations of WTO Members.
B. LEGAL INTERPRETATION OF THE PEACE CLAUSE
4. The Peace Clause, Article 13 of the Agriculture Agreement16, governs the treatment during the implementation period of the Agreement of certain domestic support measures and export subsidies “notwithstanding the provisions of GATT 1994 and the Agreement on Subsidies and Countervailing Measures".17 For purposes of the Panel ’s question, there would appear to be two interpretive issues. The first is straightforward and apparently not in dispute: whether the Peace Clause is in effect for the measures at issue. The second is what is the nature of the treatment under the Peace Clause of conforming measures – i.e., what does it mean to say that conforming measures are “exempt from actions”.