Initial briefs of parties and third parties



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IV. CONCLUSIONS
37. As noted above, US cotton subsidies exceed the Gross National Income of Benin. Benin has few options available to it to respond to subsidies of such magnitude. The resulting impact on the economy of the country has been devastating.
38. Benin is not seeking any special and differential treatment in this dispute. It simply asks the Panel to ensure that the relevant provisions of the WTO Agreements, including Article 13 of the Agreement on Agriculture, are interpreted and applied as negotiated. The United States must respect the disciplines that it, and other WTO Members, agreed to at the end of the Uruguay Round.
39. Benin is grateful for the opportunity to present its views to the Panel in this extremely important dispute. Benin notes that further submissions are intended, and reserves the right to provide additional views to the Panel (including in response to the US First Written Submission of 11 July) as necessary and appropriate, at a later stage.

Annex B-6

THIRD PARTY SUBMISSION OF CANADA


15 July 2003
TABLE OF CONTENTS

I. INTRODUCTION 59

II. CLAIMS REGARDING US DOMESTIC AGRICULTURAL SUPPORT MEASURES 59

A. PFC payments and direct payments do not qualify as exempt decoupled income support under the Agriculture Agreement 59


1. Decoupled income support under Annex 2 of the Agriculture Agreement is exempt from action under the SCM Agreement and GATT 1994 60


2. Decoupled income support must not be linked to the type of commodity produced in any year after the base period 61

3. PFC payments and direct payments do not conform to Annex 2 of the Agriculture Agreement because the amount of these payments is linked to the type of commodity produced after the base period 62

III. CLAIMS REGARDING US EXPORT CREDIT GUARANTEE PROGRAMMES 64

A. Export credit guarantees may provide “export subsidies” under the Agriculture Agreement 65

B. US export credit guarantees may grant export subsidies under Article 1(e) of the Agriculture Agreement and Article 3.1(a) of the

SCM Agreement 66



IV. CONCLUSION 70

I. INTRODUCTION
1. Canada has a systemic interest in the correct interpretation of Annex 2 of the Agreement on Agriculture (Agriculture Agreement), as well as the export subsidy provisions of both the Agriculture Agreement and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
2. In its first written submission, Brazil makes a number of claims. Canada’s comments relate to the claims of Brazil in respect of the following:

  1. Whether US production flexibility contract payments (PFC payments) made under the Federal Agriculture Improvement and Reform Act of 1996 and US direct payments made under the US Farm Security and Rural Investment Act of 2002 (2002 FSRI Act) satisfy the policy-specific criteria for decoupled income support in Annex 2, paragraph 6(b) of the Agriculture Agreement; and




  1. Whether US GSM-102, GSM-103, and the SCG export credit guarantee programmes provide export subsidies in violation of Articles 8 and 10.1 of the Agriculture Agreement.



II. CLAIMS REGARDING US DOMESTIC AGRICULTURAL SUPPORT MEASURES
3. Among the claims brought by Brazil against the United States in this dispute are those concerning the conformity of US domestic subsidies with US obligations under Part III of the SCM Agreement and Article XVI of the General Agreement on Tariffs and Trade 1994 (GATT 1994).

4. On 20 June 2003, the Panel preliminarily ruled that it would defer consideration of Brazil’s claims under Part III of the SCM Agreement and Article XVI of GATT 1994 until after it had expressed views on whether the US measures satisfy the conditions of Article 13 of the Agriculture Agreement (the so-called “Peace Clause”). Accordingly, Brazil argues in its first written submission that PFC payments and direct payments (US measures involving direct payments to US agricultural producers) are not exempt from action under the Peace Clause because they do not conform fully to the criteria in Annex 2 of the Agriculture Agreement.238 The United States argues in response that PFC payments are not within the Panel’s terms of reference because they were no longer in effect at the time of the consultation or panel requests.239 Regarding direct payments, the United States argues that these measures are exempt from action because they conform fully to the provisions of Annex 2 and are therefore covered by Article 13(a)(ii) of the Agriculture Agreement.240

5. Canada provides views in this submission on the conformity of PFC payments and direct payments with criteria in Annex 2 of the Agriculture Agreement.
A. PFC PAYMENTS AND DIRECT PAYMENTS DO NOT QUALIFY AS EXEMPT DECOUPLED INCOME SUPPORT UNDER THE AGRICULTURE AGREEMENT
6. It is Canada’s view that PFC payments and direct payments do not fully conform to the provisions of paragraph 6(b) of Annex 2 of the Agriculture Agreement for the reasons set out below.
1. Decoupled income support under Annex 2 of the Agriculture Agreement is exempt from action under the SCM Agreement and GATT 1994
7. Annex 2 of the Agriculture Agreement is relevant to actionable subsidy cases under the SCM Agreement and GATT 1994 because the Agriculture Agreement provides for certain conditional exemptions. In this section, Canada sets out the relationship between these three agreements in this respect.
8. Action under Part III of the SCM Agreement and Article XVI of GATT 1994 depends on a determination of the existence of a “subsidy”.241 Article 1.1 of the SCM Agreement sets out the definition of a subsidy:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within the territory of a Member…

or
(a)(2) here is any form of income or price support in the sense of Article XVI of GATT 1994;
and
(b) a benefit is thereby conferred.
9. Article 1.2 provides that a subsidy is actionable under Part III of the Agreement if it is “specific” in accordance with the provisions of Article 2.
10. Article 5 begins Part III of the SCM Agreement on actionable subsidies by providing that “[n]o Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members...”. Articles 5 and 6 describe “adverse effects” and set out the basis for determining whether they exist. Article 7 sets out the available remedies where adverse effects do exist. All of these provisions are subject to Article 13 of the Agriculture Agreement.242
11. Article 13 of the Agriculture Agreement conditionally exempts domestic support measures from actionable subsidy complaints. It provides in relevant part:
During the implementation period, notwithstanding the provisions of GATT 1994 and the SCM Agreement on Subsidies and Countervailing Measures (referred to in this Article as the “Subsidies Agreement”):

(a) domestic support measures that conform fully to the provisions of Annex 2 to this Agreement shall be:


(ii) exempt from actions based on Article XVI of GATT 1994 and Part III of the Subsidies Agreement;

(b) domestic support measures that conform fully to the provisions of Article 6 of this Agreement including direct payments that conform to the requirements of paragraph 5 thereof, as reflected in each Member's Schedule, as well as domestic support within de minimis levels and in conformity with paragraph 2 of Article 6, shall be:



(ii) exempt from actions based on paragraph 1 of Article XVI of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement, provided that such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year…
12. Accordingly, domestic subsidies are exempt from application of the provisions in Part III of the Subsidies Agreement and of Article XVI of GATT 1994 if they conform to Annex 2 of the Agriculture Agreement. Domestic subsidies that do not conform to Annex 2 are exempt if such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year.
2. Decoupled income support must not be linked to the type of commodity produced in any year after the base period
13. To determine whether a measure is exempt under Article 13(a) of the Agriculture Agreement, it must be assessed under the criteria of Annex 2. Canada sets out the relevant Annex 2 provisions.
14. Annex 2 is the basis for the conditional exemption of domestic subsidies, under Article 13(a) of the Agriculture Agreement, from the application of Part III of the SCM Agreement and Article XVI of GATT 1994. Annex 2 also conditionally (and principally) exempts domestic support measures from reduction commitments pursuant to exceptions under Articles 3.2, 6 and 7 of the Agreement. Paragraph 1 of Annex 2 reads as follows:

1. Domestic support measures for which exemption from the reduction commitments is claimed shall meet the fundamental requirement that they have no, or at most minimal, trade-distorting effects or effects on production. Accordingly, all measures for which exemption is claimed shall conform to the following basic criteria:

(a) the support in question shall be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from consumers; and,
(b) the support in question shall not have the effect of providing price support to producers;
plus policy-specific criteria and conditions as set out below.
15. The policy-specific criteria are for each of the following measures: general services (paragraph 2); public stockholding (paragraph 3); domestic food aid (paragraph 4); and direct payments to producers (paragraphs 5-13).
16. Paragraph 5 of Annex 2 provides that direct payments to producers are exempt only if they meet the basic criteria in paragraph 1 of Annex 2 and the “specific criteria applying to individual types of direct payment as set out in paragraphs 6 through 13…”. Paragraph 5 further specifies that, to be exempt, any measure that does not constitute a type of direct payment covered by paragraphs 6-13 must conform to the criteria in paragraph 6(b) through (e) as well as the basic criteria listed in paragraph 1.
17. Paragraph 6 of Annex 2 reads:
6. Decoupled income support
(a) Eligibility for such payments shall be determined by clearly-defined criteria such as income, status as a producer or landowner, factor use or production level in a defined and fixed base period.
(b) The amount of such payments in any given year shall not be related to, or based on, the type or volume of production (including livestock units) undertaken by the producer in any year after the base period.

(c) The amount of such payments in any given year shall not be related to, or based on, the prices, domestic or international, applying to any production undertaken in any year after the base period.

(d) The amount of such payments in any given year shall not be related to, or based on, the factors of production employed in any year after the base period.
(e) No production shall be required in order to receive such payments.
18. For direct payments to qualify as decoupled income support, paragraph 6(b) requires that the amount of the payments not be “related to, or based on, the type… of production… undertaken by the producer in any year after the base period.” The ordinary meaning of “production” is “something which is produced by an action, process, etc.; a product”.243 Nothing in the context or in the object and purpose of this subparagraph, of Annex 2, or of the Agriculture Agreement as a whole detracts from this ordinary meaning. Accordingly, under paragraph 6(b), the amount of the payment must not be linked to the kind of product that is produced.
3. PFC payments and direct payments do not conform to Annex 2 of the Agriculture Agreement because the amount of these payments is linked to the type of commodity produced after the base period

19. Based on the evidence and arguments presented in the submissions of the disputing parties at this stage of the proceedings, it is Canada’s assessment that the amount of PFC payments and direct payments are based on the type of commodity produced after the base period. Were the Panel to accept the evidence submitted by Brazil, it would find that PFC payments and direct payments are inconsistent with paragraph 6(b) of Annex 2 of the Agriculture Agreement.

20. Brazil asserts that under US law implementing PFC payments, the amount of such payments “could fluctuate from 100 percent of the PFC payments if [a producer] did not grow any fruits and vegetables, to zero percent in case such prohibited products are grown” or “[to] a reduced and pro-rated decrease based on acreage and/or value of the fruit or vegetable crop grown on PFC contract acres.”244 According to Brazil, US implementing law also provides that “PFC payments are reduced for each acre of wild rice that is produced.” 245 Regarding direct payments, Brazil argues that under US implementing law, current fruit, vegetable, or wild rice production affects the amount of the direct payment in the same manner as such production affects the amount of the PFC payment.

246

21. The United States describes direct payments under the 2002 FSRI Act as direct payments “to persons (farmers and landowners) with farm acres that formerly produced any of a series of commodities during the base period.”247 The United States claims that these payments constitute “decoupled income support” under Annex 2 of the Agriculture Agreement because they: (1) are provided through a publicly-funded government programme not involving transfers from consumers; (2) do not have the effect of providing price support to producers; and (3) conform to the five policy-specific criteria and conditions set out in paragraph 6.248 The United States claims in particular that the direct payments are “decoupled from production” because the amount of the payments is not based on the type of production undertaken after the base period, in conformity with paragraph 6(b). In this respect, the United States argues:

Not only is there no requirement that a direct payment recipient engage in any particular type or volume of production, a recipient need not engage in any current agricultural production in order to receive the direct payment.249 [emphasis in original]

22. The United States does not describe or assess PFC payments, given its request for a preliminary ruling by the Panel that such payments are not within its terms of reference.250


23. Canada’s assessment of the facts and arguments presented so far in this case is that the United States has incorrectly classified PFC payments as decoupled income support,251 and that US direct payments do not qualify as such support.252 Nowhere in its submission does the United States address the evidence of implementing legislation and regulations regarding either measure. Its argument that direct payment recipients are not required to engage in any particular type or volume of production (or any current agricultural production at all) to receive direct payments fails to address the evidence indicating that the amount of the payment may change based on whether base acreage is used for current production of fruits, vegetables, or wild rice. For both measures, the evidence indicates that the amount of the payment is based on the type of production: payments are full, nil, or some amount in between where base acres are used for current fruit, vegetable or wild rice production.
III. CLAIMS REGARDING US EXPORT CREDIT GUARANTEE PROGRAMMES

24. Brazil asserts that the US GSM-102, GSM-103, and SCG programmes provide export subsidies with respect to upland cotton and other agricultural commodities in violation of Articles 8 and 10.1 of the Agriculture Agreement.253 According to Brazil, the United States violates Articles 8 and 10.1 of the Agriculture Agreement because these programmes:



  1. provide export subsidies under item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement;254 and




  1. provide “subsidies” that are “contingent upon export performance” under Articles 1.1 and 3.1(a) of that Agreement.255

25. As a result, Brazil argues, these measures do not fully conform to the provisions of Part V of the Agriculture Agreement and the Peace Clause, therefore, does not exempt them from actions based on Article 3 of the SCM Agreement.256 Brazil also argues that these programmes provide prohibited export subsidies within the meaning of Article 3.1(a) of the SCM Agreement and requests the Panel to recommend to the DSB that the measures be withdrawn without delay under Article 4.7.257

26. The United States argues in response that its export credit guarantee programmes are not export subsidies subject to Article 10.1 of the Agriculture Agreement because Article 10.2 permits export credit guarantee practices “to continue, unaffected by export subsidy disciplines otherwise negotiated and reflected in the text of the Agreement”.258 The United States asserts that these programmes do not provide prohibited export subsidies under Article 3.1(a) of the SCM Agreement because export credit guarantees are carved out from export subsidy commitments by virtue of Article 10.2 of the Agriculture Agreement and any application of Article 3 of the SCM Agreement is subject to the provisions of the Agriculture Agreement.259 Finally, according to the United States, its measures do not satisfy the standard in item (j) of Annex I of the SCM Agreement and are not, for that reason alone, export subsidies under Article 3.1(a).260

27. The United States also requests the Panel to rule preliminarily that Brazil’s arguments in connection with all commodities other than upland cotton are not properly before the Panel, and limits its arguments to upland cotton accordingly.261
28. In this submission, Canada limits its views to whether the United States has violated Articles 8 and 10.1 of the Agriculture Agreement by providing export subsidies in the form of export credit guarantees resulting in the circumvention of US export subsidy commitments with respect to upland cotton. Canada notes that this aspect of Brazil’s claim is both independent and determinative of the applicability in this dispute of the Peace Clause under Article 13(c)(ii) of the Agriculture Agreement. That is, a violation of Articles 8 and 10.1 in this case would itself form the basis for both a recommendation by the DSB to the United States to bring its measures into conformity and would also form the basis for continued action by Brazil under Article 3 of the SCM Agreement.
A. EXPORT CREDIT GUARANTEES MAY PROVIDE “EXPORT SUBSIDIES” UNDER THE AGRICULTURE AGREEMENT

29. Under the SCM Agreement, export subsidies are prohibited. Under the Agriculture Agreement, certain export subsidies are allowed up to certain limits. The export subsidy disciplines of the SCM Agreement apply subject to the export subsidy disciplines of the Agriculture Agreement.262 The Appellate Body confirmed in its first Canada - Dairy implementation report that “the WTO-consistency of an export subsidy for agricultural products has to be examined, in the first place, under the Agreement on Agriculture.”263 Canada sets out the relevant provisions of both Agreements in this section.

30. Article 1(e) of the Agriculture Agreement defines “export subsidies” as “subsidies contingent upon export performance, including the export subsidies listed in Article 9 of this Agreement”. Article 3.3 sets out the obligation of Members not to provide export subsidies listed in Article 9 in excess of scheduled commitment levels:
Subject to the provisions of paragraphs 2(b) and 4 of Article 9, a Member shall not provide export subsidies listed in paragraph 1 of Article 9 in respect of the agricultural products or groups of products specified in Section II of Part IV of its Schedule in excess of the budgetary outlay and quantity commitment levels specified therein and shall not provide such subsidies in respect of any agricultural product not specified in that Section of its Schedule.

31. Article 8 of the Agriculture Agreement confirms the fundamental obligations of Members with respect to the provision of export subsidies:


Each Member undertakes not to provide export subsidies otherwise than in conformity with this Agreement and with the commitments as specified in that Member's Schedule.

32. Article 9 of the Agriculture Agreement lists and describes certain export subsidies that are subject to reduction commitments. All other export subsidies fall within the scope of Article 10.1, which reads:

Export subsidies not listed in paragraph 1 of Article 9 shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments; nor shall non-commercial transactions be used to circumvent such commitments.

33. The Agriculture Agreement does not define the term “subsidy” in the definition of “export subsidy” in Article 1(e) of the Agreement. The Appellate Body drew upon the definition of a “subsidy” in Article 1.1 of the SCM Agreement as context to the term “subsidy” in Article 1(e) of the Agriculture Agreement in both its original Canada – Dairy report and its original and implementation reports in US - FSC.264 The Appellate Body also held in US - FSC that the “contingent upon export performance” requirements in the Agriculture Agreement and the SCM Agreement are the same.265

34. Article 1.1 of the SCM Agreement sets out the definition of a subsidy, which reads in relevant part:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within the territory of a Member…, i.e. where:
(i) a government practice involves… potential direct transfers of funds or liabilities (e.g. loan guarantees); …
and
(b) a benefit is thereby conferred.
35. Article 3.1(a) of the SCM Agreement describes export subsidies as follows:
3.1 Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I…
36. Annex I of the SCM Agreement includes in particular item (j), which reads:
The provision by governments (or special institutions controlled by governments) of export credit guarantee or insurance programmes, of insurance or guarantee programmes against increases in the cost of exported products or of exchange risk programmes, at premium rates which are inadequate to cover the long-term operating costs and losses of the programmes.

37. Canada provides views only on key elements of Articles 1 and 3.1(a) of the SCM Agreement that are applicable to a determination of whether the US programmes provide “export subsidies” under Article 1(e) of the Agriculture Agreement. If they do, then they are subject to US obligations under Articles 8 and 10.1 of the Agriculture Agreement.

B. US EXPORT CREDIT GUARANTEES MAY GRANT EXPORT SUBSIDIES UNDER ARTICLE 1(E) OF THE AGRICULTURE AGREEMENT AND ARTICLE 3.1(A) OF THE SCM AGREEMENT

38. Based on the evidence and arguments presented by the disputing parties at this stage in the proceedings, it is Canada’s assessment that US export credit guarantee programmes may provide “subsidies contingent upon export performance” under Article 1(e) of the Agriculture Agreement that are “not listed in paragraph 1 of Article 9”, pursuant to Article 10.1. Because the United States has no export subsidy reduction commitments for upland cotton, it may have violated Article 10.1 by applying such subsidies in a manner that results in circumvention of its export subsidy commitments. The United States may have also therefore violated Article 8 by providing export subsidies “otherwise than in conformity with this Agreement”.
39. Evidence submitted by Brazil indicates that the United States has exceeded its quantitative export subsidy reduction commitment level for various agricultural commodities, including upland cotton.266 Accordingly, were the Panel to accept such evidence, the United States would bear the burden of establishing that no export subsidies have been granted in respect of the quantity of exports in question pursuant to Article 10.3 of the Agriculture Agreement.267

40. The United States cannot deny that US export credit guarantees involve a “financial contribution” in the form of a “potential direct transfer of funds” under Article 1.1(a)(1)(i) of the SCM Agreement. Export credit guarantees are loan guarantees. Nor can the United States deny that the export guarantees are contingent upon export performance under Article 3.1(a) of the Agreement. Canada therefore addresses only the “benefit” requirement of the subsidy definition under Article 1.1(b) of the SCM Agreement.

41. The determination of a “benefit” in transactions involving agricultural commodities is necessarily factual. However, any assessment of the facts in this dispute must be undertaken within an appropriate legal framework. The applicable framework in this dispute is based on well-established WTO case law.
42. In Canada – Aircraft, the panel found that:
… a financial contribution will only confer a "benefit", i.e., an advantage, if it is provided on terms that are more advantageous than those that would have been available to the recipient on the market.268

43. The Appellate Body upheld this finding:

We ... 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.269

44. Based on this reasoning, the question is whether there is a difference between the amount that the firm receiving the guarantee pays on credit guaranteed under the US programmes and the amount that the firm would pay on a comparable commercial loan absent that guarantee. The benefit is the difference between these two amounts adjusted for any differences in fees. The useful context provided by Article 14(c) of the SCM Agreement supports such a standard. Article 14(c) reads:

[A] loan guarantee by a government shall not be considered as conferring a benefit, unless there is a difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by the government and the amount that the firm would pay on a comparable commercial loan absent the government guarantee. In this case the benefit shall be the difference between these two amounts adjusted for any differences in fees[.]

45. The panel in Canada - Aircraft II established a similar standard in respect of equity guarantees provided through a Canadian provincial government financing institution called Investissement Québec (IQ).270 The panel reasoned as follows:


Consistent with the findings of the panel and Appellate Body in Canada – Aircraft, we consider that IQ equity guarantees will confer a “benefit” to the extent that they are made available to Bombardier customers on terms more favourable than those on which such Bombardier customers could obtain comparable equity guarantees in the market. We note that the parties appear to agree that this standard can be applied by reviewing the fees, if any, charged by IQ for providing its equity guarantees. We agree that the “benefit” standard could be applied to IQ equity guarantees in this manner. Thus, to the extent that IQ’s fees are more favourable than fees that would be charged by guarantors with Québec’s credit rating in the market for comparable transactions, IQ’s equity guarantees may be deemed to confer a “benefit”.271
46. The panel went on to find that:

… a “benefit” could arise if there is a difference between the cost of equity with and without an IQ equity guarantee, to the extent that such difference is not covered by the fees charged by IQ for providing the equity guarantee. In our opinion, it is safe to assume that such cost difference would not be covered by IQ’s fees if it is established that IQ’s fees are not market-based.272

47. Regarding IQ loan guarantees, the panel applied the same reasoning:

In considering precisely what Brazil must show in order to demonstrate the existence of a “benefit”, we note the findings of the panel and Appellate Body in Canada – Aircraft. We therefore consider that IQ loan guarantees will confer a “benefit” to the extent that they are made available to Bombardier customers on terms more favourable that those on which such Bombardier customers could obtain comparable loan guarantees in the market. In applying this standard, we are guided by Article 14(c) of the SCM Agreement, which provides contextual guidance for interpreting the term “benefit” in the context of loan guarantees.

(…)
In our view, and taking into account the contextual guidance afforded by Article 14(c), we consider that an IQ loan guarantee will confer a “benefit” when “there is a difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by [IQ] and the amount that the firm would pay on a comparable commercial loan absent the [IQ] guarantee. In this case the benefit shall be the difference between these two amounts adjusted for any differences in fees”. In other words, there will be a “benefit” when the cost-saving for a Bombardier customer for securing a loan with an IQ loan guarantee is not offset by IQ’s fees. In our opinion, it is safe to assume that this will be the case if it is established that IQ’s fees are not market-based.273

48. The same standard applies in the current dispute.

49. The United States avoids addressing the standard under Article 1.1(b) and argues simply that its export credit guarantee programmes “do not run afoul of the criteria of item (j)” of Annex I of the SCM Agreement and that, therefore, “…they are not a prohibited export subsidy under Article 3.1(a) of the Subsidies Agreement.”274 The United States asks the panel to interpret item (j) a contrario, meaning that if its measures meet the description of the programmes in the provisions but do not meet the standard for being considered a subsidy per se, the measures must be deemed not to confer export subsidies. However, item (j) does not create a “safe haven” for export credit guarantees where “premium rates… are [adequate] to cover the long-term operating costs and losses of the [programme].” To the contrary, item (j) “sets out the circumstances in which the grant of loan guarantees is per se deemed to be an export subsidy.”275 It simply “illustrates” deemed export subsidy practices. Nothing in the context or object and purpose of the SCM Agreement supports the US interpretation.

50. The issue of whether the premium rates under the US programmes are adequate under item (j) of Annex I of the SCM Agreement is necessarily factual. However, even if the US programmes charge adequate fees under the item (j) standard, the United States must nevertheless demonstrate that no export subsidies have been granted in respect of the quantity of exports in question in accordance with Articles 10.1 and 10.3 of the Agriculture Agreement. In other words, it must demonstrate the absence of subsidization on a transaction-by-transaction basis under Articles 1 and 3.1(a) of the SCM Agreement.
51. The United States also argues at length that Article 10.2 of the Agriculture Agreement exempts export credit practices from subsidy disciplines under the Agreement. This argument is untenable.
52. Article 10.2 of the Agreement on Agriculture reads:

Members undertake to work toward the development of internationally agreed disciplines to govern the provision of export credits, export credit guarantees or insurance programmes and, after agreement on such disciplines, to provide export credits, export credit guarantees or insurance programmes only in conformity therewith.

53. Article 10.2 refers to “disciplines to govern the provision of export credits, export credit guarantees or insurance programmes” and not to “disciplines to govern the provision of export subsidies in the form of export credits, export credit guarantees or insurance programmes”. This provision sets out an intention on the part of Members to undertake further work regarding these measures – the simple fact of agreeing to do so, however, does not amount to a permission to use those measures to confer export subsidies without consequence and without limit. The US interpretation of Article 10.2 ignores the important context provided by Article 10.1. It also directly contradicts the stated object and purpose of Article 10 as a whole: “Prevention of Circumvention of Export Subsidy Commitments”.276


54. Article 10.2 of the Agriculture Agreement does not exempt the United States from its obligation to demonstrate, under Article 10.3, that no export subsidies have been granted in respect of the quantity of exports in question in this dispute contrary to Article 10.1. For the United States to meet the requirements of Article 10.3, it must demonstrate the absence of subsidization as understood under Article 1(e) of the Agriculture Agreement. Indeed, the United States does not address Articles 1(e) or 10.1, or any prior panel and Appellate Body findings thereon.


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