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ANNEX C-1

EXECUTIVE SUMMARY OF THE ORAL STATEMENT

OF BRAZIL AT THE FIRST SUBSTANTIVE MEETING

OF THE PANEL WITH THE PARTIES




I. INTRODUCTION
1. Brazil addresses first various peace clause issues, followed by Step 2 export and domestic payments, export credit guarantees and the ETI Act subsidies. Finally, Brazil addresses the “preliminary issues” raised by the United States.
II. PEACE CLAUSE ISSUES
The Peace Clause is an Affirmative Defence
2. The peace clause is in the nature of an affirmative defence and it is, thus, the US burden to prove that Brazil’s claims under the SCM Agreement are “exempt from actions”. An affirmative defence is a provision that does not set out any positive obligations but enables Members to maintain measures that are otherwise inconsistent with its WTO obligations. The peace clause does not in itself set out any positive obligations for Members, but simply provides a conditional shelter against certain actionable and prohibited export subsidy claims under the SCM Agreement. The peace clause meets the criteria set forth by the Appellate Body for an affirmative defence in US – FSC and in the Aircraft disputes, by being an exception to a legal regime otherwise applicable. Given the extraordinary protection it provides, it is not “bizarre”, as the United States argues, that the peace clause requires the defending Member to prove that its domestic and export subsidies meet the conditions for peace clause protection.
such measures do not grant support to a specific commodity”

3. This phrase in AoA Article 13(b)(ii) means that in calculating the amount of support for any marketing year between 1995-2003, all non-”green box” support provided to a specific commodity must be tabulated, regardless of whether the type
or form of the support is “product-specific”, “non-product specific”, de minimis, or “blue box”. This is certainly evidenced by the decision of negotiators not to use the phrases “product-specific” and “AMS” in Article 13(b)(ii) to qualify the type of support to a specific commodity. The US attempt to read “product-specific” into Article 13(b)(ii) is inconsistent not only with the text but also the context of the phrase “such measures” in Article 13(b)(ii). The US interpretation of “product-specific support” is further incompatible with the object and purpose of the Agreement on Agriculture. It would create a new category of non-actionable trade-distorting non-”green box” subsidies and sanction huge increases in spending for “amber box” and, therefore trade-distorting, domestic support as long as it took the form of support for multiple commodities. This is contrary to the presumption of trade and production-distorting effects for individual products from non-”green box” domestic support, which flows from a domestic measure being inconsistent with the “green box” requirements of AoA Annex 2.

that decided during the 1992 marketing year” 
4. This word “decided” does not require any particular type of “decision”. As a neutral term, the meaning of “decided” must be interpreted in a way that does justice to the ordinary meaning of other terms in Article 13(b)(ii) that are not neutral. Most importantly, the term “decided” must be interpreted in a manner that permits a comparison between a “grant
” of non-”green box” “support” to a specific commodity for individual marketing years between 1995-2003, and a “decision” regarding such support in MY 1992. A textual interpretation reveals that the term “that” refers back to “support” and that support is accompanied by the term “granted”.
5. The Appellate Body agreed with the panel in Brazil – Aircraft that the phrase “the level
of export subsidies granted” meant “something actually provided”, which means actual budgetary expenditures. Thus, the neutral term “decision” (for MY 1992) can only be read harmoniously with the term “grant support” (for MY 1995-2003) where the “decision” is to fund non-”green box” support to a specific commodity for marketing year 1992.
6. In addition, even if Article 13 would refer to a level of (income) support, as the United States alleges, the Appellate Body has held in Brazil – Aircraft that the “level” of export subsidies refers to actual expenditures.

7. The US interpretation of a “level of support” is furthermore inconsistent with its own interpretation of Article 13(b)(ii) in its Statement of Administrative Action (SAA). In the SAA, it stated that governments would have peace clause protection from adverse effects and serious prejudice challenges in the WTO “unless the AMS for the particular commodity exceeds the level decided in the 1992 marketing year”.  Brazil strongly disagrees with the notion of “AMS” as the relevant standard for the peace clause, but this official US interpretation of the peace clause in 1995 is nevertheless compelling evidence of the United States view of the “decision” it had taken during MY 1992. The calculation of the AMS for a particular commodity requires the calculation of the support provided in monetary terms. AoA Annex 3 offers two options for the calculation of AMS: budgetary outlays or the price gap formula detailed on paragraphs 10 and 11. Under either option, the AMS represents a measurement of support in monetary terms.

8. In sum, Brazil is of the firm view that the text of Article 13(b)(ii) requires comparing MY 1992 support with MY 1995-2003 support by comparing actual expenditures. This methodology produces an “amount” of support – not a “rate”. Thus, any decision under Article 13(b)(ii), by definition, must relate in some way to an “amount” of expenditures. Only this methodology allows a clear comparison between the two time periods, regardless of the type of support.
9. However, even if the Panel were to decide that the relevant standard is a “rate of support” standard, Brazil has provided the testimony of Professor Daniel Sumner indicating that – following the US approach to measuring “support to upland cotton” – the “rate of support” to upland cotton in MY 1999-2002 was much higher than the “rate of support” to upland cotton in MY 1992. Based on the evidence and analysis presented by Professor Sumner, Brazil also asserts that even under the US “rate of support” methodology, the United States has failed to demonstrate that its MY 1999-2002 support does not exceed its support to upland cotton decided in MY 1992.
US “statute of limitations” interpretation of the peace clause
10. There is no express or implied “statute of limitations” in the peace clause. Subsidizing Members such as the United States are offered conditional protection under the peace clause during a 9-year period. But the rights of Members injured by subsidies provided in excess of 1992 marketing year levels are preserved throughout the implementation period as well. This is the balance struck by the peace clause.

11. The US “statute of limitations” argument in this case is very similar to one rejected by the Appellate Body in US – Lead Bars. This argument is further inconsistent with the views of the Indonesia – Automobiles panel, which held that measures applied in the past must be examined to assess present serious prejudice. The US interpretation would cut off a Member’s right to challenge such measures because it missed an imaginary deadline. This US interpretation is inconsistent with the object and purpose of the AoA because it would permit Members to provide huge “non-green” box support one year without peace clause protection, and then claim absolution as soon as the next marketing year began.

Support to Upland Cotton”
12. Brazil has produced extensive evidence providing the factual basis for the Panel to find that CCP, DP, market loss, and PFC payments are “support to” upland cotton within the meaning of the peace clause. USDA categorizes the PFC and market loss payments as part of “total payments” to upland cotton. US National Cotton Council officials repeatedly testified and produced documents revealing that their producer members requested, received, and depended on all four of these subsidies. Crop insurance is also support to cotton as evidenced by specific upland cotton crop insurance policies and groups of policies for upland cotton. Moreover, USDA specifically identifies and tabulates crop insurance subsidies for upland cotton. In addition, all five domestic support measures fail to meet the requirements of AoA Annex 2. Therefore, they constitute non-“green box” support that is presumed to be production and trade distorting. Such distortions can, however, only occur with respect to the production of or the trade in a particular commodity. Because, PFC, market loss assistance, direct and counter-cyclical payments as well as crop insurance subsidies are available to producers of upland cotton, these production and trade-distorting subsidies affect the production of and trade in upland cotton. The Panel should, therefore, find that all five of these programmes granted support to upland cotton in MY 1999-2002.
Restrictions on Plantings of Fruits and Vegetables under the PFC and DP Programmes

13. Brazil presents evidence that PFC and direct payments are not “decoupled” domestic support. These payments are dependent on the requirement that a farmer does not produce fruits, vegetables, nuts or wild rice on the contract acreage. This restrictions has the effect of channelling production on contract acreage into production of programme crops, including upland cotton, and is of particular importance for upland cotton base acreage located in regions of the United States where production of fruits and vegetables is a viable alternative to the production of upland cotton.

III. STEP 2 EXPORT AND DOMESTIC PAYMENTS
14. The US Step 2 export payments clearly constitute subsidies contingent upon proof of export of US upland cotton. Step 2 export payments are export subsidies that violate AoA Articles 3.3 and 8 and that are prohibited by ASCM Articles 3.1(a) and 3.2.
15. Similarly, US Step 2 domestic payments are prohibited local content subsidies in violation of ASCM Article 3.1(b). There is no explicit derogation of ASCM Article 3.1(b) built into the Agriculture Agreement. In fact, the opposite is true, since AoA Article 13(b)(ii) provides a conditional exemption only for claims under ASCM Articles 5 and 6, but not for claims under ASCM Article 3. There is also no conflict between ASCM Article 3.1(b) and AoA Article 6 or Annex 3, paragraph 7, because there are two types of domestic support, including domestic support to processors of agricultural commodities – those that comply with Article 3.1(b) of the SCM Agreement and those that do not.
IV. EXPORT CREDIT GUARANTEES
16. With respect to the consultations regarding the US export credit guarantee programmes, there is no doubt that the United States and Brazil consulted on three occasions about the GSM 102, GSM 103, and SCGP programmes as they relate to all eligible products. Thus, these measures are properly within the Panel’s terms of reference and the Panel should reject the US request for a preliminary ruling.

17. With respect to Brazil’s claims regarding the GSM 102, GSM 103 and SCGP export credit guarantee programmes, the United States interpretation of AoA Article 10.2 should be rejected. AoA Article 10.2 does not carve out export credit guarantees from the disciplines on export subsidies under the AoA. Nowhere does the provision exempt export credit guarantees from the disciplines on export subsidies, while exemption need to be made explicit in the text of an agreement following the Appellate Body reports in EC – Hormones and EC – Sardines. Similarly the context of AoA Article 10 as well as its object and purpose do not support the US view of AoA Article 10.2 as enabling Members to grant export credit support at zero percent interest and for unlimited terms – all for free – until Members complete negotiations on specific disciplines for export credits.

18. Concerning the substance of Brazil’s claims against export credit guarantees, the United States has not even addressed Brazil’s claim that since there is no commercial market for export credit guarantees on terms such as those provided by the CCC programmes, those programmes confer benefits per se. Brazil furthermore demonstrates that under the US formula accounting for the budgetary costs of contingent liabilities of CCC export credit guarantees, operating costs and losses for GSM 102, GSM 103 and SCGP have outpaced premiums collected in every single year since the United States started applying the formula in 1992. These figures represent actual costs and losses of the US export credit guarantee programmes.
19. Thus, the programmes constitute export subsidies within the meaning of ASCM Articles 1.1 and 3.1(a), item (j) of the Illustrative List, and AoA Articles 10.1, 1(e) and 8. They “at the very least” threaten to circumvent US export subsidy commitments, in violation of Articles 10.1 and 8 and are prohibited under ASCM Articles 3.1(a) and 3.2.
V. ETI ACT
20. Lastly, the United States argues that Brazil has failed to meet is burden of proof that ETI Act subsidies constitute export subsidies violating the AoA and prohibited by the SCM Agreement. Brazil has adopted and reiterated all of the successful arguments of the EC in the US – FSC (21.5) dispute. Brazil asks the Panel to follow the panel in India – Patents (EC) and to give “significant weight” to the rulings in the US – FSC (21.5) dispute and to avoid “inconsistent rulings”, while recognizing that the Panel is not formally bound by that decision.
VI. PRELIMINARY ISSUES

21. Brazil has addressed the US request for a preliminary ruling on export credit guarantees above.

22. Concerning the US request for a preliminary ruling on the MY 2002 cottonseed payments, the record indicates that Brazil’s consultation request covered “future” measures related to existing measures; it indicates further that Brazil and the United States consulted about the “Cottonseed Payment Programme”, and that the Agricultural Assistance Act of 2003 provided funding for the existing administrative structure of the Cottonseed Payment Programme. Therefore, following the Appellate Body decision in Chile – Agricultural Products (Price Band), the Agricultural Assistance Act of 2003 is properly within the Panel’s terms of reference. In any event, the $50 million in cottonseed payments are properly treated as “support to cotton” for the purposes of the peace clause calculation of the amount of support granted in MY 2002.

23. Regarding the US arguments that PFC and market loss assistance payments are outside the Panels terms of reference, as they constitute expired measures, Brazil asks the Panel to reject this third US request for a preliminary ruling. Brazil has properly included PFC and market loss assistance payments as part of its claims relating to present serious prejudice. Consultations under DSU Article 4.2 may be held concerning measures affecting the operation of a covered agreement. ASCM Article 5 requires a Member to avoid causing adverse effects, which may be the effects of current or previous, expired subsidies. As in the Indonesia – Automobiles dispute, expired measures are eminently within the Panel's terms of reference. Denying Members the possibility to challenge expired measures would yield the result that a Member could enact “one-time” subsidy measures that could never be challenged and the provisions of ASCM Articles 5 and 6 would thereby be rendered a nullity.

VI. CONCLUSION
24. Brazil requests the Panel to reject all three US requests for preliminary rulings and to rule that AoA Article 13 does not exempt US domestic support and export subsidies from actions under the SCM Agreement.

ANNEX C-2

EXECUTIVE SUMMARY OF THE CLOSING STATEMENT

OF BRAZIL AT THE FIRST SUBSTANTIVE MEETING

OF THE PANEL WITH THE PARTIES



I. INTRODUCTION
1. Brazil addresses first the “preliminary issues” raised by the United States, and then the various peace clause issues. Finally, Brazil addresses the Step 2, ETI Act and export credit guarantee measures.
II. PRELIMINARY ISSUES
2. With respect to the consultations regarding the US export credit guarantee programmes, there is no doubt that the United States and Brazil consulted on three occasions about the GSM 102, GSM 103, and SCGP programmes as they relate to all eligible products. Thus, these measures are properly within the Panel’s terms of reference.
3. Regarding the MY 2002 cottonseed payments, the record indicates that Brazil’s consultation request covered “future” measures related to existing measures; it indicates further that Brazil and the United States consulted about the “Cottonseed Payment Programme”, and that the Agricultural Assistance Act of 2003 provided funding for the existing administrative structure of the Cottonseed Payment Programme. Therefore, the Agricultural Assistance Act of 2003 is properly within the Panel’s terms of reference. In any event, the $50 million in cottonseed payments are properly treated as “support to cotton” for the purposes of the peace clause calculation of the amount of support granted in MY 2002.

4. Regarding the US arguments that PFC and market loss assistance payments are outside the Panels terms of reference, as they constitute expired measures, Brazil asks the Panel to reject this third US request for a preliminary ruling. Brazil has properly included PFC and market loss assistance payments as part of its claims relating to present serious prejudice. ASCM Article 5 requires a Member to avoid causing adverse effects, which may be the effects of current or previous, expired subsidies. Adverse present effects caused by both types of measures are eminently within the Panel's terms of reference. As a factual matter, the Panel must decide on the question whether a particular expired subsidy has an actual causal connection with currently existing adverse effects. Yet, by granting the US request for a preliminary ruling the Panel would effectively dismiss Brazil’s claim. Therefore, the fact that a subsidy measure has expired cannot be the basis for a priori excluding it from the Panel's terms of reference.

5. Furthermore, DSU Article 4.2 and 6.2 – invoked by the United States – must be applied in the context of the remedies provided for actionable subsidies under ASCM Articles 7.2-7.10. Under DSU Article 19 a panel can only recommend that the Member bring a wrongful measure into conformity with the covered agreement(s) at issue. However, for disputes concerning ASCM Articles 5 and 6, ASCM Article 7.8 contemplates two different remedies: removal of the adverse effects or withdrawal of the subsidy. While a Member cannot bring an expired measure into conformity with the covered agreements, both of the ASCM Article 7.8 remedies are valid options even for remedying the effects of a subsidy measure no longer in effect (as in the Australia – Leather dispute). As ASCM Articles 7.2-7.10 are “special and additional rules and procedures” under DSU Article 1.2 and DSU Appendix 2, they must prevail to the extent there is a difference between them and DSU Articles 4 and 6. This means that contrary to disputes involving other covered agreements, the Panel is required to address the adverse effects of expired subsidy measures.
6. Further, ASCM Articles 5 and 6.3 make no distinction between subsidies that are now being paid and subsidies that are no longer being paid but have a causal relationship to continuing adverse effects, as evidenced by the Panel report in Indonesia – Automobiles, which found serious prejudice arising, inter alia, from expired subsidy measures that had been provided for one year and – like the market loss assistance payments – been terminated.
III. PEACE CLAUSE ISSUES
such measures do not grant support to a specific commodity”

7. This phrase in Article 13(b)(ii) means that in calculating the amount of support for any marketing year between 1995-2003, all non-”green box” support provided to a specific commodity must be tabulated, regardless of whether the type or form of the support is “product-specific,” “non-product specific”, de minimis, or “blue box”. This is certainly evidenced by the decision of negotiators not to use the phrases “product-specific” and “AMS” in Article 13(b)(ii) to qualify the type of support to a specific commodity. The US attempt to read “product-specific” into Article 13(b)(ii) is inconsistent not only with the text but also the context of the phrase “such measures” in Article 13(b)(ii). The US interpretation is further incompatible with the object and purpose of the Agreement on Agriculture. It would create a new category of non-actionable trade-distorting non-”green box” subsidies and sanction huge increases in spending for “amber box” and, therefore trade-distorting, domestic support as long as it took the form of support for multiple commodities. This is contrary to the presumption of trade and production-distorting effects for individual products from non-”green box” domestic support, which flows from a domestic measure being inconsistent with the “green box” requirements of Annex 2 of the Agriculture Agreement.

that decided during the 1992 marketing year” 
8. This word “decided” does not require any particular type of “decision”. As a neutral term, the meaning of “decided” must be interpreted in a way that does justice to the ordinary meaning of other terms in Article 13(b)(ii) that are not neutral. Most importantly, the term “decided” must be interpreted in a manner that permits a comparison between a “grant” of non-”green box” “support” to a specific commodity for individual marketing years between 1995-2003, and a “decision” regarding such support in MY 1992. The Appellate Body agreed with the panel in Brazil – Aircraft that the phrase “the level of export subsidies granted” meant “something actually provided”, which means actual budgetary expenditures. Thus, the neutral term “decision” (for MY 1992) can only be read harmoniously with the term “grant support” (for MY 1995-2003) where the “decision” is to fund non-”green box” support to a specific commodity for marketing year 1992.

9. The US argument that the only decision it took during MY 1992 was a “fixed rate of support” for MY 1992 is totally inconsistent with the US Statement of Administrative Action (SAA), in which the United States provided its official interpretation of the peace clause. In the SAA, the United States stated that governments would have peace clause protection from adverse effects and serious prejudice challenges in the WTO “unless the AMS for the particular commodity exceeds the level decided in the 1992 marketing year.”  Brazil strongly disagrees with the notion of “AMS” as the relevant standard for the peace clause, and draws the attention of the Panel to the fact that the United States now admits that “AMS” is nowhere found in the text of Article 13(b)(ii). But this official US interpretation of the peace clause in 1995 is nevertheless compelling evidence of the United States view of the “decision” it had taken during MY 1992. And this interpretation did not reflect a decision regarding only a rate of support. Instead, the only two “decision” options were set out in the AoA Annex 3, where “AMS” is calculated. This calculation is based on either budgetary outlays, or a calculated amount based on the difference between a fixed reference price and the applied administered price multiplied by the amount of production eligible to receive the administered price. Under either option, the United States’ interpretation indicates that an “amount” (not a “rate of support”) is the measure of support under the peace clause.

10. The SAA statement is also strong evidence that the alleged US “decision” to continue the 1990 FACT Act level of support at 72.9 cents per pound is simply post hoc rationalization. Brazil presents evidence that prior to this dispute, the United States had not made up its mind on what would constitute the relevant decision for peace clause purposes. A series of questions asked by Brazil in the Committee on Agriculture and answers provided by the United States reveals that as of 28 June 2002, the United States had not yet made a “decision” regarding which year the United States was using with respect to Article 13(b)(ii). These questions provided the United States with every opportunity to announce the decision that it had allegedly taken 10 years before. Yet, it said nothing about a “rate of support”.
11. In sum, Brazil is of the firm view that the text of Article 13(b)(ii) requires comparing MY 1992 support with MY 1995-2003 support by comparing actual expenditures. This methodology produces an “amount” of support – not a “rate”. Thus, any decision under Article 13(b)(ii), by definition, must relate in some way to an “amount” of expenditures. Only such methodology allows a clear comparison between the two time periods, regardless of the type of support.

12. However, even if the Panel were to decide that the relevant standard is a “rate of support” standard, Brazil has provided the testimony of Professor Daniel Sumner indicating that the “rate of support” to upland cotton in MY 1999-2002 was much higher than the “rate of support” to upland cotton in MY 1992. Based on the evidence and analysis presented by Professor Sumner, Brazil also asserts that even under the US “rate of support” methodology, the United States has failed to demonstrate that its MY 1999-2002 support does not exceed its support to upland cotton decided in MY 1992.


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