List of abbreviations 444 table of cases



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WT/DS267/RW
Page D-



annex D-14
Brazil's Comments on the Responses of
the United States to the Panel's
Second Set of Questions
(24 April 2007)

TABLE OF CONTENTS
Page
LIST OF ABBREVIATIONS 444
TABLE OF CASES 445
TABLE OF EXHIBITS 447
A. Scope of this proceeding 448
B. Claims of Brazil regarding present serious prejudice 459
1. Significant price suppression - Article 6.3(c) of the SCM Agreement 459
2. Increase in world market share - Article 6.3(d) of the SCM Agreement 489
C. Claim of Brazil regarding threat of serious prejudice 490
D. export credit guarantees 497
1. Outstanding export credit guarantees 497
3. "Benefit" under Articles 1.1 and 3.1(a) of the SCM Agreement 498
4. Item (j) of the Illustrative List 512

LIST OF ABBREVIATIONS

Arrangement OECD Arrangement on Officially Supported Export Credits

AWP Adjusted World Price

BSC Bond Street Capital

CCC U.S. Commodity Credit Corporation

CCPs Counter-Cyclical Payments

DSB Dispute Settlement Body

DSU Understanding on Rules and Procedures Governing the Settlement of Disputes

ECG Export Credit Guarantee

ERS USDA's Economic Research Service

FAPRI Food and Agricultural Policy Research Institute

FAS USDA's Foreign Agriculture Service

FCRA Federal Credit Reform Act

FSRI Act Farm Security and Rural Investment Act of 2002

FY Fiscal Year

GATT General Agreement on Tariffs and Trade

GAO Government Accountability Office

GSM 102 General Sales Manager 102

GSM 103 General Sales Manager 103

LCI ExIm Banks Letter of Credit Insurance

MBS Mortgage-backed securities

MPRs Minimum Premium Rates

MTI ExIm Bank's Medium-Term Export Credit Insurance

MY Marketing Year

NCC National Cotton Council of America

NPV Net Present Value

OECD Organization for Economic Co-operation and Development

SCGP Supplier Credit Guarantee Program


SCM Agreement Agreement on Subsidies and Countervailing Measures

SPS
Agreement Agreement on Sanitary and Phytosanitary Measures

TBT
Agreement Agreement on Technical Barriers to Trade

U.S. United States

USDA U.S. Department of Agriculture

WTO World Trade Organization


TABLE OF CASES


Short Title

Full Case Title and Citation

Australia – Salmon (21.5)

Panel Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/R and Corr.1, adopted 6 November 1998, modified by Appellate Body Report, WT/DS18/AB/R, DSR 1998:VIII, 3407

Canada – Aircraft

Appellate Body Report, Canada Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377

Canada – Aircraft
(21.5)

Appellate Body Report, Canada Measures Affecting the Export of Civilian Aircraft Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted 4 August 2000, DSR 2000:IX, 4299


Canada – Aircraft Credits and Guarantees

Panel Report, Canada Export Credits and Loan Guarantees for Regional Aircraft, WT/DS222/R and Corr.1, adopted 19 February 2002, DSR 2002:III, 849

Canada – Dairy (21.5 II)

Appellate Body Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products – Second Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/AB/RW2, WT/DS113/AB/RW2, adopted 17 January 2003, DSR 2003:I, 213

Chile – Alcoholic Beverages

Award of the Arbitrator, Chile – Taxes on Alcoholic Beverages – Arbitration under Article 21.3(c) of the DSU, WT/DS87/15, WT/DS110/14, 23 May 2000, DSR 2000:V, 2583

EC – Bed Linen
(21.5)


Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU by India, WT/DS141/RW, adopted 24 April 2003, modified by Appellate Body Report, WT/DS141/AB/RW, DSR 2003:IV, 1269

EC – CVDs on DRAMs

Panel Report, European Communities Countervailing Measures on Dynamic Random Access Memory Chips from Korea, WT/DS299/R, adopted 3 August 2005


EC – Sugar

Appellate Body Report, European Communities – Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19 May 2005

Guatemala – Cement I

Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998, DSR 1998:IX, 3767

Mexico – Corn Syrup (21.5)

Appellate Body Report, Mexico Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States Recourse to Article 21.5 of the DSU by the United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6675

U.S. – 1916 Act

Award of the Arbitrator, United States – Anti-Dumping Act of 1916 – Arbitration under Article 21.3(c) of the DSU, WT/DS136/11, WT/DS162/14, 28 February 2001, DSR 2001:V, 2017

U.S. – Byrd Amendment

Award of the Arbitrator, United States – Continued Dumping and Subsidy Offset Act of 2000 – Arbitration under Article 21.3(c) of the DSU, WT/DS217/14, WT/DS234/22, 13 June 2003, DSR 2003:III, 1163


U.S. – Export Restraints

Panel Report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R and Corr.2, adopted 23 August 2001, DSR 2001:XI, 5767

U.S. – FSC (21.5 II)

Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW2, adopted 14 March 2006

U.S. – Gambling (21.5)

Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/R, adopted 20 April 2005, modified by Appellate Body Report, WT/DS285/AB/R

U.S. – OCTG from Argentina (21.5)

Appellate Body Report, United States Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina - Recourse to Article 21.5 of the DSU by Argentina, WT/DS268/AB/RW, adopted 12 April 2007

U.S. – OCTG Sunset Reviews

Appellate Body Report, United States Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257


U.S. – Softwood Lumber IV

Appellate Body Report, United States Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, 571

U.S. – Softwood Lumber IV (21.5)

Appellate Body Report, United States Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada Recourse by Canada to Article 21.5 of the DSU, WT/DS257/AB/RW, adopted 20 December 2005

U.S. – Softwood Lumber V

Appellate Body Report, United States Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R, adopted 31 August 2004, DSR 2004:V, 1875

U.S. – Softwood Lumber VI (21.5)

Appellate Body Report, United States Investigation of the International Trade Commission in Softwood Lumber from Canada Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006

U.S. – Upland Cotton


Appellate Body Report, United States Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005

U.S. – Upland Cotton

Panel Report, United States Subsidies on Upland Cotton, WT/DS267/R, and Corr.1, adopted 21 March 2005, modified by Appellate Body Report, WT/DS/267/AB/R



TABLE OF EXHIBITS



Expected Upland Cotton Yields

Exhibit Bra-688

Freedom of Information Act Rejection Letter

Exhibit Bra-689

Crop Losses and Profits 2002-2005

Exhibit Bra-690

Average January to March Price of the December 2007 futures contract

Exhibit Bra-691

LIBOR and Prime rates, 1997 to the present

Exhibit Bra-692

GSM 102 fees as a percentage of ExIm LCI and MTI fees for GSM 102 transactions involving annual repayment of principal


Exhibit Bra-693

GSM 102 fees as a percentage of ExIm LCI and MTI fees for GSM 102 transactions involving semi-annual repayment of principal

Exhibit Bra-694

A. Scope of this proceeding


Questions to both parties
44. The European Communities argues in respect of the preliminary objection raised by the United States regarding the claims of Brazil relating to export credit guarantees for pig meat and poultry meat under the GSM 102 programme that "the important issue is the nexus or the degree of interrelatedness or interdependence between different elements of the measure". (Oral Statement of the European Communities, para. 6) The European Communities submits in this regard that:
"the Panel should examine the original measure at issue and the 'measures taken to comply', and, with particular reference to the 'elements of the measure' that the United States argues are outside the Panel's terms of reference, enquire into the extent to which these are interrelated or interdependent with measures or 'elements of measures' that the United States accepts are within the Panel's terms of reference". (Oral Statement of the European Communities, para. 11)

Do the parties agree with the approach suggested by the European Communities and with the considerations in paragraph 13 of the Oral Statement of the European Communities?

1. The United States' response addresses whether Brazil's claims regarding the amended GSM 102 pig meat and poultry meat are properly within the scope of these Article 21.5 proceedings.

2. The first issue for the compliance Panel in assessing the scope of these proceedings is to identify the measure(s) taken to comply with respect to the DSB's recommendations on the application of the GSM 102 program.1
3. By way of implementation, the United States modified the guarantee fee schedule of the GSM 102 program. This is intended to eliminate the "subsidy" component of the original program. There is no dispute between the Parties that the amended GSM 102 program, in particular the revised guarantee fee schedule, is a "measure taken to comply". The amended GSM 102 program remains the United States' declared "measure taken to comply" whether or not, as the United States suggests, the original panel's findings related to specific guarantees issued under the original GSM 102 program for specific products.2

4. Under Article 21.5, this Panel is required to examine the declared compliance measure – the amended GSM 102 program – "in its totality" for "consistency" with the United States' obligations under the Agreement on Agriculture, because it is a measure taken to comply that is included in Brazil's panel request.3 In U.S. – OCTG from Argentina (21.5), the Appellate Body emphasized that there are important reasons of principle for requiring compliance panels to examine "fully" the WTO-consistency of compliance measures. These include promoting the prompt settlement of disputes by avoiding the delay resulting from new proceedings, and "making efficient use of the original panelists and their relevant experience".4 The fact that the United States objected to two members of the original panel hearing this dispute cannot alter the importance of this last factor in interpreting Article 21.5 generally.

5. The United States relies on the rulings in EC – Bed Linen (21.5) to suggest that its voluntary decision to amend the GSM 102 program with respect to pig meat and poultry meat is beyond the scope of Article 21.5 proceedings. However, this dispute is very different from EC – Bed Linen (21.5). In that dispute, the EC took a single measure to comply with its WTO obligations (Regulation 1644/2001). Thereafter, it adopted two formally separate and unrelated measures (Regulations 160/2002 and 696/2002) that, while addressing substantive issues similar to those raised in the original proceedings in EC – Bed Linen, related to imports from other countries that were not part of the WTO proceedings. The panel found that these two separate measures (Regulations 160/2002 and 696/2002) were not measures taken to comply, because they dealt with imports unconnected to the original WTO dispute.
6. In contrast, in this dispute, with respect to export credit guarantees, Brazil challenges the application of a single measure – the amended GSM 102 program – which the Parties agree is a measure taken to comply. The United States did not take a measure to comply that relates solely to GSM 102 ECGs for unscheduled products and rice, and separately adopt an unrelated measure relating solely to GSM 102 ECGs for pig meat, poultry meat and other scheduled products other than rice. Rather, the United States adopted a single measure taken to comply – the amended GSM 102 program – which has a single set of provisions that apply in exactly the same way to all eligible products.

7. The United States appears to argue that the Panel should parse the single compliance measure into components that relate to pig meat and poultry meat, and other components. The components relating to pig meat and poultry meat would, under the United States' approach, be excluded from these proceedings.

8. In U.S. – OCTG from Argentina (21.5), the Appellate Body held that, where the challenged components of a compliance measure are not "separable", but "integral parts" of that measure, the measure must be examined "in its totality". 5 In this dispute, there are no "separable" provisions of the amended GSM 102 program that apply to pig meat and poultry meat, but not to other products. Instead, the provisions of the program, in particular the revised fee schedule on the basis of which "benefits" are conferred, constitute an integrated package that applies to all eligible products in exactly the same way. There is, therefore, no basis for dividing the measure taken to comply into different components.
9. Where the challenged components of a compliance measure are integral parts of the measure, the Appellate Body also found it "difficult to conceive" how two different panels (the first composed under Article 21.5, and the second in entirely new proceedings) could review inseparable elements of a single measure.6 As a result, the Appellate Body held that the compliance panel must examine the integrated compliance measure "in its totality". In this dispute, Brazil challenges the revised GSM 102 fee schedule, which is an integrated schedule that does not distinguish between products. In Brazil's view, institutional efficiency and considerations of legal certainty require that a single panel assess this schedule "in its totality".

10. The United States also argues that, in revising the guarantee fee schedule, it was not taking action with respect to DSB recommendations regarding pig meat and poultry meat.7 The panel in U.S. – Gambling (21.5) also recently ruled that measures cannot be excluded from the scope of compliance proceedings "due to the purpose for which they have been taken".8 In U.S. – Softwood Lumber IV (21.5), the Appellate Body also found the "first assessment review" to be a "measure taken to comply" even though the United States Department of Commerce did not adopt it "with the intention of complying with the DSB's recommendations and rulings."9 It is, therefore, irrelevant whether the United States intended to implement the DSB's recommendations with respect to pig meat and poultry meat when it adopted the amended GSM 102 program. The issue is whether the amended program "in its totality" is "fully" consistent with the covered agreements, including with respect to the United States' export subsidy commitments for pig meat and poultry meat.

11. The United States also contends that this dispute may relate to specific guarantees issued for specific products10, and professes confusion whether Brazil is "challenging" the "GSM 102 program as such", or "particular guarantees under the GSM 102 program".11
12. The United States' assertion that the measure at issue is only specific guarantees for specific products, and its feigned confusion concerning Brazil's "challenge", is disingenuous. As the United States is aware, Brazil's claims under Articles 10.1 of the Agreement on Agriculture involve a number of elements. One such element is a showing that the United States is providing "export subsidies".
13. The original panel found that the original GSM 102 program, without reference to specific guarantees or specific products, constituted an export subsidy under item (j) of the Illustrative List in Annex I of the SCM Agreement.12 In these Article 21.5 proceedings, Brazil similarly establishes, in a number of ways, that the amended GSM 102 program is an export subsidy.
14. First, Brazil has demonstrated that the amended GSM 102 program constitutes an export subsidy under item (j). Nothing about this showing is product-specific.
15. Second, Brazil has demonstrated that according to official, normative statements by the U.S. government in the GSM 102 regulations, FAS publications and FAS' self-assessment of the program, the program always offers export-contingent financial contributions that confer "benefits" on recipients. Nothing about this showing is product-specific.

16. Third, Brazil has demonstrated that under the amended GSM 102 fee schedule, GSM 102 ECGs will necessarily constitute export-contingent financial contributions that confer "benefits" on recipients. With its ExIm Bank comparison exercise, Brazil has provided exhaustive proof of this, demonstrating methodically that on a country-by-country, tenor-by-tenor basis, GSM 102 ECGs issued under the amended GSM 102 fee schedule are export subsidies.13 As a practical matter, this amounts to a showing that the amended GSM 102 program is an export subsidy itself. Nothing about this showing is product-specific.

17. Turning to another element of Brazil's claims, Brazil has demonstrated, as in the original proceedings, that the United States has "applied" the export subsidy in a manner that results in circumvention of U.S. export subsidy commitments, within the meaning of Article 10.1 of the Agreement on Agriculture. The "application" of the GSM 102 program that results in circumvention is, as it must be, established with respect to specific scheduled products (as well as with respect to the category of unscheduled products). In assessing whether the program is "applied" in a manner that circumvents export subsidy commitments, the original panel considered evidence relating to the cumulative level of the guarantees issued for the specific products that were the subject of claims. However, the individual guarantees issued under the program did not thereby become the export subsidies at issue; nor do they become the export subsidies at issue in these proceedings.
18. In any event, even if the individual GSM 102 guarantees issued for specific products are the export subsidies at issue in these compliance proceedings, all of those guarantees – for rice, pig meat and poultry meat, and all unscheduled products – have a sufficient nexus to the amended GSM 102 program, the declared compliance measure, that they are part of the compliance measures for purposes of whether the program is "applied" consistently with Article 10.1.

19. In this regard, Brazil notes that it is the United States that has suggested that the individual guarantees are the challenged "measures taken to comply". 14 It appears to accept that these new individual guarantees could, in theory, be "measures taken to comply" with DSB recommendations. Yet, when it comes to marketing loan and counter-cyclical payments, the United States vehemently objects that new payments cannot be "measures taken to comply" with DSB recommendations concerning earlier payments under the same programs. Brazil argues below that the correct approach is to recognize – as the United States does for individual guarantees – that the new payments are sufficiently closely connected to the DSB's recommendations regarding the old payments to be "measures taken to comply".15

20. Having identified the amended GSM 102 program as a declared "measure taken to comply", a second question arises for the compliance Panel with respect to the scope of the claims that can be made regarding that measure. Brazil's claims concern the application of the program to three scheduled agricultural products (rice, pig meat and poultry meat) and unscheduled agricultural products.
21. The United States' argument is that the DSB's recommendations did not impose any implementation obligations with respect to pig meat and poultry meat. As a result, it says, even though its compliance measure applies to these products, no claims can be made regarding them. This position incorrectly assumes that Article 21.5 proceedings are limited to examining whether the implementing Member has eliminated the WTO-inconsistencies identified in the DSB's recommendations.

22. According to the text of Article 21.5, a compliance panel is the appropriate forum for resolving any "disagreement" relating to the general "consistency with a covered agreement" of a "measure taken to comply". Thus, in Canada – Aircraft (21.5), the Appellate Body expressly "disagreed" with the panel's view that Article 21.5 proceedings are confined to examining whether the implementing Member "has implemented the DSB recommendation".16 In U.S. – OCTG from Argentina (21.5), citing Canada – Aircraft (21.5), the Appellate Body reiterated that a compliance panel must "examine fully the 'consistency with a covered agreement of the measures taken to comply', as required by [Article 21.5]".17 As noted, it also affirmed that a compliance panel must examine the compliance measure "in its totality".18

23. As a result, the precise scope of the DSB's recommendations does not determine the scope of Article 21.5 proceedings. Moreover, Article 21.5 proceedings can, therefore, involve claims and arguments regarding the WTO-"consistency" of a measure taken to comply, even though these claims were not the subject of DSB's recommendations.19
24. In effect, the United States asks the Panel, in essence, to reverse the Appellate Body's interpretation because it asserts that this Panel can – indeed, must – examine exclusively whether the measure taken to comply has eliminated the WTO-inconsistencies established in the DSB's recommendations. The Panel should reject this argument, and follow the wording of Article 21.5. The Panel may, therefore, examine whether the application of the amended GSM 102 program is "consistent" with the United States' obligations under Article 10.1 of the Agreement on Agriculture.
25. There remain, of course, limitations on the claims that can be made regarding a measure taken to comply. In particular, certain panels have ruled that no new claims can be made with respect to unchanged elements of the original measure; equally, the same claim cannot be made with respect to unchanged elements of the measure if that claim was rejected in the original proceedings. As Brazil has previously explained, neither of these limitations apply.20 Brazil's claims regarding pig meat and poultry meat concern a new element of the measure taken to comply, namely the revised guarantee fee schedule in the amended GSM 102 program. There are no limits on the claims (much less the arguments) that can be made with respect to a new element of the compliance measure.

45. Could the parties comment on the observations made by the European Communities in paras. 15-24 of its Oral Statement on the issue of whether the marketing loan and counter-cyclical payment programmes are within the scope of the Panel's proceeding?
26. The United States' response to question 45 clouds the issue it raised in its preliminary objection. Brazil's request for the establishment of a panel identifies two measures that it claims cause adverse effects under Articles 5(c), 6.3(c) and 6.3(d) of the SCM Agreement. These measures are: (1) the marketing loan and counter-cyclical payment programs and (2) payments made under these programs.21 The key issue is whether these two categories of measures are properly within the scope of compliance proceedings. Brazil addresses these measures in turn below.


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