List of abbreviations 444 table of cases


Questions to the United States



Download 0.89 Mb.
Page9/18
Date conversion14.06.2018
Size0.89 Mb.
1   ...   5   6   7   8   9   10   11   12   ...   18

Questions to the United States
107. What can explain the discrepancy between the "credit guarantee liability" recorded in the CCC's financial statements (which suggest that the program is provided at a net cost to the US government) and the evidence presented by the US in para. 87 of its First Written Submission?
295. Please see Brazil's comment on the U.S. response to question 108.
108. Please explain why the "liability" figure in the CCC's financial statements should not be considered by the panel to provide, if not the amount of actual losses, at least a reliable estimate of the CCC's own perception of the cost to the government of the programmes since their inception. Is the Panel wrong in understanding that a "credit guarantee liability" in this context means that the CCC considers that the programmes will not cover their costs and losses in the long term?
296. The United States misrepresents the significance of the "credit guarantee liability" figure in the 2006 CCC financial statements.
297. The United States' response ignores altogether the definition of "credit guarantee liability" included in the financial statements itself. The definition reads as follows:

Credit guarantee liabilities represent the estimated net cash outflows (loss) of the guarantees on a net present value basis. To this effect, CCC records a liability and an expense to the extent, in management's estimate, CCC will be unable to recover claim payments under the Credit Reform Export Credit Guarantee programs.441

298. The bold, underlined word "net" belies the U.S. assertion that the credit guarantee liability figure in the CCC financial statements includes only a "liability for which there is an offsetting balance sheet entry of an asset."442 By the express terms of this definition, the credit guarantee liability figure in CCC's financials represents "net" cash outflows or losses – meaning that having netted expected cash inflows against expected cash outflows on a net present value basis, the CCC expects that the latter will exceed the former, and that it will therefore experience a "loss" (another term expressly used in the definition).

299. As acknowledged by the United States, the original panel, in its adopted findings, agreed. The United States notes the original panel's finding that "the credit guarantee liability represented a prospective estimate of anticipated experience under the program".443 This is somewhat of an understatement. Citing the credit guarantee liability figures from the 2002 and 2003 CCC financial statements, the original panel stated as follows:

[W]e note that the CCC financial statements for the years 2002 and 2003 indicate a "credit guarantee liability" of $411 million and $22 million, respectively. The CCC defines the term "credit guarantee liability" as the estimated cash outflows of the guarantees on a net present value basis. "Liability" is defined as "...a probable future outflow or other sacrifice of resources as a result of past transactions or events." We observe that these amounts are not actual losses. They are but another indicator, used and relied upon by the United States government, to assess the estimated long-term cost to the United States government of export credit guarantees. They are consistently positive, indicating to us that the CCC believes, based upon its own assessment, that it may not, even over the long term, be able to operate the export credit guarantee programmes without some net cost to government.444

300. In its response, the United States not only asks the compliance Panel to revisit the original panel's adopted findings regarding what the credit guarantee liability figure represents, but further challenges the reliability of the credit guarantee liability figure as a basis on which to make an item (j) assessment of long-term costs and losses, because it is a future-oriented assessment of long-term losses on a net present value basis rather than an "actual" or "retrospective" loss.445 The United States made the same arguments during the original proceedings.446 The original panel and the Appellate Body rejected the U.S. arguments, and accepted a forward-looking approach to the assessment of the ECG programs under item (j).447

301. These adopted findings should be followed by the compliance Panel. Prior adopted panel and Appellate Body reports create "legitimate expectations" among WTO Members, and should be taken into account by panels when they are relevant to the resolution of a dispute.448 Further, where the issues before a panel are the same as those previously examined by the Appellate Body, it is "not only appropriate," but to "be expected," that the panel would follow the Appellate Body's earlier conclusions.449
302. With respect to compliance proceedings, in particular, the Appellate Body has stated that "Article 21.5 proceedings do not occur in isolation but are part of a 'continuum of events.'"450 The Appellate Body observed that "doubts could arise about the objective nature of an Article 21.5 panel's assessment if, on a specific issue, that panel were to deviate from the reasoning in the original panel report in the absence of any change in the underlying evidence."451

303. Nothing about the way in which the credit guarantee liability figure is defined in the CCC financial statements, or calculated, has changed from the original proceedings.452 To find now that the figure is unreliable would involve a significant departure from the findings in the original proceedings, with no valid basis for that change. It would also involve a violation of the principle of res judicata, because the reliability of the estimates has been definitively resolved for purposes of this dispute. As noted by the panel in U.S. – Gambling (21.5), "[a] re-assessment in a compliance proceeding of an issue that had already been ruled upon in an original proceeding in an adopted report, even with better arguments by the respondent but without a change relevant to the underlying facts in the intervening period, would run counter to the prompt settlement of disputes."453 The United States is not entitled to re-litigate an issue that has been definitively resolved for purposes of this dispute.



annex D-15
United States' Comments on the Responses
of Brazil to the Panel's Second Set
of Questions
(24 April 2007)

TABLE OF CONTENTS
Page
TABLE OF EXHIBITS 520
I. GENERAL COMMENTS REGARDING BRAZIL'S ANSWERS 521
A. Brazil has no basis to challenge measures that were neither original measures subject to any finding of WTO-inconsistency or DSB recommendations and rulings nor measures taken to comply with any recommendations and rulings 521
1. Neither GSM 102 guarantees in respect of exports of pig meat and poultry meat nor Brazil's claims with respect to them are within the scope of this proceeding 521
2. The marketing loan and counter-cyclical payment programs, payments made thereunder after MY 2002, and Brazil's claims in respect of those measures are outside the scope of this proceeding 523
B. Marketing loan and counter-cyclical payment programs are not causing any present significant price suppression within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement 526

C The effect of the marketing loan and counter-cyclical payment programs is not any "present" increase in the U.S. share of the world market for upland cotton within the meaning of Articles 5(c) and 6.3(d) of the SCM Agreement. 530

D. Neither the marketing loan and counter-cyclical payment programs – nor any payments thereunder – are causing a "threat" significant price suppression under Articles 5(c) and 6.3(c) of the SCM Agreement 531
E. The United States is Providing GSM 102 guarantees in respect of exports of rice and unscheduled products consistently with Articles 10.1 and 8 of the Agreement on Agriculture and 3.1 and 3.2 of the SCM Agreement 532

II. SPECIFIC COMMENTS REGARDING BRAZIL'S ANSWERS 534
A. Scope of this Proceeding 534
B. Claims of Brazil regarding present serious prejudice 537
1. Significant price suppression - Article 6.3(c) of the SCM Agreement 537
2. Increase in world market share - Article 6.3(d) of the SCM Agreement 558
C. Claim of Brazil regarding threat of serious prejudice 560
D. Export credit guarantees 565
1. Outstanding export credit guarantees 565

2. Legal Bases for Brazil's export subsidies claims 566

3. "Benefit" under Articles 1.1 and 3.1(a) of the SCM Agreement 567
4. Item (j) of the Illustrative List 570

TABLE OF EXHIBITS



Exhibit US-

Title

165

"China: Cotton import quotas of 1.5mn tons to be issued," available at www.fibre2fashion.com (April 24, 2007).

166

U.S. Export Sales for Week Ending 4.12.2007, available at www.fas.usda.gov/export sales/cottfax.htm

167

U.S. Export Sales Weekly Export Performance Indicator for Week Ending 4.12.2007, available at http://www.fas.usda.gov/esrquery/esrpi.aspx.

168

NASS March 2007 Cotton Ginnings Report

169

N.Y. Futures After Issuance of Planting Intentions Report

1. In its answers to the second set of questions from the Panel, Brazil has reasserted many of the same unfounded arguments presented in its earlier submissions, which the United States has already addressed and rebutted. Many of Brazil's answers to questions also repeat the same information. The United States does not intend to resubmit all of these U.S. arguments in response. Rather, for the convenience of the Panel, the United States first offers one general comment regarding Brazil's answers to each major section of the Panel's questions. The United States then proceeds to address those aspects of Brazil's answers that are either new or call for further comment. Where possible, the United States refers the Panel to its prior submissions where Brazil's arguments have been addressed.

2. To the extent the United States does not address a particular answer or a particular aspect of an answer, this is not intended as – and should not be understood to be – agreement with Brazil's position.
I. GENERAL COMMENTS REGARDING BRAZIL'S ANSWERS
A. Brazil has no basis to challenge measures that were neither original measures subject to any finding of WTO-inconsistency or DSB recommendations and rulings nor measures taken to comply with any recommendations and rulings454
3. Brazil repeats in its answers to Questions 44 to 46 the incorrect argument that it is entitled to renew in this "compliance" proceeding under Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") claims against measures (a) that were never found to be WTO-inconsistent and were never subject to any DSB recommendations and rulings; and (b) that are not measures taken to comply with any recommendations and rulings.455 These measures include the GSM 102 export credit guarantees in respect of exports of pig meat and poultry meat. They also include the marketing loan and counter-cyclical payment programs and payments made under the program in years beyond MY 1999-2002. Brazil's arguments continue to be unavailing.
1. Neither GSM 102 guarantees in respect of exports of pig meat and poultry meat nor Brazil's claims with respect to them are within the scope of this proceeding

4. Brazil's assertion of an "entitlement" to make a claim against GSM 102 guarantees in respect of exports of pig meat and poultry meat rests on two untenable grounds. First, Brazil asserts erroneously that any changed measure may be challenged in a compliance proceeding regardless of whether it was "taken to comply" with any recommendations and rulings of the DSB.456 And, second, Brazil asserts that a complaining party may renew in a compliance proceeding any claims that were not "definitively resolved" in the original proceeding.457 Neither proposition finds support in the DSU.

5. Contrary to Brazil's assertions, the test of whether a measure is properly within the scope of an Article 21.5 compliance proceeding is not simply whether it has changed since the original proceeding. That would effectively write out of Article 21.5 the requirement that the measure be "taken to comply" with the DSB's recommendations and rulings. Rather, under the express terms of Article 21.5, the touchstone of what is and is not a "measure taken to comply with the recommendations and rulings" of the DSB is – necessarily – the DSB's recommendations and rulings. Where the DSB's recommendations and rulings distinguish between different components of a measure or different measures, that distinction is determinative for purposes of the compliance proceeding as well.

6. Here, the DSB's recommendations and rulings clearly distinguish "export credit guarantees under the GSM 102, GSM 103 and SCGP export credit guarantee programmes . . . in respect of exports of upland cotton and other unscheduled agricultural products supported under the programmes, and in respect of one scheduled product (rice)"458 from other export credit guarantees under those programs. As Brazil's response to Question 44 confirms, this distinction goes to which measures were found to be WTO-inconsistent (i.e., which measures the United States was obligated to bring into compliance with its obligations under Articles 10.1 and 8 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement). The question for this compliance Panel, then, is whether Brazil has demonstrated either that the United States has (a) not brought those measures (export credit guarantees in respect of rice and unscheduled products) into conformity with the DSB's recommendations and rulings or (b) that those measures – as modified – are inconsistent with the provisions of the WTO Agreement cited by Brazil.459

7. Brazil has attempted to obscure this distinction by insisting variously that (a) the original panel's findings were made with respect to the GSM program as a whole460 and that guarantees thereunder are not even "measures" for purposes of WTO dispute settlement461, (b) that it is Brazil's claims and not the measures challenged that are "product specific;"462 (c) that the United States has made changes across the entire GSM 102 program including with respect to export credit guarantees in respect of exports of pig meat and poultry meat463, and (d) and that the GSM 102 program applies in the same way regardless of what products are involved.464 As the United States has explained465, however, not only are certain of these assertions wrong, they do not alter the conclusion that GSM 102 export credit guarantees in respect of exports of pig meat and poultry meat are not within the scope of this proceeding.
2. The marketing loan and counter-cyclical payment programs, payments made thereunder after MY 2002, and Brazil's claims in respect of those measures are outside the scope of this proceeding

8. In its response to Question 45, Brazil continues to press the Panel impermissibly to expand the scope of this compliance proceeding to include claims against the marketing loan and counter-cyclical payment programs and payments made thereunder in periods after MY 2002. Brazil's arguments turn on its own pronouncements that the original panel did in fact find the Step 2, marketing loan, and counter-cyclical payment programs to be causing "present" serious prejudice and that it similarly found payments allegedly "mandated" to be made thereunder in MY 2003-2007 to be causing "present" serious prejudice (though, of course, such payments had not even been made as of the time the matter was referred to the original panel). These pronouncements are flatly contradicted by the facts and the express language of the original panel report.

9. Brazil's approach in Question 45 – as it has been throughout this proceeding – consists of cherry-picking individual sentences of the panel report and imposing upon them a strained reading that is neither supported by the context nor consistent with the most basic principles of WTO dispute settlement (e.g., that a panel cannot make the claim for a complaining party, let alone make claims never presented by a complaining party). As the United States has explained, there is no merit to these arguments.466
10. In fact, it is remarkable that, in its response to Question 45 from the Panel, Brazil accuses the United States of "mischaracteriz[ing] the original panel's findings from beginning to end."467 Not only is this untrue, but the irony of the accusation is that Brazil has never even attempted to reconcile its arguments with the "original panel's findings from beginning to end." So, for example, Brazil has never explained what legal basis this Panel has for ignoring the original panel's actual conclusion on present serious prejudice:

In conclusion, in light of all of these considerations, we find that the effect of the mandatory, price contingent United States subsidies at issue – that is, marketing loan programme payments, user marketing (Step 2) payments and MLA payments and CCP payments – is significant price suppression in the same world market for upland cotton in the period MY 1999-2002 within the meaning of Articles 6.3(c) and 5(c) of the SCM Agreement.468

This conclusion on its face contradicts Brazil's assertion that "the United States . . . wrongly assumes that 'U.S. subsidies' does not include the legislative and regulatory provisions – the subsidy programs – mandating the subsidy payments."469 The language confirms that the United States has not assumed – let alone wrongly assumed – what the "U.S. subsidies" are, as Brazil charges.

11. To the contrary, as the original panel clearly states, the "United States subsidies at issue" . . . [are] marketing loan programme payments, user marketing (Step 2) payments, MLA payments, and. . . CCP payments." There is no other way to understand the language in between the dashes in the conclusion or the fact that the original panel uses the introductory phrase "that is" – a phrase used for clarification of what a term means – to explain that the "subsidies at issue" are marketing loan programme payments, user marketing (Step 2) payments, MLA payments, and counter-cyclical payments. Brazil has never reconciled its theory – that the "subsidies at issue" include the programs providing for these payments – with this language or with the scores of other clear indications by the original panel that the subsidies subject to its "present" serious prejudice examination were payments made in MY 1999-2002 under, inter alia, the Step 2, marketing loan, and counter-cyclical payment program.
12. Nor has Brazil offered any credible explanation for:


  • How the original panel could have made a finding of present serious prejudice against either the Step 2, marketing loan, and counter-cyclical payment programs or payments allegedly "mandated" to be made thereunder in MY 2003-2007 when it did not recognize Brazil as even presenting a claim of "present" serious prejudice with respect to either group of measures.470



  • Why the original panel identified only "user marketing (Step 2) payments to domestic users and exporters; marketing loan programme payments; PFC payments; MLA payments; DP payments; CCP payments; crop insurance payments; and cottonseed payments"471 as the "challenged measures" that were alleged to be the "subsidies" for purposes of Brazil's "present" serious prejudice claim. The panel only found that those measures constituted subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.472 The panel did not conduct any assessment as to whether the statutory/regulatory provisions authorizing these payments were also "subsidies."





  • How the original panel could have made findings of WTO-inconsistency with respect to the Step 2, marketing loan, and counter-cyclical payment programs or future payments allegedly "mandated" to be made under the programs without addressing the extensive arguments that the parties made, and without making any of the factual findings that Brazil conceded would be necessary to support an affirmative finding of WTO-inconsistency in respect of those measures.473

13. And Brazil has not addressed the other clear textual signals that – consistent with the claims presented to it – the original panel's findings of "present" serious prejudice were made with respect to payments made in MY 1999-2002. This includes:



  • The fact that the original panel's prohibited subsidy-related conclusions and recommendations regarding the Step 2 program, as such, expressly refer to "section 1207(a) of the FSRI Act of 2002 providing for user marketing (Step 2) payments to exporters of upland cotton"474 and "section 1207(a) of the FSRI Act of 2002 providing for user marketing (Step 2) payments to domestic users of upland cotton."475 If the conclusions regarding "present" serious prejudice in paragraphs 8.3(d) and 8.1(g)(i) of the original panel report also pertained to the Step 2 program, as such, together with the marketing loan program and counter-cyclical payment program, the panel would certainly have included the same specific kind of reference, rather than a reference to "user marketing (Step 2) payments.."





  • The fact that in Section VII:D of the Panel Report, dealing with the evaluation of domestic support measures under Article 13 of the Agreement on Agriculture, the original panel expressly stated that, "[i]n this Section of our report, the Panel will consider the current programmes 'as applied' and 'as such' together. Therefore, references to marketing loan programme, user marketing (step 2), direct, counter-cyclical and crop insurance 'payments' include the legislative and regulatory provisions authorizing those payments unless otherwise indicated."476 No similar statement can be found in Section VII:G, which is the section including the original panel's analysis of the effects of the subsidies alleged to be causing serious prejudice. In fact, the original panel in Section VII:G clearly distinguishes payments from provisions providing for those payments. Nor is there any similar statement made in connection with the recommendation in paragraph 8.3(d) of the panel report (or paragraph 8.1(g)(i), which contains the conclusion on actionable subsidies to which the recommendation relates).



  • The panel's clarification that it was not precluded from considering whether production flexibility contract and market loss assistance payments were causing "present" serious prejudice even though the legislative and regulatory provisions authorizing those payments had expired even before Brazil made its request for consultations.477 If the original panel's findings with respect to "payments" – and the DSB's recommendations and rulings on the basis thereof – were to be understood to automatically refer also to the programs authorizing those payments, as Brazil urges, the recommendation with respect to "MLA payments" in the panel's "present" serious prejudice conclusion would necessarily be a recommendation also with respect to the "MLA program" as such (an expired measure). This would be inconsistent with the original panel's express clarification that it was not making any findings of WTO-inconsistency or any recommendations and rulings with respect to expired programs, as such478 as well as with the Appellate Body's subsequent clarification that "there [is] an obvious inconsistency" between a finding that a measure has expired and a "subsequent recommendation that the . . . DSB request the United States to bring the [expired measure] into conformity with its WTO obligations."479

14. In short, Brazil has not – and cannot – reconcile its own arguments to the "the original panel's findings from beginning to end."480 Brazil's does not offer any coherent interpretation of the original panel report that addresses and takes into account all of the facts discussed above and in the prior U.S. submissions. Simply ignoring the facts or making accusations that the United States is "mischaracteriz[ing] them" does not allow Brazil to overcome that fatal deficiency. It remains, therefore, that Brazil's claims against the marketing loan and counter-cyclical payment programs and any payments made under the programs post-MY 2002 are outside the scope of this proceeding.


B. Marketing loan and counter-cyclical payment programs are not causing any present "significant" price suppression within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement
15. For the reasons set out above and in the prior U.S. submissions, Brazil's claims of "present" serious prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement against the marketing loan and counter-cyclical payment programs and/or any present payments thereunder are not within the scope of this proceeding. Were they to have been within the scope, they would nonetheless fail because they are bereft of a basis in the facts.

16. Indeed, a substantial part of Brazil's responses to the Panel's Questions 51 and 62-74 are devoted to attempts to explain away this failing. Brazil complains, on the one hand, that it should not be required to provide "direct evidence of what would actually happen to U.S. acreage, production, exports, and world prices"481 without marketing loan and counter-cyclical payments and it complains, on the other, that the United States has "ignore[d] the hundreds of exhibits and circumstantial evidence presented by Brazil."482 Both assertions are baseless.

17. Brazil – as the complaining party – bears the burden of proving its claims with evidence and arguments that actually support the claim for which they are offered. It has not done so. Further, in observing this, the United States has not "ignored" any argument or exhibit submitted by Brazil. To the contrary, the United States has painstakingly examined and addressed – over the course of two written submission, the presentation before the Panel, three set of responses to questions from the Panel, comments on Brazil's "oral" presentation to the Panel, and now two sets of comments on answers – every argument made by Brazil and demonstrated that these do not, individually or collectively, support Brazil's claims of "significant" price suppression.483
18. Brazil's assertions about the removal of the Step 2 program are unsubstantiated, internally contradictory, and inconsistent with arguments made by Brazil in the original proceeding: Brazil's claims are premised on the assertion that removal of the Step 2 program has not removed the adverse effects of the package of payments found by the original panel to be causing "present" serious prejudice. However, Brazil's assertions about the effects of removing the Step 2 program are unsubstantiated, internally contradictory, inconsistent with arguments made by Brazil in the original proceeding, and contradicted by the empirical evidence.484

19. Thus, for example, having proclaimed to the original panel that "it is difficult to imagine how a subsidy could be more of an export subsidy than the Step 2 export provisions" and that "[the program] plays an important role in stimulating and maintaining the present record high U.S. upland cotton world export market share,"485 Brazil has no basis now to allege that "removal of the Step 2 program does [not] result in any significant or long-term reduction of U.S. exports."486 The United States notes the irony in Brazil's assertion here that a "long-term" assessment of the effects of the removal of the Step 2 program is appropriate while in its analysis of the marketing loan and counter-cyclical payment program it insists that "the assessment is necessarily of a short-term, not a long-term nature."487 This is yet further evidence that Brazil's positions on such fundamental questions as the appropriate analysis under the SCM Agreement shift simply depending on its preferred outcome. Moreover, the United States notes that Brazil's asserted bases for this assertion do not withstand scrutiny.

20. Indeed, while Brazil attempts to assert as evidence a statement by a National Cotton Council ("NCC") representative that in MY 2007, "NCC sees U.S. exports recovering to 16.22 million bales as foreign mill use increases," Brazil fails to quote for the Panel the statement immediately prior to this one in which the same representative notes that:
the 2006 marketing year is the first of the post-Step 2 era, and the impact on exports has been evident. Through mid-January, export commitments of upland cotton totaled roughly 6 million bales. This time a year ago, total commitments had surpassed 10 million bales.488

The United States recalls Brazil's assertion that in assessing the effects of payments "the views of their recipients constitute particularly relevant evidence."489 Brazil would presumably attach similar importance to the NCC statement it neglected to cite.


21. In any event, the possibility of an increase in the export volume in MY 2007 in absolute terms does not change the analysis regarding the effects of removing the Step 2 program. As the United States explained in its rebuttal submission490, such factors as China's import needs may have contributed in part to the decline in the level of U.S. exports as of August, 2006. And as there are changes in those factors, there may well be effects in the level of U.S. exports. However, those factors do not account for the entire decline. Thus, for example, primarily in connection with the pending release of import quota by China491, there have been recent purchases of some 795,800 running bales of U.S. cotton.492 This represents a marketing-year high. Yet, even with these purchases, total export commitments, both sales and shipments, are 31% and 15% below last year's total and the 5-year average, respectively.493 The fact that U.S. export volume may recover somewhat in the future, thus, does not suggest that export levels would not have been even higher had the Step 2 program been in effect.

22. In the face of such empirical data at odds with its assertions (for purposes of this proceeding) about the alleged effects of eliminating the Step 2 program, Brazil urges the Panel, in its response to Question 74, to consider MY 2005 – a year in which Step 2 payments were still in effect – as the relevant period for purposes of its analysis of the effects of removal of the Step 2 program. Presumably, the Panel would then have to accept Brazil's assertions (for purposes of this proceeding) about what the effects of that program would or would not have been in that year rather than relying on the actual evidence thereof. Neither this suggestion by Brazil nor its unsubstantiated assertions about the effects of removing the Step 2 program may be credited.

23. Brazil does not show that marketing loan and counter-cyclical payments cause "present" serious prejudice: Citing the original panel, Brazil argues that "an examination of the 'effects'" of the challenged measures "cannot be conducted in the abstract."494 Yet, in support of its claims, Brazil repeatedly suggests that, even without considering the existing market conditions (or conducting any assessment of what these were likely to be) the original panel somehow found marketing loan and counter-cyclical payments to be causing significant suppression of world market prices today.495 Similarly, it makes generic assertions about impacts on wealth and risk aversion that – if credited – would effectively preclude any payment to farmers no matter what their form and no matter how minimal their impact on planting, production, exports, and prices.496

24. Brazil's claim cannot properly rest on these bases. For one, the original panel did not find that marketing loan and counter-cyclical payment programs caused significant price suppression in MY 1999-2002. Therefore, Brazil is incorrect to assert – in response to Question 69, for example – that it could prove significant price suppression in this proceeding merely by asserting497 that payments were made under those programs over the course of the FSRI Act and that "[t]he world market for upland cotton identified by the original panel still functions on the same basis as found by the original panel."498 The original panel's finding of "present" serious prejudice related to the effects of an entirely different set of measures (payments not only under the marketing loan and counter-cyclical payment programs but also under the Step 2 program) made in a different time period (MY 1999-2002) and under substantially different market conditions. There have been many changes since that time. These include not only the removal of the Step 2 program but many other factors, for example production-related technological changes that have had dramatic effects on the cost structure of U.S. upland cotton farming (as well as farmers in other countries, such as India) and shifts in patterns of world trade in upland cotton – shifts that are so significant that even the basis for Brazil's asserted "world market price" (the A-Index) has had to be changed (from a Northern Europe basket of quotes to a Far Eastern basket of quotes).

25. The original panel did not – and could not – have taken these factors into account in assessing the "present" effects of the different package of measures at issue in the original proceeding. And, in fact, it is precisely because the original panel could not predict what these changes might be (for example, if the United States were to modify the statutory and regulatory provisions providing for Step 2, marketing loan, or counter-cyclical payments in order to implement the Panel's findings), or foresee what effect the challenged measures might have under such changed factual circumstances, that it declined to make any "threat" finding against either future payments or the marketing loan and counter-cyclical payment programs as such.

26. In addition, as explained in the U.S. comments regarding Question 62, Brazil's attempts to indict support to agricultural producers simply on the basis it contributes to the "wealth" of producers and may render them less "risk averse" in their production decisions cannot be credited. If Members had agreed that no domestic support could be provided to agricultural producers, the Agreement on Agriculture could have been a great deal shorter. The drafters could simply either have inserted one provision either in that agreement or the SCM Agreement stating that "no Member shall provide payments to any producer of any commodity" as this, inevitably, contributes to the "wealth" of the producer and, as such, may also render him less risk averse. No such provision exists in either agreement because Members have not agreed to such a prohibition.499

27. What the United States finds instead is clear recognition in the Agreement on Agriculture and SCM Agreement that domestic support to producers of a commodity may have effects that lie anywhere in a range from "no or at most minimal, trade-distorting effects" to more substantial effects that may implicate the reduction commitment obligations in the Agreement on Agriculture but are not of the type to render the domestic support an "actionable subsidy" under the SCM Agreement, to the kinds of serious effects on trade identified under Articles 5 and 6 of the SCM Agreement. It is only the latter – "adverse effects" to the interests of another Member – that are disciplined under the SCM Agreement. Whether or not a Member may challenge a measure under the SCM Agreement has no bearing on whether it can establish a breach of Articles 5(c) and 6.3(c). It can only do the latter where it proves that "the effect" of a measure found to be a "subsidy" is "significant price suppression" within the meaning of Article 5(c) and 6.3(c) of the SCM Agreement.

28. As the United States has demonstrated500, none of the allegedly "abundant and diverse evidence" that Brazil asserts in its answers to questions or any of its prior submissions proves that this is "the effect" of the marketing loan and counter-cyclical payments. What the substantial evidence shows, instead, is that any effects of marketing loan and counter-cyclical payments on U.S. planting, production, exports or world market prices of upland cotton are minimal and not subject to discipline under Articles 5 and 6 of the SCM Agreement.
C. The effect of the marketing loan and counter-cyclical payment programs is not any "present" increase in the U.S. share of the world market for upland cotton within the meaning of Articles 5(c) and 6.3(d) of the SCM Agreement

29. Even though Brazil has admitted that "U.S. share of world production . . . stayed relatively stable" over the entire period that the FSRI Act has been in effect (i.e., MY 2002-2005), Brazil has attempted in this proceeding to assert a breach of Articles 5(c) and 6.3(d) of the SCM Agreement on the basis of a slight (0.46 percent) up-tick in the U.S. share of the world market in MY 2005 over the average for MY 2002-2004.501 The evidence on the record shows clearly that this increase in MY 2005 is part of the ordinary fluctuations in U.S. share of world supply502 and is directly attributable to such factors as a sudden shift in acreage from soybeans in certain regions of the United States due to concerns about an outbreak of Asian soybean rust at the end of MY 2004.503 Thus, Brazil's claim fails – at the outset – because Brazil cannot establish any causal connection between the challenged measures and the slight increase in U.S. world market share in MY 2005 (i.e., it cannot prove the first of the two elements under Article 6.3(d), that "the effect" of the U.S. marketing loan and counter-cyclical payment programs "is an increase in the world market share" of the United States "as compared to the average share it had during the previous period of three years.")

30. But Brazil's claim also fails on a second basis – namely, Brazil's failure to establish that "this increase" – i.e., the "increase in the world market share of the subsidizing Member . . . as compared to the average share it had during the previous period of three years" – "follows a consistent trend over a period when subsidies have been granted." This safeguard precludes complaining parties from establishing a breach under precisely the kind of factual circumstances before this Panel – where an increase in one year is clearly part of the normal fluctuation of world market share and attributable to any number of factors other than subsidies. As the United States showed in its first written submission and again in its rebuttal submission504, the slight increase in U.S. market share above the previous three-year average has not followed a "consistent trend over a period when subsidies have been granted." To the contrary, over the entire period that the FSRI Act of 2002 has been in effect there were only one year in which this happened – MY 2005.505

31. To try to escape this key flaw in its claim, Brazil urges the Panel to adopt an end-point to end point comparison using, as the starting point, MY 1998, a year before the entry into force of the FSRI Act of 2002 and one in which counter-cyclical payments were not even in existence. The reasons for Brazil approach are patently obvious – MY 1998 was a disastrous year for U.S. production, in which, as a result of severe drought U.S. abandonment rates skyrocketed and harvested area fell more than 2,000,000 acres compared to the previous year. U.S. production that marketing year was the lowest in almost a decade, by more than 1,500,000 bales, and lower than any marketing year since by more than 3,000,000 bales. By contrast, growers in the rest of the world, unaffected by the drought, increased harvested area about 100,000 acres. As a result, U.S. share of the world market was at an extremely low point in MY 1998. By selecting this year as the starting point of its "representative period,"506 and drawing a line from this to the U.S. share of production in MY 2005 – one which would inevitably slant upwards – Brazil asserts that it has met its burden of showing that "this increase follows a consistent trend over a period when subsidies have been granted" under Article 6.3(d) of the SCM Agreement. Brazil is wrong. As the United States explains in its comments regarding Question 76, Brazil's argument is premised on a fundamentally flawed interpretation of Article 6.3(d) of the SCM Agreement. That interpretation would – if adopted – effectively write out of Article 6.3(d) of the SCM Agreement both the reference to "this" increase and to a "consistent" trend. As Brazil fails to establish either of the two elements required under Article 6.3(d), it fails to make any prima facie of breach of that provision.

D. Neither the marketing loan and counter-cyclical payment programs – nor any payments thereunder – are causing a "threat" significant price suppression under Articles 5(c) and 6.3(c) of the SCM Agreement
32. There are two fundamental flaws in Brazil's claims of "threat of" significant price suppression under Articles 5(c) and 6.3(c) of the SCM Agreement. The first is that Brazil's claim is premised upon a legally incorrect interpretation of "threat of" significant price suppression. The second is that Brazil has not established as a factual matter that there is a "threat of" significant price suppression as a result of either the marketing loan and counter-cyclical payments programs or any payments under the programs. Brazil's answers to the Panel's questions regarding "threat" focus mostly on the first issue.

33. In its response to Questions 86-88, Brazil urges the Panel to replace the term "threat" in footnote 13 of the SCM Agreement with "significant likelihood," a standard that Brazil admits is "not found in the SCM Agreement or any other WTO Agreement."507 Indeed, the only basis that Brazil has ever asserted for grafting a "significant likelihood" standard that drafters did not agree upon into footnote 13 is that "the precedent interpreting the terms 'threat' and 'threaten' suggests that the appropriate standard of threat in Part III [of the SCM Agreement] is one in which there is a significant likelihood, based on the nature of subsidies and particular conditions of competition, that serious prejudice will occur in the future."508 As the United States pointed out in its rebuttal submission, however, even leaving aside that there is no basis to attempt to interpret a treaty in accordance with "precedent" rather than "in accordance with customary rules of interpretation of public international law,"509 Brazil cannot even identify any "precedent" that "suggests" that the appropriate standard for "threat" of serious prejudice is "a significant likelihood."510

34. Brazil's proposed "significant likelihood" standard injects an entirely new term into the text that (a) is not used by the drafters either in Article 5(c) of the SCM Agreement or elsewhere to define "threat," (b) ignores entirely a critical aspect of the ordinary meaning of the "threat," (proximity in time) and (c) itself requires interpretation (e.g., what is a "significant" likelihood of serious prejudice). Brazil has provided no basis whatsoever for writing "significant likelihood" into footnote 13 of the SCM Agreement. And, indeed, to do so would contravene the express provisions of Article 3.2 of the DSU, which provides that "[the dispute settlement system of the WTO] serves . . . to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law."
35. Brazil has also failed to establish an empirical basis for a finding of "threat" of serious prejudice. To the contrary, Brazil is asking the Panel to find that there is such a "threat" even though the evidence shows:


  • an expected decline in U.S. planted acreage of more than 20 percent in MY 2007511;




  • an expected decline of 11 percent in U.S. production512 in MY 2006 from year-before levels that is expected to continue on into MY 2007513




  • an expected decline in U.S. share of world production in MY 2007514;


  • a 31 percent decline in U.S. exports going into the end of MY 2006 (compared to MY 2005 levels)515;





  • that U.S. producers are likely to cover their variable, or operating, costs as well as a large share of their total costs in MY 2007 (even looking at the inflated "total costs" that Brazil has attempted to use repeatedly in this proceeding).516




  • that marketing loan payments are likely to be small (at most 2 cents/lb) in MY 2007 and counter-cyclical payments – which are paid regardless of what is planted – are likely to remain at effectively "fixed" levels517; and




  • the FSRI Act of 2002 is scheduled to expire in October of 2007 meaning that there will be no further payments thereunder as of MY 2008.

There is no basis for a finding of "threat" of serious prejudice under these circumstances.


E. The United States is Providing GSM 102 guarantees in respect of exports of rice and unscheduled products consistently with Articles 10.1 and 8 of the Agreement on Agriculture and 3.1 and 3.2 of the SCM Agreement

36. In its responses to the Panel's questions – including Questions 92, 95, 100 – Brazil continues to urge the Panel to ignore the provisions of the SCM Agreement expressly setting out the conditions under which export credit guarantees may be found to be export subsidies and to make a finding that the provision of GSM 102 guarantees is prohibited simply because the fees under that program are allegedly lower than those charged by Ex-Im Bank for it Letter of Credit Insurance for Banks ("LCI") and Medium-Term Export Credit Insurance ("MTI") products. There is no support in the text or in logic for such a conclusion.

37. As the United States has explained, the drafters expressly set out in item (j) of the Illustrative List the conditions under which export credit guarantees may be found to be export subsidies. Brazil has not shown – and cannot show – that GSM 102 guarantees are provided "at premium rates which are inadequate to cover the long-term operating costs and losses of the" program. The data show that – to the contrary – for cohorts 1992-2002, examined by the original panel, the negative subsidy net of reestimates (i.e., profit) is now $926,331,216. For all cohorts 1992-2006, the negative subsidy net of reestimates (i.e., profit) is $403,714,701.518 These are the figures under the U.S. government's credit reform accounting, which Brazil championed in the original proceeding as:

an ideal basis on which to determine whether the CCC's export credit loan guarantee programs are offered at premium rates that are inadequate to cover the long-term operating costs and losses of the programs, within the meaning of item (j) of the Illustrative List of Export Subsidies. It functions as a more sophisticated alternative to constructed cost formulas, and thoroughly accounts for all of the premium and operating cost and loss elements required by item (j). Moreover, it has the virtue of serving as the actual, real-world calculation used by the U.S. Congress, the President of the United States, and federal agencies like the CCC to "measure more accurately the costs of Federal credit programs."519

38. Brazil has no basis for its arguments now – including in response to Question 114 – that the Panel should disregard this actual data and should use instead, Brazil constructed cost formula. The "the actual, real-world calculation used by the U.S. Congress, the President of the United States, and federal agencies like the CCC to 'measure more accurately the costs of Federal credit programs'"520 confirms that export credit guarantees under the GSM 102 program are being provided at premiums that are well above those that would be required simply to "cover" long-term operating costs and losses. Under the text of the SCM Agreement, the analysis begins and ends there. There is no "separate" standard under Articles 1.1 and 3.1(a) for when export credit guarantees constitute an "export subsidy."

39. But even if item (j) did not exist, asserting that Ex-Im Bank charges higher fees for export credit guarantees than CCC does under the GSM 102 program would not establish any breach of Articles 1.1 and 3.1(a) of the SCM Agreement. As Article 14(c) of the SCM Agreement makes clear521, a loan guarantee provides a "benefit" recognized under Article 1.1 of the SCM Agreement only where it affects the underlying transaction – i.e., where it results in there being 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." This makes perfect sense. Export credit guarantees have no value in and of themselves; they simply modify and relate to the underlying loan transaction. It is only when they cause the underlying loan to be more attractive than loans otherwise available on the market that there is a possibility of trade distortion (i.e., making a particular purchase of U.S. goods more attractive than it would have been absent the guarantee). The fee charged for a guarantee is passed through by the U.S. exporter to the foreign purchaser and becomes part of the overall cost of the financing. And it is only through the comparison of the total cost of loans guaranteed by GSM 102 guarantees and comparable commercial loans not guaranteed by GSM 102 guarantees that one can assess whether the GSM 102 guarantee actually rendered particular transactions more attractive than they otherwise would have been.

40. Brazil has not even attempted to make the kind of particularized showing contemplated under Article 14(c) of the SCM Agreement; it has not shown that the overall cost, including fees, of each of the loans guaranteed by the government is less than overall cost of a comparable commercial loan that could be obtained without a government guarantee. Instead, Brazil relies on sweeping and erroneous assertions that obligors on loans guaranteed under the GSM-102 program can never obtain any other financing of any kind and that the United States could never provide an export credit guarantee without also providing an export subsidy. These arguments simply do not square with the evidence submitted by the United States showing that such obligors are in fact able to obtain financing even without GSM 102 guarantees and on terms better than those available with GSM 102 guarantees. The declining level of use of the GSM 102 program in recent years is even further evidence of this.

41. Brazil's attempts to declare GSM 102 guarantees export subsidies merely on a comparison to fees charged by Ex-Im Bank are contrary to the text and logic of Articles 1.1(a), 14(c), and item (j) of the SCM Agreement. As the United States has explained, Brazil has not established that the LCI and MTI products are even comparable to the GSM 102 guarantees provided by CCC.522 But, regardless of this, the reasoning underlying Brazil's comparison of these products is unavailing.

42. Brazil is effectively asking the Panel to assume that the LCI and MTI products are themselves provided at "below market" rates even though Brazil has conducted no actual comparison vis-a-vis any other comparable product available on the market. Following from this assumption, Brazil would have the Panel accept that, if the CCC charges lower fees than Ex-Im Bank, the fees for the GSM 102 guarantees must also be "below market." Brazil's approach is based on unfounded factual assumptions and on logic that is not found anywhere in the SCM Agreement. Member did not agree that export credit guarantees could be found to be export subsidies simply if one government entity charges fees that are different or lower than another government entity. Brazil's efforts to establish a breach of Articles 1.1(a) and 3.1(a) of the SCM Agreement on that basis are unavailing.


1   ...   5   6   7   8   9   10   11   12   ...   18


The database is protected by copyright ©hestories.info 2017
send message

    Main page