WORLD TRADE
ORGANIZATIONWT/DS70/AB/R
2 August 1999
(99-3221)
Original: English
CANADA - MEASURES AFFECTING THE EXPORT OF CIVILIAN AIRCRAFT
AB-1999-2
Report of the Appellate BodyWT/DS70/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Arguments of the Participants  and the Third Particip ants ..........................................................3
A. Claims of Error by Canada – Appellant........................................................................ 3
1. Interpretation of "Benefit" in Article 1.1(b) of the SCM Agreement ................3
2. "Contingent In Fact Upon Export Performance" ..............................................4
B. Arguments by Brazil – Appellee..................................................................................... 8
1. Interpretation of "Benefit" in Article 1.1(b) of the SCM Agreement ................8
2. "Contingent In Fact Upon Export Performance" ..............................................9
C. Claims of Error by Brazil – Appellant......................................................................... 12
1. Drawing Adverse Inferences  from Certain Facts............................................12
2. EDC Debt Financing.......................................................................................15
3. EDC Equity Financing of CRJ Capital ...........................................................18
D. Arguments by Canada  – Appellee............................................................................... 19
1. Drawing Adverse Inferences  from Certain Facts............................................19
2. EDC Debt Financing.......................................................................................21
3. EDC Equity Financing of CRJ Capital ...........................................................22
E. Third Part icipan ts........................................................................................................ 23
1. European Communities...................................................................................23
2. United States...................................................................................................26
III. Preliminary Procedur al Matter an d Ruling ...............................................................................30
A. Procedures Governing Business Confidential Information......................................... 30
1. Arguments of Participants  and Third Pa rticipan ts..........................................30
2. Ruling and Reasons ........................................................................................33
IV. Issues Raised in this Appeal ................................................................................................ .....36
V. Interpretation of "Benefit" In Article 1.1(b) of the SCM Agreement ........................................37
VI. "Contingent In Fact U pon Export Performance" ......................................................................41
VII. Drawing  Adverse Inferen ces from Cert ain Facts.....................................................................47WT/DS70/AB/R
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VIII. EDC Debt Financing........................................................................................................ .........59
IX. EDC Equity Financing of CRJ Capital .....................................................................................62X. Findings and Conclusions..................................................................................................... ....63WT/DS70/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
Canada - Measures Affecting the Export ofCivilian Aircraft
Canada,  Appellant/Appellee
Brazil,  Appellant/Appellee
European Communities, Third Participant
United States, Third ParticipantAB-1999-2
Present:Bacchus,  Presiding Member
Feliciano,  Member
Matsushita,  Member
I. Introduction
1. Canada and Brazil both appeal from certain issues of law and legal interpretations developed
in the Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft (the "Panel
Report").1  The Panel was established by the Dispute Settlement Body (the "DSB"), pursuant to
Article 4.4 of the Agreement on Subsidies and Countervailing Measures  (the " SCM Agreement ") and
Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes  (the
"DSU"), to examine certain alleged subsidies that Brazil contended Canada or its provinces hadgranted, inconsistently with its obligations under paragraphs 1(a) and 2 of Article 3 of theSCM Agreement , to support the export of civilian aircraft.  A brief outline of the factual aspects of the
dispute is given at paragraphs 2.1 and 2.2 of the Panel Report.
2. The Panel considered claims made by Brazil relating to the activities of the Export
Development Corporation (the "EDC"); the operation of Canada Account;  the Canada-QuebecSubsidiary Agreements on Industrial Development;  Société de Développement Industriel du Quebec;Technology Partnerships Canada ("TPC") and the Defence Industry Productivity Programme, as wellas the sale to Bombardier Inc. ("Bombardier"), a Canadian corporation, by the Government of Ontario(through the Ontario Aerospace Corporation) of a 49 per cent interest in de Havilland Holdings Inc.The Panel Report was circulated to the Members of the World Trade Organization (the "WTO") on 14April 1999.  The Panel found "that Canada Account debt financing since 1 January 1995 for the
export of Canadian regional aircraft" and "TPC assistance to the Canadian regional aircraft industry"
constitute prohibited export subsidies inconsistent with Articles 3.1(a) and 3.2 of the
                                                     
1WT/DS70/R, 14 April 1999.WT/DS70/AB/R
Page 2
SCM Agreement .2  The Panel rejected all of Brazil's other claims.3  The Panel recommended that
Canada withdraw the prohibited export subsidies "w ithout delay" and, in any event, "within 90 days".4
3. On 3 May 1999, Canada notified the DSB of its intention to appeal legal interpretations
developed by the Panel, and certain issues of law covered in the Panel Report, pursuant to paragraph 4
of Article 16 of the DSU, and filed a Notice of Appeal with the Appellate Body, pursuant to Rule 20
of the Working Procedures for Appellate Review  (the " Working Procedures ").
4. By joint letter of 5 May 1999, Canada and Brazil informed the Appellate Body that, pursuant
to footnote 6 of Article 4 of the SCM Agreement , they had decided, by mutual agreement, to extend
until 2 August 1999 the time-period provided in Article 4.9 of the SCM Agreement  for the Appellate
Body to issue its decision in this appeal.
5. On 13 May 1999, Canada filed its appellant's submission.5  On 18 May 1999, pursuant to
Rule 23 of the Working Procedures , Brazil filed its appellant's submission.  On 28 May 1999, Brazil
and Canada each filed their respective appellee's submissions6, and, on the same date, the European
Communities and the United States filed third participants' submissions.7  The oral hearing, provided
for in Rule 27 of the Working Procedures , took place on 14 June 1999.
6. As described more fully in Section III of this  Report, by joint letter of 27 May 1999, Brazil
and Canada requested that the Appellate Body apply, mutatis mutandis , the Procedures Governing
Business Confidential Information (the "BCI Procedures")8 adopted by the Panel in this case.  A
preliminary hearing on this issue was held on 10 June 1999, with this Division sitting jointly with theDivision of the Appellate Body hearing the appeal in  Brazil – Export Financing Programme For
Aircraft  ("Brazil – Aircraft "),
9 and a preliminary ruling was issued by this Division on 11 June 1999.
                                                     
2Panel Report, para. 10.1.
3Ibid.
4Ibid., paras. 10.3 and 10.4.
5Pursuant to Rule 21 of the Working Procedures .
6Pursuant to Rule 22 of the Working Procedures .
7Pursuant to Rule 24 of the Working Procedures .
8The BCI Procedures adopted by the Panel are reproduced in Annex I of the Panel Report.
9WT/DS70/AB/R, circulated to Members of the WTO on 2 August 1999.WT/DS70/AB/R
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II. Arguments of the Participants and the Third Participants
A. Claims of Error by Canada – Appellant
1. Interpretation of "Benefit" in Article 1.1(b) of the SCM Agreement
7. Canada argues on appeal that the Panel erred, as a matter of law, in interpreting Article 1 of
the SCM Agreement  by effectively holding that the guidelines set out in Article 14 of the
SCM Agreement  establish the criteria for the determination of "benefit" in Article 1.1.  The Panel,
Canada asserts, failed to apply the principles of treaty interpretation in cu stomary international law.
These principles, set out in part in the Vienna Convention on the Law of Treaties10 (the " Vienna
Convention "), require that a treaty be interpreted in accordance with the ordinary meaning of its
terms, in their context and in the light of its object  and purpose.  However, the Panel rejected relevant
context, did not take into account the object and purpose of the SCM Agreement , and, in effect, wrote
into the SCM Agreement  provisions that the Members of the WTO did not negotiate.
8. Canada agreed with the Panel that the ordinary  meaning of the term "benefit" is "advantage".
The Panel asserted, however, that the existence of a "benefit" can be determined only by assessing
"whether the financial contribution places the recipient in a more advantageous position than would
have been the case but for the financial contribution ."11 (emphasis added)  The Panel erred in
concluding that the existence of a "benefit" shou ld be determined on the basis of "the commercial
benchmarks applied in Article 14."12
9. Canada maintains that, in interpreting Article 1.1 of the  SCM Agreement , account must be
taken of the "cost to government" of a subsidy and that, therefore, the Panel’s focus on Article 14 tothe exclusion of "cost to government" amounts to an error in law.
10. Canada contends the Panel erred by reading into Article 1.1 words it does not contain and by
asserting that the "only logical basis" for determining the existence of a "benefit" is a commercial
benchmark.
13  Canada insists that nothing in Article 1 leads to such a "logical" conclusion.
11. Furthermore, Canada argues that the Panel erred by failing to give full effect to the opening
clause of Article 14 ("For the purpose of Part V…").  This clause is a limiting clause that applies tothe entirety of Article 14 and means that it has direct relevance only for domestic countervailing dutyproceedings.  Canada does not, however, dispute that Article 14 may serve as relevant context in the
                                                     
10Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331;  (1969) 8 International Legal Materials 679.
11Panel Report, para. 9.112.
12Ibid., 9.113.
13Ibid., para. 9.112.WT/DS70/AB/R
Page 4
interpretation of Article 1.1.  It is  not, however, the only element of relevant context.  Moreover,
Article 14 provides only one methodology for calculating the amount of a subsidy.  Nothing in the SCM Agreement  indicates that the commercial benchmark methodology is the  sole means of
calculating the amount of "benefit" or a subsidy.
12. Canada maintains that the Panel erred in dismissing Canada’s argument that Annex IV to the
SCM Agreement  is also relevant context for determining the existence of a "benefit" (or measuring a
subsidy).  The Panel noted that Annex IV and Article 14 differ because Article 14 explicitly refers tothe calculation of "benefit", while Annex IV "refers only to the calculation of the amount of asubsidy".
14 (emphasis in original)  This is a misreading of Article 14 because the heading of this
provision refers to the calculation of the amount of a subsidy .  Moreover, both Article 14 and
Annex IV have an identical limiting clause ("for the purpose of").  Canada, therefore, believes thatboth Article 14 and Annex IV constitute  relevant context in interpreting Article 1.1.
13. Canada contends that the Panel erred in concluding that incorporating the "cost to
government" into Article 1 would "exclude from the definition of 'subsidy' situations explicitly
identified in Article 1.1(a)(1) itself as constituting government financial contributions … ." 
15  When a
private body is directed or entrusted by the government to make a financial contribution, the privatebody incurs a cost on behalf of the government.  The private body may or may not be compensated bythe government, but a cost is neverthe less incurred through government action.
14. Canada maintains that, in the absence of a definition of "benefit" in the SCM Agreement , the
Panel should have looked to the negotiating history of the SCM Agreement .  Had it done so, the Panel
would have discovered that, during the negotiations, there was disagreement over the appropriatecriteria for valuing a subsidy and measuring a "benefit".  The final text of the SCM Agreement  "did
not resolve the issue."
16  The  SCM Agreement  reflects, in effect, an agreement to leave the "gaps and
ambiguities … to be decided in a future negotiation." 17  In the meantime, panels should interpret and
apply the negotiated text, not write an ag reement that the negotiators did not make.
2. "Contingent In Fact Upon Export Performance"
15. In Canada's opinion, the Panel's finding that TPC contributions were "contingent … in fact …
upon export performance" rests on three kinds of evidence:
                                                     
14Panel Report, para. 9.116.
15Ibid., para. 9.115.
16Canada's appellant's submission, para. 108.
17Ibid., para.109.WT/DS70/AB/R
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(a) the "export propensity" of the Canadian regional aircraft industry;
(b) evidence that this "export propensity" was one of the considerations taken into
account by the TPC programme administrators and that exports were viewed, byCanadian government officials, as one of the positive achievements and objectives of
TPC;  and
(c) evidence that the TPC programme provides assistance for projects that were relatively
near to being ready for commercial exploitation.
16. According to Canada, such evidence cannot, as a matter of law, establish that subsidies are
"contingent … in fact … upon export performance".  To establish such a contingency, a complainantmust adduce evidence that the subsidy induced th e recipient to distort its marketing decisions in
favour of exportation over domestic sales.  The fact that the recipient industry has a high "exportpropensity" is not sufficient to establish export contingency.
17. Canada contends that the Panel Report has the effect of converting an enormous class of
actionable subsidies into prohibited export subsidies.  The  SCM Agreement  makes a fundamental
distinction between prohibited and non-prohibited subsidies.  The drafters did not intend to prohibitall subsidies to exporters.  Rather, they structured the  SCM Agreement  so that most subsidies granted
to exporters would be actionable, rather than prohibited.  The proper categorization of a subsidydepends on the nature and trade effect of the subsidy, not on whether the recipient is an exporter.Further, the Panel's emphasis on "export propensity" would particularly affect countries with smallmarkets that are highly export dependent, as well as developing countries which export a highproportion of their production.
18. In Canada's view, the expression "contingent … upon" in Article 3.1, whether   de jure  or
 de facto , is defined by reference to conditionality.  The requirements of Article 3.1 are met when a
complainant establishes that the subsidy in question would not have been granted but for past orfuture exportation.  A subsidy is "contingent … in fact … upon export performance" when the factsand circumstances are such that the recipient will reasonably know that there is a requirement toexport, or to undertake export development, for the recipient to benefit from a subsidy.
19. Canada observes that, prior to the conclusion of the  SCM Agreement , there was no treaty
provision prohibiting subsidies "contingent … in fact … upon export performance".  The negotiatinghistory of this provision of the SCM Agreement  confirms that the "in fact" language was intended to
prevent circumvention of the  de jure  prohibition.  It was not a means of expanding the scope of
Article 3.  Canada draws two conclusions from this.  First, there is a single legal standard of
"contingency", whether it is contingency in fact or in law.  Second, application of that single legalWT/DS70/AB/R
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standard requires an examination of the legal instruments or the administration of the subsidy
programme as a whole, and not just of isolated subsidies granted pursuant to the programme.
20. Canada also observes that, during the negotiation of the  SCM Agreement , the United States
advocated a "quantitative" approach to the determination of whether a subsidy was export contingent
as well as application of an "export propensity" test.  The "export propensity" test was rejected by
negotiators because it would be inequitable for small economies that are more dependent on exportmarkets.  Furthermore, the negotiators did not consider that an intent-based approach would
adequately reflect the scope of the de jure  prohibition in Article 3.  Thus, the negotiating history of
footnote 4 confirms that the  de facto  contingency standard is based on the conditions attached to the
subsidy and not on either intent or "export propensity".  In Canada's view, to satisfy the requirementsof the "in fact" standard,  the subsidy must cause the recipient to prefer exports to domestic sales .
21. Canada argues that the meaning of "anticipated exportation" in footnote 4 was a primary
source of the Panel’s misinterpretation of Article 3.1.  In its view, "anticipated exportation" reflects
nothing more than that subsidy programmes which are contingent on export performance may be tied
to exports that have not yet taken place.  The expression does not create a standard different from thatapplied to contingency in law, nor does it diminish the requirements of conditionality.
22. In the case of a subsidy to an export-oriente d company, it will naturally be expected that
exports will continue to be made.  But, in Canada's view, absent some understanding  by the company
that it is required to export as a condition of receipt of the subsidy, the subsidy would simply beactionable.  Any other understanding of "anticipated  exportation" would blur the distinction between
prohibited, actionable and non-actionable subsidies.
23. The Panel’s misinterpretation of Article 3.1(a), Canada believes, resulted in an erroneous
finding that the TPC programme provides subsidies "contingent … in fact … upon export
performance".  The Panel erred in two ways.  First, the Panel erred in its interpretation and applicationof the legal standard of contingency in fact.  It did so by confusing the considerations  that TPC took
into account in deciding whether to provide the subsidy with conditions  or contingencies .  Second, by
misinterpreting what constitutes anticipated export performance, the Panel made export orientationthe "effective test" of contingency.
18  The Panel did not consider evidence that, on the basis of
uniform criteria, TPC made contributions to enterprises in other sectors that are not export-oriented.
                                                     
18Canada's appellant's submission, para. 61.WT/DS70/AB/R
Page 7
This demonstrates that exportation was not a condition of receipt of TPC contributions.  Canada
acknowledges that Brazil only challenged TPC contributions to the regional aircraft industry.However, since the criteria applied to all TPC contributions were the same, the Panel should haveassessed – but did not – contributions made under TPC as a whole.
24. Canada notes that, in terms of both objectives and contributions made, TPC provides broad
support to virtually all industrial sectors.  TPC administrators may consider whether a project is likelyto build on an export base, sell domestically or produce import substitution.  However, none of theseconsiderations is a mandatory condition.  There are no rewards or penalties for recipients dependingon whether projected export sales targets are achieved.  The Panel, however, found "anticipatedexportation" to be a condition of the contributions on the basis of "projected export sales".
19  There is,
however, no finding of fact that these projections were a condition of receiving TPC contributions.  InCanada's opinion, the Panel mistakes trends and possibilities for future requirements or commitments.
25. Canada maintains that, in reaching its finding of  de facto  export contingency, the Panel relies
almost exclusively on selective evidence as to the  motivation  underlying TPC contributions.  But,
even assuming that the motivation was export-related, that motivation is not a  condition  binding the
recipient to prefer exportation over domestic sales.  The Panel failed to determine whether therecipient would reasonably consider itself as being required, as a condition of receiving thecontributions, to make export sales that would not otherwise be made.  Canada notes that the Panelstated that "Canada has provided no evidence to … show that the  export-related considerations ,
described above, … were not also taken into account by the TPC administrators." 
20 (emphasis added)
Canada insists, though, that Article 3 of the SCM Agreement  is not concerned with "export-related
 considerations ", but with whether export performance is a  condition .
26. The Panel  states that "the closer a subsidy brings a product to sale on the export market, the
greater the possibility that the facts may demonstrate that the subsidy" was contingent on exportperformance.
21  The Panel, therefore, makes a link between "anticipated" exportation and the point in
the development of a project at which a subsidy is paid.  However, there is nothing in the text ofArticle 3, its context or its  object and purpose, to justify this link.  A subsidy granted for pureresearch could be export contingent, in the same way that a direct sales subsidy need not be. Canada
                                                     
19Panel Report, para. 9.346.
20Ibid., para. 9.344.
21Ibid., para. 9.339.WT/DS70/AB/R
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notes that, in terms of Article 8 of the SCM Agreement  support for "pre-competitive development
activity" is non-actionable.  To conclude that the short step from pre-competitive developmentsubsidies to "close to the market subsidies" makes the difference between non-actionable andprohibited subsidies is to ignore the role of actionable subsidies.
B. Arguments by Brazil – Appellee
1. Interpretation of "Benefit" in Article 1.1(b) of the SCM Agreement
27. Although Article 1.1(b) of the SCM Agreement defines a subsidy as a government financial
contribution conferring an advantage, Brazil argues that the text of that provision gives little furtherguidance as to the relevant benchmark against which to judge whether an advantage was conferred.Resort to the relevant context is, therefore, required.
28. Brazil notes that the ordinary meaning of the term "confer" is to "[g]ive, grant, or bestow".
This verb is, therefore, not self-referential.  It implies action by the grantor upon someone else and,thus, implies "benefit to the recipient" – that is, the government, in making a contribution, conferred,
gave, granted or bestowed an advantage upon someone else . The "cost to government" standard is, by
contrast, inherently self-referential.  It is concerned with the effect of a government contribution on
the government itself , rather than on the recipient of the contribution.
29. Brazil maintains that the Panel was justified in accepting Article 14 and rejecting Annex IV as
relevant context in interpreting "benefit".  Indeed, Brazil notes that Canada accepts that Article 14 ofthe SCM Agreement may serve as relevant context in interpreting Article 1.  Although Annex IV.1
relates to the "calculation" of a subsidy , Article 14 relates to the calculation of " benefit " pursuant to
Article 1.1(b).  The purpose of Annex IV is to determine whether the value of a subsidy is sufficientto constitute "serious prejudice" in an actionable subsidies case.  Article 14, in contrast, is concerned
with the calculation of the amount of "benefit" flowing from a government financial contribution,
with a view to determining whether there was a "benefit" conferred and therefore a subsidy providedin the first place.
30. Brazil asserts that the Panel’s adoption of a "commercial benchmark" standard avoids the
problems of both "over-inclusiveness" (that is, prohibiting commercial governmental activity), and"under-inclusiveness".
22  Commercial governmental activity will not be prohibited under the Panel's
interpretation because it is not provided on terms more advantageous than those available in the
marketplace.  However, in Brazil's view, the "cost to government" standard proposed by Canadawould be " under-inclusive " because it would not cover cases where a government provided funds at
                                                     
22Brazil's appellee's submission, para. 113.WT/DS70/AB/R
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more than its cost of funds, but with a maximum projected return rate significantly below what a
commercial investor would receive.  The Panel's approach avoids this problem.
31. Brazil emphasizes that the Panel's rejection of Annex IV as relevant context for the purposes
of interpreting the meaning of the term "benef it" under Article 1.1 does not mean that, for the
purposes of determining serious prejudice under Article 6.1(a), "cost to government" is irrelevant or,
even, excluded.
32. Finally, Brazil argues Canada's claim that the Panel should not fill in the "gaps" in a delicately
negotiated agreement, but should let both cost to  government and benefit to recipient co-exist is
"rather disingenuous".23  There is no way for both standards to co-exist since the application of one
would, in reality,  preclude the application of the ot her.  If there were no "cost to government", then
the existence of a "benefit" alone would not have sufficed to show the existence of a subsidy andCanada would have prevailed.
2. "Contingent In Fact Upon Export Performance"
33. Brazil considers that the Panel found correctly  that Article 3.1(a) of the SCM Agreement
requires conditionality between the subsidy and exportation, irrespective of whether the subsidy is  de
facto  or de jure  contingent on export performance.  Footnote 4 of the SCM Agreement  confirms that
the Panel was correct in finding that in the case of a  de facto export contingent subsidy, the element
of conditionality may be between the subsidy and "anticipated" exportation.  Therefore, in the view ofBrazil, contrary to Canada’s claim, the nature of  the contingency requirement is not the same for
 de jure   and  de facto  contingency.
34. The ordinary meaning of the words "actual" a nd "anticipated" is, respectively, "[e]xisting in
act or fact;  real" and "[l]ook forward to; . . . expect", "[t]ake into consideration or mention before the
due time", or "[o]bserve or practise in advance of  the due time".  This meaning speaks to an actor’s
expectation of a future event, such as exports, and it underscores the relevance, in examining de facto
export contingency, of statements made by the grantor that express its intent, purpose, reasons ormotivation in granting the subsidy.
35. Moreover, according to Brazil, contrary to Canada's assertions, the negotiating history of
footnote 4, to the extent that it is relevant at all in terms of Article 32 of the  Vienna Convention , does
not demonstrate the rejection of an intent-based  approach.  Although the word "intended" was
removed from an early draft of footnote 4, the word "anticipated" was added.  In Brazil's view, thisword expressly recognizes the relevance of th e grantor's reasons for extending the subsidy.
                                                     
23Brazil's appellee's submission, para. 123.WT/DS70/AB/R
Page 10
36. With respect to Canada's arguments concerning the object and purpose of the
SCM Agreement , Brazil recalls that the Appellate Body has stated that it is from the text, read in its
context, "that the object and purpose of … the treaty must first be sought".24  Canada does the reverse.
Rather than relying on the object and purpose of the SCM Agreement  to confirm its interpretation of
the text in its context,  Canada instead bases its interpretation of the text on the object and purpose of
the SCM Agreement .  The Appellate Body has ruled previously that the object and purpose of a treaty
is relevant "[w]here the meaning imparted by the text itself is equivocal or inconclusive, or whereconfirmation of the correctness of the reading of the text itself is desired".
25  In Brazil's view, that is
not so in the case of either Article 3.1(a) or footnote 4.
37. Brazil makes specific comments on what it regards as Canada's two alternative legal tests for
showing de facto  export contingency.  With respect to the first, Canada argues that a panel should
determine whether the recipient believed it was required to prefer export over domestic sales orwhether the recipient would reasonably have known that there was a requirement to export.  Brazil
considers that this involves " subjective  judgments  requiring insight into the recipient's thoughts."
26
(emphasis added)  However, footnote 4 calls for a review of the " objective  expressions  of the grantor's
expectations."27 (emphasis in original)  Furthermore, according to Brazil, Canada’s focus on the
recipient’s, rather than the grantor’s, intent finds no support in the text of footnote 4, which speaksdirectly to actions undertaken by the grantor.
38. Under Canada’s second alternative test for showing de facto  export contingency, a panel
should determine whether the subsidy induced distortion of marketing decisions in favour ofexportation over domestic sales or whether the recipient would reasonably consider that it wasrequired to make export sales that would not otherwise be made.  With respect to this second
alternative test, Brazil repeats the observations it made regarding the first test.  This second test is also
a subjective test that wrongly focuses on the recipient instead of the grantor.  In Brazil's view,satisfaction of this test would, in any event, require documentary evidence which Canada did notprovide to the Panel.
39. Brazil contends that Canada overlooks the context of Article 3.1(a) that is most critical to this
dispute, namely the distinction between de facto  and de jure  export contingency.  Common to both
 de facto  and de jure  contingency is the requirement to prove the element of contingency.  However,
footnote 4 of the SCM Agreement  describes how  de facto  export contingency should be
                                                     
24United States - Import Prohibition of Certain Shrimp and Shrimp Products ("United States –
Shrimp "), WT/DS58/AB/R, adopted 6 November 1998, para. 114.
25Ibid.
26Brazil's appellee's submission, para. 34.
27Ibid., para. 35.WT/DS70/AB/R
Page 11
"demonstrated".  According to Brazil, the Panel, mindful of the text of footnote 4, recognized the
different nature of the burden imposed on claimants lodging  de facto , as opposed to de jure , claims.
In a  de jure  case, conditionality will be evident on the face of the relevant legal text, whereas, in a
 de facto  case, the facts must demonstrate the existence of the condition.
40. Brazil explains, furthermore, that facts can demonstrate that a contribution was in fact export
contingent, without any one of those facts itself bein g a condition.  There is no qualification in the text
of the treaty on what facts can be used to demonstrate the existence of de facto  export contingency.  It
was, therefore, permissible for the Panel to cons ider the relevance of evidence such as the TPC
materials, as well as statements made by government officials, that demonstrated the grantingauthority's expectations.
41. Brazil's observes that the Panel recognized that, under footnote 4 to the SCM Agreement,
export orientation cannot, on its own, make a subsidy de facto  export contingent.  But the Panel
found, nonetheless, that export orientation was st ill a relevant fact in this dispute.  Brazil
acknowledges that export orientation would not necessarily be relevant in all cases.  Moreover, the
Panel’s treatment of export orientation in this dispute does not mean that  every   recipient of a
financial contribution with export-oriented sales will automatically be considered to have received aprohibited export subsidy.  Brazil emphasizes that, in addressing Canada's actions in this dispute, thePanel considered a range of other facts, in addition to export orientation.
28
42. According to Brazil, preference for near-market projects may reflect a desire for greater
certainty about the preferred destination for a product.  The Panel determined that as an evidentiarymatter, a claim of "anticipation" is stronger if the sale which would realize that anticipation is in viewwhen the subsidy is granted.  This consideration was simply additional to others that demonstrated
that TPC contributions were  de facto  export contingent.  Furthermore, the effect of the Panel’s
consideration of this additional evidentiary requirement was "to make Brazil’s burden of proof moredifficult to satisfy."
29
43. Brazil observes that the Panel recognized that Brazil had challenged the "actual application"
of the TPC programme itself.  Therefore, the Panel would have been justified in limiting its reviewsolely to TPC contributions to the regional aircraft industry, which was the subject of the dispute.
44. According to Brazil, the Appellate Body should not accept Canada's argument that, the fact
that TPC made contributions that were not export contingent, immunized Canada from a challenge in
                                                     
28Panel Report, paras. 9.340-9.346.
29Brazil's appellee's submission, para. 68.WT/DS70/AB/R
Page 12
cases where TPC contribution were indeed export contingent.  If that view prevailed, only
programmes mandating the grant of export subsidies would be open to challenge.
45. Brazil argues that, contrary to Canada’s claim, the Panel did consider all of the TPC materials,
including the TPC Interim Reference Binder, the TPC Applications Kit, and the TPC Business Plan,
and, as a factual matter, determined that this evidence contained facts demonstrating  de facto  export
contingency.30  In any event, "the Panel was not given access to detailed information regarding TPC
subsidies to other industries." 31
C. Claims of Error  by Brazil – Appellant
1. Drawing Adverse Inferences from Certain Facts
46. Brazil claims on appeal that the Panel erred in law by failing to draw adverse inferences from
Canada's refusal to provide information about the EDC's debt financing activities and, in particular,information about the EDC's financing of the purchase from Bombardier of regional jet aircraft byASA Holdings Inc. and its subsidiary Atlantic Southeast Airlines ("ASA").
32 Brazil requests that the
Appellate Body reverse the Panel’s conclusion and determine that the evidence on the record,
"together with the adverse inferences flowing from Canada’s failure to satisfy its duty of collaborationand to respond to the Panel’s requests for informa tion, lead to the conclusion that the EDC's debt
financing confers a 'benefit'"
33 under Article 1.1(b) of the SCM Agreement .
47. According to Brazil, during consultations, "Canada refused to provide to Brazil transaction-
specific details of EDC activities in the regional aircraft sector".34  This was in direct contravention of
the Appellate Body’s previous statement that parties be "fully forthcoming" and freely disclose factsrelating to claims, "in consultations as well as in the more formal setting of panel proceedings".
35
Brazil, therefore, asked the Panel to engage in additional fact-finding and to request Canada to furnish
the complete details of,  inter alia , the EDC's operations relating to the regional aircraft industry.  The
Panel declined to grant Brazil's request for additional fact-finding.36
                                                     
30Panel Report, para. 9.340.
31Brazil's appellee's submission, para. 84.
32For further details of the "ASA transaction" see Panel Report, para. 6.56.
33Brazil's appellant's submission, para. 84.
34Ibid., para. 34.
35India - Patent Protection for Pharmaceutical and Agricultural Chemical Products  ("India –
Patents "), WT/DS50/AB/R, adopted 16 January 1998, para. 94.
36Panel Report, para. 9.53.WT/DS70/AB/R
Page 13
48. According to Brazil, despite the Panel's adoption of the BCI Procedures, Canada "repeatedly
refused to provide information dealing with specific transactions".37  The Panel rejected Canada's
justification for its refusals to disclose information38 and Brazil argues that these refusals were in
direct contravention of what Brazil sees as Cana da's duty of collaboration under Article 3.10 of the
DSU.
49. Brazil maintains that the Panel Report illustrates that Brazil made every attempt to
demonstrate, first, that the EDC enjoys discretionary authority to extend financing on terms thatwould constitute a "benefit", and, second, that the EDC's debt financing was provided to ASA onbelow-market terms.  Brazil could not have presented more evidence without Canada's collaboration.Therefore, Brazil satisfied its burden of production as regards the EDC's debt financing to the extentthat it was possible under the circumstances to do so.
50. Brazil argues that Canada was under a legal obligation, under Article 3.10 of the DSU, "to
engage in these [dispute settlement] procedures in good faith …".  Brazil notes that this "good faith"
obligation places a considerable burden upon Members and it has been the object of rulings by the
Appellate Body and previous panels.
51. Brazil observes that the panel in Argentina - Measures Affecting Imports of Footwear,
Textiles, Apparel and Other Items ("Argentina – Textiles and Apparel ") emphasized the "rule of
collaboration" incumbent upon parties to WTO dispute settlement.
39  According to that panel, the rule
of collaboration provides that once "the claimant has done its best  to secure evidence and has actually
produced  some  prima facie  evidence in support of its case", the respondent has the obligation "to
provide the tribunal with relevant documents which are in its sole possession."40 (emphasis added)
Brazil argues that it is clear from the Panel record that Brazil satisfied the threshold requirement set
out in the panel report in  Argentina – Textiles and Apparel  and that Canada's duty of collaboration
was, therefore, triggered.
52. Brazil asserts that in public international law, the duty of collaboration has been broadly
recognized as placing an exceptional burden on pa rties to international disputes, and is essentially
derived from two shortcomings of international litig ation.  First, the duty of collaboration is imposed
on a respondent state to counter the obstacles facing a complainant state in gathering evidence
                                                     
37Brazil's appellant's submission, para. 38.
38Panel Report, paras. 9.69 and 9.347, footnote 633.
39Panel report, WT/DS56/R, adopted 22 April 1998, as modified by the Appellate Body Report,
WT/DS56/AB/R, para. 6.40.
40Panel report,  Argentina – Textiles and Apparel , supra , footnote 39, para. 6.40.WT/DS70/AB/R
Page 14
peculiarly within the control of an uncooperative respondent.  Second, the duty of collaboration is a
response to the inability of international tri bunals to compel the production of information.
53. Brazil considers that, because Brazil satisfied its burden of production, it was incumbent on
Canada, as a matter of law, to uphold its duty of collaboration by producing all relevant information
within its control.  Canada expressly refused to do so.41
54. In addition to the duty of collaboration, Brazil believes that Canada was under an obligation
by virtue of Article 13.1 of the DSU to respond to the Panel's requests for information.  Brazilcontends that by refusing to produce documents specifically requested by the Panel under Article 13.1of the DSU, in particular documents relating to the ASA transaction, Canada failed to fulfil itsobligation to "respond" under the DSU.
55. Brazil requested the Panel to draw adverse inferences from Canada's refusal to provide
information about, in particular, the EDC's financin g of the ASA transaction, and to presume that the
information withheld constituted inculpatory evidence of Canada's infringement of the
 SCM Agreement .
56. The Panel refused to adopt adverse inferences in connection with the ASA transaction
because, it said, "Brazil ha[d] made no attempt to demonstrate that EDC debt financing was providedto ASA on below-market terms", or because Brazil had not shown that "EDC debt financing generally
confers a 'benefit'."
42  In so doing, the Panel erred in law.  Brazil is concerned that the Panel has
provided a "simple and foolproof roadmap for recalcitrant Members to avoid liability forinfringements" of the  SCM Agreement .
43
57. Brazil maintains that in the absence of a power to compel production of information, the only
viable means of enforcing the duty of collaboration and the duty to respond is to employ adverse
inferences.  Nothing in the DSU or the  SCM Agreement  prohibits the application of adverse
inferences.  Brazil notes that the Appellate Body has, in fact, recognized the use of similarpresumptions.  In its recent decision in  Japan – Measures Affecting Agricultural Products  ("Japan –
Agricultural Products "), for example, the Appellate Body stated that the failure of a responding party
to produce documentary evidence, such as studies or reports, supporting a particular phytosanitarytesting requirement "would have been a strong indi cation that there are no such studies or reports".
44
                                                     
41Panel Report, para. 9.176.
42Ibid., para. 9.181.
43Brazil's appellant's submission, para. 76.
44Appellate Body Report, WT/DS76/AB/R, adopted 19 March 1999, para. 137.WT/DS70/AB/R
Page 15
58. Brazil concludes that the situation in this present case is precisely the type of situation in
which, in the words of the International Court of Justice, "a more liberal recourse to inferences offact" is appropriate.
45  Indeed, adopting adverse inferences to enforce a party’s duty to produce
evidence peculiarly within its possession is overwhelmingly the rule among those permanent and  ad
hoc international tribunals that have addressed the issue, even where the agreement underlying their
jurisdiction does not specifically authorize such action.
59. In support of its position, Brazil cites numerous decisions from the International Court of
Justice, the Mexican-United States Claims Commission, the French-Venezuelan Mixed ClaimsCommission, and the Iran-United States Claims Tribunal.
2. EDC Debt Financing
60. Brazil submits that the Panel's conclusion that the EDC's debt financing does not confer a
"benefit" is contrary to the facts established by  the Panel and the undisputed evidence of record.
Brazil emphasizes that it does not challenge the Panel’s factual findings.  Rather, Brazil challenges the
Panel’s legal characterization of those factual findings and the legal characterization of the undisputed
evidence of record.  The Panel’s legal characterization of the facts was inconsistent with thedefinitions of "benefit" and "subsidy", which Brazil argues were correctly set out by the Panel.
61. In seeking to establish that the Panel's legal characterization of the facts  was inconsistent
with the evidence on the record, Brazil relies on evidence from three sources:
(a) an EDC Standing Board Resolution and the EDC's support to ASA
(b) statements by a former EDC President(c) a statement by Canada made to the Panel in the course of the dispute
62. Brazil construes the EDC's constituent statute as allowing it to choose whether or not to grant
subsidies within the meaning of Article 1.1 of the  SCM Agreement .  Consistent with this discretion,
an EDC Standing Board Resolution provides that in appropriate cases, the EDC is authorized to offerfinancing terms that, in Brazil's view, are more generous than those available on the market.
63. Brazil refers to the Arrangement on Guidelines for Officially Supported Export Credits of  the
Organization for Economic Cooperation and Development  (the " OECD Arrangement ").  The
prefatory language of the OECD Arrangement  states, under the heading "Best Endeavours",
                                                     
45The Corfu Channel Case , 1949 ICJ 4, p. 18.WT/DS70/AB/R
Page 16
The Arrangement sets out the most generous repayment terms and
conditions that may be supported.  All Participants recognise the risk
that over time, these maximum repayment terms and conditions may
come to be regarded as normal practice.  They therefore undertake to
take the necessary steps to prevent this risk from materialising.
64. In Brazil's view, as a consequence of this statement, even  meeting  the terms of the OECD
Arrangement  exceeds the outer bounds of what Participants in the  Arrangement  consider "normal"
commercial practice.  It, therefore, follows that if the EDC offers terms that go beyond the outer
bounds of the OECD Arrangement , customers of Canadian exporters receive a "benefit", as that term
is defined by the Panel.
65. Brazil argues that the Panel erred in concluding that Brazil did not establish that the EDC has
exercised this discretionary authority by offering terms going beyond those provided in the OECD
Arrangement .  Brazil introduced uncontested evidence about the one example of the EDC's debt
financing to the regional aircraft industry for which a modest amount of public information wasavailable, namely the ASA transaction.  The Panel noted that Canada did not contest the evidenceregarding the factual elements of the transaction
46, which included a commitment to finance 16.5-year
leases of the aircraft purchased.
66. Brazil submits that these repayment terms go beyond those included in the OECD
Arrangement , which allows for a maximum repayment term of 10 years.47  The repayment terms
offered in the ASA transaction, therefore, go well beyond the outer bounds of "normal" commercialpractice. Thus, under the Panel’s market-based legal standard of "benefit" and "subsidy", the evidencedemonstrates that the EDC has conferred a "benefit".
67. The former President of the EDC, Mr. Paul Labbé, stated in a publication issued by Canada’s
Department of Foreign Affairs and International Trade, that:
EDC’s financing support gives Canadian exporters an edge when they
bid on overseas projects. ...Trade deals increasingly depend oncomplex and tightly negotiated financing arrangements where a few
basis points in interest rates can make or break the deal.  Exporters are
having to bid not just on the basis of quality and price, but also on the
basis of the financing package supporting the sale.
48
                                                     
46Panel Report, para. 6.79.
47OECD Arrangement , Annex III, Part 2, Chapter V, para. 21(a).
48Panel Report, para. 6.57.WT/DS70/AB/R
Page 17
68. Brazil maintains that the Panel found that it would be possible to conclude from this statement
that the EDC's debt financing confers a "benefit" and constitutes a "subsidy".  This conclusion iscorrect, as demonstrated by a review of the three underlying facts acknowledged in the statement:
• First, Canada did not dispute that the "EDC’s financing support gives Canadian
exporters an edge".   An "edge" is an "advantage" and constitutes a subsidy.
• Second, Brazil believes that the Panel found that the "edge" stems from the EDC's
"financing support" in the form of, among other things, "a few basis points".  This is a
subsidy.
• Third, Canada did not dispute that the EDC helps exporters compete "on the basis of
the financing package supporting the sale", ra ther than on the two factors, quality and
price", identified by Canada and other Participants in the OECD Arrangement  as
relevant to normal commercial competition.  In looking beyond those two factors, the
EDC confers a subsidy.
69. Brazil submits that the Panel, however, took the view that there was a "possibility for
divergent contextual interpretations" of Mr La bbé's statement and concluded that the EDC's debt
financing does not confer a "benefit".
49  The Panel found that Mr Labbé's statement implied two, non-
mutually exclusive conclusions.  Brazil believes that at least one of those conclusions – that the EDCgrants exporters an "edge" in the form of "a few basis points" – required the Panel to determine thatthe EDC's financing extends assistance at better-than-market rates.
70. Brazil notes also that Canada stated to the Panel that the EDC "does not always offer the most
attractive financing package available to regional aircraft customers".
50  The Panel followed this up by
asking Canada a question that correctly noted that the statement could mean that the EDC does,"sometimes", provide the most attractive financing package available.
51  If, by Canada’s own
admission, the EDC "sometimes" offers "the most attractive financing package available", by
definition, the EDC sometimes offers terms that are better-than-market.
                                                     
49Panel Report, para. 9.163.
50Canada's second written submission to the Panel, para. 63, footnote 48.
51Question 10 of the Questions posed by the Panel at the second Panel meeting with the parties.WT/DS70/AB/R
Page 18
71. Thus, in conclusion, Brazil argues the Panel erred in its legal characterization of the facts in
the record.  Brazil maintains that when applied to the Panel’s legal standard, those facts demonstratethat the EDC's debt financing confers a "benefit" and constitutes a "subsidy" within the meaning ofArticle 1.1 of the  SCM Agreement .  Accordingly, the Panel's legal conclusion on the EDC's debt
financing is in error and should be reversed.
3. EDC Equity Financing of CRJ Capital
72. Brazil contends also that, contrary to the Panel's conclusion, the evidence of record
concerning the EDC's equity investment, through Exinvest, in CRJ Capital, establishes that thisinvestment confers a "benefit".
73. Brazil originally argued before the Panel that CRJ Capital leased aircraft to customers.
However, in response to Canada's denial that CRJ Capital leases aircraft, Brazil emphasized that,whether the financing supports leases of aircraft or, alternatively, sales of aircraft, is irrelevant toBrazil's claim that a "benefit" is conferred by the EDC’s equity investment in CRJ Capital.
74. Brazil maintains that 20% of CRJ Capital's total capital is in the form of equity provided by
the EDC (10%) and Bombardier (10%), and the remaining 80% is debt from unspecified lenders.This capital structure permits CRJ Capital to provide financing at below-market rates.  The onlycharge on CRJ Capital's total capital, Brazil asserts, is the charge required to service its debt, becauseequity holders are paid only from profits.  Theref ore, financing payments from aircraft purchasers,
which need only cover the cost to CRJ Capital of its debt, are lower than they would be if, in theabsence of the EDC's investment, CRJ Capital had to rely on debt for 100% of its underlying capital.
75. Brazil notes a statement by Richard Dixon, Industr y Canada's Director of Airframe Systems,
to the effect that CRJ Capital seeks to offer aircraft purchasers with a double-B credit rating financing
terms ordinarily available only to double-A credit risks.
52  Canada did not contest this statement.
Brazil considers that particular weight should be attached to it, given that it is by a Canadian officialand is "against interest".
53  In Brazil's view, offering such preferential credit terms constitutes a
"benefit".
76. Brazil requests the Appellate Body to reverse the Panel’s finding on this point and determine
that the EDC’s equity investment in CRJ Capital constitutes a subsidy within the meaning ofArticle 1.1 of the  SCM Agreement .
                                                     
52See Panel Report, para. 6.108.
53Brazil's appellant's submission, para. 97.WT/DS70/AB/R
Page 19
D. Arguments by  Canada  – Appellee
1. Drawing Adverse Inferences from Certain Facts
77. Canada begins with a review of some of the international law authorities cited by Brazil.
According to Canada, Brazil has cited authorities incorrectly, out of context, and for propositions that
they do not support.  Moreover, some of the authorities cited by Brazil do not involve a tribunal
drawing adverse inferences at all, but stand for the proposition that, in the absence of best evidencethrough no fault of the claimant, a tribunal may make inferences of fact based on the evidence ofrecord.  This is not the same as drawing adverse inferences.
78. Canada agrees that the "WTO dispute settlement process cannot function properly unless the
parties to the dispute are willing to co-operate.  This principle underlies the whole of the DSU."
54
However, this principle of collaboration is, in no way, meant to relieve the claimant of its burden ofproof.  In the absence of a prima facie  case presented by the claimant, the respondent is under no
obligation to provide any evidence and therefore the duty of collaboration does not arise.  According
to Kazazi, "the respondent should not be expected to provide any evidence before the claimant
presents at least prima facie  evidence in favour of its case."
55
79. Canada acknowledges that panels have "comprehensive" authority to seek information under
Article 13.1 of the DSU;  but that authority is not without limits.  A panel's authority underArticle 13.1 is qualified by the principles of due process and the fundamental considerations thatunderlie any judicial system of dispute settlement.  One of these considerations is the burden of proof.Canada quotes the Appellate Body in  Japan 
- Agricultural Products , to the effect that a panel's
authority under Article 13.1 "cannot be used by a panel to rule in favour of a complaining party whichhas not established a prima facie  case of inconsistency…".
56  Moreover, information obtained through
Article 13.1 cannot be used "to make the case for a complaining party".57  Canada, therefore, argues
that a panel may not engage in a fact-finding mission to assist the complaining party.
                                                     
54Canada's appellee's submission, para. 103.
55Mojtaba Kazazi, Burden of Proof and Related Issues:  A Study of Evidence Before International
Tribunals  (Kluwer Law International, 1996), p. 138.
56Supra,  footnote 44, para. 129.
57Ibid.WT/DS70/AB/R
Page 20
80. Canada notes that neither the DSU nor the SCM Agreement  provides explicit authority for a
panel to draw adverse inferences from a party's refusal to produce evidence requested by the panel.However, assuming that this authority may exist, the practice of international tribunals establishes thatit arises only when certain requirements have been met.
58  One of the requirements identified by
Kazazi is that the claimant must have made a  prima facie  case before adverse inferences can be
drawn.59  This is because in the absence of a prima facie  case and, therefore, in the absence of the
duty to collaborate, a respondent’s decision not to provide information should not be perceivedadversely.  According to Canada, the legal authorities cited by Brazil support this view.
81. Canada argues that even if a prima facie case has been made, explanations provided by a
respondent for not providing evidence or information should be taken into account by a tribunal.  It isonly unexplained refusals to produce evidence which may lead to adverse inferences being drawn.Again, Canada considers that authorities cited by Brazil support this view.
82. Canada concludes that in the absence of a prima facie  case against the EDC's debt financing
activities, the duty to collaborate did not arise and, thus, the Panel correctly decided not to draw
adverse inferences against Canada.  Furthermore, Canada offered two justifications for its refusal tosupply information.  First, Brazil had not made out a prima facie  case and, second, the procedures
adopted by the Panel for protecting sensitive business confidential information were "inadequate".
60
83. Whereas Brazil argues that the Panel erred by failing to draw adverse inferences from
Canada's refusal to provide requested information, Canada submits that the "real issue" is whether thePanel should have asked Canada to provide the information requested.
61  In the absence of a prima
facie  case against the EDC's debt financing, the Panel’s request that Canada provide details of the
terms and conditions of the alleged EDC debt financing to ASA was "improper".62  This request was,
in effect, "an initiative by the Panel to advance Brazil’s case" and, was therefore inconsistent with
Article 13.1 and the rules on burden of proof.63
                                                     
58See Kazazi, supra , footnote 55, pp. 320-322.
59Supra , footnote 55, pp. 321-322.
60Canada's appellee's submission, para. 152.
61Ibid., para. 127.
62Ibid., para. 128.
63Ibid., para. 131.WT/DS70/AB/R
Page 21
2. EDC Debt Financing
84. According to Canada, Brazil's argument that the EDC's debt financing of the ASA transaction
goes beyond the terms of the OECD Arrangement  is an entirely new issue that was never raised
before the Panel.  At no time  did Brazil argue before the Panel that the 10-year term set out in the
OECD Arrangement  sets or exceeds the outer bounds of normal commercial practice.  Likewise,  at
no time  did Brazil argue that a 16.5-year lease was beyond commercial practice. Canada argues that
this new argument cannot, therefore, be an issue of law covered in the panel report, as required forappeals by Article 17.6 of the DSU.
85. Furthermore, Canada maintains that, if Brazil had made these arguments before the Panel,
Canada could have readily adduced evidence to demonstrate that a financing term for regional jetaircraft of more than 10 years, and even of up to 18 years, is entirely within the bounds of commercialpractice.  To that end, Canada cites four transactions, from 1997 and 1998, involving financing termsfor aircraft of 15.25 years, 15.5 years, 16.5 years and 18.25 years.
86. Moreover, in Canada's opinion, Brazil bases its argument on the OECD Arrangement  on the
unfounded proposition that the Participants in the  Arrangement  have determined that the
Arrangement's  terms and conditions constitute "normal commercial practice".  This argument is not
tenable.  Nothing in Article 1 of the  SCM Agreement , or indeed in the OECD Arrangement  itself,
provides that the  Arrangement  may serve as the relevant commercial benchmark for the SCM
Agreement .  A preambular statement in the OECD Arrangement  is not enough to read into the SCM
Agreement  a benchmark that has not been expressly provided for in that Agreement .  Moreover, the
reference in the preamble of the OECD Arrangement  to "practice" refers to the practice of "officially
supported export credits" and not to "commercial practice".  Canada adds that it would, in any event,
be unacceptable to define the standards of consistency with a WTO agreement by reference to criteria
established by an organization outside the WTO, over which most WTO Members have no control orinfluence.
87. Canada also asserts that if, as the Panel said, market criteria are to serve as benchmarks for
determining whether there is a "benefit", it is nonsensical to argue that the  OECD Arrangement  is a
better indicator of the market than the practice of commercial banks, because, in many instances, the
market is more generous than the OECD Arrangement .
88. Canada is of the view that Brazil's other arguments on the EDC's debt financing are an
attempt to have the Appellate Body revisit the evidentiary record that was thoroughly considered by
the Panel.  Brazil's real challenge, in Canada's view, is to the Panel's weighing of the evidence and to
the Panel's discretion to determine what constitutes prima facie  evidence.WT/DS70/AB/R
Page 22
89. Canada recalls that a panel’s fact-finding process – the determination of the credibility and
weight properly to be ascribed to evidence – is beyond appellate review, unless the panel’s fact-finding is so "egregious" that it calls into question the good faith of the panel.
64  A panel’s objective
assessment of the facts includes the panel’s determination of whether a claimant has adduced
evidence sufficient to make out a prima facie  case.  It is not a legal error for a panel to accord a
different weight to the evidence than that suggested by one of the parties.
90. As for the statement by Mr. Labbé concerning the "edge" provided by the EDC's debt
financing, Canada argues that Brazil is challenging the Panel’s assessment of the weight of thatevidence, rather than its legal characterization.  The issue is not whether the statement itself  amounted
to a subsidy.  That is, it is not the legal character of the statement  that Brazil challenges.  The Panel
considered and weighed the statement in question and found that it was not evidence sufficient toraise a presumption that what Brazil claimed was true.  Canada argues that this is a factual finding and
clearly outside the scope of appellate review.
91. Canada finds "particularly puzzling" Brazil’s claim that a financial institution goes beyond the
market by the mere fact of offering the most attractive financing package relative to other marketplayers.
65  When a borrower seeks financing, it will look at a variety of financing options.  Choosing
the package offered by one lender over another does not mean that the successful lender is "belowmarket".  Indeed, if that were the definition of "market", the successful financing party  would always
be below the market .  In that case, Canada contends, the financing provided by all state-owned banks
and lending institutions would always be, by definition, subsidies.
3. EDC Equity Financing of CRJ Capital
92. As regards the proper scope of appellate review, Canada reiterates that a panel’s fact-finding
process is beyond appellate review, unless the panel’s fact-finding is so "egregious" that it calls into
question the good faith of the Panel.
93. Canada believes that Brazil's argument on the EDC's equity infusion into CRJ Capital is
without merit.  The Panel carefully weighed Brazil’s evidence, and found it wanting.  Brazil has notchallenged the Panel’s assessment of the facts under Article 11 of the DSU.  Accordingly, the Panel’sfindings of fact are not subject to appellate review.  Canada recalls the Panel's finding that there is " no
                                                     
64Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones)  ("European
Communities – Hormones "), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, paras. 132 and 133;
Appellate Body Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/AB/R, adopted 17 February 1999,
paras. 161 and 162.
65Canada's appellee's submission, para. 75.WT/DS70/AB/R
Page 23
factual basis " to establish a prima facie  case in terms of Brazil's claim.66 (emphasis added)  As
Canada interprets this statement, the Panel, therefore, found that it was unable to attach  any weight to
the evidence supplied by Brazil.  To entertain Brazil's appeal, the Appellate Body would have tooverturn this appreciation of the evidence.
94. In any event, Canada says, CRJ Capital has only participated in the commercial financing of
the sale of 17 regional aircraft for Air Canada.  These are domestic sales that, therefore, fall outside ofthe scope of Article 3 of the SCM Agreement .  According to Canada, "Brazil has presented no
evidence that CRJ Capital has participated in the commercial financing of aircraft for export , as
indeed it has not."
67 (emphasis added)
E. Third Participants
1. European Communities
(a) Interpretation of "Benefit" in Article 1.1(b) of the  SCM Agreement
95. Canada argues that the notion of "benefit" in Article 1.1(b) required an element of net cost to
the government as well as "benefit" to the recipi ent.  The European Comm unities considers that the
criterion of net cost to government is more relevant  to the question of financial contribution than it is
to "benefit".  In this respect, the European Comm unities believes that the Panel should have examined
the issue of cost to government more closely because the Canadian programmes that have been foundto be prohibited export subsidies appear to be self-financing and, therefore involve no net cost to
government.
96. According to the European Communities, the text of Articles 1, 14 and Annex IV of the
SCM Agreement  reflects a delicately negotiated compromise that panels and the Appellate Body
should be careful not to upset.  It is clear from the text of Article 1.1 that the definition of subsidyrequires two elements:  a financial contribution by a government and a "benefit" which is thereby
conferred.  The word "thereby" makes clear the need for a causal link between the financialcontribution and the "benefit".  It is only that part of the financial contribution which confers a"benefit", and only that part of the "benefit" which can be said to result from a financial contribution,that can be considered to constitute a subsidy.  In other words, the notions of financial contributionand of "benefit" impart meaning to one another.
                                                     
66Panel Report, para. 9.200.
67Canada's appellee's submission, para. 89.WT/DS70/AB/R
Page 24
97. In the view of the European Communities, Anne x IV.1 confirms that "cost to government" is
the appropriate measure of "financial contribution".  Annex IV.1 is, therefore, just as much part of thecontext of Article 1 as Article 14, and the Panel erred in finding otherwise.  Annex IV and Article 14confirm that when measuring  the amount of a subsidy, both the market value of the "benefit" and the
cost to the government are relevant.  The Panel, therefore, should have examined the extent of the
financial contribution, that is the cost to government, because only in that way could it haveestablished whether a "benefit" was  thereby  conferred.
98. The European Communities believes that, as an illustrative list of what is  included within the
prohibition of export subsidies, "Annex I cannot be used for the purpose of interpreting Article 1."
68
However, if Annex I were to be accepted as relevant to the interpretation of Article 1, the European
Communities would point out that the items contained in Annex I are drafted in terms of cost to thegovernment.
99. The European Communities adds that the Panel’s interpretation of Article 1 would have the
effect of compromising many types of government activity which do not give rise to a net cost or are
indeed profitable and which are undertaken for  the "benefit" of industry in situations wheregovernment action is more efficient than action of the private sector.
(b) "Contingent In Fact Upon Export Performance"
100. The European Communities agrees with Canada that the Panel has adopted an unjustifiably
broad approach to de facto export contingency.  Like Canada, the European Communities considers
that the legal nature of contingency is essentially the same for both de jure and de facto subsidies.
Export performance must be a condition for the receipt of  the subsidy, or, in other words, the subsidy
would not have been granted but for the export performance.
101. The European Communities mainta ins that footnote 4 to the SCM Agreement  provides further
guidance as to the meaning of contingent in fact.  As the Panel recognized, the words "tied to" infootnote 4 imply some kind of constraint.  The Panel, however, used the language in footnote 4 todevelop a legal standard based, not on conditionality, but rather on expectation of exportation.
102. In the European Communities' view, in the present case, the Panel should have compared the
situations where TPC assistance was granted with those where it was refused, and looked at thereasons for TPC's decisions.  If a consistent pattern emerged of preference being given to applicantsbecause of their commitment to export, this would have indicated  de facto conditionality.  Instead,
the Panel declined to examine the operation of the TPC programme in other sectors.
                                                     
68European Communities' third participant's submission, para. 29.WT/DS70/AB/R
Page 25
103. The European Communities is of the view that an indication of  de facto export contingency
might be found if the effect of a subsidy could be demonstrated to increase export effort at theexpense of domestic sales.  But, this factor should be treated with "great caution".
69  A policy of
encouraging global competitiveness is not the same  as export contingency, and the fact that a
programme of assistance leads to increased exports, even if more rapidly than domestic sales, may be
the normal economic consequence of an investment rather than the result of some artificial constraintor condition.
104. According to the European Communities, the object and purpose of the prohibition of
 de facto export contingency is to prevent circumvention of the de jure  prohibition.  The Panel should,
therefore, have looked for evidence of conditions that were imposed in the contract  that would in
practice  require exportation, albeit without export contingency being an express condition.  For
example, de facto  export contingency might be indicated if the recipient were required, in the
contract, to achieve certain minimum production and sales targets which could only be achieved
through increased export effort and not through domestic sales.  A government may also attempt to
circumvent the de jure  prohibition by contractually obliging a company to produce twice as much as it
sells domestically.  Such a condition will require increased export efforts.  A panel could alsoconsider whether the recipient's freedom to direct his sales effort to the domestic or the export marketis somehow  restricted .
105. The European Communities takes issue with the Panel's reliance on the closeness to export
market and of the projects supported by TPC.  The closeness of a subsidy to export marketing of aproduct has no relevance to its export contingency.  A subsidy granted for research and developmentcan just as easily be made  de facto  contingent on export performance as a subsidy granted at a later
stage in product development.
(c) Drawing Adverse Inferences from Certain Facts
106. The European Communities agrees with Brazil th at there is a duty of collaboration on parties
to dispute settlement proceedings to provide inform ation that is within their control.  The European
Communities does not agree that the appropriate remedy for a failure to comply with this obligation isthe drawing of adverse inferences, by a panel, unless there is specific legal basis in a coveredagreement that empowers a panel to draw such inferences.
                                                     
69European Communities' third participant's submission, para. 43.WT/DS70/AB/R
Page 26
107. The European Communities argues that the SCM Agreement  provides such an express power
in certain circumstances, but in others requires reliance on the facts available.70  These provisions
show that where a power to draw adverse inferences was considered necessary, specific provision was
made for it.  In the absence of such express provision, as in the present situation, all that a panel can
do is base its decision on an objective assessment of the facts available to it, as provided for in
Article 11 of the DSU.
108. The European Communities believes that, under Article 11 of the DSU, a panel may draw
logical inferences  from the facts.  However, drawing adverse inferences is different because it implies
a preference for the adverse over the favourable (or simply logical) inference, as a form of"punishment" designed to enforce the duty of collaboration.  In addition, the European Communitiesargues, under Article 11 of the DSU, inferences should be drawn from facts , whereas the power to
draw adverse inferences applies where a responding party does  not produce facts to rebut a mere
assertion made against it.
109. The European Communities concludes that the Appellate Body should reject Brazil’s claim
that the Panel should have drawn adverse inferences and it should also take this opportunity to reversethe Panel’s finding in paragraph 9.181 of the Panel Report that the Panel had the power to drawadverse inferences.
2. United States
(a) Interpretation of "Benefit" in Article 1.1(b) of the  SCM Agreement
110. The United States argues that the focus of Article 1.1(b) of the SCM Agreement  is on the
advantage conferred on the recipient, and not on the cost to the subsidizing government.  Abeneficiary is no less advantaged by a subsidy merely because it involved no net cost to the
government.  Thus, the United States believes that the Panel’s interpretation of Article 1.1 was correct
and should be sustained.
111. In the view of the United States,  the Panel based its interpretation of the term "benefit" on the
ordinary meaning of the term, and not on the guidelines set out in Article 14 of the  SCM Agreement .
Thus, contrary to Canada's arguments, the Panel l ooked to Article 14 only as contextual support for
the interpretation it had already reached.  Canada is al so incorrect in claiming that the Panel failed to
consider the object and purpose of the SCM Agreement .  The Panel did consider it but did not agree
                                                     
70See Articles 12.7 and 18.6 and Annex V, paras. 6, 7 and 8 of the SCM Agreement .WT/DS70/AB/R
Page 27
with Canada that the object and purpose of the  SCM Agreement  was the avoidance of a net cost to the
government.71
112. According to the United States, the fundamental  error in Canada’s position is its conclusion
that the purported failure of the SCM Agreement  negotiations to resolve the question of how to
measure the amount of a subsidy means that there must be both a cost to the government and a
"benefit" to the recipient before there can be a "benefit".  The United States contends that Canada’sattempt to conflate these two unrelated inquiries finds no support in the plain text of Article 1.1.
113. The United States maintains that both Article 14 and Annex IV.1 have relevance to other
provisions of the SCM Agreement .  However, it would be improper to assume that these provisions
are relevant in places where, in fact, they are not.   For instance, nothing in the language of Annex IV
suggests that the "cost to government" standard found there is in any way relevant to determining the
existence of a "benefit" under Article 1.1.  Indeed, Annex IV.1 never even mentions Article 1.1.  Incontrast, the United States notes that the text of Article 14 makes an explicit and deliberate link
between that provision and Article 1.1.
114. The United States agrees with the Panel’s observation that requiring a "cost to government" as
a condition for finding a "benefit" would write much of Article 1.1(a)(1)(iv) out of Article 1.1(a).Canada’s argument that a private body would incur a cost on behalf  of a government does not change
the fact that there would be no cost to the government itself.
(b) "Contingent In Fact Upon Export Performance"
115. The United States takes no position on whether, as a factual matter, assistance under the TPC
programme is, in fact, a prohibited export subsidy.  However, the United States strongly disagreeswith Canada's interpretation of what constitutes a subsidy that is "contingent … in fact … upon export
performance" and is "in fact tied to actual or anticipated exportation or export earnings" under
Article 3.1(a).
116. According to the United States, Canada’s interpretation of contingent in fact upon export
performance is "flawed".
72  First, contrary to Canada's assertion, there is no recipient "knowledge test"
and a complainant is not required "to plumb the subjective understandings of subsidy recipients".73
                                                     
71See Panel Report, para. 9.119.
72United States' third participant's submission, para. 35.
73Ibid.WT/DS70/AB/R
Page 28
Instead, the question is whether the granting of a subsidy is tied to actual or anticipated exportation or
export earnings.  The focus is, therefore, on the grantor.  The recipient’s understanding of thegovernment’s motivation is irrelevant.
117. Furthermore, in the view of the United States, if the existence of a de facto export subsidy
were dependent on the subjective understanding of the recipient and on how the recipient reacts after
it receives the subsidy, there would be no way for a Member to determine in advance whethergranting a particular subsidy would violate Article 3.2 of the  SCM Agreement .  This would
undermine the ex ante character of the prohibition in Article 3.1 and would  place a Member's
adherence to WTO obligations in the hands of subsidy recipients.
118. Also, the United States maintains that, contrary to Canada's proposed interpretation, nothing
in Article 3.1(a) suggests that a  de facto  export subsidy exists only if the subsidy induced the
recipient to distort its marketing decisions in favour of exportation. There is no mention inArticle 3.1(a) of the subsidy’s effect on the recipient’s domestic sales activities, much less any
requirement that the complaining Member demonstrate that the recipient increased its exports in order
to receive the subsidy.
119. In addition, the United States maintains that Canada ignores that Article 3.1(a) applies to
anticipated  exportation.  The ordinary meaning of "anticipate" is to "look forward to;  colloq.  expect."
Thus, a de facto  export subsidy can exist where the granting of a subsidy is tied to expected
exportation or export earnings.  There is no requirement that exportation or export earnings haveactually occurred, that penalties be imposed if expectations are not fulfilled, or that the recipientrespond to the contribution in a particular way.
120. Finally, the United States argues that "the word 'anticipated' connotes a test based on intent."
74
The United States acknowledges that the final text of footnote 4 does not contain a government
"knowledge test", as originally articulated by the European Communities during the negotiation of theSCM Agreement .  However, the word "anticipated" is, nonetheless, consistent with a test that takes
into account the intent of the subsidizing government.
                                                     
74United States' third participant's submission, para. 39.WT/DS70/AB/R
Page 29
(c) Drawing Adverse Inferences from Certain Facts
121. The United States is sympathetic to Canada’s concerns about the need to protect business
confidential information.  It also recognizes that the dispute settlement process could be usedimproperly by Members to conduct "fishing expeditions" through the files of their adversaries.
75
However, if the dispute settlement process is to be effective, parties to disputes cannot be permitted tofrustrate legitimate inquiries through ill-founded claims of business privilege.  In this case, the Panelestablished BCI Procedures that it viewed as sufficient.  Given this fact, "the Panel should haverequired parties to submit relevant information, and should not have permitted the parties to benefitfrom their refusal to do so".
76
122. The Panel’s approach to this issue has several negative consequences.  First, permitting
parties to self-select the information that they  are willing to provide gives responding Members
control of the course of a dispute.  Second, since the complaining Member generally bears the burdenof proof, responding Members, with a less transparent approach to governing, will be unfairly
advantaged vis-à-vis Members with more open systems.  This will encourage Members to avoid
publicly disclosing their subsidy practices.  Third, the overall utility of the dispute settlementprovisions is likely to be undermined.
123. In the view of the United States, the Panel’s actions point to the importance of establishing
formal procedures for protecting business confidential information.  Once these procedures areestablished, parties should not be permitted to refuse to provide business confidential informationwithout consequence.  This is not to say that parties will be required to submit business confidentialinformation, "merely that the refusal to do so should entail some negative result".
77
124. The United States takes no position on Brazil’s claim that Canada violated the duty to be fully
forthcoming and the duty of collaboration, nor on Brazil’s discussion of the duty of collaboration in
other international law contexts.
                                                     
75United States' third participant's submission, para. 47.
76Ibid., para. 48.
77Ibid., para. 51.WT/DS70/AB/R
Page 30
III. Preliminary Procedural Matter and Ruling
A. Procedures Governing Business Confidential Information
125. By joint letter of 27 May 1999, Brazil and Canada requested that we apply,  mutatis mutandis ,
the BCI Procedures adopted by the Panel in this case.  In their request, they also asked that certain of
the BCI Procedures be applied to the third participan ts in this appeal;  in particular, that the third
participants designate authorized representatives who would be required to file declarations of non-disclosure with the Presiding Member of this Divi sion before being allowed to view any information
designated as "business confidential" or to attend portions of the oral hearing when such informationmay be discussed.
126. By letter of 31 May 1999, we invited the participants to file legal memoranda in support of
their request, and offered each an opportunity to respond to the legal memorandum submitted by theother.  The third participants were also given an opportunity to file legal memoranda.  Brazil andCanada submitted legal memoranda on 2 June 1999.  On 4 June 1999, the third participants, the
European Communities and the United States, also filed legal memoranda.  On the same date, Brazil
and Canada each filed a written response to the memorandum previously submitted by the other on2 June 1999.  A preliminary hearing on this issue was held on 10 June 1999, with this Division sittingjointly with the Division of the Appellate Body hearing the appeal in Brazil - Aircraft .
1. Arguments of Participants and Third Participants
(a) Canada
127. Canada considers that Article 18.2 of the DSU does not provide adequate procedural
protection for confidential proprietary business information of the type that is before the AppellateBody in this case.  This information is not in the public domain and would be of significant
commercial interest, particularly to competitors of the enterprises that it concerns.
128. Canada observes that, in the absence of procedures to protect business confidential
information at the appellate review stage, Brazil ma de references in its other appellant's submission
and in its appellee's submission to business confidential information that Canada had submitted to thePanel under the BCI Procedures.  The information submitted by Brazil was not, therefore, subject toany procedures to protect its confidentiality.  Canada also argues that the Appellate Body shouldadopt procedures to ensure that the questions it poses at the oral hearing can be given a completeresponse, where necessary by reference to business confidential information included in the Panelrecord.WT/DS70/AB/R
Page 31
129. In adopting procedures for protecting business confidential information, Canada submits that
the Appellate Body must balance two competing in terests, both rooted in fairness and due process,
and neither having a claim to better protection than the other.  First, both the Appellate Body and theparticipants must be given reasonable access to th e information that was introduced into evidence
before the Panel.  Second, however, additional procedural safeguards are necessary to provide private
business interests with adequate protection for their proprietary business information when Canada orBrazil deems it necessary to refer to such evidence in support of its case.  Canada, therefore, requeststhat, pursuant to Rule 16(1) of the Working Procedures , the Appellate Body adopt, mutatis mutandis ,
the Panel's BCI procedures and the "Declaration of N on-Disclosure" set out in Annexes I and II of the
Panel Report.
(b) Brazil
130. Brazil states that it agreed to join in Canada's request that the Appellate Body adopt
procedures for protecting business confidential information as a good faith attempt to accommodate
Canada's concerns on confidentiality.  Brazil notes two qualifications to its acceptance in principle of
the BCI Procedures by the Appellate Body.  First, the procedures should not unduly restrict the accessof authorized persons to the information.  Second, the procedures must be limited to businessproprietary information of private parties who are not  subject to the confidentiality obligations of the
DSU.
131. Brazil recalls that in its submissions to the Appellate Body, it cited certain information that
Canada had designated before the Panel as business confidential information.  Brazil does notconsider that this particular information is, in any sense, business confidential information entitled tospecial protection.
132. Brazil emphasizes that, in including certain information Canada had designated as "business
confidential" before the Panel, in its submissions to the Appellate Body, and in serving thosesubmissions on Canada and on the third participants in this appeal, it did not act inconsistently witheither the letter or the spirit of the DSU.  Brazil notes that Rule 18(2) of the Working Procedures
required it to serve its written submissions on Canada as well as the third participants, and Brazilstates that it "has no reason to doubt" that the thir d participants will comply with their obligations
under Article VII:1 of the  Rules of Conduct for the Understanding on Rules and Procedures
Governing the Settlement of Disputes  (the " Rules of Conduct ").  Brazil maintains as well that the
confidentiality provisions of Article 18.2 of the DSU also apply to the third participants.WT/DS70/AB/R
Page 32
(c) European Communities
133. The European Communities considers that the BCI Procedures are based on the
administrative protective order system used in countervailing duty procedures before theadministrative authorities of certain Members of the WTO.  This system cannot simply be
transplanted into the WTO.
134. The European Communities contends that the proposed procedures for protecting business
confidential information are inconsistent with the DSU in two ways.  First, the proposed proceduresdeprive Members of rights contained in the DSU.  They are inconsistent with Article 18.1 of the DSU,
which forbids ex parte  communications with a panel or the Appellate Body.  In the case of the
Appellate Body, the prohibition against ex parte  communications also extends to third participants
under Rule 19(1) of the Working Procedures .  Such procedures would deny a party to a dispute access
to business confidential information if that party could not accept the procedures for protectingbusiness confidential information developed by the panel or the Appellate Body Division.  The
proposed procedures for protecting business confidential information are also inconsistent with
Rule 18(2) of the Working Procedures , which requires "every document" filed by a participant or a
third participant to be served on the other participants and third participants.
135. Second, the proposed procedures would impose new obligations on Members and create new
rights for Members, contrary to Article 3.2 of th e DSU.  Such additional procedures would restrict
access to certain documents to defined places, thereb y restricting a party's ability to consider them.
They would require the receiving party to permit the providing party to inspect the safe in its Mission
where the information is to be stored.  The European Communities argues that this is "tantamount to awaiver of the immunity enjoyed by those premises under international law".  In addition, the
procedures would require officials of the European Communities to sign undertakings incompatible
with the "conduct of their duties".
136. The European Communities submits that Articles 14 and 18.2 of the DSU regulate the
question of confidentiality in dispute settlement proceedings.  If information is designated asconfidential by a party to a dispute, Article 18.2 requires the other parties to take all necessaryprecautions according to their own administrative traditions and structures.  The "bad faith" of otherMembers cannot be presumed.  The proper place to resolve problems posed by the treatment ofconfidential information is in the current review of the DSU by WTO Members.WT/DS70/AB/R
Page 33
(d) United States
137. The United States argues that the need for additional procedures for protecting business
confidential information is extremely important , "because it goes to the viability of WTO dispute
settlement as a vehicle for preserving the rights and obligations of Members".  In the view of the
United States, "basic considerations of due process, as well as the need to preserve rights and
obligations of Members, require the Appellate Body  to apply such procedures".  As a consequence,
the United States has no objection to the joint request made by Brazil and Canada.
138. The United States makes three general arguments in support of the use of additional
procedures for protecting business confidential information in WTO dispute settlement proceedings.First, the United States argues that nothing in the DSU precludes panels or the Appellate Body fromadopting additional procedures for protecting business confidential information.  On the contrary,Article 12.1 of the DSU explicitly allows panels to deviate from the working procedures set out inAppendix 3 of the DSU. The United States believes that the Appellate Body has authority comparable
to that of panels to adopt such procedures as a result of Article 17.9 of the DSU and Article 16(1) of
the Working Procedures .
139. Second, the United States argues that the application of procedures for protecting business
confidential information promotes important objectives because Members' rights and obligationsunder the covered agreements can only be preserved if due process is accorded to both thecomplaining party and the responding party.  The United States maintains that the demands of dueprocess are not satisfied, however, if the absence of such procedures precludes a Member fromproperly making its case.
140. Third, the United States maintains, contrary to the position taken by the European
Communities, that a Member's national laws do not provide a basis for depriving another Member of
its rights under the  WTO Agreement .  Thus, the United States asserts, the claim by the European
Communities that its officials would be unable, under their staff regulations, to accept theundertakings proposed "should not be allowed".
2. Ruling and Reasons
141. In our preliminary ruling of 11 June 1999, we concluded that it is not necessary, under all the
circumstances of this case, to adopt  additional  procedures to protect business confidential
information in these appellate proceedings.  Our ruling was as follows:WT/DS70/AB/R
Page 34
Pursuant to Article 17.9 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes  (the "DSU"), the Appellate Body
has the authority to draw up its own Working Procedures.  Under Rule
16.1 of our Working Procedures for Appellate Review , a Division of the
Appellate Body may adopt additional procedures for the orderly conductof a particular appeal, provided that any such additional procedures are
not inconsistent with the DSU, the other covered agreements and the
Working Procedures for Appellate Review .  We have concluded,
however, that it is not necessary, under all the circumstances of this case,
to adopt additional  procedures to protect "business confidential
information" during these appellate proceedings.
We note that, with respect to "business confidential information"
submitted to the Panel that remains currently in the possession of the
participants, Article XII of the Panel Procedures Governing Business
Confidential Information required the parties, "[a]t the conclusion of the
Panel", to "return any printed or binary-encoded Business Confidentialinformation in their possession to the party that submitted such Business
Confidential (sic)" and to "destroy all tapes and transcripts of the Panel
hearings that contain Business Confidential information, unless the
parties mutually agree otherwise."  It thus appears that each participant
has an obligation, under the Panel Procedures, to return any BusinessConfidential information submitted by the other participant.  The WTO
Secretariat, assisting the Panel, was required, by the Panel Procedures, to
"transmit any printed or binary-encoded Business Confidential
information, plus all tapes and transcripts of the panel hearings that
contain Business Confidential Information, to the Appellate Body as partof the record of the Panel proceedings."  That information will be kept in
a secure, locked cabinet in the Appellate Body Secretariat.
We also note that  all  Members are obliged, by the provisions of the
DSU, to treat these proceedings of the Appellate Body, including writtensubmissions and other documents filed by the participants and the third
participants, as confidential.  We are confident that the participants and
the third participants in this appeal will  fully respect  their obligations
under the DSU, recognizing that a Me mber's obligation to maintain the
confidentiality of these proceedings extends also to the individuals whomthat Member selects to act as its representatives, counsel and consultants.
Accordingly, we decline the request of Brazil and Canada.  The
reasons for this ruling will be set out more fully in the Appellate Body
Report in this appeal.
142. We have no further reasons to add to the first two paragraphs of our ruling above.  The
following is an elaboration of the reasons in the th ird paragraph of our ruling.  Our ruling applies only
to the request for  additional   procedures to protect "business confidential information" in these
appellate proceedings, and it, therefore, has no effect on the BCI Procedures adopted by the Panel.
Neither the Panel's decision to adopt BCI Procedures, nor the content of those Procedures, has beenappealed.WT/DS70/AB/R
Page 35
143. With respect to appellate proceedings, in particular, the provisions of the DSU impose an
obligation of confidentiality which applies to WTO Members generally as well as to Appellate BodyMembers and staff.  In this respect, Article 17.10 of the DSU states, without qualification, that "[t]heproceedings  of the Appellate Body  shall be confidential ." (emphasis added)  The word "proceeding"
has been defined as follows:
In a general sense, the form and manner of conducting juridical
business before a court or judicial officer.  Regular and orderly
progress in form of law,  including all possible steps in an action from
its commencement to the execution of judgment .
78 (emphasis added)
More broadly, the word "proceedings" has been defined as "the business transacted by a court".79  In
its ordinary meaning, we take "proceedings" to include, in an appellate proceeding, any written
submissions, legal memoranda, written responses to questions, and oral statements by the participants
and the third participants;  the conduct of the oral hearing before the Appellate Body, including anytranscripts or tapes of that hearing;  and the deliberations, the exchange of views and internalworkings of the Appellate Body.
144. Article 18.2 of the DSU also contains rules protecting the confidentiality of written
submissions and information submitted to the Appellate Body:
Written submissions to the panel or the Appellate Body shall be treated
as confidential , but shall be made available to the parties to the dispute.
Nothing in this Understanding shall preclude a party to a dispute from
disclosing statements of its own positions to the public.  Members shall
treat as confidential information submitted by another Member to the
panel or the Appellate Body  which that Member has designated as
confidential.  A party to a dispute shall also, upon request of a Member,
provide a non-confidential summary of the information contained in its
written submissions that could be disclosed to the public. (emphasis
added)
145. In our view, the provisions of Articles 17.10 and 18.2 apply to all Members of the WTO, and
oblige them to maintain the confidentiality of any submissions or information submitted, or received,in an Appellate Body proceeding.  Moreover, those provisions oblige Members to ensure that such
confidentiality is fully respected by any person that a Member selects to act as its representative,
counsel or consultant.  In this respect, we note, with approval, the following statement made by the
panel in  Indonesia – Certain Measures Affecting the Automobile Industry:
                                                     
78Black's Law Dictionary  (West Publishing Co. 1990), p. 1204.
79The New Shorter Oxford English Dictionary , (Clarendon Press, 1993), Vol. II, p. 2 364.WT/DS70/AB/R
Page 36
We would like to emphasize that  all members of parties' delegations -
-  whether or not they are government employees -- are present as
representatives of their governments, and as such are subject to the
provisions of the DSU and of the standard working procedures,
including Articles 18.1 and 18.2 of the DSU and paragraphs 2 and 3of those procedures .  In particular, parties are required to treat as
confidential all submissions to the Panel and all information so
designated by other Members; and, in addition, the Panel meets in
closed session.  Accordingly,  we expect that all delegations will fully
respect those obligations and will treat these proceedings with theutmost circumspection and discretion .
80 (emphasis added)
146. Finally, we wish to recall that Members of the Appellate Body and its staff are covered by
Article VII:1 of the  Rules of Conduct81, which provides:
Each covered person  shall at all times  maintain the confidentiality of
dispute settlement deliberations and proceedings together with any
information identified by a party as confidential . (emphasis added)
147. For these reasons, we do not consider that it is necessary, under all the circumstances of this
case, to adopt  additional  procedures for the protection of business confidential information in these
appellate proceedings.  We, therefore, decline the request of Brazil and Canada.
IV. Issues Raised in this Appeal
148. This appeal raises the following issues:
(a) whether the Panel erred in its interpretation of the term "benefit" in Article 1.1(b) of
the SCM Agreement ;
(b) whether the Panel erred in its interpretation and application of the expression
"contingent … in fact … upon export performance" in Article 3.1(a) of theSCM Agreement ;
(c) whether the Panel erred in declining to draw inferences from Canada's refusal to
provide information about certain debt financing activities of the EDC;
                                                     
80Panel report, WT/DS54/R, WT/DS55/R, WT/DS59/ R, WT/DS64/R, adopted 23 July 1998, para. 14.1.
81The Rules of Conduct  have been directly incorporated into the Working Procedures  (see Rule 8 of
those Working Procedures ).WT/DS70/AB/R
Page 37
(d) whether the Panel erred in finding that certain debt financing activities of the EDC in
support of the Canadian regional aircraft industry do not confer a "benefit" within themeaning of Article 1.1(b) of the SCM Agreement ;  and
(e) whether the Panel erred in finding that the equity investment by the EDC in CRJ
Capital does not confer a "benefit" within the meaning of Article 1.1(b) of the
SCM Agreement .
V. Interpretation of "Benefit" In Article 1.1(b) of the SCM Agreement
149. In interpreting the term "ben efit" in Article 1.1(b) of the SCM Agreement , the Panel found
that:
… the ordinary meaning of "benefit" clearly encompasses some form
of advantage. … In order to determine whether a financial
contribution (in the sense of Article 1.1(a)(i)) confers a "benefit", i.e.,
an advantage, it is necessary to determine whether the financial
contribution places the recipient  in a more advantageous position than
would have been the case but for the financial contribution .  In our
view, the only logical basis for determining the position the recipient
would have been in absent the financial contribution is the market .
Accordingly, a financial contribution will only confer a "benefit", i.e.,
an advantage, if it is provided on terms that are more advantageous
than those that would have been available to the recipient on the
market .
82 (emphasis added)
150. The Panel concluded that the notion of "cost to government" is not relevant to the
interpretation and application of the term "benefi t", within the meaning of Article 1.1(b) of the
SCM Agreement .83  The Panel found contextual support for this reading of "benefit" in Article 14 of
the SCM Agreement .  It  also found that Annex IV of that Agreement  does not form part of the
relevant context of "benefit" in Article 1.1(b).
                                                     
82Panel Report, para. 9.112.  The Panel confirmed its interpretation in similar terms in its conclusion at
para. 9.120 of the Panel Report.
83Ibid., para. 9.112.WT/DS70/AB/R
Page 38
151. Canada appeals the Panel's legal interpretation of  the term "benefit" in Article 1.1(b) of the
SCM Agreement .  In Canada's view, the Panel erred in its interpretation of "benefit" by focusing on
the commercial benchmarks in Article 14 "to the exclusion of cost to government", and by rejectingAnnex IV as relevant context.
84  Canada maintains that Annex IV of the  SCM Agreement  supports the
view that "cost to government", which is mentioned in Annex IV, is a legitimate interpretation of the
term "benefit".  In its appellee's submission, Br azil agrees fully with th e Panel's interpretation.
152. Under the heading " Definition of a Subsidy ", Article 1.1 of the SCM Agreement  provides, in
relevant part:
1.1 For the purpose of this Agreement, a subsidy shall be deemed
to exist if:
(a)(1) there is a financial contribution by a government or
any public body within the territory of a Member(referred to in this Agreement as "government") …
…
and
(b) a benefit is thereby conferred . (emphasis added)
153. In addressing this issue, we start with the ordinary meaning of "benefit".  The dictionary
meaning of "benefit" is "advantage", "good", "gift", "profit", or, more generally, "a favourable or
helpful factor or circumstance".
85  Each of these alternative words or phrases gives flavour to the term
"benefit" and helps to convey some of the essence of that term.  These definitions also confirm thatthe Panel correctly stated that "the ordinary mean ing of 'benefit' clearly encompasses some form of
advantage."
86  Clearly, however, dictionary meanings leave many interpretive questions open.
154. A "benefit" does not exist in the abstract, but must be received and enjoyed by a beneficiary
or a recipient.  Logically, a "benefit" can be said to arise only if a person, natural or legal, or a groupof persons, has in fact received something.  The term  "benefit", therefore, implies that there must be a
recipient.  This provides textual support for the view that the focus of the inquiry under Article 1.1(b)
of the SCM Agreement  should be on the recipient and not on the granting authority.  The ordinary
meaning of the word "confer", as used in Article 1.1(b), bears this out.  "Confer" means, inter alia ,
                                                     
84Canada's appellant's submission, paras. 98 and 102.
85The New Shorter Oxford English Dictionary , (Clarendon Press, 1993), Vol. I, p. 214;  The Concise
Oxford Dictionary , (Clarendon Press, 1995), p. 120;  Webster's Third New International Dictionary
(unabridged), (William Benton , 1966), Vol. I, p. 204.
86Panel Report, para. 9.112.WT/DS70/AB/R
Page 39
"give", "grant" or "bestow".87  The use of the past participle "conferred" in the passive form, in
conjunction with the word "thereby", naturally calls for an inquiry into  what was conferred on the
recipient .  Accordingly, we believe that Canada's argument that "cost to government" is one way of
conceiving of "benefit" is at odds with the ordinary meaning of Article 1.1(b), which focuses on the
recipient  and not on the government  providing the "financial contribution".
155. We find support for this reading of "benefit" in the context of Article 1.1(b) of the
SCM Agreement .  Article 14 sets forth guidelines for calculating the amount of a subsidy in terms of
"the benefit to the recipient".  Although the openin g words of Article 14 state that the guidelines it
establishes apply "[f]or the purposes of Part V" of the SCM Agreement , which relates to
"countervailing measures", our view is that Article 14, nonetheless, constitutes relevant context for theinterpretation of "benefit" in Article 1.1(b).  The guidelines set forth in Article 14 apply to thecalculation of the "benefit to the recipient  conferred pursuant to paragraph 1 of Article 1 ". (emphasis
added)  This explicit textual reference to Article 1.1 in Article 14 indicates to us that "benefit" is used
in the same sense in Article 14 as it is in Article 1.1.  Therefore, the reference to "benefit to the
recipient " in Article 14 also implies that the word "benefit",  as used in Article 1.1 , is concerned with
the "benefit to the recipient " and not with the "cost to government", as Canada contends.
156. The structure of Article 1.1 as a whole confirms our view that Article 1.1(b) is concerned with
the "benefit" to the recipient, and not with the "c ost to government".  The definition of "subsidy" in
Article 1.1 has two discrete elements: "a financial contribution by a government or any public body"and "a benefit is thereby conferred".  The first element of this definition is concerned with whether thegovernment  made a "financial contribution", as that term is defined in Article 1.1(a).  The focus of the
first element is on the action of the government in making the "financial contribution".  That being so,
it seems to us logical that the second element in Article 1.1 is concerned with the "benefit…
conferred" on the recipient  by that governmental action.  Thus, subparagraphs (a) and (b) of
Article 1.1 define a "subsidy" by reference, first, to the action of the granting authority and, second, towhat was conferred on the recipient.  Therefore, Canada's argument that "cost to government " is
relevant to the question of whether there is a "benefit" to the recipient  under Article 1.1(b) disregards
the overall structure of Article 1.1.
157. We also believe that the word "benefit", as used in Article 1.1(b), implies some kind of
comparison.  This must be so, for there can be no "benefit" to the recipient unless the "financialcontribution" makes the recipient "better off" than it would otherwise have been, absent that
contribution.  In our view, the marketplace provides an appropriate basis for comparison in
                                                     
87The New Shorter Oxford English Dictionary , (Clarendon Press, 1993) Vol. I, p. 474;  The Concise
Oxford English Dictionary , (Clarendon Press, 1995), p. 278;  Webster's Third New International Dictionary ,
(William Benton, 1966), Vol. I, p. 475.WT/DS70/AB/R
Page 40
determining whether a "benefit" has been "conferred", because the trade-distorting potential of a
"financial contribution" can be identified by determining whether the recipient has received a"financial contribution" on terms more favourable than those available to the recipient in the market.
158. Article 14, which we have said is relevant context in interpreting Article 1.1(b), supports our
view that the marketplace is an appropriate basis for comparison.  The guidelines set forth in
Article 14 relate to equity investments, loans, loan guarantees, the provision of goods or services by agovernment, and the purchase of goods by a government.  A "benefit" arises under each of theguidelines if the recipient has received a "financial contribution" on terms more favourable than thoseavailable to the recipient in the market.
159. Canada has argued that the Panel erred in failing to take account of paragraph 1 of Annex IV
as part of the relevant context of the term "benefit".  We fail to see the relevance of this provision tothe interpretation of "benefit" in Article 1.1(b) of the SCM Agreement .  Annex IV provides a method
for calculating the total ad valorem  subsidization of a product under the "serious prejudice" provisions
of Article 6 of the SCM Agreement , with a view to determining whether a subsidy is used in such a
manner as to have "adverse effects".  Annex IV, therefore, has nothing to do with whether a " benefit "
has been conferred, nor with whether a measure constitutes a subsidy  within the meaning ofArticle 1.1.  We agree with the Panel that Annex IV is not useful context for interpreting Article1.1(b) of the SCM Agreement .
160. Canada insists that the concept of "cost to go vernment" is relevant in the interpretation of
"benefit".  We note that this interpretation of "benefit" would exclude from the scope of that term
those situations where a "benefit" is conferred by a private body under the direction of government.These situations cannot be excluded  from the definition of "benefit" in Article 1.1(b), given that they
are specifically included  in the definition of "financial contribution" in Article 1.1(a)(iv).  We are,
therefore, not persuaded by this argument of Canada.
161. In light of the foregoing, we find that the Panel has not erred in its interpretation of the word
"benefit", as used in Article 1.1(b) of the SCM Agreement .WT/DS70/AB/R
Page 41
VI. "Contingent In Fact Upon Export Performance"
162. The Panel held that a subsidy is "contingent … in fact … upon export performance" under
Article 3.1(a) of the SCM Agreement  if there is a relationship of conditionality or dependence
"between the grant of the subsidy and the 'anticipated exportation or export earnings'".88  The Panel
stated that it could:
… examine most effectively whether there exists the requisite
conditionality between the grant of TPC assistance to the Canadian
regional aircraft industry and anticipated exportation or export
earnings, by determining whether the facts demonstrate that such TPC
assistance would not have been granted to the regional aircraft
industry but for anticipated exportation or export earnings.89
(emphasis in original)
With respect to demonstrating  de facto  export contingency, the Panel held that:
… it is clear from the ordinary meaning of footnote 4 that any fact
could be relevant, provided it "demonstrates" (either individually or in
conjunction with other facts) whether or not a subsidy would have
been granted but for anticipated exportation or export earnings.  We
consider that this is true of the export-orientation of the recipient, or of
the reason for the grant of the subsidy, just as it is true of a host ofother facts potentially surrounding the grant of the subsidy in
question.  In any given case, the relative importance of each fact can
only be determined in the context of that case, and not on the basis of
generalities.
 90 (emphasis in original)
The Panel also opined that:
… the closer a subsidy brings a product to sale on the export market,
the greater the possibility that the facts may demonstrate that the
subsidy would not have been granted but for anticipated exportation orexport earnings.  Conversely, the further removed a subsidy is from
sales on the export market, the less the possibility that the facts may
demonstrate that the subsidy would not have been granted but for
anticipated exportation or export earnings.
91
                                                     
88Panel Report, para. 9.331.
89Ibid., para. 9.332.
90Ibid., para. 9.337.
91Ibid., para. 9.339.WT/DS70/AB/R
Page 42
163. On this basis, and after examination of the facts before it, the Panel found that "TPC
assistance to the Canadian regional aircraft industry is 'contingent…in fact…upon exportperformance' within the meaning of Article 3.1(a) of the SCM Agreement."
92
164. Canada appeals the Panel's finding that TPC assistance is "contingent … in fact … upon
export performance".  Canada argues,  inter alia ,  that a subsidy is "contingent … in fact … upon
export performance" when "the facts and circumstances are such that the recipient will reasonablyknow that there is a requirement to export … ."
93  Canada maintains that the Panel made the export
orientation of the Canadian regional aircraft industry the "effective test" of de facto  export
contingency.94  Canada also argues that the Panel erred in concluding that "the closer a subsidy brings
a product to sale on the export market, the greater the possibility that the facts may demonstrate thatthe subsidy would not have been granted but for anticipated exportation or export earnings."
95
Canada contends further that the Panel "confus[ed]" considerations  taken into account by TPC with
conditions   based on export performance.96  Finally, Canada maintains that the Panel erred because it
gave "no indication that … the operation of the TP C programme as a whole" had been considered.97
For its part, Brazil agrees fully with the Panel's interpretation and application of the expression
"contingent … in fact … upon export performance".
165. Article 3.1 of the SCM Agreement  provides, in pertinent part:
Except as provided in the Agr eement on Agriculture, the following
subsidies, within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact4, whether solely
or as one of several other conditions, upon exportperformance, including those illustrated in Annex I …
__________________________________________________________
   
4This standard is met when the facts demonstrate that the granting of a subsidy, without
having been made legally contingent upon export performance, is in fact tied to actual or
anticipated exportation or export earnings. The mere fact that a subsidy is granted to enterprises
which export shall not for that reason alone be considered to be an export subsidy within themeaning of this provision.
Article 3.2 adds that "[a] Member shall neither grant nor maintain subsidies referred to in
paragraph 1."
                                                     
92Panel Report, para. 9.347.
93Canada's appellant's submission, para. 30.
94Ibid., para. 61.
95Panel Report, para. 9.339.
96Canada's appellant's submission, para. 59.
97Ibid., para. 77.WT/DS70/AB/R
Page 43
166. In confronting this issue, we start our interp retive task once more by examining the ordinary
meaning of the treaty text.  In our view, the key word in Article 3.1(a) is "contingent".  As the Panelobserved, the ordinary connotation of "contingent" is "conditional" or "dependent for its existence onsomething else".
98  This common understanding of the word "contingent" is borne out by the text of
Article 3.1(a), which makes an explicit link between "contingency" and "conditionality" in stating that
export contingency can be the sole or "one of several other conditions ".
167. Article 3.1(a) prohibits any subsidy that is contingent upon export performance, whether that
subsidy is contingent "in law or in fact".  The Uruguay Round negotiators have, through theprohibition against export subsidies that are contingent in fact  upon export performance, sought to
prevent circumvention of the prohibition against subsidies contingent in law  upon export
performance.
99  In our view, the legal standard expressed by the word "contingent" is the same for
both  de jure   or  de facto  contingency.  There is a difference, however, in what evidence may be
employed to prove that a subsidy is export contingent.  De jure   export contingency is demonstrated
on the basis of the words of the relevant legislation, regulation or other legal instrument.  Proving
 de facto   export contingency is a much more difficult task.  There is no single legal document which
will demonstrate, on its face, that a subsidy is "contingent …in fact … upon export performance".Instead, the existence of this relationship of contingency, between the subsidy and exportperformance, must be inferred  from the total configuration of the facts constituting and surrounding
the granting of the subsidy, none of which on its own is likely to be decisive in any given case.
168. Recognizing the difficulties inherent in demonstrating  de facto  export contingency, the
Uruguay Round negotiators provided a standard, in footnote 4 of the SCM Agreement , for determining
when a subsidy is "contingent … in fact … upon export performance".  Footnote 4 reads:
This standard is met  when the facts demonstrate  that the granting  of a
subsidy, without having been made legally contingent upon export
performance, is in fact  tied to  actual or anticipated exportation or
export earnings .  The mere fact that a subsidy is granted to enterprises
which export shall not for that reason alone be considered to be an
export subsidy within the meaning of this provision. (emphasis added)
                                                     
98The New Shorter Oxford English Dictionary , (Clarendon Press, 1993), Vol. I, p. 494;  The Concise
Oxford English Dictionary , (Clarendon Press, 1995), p. 289.  See also Webster's Third New International
Dictionary , (William Benton, 1966), Vol. I, p. 493.  See Panel Report, para. 9.331.
99See the submission of the European Communities during the negotiations of the  SCM Agreement ,
entitled "Elements of the Negotiating Framework" (MTN.GNG/NG10/W/31), which was cited before uspara. 40 of the United States' third participant's submission.WT/DS70/AB/R
Page 44
169. Footnote 4 makes it clear that  de facto   export contingency must be demonstrated  by the
facts .  We agree with the Panel that what facts should  be taken into account in a particular case will
depend on the circumstances of that case.  We also agree with the Panel that there can be no generalrule as to what facts or what kinds of facts must  be taken into account.  We note that satisfaction of
the standard for determining de facto  export contingency set out in footnote 4 requires proof of three
different substantive elements:  first, the " granting  of a subsidy"; second, "is … tied to  …";  and,
third, "actual or anticipated exportation or export earnings". (emphasis added)  We will examine eachof these elements in turn.
170. The first element of the standard for determining de facto  export contingency is the " granting
of a subsidy".  In our view, the initial inquiry must be on whether the granting authority  imposed a
condition based on export performance in providing the subsidy.  In the words of Article 3.2 andfootnote 4, the prohibition is on the " granting  of a subsidy", and not on receiving it.  The treaty
obligation is imposed on the  granting  Member, and not on the recipient.  Consequently, we do not
agree with Canada that an analysis of "contingent … in fact … upon export performance" should
focus on the reasonable knowledge of the recipient.
100
171. The second substantive element in footnote 4 is "tied to".  The ordinary meaning of "tied to"
confirms the linkage of "contingency" with "conditionality" in Article 3.1(a).  Among the manymeanings of the verb "tie", we believe that, in th is instance, because the word "tie" is immediately
followed by the word "to" in footnote 4, the releva nt ordinary meaning of "tie" must be to "limit or
restrict as to … conditions".
101  This element of the standard set forth in footnote 4, therefore,
emphasizes that a relationship of conditionality or dependence must be demonstrated.  The secondsubstantive element is at the very heart of the legal standard in footnote 4 and cannot be overlooked.
In any given case, the facts must "demonstrate" that the granting of a subsidy is tied to  or contingent
upon  actual or anticipated exports.
102  It does not suffice to demonstrate solely that a government
granting a subsidy anticipated   that exports would result.  The prohibition in Article 3.1(a) applies to
subsidies that are  contingent upon export performance.
                                                     
100In finding that the knowledge of the recipient is not part of the legal standard of de facto  export
contingency, we do not suggest that relevant objective ev idence relating to the recipi ent can never be considered
by a panel.
101The New Shorter Oxford English Dictionary , (Clarendon Press, 1993), Vol. II, p. 3 307.  See also The
Concise Oxford English Dictionary , (Clarendon Press, 1995), p. 1457.
102We note that the Panel considered that the most effective means of demonstrating whether a subsidy
is contingent in fact upon export performance is to examine whether the subsidy would have been granted but
for the anticipated exportation or export earnings (Panel Report, para. 9.332).  While we consider that the Panel
did not err in its overall approach to de facto  export contingency, we, and panels as well, must interpret and
apply the language actually used in the treaty (see, for instance, Appellate Body Report,  India – Patents , supra ,
footnote 35, para. 45).WT/DS70/AB/R
Page 45
172. We turn now to the third substantive element provided in footnote 4.  The dictionary meaning
of the word "anticipated" is "expected".103  The use of this word, however, does not transform the
standard for "contingent … in fact" into a standard merely for ascertaining "expectations" of exportson the part of the granting authority.  Whether exports were anticipated or "expected" is to be gleaned
from an examination of objective evidence.  This examination is quite separate from, and should not
be confused with , the examination of whether a subsidy is "tied to" actual or anticipated exports.  A
subsidy may well be granted in the knowledge, or with the anticipation, that exports will result.  Yet,that alone is not sufficient, because that alone is not proof that the granting of the subsidy is  tied to
the anticipation of exportation.
173. There is a logical relationship between the second sentence of footnote 4 and the "tied to"
requirement set forth in the first sentence of that footnote.  The second sentence of footnote 4precludes a panel from making a finding of de facto  export contingency for the sole reason that the
subsidy is "granted to enterprises which export".  In our view, merely knowing that a recipient's sales
are export-oriented does not demonstrate, without more, that the granting of a subsidy is tied to actual
or anticipated exports.  The second sentence of footnote 4 is, therefore, a specific expression of therequirement in the first sentence to demonstrate the "tied to" requirement.  We agree with the Panel
that, under the second sentence of footnote 4, the export orientation of a recipient may be taken intoaccount as  a  relevant fact, provided that it is one of several facts which are considered and  is not the
only fact supporting a finding.
174. Canada argues that the Panel erred in stating that "the closer a subsidy brings a product to sale
on the export market, the greater the possibility  that the facts may demonstrate that the subsidy"
104 is
"contingent … in fact … upon export performance". (emphasis added)  We recall that the Panel added
that "the further removed a subsidy is from sales on the export market, the less the possibility  that the
facts may demonstrate that the subsidy"105 is "contingent … in fact … upon export performance".
(emphasis added)  By these statements, the Panel appears to us to apply what could be read to be alegal presumption. While we agree that this nearness-to-the-export-market factor may, in certain
circumstances, be a relevant fact, we do not believe that it should be regarded as a legal presumption.It is, for instance, no " less … possible " that the facts, taken together, may demonstrate that a pre-
production subsidy for research and development is "contingent … in fact … upon exportperformance".  If a panel takes this factor into account, it should treat it with considerable caution.  Inour opinion, the mere presence or absence of this factor in any given case does not give rise to a
                                                     
103The New Shorter Oxford English Dictionary , (Clarendon Press, 1993), Vol. I, p. 88, states that a
colloquial meaning for "anticipate" is "expect".  The Concise Oxford English Dictionary , (Clarendon Press,
1995), p. 53, identifies "expect" as a disputed meaning of "anticipate".
104Panel Report, para. 9.339.
105Ibid., para. 9.339.WT/DS70/AB/R
Page 46
presumption that a subsidy is or is not de facto  contingent upon export performance.  The legal
standard to be applied remains the same:  it is necessary to establish each of the three substantive
elements in footnote 4.
175. Having examined the legal standard set forth in footnote 4 for determining  de facto  export
contingency under Article 3.1(a), we turn next to the Panel's application of that legal standard to the
facts relating to assistance provided by TPC to the Canadian regional aircraft industry.  The Panel setout in some detail the various facts that it took into account in concluding that TPC assistance was"contingent … in fact … upon export performance".
106  Indeed, the Panel took into account sixteen
different factual elements, which covered a variety of matters, including:  TPC's statement of itsoverall objectives;  types of information call ed for in applications  for TPC funding; the
considerations, or eligibility criteria, employed by TPC in deciding whether to grant assistance;factors to be identified by TPC officials in making recommendations about applications for funding;TPC's record of funding in the export field, generally, and in the aerospace and defence sector, in
particular;  the nearness-to-the-export-market of the projects funded;  the importance of projected
export sales by applicants to TPC's funding decisions;  and the export orientation of the firms or theindustry supported.
176. From our scrutiny of the Panel Report, we are unable to agree with Canada that the Panel
made the export orientation of the regional aircraft in dustry the "effective test".  In keeping with the
standard set forth in footnote 4, the fact of the Canadian industry's export orientation seems to us notto have been given undue emphasis by the Panel.  Rather, this fact was simply one of  a number offacts that, when considered together, the Panel found demonstrated that the granting of subsidies byTPC was "tied to" actual or anticipated exports.
177. We recall our finding that the Panel could be understood as having treated the nearness-to-
the-export-market factor as giving rise to a legal presumption in determining whether TPC assistancewas "contingent … in fact … upon export performance".
107  However, we also have said that this
factor may, in certain circumstances, be a relevant factor in making such a determination.  In ourview, in the circumstances of this case, the Panel did not err in taking this nearness-to-the-export-market factor into consideration, together with all the other facts that the Panel considered.  Moreover,in our view and in light of all the facts the Panel considered, the Panel would, in all probability, haveconcluded that TPC assistance to the Canadian regional export industry was"contingent … in fact … upon export performance", even if it had not taken this factor into account.
                                                     
106Panel Report, para. 9.340.
107Supra , para. 174.WT/DS70/AB/R
Page 47
178. Canada also asserts that the Panel "confused" considerations  – that is, the eligibility criteria
set out in the TPC Handbook that TPC took into account in making its funding decisions – withconditions  based on export performance.
108  We do not agree.  The Panel did not find that the TPC
eligibility criteria  were  conditions, but, rather, it found that those criteria helped to demonstrate  the
existence of  de facto  contingency upon export performance.109  We consider it perfectly possible that
such considerations, especially when taken together with other facts, could demonstrate that a subsidyis "contingent … in fact … upon export performance".
110  Indeed, in many cases, the eligibility
criteria used by a granting authority, and their application in practice, may provide particularly goodevidence of whether the granting of a subsidy is "contingent … in fact … upon export performance".
179. We note, finally, that the Panel took into account a number of facts related to the TPC
programme as a whole.
111  Therefore, we do not agree with Canada's assertion that "[t]here is no
indication that the Panel considered the operation of the TPC programme as a whole".112  Moreover,
the fact that some of TPC's contributions, in some industry sectors, are  not contingent upon export
performance, does not necessarily mean that the same is true for all of TPC's contributions.  It is
enough to show that one or some of TPC's contributions do constitute subsidies "contingent ... infact … upon export performance".
180. For all these reasons, we uphold the Panel's legal finding that "TPC assistance to the Canadian
regional aircraft industry is 'contingent…in fa ct…upon export performance' within the meaning of
Article 3.1(a) of the SCM Agreement."
113
VII. Drawing  Adverse Inferences from Certain Facts
181. We come to the issue of whether the Panel erred in law in declining to draw adverse
inferences from Canada's refusal to provide information to the Panel about the EDC's debt financing
activities.  The Panel's ruling on this issue needs to be quoted  in extenso :
                                                     
108Canada's appellant's submission, para. 59.
109See Panel Report, paras. 9.340 and 9.341.
110We note that none of the considerations or eligibility criteria, by itself, amounts to an export
condition because, if that were so, there would be a case of  de jure  export contingency.
111The facts identified in the eighth, ninth, eleventh and thirteenth points of para. 9.340 of the Panel
Report all relate to the TPC programme as a whole.
112Canada's appellant's submission, para. 77.
113Panel Report, para. 9.347.WT/DS70/AB/R
Page 48
We note that Brazil asked us to make adverse inferences in light
of Canada's refusal to provide details of the ASA transaction.  In
certain circumstances when direct evidence is not available, we
consider that a panel may be required to make such inferences when
there is  sufficient  basis to do so.  This is especially true when directevidence is not available because it is withheld by a party with sole
possession of that evidence.  In the present instance, however, we do
not consider that there is sufficient basis for an inference that EDC
debt financing in the Canadian regional aircraft sector confers a
"benefit".  In particular, Brazil has made no attempt to demonstratethat EDC debt financing was provided to ASA on below-market
terms.  Furthermore, Brazil has not demonstrated, on the basis of its
arguments concerning statements by EDC officials and EDC's
financial performance, that EDC debt financing generally confers a
"benefit".  Had Brazil done so, we may  have been required to make
the inferences requested by Brazil.
114
182. Brazil appeals this ruling of the Panel and claims that the Panel committed an error of law by
failing to draw adverse inferences from Canada's refusal to submit information requested about theEDC's financing of the ASA transaction.  Brazil believes that, in the circumstances of this case, thePanel was obliged to infer that the information Canada withheld was prejudicial to Canada's position.Brazil supports its arguments by reference to authorities cited from public international law.  Brazilasks us to reverse the Panel ruling, to draw ourselves the adverse inferences which Brazil contends thePanel should have drawn, and to determine that the evidence of record, together with such adverseinferences, lead to the conclusion that the EDC's debt financing confers a "benefit"  and hence fulfils
that necessary element of a "subsidy".  Canada maintains that the Panel did not err.  Canada argues
that adverse inferences may only be drawn by a pane l, in the event of one party's refusal to provide
information, if the other party has made out its case on a  prima facie  basis.  Canada also argues that
the Panel should not have requested information from it under Article 13.1 since Brazil had not yetestablished a  prima facie  case.  The parties' arguments and counter-arguments on this issue raise a
number of questions with fundamental and far-reaching implications for the entire WTO disputesettlement system.  These questions relate to:  first, the authority of a panel to request a party to adispute to submit information about that dispute;  second, the duty of a party to submit information
requested by a panel;  and, third, the authority of a panel to draw adverse inferences from the refusal
by a party to provide requested information.  We shall deal with these questions in that sequence.
                                                     
114Panel Report, para. 9.181.WT/DS70/AB/R
Page 49
(a) The authority of a panel to request information from a party to the
dispute
183. Article 13 of the DSU reads as follows:
1. Each panel shall have the right to seek information and
technical advice from any individual or body which it deems
appropriate.  However, before a panel seeks such information or
advice from any individual or body within the jurisdiction of a
Member it shall inform the authorities of that Member.  A Membershould respond promptly and fully to any request by a panel for such
information as the panel considers necessary and appropriate.
Confidential information which is provided shall not be revealed
without formal authorization from th e individual, body, or authorities
of the Member  providing the information.
2. Panels may seek information from any relevant source and
may consult experts to obtain their opinion on certain aspects of the
matter.  With respect to a factual issue concerning a scientific or other
technical matter raised by a party to a dispute, a panel may request anadvisory report in writing from an expert review group.  Rules for the
establishment of such a group and its procedures are set forth in
Appendix 4.
184. In Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items ,
we ruled that Article 13 of the DSU  made "a grant of  discretionary authority " to panels enabling
them to seek information from any relevant source.
115 (emphasis added)  In  European Communities –
Hormones , we observed  that Article 13 of the DSU "enable[s] panels to seek information and advice
as they deem appropriate in a particular case ."116 (emphasis added)  And,  in United States -  Shrimp ,
we underscored " the comprehensive nature " of the authority of a panel to seek information and
technical advice from "any individual or body" it may consider appropriate, or from "any relevantsource."
117 (emphasis added)  There, we stated that:
                                                     
115Appellate Body Report, WT/DS56/AB/R, adopted 22 April 1998, para. 84.
116Supra , footnote 64, para. 147.
117Supra , footnote 24, para. 104.WT/DS70/AB/R
Page 50
It is particularly within the province and the authority of a panel to
determine the need for informat ion and advice in a specific case , to
ascertain the acceptability  and relevancy  of information or advice
received, and to decide what weight to ascribe to that information or
advice  or to conclude that no weight at all should be given to what has
been received.118 (emphasis added)
…
The thrust of Articles 12 and 13, taken together, is that the DSU
accords to a panel established by the DSB , and engaged in a dispute
settlement proceeding, ample and extensive authority to undertake
and to control the process by which it informs itself both of the
relevant facts of the dispute and of the legal norms and principles
applicable to such facts .  That authority, and the breadth thereof, is
indispensably necessary  to enable a panel to discharge its duty
imposed by Article 11 of the DSU to "make an objective assessmentof the matter before it, including an objective assessment of the facts
of the case  and the applicability of and conformity with the relevant
covered agreements  … ."
119 (emphasis added)
185. It is clear from the language of Article 13 that  the discretionary authority of a panel may be
exercised to request and obtain information, not just "from any individual or body" within thejurisdiction of a Member of the WTO, but also from any Member , including  a fortiori   a Member
who is a party to a dispute before a panel.  This is made crystal clear by the third sentence of
Article 13.1, which states:  " A Member   should respond promptly and fully to  any request by a panel
for such information as the panel considers necessary and appropriate ." (emphasis added)  It is
equally important to stress that this discretionary authority to seek and obtain information is not made
conditional by this, or any other provision, of the DSU upon the other party to the dispute havingpreviously established, on a  prima facie   basis, such other party's claim or defence.  Indeed,
Article 13.1 imposes no conditions  on the exercise of this discretionary authority.  Canada argues that
the Panel in this case had  no authority to request  the submission of information relating to the EDC's
financing of the ASA transaction because Brazil had not previously established a prima facie   case
that the financial contribution offered by such financing conferred a "benefit" on ASA and therefore
satisfied that other prerequisite of a prohibited export subsidy.  This argument is, quite simply, bereftof any textual or logical basis.  There is nothing in either the DSU or the  SCM Agreement   to sustain
it.  Nor can any support for this argument be derived from a consideration of the nature of thefunctions and responsibilities entrusted to panels in the WTO dispute settlement system – aconsideration which we essay below.
                                                     
118Supra , footnote 24, para. 104.
119Ibid., para. 106.WT/DS70/AB/R
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(b) The duty of a Member to comply with the request of a panel to
provide information
186. An important part of Brazil's appeal with respect to the issue of adverse inferences is Brazil's
contention that Canada was under a duty to comply with the Panel's request to provide informationrelating to the EDC's financing of the ASA transact ion.  Canada denies that it was legally burdened
with such a duty.
187. We note that Article 13.1 of the DSU provides that "A Member should  respond promptly and
fully to any request by a panel for such information as the panel considers necessary and appropriate."
(emphasis added)  Although the word "should" is often used colloquially to imply an exhortation, or
to state a preference, it is not always used in those ways.  It can also be used "to express a duty [or]obligation".
120  The word "should" has, for instance, previously been interpreted by us as expressing a
"duty" of panels in the context of Article 11 of the DSU.121  Similarly, we are of the view that the
word "should" in the third sentence of Article 13.1 is, in the context of the whole of Article 13, usedin a normative, rather than a merely exhortative, sense.  Members are, in other words, under a duty
and an obligation to "respond promptly and fully" to requests made by panels for information underArticle 13.1 of the DSU.
188. If Members that were requested by a panel to provide information had no legal duty to
"respond" by providing such information, that panel's undoubted legal " right  to seek" information
under the first sentence  of Article 13.1 would be rendered meaningless.  A Member party to a disputecould, at will, thwart the panel's fact-finding powers and take control itself of the information-gathering process that Articles 12 and 13 of the DSU place in the hands of the panel.
122  A Member
could, in other words, prevent a panel from carrying out  its task of finding the facts constituting the
dispute before it and, inevitably, from going forward with the legal characterization of those facts.Article 12.7 of the DSU provides, in relevant part, that "…the report of a panel shall set out thefindings of fact, the applicability of relevant provisions and the basic rationale behind any findingsand recommendations that it makes."  If a panel is prevented from ascertaining the real or relevant
facts of a dispute, it will not be in a position to determine the applicability of the pertinent treaty
provisions to those facts, and, therefore, it will be unable to make any principled findings andrecommendations to the DSB.
                                                     
120The Concise Oxford English Dictionary , (Clarendon Press, 1995), p. 1283.  See also The Shorter
Oxford English Dictionary , (Clarendon Press, 1993), Vol. II, p. 2808, and  Black's Law Dictionary , (West
Publishing Co., 1990), p. 1379, which states that "should" "ordinarily impl[ies] duty or obligation; althoughusually no more than an obligation of propriety or expediency, or moral obligation, thereby distinguishing itfrom 'ought'."
121European Communities – Hormones , supra , footnote 64, para. 133.
122United States – Shrimp , supra , footnote 24, para. 106.WT/DS70/AB/R
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189. The chain of potential consequences does not stop there.  To hold that a Member party to a
dispute is not legally bound to comply with a panel's request for information relating to that dispute,
is, in effect, to declare that Member legally free to preclude a panel from carrying out its mandate andresponsibility under the DSU.  So to rule would be to reduce to an illusion and a vanity the
fundamental right of Members to have disputes arising between them resolved through the system and
proceedings for which they bargained in concluding the DSU.  We are bound to reject aninterpretation that promises such consequences.
190. We believe also that the duty of a Member  party to a dispute to comply with a request from
the panel to provide information under Article 13.1 of the DSU is but one specific manifestation ofthe broader duties of Members under Article 3.10 of the DSU not to consider the "use of the disputesettlement procedures…as contentious acts", and, when a dispute does arise, to "engage in theseprocedures in good faith in an effort to resolve the dispute."
191. As noted earlier, Brazil alleges that Canada acted in disregard of its duties under Articles 13.1
and 3.10 of the DSU in refusing to comply with th e Panel's request for information about the EDC's
financing of the ASA transaction.  Canada controverts this allegation and submits two justificationsfor its failure to provide the requested information.  Canada's first justification is that Brazil had not,
when the Panel issued its request for information on the EDC's financing for the ASA transaction,established by other evidence, a prima facie  case that such financing constituted a prohibited export
subsidy under Article 3.1(a) of the SCM Agreement .  The second justification pleaded by Canada is
that the information requested by the Panel const ituted "business confidential information" and that
the BCI Procedures adopted by the Panel were not adequate to ensure the protection of suchinformation.
192. Canada's first justification rests on the assumption that a Member's duty to respond promptly
and fully to a Panel's request for information arises only after  the opposing party to the dispute has
established a prima facie  case that its complaint or defence is meritorious.  A  prima facie  case, it is
well to remember, is a case which, in the absence of effective refutation by the defending party (thatis, in the present appeal, the Member requested to provide the information), requires a panel, as amatter of law, to rule in favour of the complaining party presenting the  prima facie  case.
123  There is,
as noted earlier, nothing in either the DSU or the SCM Agreement  to support Canada's assumption.
To the contrary, a panel is vested with ample and extensive discretionary authority to determine when
it needs information to resolve a dispute and what  information it needs.  A panel may need such
information before or after a complaining or a responding Member has established its complaint or
defence on a prima facie  basis.  A panel may, in fact, need the information sought in order to evaluate
                                                     
123See European Communities – Hormones , supra , footnote 64, para. 104.WT/DS70/AB/R
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evidence already before it in the course of de termining whether the claiming or the responding
Member, as the case may be, has established a prima facie  case or defence.  Furthermore, a refusal to
provide information requested on the basis that a prima facie  case has not been made implies that the
Member concerned believes that it is able to judge for itself whether the other party has made a prima
facie  case.  However, no Member is free to determine for itself whether  a prima facie  case or defence
has been established by the other party.  That competence is necessarily vested in the panel under theDSU, and not in the Members that are parties to the dispute.  We are not, therefore, persuaded by thefirst justification Canada gave for its refusal to provide the information requested by the Panel.
193. This view is entirely consistent with our ruling in  Japan – Agricultural Products .  There, the
complainant, the United States, claiming that the Japanese measure requiring varietal testing wasinconsistent with Article 5.6 of the Agreement on the Application of Sanitary and Phytosanitary
Measures  (the  " SPS Agreement "), had to show that there was an alternative measure which satisfied
the three requirements of Article 5.6.  The panel was not persuaded by the United States  that "testing
by product" was such an alternative measure.  However, the panel "deduced" from statements made
by experts advising it that there was another measure, the "determination of sorption levels", that metthe requirements of the  SPS Agreement  – something which the United States had not even alleged or
argued before the panel, let alone something on which the United States had submitted any evidence.The panel in that case proceeded to find  that the Japanese measure was inconsistent with Article 5.6of the  SPS Agreement .  In reversing this finding of the panel, we said:
In the present case, the Panel was correct to seek information and
advice from experts to help it to understand and evaluate the evidencesubmitted and the arguments made by the United States and Japan
with regard to the alleged violation of Article 5.6.  The Panel erred,
however, when it used that expert information and advice as the basis
for a finding of inconsistency with Article 5.6, since the United States
did not establish a prima facie case of inconsistency with Article 5.6based on claims relating to the "determination of sorption levels".
The United States did not even  argue  that the "determination of
sorption levels" is an alternative measure which meets the three
elements under Article 5.6 .
124 (emphasis added)
194. Thus, in Japan – Agricultural Products , the issue was not whether the panel there had the
authority to request  particular information from the responding Member, nor whether that responding
Member was under a duty to comply with the panel's request.  Nor, in that case, did any Memberrefuse to provide information to the panel.  The is sue of a panel's authority to draw adverse inferences
from a party's refusal to provide requested information did not, therefore, arise.  The panel in  Japan  –
Agricultural Products  had simply and erroneously relieved the complaining Member of the task of
                                                     
124Supra,  footnote 44, para. 130 .WT/DS70/AB/R
Page 54
showing the inconsistency of the responding Member's measure with Article 5.6 of the
SPS Agreement .
195. Canada's second justification for its refusal to comply with the Panel's request for information
relates to the authority of the Panel to adopt special procedures for the additional protection of
so-called business confidential information.  Canada, with the acquiescence of Brazil, asked the Panel
to adopt certain procedures, submitted  by Canada, for the protection of such information.  The Panelaccommodated Canada's request, making only one change, at Brazil's request.  We do not believe that,having requested such procedures in the first place,  Canada was entitled unilaterally to reject the
additional procedures adopted by the Panel and then to withhold information requested by the Panelon the ground that Canada found those procedures inadequate.  Canada's position is inconsistent withthe Panel's authority under the DSU to determine it s own procedures.  The Panel's decision to adopt
the additional confidentiality procedures was in the nature of an interlocutory ruling made in thecourse of the proceedings before it.  Canada has not appealed that interlocutory ruling and,
accordingly, must be held bound by it.
196. Finally, we recall that Canada, jointly with Brazil, asked the Appellate Body to adopt  mutatis
mutandis  the BCI Procedures in the course of proceedings before the Appellate Body.  If Canada truly
considered those procedures so inadequate as to compel it to reject the Panel's requests forinformation that Canada regarded as business confidential, then Canada's request that we adopt thosevery procedures on appeal appears to us a curious one.  We find Canada's second justification for its
refusal to provide requested information, just as we did its first one, less than persuasive.
(c) The drawing of adverse inferences from the refusal of a party to
provide information requested by the Panel
197. We have concluded that a panel has broad legal authority to request information from a
Member that is a party to a dispute, and that a party so requested has a legal duty to provide suchinformation.  The question remains:  if that Member refuses to provide that information, does thepanel have the authority to draw adverse inferences from that refusal?
198. We approach this question by noting once more that the mandate of a panel under the DSU
requires  it to determine the facts of the dispute with which it is  seised, and to evaluate or characterizethose facts in terms of their consistency or inconsistency with a particular provision of theSCM Agreement  or another covered agreement.  The DSU does not purport to state in what detailed
circumstances inferences, adverse or otherwise, ma y be drawn by panels from infinitely varying
combinations of facts.  Yet, in all cases, in carrying out their mandate and seeking to achieve the"objective assessment of the facts" required by Article 11 of the DSU, panels routinely drawinferences from the facts placed on the record.  The inferences drawn may be inferences of fact:  thatWT/DS70/AB/R
Page 55
is, from fact A and fact B, it is reasonable to infer the existence of fact C.  Or the inferences derived
may be inferences of law:  for example, the ensemble  of facts found to exist warrants the
characterization of a "subsidy" or a "subsidy contingent … in fact … upon export performance".  Thefacts must, of course, rationally support the inferences made, but inferences may be drawn whether or
not the facts already on the record deserve  the qualification of a prima facie  case.  The drawing of
inferences is, in other words, an inherent and unavoidable aspect of a panel's basic task of finding andcharacterizing the facts making up a dispute.  In contrast, the burden of proof is a procedural conceptwhich speaks to the fair and orderly management and disposition of a dispute.  The burden of proof isdistinct from, and is not to be confused with, the drawing of inferences from facts.
199. The facts before the Panel on the issue of the EDC's debt financing may be summarized in the
following terms:  Brazil submitted certain evidence about the EDC's financing of the ASAtransaction.
125  Canada refused to provide Brazil with information on the EDC's financing activities
that Brazil requested during consultations.  The Panel then requested Canada to submit transaction-
specific information on the terms and conditions of the EDC's financing of the ASA transaction.
Canada refused to provide the information requested by the Panel.  There appears to us to be noobjective reason to consider that the information requested and withheld did not exist or was notpertinent to Brazil's claim.  We consider it safe to  assume that the information requested by the Panel
was in the possession of Canada because Canada did not indicate otherwise to the Panel.  Theinformation requested by the Panel was not publicly available.  As we have explained, Canada'sjustifications for its refusal to provide information requested by the Panel were not accepted by thePanel.
126  On this basis, Brazil urges that the Panel e rred in law by not drawing the inference that the
information withheld by Canada was, in its nature or tenor, adverse to Canada and supportive of
Brazil's claim that the EDC's debt financing, at l east in that particular transaction, amounted to a
prohibited export subsidy under Article 3.1(a) of the SCM Agreement .
200. We note, preliminarily, that the "adverse inference" that Brazil believes the Panel should have
drawn is not appropriately regarded as a punitive inference in the sense of a "punishment" or"penalty" for Canada's withholding of information.   It is merely an inference which in certain
circumstances could be logically or reasonably derived by a panel from the facts before it.
                                                     
125The evidence presented to the Panel on the ASA transaction consisted of a Form 10-Q, filed by ASA
Holdings, Inc., with the US Securities and Exchange Commission for the quarterly period ended 31 March 1997
(file No. 333-13071) and the 1997 Annual Report of ASA Holdings, Inc. (see Panel Report, para. 6.56,
footnotes 200 and 201).
126We agree with the Panel that Canada's justifications were not legally acceptable (see paras. 192 and
196 of this Report).WT/DS70/AB/R
Page 56
201. We note also the fact that Article 4 of the SCM Agreement , which is applicable in respect of
proceedings relating to alleged prohibited export subsidies , does not specifically address the matter of
drawing adverse inferences from a Member's refusal to provide information.  We take special note,however, of the fact that Annex V of the SCM Agreement , which deals with procedures for
developing information about "serious prejudice" in cases involving actionable subsidies  under
Part III of the same Agreement, does address, in impressive detail, the drawing of adverse inferences
under certain circumstances.
127  Annex V of the SCM Agreement  reads, in pertinent part:
1. Every Member shall cooperate in the development of evidence
to be examined by a panel in procedures under paragraphs 4 through
6 of Article 7 .
…
6. If the subsidizing and/or third-country Member fail to
cooperate in the information-gath ering process, the complaining
Member will present its case of serious prejudice, based on evidence
available to it, together with facts and circumstances of the non-
cooperation of the subsidizing and/or third-country Member .  Where
information is unavailable due to non-cooperation by the subsidizing
and/or third-country Member, the panel may complete the record as
necessary relying on best information otherwise available .
7. In making its determination, the panel should draw adverse
inferences from instances of non- cooperation by any party involved
in the information-gathering process .
8. In making a determination to use either best information
available or adverse inferences , the panel shall consider  the advice of
the DSB representative nominated under paragraph 4 as to the
reasonableness of any requests for information and the efforts made
by parties to comply with these requests in a cooperative and timelymanner .
9. Nothing in the information-gathering process shall limit the
ability of the panel to seek such  additional information it deems
essential to a proper resolution to the dispute , and which was not
adequately sought or developed during that process .  However,
ordinarily the panel should not request additional information tocomplete the record where the information would support a particular
party's position and the absence of that information in the record is
the result of unreasonable non-cooperation by that party in the
information-gathering process.  (emphases added)
                                                     
127The provisions of Annex V of the  SCM Agreement  are identified in Appendix 2 of the DSU as
"special or additional rules and procedures".WT/DS70/AB/R
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202. There is no logical reason why the Members of the WTO would, in conceiving and
concluding the SCM Agreement , have granted panels the authority to draw inferences in cases
involving actionable subsidies that may be illegal if they have certain trade effects, but not in cases
that involve prohibited export subsidies for which the adverse effects are presumed.  To the contrary,
the appropriate inference is that the authority to draw adverse inferences from a Member's refusal to
provide information belongs a fortiori  also to panels examining claims of prohibited export subsidies.
Indeed, that authority seems to us an ordinary aspect of the task of all panels to determine the relevantfacts of any dispute involving any covered agreemen t:  a view supported by the general practice and
usage of international tribunals.
128
203. Clearly, in our view, the Panel had the legal authority and the discretion to draw inferences
from the facts before it – including the fact that Canada had refused to provide information sought bythe Panel.
129  The Panel acknowledged that it had the auth ority to draw such inferences, but it declined
nonetheless to draw the "inference that EDC debt fi nancing in the Canadian regional aircraft sector
confers a 'benefit'."  The Panel stated that it did not believe "there is sufficient basis" for such an
inference.130  Brazil poses the issue:  did the Panel err in law or abuse its discretion by declining to
make that inference?
204. In confronting this issue, we note that the Pa nel's statement seems less than completely clear.
Did the Panel, in fact, decline to take account of Ca nada's refusal to provide information and refuse to
infer that the information withheld would support Brazil's claim?  Or was the Panel saying that  all the
facts before it, including  Canada's withholding of information, did not reasonably warrant a finding
that the EDC's debt financing in the Canadian regional aircraft sector confers a "benefit" and amounts
                                                     
128See, for instance, The Corfu Channel Case , 1949, ICJ 4, p. 18, where the International Court of
Justice stated that " … the victim of a breach of internatio nal law is often unable to furnish direct proof of facts
giving rise to responsibility.  Such a State should be a llowed a more liberal recourse to inferences of fact and
circumstantial evidence.  This indirect evidence is admitted in all systems of law, and its use is recognized byinternational decisions.";  C ase Concerning Military and Paramilitary Activities In and Against Nicaragua ,
1986 ICJ 14, pp. 82-86, paras. 152, 154-156, where on the basis of the facts before it, the International Court ofJustice found that it could "reasonably infer" that certa in aid had been provided from Nicaraguan territory; the
International Court of Justice also made use of inferences to conclude that the scale of this aid ceased to be
significant after the early months of 1981;  C ase Concerning The Barcelona Traction, Light and Power
Company, Limited , 1970 ICJ 3, p. 215, para. 97.  Judge Jessup, in his separate opinion, opined that  "… if a
party fails to produce on demand a relevant document which is in its possession, there may be an inference thatthe document 'if brought, would have exposed facts unfavourable to the party …'".  The Mexican-United StatesGeneral Claims Commissions stated, in  William A. Parker (U.S.A.) v. United Mexican States  (Reports of
International Arbitral Awards, Vol. IV, 35, p. 39), that "[i]n any case where evidence which would probably
influence its decision is peculiarly within the knowledge of the claimant or of the respondent Government, the
failure to produce it, unexplained, may be taken into acc ount by the Commission in reaching a decision."  See
also D.V. Sandifer,  Evidence Before International Tribunals , Revised Edition, (University Press of Virginia,
1975), p. 153.
129We have summarized certain of the pertinent facts that were before the Panel in para. 199 of this
Report.
130Panel Report, para. 9.181.WT/DS70/AB/R
Page 58
to a prohibited subsidy?  This appears to us to be precisely the type of situation in which a panel
should examine very closely indeed whether the full ensemble  of the facts on the record reasonably
permits the inference urged by one of the parties to  be drawn, because a party's refusal to collaborate
has the potential to undermine the functioning of the dispute settlement system.  The continued
viability of that system depends, in substantial measure, on the willingness of panels to take all steps
open to them to induce the parties to the dispute to comply with their duty to provide informationdeemed necessary for dispute settlement.  In particular, a panel should be willing expressly to remindparties – during the course of dispute settlement proceedings – that a refusal to provide informationrequested by the panel may lead to inferences be ing drawn about the inculpatory  character of the
information withheld.
205. If we had been deciding the issue that confronted the Panel, we might well have concluded
that the facts of record
131 did warrant the inference that the information Canada withheld on the ASA
transaction132 included information prejudicial to Canada's denial that the EDC had conferred a
"benefit" and granted a prohibited export subsidy.  Yet, we do not believe that the record provides a
sufficient basis for us to hold that the Panel erred in law, or abused its discretionary authority, inconcluding that Brazil had not done enough to compel the Panel to make the inferences requested byBrazil.  For this reason, we let the Panel's finding of not proven  remain, and we decline Brazil's appeal
on this issue.
206. By this finding, we do not intend to suggest that Brazil is precluded from pursuing another
dispute settlement complaint against Canada, under the provisions of the SCM Agreement  and the
DSU, concerning the consistency of certain of th e EDC's financing measures with the provisions of
the SCM Agreement .  In that respect, we note that Brazil may request information from Canada, under
Article 25.8 of the SCM Agreement .  In the event of such a request, Article 25.9 of the
SCM Agreement  requires Canada to provide information sufficient to enable Brazil to assess the
"compliance" of those measures with the SCM Agreement .
                                                     
131Certain of these facts are summarized at para. 199 of this Report.
132Brazil appealed the Panel's failure to draw adverse inferences from a refusal by Canada, in only one
instance, to provide information requested by the Panel, that is, its refusal to provide information on the termsand conditions of the ASA transaction.  However, we note that Canada also withheld, for various reasons, such
as the protection of information claimed to be "business confidential" and "Cabinet" and "Ministerial" privilege,
other information requested by the Panel under Article 13.1 of the DSU (the Panel records Canada's repeatedrefusals to provide full information to the Panel at para s. 9.188, 9.218, 9.242, 9.272, 9.293, 9.294, 9.299, 9.303,
9.313 and 9.327 of the Panel Report).  We observe that the Panel "regretted" that Canada chose not to providethe Panel with certain of the information requested under Article 13.1 of the DSU (see Panel Report,paras. 9.244 and 9.314, footnote 621) and that the Panel did not accept Canada's reasons for withholding thatinformation (see Panel Report, paras. 9.66-9.69 and 9.347, footnote 633).WT/DS70/AB/R
Page 59
VIII.  EDC Debt Financing
207. With respect to the EDC's debt financing activities, the Panel found that "there is no prima
facie  case that EDC debt financing confers a 'benefit', and therefore constitutes a 'subsidy', within the
meaning of Article 1 of the SCM Agreement."133  In reaching this finding, the Panel reviewed
evidence presented by Brazil in the form of certain statements made by officials of the EDC134,
evidence on the EDC's "financial performance" and, in particular, its net interest margin135, and
evidence on the EDC's financing of the ASA transaction.136
208. Brazil argues that, in making this finding, the Panel erred in its "legal characterization" of the
facts.137  In its appeal, Brazil relies on three pieces of evidence that it believes demonstrate that the
"financial contribution" in the form of the EDC's debt financing "confers" a "benefit" and is,therefore, a "subsidy" within the meaning  of Article 1.1 of the SCM Agreement :  first, the EDC's
provision of a 16.5-year lease period for the financing of the ASA transaction; second, a statement bythe former President of the EDC, Mr. Paul Labbé, that the EDC's debt financing provides Canadian
exporters with an "edge"
138; and, third, a statement by Canada in the course of the Panel proceedings
that the EDC "does not always offer the most attractive financing package".139
209. With respect to the ASA transaction, Brazil argues that the 16.5-year lease period constitutes
a "benefit" since this lease-period exceeds the maximum 10-year lease period that governmentsparticipating in the OECD Arrangement  are authorized to offer.
140  Canada contends that Brazil did
not make this argument to the Panel and that, as a result, this argument "cannot give rise to an 'issue oflaw covered in the panel report'."
141
210. During the oral hearing, we asked Brazil to identify where, in its arguments before the Panel,
it had argued that the 16.5-year financing term was a "benefit" on the ground that it exceeded the
terms of the OECD Arrangement .  In a written response to our question, Brazil pointed, on the one
hand, to statements it made to the Panel concerning the 16.5-year length of the ASA financing periodand the allegedly "concessionary rates "
142 offered by the EDC to ASA and, on the other hand, to
                                                     
133Panel Report, para. 9.182.
134Ibid., paras. 9.162 – 9.165.
135Ibid., paras. 9.166 – 9.174.
136Ibid., paras. 9.175 – 9.182.
137Brazil's appellant's submission, para. 9.
138This statement is quoted in full at para. 6.57 of the Panel Report.
139Canada's second written submission to the Panel, para. 63, footnote 48.
140OECD Arrangement , Annex III, Part 2, chapter V, para. 21(a).
141Canada's appellee's submission, para. 10, quoting Article 17.6 of the DSU.
142Brazil's first written submission to the Panel, para. 6.4.WT/DS70/AB/R
Page 60
arguments Brazil made to the Panel about the OECD Arrangement  in the context of the EDC's equity
financing.143  Having examined those statements and arguments, we conclude that Brazil has not
identified any submission to the Panel, oral or written, in which it brought these two distinct elementstogether to argue that a 16.5-year lease period is  a "benefit" because it exceeds the terms of the
OECD Arrangement .  Therefore, we find that this argument was not made to the Panel and that the
Panel made no finding relating to it.  It was raised for the first time in this appeal.
211. In our view, this new argument raised by Brazil is beyond the scope of appellate review.
Article 17.6 of the DSU provides that "[a]n appeal shall be limited to issues of law covered in thepanel report and legal interpretations developed by the panel."  In principle, new arguments are notper se  excluded from the scope of appellate review, simply because they are new.  However, for us to
rule on Brazil's new argument, we would have to solicit, receive and review new facts that were notbefore the Panel, and were not considered by it.  In our view, Article 17.6 of the DSU manifestlyprecludes us from engaging in any such enterprise.  We note, furthermore, that, if complaining parties
were allowed to raise new arguments of this nature on appeal, that could also undermine the due
process rights of responding parties, which would not have had the opportunity to rebut suchallegations by submitting evidence in response.
144
212. The statement made by the former President of the EDC to which Brazil refers was the
following:
EDC’s financing support gives Canadian exporters an edge  when they
bid on overseas projects. . . .  Trade deals increasingly depend on
complex and tightly negotiated financing arrangements where a few
basis points in interest rates can make or break the deal.  Exporters are
having to bid not just on the basis of quality and price, but also on thebasis of the financing package supporting the sale. (emphasis added)
                                                     
143Brazil's reply, by letter of 15 June 1999, to our question posed at the oral hearing.  Brazil referred to:
its first written submission to the Panel, paras. 4.4 and 6.4;  Brazil's reply to Question 11 of the Questions Posed
by the Panel at the first Panel meeting with the parties;  Brazil's comments of 8 January 1999 on Canada'sreplies to Questions 6, 10 and 28 of the Questions Posed by the Panel at the second Panel meeting with theparties;  Brazil also referred to Canada's first written submission to the Panel, paras. 73, 74, 160 and 161;Canada's reply to Question 28 of the Questions Posed by the Panel at the second Panel meeting with the parties;and Canada's statement of its oral submission to the Panel at the first Panel meeting with the parties, para. 5.
144In that respect, we observe that Canada cites four transactions in the field of aircraft financing which
it believes demonstrate that "a financing term for regional  jet aircraft of greater than 10 years – as a matter of
fact, up to 18 years – is entirely within the bounds of commercial practice."  Canada's appellee's submission,para. 64.WT/DS70/AB/R
Page 61
213. The Panel observed that, in view of Canada's explanation of this statement, "the relevant
'edge' is the ability of the EDC's officials to assemble better structured financial packages on the basisof their knowledge and expertise."
145  In light of Canada's explanation, the Panel took the view that
there was a "possibility for divergent contextual inte rpretations" of this statement and inferred that it
"provides no firm guidance as to whether the EDC provides exporters with an 'edge' through
subsidization."146  The Panel's inference from this evidence does not appear to us to be either illogical
or unreasonable, and Brazil has not demonstrated that the Panel's conclusion is tainted by any error oflaw.  Thus, we are not persuaded by Brazil's argument based on this statement.
214. The third fact on which Brazil relies in appealing this issue is Canada's statement, made  in its
second written submission to the Panel, that th e EDC "does not always offer the most attractive
financing package available to regional aircraft customers."  This statement was not the subject of anyfactual or legal findings by the Panel.  Brazil does not argue that the Panel erred in failing to make afinding relying on this statement.  Rather, Brazil ar gues that this statement helps to show that the
EDC's debt financing constitutes a "benefit".
215. Brazil has failed to demonstrate that the Panel erred in law in its consideration of this
statement.  We note that the Panel asked Canada for clarification as to the meaning of the statement
147,
and Canada's response to the Panel indicates that this statement appears consistent with the EDCdoing no more than acting as a commercial financing body.
148  We are unable, therefore, to hold that
the Panel has erred in law in failing to rely on this statement.
216. For these reasons, we conclude that Brazil's arguments on appeal do not demonstrate that the
Panel committed an error of law in finding that "there is no prima facie  case that the EDC's debt
financing confers a 'benefit', and therefore constitu tes a 'subsidy', within the meaning of Article 1 of
the SCM Agreement."149
                                                     
145Panel Report, para. 9.163.
146Ibid.
147Question 10 of the Questions, dated 10 December 1998, posed by the Panel to Canada at the second
Panel meeting with the parties.
148Canada's reply, of 21 December 1998, to Question 10 of the Questions posed by the Panel at the
second Panel meeting with the parties.
149Panel Report, para. 9.182.WT/DS70/AB/R
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IX. EDC Equity Financing of CRJ Capital
217. Brazil contests the Panel's finding that "there is no factual basis on which to establish a  prima
facie  case that the EDC has made equity infusions into CRJ Capital that have facilitated CRJ Capital's
ability to lease or sell Canadian regional aircraft at a reduced price."150  Brazil argues that the evidence
on the Panel record establishes that this investment confers a "benefit", and, therefore, constitutes a
"subsidy".  In making this argument, Brazil relies on CRJ Capital's "total capital"151 structure and
certain statements made by Mr. Richard Dixon, an official of Industry Canada, to the effect that CRJCapital offers borrowers with a double-B credit rating lending rates that are ordinarily available onlyto borrowers with a double-A credit rating.
152
218. Brazil asserts before us, as it did before the Panel, that CRJ Capital's "total capital" structure
permits CRJ Capital to provide financing of regional aircraft at lower-than-market rates.  However,we see no facts in the Panel record to support this assertion.  Indeed, in these appeal proceedings,Canada contested Brazil's description of CRJ Capital's capital structure, which is an essential aspect of
Brazil's argument.
153  Moreover, in our view, Mr. Dixon's statements are not sufficient, on their own,
to establish a finding that CRJ Capital offered preferential financing, let alone that it was the EDC'sequity investment that permitted CRJ Capital to provide such financing.  We note, for instance, thatthere is no evidence in the Panel record of any transaction in which CRJ Capital  actually offered
financing terms of the type described by Mr. Dixon.
219. We, therefore, find that Brazil's arguments on appeal do not  demonstrate that the Panel erred
in law by finding that "there is no factual basis on which to establish a  prima  facie  case that the EDC
has made equity infusions into CRJ Capital that have  facilitated CRJ Capital's ability to lease or sell
Canadian regional aircraft at a reduced price." 
154
                                                     
150Panel Report, para. 9.200.
151Brazil's appellant's submission, para. 92.
152This statement is quoted at para. 6.136 of the Panel Report.
153Statement by Canada at the oral hearing.
154Panel Report, para. 9.200.WT/DS70/AB/R
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X. Findings and Conclusions
220. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's interpretation of the term "benefit" in Article 1.1(b) of the
SCM Agreement ;
(b) upholds the Panel's interpretation and application of the expression "contingent … in
fact … upon export performance" and the Panel's finding that "TPC assistance to theCanadian regional aircraft industry is 'contingent…in fact…upon export performance'within the meaning of Article 3.1(a) of the SCM Agreement"
155;
(c) concludes that the Panel did not err in law or abuse its discretion by declining to draw
inferences from Canada's refusal to provide information requested by the Panel aboutcertain debt financing activities of the EDC;
(d) upholds the finding of the Panel that Brazil had not established a  prima facie  case
that the debt financing activities of the EDC in support of the Canadian regional
aircraft industry confer a "benefit" within the meaning of Article 1.1(b) of the
SCM Agreement ;  and
(e) upholds the finding of the Panel that Brazil had not established a  prima facie  case
that the equity investment by the EDC in CRJ Capital confers a "benefit" within the
meaning of Article 1.1(b) of the SCM Agreement .
221. The Appellate Body recommends  that the DSB request that Canada bring its export subsidies
found in the Panel Report, as upheld by our Report, to be inconsistent with Canada's obligations underArticles 3.1(a) and 3.2 of the SCM Agreement  into conformity with its obligations under that
Agreement.  Specifically, we recall that the Pa nel recommended that "Canada shall withdraw the
subsidies identified in sub-paragraphs (b) and (f) of [paragraph 10.1 of the Panel Report] within
90 days."
156
                                                     
155Panel Report, para. 9.347.
156Ibid., para. 10.4.WT/DS70/AB/R
Page 64
Signed in the original at Geneva this 23rd day of July 1999 by:
_____________________
James Bacchus
Presiding Member
_________________________ _____________________
         Florentino Feliciano      Mitsuo Matsushita                Member Member