WT/DS267/R/Add.3 
 Page J-1 
 
 
 
 
ANNEX J 
 
ANSWERS OF THIRD PARTIES TO THE QUESTIONS 
FROM THE PANEL AND FROM  OTHER THIRD PARTIES', 
AND COMMENTS THERETO 
 
 
Contents Page 
Annex J-1 Answers of Argentina to th e Panel's Questions Posed Following the 
  First Session of the First Subs tantive Meeting (11 August 2003) J-3 
Annex J-2 Answers of Australia to the Panel's Questions Posed Following the 
  First Session of the First Subs tantive Meeting (11 August 2003) J-20 
Annex J-3 Answers of Benin to the Panel's Questions Posed Following the  
  First Session of the First Subs tantive Meeting (11 August 2003) J-37 
Annex J-4 Answers of Canada to the Panel's Questions Posed Following the 
  First Session of the First Subs tantive Meeting (11 August 2003) J-43 
Annex J-5 Answers of China to the Pa nel's Questions Posed Following the  
  First Session of the First Subs tantive Meeting (11 August 2003) J-49 
Annex J-6 Answers of the European Communities to the Panel's Questions 
 Posed Following the First Session of the First Substantive Meeting 
 (11 August 2003) J-59 
Annex J-7 Answers of New Zealand to the Panel's Questions Posed Following 
  the First Session of the First Substantive Meeting (11 August 2003) J-84 
Annex J-8 Answers of Paraguay to the Panel's Questions Posed Following the 
  First Session of the First Subs tantive Meeting (11 August 2003) J-95 
Annex J-9 Comments of Argentina (22 August 2003) J-97 
Annex J-10 Comments of Australia (22 August 2003) J-99 
Annex J-11 Comments of the European Communities (22 August 2003) J-101 
Annex J-12 Answers of Argentina to th e Panel's Questions Posed Following the 
  Resumed Session of the First Substantive Meeting 
  (27 October 2003) J-113 
Annex J-13 Answers of Australia to th e Panel's Questions Posed Following the 
  Resumed Session of the First Substantive Meeting   (27 October 2003) J-120 
Annex J-14 Answers of Benin and Chad to the Panel's Questions Posed  
  Following the Resumed Session of the First Substantive Meeting   (27 October 2003) J-126 
Annex J-15 Answers of Canada to the Panel's Questions Posed Following the 
 Resumed Session of the First Substantive Meeting  (27 October 2003) J-129 
Annex J-16 Answers of China to the Panel's Questions Posed Following the 
 Resumed Session of the First Substantive Meeting 
 (27 October 2003) J-132 
Annex J-17 Answers of the European Communities to the Panel's Questions 
 Posed Following the Resumed Session of the First Substantive 
 Meeting (27 October 2003) J-145 
Annex J-18 Answers of India to the Panel's Questions Posed Following the 
 Resumed Session of the First Substantive Meeting  (27 October 2003) J-151 WT/DS267/R/Add.3 
Page J-2  
 
Contents Page 
Annex J-19 Answers of New Zealand to  the Panel's Questions Posed Following 
 the Resumed Session of the First Substantive Meeting  (27 October 2003) J-152 
Annex J-20 Answers of Chinese Taipei to the Panel's Questions Posed 
 Following the Resumed Session of the First Substantive Meeting   (27 October 2003) J-157 
  WT/DS267/R/Add.3 
 Page J-3 
 
 
ANNEX J-1 
 
 
REPLIES BY ARGENTINA TO QUESTIONS POSED 
BY THE PANEL TO THE THIRD PARTIES 
FIRST SESSION OF THE FIRST SUBSTANTIVE 
MEETING OF THE PANEL 
 
11 August 2003 
 
 
Article 13 of the Agreement on Agriculture  
 
1. Australia has argued that Article 13 of the Agreement on Agriculture  is an affirmative 
defence.  How do you reconcile this with your view that the conditions in Article 13 are a "prerequisite" to the availability of a right or pr ivilege?  Australia  Would other third parties 
have any comments on Australia's assertion?   3
rd parties, in particular Argentina, Benin, China, 
Chinese Taipei 
 
 Argentina agrees with Australia that Artic le 13 of the Agreement on Agriculture is an 
affirmative defence and that in these proceedings the United States therefore carries the burden of 
proof on the question of whether its subsid ies conform with the terms of Article 13. 
 
 According to the Appellate Body in US-Shirts and Blouses : 
 
 " … the burden of proof rests upon the party, wh ether complaining or defending, who asserts 
the affirmative of a particular claim or defence.   If that party adduces evidence sufficient to 
raise a presumption that what is claimed is true , the burden then shifts to the other party, who 
will fail unless it adduces sufficient evi dence to rebut the presumption".1 
 
 As stated by Brazil in Paragraph 112 of its first written submission, in the case of claims of violation of the positive obligations of the WTO Agre ement, it is the complaining party that has the 
burden of providing a prima facie case of violation.   However, in the case of affirmative defences, 
such as Articles XX and XI:2(c)(i), the Appellate Body  itself established that it is only reasonable that 
the burden of establishing such a defenc e should rest upon the party asserting it.
2 
  According to the standards established by the Appellate Body,
3 Article 13 of the Agreement 
on Agriculture is a provision in the nature of an a ffirmative defence.  As such, it does not create new 
obligations for Members, but limits the scope of certain provisions of the SCM Agreement and the 
GATT 1994 subject to certain conditions.  Nor does it alter the legal nature of Members' measures, 
but simply permits Members to maintain those measures exempt from actions, if the measures meet 
the conditions specified in Article 13(a), (b) or (c).   As Argentina stated in its Third Party Initial 
Brief:4 
 
 "Argentina considers that the provisions c ontained in Article 13 of the AoA have an 
exceptional nature.  This would imply that the Member who alleges to be protected by the 
Peace Clause has the burden of proving the fulfilm ent of its legal requirements.  As long as 
                                                      
1 Appellate Body Report, US – Shirts and Blouses, WT/DS33/AB/R, p. 14, text at note 16. 
2 Id., p. 16, text preceding note 23. 
3 See paragraphs 113 to 116 of Brazil's First Written Submission. 
4 Argentina's Third Party Initial Brief, paragraph 14. WT/DS267/R/Add.3 
Page J-4  
 
the US does not demonstrate prima facie that it fulfils all the conditions that would allow a 
protection against a claim by virtue of Article  13 of the AoA, the Panel should consider as 
appropriate the claims under Article XVI of  GATT 1994 or Articles 3, 5 and 6 of the SCM 
Agreement". 
 
 The exceptional nature of Article 13 of the Agreement on Agriculture (AoA) cannot change 
merely because the conditions justifying it incl ude conformity with rules that create positive 
obligations for Members (e.g. Article 6 of the AoA) .  This legal nature comes out clearly in the 
chapeau of Article 13 of the AoA which begins with the words " Notwithstanding the provisions of 
GATT 1994 and the Agreement on Subsidies and Countervailing Measures  …", providing guidance to 
the effect that the purpose of the entire Article 13 is  to create exceptions, subject to certain conditions, 
to the provisions of the GATT 1994 and the SCM Agreement.   For example the party claiming defence under Article 13 of the AoA clearly must prove, inter alia, that the domestic support measures which it cl aims should be exempt from actions based on 
Articles 5 and 6 of the SCM Agreement and Article XVI of the GATT 1994 do not grant support to a 
specific commodity in excess of that decided during the 1992 marketing year.   If Article 13 of the AoA did not exist, a ny domestic support measure would unquestionably 
be subject to actions based on Articles 5 and 6 of the SCM Agre ement and Article XVI of the 
GATT 1994.  The temporary defence accorded by Article  13 is an exception to that situation, and it is 
therefore up to the claimant to demonstrate that  the conditions permitting such defence have been 
fulfilled.   Mere reference, as one of the conditions jus tifying the measure, to conformity with a positive 
obligation of the AoA, cannot alter the excepti onal nature that informs all of Article 13. 
 
Article 13(b) of the Agreement on Agriculture :  Domestic Support Measures 
 2. Please explain the difference, if any, between the meaning of "defined" and the meaning of "fixed" in the phrase "a defined and fixed ba se period" in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture .  3
rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
 Argentina considers that while the term "defined " refers to the need for the base period to be 
clearly determined in the order authorising the paym ents, the term "fixed" refe rs to the need for the 
base period to be identified in terms which prevent it from being shifted or modified a posteriori .  The 
term "fixed" indicates that the payments made in accordance with the criteria stipulated in 
paragraph 6(a) must always rely on the sa me base period, and no change is possible. 
 
3. Please explain the meaning of "a" in "a defined and fixed base period" in 
paragraph 6(a) of Annex 2 of the Agreement on Agriculture , the meaning of "the" in "the base 
period" in paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based 
on the years 1986-88" in Annex 3.   3rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
 The purpose of the term "a" in paragraph 6(a) of Annex 2 of the Agreement on Agriculture is 
to establish the obligation for Memb ers to identify a single period, which may cover two, three or 
more years depending on the Member.  For example the base periods established by the EU, the 
United States and Argentina are different with respect to the payments referred to  in paragraph 6(a) of 
Annex 2.  However, although different for each Member  – the identification of the period is up to the 
Members in that it is not specified in the text of the Agreement per se  – the period must be identified 
by the Member concerned and must remain constant.  Otherwise, the choice of the word "a" in this 
provision would be difficult to explain.  If the negotiators of the AoA had not wanted the period to maintain an identity over time, they would have so  indicated by using a different preposition, for 
example, "some" period, indicating that the period could be subject to a certain mobility.  WT/DS267/R/Add.3 
 Page J-5 
 
 
  In the case at issue, the United States iden tified, for the purposes of paragraph 6(a) of 
Annex 2, the period running from 1986 to 1988,  as shown in document G/AG/AGST/USA on 
pages 1-7, referred to in Part IV of the Unite d States' Schedule of Commitments – Schedule XX. 
 
 In paragraph 6(b), (c) and (d), Argentina understands the term "the
 base period" to refer to the 
base period 1986-1988, the only base period identif ied in the AoA for domestic support (Annex 3). 
  "The" base period refers to the base period 1986-1988, since there is no other period for 
domestic support.  Indeed, Article 1(a)(i) also refers  to "the" base period, which is none other than the 
period specified in Annex 3 of the AoA.  Article 1( d)(i) and Article 1(h)(i) also mention "the" base 
period.   In other words, "a" base period is differen t from "the" base period.  Moreover, the second 
sentence of paragraph 5 of Annex 2 of the AoA re quires the adoption of "the" base period established 
in paragraphs 6(b), (c) and (d), clearly re flecting this difference with paragraph 6(a). 
  In the case of payments by the United States unde r paragraph 6 of Annex 2 of the AoA, this 
distinction is irrelevant since "a" base period in the context of paragraph 6(a) and "the" base period of 
paragraphs 6(b), (c) and (e) are the same - 1986-1988 - having been so defined by the United States in 
its Schedule of Commitments. 
 
4. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture ?  3
rd parties, in particular Australia, Argentina, Canada, 
China, EC, NZ  
 It is Argentina's understanding that under paragraph 6 of Annex 2 of the Agreement on 
Agriculture, for each programme a Member may onl y define and establish a base period once.  
Otherwise, the term "fixed" would lose all of its relevance.  
5. Do you agree that a payment penalty based on crops produced is "related to type of 
production"?   EC 
 
6. Please explain the meaning of the word "criteria" in Article 6.1 and 7.1. What effect, if 
any, does the use of the word "Accordingly" in paragraph 1 of Annex 2 of the Agreement on 
Agriculture  have on the meaning of the preceding sentence?   3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ 
 
 The word "criteria" in Article 6.1 and 7.1 signifies the parameters, rules or precepts which 
serve to distinguish the domestic support m easures that are not subject to reduction. 
  In relation to the preceding sentence, the use of the word "accordingly" in paragraph 1 of 
Annex 2 of the Agreement on Agriculture indicates that the basic criteria listed thereafter are a 
corollary to the "fundamental principle" set forth in the preceding sentence.  However, this does not
 
imply that the preceding sentence does not contain "stand-alone" obligations.   On the contrary, the domestic support m easures for which exemption from the reduction 
commitments is sought must conform to the two basi c criteria (set forth in paragraph 1(a) and (b)), 
plus the policy-specific criteria and conditions set ou t in the subsequent para graphs of Annex 2, in 
addition to which they must meet "the fundamental requirement
 that they have no, or at most minimal, 
trade-distorting effects or effects on production".  A measure which meets the tw o criteria set forth in 
paragraph 1(a) and (b) plus the policy-specific cr iteria and conditions set out in the subsequent 
paragraphs of Annex 2 may also violate the general principle.  Any other interpretation would deprive WT/DS267/R/Add.3 
Page J-6  
 
of any meaning the first sentence of paragraph 1 of Annex 2, which the text itself qualifies as a 
"fundamental requirement".  
7. Please explain the meaning of the words "the fundamental requirement" as used in 
paragraph 1 of Annex 2 of the Agreement on Agriculture .  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ 
  In Argentina's view, the words "the fundame ntal requirement" as used in paragraph 1 of 
Annex 2 signify the establishment of a general mandatory condition governing the establishment and 
application of any measure whose inclus ion in the "Green Box" is claimed. 
 
8. In your oral statement, you emphasize the u se of the word "criteria" in other parts of 
the Agreement on Agriculture , as distinct from the reference to "fundamental requirement" in 
the first sentence of paragraph 1 of Annex 2.  Is it the case that sub-paragraphs (a) and (b) of 
paragraph 1 of Annex 2 are also "criteria"?   EC 
 
9. If the first sentence of paragraph 1 of Annex 2 is a stand-alone obligation, does this 
allow effects-based claims of non-compliance with  Annex 2?  If so, how does this affect the 
purpose of Article 13(b)?   3
rd parties, in particular Australia, Argentina, Canada, EC, NZ 
  The first sentence of paragraph 1 of Annex 2 of the AoA contains a stand-alone obligation. 
 
 Since the first sentence of paragraph 1 of Anne x 2 imposes an obligation by requiring that the 
measures for which exemption from a reduction commitment is claimed must, as a primary or essential condition, be such that they do not artificia lly alter trade or production, it permits claims of 
non-compliance with Annex 2 based on the effects of the domestic support measures, regardless of 
whether they meet the basic criteria set out in th e second sentence of paragraph 1 and with the policy-
specific criteria and conditions set out in the rest of Annex 2.   Otherwise, we would be exempting from the reduction commitments measures that might be 
complying with the two basic criteria set forth in paragraph 1(a) and (b) of Annex 2 plus the policy-
specific criteria and conditions set out in the subseque nt paragraphs of Annex 2 while at the same time 
violating the general principle of meeting "the fundame ntal requirement that they have no, or at most 
minimal, trade-distorting effects or effects on production."   It might then be possible to evade conformity with the provisions of Article 6 of the AoA or 
with the level of support to a specific commodity decided during the 1992 marketing year. 
 
 The result could be to undermine the purpose of Article 13(b) of exempting from countervailing duties or actions based on Article XVI .I or Articles 5 and 6 of the SCM Agreement 
only those measures which comply with  the conditions set forth therein. 
 
10. If the first sentence of paragraph 1 of Annex 2 is not a stand-alone obligation, then must 
new, non- or minimally trade-distorting measures  that do not conform to the criteria listed in 
Annex 2 be classified as non-Green Box?   3
rd parties, in particular Australia, Argentina, Canada. 
EC, NZ   Yes.  Argentina considers that non- or minimally trade-distorting measures that do not 
conform to the criteria listed in Annex 2 must be excluded from the Green Box.  In other words, the 
measures which satisfy the fundamental requirement of having no, or at most minimal, trade-distorting effects or effects on production, but which do not meet the criteria established in 
paragraph 1(a) and (b) of Anne x 2 and the policy-specific criteria and conditions set out in the 
subsequent paragraphs of Annex 2, cannot  be exempted from reduction commitments. 
  WT/DS267/R/Add.3 
 Page J-7 
 
 
11. If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the 
assessment of the direct payments programme's  compliance with paragraph 6 of Annex 2.   3rd 
parties, in particular, Australia, Argentina, Canada, EC, NZ  
 Argentina considers that there is a clear hier archy between the two provisions, in which the 
principal obligation for Members is to ensure th at their support programmes, even if they could 
qualify as decoupled support programmes under paragra ph 6 of Annex 2, do not have trade-distorting 
effects or effects on production, as stipulat ed in paragraph 1 of the same Annex. 
 
 Consequently, even if the Direct Payments programme complies with the requirements of the 
second sentence of paragraph 1 of Annex 2, if it does not comply with the fundamental requirement 
laid down in the first sentence, it cannot  be considered a Green Box programme. 
  Argentina agrees with Brazil's statement in pa ragraphs 183-191 of its first written submission 
with respect to the strong production and trade-distorting effects of the Direct Payments programme. 
 12. Where does Article 13(b) requi re a year-on-year comparison?   3
rd parties, in particular 
Australia, Argentina, Canada, China, EC, NZ   As stated in paragraph 21 of its oral s ubmission, Argentina maintains that the domestic 
support measures granted during any one of the mark eting years of the period covered between the 
entry into force of the AoA in 1995 and the expiry of Article 13 on 31 December 2003 are relevant for the purpose of determining conformity with Artic le 13(b), the text of which does not explicitly 
establish the requirement of a year-on-year comparison.  
 Thus, the excess support granted during any one of the years of the period of implementation 
suffices to cancel the protection provided by the Peace Clause. 
  Nor can a year-on-year comparison be infe rred from Article 13 or from its context.  
Otherwise, at the beginning of each marketing year  the Member that had exceeded the level of support 
in the previous year would be covered by the Peace Clause once again and exempt from any claims. 
 
 In practical terms, this interpretation woul d turn Article 13 protection into an absolute 
defence, given the difficulty of challenging the le vel of support granted during the current marketing 
year at the time of the complaint.  If it were only possible to challenge the support granted during a past marketing year independently of the support gr anted during the current year, what would be the 
use of any successful claim under Articles 5 and 6 of the SCM Agreement?  How would it be 
possible, in that case, to eliminate the adve rse effects of a subsidy already granted? 
 
13. Does a failure by a Member to comply in a given year with either the chapeau of 
Article 13(b) or the proviso in subparagraph (ii) of  Article 13(b) impact its entitlement to benefit 
in an earlier or a later year from the exem ption from action provided by Article 13(b)?   3
rd 
parties, in particular Australia, Argentina, Canada, China, EC, NZ 
  In Argentina's view, the failure by a Member to comply in a given year with either the 
chapeau  of Article 13(b) or the proviso in sub paragraph (ii) of Article 13(b) results in the loss of the 
protection granted by the Peace Clause. 
 
 Regarding the " chapeau " of Article 13(b):  domestic support that does not conform to the 
provisions of Article 6.1, for example distorting support in excess of the reduction commitment in violation of Article 3.2 of the AoA, is outside the sc ope of Article 13(b).  Indeed, that Article refers to 
"domestic support measures that conform fully to th e provisions of Article 6 … ".  Consequently, 
domestic support of the kind referred to in Article 13(b) that does not conform to Article 6 does not WT/DS267/R/Add.3 
Page J-8  
 
bear any relation to Article 13(b)(ii).  Such suppor t is prohibited and does not enjoy the protection of 
the Peace Clause.   Regarding failure to comply with the proviso in  Article 13(b)(ii):  any failure to comply in 
whatever year implies exclusion from the scope of Article 13(b) for all of the distorting domestic 
support measures concerning the specific commodity in question. 
 
14. Does a failure of a Member to comply with Article 13(b) in respect of a specific 
commodity  impact its entitlement to benefit in respect  of other agricultural products from the 
exemption from action provided by Article 13(b)?   3
rd parties, in particular Australia, Argentina, 
Canada, China, EC, NZ 
  In Argentina's view, failure by a Member to comp ly with Article 13(b)(i) and (ii) in respect of 
a specific commodity does not impact its entitlement  to benefit in respect of other agricultural 
products from the exemption action provided by Article 13(b). 
 
 However, failure to comply with the conditions laid down in the chapeau  of Article 13(b) 
i.e. failure of the domestic support to conform with  the provisions of Article 6 of the AoA, could 
result in exclusion from the protection offered by Ar ticle 13(b) in respect of domestic support granted 
to all products, for example, if the domestic suppor t measure exceeds the level of the commitment in 
the schedule of the Member concerned. 
 
15. Is there any basis on which counter-cyclic al payments could be considered product-
specific?   3
rd parties, in particular Australia, Argentina, Canada, China, EC, NZ 
   As stated in paragraph 8 of its Oral Submission, Argentina considers that " support to a 
specific commodity " in Article 13(b)(ii) includes any domestic support measure that is not a Green 
Box measure and that provides any identifiable suppor t to a commodity in particular, regardless of 
whether the measure may provide support to a greater number of commodities.
5  In this respect, 
counter-cyclical payments explicitly provide support to cotton (upland) as can be seen in the text of 
the United States Farm Act of 2002 (2002 Farm S ecurity and Rural Investment Act, Title I, 
Subtitle A, Exhibit US-1). 
 
16. If the word "specific" were deleted from Article 13(b)(ii), would this change the 
meaning of the subparagraph?   3rd parties, in particular Australia, Argentina, Benin, Canada, China, 
EC, NZ  
 The word "specific" is an adjective qualifying the noun "commodity".  The adjective 
"specific" does not qualify the support (the calculati on of which may or may not be product-specific, 
as stated in paragraph 1 of Annex 3 of the AoA).   If the word "specific" qualifying the noun "commodity" were not there, the text would no longer have the precision that it currently has, although this does not mean that even then it could not 
be interpreted as referring to any type of domestic support (regardless of whether it is categorized as 
product-specific or non-specific under Annex 3 of the AoA).  
17. What is the relevance, if any, of the concept of "specificity" in Article 2 of the 
SCM Agreement  and references to a "product" or "subsidized product" in certain provisions of 
the SCM Agreement to the meaning of "support to a specific commodity" in Article 13(b)(ii) Agreement on Agriculture ?  3
rd parties, in particular Australia, Argentina, Canada, China, EC, NZ 
                                                      
5 In this respect, Argentina agrees with New Zealand:  " … New Zealand sees no basis on which to 
suggest that support to a specific commodity should be excluded simply because other commodities may receive 
similar support".  Third Party Submission of New Zealand, 15 July 2003, paragraph 2.23.  WT/DS267/R/Add.3 
 Page J-9 
 
 
  In Argentina's view the concept of specific ity in Article 2 of the SCM Agreement is not 
linked to the term "specific
 commodity" in Article 13(b)(ii) of the AoA.  In Article 2 of the SCM 
Agreement, the  specificity is a characteristic of the subsidies  (prohibited or actionable) covered by 
the current SCM Agreement, while the specificity referred to in the phrase "specific commodity" is 
characteristic of the commodity and not of the subsidy granted.  The phrase "support to a specific  
commodity" cannot be identified with "specific support  to a commodity". 
  The concept of "specificity" in Article 2 of the SCM Agreement is what indicates whether a 
subsidy is subject to the provisions of Part II or to  the provisions of Parts III or V of that Agreement. 
 
18. Benin's oral statement considers the phr ase "support to a specific commodity" in 
Article 13(b)(ii) of the Agreement on Agriculture .  How does Benin believe that phrase is best 
interpreted?  Please substantiate your response,  commenting on other submissions by parties 
and third parties as you believe appropriate.   Benin 
 
19. Where does Article 13(b)(ii) require a year-on-year comparison?   3
rd parties, in particular 
Australia, Argentina, Canada, EC, NZ   Argentina submits that the domestic support measures granted in any of the marketing years of the period covered between 1995 and 2003 are rele vant for the purposes of determining conformity 
with Article 13(b)(ii), which does not explicitly require a year-on-year comparison. 
 
20. Does Article 13(b)(ii) require a comparison of support granted with support decided?  
How could such a comparison be made?  
 In Argentina's view Article 13(b)(ii) requires a comparison of support granted with support 
decided.  Such a comparison is possible by making a calculation in terms of budgetary outlays in each 
one of the periods in question (support granted in  the implementation period as compared to support 
decided during the 1992 marketing year).  
21. Please comment on Brazil's assertion that the terms "grant" and "decided" in 
Article 13(b)(ii) have broadly the same meaning.   If so, why did the drafters not use the same 
term?   3
rd parties, in particular, Australia, Argentina, Canada, China, EC, NZ 
  According to the text of Article 13(b)(ii) the word " decided " signifies the decision to provide 
payments for a specific commodity (including the revenue foregone under Article 1(c) of the AoA), 
whether those payments are classified as product-sp ecific or non-specific, as well as other forms of 
domestic support in monetary terms as set forth in Annex 3 of the AoA. 
  The phrase " support decided during the 1992 marketing year " is necessarily linked to the 
phrase "grant support" - indeed, there would be no b asis for comparison if in one case the support was 
granted, while in the other case, the support was only  planned.  In other words, as indicated in the 
reply to the preceding question, the Article 13(b)( ii) requirement necessarily involves a comparison of 
domestic support measured in the same manner in each one of the periods in question, i.e. a "comparison of the comparable".   In principle, the comparison must be made be tween the support granted in any year of the 
implementation period and the support "decided" during 1992.  The support "decided during the 1992 
marketing year" refers to a legislative or ad ministrative decision by a Member during the 1992 
marketing year on the domestic support to be gran ted during the implementation period in terms of 
budgetary outlays.  WT/DS267/R/Add.3 
Page J-10  
 
 Where no "decision" has been taken in terms of budgetary outlays during 1992, Argentina understands that the only support that can be considered  as "decided" during that marketing year is the 
support granted during that year.  
22. What is the meaning of "support" in Agreement on Agriculture  13(b)(ii)?  Why would it 
be used differently from Annexe 3, where it refers to total outlays?   3
rd parties, in particular, 
Australia, Argentina, Canada, China, EC, NZ   The "support granted" in each marketing year of the implementation period must necessarily be linked to the budgetary outlays for those years. 
 
 The term "support" used in Article 13(b)(ii) of the AoA refers to budgetary outlays for any 
kind of support that is not Green Box.  For ex ample, the term "support" could include assistance 
granted by the State by foregoing tax revenue or writing off producers' debts.  23. Should support be compared under Article 13(b)(ii) in terms of unit of production or 
total volume of support or both?   3
rd parties, in particular, Australia, Argentina, Canada, China, EC, 
NZ   Support should be compared under Article 13(b)(ii)  in total monetary terms.  In paragraph 16 
of its oral submission, Argentina submits that the term "decided" in Article 13(b)(ii) should not be 
interpreted as meaning that the rate per unit of produc tion is the factor to be considered in determining 
the amount of support granted.  If the argument put forward by the United States were accepted, this would enable an unlimited amount of domestic s upport to be granted for each product provided the 
total AMS is not exceeded, since it would be covere d by Article 13.   Thus, the amount of the AMS 
could be granted to one or several products, provided its maximum bound level is not exceeded. 
 
 The comparison must be made in terms of total value of support for a specific product, 
comparing the levels for each marketing year subsequent to 1992 and up to 31 December 2003 with 
the levels of support decided during the 1992 marketing year.  
24. Please provide any written drafting history which could shed light on why the proviso 
was added to what is now Article 13(b)(ii) of the Agreement on Agriculture  and, in particular, 
why the words "grant" and "decided" were used.   EC 
 
25. Please comment on an interpretation of the words "decided during" in Article 13(b)(ii) 
that would read them as synonymous with the words "authorized during".   3
rd parties, in 
particular Australia, Argentina, Canada, China, EC, NZ 
  The term "decided during" in Article 13(b)( ii) refers to a decision made by the Member 
granting the support during the 1992 marketing year w ith respect to the budgetary outlays that would 
be made for domestic support, excluding Green Box.  
 If there was no decision during the 1992 marketing year, the budgetary outlays effectively 
made during that marketing year must be consid ered to constitute the support "decided during" the 
1992 marketing year (i.e. if there is no express decisi on in this respect, we must fall back on what was 
effectively disbursed which also, im plicitly, represents a "decision"). 
 26. Under Article 13(b)(ii), a comparison is required between support at different times.  
One of the issues which is contested between the pa rties is whether the only later period that the 
Panel can consider is the present one (i.e. the period underway at the time of the request for establishment of the Panel).  This argument is based on the present tense of the words "do not 
grant" in the English text.  The Panel asks whether there is any difference in the verb tense as  WT/DS267/R/Add.3 
 Page J-11 
 
 
used in the Spanish-language text, or any other difference which might aid the Panel in 
interpreting these words?   Argentina, EC, Paraguay, Venezuela 
  While it is true that in the English version of the Agreement on Agriculture, the verb tense 
used in Article 13(b)(ii) is the present tense, as stat ed by the United States in paragraph 90 of its first 
written submission ( … the proviso is written in the pr esent tense …), it should be stressed that in the 
Spanish text, the present tense is clearly used in the subjunctive mode (" a condición de que no 
otorguen  ayuda  … ") 
  The expression " a condición de que " uses the subjunctive mode to indicate the conditional or 
possible nature and expresses syntactic subordination. 
  The use of the subjunctive mode in Article 13(b )(ii) is important, because in Spanish it is used 
to express and form sentences in which the action re mains in doubt, as opposed to the indicative mode 
where the tenses always indicate that the action, conc retely, is taking place, has taken place, or will be 
taking place. 
  The Spanish text coincides with the verb al tense used in the French version (" à condition que 
ces mesures n'accordent pas "), in which the present subjunctive is also used. 
  Consequently, Argentina does not agree with the United States' contention that the present 
tense criterion in Article 13(b)(ii) implies that th e only support the Panel may consider is current 
support.  
27. If the 1992 "decision" led to or was the funding source for the money provided in 1992 
and later years, is it the full amount of all that funding that constitutes the "support" decided in 
1992? If the answer to this question is that it  is the full amount of all the support provided 
pursuant to the "decision" that must be taken in to account, must this be compared with the 
total amount of support that will or might flow  from the decision made in the more recent 
period for the purposes of the comparison required under Article 13(b)(ii)?  If a Member did not make a "decision" (however that may be inte rpreted) in 1992 about "support", is it the case 
that the Member has a zero base for the purpos es of the comparison required under Article 
13(b)(ii)?   EC 
 
28. In paragraph 13 of Australia's oral statement, you state that a "question" is: "could 
conditions of price competition for the purposes of a non-violation or impairment claim be 
assessed solely on the basis of budg etary outlay figures, as argued by Brazil, or on the basis of a 
rate of payment, as argued by the United States?   In Australia's view, both factors put forward 
by Brazil and the United States would properly form a part of that assessment, but not the whole."  Could you please clarify this statem ent (indicating other elements which would 
complete the "whole" and explain its relevan ce for the purposes of our consideration of 
Article 13 of the Agreement on Agriculture ?)  Australia, EC 
 Export Credit Guarantee Programme 
 
29 (a) Is an export credit guarantee a financia l contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement ?  Why or why not?   3
rd parties, in particular, Argentina, 
Canada, EC, NZ 
  An export credit guarantee is a "financial contribution" in the form of a "potential direct transfer of funds or liabilities" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement when 
it involves the granting of a financial credit in conditions more favourable than those that can 
normally be found on the market.  Those conditions may contain all or some of the following WT/DS267/R/Add.3 
Page J-12  
 
elements:  lower interest rates, longer repaymen t terms for loans, lower down-payment requirement, 
reduced frequency of payments per year and/or tota l or partial exemption from any fee or premium to 
provide the US Government with adequate protec tion against potential flaws in its export credit 
guarantee portfolio.  This is confirmed in practic e by the fact that no company on the market is 
prepared to provide coverage equivalent to the coverage accorded with the credit guarantees of the 
Commodity Credit Corporation of the United States. 
  Moreover, items (j) and (k) of the Illustrative List in (Annex 1) of the SCM Agreement set out 
the circumstances in which this type of opera tion should be consider ed an export subsidy. 
 
29. (b) How, if at all, would this be relevant to the claims of Brazil?   3
rd parties, in 
particular, Argentina, Canada, EC, NZ   It is relevant to the claims of Brazil in that the fact of being a "financial contribution" is the 
first element of a prohibited export subsidy claim. 
 
30. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement  
were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
Panel would therefore appreciate third party views on this situation, including with respect to 
the viability of an a contrario  interpretation of item (j) of the Illustrative List (as addressed in 
paragraphs 180-183 of the United States' first written submission).   3
rd parties, in particular, 
Argentina, Canada, EC, NZ 
  As stated by the Appellate Body in US - FSC  and in Canada - Dairy Products , the AoA does 
not contain its own definition of a subsidy, and he nce we must turn to the SCM Agreement for the 
context.  The Appellate Body has also estab lished (FSC case) that export subsidies under 
Article 3.1(a) of the SCM Agreement c onstitute export subsidies under the AoA. 
  The relevance of Articles 1 and 3 of the SC M Agreement is therefore unquestionable when it 
comes to evaluating the consistency of the export credit guarantees with WTO rules.   Moreover, Annex I of the SCM Agreement  identifies export subsidies by providing an 
illustrative list thereof.  In other words, a measure which constitutes an  export subsidy classified in the 
Illustrative List is per se  a prohibited subsidy under Article 3.1(a) of the SCM Agreement .  Obviously, 
the "Illustrative" List in no way covers all me asures that could qualify as an export subsidy under 
Article 3.1(a) of the SCM Agreement.  As its name indicates, it is only an "illustrative" list and not an 
exhaustive one. 
 
 Now, footnote 5 in Article 3.1(a) of the SCM Agreement states that "measures referred to
" in 
Annex I as not constitutin g export subsidies shall not be prohibited. 
  There are two paragraphs in this Annex that refer to credit, guarantee or insurance programmes:  (j) and (k).  There is a fundamental  difference between the two.  Item (k) explicitly 
recognises that a measure, in the circumstances set forth in its second paragraph, shall not be 
considered an export subsidy (see the last sentence of the second paragraph), fulfilling the 
requirement set forth in footnote 5 to the SCM Agreement:   (k) The grant by governments (or special ins titutions controlled by and/or acting under the 
authority of governments) of export credits at ra tes below those which they actually have to 
pay for the funds so employed (or would have to pay if they borrowed on international capital 
markets in order to obtain funds of the same maturity and other credit terms and denominated 
in the same currency as the export credit), or the payment by them of all or part of the costs incurred by exporters or financial institutions in obtaining credits, in so far as they are used to 
secure a material advantage in the field of export credit terms.  WT/DS267/R/Add.3 
 Page J-13 
 
 
 
 Provided, however, that if a Member is a party to an international undertaking on official 
export credits to which at least twelve original  Members to this Agreement are parties as of 
1 January 1979 (or a successor undertaking whic h has been adopted by those original 
Members), or if in practice a Member applies the interest rates provisions of the relevant 
undertaking, an export credit practice which is in  conformity with those provisions shall not 
be considered an export subsidy prohibited by this Agreement.  (Emphasis added) 
  Argentina does not agree with the a contrario  interpretation provided by the United States in 
paragraphs 180 to 183 of its submis sion, either with respect to the fi rst paragraph of item (k) or with 
respect to item (j) of Annex I to the SCM Agreement , because unlike the final sentence of the second 
paragraph of item (k), the text does not explicitl y recognize that the measure will not be an export 
subsidy, and an a contrario  interpretation that circumvents the test of Article of 3.1(a) of the 
SCM Agreement  is not possible. 
 
 That is to say, even if a given credit,  guarantee or insurance programme includes: 
  - either, in relation to item (j), premium rates which are adequate to cover the long-
term operating costs and losses of the programmes; 
 
 - or, in relation to the first paragraph of item (k), interest rates below the cost of funds 
that are not used to secure a material adva ntage in the field of export credit terms,$ 
 none of this in any way enables us to infer th at because they display either or both of these 
characteristics, they should not be considered to be  export subsidies if they meet the conditions set 
forth in Articles 1 and 3.1(a) of the SCM Agreement . 
  For the situation put forward by the United States to be possible, there w ould have to be a text 
similar to the final sentence of the second paragrap h of item (k) which explicitly states that a given 
measure is not considered to be an export su bsidy.  Only then would footnote 5 of the 
SCM Agreement  become operational. 
 
 Now, even if the appropriate language had been  included in item (j) and the first paragraph of 
the item (k) of Annex I of the SCM Agreem ent and footnote 5 were operational, an a contrario  
interpretation would still be unacceptable because, in addition to the test of Article 3.1(a) of the 
SCM Agreement , Members using such programmes must also comply with the AoA obligations, in 
particular Articles 8, 10.1 and 10.3, without pr ejudice to the application of Article 3 of the 
SCM Agreement  to agricultural subsidies after the expiry of the Peace Clause in Article 13 of the 
AoA.  In other words, the absence in Article 1(e) of the AoA of a footnote such as footnote 5 of the 
SCM Agreement precludes any a contrario  interpretation in favour of users of export credits for 
agricultural products.  Furthermore, Article 10.3 of the SCM Agreement itself places on the user Member the entire burden of proof that such programmes are not export subsidies. 
 
31. If the Panel decides to refer to provisions of the SCM Agreement  for contextual guidance 
in the interpretation of the terms in Article 10 Agreement on Agriculture , should the Panel refer 
to item (j) or Articles 1 and 3 of the SCM Agreement  or both?   3
rd parties, in particular, Argentina, 
Canada, EC, NZ 
 
 If the Panel decides to refer to provisions of the SCM Agreement  for contextual guidance, as 
established by the Appellate Body, in the interp retation of the terms of Article 10 of the Agreement on 
Agriculture  (Prevention of Circumvention of Export S ubsidy Commitments), the Panel should refer to 
both:  first of all to item (j) of Annex I ( Illustrative List of Export Subsidies ) of the SCM Agreement , 
and subsidiarily to Articles 1 and 3 of the SCM Agreement .  Naturally, if the Panel should conclude WT/DS267/R/Add.3 
Page J-14  
 
that the challenged credit  guarantees come under indent (j) of Annex I, it would have to conclude that 
they violate Articles 1 and 3.1(a) of the SCM Agreement per se . 
 
32. The Panel's attention has been drawn to Article 14(c) of the SCM Agreement  (see third 
party submission of Canada) and to the panel report in DS 222 Canada - Export Credits and 
Loan Guarantees .  How and to what extent are Article 14(c) of the SCM Agreement , and the 
cited panel report, relevant to the issue of wh ether or not the United States export credit 
guarantee programmes confer a "benefit"?  What  would the appropriate market benchmark be 
to use for any comparison?  Please cite any other relevant material.   3
rd parties, in particular, 
Argentina,  Canada, EC, NZ 
 
 Argentina agrees with Canada's interpretation in  paragraphs 41 to 48 of its written submission 
to the effect that Article 14(c) of the SCM Agre ement and the Panel and A ppellate Body reports in 
WT/DS70, as well as the Panel report in WT/DS222, ar e relevant to the issue of whether the export 
credit guarantee programmes of the United States conf er a "benefit".  The standard established therein 
for the determination of the existence of a "benef it" constitutes the appropriate legal framework for 
the interpretation of the facts in the present case.   According to the last part of paragraph 157 of  the report of the Appellate Body in WT/DS70, 
" … the marketplace provides an appropriate basis fo r comparison in determining whether a 'benefit' 
has been 'conferred', because the trade-distorting potential of a 'financial contribution' can be 
identified by determining whether the recipient has received a 'financial contribution' on terms more 
favourable than those available to the recipient in the market."  
 
33. What is the relevance (if any) of Brazil's statement that:  " … export credit guarantees 
for exports of agricultural exports [sic] are no t available on the marketplace by commercial 
lenders" .  3
rd parties, in particular, Argentina, Canada, EC, NZ 
  The relevance of Brazil's statement lies in the f act that if the marketplace is unable to provide 
export credit guarantees for agricultural products, the mere granting of such guarantees by the Government of the United States would constitute an export subsidy.  It would demonstrate that the 
market was unable to equal the condition s offered by the challenged programmes. 
 
34. Comment on the United States' view of th e meaning of "long term operating costs and 
losses" in item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement  
as meaning "claims paid" under the export credit guarantee programmes.  Does the United States' interpretation give meaning to both "c osts" and "losses"?  Do claims paid represent 
"losses"?   3
rd parties, in particular, Argentina, Canada, EC, NZ 
 
35. Did the drafters of the Agreement on Agriculture  include export credit guarantees in 
Article 9.1 of the Agreement on Agriculture ? Why or why not?   3rd parties, in particular, Argentina, 
Canada, EC, NZ  
 Article 9.1 of the Agreement on Agriculture is a list of export subsidies that are subject to 
reduction commitments.  As such, it does not include  export credit guarantees.  However, there are 
other export subsidies, as emerges the actual text of Article 10.1, which are also subject to disciplines. 
  In this respect, Argentina agrees with Ca nada's statement in paragraph 32 of its Written 
Submission that: 
 
 “Article 9 of the Agriculture Agreement lists and describes certain export subsidies that are 
subject to reduction commitments.  All other export subsidies fall within the scope of 
Article 10.1 … ” 
  WT/DS267/R/Add.3 
 Page J-15 
 
 
36. Please explain any possible significance the following statements may have in respect of 
Brazil's claims about GSM102 and 103 (7 CFR 1493.10(a)(2), Exhibit BRA-38).   3rd parties, in 
particular, Argentina, Canada, EC, NZ  
(a) "The programmes operate in cases where credit  is necessary to increase or maintain US 
exports to a foreign market and where U.S. financial institutions would be unwilling to 
provide financing without CCC's guarantee.  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 The fact that the programmes operate in  cases where credit is necessary to increase or 
maintain exports and where US private financial institutions would be unwilling to provide financing 
without the CCC's guarantee is relevant to Brazil's claims about the GSM 102 and GSM 103 
programmes in that it implies a recognition of the impact and trade-distorting effect of the export 
credit guarantees.  
(b) "The programmes are operated in a manner intended not to interfere with markets for 
cash sales.  The programmes are targeted toward those countries where the guarantee is 
necessary to secure financing of the exports but which have sufficient financial strength 
so that foreign exchange will be available for scheduled payments."  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 This is another recognition of the fact that without such measures, there would be no exports, 
or there would be fewer exports from the United States. 
 
(c) "In providing this credit guarantee facilit y,  CCC seeks to expand market opportunities 
for US agricultural exporters and assist long-term market development for US 
agricultural commodities." (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 The fact that in providing this credit guarantee facility, the CCC seeks to expand market 
opportunities for US agricultural exporters and assist long-term market development for US 
agricultural commodities once agai n reinforces the negative impact and distortion caused by the 
export credit guarantees to world trade.  37. The United States seems to argue that, at present, by virtue of Article 10.2 of the Agreement on Agriculture , there are no disciplines on agricultural export credit guarantees 
under the Agreement on Agriculture  (or the SCM Agreement). 
 (a) Comment on the following proposit ion:  a WTO Member may therefore extend 
agricultural export credit guarantees without charging a premium, and for an indefinite 
period, in addition to any other terms and conditions it may wish?  How would this reconcile with the title of Article 10 of the Agreement on Agriculture ("Prevention of 
Circumvention on Export Subsidy Commit ments"), and with other commitments 
contained in the Agreement on Agriculture ?  Please cite any relevant material, including 
any past WTO dispute settlement cases.   3
rd parties, in particular, Argentina, Canada, EC, 
NZ 
  It is wrong to state that there are no disciplines on export credits and export credit guarantees.  Article 10.2 must be analysed together with Article  10.1, in that when the export guarantee and credit 
programmes contain a subsidy component and are th erefore genuine export subsidies, they must 
automatically comply with the requirement of not circumventing export subsidy commitments. 
  The export credits and export credit guarantees granted by the United States constitute export 
subsidies for the reasons set forth in the replies to  questions 29 and 36 above.  They do not comply 
with Articles 3, 8 and 10.1 of the AoA. 
 WT/DS267/R/Add.3 
Page J-16  
 
 Regarding the first question of the Panel in (a) above, the answer is no.  The granting of 
export credit guarantees under conditions in which no consideration is re quired, in this case a 
premium charged by the granting institution, is tantam ount to the transfer of funds to the beneficiary.  
The beneficiary, in the absence of an adequate pr emium, transfers all of the credit and commercial 
risk of the operation to the institution granting the guarantee without any cost to itself.  In other 
words, we are speaking of a subsidy. 
 
(b) If, as the United States argues, there are no disciplines on export credit guarantees in the 
Agreement on Agriculture , how could export credit guarantees "conform fully to the 
provisions of Part V" of the Agreement on Agriculture  within the meaning of Article 13 
(how can you assess "conformity" or non-co nformity with non- existent disciplines)?   3
rd 
parties, in particular, Argentina, Canada, EC, NZ 
  In Argentina's view, the United States' interpre tation of Article 10.2 is entirely at odds with 
the context of the provision and the object and purpose of Article 10 of the AoA, since it would 
contribute to the circumvention of export subsidy commitments by excluding an entire category of 
export subsidies from the general disciplines in that area.   Article 1(e) of the AoA clearly defines expor t subsidies without excluding those that are not 
listed in Article 9.1 of the Agreement.  
 At the same time, Article 13(c) of the AoA s tipulates that in order to be exempted, export 
subsides must conform fully to the provisions of Part  V of the AoA, and not to a particular article.  
Article 10, which forms part of Part V of the AoA, stipulates in paragraph 1 that:  " … export 
subsidies not listed in paragraph 1 of  Article 9 shall not be applied in a manner which results in, or 
which threatens to lead to, circumventi on of export subsidy commitments … " . 
 
 Thus, the lack of disciplines specifically developed for export credit guarantees does not necessarily imply the absence or shortage of crite ria that would make it possible to establish 
objectively whether these instruments "conform fully to the provisions of Part V of this Agreement"  as 
stipulated in the chapeau of Article 13(c).  
STEP 2 PAYMENTS
 
 
38. Please comment on the statement in note 119 of the United States' first written submission that "...to the extent a consumer that  had intended to export instead opens the bale, 
then that consumer could still obtain the Step 2 payment upon submission of the requisite 
documentation".  The Panel notes that Step 2 payments all involve upland cotton produced in 
the United States.  What are the two distinct factual situations that Step 2 payments involve?  Other than the panel report in Canada-Dairy and the findings of the Appellate Body in US-FSC 
(21.5)
6, do any other dispute settlement reports offer guidance on this issue?  For example, how, 
                                                      
6 "We recall that the ETI measure gr ants a tax exemption in two differ ent sets of circumstances:  (a)  
where property is produced  within  the United States and held for use  outside  the United States; and (b)  where 
property is produced  outside  the United States and held for use outside  the United States.  Our conclusion that 
the ETI measure grants subsidies that ar e export contingent in the first set of  circumstances is not affected by the 
fact that the subsidy can also be obta ined in the second set of circumstances .  The fact that the subsidies granted 
in the second set of circumstances  might  not be export contingent does not dissolve the export contingency 
arising in the first set of circumstances.   Conversely, the export contingency arising in these circumstances has 
no bearing on whether there is an export contingent subsidy in the second set of circumstances.  Where a 
United States taxpayer is simultaneously producing property  within and outside the Unit ed States, for direct use 
outside the United States, subsidies may be granted under the ETI measure in respect of both sets of property.  The subsidy granted with respect to th e property produced within the United St ates, and exported from there, is 
export contingent within the mean ing of Article 3.1(a) of the  SCM Agreement , irrespective of whether the 
subsidy given in respect of property produced outside the United States is also export contingent."  WT/DS267/R/Add.3 
 Page J-17 
 
 
if at all is the Appellate Body's report in Canada-Aircraft relevant here?7  3rd parties, in 
particular, Australia, Argentina, NZ, Paraguay   As stated by Argentina in paragraphs 80-85 of its written submission, both the corresponding 
section of the 2002 SFRI Act and the provisions of th e Section 1427.100ff. of the Code of Federal 
Regulations clearly establish that the Commodity Credit Corporation (CCC) must issue marketing 
certificates or cash payments to exporters and/or users of US (upland) cotton.   Given that the purpose of the programme is to provide a direct incentive for US cotton 
exports and consists of a direct payment to exporters based on the difference between the US 
domestic cotton price and the world market price, th ere can be no doubt that whenever the former is 
higher than the latter, an export subsidy is pr esent inasmuch as the existence of these payments 
enables the US product to compete artificially w ith the lower-cost products of more efficient 
producers.  
 It should be noted that the programme known as Step 2  establishes the right of exporters to 
receive a subsidy for shipments made in connection with foreign sale operations, while establishing an 
obligation upon the CCC to grant that subsidy on ce the particular requirements are satisfied. 
  We stress that the payment is the diffe rence between the domestic market and the 
international market because that would be the most relevant evidence that th e subsidy seeks to ensure 
that the product can be exported at prices lower than the domestic price. 
 
39. Please comment on the United States assert ions at paragraph 129 of its first written 
submission, that "[t]he program is indifferent to whether recipients of the benefit of this programme are exporters or parties that open bales for the processing of manufacturing raw 
cotton into cotton products in the United States."   3
rd parties, in particular, Australia, Argentina, 
NZ, Paraguay   The fact that the Step 2 programme is indiffere nt to whether the recipients are exporters or 
users of cotton in the United States does not alter its inconsistency, since the United States has not 
specified upland cotton in its schedule of commitments and this type of subsidy under the Step 2 
programme is granted for cotton.  Consequently, an y provision in the legal texts with respect to the 
granting of such a subsidy makes it inconsistent pe r se with Articles 3.3 and 8 of the AoA, while for 
the same reason any sum distributed, budgeted or  provided for under the programme constitutes a 
prohibited subsidy within the meaning of Article 3 of the SCM Agreement. 
 40. With respect to paragraph 32 of the oral st atement of the EC, are subsidies contingent 
on the use of domestic goods consistent with th e AoA?  Does the phrase "provide support in 
favour of domestic producers" refer to, and/or perm it such subsidies?  What is the meaning and 
relevance of this (if any) to Brazil's claims under Article 3 of the SCM Agreement  and 
Article III:4 of the GATT 1994.   3
rd parties, in particular, Australia, Argentina, EC, NZ, Paraguay 
 
 Are subsidies contingent on the use of domestic goods, because they are prohibited under 
Article 3.1(b) of the SCM Agreement, also prohi bited under the AoA given that there is no specific 
provision in the AoA that is explicitly mentioned in the introductory sentence of Article 3 of the 
                                                      
7 There, the Appellate Body stated that, 
 "the fact that some of TPC's contri butions, 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 ... in fact … upon export performance".7 WT/DS267/R/Add.3 
Page J-18  
 
SCM Agreement?  Indeed, Article 3 of the SC M Agreement reads "except as provided in the 
Agreement on Agriculture … ".  The AoA does not contain any provision which explicitly permits 
such subsidies . 
  "Except as provided in the Agreement on Agricu lture …" also means that Article 3 of the 
SCM Agreement applies to agricultural subsidies to th e extent that they are not in conflict with the 
AoA.  In this connection, no provision can be found in the AoA that is in conflict with Article 3.1(b) 
of the SCM Agreement, permitting the granting of "s ubsidies contingent, whether solely or as one of 
several other conditions, upon the use of domestic over imported goods."  Consequently, Argentina 
considers that subsidies contingent upon the u se of domestic over imported goods are prohibited 
under the AoA. 
  Regarding the EC's argument in which it tries to distinguish between the terms "to" and "in 
favour" with respect to support for agricultural pr oducers, this difference does not tally with the 
Spanish text, and "in favour", "to" and "benefit" are synonyms. 
 
Article from the Agreement on Agriculture Spanish English 
1.a 
 a in favour  
1.d a to 
1.h a in favour  
3.2. a in favour  
6.1. en favor in favour  
6.2. a to 
6.3. a in favour  
7.1. en favor in favour  
7.2.a  en favor in favour  
7.2.b  a to 
9.1.a  a to 
Annex 2  a to (in different paragraphs 
throughout the annex) 
Annex 3.7  beneficio a  benefit 
Annex 4.4 beneficio a  benefit 
 
 In other words, the text does not contain the difference that the EC is attempting to expose, 
nor can a phrase such as "in favour" be interpreted as  the waiver of a prohibition under Article 3.1(b) 
of the SCM Agreement, since such a waiver does not appear in the text. 
 
 Regarding the second sentence of paragraph 7 of Annex 3 of the AoA concerning "measures 
directed at agricultural processors", it makes no re ference whatsoever to the "subsidies contingent … 
upon the use of domestic over imported goods" mentione d in Article 3.1(b) of the SCM Agreement.  
Obviously, these are two different matters.  Moreover, paragraph 7 of Annex 3 contains no mention of 
the SCM Agreement.  If the intention had been to exempt these measures from the prohibition 
contained in Article 3.1(b) of th e SCM Agreement, this would have been expressly stated, specifically 
mentioning the provision of the SCM Agreement, i.e. Article 3.1(b).   As regards the second question, for the r easons provided above, th e phrase "provide support 
in favour of domestic producers" neither refers to the subsidies in Article 3.1(b) of the 
SCM Agreement, nor permits them. 
  WT/DS267/R/Add.3 
 Page J-19 
 
 
 With respect to the third question, Article  III:4 of the GATT 1994 prohibits discrimination 
against imported products, so that this article is  also applicable, as well as Article 2.1 of the 
Agreement on Trade-Related Investment Measures.  Moreover, the TRIMs Agreement does not make 
the slightest reference to the Agreement on Agriculture.  ETI Act  41. Concerning its claims on the ETI Act, Brazil relies on the US – FSC case.  However, it appears that the United States did not raise the issue of the Peace Clause in that case, nor did 
the US appear to invoke Article 6 of the Agreement on Agriculture .  If the Panel's understanding 
is correct, how, if at all, are these differences relevant here?  Argentina, China, EC, NZ 
 
42. How do you view the reference in paragraph 43 of the EC's third party oral statement 
with respect to the relevance of Article 17.14 of th e DSU, and, in particular, the phrase "a final 
resolution to that dispute" (emphasis added)?  Please explain the use, and relevance (if any) of 
the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU, and please cite any other provisions you consider relevant.  Argentina, China, EC, NZ 
 
 
 WT/DS267/R/Add.3 
Page J-20  
 
ANNEX J-2 
  
ANSWERS BY AUSTRALIA TO THE 
QUESTIONS FROM THE PANEL 
 
11 August 2003 
 
 
ARTICLE 13 OF THE  AGREEMENT ON AGRICULTURE  
 
1. Australia has argued that Article 13 of the Agreement on Agriculture  is an affirmative 
defence.  How do you reconcile this with your view that the conditions in Article 13 are a "prerequisite" to the availability of a right or pr ivilege?  Australia  Would other third parties 
have any comments on Australia's assertion?  3
RD parties, in particular Argentina, Benin, 
China, Chinese Taipei 
 
Reply  
  Australia does not see any inconsistency in its  views.  In Australia’s view, the potential 
availability of an affirmative defence in the genera l sense is in the nature of a right or privilege.  
Australia wishes to clarify, however, that it consid ers Article 13 in the specific sense to be a right 
available when the conditions prescribed ther ein are met, rather than a privilege.   
 
ARTICLE 13(B) OF THE AGREEMENT ON AGRICULTURE :  DOMESTIC SUPPORT MEASURES  
 
2. Please explain the difference, if any, between the meaning of "defined" and the meaning 
of "fixed" in the phrase "a defined and fixed ba se period" in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture.  3rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
Reply  
  In Australia’s view, having regard to their or dinary meanings in their context of the object 
and purpose of the Agreement on Agriculture , the words “defined” and “fixed” have distinct 
meanings.
1  The word “defined” refers to the period of time stipulated for the purposes of determining 
initial eligibility for a particular decoupled inco me support payment.  The word “fixed” establishes 
that once it has been “defined”, that period of  time is unchangeable for that payment.   
 
3. Please explain the meaning of "a" in "a defined and fixed base period" in paragraph 
6(a) of Annex 2 of the Agreement on Agriculture,  the meaning of "the" in "the base period" in 
paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based on the 
years 1986-88" in Annex 3.  3rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
                                                      
1 The New Shorter Oxford English Dictionary , Ed. Lesley Brown, Clarendon Press, Oxford, Volume 1 
provides the following potentially relevant definitions of the words:   
“defined”:  “having a definite or specified outline or form;  clearly marked, definite” (page 618);   “fixed”:  “ 1 Definitely and permanently placed or assigne d;  stationary or unchanging in relative 
position;  definite, permanent, lasting.  2a Directed steadily or inte ntly towards an object.  b …  3 Placed or 
attached firmly;  made firm or stable in position.  …    WT/DS267/R/Add.3 
 Page J-21 
 
 
Reply  
  In Australia’s view, “a” is used in th e phrase “a defined and fixed base period” in 
paragraph 6(a) of Annex 2 to the Agreement on Agriculture  as an indefinite article, and is defined as 
meaning “one, some, any”
2.  Thus, having regard to the ordinary meaning of the words in their 
context and in the light of the object and purpo se of the Agreement on Agriculture, “a defined and 
fixed base period” is the base period selected by an individual WTO Member  for the purposes of 
determining initial eligibility for a particular d ecoupled income support payment.  Once that base 
period is selected, it is fixed, that is, it is unchangeable.    
 “The” is defined as “designating one or mo re … things already mentioned or known, 
particularized by context or circumstances, inhere ntly unique, familiar, or otherwise sufficiently 
identified”.
3  Thus, the use of “the” as a definite article in the phrase “after the base period” in 
paragraphs 6(b), (c) and (d) of Annex 2 establishes a relationship to the base period already identified, 
that is, to the base period selected by an individual WTO Member for the purposes of determining 
initial eligibility for a particular decoupled  income support payment in accordance with 
paragraph 6(a) and which, on ce fixed, is unchangeable.   
  Australia does not consider that there is a ny relationship between a ny base period defined and 
fixed for a support programme for the purposes of pa ragraph 6 of Annex 2 and the use of the years 
1986-88 as a base period under Annex 3, nor was ther e intended to be.  Annex 3 relates to the 
calculation of a Member’s AMS for the purposes of implementing its reduction commitments in 
relation to production and trade-distorting domestic support measures, consistent with the object and 
purpose of the Agreement on Agriculture.  By definiti on in the first sentence of paragraph 1, Annex 2 
domestic support measures may not, or may only minimally, distort production and trade.  Thus, there is no logical or other basis for there to be any relationship.   
 
 Australia notes too that Article 7.2(a) of the Agreement on Agriculture  specifically envisages 
the introduction of domestic support measures after entry into force of the WTO Agreement  by 
providing for “any [domestic support] measure that is  subsequently introduced that cannot be shown 
to satisfy the criteria in Annex 2 to this Agreemen t”.  Australia considers that, had the negotiators 
intended that the 1986-88 period be required to be  used as the base period for the purposes of making 
decoupled income support payments – or indeed for any other purpose envisaged in Annex 2 – 
paragraph 6(a) would have expressl y provided for this rather than  for “a defined and fixed base 
period”.    
4. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture?  3
rd parties, in particular Australia, Argentina, 
Canada, China, EC, NZ 
 
Reply  
  In Australia’s view, and consistent with the use of the word “a” in the phrase “a defined and 
fixed base period”, a Member may only define and fix a base period once for the purposes of a 
particular decoupled income support payment.  On ce that base period is defined and fixed, it is 
unchangeable.    
5. Do you agree that a payment penalty based on crops produced is "related to type of 
production"?  EC 
 
                                                     
 
2 The New Shorter Oxford English Dictionary , Volume 1, page 1.   
3 The New Shorter Oxford English Dictionary , Volume 2, page 3269.   WT/DS267/R/Add.3 
Page J-22  
 
6. Please explain the meaning of the word "criteria" in Article 6.1 and 7.1.  What effect, if 
any, does the use of the word "Accordingly" in paragraph 1 of Annex 2 of the Agreement on Agriculture have on the meaning of the preceding sentence?  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ  
 Reply
 
  The ordinary meaning of “criteria”, as the plural of “criterion”, is “princip le[s], standard[s], or 
test[s] by which a thing is judged, assessed, or identified”
4.  Thus, the “criteria” in Articles 6.1 and 7.1 
as these relate to Annex 2 of the Agreement on Agriculture  encompasses all  of the relevant principles, 
standards or tests established in Annex 2 ag ainst which domestic support measures for which 
exemption from reduction commitments is claimed ar e to be judged, assessed and/or identified.   
  As Australia said in its Oral Statement,
5 the word “accordingly” has several, equally valid 
meanings that are potentially applicable in the c ontext:  “harmoniously”, “agreeably”, “in accordance 
with the logical premises” and “correspondingly”6.  A further definition is “in conformity with a given 
set of circumstances”.7   
  In Australia’s view, having regard to its ordina ry meanings in its context and in light of the 
object and purpose of the A greement on Agriculture , including to “[correct] and [prevent] … 
distortions in world agricultural markets”,
8 the word “accordingly” can and should properly be 
interpreted in the sense of “consistent with” or “in conformity with” the fundamental requirement 
established in the first sentence.  Consistent with that interpretation, the obligation that “green box” 
measures “meet the fundamental requirement …” is  cumulative with the additional basic criteria 
established in paragraph 1 and the policy specific crite ria established in paragr aphs 2-13 of Annex 2.  
To interpret the word “accordingly” otherwise would be to negate the plain and unambiguous 
obligation established in the first sentence of pa ragraph 1 of Annex 2 that “[d]omestic support 
measures for which exemption from the reducti on commitments is claimed shall meet the 
fundamental requirement that they have no, or at mo st minimal, trade-distortin g effects or effects on 
production”.    
7. Please explain the meaning of the words "the fundamental requirement" as used in 
paragraph 1 of Annex 2 of the Agreement on Agriculture.  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ 
 
Reply  
 
 The word “fundamental” has a number of meanings9 which can be summarised as “primary” 
or “essential”.  The word “requirement” too has a number of meanings10 which can be summarised as 
a “condition”.  Thus, a “fundamental requirement” is a primary or essential condition. 11  I t  i s  a n  
                                                      
4 The New Shorter Oxford English Dictionary , Volume 1, page 551.   
5 Oral Statement by Australia, paragraphs 35-36.   
6 The New Shorter Oxford English Dictionary , Volume 1, page 15.   
7 Webster’s Third New International Dictionary , Ed. Philip Babcock Gove, Merriam-Webster Inc, 
Springfield, Massachusetts, 1993, page 12.   
8 Third preambular paragraph of the Agreement on Agriculture .   
9 The New Shorter Oxford English Dictionary , Volume 1, page 1042, provides relevant definitions of 
“fundamental” as “ 1 Of or pertaining to the basis or groundwork;  going to the root of the matter.  2 Serving as 
the base or foundation; essential or indispensable.  Also, primary, original; from which others are derived.”   
10 The New Shorter Oxford English Dictionary , Volume 1, page 2557, provides definitions of 
“requirement” as “ 1 The action of requiring something; a request.  2 A thing required or needed, a want, a need.  
Also the action or an instance of needing or wanting something.  3 Something called for or demanded;  a 
condition which must be complied with.”   
11 Third Party Submission of Australia, paragraph 31, and Oral Statement by Australia, paragraph 33.    WT/DS267/R/Add.3 
 Page J-23 
 
 
overarching, freestanding obligation that applies to all “green box” measures cumulatively with the 
additional basic criteria establishe d in paragraph 1 and the policy specific criteria established in 
paragraphs 2-13 of Annex 2.  To interpret a “fundamental requirement” otherwise than as a primary or 
essential condition would not give the words their ordinary meaning in their context and in light of the object and purpose of the Agreement on Agriculture .   
 
8. In your oral statement, you emphasize the u se of the word "criteria" in other parts of 
the Agreement on Agriculture, as distinct from  the reference to "fundamental requirement" in 
the first sentence of paragraph 1 of Annex 2.  Is it the case that sub-paragraphs (a) and (b) of paragraph 1 of Annex 2 are also "criteria"?  EC 
 
9. If the first sentence of paragraph 1 of Annex 2 is a stand-alone obligation, does this 
allow effects-based claims of non-compliance with  Annex 2?  If so, how does this affect the 
purpose of Article 13(b)?  3
rd parties , in particular Australia, Argentina, Canada, EC, NZ  
 Reply
 
  It is not clear to Australia what is meant by  “effects-based claims” in the context of this 
question.  In Australia’s view, a claim of non-co mpliance with the first sentence of paragraph 1 of 
Annex 2 would require an assessment of whether a domestic support measure meets the primary or 
essential condition that such measures have no, or at most minimal, trade-distorting effects or effects 
on production, that is, that such measures not, or on ly negligibly, bias or unnaturally alter trade or 
production.    
10. If the first sentence of paragraph 1 of Annex 2 is not a stand-alone obligation, then must 
new, non- or minimally trade-distorting measures  that do not conform to the criteria listed in 
Annex 2 be classified as non-Green Box?  3
rd parties, in particular Australia, Argentina, 
Canada, EC, NZ  
 
Reply  
  Yes.   
 
11. If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the assessment of the direct payments programme's compliance with paragraph 6 of Annex 2.  3
rd 
parties, in particular, Australia, Argentina, Canada, EC, NZ 
 
Reply  
  Australia assumes that the “direct payments pr ogramme” referred to in this question is the 
Direct Payments programme of the United States at issue in this dispute.    
 Even if the first sentence of paragraph 1 of Annex 2 were to express only a general principle 
which informs the interpretation of the other criteri a in Annex 2, the US Direct Payments programme 
would still be non-compliant with para graph 6(b) of Annex 2 because it:   
 
• penalises producers based on the type of producti on undertaken after the base period, and  
• because it allowed producers to update their base acreag e and base yield(s) after the base period,  
 
contrary to the express requirement of paragraph 6(b) that the amount of decoupled income support 
payments not be related to, or based on the type and/or volume of production undertaken by the 
producer in any year after the base period.   WT/DS267/R/Add.3 
Page J-24  
 
 
12. Where does Article 13(b) require  a year-on-year comparison?  3
RD parties, in particular 
Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
 
 In Australia’s view, a requirement for a tem poral comparison of measures granting support to 
a specific commodity is an implicit and integral com ponent of the requirement in Article 13(b)(ii) that 
such measures not be “in excess of” that decided during the 1992 marketing year.  “In excess of” is 
defined as “more than”12 and “to an amount or degree beyond”13.   
 
 See question 28 below.    
13. Does a failure by a Member to comply in a given year with either the chapeau of 
Article 13(b) or the proviso in subparagraph (ii) of  Article 13(b) impact its entitlement to benefit 
in an earlier or a later year from the exempt ion from action provided by Article 13(b)?  3
RD 
parties, in particular Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
  It is Australia’s view that there is no obligati on with which a Member is required to comply in 
either the chapeau of Article 13(b), or the proviso of Article 13(b)(ii).   
  See question 28 below.    
14. Does a failure of a Member to comply wi th Article 13(b) in respect of a specific 
commodity impact its entitlement to benefit in respect of other agricultural products from the 
exemption from action provided by Article 13(b)?  3
RD parties, in particular Australia, 
Argentina, Canada, China, EC, NZ 
 
Reply  
 
 Yes.  In Australia’s view, there is no require ment that the application of the proviso be 
considered only in relation to a specific commodity at issue in a dispute.  The failure of a Member to 
comply with Article 13(b)(ii) and (iii) in respec t of one specific commodity affects its right to 
exemption from actions under Article 13(b)(ii) a nd (iii) in respect of all commodities.   
 
 Australia notes that the basic text of both Article 13(b)(ii) and (iii) reads as follows:   
 
During the implementation period, … domes tic support measures that conform fully 
to the provisions of Article 6 … shall be … exempt from actions based on [ the 
specified provisions ], provided that such measures do not grant support to a specific 
commodity in excess of that decided during the 1992 marketing year.   
The phrase “such measures” in the proviso refers to  “domestic support measures that conform fully to 
the provisions of Article 6 …”.  Thus, the proviso states “provided that [ domestic support measures 
that conform fully to the provisions of Article 6 ] do not grant support to a  specific commodity in 
excess of that decided during the 1992 marketing year”.    
                                                     
 
12 The New Shorter Oxford English Dictionary , Volume 1, page 873.   
13 Webster’s Third New International Dictionary , page 792.    WT/DS267/R/Add.3 
 Page J-25 
 
 
 Similarly to its use in the context of ques tion 3 above, “a” is used in the phrase “support to a 
specific commodity” as an indefinite article, and is defined as meaning “one, some, any”14.  Having 
regard to the ordinary meaning of the word in its context and in light of the object and purpose of the 
Agreement on Agriculture , “support to a specific commodity” means support to any one commodity.   
 
 Further, Australia considers that this interp retation is consistent with the object and purpose 
of the Agreement on Agriculture , including as expressed in the preambular clauses to that Agreement, 
for example, “to provide for substantial progressive  reductions in agricultu ral support and protection 
sustained over an agreed period of time, resulti ng in correcting and preventing restrictions and 
distortions in world agricultural markets”.  The Agreement on Agriculture  resulted from lengthy and 
complex negotiations and provided a finely balanced set of rights a nd obligations aimed at reducing 
the unnatural distortions of global agricultural pro duction and trade.  During an agreed transition 
period, so long as a Member adheres to its obliga tions intended to achieve that objective and does not 
introduce domestic support measures which result in  new or additional distortions in trade and 
production, it would enjoy, as a right, protection for actions that would otherwise be WTO-
inconsistent.  On the other hand, if a Member did not observe the obligations that form part of the 
negotiated outcome, it would lose its generic righ t to the protection that constituted an essential 
element of that outcome.  See also question 28 below.    
15. Is there any basis on which counter-cyclic al payments could be considered product-
specific?  3
RD parties, in particular Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
  In this question, Australia understands that the panel uses the term “product-specific” in the 
sense of “product-specific” support as argued by the United States in its First Written Submission.
15   
 
 Australia notes that counter-cyclical payments (CCPs) are expressly differentiated by product.
16  Even though the CCP programme applies to more than one commodity and there is no 
requirement for a producer to grow any of those commodities, actual payments are made by product.  Further, notwithstanding that there is no requireme nt for a producer to grow upland cotton to receive 
the CCP for upland cotton, it is not possible for a pr oducer to receive the CCP for upland cotton if that 
producer has never actually produced upland cotton.  Similarly, a producer could not receive the CCP 
for another eligible commodity under the program, e.g ., corn, if that producer has never grown corn.  
Thus, CCPs for eligible commodities, in this case upl and cotton, are effectively product-specific.   
  Australia notes too that CCPs for upland cott on are product-specific if there is a correlation 
between enrolled acreage for the purposes of the CCP (and Direct Payments) programme and the 
acreage actually used to grow upland cotton.  Ho wever, there is insufficient current information 
available to Australia to assess whether CCPs can be c onsidered to be product-specific on this basis.   
  That said, Australia re-iterates its strong vi ew that “support to a specific commodity” within 
the meaning of subparagraph (ii) (and (iii)) of Article 13(b) does not equate to product-specific 
support and that “support to a specific commodity ” includes that portion of non-product specific 
support that benefits the commodity at issue, in this case upland cotton.
17  Had the authors of Article 
13 intended that “support to a specific commodity” not include non-product specific support, Australia believes that they would have said so, consistent with the usage of such terminology 
elsewhere in the Agreement on Agriculture , for example, in Articles 1( a), 4(a) and paragraph 1 of 
Annex 3.   
                                                     
 
14 The New Shorter Oxford English Dictionary , Volume 1, page 1.   
15 First Written Submission of the United States, paragraphs 77-81.   
16 Section 1104, 2002 Farm Security and Rural Investment Act, Exhibit Bra-29.   
17 Oral Statement by Australia, paragraphs 20-25.   WT/DS267/R/Add.3 
Page J-26  
 
  Further, “such measures” in the proviso of Ar ticle 13(b)(ii) and (iii) refers to “domestic 
support measures that conform fully to the provisions of Article 6” in the chapeau of Article 13(b), 
which include non-product specific support measures other than “green box” support measures.  In 
Australia’s view, to exclude non-product specific domestic support measures from the assessment of 
“support [ granted by such measures ] to a specific commodity” would be contrary to the express 
meaning of the text.     See also question 28 below.    16. If the word "specific" were deleted from Article 13(b)(ii), would this change the meaning of the subparagraph?  3
RD parties, in particular Australia, Argentina, Benin Canada, 
China, EC, NZ 
 
Reply  
 
 No.  See also questions 14 and 28.    
17. What is the relevance, if any, of the concept of "specificity" in Article 2 of the SCM 
Agreement  and references to "a product" or "subsidized product" in certain provisions of the 
SCM Agreement to the meaning of "support to a specific commodity" in Article 13(b)(ii) 
Agreement on Agriculture?  3
RD parties, in particular Australia, Argentina, Canada, China, EC, 
NZ 
 
Reply  
 
 Australia does not consider that the concept of  “specificity” in SCM Article 2, or references 
to “a product” or “subsidized product” in certain provisions of the SCM Agreement , have any express 
textual relationship to the meaning of “support to  a specific commodity” in Article 13(b)(ii).   
  However, Australia notes that a subsidy does not need to be enterprise or industry-specific to 
be “specific” within the meaning of SCM Article 2.  SCM Article 2.1(c) expressly provides that a 
subsidy can be specific notwithstanding an appearance  of non-specificity if a subsidy programme is in 
fact directed at certain enterprises or industries.  SCM Article 2 could therefore be considered to provide broad contextual support for Australia’s  view that CCPs for upland cotton are product-
specific .    18. Benin's oral statement considers the phr ase "support to a specific commodity" in 
Article 13(b)(ii) of the Agreement on Agriculture.  How does Benin believe that phrase is best interpreted.  Please substantiate your response, commenting on other submissions by parties 
and third parties as you believe appropriate.  Benin 
 
19. Where does Article 13(b)(ii) require a year-on-year comparison?  3
rd parties, in 
particular Australia, Argentina, Canada, EC, NZ  
Reply
 
  See questions 12 above and 28 below.   
 
20. Does Article 13(b)(ii) require a comparison of support granted with support decided?  
How could such a comparison be made? 
  WT/DS267/R/Add.3 
 Page J-27 
 
 
Reply  
  See question 28 below.    
21. Please comment on Brazil's assertion that the terms "grant" and "decided" in Article 
13(b)(ii) have broadly the same meaning. If so , why did the drafters not use the same term?  3
rd 
parties, in particular, Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
 
 See question 28 below.   
 
22. What is the meaning of "support" in Agreement on Agriculture 13(b)(ii) ? Why would it 
be used differently from Annex 3, where it refers to total outlays?  3rd parties, in particular, 
Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
  Australia believes it is significant that the pr oviso of Article 13(b)(ii) and (iii) uses “support” 
rather than “AMS” , “support as calculated in Annex 3”, or a similar term and that it bears out 
Australia’s view that the use of the term “support” in the proviso was not intended to have the same 
meaning.   
  See question 28 below.    
23. Should support be compared under Article 13(b)(ii) in terms of unit of production or 
total volume of support or both?  3
rd parties, in particular, Australia, Argentina, Canada, 
China, EC, NZ 
 
Reply  
  See question 28 below.   
 
24. Please provide any written drafting history which could shed light on why the proviso 
was added to what is now Article 13(b)(ii) of th e Agreement on Agriculture and, in particular, 
why the words "grant" and "decided" were used.  EC 
 
25. Please comment on an interpretation of the words "decided during" in Article 13(b)(ii) that would read them as synonymous wi th the words "authorized during".  3
rd parties, in 
particular Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
 
 Australia is concerned that use of the phrase “authorised during” may be considered to imply 
a relationship with budgetary appr oval and expenditure processes and that this would not necessarily 
be a correct interpretation.  As an alternative, Australia suggests “committed to during” could be an 
appropriate interpretation of the phrase “deci ded during”.  See question 28 below.   
 26. Under Article 13(b)(ii), a comparison is required between support at different times.  
One of the issues which is contested between the pa rties is whether the only later period that the 
Panel can consider is the present one (i.e. the period underway at the time of the request for establishment of the Panel).  This argument is based on the present tense of the words "do not 
grant" in the English text.  The Panel asks whether there is any difference in the verb tense as WT/DS267/R/Add.3 
Page J-28  
 
used in the Spanish-language text, or any other difference which might aid the Panel in 
interpreting these words?  Argentina, EC, Paraguay, Venezuela  27. If the 1992 "decision" led to or was the funding source for the money provided in 1992 and later years, is it the full amount of all that funding that constitutes the "support" decided in 
1992?  If the answer to this question is that it is the full amount of all the support provided 
pursuant to the "decision" that must be taken in to account, must this be compared with the 
total amount of support that will or might flow  from the decision made in the more recent 
period for the purposes of the comparison required under Article 13(b)(ii)?  If a Member did not make a "decision" (however that may be inte rpreted) in 1992 about "support", is it the case 
that the Member has a zero base for the purpos es of the comparison required under Article 
13(b)(ii)?  EC  
 
28. In paragraph 13 of Australia's oral statement, you state that a "question" is: "could 
conditions of price competition for the purposes of a non-violation or impairment claim be 
assessed solely on the basis of budg etary outlay figures, as argued by Brazil, or on the basis of a 
rate of payment, as argued by the United States?   In Australia's view, both factors put forward 
by Brazil and the United States would properly form a part of that assessment, but not the whole."  Could you please clarify this statem ent (indicating other elements which would 
complete the "whole" and explain its relevan ce for the purposes of our consideration of 
Article 13 of the Agreement on Agriculture?  Australia, EC 
 
Reply
 
  The proviso “provided that such measures do not grant support to a specific commodity in 
excess of that decided during the 1992 marketing year” appears in both subparagraphs (ii) and (iii) of 
Article 13(b).  In both cases, the basic textual provision is the same:   
 
During the implementation period … domestic  support measures that conform fully 
to the provisions of Article 6 … shall be … exempt from actions based on [ the 
specified provisions ], provided that such measures do not grant support to a specific 
commodity in excess of that decided during the 1992 marketing year.   
Yet Article 13(b)(ii) deals with situations of vi olation nullification or impairment complaints in 
relation to actionable subsidies, and Article 13(b )(iii) deals with situations of non-violation 
nullification or impairment complaints in relation to  tariff concessions.  It does not seem to Australia 
to be feasible that the authors of the text of Article 13 of the Agreement on Agriculture  would have 
intended exactly the same language within the same Article to have distinct meanings.  Indeed, 
Australia believes it must be assumed that, had the au thors intended that the proviso be interpreted 
and applied differently in the context of violation and non-violation complaints, they would have used 
different texts, consistent with the normal rules of tr eaty interpretation.  In Australia’s view, therefore, 
it must be assumed that the authors of Article 13 in tended that the proviso have the same meaning in 
the context of both violation and non-violation comp laints, and the proviso must be interpreted in 
such a way as to be capable of being applied in relati on to both situations.  To this end, it would be a 
proper exercise of the Panel’s discretionary powers to consider also the nature of a non-violation 
complaint to determine the proviso’s meaning.     Australia recalls that the text of the provi so, as well as the draft text of what became 
Article 13 of the Agreement on Agriculture  first appeared in the “Blair  House Accord” and that the  WT/DS267/R/Add.3 
 Page J-29 
 
 
Accord also included provisions concerning the EEC – Oilseeds  dispute.18  In Australia’s view, that 
dispute is crucially relevant to the proper interpretation of Article 13(b)(ii) and (iii).19   
  The panel in EEC – Oilseeds  described the purpose of GATT Article XXIII:1(b) in the 
following terms:   
 
…  The Panel noted that these provisions, as  conceived by the drafters and applied by 
the contracting parties, serve mainly to protect the value of tariff concessions.
[…]  The 
idea underlying them is that the improved competitive opportunities that can legitimately be expected from a tariff concession can be frustrated not only by 
measures proscribed by the General Agreem ent but also by measures consistent with 
that Agreement.  …
20   
The EEC – Oilseeds  panel went on to say:   
 
The Panel carefully analysed the price me chanism established in the framework of 
the Community’s market organization for oilseeds and found that the production 
subsidy schemes of the Community protect  Community producers completely from 
the movement of prices for imports and hence prevent the lowering of import duties from having any impact on the competitiv e relationship between domestic and 
imported oilseeds.  …
21   
The EEC – Oilseeds  panel also said:   
 
…  The Panel considered that the main value of a tariff concession is that it provides an assurance of better market access th rough improved price competition.  
Contracting parties negotiate tariff concessi ons primarily to obtain that advantage.  
They must therefore be assumed to base their tariff negotiations on the expectation 
that the price effect of the tariff concessions will not be systematically offset.  …  The 
Panel does not share the view of the Community that the recognition of the 
legitimacy of such expectations would amount to a re-writing of the rules of the General Agreement.  …  The recognition of the legitimacy of an expectation relating 
to the use of production subsidies therefore in no way prevents a contracting party from using production subsidies consistently  with the General Agreement; it merely 
delineates the scope of the protection of a negotiated balance of  concessions.  For 
these reasons the Panel found that the United States may be assumed not to have anticipated the introduction of subsidies which protect Community producers completely from the movement of prices for imports and thereby prevent tariff concessions from having any impact on the competitive relationship between 
domestic and imported oilseeds, and whic h have as one consequence that all 
domestically-produced oilseeds are disposed of  in the internal market notwithstanding 
the availability of imports.
22   
                                                      
18 European Economic Community – Payments and Subsidies Paid to Processors and Producers of 
Oilseeds and Related Animal-Feed Proteins (“EEC – Oilseeds”) , Report of the Panel, adopted 25 January 1990, 
BISD 37S/86.   
19 Australia notes that the report of the EEC – Oilseeds  panel has been cited with approval in 
subsequent WTO jurispru dence, for example, Japan – Measures Affecting Consumer Photographic Film and 
Paper , Report of the Panel, WT/DS44/R, paragraph 10.35, and EC – Measures Affecting Asbestos and Asbestos-
Containing Products , Report of the Appellate Body, WT/DS135/AB/R, paragraph 185.   
20 EEC – Oilseeds , paragraph 144.   
21 EEC – Oilseeds , paragraph 147.   
22 EEC – Oilseeds , paragraph 148.   WT/DS267/R/Add.3 
Page J-30  
 
 In summary, the EEC – Oilseeds  panel considered that the basis for assessing whether the 
benefits of tariff concessions are being nullified or  impaired in a non-violation complaint is the 
legitimate expectations of the “conditions of pri ce competition” for a product.  In assessing those 
conditions, matters to be consider ed included market prices and the applicable tariff concession(s) as 
well as any other relevant measures, including measur es that were not inconsistent with GATT 1947.  
Further, that assessment involved a temporal  comparison between the “conditions of price 
competition” that could legitimately have been e xpected at the time a tariff concession was negotiated 
and the conditions that actually prevailed at a later point of time.     Accordingly, to enable its application in a situation of non-violation nullification or 
impairment of the benefits of tariff concessions accruing to another Member, the proviso of Article 
13(b)(iii) must be interpreted in a manner capable of:    
• establishing other Members’ legitimate expectations  of the “conditions of price competition”;   
• taking account of factors such as the applicable tariff concession(s), market prices and domestic 
support measures that conform fully to the provisions of Article 6 of the Agreement on 
Agriculture ;  and  
• allowing a comparison between two different points in time.   
  In Australia’s view, interpreting the phrase “gra nt support” in a manner that limits the factors 
to be considered to domestic support measures that conform fully to the provisions of Article 6 as 
measured by budgetary outlays, as argued by Brazil, or  the rate of payment, as argued by the United 
States, could not lead to a proper application of th e proviso of Article 13(b)(iii) in the context of a 
non-violation dispute.  Such an interpretation cannot establish other Members’ legitimate expectations 
of “conditions of price competition” as these have been understood in GATT and WTO jurisprudence, 
as it cannot capture issues relating to tariff concessi ons and market prices that are integral to a non-
violation complaint of nullification or impairment of the benefits of tariff concessions accruing to 
another Member.  The only essential element that such an interpretation is capable of capturing is the 
basic point in time for the purposes of comparison:  instead of being the time at which a tariff 
concession was negotiated, it is the 1992 marketing year.   
  It would not be possible for the interpretations  of the proviso offered by Brazil and the United 
States to apply in the context of a non-violation di spute.  Thus, Australia be lieves it is incumbent upon 
the Panel to consider whether it is possible to appl y in the context of an actionable subsidy complaint 
the proviso in the sense of legitimate expectations  of the “conditions of price competition” as this 
applies to a non-violation nullification or impairment complaint.  That application would need to take 
account as appropriate of tariff concessions, mark et prices and domestic support measures that 
conform fully to the provisions of Article 6.     Australia considers that such a “conditions of  price competition” test is capable of being 
applied in the context of a violation complaint covere d by Article 13(b)(ii) and was in fact intended by 
the authors of the text of Article 13.  In Australia ’s view, a “conditions of price competition” test as 
this was interpreted and applied in EEC – Oilseeds , allowing as appropriate tariff concessions, market 
prices and domestic support measures that conform fully to the provisions of Article 6, forms “the whole”.   
 
 Further, such an interpretation overcomes th e many interpretive questions raised by the 
arguments put forward by the parties to the dispute.   Notwithstanding that legitimate expectations of 
“conditions of price competition” are not normally applicable in the context of a violation complaint, Australia cannot identify any provision of the Agreement on Agriculture , or indeed any other of the 
covered agreements, that would preclude the app lication of such a test in the context of 
Article 13(b)(ii).   
  WT/DS267/R/Add.3 
 Page J-31 
 
 
 The use of such a test would explain why the phrase “grant support” was used without further elaboration, such as “support as measured by AMS” , “support as calculated in Annex 3” or similar 
wording.  “Support” in the context of subparagraphs  (ii) and (iii) of Article 13(b) was purposefully 
intended to mean all non-“green box” domestic su pport measures, whether specific or not, which 
benefit a specific commodity in the sense of a “conditi ons of price competition” test.  In this context, 
Australia notes that paragraph 8 of Annex 3 expressly excludes from the calculation of AMS some 
forms of “support” within the meaning of subpara graphs (ii) and (iii) of Article 13(b).   
  The proviso establishes “support … decided during the 1992 marketing year” as the basis for comparison.  In other words, the basis for comparis on is the legitimate expectations of other Members 
of the “conditions of price competition” having re gard to the applicable tariff measures and non-
“green box” domestic support measures as these were  committed to by a Member during the 1992 
marketing year, vis-à-vis market prices.  It requires a comparison of the legitimate expectations of other Members of the “conditions of price competition”  to apply in future on the basis of decisions 
made by a Member during the 1992 marketing year w ith the actual “conditions of price competition” 
at a future point in time.  Thus, question concerni ng whether a year-on-year comparison is required or 
whether a failure by a Member to comply in a give n year affects that Member’s entitlement to invoke 
Article 13(b) in other years become moot.  So long as a Member’s non-“green box” domestic support measures that conform fully to the provisions of Ar ticle 6 “grant support to a specific commodity” in 
the sense of a “conditions of price competition” t est “in excess of that decided during the 1992 
marketing year”, Article 13(b)(ii) and (iii) does not provide an exemption from actions based on the 
specified provisions.  Conversely, once a Member’s non-“green box” domestic support measures no 
longer grant support in excess of that decided during the 1992 marketing year, the Member re-acquires the right to invoke Article 13(b)(ii) and (iii).     In Australia’s view, interpreting the proviso of  Article 13(b)(ii) as requiring the application of 
a “conditions of price competition” test is consistent  with the ordinary meaning of the words in their 
context:    
provided that [ domestic support measures that confor m fully to the provisions of 
Article 6 ] do not grant [agree to, bestow or confer]
23 support [ assistance or backing ]24 
to a specific commodity in excess of [ more than ]25 that decided [ determined or 
resolved,26, i.e., committed to ] during the 1992 marketing year.   
Moreover, interpreted in the sense of  legitimate expectations of “cond itions of price competition” in 
respect of both Article 13(b)(ii) and (iii), the proviso  is consistent with the object and purpose of the 
Agreement on Agriculture , including as expressed in the preamble of the Agreement “to establish a 
fair and market -oriented agricultural trading system and that a reform process should be initiated 
through the negotiation of commitments on support and protection and through the establishment of 
strengthened and more operationally effective … rules and disciplines” and “to provide for substantial 
progressive reductions in agricultural support and prot ection sustained over an agreed period of time, 
resulting in correcting and preventing restrictions a nd distortions in world agricultural markets”.  The 
provisos of Article 13(b)(ii) and (iii) establish th e outer limits within which the market distorting 
support that continues to be permitted under the Agreement on Agriculture  must remain during the 
implementation period if a Member is to benefit fr om the protection against actionable subsidy claims 
offered by Article 13(b) during that time.  In ot her words, a Member’s do mestic support measures 
may not create a more market distorting situati on in respect of any one commodity than could 
reasonably have been anticipated on the basis of  that Member’s decisions made known during the 
1992 marketing year for that product.   
                                                      
23 The New Shorter Oxford English Dictionary , Volume 1, page 1131.   
24 The New Shorter Oxford English Dictionary , Volume 2, pages 3152-3153.   
25 The New Shorter Oxford English Dictionary , Volume 1, page 873.   
26 The New Shorter Oxford English Dictionary , Volume 1, 607.   WT/DS267/R/Add.3 
Page J-32  
 
  However, should the Panel consider that another interpretation of the proviso of 
Article 13(b)(ii) was intended by the authors of the text of Article 13, Australia believes it incumbent upon the Panel to test its interpretation in the context of a non-violation complaint covered by 
Article 13(b)(iii).   
 
EXPORT CREDIT GUARA NTEE PROGRAMMES  
 
29. (a) Is an export credit guarantee a financia l contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement? Why or why not?  3rd parties, in 
particular, Argentina, Canada, EC, NZ 
  (b) How, if at all, would this be relevant to the claims of Brazil?  3
rd parties, in 
particular, Argentina, Canada, EC, NZ  
 
30. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement 
were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
Panel would therefore appreciate third party views on this situation, including with respect to 
the viability of an a contrario interpretation of it em (j) of the Illustrative List (as addressed in 
paragraphs 180-183 of the United Stat es' first written submission).  3rd parties, in particular, 
Argentina, Canada, EC, NZ  31. If the Panel decides to refer to provisi ons of the SCM Agreement for contextual 
guidance in the interpretation of the terms in Ar ticle 10 Agreement on Agriculture, should the 
Panel refer to item (j) or Articles 1 and 3 of the SCM Agreement or both?  3
rd parties, in 
particular, Argentina, Canada, EC, NZ  32. The Panel's attention has been drawn to Ar ticle 14(c) of the SCM Agreement (see third 
party submission of Canada) and to the panel report in DS 222 Canada- Export Credits and 
Loan Guarantees.  How and to what extent are Article 14(c) of the SCM Agreement, and the 
cited panel report, relevant to the issue of wh ether or not the United States export credit 
guarantee programmes confer a "benefit"?  What  would the appropriate market benchmark be 
to use for any comparison? Please cite any other relevant material.  3
rd parties, in particular, 
Argentina, Canada, EC, NZ  
 
33. What is the relevance (if any) of Brazil's statement that :  "...export credit guarantees 
for exports of agricultural exports [sic] are no t available on the marketplace by commercial 
lenders".  3rd parties, in particular, Argentina, Canada, EC, NZ 
 34. Comment on the United States' view of th e meaning of "long term operating costs and 
losses" in item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement 
as meaning "claims paid" under the export credit guarantee programmes.  Does the United 
States' interpretation give meaning to both "c osts" and "losses"?  Do claims paid represent 
"losses"?  3
rd parties, in particular, Argentina, Canada, EC, NZ 
 35. Did the drafters of the Agreement on Agriculture include export credit guarantees in 
Article 9.1 of the Agreement on Agriculture? Why or why not?  3
rd parties, in particular, 
Argentina, Canada, EC, NZ  36. Please explain any possible significance the following statements may have in respect of 
Brazil's claims about GSM102 and 103 (7 CFR 1493.10(a)(2), Exhibit BRA-38)  3
rd parties, in 
particular, Argentina, Canada, EC, NZ  
  WT/DS267/R/Add.3 
 Page J-33 
 
 
 (a) "The programmes operate in cases where credit is necessary to increase or 
maintain US exports to a foreign mark et and where US financial institutions 
would be unwilling to provide financing without CCC's guarantee.  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 (b) "The programmes are operated in a manner intended not to interfere with 
markets for cash sales.  The programm es are targeted towa rd those countries 
where the guarantee is necessary to secu re financing of the exports but which 
have sufficient financial strength so that foreign exchange will be available for scheduled payments."  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 (c) "In providing this credit guarant ee facility,  CCC seeks to expand market 
opportunities for US agricultural expo rters and assist long-term market 
development for US agricultural commodities." (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
37. The United States seems to argue that, at present, by virtue of Article 10.2 of the Agreement on Agriculture, there are no discip lines on agricultural export credit guarantees 
under the Agreement on Agricultu re (or the SCM Agreement).  
  (a) Comment on the following proposit ion:  a WTO Member may therefore extend 
agricultural export credit guarantees without charging a premium, and for an 
indefinite period, in addition to any other terms and conditions it may wish?  How would this reconcile with the title of Article 10 of the Agreement on Agriculture ("Prevention of Circumven tion on Export Subsidy Commitments"), 
and with other commitments contained in  the Agreement on Agriculture? Please 
cite any relevant material, including any past WTO dispute settlement cases.  3
rd 
parties, in particular, Argentina, Canada, EC, NZ 
  (b) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture, how could export credit guarantees "conform fully to the provisions of Part  V" of the Agreement on Agriculture 
within the meaning of Article 13 (how can you assess "conformity" or non-
conformity with non- existent disciplines)?  3
rd parties, in particular, Argentina, 
Canada, EC, NZ  
 
STEP 2 PAYMENTS  
 
38. Please comment on the statement in note 119 of the United States' first written 
submission that "...to the extent a consumer that  had intended to export instead opens the bale, 
then that consumer could still obtain the Step 2 payment upon submission of the requisite documentation".   The Panel notes that Step 2 payments all involve upland cotton produced in 
the United States.  What are the two distinct factual situations that Step 2 payments involve?  
Other than the panel report in Canada-Dairy and the findings of the Appellate Body in US-FSC 
(21.5)
27, do any other dispute settlement reports offer guidance on this issue?  For example, how, 
                                                      
27 "We recall that the ETI measure grants a tax exemp tion in two different sets of circumstances:  (a)  
where property is produced  within  the United States and held for use  outside  the United States; and (b)  where 
property is produced  outside  the United States and held for use outside  the United States.  Our conclusion that 
the ETI measure grants subsidies that ar e export contingent in the first set of  circumstances is not affected by the 
fact that the subsidy can also be obta ined in the second set of circumstances .  The fact that the subsidies granted 
in the second set of circumstances  might  not be export contingent does not dissolve the export contingency 
arising in the first set of circumstances. 27  Conversely, the export contingency arising in these circumstances has 
no bearing on whether there  is an export contingent subsidy in the second set of circumstances.  Where a WT/DS267/R/Add.3 
Page J-34  
 
if at all is the Appellate Body's re port in Canada-Aircraft relevant here?
28  3rd parties, in 
particular, Australia, Argentina, NZ, Paraguay  39. Please comment on the United States assert ions at paragraph 129 of its first written 
submission, that "[t]he programme is indifferent to whether recipients of the benefit of this 
programme are exporters or parties that open bales for the processing of manufacturing raw 
cotton into cotton products in the United States".  3
rd parties, in particular, Australia, 
Argentina, NZ, Paraguay  
 
Reply  
 
 This comment responds to both questions 38 and 39.     Australia provided detailed comment on the “S tep 2” payment programme having regard to 
the Appellate Body’s findings in US – FSC (21.5)  at paragraphs 49-69 of its Third Party Submission.  
Australia does not dispute that “Step 2” payments ma y be made on either export or domestic use of a 
bale of cotton, or that the “intent” with which a buyer purchased a bale of cotton has no effect on an 
entitlement to a “Step 2” payment in respect of that  particular bale.  However, these arguments by the 
United States are not determinative of the issue.     To qualify for a “Step 2” payment, a bale of co tton must be either exported or consumed by a 
domestic user.  These are the two distinct factua l situations covered by the “Step 2” payment 
programme:  by definition, a particular bale of  cotton cannot be both exported and consumed by a 
domestic user.     The Appellate Body’s findings in Canada – Aircraft
29 provide further support for the view 
that “Step 2” payments are export or local content subs idies.  In each of the di stinct factual situations 
of export or domestic use, “Step 2”  payments are contingent upon export performance or contingent 
upon the use of domestic over imported goods respectively.    
40. With respect to paragraph 32 of the oral st atement of the EC, are subsidies contingent 
on the use of domestic goods consistent with th e AoA?  Does the phrase "provide support in 
favour of domestic producers" refer to, and/or permit such subsidies? What is the meaning and 
relevance of this (if any) to Brazil's claims under Article 3 of the SCM Agreement and Article III:4 of the GATT 1994.  3
rd parties, in particular, Australia, Argentina, EC, NZ, Paraguay 
 
                                                                                                                                                                     
United States taxpayer is simultaneously producing property  within and outside the Unit ed States, for direct use 
outside the United States, subsidies may be granted under the ETI measure in respect of both sets of property.  The subsidy granted with respect to th e property produced within the United St ates, and exported from there, is 
export contingent within the mean ing of Article 3.1(a) of the  SCM Agreement , irrespective of whether the 
subsidy given in respect of property produced outside the United States is also export contingent." 
1. 28 There, the Appellate Body stated that,  
"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 ... in fact … upon export performance".28   
29 Canada – Measures Affecting the Export of Civilian Aircraft , Report of the Appellate Body, 
WT/DS70/AB/R, paragraph 179.    WT/DS267/R/Add.3 
 Page J-35 
 
 
Reply  
  Australia does not consider that the phrase “p rovide support in favour of domestic producers” 
in Article 3.2 of the Agreement on Agriculture  permits subsidies contingent upon the use of domestic 
goods.   
 
 In Australia’s view, the legal issu e in question relates to the condition
 attached to the grant of 
a subsidy, not the grant of a subsidy per se  or who might benefit from the subsidy.  The fact that a 
measure may benefit an agricultural producer (“sup port in favour of domestic producers”) does not 
serve to override measures otherwise prohibited.   
 
 Article 21.1 of the Agreement on Agriculture  provides that “[t]he provisions of GATT 1994 
and of other Multilateral Trade Agre ements in Annex 1A to the WT O Agreement shall apply subject 
to the provisions of this Agreement”.  Article 3.1 of the SCM Agreement  applies “[e]xcept as provided 
in the Agreement on Agriculture”.  The Gene ral Interpretive Note to Annex 1A of the Marrakesh 
Agreement Establishing the World Trade Organization  also provides contextual guidance.  Pursuant 
to that Note, the Agreement on Agriculture  would prevail to the extent of any conflict with GATT 
1994.     However, in the case of subs idies contingent upon the use of domestic goods, there is no 
conflict between either the Agreement on Agriculture , which inter alia disciplines the amounts of 
domestic support in favour of domestic producers which distorts trade and production, and the SCM 
Agreement  or GATT 1994, which discipline or prohibit certain conditions attached to subsidies, 
including subsidies in favour of agricultural producers (subject only to the provisions of Article III:8(b) of GATT 1994).  There is no provision in the Agreement on Agriculture  which 
provides for an exception to, or cover for, local conten t conditions attached to the grant of a subsidy.   
 
 Australia has already noted
30 that Article 13(b)(ii) does not exempt non-“green box” domestic 
support measures from actions based on Article 3 of the SCM Agreement .  Neither does Article 13 
anywhere refer to GATT Article III:4.  Nor with  regard to these Articles is there any provision 
comparable to Articles 5 and 12 of the Agreement on Agriculture .  As stated in the preambular clauses 
of the Agreement on Agriculture , the “long-term objective is to provide for substantial progressive 
reductions in agricultural support a nd protection”:  it is not intended to provide for a weakening of 
disciplines, particularly when such disci plines are not specifically mentioned.   
  Australia also notes that the domestic support provisions of the Agreement on Agriculture  
provide for a strengthening and ela boration of the provisions of Ar ticle XVI of GATT 1994.  They are 
not directed towards a diminution of basic GATT ob ligations.  National treatment is central to the 
multilateral trading system.  It is inconceivable to Australia that the negotiators of the Agreement on 
Agriculture would, as part of a reform programme designed to strengthen disciplines, agree to weaken 
national treatment disciplines.     However, in the event the Panel were to consid er that the phrase “provide  support in favour of 
domestic producers” refers to and/or permits s ubsidies contingent upon the use of domestic goods, 
Australia notes that such support could be permitted only to the extent that the support was actually 
passed through to the producers of the basic agricultural product.   
 
                                                     
 
30 Oral Statement by Australia, paragraphs 29-30.   WT/DS267/R/Add.3 
Page J-36  
 
ETI ACT  
 
41. Concerning its claims on the ETI Act, Brazil relies on the US – FSC case.  However, it 
appears that the United States did not raise the issue of the Peace Clause in that case, nor did 
the US appear to invoke Article 6 of the Ag reement on Agriculture.    If the Panel's 
understanding is correct, how, if at all, are th ese differences relevant here?  Argentina, China, 
EC, NZ   42. How do you view the reference in paragraph 43 of the EC's third party oral statement 
with respect to the relevance of Article 17.14 of th e DSU, and, in particular, the phrase "a final 
resolution to that dispute" (emphasis added)?  Please explain the use, and relevance (if any) of 
the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU, and please cite any other provisions you consider relevant.  Argentina, China, EC, NZ    WT/DS267/R/Add.3 
 Page J-37 
 
 
ANNEX J-3 
  
ANSWERS OF BENIN TO THE PANEL'S 
QUESTIONS OF 25 JULY 2003  
 
11 August 2003 
 
  Benin offers the following responses to the 25 Ju ly questions of the Panel, as they pertain to 
the scope of Benin’s Third Party Submission or Oral Statement:  
1.   Australia has argued that Article 13 of the Agreement on Agriculture  is an affirmative 
defence.  How do you reconcile this with your view that the conditions of Article 13 are a 
“prerequisite” to the availability of a right or privilege?  Australia.  Would other third parties have any comments on Australia’s assertion?  3
rd parties, in particular Argentina, Benin, China, 
Chinese Taipei  
Reply
 
  Benin agrees with the basic assertion of Australia that Article 13 of the Agreement on 
Agriculture  is an affirmative defence.   
  In Benin’s view, the notion of Article 13 as an  affirmative defence is easily reconciled with 
the view that the conditions set out in Article 13 are a prerequisite to its availability.  As Benin argued 
in its Third Party submission, the language used in Ar ticle 13 shows the clear intent of its drafters that 
the Member seeking to invoke the peace clause defe nce must bear the burden of demonstrating full 
compliance with all of the preconditions set out in this  provision.  As noted by Benin, this intent is 
demonstrated, inter alia , by the use of the proviso "provided that."  In the Quantitative Restrictions  
case, also referred to in Benin's Third Party subm ission, the Appellate Body considered similar 
language in GATT Article XVIII:11, and found that the burden lay on the Member seeking to invoke 
the proviso.   While Benin and Australia thus share the same view on the nature of Article 13, Benin would 
not find it necessary to refer to the invocation of Ar ticle 13 as a "privilege."  In Benin's view, a 
Member that has met the burden of demonstrating fu ll compliance with all of the preconditions set out 
in Article 13 could invoke this defence as a right.  However, the United States has clearly not met this 
burden in the present case.  
16.   If the word “specific” were deleted from Article 13(b)(ii), would this change the meaning 
of the subparagraph?  3
rd parties, in particular Australia, Argentina, Benin, Canada, China, 
EC, NZ 
 
Reply  
 Please see Benin’s answer to Question 18, which also addresses the issue raised in 
Question 16. 
 
18.   Benin’s oral statement considers the phrase “support to a specific commodity” in 
Article 13(b)(ii) of the Agreement on Agriculture .  How does Benin believ e that phrase is best 
interpreted?  Please substantiate your response,  commenting on other submissions by parties 
and third parties you believe appropriate.  Benin 
 WT/DS267/R/Add.3 
Page J-38  
 
Reply
 
  In Benin’s view, the phrase “support to a speci fic commodity” in Article 13(b)(ii) means any 
support, other than green box support, provided to a particular, identifiable agricultural commodity.  
Such support can be provided through either a product-specific or non product-specific programme.   
 
 The United States argues that “the phrase ‘support to a specific commodity’ should be 
understood to mean ‘product-specific support’”.  This position is supported by the European 
Communities, which suggests that the word “specific” was inserted in Article 13 as “a qualifier to the 
word ‘support’”. 
 
 As noted by Benin in its oral statement of July 24, if the drafters of the Agreement on 
Agriculture had wanted to use the term “product-sp ecific support” in Article 13(b)(ii), they obviously 
could have done so, as they did elsewhere in Agreemen t, such as in Article 6(4), or in Annex 3.    
 
 The interpretation proposed by the United St ates and the European Communities is contrary 
to the language actually used in Article 13(b)(ii) , which refers to support to a “specific commodity” 
and not “specific support” to a commodity, or “produ ct-specific support.”  The treaty interpreter must 
give meaning to the words actually used by the drafters of this provision.     As noted by New Zealand in its Third Part y submission, the use of the term “specific 
commodity” in Article 13(b)(ii) was used to dis tinguish the “peace clause” from general domestic 
support commitments, which are determined on the basis of total “Aggregate Measure of Support”.  As stated by New Zealand, without such wording,  “peace clause” protection could be lost for any 
agricultural product if total AMS increased, even if support to a specific product had not increased. 
 
 Moreover, to re-iterate another point raised by  Benin in its oral statement, acceptance of the 
US interpretation would clearly elevate form over s ubstance.  Benin agrees with Brazil that the US 
interpretation “would carve out a category of non-‘g reen box’ subsidies simply because the measures 
distort trade in multiple  commodities…This interpretation woul d permit Members to insulate their 
trade-distorting non-‘green box’ measures from challenge by manipulating the form  of the support so 
that it does not mandate the production of a specific co mmodity in order to receive the subsidy, or by 
providing such support through a non-‘product-specific’ measure.” 
  Benin also notes that the Appellate Body h as made clear that the WTO-consistency of 
subsidies must be determ ined by their substance
, and not by their form .1 
 Therefore, support provided to any specific or identifiable commodity, regardless of the 
nature of that support, must be included in the anal ysis required by Article 13(b)(ii).  In Benin’s view, 
this interpretation would remain the same if the word “specific” were deleted from Article 13(b)(ii), 
                                                      
 1  In Benin’s view, it is useful to recall how the Appellate Body interpreted the export subsidy 
commitments of the Agreement on Agriculture  in the Canada Dairy  dispute, where the tribunal emphatically 
rejected an interpretation that would have elevated form over substance.  The Appellate Body refused to read the 
word “payments” in Article 9.1(c) na rrowly, i.e. to mean monetary payments only, but not payments-in-kind: 
 
“…if a restrictive reading of the words "payments" were adopted, such that "payments" under Article 
9.1(c) had to be monetary, no account could be taken, under Article 9.1(c), of  "revenue foregone". This 
would, we believe, prevent a proper assessment of the commitments made by WTO Members under Article 9.2, as envisaged by Article 1(c) of the Agreement on Agriculture . We, therefore, prefer a reading 
of Article 9.1(c) that allows full acco unt to be taken of "revenue foregon e".  The contrary view would, in 
our opinion, elevate form over substance and permit
 Members to circumvent the subsidy disciplines  set 
forth in Article 9 of the Agreement on Agriculture .”  [emphasis added] 
 
Appellate Body Report, Canada – Measures Affecti ng the Importation of Milk and the Exportation of 
Dairy Products, WT/DS103/AB/R, WT/DS113/AB/R, paragraph 110.  WT/DS267/R/Add.3 
 Page J-39 
 
 
an issue raised in Question 16.  Such a deletion,  in Benin’s view, would reinforce the view that 
support provided to “a commodity”, regardless of th e form of that support, would come under this 
provision.     In any event, whether the drafters chose the term “support to a specific commodity” or 
“support to a commodity”, the result would be the same.  The most important point is that the drafters 
of the Agreement could have used “product-specifi c support”, a term of art found elsewhere in the 
Agreement, but did not.   In addition, Benin would offer the following views on the ETI Act: 
 
41.   Concerning its claims on the ETI Act, Brazil relies on the US – FSC  case.  However, it 
appears that the United States did not raise the issue of the Peace Clause in that case, nor did 
the US appear to invoke Article 6 of the Agreement on Agriculture .    If the Panel's 
understanding is correct, how, if at all, are th ese differences relevant here? Argentina, China, 
EC, NZ   
Reply
 
  Brazil has asked the Panel to find that “the ETI Act constitutes an export subsidy violating 
AoA Articles 10.1 and 8 and ASCM Article 3.1(a).”  [Paragraph 330 of Brazil’s First Submission.]   
As is well-known, the Appellate Body has f ound that the ETI measure is inconsistent, inter alia , with 
the same provisions cited by Brazil:  Articles 10.1 and 8 of the Agreement on Agriculture , and 
Article 3.1(a) of the SCM Agreement.
2  The Appellate Body report was adopted by the DSB on 
January 29, 2002, and the ETI has remained unamended since that time.  
 Before responding directly to Question 41, Be nin would offer some preliminary observations 
on the relevance of earlier Panel and Appellate Body reports.   
  In Benin’s view, prior adopted Panel or Appella te Body reports are not technically binding on 
subsequent Panels.  As the Appellate Body stated in Japan Alcohol , adopted panel reports “are not 
binding, except with respect to resolving the particul ar dispute between the parties to that dispute.”
 3  
Thus, the adopted Appellate Body decision in the FSC/ETI dispute is binding only on the parties to 
that dispute, the United States and the EC.    However, the Appellate Body in Japan Alcohol  also made clear that prior panel decisions “create 
legitimate expectations among WTO Members, and, therefore, should be taken into account where 
they are relevant to any dispute.”
4   
  A similar approach was taken by the Panel in the India – Patent Protection case.  The Panel, 
established at the request of the EC, had to determin e what weight to give to the adopted Panel and 
Appellate Body reports on the same subject matte r in an earlier case brought by the United States.  
The Panel stated that: 
 
                                                     
 
2 Appellate Body report, United States – Tax Treatment for ‘Foreign Sales Corporations’:  Recourse to 
Article 21.5 of the DSU by the European Communities .  WT/DS108/AB/RW. 
 3 Appellate Body report, Japan - Taxes on Alcoholic Beverages .  WT/DS8/AB/R, WT/DS10/AB/R, 
WT/DS11/AB/R.  Page 14. 
 4 Appellate Body report, Japan - Taxes on Alcoholic Beverages .  Ibid, page 14.  In the Shrimp-Turtle  
compliance panel appeal, the Appellate Body added that:  “This reasoning applies to adopted Appellate Body 
Reports as well.”  Appellate Body report, United States – Import Prohibition of Certain Shrimp and Shrimp 
Products:  Recourse to Article 21.5 of the DSU by Malaysia .  WT/DS58/AB/RW, paragraph 109. WT/DS267/R/Add.3 
Page J-40  
 
“It can thus be conclude d that panels are not bound by previous decisi ons of panels or 
the Appellate Body even if the subject-m atter is the same. In examining dispute 
WT/DS79 [the EC complaint] we are not legally bound by the conclusions of the 
Panel in dispute WT/DS50 [the prior US complaint] as modified by the Appellate 
Body report. However, in the course of  "normal dispute settlement procedures" 
required under Article 10.4 of the DSU, we will take into account the conclusions and 
reasoning in the Panel and Appellate Body reports in WT/DS50. Moreover, in our 
examination, we believe that we should give  significant weight to both Article 3.2 of 
the DSU, which stresses the role of the WTO dispute settlement system in providing 
security and predictability to the multilateral trading system, and to the need to avoid 
inconsistent rulings (which concern has been  r e f e r r e d  t o  b y  b o t h  p a r t i e s ) .   I n  o u r  
view, these considerations form the basis of the requirement of the referral to the "original panel" wherever possible under Article 10.4 of the DSU.”
5  [original 
emphasis] 
It is also highly instructive to recall the position ta ken by the United States as a third party to the EC 
complaint, since there are direct parallels to the current situation in Cotton .  The US position, as 
summarized by the Panel, included the following:  
“The United States argued in its third party submission that the precise measures and provisions of the WTO Agreement at issue in this dispute had been the subject of a previous WTO dispute settlement pro ceeding….[T]he Appellate Body had 
thoroughly analyzed the legal issues in the case and it was neither necessary nor 
appropriate for the Panel to repeat that work .  The Panel should consider the 
arguments of the parties, but be guided by the Appellate Body’s recent interpretation 
of the obligations at issue…. 
The United States supported the view of the EC that it was not necessary or 
appropriate to repeat all of the lega l arguments made in the earlier dispute  
(WT/DS50) in the context of the present proceedings….India appeared to seek an 
entirely redundant proceeding.  Despite Indi a's obligation under Article 17.14 of the 
DSU to accept the Appellate Body's report in  the earlier case unconditionally, India's 
submission gratuitously disparaged the work of the Appellate Body…. 
The United States added that, moreover, India did not argue that it had modified its 
patent regime since the Appellate Body's ru ling and that, in that situation, the Panel 
should be guided by the Appellate Body's decision, not by allegedly new arguments 
about the same patent regime. 
India should not be permitte d to reopen legal issues that had been conclusively 
determined by a panel and the Appellate Bo dy.  Such a result would invite repetitive 
litigation….The drafters had wanted to avoi d giving complainants or defendants an 
incentive to re-litigate disputes to see if different panels would produce different results.  If such "panel shopping" did produce different results, the effect on the dispute settlement system would be profoundly destabilizing.  
 
The WTO dispute settlement system could not  function effectively without consistent 
panel judgments….Without consistent j udgments, WTO Members would find little 
guidance in the legal interpretations devel oped by dispute settlement panels and the 
Appellate Body.  The role of the dispute settlement system [would be] greatly 
                                                     
 
 5 Panel report, India - Patent Protection for Ph armaceutical and Agricultural Chemical Products, 
WT/DS79/R, paragraph 7.30.  WT/DS267/R/Add.3 
 Page J-41 
 
 
diminished and the system could not fulfill its purpose:  to serve as a "central element 
in providing security and predictability  to the multilateral trading system.”  [emphasis 
added] 
 The parallels between India – Patent Protection  and Cotton  are striking, and the US 
submission in the former case provide clear guidance as to how the Cotton  panel should examine 
Brazil’s current ETI claims.   
  As was the case in Patent Protection , the Appellate Body has “t horoughly analyzed the legal 
issues in the [FSC/ETI] case” and it is “neither necessary nor appropriate” for the Cotton Panel to 
“repeat that work.”  The Cotton  Panel should consider the arguments of the parties, but “be guided by 
the Appellate Body’s recent  interpretation of the obligations at is sue.”  The United States should not be 
permitted to “reopen legal issues [related to the ETI ] that had been conclusively determined by a 
panel and the Appellate Body.”  Benin shares th e US concern that “such a result would invite 
repetitive litigation”, would promote “panel shopping”, and that different result s could be “profoundly 
destabilizing.”   
 
 Thus, in Benin’s view, the Cotton  panel should be guided by the Appellate Body’s 
interpretation of the US ETI measure.     Turning to the specific question raised by th e Panel:  as noted above, Benin agrees with the 
position advanced by the United States in Patent Protection  that a responding party in a subsequent 
case dealing with the same measure should not be  permitted to reopen issues “that had been 
conclusively determined by a panel and the Appellate Body.”  However, in Cotton , the United States 
would have the right to advance specific new defenc es that were not considered by the Panel or the 
Appellate Body in the FSC/ETI dispute (e.g. that the United States is entitled to the protection of Article 13 because its export subsidies for cotton “confor m fully” to the provisions of Part V of the 
Agreement on Agriculture ). 
  Thus, as a procedural matter, the Cotton Panel could consider such US arguments.  However, 
as a substantive matter, Benin would note that the relevant obligations in Part V of the Agreement on 
Agriculture  are Articles 8 and 10.1.  As stated above, th e Appellate Body has already determined that 
the ETI involves export subsidies inconsistent w ith US obligations under both these provisions.  
Therefore, in Benin’s view, US export subsidies fo r cotton do not “conform fully to the provisions of 
Part V.”  Accordingly, the ETI is not exempt  from action by virtue of the Peace Clause.   
 
42.   How do you view the reference in paragra ph 43 of the EC's third party oral statement 
with respect to the relevance of Article 17.14 of the DSU , and, in particular, the phrase "a final 
resolution to that dispute" (emphasis added)?  Please explain the use, and relevance (if any) of 
the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU , and please cite any other 
provisions you consider relevant. Argentina, China, EC, NZ   
 
Reply
 
 
 As noted in the footnote to paragraph 43 of  the EC statement, the reference to adopted 
Appellate Body reports providing “a final resolutio n to the dispute” was taken from the decision of 
the Appellate Body in the Shrimp-Turtle  compliance panel appeal.6  However, the context of that case 
was slightly different from the present dispute.  The Appellate Body decision in the Article 21.5 
proceeding in Shrimp Turtle  involved the same dispute as had been litigated earlier between Malaysia 
                                                      
 6 Appellate Body report, United States – Import Pr ohibition of Certain Shrimp and Shrimp Products:  
Recourse to Article 21.5 of the DSU by Malaysia.  Op. Cit. WT/DS267/R/Add.3 
Page J-42  
 
and the United States, although it had by then moved to the compliance panel stage.
7  By contrast, 
Cotton  is a new dispute, albeit one that includes th e same measure that had been found to be WTO-
inconsistent in the earlier EC-US FSC dispute. 
  Thus, in the present context, the reference to “the dispute” in DSU Article 17.14 would refer 
to the EC-US dispute in FSC/ETI, since that is  the “dispute” which has resulted in an adopted 
Appellate Body report.  The “dispute” referred to in Article 12 and Appendix 3 would be the Cotton  
dispute, as these proceedings are now underway.  Artic le 9.3 provides that if more than one panel is 
established to examine the complaints related to the same matter, to the greatest extent possible, the 
same persons shall serve as panelists on each of the separate panels, and the timetables shall be 
harmonized.  While this provision might ha ve had some potential relevance if the Cotton and FSC 
cases had been running concurrently, given the par tial overlap of claims, it seems of little relevance 
now to the Panel as it assesses the weight to  ascribe to prior rulings on the FSC/ETI. 
  In any event, Benin would strongly re-itera te its position, as set out above, that the Cotton  
panel should be guided by the Appellate Body’s in terpretation of the ETI, particularly since the 
measure has not been amended since the DSB adopted the Appellate Body’s report. 
                                                     
 
 7 Similar kinds of issues are raised in European Communities – Antidumping Duties on Imports of 
Cotton-Type Bed Linen from India:  Recourse to Article 21.5 of the DSU by India.  Report of the Appellate 
Body.  WT/DS141/AB/RW.  WT/DS267/R/Add.3 
 Page J-43 
 
 
ANNEX J-4 
 
 
CANADA’S RESPONSES TO PANEL QUESTIONS TO 
THIRD PARTIES AT THE FIRST SUBSTANTIVE MEETING 
OF THE PANEL WITH THE PARTIES (FIRST SESSION) 
 
11 August 2003 
 
 
 Canada sets out responses to the questions of the Panel in which Canada has a systemic interest:  2. Please explain the difference, if any, between the meaning of "defined" and the meaning of "fixed" in the phrase "a defined and fixed ba se period" in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture . 
 
Reply
 
 
1. The meaning of the term “defined” is “having a definite or specified outline or form; clearly 
marked, definite”.1  The term “fixed” is defined as “definitely and permanently placed or assigned; 
stationary or unchanging in relative po sition; definite, permanent, lasting”.2  Based on the ordinary 
meaning of these terms, the base period for US direct  payments must be clearly set out and remain 
unchanged.  Because the structure of direct pa yment programme and the parameters for direct 
payments are essentially the same as those regardi ng PFC payments, the Panel should find that the 
applicable base period for direct payments is th e base period for PFC payments.  By allowing base 
acreage for direct payments to be updated, the Unite d States acts inconsistently with paragraph 6(a) of 
Annex 2 because the base period is not “fixed”.  Canada  refers the Panel to para graphs 4-6 of its third 
party oral statement.    3. Please explain the meaning of "a" in "a defined and fixed base period" in paragraph 6(a) of Annex 2 of the Agreement on Agriculture , the meaning of "the" in "the base period" in 
paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based on the years 1986-88" in Annex 3.  
Reply
 
 2. Paragraph 6(a) of Annex 2 of the Agriculture Agreement  requires eligibility for decoupled 
income support payments to be determined by “clear ly-defined criteria such as… production level in a 
defined and fixed based period”.  Use of the indefini te article “a” in this provision means that no base 
period is specified.  To the contrary, paragr aph 11 of Annex 3 specifies a base period.   
 
3. Use of the definite article “the” in paragraphs  6(b), (c) and (d) of Annex 2 creates a reference 
to the base period established pursuant to paragraph 6(a).  
4. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture ? 
 
                                                     
 
1 New Shorter Oxford English Dictionary , p. 618 (“defined”) [Exhibit CDA-4]. 
2 New Shorter Oxford English Dictionary , p. 962 (“fixed”) [Exhibit CDA-5]. WT/DS267/R/Add.3 
Page J-44  
 
Reply
 
 4. A Member may define and fix a base peri od only once for any given type of decoupled 
income support payment.  16. If the word "specific" were deleted from Article 13(b)(ii), would this change the meaning of the subparagraph?  
Reply
 
 
5. The Appellate Body explained in United States – Reformulated Gasoline  that “[o]ne of the 
corollaries of the ‘general rule  of interpretation’ in the Vienna Convention  is that interpretation must 
give meaning and effect to all the terms of a treaty”.3  The term “specific commodity” means a 
commodity that is clearly and explicitly defined.4  Deletion of the word “specific” would imply an 
examination of support benefiting a potentially broade r product class, a result that is not supported by 
the text of Article 13(b)(ii) of the Agriculture Agreement . 
 
17. What is the relevance, if any, of the concept of "specificity" in Article 2 of the SCM 
Agreement  and references to "a product" or "subsidized product" in certain provisions of the 
SCM Agreement  to the meaning of "support to a specific commodity" in Article 13(b)(ii) 
Agreement on Agriculture ? 
 Reply
 
 6. Article 2 of the SCM Agreement  sets out principles that apply to determine whether a subsidy 
“is specific to [certain enterprises]”.  In the cont ext of Article 2, the phrase “is specific to” means that 
a government restricts the availability of a subsidy to certain enterprises.
5  In the context of 
Article 13(b)(ii) of the Agriculture Agreement , the term “specific commodity” means a commodity 
that is clearly and explicitly defined.6  Article 13(b)(ii) requires an ex amination of all support that is 
not exempt under Annex 2 and that benefits a “precise”, “exact”, or “defined” commodity.  Such support may be provided either through product-sp ecific or non-product-specific support programmes. 
 29. (a)  Is an export credit guarantee a financ ial contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement ? Why or why not? 
 
Reply
 
 
7. Yes, an export credit guarantee is a potential direct transfer of funds under Article 1.1(a)(1)(i) of the SCM Agreement .  The GSM programmes “underwrite credit extended by the private banking 
sector in the United States (or, less commonly, by  the US exporter) to approved foreign banks using 
dollar-denominated, irrevocable letters of credit to  pay for food and agricultural products sold to 
foreign buyers.”
7  Under the SCGP, “CCC guarantees a porti on of payments due from importers under 
short-term financing (up to 180 days ) that exporters have extended di rectly to the importers for the 
                                                      
3 United States – Standards for Reformulated and Conventional Gasoline , Report of the Appellate 
Body, WT/DS2/AB/R, adopted 20 May 1996, p. 23.  
4 US First Written Submission, para. 77, fn 66. (“Clearly or explicitly defined; precise, exact, 
definite.”) 
5 US First Written Submission, para. 77.  (“‘Specific’ means ‘[s]pecially or peculiarly pertaining to a 
particular thing or person, or a class of these; peculiar (to)’.”) 
6 US First Written Submission, para. 77, fn 66. (“Clearly or explicitly defined; precise, exact, 
definite.”) 
7 See Exhibit BRA-71 ( “Fact Sheet: CCC Export Credit Guarantee Progra mmes (GSM-102/103)”).   WT/DS267/R/Add.3 
 Page J-45 
 
 
purchase of US agricultural products.”8  Where a foreign bank or fore ign importer defaults under the 
terms of the credit/financing that has been extende d, the CCC will transfer funds to the US bank or 
US exporter directly.  
 (b)  How, if at all, would this be relevant to the claims of Brazil? 
 
Reply
 
 8. Where the guarantees provided under the US programmes confer a “benefit”, a “subsidy” 
exists within the meaning of Article 1.1 of the SCM Agreement .  Whether a “subsidy” exists under 
Article 1.1 of the SCM Agreement  is relevant to determining whet her the US programmes grant export 
subsidies within the meaning of Article 1(e) of the Agriculture Agreement .  Panels and the Appellate 
Body have relied upon the definition of a “subsidy” in Article 1.1 of the SCM Agreement  as context to 
determining whether an “export subsidy”  exists under Article 1(e) of the Agriculture Agreement .  This 
Panel should do the same. 
 
9. Were the Panel to find that these programmes provide export subsidies within the meaning of 
Article 1(e) of the Agriculture Agreement  (a likely result in this case), th en it would also find that the 
United States has violated Articles 8 and 10.1 at the very least in respect of exports of upland cotton 
because it is an unscheduled product and the US  quantitative export subsidy reduction commitment 
level for that commodity is therefore zero. 
 
30. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement  
were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
Panel would therefore appreciate third party views on this situation, including with respect to 
the viability of an a contrario  interpretation of item (j) of the Illustrative List (as addressed in 
paragraphs 180-183 of the United States' first written submission). 
 
Reply
 
 
10. Whether an export subsidy exists under Articles 1 and 3 of the SCM Agreement  is relevant to 
determining whether the US programmes grant export s ubsidies within the meaning of Article 1(e) of 
the Agriculture Agreement .  Item (j) of the Illustrative List may not be interpreted a contrario  to deem 
US export credit guarantee practices as not provid ing export subsidies under Article 10.1 of the 
Agriculture Agreement .  Where US programmes may not be deemed to provide export subsidies 
because they do not meet the requirements of item (j), Articles 10.1 and 10.3 of the Agriculture 
Agreement  nevertheless require the United States to demonstrate that it has not granted export 
subsidies within the meaning of Articles 1 and 3 of the SCM Agreement  in respect of the relevant 
quantity of exports.  Canada refers  the Panel to paragraphs 49-50 of  its written third party submission 
and paragraphs 12-14 of its third party oral statement. 
 
31. If the Panel decides to refer to provisions of the SCM Agreement  for contextual guidance 
in the interpretation of the terms in Article 10 Agreement on Agriculture , should the Panel refer 
to item (j) or Articles 1 and 3 of the SCM Agreement  or both? 
 
                                                      
8 See Exhibit BRA-72 (“Fact Sheet:  CCC Supplier Credit Guarantee Programme”).  WT/DS267/R/Add.3 
Page J-46  
 
Reply
 
 11. The Panel should refer to both.  Item (j) of the Illustrative List in Annex I of the SCM 
Agreement  allows the Panel to determine whethe r the United States provides “export credit 
guarantee… programmes” such that guaranteed export credit transactions guaranteed under those 
programmes are subsidized per se .  Articles 1 and 3 of the SCM Agreement  allow the Panel to 
determine, on a transaction-by-transaction basis, whether given quantities of US exports are subsidized.  
32. The Panel's attention has been drawn to Article 14(c) of the SCM Agreement  (see third 
party submission of Canada) and to the panel report in DS 222 Canada - Export Credits and 
Loan Guarantees .  How and to what extent are Article 14(c) of the SCM Agreement , and the 
cited panel report, relevant to the issue of wh ether or not the United States export credit 
guarantee programmes confer a "benefit"?  What  would the appropriate market benchmark be 
to use for any comparison? Please cite any other relevant material. 
 Reply
 
 12. Canada refers the Panel to paragraphs 41-48 of its written thir d party submission with respect 
to how and to what extent Article 14(c) of the SCM Agreement  and the cited panel report are relevant.   
 
13. Whether a benefit is confe rred under Article 1.1(b) of the SCM Agreement  is a question of 
fact, to be assessed in the light of all the relevant  financial considerations of a given export credit 
transaction.  The Panel’s findings in this respect w ill depend on an examination of:  1) the terms of 
credit transactions that are guaranteed by the CCC, including the length of the repayment period and 
any fees charged for the guarantee, and 2) credit tr ansactions with similar terms that are occurring in 
the market without a CCC guarantee. 
 
33. What is the relevance (if any) of Brazil's statement that :  "...export credit guarantees 
for exports of agricultural exports [sic] are no t available on the marketplace by commercial 
lenders." 
 Reply
 
 14. Were the Panel to find that support for exports  of agricultural products such as export credit 
guarantees are not available on the marketplace from commercial lenders, this would suggest that a 
benefit under Article 1.1(b) of the SCM Agreement  exists because the provision of such support in the 
market would otherwise require uneconomical terms and conditions (based on factors such as a lack 
of security provided by the product and a lack of lender confidence in sales of the product).  
34. Comment on the United States' view of th e meaning of "long term operating costs and 
losses" in item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement  
as meaning "claims paid" under the export credit guarantee programmes.  Does the United 
States' interpretation give meaning to both "c osts" and "losses"?  Do claims paid represent 
"losses"? 
 
Reply
 
 
15. The term “costs” must be distinct in meaning from the term “losses”, otherwise the 
coordinating conjunction “and” is re ndered meaningless.  This is confirmed by the French version of 
the phrase (“ les frais et les pertes ”).  In Canada’s view, any “claims paid” may yield “losses” when 
they are added to any other “operating costs” in curred under the programme.  Such losses would be 
required to be covered over the long term by the premiums charged to avoid a finding that 
transactions guaranteed under the programme are subsidized per se .  WT/DS267/R/Add.3 
 Page J-47 
 
 
 
35. Did the drafters of the Agreement on Agriculture  include export credit guarantees in 
Article 9.1 of the Agreement on Agriculture ? Why or why not? 
 
Reply  
 
16. Export credit guarantees were not  included in Article 9.1 of the Agreement on Agriculture  
because Members could not agree on specific langua ge.  Article 10.1 therefore covers any export 
subsidies granted by such guarantees.    36. Please explain any possible significance the following statements may have in respect of 
Brazil's claims about GSM102 and 103 (7  CFR 1493.10(a)(2), Exhibit BRA-38) 
  (a) "The programmes operate in cases where credit is necessary to increase or 
maintain US exports to a foreign mark et and where US financial institutions 
would be unwilling to provide financing without CCC's guarantee.  (7 CFR 
1493.10(a)(2) Exhibit BRA-38) 
 
Reply
 
 17. This statement suggests that similar credit transactions that are not guaranteed by the CCC 
would involve uneconomical terms and conditions.  Therefore, it suggests that a “benefit” exists 
within the meaning of Article 1 of the SCM Agreement .  The statement also confirms that the US 
programmes are contingent upon export performance within the meaning of Article 1(e) of the 
Agriculture Agreement . 
  (b) "The programmes are operated in a manner intended not to interfere with 
markets for cash sales.  The programm es are targeted towa rd those countries 
where the guarantee is necessary to secu re financing of the exports but which 
have sufficient financial strength so that foreign exchange will be available for scheduled payments."  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
Reply
 
 18. This statement also suggests that a “benefit” exists within the meaning of Article 1 of the 
SCM Agreement , and confirms that the US programmes are contingent upon export performance 
within the meaning of Article 1(e) of the Agriculture Agreement . 
 
 (c) "In providing this credit guaran tee facility, CCC seeks to expand market 
opportunities for US agricultural expo rters and assist long-term market 
development for US agricultural commodities." (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 Reply
 
 19. This statement confirms that the US progr ammes are contingent upon export performance 
within the meaning of Article 1(e) of the Agriculture Agreement . 
 37. The United States seems to argue that, at present, by virtue of Article 10.2 of the Agreement on Agriculture , there are no disciplines on agricultural export credit guarantees 
under the Agreement on Agriculture  (or the SCM Agreement ).  
  (a) Comment on the following proposit ion:  a WTO Member may therefore extend 
agricultural export credit guarantees without charging a premium, and for an WT/DS267/R/Add.3 
Page J-48  
 
indefinite period, in addition to any other terms and conditions it may wish?  
How would this reconcile with the title of Article 10 of the Agreement on 
Agriculture  ("Prevention of Circumvention on Export Subsidy Commitments"), 
and with other commitments contained in the Agreement on Agriculture ? Please 
cite any relevant material, including any past WTO dispute settlement cases.  
 
Reply
 
 20. Were the Panel to find that US export cr edit guarantee programmes provide export subsidies 
within the meaning of Article 1(e) of the Agriculture Agreement , then it would also find that the 
United States has violated its export subsidy commitments under the Agriculture Agreement  at the 
very least in respect of exports of upland cotton.   In this respect, Canada refers the Panel to 
paragraphs 51-54 of its written third party submissi on, paragraphs 15-16 of its third party oral 
statement, and paragraphs 133-153 of th e Appellate Body’s original report in US – FSC .
9 
  (b) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture , how could export credit guarantees 
"conform fully to the provisions of Part V" of the Agreement on Agriculture  
within the meaning of Article 13 (how can you assess "conformity" or non-conformity with non- existent disciplines)? 
 
Reply
 
 21. For export credit guarantees to be exem pt from the obligations set out in the Agriculture 
Agreement , the Agreement would have to expressly provide  for the exemption.  No provision of the 
Agriculture Agreement  exempts export credit guarantees from any obligation under the Agreement.  
The US guarantees will therefore “conform fully to the provision of Part V” only if they do not confer 
export subsidies within the mean ing of Articles 1(e) of the Agriculture Agreement  “in a manner which 
results in, or which threatens to lead to, circ umvention of [US] export subsidy commitments” under 
Article 10.1. 
                                                     
 
9 United States – Tax Treatment for “Foreign Sales Corporations” , Report of the Appellate Body, 
WT/DS108/AB/R, adopted March 20, 2000.  WT/DS267/R/Add.3 
 Page J-49 
 
 
ANNEX J-5 
  
RESPONSE BY CHINA TO THE 
PANEL’S QUESTIONS TO THIRD PARTIES 
 
11 August 2003 
 
 
1. China appreciates this opportunity to present its views to the Panel in relation to the Panel’s 
questions posed to third parties on July 28, 2003.   While it was specifically asked to address 
Questions 1, 4, 12, 13, 14, 15, 16, 17, 21, 22, 23, 25, 41 and 42, China notes the Panel in the fax cover 
page granted freedom to third parties “to respond to  or comment on questions posed to the other third 
parties”.  Given the short period within which thir d parties are required to submit their views, China 
therefore responds to and comments on the following underlined questions.  
ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE 
 
2. Question 1.  Australia has argued that Article 13 of the Agreement on Agriculture  is an 
affirmative defence.  How do you [Australia] reco ncile this with your [Australian] view that the 
conditions in Article 13 are a “pre-requisite” to the availability of a right or privilege?  Would other third parties have any comments on Australia’s assertion?  
 
Reply
 
 3. China agrees with the inte rpretation of Article 13 of the Agreement on Agriculture  (the 
“Peace Clause”) put forward by Australia.  As expl ained in its written submission, China believes that 
the Peace Clause does not impose positive obligations ; it only stands to provide limited exemptions 
from actions to measures that may otherwise be subject to actions based on GATT 1994 and the 
Agreement on Subsidies and Countervailing Measures (the “ Subsidies Agreement ”).  As wording of 
the Peace Clause indicates, such exemptions are not automatically available or granted upon a simple 
allegation by a Member that it is protected; certain  conditions built into the Peace Clause must be met 
before such a Member can enjoy en titlement to Peace Clause exemption. 
 
4. The United States alleged that if conditions do have to be met for availability of Peace Clause 
protection, it is upon the complaining party to prove that the US measures do not meet such conditions, and hence do not enjoy Peace Clause protec tion.  In support of its reasoning, it asserts that 
the Peace Clause imposes positive obligations by its built- in reference to Annex 2 to and Article 6 of 
the Agreement on Agriculture
1.  China disagrees on that point.  In its written submission, China stated 
that when Annex 2 and Article 6 are brought under the Peace Clause as c onditions, they lose any 
positive obligation nature, if any, in their origin al places; they have come to form conditions 
precedent for entitlement to Peace Clause exemption.   Since the Peace Clause contains limited 
exemptions from actions based on GATT and the Subsidies Agreement , it is affirmative defence in 
nature, and the party claiming its entitlement bear s the burden of proving that it is so entitled. 
 5. China sees no need to “reconcil e” the affirmative defence nature with the conditions that must 
be met to enjoy that defence.  The latter is si mply required to happen prior to availability of 
affirmative defence.   The two elements, i.e. conditi ons to be met and availability of exemptions, form 
an organic whole of the Peace Clause.  To China’s understanding, parties to this dispute share greater 
                                                     
 
1 Para. 43, US First Written Submission, United St ates – Subsidies on Upland Cotton, WT/DS267, 
11 July 2003. WT/DS267/R/Add.3 
Page J-50  
 
disagreement on who should bear the burden of pr oof under the Peace Clause than whether conditions 
under the Peace Clause are pre-requisites to availability of Peace Clause exemption.  
ARTICLE 13(B) OF THE AGREEMENT ON AG RICULTURE: DOMESTIC SUPPORT MEASURES 
 
6. Question 4, How often can a Member define  and fix a base period in accordance with 
paragraph 6 of Annex 2 of the Agreement on Agriculture ? 
 Reply
 
 7. In relation to US direct payments unde r the 2002 FRSI Act, the European Communities 
(“EC”) in its oral statement took a unique stance di fferent from those of all other parties.  Noting the 
United States argument that updating of base periods  was necessary in orde r to bring support for 
oilseeds production under the direct payment scheme, th e EC argued that “it must be possible to have 
different reference periods while eligibility is b ased on previous eligibility for production distorting 
subsidies” “to ensure the progressive movement of production distorting subsidies to decoupled 
subsidies”;  on the other hand, the EC also expr essed concern that “continued updating of reference 
periods in respect of the same already decoupled support, creating an expectation that production of certain crops will be rewarded with a greater entitle ment to supposedly decoupled payments, tends to 
undermine the decoupled nature of such payments”
2.  Such a line of reasoning may have given rise to 
the question raised by the Panel.  8. While sharing the same concern with the EC , China does not see eye to eye with the EC on 
the proposed allowance for an initial jump of th e reference period over the transition from production 
distorting subsidies to “decoupled subsidies”, even if  the latter are found to be decoupled.  In China’s 
opinion, the issue is not about frequency of referen ce period updating; the issue is whether Para. 6 of 
Annex 2 to the Agreement on Agriculture  allows updating of the reference period at all. 
 9. Specifically, the Panel in this case is fa ced with a direct payment programme that was 
initiated by a Member several years prior to the coming into effect of the Agreement on Agriculture , 
but was over the years, maintained in the Member  country by successor legislations with slight 
variations.  While Para. 6 of Annex 2 to the Agreement on Agriculture  does not specify when “a fixed 
and defined base period” falls, it certainly does not provide a window of opportunity for an existing 
production distorting support measure to transfor m into a kind of payment with an increased 
production factor (acreage) in a new up-to-date pe riod.  Such an interpretation would grant a bonus 
not intended by the drafters.  The requirement by Para. 6 for a “base” period reflects the drafters’ 
intention to freeze any “Green Box” programme at  its initial support level,  as opposed to a period 
selected by a Member.  If a Memb er wishes to carry out a transformation, it should certainly follow 
the spirit of Para. 6 and use the base period that  is already fixed and defined by the predecessor 
legislation.  
10. Therefore, with respect to the interpretation Para. 6 of Annex 2 to the Agreement on 
Agriculture  as applied to a direct payment programme that is a direct descendent of predecessor 
programmes, China is of the view that  no updating shall be allowed at all. 
 
11. Question 12.  Where does Article 13( b) require a year-on-year comparison? 
 
                                                     
 
2 Para. 30, Oral Statement by the European Communities, United States – Subsidies on Upland Cotton, 
WT/DS267, 24 July 2003.  WT/DS267/R/Add.3 
 Page J-51 
 
 
Reply  
 12. Main elements of Article 13(b)(ii) and ( iii) read: “domestic suppor t measures that fully 
conform to … shall be exempt from actions … , provi ded that such measures do not grant support to a 
specific commodity  in excess of  that decided during the 1992 marketing year ” (emphasis added).  The 
full conformity chapeau and the proviso are two condi tions to the availability of exemption granted by 
this Article.  13. The Panel’s question relates to  interpretation of the proviso.  Key to the interpretation are the 
words “that”, “during the 1992 marketing year” and “i n excess of”.  The word “that” is inserted in the 
second portion of the proviso to refer back to what was described in the previous portion, i.e. “support 
to a specific commodity”.  The phrase “in excess of ” requires a comparison.  The phrase “during the 
1992 marketing year” indicates a requisite element of comparison, a common denominator in time 
frame without which a comparison is impossible.  The combination of these three elements requires a comparison of support levels betwee n a given year at issue and 1992 marketing year, i.e. a year-on-
year comparison. 
 14. Obviously, the proviso does not contemplate th e comparison of the sum of support levels for 
more than one year with that of 1992 marketing y ear.  Such a comparison would be one between two 
grossly unequal numbers, resulting in no statistical  significance and would destroy the purpose of the 
proviso being a condition precedent to the availability of a protection. 
 
15. In addition, the proviso, properly interpre ted, cannot be limited to a comparison only of 
measures currently in effect against those during the 1992 marketing year, as the US argues.  The US 
based its argument on the present tense of the pr oviso, arguing that such a tense only calls for 
determination of the support that challenged measures currently grant.  With respect, China disagrees.  
While it is indeed written in the present tense, the sentence is led by the key word “provided” in a 
strong limitation and demand style.  As such, the pr esent tense serves the purpose.  The intention of 
such tense is to ensure that support levels beyond  those in 1992 are not to be protected by the Peace 
Clause.  Further, the US argument fails to recognize that the present tense is “present” only in respect 
of 1995, when the Agreement on Agriculture  came into effect.  It seeks to govern then “future” 
measures.  Using the time of panel dispute resolution as the vantage point, as the United States argues, 
seriously limits the proviso’s scope to examining only  measures current as of the time of dispute.   
Thirdly, the US interpretation that a comparison is  only limited to the measures currently in effect 
drives a significant loophole into the treaty language , and seeks to remove the proviso requirement for 
measures that are not current during the year of dis pute resolution.  Such an interpretation would also 
be tantamount to placing a period of limitation within  which a complaining member must seek dispute 
settlement against dispute-current measures only.  Neither the loophole nor the period of limitation 
can be intended by the drafters.  It follows ther efore, while Article 13(b) requires a year-on-year 
comparison, that comparison is not limited to measure currently in effect.  The issue of what measures 
are before this Panel are set out in the terms reference for this Panel. 
 
16. Question 13.  Does a failure by a Member to comply in a given year with either the 
chapeau of Article 13(b) or the proviso in s ubparagraph (ii) of Article 13(b) impact its 
entitlement to benefit in an earlier or a later year from the exemption from action provided by 
Article 13(b)?  
 
Reply
 
 
17. China proposes to address this question in tw o parts: one, does a failure by a Member to 
comply in a given year with the chapeau of Article 13(b) impact its entitlement to benefit in an earlier 
or a later year from the exemption from action provi ded by Article 13(b)?  Two, does a failure by a 
Member to comply in a given year with the proviso  in subparagraph (ii) of Article 13(b) impact its 
entitlement to benefit in an earlier or a later year from the exemption from action provided by WT/DS267/R/Add.3 
Page J-52  
 
Article 13(b)?  In this respect, it is again useful to turn back to the elements in Article 13(b)(ii) and 
(iii), which read: “domestic support measures that fu lly conform to … shall be exempt from actions 
… , provided that such measures do not grant sup port to a specific commodity in excess of that 
decided during the 1992 marketing year”.   As di scussed in China's answers to Question 12, both the 
chapeau and the proviso are two co-existing conditions , and breach of either will lead to loss of the 
exemption granted by these Articles. 
 18. For the first part, a failure by a Member to  comply in a given year with the chapeau of 
Article 13(b) will not impact its entitlement to benef it in an earlier or a later year from the exemption 
from action.  The chapeau requires that domestic  support measures conform fully to provisions of 
Article 6.  Articles 6.1 and 6.3 in turn provide that all non-green box domestic support measures of a 
Member are considered to be in compliance with Article 6 if the Member's "C urrent Total AMS  does 
not exceed  the corresponding  annual  or final bound commitment level specified in Part IV of the 
Member's Schedule" (emphasis added).  The wo rd "exceed" requires a comparison.  The words 
"current", "corresponding" and "annual" indicate that the comparison is to be made on an annual basis 
between the level of support actually provided in a given year and annual bound commitment level in 
the same year as indicated in th e Member's Schedule.  A Member's actual level of support varies from 
year to year, so does a Member's annual bound commi tment level.  Therefore a factual comparison 
between the two in a given year shall not have an y bearing on a comparison of different support levels 
in an earlier or later year.  
19. In respect of the second part of the questi on, China would like to reiterate its answer to 
Question 12 that Article 13 (b) requires a year-o n-year comparison between the annual level of 
support at issue and the level of support in 1992 ma rketing year.  Whether domestic support measures 
in a given marketing year exceeds same in 1992 mark eting year is a matter of fact.  The level of 
support in each given year challenged shall be co mpared separately to same in the 1992 marketing 
year.  A factual conclusion on the “excess” issue for measures in one year certainly shall not preclude 
an examination of a different set of facts in another year.  
20. Question 14.  Does a failure of a Member to comply with Article 13(b) in respect of a 
specific commodity  impact its entitlement to benefit in respect of other agricultural products 
from the exemption from action provided by Article 13(b)? 
 
Reply
 
 21. The chapeau of Article 13(b) requires compliance with Article 6 for the purpose of determining whether Peace Clause protection is av ailable.  As discussed in China's answers to 
Question 13, Article 6 provides that a Member's Cu rrent Total AMS in any year shall not exceed the 
corresponding annual or final bound commitment le vel specified in Part IV of the Member's 
Schedule.  In other words, in co nsidering the "exceed" issue, Current  Total AMS, being the monetary 
sum value of all measures provided by a Member in a given year shall be compared against the 
corresponding annual bound commitment committed by  the Member in its Schedule.  Such a 
comparison disregards the issue of support to a specific commodity.  Furthermore, the phrase "support 
to a specific commodity" only appears in the provi so of Article 13(b), but not in the chapeau.  
Therefore support to a specific commodity is not an issue under consideration by the chapeau of 
Article 13(b).  22. In respect of the proviso of Article 13(b), China believes a failure of a Member to comply 
thereof in respect of a specific commodity does not impact its entitlement to benefit in respect of other 
agriculture products from the exemption from action provided by Article 13(b). 
 23. For the purpose of this discussion, support measu res can be classified into two categories: 
support measures provided exclusively to one specifi ed product or those generally available to a 
number of specified products.   WT/DS267/R/Add.3 
 Page J-53 
 
 
 24. Where a programme is designed to provide support exclusively to one product, e.g. upland cotton for the purpose of this case, other products ar e not brought under its co verage.  Failure by the 
Member’s upland cotton-specific programme (if there is any in this case) to comply with Article 13(b)’s proviso would only take the exclusivel y cotton support programme at issue out of the 
protection of exemption by Article 13(b).  Whet her that Member’s other support programmes are 
protected under Article 13(b)’s protection against ac tions is a matter not related to the cotton support 
measures at issue.  25. Where support measures are generally availa ble to a number of products including upland 
cotton, the term “specific commodity” requires br eak up and attribution of the general budgetary 
outlay to each specific product for comparison under the proviso.  For the purpose of this case, only 
the portion of outlay that was used for upland cotton is relevant for that co mparison.  Outlays broken 
up for other products covered by the same programme is  not at issue before this Panel.  In addition, 
terms of reference governing this Panel procedure does not require the Panel to review measures 
involving other products. 
 
26. Question 16.  If the word "specific" were deleted from Article 13(b)(ii), would this 
change the meaning of the subparagraph? 
 
Reply
 
 
27. China believes that a hypothetical deletion suggested would not change the fundamental 
meaning of Article 13(b)(ii).  28. China understands that the word “specific” is  inserted to avoid a lump-sum treatment of 
measures generally applicable to a number of commod ities.  It is to emphasize that when calculating 
the amount of support granted to one commodity, th e portion that is delivered to that specific 
commodity at issue shall be singled out and counted as part of the amount of all support granted to that specific commodity.  Doing the comparison ot herwise would render the requisite comparison as 
part of the proviso meaningless.  
29. If the word “specific” were to be deleted, the proviso would read: 
 
…, provided that such measures do not grant support to  a commodity in excess of 
that decided during the 1992 marketing year. (emphasis added) 
With “specific” deleted, while the emphasis effect may be diminished, the word “a” remains and the 
fundamental meaning of this proviso will not cha nge.  A comparison is still required for the support 
levels that are directly applicable a nd those attributable to upland cotton. 
 30. The above interpretation accords with the view s of New Zealand and Australia that the term 
“support to a specific commodity” is not synonymous with the term “product-specific support”
3.  The 
term “product-specific support” focuses on “product-specific”, pointing to a support programme 
designed for and provided exclusively to a specified product.  On the other hand, the term “support to 
a specific commodity” is used to incorpor ate a level of support delivered to a specific commodity,  
combining both product specific support and the a ttributed portion of a much larger programme 
generally available to a number of products including upland cotton.  
                                                     
 
3 Paras. 23 – 24, Oral Statement by Australia, United States – Subsidies on Upland Cotton , WT/DS267, 
24 July 2003; Para. 9, New Zealand’s Oral Statement, United States – Subsidies on Upland Cotton , WT/DS267, 
24 July 2003. WT/DS267/R/Add.3 
Page J-54  
 
31. Question 17.  What is the relevance, if any, of the concept of “specificity” in Article 2 of 
the SCM Agreement  and references to “a product” or “subsidized product” in certain provisions 
of the SCM Agreement  to the meaning of “support to a specific commodity” in Article 13(b)(ii) 
Agreement on Agriculture ? 
 32. China believes that the concept of  “specificity” in Article 2 of the Subsidies Agreement  is 
used in a sense and for purposes different from that u sed in the proviso of Article 13(b)(ii) of the 
Agreement on Agriculture .  References to "a product" or "subsid ized product" in certain provisions of 
the Subsidies Agreement  is not relevant at all to the meaning of “support to a specific commodity”. 
 
33. Pursuant to Article 1.2 of the Subsidies Agreement , a subsidy shall be subject to WTO 
disciplines only if its availability is restri cted to specified recipients, i.e. to a specific enterprise or 
industry or a group of enterprises or industries . (emphasis added)  The wo rd defines what falls under 
WTO discipline over subsidies.  In contrast, th e word “specific” used in the phrase “support to a 
specific commodity” of the Peace Clause proviso, as Ch ina explains in its answers to Question 16, is 
an emphasis for calculating year on year support le vels on a product basis.  The latter is only an 
indicator for a method of calculation and comparison.  The same word in the two different places carry with them separate meanings and purposes.  
34. Question 21.  Please comment on Brazil’s assertion that “grant” and “decided” in 
Article 13(b)(ii) have broadly the same meaning.   If so, why did the drafters not use the same 
term?   
35. Debate among the parties revolves around the word “decided” in the proviso of Article 13(b)(ii).  The United States argued that its domestic support measures “did not decide on an 
outlay or expenditure amount in favor of upla nd cotton”; rather, it argued that “US measures 
‘determined’” a per pound rate of support during 1992 marketing year while actual outlays or 
expenditures were known or completed after the mark eting year’s end.  As the actual outlay would 
come to its knowledge upon final accounting of the world prices, no amount of outlay was “decided” 
during the 1992 marketing year
4.   
 36. In China’s opinion, the a bove US interpretation does not le nd any utility to interpreting the 
proviso in Article 13(b)(ii).  The proviso, of which “d ecided” is an element, serves, together with the 
chapeau, as a qualifier to the entitlement to exempti on from actions.  Were the US interpretation to 
prevail, no measure involving year end accounting for the calculation of expenditure would exceed 
“that decided during the 1992 marketing year”, as th e former is not capable of measuring up to the 
1992 level. 
 
37. In support of the US reading, EC argued that Brazil’s the use of “decided” as opposed to 
“granted” is indication that use of budgetary outlays  shall be ruled out; that “decided” implies one-off 
determination, not involving “deciding” countless  applications for support under a particular 
programme;  and that use of the word “during” in  the same sentence means that “decided” may also 
cover future periods.
5  However, the EC in its arguments fails to point out expressly what should 
constitute the 1992 benchmark6. 
 38. Interpretation of the word “decided” shall be carried out “in accordance with the ordinary 
meaning to be given to the terms of the treaty in  their context and in the light of its object and 
purpose”
7.  Drafters of this Article must  be understood to have used the word to carry out the Article’s 
object and purpose, being a 1992 benchmark against which to measure whether certain supports are 
                                                      
4 Para. 94, First Written Submission of the US , 11 July 2003. 
5 Paras. 14 - 17, Oral Statement by the European Communities , 24 July 2003. 
6 Para. 19, Ibid. 
7 Article 31.1, Vienna Convention on the Law of Treaties .  WT/DS267/R/Add.3 
 Page J-55 
 
 
entitled to exemption.  Measures involving agricu ltural support above that benchmark must risk 
challenges on the basis of Article XVI:1 of the GATT and Articles 5 and 6 of the Subsidies 
Agreement .  As such, the 1992 benchmark must be es tablished for the purpose of comparison.  
 39. Preference of the word “decided” over “granted ” by drafters of the Article may be a result of 
numerous possibilities.  Choosing “decided” to imply a “fixed determination” can be reflective of an 
intention to exclude expenditures that cannot be precisely allocated to a specific marketing year; 
certain support payments may be granted by an administration, but may not have reached its 
beneficiaries in 1992; it may well be an indication of  the drafters’ intention to  cover the exact scenario 
described by the US, i.e. granted in  1992 but decided in 1993.  However, such choice of the word 
shall not push aside the core intention, which is to choose the year 1992 for establishing that 
benchmark support level.    40. Again, the issue of burden of proof comes up.   If a subsidizing Member wishes to avail itself 
of the protection of Article 13(b)(ii), it is obligated  to prove that the measures being challenged do not 
exceed the 1992 benchmark.  Subsequent to th e coming effect of GATT 1994, there exists a 
reasonable expectation that all subsidizing Me mbers should have notified the WTO Committee on 
Agriculture their respective level of support in 1992  to allow a workable co mparison.  In the absence 
of such notice, evidence of a 1992 benchmark level can only be established by the complaining party, 
in the form of actual budgetary outlays by the su bsidizing Member.  Such is the best information 
available for a proper comparison. 
 
41. Question 22, What is the meaning of “support” in Agreement on Agriculture  13(b)(ii)?  
Why would it be used differently from Annex 3, where it refers to total outlays?  Question 23, Should support be compared under Article 13(b)(ii) in terms of unit of production or total volume of support or both? 
 
42. Annex 3 of the Agreement on Agriculture  is an aid to calculating AMS, which is required not 
to exceed the corresponding annual or final bound commitment level specified in a Member’s 
domestic support reduction commitments in the Member’s schedule under Article 6 of the Agreement 
on Agriculture .  In other words, the support calculated on th e basis of outlays is part of the concept of 
replacing commitments to reduce domestic support on  a product by product basis with a commitment 
to reduce overall support to the agricultural sector , a breakthrough in the Agreement’s negotiations 
effected by the Blair House accord.  43. Insertion of the Peace Clause into the Agreement on Agriculture  is again a part of the Blair 
House accord.  Budgetary outlay, as exemplified by the calculation method in Annex 3, is the 
approach adopted to ensure that levels of suppor t to upland cotton, whether generally available to a 
number of products including the product at issue, or product specific, do not overstep the 1992 marketing year level if it is to be protected by the Peace Clause exemption.  44. The United States argued that the comparison required should be between the “per pound rates” of product specific supports
8.  With respect, such an approach fails to recognize the thrust of the 
Blair House accord.  In addition, while domestic support programmes may have specific designs, e.g. 
paid on per unit basis, such designs shall not guide how Article 13(b)(ii) should be interpreted.  The 
Article has no reference at all to per uni t calculation for the purpose of comparison. 
 45. If unit of production is to be accepted as an  method for comparison in addition to absolution 
support level comparison, under Article 13(b)(ii), four  possibilities exists.  A decision as to whether a 
Member asserting affirmative defence is entitled to Peace Clause protection is possible only when 
both the absolute support level and the per unit suppor t level are higher or lower than those during the 
                                                     
 
8 Paras. 82 – 87, US First Written Submission, United States – Subsidies on Upland Cotton , 
WT/DS267, 11 July 2003. WT/DS267/R/Add.3 
Page J-56  
 
1992 marketing year.  A decision on whether Peace Cl ause shields the measures at issue may have to 
be made taking into account extraneous factors if one method yields a plus and another minus.  Those 
factors are, however, nowhere to be found under Ar ticle 13(b)(ii) and thus the inclusion of product 
unit comparison is certainly not contemplated by the drafters.  
ETI ACT 
 
46. Question 41.  Concerning its claims on the ETI Act, Brazil relies on the US – FSC  case.  
However, it appears that the United States did no t raise the issue of the Peace Clause in that 
case, nor did the US appear to invoke Article 6 of the Agreement on Agriculture .    If the Panel's 
understanding is correct, how, if at al l, are these differences relevant here?  
 
47. China believes that it is not necessary for the Panel to consider the issue of the Peace Clause 
or Article 6 of the Agreement on Agriculture  regarding Brazil’s claims on the ETI Act. 
 
48. The issue is dealt with by Article 7.2 of the DSU , which provides: 
 
Panels shall address the relevant provisions in any covered agreement or agreements 
cited by the parties to the dispute.” (emphasis added) 
In effect, under this article, a Panel is requi red to consider and address relevant provisions cited by the 
parties  only.  Since the US in this case has not claime d defence for its ETI Act, there is no need for 
this Panel to consider same.  
49. Question 42.  How do you view the reference in paragraph 43 of the EC's third party 
oral statement with respect to the relevance of Article 17.14 of the DSU , and, in particular, the 
phrase "a final resolution to that dispute" (emphasis added)?  Please explain the use, and 
relevance (if any) of the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU , and 
please cite any other provisions you consider relevant.  
 
50. The phrase “a final resolution to that dispute” cited by the EC in its third party oral statement comes from the Appellate Body Report in US-Shrimp (21.5) case, in which the Appellate Body stated, 
 
[I]t must also be kept in mind that Article 17.14 of the DSU provides not only that Reports of the Appellate Body  ‘shall be’ adopted by the DSB, by consensus, but also 
that such Reports ‘shall be unconditionally accepted by the parties to the dispute.’  
Thus, Appellate Body Reports that are adopted by the DSB are, as Article 17.14 
provides, ‘unconditionally accepted by the par ties to the dispute’, and, therefore, must 
be treated by the parties to a particular di spute as a final resolution to that dispute.   
In this regard, we recall, too, that Artic le 3.3 of the DSU states that the ‘prompt 
settlement’ of disputes ‘is essential to th e effective functioning of the WTO’. 
(emphasis added) 
51. The word “that” appears to limit the binding  force of Appellate Body report only to the 
parties in the case on which the Appellate Body’s report  is made.  Panels in other cases are not bound 
by any precedential effect of an earlier Appellate Body report, because the facts, parties and other 
circumstances of claim may be entirely different.  Ge nerally speaking, such an interpretation is widely 
accepted by commentators
9.   
 
                                                      
9 John H. Jackson, “The Legal Meaning of a GATT Dispute Settlement Report: Some Reflections”, 
Towards More Effective Supervision by International Organization: Essays in Honour of Henry G. Schermers 
(Martinus Nijhoff Publishers, Dordrecht, Boston and London, 1994).  WT/DS267/R/Add.3 
 Page J-57 
 
 
52. Be that as it may, the ETI Act in this current  case is the very same one challenged by the EC, 
and found to violate the Agreement on Agriculture  and the Subsidies Agreement  by both the panel10 
and the Appellate Body11 in US – FSC (21.5) , whose reports were adopted on 29 January 2002 by the 
DSB.  While in that case, the complaint was the EC, and in this case, the complaint was Brazil, the 
measures being challenged were th e same, and the Member whose measures were challenged were the 
same.  Countermeasures against th e same measures were authorized by the DSB.  While both the 
panel and the Appellate Body reports  must be treated by EC and the US as final resolution to that 
dispute, the US is the party whose measures we re found to be non-WTO compliant, and the same 
measures, since not having been withdrawn, is brought to this dispute.  Brazil, as a Member of the WTO system, indeed with other Members of the WT O, has reasonable expectations for the US to 
withdraw the measures after the DSB authorization.  In respect of ETI Act, there is no difference 
between that case, being US – FSC (21.5)  and this case, US – Subsidies to Upland Cotton .  Under the 
circumstances, there is no reason why “final resolution to that dispute” as reflected in US – FSC 
(21.5) should not be considered and taken by this Panel. 
 
53. In respect of the term “disputes” under Article 12 and Appendix 3 of the DSU , it is simply 
used in the general context of limiting participa tion to only parties to a dispute for the purpose of 
assisting panels in organizing their respective worki ng procedures.   Meaning and interpretation of the 
term “dispute” lends no support to interpretati on of the Appellate Body’s exclamation in US-Shrimp 
(21.5) that its report in a specific case  “must be treated by the parties to a particular dispute as a final 
resolution to that dispute”.   Therefore, China be lieves that the term “disput e(s)” used in Article 12 
and Appendix 3 of the DSU  is not helpful for interpretation of the Appellate Body’s statement. 
 54. Article 9.3 of the  DSU , on the other hand, is part of DSU  Article 9 which deals with 
procedures for multiple complainants.  It is an a ttempt to consolidate panel proceedings while the 
matter at issue has been challenged by more than  one Member.  Specifically, Article 9.3 reads: 
 
If more than one panel is established to ex amine the complaints related to the same 
matter, to the greatest extent possible the same persons shall serve as panelists on each of the separate panels and the timetab le for the panel process in such disputes 
shall be harmonized. 
The Article seeks, to the extent possible, uni formity and consistency in panel reasoning and 
conclusions, in the event that more than one panel is  established, by having the same jurists sitting on 
separate panels.  The requirement for having the sam e panelists and harmoniza tion of panel processes, 
on the other hand, is only capable of  being carried out if the first panel’s proceedings were on-going. 
 55. For the current case, direct application of Article 9.3 is practically impossible.  While 
complaints raised by Brazil in this case do cover the same ETI Act of the United States which was the 
subject matter of US – FSC (21.5) , the panel in the latter case completed its proceedings as early as 
29 January 2002.  In addition, the complaint by Br azil involves a whole plethora of US measures, of 
which the US ETI Act was only one.  The majority  of the measures challenged by Brazil were not 
dealt with by the panel in US – FSC (21.5) . 
 
56. Having said that, China believes that the spirit of  Article 9.3 is still of guidance value.  Since 
the ETI Act challenged by Brazil in this case is exactly the same challenged by the EU in US – FSC 
                                                     
 
10 Panel Report, US - FSC (21.5), WT/DS108/RW, adopted on 29 January, 2002. 
11 Appellate Body Report in US - FSC (21.5) , AB-2002-1, WT/DS108/AB/RW,adopted on 
29 January 2002. WT/DS267/R/Add.3 
Page J-58  
 
(21.5) , and that the panel proceedings have long pr ogressed beyond the panelist selection stage, the 
only way to ensure uniformity and consistency in panel reasoning and conclusions is to have this 
Panel consider and adopt the r easoning and conclusion of the panel and the Appellate Body US – FSC 
(21.5)  in respect of the US ETI Act. 
 
57. China thanks this Panel for granting this oppor tunity to present its views on issues related to 
this proceeding, and hopes that this Pa nel will finds the above points helpful.  WT/DS267/R/Add.3 
 Page J-59 
 
 
 ANNEX J-6 
 
 
RESPONSES TO THE PA NEL’S QUESTIONS AND 
THE QUESTIONS OF CE RTAIN THIRD PARTIES 
SUBMITTED BY THE EUROPEAN COMMUNITIES  
 
11 August 2003 
 
 
TABLE OF CONTENTS  
 
I. ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE .....................................60 
 II. ARTICLE 13(B) OF THE AGREEMENT ON AGRICULTURE : DOMESTIC 
 SUPPORT MEASURES....................................................................................................60 
 III. EXPORT CREDIT GUARANTEE PROGRAMMES ...................................................73  IV. STEP 2 PAYMENTS .........................................................................................................76  
V. ETI ACT ..................................................................................................................... ........79 
 VI. QUESTIONS FROM OTHER THIRD PARTIES ADDRESSED TO THE  EUROPEAN COMMUNITIES ........................................................................................81 
 WT/DS267/R/Add.3 
Page J-60  
 
 I. ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE 
 
Q1. Australia has argued that Article 13 of the Agreement on Agriculture  is an affirmative 
defence.  How do you reconcile this with your view that the conditions in Article 13 are a "prerequisite" to the availability of a right or privilege?  Australia Would other third parties 
have any comments on Australia's assertion? 3
RD parties, in particular Argentina, Benin, China, 
Chinese Taipei 
 
Answer  
 
1. Australia’s views cannot be reconciled. Austra lia is correct in noting that the conditions in 
Article 13 can be considered a prere quisite for taking action under the SCM Agreement .1  In using the 
term “prerequisite”, Australia essentially rec ognises that, in respect of measures covered by 
Article 13, a complainant can only invo ke the relevant provisions of the SCM Agreement if it proves 
that the threshold requirements or prerequisites refe rred to in Article 13 have been satisfied.  As the 
European Communities has pointed out, such a situation is very different from the situation where, in 
the event of a violation of a WTO Agreement, a WTO Member pleads a defence which potentially 
exculpates it from this violation (e.g. Article XX GA TT) in respect of which it bears the burden of 
proof.   2. Comparing Article 13 with Article 3.3 of the SPS Agreement shows that Australia’s views are 
irreconcilable.  This provision permits WTO Me mbers not to base SPS measures on international 
standards but to impose higher standards where there is  a scientific justification or an appropriate risk 
assessment has been carried out.  This provision has some similarities with Article 13 of the 
Agreement on Agriculture  since it sets a threshold which must be met before a Member can act.  
However, Article 3.3  may be seen as going further than Article 13 since it provides a derogation from 
the central discipline of the SPS Agreement  ; the obligation to base SPS measures on international 
standards.  On the other hand, Article 13 is simp ly one element regulating the interface between the 
Agreement on Agriculture  and the other Annex I Agreements and cannot be seen as a derogation 
therefrom.  Despite the extent to which Article 3.3 could be thought of as a derogation from the SPS 
Agreement , the Appellate Body ruled in EC Hormones  that it could not be considered an affirmative 
defence, and that the burden of proof did not, therefore lie with the defendant.
2  In particular, the 
Appellate Body noted that the situation in Ar ticle 3.3 of the SPS Agreement is “qualitatively 
different” from the relationship between  for instance, Article 1 and XX GATT.3 
 3. Consequently, Australia is correct to consider that Article 13 is a prerequisite or a threshold 
condition before the other Annex I Agreements may become applicable  but is incorrect to consider 
that Article 13 can be considered an affirmative defence. 
 
II. ARTICLE 13(B) OF THE AGREEMENT ON AGRICULTURE : DOMESTIC SUPPORT 
MEASURES 
 
Q2. Please explain the difference, if any, between the meaning of "defined" and the meaning 
of "fixed" in the phrase "a defined and fixed ba se period" in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture . 3
rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
                                                      
1 Australia’s Oral Statement, para. 18. 
 2 Appellate 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, para. 109.  
3 Appellate 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, para. 105.  WT/DS267/R/Add.3 
 Page J-61 
 
 
 Answer  
 4. The two words have slightly different meani ngs, as is suggested by the use of the conjunctive 
“and”.  “Defined” means “having a definite or speci fied outline, or form; clearly marked, definite”
4 
and thus implies, in terms of interpretation of pa ragraph 6, that the base period for any measure which 
is claimed to be green box must be set down in th e measure itself.  “Fixed” is defined as “definitely 
and permanently placed or assigned, stationary or unchanged in rela tive position, definite, permanent 
lasting”5 and suggests that the base period for a particul ar measure cannot be cha nged at a later date.  
In other words, a Member may define a base peri od by means of a formula whereas a fixed base 
period implies that the years chosen for the base period do not change. 
 
5. Decoupled support within a WTO Member need not take the form of a single measure, but 
may involve several measures.  Th e first sentence of Paragraph 1 of  Annex 2 refers  to “domestic 
support measures”.  Different measures may have different base periods, and a single measure may 
have several different base periods.6  Each measure will, or course, ha ve to be judged against the basic 
and policy specific criteria set down in Annex 2. Ho wever, it would defeat the objective of Annex 2 
paragraph 6 if a Member could adopt repeated, prac tically identical measures, in respect of which 
farmers are aware that they may update the base period.  If a farmer knows that a base period is going to be updated, and knows the type of production that will qualify for payments, a WTO Member 
inevitably encourages the growth of a particular cr op, cannot be considered to have decoupled support 
from production and inevitably creates trade or production distorting effects.  
 
6. The European Communities also refers the Panel to its response to question 11. 
 
Q3. Please explain the meaning of "a" in "a defined and fixed base period" in paragraph 6(a) of Annex 2 of the Agreement on Agriculture , the meaning of "the" in "the base period" in 
paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based on the 
years 1986-88" in Annex 3. 3
rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
Answer  
 7. In the view of the European Communities, th e word “a” indicates that it is for the Member 
concerned to choose a base period, rather than  the base period be fixed for all WTO Members. 
 8. “The” in paragraphs 6(b),(c) and (d) refers  to the base period or periods established for 
eligibility for payments in paragraph 6(a).  
9. There are notable differences between these phrases and the phrase “based on the years 1986 
to 1988” in Annex 3.  First, Anne x 3 refers to an already define d and fixed period.  Second, the 
reference period 1986-1988 refers to all measures ta ken by all Members, and not to specific measures 
which are intended to conform to Annex 2 taken by specific Members.  
Q4. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture ? 3
rd parties, in particular Australia, Argentina, 
Canada, China, EC, NZ  
 
                                                      
4 The New Shorter Oxford English Dictionary, 1993. 
5 The New Shorter Oxford English Dictionary, 1993. 
6 For instance, in the experience of the European Communities, where decoupled payments are based 
on past payments of production aids, and not all production aids are brought under a decoupled scheme, it must be envisioned that new products could be brought into the decoupled payment scheme, with the possibility that 
such payments are based on a different base period.  WT/DS267/R/Add.3 
Page J-62  
 
 Answer
 
 10. As explained in question 2 above, a Member  may provide decoupled support through several 
measures which may have different base periods.  However, a Member may not renew a measure, 
with essentially the same characteristics as previous me asures, where, as a matter of fact, farmers are 
aware that they will have the possibility to update their base periods and thus have an interest in 
producing certain crops.    11. We also refer the Panel to our response to question 11.  Q5. Do you agree that a payment penalty based on crops produced is "related to type of production"?   EC 
 
Answer
 
 
12. The European Communities believes that an ex amination of the conformity of a decoupled 
scheme with the criteria set out in A nnex 2 must involve an examination of the scheme as a whole.  In 
that light, the European Communities is not convin ced that where, as part of a scheme where no 
production is required to receive pa yments, and that the production of any type of crop is permitted, 
reducing payments where certain crops are produced can be such as to make the scheme, when taken 
as a whole, related to a type of production.  C onsequently, the reduction of payment linked to the 
production of fruit and vegetables must be seen as part  of a scheme which permits a farmer to grow 
any type of crop, or even not to produce at all.  Such a scheme, it is submitted, taken as a whole, 
meets the criteria that payments are not related to a type of production.  To find otherwise would not 
permit a WTO Member wishing to introduce decoupl ed payments to take account of important 
elements of internal competition, in an histori cal perspective, and avoid those farmers receiving 
decoupled payments from enjoying both the dec oupled payments and a privileged position vis-à-vis 
farmers who are not entitled to such payments .  Moreover, as the European Communities has 
explained, such a finding would require a Member to increase its subsidy programmes in order to prevent internal distortions of competition, runn ing directly contrary to the process of reform 
instituted by the Agreement on Agriculture . 
 
13. We also refer the Panel to our response to question 11. 
 
Q6. Please explain the meaning of the word "criteria" in Article 6.1 and 7.1.  What effect, if 
any, does the use of the word "Accordingly" in paragraph 1 of Annex 2 of the Agreement on 
Agriculture  have on the meaning of the preceding sentence?   3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ  
 
Answer  
 14. Both Article 6.1 and 7.1 refer to the “criteri a set out in [..] Annex 2”.  When one considers 
Annex 2, there are two sets of “criteria”.  The first is the “basic criteria” set out in subparagraphs (a) 
and (b) of paragraph 1, and the second is the “policy- specific criteria” set out in paragraphs 2 to 13.  
This understanding is confirmed by the text of paragraph 5 of Anne x 2, which refers to the “basic 
criteria” and the “specific criteria”.  Thus, Articles 6.1 and 7.1 of the Agreement on Agriculture  refer 
to the basic and policy specific criteria set out in Annex 2.  
15. The European Communities has already set out its understanding of the term “accordingly” in 
its Third Party Written Submission.
7  In the European Communities view, the term “accordingly” is 
                                                      
7 First Third Party Submission of the European Communities, 15 July 2003, para. 20. The European 
Communities recall, in this context, the opinion of Pr ofessor Desta set out in footnote 19 to para. 20.  WT/DS267/R/Add.3 
 Page J-63 
 
 
 intended to link the purposive language of the first sentence, with the “basic criteria” set out in the 
second sentence.  In its Third Party Submission the EC offered a dictionary definition, “in accordance 
with the logical premises” which showed that th e word “accordingly” operates as a linkage between 
the premise or understanding set out in the firs t sentence and the operative language in the second 
sentence.  Australia offers the Panel another defi nition: “harmoniously” or “agreeably”, but fails to 
note that that the Oxford English Dictionary consid ers this usage of the wo rd “accordingly” obsolete.8   
 16. The European Communities would point out that both the French and Spanish text support the view that the use of the word “accordingly” links th e general statement in the first sentence with the 
specific obligations of the second sentence.  The Fren ch text uses the term “en conséquence” and the 
Spanish the term “por consiguiente”.  Both of th ese terms show that the criteria in the second sentence 
are intended to express the principle set out in th e first sentence.  Moreover, had the negotiators 
intended that the first sentence be a self-standing oblig ation, rather than use the term “accordingly” 
they would have used the term “additionally” or “in addition”, or a synonymous term.  
 
17. Further support for this view can be found in the frequent use of the term “accordingly” in the 
WTO Agreement.  A survey of the term’s use s uggests that it links a general statement, often 
recognising that a particular situation causes specific effects, with a right or obligation to take some 
type of action set out in an ancillary sentence.
9  These general statements are not such as to impose 
specific obligations.  The Appellate Body had o ccasion to consider the relationship between such 
provisions in the Turkey-Textiles  dispute (Articles XXIV.4 and XXIV.5 GATT).  It concluded: 
 
The chapeau of paragraph 5 of Article XXI V begins with the word "accordingly", 
which can only be read to refer to para graph 4 of Article XXIV, which immediately 
precedes the chapeau.  
[..]  
57. According to paragraph 4, the purpose of  a customs union is "to facilitate trade" 
between the constituent members and "not to raise barriers to the trade" with third 
countries. This objective demands that a balance be struck by the constituent 
members of a customs union. A customs union should facilitate trade within the customs union, but it should not do so in a way that raises barriers to trade with third 
countries.  [..] Paragraph 4 contains pur posive, and not operative, language. It does 
not set forth a separate obligation itself but, rather, sets forth the overriding and  
pervasive purpose for Article XXIV which is manifested in operative language in the 
specific obligations that are found elsewhere in Article XXIV.  Thus, the purpose set 
forth in paragraph 4 informs the other rele vant paragraphs of Article XXIV, including 
the chapeau of paragraph 5. For this reas on, the chapeau of paragraph 5, and the 
conditions set forth therein for establishing the availability of a defence under Article 
XXIV, must be interpreted in the light of the purpose of customs unions set forth in 
                                                      
8 Australia’s Oral Statement, para 35. Oxford Englis h Dictionary, p. 15. Australia refers to the first 
sense of the word “accordingly” wh ich is preceded by the symbol “ =” which indicates that a particular usage is 
obsolete (see Abbreviations and Symbols, page xxvi). 
9 See Articles II.6(a), III.9, XII.3(d), XVI.3, XVIIII.5, XXIV.5 GATT 1994, together with Ad 
Article III and Ad Article XXVIII.4 to GATT 1994, Articles 2.1 and 11 of the Dispute Settlement 
Understanding, Article A(i) of the Trade Policy Re view Mechanism, Article 12.8 of the Agreement on 
Technical Barriers to Trade, Artic le 1 of the GATS Annex on Telecommunications and Article 5.1 of the 
Agreement on Textiles and Clothes. WT/DS267/R/Add.3 
Page J-64  
 
 paragraph 4. The chapeau cannot be interpre ted correctly without constant reference 
to this purpose.
10 (emphasis added) 
18. The Appellate Body has, consequently, recognised the linking function of the word 
“accordingly”, and the fact that provisions which ma y be linked to later provisions through the use of 
the word “accordingly” may not impose separate obligations.  
 
19. The European Communities would also point out that the Appellate Body has found that other provisions (e.g. Article III.1 GATT) which contai n general principles are set up as “a guide to 
understanding and interpreting the specific obliga tions contained” in other provisions (e.g. 
Article III.2 and the other paragraphs of Article III).
11  Such provisions do not, however, impose 
additional obligations supplemental to the specific obligations, unless expressly stated.12 
 20. The Panel may find it useful to refer to the European Communities’ response to a question 
posed by Australia (see question no. 44 in this doc ument). In its response, the European Communities 
deals with Australia’s unfounded assertion that the European Communities’ reading of the first 
sentence of paragraph 1 would render that provision ineffective. 
 
Q7 Please explain the meaning of the words "the fundamental requirement" as used in 
paragraph 1 of Annex 2 of the Agreement on Agriculture .  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ 
 Answer
 
 21. The phrase “the fundamental requirement” signals  the negotiators intent to treat differently 
measures which are less or not at all distortive to trade or production and sets forth the general 
purpose of Annex 2; a purpose which permeates the rest  of Annex 2.  Considering the term in the 
abstract does not answer the question whether a pane l must examine the effects of measures for which 
green box status is claimed in addition to examin ing whether such measures respect the basic and 
policy-specific criteria set out in Annex 2, or whet her respecting the basic and policy-specific criteria 
is such that a measure is deemed not to have th e effects mentioned in the first sentence.  As the 
European Communities has explained, there are compelling textual and purpose based arguments 
which support the latter interpretation. 
 
Q8. In your oral statement, you emphasize the u se of the word "criteria" in other parts of 
the Agreement on Agriculture , as distinct from the reference to "fundamental requirement" in 
the first sentence of paragraph 1 of Annex 2.  Is it the case that sub-paragraphs (a) and (b) of paragraph 1 of Annex 2 are also "criteria"?   EC 
 
                                                     
 
 10 Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products (“Turkey 
– Textiles”) , WT/DS34/AB/R, adopted 19 November 1999, paras. 56 and 57 (emphasis added). Note that the 
Panel also found that Article XXIV.4 was “not expressed as an obligation” (Panel Report, Turkey – Restrictions 
on Imports of Textile and Clothing  Products (“Turkey – Textiles”) , WT/DS34/R, adopted 19 November 1999, 
as modified by the Appellate Body Report, WT/DS34/AB/R, para. 9.126).  
 11 Appellate Body Report, Japan – Taxes on Alcoholic Beverages  (“Japan – Alcoholic Beverages”) , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996,  p. 17.  
 12 See Appellate Body Report, European Communities - Regime for the Importation, Sale and 
Distribution of Bananas (“European Communities – Bananas”) , WT/DS27/AB/R, adopted 25 September 1997, 
paras. 214-216 holding that the absence of a specific reference to Article III.1 GATT in Article III.4 GATT 
meant that an examination of the consistency of a measur e with Article III.4 GATT did not require, in addition, 
an examination of the consistency of  the measure with Article III.1 GATT.   WT/DS267/R/Add.3 
 Page J-65 
 
 
 Answer  
 22. Yes.  The second sentence of paragraph 1 re fers to sub-paragraphs (a) and (b) as “basic 
criteria”. Paragraph 5 refers to the same “basic criteria”.  The European Communities considers that 
the “criteria” referred to in Articles 6.1 and 7.1 of the Agreement on Agriculture  (mentioned in 
question 6 above) refer to both the basic criteria se t out in the second sentence of paragraph 1 and the 
policy-specific criteria set out in paragraphs 2 to 13 of Annex 2.  
Q9. If the first sentence of paragraph 1 of Annex 2 is a stand-alone obligation, does this 
allow effects-based claims of non-compliance with  Annex 2?  If so, how does this affect the 
purpose of Article 13(b)?  3
rd parties , in particular Australia, Argentina, Canada, EC, NZ  
 
Answer  
 23. The implication of finding that the first sente nce of paragraph 1 is a stand-alone obligation is 
that an effects test would become applicable to  assessing compliance with Annex 2.  The result of 
such an interpretation is two fold.  First, as th e Panel implies, another WTO Member could bring a 
WTO dispute alleging that because of its effects a measure does not comply with Annex 2.  Second, 
WTO Members, when designing measures intended to  conform to Annex 2, will be required to 
attempt to identify the effects of such measure s.  Such a task is often only feasible on an ex post facto  
basis.  The correct classification of measures is a v ital element for a Member to ensure that it respects 
it domestic support ceilings.  Requiring a Member to measure effects diminishes the ability of a 
Member to ensure correct classification.  Such an interpretation should, therefore, be avoided.
13 
 24. It is rather remarkable, had the drafters in tended that the first sentence of paragraph 1 be a 
self-standing obligation, that no indication of how such effects are to be measured was included in the 
Agreement on Agriculture .  It is far from obvious how the effects of a measure on production and/or 
trade is to be measured.  Nor is it clear how it can be decided that a particular effect can be considered as going beyond “minimal”.  This can be contrasted with Article 6.3 of the SCM Agreement  where the 
negotiators set out with some precision certain cr iteria deemed to cause serious prejudice to the 
interests of another Member.  This leads to th e inevitable conclusion that the criteria by which a 
Member or a panel is required to determine whether a measure has more than minimal trade or 
production distorting effects are the basic and policy specific criteria set out in Annex 2. 
 25. Article 13(b) is one element of a complex series of arrangements intended to provide legal 
security and certainty to Members who have embark ed on a process of agricultural reform.  It is 
designed to ensure that a Member may design its domestic support measures in such a way as to 
ensure that they do not provide support in excess of that decided in 1992 in order that it be exempted 
from the actions listed in Article 13(b).  This requir es a Member to be able to classify its measures as 
green box, other exempt policies, or as amber box.  Only by being sure of its classification can a 
Member ensure that it maintains the protection provi ded by Article 13(b).  This is one reason why the 
criteria for treatment as gr een box, or as another exempt measure, are so precisely defined.  (Other 
exempt measures are precisely defined in Articles 6.4 and 6.4 of the Agreement on Agriculture ).  
Consequently, bringing an effects test into an an alysis of green box compatibility would make it very 
difficult for a Member to be sure that it remains within the level of suppor t decided in 1992 and would 
therefore render nugatory the security and pr edictability necessary to permit the process of 
agricultural reform initiated by the Agreement on Agriculture.   Q10. If the first sentence of paragraph 1 of Annex 2 is not a stand-alone obligation, then must new, non- or minimally trade-distorting measures  that do not conform to the criteria listed in 
                                                     
 
13 See, in this sense, First Third Party Subm ission of the European Communities, para. 24. WT/DS267/R/Add.3 
Page J-66  
 
 Annex 2 be classified as non-Green Box?   3
rd parties, in particular  Australia, Argentina, 
Canada, EC, NZ  
 
Answer  
 
26. The European Communities is not convinced that “non- or minimally trade-distorting 
measures” might exist which would not be covered by Annex 2.  Anne x 2 has at least two paragraphs 
which are designed as “catch–all” provisions.  Para graph 2 of Annex 2 acts as a “catch-all” for 
general service programmes not involving dir ect payments to producers or processors.14  Paragraph 5 
acts as a “catch-all” for all direct payments.15  Moreover, Annex 2 is desi gned to cover all domestic 
support measures which are deemed to have no or at least minimal trade-distorting effects.  
Consequently, it would seem surprising if a non- or minimally trade-distortive measure would not meet the criteria of Annex 2.  27. In the hypothesis that a measure which had no or minimal trade-distorting effects did not 
conform to the criteria in Annex 2 the European Communities would conclude that it could not be 
considered as Green Box support.  As the European Communities explained in its Third Party Submission, rather than defining those domestic support measures which were to be subject to 
reduction commitments, the negotiators of the Agreement on Agriculture  chose to define all those 
measures which were not to be subject to reduction commitments – hence Annex 2.
16  Such a result 
does not run counter to the objectives of the Agreement on Agriculture  since it ensures the security 
and predictability of the reform process. 
 
Q11 If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the assessment of the direct payments programme 's compliance with paragraph 6 of Annex 2.   3
rd 
parties, in particular, Australia, Argentina, Canada, EC, NZ  
 
Answer  
 28. The European Communities considers that the first sentence of paragraph 1 of Annex 2 sets 
out the general purpose of Annex 2 and therefore inform s the interpretation of the criteria in Annex 2.  
It is relevant to the interpretati on of paragraph 6 in that it should be  considered to be part of the 
context of paragraph 6.  Nevertheless, while th e first paragraph informs the interpretation of 
paragraph 6 it cannot detract from the words actually used in paragraph 6.
17  As the Panel considers its 
interpretation of the words used in paragraph 6, it can take account of the purposive language of the 
first sentence of paragraph 1. 
 
29. There are two issues which the Panel must r esolve with respect to direct payments – the 
reduction of payments where certain crops are grown and the updating of base periods. 
 
                                                      
14 The third sentence of paragraph 2 reads “[S]uch programmes, which include but are not restricted to 
the following list, shall meet the general criteria in paragraph 1 above and policy-specific conditions where set 
out below [..]”. 
15 The second sentence of paragraph 5 reads “[w]here exemption from reduction is claimed for any 
existing or new type of direct payment other than those specified in paragraphs 6 through 13, it shall conform to criteria (b) through (e) in paragraph 6, in additi on to the general criteria set out in paragraph 1.” 
16 First Third party Submission, paras. 19 & 20. Obviously, some other exempted support measures are 
defined in Article 6 of the Agreement on Agriculture . 
17 Appellate Body Report, Japan – Taxes on Alcoholic Beverages  (“Japan – Alcoholic Beverages”) , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p.17.  WT/DS267/R/Add.3 
 Page J-67 
 
 
 30. With respect to the former, the European Communities has already explained why it considers 
that reducing payments upon growing certain crops cannot be considered to base payments on a type 
of production (see also the EC’s response to Pa nel question 5 above).  The European Communities 
position is supported not only by the text of paragra ph 6(b) but also by an interpretation informed by 
the first sentence of paragraph 1.  Permitting such a reduction of payments does not distort trade – it 
minimises any distortion which may be caused by any decoupled payments in markets which were 
historically undistorted by subsidies.  It ensures that the equilibrium established by the market in the 
relevant product is maintained.  To the extent d ecoupled support can be seen as having an effect on 
trade or production by providing support to fa rmers who produce some crops, the reduction in 
payment prevents subsidised farmers from potentia lly upsetting the market equilibrium, and thus 
serves to prevent effects on trade or production in the market for crops for which payment is reduced.  
Seen the other way, not ensuring such a reducti on would allow subsidised farmers to grow the 
relevant crops and thus upset the historical market equilibrium with potential effects on trade and production.  In the light of the first sentence of  paragraph 1, the only possible application of 
Article 6(b) to payment reductions imposed where certain crops are grown is to find that such 
reductions are not such as to make the payment based on a type of production. 
 31. The situation is rather different with respect  to the updating of base periods.  The European 
Communities considers that where farmers know th at base periods will be updated, and that the 
production of certain crops will give them a greater entitlement to support in a later period, there will 
be a production distorting effect.  Such updating is clear ly inconsistent with notions set out in the first 
sentence of paragraph 1 since know ledge of such updating will inc ite farmers to produce more of 
certain crops which qualify for support a nd thus will have effects on production.  
 
Q12. Where does Article 13(b) requi re a year-on-year comparison?  3
RD parties, in particular 
Australia, Argentina, Canada, China, EC, NZ 
 
Answer  
 32. The European Communities does not c onsider that Article 13(b) requires
 a year-on-year 
comparison.  It permits such a year-on-year comparison and given that support is generally expressed in annual amounts, appears a reasonable basis for ma king such a comparison.  In considering this 
issue, the Panel must compare two elements.  The first is the domestic suppo rt measure challenged. 
The second is, at least for Article 13(b)(ii) , support “decided” in an earlier period.  
 33. We examine first the domestic support measur e challenged. In order to benefit from the 
protection of Article 13 a measure must conform to the provisions of Article 6 and must “not grant 
support” in excess of that decided in during the 1992 marketing year.  The European Communities 
interprets the present tense of “not grant support” as requiring the Panel to determine the support at 
the time the measure is challenged when Panel is asked  to determine whether Article 13 is applicable.  
Inevitably, such a determination requires that the Panel consider a specific period, which is 
comparable with an earlier period.  The Europ ean Communities considers that the Panel has some 
discretion in choosing a specific period, although it is clear it must be as close as possible to the time 
of the dispute.  However, since the Pa nel must consider the support granted
 it must choose a period 
for which data is complete.  Given Article 1(i) of the Agreement on Agriculture , the period chosen 
may well be based on the calendar, financial or mark eting year of the Member complained against. 
 34. In respect of support “decided”, the Panel mu st consider the nature of the support decided 
during the 1992 marketing year.  As the European  Communities has explained at length elsewhere, 
the relevant element for comparison is not the sup port actually granted for the 1992 marketing year – 
rather it is the support decided.  Consequently, in  each case, the element for comparison must depend 
on the decision made during the 1992 marketing year.  As a function of that decision, the Panel will WT/DS267/R/Add.3 
Page J-68  
 
 have to choose a period which is comparable with  the most recent period.  This may well be a 
marketing year, but need not be so.   
Q13. Does a failure by a Member to comply in a given year with either the chapeau of 
Article 13(b) or the proviso in subparagraph (ii) of  Article 13(b) impact its entitlement to benefit 
in an earlier or a later year from the exem ption from action provided by Article 13(b)?  3
RD 
parties, in particular Australia, Argentina, Canada, China, EC, NZ 
 
Answer  
 
35. Failure to comply with Article 6 of the Agreement on Agriculture  or granting support in 
excess of that decided in 1992 in a given year does not impact a Member’s entitlement to benefit from 
the protection of Article 13(b) in a later (or ear lier) year, provided that the Member concerned 
complies with Article 6 of the Agreement on Agriculture  and does not grant support at present in 
excess of that decided during marketing year 1992.  This is clear from the present tense of “do not 
grant support” which makes it clear that the comparis on must be with the support granted in the most 
recent period.  
Q14. Does a failure of a Member to comply with Article 13(b) in respect of a specific 
commodity  impact its entitlement to benefit in respect  of other agricultural products from the 
exemption from action pr ovided by Article 13(b)?  3
RD parties, in particular Australia, 
Argentina, Canada, China, EC, NZ  
 
Answer  
 36. No. A failure to maintain support granted w ithin the level decided during marketing year 
1992 in respect of a specific commodity would not affect  the availability of Article 13(b) in respect of 
other commodities, provided that support granted to that specific commodity was not in excess of that 
decided during 1992.  
Q15. Is there any basis on which counter-cyclic al payments could be considered product-
specific?  3
RD parties,  in particular Australia, Argentina, Canada, China, EC, NZ  
 
Answer  
 37. The European Communities c onsiders that, since counter-cyclical payments are paid as a 
function of fluctuations in the price of different  commodities with respect to target prices also 
specified by commodity, they should be considered product specific.  
 
Q16. If the word "specific" were deleted from Article 13(b)(ii), would this change the 
meaning of the subparagraph?   3
RD parties, in particular Australia, Argentina, Benin Canada, 
China, EC, NZ  
 Answer
 
 38. Yes. Article 13(b)(ii) refers to product speci fic support. It does not refer to all support which 
may be attributed to a product.  The use of the word “specific” has meaning, because it makes it clear 
that the support in question is that granted or decide d in respect of a specific product, rather than that 
granted or decided in respect of all products and wh ich could arguably be attributed to a product.  
 
Q17. What is the relevance, if any, of the concept of "specificity" in Article 2 of the SCM 
Agreement  and references to "a product" or "subsidized product" in certain provisions of the 
SCM Agreement  to the meaning of "support to a specific commodity" in Article 13(b)(ii)  WT/DS267/R/Add.3 
 Page J-69 
 
 
 Agreement on Agriculture ? 3RD parties, in particular Australia, Argentina, Canada, China, EC, 
NZ 
 
Answer  
 
39. The European Communities is not convinced that the drafters of the Agreement on 
Agriculture  had Article 2 of the SCM Agreement  in mind when drafting Article 13(b) of the 
Agreement on Agriculture . It may comment further depending on the views of the other third parties 
on this issue.  
40. The European Communities has already referre d to the relevance of the references to “ a 
product” and a “subsidised product” in its Oral Statement.
18 
 
Q18. Benin's oral statement considers the phrase "support to a specific commodity" in 
Article 13(b)(ii) of the Agreement on Agriculture .  How does Benin believe that phrase is best 
interpreted.  Please substantiate your response, commenting on other submissions by parties 
and third parties as you believe appropriate.   Benin  
 
Answer  
 
41. The European Communities may comme nt, as necessary, on Benin’s response. 
 
Q19.  Where does Article 13(b)(ii) require a year-on-year comparison?   3rd parties, in 
particular Australia, Argentina, Canada, EC, NZ 
 
Answer  
 
42. See the answer to question 12 above. 
 
Q20. Does Article 13(b)(ii) require a comparison of support granted with support decided?  
How could such a comparison be made? 
 
Answer  
 
43. Yes.  See the answer to question 22 below. 
 
Q21. Please comment on Brazil's assertion that the terms "grant" and "decided" in Article 
13(b)(ii) have broadly the same meaning. If so, why did the drafters not use the same term?   3rd 
parties, in particular, Australia, Argentina, Canada, China, EC, NZ  
 
Answer  
 44. As the European Communities has explained el sewhere, the use of the term “decided” is 
crucial to an understanding of Article 13(b).  It is  now established that a pane l is obliged to use the 
normal rules of interpretation of international law as  codified in the Vienna Convention on the Law of 
Treaties.  This requires it to look, in the first place,  to the ordinary meaning of the words.  “Granted” 
does not mean the same as “decided”.  
45. Granted is the past tense of the verb “grant ” which means “to give or confer, (a possession, a 
right etc) formally; transfer (property) legally”.
19  “Decided” is the past tense of the verb “decide” 
                                                      
18 EC Oral Statement, 24 July 2003, para. 23. 
19 The New Shorter Oxford English Dictionary, 1993, p. 1131.  WT/DS267/R/Add.3 
Page J-70  
 
 which means “come to a determination or resolution that, to do, whether ”.
20  Thus, in this context, 
“granted” refers to support which has been provided, to which a farmer (or all eligible farmers in a 
Member) has obtained a right.  “Decided” implies that a political authority (be it a legislature or a government department or agency) has determined that a particular crop is to be entitled to a 
particular type of assistance.  
 
46. The European Communities believes that th e use of the term “decided”, as opposed to 
“granted” and “provided” (which are used elsewhere in the Agreement on Agriculture ) is very 
deliberate. Article 13(b) is designed to protect support which was “decided” during 1992.  It was 
negotiated in November 1992 as part of the first Blair House Agreement and later multilateralised.
21  
In November 1992, the negotiators could not have known the support granted for the marketing year 
1992, which was of course running during that period.  They did not, therefore, intend to refer to the 
support granted when using the term “decided”.  Rath er, they were referring to decisions taken during 
1992 in respect of support which WTO Members intended to grant – not that actually granted.  Q22. What is the meaning of "support" in Agreement on Agriculture  13(b)(ii) ? Why would it 
be used differently from Annex 3, where it refers to total outlays?  3
rd parties, in particular, 
Australia, Argentina, Canada, China, EC, NZ  
 
Answer  
 
47. With respect, the European Communities does not  consider that support is equated in Annex 3 
to total outlays.  Annex 3 provides methodologies for calculating the Aggregate Measure of Support 
(AMS). Article 1(a) defines the AMS as “the annual level of support, expressed in monetary terms 
[…]”. However, AMS is not necessarily calculated in terms of budgetary outlays.  For instance, 
market price support is calculated “using the gap be tween a fixed external reference price and the 
applied administered price multiplied by the quantit y of production eligible to receive the applied 
administered price.  Budgetary payments made to maintain this gap […] shall not be included in the 
AMS.” (Annex 3, para. 8)  Similarly, non-exempt  payments dependent on a price gap are to be 
calculated “either using the gap between the fixed re ference price and the applied administered price 
multiplied by the quantity of production eligible to re ceive the administered price, or using budgetary 
outlays” (Annex 3, para. 10).  This makes it clear th at AMS need not be calculated in terms of total 
outlays.  
 48. The European Communities considers the te rm “support” in Article 13(b)(ii) must be 
considered from several perspectiv es.  First, it is clear that the word “support” refers to the support 
granted
 in a recent period.  Second, and at the same time, the word “that” used in the phrase “that 
decided” is also a reference to the word “support” .  However, as already noted, there is crucial 
distinction in this comparison between the “suppor t decided” and the “support granted”.  The support 
decided does not equal the support actually granted du ring marketing year 1992.  For the later period, 
there is no reason that the support granted shoul d not be calculated on the basis of the AMS 
methodology set out in Annex 3.  Indeed, Article 1(a) of the Agreement on Agriculture  refers to AMS 
as “the annual level of support ” (emphasis added). 
 
49. For the support decided AMS-like criteria shoul d be used.  This would take into account the 
reference to AMS as the annual level of support , but would also recognise that Article 13(b)(ii) refers 
to the support “decided” rather th an granted.  Crucially, the support  decided must be considered as 
that which it was decided to provide during the 1992 marketing year.  This must be determined on a 
case-by-case basis.  It should be determined on the basis of the information available to the decision 
                                                      
20 The New Shorter Oxford English Dictionary, 1993, p. 607. Italics in the original. 
21 The main change made in the second Blair House Agreement, in respect of Article 13(b) was the 
extension of the implementation period for the purposes of the Article 13(b).  WT/DS267/R/Add.3 
 Page J-71 
 
 
 makers.  It may be that only a certain  amount of production would be eligible,22 or that the decision 
makers had production estimates at their disposal, and thus knew the extent of the support that was 
being decided.  Alternatively, the amount of s upport decided could also be determined from budgetary 
acts, preparing expenditure for future years, in which the decision making authorities would have knowledge of the support they wished to grant, and the quantity of production which would likely 
enjoy such support.  Using such a basis, it woul d be possible to use AMS-like criteria. AMS-like 
criteria can be used because it will often be possible to establish, for certain measures, a gap between 
the applied administered price and the inte rnal or external fixed reference price
23 and establish, on the 
basis of information available to the decision make rs, the amount of production which was eligible, or 
which was estimated.  For other measures, it may al so be possible to use appropriation or budgetary 
decisions. 
 
Q23. Should support be compared under Article 13(b)(ii) in terms of unit of production or 
total volume of support or both?  3rd parties, in particular, Australia, Argentina, Canada, China, 
EC, NZ  
 
Answer  
 50. The European Communities c onsiders that the Panel should use AMS for the most recent 
period, and an AMS - like calculation for calculating the support decided during the 1992 marketing year, as explained in our response to question 22. 
 
Q24. Please provide any written drafting history which could shed light on why the proviso 
was added to what is now Article 13(b)(ii) of the Agreement on Agriculture  and, in particular, 
why the words "grant" and "decided" were used .  EC 
 Answer
 
 51. As the European Communities has noted above, the current text of Article 13(b)(ii) formed 
part of the first Blair House Agreement of Novemb er 1992.  We have annexe d the text which resulted 
from these negotiations
24, together with the relevant sections  of the “Dunkel Draft”, which were 
replaced by Article 13(b)(ii).25  
 
52. The European Communities also considers that it may assist the Panel to have a copy of some 
of the key decisions reforming the EC’s Common Agricultural Policy adopted during 1992.  Thus, we have annexed Council Regul ation (EC) No. 1766/92 on the common organisation of the market in 
cereals and Council Regulation (EC) No. 1765/92 est ablishing a system of compensatory payments.
26  
 
Q25. Please comment on an interpretation of the words "decided during" in Article 13(b)(ii) 
that would read them as synonymous with the words "authorized during".   3rd parties, in 
particular Australia, Argentina, Canada, China, EC, NZ  
 
Answer  
 
53. The European Communities finds some merit in su ch an interpretation.  It would be consistent 
with the careful choice of the negotia tors to use the word “decided” ra ther than the term “granted” or 
                                                      
22 For instance, because of quot as on eligible production or definitive budgetary ceilings.  
23 See para. 9 & 11 of Annex 3.  
24 Exhibit EC-1. 
25 Exhibit EC-2. 
26 Council Regulation (EC) No. 1766/92 on the common organisation of the market in cereals (Exhibit 
EC-3) and Council Regulation (EC) No. 1765/92 (Exhibit EC-4). WT/DS267/R/Add.3 
Page J-72  
 
 “provided”.  The European Communities is concerne d, however, that the term “authorised” is more 
restrictive than the term “decided”.  For that reason, while the European  Communities sees support for 
the interpretation that “decided during” is synonymous  with “authorised during”, it is not clear to the 
European Communities that “authorised” h as exactly the same meaning as “decided”. 
 Q26. Under Article 13(b)(ii), a comparison is required between support at different times.  
One of the issues which is contested between the pa rties is whether the only later period that the 
Panel can consider is the present one (i.e. the period underway at the time of the request for establishment of the Panel).  This argument is based on the present tense of the words "do not 
grant" in the English text.  The Panel asks whether there is any difference in the verb tense as 
used in the Spanish-language text, or any other difference which might aid the Panel in 
interpreting these words?   Argentina, EC, Paraguay, Venezuela  
 
Answer
 
 
54. The European Communities notes that both the French and Spanish text also use the present 
tense.  
Q27. If the 1992 "decision" led to or was the funding source for the money provided in 1992 
and later years, is it the full amount of all that funding that constitutes the "support" decided in 1992?  If the answer to this question is that it is the full amount of all the support provided 
pursuant to the "decision" that must be taken in to account, must this be compared with the 
total amount of support that will or might flow  from the decision made in the more recent 
period for the purposes of the comparison required under Article 13(b)(ii)?  If a Member did not make a "decision" (however that may be inte rpreted) in 1992 about "support", is it the case 
that the Member has a zero base for the purpos es of the comparison required under Article 
13(b)(ii)? EC  
 
Answer
 
 55. The European Communities does not consider th at it is the full amount of support decided in 
1992 for later years that should be taken into account .  Such an approach might not be feasible where 
the decision taken in 1992 was an open-ended one.  Th is approach also sits uneasily with the practice 
in the Agreement on Agriculture  of expressing support on an annual basis.  Since the regulation of 
agricultural production takes place on a yearly basis,  it seems unlikely that a decision would be taken 
setting a maximum amount for a number of years without regulating how such support would be 
allocated between specific years.  
 
56. The European Communities considers that th e Panel should use a level of support readily 
comparable with the support currently granted.  Th is may well be the support decided for a particular 
marketing year.  If a decision was made in 1992 for fu ture years, it would be to ignore the drafters 
intent to rule out the possibility that the support decided for later years is the relevant support. 
 
57. The European Communities does not consider th at it will ever be the case that a Member 
which provides subsidies can be said never to ha ve made a decision in 1992 which would qualify 
under Article 13(b).  At the very least, a Member would have decided, on the basis of its subsidy 
programmes, and the amount of eligible productio n and/or estimated production, to set aside a 
specific amount of budgetary appropriations for future years.  If, however, a Member decided not to 
provide support to a specific commodity, the level of support for purposes of the comparison would 
be zero.  
Q28. In paragraph 13 of Australia's oral statem ent, you state that a "question" is: "could 
conditions of price competition for the purposes of a non-violation or impairment claim be  WT/DS267/R/Add.3 
 Page J-73 
 
 
 assessed solely on the basis of budg etary outlay figures, as argued by Brazil, or on the basis of a 
rate of payment, as argued by the United States?   In Australia's view, both factors put forward 
by Brazil and the United States would properly form a part of that assessment, but not the whole."  Could you please clarify this statem ent (indicating other elements which would 
complete the "whole" and explain its relevance fo r the purposes of our consideration of Article 
13 of the Agreement on Agriculture ? Australia, EC  
 
Answer
 
 58. The European Communities would prefer to let Australia clarify its statement.  The European 
Communities will comment upon Australia’s clarifi cation in its comments on the responses of the 
other third parties.  
III. EXPORT CREDIT GUARANTEE PROGRAMMES 
 
Q29. (a) Is an export credit guarantee a financ ial contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement ? Why or why not?  3
rd parties, in 
particular, Argentina, Canada, EC, NZ  
 
Answer  
 
59. Export credits may involve the provision of “loans”.  Export credit guarantees, like other 
types of guarantees, normally involve an obliga tion to cover losses resulting from defaults on 
guaranteed loans.  If provided by a government, they  may involve a “financial contribution” within 
the meaning of Article 1.1(a)(1)(i) of the SCM Agreement . 
 
 (b) How, if at all, would this be relevant to the claims of Brazil?   3rd parties, in 
particular, Argentina, Canada, EC, NZ  
 
Answer  
 
60. Whether or not export credit guarantees are “fin ancial contributions” is directly relevant to 
Brazil’s claim that GSM 102, GSM 103 and SCGP constitute “export subsidies” within the meaning 
of Article 3.1 (a) of the SCM Agreement . 
 61. It is also relevant, by way of context, for Brazil’s claim that t hose programmes are “export 
subsidies” for the purposes of Article 10.1 of the Agreement on Agriculture .  
 
Q30. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement  
were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
Panel would therefore appreciate third party views on this situation, including with respect to 
the viability of an a contrario  interpretation of item (j) of the Illustrative List (as addressed in 
paragraphs 180-183 of the United States' first written submission) .  3
rd parties, in particular, 
Argentina, Canada, EC, NZ 
 
Answer  
 
62. The relationship between the Illustrative List and Article 3.1(a) is addressed specifically by 
footnote 5, which provides that  
Measures referred to in Annex I as not constituting export subsides shall not be 
prohibited under this or any other provision of the Agreement. WT/DS267/R/Add.3 
Page J-74  
 
 63. In this regard, the European Communities re calls the reasoning followed by the panels in 
Brazil –Aircraft  (21.5) I and II
27, which concluded that the firs t paragraph of item (k) of the 
Illustrative List does not provide a contrario  an “affirmative defence”. 
 64. As noted by the panel in Brazil –Aircraft (21.5) – II , the Appellate Body’s statement relied 
upon by the United States “does not form part of the legal basis for its disposition of the appeal, nor 
did the Appellate Body explain its statement”.
28 
 65. Item (j) of the illustrative list describes circumstances in which, inter alia,  export credit 
guarantee programmes may constitute export subsidi es.  In certain circumstances (e.g. where the 
Government is the only provider), it may be that the requirement set out in item (j) – that export credit 
guarantees must not be provided at premium rates which are inadequate to cover the long-term 
operating costs and losses of the programme – repres ents the appropriate benchmark for determining 
that an export subsidy does not exist.   Q31. If the Panel decides to refer to provisions of the SCM Agreement  for contextual guidance 
in the interpretation of the terms in Article 10 Agreement on Agriculture , should the Panel refer 
to item (j) or Articles 1 and 3 of the SCM Agreement  or both?  .  3
rd parties, in particular, 
Argentina, Canada, EC, NZ  
 
Answer  
 
66. Both.  
Q32. The Panel's attention has been  drawn to Article 14(c) of the SCM Agreement  (see third 
party submission of Canada) and to the panel report in DS 222 Canada- Export Credits and 
Loan Guarantees .  How and to what extent are Article 14(c) of the SCM Agreement , and the 
cited panel report, relevant to the issue of wh ether or not the United States export credit 
guarantee programmes confer a "benefit"?  What  would the appropriate market benchmark be 
to use for any comparison? Please cite any other relevant material.  .  3
rd parties, in particular, 
Argentina,  Canada, EC, NZ  
 Answer
 
 67. The European Communities agrees that Artic le 14(c) may be relevant context for the 
interpretation of Article 1.1(b) of the SCM Agreement , where the subsidy consists of  a loan 
guarantee.  However, Article 14(c) may not be appli cable if the government is the only supplier of a 
certain type of service and no comparable type is pr ovided by other suppliers.  In that case it may be 
necessary to resort to alternative be nchmarks, such as the one set out in item (j) of the Illustrative List.  
This would depend on the particular circumstances of the case.   
Q33 What is the relevance (if any) of Brazil's statement that :  "...export credit guarantees 
for exports of agricultural exports [ sic] are not available on the ma rketplace by commercial 
lenders."  .  3
rd parties, in particular, Argentina, Canada, EC, NZ  
 
                                                      
27 Panel report, Brazil – Export Financing Programme for Aircraft – Recourse by Canada to 
Article 21.5 of the DSU , WT/DS64/RW, (“Brazil – Aircraft (21.5) – I”), paras. 6.24-6.67; Panel report, Brazil – 
Export Financing Programme for Aircraft – Second Recourse by Canada to Article 21.5 of the DSU , 
WT/DS46/RW/2, (Brazil – Aircraft (21.5) - II, paras5.269-5.275. 
28 Panel report, Brazil –Aircraft (21.5) – II , footnote 214.  WT/DS267/R/Add.3 
 Page J-75 
 
 
 Answer  
 68. The European Communities does not agree w ith the proposition that the provision by a 
government of finance not available from other suppliers confers per se  a benefit.  The European 
Communities recalls that the Panel in Canada – Export Credits and Loan Guarantees  left open this 
issue.
29 
 
Q34. Comment on the United States' view of the meaning of "long term operating costs and 
losses" in item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement  
as meaning "claims paid" under the export credit guarantee programmes.  Does the United 
States' interpretation give meaning to both "c osts" and "losses"?  Do claims paid represent 
"losses"?    3rd parties, in particular, Argentina, Canada, EC, NZ  
 
Answer  
 
69. The European Communities does not express an opinion on this question at this time. 
 
Q35. Did the drafters of the Agreement on Agriculture  include export credit guarantees in 
Article 9.1 of the Agreement on Agriculture ? Why or why not?   3rd parties, in particular, 
Argentina, Canada, EC, NZ  
 Answer
 
 70. Export credit guarantees are not included in Artic le 9.1. Article 9.1 represents a list of export 
subsidies which were permitted to be maintain ed, but which were made subject to reduction 
commitments.  Article 9.1 is a list of permitted e xport subsidies negotiated by the drafters of the 
Agreement on Agriculture . All other export subsides are regulated by Article 10.1. 
 
Q36. Please explain any possible significance the following statements may have in respect of 
Brazil's claims about GSM102 and 103 (7 CFR 1493.10(a)(2), Exhibit BRA-38)   3
rd parties, in 
particular, Argentina, Canada, EC, NZ  
 
 (a) "The programmes operate in cases where credit is necessary to increase or 
maintain US exports to a foreign mark et and where US financial institutions 
would be unwilling to provide financing without CCC's guarantee.  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 (b) "The programmes are operated in a manner intended not to interfere with 
markets for cash sales .   The programmes are target ed toward those countries 
where the guarantee is necessary to secu re financing of the exports but which 
have sufficient financial strength so that foreign exchange will be available for scheduled payments."  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
 (c) "In providing this credit guarant ee facility,  CCC seeks to expand market 
opportunities for US agricultural expo rters and assist long-term market 
development for US agricultural commodities." (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
                                                     
 
29 Panel report, Canada – Export  Credits and Loan Guarantees for Regional Aircraft , WT/DS222/R, 
para. 7.341. WT/DS267/R/Add.3 
Page J-76  
 
 Answer
 
 71. At this stage, the European Communities do es not comment on the factual aspects  of this 
claim.  Q37. The United States seems to argue that, at present, by virtue of Article 10.2 of the Agreement on Agriculture , there are no disciplines on agricultural export credit guarantees 
under the Agreement on Agriculture (or the  SCM Agreement) .  
 
 (a) Comment on the following proposit ion:  a WTO Member may therefore extend 
agricultural export credit guarantees without charging a premium, and for an 
indefinite period, in addition to any other terms and conditions it may wish?  How would this reconcile with the title of Article 10 of the Agreement on 
Agriculture  ("Prevention of Circumvention on Export Subsidy Commitments"), 
and with other commitments contained in the Agreement on Agriculture ? Please 
cite any relevant material, including any past WTO dispute settlement cases.  3
rd 
parties, in particular, Argentina, Canada, EC, NZ 
 
Answer  
 72. The European Communities considers that it is only the operation of export credit guarantees 
as export subsidies which is regulated by the Agreement on Agriculture .  Other elements of the 
provision of export credit guarantees are not regulated by the Agreement on Agriculture .  To the 
extent that the scenario developed by the Panel w ould lead to the provision of export subsidies which 
circumvent, or which threaten to circumvent, a Member’s export subsidy commitments the European 
Communities considers that it cannot be reconciled with Article 10.1 of the Agreement on 
Agriculture . 
 
 (b) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture , how could export credit guarantees 
"conform fully to the provisions of Part V" of the Agreement on Agriculture  
within the meaning of Article 13 (how can you assess "conformity" or non-
conformity with non- existent disciplines)?  3
rd parties, in particular, Argentina, 
Canada, EC, NZ 
 
Answer  
 
73. The European Communities disagrees with th e US argument that there are no disciplines on 
export credit guarantees.  The discipline applying to  export credit guarantees, where they operate as 
export subsidies, is that they should not be provid ed in a manner inconsistent with Article 10.1.  If 
they are provided inconsistently with Article 10.1 then they are not protected by Article 13 
 
IV. STEP 2 PAYMENTS 
 
Q38. Please comment on the statement in note 119 of the United States' first written submission that "...to the extent a consumer that  had intended to export instead opens the bale, 
then that consumer could still obtain the Step 2 payment upon submission of the requisite documentation".  The Panel notes that Step 2 payments all involve upland cotton produced in 
the United States.  What are the two distinct factual situations that Step 2 payments involve?  
Other than the panel report in Canada-Dairy  and the findings of the Appellate Body in US-FSC  WT/DS267/R/Add.3 
 Page J-77 
 
 
 (21.5)30, do any other dispute settlement reports offer guidance on this issue?  For example, how, 
if at all is the Appellate Body's report in Canada-Aircraft  relevant here?31 .  3rd parties, in 
particular, Australia, Argentina, NZ, Paraguay  
 
Answer  
 
74. This is a question of fact on which the European Communities takes no position.  It will 
comment, as necessary, on the replies of the other third parties.   
Q39. Please comment on the United States ass ertions at paragraph 129 of its first written 
submission, that "[t]he programme is indifferent to whether recipients of the benefit of this 
programme are exporters or parties that open bales for the processing of manufacturing raw 
cotton into cotton products in the United States."  .  3
rd parties, in particular, Australia, 
Argentina,  NZ, Paraguay  
 Answer
 
 75. This is a statement of fact on which the Eu ropean Communities offers no comment at present.  
The European Communities will comment further depe nding on the replies of other third parties. 
 
Q40. With respect to paragraph 32 of the oral statement of the EC, are subsidies contingent 
on the use of domestic goods consistent with the AoA?  Does the phrase "provide support in 
favour of domestic producers" refer to, and/or permit such subsidies? What is the meaning and relevance of this (if any) to Brazil's claims under Article 3 of the SCM Agreement  and Article 
III:4 of the GATT 1994..  3
rd parties, in particular, Australia, Argentina, EC, NZ, Paraguay  
 
Answer  
 76. The Panel’s question involves two elements.  First, is a Member entitled to provide domestic 
content subsidies under the Agreement on Agriculture ?  Second, if such subsidies are permitted, what 
is the relevance of such a rule to Brazil’s claims under Article 3 of the SCM Agreement  and 
                                                     
 
30 [Original footnote to question] "We recall that the ETI measure grants a tax exemption in two 
different sets of circumstances:  (a )  where property is produced  within  the United States and held for use 
 outside  the United States; and (b)  where property is produced  outside  the United States and held for use 
outside the United States.  Our conclu sion that the ETI measure grants subsidies that are export contingent in the 
first set of circumstances is not affect ed by the fact that the subsidy can al so be obtained in the second set of 
circumstances.  The fact that the subsidies granted in the second set of circumstances  might  not be export 
contingent does not dissolve the export contingency arising in the first set of circumstances. 30  Conversely, the 
export contingency arising in these ci rcumstances has no bearing on whether there  is an export contingent 
subsidy in the second set of circ umstances.  Where a United States ta xpayer is simultaneously producing 
property within and outside the United States, for direct use outside the United States, subsidies may be granted under the ETI measure in respect of both sets of property.  The subsidy granted with respect to the property 
produced within the United States, an d exported from there, is export contingent within the meaning of 
Article 3.1(a) of the  SCM Agreement , irrespective of whether the subsidy given in respect of property produced 
outside the United States is also export contingent." 
 
31 There, the Appellate Body stated that,  
 
"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 ... in 
fact … upon export performance".
31   WT/DS267/R/Add.3 
Page J-78  
 
 Article III.4 GATT.  The European Communities has al ready provided elements  of a response in its 
oral statement.
32  These are expanded upon below. 
 77. First, a Member is entitled to prov ide domestic content subsidies under the Agreement on 
Agriculture  provided such subsidies are provided consis tently with the Member’s domestic support 
commitment levels.  This conclusion flow s from a number of factors.  First, the Agreement on 
Agriculture  disciplines domestic support. Article 6. 1 refers to “domestic support reduction 
commitments”.  Article 3.1 refers to “domes tic support [..] commitments […] constitut[ing] 
commitments limiting subsidization” and Article 3. 2 obliges Members “not [to] provide support in 
favour of domestic producers in excess of the [dom estic] support commitment le vels”.  Despite these 
clear rules on domestic support, the Agreement on Agriculture  does not define “domestic support”. 
 78. AMS is the measurement of  domestic support. AMS is defi ned as “the annual level of 
support, expressed in monetary terms, provided for an agricultural product in favour of the producers 
of the basic agricultural product or non-product-specific support provided in favour of agricultural 
producers in general, other than [that exempted etc].”   This is very general – it covers all support in 
favour of agricultural producers.  This broad scope of domestic support measures which can be 
maintained consistently with the Agreement on Agriculture  is confirmed by Article 6.1 which states 
that the domestic support reduction commitments “sh all apply to all of its [i.e. the Member’s] 
domestic support measures in favour of agricultural producers […]”.  Paragraph 1 of Annex 3 on the 
calculation of the AMS refers to AMS being calcu lated “on a product specific-basis for each basic 
agricultural product receiving market prices support, non-exempt direct payments, or any other 
subsidy  not exempted from the reduction commitment”. (emphasis added) 
 79. Consequently, the range of domestic s upport measures which a Member may maintain 
(consistent with reduction commitments) is very br oad and is only limited by the condition that such 
support must be in favour of agricultural produ cers.  As the European Communities has noted, 
paragraph 7 of Annex 3 explicitly states that “measu res directed at agricultural processors shall be 
included to the extent that such measures benef it the producers of the basic agricultural products”.
33  
The European Communities considers that the term “benefit” used here must be regarded as being 
synonymous with “favour” in the sense of “in favour of agricultural producers”.  Moreover, it is clear 
that by “measures directed at agricultural processo rs” the negotiators intended subsidies which were 
paid to processors, where the benefit went to the agricultural producer.  Consequently, in light of the 
broad definition of “domestic suppor t” and the specific reference to  domestic content subsidies in 
paragraph 7 of Annex 3, the Eur opean Communities considers that a Member is entitled to maintain 
domestic content subsidies consistently with the Agreement on Agriculture .  
 
80. Second, in response to the Panel’s question, the effect of finding that domestic content 
subsidies are provided consistently with the Agreement on Agriculture  would be that they cannot be 
found inconsistent with either Article 3.1(b) of the SCM Agreement   or Article III.4 GATT 1994.  
Article 21.1 of the Agreement on Agriculture  states that “the provisions of GATT 1994 and of other 
Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the 
                                                      
32 Paras. 34 to 38 of the EC’s Oral Statement (a s delivered).  The Panel’s reference to para. 32 
corresponds to the text provided at the third party session. 
33 In terms of negotiating background, it may be useful to the Panel to note that paragraph 7 of Annex 3 
was subject to negotiation during the period in which a Panel had ruled that the EC’s payments to oilseed 
processors was not covered by Article III.8(b) GATT 1947 and were consequently inconsistent with Article III.4 
GATT 1947 ( European Economic Community – Payments and Su bsidies Paid to Processors and Producers of 
Oilseeds and Related Animal-Feed Proteins  Report of the Panel (L/6627 BISD 37S/86) adopted on 25 January 
1990. That the negotiators retained this text must theref ore be considered as a clear sign that they intended to 
permit Members to maintain such subsidies, subject to reduction commitments, in the Agreement on 
Agriculture .  WT/DS267/R/Add.3 
 Page J-79 
 
 
 provisions of this Agreement.”  As the European Co mmunities pointed out in its oral statement, this 
means that provisions of the other Annex 1A Agreements are “subordinated” to the Agreement on 
Agriculture .34  
 81. To find that such subsidies were incons istent with either Article 3.1(b) of the SCM Agreement  
or Article III.4 GATT would be to subordinate the right to provide such domestic content subsidies 
under the Agreement on Agriculture  to the SCM Agreement  or GATT 1994.  Such an interpretation 
directly contradicts Article 21.1 of the Agreement on Agriculture . 
 82. Indeed, it can be pointed out that applying Article 3.1(b) of the SCM Agreement  and 
Article III.4 GATT to domestic content s ubsidies provided consistently with the Agreement on 
Agriculture  would lead to stricter disciplines being applie d to domestic subsidies for agriculture than 
are applicable to domestic subsidies for industrial goods.  If Article 3.1(b) and Article III.4 were to 
apply, domestic subsidies for agricultural products  would be subject to reduction commitments and 
Article 3.1(b) SCM Agreement  and Article III.4 GATT.  However, domestic subsidies for industrial 
products are not subject to reduction commitments.  Since the Agreement on Agriculture  establishes 
“a basis for initiating a process of reform of trade in  agriculture”, it would seem contradictory to find 
that domestic support for agriculture is in fact subj ect to stricter obligations than domestic support for 
other industries.  This explains the “s ubject to” language of Article 21.1 of the Agreement on 
Agriculture . Article 21.1 and the Agreement on Agriculture  more generally can also be compared with 
the other sectoral agreement included in Annex 1A of the WTO Agreement.  The Agreement on 
Textiles and Clothing explicitly provides, in its Article 9, that the textiles and clothing sector is to be 
fully integrated into the GATT 1994.  The Agreement on Agriculture  has no such language, and 
Article 21.1 runs directly counter to this notion.  It cannot be lightly assumed that the negotiators, 
while providing for the possibility to maintain do mestic content subsidie s, intended that such 
subsidies also be subject to rules which effectiv ely makes it impossible to maintain such subsidies.
35  
 
83. The Panel should therefore reject Brazil’s ar guments that domestic content subsidies granted 
in favour of agricultural producers can be found to  be inconsistent with Article 3.1(b) of the SCM 
Agreement  and Article III.4 GATT 1994. 
 
V. ETI ACT 
 
Q41. Concerning its claims on the ETI Act, Brazil relies on the US – FSC  case.  However, it 
appears that the United States did not raise the issue of the Peace Clause in that case, nor did 
the US appear to invoke Article 6 of the Agreement on Agriculture .    If the Panel's 
understanding is correct, how, if at a ll, are these differences relevant here?  Argentina, China, 
EC, NZ  
 
Answer  
 84. The European Communities does not consider that  either the Peace Clause or Article 6 of the 
Agreement on Agriculture  is relevant.  The ETI Act provides export subsidies.
36  Article 6 of the 
Agreement on Agriculture  does not apply to export subsidies, and therefore the US would not have 
been in a position to invoke it. 
                                                      
34 Oral Statement, para. 38. 
 35 See, in a similar sense,  Appellate 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, para. 165. 
36 The Appellate Body confirmed the panel's findings of a violation of Article 3.1(a) of the 
SCM Agreement see Article 231.5 Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations"  ("United States – FSC (21.5)"), WT/DS108/AB/RW, adopted 29 January 2002, para. 120. WT/DS267/R/Add.3 
Page J-80  
 
  
85. The Peace Clause will only apply in respect of  export subsidies which “conform fully to the 
provisions of Part V” of the Agreement on Agriculture  (Article 13(c)).  The Appellate Body upheld 
the panel’s findings that the ETI Act provided export  subsidies in violation of Article 10.1 of the 
Agreement on Agriculture .
37  Consequently, the US could not have  legitimately maintained that it was 
entitled to peace clause protection. 
 
Q42. How do you view the reference in paragra ph 43 of the EC's third party oral statement 
with respect to the relevance of Article 17.14 of the DSU , and, in particular, the phrase "a final 
resolution to that dispute" (emphasis added)?  Please explain the use, and relevance (if any) of 
the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU , and please cite any other 
provisions you consider relevant.  Argentina, China, EC, NZ  
 
Answer  
 
86. Article 17.14 DSU states that an Appellate Body Report shall be “adopted by the DSB and 
unconditionally accepted by the parties to the dispute”.  The reference in the EC’s oral statement to 
the phrase "a final resolution to that dispute" (emphasis from the Panel) is from the Appellate Body in 
United States – Shrimp (21.5) .38  
 87. In the present case the Panel must decide a pr eliminary question. It must determine whether 
the claims brought by Brazil against the ETI Act ar e in any way different from those which the panel 
and Appellate Body upheld against the ETI Act in the EC’s Recourse to Article 21.5.  If Brazil’s 
claims are identical to those upheld  against the ETI Act, the Europ ean Communities considers that the 
United States must be considered to have uncon ditionally accepted the Appellate Body’s findings as 
adopted by the DSB. 
 
88. The Panel may find some assistance in the Appellate Body’s findings in United States – 
Shrimp (21.5).  In that recourse to Article 21.5, Malaysia attempted to challenge certain aspects of the 
revised US measure at issue which were identical in the measure which was subject to the original 
challenge.
39  These aspects had been found by the panel and the Appellate Body to be consistent with 
the United States’ WTO obligations.  The Appellate Bo dy found that there was no need for the panel, 
having determined that this aspect of the measure ha d not changed, to re-examine the consistency of 
the measure with the US’ WTO obligations.40  
 89. The situation before the Panel is the i nverse. Here, the US measure was found to be 
inconsistent with US’ WTO obligations.  The Eu ropean Communities understands that the measure 
before the Panel in this case and before  the panel and the Appellate Body in United States – FSC 
(21.5)  is identical. On the assumption that the claims  are identical, applying Article 17.14 DSU and 
the Appellate Body’s findings in United States – Shrimp (21.5) the United States must be assumed to 
have unconditionally accepted the findings against the ETI Act.   
                                                     
 
37 Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations"  
("United States – FSC (21.5)"), WT/DS108/AB/RW, adopted 29 January 2002, para. 196. 
38 Para. 97, Article 21.5 Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products – Recourse to Article 21.-5 of the DSU by Malaysia  ("United States – Shrimp (21.5)"), 
WT/DS58/AB/RW, adopted 21 November 2001. 
39 United States – Shrimp (21.5), para. 96. 
 40 The Appellate Body made a similar finding with respect to a claim not pursued before a panel. See, 
Report of the Appellate Body in  European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed 
Linen from India – Recourse to Article 21.5 of the DSU by India,  WT/DS141/AB/RW, adopted on 
24 April 2003.    WT/DS267/R/Add.3 
 Page J-81 
 
 
 90. The European Communities does not consider it material that the present case concerns a 
party (Brazil) which was not party to the FSC dispute.  Article 17.14 states that a “party to the dispute” 
must unconditionally accept the findings of the Appella te Body adopted by the DSB.  Of the parties 
before the Panel, the United States is a party to the FSC dispute, and must, therefore, unconditionally accept the Appellate Body’s findings in that dispute.  This is further reinforced by Articles 3.2 and 3.3 
DSU which state that the dispute settlement syst em must provide security and predictability and 
promote prompt settlement of disputes.  Conse quently, given the United States is required to 
unconditionally accept the findings in the Article 21. 5 procedure, the European Communities believes 
that Brazil, by adopting the EC’ claims and the A ppellate Body’s findings in the FSC dispute, would 
make a sufficient case to compel the Panel to find th at the ETI Act is inconsistent with the US’ WTO 
obligations in this dispute.  
 
VI. QUESTIONS FROM OTHER THIRD PARTIES ADDRESSED TO THE EUROPEAN 
COMMUNITIES 
 
Questions from Australia to the European Communities  
 
Q43. Would the European Communities please expl ain why, in its view, the ordinary meaning 
of the phrase “shall meet the fundamental requirem ent” as it appears in the first sentence of 
paragraph 1 of Annex 2 to the Agreement on Agriculture  does not give meaning and effect to all 
provisions of that agreement.
41   
 
Answer  
 91. The European Communities did not state th at the phrase “shall meet the fundamental 
requirement” does not give meaning and effect to all provisions of that agreement.  The question 
appears to be based on an erroneous characterisation of the EC’s position. In paragraph 17 of its First 
Written Submission the European Communities stated th at the first sentence of Annex 2 did not create 
a free-standing obligation.  This view is compe lling when an interpreter considers the ordinary 
meaning of the terms, in their context, and in light of the object and purpose of the provision.  The European Communities has explained this in some de tail in its answers to the Panel’s questions 6-11 
and in its previous submissions to the Panel. 
 
Q44. The European Communities argues that, under the “accepted canons of interpretation 
of international law”, “context and objective” require that the first sentence of paragraph 1 of 
Annex 2 to the Agreement on Agriculture  be considered to set out an objective.
42  W o u l d  t h e  
European Communities please explain the legal au thorities for its argument, having regard to 
relevant statements by the Appellate Body, particularly those in Japan – Alcohol Taxes .43   
                                                      
41 [Original footnote to question] First Third Party Submission by the European Communities, 
paragraph 17.   
42 [Original footnote to question] Oral Statement by the European Communities, paragraph 25.   
43 [Original footnote to question] In Japan – Taxes on Alcoholic Beverages , Report of the Appellate 
Body, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, pages 11-12, the Appellate Body said:   
Article 31 of the Vienna Convention  provides that the words of the treaty form the foundation for the 
interpretive process:  “interpret ation must be based above all upon the text of the treaty”.[…]  T h e  
provisions of the treaty are to be given their ordinary meaning in their context. […]  The object and 
purpose of the treaty are also to be taken into account in determining the meaning of its provisions.20  A 
fundamental tenet of treaty interpretation flowing fro m the general rule of interpretation set out in 
Article 31 is the princi ple of effectiveness …[…]  I n  [US – Gasoline] , we noted that “[o]ne of the 
corollaries of the ‘general rule of interpretation’ in the Vienna Convention  is that interpretation must 
give meaning and effect to all the terms of the treaty.  An interpre ter is not free to ad opt a reading that 
would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility”. […]   WT/DS267/R/Add.3 
Page J-82  
 
  
Answer
 
 92. European Communities understands from Austra lia’s question that Australia considers that 
the European Communities’ interp retation of the first sentence of  Paragraph 1 of Annex 2 would 
deprive the first sentence of effect.  
 93. Australia’s implication is qu ite erroneous, and built upon an incomplete, examination of the 
Appellate Body’s rulings.  The European Commu nities interpretation does not deprive the first 
sentence of effect.  Stating that the first senten ce does not impose a self-standing obligation is not the 
same as stating that it is deprived of effect. Indeed , the Appellate Body has arrived at exactly the same 
conclusion with respect to other provisions containing  purposive language, simila r to that contained in 
the first sentence of paragraph 1.  In Japan – Alcoholic Beverages the Appellate Body found: 
 
Article III:1 articulates a general principl e that internal measures should not be 
applied so as to afford protection to dom estic production. This general principle 
informs the rest of Article III. The purpose of  Article III:1 is to establish this general 
principle as a guide to understanding and interpreting the specific obligations contained in Article III:2 and in the other paragraphs of Article III, while respecting, 
and not diminishing in any way, the meani ng of the words actually used in the texts 
of those other paragraphs. In short, Artic le III:1 constitutes part of the context of 
Article III:2, in the same way that it constitutes part of the context of each of the other 
paragraphs in Article III. Any other readi ng of Article III would have the effect of 
rendering the words of Article III:1 meaningless, thereby violating the fundamental 
principle of effectiveness in treaty interpretation.  Consistent with this principle of 
effectiveness, and with the textual differe nces in the two sentences, we believe that 
Article III:1 informs the first sentence and the second sentence of Article III:2 in 
different ways.44 (emphasis added) 
94. Moreover, the Appellate Body has also found that Article XXIV.4 GATT , which the 
Appellate Body qualified as “purposive languag e”, was relevant for the interpretation of 
Article XXIV.5.45  Clearly this gave a provis ion which had no operational eff ects, an effect, within the 
meaning of the Appellate Body’s statements in United States – Gasoline .46  Similarly, the European 
Communities has argued that while the first sentence of paragraph 1 does not impose a self standing 
obligation, it does set out the purpose of Annex 2 wh ich informs the interpretation of other elements 
of Annex 2. (See the European Communiti es response to question 11 from the Panel). 
 
Q45. The European Communities argues that the omission of a reference to the “fundamental 
requirement” as set out in the first sentence of paragraph 1 of Annex 2 to the Agreement on 
Agriculture  in paragraphs 5, 6 and 7 of that A nnex provides “contextual support” to its 
argument that the first sentence sets out an objective.47  Would the European Communities 
                                                                                                                                                                     
____________________________ 
Footnote 20:   That is, the treaty’s “object and purpose” is  to be referred to in determining the meaning 
of the “terms of the treaty” and not as an independent basis for interpretation:  …   
 44 Appellate Body Report, Japan – Taxes on Alcoholic Beverages  (“Japan – Alcoholic Beverages”) , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, page 18.  
 45 Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products  (“Turkey 
– Textiles”), WT/DS34/AB/R, adopted 19 November 1999, para. 57.  
 46 Appellate Body Report, United States - Standards for Reformulated and Conventional Gasoline  
(“United States – Gasoline”), WT/DS2/AB/R, adopted 20 May 1996, page  23. 
47 [Original footnote to question] First Third Party Submission by the European Communities, 
paragraph 21.    WT/DS267/R/Add.3 
 Page J-83 
 
 
 please explain the legal authorities for its argu ment, having regard to its arguments and the 
Appellate Body’s findings in Argentina – Footwear Safeguard .48   
 
Answer  
 
95. We refer Australia in part to the European  Communities’ answer to the previous question 
where the European Communities has explained that  its interpretation of the first sentence of 
Paragraph 1 does not deprive the provision of effect.  Second, the issue in Argentina – Footwear 
Safeguards  was whether the panel had given any effect to Article XIX GATT.49  The panel in that 
case erroneously concluded that because of the omissi on of a reference to unforeseen developments in 
the Agreement on Safeguards  it need not give effect to this requirement set out in Article XIX GATT.  
As the European Communities has explained, by in terpreting the first sentence of paragraph 1 as 
setting an objective informing the rest of Annex 2,  the Panel would be giving effect to the first 
sentence.  
 
Questions from Argentina to the European Communities  
 
Q46. In paragraph 18 of its Oral Statement, the European Communities state that Article 13 
(b)(ii) and (iii) of the Agreement on Agricu lture are clearly "not intended to set up a 
comparison between domestic support granted in 1992 and domestic suppo rt granted in a more 
recent period" and request the Panel to reject the e quation of the term "decided" with the term 
"granted".  
 What would be, in the opinion of the EC, the appropriate benchmark in a hypothetical 
case in which a subsidizing Member has taken no  decision on internal support during 1992 ? 
 Answer
 
 96. We refer Argentina to the European  Communities’ response to question 27. 
 
                                                     
 
 48 [Original footnote to question] In Argentina – Safeguard Measures on Imports of Footwear , Report 
of the Appellate Body, WT/DS121/AB/R, the European Communities argued (paragraphs 38-44) on appeal, and 
the Appellate Body found (paragraph 88), that the Panel erred by:   
fail[ing] to give meaning and legal effect to all the relevant terms of the WTO Agreement , contrary to 
the principle of effectiveness … in the interpretations of treaties. […]  The Panel states that the ‘ express 
omission of the criterion of unforeseen developments’ in Article XIX:1(a) from the Agreement on 
Safeguards  ‘must, in our view, have meaning’. […]  On the contrary, in our view, if they had intended to 
expressly omit  this clause, the Uruguay Round negotiations would and could have said so in the 
Agreement on Safeguards .  They did not.   
 49 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear  (“Argentina – 
Footwear Safeguards”), WT/DS121/AB/R, adopted 12 January 2000.   WT/DS267/R/Add.3 
Page J-84 
 
 
 ANNEX J-7 
 
 
NEW ZEALAND ANSWERS TO QUESTIONS 
FROM THE PANEL TO THIRD PARTIES 
 
11 August 20031 
 
 
Article 13(b) of the Agreement on Agriculture : Domestic support measures  
 
Q2. Please explain the difference, if any, between the meaning of "defined" and the meaning 
of "fixed" in the phrase "a defined and fixed ba se period" in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture. 3rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 Reply
 
  “Defined” and “fixed” mean two different th ings and impose two distinct and different 
requirements for a base period under paragraph 6(a) of Annex 2.  “Defined” means “having a definite 
or specified outline or form”.
2 “Fixed” means “definitely and permanently placed or assigned; 
stationary or unchanging in relative pos ition; definite, permanent, lasting”.3  Accordingly a base 
period must have a definite and specified form that is permanent. 
 
Q3. Please explain the meaning of "a" in "a defined and fixed base period" in paragraph 
6(a) of Annex 2 of the Agreement on Agriculture,  the meaning of "the" in "the base period" in 
paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based on the 
years 1986-88" in Annex 3. 3rd parties, in particular Australia, Argentina, Canada, EC, NZ 
 
Reply  
  “A” in the context of paragraph 6(a) refers to  one single defined and fixed base period.  “The” 
in “the base period” in the context of subsequent sub-paragraphs refers to the single base period 
required under paragraph 6(a).  Pa ragraph 6(a), however, does not specify a particular base period – 
only that once it is determined it is fixed.  On th e other hand, Annex 3 specifies that the “fixed” base 
period in that instance must be the 1986-88 period.  
Q4. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture? 3
rd parties, in particular Australia, Argentina, 
Canada, China, EC, NZ 
  
Reply  
 
 Once, when a programme is first established.  Thereafter, so long as the programme retains 
fundamentally the same elements, it should be cons idered to be the same programme and apply the 
same base periods.  
Q6. Please explain the meaning of the word "criteria" in Article 6.1 and 7.1.  What effect, if 
any, does the use of the word "Accordingly" in paragraph 1 of Annex 2 of the Agreement on 
                                                     
 
 1 New Zealand has not responded to questions not directed specifically to New Zealand. 
 2The New Shorter Oxford English Dictionary , Vol 1, Clarendon Press, Oxford (1993), page 618.  
 3 Ibid, page 962.  WT/DS267/R/Add.3 
 Page J-85 
 
 
 Agriculture have on the meaning of the preceding sentence?  3rd parties, in particular Australia, 
Argentina, Canada, EC, NZ 
 
Reply  
 
 “Criteria” are the standards by which a thing is assessed.  In this case they are the standards 
by which domestic support measures must be assessed in order to qualify for exemption from 
reduction commitments.  These criteria are set  out in Article 6 and Annex 2 of the Agreement on 
Agriculture , and include: the “fundamental requirement” in  Annex 2 paragraph 1 that measures have 
at most minimal trade-distorting effects; the “basic criteria” in paragraph 1(a) and (b); and the 
“policy-specific criteria and conditions” set out el sewhere in Annex 2.  The use of the word 
“accordingly” signifies that the intention of the drafters  was to indicate that in order to meet the first 
criterion – the “fundamental requirement” that they be  at most minimally trade-distorting – measures 
would at the very least have to meet the subsequent basic and policy-specific criteria. 
 Q7. Please explain the meaning of the words "the fundamental requirement" as used in paragraph 1 of Annex 2 of the Agreement on Agriculture.  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ 
 
Reply  
 
 “The fundamental requirement” as used in para graph 1 of Annex 2 refers to a characteristic 
which, if not present, excludes a measure from a cl aim of exemption from reduction commitments.  In 
this case that characteristic is that the measure has “n o, or at most minimal, trade-distorting effects or 
effects on production.”  Paragraph 1 specifies that measures for which exemption is claimed “shall 
meet” this fundamental requirement.  Had the drafte rs intended to make only a general statement of 
principle they would not have referred to a “require ment” that “shall be met”.  The use of the term 
“fundamental” only serves to underline the impor tance placed on all measures meeting this 
requirement in order to be exempt.  
Q9. If the first sentence of paragraph 1 of Annex 2 is a stand-alone obligation, does this 
allow effects-based claims of non-compliance with  Annex 2?  If so, how does this affect the 
purpose of Article 13(b)? 3
rd parties , in particular Australia, Argentina, Canada, EC, NZ 
 
Reply  
  If the first sentence of paragraph 1 of Anne x 2 is a stand-alone obligation it would allow 
effects-based claims of non-compliance with Annex 2.  This is consistent with Article 13(b) because it 
means that the measures excluded from Annex 2 have a more than minimal distorting effect on trade 
or production, and as such they could potentially give rise to the kind of adverse effects to the interests of other Members that the GATT 1994  and the SCM Agreement  establish a right to address.   
As such those measures should not be exempt fro m reduction commitments a nd should be required to 
meet the requirements of Article 13(b) in order to be exempt from actions under the Agreement on 
Subsidies and Countervailing Measures  (the “ SCM Agreement ”) and General Agreement on Tariffs 
and Trade 1994  (the “ GATT 1994” ). 
 
Q10. If the first sentence of paragraph 1 of Annex 2 is not a stand-alone obligation, then must 
new, non- or minimally trade-distorting measures  that do not conform to the criteria listed in 
Annex 2 be classified as non-Green Box?  3
rd parties, in particular Australia, Argentina, 
Canada, EC, NZ  
 WT/DS267/R/Add.3 
Page J-86  
 
 Reply
 
  Yes.    
Q11. If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the 
assessment of the direct payments programme's compliance with paragraph 6 of Annex 2.  3
rd 
parties, in particular, Australia, Argentina, Canada, EC, NZ 
 
Reply  
 
 If the first sentence of paragraph 1 of Annex 2 expresses a general principle then the criteria 
in paragraph 6 of Annex 2 must be strictly applie d to ensure that only genuinely decoupled income 
support that had at most minimal impacts on trad e and/or production qualified for exemption from 
reduction commitments.   
 
 Irrespective of whether the first sentence of pa ragraph 1 of Annex 2 is  to be considered a 
general principle or a stand-alone obligation, the re quirement that there be only one defined and fixed 
base period in paragraph 6 is unambiguous.  In New Zealand’s view the updating of base acreage 
under the Direct Payments programme alone is su fficient to exclude it from the scope of permitted 
green box measures set out in paragraph 6 of Annex 2, as outlined in paragraph 2.29 of New 
Zealand’s Third Party  Submission.4   
 
Q12. Where does Article 13(b) requi re a year-on-year comparison? 3RD parties, in particular 
Australia, Argentina, Canada, China, EC, NZ 
 Reply
 
  Article 13(b)(ii) and 13(b)(iii) require a comp arison with 1992 of any year in which injury, 
nullification or impairment or serious prejudice is alleged to have occurred. 
 
Q13. Does a failure by a Member to comply in  a given year with either the chapeau of 
Article 13(b) or the proviso in subparagraph (ii) of  Article 13(b) impact its entitlement to benefit 
in an earlier or a later year from the exem ption from action provided by Article 13(b)? 3
RD 
parties, in particular Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
 
 The nature of the non-compliance at issue ma y be such that it does impact on a Member’s 
entitlement to benefit in an earlier or later year from the exemption from action provided by Article 13(b). Whether or not that is so must be assessed on a case-by-case basis.  
Q14. Does a failure of a Member to comply wi th Article 13(b) in respect of a specific 
commodity impact its entitlement to benefit in respect of other agricultural products from the 
exemption from action pr ovided by Article 13(b)? 3
RD parties, in particular Australia, 
Argentina, Canada, China, EC, NZ 
 
                                                      
 4 Third Party Submission of New Zealand, 15 July 2003.  WT/DS267/R/Add.3 
 Page J-87 
 
 
 Reply  
  No.  The language of Article 13(b) makes it cl ear that the exemption from action applies to a 
“specific commodity”, which means that the eligib ility for such exemption must be assessed on a 
product-by-product basis. 
 
Q15. Is there any basis on which counter-cyclic al payments could be considered product-
specific?  3
RD parties,  in particular Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
 
 Yes.  The basis upon which counter-cyclical pa yments should be considered product-specific 
have been outlined in the First Written Submission of Brazil,5 and highlighted in New Zealand’s 
Third Party Submission.6  
 Q16. If the word "specific" were deleted from Article 13(b)(ii), would this change the meaning of the subparagraph?  3
RD parties, in particular Australia, Argentina, Benin Canada, 
China, EC, NZ 
 
Reply  
 
 Not necessarily.  The application of the rules of treaty interpretation to the provision, taking 
into account its object and purpose, would still support a conclusion that the relevant support was that 
granted to an individual commodity.  The use of  the word “specific” simply reinforces that 
interpretation.  Q17. What is the relevance, if any, of the concept of "specificity" in Article 2 of the SCM Agreement and references to "a product" or "sub sidized product" in certain provisions of the 
SCM Agreement to the meaning of "support to a specific commodity" in Article 13(b)(ii) 
Agreement on Agriculture? 3
RD parties, in particular Australia, Argentina, Canada, China, EC, 
NZ 
 Reply
 
  The SCM Agreement  provisions cited would seem to shed little light on the meaning of 
“support to a specific commodity” in Article 13(b)(ii). Article 2 of the SCM Agreement  sets out 
principles for determining whether a subsidy is sp ecific to an enterprise or industry or group of 
enterprises or industries.  Article 13(b)(ii) of the Agreement on Agriculture  is concerned with the 
support granted to a specific commodity.  The tw o assessments are unrelated.  In relation to the 
second part of the question, the references to “a product” or “subsidised product” seem fully 
consistent with interpreting “support to a specific commodity” referred to in Article 13(b)(ii) as 
meaning support to a particular product.    Q19. Where does Article 13(b)(ii) require a year-on-year comparison?  3
rd parties, in 
particular Australia, Argentina, Canada, EC, NZ 
 
                                                      
 5 Brazil’s First Submission to the Panel Rega rding the “Peace Clause” and Non-“Peace Clause” 
Related Claims, 24 June 2003 (“First Written Submi ssion of Brazil”), paragraphs 199-202 and 207-213. 
6 Paragraphs 2.17-2.13. 
 WT/DS267/R/Add.3 
Page J-88  
 
 Reply
 
  See New Zealand’s answer to question 12 above.  
Q20. Does Article 13(b)(ii) require a comparison of support granted with support decided?  
How could such a comparison be made?  
Reply
 
  Such a comparison could be made by inte rpreting these terms logically as requiring a 
comparison between the total volume of support to a specific commodity in 1992 and in any other 
year in respect of which claims under the SCM Agreement  and GATT 1994  are made. 
 
Q21. Please comment on Brazil's assertion that the terms "grant" and "decided" in Article 
13(b)(ii) have broadly the same meaning. If so , why did the drafters not use the same term?  3
rd 
parties, in particular, Australia, Argentina, Canada, China, EC, NZ  
Reply
 
  Article 13(b)(ii) would be devoid of meani ng if it were to be interpreted as requiring a 
comparison between two things that  were not like ie if “support gran ted” was somehow different from 
“support decided”.  Therefore the issue is not the diff erence in wording used, but substantively, what 
comparison meets the object and purpose of the provision.  In New Zealand’s view that is a comparison between the total volume of support to a specific commodity in 1992 and in any other year in respect of which claims under the SCM Agreement  and GATT 1994  are made. 
 Q22. What is the meaning of "support" in Agreement on Agriculture 13(b)(ii) ? Why would it be used differently from Annex 3, where it refers to total outlays? 3
rd parties, in particular, 
Australia, Argentina, Canada, China, EC, NZ 
 
Reply  
 
 Annex 3 refers to budgetary outlays as a component of the Aggregate Measurement of 
Support (“AMS”) calculation.  There is nothing to suggest that budgetary outlays should not also be a component of the calculation of “support” in the context of Article 13(b)(ii).  
Q23. Should support be compared under Article 13(b)(ii) in terms of unit of production or 
total volume of support or both? 3
rd parties, in particular, Australia, Argentina, Canada, China, 
EC, NZ 
 
Reply  
  The rationale behind the comparison required by Article 13(b)(ii) is to create an upper limit to 
the level of trade and production distortion resu lting from Members’ domestic  support programmes.  
Therefore the appropriate comparison is with th e total volume of support because that provides the 
truest indication of the real effects of the support programmes on trade and production.  Support in terms of unit of production may well be  a relevant factor in that calculation but it will not be the only 
one. 
 
Q25. Please comment on an interpretation of the words "decided during" in Article 13(b)(ii) 
that would read them as synonymous wi th the words "authorized during".  3
rd parties, in 
particular Australia, Argentina, Canada, China, EC, NZ 
  WT/DS267/R/Add.3 
 Page J-89 
 
 
 Reply  
  New Zealand is not sure what “authorised” in such a context would mean.  Presumably it requires evidence of some kind of formal “authori sation”.  What support was formally authorised, by 
legislation or regulation, might provide some insi ght into what level of support was received for 
specific commodities, but it cannot provide the full pi cture.  It therefore makes no sense to interpret 
“decided” in such a limited way.  Export credit guarantee programmes
 
 Q29. (a) Is an export credit guarantee a financ ial contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement? Why or why not? 3
rd parties, in 
particular, Argentina, Canada, EC, NZ 
 Reply
 
  An export credit guarantee is a “financial c ontribution” under Article 1.1(a)(1) because it is a 
“loan guarantee”.  
Q29. (b) How, if at all, would this be relevant to the claims of Brazil?  3
rd parties, in 
particular, Argentina, Canada, EC, NZ 
 
Reply  
  It is relevant because a financial contribu tion is a necessary element of a “subsidy” under 
Article 1.1(a)(1)(i) of the SCM Agreement .  Brazil has presented arguments to support a finding that 
the US export credit guarantee programmes are subsidi es as defined in Article 1.1(a)(1)(i), that are 
contingent upon export according to the terms of Article 3.1(a).  The SCM Agreement  has been found 
to provide useful context for determining what  constitutes an export subsidy for the purposes of 
Article 10.1 of the Agreement on Agriculture .  Brazil has demonstrated that, in the terms of 
Article 10.1, the United States export credit guarant ee programmes are applied so as to result in, or 
threaten to lead to, circumvention of th e United States export subsidy commitments. 
  Brazil has therefore demonstrated that th e United States export credit guarantee programmes 
do not conform fully to the provisions of Part V of the Agreement on Agriculture  and therefore cannot 
be exempt from actions based on Article XVI of GATT 1994  or Articles 3, 5 and 6 of the SCM 
Agreement  by the terms of Article 13(c)(ii) of the Agreement on Agriculture . 
 
Q30. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement 
were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
Panel would therefore appreciate third party views on this situation, including with respect to 
the viability of an a contrario interpretation of it em (j) of the Illustrative List (as addressed in 
paragraphs 180-183 of the United Stat es' first written submission).  3
rd parties, in particular, 
Argentina, Canada, EC, NZ 
 
Reply  
 
 New Zealand notes that the Illustrative List  simply lists measures that constitute export 
subsidies under Article 3.1(a) of the SCM Agreement .  As stated by the Panel in Canada – Export 
Credits, “item (j) sets out the circumstances in which the grant of loan guarantees is per se  deemed to WT/DS267/R/Add.3 
Page J-90  
 
 be an export subsidy (i.e. when the “premium rate s … are inadequate to cover the long-term operating 
costs and losses” of the loan guarantee).”
7 
 
Q31. If the Panel decides to refer to provi sions of the SCM Agreement for contextual 
guidance in the interpretation of the terms in Ar ticle 10 Agreement on Agriculture, should the 
Panel refer to item (j) or Articles 1 and 3 of the SCM Agreement or both?  3rd parties, in 
particular, Argentina, Canada, EC, NZ 
 
Reply  
 
 The Panel should refer to both.  The SCM Agreement  provides both a general definition of an 
“export subsidy” (specifically the definition of a “subsidy” in the terms of Article 1 and the 
requirement of contingency upon export in the terms of Article 3) and an Illustrative List containing 
specific examples of export subsidies. Therefore Artic les 1 and 3 and item (j) of  the Illustrative List 
provide contextual guidance for the interp retation of the terms in Article 10.   
 
Q32. The Panel's attention has been drawn to Article 14(c) of the SCM Agreement (see third 
party submission of Canada) and to the panel report in DS 222 Canada- Export Credits and 
Loan Guarantees.  How and to what extent are Article 14(c) of the SCM Agreement, and the cited panel report, relevant to the issue of wh ether or not the United States export credit 
guarantee programmes confer a "benefit"?  What  would the appropriate market benchmark be 
to use for any comparison? Please cite any other relevant material. .  3
rd parties, in particular, 
Argentina,  Canada, EC, NZ 
 
Reply  
 
 The Panel in Canada – Export Credits and Loan Guarantees8 considered that Article 14(c) of 
the SCM Agreement  provided contextual guidance for interpreting ‘benefit’ in relation to loan 
guarantees.  In that case it was determined that the relevant benchmark for determining whether a loan 
guarantee conferred a “benefit” was whether there w as “a difference between the amount that the firm 
receiving the guarantee pays on a loan guaranteed … and the amount that the firm would pay on a comparable commercial loan absent the … guarantee.”  This confirms that the appropriate point of 
reference for determining whether a “benefit” has b een conferred is the marketplace, in this case the 
extent to which the premium rates charged on current export credit guarantees are lower than the 
corresponding financing rates that a commercial bank  would normally require given a similar level of 
risk.    Q33. What is the relevance (if any) of Brazil's statement that :  "...export credit guarantees for exports of agricultural exports [sic] are no t available on the marketplace by commercial 
lenders."  .  3
rd parties, in particular, Argentina, Canada, EC, NZ 
  
Reply  
 
 Brazil’s statement goes toward a conclusion that  a “benefit” is conferred in the terms of 
Article 1.1(b) of the SCM Agreement .  It is significant because it indicates that either commercial 
lenders are not prepared to accept th e risks associated with such guar antees or that the United States 
export credit programme is so big that it has forced any competition from commercial programmes 
out of the marketplace. For whatever reason, the United States export credit guarantee programmes 
                                                      
 7 Report of the Panel, Canada – Export Credits and Loan Guarantees for Regional Aircraft , 
WT/DS/222, paragraph 7.395. 
 8 Ibid, paragraph 7.397.  WT/DS267/R/Add.3 
 Page J-91 
 
 
 provide the recipient with export credit guarantees not available in, and therefore on terms more 
favourable than, the marketplace, and thus confer s a “benefit” in the terms of Article 1.1(b). 
 
Q34. Comment on the United States' view of the meaning of "long term operating costs and 
losses" in item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement 
as meaning "claims paid" under the export credit guarantee programmes.  Does the United 
States' interpretation give meaning to both "c osts" and "losses"?  Do claims paid represent 
"losses"?   3rd parties, in particular, Argentina, Canada, EC, NZ 
 
Reply  
 
 “Claims paid” is one element of the calculati on of the costs and losses of an export credit 
guarantee programme.  Other elements to be taken into account would include, for example, costs and 
losses associated with reinsurance costs, administration costs and the costs of refinancing (i.e. the 
rescheduling (not the full amount, but the net present value of the losses)). 
 
Q35. Did the drafters of the Agreement on Agriculture include export credit guarantees in 
Article 9.1 of the Agreement on Agriculture? Why or why not?  3rd parties, in particular, 
Argentina, Canada, EC, NZ 
 
Reply  
 
 The drafters of the Agreement on Agriculture  did not include export credit guarantees in 
Article 9.1 of the Agreement  because export credit guarantees are not, per se , export subsidies.  They 
may involve export subsidies, but this depends on whether they provi de a benefit in relation to the 
marketplace.   
 
Q36. Please explain any possible significance the following statements may have in respect of 
Brazil's claims about GSM102 and 103 (7 CFR 1493.10(a)(2), Exhibit BRA-38)  3rd parties, in 
particular, Argentina, Canada, EC, NZ 
 
 "The programs operate in cases where credit is  necessary to increase or maintain U.S. 
exports to a foreign market and where U.S. fina ncial institutions would be unwilling to provide 
financing without CCC's guarantee.  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
Reply  
 
 See New Zealand’s answer to Question 33 above. 
  
 "The programs are operated in a manner intended not to interfere with markets for 
cash sales.  The programs are ta rgeted toward those countries wh ere the guarantee is necessary 
to secure financing of the exports but which have  sufficient financial strength so that foreign 
exchange will be available for scheduled paymen ts."  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
Reply  
  This statement simply supports Brazil’s anal ysis in relation to the “benefit” and “export 
contingency” elements of the export credit guarantee programme. 
 
 "In providing this credit guarantee facility,   CCC seeks to expand market opportunities 
for US agricultural exporters and assist long-t erm market development for U.S. agricultural 
commodities." (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 WT/DS267/R/Add.3 
Page J-92  
 
 Reply
 
  This statement reinforces the obvious expor t contingency of the export credit guarantee 
programme and through the refere nce to expand[ing] opportunities and assist[ing] long-term market 
development makes it clear that the intention of the programme is to provide a benefit to US 
exporters. 
 Reply
 
 
Q37. The United States seems to argue that, at present, by virtue of Article 10.2 of the 
Agreement on Agriculture, there are no discip lines on agricultural export credit guarantees 
under the Agreement on Agricultu re (or the SCM Agreement).  
 
 (a) Comment on the following proposit ion:  a WTO Member may therefore extend 
agricultural export credit guarantees without charging a premium, and for an 
indefinite period, in addition to any other terms and conditions it may wish?  
How would this reconcile with the title of Article 10 of the Agreement on Agriculture ("Prevention of Circumven tion on Export Subsidy Commitments"), 
and with other commitments contained in  the Agreement on Agriculture? Please 
cite any relevant material, including any past WTO dispute settlement cases.  3
rd 
parties, in particular, Argentina, Canada, EC, NZ  
 
Reply  
  The proposition is not reconcilable with the title of Article 10 of the Agreement on 
Agriculture  as such an export credit guarantee would cl early provide an export subsidy and thus 
potentially circumvent export subsidy commitments.  It also ignores the findings of the Panel in US-
FSC Article 21.5
9, affirmed by the Appellate Body,10 that the threat of circumvention of export 
subsidy reduction commitments in the terms of Article  10.1 exists in relation to both unscheduled and 
scheduled agricultural products when the amount of  a subsidy is unqualified or  unlimited, as implied 
in the proposition above.   (b) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture, how could export credit guarantees "conform fully to the provisions of Part  V" of the Agreement on Agriculture 
within the meaning of Article 13 (how can you assess "conformity" or non-conformity with non- existent disciplines)?  3
rd parties, in particular, Argentina, 
Canada, EC, NZ  
 
Reply  
  The United States interpretation would render the phrase “conforming fully to the provisions 
of Part V” meaningless in respect of export credit guarantees and it therefore cannot be sustained.  
 
Step 2 payments
 
 
Q38. Please comment on the statement in note 119 of the United States' first written 
submission that "...to the extent a consumer that  had intended to export instead opens the bale, 
                                                      
 9 Report of the Panel, United States – Tax Treatment for “Foreign Sales Corporations”, Recourse to 
Article 21.5 of the DSU by the European Communities  (WT/DS108/RW), paragraphs 8.118 and 8.119. 
 10 Report of the Appellate Body, United States – Tax Treatment for “Foreign Sales Corporations”, 
Recourse to Article 21.5 of the DSU by the European Communities  (WT/DS108AB/RW).  WT/DS267/R/Add.3 
 Page J-93 
 
 
 then that consumer could still obtain the Step 2 payment upon submission of the requisite 
documentation".   The Panel notes that Step 2 payments all involve upland cotton produced in 
the United States.  What are the two distinct factual situations that Step 2 payments involve?  Other than the panel report in Canada-Dairy and the findings of the Appellate Body in US-FSC 
(21.5), do any other dispute settlement reports offer guidance on this issue?  For example, how, 
if at all is the Appellate Body's re port in Canada-Aircraft relevant here?   3
rd parties, in 
particular, Australia, Argentina, NZ, Paraguay  
 
Reply  
 
 The two distinct factual situations involved are 1) where cotton is exported, and 2) where 
cotton is used domestically.  The notional consumer referred to by the United States cannot be both an 
exporter and domestic user of the same bale of cotton.     Even if the Panel were to find that there are not two distinct factual situations involved, ie that 
there was only one ‘Step 2 payment’ programme as a lleged by the United States, the findings of the 
Appellate Body in Canada-Aircraft
11 referred to in the question above make it clear that the fact that 
some of the payments made under that programme are not contingent upon export performance, does 
not necessarily mean that the same is true for all of the payments under the programme.  To 
paraphrase the Appellate Body, it is enough to show that one or some of the Step 2 payments do 
constitute subsidies “contingent … in fact … up on export performance.”  Those payments made upon 
production of proof of export clearly meet the export contingency requirement. 
 
Q39. Please comment on the United States ass ertions at paragraph 129 of its first written 
submission, that "[t]he program is indifferent to whether recipients of the benefit of this programme are exporters or parties that open bales for the processing of manufacturing raw 
cotton into cotton products in the United States."  .  3
rd parties, in particular, Australia, 
Argentina,  NZ, Paraguay  
 
Reply  
  The fact that an applicant is required to id entify themselves as either an exporter or domestic 
user and an exporter is required to provide proof of export in order to receive the payment would 
seem to suggest that the programme is not, in fact, so ‘indifferent’.  
Q40. With respect to paragraph 32 of the oral statement of the EC, are subsidies contingent 
on the use of domestic goods consistent with th e AoA?  Does the phrase "provide support in 
favour of domestic producers" refer to, and/or permit such subsidies? What is the meaning and 
relevance of this (if any) to Brazil's claims under Article 3 of the SCM Agreement and Article III:4 of the GATT 1994..  3
rd parties, in particular, Australia, Argentina, EC, NZ, Paraguay 
 
Reply  
 
 New Zealand does not agree that a right to pr ovide subsidies contingent upon the use of 
domestic products contrary to Article 3 of the SCM Agreement  can be found in the requirement that 
subsidies “directed at agricultural producers … to th e extent that they benefit producers of the basic 
agricultural product” be included in the calculation of AMS.  There is no basis for reading such a right 
into the Agreement on Agriculture . To do so would allow the possibility for exemption from action 
under the SCM Agreement  to exist other than by virtue of the peace clause.  The peace clause 
explicitly does not provide such exempt ion from action under Article 3 of the SCM Agreement  when 
                                                      
 11 Report of the Appellate Body, Canada - Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/AB/R , paragraph 179. WT/DS267/R/Add.3 
Page J-94  
 
 it quite clearly could have done so.  In New Zeala nd’s view that indicates that there was no intention 
on the part of the drafters that domestic support meas ures, whether they conform with Article 6 of the 
Agreement on Agriculture  or not, should be so exempt.  The same is true in respect of GATT 1994  
Article III:4 claims.    
ETI Act
 
 
Q41. Concerning its claims on the ETI Act, Brazil relies on the US – FSC case.  However, it 
appears that the United States did not raise the issue of the Peace Clause in that case, nor did 
the US appear to invoke Article 6 of the Ag reement on Agriculture.    If the Panel's 
understanding is correct, how, if at all, are th ese differences relevant here? Argentina, China, 
EC, NZ  
 
Reply  
 
 While it is open to the United States to cl aim exemption from action for such measures under 
the peace clause, the United States has no reduction commitments in respect of upland cotton and it 
cannot therefore provide export subsidies to upl and cotton in a WTO-consistent manner.   
 
Q42. How do you view the reference in paragra ph 43 of the EC's third party oral statement 
with respect to the relevance of Article 17.14 of th e DSU, and, in particular, the phrase "a final 
resolution to that dispute" (emphasis added)?  Please explain the use, and relevance (if any) of 
the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU, and please cite any other provisions you consider relevant. Argentina, China, EC, NZ    
Reply
 
 
 References to “disputes” in the Dispute Settle ment Understanding must be interpreted in 
context.  Article 17.14 requires that parties to  a dispute unconditionally accept the report of the 
Appellate Body once adopted by the Dispute Settleme nt Body (“DSB”).  That acceptance is in the 
context of that particular dispute between those pa rticular parties.  However that does not preclude a 
Panel from finding that a prima facie  case of WTO-inconsistency has been made out where a Member 
makes a complaint in relation to a measure that h as previously been ruled to be WTO-inconsistent 
where that ruling has been adopted by the DS B and where the measure remains unchanged.  WT/DS267/R/Add.3 
 Page J-95 
 
 
 ANNEX J-8 
 
 
PARAGUAY'S REPLY AS THIRD PARTY 
TO THE FOLLOWING QUESTION 
 
11 August 2003 
 
 
ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE 
 26. Under Article 13(b)(ii), a comparison is required between support at different times.  
One of the issues which is contested between the pa rties is whether the only later period that the 
Panel can consider is the present one (i.e. the period underway at the time of the request for establishment of the Panel).  This argument is based on the present tense of the words "do not 
grant" in the English text.    
 The Panel asks whether there is any difference in the verb tense as used in the Spanish-
language text, or any other difference which might aid the Panel in interpreting these words?   
 
Reply
 
  In its analysis of the question raised by the Panel as to the period to be considered and the 
verb tense used, Paraguay is expressi ng a view based on both versions: 
 
 "(ii) exempt from actions based on paragraph 1 of Article XVI of GATT 1994 or Articles 5 
and 6 of the Subsidies Agreement, provided  that such measures do not grant support  
to a specific commodity in excess of that  decided during the 1992 marketing year; 
and …."  
  "ii) estarán exentas de medidas basadas en el párrafo 1 del artículo XVI del GATT de 
1994 o en los artículos 5 y 6 del Acuerdo sobre Subvenciones, a condición de que no 
otorguen  ayuda a un producto bás ico específico por encima de la decidida durante la 
campaña de comercialización de 1992; y …"   
 
 As regards the verb tense used, the Eng lish version clearly calls for a present tense 
interpretation, as the Panel rightly points out.   It clearly reads " provided that such measures do not grant su pport".  If we take the word 
"provided" as indicating the occurrence of an event ( "in the event" ), we must bear in mind that this 
would introduce conditionality.   The Spanish text expresses the conditionalit y in even clearer terms through the words "a 
condición de que no otorguen" , a conditionality which introduces a notion of facts. 
 
 In Spanish, the verb is used in the present subjunctive mode , which according to the 
Larousse Dictionary , is the mode used to express possibility , as opposed to the indicative mode, 
which is the reality mode.  
 WT/DS267/R/Add.3 
Page J-96  
 
  Although we consider that both versions indicate the present, it appears to  us that the Spanish 
version of the sentence stresses conditionality, which must be given considerable weight in order to 
arrive at a correct interpretation.   In the case at issue, the condition under which the measu res shall be exempt from actions 
based on paragraph 1 of Article XVI  of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement  is 
that support should not be granted to a specific commodity in excess of that decided during the 1992 marketing year.   The 1992 marketing year provides the standard  needed to carry out a proper comparison 
between support at different times, so that in our view, we should be considering the entire spectrum 
and taking a comprehensive view of the background information.   Paraguay concludes that it is the Panel's task  to consider the period it deems suitable for 
determining the effects of this type of measure on world trade.  WT/DS267/R/Add.3 
 Page J-97 
 
 
 ANNEX J-9 
 
 
COMMENTS BY ARGENTI NA ON THE REPLY BY THE 
EUROPEAN COMMUNITIES TO QUESTION 40 
FROM THE PANEL 
 
22 August 2003 
 
 
 Argentina would like to make the followi ng comments on the reply by the European 
Communities to question 40 from the Panel.     Argentina does not share the EC's assertion that Members are entitled to provide domestic 
content subsidies under the Agreement on Agricult ure (AoA) provided such subsidies are provided 
consistently with the Member's domestic support commitment levels. 
  It is our view that the rules of the AoA, on the one hand, and of the GATT 1994 and the Agreement on Subsidies and Countervailing Measures (A SCM), on the other, contain disciplines that 
apply independently unless there is a "conflict" betw een the provisions, in which case the rules of the 
AoA apply as a result of Article 21.1 of this Agreement.  
 
 Article 21.1 of the AoA states that "The provisions of GATT 199 4 and of other Multilateral 
Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to
 ("a reserva de" in the 
Spanish text) the provisions of this Agreement ." 
 
 The words "subject to" or "a reserva de" indicate dependency or a condition1.  Such 
dependency or condition does not, however, mean th at all the disciplines in the GATT 1994 and the 
Agreements in Annex 1A automatically cease to apply in the case of the AoA.  On the contrary, these 
disciplines "shall apply" unless there is a discrepancy  or conflict between a rule in the AoA and the 
rules in the GATT 1994 or the Agreements in Annex 1A.  This conclusion also receives contextual 
support in the General interp retative note to Annex 1A. 
 
 The conditions for the existence for a conf lict between two rules was clarified by the 
Appellate Body in the Guatemala – Cement case2, where it is determined that there is a conflict 
between two provisions if adherence to one provision l eads to a violation of the other.  In the case 
before us, in order to determine whether a rule in the GATT 1994 or in an Agreement in Annex 1A 
(Article 3.1(b) of the ASCM in this particular case) does not apply, it must first be determined 
whether there is an inconsistency or discrepancy with  a provision of the AoA.  In other words, these 
rules must be applied together . 
  In this connection, Argentina considers that  compliance with the obligations laid down in 
Articles 6.1 and 3.2 of the AoA, and with paragra ph 7 of Annex 3, does not allow any inconsistency 
with Article 3.1(b) of the ASCM to be detected.   Regarding Articles 6.1 and 3.2 of the AoA, not hing in these provisions indicates that it is not 
possible to apply them together with the prohibiti on on granting subsidies contingent on the use of 
domestic rather than imported products.  The fact th at the term "domestic support" is not defined in 
                                                     
 
1 The New Oxford Dictionary of English:  "subject to:  … 2 dependent or conditionally upon". 
2 WT/DS60/AB/R, paragraph 65. WT/DS267/R/Add.3 
Page J-98  
 
 the AoA or that the AMS is broadly defined, as indicated by the EC
3, does not imply that the 
prohibition laid down in Article 3.1(b) of the ASCM is not valid in relation to the AoA.  In this 
connection, the AoA does not contain any reference to possible exclusion.    Regarding paragraph 7 of Annex 3, the statement that "Measures directed at agricultural 
processors shall be excluded to the extent that  such measures benefit the producers of the basic 
agricultural products" does not mean that such bene fits cover measures made subject to the use of 
national rather than imported produc ts.  Producers of the basic agricultural products are allowed the 
benefits without making the measure con tingent on the use of domestic products. 
 
 Lastly, with regard to the EC's re ference to the preamble to the AoA (" Having decided  to 
establish a basis for initiating a process of reform of tr ade in agriculture …"), it should be noted that 
this process could very well envisage stricter oblig ations concerning certain types of measure that 
particularly distort international agricultural trade.  On the contrary, it appears contradictory to assume 
that an agricultural trade reform process envisages the weakening of disciplines that could be applied 
in another way. 
  For the foregoing reasons, Argentina considers th at subsidies that are granted to agricultural 
producers contingent on the use of domestic rath er than imported products, either as a sole 
requirement or as one of several requirements, are in consistent with Article 3.1(b) of the ASCM and 
Article III.4 of the GATT 1994. 
                                                     
 
3 Replies by the EC to question 40, paragraph 77.  WT/DS267/R/Add.3 
 Page J-99 
 
 
 ANNEX J-10 
 
 
COMMENTS BY AUSTRALIA ON THE RESPONSES OF  
THE EUROPEAN COMMUNITIES TO QUESTIONS  
FROM THE PANEL AFTE R THE FIRST SESSION  
OF THE FIRST SUBSTA NTIVE PANEL MEETING 
 
22 August 2003 
 
  These comments by Australia are offered in r esponse to some of the answers submitted by the 
EC to the questions from the Panel after the first sessi on of the first substantive Panel meeting.  It is 
not Australia’s intention to comment on all of the answers submitted by the EC, as most issues have 
already been addressed in Australia’s written Third Party Submission, Australia’s Oral Statement and 
Australia’s responses to questions from the Panel af ter the first session of the first substantive Panel 
meeting.    
Panel question no. 6 and Australian question no. 2
 
  The EC refers to the findings of the Appellate Body in the Turkey – Textiles  dispute 
concerning the interpretation of the word “accordi ngly” at the beginning of Article XXIV:5 of GATT 
1994 to support its view that the first sen tence of paragraph 1 of Annex 2 to the Agreement on 
Agriculture  does not establish a freestanding obligation.  However, as EC recognises, the Appellate 
Body expressly found in that dispute that the te xt of GATT Article XXIV:4 does not contain any 
operative language, that is, that GATT Article XX IV:4 “does not set forth a separate obligation 
itself”.  Nor do any of the other provisions cited by  the EC in its footnote 9 contain operative language 
in the sense of setting forth a separate obligation.    
 The words “shall meet the fundamental requirement” establish a clear and unambiguous 
obligation that Annex 2 measures must conform to or satisfy the primary or essential condition that 
such measures have no, or at most minimal, trade- distorting effects or effects on production.  “Shall”, 
when used in the present te nse as an auxiliary verb followed by an  infinitive as in the first sentence of 
paragraph 1 of Annex 2, is defined as:  “must according to a command or instruction”.
1  “Meet” has a 
number of meanings, including “come into conformity  with (a person, a person’s wishes or opinion)” 
and “satisfy (a demand or need);  satisfy the requirement s of (a particular case);  be able or sufficient 
to discharge (a financial obligation)”.  The words “shall meet” in context mean that Annex 2 measures 
must conform to or satisfy an express stipulation.  Australia has previously explained that a “fundamental requirement” is a primary or essential condition.
2  When used as a definite article as in 
the clause “shall meet the fundamental requirement ”, the word “the” estab lishes the “fundamental 
requirement” as the express stipulation that A nnex 2 measures must conform to or satisfy.3   
  In Australia’s view, the normal rules of treaty interpretation do not permit the word 
“accordingly” to be interpreted so as to obviate a cl ear and unambiguous obligation.  Australia agrees 
that the Appellate Body found in the Turkey – Textiles  dispute, in the particular circumstances of 
GATT Article XXIV, that the word “accordingly” link ed the purposive language of Article XXIV:4 to 
operative language in the specific obligations found el sewhere in Article XXIV.  However, the first 
                                                     
 
1 The New Shorter Oxford English Dictionary , Volume 2, page 2808.   
2 Australian response to Question no. 7 from the Panel.   
3 Australia addressed the meaning of “the” in more detail in its response to question 3 from the Panel.   WT/DS267/R/Add.3 
Page J-100  
 
 sentence of paragraph 1 of Annex 2 to the Agreement on Agriculture  cannot be characterised as 
purposive.  The Appellate Body’s finding in the Turkey – Textiles  dispute is not, and cannot be, a 
valid interpretative basis to say that because the word “accordingly” has a particular meaning in the 
context of GATT Article XXIV, that same meaning mu st apply wherever else the word “accordingly” 
appears.
4   
 
Panel question no. 9  
  It remains unclear to Australia what is meant by “effects-based claims” in the context of the 
Panel’s question.   
 
 However, Australia notes that under the EC’s in terpretation there would be no limits to the 
amounts that a WTO Member could provide as Annex 2 support, even if such support had profound 
trade-distorting effects or effects on production.  Fo r example, the EC’s interpretation would allow a 
Member to pay “decoupled income support” of such  a magnitude that the support would provide the 
means for that Member’s domestic producers to sw itch from dryland to irrigation production with 
resulting substantial increases in production and trade- distorting effects.  Thus, even if the first 
sentence of paragraph 1 of Annex 2 of the Agreement on Agriculture  were considered to express an 
objective, such an outcome would nevertheless be di rectly contrary to that objective.  At the very 
least, the magnitude of Annex 2 payments must be ab le to be a factor in assessing whether Annex 2 
domestic support measures “meet the fundamental require ment that they have no, or at most minimal, 
trade-distorting effects or effects on production”.   
  Further, the EC’s argument that identifying the effects of such measures is often only feasible 
on an ex post facto  basis is not convincing.  First, even the EC argument concedes that in many, if not 
most, cases, it is feasible to identify the effects of such measures in advance.  Secondly, even if the 
precise effects of such me asures cannot be identified in advance,  policy makers could draw on past 
experience and econometric analyses to determine whet her certain types of payments would likely be 
distorting.     Finally, Australia considers that the “pr oblems” pointed to by the EC that would be 
engendered by interpreting the first sentence of paragraph 1 as a freestanding obligation are no 
different to other situations, including under the Agreement on Agriculture .  If another Member were 
to argue successfully in a dispute that a measure at  issue was indeed an export subsidy, the responding 
Member could well be required to s how “after the fact” that it is in compliance with its export subsidy 
reduction commitments under the Agreement on Agriculture .
5   
                                                      
4 Australia considers that the Appellate Body’s discussion of the meaning of “like products” in 
European Communities – Measures Affecting Asbestos and Asbestos-Containing Products  , WTO DS135/AB/R, 
paragraphs 87-100, confirms this view.   
5 See, for example, United States – Tax Treatment of “Foreign Sales Corporations” , WT/DS108.    WT/DS267/R/Add.3 
 Page J-101 
 
 
 ANNEX J-11 
 
 
COMMENTS BY THE EUROPE AN COMMUNITIES ON  
RESPONSES TO THE QUES TIONS OF THE PANEL  
SUBMITTED BY OTHER THIRD PARTIES 
 
22 August 2003 
 
 
 
TABLE OF CONTENTS  
 
I. INTRODUCTION ............................................................................................................. 101  
 
II. ARTICLE 13 OF THE AGRE EMENT ON AGRICULTURE ..................................... 101 
 III. ARTICLE 13(B) OF THE AGREEMENT ON AGRICULTURE : DOMESTIC  
 SUPPORT MEASURES.................................................................................................... 103  IV. STEP 2 PAYMENTS ......................................................................................................... 108  
 
  
I. INTRODUCTION 
 1. The European Communities has sought to comme nt on some of the responses to the Panel’s 
questions submitted by other third parties. It has not  been possible to do this in an exhaustive manner. 
Rather, the European Communities has made co mments on certain responses which in its view 
merited further discussion. Evidently, where th e European Communities has not commented on a 
particular argument, this does not imply that we support it.  
2. For the Panel’s ease of reference, we have re tained in this document the Panel’s original 
questions and the responses of the European Co mmunities. Where the European Communities has 
decided to comment on a particular argument of another third party, we have inserted verbatim  the 
text of the other party’s arguments . We have deleted all questions wh ich we have decided not to make 
comments on. 
 
 
II. ARTICLE 13 OF THE AGREEMENT ON AGRICULTURE 
 
Question 
 
1. Australia has argued that Article 13 of the Agreement on Agriculture  is an affirmative 
defence.  How do you reconcile this with your view that the conditions in Article 13 are a "prerequisite" to the availability of a right or privilege?  Australia
 Would other third parties 
have any comments on Australia's assertion? 3rd parties, in particular Argentina, Benin, China, 
Chinese Taipei  
 WT/DS267/R/Add.3 
Page J-102  
 
 Answer
 
 
3. Australia’s views cannot be reconciled. Austra lia is correct in noting that the conditions in 
Article 13 can be considered a prere quisite for taking action under the SCM Agreement .1 In using the 
term “prerequisite”, Australia essentially rec ognises that, in respect of measures covered by 
Article 13, a complainant can only invo ke the relevant provisions of the SCM Agreement if it proves 
that the threshold requirements or prerequisites refe rred to in Article 13 have been satisfied. As the 
European Communities has pointed out, such a situation is very different from the situation where, in 
the event of a violation of a WTO Agreement, a WTO Member pleads a defence which potentially 
exculpates it from this violation (e.g. Article XX GA TT) in respect of which it bears the burden of 
proof.  
 4. Comparing Article 13 with Article 3.3 of the SPS Agreement shows that Australia’s views are 
irreconcilable. This provision permits WTO Me mbers not to base SPS measures on international 
standards but to impose higher standards where there is  a scientific justification or an appropriate risk 
assessment has been carried out. This provision has some similarities with Article 13 of the 
Agreement on Agriculture  since it sets a threshold which must be met before a Member can act. 
However, Article 3.3  may be seen as going further than Article 13 since it provides a derogation from 
the central discipline of the SPS Agreement  ; the obligation to base SPS measures on international 
standards. On the other hand, Article 13 is simp ly one element regulating the interface between the 
Agreement on Agriculture  and the other Annex I Agreements and cannot be seen as a derogation 
therefrom. Despite the extent to which Article 3.3 could be thought of as a derogation from the SPS 
Agreement , the Appellate Body ruled in EC Hormones  that it could not be considered an affirmative 
defence, and that the burden of proof did not, therefore lie with the defendant.
2 In particular, the 
Appellate Body noted that the situation in Ar ticle 3.3 of the SPS Agreement is “qualitatively 
different” from the relationship between  for instance, Article 1 and XX GATT.3 
 
5. Consequently, Australia is correct to consider that Article 13 is a prerequisite or a threshold 
condition before the other Annex I Agreements may become applicable  but is incorrect to consider 
that Article 13 can be considered an affirmative defence.  
Response of Australia 
  Australia does not see any inconsistency in its  views.  In Australia’s view, the potential 
availability of an affirmative defence in the general sense is in the nature of a right or 
privilege.  Australia wishes to clarify, however , that it considers Article 13 in the specific 
sense to be a right available when the conditions  prescribed therein are met, rather than a 
privilege.   
 
EC Comment 
 
6. The European Communities fails to see how Australia can reasonably assert that there is no 
“inconsistency in its views”. If Article 13 Agreement on Agriculture  is a “prerequisite” for a 
complainant to bring an action under the SCM Agreement  it cannot be at the same time a defence. A 
defence applies when a breach of a WTO Agreement arises, and the defending Member relies on another provision of a WTO Agreement in order to  exculpate itself. Article XX GATT is the best 
example. In such a case, the burden of proof shifts  to the Member invoking a defence. A prerequisite 
                                                     
 
1 Australia’s Oral Statement, para. 18. 
2 Appellate 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, para. 109. 
3 Appellate 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, para. 105.  WT/DS267/R/Add.3 
 Page J-103 
 
 
 is entirely different. It implies that before a Memb er can undertake a particular action, it must take 
another action. In this context, a complaining Member must prove that Article 13 Agreement on 
Agriculture  does not apply, before proving that the relevant provisions of the SCM Agreement  apply.  
 7. Australia’s bald assertion, glossing over its pr evious use of the word “prerequisite”, does not 
adequately explain how its views can be reconciled. 
  
III. ARTICLE 13(B) OF THE AGREEMENT ON AGRICULTURE : DOMESTIC SUPPORT 
MEASURES 
 
Questions 2 - 5 
 
8. The European Communities would only note that the changes presented by Australia to 
questions 2 and 3 on 15 August 2003 as “corrigenda” altered substantivel y the meaning of Australia’s 
original response. The change from “program” to “p ayment” is a substantial change, and not a mere 
typographical error.  
Question 
 6. Please explain the meaning of the word "criteria" in Article 6.1 and 7.1. What effect, if 
any, does the use of the word "Accordingly" in paragraph 1 of Annex 2 of the Agreement on 
Agriculture  have on the meaning of the preceding sentence?  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ  
 
Answer  
 
9. Both Article 6.1 and 7.1 refe r to the “criteria set out in [..] Annex 2”. When one considers 
Annex 2, there are two sets of “criteria”. The first is  the “basic criteria” set out in subparagraphs (a) 
and (b) of paragraph 1, and the second is the “polic y-specific criteria” set out in paragraphs 2 to 13. 
This understanding is confirmed by the text of paragraph 5 of Anne x 2, which refers to the “basic 
criteria” and the “specific criteria”. Thus, Articles 6.1 and 7.1 of the Agreement on Agriculture  refer 
to the basic and policy specific criteria set out in Annex 2. 
 10. The European Communities has already set out its understanding of the term “accordingly” in 
its Third Party Written Submission.
4 In the European Communities vi ew, the term “accordingly” is 
intended to link the purposive language of the first sentence, with the “basic criteria” set out in the 
second sentence. In its Third Party Submission the EC  offered a dictionary definition, “in accordance 
with the logical premises” which showed that th e word “accordingly” operates as a linkage between 
the premise or understanding set out in the firs t sentence and the operative language in the second 
sentence. Australia offers the Panel another defin ition: “harmoniously” or “agreeably”, but fails to 
note that that the Oxford English Dictionary consid ers this usage of the wo rd “accordingly” obsolete.5 
 
11. The European Communities would point out that both the French and Spanish text support the 
view that the use of the word “accordingly” links th e general statement in the first sentence with the 
specific obligations of the second sentence. The Fren ch text uses the term “en conséquence” and the 
Spanish the term “por consiguiente”. Both of these terms show that the criteria in the second sentence 
                                                      
4 First Third Party Submission of the European Communities, 15 July 2003, para. 20. The European 
Communities recall, in this context, the opinion of Pr ofessor Desta set out in footnote 19 to para. 20. 
5 Australia’s Oral Statement, para 35. Oxford Englis h Dictionary, p. 15. Australia refers to the first 
sense of the word “accordingly” wh ich is preceded by the symbol “ =” which indicates that a particular usage is 
obsolete (see Abbreviations and Symbols, page xxvi). WT/DS267/R/Add.3 
Page J-104  
 
 are intended to express the principle set out in th e first sentence. Moreover, had the negotiators 
intended that the first sentence be a self-standing oblig ation, rather than use the term “accordingly” 
they would have used the term “additionally” or “in addition”, or a synonymous term.  
 12. Further support for this view can be found in the frequent use of the term “accordingly” in the 
WTO Agreement. A survey of the term’s use sugg ests that it links a general statement, often 
recognising that a particular situation causes specific effects, with a right or obligation to take some 
type of action set out in an ancillary sentence.
6 These general statements are not such as to impose 
specific obligations. The Appellate Body had occasi on to consider the relationship between such 
provisions in the Turkey-Textiles  dispute (Articles XXIV.4 and XXIV.5 GATT). It concluded: 
 
The chapeau of paragraph 5 of Article XXI V begins with the word "accordingly", 
which can only be read to refer to para graph 4 of Article XXIV, which immediately 
precedes the chapeau.  
[..] 
57. According to paragraph 4, the purpose of  a customs union is "to facilitate trade" 
between the constituent members and "not to raise barriers to the trade" with third 
countries. This objective demands that a balance be struck by the constituent 
members of a customs union. A customs union should facilitate trade within the customs union, but it should not do so in a way that raises barriers to trade with third 
countries.  [..] Paragraph 4 contains pur posive, and not operative, language. It does 
not set forth a separate obligation itself but, rather, sets forth the overriding and 
pervasive purpose for Article XXIV which is manifested in operative language in the 
specific obligations that are found elsewhere in Article XXIV.  Thus, the purpose set 
forth in paragraph 4 informs the other rele vant paragraphs of Article XXIV, including 
the chapeau of paragraph 5. For this reas on, the chapeau of paragraph 5, and the 
conditions set forth therein for establishing the availability of a defence under 
Article XXIV, must be interpreted in the light of the purpose of customs unions set 
forth in paragraph 4. The chapeau cannot be  interpreted correctly without constant 
reference to this purpose.7 (emphasis added) 
13. The Appellate Body has, consequently, recognised the linking function of the word 
“accordingly”, and the fact that provisions which ma y be linked to later provisions through the use of 
the word “accordingly” may not impose separate obligations.  
 14. The European Communities would also point out that the Appellate Body has found that other provisions (e.g. Article III.1 GATT) which contai n general principles are set up as “a guide to 
understanding and interpreting the specific obliga tions contained” in other provisions (e.g. 
                                                     
 
6 See Articles II.6(a), III.9, XII.3(d), XVI.3, XVIIII.5, XXIV.5 GATT 1994, together with Ad 
Article III and Ad Article XXVIII.4 to GATT 1994, Articles 2.1 and 11 of the Dispute Settlement Understanding, Article A(i) of the Trade Policy Re view Mechanism, Article 12.8 of the Agreement on 
Technical Barriers to Trade, Artic le 1 of the GATS Annex on Telecommunications and Article 5.1 of the 
Agreement on Textiles and Clothes. 
7 Appellate Body Report, Turkey – Restrictions on Im ports of Textile and Clot hing Products (“Turkey 
– Textiles”) , WT/DS34/AB/R, adopted 19 November 1999, paras. 56 and 57 (emphasis added). Note that the 
Panel also found that Article XXIV.4 was “not expressed as an obligation” (Panel Report, Turkey – Restrictions 
on Imports of Textile and Clothing  Products (“Turkey – Textiles”) , WT/DS34/R, adopted 19 November 1999, 
as modified by the Appellate Body Report, WT/DS34/AB/R, para. 9.126).  WT/DS267/R/Add.3 
 Page J-105 
 
 
 Article III.2 and the other paragraphs of Article III).8 Such provisions do not, however, impose 
additional obligations supplemental to the specific obligations, unless expressly stated.9 
 15. The Panel may find it useful to refer to the European Communities’ response to a question 
posed by Australia (see question no. 44 in this doc ument). In its response, the European Communities 
deals with Australia’s unfounded assertion that the European Communities’ reading of the first 
sentence of paragraph 1 would render that provision ineffective.  
Response of Australia 
 
 The ordinary meaning of “criteria”, as the plural of “criterion”, is “princip le[s], standard[s], or 
test[s] by which a thing is judged, assessed, or identified”
10.  Thus, the “criteria” in Articles 
6.1 and 7.1 as these relate to Annex 2 of the Agreement on Agriculture  encompasses all  of the 
relevant principles, standards or tests establis hed in Annex 2 against which domestic support 
measures for which exemption from reduction co mmitments is claimed are to be judged, 
assessed and/or identified.   
  As Australia said in its Oral Statement
11, the word “accordingly” has several, equally valid 
meanings that are potentially applicable in the context:  “harmoniously”, “agreeably”, “in 
accordance with the logical premises” and “correspondingly”.12  A further definition is “in 
conformity with a given set of circumstances”.13   
 
 In Australia’s view, having regard to its ordina ry meanings in its context and in light of the 
object and purpose of the Agreement on Agriculture , including to “[correct] and [prevent] … 
distortions in world agricultural markets”,14 the word “accordingly” can and should properly 
be interpreted in the sense of “consistent w ith” or “in conformity with” the fundamental 
requirement established in the first sentence.  Consistent with that interpretation, the 
obligation that “green box” measures “meet th e fundamental requirement …” is cumulative 
with the additional basic criteria established in paragraph 1 and the policy specific criteria 
established in paragraphs 2-13 of Annex 2.  To interpret the word “accordingly” otherwise 
would be to negate the plain and unambiguous obligation established in the first sentence of 
paragraph 1 of Annex 2 that “[d]omestic support measures for which exemption from the 
reduction commitments is claimed shall meet the fundamental requirement that they have no, 
or at most minimal, trade-distorting effects or effects on production”.   
 
Response of New Zealand  
  “Criteria” are the standards by which a thing is assessed.  In this case they are the standards 
by which domestic support measures must be assessed in order to qualify for exemption from 
reduction commitments.  These criteria are set out in Article 6 and Annex 2 of the Agreement 
                                                     
 
8 Appellate Body Report, Japan – Taxes on Alcoholic Beverag es (“Japan – Alcoholic Beverages”) , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996,  p. 17. 
9 See Appellate Body Report, European Communities - Regime for the Importation, Sale and 
Distribution of Bananas (“European Communities – Bananas”) , WT/DS27/AB/R, adopted 25 September 1997, 
paras. 214-216 holding that the absence of a specific reference to Article III.1 GATT in Article III.4 GATT 
meant that an examination of the consistency of a measur e with Article III.4 GATT did not require, in addition, 
an examination of the consistency of the measure with Article III.1 GATT. 
10 The New Shorter Oxford English Dictionary , Volume 1, page 551. 
11 Oral Statement by Australia, paragraphs 35-36. 
12 The New Shorter Oxford English Dictionary , Volume 1, page 15. 
13 Webster’s Third New International Dictionary , Ed. Philip Babcock Gove, Merriam-Webster Inc, 
Springfield, Massachusetts, 1993, page 12. 
14 Third preambular paragraph of the Agreement on Agriculture . WT/DS267/R/Add.3 
Page J-106  
 
 on Agriculture , and include: the “fundamental requir ement” in Annex 2 paragraph 1 that 
measures have at most minimal trade-distorting effects; the “basic criteria” in paragraph 1(a) and (b); and the “policy-specific criteria and co nditions” set out elsewhere in Annex 2.  The 
use of the word “accordingly” signif ies that the intention of the dr afters was to indicate that in 
order to meet the first criterion – the “fundame ntal requirement” that they be at most 
minimally trade-distorting – measures would at th e very least have to meet the subsequent 
basic and policy-specific criteria. 
 
EC Comment 
 
16. Neither Australia nor New Zealand examine th e use of the word “criteria” in Annex 2 where 
it means something different from the fundamental  requirement. The second sentence of the first 
paragraph of Annex 2 clearly distinguishes th e “fundamental requirement” from the general and 
policy-specific “criteria”. Paragraph 5 of Annex 2 is even more explicit in this regard. It would seem 
odd that Article 6.1 and 7.1 would use criteria to mean both the basic and policy specific criteria and 
the requirement, while Annex 2 itself operates a dist inction between the criteria and the requirement. 
Thus, while it is the case that the dictionary defi nition of “criteria” could arguably, in the abstract, 
cover a “fundamental requirement” in this particul ar case there are compelling arguments that the use 
of the word “criteria” in Articles 6.1 and 7.1 does not.  17. The European Communities has already e xplained why Australia’s interpretation of 
“accordingly” is incorrect. It is quite clear that “accordingly” establishes a relationship between the 
purposive language of the first sentence of para. 1 of Annex 2 and the ope rational language of the 
other parts of Annex 2. Synonyms of “accordingly” include “as a result, consequently, ergo, thus, 
therefore”.
15 To read the term as meaning that the first sentence and the rest of the paragraph applied 
as cumulative and separate conditions (as suggest ed by Australia) would deprive the word 
“accordingly” of effect. Reading the first sentence of  paragraph 1 as relevant to the interpretation of 
the rest of Annex 2, but not as a separate condition would, contrary to Australia’s assertion, give the 
first sentence meaning.   18. New Zealand points out that:  
“the use of the word “accordingly” signifies that the intention of the drafters was to 
indicate that in order to meet the first criterion – the “fundamental requirement” […]measures would at the very least have to meet the subsequent basic and policy-
specific criteria” 
19. New Zealand does not explain how the first sentence can set a self-standing criterion if 
respecting that so-called criterion de pends on satisfying other criteria. Wh at then is the content of the 
separate “criterion” in the first sentence, if it is  already defined in the second sentence of the first 
paragraph and the rest of Annex 2 ? Moreover, how, given the allege d existence of two sets of self-
standing criteria, can it be sufficient to satisfy only one set of criteria and at the same time satisfy the 
other set (or “at the very least” satisfy the other set) as the final sentence of New Zealand’s response 
implies. Even on its own terms, New Zealand’s position that the first sentence of paragraph 1 is a self 
standing obligation, but that it can be satisfied by meeting the criteria set out in the rest of Annex 2, is 
internally inconsistent. This illustrates very well the European Communities’ point that the 
proposition that the first sentence imposes a self-s tanding obligation cannot be squared with any 
reasonable interpretation of “accordingly”.  
                                                     
 
15 Chamber’s Thesaurus, 1986.  WT/DS267/R/Add.3 
 Page J-107 
 
 
 Question 
 7. Please explain the meaning of the words "the fundamental requirement" as used in paragraph 1 of Annex 2 of the Agreement on Agriculture.  3
rd parties, in particular Australia, 
Argentina, Canada, EC, NZ  
 
Answer  
 
20. The phrase “the fundamental requirement” signals  the negotiators intent to treat differently 
measures which are less or not at all distortive to trade or production and sets forth the general 
purpose of Annex 2; a purpose which permeates the re st of Annex 2. Considering the term in the 
abstract does not answer the question whether a pane l must examine the effects of measures for which 
green box status is claimed in addition to examin ing whether such measures respect the basic and 
policy-specific criteria set out in Annex 2, or whet her respecting the basic and policy-specific criteria 
is such that a measure is deemed not to have th e effects mentioned in the first sentence. As the 
European Communities has explained, there are compelling textual and purpose based arguments 
which support the latter interpretation.  
Response of Australia 
 
 The word “fundamental” has a number of meanings
16 which can be summarised as “primary” 
or “essential”.  The word “requirement” too has a number of meanings17 which can be 
summarised as a “condition”.  Thus, a “fundamental requirement” is a primary or essential condition.
 18  It is an overarching, freestanding oblig ation that applies to all “green box” 
measures cumulatively with the additional basi c criteria established in paragraph 1 and the 
policy specific criteria established in paragr aphs 2-13 of Annex 2.  To interpret a 
“fundamental requirement” otherwise than as a primary or essential condition would not give 
the words their ordinary meaning in their contex t and in light of the object and purpose of the 
Agreement on Agriculture .   
 
EC Response 
 
21. Australia executes a logical leap in the four th sentence of its response. It arrives at the 
conclusion that the “fundamental requirement” is a “freestanding obligation” that applies 
“cumulatively” with the other criteria. However, this  assertion is without foundation, and is directly 
contradicted by the use of the word “accordingl y” at the beginning of the next sentence.  
 Question  2. In paragraph 13 of Australia's oral statement, you state that a "question" is: "could conditions of price competition for the purposes of a non-violation or impairment claim be 
assessed solely on the basis of budg etary outlay figures, as argued by Brazil, or on the basis of a 
rate of payment, as argued by the United States?   In Australia's view, both factors put forward 
by Brazil and the United States would properly form a part of that assessment, but not the 
                                                     
 
16 The New Shorter Oxford English Dictionary , Volume 1, page 1042, provides relevant definitions of 
“fundamental” as “ 1 Of or pertaining to the basis or groundwork;  going to the root of the matter.  2 Serving as 
the base or foundation; essential or indispensable.  Also, primary, original; from which others are derived.” 
17 The New Shorter Oxford English Dictionary , Volume 1, page 2557, provides definitions of 
“requirement” as “ 1 The action of requiring something; a request.  2 A thing required or needed, a want, a need.  
Also the action or an instance of needing or wanting something.  3 Something called for or demanded;  a 
condition which must be complied with.” 
18 Third Party Submission of Australia, paragraph 31, and Oral Statement by Australia, paragraph 33. WT/DS267/R/Add.3 
Page J-108  
 
 whole."  Could you please clarify this statem ent (indicating other elements which would 
complete the "whole" and explain its relevance fo r the purposes of our consideration of Article 
13 of the Agreement on Agriculture ? Australia, EC
 
 
Answer  
 
22. The European Communities would prefer to let Australia clarify its statement. The European 
Communities will comment upon Australia’s clarifi cation in its comments on the responses of the 
other third parties.  Australia’s Response  
 Given the length of Australia’s response, the European Communities has not reproduced it 
here.  
 EC Comment  
23. The European Communities is unconvinced of Au stralia’s argument. There is nothing in the 
text of Article 13 to suggest that in order to determine “support” under Article 13 it is necessary to 
consider all the factors which are relevant to ex amining a non-violation case. Moreover, the European 
Communities notes that Article 13(b)(ii) provides that Articles 5 and 6 of the SCM Agreement  may be 
applicable under certain conditions. However, an a ssessment of whether a measure is inconsistent 
with Articles 5 and 6 of the SCM Agreement  is not based on the same criteria as would be applicable 
in assessing a non-violation complaint. Indeed, such criteria may have nothing to do with the domestic 
market of the Member which is providing a subsid y. Australia does not explain why the type of 
criteria relevant to non-violation complaints woul d also be relevant in assessing a complaint under 
Articles 5 and 6 of the SCM Agreement . Nor does it explain why it is necessary to import notions 
from the assessment of non-violation compla ints, but not notions from Articles 5 and 6 SCM 
Agreement  into an assessment of support for the purposes of Article 13 Agreement on Agriculture .  
 24. In short, the European Communities se es no foundation for Australia’s assertions.  
 
 
IV. STEP 2 PAYMENTS 
 
Question 
 
40 With respect to paragraph 32 of the oral st atement of the EC, are subsidies contingent 
on the use of domestic goods consistent with the AoA?  Does the phrase "provide support in 
favour of domestic producers" refer to, and/or permit such subsidies? What is the meaning and relevance of this (if any) to Brazil's claims under Article 3 of the SCM Agreement  and 
Article III:4 of the GATT 1994..   3
rd parties, in particular, Australia, Argentina, EC, NZ, 
Paraguay  
 
Answer  
 
25. The Panel’s question involves two elements. Fi rst, is a Member entitled to provide domestic 
content subsidies under the Agreement on Agriculture ? Second, if such subsidies are permitted, what 
is the relevance of such a rule to Brazil’s claims under Article 3 of the SCM Agreement  and  WT/DS267/R/Add.3 
 Page J-109 
 
 
 Article III.4 GATT. The European Communities has al ready provided elements of a response in its 
oral statement.19 These are expanded upon below. 
 26. First, a Member is entitled to prov ide domestic content subsidies under the Agreement on 
Agriculture  provided such subsidies are provided consis tently with the Member’s domestic support 
commitment levels. This conclusion flow s from a number of factors. First, the Agreement on 
Agriculture  disciplines domestic support. Article 6. 1 refers to “domestic support reduction 
commitments”. Article 3.1 refers to “domestic  support [..] commitments […] constitut[ing] 
commitments limiting subsidization” and Article 3. 2 obliges Members “not [to] provide support in 
favour of domestic producers in excess of the [d omestic] support commitment levels”. Despite these 
clear rules on domestic support, the Agreement on Agriculture  does not define “domestic support”. 
 27. AMS is the measurement of  domestic support. AMS is defi ned as “the annual level of 
support, expressed in monetary terms, provided for an agricultural product in favour of the producers 
of the basic agricultural product or non-product-specific support provided in favour of agricultural 
producers in general, other than [that exempted etc].”  This is very general – it covers all support in 
favour of agricultural producers. This broad scope of domestic support measures which can be 
maintained consistently with the Agreement on Agriculture  is confirmed by Article 6.1 which states 
that the domestic support reduction commitments “sh all apply to all of its [i.e. the Member’s] 
domestic support measures in favour of agricultura l producers […]”. Paragraph 1 of Annex 3 on the 
calculation of the AMS refers to AMS being calcu lated “on a product specific-basis for each basic 
agricultural product receiving market prices support, non-exempt direct payments, or any other 
subsidy  not exempted from the reduction commitment”. (emphasis added) 
 28. Consequently, the range of domestic s upport measures which a Member may maintain 
(consistent with reduction commitments) is very br oad and is only limited by the condition that such 
support must be in favour of agricultural produ cers. As the European Communities has noted, 
paragraph 7 of Annex 3 explicitly states that “measu res directed at agricultural processors shall be 
included to the extent that such measures benef it the producers of the basic agricultural products”.
20 
The European Communities considers that the term “benefit” used here must be regarded as being 
synonymous with “favour” in the sense of “in favour  of agricultural producers”. Moreover, it is clear 
that by “measures directed at agricultural processo rs” the negotiators intended subsidies which were 
paid to processors, where the benefit went to the ag ricultural producer. Consequently, in light of the 
broad definition of “domestic suppor t” and the specific reference to  domestic content subsidies in 
paragraph 7 of Annex 3, the Eur opean Communities considers that a Member is entitled to maintain 
domestic content subsidies consistently with the Agreement on Agriculture .  
 
29. Second, in response to the Panel’s question, the effect of finding that domestic content 
subsidies are provided consistently with the Agreement on Agriculture  would be that they cannot be 
found inconsistent with either Article 3.1(b) of the SCM Agreement   or Article III.4 GATT 1994. 
Article 21.1 of the Agreement on Agriculture  states that “the provisions of GATT 1994 and of other 
Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the 
                                                      
19 Paras. 34 to 38 of the EC’s Oral Statement (as delivered). The Panel’s reference to para. 32 
corresponds to the text provided at the third party session. 
20 In terms of negotiating background, it may be useful to the Panel to note that paragraph 7 of Annex 3 
was subject to negotiation during the period in which a Panel had ruled that the EC’s payments to oilseed 
processors was not covered by Article III.8(b) GATT 1947 and were consequently inconsistent with Article III.4 
GATT 1947 ( European Economic Community – Payments and Su bsidies Paid to Processors and Producers of 
Oilseeds and Related Animal-Feed Proteins  Report of the Panel (L/6627 BISD 37S/86) adopted on 
25 January 1990. That the negotiators retained this text must therefore be considered as a clear sign that they intended to permit Members to maintain such subsidies, subject to reduction commitments, in the Agreement on 
Agriculture . WT/DS267/R/Add.3 
Page J-110  
 
 provisions of this Agreement.” As the European Co mmunities pointed out in its oral statement, this 
means that provisions of the other Annex 1A Agreements are “subordinated” to the Agreement on 
Agriculture .
21  
 30. To find that such subsidies were incons istent with either Article 3.1(b) of the SCM Agreement  
or Article III.4 GATT would be to subordinate the right to provide such domestic content subsidies 
under the Agreement on Agriculture  to the SCM Agreement  or GATT 1994. Such an interpretation 
directly contradicts Article 21.1 of the Agreement on Agriculture . 
 31. Indeed, it can be pointed out that applying Article 3.1(b) of the SCM Agreement  and 
Article III.4 GATT to domestic content s ubsidies provided consistently with the Agreement on 
Agriculture  would lead to stricter disciplines being applie d to domestic subsidies for agriculture than 
are applicable to domestic subsidies for industria l goods. If Article 3.1(b) and Article III.4 were to 
apply, domestic subsidies for agricultural products  would be subject to reduction commitments and 
Article 3.1(b) SCM Agreement  and Article III.4 GATT. However, domestic subsidies for industrial 
products are not subject to reduction commitments. Since the Agreement on Agriculture  establishes “a 
basis for initiating a process of reform of trade in agriculture”, it would seem contradictory to find that 
domestic support for agriculture is in fact subject to stricter obligations than domestic support for 
other industries. This explains the “subject to” language of Article 21.1 of the Agreement on 
Agriculture . Article 21.1 and the Agreement on Agriculture  more generally can also be compared with 
the other sectoral agreement included in Annex 1A of the WTO Agreement. The Agreement on 
Textiles and Clothing explicitly provides, in its Article 9, that the textiles and clothing sector is to be 
fully integrated into the GATT 1994. The Agreement on Agriculture  has no such language, and 
Article 21.1 runs directly counter to this notion.  It cannot be lightly assumed that the negotiators, 
while providing for the possibility to maintain do mestic content subsidie s, intended that such 
subsidies also be subject to rules which effectiv ely makes it impossible to maintain such subsidies.
22  
 
32. The Panel should therefore reject Brazil’s ar guments that domestic content subsidies granted 
in favour of agricultural producers can be found to  be inconsistent with Article 3.1(b) of the SCM 
Agreement  and Article III.4 GATT 1994. 
 
Australia’s response 
  Australia does not consider that the phrase “p rovide support in favour of domestic producers” 
in Article 3.2 of the Agreement on Agriculture  permits subsidies contingent upon the use of 
domestic goods.   
 
 In Australia’s view, the legal issu e in question relates to the condition
 attached to the grant of 
a subsidy, not the grant of a subsidy per se  or who might benefit from the subsidy.  The fact 
that a measure may benefit an agricultural producer (“support in favour of domestic producers”) does not serve to override measures otherwise prohibited.   
  Article 21.1 of the Agreement on Agriculture  provides that “[t]he provisions of GATT 1994 
and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply 
subject to the provisions of this Agreement”.  Article 3.1 of the SCM Agreement  applies 
“[e]xcept as provided in the Agreement on Agricu lture”.  The General Interpretive Note to 
Annex 1A of the Marrakesh Agreement Establishi ng the World Trade Organization  also 
                                                     
 
21 Oral Statement, para. 38. 
22 See, in a similar sense,  Appellate 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, para. 165.  WT/DS267/R/Add.3 
 Page J-111 
 
 
 provides contextual guidance.  Pursuant to that Note, the Agreement on Agriculture  would 
prevail to the extent of any conflict with GATT 1994.   
  However, in the case of subs idies contingent upon the use of domestic goods, there is no 
conflict between either the Agreement on Agriculture , which inter alia  disciplines the 
amounts of domestic support in favour of dom estic producers which distorts trade and 
production, and the SCM Agreement  or GATT 1994, which discipline or prohibit certain 
conditions attached to subsidies, including subsidies in favour of agricultural producers 
(subject only to the provisions of Article III:8(b) of GATT 1994).  There is no provision in the Agreement on Agriculture  which provides for an exception to, or cover for, local content 
conditions attached to the grant of a subsidy.   
  Australia has already noted
23 that Article 13(b)(ii) does not exempt non-“green box” domestic 
support measures from actions based on Article 3 of the SCM Agreement .  Neither does 
Article 13 anywhere refer to GATT Article III:4.  Nor with regard to these Articles is there 
any provision comparable to Articles 5 and 12 of the Agreement on Agriculture .  As stated in 
the preambular clauses of the Agreement on Agriculture , the “long-term objective is to 
provide for substantial progressive reductions in agricultural support and pr otection”:  it is not 
intended to provide for a weakening of disciplin es, particularly when such disciplines are not 
specifically mentioned.   
 
 Australia also notes that the domestic support provisions of the Agreement on Agriculture  
provide for a strengthening and elaboration of  the provisions of Article XVI of GATT 1994.  
They are not directed towards a diminution of basic GATT obligations.  National treatment is 
central to the multilateral trading system.  It is inconceivable to Australia that the negotiators 
of the Agreement on Agriculture  would, as part of a reform program designed to strengthen 
disciplines, agree to weaken national treatment disciplines.   
  However, in the event the Panel were to consid er that the phrase “provide  support in favour of 
domestic producers” refers to a nd/or permits subsidies contingent upon the use of domestic 
goods, Australia notes that such support could be permitted only to the extent that the support 
was actually passed through to the produ cers of the basic agricultural product.   
 
New Zealand’s Response 
 
 New Zealand does not agree that a right to pr ovide subsidies contingent upon the use of 
domestic products contrary to Article 3 of the SCM Agreement  can be found in the 
requirement that subsidies “directed at agricultu ral producers … to the exte nt that they benefit 
producers of the basic agricultural product” be included in the calculation of AMS.  There is 
no basis for reading such a right into the Agreement on Agriculture . To do so would allow the 
possibility for exemption from action under the SCM Agreement  to exist other than by virtue 
of the peace clause.  The peace clause explic itly does not provide such exemption from action 
under Article 3 of the SCM Agreement  when it quite clearly could have done so.  In 
New Zealand’s view that indicates that there was no intention on the part of the drafters that 
domestic support measures, whether they  conform with Article 6 of the Agreement on 
Agriculture  or not, should be so exempt.  The same is true in respect of GATT 1994  
Article III:4 claims. 
 
                                                     
 
23 Oral Statement by Australia, paragraphs 29-30. WT/DS267/R/Add.3 
Page J-112  
 
 EC Comments 
 
33. Australia confuses legal issues. Article 3.1(b) of the SCM Agreement  and Article III.4 GATT 
concern inter alia  the conditions under which subsidies may be granted. The Agreement on 
Agriculture  provides a right, up to a specified limit, to provide support to domestic producers, 
irrespective of the manner in which such support is provided. That is, a Member is entitled to provide 
support up to the limits and to do so in any form . Paragraph 3.7 of Annex 3 makes it clear that a 
Member is entitled to include in its support subsid ies granted to processors which benefit agricultural 
producers. A Member thus has a right to provide su pport in the form of payments to its agricultural 
producers. This right conflicts with the prohibition in Article 3.1(b) of the SCM Agreement  and 
Article III.4 GATT. 
 34. The European Communities fails to see the re levance of Article XVI GATT to this issue. 
Moreover, it is inaccurate of Australia  to suggest that interpreting the Agreement on Agriculture  in 
this manner would result in a weakening of obligatio ns. Australia conveniently ignores that, in placing 
absolute limits on the amount of domestic s upport which a Member may provide, WTO Members 
agreed to impose stricter discip lines on domestic support for agricultu re than that applicable to 
domestic subsidies for industrial products.   35. New Zealand’s argument rests on the conception that it is only Article 13 (the peace clause) which regulates the interface between the Agreement on Agriculture  and the other Annex 1A 
Agreements. As Australia points out, Article 21.1 Agreement on Agriculture  is clearly relevant, as is 
the General Interpretative Note to Annex 1A. New Zealand’s unsubstantia ted argument does not 
stand.  WT/DS267/R/Add.3 
 Page J-113 
 
 
 ANNEX J-12 
 
 
REPLIES FROM ARGENTINA TO PANEL'S QUESTIONS 
 
27 October 2003 
 
 
A. QUESTIONS TO INDIVIDUAL THIRD PARTIES  
 
Q43.  Please elaborate, citing figures, on your  statement that polyester fibre prices actually 
follow cotton prices.  Argentina 
 
1. Argentina submits that the explosion in the pr oduction of synthetic fibres played no part in the 
fall in international cotton prices;  in fa ct, the contrary appears to have occurred.1 
 
2. The "Fibre Prices" table in paragraph 23 of the Further Submission of the United States shows 
that polyester prices have always been lower than cotton prices (see the columns "US mill" and 
"US spot" as compared to "Asia poly") and, moreover, they appear to follow cotton prices.  Thus, for 
example, in 1995, when cotton prices reached their record level for the series, polyester prices 
happened to follow the same trend, precisely at a tim e when the price of oil was practically at its 
lowest for the period under consideration.  3. Another example is the period from 2000 to 2002:  while the price of oil was at its highest, the price of polyester reached its low point for th e period under considerati on, having "accompanied" 
the very low cotton prices. 
 4. Attached hereto as Annex ARG-1 is a gra ph comparing the evolution of cotton prices 
(US mill and US spot) with that of polyester fibre prices (Asian poly)
2 and with the price of oil per 
barrel (West Texas)3, clearly reflecting a very close correla tion between cotton and polyester prices. 
 
5. On the other hand, the last few years do not  show any correlation between the price per barrel 
of oil and the price of polyester fibres, which shows that polyester has had to adapt to cotton prices in 
order to remain competitive, and not the reverse as the United States claims.  
B. QUESTIONS TO ALL THIRD PARTIES  
 
Q49. What is the meaning and effect of the introductory phrase of Article 3 of the SCM 
Agreement ("Except as provided in the Agreement on Agriculture ...")? 
 
6. The introductory phrase of Article 3 of the SCM Agreement (" Except as provided in the  
Agreement on Agriculture ... ") means that the provisions of that Article apply to agricultural subsidies 
to the extent that they do not c onflict with the Agreement on Agriculture  (AoA).  The phrase " except 
as provided ... " does not necessarily imply that there is a conflict between the two Agreements. 
 7. In this connection, Argentina replied to questi on  40 of the Panel to the third parties, stating 
that no provision could be found in the AoA that  conflicted with Article 3.1(b) of the SCM 
Agreement.  Indeed, the AoA does not contain any provision which explicitly permits the granting of 
                                                     
 
1 Second oral third party submission by Argentina, 8 October 2003, paragraphs 15-17. 
2 Source:  Further submission of the United States, "Fibre Prices" table, paragraph 23. 
3 Source:  Argentine Oil and Gas Institute (IAPG). WT/DS267/R/Add.3 
Page J-114  
 
 "subsidies contingent, whether solely or as one of  several other conditions, on the use of domestic 
over imported products."    8. It is therefore Argentina's understanding that since they are prohibited under Article 3.1(b) of 
the SCM Agreement, and since there is no specific provision in the AoA that is explicitly mentioned 
in the introductory phrase of Article 3 of the SC M Agreement, subsidies contingent on the use of 
domestic over imported goods are also prohibited under the AoA.  9. Likewise, Argentina pointed out in its comme nts on the reply by the European Communities 
to question 40 from the Panel that the rules of the AoA, on the one hand, and of the GATT 1994 and 
the SCM Agreement, on the other, contained discip lines that were applied together, unless there was a 
discrepancy or "conflict" between the different provisions.
4 
 
Q50.  According to its revised timetable, the Pa nel will issue its report to the parties after the 
end of the 2003 calendar year.  Does this have any impact on "exempt[ion] from actions" under 
Article 13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture ?  
 
10. The impact will depend on the Panel's finding on  the preliminary issue raised with respect to 
the Peace Clause.  If the Panel finds, as Argentin a maintains, that the United States does not qualify 
for protection under Article 13 of the AoA, the expiry date of the Peace Clause will be entirely 
irrelevant. 
 
11. If after 31 December 2003 the Panel should decide  not to rule on the substantive claims, this 
would affect Brazil's right to due process by depriv ing it, on the basis of rules which are no longer in 
force, of the right to a finding that would settle of the dispute as to whether or not the subsidies were 
consistent.  Thus, Brazil would be deprived  of a positive settlement of the dispute. 
 
Q51.  How should the concept of specificity - a nd, in particular, the concept of specificity to 
"an enterprise or industry or group of enterprises or industries" - in Article 2 of the SCM 
Agreement  apply to subsidies in respect of agr icultural commodities? Please answer the 
following questions citing the principles in Article 2 of the SCM Agreement : 
 
(a)  Is a subsidy in respect of all agricultural, but not other, products specific? 
 
12. Yes.  
(b) Is a subsidy in respect of all agricultural crops (i.e. but not to other agricultural 
commodities, such as livestock) specific? 
 
13. Yes.  
(c) Is a subsidy in respect of certain identified agricultural products specific? 
 14. Yes. 
                                                     
 
4 As already stated, "[t]he conditions for the existe nce for a conflict between two rules was clarified by 
the Appellate Body in the Guatemala – Cement case (WT/DS60/AB/R, paragraph 65), where it is determined 
that there is a conflict between two provisions if adherence to one provision leads to a violation of the other.  In 
the case before us, in order to determine whether a rule  in the GATT 1994 or in an Agreement in Annex 1A 
(Article 3.1(b) of the ASCM in this particular case) does  not apply, it must first be determined whether there is 
an inconsistency or discrepancy with a provision of the AoA.  In other words, these rules must be applied together
." (Comments by Argentina on the reply by the European Communities to question 40 from the Panel to 
the third parties).    WT/DS267/R/Add.3 
 Page J-115 
 
 
  
(d) Is a subsidy in respect of upland cotton, but not other products, specific? 
 
15. Yes.  (e) Is a subsidy in respect of certain proportion  of the value of total US commodities (or 
total US agricultural commodities) specific? 
 
16. Yes. 
 (f) Is a subsidy in respect of certain proportion of total US farmland specific?  
17. Yes. 
 18. Argentina stresses that the concept of "specifi city" in Article 2 of the SCM Agreement is very 
broad, since it refers to the subsidies for an en terprise or an industry or group of enterprises or 
industries.    19. From the standpoint of the SCM Agreement, agricultural subsidies are specific within the 
meaning of Article 2, since they are not availabl e for all products.  The me re fact that they are 
"agricultural" precludes any interpre tation that they are not specific. 
 
20. As regards the principle of Article 2.1, agri cultural subsidies comply with the requirements of 
each one of its indents:  
• Indent (a), because not all of the enterprises of a Member have access to subsidies 
under the AoA; 
 
• indent (b), because there is no automatic eligibility for the subsidies under the AoA, 
nor are they based on objective criteria such as those listed in footnote 2 to Article 2, since they benefit the producers of certai n products – in the case in point, those 
included in Annex I of the AoA; 
 
• indent (c), because a subsidy for an agricultural product complies with all of the 
requirements of the first sentence thereo f.  As regards the second sentence of 
indent (c), there is no evidence for including an agricultural subsidy under any of these factors. 
 As to the specific case of export subsidies, Article  2.3 reaffirms their specificity.  Having already 
pointed out that specificity is established under Arti cle 2.1 and 2.3, there is no need to address the 
principle in Article 2.2. 
 21. Generally speaking, it should be borne in mind that in addition to the principles laid down in 
indents (a) and (b) of Article 2.1 for determining wh ether a subsidy is specific, indent (c) stipulates 
that in case of doubt as to the specificity of a subsid y, a number of other factors should be considered.  
In Argentina's view, this implies that the intenti on of the drafters of the Agreement was that the 
concept of "specificity" should be as comprehensive as possible.  
Q52.  The Panel notes that different remedies are available in respect of prohibited and 
actionable subsidies under Article 4.7 and 7.8 of the SCM Agreement .  If the Panel were to 
conclude that a subsidy was prohibited and w ere to make a recommendation under Article 4.7 
of the SCM Agreement  to withdraw the subsidy without delay, can the Panel: WT/DS267/R/Add.3 
Page J-116  
 
  
(a) Also conclude that the same subsidy had resu lted in adverse effects to the interests of 
another Member?  If so, what would be the value of such a conclusion in terms of the settlement of the matter before the Panel?  
 22. In Argentina's view, if the Panel were to conc lude that a subsidy was prohibited and to make a 
recommendation – under Article 4.7 of the SCM Agreem ent – to withdraw the subsidy without delay, 
it could nevertheless also conclude that the same  subsidy had resulted in adverse effects to the 
interests of another Member and make the sa me recommendation to withdraw the subsidy under 
Article 7.8 of the SCM Agreement. 
 
23. Indeed, bearing in mind that we are speaking of two different claims, the value of such a 
conclusion would be to have made "an objective assessment of 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, and ... such other findings as w ill assist the DSB in making recommendations or 
in giving the rulings provided  for in the covered agreements" , in conformity with Article 11 of the 
DSU.  24. For the reasons set forth above and as stated  throughout these proceedings, Argentina requests 
the Panel to issue the findings and recommendations requested by Brazil, including those related to 
the Step 2 and GSM 102 programmes which, under Article 4.7 of the SCM Agreement, must be 
withdrawn without delay.  Likewise, the Panel should also make a recommendation that the United 
States take appropriate steps to remove the advers e effect of those progra mmes under Article 7.8 of 
the SCM Agreement.  
(b) Take into account the effects of the interact ion of those prohibited subsidies with other, 
allegedly, actionable subsidies?  If so, how is this relevant to the issue of causation under 
Article 5 of the SCM Agreement ? 
 
25. In Argentina's view, if the Panel concludes that there were prohibited subsidies, it should 
recommended – under Article 4.7 of the SCM Agreemen t – that they be withdrawn without delay, 
without prejudice to taking into account the effects of the interaction of those prohibited subsidies 
with other actionable subsidies. 
 26. Taking into account the effects of the said in teraction is extremely im portant to determining 
causation under Article 5 of the SCM Agreement.  Indeed, as already stated
5, Argentina considers that 
it is the collective impact of all the US subsidi es that has effects on the cultivated area, production, 
exports and prices, notwithstanding the fact that th e mere elimination of a prohibited subsidy would 
not necessarily put an end to the adverse effects of the other actionable subsidies.  
Q53.  Would a finding of serious prejudice under Article 5(c) of the SCM Agreement  be 
determinative for a finding under Article XVI:1 of the GATT 1994?  Why or why not?  What, if any, is the role of footnote 13 of the SCM Agreement  in this context? 
 
27. A finding of serious prejudice under Article 5(c)  of the SCM Agreement is determinative for 
a finding under Article XVI:1 of the GATT 1994, sin ce that Article orders the contracting party 
granting the subsidy to consider the possibility of limiting it "[i]n any case in which it is determined 
that serious prejudice to the interests of any other c ontracting party is caused or threatened by such 
subsidization …".   In other words, if it is determined th at a subsidy causes or threatens to cause 
serious prejudice under Article 5(c) of the SCM Agreement, it necessarily calls for a finding of violation of Article XVI:1 of the GATT 1994. 
                                                     
 
5 Second oral third party submission by Argentina, 8 October 2003, paragraph 33.  WT/DS267/R/Add.3 
 Page J-117 
 
 
  
28. In this connection, footnote 13 of the SCM Agreement, which states that "the term 'serious 
prejudice to the interests of another Me mber' is used in this Agreement in the same sense as it is used 
in paragraph 1 of Article XVI of GATT 1994 , and includes threat of serious prejudice" , clearly 
establishes the link between the two provisions. 
 
Q54.  Are US cotton producers able to cover the fixed and variable costs without subsidies?  
Please provide substantiating evidence.  Of what rel evance is this, if any, to Brazil's actionable 
subsidy claims? 
 29. Argentina has no evidence that US cotton pr oducers are unable to cover their fixed and 
variable costs without subsidies.  30. What Argentina has repeatedly stated – re ferring to the evidence submitted by Brazil during 
these proceedings – is that the US cotton producer s cannot bridge the gap between total production 
costs (i.e. the sum of fixed and variable costs)  and market prices for cotton without subsidies. 
 31. Argentina has pointed out that cotton production costs in the United States are among the highest in the world.
6  According to an ICAC study7, the cost of production in the United States was 
US$0.81 per pound of cotton in the marketing year 19998, while US producers' market prices fell 
from US$0.60 to US$0.30 per pound. 
 
32. Argentina also stated that the only possible explanation how the United States bridged this 
widening gap between production costs and market pr ices is subsidies, since without them many US 
producers would have been compelled to cease production (in spite of the fact that they would eventually have been able to cove r their fixed and variable costs). 
 
33. This fact, that without subsidies US cotton producers could not have bridged the gap between 
their total production costs and market prices, is entir ely relevant to Brazil's claims, since it shows that 
as a result of the subsidies, less efficient US producer s are immune to changes in market prices.  In 
other words, without the US subsidies which genera te a world market surplus, international cotton 
prices would have been higher or would not have fallen as much. 
 
34. This confirms both the actual serious prejudice and the threat of serious prejudice caused by 
the subsidies, in that future subsidies will be as necessary as the current ones for US producers to 
bridge the gap between market prices and their total production costs.
9  This will enable them to 
continue competing with more efficient third-co untry producers, especially considering that the 
USDA itself forecasts an increase in total production costs.10 
 
Q55. In light of the fact that certain third parties have provided submissions about the price 
effect of claimed US subsidies, which Member or Members is, or are, the "other party" under 
Article 6.3(c) ( "another Member" ) for the purposes of these proceedings? 
 
                                                      
6 Third party submission by Argentina, 15 July 2003, paragraphs 17 and 18. 
7 Cotton:  World Statistics, Bulletin of the International Cotton Advisory Committee, September 2002 
(Annex BRA-9).  
8 As stated by Brazil in its first submission to the Panel of 24 June 2003, paragraph 32, according to the 
ICAC study the cost of production in Argentina averaged 59 cents per pound of cotton (See Annex BRA-9).   
9 Second written third party submission by Argentina, 3 October 2003, paragraph 49. 
10 See Annexes BRA-7 (ERS Data:  Commodity Co sts and Returns);  BRA-257 ("Cost of Farm 
Production Up in 2003", USDA, 6 May 2003) and BRA-82 ("USDA Agricultural Baseline Projections until 
2012", USDA, February 2003, p.48). WT/DS267/R/Add.3 
Page J-118  
 
 35. The concept of "another Member" within the meaning of Article 6.3(c) covers Argentina, 
which indeed submitted claims relating to the price effect of US subsidies.  36. Notwithstanding, Argentina is aware that in  these proceedings, it is Brazil that brought the 
case and requested consultations and the establishment of this Panel.  At the same time, Argentina – 
which has also suffered serious prejudice – felt that it was appropriate to ask to be joined in the 
consultations, participated actively in them and rais ed a number of issues, as well as asking to join as 
a third party and presenting, in its submis sions, arguments relating to price effect. 
 37. As stated throughout these proceedings, it is in Argentina's interest that the Panel should issue 
the findings and recommendations requested by Brazil, since this would mean that, in conformity with 
Article 7.8 of the SCM Agreement,  the United States would have to "take appropriate steps to remove 
the adverse effects or … withdraw the subsidy" . 
 38. This interest on the part of Argentina is based  on the conviction that if the Panel were to issue 
such findings and recommendations, the elimination of  the adverse effects or the withdrawal of the 
subsidies would have a favourable impact on the in ternational price of cotton – indeed, without the 
US subsidies which generate a world market surplu s, international cotton prices could be higher or 
could fall less.  Similarly, if its share in the world market were not increased as a result of the subsidies, the international price of cotton would be  higher or would not be so low, and as a result, 
third party producers, including Argentina, would not suffer as much prejudice as a result of 
artificially depressed prices.
11 
 39. As already stated, an increase in the world cotton price would be significant – even if as a 
result of the subsidies the suppression or depression of international prices amounted to only 1 cent per pound – since it would enable countries like Argen tina to recover their competitive position in the 
world cotton market.
12 
                                                      
11 Second oral third party submission by Argentina, 8 October 2003, paragraph 10. 
12 Second written third party submission by Argentina, 3 October 2003, paragraphs 34 to 36, and 
second oral third party submission by Argentina, 8 October 2003, paragraph 38.  
  WT/DS267/R/Add.3
 Page J-119
020406080
100
120
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
yearcents per pound
05101520253035
us  spot Cotton
us mill Cotton
asian poly
petroleo West TexasWT/DS267/R/Add.3 
Page J-120  
 
 ANNEX J-13 
 
 
RESPONSES BY AUSTRALIA 
 
27 October 2003 
  
A. QUESTIONS TO INDIVIDUAL THIRD PARTIES 
 
43. …   
 44. …    
45. …   
 46. …    47. …   
 
48. …    
B. QUESTIONS TO ALL THIRD PARTIES 
 Q49. What is the meaning and effect of the introductory phrase of Article 3 of the SCM Agreement (“Except as provided in the Agreement on Agriculture …”)?   
 
Reply
 
 
 In Australia’s view, with regard to s ubsidies for agricultural products, unless the Agreement 
on Agriculture  makes express provision to the contrary, Article 3 of the SCM Agreement  continues to 
apply to such subsidies.  The simultaneous applica tion of both Agreements to agricultural products is 
confirmed by Article 21.1 of the Agreement on Agriculture .   
 
 Australia noted previously in its response to the Panel’s earlier question 40 that the legal issue 
in question concerning the relationship between the Agreement on Agriculture  and Article 3.1(b) of 
the SCM Agreement  derives from the condition attached to the grant of a subsidy, not the grant of a 
subsidy per se  or who might benefit from the subsidy.  The Agreement on Agriculture  does not 
include any provisions concerning the conditiona lity of domestic support in the sense of SCM 
Article 3.1(b).   
 
 Moreover, the Agreement on Agriculture  does not confer a right to grant subsidies.  Rather, 
that Agreement establishes disciplines for the use of certain subsidies in relation to agricultural 
products should a Member choose to provide subs idies for such products.  Arguments that the 
Agreement on Agriculture  allows local content subsidies based on the phrase “support in favour of 
domestic producers” and similar phrasing and the pr ovisions of paragraph 7 of Annex 3 of that 
Agreement are not sustainable.  The word “support” is used throughout the Agreement on Agriculture  
in the sense of generic measures providing a calcula ble financial advantage to agricultural producers, 
whether price support, direct subsidy payments or  any other means not exempted from a Member’s 
commitment to reduce domestic support.  Indeed, A nnex 3 is headed “Domest ic Support:  Calculation  
of Aggregate Measurement of Support”.   
  WT/DS267/R/Add.3 
 Page J-121 
 
 
  It is inconceivable to Australia that any intended exemption from the very significant and 
unambiguous local content subsidy disciplines of Article 3.1(b) of the SCM Agreement  would not 
have been expressly set out in the Agreement on Agriculture .  The inclusion of express provisions 
concerning export subsidies in the Agreement on Agriculture  indicates that the negotiators of that 
Agreement were well aware of the need to includ e express provisions if additional or alternative 
disciplines concerning subsidies for agricultural products were intended vis-à-vis the disciplines 
established pursuant to the SCM Agreement .   
  The situation is analogous to that examined  by the Panel and the Appellate Body in EC – 
Bananas  wherein the Appellate Body upheld  the Panel’s conclusion that the Agreement on 
Agriculture  did not permit the EC to act inconsistently  with Article XIII of GATT 1994 in the absence 
of any provisions dealing specifically with the allocation of tariff quotas on agricultural products.
1  In 
the absence of provisions dealing specifica lly with local content subsidies in the Agreement on 
Agriculture , that Agreement does not allow a Memb er to act inconsistently with the SCM Agreement .  
The fact that the phrase “[e]xcept as provided in the Agreement on Agricultu re” in the chapeau of 
SCM Article 3.1 also applies to paragraph (b) of th at Article cannot of itself compel the interpretation 
that there are provision(s) of the Agreement on Agriculture  which necessarily apply.   
  The Panel may not interpret the provisions of the SCM Agreement  and the Agreement on 
Agriculture  so as to diminish or override fundamental WTO obligations in the absence of express 
provisions to that effect.  To do so would constitu te, in Australia’s view, a misapplication of the 
customary rules of interpretation of public international law.   
 
Q50. According to its revised timetable, the Pa nel will issue its report to the parties after the 
end of the 2003 calendar year.  Does this have any impact on “exempt[ion] from actions” under 
Article 13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture?   
 Reply
 
  In Australia’s view, whether the date the Pane l’s report will be issued to the parties to the 
dispute will have any impact on any “exempt[ion]  from actions” under Article 13(b)(ii) of the 
Agreement on Agriculture  will depend on whether the Panel finds that the United States is granting, 
through domestic support measures that conform fu lly to the provisions of Article 6 of that 
Agreement, support to a specific commodity in excess of that decided during the 1992 marketing year.  
If the Panel finds that the United States is
 granting support to a specific commodity in excess of that 
decided during the 1992 marketing year, the Unite d States will have no “exempt[ion] from actions” 
pursuant to Article 13(b)(ii), irrespective of when th e Panel’s report is issued.  If the Panel finds that 
the United States is not  granting such support to a specific commodity in excess of that decided during 
the 1992 marketing year, the United States may be “e xempt from actions” pursuant to Article 13(b)(ii) 
until Article 13 expires.    
Q51. How should the concept of specificity – and,  in particular, the concept of specificity to 
“an enterprise or industry or group of enterprises or industries” – in Article 2 of the SCM 
Agreement apply to subsidies in respect of  agricultural commodities?  Please answer the 
following questions, citing the principles in Article 2 of the SCM Agreement:    (a) is a subsidy in respect of all agricultural, but not other, products specific?    
(b) is a subsidy in respect of all agricultural crops (i.e. but not to other agricultural 
commodities, such as livestock) specific?   
                                                     
 
1 European Communities – Regime for the Importation, Sale and Distribution of Bananas , Report of 
the Appellate Body, WT/DS27/AB/R, paragraphs 153-158.   WT/DS267/R/Add.3 
Page J-122  
 
  
(c) is a subsidy in respect of certain identified agricultural products specific?    (d) is a subsidy in respect of upland cotton, but not other products, specific?    
(e) is a subsidy in respect of a certain proportion of the value of total US commodities (or 
total US agricultural commodities) specific?   
 
Reply
 
 
 Australia does not wish to comment on this issue.   
 
Q52. The Panel notes that different remedies are available in respect of prohibited and 
actionable subsidies under Article 4.7 and 7.8 of the SCM Agreement.  If the Panel were to 
conclude that a subsidy was prohibited and w ere to make a recommendation under Article 4.7 
of the SCM Agreement to withdraw the subsidy without delay, can the Panel:   
 (a) also conclude that the same subsidy had resu lted in adverse effects to the interests of 
another Member?  If so, what would be the value of such a conclusion in terms of the settlement of the matter before the Panel?   
 
(b) take into account the effects of the interact ion of those prohibited subsidies with other, 
allegedly, actionable subsidies?  If so, how is this relevant to the issue of causation under 
Article 5 of the SCM Agreement?    
 
Reply
 
 
 If the Panel were to conclude that a subs idy was prohibited and to make a recommendation 
under Article 4.7 of the SCM Agreement  to “withdraw the subsidy with out delay”, and having regard 
to the presumption of adverse effects implicit in a finding that a subsidy is prohibited and to the 
observations of the Appellate Body on the meaning of “withdraw” in SCM Article 4.72:   
 
(a) the Panel could conclude that the same subs idy had also resulted in adverse effects to the 
interests of another Member under SCM Article 5,  particularly if that other Member were a 
third party to the dispute in light of the provisions of Article 10.1 of the DSU;   
 (b) the Panel could also consider the interaction of that prohibited subsidy with other, allegedly 
actionable subsidies.  However, the prohibite d subsidy would be requi red to be withdrawn 
without delay and thus any causative contribu tion its interaction with other allegedly 
actionable subsidies may make to the adverse e ffects of those other actionable subsidies will 
be removed as a consequence of the withdrawal of the prohibited subsidy.   
 
Q53. Would a finding of serious prejudice under Article 5(c) of the SCM Agreement be 
determinative for a finding under Article XVI:1 of the GATT 1994?  Why or why not?  What, if 
any, is the role of footnote 13 of the SCM Agreement in this context?    
Reply
 
 
 Australia does not wish to comment on this issue.   
 
                                                      
2 Brazil – Export Financing Programme for Aircraft , Recourse by Canada to Article 21.5 of the DSU, 
Report of the Appellate Body, WT/DS46/AB/RW, paragraph 45.    WT/DS267/R/Add.3 
 Page J-123 
 
 
 Q54. Are US cotton producers able to cover th e fixed and variable costs without subsidies?  
Please provide substantiating evidence.  Of what relevance is this, if any, to Brazil’s actionable 
subsidy claims?    
Reply
 
 
 Australia does not wish to comment on the facts of US costs of production in relation to upland cotton, but notes the statements of the Appella te Body in relation to the calculation of costs of 
production in the Canada – Dairy  dispute.
3   
 Q55. In light of the fact that certain third parties have provided submissions about the price effect of claimed US subsidies, which Member or Members is, or are, the “other party” under 
Article 6.3(c) (“another Member”) for the purposes of these proceedings?   
 
Reply
 
 
 Australia does not wish to comment on this issue.    
Q56. Please respond to the following questions  concerning the relationship between Article 
XVI:3 of the GATT 1994, the disciplines on export subsidies and domestic support in the Agreement on Agriculture and the disciplines on prohibited export subsidies and actionable 
subsidies in Articles 3, 5(c) and 6.3(d) of the SCM Agreement.   
 (a) Are agricultural domestic support progr ammes challengeable under Article XVI:3 of 
the GATT 1994?  How, if at all, is the title of Section B of Article XVI (“Additional provisions on export subsidies” (emphasis added) ) relevant?  How, if at all, are Articles 
13 and 21.1, or any other provisions, of the Agreement on Agriculture, relevant?   
 (b) Are the requirements of Article XVI:3 of  the GATT 1994 reflected in, developed by or 
subsumed by the requirements in Article 6.3(d) of the SCM Agreement, or in any other provisions of the covered agreements?  Of what  relevance, if any, is the Appellate Body 
Report in US – FSC, para. 117 here?   
 
(c) Of what relevance, if any, is the fact that the definition of “subsidy” in Article 1 of the 
SCM Agreement and the prohibition on subsidies contingent upon export in Article 3.1(a) were introduced in the Uruguay Round, but did not exist at the time that the GATT 1947 were negotiated?   
 
Reply
 
  In Australia’s view, it is unambiguous that  agricultural domestic support programmes are 
challengeable under Article XVI:3 of GATT 1994.    
 It is useful to recall to begin with that GATT 1947 did not provide a definition of a “subsidy” 
or of an “export subsidy” and that the only disci plines on subsidies of any type were the general 
subsidy disciplines of paragraph 1 of GATT Artic le XVI.  The provisions of Section B of GATT 
Article XVI, comprising paragraphs 2-5 and head ed “Additional Provisions on Export Subsidies”, 
were added at the 1954-55 Review Session and const ituted the earliest disciplines directed at “the use 
                                                     
 
3 Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products , 
Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/AB/RW – 
WT/DS113/AB/RW, paragraphs 94-96, and Second Recourse to Article 21.5 of the DSU by New Zealand and 
the United States, WT/DS103/AB/RW2 – WT/DS113/AB/RW2, paragraphs 91-120.   WT/DS267/R/Add.3 
Page J-124  
 
 of subsidies on the export of primary products”.  The plurilateral 1979 Tokyo Round Subsidies Code
4 
represented a further stage in the elaboration of disciplines on export subsidies and subsidies 
generally, in particular, Articles 8-11and the Annex.  This background is helpful in understanding the 
evolution of the use of terminology originally  found in GATT Article XVI and the relationship 
between provisions of the covered agreements as they exist today.   
 
 In relation to the use of subsidies on the export of primary products, the substantive discipline established by Article XVI:3 of GATT 1994 was that:    
“[i]f a contracting party grants directly or indirectly any form of subsidy
 which 
operates to increase the export of any primary product from its territory, such subsidy 
shall not be applied in a manner which results  in that contracting party having more 
than an equitable share of world export trade in that product , account being taken of 
the shares of the contracting parties in such trade in the product during a previous 
representative period, and any special factor s which may have affected or may be 
affecting such trade in the product”.   
Thus, the key discipline established by Article XVI:3  of GATT 1994 is that a subsidy that has the 
effect of increasing a Member’s exports of a primary product must not be applied so as to result in that Member having more than an equitable, that is, a “just” or “fair”,
5 share of world export trade in 
that primary product.  GATT Article XVI:3 was el aborated by Article 10.1 and 10.2 of the later 
plurilateral Tokyo Round Subsidies Code, but thes e provisions were not carried forward to, and 
incorporated as such, in the SCM Agreement .   
  Notwithstanding the heading of Section B of GAT T Article XVI, that discipline is distinct 
from the export subsidy disciplines later incorporated in Article 3.1(a) of the SCM Agreement .  In 
particular, GATT Article XVI:3 is concerned with the effects rather than the conditions of a subsidy’s 
grant.   
  Moreover, the discipline established by Article XVI:3 of GATT 1994 is distinct from the discipline established by Article 6.3(d) of the SCM Agreement , which relates to whether the effect of a 
subsidy is to increase a Member’s world market shar e compared to the previous three-year average 
share.  At the same time, there may be substa ntial commonality of facts in demonstrating non-
compliance with either provision.  Further, both GATT Article XVI:3 and SC M Article 6.3(d) must 
be applied within the same contextual framewor k of “serious prejudice” established by GATT Article 
XVI:1, and SCM Article 5(c) and its footnote.     The GATT Article XVI:3 discipline is also dis tinct from the disciplines established by other 
provisions of the covered agreements.   
  The Appellate Body has pr eviously noted that the WTO Agreement  was accepted by WTO 
Members as a “single undertaking”.
6  The Appellate Body has also said:   
 
The relationship between the GATT 1994 a nd the other goods agreements in Annex 
1A is complex and must be examined on a case-by-case basis.  Although the 
provisions of the GATT 1947 were incorporated  into, and became a part of the GATT 
                                                      
4 Agreement on Interpretation and Application of Artic les VI, XVI and XXIII of the General Agreement 
on Tariffs and Trade , BISD 26S/56.   
5 The New Shorter Oxford English Dictionary , Ed. Lesley Brown, Clarendon Press, Oxford, 1993, 
Volume 1, 843.   
6 For example, Brazil – Measures Affecting Desiccated Coconut , Report of the Appellate Body, 
WT/DS22/AB/R, page 13.    WT/DS267/R/Add.3 
 Page J-125 
 
 
 1994, they are not the sum total of the rights and obligations of WTO Members 
concerning a particular matter.  For example,  with respect to subsidies on agricultural 
products, Articles II, VI and XVI of the GATT 1994 alone do not represent the total rights and obligations of WTO Members.  The Agreement on Agriculture  and the 
SCM Agreement  reflect the latest statement of WTO Members as to their rights and 
obligations concerning agricultural subsidi es.  The general interpretative note to 
Annex 1A was added to reflect that the other goods agreements  in Annex 1A, in 
many ways, represent a substantial elaboration of the provisions of the GATT 1994, and to the extent that the provisions of the other goods agreements conflict with the 
provisions of the GATT 1994, the provisions of the other goods agreements prevail.  
This does not mean, however, that the other goods agreements in Annex 1A, such as 
the SCM Agreement , supersede the GATT 1994 .  …”7 (emphasis added)   
 In the absence of a conflict between the provisions of Article XVI:3 of GATT 1994 and 
Article 6.3(d) of the SCM Agreement  or any other provisions of the covered agreements such that the 
General Interpretative Note to Annex 1A of the WTO Agreement  becomes operative, GATT Article 
XVI:3 continues to apply.  In Australia’s view, the Appellate Body report in US – FSC , 
paragraph 117, does not affect the interpretation of the relationship between these provisions other 
than in the sense of confirming that the relationship must be determined on the basis of the texts of the 
relevant provisions as a whole.     The continued applicability of Article XVI:3 of  GATT 1994 is confirmed by Article 13 of the 
Agreement on Agriculture .  The exemption from action pursuant to AA Article 13(b)(ii) is only 
applicable in respect of paragraph 1 of GATT Article XVI, whereas the exemption from action pursuant to AA Article 13(c)(ii) is applicable to the whole of GATT Ar ticle XVI.  Had the negotiators 
of the WTO Agreement  believed that GATT Article XVI:3 ha d become redundant, they would not 
have expressly distinguished between the paragra phs of GATT Article XVI in AA Article 13 as they 
did.  Moreover, Australia believes its view is fully consistent with the provisi ons of Article 21.1 of the 
Agreement on Agriculture  and with the nature of the WTO Agreement  as a whole as a “single 
undertaking”.     Further, the distinction between the provi sions of Article XVI of GATT 1994 in Article 
13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture  is entirely consistent with the object and 
purpose of the Agreement on Agriculture , including as expressed in the third preambular paragraph 
that the “long-term objective is to provide for substantial progressive reductions in agricultural 
support and protection sustained over an agreed peri od of time, resulting in correcting and preventing 
restrictions and distortions in world agricultural markets”.  It would be directly contrary to that objective if WTO Members were able, albeit othe rwise consistently with the domestic support 
provisions of the Agreement on Agriculture , nonetheless to arrange their domestic support payments 
so as to achieve an inequitable share of the world ex port market in a particular primary product.   
                                                     
 
7 Brazil – Desiccated Coconut , Report of the Appellate Body, pages 14-15.   WT/DS267/R/Add.3 
Page J-126  
 
 ANNEX J-14 
 
 
RESPONSES OF BENIN AND CHAD 
TO THE PANEL’S QUESTIONS 
 
27 October 2003 
 
  Benin and Chad would offer the following respon ses to those Panel questions that pertain to 
the scope of their Third Party Submissions:  
“44.   Please explain how Articles 5 and 6 of the SCM Agreement  and Article XVI of the GATT 
1994 would permit or require the Panel to take account of any effects of the subsidies in 
question on the interests of Members other than  the complaining party.  Benin and Chad.” 
 
 Brazil is the sole complaining party in this dispute, and ultimately only Brazil would have the 
right to any remedy provided by the SCM Agreemen t.  However, Benin and Chad submit that the 
Panel is nevertheless required to take account of th e effects of the US subsidies on the interest of 
Members other than the complaining Member, for the following reasons.   First, the chapeau of Article 5 states that “[ n]o Member should cause, through the use of any 
subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other 
Members ”.  The drafters of Article 5 referred to “Mem bers” in the plural, connoting an obligation on 
behalf of the subsidizing Member not to cause adverse effects to the interests of all WTO Members – 
not just the complaining Member.   Second, when the drafters of the SCM Agreem ent intended to refer only to the “complaining 
Member”, they used this term specifically, such as in  Article 6.7, or in paragr aph 2 of Annex V.  They 
could similarly have used the term “complaining Me mber” elsewhere in Articles 5 and 6, but they did 
not.  Therefore, the term “other Members” cannot be interpreted as synonymous with “complaining 
Members”, just as the term “another Member” cannot  be read as limited only to the “complaining 
Member”.  The treaty interpreter must give mean ing to the terms actually used in the text.
1 
 
 Third, this interpretation is consistent with Article 3.8 of the DSU, which provides as follows: 
 
In cases where there is an infringement of the obligations assumed under a covered 
agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment.  This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement
, and 
in such cases, it shall be up to the Member  against whom the complaint has been 
brought to rebut the charge.  [emphasis added] 
 Article 3.8 refers to the “adverse impact” on “o ther Members” in the plural, referring to all 
WTO Members.  Although the SCM Agreement provides special and additional rules for dispute settlement, these special rules have not ousted the ap plication of DSU Article 3.8.  Benin and Chad 
are “parties to [the] covered agreement”, the SCM Ag reement, and it can therefore be presumed that 
                                                     
 
1 The textual analysis set out above applies equally to Article XVI:1 of the GAT T 1994, which refers to 
the “other contracting party.”  (By virtue of paragraph 2(a) of the Explanatory Notes to GATT 1994 , the 
references to “contracting party” are deemed to read “Member.”)  Article XVI:1 thus refers to the “other 
Member” and not the “complaining Member.”  WT/DS267/R/Add.3 
 Page J-127 
 
 
 the breach of the SCM Agreement by the United St ates has an adverse impact on these two African 
countries.     In any event, the Panel need not rely exclusively on the presumption set out DSU Article 3.8, since Benin and Chad have already provided to th e Panel detailed evidence about the adverse effects 
of US subsides on West and Central Africa.  Beni n and Chad also note the similarities in language 
between the SCM Agreement (“adverse effects”) and DSU Article 3.8 (“adverse impact”).  This reinforces the relevance and applicability of the latter provision.   Fourth, DSU Article 10.1, which deals with Th ird Parties, provides additional support for the 
position that the Panel should take into account the adverse effects on parties other than just the 
complaining party:  
The interests of the parties to a dispute and those of other Members under a covered 
agreement at issue in the dispute shall be fully taken into account  during the panel 
process. 
DSU Article 10.1 is not limited simply to allowing Th ird Parties to present their views.  That is dealt 
with elsewhere, including in DSU Article 10.2, which grants to Third Parties the right “to be heard by 
the Panel”.  By contrast, DSU Article 10.1 is not li mited to providing Third Parties with the right to 
present views.  Instead, it mandates that the “interests” of the third parties shall be “fully taken into 
account”. 
 
 Fifth, DSU Article 24.1 provides that “[a]t all stages… of dispute settlement procedures involving a least-developed country Member, particular consideration shall be given to the special situation of least-developed country Members”.  Be nin and Chad are both least-developed countries.  
The “particular consideration” that must be extende d to them goes beyond simply ensuring that their 
views are heard – as noted above, such procedural pr otections are provided for elsewhere in the DSU.  
Instead, Panels must give “particular consideration” to their “special situation”.  In the context of the 
present case, the “special situation” of Benin and Chad  has been presented in some detail to the panel.  
Massive US cotton subsidies have had, and contin ue to have, a devastating impact on the fragile 
economies of West Africa, pushing hundreds of t housands of people from s ubsistence farming into 
absolute poverty.  If DSU Article 24.1 has any mean ing, this “special situation” of Benin and Chad 
must be given full, substantive consideration by the Panel. 
  Finally, Benin and Chad note that the seri ous prejudice caused to their economies has also 
been specifically raised before the Panel by one of the disputing parties, Brazil.  As the Panel will recall, Part 7 of Brazil’s Further Submission of 9 September 2003 is on “Serious Prejudice to the 
Interests of African Countries by Reason of the US Subsidies on Upland Cotton”.  This provides 
addition support for the position that the serious prejudice to Benin and Chad needs to examined by 
the Panel in assessing the WTO-consistency of the US subsidies.  
“55.   In light of the fact that certain third parties have provided submissions about the price 
effect of claimed US subsidies, which Member or Members is, or are, the “other party” under 
Article 6.3(c) (“another Member”) for the purposes of these proceedings?  All third parties.” 
 
 As noted, the drafters of the SCM Agreement used the term “complaining Member” in other 
provisions of the Agreement.  In Article 6.3(c), they chose the term “other Member” rather than 
“complaining Member.”  For the reasons set out above, Benin and Chad are of the view that 
Article 6.3(c) encompasses both the complainan t, Brazil, as well as other WTO Members.   
  The Panel has before it substantial evidence about  the effects of the US subsidies, including 
the significant price undercutting by US cotton compared  with the price of the like products of Brazil, WT/DS267/R/Add.3 
Page J-128  
 
 Benin and Chad in world markets, as well as si gnificant price suppression and price depression in 
world cotton markets.  In assessing the WTO-consistenc y of the US subsidies, the Panel is required by 
the SCM Agreement to take this evidence into account.    WT/DS267/R/Add.3 
 Page J-129 
 
 
 ANNEX J-15 
 
 
CANADA’S RESPONSES TO PANEL QUESTIONS TO THIRD PARTIES 
FIRST SUBSTANTIVE MEETING OF THE PANEL WITH THE PARTIES 
(RESUMED FIRST SESSION) 
 
27 October 2003 
  
 Canada sets out responses to the questions of the Panel in which Canada has a systemic  
interest:  
49. What is the meaning and effect of the introductory phrase of Article 3 of the SCM 
Agreement  ("Except as provided in the Agreement on Agriculture ...")? 
 
Reply
 
  The meaning and effect of this phrase is that Article 3 of the SCM Agreement  applies subject 
to the export subsidy disciplines of the Agreement on Agriculture , which permit, in some instances 
and within certain limits, the granting or maintainin g of subsidies that would otherwise be prohibited 
under the SCM Agreement . 
 
51. How should the concept of specificity – and,  in particular, the concept of specificity to 
"an enterprise or industry or group of enterprises or industries" – in Article 2 of the SCM 
Agreement  apply to subsidies in respect of agr icultural commodities? Please answer the 
following questions, citing the principles in Article 2 of the SCM Agreement : 
 
Reply
 
 
 Canada’s answers assume that the phrase “i n respect of” has the same meaning as the 
standard “is specific to” in Article 2.1 of the SCM Agreement .  Based on the ordinary meaning of the 
phrase “is specific to”, read in context and in light of the object and purpose of Article 2 and of the 
SCM Agreement , the specificity test is concerned with  the actual availability of a programme.  
Analysis on availability may include an assessment of the manner in which a programme is used in 
the circumstances of a given case.  The panel in US – Softwood Lumber III  recently confirmed:  “In 
our view, Article 2 SCM Agreement is concerned with the distortion created by a subsidy which 
either in law or in fact is not broadly available.”1  Moreover, a programme may be found either de 
jure or de facto  specific, and either determination depends  on the nature of the evidence relied upon.2 
 
 (a) is a subsidy in respect of all agricultural, but not other, products specific? 
 
                                                      
1 United States – Final Countervailing Duty Determination with respect to Certain Softwood Lumber 
from Canada , Report of the Panel, WT/DS257/R, circulated 29 August 2003, para. 7.116. 
2 In this respect, a determination under Article 2 is si milar to a determination under Article 3.  The legal 
standard expressed by the phrase “i s specific to” is the same for both de jure  or de facto  determinations; the only 
difference is the nature of the evidence relied upon.  See Canada – Measures Affecting the Export of Civilian 
Aircraft , Report of the Appellate Body, WT/DS70/AB/R, adopted 20 August 1999, para. 167 (“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.”)  WT/DS267/R/Add.3 
Page J-130  
 
 Reply
 
  No.  Canada shares the view of the United States  in United States – Continued Dumping and 
Subsidy Offset Act of 2000 , that, as a general matter, “all agriculture” is too broad to qualify as a 
“group of enterprises or industries” for specificity purposes.
3 
  (b) is a subsidy in respect of all agricultu ral crops (i.e. but not to other agricultural 
commodities, such as livestock) specific? 
 
Reply
 
 
 The answer will depend on the facts of a given case.  A panel would have to consider, among 
other things, the number of enterprises or indu stries (based on standard industrial classification) 
within the jurisdiction of the granting authority that are actually eligible to receive the subsidy, and 
the level of diversification of the “all agricultura l crops” universe.  Furthermore, the answer would 
also depend on the nature of the measure in ques tion and whether it excludes enterprises or industries 
that might otherwise be reasonably or practically included.  For example, weather that may cause 
extensive damage to crops (e.g. hail, frost, excessi ve moisture, drought) may not cause any damage to 
livestock.  Therefore, it may not be reasonable or practical to include livestock under a crop insurance 
programme.  On the other hand, an income stabili zation programme could reasonably or practically 
include both crops and livestock. 
 
 (c) is a subsidy in respect of certain identified agricultural products specific? 
 
Reply  
 
 The answer will depend on the facts of a give n case, including whether the eligible products 
involve only “an enterprise or industry or group of enterprises or industries” (based on standard 
industrial classification) under Article 2.1.  
 (d) is a subsidy in respect of upland cotton, but not other products, specific? 
 Reply
 
  Yes.  
 (e) is a subsidy in respect of a certain proportion of the value of total US 
commodities (or total US agric ultural commodities) specific? 
 
Reply
 
  Where a programme appears de jure  non-specific under Articles 2.1(a) and (b), predominant 
use of a programme by “certain enterprises” (a defined term in Article 2.1) would indicate, in the 
absence of any other reasonable explanation, that the availability of the subsidy is limited in fact to 
such enterprises or industries unde r Article 2.1(c) and 2.4.  Like wise, where a pr ogramme appears de 
jure non-specific under Articles 2.1(a) and (b), the granting of disproportionately large amounts of 
subsidy to certain enterprises would indicate, in th e absence of any other reasonable explanation, that 
the availability of the subsidy is limited in fact to  such enterprises or industries under Article 2.1(c) 
and 2.4.  In both cases, any predominance or disproportionality should be measured over an 
                                                     
 
3 United States – Continued Dumping and Subsidy Offset Act of 2000 , Report of the Panel, 
WT/DS217/R, WT/DS234/R, adopted 27 January 2003 , at para 4.1146.  WT/DS267/R/Add.3 
 Page J-131 
 
 
 appropriate period of time and in relation to the value of production in question as compared to the 
total value of all agricultural production.  
 (f) is a subsidy in respect of a certain proportion of total US farmland specific? 
 Reply
 
  The answer will depend on the facts of a give n case, including the proportion of total US 
farmland involved, whether that proportion involves “an  enterprise or industry or group of enterprises 
or industries”, and whether the programme “is specifi c to” (i.e., available only to) those enterprises or 
industries. WT/DS267/R/Add.3 
Page J-132  
 
 ANNEX J-16 
 
 
RESPONSE BY CHINA TO 
THE PANEL’S QUESTIONS TO THIRD PARTIES 
 
27 October 2003 
 
 
1. China appreciates this opportunity to present its  views again to the Panel in relation to the 
Panel’s questions posed to third parties on October 13, 2003.  Give n the short period within which 
third parties are required to submit their views, China responds to and comments on the following underlined questions.  
2. Question 49.  What is the meaning and effect of the introductory phrase of Article 3 of 
the SCM Agreement  (“Except as provided in the Agreement on Agriculture …”)?  All third 
parties 
 
3. To answer this Panel’s question, it is help ful to first look to the relationship between the 
Agreement on Agriculture  and the SCM Agreement .  Art. 21.1 of the Agreement on Agriculture  
provides: 
 
The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 
1A to the WTO Agreement shall apply subj ect to the provisions of this Agreement 
[on Agriculture]. 
4. The Appellate Body, in EC – Bananas III,  further clarified this article by stating that  
 
the provisions of GATT 1994, [and indeed ‘other Multilateral Trade Agreements including the SCM Agreement , note added pursuant to Art. 21 of the Agreement on 
Agriculture ], …, apply …, except to the extent that the Agreement on Agriculture  
contains specific provisions dealing specifically with the same matter”.
1 
In other words, Art. 21.1 of the A greement on Agriculture , as interpreted by the Appellate Body, 
requires that in connection with a specific matter, the A greement on Agriculture  prevails over the 
SCM Agreement  to the extent that it has more specific pr ovisions over the same matter covered by the 
SCM Agreement . 
 5. The introductory phrase of Art. 3 of the SCM Agreement  again, in the matter of prohibited 
subsidies, grants deference to the Agreement on Agriculture .  It reads: 
 
[E]xcept as provided in the Agreement on Agriculture , the following subsidies, within 
the meaning of Article 1, shall be prohibited. 
Given that the SCM Agreement  contains disciplines over all types of  subsidies, including agricultural, 
and the  Agreement on Agriculture  imposes more specific disciplines over subsidies granted to 
agricultural commodities only, wher e such specificity of discipline can be established, the  Agreement 
on Agriculture shall prevail pursuant to Article 3.1 of the SCM Agreement . 
 
                                                     
 
1 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution 
of Bananas , WT/DS27/AB/R, DSR 1997:II, Para. 155.  WT/DS267/R/Add.3 
 Page J-133 
 
 
 6. Therefore, in line with Art. 21.1 of the Agreement on Agriculture past Appellate Body 
interpretation above and Art. 3.1 of the SCM Agreement , the Agreement on Agriculture,  where it is 
more specific, shall prevail  over provisions of the SCM Agreement . 
 
7. Question 50.  According to its revised timeta ble, the Panel will issue its report to the 
parties after the end of 2003 calendar year.  Do es this have any impact on “exempt[ion] from 
actions” under Article 13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture ?  All third parties 
 
8. China believes Article 13 continues to be appli cable to the current case even after it ceases to 
be in effect.  9. Art. 13 of the Agreement on Agriculture protects subsidy measures otherwise prohibited or 
actionable under the SCM Agreement  during the nine-year implementation period commencing in 
1995.  Unless agreed otherwise amongst Memb ers, Article 13 will expire in 2004. 
 10. Art. 70 of the Vienna Convention on the Law of Treaties , in dealing with the consequences of 
the termination of a treaty, provides to the effect that the termination of a treaty does not affect any 
right, obligation or legal situation of the parties cr eated through the execution of the treaty prior to its 
termination.  Applied to Art. 13 of the Agreement on Agriculture , if a Member’s subsidy measures 
were granted and implemented prior to expiry of the Peace Clause, such Member’s possible right to 
be protected thereunder is not removed by the e xpiry; neither are obligations on other Members to 
exercise due restraint.   Such rights, obligations  and legal situations created through implementation 
of the Peace Clause for the purpose of these proceedings are allowed by the Vienna Convention on the 
Law of Treaties  to be live issues as between parties to a dis pute.  Even if the Panel were to make its 
report after the expiry, the rights and obligations a nd their past interaction are heavily controversial 
issues the interpretation and resolution of which by th is Panel will have beari ngs on the merits of the 
case not only between the parties to this disput e, but also to the general WTO membership.  
Therefore, this Panel, even if it chooses to issue its report after the expiry date of the Peace Clause, is 
obligated to rule on such ri ghts and obligations during implementation of the Peace Clause. 
 11. In addition, considering the likelihood of  the Peace Clause being extended as reportedly 
suggested by some Members, however remote, an interpretation of the “exempt from action” requirement and its practical application is of extr aordinary value to Members having interests in such 
an extension proposal; such Members, aided with th e Panel’s interpretation of the key components of 
this clause, will have a better basis to form their negotiating policy and stance, not only in terms of the 
Peace Clause, but also with regard  to WTO discipline on agriculture. 
 
12. Question 51.  How should the concept of specifi city – and, in particular, the concept of 
specificity to "an enterprise or industry or group of enterprises or industries" -- in Article 2 of 
the SCM Agreement  apply to subsidies in respect of agricultural commodities? Please answer the 
following questions, citing the principles in Article 2 of the SCM Agreement :   All third parties 
 (a) is a subsidy in respect of all agricultural, but not other, products specific?  
(b) is a subsidy in respect of all agricultural crops (i.e. but not to other agricultural 
commodities, such as livestock) specific? 
 (c) is a subsidy in respect of certain identified agricultural products specific?  (d) is a subsidy in respect of upland cotton, but not other products, specific? 
 WT/DS267/R/Add.3 
Page J-134  
 
 (e) is a subsidy in respect of a certain proportion of the value of total US commodities (or 
total US agricultural commodities) specific? 
 (f) is a subsidy in respect of a certain proportion of total US farmland specific?  
 
13. “Commodity” includes agricultural crops such as upland cotton.
2  While the Agreement on 
Agriculture identifies agricultural products by re ference to their respective HS codes3, in certain 
places it uses the terms “commodity” and “agricultural product” interchangeably.4  Hence, in China’s 
opinion, “agricultural commodity” can be understood as equivalent to “agricultural product” under the 
Agreement on Agriculture .  Such equivalence is particularly re levant with regard to upland cotton, 
which being an agricultural produc t and crop, unquestionably meets the definition of a commodity. 
 14. On the other hand, “industry” used in the context of Art. 2 of the SCM Agreement  normally 
refers to “a particular form or branch of productive labour; a trade, a manufacture”
5, while in the 
context of trade and commercial policy, “agricultu re” means “the science and practice of cultivating 
the soil and rearing animals; farming”.6  Cultivate, in turn, means “prepare and use soil for crops”7, 
i.e. the use of productive labour for soil preparation and use.  Hence, agriculture, being the science 
and practice of using productive labour, meets th e definition of “industry”.  Further, the Agreement on 
Agriculture  also treats “agriculture” as an “industry” by  extensively using “agricultural producers” 
and “agricultural production” to refer to the targets of domestic support measures.8 
 
15. Art. 2 of the SCM Agreement  provides that a subsidy is specific if it is provided to an 
enterprise or industry or group of enterprises or industr ies.  Based on the analysis in Paras. 12 and 13 
above, China believes that any subsidy to agricultu ral commodities shall be co nsidered as specific for 
the purpose of Art. 2 of the SCM Agreement.   By the same token, China believes that: 
 
(a) a subsidy in respect of all agricultural, but not other, product is specific, since agriculture 
producing all agricultural products  is an industry and consists  of “group of enterprises” by 
definition. 
 (b) Similarly, subsidies in respect of “all agri cultural crops (i.e. but not to other agricultural 
commodities, such as livestock)”, “certain identified agricultural products” and “upland 
cotton, but not other products” should all be deemed as specific since “group of enterprises” 
producing crops (certain products, upland cotton) are targeted in all the cases. 
 (c) The use of “a certain proportion of the va lue of total US commodities” or “a certain 
proportion of US farmland” will necessarily be e quivalent to “an enterprise or industry or 
group of enterprises or industri es” because the “proportion” has to be generated by adding up 
those data from specific “enterprise or industry or group of enterprises or industries”. 
 
                                                     
 
2 Commodity means "a thing of use or value;  specially a thing that is  an object of trade, especially a 
raw material or agriculture crop", Lesley Brown (ed.), The Shorter Oxford English Dictionary , 5th ed. (Oxford 
University Press, 2002), p.461. 
3 Art. 2, Agreement on Agriculture . 
4 e.g. under Art. 6, the terms " product -specific domestic support" and " basic agricultural product " are 
used in the context of quantifying domestic support commitments, while under Art. 13(b), domestic support 
measures under Art. 6 that do not grant support to a specific commodity  in excess of that decided during the 
1992 marketing year are required to be exempt from actions as specified therein. 
5 The Shorter Oxford English Dictionary , p.1363. 
6 Ibid, p. 44. 
7 Ibid, p. 575. 
8 e.g. Art. 6, Agreement on Agriculture.   WT/DS267/R/Add.3 
 Page J-135 
 
 
 16. Question 52, The Panel notes that different remedies are available in respect of 
prohibited and actionable subsidies under Article 4.7 and 7.8 of the SCM Agreement .  If the 
Panel were to conclude that a subsidy was pr ohibited and were to make a recommendation 
under Article 4.7 of the SCM Agreement  to withdraw the subsidy without delay, can the Panel: 
 
(a) also conclude that the same subsidy had resu lted in adverse effects to the interests of 
another Member?  If so, what would be the value of such a conclusion in terms of the settlement of the matter before the Panel?   All third parties 
 (b) take into account the effects of the interact ion of those prohibited subsidies with other, 
allegedly, actionable subsidies?  If so, how is this relevant to the issue of causation under 
Article 5 of the SCM Agreement ?  All third parties 
 
17. China believes that if this Panel were to find that a subsidy was prohibited and were to 
recommend under Article 4.7 of the SCM Agreement  an immediate withdraw the subsidy, there would 
be no need for this Panel to dwell on the issue of whether adverse effects have been generated by the 
same subsidy.  18. The SCM Agreement  has a primary distinction between prohibited subsidies under Article 3 
where effects are presumed and actionable subsid ies under Article 5 where the complaining party 
must demonstrate adverse effects.  Amongst diffe rences between prohibited and actionable subsidies, 
such as degree of proof, dispute settlement procedur es, are different remedies under Arts. 4.7 and 7.8. 
 19. While no panel has dealt squarely with the issued raised by this Panel, the panel on Australia 
– Automotive Leather II (Article 21.5 – US)  did touch upon the relationship between Arts. 4.7 and 7.8 
briefly.
9 
 
As regards the context of Article 4.7, we note that the term “withdraw the subsidy” 
appears elsewhere in the SCM Agreemen t.  We consider these references to 
“withdrawal” of subsidies to be relevant for our understa nding of the term.  In the 
case of “actionable” subsidies, Members whose trade interests are adversely affected may, under Part III of the SCM Agreement,  pursue multilateral dispute settlement in 
order to establish whether the subsidy in qu estion has resulted in adverse effects to 
the interests of the complaining Member.  If such a finding is made, the subsidizing 
Member “shall take appropriate steps to remove the adverse effects or shall 
withdraw the subsidy ”.
10  Alternatively, a Member whose domestic industry is 
injured by subsidized imports may impose a countervailing measure under Part V of 
the SCM Agreement, “ unless the subsidy or subsidies are withdrawn ”.11  In both 
cases, withdrawal of the subsidy is an a lternative, available to the subsidizing 
Member, to some other action.  Repayment of the subsidy would certainly effectuate 
withdrawal of the subsidy by a subsidizing Member so as to allow it to avoid action by the complaining Member.
12 
                                                      
9 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather – 
Recourse to Article 21.5 of the DSU by the United States,  WT/DS126/RW and Corr.1, adopted 1 February 2000. 
10 Original note, " SCM Agreement Article 7.8  (emphasis added)". 
11 Original note, " SCM Agreement Article 19.1  (emphasis added)". 
12 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather – 
Recourse to Article 21.5 of the DSU by the United States,  WT/DS126/RW and Corr.1, adopted 1 February 2000, 
Para. 6.28.  WT/DS267/R/Add.3 
Page J-136  
 
 20. The panel in that case went on to elaborate in light of Art. 4.7’s object and purpose: 
 
Turning to the object and purpose of Article 4.7 of the SCM Agreement, we observe that the SCM Agreement as a whole establis hes disciplines on subsidies.  The SCM 
Agreement categorizes subsidies as non-ac tionable, actionable, or prohibited.
13  In the 
case of non-actionable and actionable subsidies, Members are only allowed to take 
certain prescribed steps in th e event that their trade interests are harmed by another 
Member's subsidies.  Part II of the SCM Ag reement, however, establishes an absolute 
prohibition on certain types of subsidies: Members are obligated, under Article 3.2 of 
the SCM Agreement, to “neither gran t nor maintain” such subsidies.  While the 
trade effects of prohibited subsidies may be countered under Parts III and V of the SCM Agreement, Part II of the SCM Agreement establishes special and additional rules for rapid dispute settlement in cases involving such subsidies.  Article 4.7 of the SCM Agreement establishes a specific remedy to be 
recommended in the case of a violatio n - withdrawal of the subsidy . (Original 
emphasis added) 
21. Indeed, the panel considered the Art. 4.7 pr escription of withdrawal for subsidies found to be 
prohibited under to be so “special ” that it is “specific remedy” d esigned to “not merely counteract 
adverse  trade effects, but is intended to enforce the absolute prohibition on the grant or maintenance 
of such subsidies”.
14 
 
22. In other words, such a specific remedy under Art. 4.7 grants the subsidizing Member far less 
options than Art. 7.8, which allows the subsidiz ing Member the options of either to “remove the 
adverse effects” or “withdraw the subsidy”.  23. The above interpretation is further suppor ted by the difference in terminology for 
countermeasures allowed to be taken by a compla ining Member in the event that recommendations 
adopted by the DSB are not followed.  The Arbitrators in their Decision on Brazil – Aircraft 
(Article 22.6 – Brazil)
15, stated: 
 
We also note that, when the negotiators ha ve intended to limit countermeasures to the 
effect caused by the subsidy on a Member's tr ade, they have used different terms than 
‘appropriate countermeasures’. Article 7.9 a nd 10, which is the provision equivalent 
for actionable subsidies to Article 4.9 and 10 for prohibited subsid ies, uses the terms 
‘commensurate with the degree and nature of the adverse effects determined to 
exist’.16  
while Art. 4.10 only used the term “appropriate  countermeasures”, without the qualification of 
commensuration with the degree and nature of adve rse effects as required under Arts. 7.9 and 7.10 for 
actionable subsidies.  In deed, the Arb itrators ruled in the arbitration that  
 
                                                      
13 Original note, "[w]e note that, pursuant to Article 31 of the SC M Agreement, the provisions of 
Articles 6.1 (presumption of serious prejudice), and 8 and 9 (non-actionable subsidies) shall apply for five years from the date of entry into force of the WTO Agreement unless extended  for a further period." 
14 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather – 
Recourse to Article 21.5 of the DSU by the United States,  WT/DS126/RW and Corr.1, adopted 1 February 2000, 
Para. 6.34. 
15  Decision by the Arbitrators, Brazil – Export Financing Programme for Aircraft – Recourse to 
Arbitration by Brazil under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement , WT/DS46/ARB, 
28 August 2000. 
16 Ibid, Para. 3.49.  WT/DS267/R/Add.3 
 Page J-137 
 
 
 when dealing with a prohibited export subs idy, an amount of countermeasures which 
corresponds to the total amount of  the subsidy is “appropriate”17 against the Brazilian 
argument that such an interpretation would be punitive.18 
 
24. Hence, past panels and arbitr ators have determined that Art. 4.7 remedies are special, specific, 
and additional to those under Art. 7.8, that when recommended by a panel, they more than counteract 
adverse trade effects.  In light of such reasoning,  the need for this Panel, after it having established 
prohibited subsidies, to go an extra st ep to find adverse effects is superfluous. 
 25. With respect to this Panel’s question as to wh ether the Panel can “take into account the effects 
of interaction of those prohibited subsidies with ot her, allegedly, actionable subsidies” if it were to 
find prohibited subsidy, China believes the answer is not straight forward.  26. Art. 5 of the  SCM Agreement  makes no express distinction be tween prohibited and actionable 
subsidies when discussing adverse effects to the inter ests of other Members.  It simply requires that no 
Member shall cause adverse effects through the use of any subsidy referred to in Paras. 1 and 2 of 
Article 1 of the SCM Agreement , which covers all types of subsidies that meets the specificity test, i.e. 
prohibited and actionable.  27. Having said that, the structure of the SCM Agreement  is such that it sets out highly 
compartmentalized sections on prohibited, acti onable and non-actionable subsides.  Analyses of 
adverse effects are specifically placed under Part III that deals with actionable subsidies only.  As 
discussed above, establishment of a prohibited subsid y does not require any finding of adverse effect, 
but is contingent upon a finding of a mere existe nce.  In that sense, when this Panel accounts and 
analyzes adverse effects caused by actionable subsid ies, inclusion of adverse effects generated by 
prohibited subsidies would tend to enlarge adverse effects caused by actionable subsidies, if the 
former only adds to the latter.  In other word s, the highly compartmentalized nature of the SCM 
Agreement  requires this Panel to form a precise opinion, where partition is possible, on the degree and 
nature of adverse effects caused by actionable su bsidies alone, and such precision is vital for the 
subsidizing Member to “remove the adverse effect s” under Art. 7.8 and for the complaining Member 
to take commensurate countermeasures under Arts. 7.9 and 7.10.  Such a partitioning method is very 
much relevant to the issue of causation, as in cases where partition is  possible, there should be no 
causal link between prohibited subsidies and adve rse effects caused by actionable subsidies. 
 28. If, however, this Panel finds that a simple pa rtition is not possible to exclude adverse effects 
generated by prohibited subsidies, due to the fact that such adverse effects compounds or amplifies 
adverse effects caused by actionable subsidies, the issue is more difficult.  Prohibited subsidies may 
indeed have played a role in causing a compounding or amplification of adverse effects, caused by 
actionable subsidies in the first place.  Such circ umstances would necessitate a consideration of the 
totality of evidence before this Panel and a finding th at best reflects a possible attribution of adverse 
effects to those only caused by actionable subsidies found.  Such a finding, China submits, may have to be weighed against the crucial need to discourage the use of multiple types of subsidies that are not 
WTO compliant to create compounded adverse effects. 
 
29. Question 53.  Would a finding of serious prejudice under Article 5(c) of the SCM 
Agreement  be determinative for a finding under Article XVI:1 of the GATT 1994?  Why or why 
not?  What, if any, is the role of footnote 13 of the SCM Agreement  in this context?  All third 
parties 
 
                                                     
 
17 Ibid, Para. 3.60. 
18 Ibid, Para. 3.55. WT/DS267/R/Add.3 
Page J-138  
 
 30. China believes that a finding of serious prejudice under Article 5(c) of the SCM Agreement  
would be determinative for a finding under Article XVI:1 of the GATT 1994.  
 31. Art. 5(c) of the SCM Agreement  prohibits any Member against using any subsidy to cause 
serious prejudice to the interests of another Memb er.  Instances of deemed existence and possible 
occurrence of serious prejudice are further enumer ated under Art. 6 of the same agreement.  
Art. XVI:1 of GATT 1994, on the other hand, re quires a subsidizing Member, to discuss, upon 
request, with the other contracting party or parties concerned, or with the Contracting Parties, the 
possibility of limiting the subsidization, in the even t that its granting of subsidies causes or threatens 
to cause serious prejudice to the interests of any othe r contracting party while stopping short of listing 
those under Art. 6 of the SCM Agreement . 
 32. China believes possible difference, if any, be tween serious prejudice found under Art. 5(c) of 
the SCM Agreement  and serious prejudice found under GATT Ar t. XVI:1, is effectively removed by 
footnote 13 of the SCM Agreement , which specifically provides: 
 
The term “serious prejudice to the interests of another Member” is used in this [SCM] 
Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT 1994, and includes threat of serious prejudice. 
To interpret otherwise would clearly be contrary to  the intent of the drafters of this footnote. 
 33. Question 55.  In light of the fact that certain third parties have provided submissions 
about the price effect of claimed US subsidies, which Member or Members is, or are, the “other party” under Article 6.3(c) (“another Member”) for the purposes of these proceedings?  All third parties 
 34. China believes that any Member, the prices of whose like product (upland cotton for these 
proceedings), as supplied in the same market, at the same level of trade and at comparable times, are 
capable of being compared to the prices of the s ubsidized product for the purpose of determining 
whether significant price undercutting exists under Art. 6.3(c), is another Member  for the purpose of 
Art. 6.3(c) of the SCM Agreement .. 
 
35. First, 6.3(c) of the SCM Agreement  reads,  
 
Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case where one or several of the following apply: … 
(c) the effect of the subsidy is a significant price undercutting by the subsidized product as 
compared with the price of a like product of  another Member in the same market or 
significant price suppression, price depression or lost sales in the same market. 
 36. Article 6.5 subsequently explains that  
For the purpose of paragraph 3(c), price undercutting shall include any case in which 
such price undercutting has been demonstrat ed through a comparison of prices of the 
subsidized product with prices of a non-subs idized like product supplied to the same 
market.  The comparison shall be made at the same level of trade and at comparable times, due account being taken of any othe r factor affecting price comparability.  
However, if such a direct comparison is not possible, the existence of price 
undercutting may be demonstrated on the basis of export unit values.  WT/DS267/R/Add.3 
 Page J-139 
 
 
 37. Essentially, Art. 6.5 requires a comparison between prices of the subsidized product and 
prices of a non-subsidized like product supplied to the same market  for the purpose of determining 
whether significant price undercutting exists under Art.  6.3(c).  To ensure fairness and statistical 
meaningfulness of such a comparison, Art. 6.5 requires it to be made at the same level of trade and at comparable times, as well as any other factor aff ecting price comparability.  No where does Art. 6.5 
limit non-subsidized like product to only those from one country, e.g. the complaining party. 
 38. Second, specific references to the “complaining Member” is made in other paragraphs of this 
very Article 6.  For instance, Article 6.7, reads  
Displacement or impedime nt resulting in serious prejudice shall not arise under 
paragraph 3 where any of the following circumstances exist during the relevant period: 
 (a) prohibition or restriction on exports of the like product from the complaining Member 
(emphasis added) or on imports from the  complaining Member  (emphasis added) into 
the third country market concerned;…”. 
 39. The same word “complaining Member” is speci fically used from Para. (a) through to Para. (e) 
under Article 6.7.  The above reference clearly s uggests that for the purpose of these paragraphs, the 
drafters explicitly distinguis hed the like product from “the complaining Member” from the like 
product from other Members.  Should the drafters have  the same intent to make such a distinction 
under Article 6.3, they would have done so. 
 40. Based on the above interpretations, China believes that another Member under Art. 6.3 of the 
SCM Agreement  shall include any Member, the prices of  whose like product, upland cotton for these 
proceedings, as supplied in the same market, at the sa me level of trade and at comparable times, is 
capable of being compared to the prices of the s ubsidized product for the purpose of determining 
whether significant price undercutting exists under Art. 6.3(c).  
41. Question 56.  Please respond to the followi ng questions concerning the relationship 
between Article XVI:3 of the GATT 1994, the disciplines on export subsidies and domestic support in the Agreement on Agriculture  and the disciplines on prohibited export subsidies and 
actionable subsidies in Articles 3, 5(c) and 6.3(d) of the SCM Agreement .    All third parties 
 (a) Are agricultural domestic support progr ammes challengeable under Article XVI:3 of 
the GATT 1994?  How, if at all, is the title of Section B of Article XVI (“Additional provisions on export subsidies ” (emphasis added)) relevant?  How, if at all, are 
Articles 13 and 21.1, or any other provisions, of the Agreement on Agriculture, relevant?  
 
42. In China’s opinion, agricultural domestic  support programmes are not challengeable under 
Article XVI:3 of GATT 1994.  43. Negotiating history of the current WTO agre ements, being codification of the GATT Uruguay 
Round, as reported by scholars, indicates that the original Art. XVI of GATT 1947 contained only the 
first paragraph.  Section B of Art. XVI and the interpretive note thereto were added by the 1955 
Protocol Amending the Preamble and Part I and II of the Agreement  with an intent to outlaw export 
subsidies that results in subsidizing Member “hav ing more than equitable share of the world export 
trade in that product”
19 only.20  While the added article adopted such vague wordings as “any form of 
                                                      
19 Article XVI:3, GATT 1994. 
20 Terence P. Stewart (ed.), the GATT Uruguay Round:  a Negotiating History  (Kluwer Law and 
Taxation Publishers, 1993), p. 134. WT/DS267/R/Add.3 
Page J-140  
 
 subsidy which operates to increase the export of an y product”, no where can any express effort to 
discipline domestic support be found.  44. The addition of Art. 11, entitled “Subsid ies other than export subsidies” by the 1979 
Agreement on Interpretation and Application of Article VI, XVI and XXIII of the General Agreement 
(the “ Subsidies Code ”)
21 is further proof that Art. XVI did not contemplate any discipline on domestic 
support.  While not all Contracting Parties of GATT signed the Subsidies Code , it does represent the 
efforts of some GATT Contracting Parties  
[t]o apply fully and to interpret the provisions of Articles VI, XVI and XXIII of the 
General Agreement on Tariffs and Trade only with respect to subsidies and 
countervailing measures and to elaborate rules for their application in order to provide greater uniformity and certainty in their implementation.
22 
45. On the issue of subsidies, the Subsidies Code  is structured to distinguish between export 
subsidies on certain primary (Art. 10, for the purpose of Art. XVI:3, GATT) and non-primary 
subsidies (Art. 9 and illustrative Annex) on the one hand, and “[s]ubsidies other than export 
subsidies” (Art. 11) on the other.  Such a distin ction represents consensus, at least amongst some 
GATT Contracting Parties, that GATT Art.  XVI:3 only disciplines export subsidies  per se . 
 46. In addition, in attempting to develop th e “unlawfulness” of these “non-export subsidies”, 
Art. 11(2) of the Subsidies Code  only specified possible “injury to a domestic industry of another 
signatory”, “serious prejudice to the interests of another signatory”, nullification and impairment of 
“benefits accruing to another signatory under the Ge neral Agreement [of Tariffs and Trade] as well as 
adverse effect on “the conditions of normal competition”, to the express exclusion of a GATT 
Art. XVI:3 action for “more than equitable share of world export trade”.  The ostensible omission of a 
GATT XVI:3 challenge against non- export subsides is again indication that GATT XVI:3 did not 
contemplate a challenge against non-export subs idies, which should include domestic support 
measures.  47. The  Agreement on Agriculture  of the WTO, while setting out object and quantitative 
disciplines on agricultural domestic supports, does not engage in a comprehensive and express 
definition of the term domestic support, except that it is granted in favour of domestic agricultural 
producers.  Yet the agreement does treat domestic su pport and export subsidies in different sections.  
Art. 13, in addition, makes a symmetrical referenc e to the two concepts on equal footing.  The 
polarized treatment lends support to a conclusion that the multilateral trade regime at the Uruguay 
Round sees a need to discipline agricultural domestic support measures.  Given the progression of discipline development for agricultural domestic su pport and the loss of inequitable world export 
trade challenge in the Agreement on Agriculture , it appears to be a stretching of terms to interpret that 
Art. XVI:3 of GATT 1947 should contemplate a ch allenge against agricultural domestic support 
measures.  48. Language of Article 21.1 of the Agreement on Agriculture  again supports the above opinion 
of China.  The article governs the relationship of  the provisions of GATT 1994 and the Agreement on 
Agriculture.
23  The Appellate Body, in its EC – Bananas III  report, stated to the effect that the 
provisions of GATT 1994 apply to a matter except to the extent that the Agreement on Agriculture  
contains specific provisions dealing specifically with the same matter.24 
                                                      
21 26S/56. 
22 Preamble, the S ubsidies Code . 
23 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution 
of Bananas , Appellate Body Report, WT/DS27/AB /R, DSR 1997:II, Paras. 155-156. 
24 See Supra , Para. 3.  WT/DS267/R/Add.3 
 Page J-141 
 
 
  
49. Coming back to the text of GATT Art. XVI:3, as well as the general progression of multilateral trade regime on agricultural domestic  support measures, specificity on domestic support 
discipline as provided under the Agreement on Agriculture clearly stands out and pales any possible 
equation of GATT Article XVI:3 to a disci pline on agricultural domestic support. 
 
(b) Are the requirements of Article XVI:3 of  the GATT 1994 reflected in, developed by or 
subsumed by the requirements in Article 6.3(d) of the SCM Agreement , or in any other 
provisions of the covered agreements?  Of what  relevance, if any, is the Appellate Body 
Report in US-FSC , para. 117
25 here? 
 
(c) Of what relevance, if any, is the fact that the definition of "subsidy" in Article 1 of the 
SCM Agreement  and the prohibition on subsidies contingent upon export in 
Article 3.1(a) were introduced in the Uruguay Round, but did not exist at the time that the GATT 1947 was negotiated? 
 
50. Art. 6(3)(d), on the other hand, is a natural prolongation of the inequitable world export trade 
challenge made available by GATT Art.  XVI:3 and further developed by the Subsidies Code .  China 
believes that requirements of Art. XVI:3 of the GATT 1994 are reflected in and developed by requirements in Article 6.3(d) of the SCM Agreement . 
 
51. GATT Art. XVI:3 is the first attempt by the multilateral trade system to seek avoidance of the 
clinching of “more than equitable share of worl d export trade in a primary product” by a Member 
granting “directly or indirectly any form of subsidy which operates to increase the export of any primary product from its territory”.  The article, le d by the word “[a]ccordingly”, grants Members the 
inequitable world export trade challenge to address  concerns over possible “h armful effects”, “undue 
                                                     
 
25 Original quote from the Appellate Body Report, WT/DS108/AB/R, Para. 117: 
 "… the provisions of the SCM Agreement  do not provide explicit assistance as to the 
relationship between the export subsidy provisions of the SCM Agreement  and Article XVI:4 
of the GATT 1994.  In the abse nce of any such specific textua l guidance, we must determine 
the relationship between Articles 1.1(a)(1) and 3.1(a) of the SCM Agreement  and 
Article XVI:4 of the GATT 1994 on the basis of the texts of the relevant provisions as a whole.  It is clear from even a cursory examination of Article XVI:4 of the GATT 1994 that it 
differs very substantially from the subsidy provisions of the SCM Agreement , and, in 
particular, from the export subsidy provisions of both the SCM Agreement  and the Agreement 
on Agriculture .  First of all, the SCM Agreement  contains an express definition of the term 
"subsidy" which is not contained in Article XVI:4.  In fact, as we have observed previously, the SCM Agreement  contains a broad package of new export subsidy disciplines that "go well 
beyond merely applying and interpreting Articles VI, XVI and XXIII of the GATT 1947".  
Next, Article XVI:4 prohibits export subsidies on ly when they result in the export sale of a 
product at a price lower than the "comparable pr ice charged for the like product to buyers in 
the domestic market".  In contrast, the SCM Agreement  establishes a much broader prohibition 
against any subsidy which is "contingent upon export performance".  To say the least, the rule 
contained in Article 3.1(a) of the SCM Agreement  that all subsidies which are "contingent 
upon export performance" are prohibited is significantly different from a rule that prohibits 
only those subsidies which result in a lower price for the exported product than the comparable price for  that product when sold in  the domestic market.  Thus, whether or not a 
measure is an export subsidy under Article XVI:4 of the GATT 1947 provides no guidance in 
determining whether that measure is a prohibite d export subsidy under Article 3.1(a) of the 
SCM Agreement .  Also, and significantly, Article XVI:4 of the GATT 1994 does not apply to 
"primary products", which include agricultural products.  Unquestionably, the explicit export 
subsidy disciplines, relating to agricultural product s, contained in Articles 3, 8, 9 and 10 of the 
Agreement on Agriculture  must clearly take precedence over the exemption  of primary 
products from export subsidy disciplines  in Article XVI.4 of the GATT 1994." WT/DS267/R/Add.3 
Page J-142  
 
 disturbance” and hindrance to “the achievement of the objectives” of GATT cause by subsidies to 
primary products, as enumerated under the preceding article of XVI:2.  52. The Subsidies Code  further defined “more than an equitable share of world export trade” as 
including  
 
any case in which the effect of an export subs idy granted by a signatory is to displace 
the exports of another signatory bear ing in mind the developments on world 
markets.
26 
In addition to attempting to discipline subsid ies to primary products, signatories to the Subsidies Code  
also agreed to a number of general provisions on subsidies, not necessarily limited to primary 
products.  Adverse effects caused by subsidies, ex emplified by injury to the domestic industry of 
another signatory, nullification or impairments to  the benefits of another Member and serious 
prejudice to the interests of another Members,  were first introduced under Art. 8 of the Subsidies 
Code  as indication of the “unlawfulness” of such subsidi es.  The very same standards were to be later 
adopted by Art. 5 of the SCM Agreement  on actionable subsidies. 
 53. The concept of inequitable world export share caused by subsidies to primary products, on the 
other hand, was retained under Art. 6.3(d) of th e SCM Agreement, with such changes as “world 
market share” to replace “share of world export trade” and the addition of a three year period to constitute “representative period” benchmark. 
 
54. While China agrees that the requirements of GATT Art. XVI:3 are reflected in and developed 
by requirements in Article 6.3(d) of the SCM Agreement , prior Appellate Body reports have indicated 
that to the extent a specific WTO agreement c onflict with the provisions of GATT 1994, the former 
shall prevail.  In that respect, it is im portant to quote the Appellate Body in Brazil – Desiccated 
Coconut : 
 
The relationship between the GATT 1994 a nd the other goods agreements in 
Annex 1A is complex and must be examined on a case-by-case basis.  Although the provisions of the GATT 1947 were incorporated  into, and became a part of the GATT 
1994, they are not the sum total of the rights and obligations of WTO Members 
concerning a particular matter.  For example,  with respect to subsidies on agricultural 
products, Articles II, VI and XVI of the GATT 1994 alone do not represent the total rights and obligations of WTO Members.  The Agreement on Agriculture and the 
SCM Agreement reflect the latest statement of WTO Members as to their rights and 
obligations concerning agricultural subsidi es.  The general interpretative note to 
Annex 1A was added to reflect that the other goods agreements  in Annex 1A, in 
many ways, represent a substantial elaboration of the provisions of the GATT 1994, and to the extent that the provisions of the other goods agreements conflict with the 
provisions of the GATT 1994, the provisions of the other goods agreements prevail.  
This does not mean, however, that the other goods agreements in Annex 1A, such as 
the SCM Agreement , supersede the GATT 1994. As the Panel has said: 
... the question for consideration is  not whether the SCM Agreement 
supersedes Article VI of GATT 1994.  Rather, it is whether Article VI creates rules which are separate and distinct from those of the SCM Agreement, and which can be applied without reference to 
that Agreement, or whether Article VI of GATT 1994 and the SCM 
                                                     
 
26 Para. 10:2(a), the Subsidies Code .  WT/DS267/R/Add.3 
 Page J-143 
 
 
 Agreement represent an inseparable package of rights and disciplines 
that must be considered in conjunction.27 
55. The Appellate Body noted further that “[t]he relationship between the SCM Agreement and 
Article VI of GATT 1994 is set out in Articles 10 and 32.1 of the SCM Agreement .”28  Apart from the 
integrated structure of the WTO Agreement and the annexed agreements, th e Appellate Body therefore 
focused on these two provisions of the SCM Agreement .  The Appellate Body then explicitly agreed 
with the Panel’s statement that:  
Article VI of GATT 1994 and the SCM Ag reement represent a new and different 
package of rights and obligations, as am ong WTO Members, regarding the use of 
countervailing duties. Thus, Article VI a nd the respective SCM Agreements impose 
obligations on a potential user of countervaili ng duties, in the form of conditions that 
have to be fulfilled in order to impose a duty,  but they also confer the right to impose 
a countervailing duty when those conditions are satisfied. The SCM Agreements do 
not merely impose additional substantive a nd procedural obligations on a potential 
user of countervailing measures. Rather, the SCM Agreements and Article VI 
together define, clarify and in some ca ses modify the whole package of rights and 
obligations of a potential user of countervailing measures.
29 
56. The Appellate Body then proceeded to find that: 
 
[C]ountervailing duties may only be imposed  in accordance with Article VI of the 
GATT 1994 and the SCM Agreement . A countervailing duty being a specific action 
against a subsidy of another WTO Member, pursuant to Article 32.1, it can only be imposed "in accordance with the provisions  of GATT 1994, as interpreted by this 
Agreement". The ordinary meaning of these provisions taken in their context leads us to the conclusion that the negotiators of the SCM Agreement clearly intended that, 
under the integrated WTO Agreement , countervailing duties may only be imposed in 
accordance with the provisions of Part V of the SCM Agreement and Article VI of the 
GATT 1994, taken together. If there is a conflict between the provisions of the SCM 
Agreement and Article VI of the GATT 1994, furthermore, the provisions of the SCM 
Agreement would prevail as a result of the general interpretative note to Annex 1A. 
 … 
 
The fact that Article VI of the GATT 1947 could be invoked independently of the Tokyo Round SCM Code under the previous GATT system does not mean that Article 
VI of GATT 1994 can be applied independently of the SCM Agreement in the context 
of the WTO. The authors of the new WTO regime intended to put an end to the 
fragmentation that had characterized the previous system.
30 
57. China takes the above Appellate body statement to mean that Art. 32.1 of the SCM 
Agreement , being the linkage between Art. XVI :3 of GATT 1994 and Art. 6.3(d) of SCM Agreement  
                                                      
27 Original Appellate Body quote, Panel Report on Brazil – Desiccated Coconut, Brazil – Measures 
Affecting Desiccated coconut , WT/DS22/R, adopted 20 March 1997, Para. 227;  Appellate Body Report, Brazil 
– Measures Affecting Desiccated Coconut , WT/DS22/AB/R, DSR 1997:I, p. 15. 
28 Appellate Body Report on Brazil – Desiccated Coconut , p. 16. 
29 Panel Report, Brazil - -Desiccated Coconut, Brazil – Measures Affecting Desiccated Coconut , 
WT/DS22/R, adopted 20 March 1997, Para. 246, as upheld by the Appellate Body Report;  Appellate Body Report on Brazil – Desiccated Coconut , p. 17. 
30 Appellate Body Report on Brazil – Desiccated Coconut , pages 16 and 18. WT/DS267/R/Add.3 
Page J-144  
 
 in connection with the inequitable share of world market challenge, requires that the Art. 6.3(d) 
prevail over GATT Art. XVI:3.  In other words, if this Panel were to find that the GATT provision in 
conflict with the Art. 6.3(d), a claim against ag ricultural export subsidies cannot be brought under 
GATT XVI:3, but should be brought as actionable subsidies under Art. 6.3(d) of the SCM Agreement ; 
however, if this Panel does not find any conflict, agricultural export subsidies actionable under Art. 
6.3(d) of the SCM Agreement  shall not be precluded from be ing actionable under GATT XVI:3, 
which can only be logical interpretation of note 56 to the SCM Agreement  as it applies to the 
relationship.  58. Conflicts or differences were obvious ly found by the Appellate Body in US-FSC.  It found 
that Article XVI:4 of GATT 1994 
 
differs very substantially from the subsidy provisions of the SCM Agreement , and, in 
particular, from the export subsidy provisions of both the SCM Agreement  and the 
Agreement on Agriculture. 
Hence, “[u]nquestionably, the explicit export subs idy disciplines, relating to agricultural products, 
contained in Articles 3, 8, 9 and 10 of the Agre ement on Agriculture must clearly take precedence 
over … the GATT 1994”.  59. Such an interpretation is further supported the general interpretative note to Annex 1A, which provides to the effect that in the event of a co nflict between a provision of the GATT 1994 and a 
provision of another agreement in Annex 1A, the latt er shall prevail to the extent of the conflict. 
 60. This Panel’s Question 56(c) is in fact an swered by the quoted passage from the Appellate 
Body in US-FSC .  When GATT 1947 was negotiated and codified, there was nothing in it that 
expressly defines the term “subsidy”, or the term “e xport subsidy”.  Such definitions only came into 
WTO wording in the Uruguay Round in addition to the new and more comprehensive discipline on 
“prohibited subsidies” under the  SCM Agreement  and “domestic [agricu ltural] support” under the 
Agreement on Agriculture .  The more explicit disciplines under the SCM Agreement  and the 
Agreement on Agriculture , as noted by the Appellate Body in th e quoted passage, being “the latest 
statement of WTO Members as to their rights and obligations concerning agricultural subsidies”, 
clearly take precedence over any GATT 1994 provis ions to the extent of direct conflict. 
 
61. China thanks this Panel for granting this oppor tunity to present its views on issues related to 
this proceeding, and hopes that this Pa nel will finds the above points helpful.  WT/DS267/R/Add.3 
 Page J-145 
 
 
 ANNEX J-17 
 
 
REPLIES OF THE EUROPEAN COMMUNITIES 
TO THE QUESTIONS FROM THE PANEL 
 
27 October 2003 
 
 
QUESTIONS TO THE EC 
 
Question 45  
 
 In relation to the term “same market” in Ar ticle 6.3 (c)of the SCM Agreement  states in 
paragraph 10 of its oral statement that a "wor ld market" cannot exist if there are significant 
trade barriers between Members.  On the other ha nd, the Panel notes that in relation to cotton, 
the EC takes the position in paragraph 14 of its further submission that the term "same market" in Article 6.3(c) should be read to in clude the domestic market of the subsidising 
Member. In light of the fact that many domest ic cotton markets, possibly including that of 
China, have significant trade barriers, how can the EC reconcile these two positions?  
 Reply
 
 1. The question does not state correctly the views expressed by the EC. Contrary to what is said 
in the question, the EC did not state at paragraph 14 of its further submission that “the term ‘ same 
market ’ in Article 6.3  (c) should be read to include the domestic  market of the subsidising Member”. 
Rather, the EC said in paragraphs 14-16 of  its further submission that the term “ world market share”  
in Article 6.3 (d) includes also the share of the domestic ma rket of the subsidising Member.  This 
reading of Article 6.3(d) is compatible with the vi ew that the term “same market” in Article 6.3(c) 
may include the world market, where there is such a world market.  On the other hand, there is no 
reason why Article 6.3(d) should a pply only in those cases where it can be established that there is a 
world market.  Rather the term “world market shar e” should be understood to mean, in that context, 
the aggregate of the shares in each of the relevant geographical markets. 
 2. Contrary also to what is stated in the qu estion, the EC has taken no position on the issue of 
whether, “in relation to cotton”, there is a world market for the purposes of Article 6.3 (c).  It might well be that, as suggested in the question, there is  no world market for cotton, with the consequence 
that the price effects mentioned in Article 6.3(c) would have to be observed separately within each 
distinct national or regional market and/or in the resi dual “rest-of-the world” market.  This is a factual 
matter on which the EC does not wish to express any views.  Question 46
 
  Should the Panel prefer a concept of allocation  of the benefit of subsidies to later years, 
to a concept of fully expensing subsidies to the year in which the benefit was provided?  
 
Reply
 
 
3. Whether a subsidy should be “allocated” or “e xpensed” depends on the na ture of the subsidy 
concerned, having regard to relevant criteria, su ch as those outlined at paragraph 11 of the EC’s 
further submission. WT/DS267/R/Add.3 
Page J-146  
 
  
4. The EC is not expressing any views on the larg ely factual question of whether the subsidies at 
issue should be “allocated” or “expensed”.  The poi nt made by the EC was simply that Brazil cannot 
have it both ways.  If the subsidies are fully expensed to the marketing year where they are granted, as 
Brazil appears to have done, it is contradictory to clai m at the same time that they continue to provide 
benefits beyond that marketing year. 
 Question 47
 
 
 In the EC further submission, it is said that significantly different conditions of 
competition in regional markets may prevent the Panel from arriving at the conclusion that 
there is a world market.  Is the payment of a subsidy a “condition of competition” and, if so, how should that impact upon the Panel’s analysis?  
Reply
 
 
5. To be precise, the EC’s position is that there is no world market for the purposes of Article 6.3 (c) where the existence of trade barri ers has the consequence that the conditions of 
competition, and in particular the price levels pr evailing in one geographical area are significantly 
different from those prevailing in another geographical area.   
6. Unlike, for example, import duties, quotas or transport costs, subsidies do not, of themselves, 
insulate the prices in one geographical area from tho se in other areas and, therefore, do not lead to 
existence of separate geographical markets.  
QUESTIONS TO ALL THIRD PARTIES
 
 Question 49
 
 
 What is the meaning and effect of the introductory phrase of Article 3 of the SCM Agreement ("Except as provided in the Agreement on Agriculture...")?   
 Reply
 
 7. The introductory phrase of Article 3 makes it cl ear that subsidies which would be inconsistent 
with Article 3.1, but which are provided consisten tly with the export competition provisions of the 
Agreement on Agriculture  are not prohibited. 
 
Question 50
 
 
 According to its revised timetable, the Pane l will issue its report to the parties after the 
end of the 2003 calendar year.  Does this have any impact on “exempt[ion] from actions” under 
Article 13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture?  
 
Reply  
 8. No.  
9. In the first place, and contrary to the Panel’s implicit suggestion, it is still an open question, in 
view of the definition of the terms “implementa tion period” and “year” in Article 1 (f) and (i), 
respectively, of the Agreement on Agriculture , whether the provisions cited in the question will cease 
to apply by the end of the 2003 calendar year  or at a subsequent date during 2004.  
  WT/DS267/R/Add.3 
 Page J-147 
 
 
 10. In any event, the Panel would be precluded by  its terms of reference from taking into account 
the consequences of the expiry of those provisions.  The “matter” before the Panel was defined at the 
time where the DSB agreed to the establishment of th e panel and cannot be modified in the course of 
the proceedings.1  In accordance with its terms of referen ce, the Panel must consider the measures in 
dispute as they existed when the matter was referred to the DSB, on the basis of the facts existing at 
that moment and in the light of the WTO provisions that were relevant at that time. 
 11. Brazil’s claim is that the measures at issu e were WTO inconsistent at the time when the 
matter was referred to the DSB.  The Panel would go beyond its terms of referen ce if it were to decide 
that the measures are WTO inconsistent at a subsequent moment,  as a result of the expiry of the 
peace clause.  If, on the other hand, the Panel we re to apply WTO provisions that will become 
relevant only after the expiry of the peace clause to measures and facts as they existed at the time 
when the matter was referred to the DSB, it would be making an impermissible retroactive application 
of such provisions.   
Question 51
 
 
 How should the concept of specificity – and, in particular, the concept of specificity to 
"an enterprise or industry or group of enterprises or industries" -- in Article 2 of the SCM Agreement apply to subsidies in respect of  agricultural commodities? Please answer the 
following questions, citing the principles in Article 2 of the SCM Agreement:    
 
(a) is a subsidy in respect of all agricultural, but not other, products specific?  (b) is a subsidy in respect of all agricultural crops (i.e. but not to other agricultural 
commodities, such as livestock) specific? 
 
(c) is a subsidy in respect of certain identified agricultural products specific?  (d) is a subsidy in respect of upland cotton, but not other products, specific?  (e) is a subsidy in respect of a certain proportion of the value of total US commodities (or 
total US agricultural commodities) specific? 
 (f) is a subsidy in respect of a certain proportion of total US farmland specific?  
Reply
 
 
 A subsidy granted to an economic operator which does not require any production of agricultural products, and in which the subsidy may be  used for any purpose, does not appear, to the 
EC, to be specific in the sense of Article 2.1(a)  Question 52
 
  The Panel notes that different remedies a re available in respect of prohibited and 
actionable subsidies under Article 4.7 and 7.8 of the SCM Agreement.  If the Panel were to 
conclude that a subsidy was prohibited and we re to make a recommendation under Article 4.7 
of the SCM Agreement to withdraw the subsidy without delay, can the Panel: 
 
                                                     
 
1 See e.g. Panel report on India – Measures Affecting the Automotive Sector , WT/DS1465/R, 
WT/DS175/R, at para. 7.26. WT/DS267/R/Add.3 
Page J-148  
 
 (a) also conclude that the same subsidy had resu lted in adverse effects to the interests of 
another Member?  If so, what would be the value of such a conclusion in terms of the settlement of the matter before the Panel? 
 
Reply
 
 
12. Yes.  There is nothing in the SCM Agreement  which prevents a complaining party from 
claiming that a subsidy is prohibited under Part  II and, in addition, causes “adverse effects” under 
Part III. 
 
13. A finding that a prohibited subsidy causes “seri ous prejudice” may still be relevant in so far 
as at it may be possible for the subsidising Member to withdraw the export or local content condition 
attached to the subsidy, which causes its prohibiti on, while maintaining the subsidy and its adverse 
effects.     
 (b) take into account the effects of the interact ion of those prohibited subsidies with other, 
allegedly, actionable subsidies?  If so, how is this relevant to the issue of causation under 
Article 5 of the SCM Agreement? 
 
14. In a situation where the complaining party has made no claim that a prohibited subsidy causes 
adverse effects under Part III, it would be necessary to establish the causal link between the actionable 
subsidies and the adverse effects.  However, the EC  understands that this situation does not arise in 
the present dispute, because Brazil claims that all the allegedly prohibited subsidies cause adverse 
effects. 
  
Question 53
 
 
 Would a finding of serious prejudice under Article 5(c) of the SCM Agreement be 
determinative for a finding under Article XVI:1 of the GATT 1994?  Why or why not?  What, if any, is the role of footnote 13 of the SCM Agreement in this context?   
 
Reply
 
 
15. Footnote 13 states that the term “serious prejudice” is used in the SCM Agreement  in the same 
sense as in Article XVI:1 of the GATT.  Therefor e, it seems that a finding that a subsidy causes 
“serious prejudice” under Article 5(c) of the SCM Agreement  would have the necessary implication 
that the same subsidy causes also “serious prejudice” in  the sense of Article XVI:1 of the GATT, in so 
far as that provision can be applied on its own.  
 Question 54
 
 
 Are US cotton producers able to cover th e fixed and variable costs without subsidies? 
Please provide substantiating evidence.  Of what rel evance is this, if any, to Brazil's actionable 
subsidy claims ?  
 
Reply  
 
16. The EC has not taken any position on the factual issue raised in the question.  
 17. In principle, whether or not a producer is able  to cover all its costs without subsidies is not, as 
such, directly relevant, let alone determinative of  whether the subsidies cause adverse effects.   
  WT/DS267/R/Add.3 
 Page J-149 
 
 
 Question 55  
 
 In light of the fact that certain third parties have provided submissions about the price effect of claimed US subsidies, which Member or Members is, or are, the “other party” under 
Article 6.3(c) (“another Member”) for the purposes of these proceedings? 
 
Reply
 
 18. The EC agrees with the United States that, for the purposes of Article 6.3(c), only the price effects on the “products” of Brazil are relevant.  (See US Further Submission, para. 86 and the case 
law cited therein) 
 Question 56
 
 
 Please respond to the following questio ns concerning the relationship between 
Article XVI:3 of the GATT 1994, the disciplines on export subsidies and domestic support in the 
Agreement on Agriculture and the disciplines on prohibited export subsidies and actionable 
subsidies in Articles 3, 5(c) and 6.3(d) of the SCM Agreement.      (a) Are agricultural domestic support progr ammes challengeable under Article XVI:3 of 
the GATT 1994?  How, if at all, is the title of  Section B of Article XVI ("Additional 
provisions on export subsidies" (emphasis added )) relevant?  How, if at all, are Articles 
13 and 21.1, or any other provisions, of the Agreement on Agriculture, relevant? 
 (b) Are the requirements of Article XVI:3 of  the GATT 1994 reflected in, developed by or 
subsumed by the requirements in Article 6.3(d) of the SCM Agreement, or in any other 
provisions of the covered agreements?  Of what  relevance, if any, is the Appellate Body 
Report in US-FSC, para. 117
2 here?  
                                                      
2 WT/DS108/AB/R, para 117:  
"… the provisions of the SCM Agreement  do not provide explicit assistance 
as to the relationship between the export subsidy provisions of the 
 SCM Agreement  and Article XVI:4 of the GATT 1994. In the absence of 
any such specific textual guidance, we must determine the relationship 
between Articles 1.1(a)(1) and 3.1(a) of the  SCM Agreement  and 
Article XVI:4 of the GATT 1994 on the basis of the texts of the relevant 
provisions as a whole.  It is clear  from even a cursory examination of 
Article XVI:4 of the GATT 1994 that it differs very substantially from the subsidy provisions of the SCM Agreement , and, in particular, from the 
export subsidy provisions of both the SCM Agreement  and the Agreement on 
Agriculture .  First of all, the  SCM Agreement  contains an express definition 
of the term "subsidy" which is not contained in Article XVI:4.  In fact, as we 
have observed previously, the  SCM Agreement  contains a broad package of 
new export subsidy disciplines that "go well beyond merely applying and interpreting Articles VI, XVI and XXIII of the GATT 1947".  Next, 
Article XVI:4 prohibits export subsidies only when they result in the export 
sale of a product at a price lower than  the "comparable price charged for the 
like product to buyers in the domes tic market."  In contrast, the 
 SCM Agreement  establishes a much broader prohibition against any subsidy 
which is "contingent upon export performance".  To say the least, the rule contained in Article 3.1(a) of the  SCM Agreement  that all subsidies which 
are "contingent upon export performance" are prohibited is significantly 
different from a rule that prohibits only those subsidies which result in a lower price for the exporte d product than the comp arable price for that 
product when sold in the domestic market.  Thus, whether or not a measure WT/DS267/R/Add.3 
Page J-150  
 
  
(c) Of what relevance, if any, is the fact that the definition of "subsidy" in Article 1 of the 
SCM Agreement and the prohibition on subsidies contingent upon export in Article 3.1(a) were introduced in the Uruguay Round, but did not exist at the time that the GATT 1947 was negotiated? 
   
 Reply
 
 
19. Article XVI:3 of the GATT has been elaborated in Article 6.3(d) of the SCM Agreement , with 
the consequence that it cannot be applied independent ly from Part III of the SCM Agreement, just like 
Article VI of the GATT cannot be app lied independently from Part V of the SCM Agreement .3  
Indeed, if Article XVI:3 could be applied on its own, the additional requirements provided for in 
Article 6.3(d) and related provisions, such as Ar ticle 6.7, would be re ndered largely redundant. 
 20. By its own terms, Article XVI:3  is concerne d exclusively with “export subsidies”.  However, 
as noted by the Appellate Bo dy in the passage of the FSC report mentioned in the question, the scope 
of the notion of export subsidy in Article XVI di ffers from the scope of the same term in the SCM 
Agreement  and in the Agreement on Agriculture .  It is conceivable, therefore, that one and the same 
measure may be at the same time an “export subsid y” in the sense of Article XVI:3 and “domestic 
support” within the meaning of the Agreement on Agriculture .  This is not saying that the Agreement 
on Agriculture  and Article XVI:3 can apply simultaneously to the same measure.  Where a measure is 
subject to the rules on domestic support of the Agreement on Agriculture , those rules excludes the 
application of Article XVI:3 to the same me asure, in accordance with Article 21.1 of the Agreement 
on Agriculture  (irrespective of whether Article XVI:3 can be applied independently from the SCM 
Agreement .) 
 
21. This interpretation is confirmed by Article 13 of the Agreement on Agriculture .  It would be 
odd if the peace clause exempted export subsidies fro m action under Article XV I:3, but not domestic 
support, which is assumed to have less pernicious trad e effects. Clearly, if the drafters of the peace 
clause did not deem necessary to exempt domestic support from action under Article XVI:3 it is because they considered that this provision did not apply to domestic support pursuant to Article 21.1 
of the Agreement on Agriculture . 
                                                                                                                                                                    
 
is an export subsidy under Article XVI:4 of the GATT 1947 provides no 
guidance in determining whether that measure is a prohibited export subsidy 
under Article 3.1(a) of the  SCM Agreement .  Also, and significantly, 
Article XVI:4 of the GATT 1994 does not apply to "primary products", 
which include agricultural products.  Unquestionably, the explicit export 
subsidy disciplines, relating to agricultural products, contained in Articles 3, 8, 9 and 10 of the Agreement on Agriculture  must clearly take precedence 
over the exemption  of primary products from export subsidy disciplines in 
Article XVI:4 of the GATT 1994." 
3 Cf. Panel and Appellate Body reports, Brazil – Measures Affecting Desiccated Coconuts , 
WT/DS22/R and WT/DS22/AB/R.  WT/DS267/R/Add.3 
 Page J-151 
 
 
 ANNEX J-18 
 
 
ANSWER TO PANEL QU ESTION TO INDIA 
 
27 October 2003 
  
Question 48 
 
 In the further submission of India, it is stated that “there is “no obligation under the 
SCM Agreement  to demonstrate serious prejudice separately after establishing that one of the 
effects of a subsidy listed under Article 6.3 applies,  as the effects listed in Article 6.3 themselves 
equate to serious prejudice”. How does this view relate to Article 6.3(d), which appears to contain no element of degree?  India 
 
Reply 
 
  India presumes that by ‘element of degree’ the Panel means the ‘intensity or amount’ of the effects of the subsidy as enumerated in Article 6.3 of the SCM Agreement. India notes that for serious 
prejudice to arise, in respect of only one out of the four effects of the subsidy in Article 6.3, has the 
intensity of the effect been specified.  This is in r espect of the effect of the subsidy in Article 6.3 (c) 
wherein the ‘intensity or amount’ of price underc utting, price suppression or price depression has 
been qualified by ‘significant’.  Thus, for serious prejudice to arise in case of price undercutting, price suppression or price depression, such effects should be  significant.  What can constitute ‘significant’ 
would vary from case to case.  India is of the view that the other cases of effect of the subsidy 
specified in paragraphs 3 (a), 3(b) and 3 (d ) of Article 6 contain no element of degree.  
  India fails to see how the absence of any element of degree in paragraphs 3 (a), 3(b) and 3 (d) of Article 6 results in the complaining Member being separately required to prove that the prejudice is indeed serious even after having established that one of these effects exists.  If the drafters had 
intended that the complaining Member should separ ately establish that the prejudice caused by the 
effects of the subsidy was serious they would have  defined the requirements for this purpose.  The 
SCM Agreement contains no such requirement. India is, therefore, of the view that there is no obligation under the SCM Agreement  to demonstrate serious prejudice separately after establishing 
that one of the effects of a subsidy listed under Article 6.3 applies.  WT/DS267/R/Add.3 
Page J-152  
 
 ANNEX J-19 
 
 
RESUMED FIRST SESSION OF THE FIRST SUBSTANTIVE 
MEETING OF THE PANEL 
 
NEW ZEALAND ANSWERS TO QUESTIONS FROM 
THE PANEL TO THIRD PARTIES 
 
14 October 2003 
  
Q49. What is the meaning and effect of the introductory phrase of Article 3 of the SCM 
Agreement (“Except as provided in the Agreeme nt on Agriculture …”)? All third parties 
 
 This phrase refers to provisions in the Agreement on Agriculture  that provide specific 
exception from Article 3 of the SCM Agreement .  New Zealand does not agree that any such 
exception exists in the Agreement on Agriculture  that would authorise use of local content subsidies 
contrary to Article 3.1(b) of the SCM Agreement,  as argued by the United States.
1  There is no basis 
upon which to claim that the Agreement on Agriculture  gives Members a right to use whatever 
domestic support they wish with complete impun ity from action under other WTO Agreements.   
 
Q50.  According to its revised timetable, the Panel will issue its report to the parties after the 
end of the 2003 calendar year.  Does this have any impact on “exemp[tion] from actions” under 
Article 13(b)(ii) and 13(c)(ii) of the Agreement on Agriculture? All third parties  
 
 No.  Brazil has not claimed that the implementa tion period in Article 13 has expired.  It has 
claimed that the provision of Articles 13(b) and (c) have not been respected.  Q51. How should the concept of specificity – and,  in particular, the concept of specificity to 
“an enterprise or industry or group of enterprises or industries” – in Article 2 of the SCM Agreement apply to subsidies in respect of  agricultural commodities ? Please answer the 
following questions, citing the principles in Arti cle 2 of the SCM Agreement.  All third parties  
 
 New Zealand agrees with Brazil that the ordina ry meaning, context and object and purpose of 
Article 2.1(a) of the SCM Agreement  confirm that subsidies that are available to discrete segments of 
an economy or to only particular industries are specific.  New Zealand considers that Brazil has 
demonstrated that each of the subsidies provided by the United States to upland cotton are specific 
within the meaning of Article 2.    
 Whether or not a subsidy is specific within the terms of Article 2, with the exception of 
prohibited subsidies which are deemed specific by Ar ticle 2.3, requires examination of the particular 
features of the subsidy at issue, including factual information about the actual usage of the subsidy 
and not simply its availability.  Thus in relation to  the general scenarios ou tlined below only general 
responses are possible.   
 
                                                     
 
 1 United States – Subsidies on Upland Cotton , Further Submission of the United States, 
30 September 2003, para 167.  WT/DS267/R/Add.3 
 Page J-153 
 
 
 (a) is a subsidy in respect of all agricultural, but not other, products specific? 
 
 New Zealand does not consider that this questi on is relevant to this dispute as none of the 
subsidies at issue are provided on the same terms to all agricultural products.  
(b) is a subsidy in respect of all agricultural crops (ie but not to other agricultural 
commodities, such as livestock) specific?  
 
 Yes such a subsidy would be specific, because access to the subsidy is explicitly limited to 
certain enterprises within the meaning of Article 2. 1(a), specifically to producers of agricultural crops. 
 
(c) is a subsidy in respect of certain identified agricultural products specific? 
 
 Yes, because it is specific to producers of certa in agricultural products and is thus explicitly 
limited to certain enterprises within the meaning of Article 2.1(a).   (d) is a subsidy in respect of upland cotton, but not other products, specific?  
 Yes, because it is specific to producers of one product and is thus exp licitly limited to certain 
enterprises within the meaning of Article 2.1(a).     
(e) is a subsidy in respect of a certain proportion of the value of the total US commodities 
(or total US agricultura l commodities) specific? 
 
 It is not clear from the question what kind of subsidy is being referred to, and, as noted in 
New Zealand’s general comments on th is question, whether or not a subsidy is specific within the 
terms of Article 2 of the SCM Agreement  requires examination of the particular features of the 
subsidy at issue.  To the extent that the subsid y referred to in the question is limited to certain 
enterprises (as suggested by the fact that the subsid y is provided only in respect of a certain proportion 
of the total value of United States commodities or agricultural commodities) it would be specific 
within the meaning of Article 2.1(a).     (f) is a subsidy in respect of a certain proportion of total US farmland specific? 
 
See New Zealand’s answer to (e) above.    
Q52. The Panel notes that different remedies are available in respect of prohibited and 
actionable subsidies under Article 4.7 and 7.8 of the SCM Agreement.  If the Panel were to 
conclude that a subsidy was prohibited and w ere to make a recommendation under Article 4.7 
of the SCM Agreement to withdraw the subsidy without delay, can the Panel:  (a) also conclude that the same subsidy had resu lted in adverse effects to the interests of 
another Member? If so, what would be the value of such a conclusion in terms of the 
settlement of the matter before the Panel? All third parties  
 
 A Panel may conclude that a prohibited subsidy had resulted in adverse effects to the interests 
of another Member.  The chapeau of Article 5 of the SCM Agreement  refers to “any subsidy referred 
to in paragraphs 1 and 2 of Article  1”.  Reference is ma de in paragraph 2 of Article 1 to subsidies 
being subject to the provisions of Part III only if they are specific in accordance with Article 2.  
Article 2.3 deems any subsidy falling under the provisions  of Article 3, ie prohibited subsidies, to be 
“specific”.  Thus a prohibited subsidy may also be  subject to the provisions of Part III of the SCM 
Agreement .  It is therefore open to a Panel to conclude  that a prohibited subsidy resulted in adverse 
effects to the interests of another Member. WT/DS267/R/Add.3 
Page J-154  
 
  
 The value of such conclusion in terms of the settlement of the matter before the Panel is to 
clarify the adverse effects that must be removed by  the subsidising Member, albeit that a subsidising 
Member does not have the option of removing the adve rse effects attributable to prohibited subsidies 
other than by withdrawing the subsidy without delay. 
 
(b) take into account the effects of the interact ion of those prohibited subsidies with other, 
allegedly, actionable subsidies? If so, how is  this relevant to the issue of causation under 
Article 5 of the SCM Agreement? All third parties 
  A Panel may take into account the effects of th e interaction of those prohibited subsidies with 
other actionable subsidies.  For example, actionable subsidies could operate to neutralise the effect of 
removal of the prohibited subsidy, as would likely be the case in respect of removal of the Step 2 
export payments.  Removal of this prohibited export subsidy would be likely to lead to a decline in 
United States exports and thus lower the United St ates domestic price for upland cotton.  However 
lower prices for upland cotton producers would trigge r increased marketing loan deficiency payments 
that could in turn boost exports and thus maintain the adverse effect of the United States subsidies.   
  It is therefore important to consider the inter action of the various types of subsidies at issue 
and look at their collective effect.  However no at tribution of the effects to either prohibited or 
actionable subsidies is needed, because there is  no conflict between the remedies for prohibited 
subsidies and actionable subsidies.  To the extent that the subsidies causing serious prejudice to the 
interests of other Members include prohibited subsid ies, the subsidising Member must withdraw them 
without delay, as they do not have the option av ailable in respect of actionable subsidies of 
maintaining the subsidy so long as the adverse effect is removed.    Q53. Would a finding of serious prejudice under Article 5(c) of the SCM Agreement be determinative for a finding under Article XVI:1 of the GATT 1994? Why or why not? What, if any, is the role of footnote 13 of the SCM Agreement in this context? All third parties  
 
 A finding of serious prejudice under Article 5(c) of the SCM Agreement  would be 
determinative for a finding under Article XVI:1 of  the GATT 1994 because serious prejudice is used 
in the same sense in Article 5(c) as it is in Artic le XVI:1.  Footnote 13 explicitly clarifies this.   
 
Q54. Are US cotton producers able to cover the fixed and variable costs without subsidies? 
Please provide substantiating evidence.  Of what relevant is this, if any, to Brazil’s actionable 
subsidy claims? All third parties  
 
 Without subsidies United States cotton producers would not be covering their full costs of production and so would be making losses over the longe r term.  Evidence for this has been provided 
by Brazil in Exhibits Bra-7 and Bra-205.  For example in 1999, 2000 and 2001 the USDA estimated that United States cotton producers total costs exc eed  the value of production by 173, 142 and 259 
dollars per planted acre respectively, as shown in “US cotton production costs and returns 1997-
2001”.
2 
  Accordingly the subsidies mean that United States production is higher than it otherwise 
would be.  As Professor Sumner’s econometric wo rk shows, without subsidies US production over 
1999-2002 would have been an average of 28.7 per cent lower than actual US production
3 and as a 
consequence United States exports would have d eclined on average by 41.2 per cent between MY 
                                                      
 2 Exhibit BRA 7. 
  3 United States – Subsidies on Upland Cotton, Brazil’s Further Submission to the Panel, 
9 September 2003, para 105.  WT/DS267/R/Add.3 
 Page J-155 
 
 
 1999-20024 and world prices would have been an average of 12.6 per cent higher.  This evidence thus 
supports Brazil’s claim that the United States subs idies have caused serious prejudice to Brazil’s 
interests and threaten to cause serious prej udice to Brazil’s interests in the future. 
 
Q55. In light of the fact that certain third parties have provided submissions about the price 
effect of claimed US subsidies, which Member or Members is, or are, the “other party” under 
Article 6.3(c) (“another Member”) for the purposes of these proceedings? All third parties 
 
 Brazil is the “other party” in the context of Article 5(c).  But that does not mean that other Members too cannot be suffering the serious prejudice through the use of the subsidies at issue by the 
United States.  Indeed the Oral Statement of Benin to the Panel
5 makes it clear that this is the case. 
 
Q56. Please respond to the following questions  concerning the relationship between Article 
XVI:3 of the GATT 1994, the disciplines on export subsidies and domestic support in the Agreement on Agriculture and the disciplines on prohibited export subsidies and actionable 
subsidies in Articles 3, 5 and 6.3 (d) of the SCM Agreement.  All third parties.  
(a) Are agricultural domestic support progr ammes challengeable under Article XVI:3 of 
the GATT 1994? How, if at all, is the title of Section B of Article XVI (“Additional 
provisions on export subsidies
” (emphasis added) relevant?  How, if at all, are Articles 
13 and 21.1, or any other provisions, of the Agreement on Agriculture relevant?  
 
 Agricultural domestic support progra mmes are challengeable under GATT 1994 
Article XVI:3 to the extent that they meet the re quirements of that Article , including, for example, 
that they must provide a subsidy that “operates to increase the export of any primary product from its 
territory”.  
 
 The title of Section B is relevant in that it reflects the narrower scope of Section B vis-à-vis 
Section A.  Section B addresses “A dditional Provisions on Export S ubsidies”, whereas Section A is 
broader and addresses “Subsidies in General” – it incl udes subsidies that operate to reduce imports of 
any product into the territory of the subsidisi ng Member.  The term “export subsidies” in the 
particular context of GATT Article XVI is not defi ned, but can be given meaning by the scope of 
paragraph 3 which applies to “any form of subs idy which operates to increase the export of any 
primary product” and is thus a broader definition than “conti ngent … upon export” found in the SCM 
Agreement .  
  Article 21.1 of the Agreement on Agriculture , which provides that GATT 1994 must be 
applied subject to the Agreement , is relevant in so far as it clarifies that in the event of legal conflict 
the provisions of the Agreement on Agriculture  apply.  During the implementation period Article 13 
of the Agreement on Agriculture  provides exemption from actions based on specific GATT 1994 
provisions, subject to certain criteria being met.  Article 13 exempts domestic support measures from action based on Article XVI:1 only if such measure s do not grant support in excess of that decided 
during the 1992 marketing year. 
 
 Brazil has brought forward evidence to demonstr ate that the subsidies at issue operate to 
increase United States exports of upland cotton and that  they have been applied by the US in a manner 
that has resulted in the United States having a “mor e than equitable share of the world export trade” 
within the meaning of Article XVI:3 and therefore cause serious prejudice within the meaning of 
Article XVI:1. 
 
                                                     
 
 4 Ibid. 
 5 Oral Statement of Benin, 8 October 2003. WT/DS267/R/Add.3 
Page J-156  
 
 (b) Are the requirements of Article XVI:3 of  the GATT 1994 reflected in, developed by or 
subsumed by the requirements in Article 6.3(d) of the SCM Agreement, or in any other provisions of the covered agreements?  Of what  relevance, if any, is the Appellate Body 
Report in US-FSC, para 117 here?  
  Article 6.3(d) of the SCM Agreement  elaborates on one specific aspect of the disciplines on 
subsidies in GATT Article XVI:3, and that is in rela tion to the situation where a subsidy, as defined in 
the SCM Agreement , results in an increase in the world market  share of the subsidising Member in the 
particular subsidised product.  However GATT Ar ticle XVI:3 addresses a broader situation – where 
the result of the application of the subsidies is that  the subsidising Member has a “more than equitable 
share” of the world export trade in the product.   
  A Member challenging a subsidy need not dem onstrate that the subsidising Member’s share 
of the world market has necessarily increased.  Fo r example, a Member may apply a subsidy that 
increases its exports of a product in order to simply main tain its market share.  “But for” that subsidy, 
relevant economic factors might have meant that a Member’s exports should in fact have declined.  
Therefore Article 6.3(d) of the SCM Agreement  covers one specific aspect of how a “more than 
equitable share” of the world market might manifest itself but not all such situations.    As such the situation is distinguishable from US-FSC
6 in relation to GATT Article XVI:4 
where the Appellate Body found that the narrow prohibition in Article XVI:4 had been entirely 
subsumed by Article 3.1(a) of the SCM Agreement . 
 
(c) Of what relevance, if any, is the fact that the definition of “subsidy” in Article 1 of the 
SCM Agreement and the prohibition on subsidies contingent upon export in Article 3.1(a) were introduced in the Uruguay Round, but did not exist at the time that 
the GATT 1947 was negotiated?  
 
 See New Zealand’s answer to Questions (a) and (b) above.   
                                                     
 
 6 Appellate Body Report, United States – Tax Treatment for “Foreign Sales Corporation ”, 
WT/DS108/AB/R, adopted 20 March 2000  WT/DS267/R/Add.3 
 Page J-157 
 
 
 ANNEX J-20 
 
 
RESPONSES TO QUESTIONS FROM THE 
PANEL FOR THIRD PARTIES 
 
THE SEPARATE CUSTOMS TERRITORY OF TAIWAN, 
PENGHU, KINMEN AND MATSU 
 
27 October 2003 
 
 
Q49.  About the meaning and effect of the introductory phrase of Article 3 of the SCM 
Agreement. 
 
A:   The introductory phrase of Article 3 of  the SCM Agreement “Except as provided in the 
Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be 
prohibited” has the meaning that if there is diffe rent provision in the Agreement on Agriculture (AoA) 
with regard to the subsidies listed in Article 3 of the SCM Agreement, the AoA provision shall 
prevail.  In other words, even if a subsidy is specific within the meaning of Article 1 of the SCM 
Agreement, and even if it is a subsidy contigent upon export performance or a subsidy contigent upon 
the use of domestic over imported goods, it is still not within the scope of pr ohibition under Article 3 
of the SCM Agreement.  The effect of such ag ricultural subsidy shall be decided by the AoA. 
 
 The critical point here is whether it is “provi ded in the Agreement on Agriculture”.  In this 
regard, Article 8 of the AoA is relevant. Article  8 provides that:  “Each Member undertakes not to 
provide export subsidies ot herwise than in conformity with this  Agreement and with the commitments 
as specified in that Member's Schedule.”  The AoA, at this current stage, only requires reduction of 
such subsidy, not the elimination of such subsi dy.  In other words, suppose the subsidy is in 
conformity with the AoA and with the commitments  as specified in the Members’ Schedule, it should 
be allowed by the AoA and thus would not be pr ohibited under the SCM Agreement according to the 
introductory phrase of Article 3 of the SCM Agreement. 
 
Q50.  About the impact of the revised timetable to issue the Panel report after the end of the 
2003 calendar year on the “exemp t[ion] from actions” under Articles 13(b)(ii) and 13(c)(ii) of 
the AoA.  
A:   We have no comments on this question. 
 
Q51.  About the concept of specificity in Articl e 2 of the SCM Agreement applying to subsidies 
in respect of agricultural commodities. 
 
A:   Article 2.1 of the SCM Agreement provides th at “In order to determine whether a subsidy, as 
defined in paragraph 1 of Article 1, is specific to  an enterprise or industry or group of enterprises or 
industries (referred to in this Agreement as ‘certain enterprises’) within the jurisdiction of the granting 
authority, the following principles shall apply:…”  Thus, when considering the answers below, the 
principles set forth in Article 2.1 must also be borne in mind. 
 
 Also, the basic reason for excluding “non-speci fic subsidies” from being prohibited should be 
that the subsidies are generally available and no competitive advantage is provided to a particular 
sector or some specific sectors.  If there is co mpetitive advantage provided to one or more sectors WT/DS267/R/Add.3 
Page J-158  
 
 with the effect of excluding other sectors from rece iving the advantages, it should be considered as 
specific.  
 Our view is that the concept if specificity  applies to the agriculture sector as follows: 
 (a) All agricultural products
:  not specific.  The competitive advantage is provided to all 
agricultural products. No agricultural products are excluded. 
 (b) All agricultural crops
:  specific.  Although the coverage is broad, some agricultural products 
are excluded. 
 (c) Certain identified agricultural products
:  specific.  Apparently it excludes a large portion of 
products. 
 (d) Upland cotton
:  specific.  It excludes all other products and only gives advantage to one 
product. 
 (e) Certain proportion of the value of total US  commodities or total US agricultural commodities
:  
not specific.  No commodities or ag ricultural commodities are excluded. 
 
(f) Certain proportion of total US farmland :  not specific, as long as farmland is not restricted to 
that producing certain commodities. 
 
Q52.  About different remedies available in respect of prohibited and actionable subsidies. 
 
A(a) The SCM Agreement explicitly divides subsidies into three categories, and Part II and Part III 
are designed to deal with different categories of  subsidies.  If a subsidy falls within “Part II 
Prohibited Subsidies”, it would not be falling w ithin “Part III Actionable Subsidies”.  Thus, it 
is unthinkable that if the Panel were to concl ude, for example, that a subsidy was prohibited 
and were to make a recommendation under Article  4.7 of the SCM Agreement, it would also 
have to decide whether the same subsidy had r esulted in adverse effects to the interest of 
another Member. 
 
(b) For the same reason, the Panel should not take  into account the interactive effects of those 
prohibited subsidies with other subsidies. 
 
Q53.  About the determinativeness of a findi ng under the SCM Agreement for a finding under 
GATT 1994 
 
A:   Footnote 13 of the SCM Agreement explains th at “The term ‘serious prejudice to the interests 
of another Member’ is used in this Agreement in the same sense as it is used in paragraph 1 of 
Article XVI of GATT 1994, and includes threat of  serious prejudice.”  Although there is no same 
provision in Article XVI of the GATT 1994, the r eal intent of the WTO Members should be to 
harmonize the meaning and concept of the same phrase where it appears in different agreements.  It 
would also be reasonable to interpret the same phrase in the same manner, unless there is strong 
reason for not doing so.  Our view, therefore, would be that if there is a finding of serious prejudice under Article 5(c) of the SCM Agreement, it should be de facto  determinative for a finding under 
Article XVI:1 of the GATT 1994. 
 
Q54.  About the evidence of US cotton produ cers to cover or not to cover the fixed and 
variable costs without subsidies. 
 
A:   We do not have information available on this.  WT/DS267/R/Add.3 
 Page J-159 
 
 
  
Q55.  About “another Member” of Article 6.3(c). 
 A:   We do not claim that we are “another Member” in the sense of Article 6.3(c) of the SCM 
Agreement.  Q56.  About the relationship between Articl e XVI:3 of the GATT 1994, the disciplines on 
export subsidies and domestic support in the AoA and the disciplines on prohibited export 
subsidies and actionable subsidies in Article 3, 5(c) and 6.3(d) of the SCM Agreement. 
 
A(a) Agricultural domestic support should not be  challengeable under Article XVI:3 of the GATT 
1994.  Although the second sentence “grants directly  or indirectly any form of subsidy which 
operates to increase the export of any primary product from its territory” seems to be broad 
enough to include domestic subsidies, this second sentence still comes after the introductory 
sentence, which requires Members to avoid the use of subsidies on the export of primary 
products.  Also paragraph 3 of Article XVI of the GATT 1994 is under the title “Section B - 
Additional Provisions on Export Subsidies”.  There is no reason why the provisions in paragraph 3 should not be limite d to export subsidies.  Otherwise, the title would become 
meaningless and redundant. 
 (b) Paragraph 117 of the Appellate Body Report in US-FSC is an appropriate interpretation of the 
relationship between the definition of subsidies and export subsidies in Articles 1.1(a)(1) and 
3.1(a) of the SCM Agreement on the one hand an d export subsidies in Article XVI:4 of the 
GATT 1994 on the other.  However, it does not ha ve relevancy in deciding the relationship 
between domestic subsidies and e xport subsidies.  The requirements of Article XVI:3 of the 
GATT 1994 are imposed on export subsidies, as e xplained above, while Article 6.3(d) of the 
SCM Agreement is about non-export subsidies.  Thus, the requirements of Article XVI:3 of 
the GATT 1994 are neither reflected in, nor devel oped by or subsumed by the requirements in 
Article 6.3(d) of the SCM Agreement. 
 
(c) Under the principle set forth by the above- mentioned Paragraph 117 of the Appellate Body 
Report in US-FSC , if there is conflict between Article XVI of the GATT 1994 and the AoA, 
the AoA must take precedence over the GATT 1994.   Based on the same principle, the SCM 
Agreement should take precedence over the GATT 1994 to the extent that there is conflict.  
However, with regard to the definition of subs idy in Article 1 of the SCM Agreement and the 
prohibition on subsidies contingent upon expor t in Article 3.1(a), there is no conflict 
provision in Article XVI of the GATT 1994.  Thus, there is no issue here of whether one 
agreement would take preference over the other.  Nevertheless, Article XVI of the GATT 1994 and the SCM Agreement are still the rules under the WTO dealing with the same set of 
matters.  The definition of certain terms in one agreement could serve as a very important 
source in helping to define the same terms in a nother agreement.  Therefore, unless there is a 
sound basis for having a different interpreta tion, we do not see any reason for different 
meanings of subsidies and export subsidies in  Article XVI of the GATT 1994 from those in 
the SCM Agreement.