WORLD TRADE
ORGANIZATIONWT/DS212/AB/R
9 December 2002
(02-6715)
Original:  English
UNITED STATES – COUNTERVAILING  MEASURES CONCERNING CERTAIN
PRODUCTS FROM THE EUROPEAN COMMUNITIES
AB-2002-5
Report of the Appellate BodyWT/DS212/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Factual Background .......................................................................................................... ..........5
A. The "Gamma"  Method ................................................................................................... 5
B. The "Same Person" Method........................................................................................... 7
C. The Consequences of Privatization................................................................................ 8
III. Arguments of the Participan ts and Third Pa rticipan ts ................................................................9
A. Claims of Error by the United States – Appellant ......................................................... 9
1. Privatizations at Arm's Length  and for Fair Ma rket Value...............................9
2. The "Same Pers on" Method............................................................................11
3. Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO
Obligati ons......................................................................................................12
B. Arguments of the European Communities – Appellee ................................................. 13
1. Privatizations at Arm's Length  and for Fair Ma rket Value.............................13
2. The "Same Pers on" Method............................................................................15
3. Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO
Obligati ons......................................................................................................16
C. Arguments of the Third Participants............................................................................ 18
1. Brazil...............................................................................................................18
2. India ................................................................................................................21
IV. Issues Raised in this Appeal ................................................................................................ .....21
V. Procedural  Issues ............................................................................................................ ..........22
A. Sufficiency of the Notice of Appeal and Request for Dismissal of Certain
Aspects of the Appeal................................................................................................... 22
B. The Amicus Curiae  Brief ............................................................................................. 33
VI. Introduction to the Substantiv e Issues ...................................................................................... 33
VII. Privatizations at Arm's Length  and for Fair Ma rket Va lue.......................................................37
A. The Panel's Finding..................................................................................................... 37
B. Interpretation of "Benefit" ........................................................................................... 40
C. Interpretation of the "Recipient"  of the Financial Contribution ................................. 44
D. Privatizations at Arm's Length and for Fair Market Value:  Can the "Benefit"
Continue to Exist?........................................................................................................ 50WT/DS212/AB/R
Page ii
VIII. The "Same Pe rson" Method.................................................................................................. ....53
IX. Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO Obligations................................66
X. Findings and Conclusions..................................................................................................... ....69
Annex I:  Notification of an Appeal by the United States under paragraph 4 of
Article 16 of the Understanding on Rules and Procedures Governingthe Settlement of DisputesWT/DS212/AB/R
Page iii
TABLE OF CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377.
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation,
Sale and Distribution of Bananas , WT/DS27/AB/R, adopted
25 September 1997, DSR 1997:II, 591.
US – Countervailing Measureson Certain EC Products
 Panel Report, United States – Countervailing Measures Concerning Certain
Products from the European , WT/DS212/R, 31 July 2002.
US – Lead and Bismuth II Appellate Body Report, United States – Imposition of Countervailing Duties on
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating inthe United Kingdom , WT/DS138/AB/R, adopted 7 June 2000,
DSR 2000:V, 2601.
Panel Report, United States – Impos ition of Countervailing Duties on Certain
Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the UnitedKingdom , WT/DS138/R and Corr.2, adopted 7 June 2000, as upheld by the
Appellate Body Report, WT/DS138/AB/R, DSR 2000:VI, 2631.
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp
and Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998,
DSR 1998:VII, 2755.WT/DS212/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
United States – Countervailing Measures
Concerning Certain Products from the
European Communities
United States,  Appellant
European Communities,  Appellee
Brazil, Third Participant
India, Third Participant
Mexico, Third ParticipantAB-2002-5
Present:Lockhart, Presiding Member
Abi-Saab, Member
Bacchus, Member
I. Introduction
1. The United States appeals certain issues of law and legal interpretations in the Panel Report,
United States – Countervailing Measures Concerning Certain Products from the EuropeanCommunities  (the "Panel Report").
1  The Panel was established to consider a complaint by the
European Communities with respect to countervailing duties imposed or maintained by the UnitedStates on certain steel products originating in various Member States of the European Communities.
2. Countervailing duties were imposed or maintained by the United States Department of
Commerce ("USDOC") in the course of 12 investigations: six original investigations, two
                                                     
1WT/DS212/R, 31 July 2002.WT/DS212/AB/R
Page 2
administrative reviews, and four sunset reviews.2  Certain analyses in these investigations were
undertaken pursuant to a United States statute, 19 U.S.C. § 1677(5)(F) ("Section 1677(5)(F)")3, which
reads as follows:
Change of ownership.  A change in ownership of all or part of a
foreign enterprise or the productive assets of a foreign enterprise does
not by itself require a determination by the administering authority
that a past countervailable subsidy received by the enterprise nolonger continues to be countervailable, even if the change in
ownership is accomplished through an arm's length transaction.
The subject products in the 12 original investigati ons and reviews in issue were produced by formerly
state-owned enterprises that had been privatized  at the time of the 12 underlying administrative
determinations.  The European Communities alleges that the privatizations in all 12 cases took placeat arm's length and for fair market value.  The United States did not rebut these allegations.
4  Both
participants agree that the changes in ownership relevant to this dispute concern only privatizations,that is, the change in ownership from government to private hands.
5  All the privatizations concerned
in this dispute involved a full change in ownershi p in the sense that in all 12 cases, governments had
                                                     
2The Panel adopted the following numbering system, which we will also use, to facilitate identification
of the various administrative determinations at issue: Stainless Sheet and Strip in Coils from France , 64 Fed.
Reg. 30774 (USDOC, 29 June 1999) (Case No. 1); Certain Cut-to-Length Carbon Quality Steel from France , 64
Fed. Reg. 73277 (USDOC, 29 Dec. 1999) (Case No. 2);  Certain Stainless Steel Wire Rod from Italy , 63 Fed.
Reg. 40474 (USDOC, 29 July 1998) (Case No. 3);  Stainless Steel Plate in Coils from Italy , 64 Fed. Reg. 15508
(USDOC, 31 March 1999) (Case No. 4);  Stainless Steel Sheet and Strip in Coils from Italy , 64 Fed. Reg. 30624
(8 June 1999) (Case No. 5);  Certain Cut-to-Length Carbon-Qu ality Steel Plate from Italy , 64 Fed. Reg. 73244
(USDOC, 29 December 1999) (Case No. 6); Cut-to-Length Carbon Steel Plate from Sweden , 62 Fed. Reg.
16551 (USDOC, 7 April 1997) (Case No. 7);  Cut-to-Length Carbon Steel Plate from United Kingdom , 65 Fed.
Reg. 18309 (USDOC, 7 April 2000) (Case No. 8);  Certain Corrosion-Resistant Carbon Steel Flat Products
from France , 65 Fed. Reg. 18063 (USDOC, 7 April 2000) (Case No. 9);  Cut-to-Length Carbon Steel Plate from
Germany , 65 Fed. Reg. 47407 (USDOC, 2 August 2000) (Case No. 10);  Cut-to-Length Carbon Steel Plate from
Spain , 65 Fed. Reg. 18307 (USDOC, 7 April 2000) (Case No. 11);  and Grain-Oriented Electrical Steel from
Italy, 66 Fed. Reg. 2885 (USDOC, 12 January 2001) (Case No. 12).  Case Nos. 1–6 correspond to original
investigations, Case Nos. 7 and 12 to administrative reviews, and Case Nos. 8–11 to sunset reviews.
3Section 771(5)(F) of the United States Tariff Act of 1930, as amended, which, for purposes of the
United States Code, is codified at 19 U.S.C. § 1677(5)(F), attached as Exhibit EC-4 to the European
Communities' first submission to the Panel.
4The USDOC analyzed the sales conditions of the privatizations in two of the underlying sunset
reviews (Case Nos. 8 and 10) and three of the original investigations (Case Nos. 1, 2, and 4), concluding that
those five privatizations took place at arm's length and for fair market value.  (See Panel Report, paras. 2.2, 2.39,
and 2.45; Remand Redetermination in  Acciai Speciali Terni S.p.A. v. United States , No. 99-06-00364, slip op.
02–10 (Court of International Trade, 1 February 2002), available at http://www.ia.ita.doc.gov/remands/02-
10.htm ;  Remand Redetermination in  GTS Indus. S.A. v. United States , No. 00-03-00118, slip op. 02-02 (Court
of International Trade, 4 January 2002), (available at http://www.ia.ita.doc.gov/remands/02-2.htm ;  and Remand
Redetermination in  Allegheny Ludlum Corp. v. United States , No. 99–09–00566, slip op. 02-01 (Court of
International Trade, 4 January 2002), available at http://www.ia.ita.doc.gov/remands/02-1.htm .))  The USDOC
has made no admissions as to the conditions of sale surrounding the other privatizations at issue.
5Panel Report, para. 2.3.WT/DS212/AB/R
Page 3
sold all, or substantially all, their ownership interests and, clearly, no longer had any controlling
interests in the privatized producers.6
3. The 12 investigations  relate to the impact of privatization of the firms under investigation on
the existence of a countervailable benefit.  The imposition or maintenance of countervailing duties in
the 12 determinations was based on the existence of subsidies for the privatized producers,
specifically, on the continuing benefit conferred by non-recurring financial contributions bestowed bythe governments on the producers prior to privatization.
4. The Panel found that the United States had acted inconsistently with Articles 10, 14, 19.1,
19.4, 21.1, 21.2, 21.3, and 32.5 of the  Agreement on Subsidies and Countervailing Measures  (the
"SCM Agreement ") and Article XVI:4 of the  Marrakesh Agreement Establishing the World Trade
Organization  (the " WTO Agreement ")
7, and that it had nullified or impaired benefits accruing to the
European Communities under these Agreements.8  The Panel recommended that the Dispute
Settlement Body (the "DSB") request the United States to bring its measures into conformity with its
obligations under the  SCM Agreement  and the  WTO Agreement .9
5. The United States notified the DSB on 9 September 2002 of its intention to appeal certain
issues of law covered in the Panel Report and certain legal interpretations developed by the Panel,pursuant to Article 16.4 of the  Understanding on Rules and Procedures Governing the Settlement of
Disputes   (the "DSU"), and filed a Notice of Appeal
10 with the Appellate Body pursuant
to Rule 20 of the  Working Procedures for Appellate Review  (the " Working Procedures ").  The Notice
of Appeal provides, in relevant part:
The United States seeks review by the Appellate Body of the
conclusions of the Panel set forth in paragraphs 8.1(a)-(d) and 8.2 of
the Panel's report.  These conclusions are in error, and are based upon
erroneous findings on issues of law and on related legalinterpretations.
6. The European Communities filed, on 10 September 2002, a Request for a Preliminary Ruling
(the "Request"), pursuant to Rule 16.1 of the  Working  Procedures , to "order" the United States to file
particulars "identifying the precise legal findings a nd legal interpretations that it is challenging."
11
                                                     
6Panel Report, para. 2.3.
7Ibid., para. 8.1.
8Ibid., para. 8.2.
9Ibid., para. 8.3.
10WT/DS212/7, attached as Annex I to this Report.
11Request, para. 6.WT/DS212/AB/R
Page 4
The United States responded to the Request on 12 September 2002, arguing that the Request should
be denied because the Notice of Appeal stated the Panel's findings and legal interpretations underappeal with sufficient clarity.
12
7. On 12 September 2002, after considering the submissions on this issue by the European
Communities and the United States, the Appellate Body "invite[d] the United States to identify the
precise findings and interpretations of the Panel which are alleged, in the Notice of Appeal filed9 September 2002, to constitute errors."
13  Responding to the invitation, the United States filed, on
13 September 2002, a document specifying further the errors of law and legal interpretations forwhich appellate review was requested. This document quoted the "Conclusions andRecommendations" paragraphs from the Panel Report
14, to which it had merely referred in the original
Notice of Appeal, and added descriptions of particular errors of the Panel, as claimed by the UnitedStates.
15  The issues of the sufficiency of the Notice of Appeal and the request of the European
Communities for dismissal of certain grounds of appeal were dealt with by the Participants in their
written submissions and submissions at the oral hearing, and are dealt with by us later, under the
heading "Procedural Issues".
8. On 19 September 2002, the United States filed its appellant's submission.  On
4 October 2002, the European Communities filed its  appellee's submission.  On the same day, Braziland India each filed a third participant's submission.  Mexico filed a letter that day, pursuant toRule 24(2) of the  Working Procedures , stating its intention to participate and make an oral
presentation as a third participant at the oral hearing.
16
9. The Appellate Body also received on 19 September 2002 an  amicus curiae  brief from an
industry association.17  The European Communities, on 27 September 2002, filed a letter contesting
the relevance of the  amicus curiae  submission to the Appellate Body's review, contending that the
"arguments do not differ in substance from and largely repeat the arguments of the United States
                                                     
12Letter dated 12 September 2002, from the Senior Legal Advisor, Permanent Mission of the United
States to the WTO, to the Presiding Member of the Division hearing this appeal, pp. 2–3.
13Letter dated 12 September 2002, from the Director of the Appellate Body Secretariat to the Senior
Legal Advisor, Permanent Mission of the United States to the WTO.
14Panel Report, paras. 8.1(a)–8.1(d) and 8.2.
15See Attachment to letter dated 13 September 2002 from the Senior Legal Advisor, Permanent
Mission of the United States to the WTO, to the Director of the Appellate Body Secretariat.
16Letter dated 4 October 2002, from H.E. Mr. Eduardo Pérez Motta, Ambassador, Permanent Mission
of Mexico to the WTO, to the Director of the Appellate Body Secretariat.
17Submission attached to letter dated 19 September 2002, from Andrew G. Sharkey III, American Iron
and Steel Institute President & CEO, to the Presid ing Member of the Division hearing this appeal.WT/DS212/AB/R
Page 5
Government"18, and requested the Appellate Body "to inform the parties whether it intends to accept
and take account of the brief submitted [by the industry association.]"19
10. The Appellate Body responded to the request of the European Communities on
27 September 2002, stating that a decision on the admissibility or relevance of the  amicus
submission would not be made until the written and or al submissions of all the participants had been
considered.20  The Appellate Body therefore invited all the participants "to address the [ amicus
curiae ] brief in the further course of this appeal."21
11. The oral hearing in the appeal was held on 22 October 2002.  The participants and third
participants presented oral arguments and responded to questions put to them by Members of theDivision hearing the appeal.
II. Factual Background
A. The "Gamma"  Method
12. The USDOC applied one of two different methods (referred to as the " gamma " and "same
person" methods)
22 in conducting the 12 determinations to asse ss the impact of a change in ownership
effected through privatization on the continued existence of the benefit of a countervailable subsidy.The  gamma   method was formerly used by the USDOC to determine the extent to which a non-
recurring financial contribution provided to a state- owned enterprise should be amortized over time to
arrive at a countervailable subsidy rate
23, particularly after sale of the subsidized entity to a private
firm.24  In applying this method, the USDOC employed an "irrebuttable presumption" that the benefits
                                                     
18Letter dated 27 September 2002, from the Minister-Counsellor, Permanent Delegation of the
European Communities to the WTO, to the Presiding Member of the Division hearing this appeal, p. 1.
19Ibid. , p. 2.
20Letter dated 27 September 2002, from the Director of the Appellate Body Secretariat to the Minister-
Counsellor, Permanent Delegation of the European Communities to the WTO.
21Ibid.
22We note that the Panel refers to the administrative practice challenged in this dispute as the "same
person  methodology ".  Article 14 of the SCM  Agreement  refers to the procedures used by investigating
authorities to calculate the benefit as "method[s]", so we will use the term "method" rather than "methodology".
23Both participants agree that "it is a normal  and accepted practice … for the importing Member to
presume that a non-recurring subsidy will provide a benefit over a period of time, which is normally presumedto be the average useful life of assets in the relevant industry", (Panel Report, para. 7.75) a practice found
permissible by the Appellate Body in  US – Lead and Bismuth II , para. 62, so long as the presumption remained
rebuttable.
24United States' first submission to the panel, para. 5, attached to the Panel Report in  US – Lead and
Bismuth II , Attachment 2.1, p. 164.WT/DS212/AB/R
Page 6
of that financial contribution would remain with  the recipient over a standard period of time25, such
that "USDOC does not undertake an inquiry into wh ether and, if so, to what extent the subsidy
continues to benefit production at any subsequent  point in time.  Rather, the USDOC simply will
countervail the amount of the subsidy origin ally allocated to the year" under review.26  W h e n
confronted with a change in ownership of the producer under investigation, the  USDOC would
devise a ratio so as to allocate the "irrebuttabl y presumed" benefit between the seller and purchaser.27
This allocation "can result in the full pass through of  benefits from prior subsidies, or absolutely no
pass through of benefits, or anything in between, depending on the facts of a particular case."28
13. The application by the USDOC of the  gamma  method in previous determinations was
reviewed by the panel in  US – Lead and Bismuth II , whose decision was upheld by the Appellate
Body.  The Appellate Body determined  that, rather than employing the  gamma  method's
"irrebuttable" presumption that subsidization continues, the USDOC should have conducted a newdetermination as to the existence of a "benefit", as " required " by the  SCM Agreement , "given the
changes in ownership leading to the creation of" the newly-privatized entities in that case.
29  T h e
Appellate Body further found that the "specific circum stances" of that case did not warrant a finding
of the continued existence of a benefit after the privatization of the assets of the state-owned firm atarm's length and for fair market value.
30
                                                     
25United States' first submission to the panel, paras. 6 and 44–45, attached to the Panel Report in  US –
Lead and Bismuth II , Attachment 2.1, pp. 164 and 172.
26United States' first submission to the panel, para. 44, attached to the Panel Report in  US – Lead and
Bismuth II , Attachment 2.1, p. 172.  See also ibid., para. 43, attached to the Panel Report in US – Lead and
Bismuth II , Attachment 2.1, p. 171, which states:
… the US countervailing duty statute contains "the irrebuttable
presumption that nonrecurring subsidies benefit merchandise producedby the recipient over time," without requiring any re-evaluation of those
subsidies based on the use or effect of those subsidies or subsequent
events in the marketplace.
(Quoting Certain Steel Products from Austria , 58 Fed. Reg. 37217, 37263 (USDOC, 9 July 1993)
(General Issues Appendix)).
27United States' first submission to the panel, para. 10, attached to the Panel Report in  US – Lead and
Bismuth II , Attachment 2.1, p. 165.
28United States' first submission to the panel, para. 53, attached to the Panel Report in  US – Lead and
Bismuth II , Attachment 2.1, p. 174.
29Appellate Body Report, US – Lead and Bismuth II , para. 62.
30Ibid., paras. 67–68 and 74.WT/DS212/AB/R
Page 7
B. The "Same Person" Method
14. The "same person" method was devised as a replacement for the  gamma  method.31  T h i s
method provides for a two-step test.  The first step  consists of an analysis of whether the post-
privatization entity is the same legal person that received the original subsidy before privatization.For this purpose, the USDOC examines the follow ing non-exhaustive criteria:  (i) continuity of
general business operations;  (ii) continuity of production facilities;  (iii) continuity of assets andliabilities;  and (iv) retention of personnel.  If, as a result of the application of these criteria, theUSDOC concludes that  no new legal person   was created, the analysis of whether a "benefit" exists
stops there, and the USDOC will not assess whether the privatization was at arm's length and for fairmarket value.  The subsidy is automatically found to  continue to exist for the post-privatization firm.
32
By contrast, if, as a consequence of the application of these criteria, the USDOC concludes that the
post-privatization entity is  a new legal person , distinct from the entity that received the pre-
privatization subsidy, the USDOC will not impose duties on goods produced after privatization onaccount of the pre-privatization subsidy .
33
15. In 11 of the 12 determinations at issue in this case, the  USDOC applied the  gamma  method.
These 11 determinations included six original investigations (Case Nos. 1–6), one administrativereview (Case No. 7), and four su nset reviews (Case Nos. 8–11).  The United States conceded the
inconsistency of seven of these determinations (Case Nos. 1–7) with its WTO obligations, based on itsacknowledgement that it must re-examine the continued existence of a benefit in the light of the
findings of the panel and Appellate Body in  US – Lead and Bismuth II .
34  With respect to the
remaining four  gamma  determinations (Case Nos. 8–11), all sunset reviews, the United States did
not concede inconsistency;  rather, the United States argued before the Panel that, where noadministrative reviews have taken place, an investigating authority is not required to considerevidence subsequent to the original investigation in evaluating whether the expiry of the
                                                     
31As noted above, in paragraph 13, the gamma  method was found by the Appellate Body to be
inconsistent with the United States' obligations under the  SCM Agreement ,  because the method does not permit
the investigating authority to re-examine its original benefit determination "given the changes in ownership
leading to the creation of" the privatized firms.  (Appellate Body Report, US –  Lead and Bismuth II , para. 62)
Before the decision of the Appellate Body in US – Lead and Bismuth II , the gamma  method had similarly been
rejected by a United States appellate court as inconsistent with the USDOC's governing statute (in particular, withSection 1677(5)(F)).  (See  Delverde Srl v. United States , 202 F.3d 1360 (Fed. Cir. 2000) (" Delverde III "))
32United States' response to questioning at the oral hearing.
33Ibid.  The USDOC will, however, proceed to examine, in such an event, whether any  new  subsidy
had been bestowed upon the post-privatization entity's new owners as a result of the change in ownership (e.g.,
by assessing whether the sale was for fair market value and at arm's length).  ( Ibid.)
34Panel Report, para. 7.84.WT/DS212/AB/R
Page 8
countervailing duty would be likely to lead to co ntinuation or recurrence of subsidization causing
injury.35  The Panel found to the contrary.36  The "same person"  method was applied in only one of the
determinations at issue on appeal, which wa s an administrative review (Case No. 12).
16. The Panel concluded, as the United States had conceded, that in the  gamma -based original
investigations and administrative  review (Case Nos. 1–7), the USDOC  had failed to determine the
existence (or continued existence) of a benefit before the imposition or maintenance of countervailingduties.
37  The Panel also concluded, regarding the four sunset reviews applying the  gamma  method
(Case Nos. 8–11), that the USDOC had similarly fa iled to examine the continued existence of a
benefit, and therefore, had not properly determined the likelihood of continuing or recurringsubsidization.
38  With regard to the "same person" method, the Panel found that it was "itself
inconsistent with the SCM Agreement" 39, and therefore, also found its application in administrative
review Case No. 12 to be WTO-inconsistent.40  In sum, the Panel found all 12 determinations to be
WTO-inconsistent.
C. The Consequences of Privatization
17. As regards the consequences of privatization for the purpose of determining the continued
existence of a "benefit", the Panel found that privatization at arm's length and for fair market value"must [lead to] the conclusion that no benefit resu lting from the prior financial contribution (or
subsidization) continues to accrue to the privatized producer".
41  On this premise, the Panel concluded
that Section 1677(5)(F) is inconsistent with the United States' WTO obligations because
"Section 1677(5)(F), as interpreted by the US C ourt of Appeals for the Federal Circuit and the
                                                     
35Panel Report, paras. 7.104–7.105.  Such evidence would include, as in the cases here, changes in
ownership occurring after the provision of the relevant financial contribution.
36Ibid., para. 7.114.
37Panel Report, paras. 7.86, 7.98, 8.1(a), and 8.1(b).
38Ibid., paras. 7.114–7.116 and 8.1(c).
39Ibid. , para. 7.90.
40Ibid., paras. 7.81 and 8.1(b).
41Ibid., para. 8.1(d).WT/DS212/AB/R
Page 9
SAA"42, prevented the USDOC from automatically reaching the conclusion in every case that,
following privatization at arm's length and for fair market value, "no benefit resulting from the prior
financial contribution (or subsidization) continues to accrue to the privatized producer".43
III. Arguments of the Participants and Third Participants
A. Claims of Error by the United States – Appellant
1. Privatizations at Arm's Length and for Fair Market Value
18. The United States claims that the Panel erred in (i) ignoring the distinction between
shareholders and firms when interpreting who is  the "recipient" of a "benefit", in the light of
Articles 1 and 14 of the  SCM Agreement  and Appellate Body jurisprudence, and (ii) consequently
determining that, contrary to the text of the  SCM Agreement  and economic reason, an arm's-length
privatization for fair market value necessarily extinguishes the benefit received from a previously-bestowed, non-recurring financial contribution.
19. The United States argues that the distinction between shareholders and firms, a "bedrock
principle"
44 underlying the corporation laws of most advanced industrial jurisdictions, is recognized
by the  SCM Agreement , and that the Panel therefore impermissibly rejected this distinction when
evaluating the determinations of the USDOC.   Noting that a "benefit", as used in Article 1.1(b) of theSCM Agreement , must be conferred upon a "recipient", as provided for in Article 14 of that
Agreement, the United States insists that the plain meaning of the term "recipient" cannot includeboth the benefiting foreign producer and a shareholder of that producer.
45  The United States finds
contextual support for this reading in the forms of financial contribution identified in Article 1.1(a)and in the calculation guidelines of Article 14, arguing that these articles contemplate the recipient of
                                                     
42Panel Report, para. 8.1(d).  The Statement of Administrative Action ("SAA") was submitted by the
President to the United States Congress with the Uruguay Round Agreements Act, the proposed statutoryscheme enacting the WTO Agreements into United States domestic law.  The SAA "represents an authoritative
expression by the Administration concerning its views regarding the interpretation and application of the
Uruguay Round agreements".  (H.R. Rep. No. 103-316(I), at 656 (1994))  Congress further adopted the SAA:
… as an authoritative expression by the United States concerning the
interpretation and application  of the Uruguay Round Agreements and this
Act in any judicial proceeding in wh ich a question arises concerning such
interpretation or application.
(19 U.S.C. § 3512(d))
43Panel Report, para. 8.1(d).
44United States' appellant's submission, para. 60.
45Ibid., para. 56.WT/DS212/AB/R
Page 10
a benefit to be a "firm" rather than, as the Panel found, some amalgamation of a firm and its
shareholders.46
20. It is therefore "not surprising", in the view of the United States, that the Appellate Body, in
Canada – Aircraft   and in  US – Lead and Bismuth II ,  should have expressly identified "legal or
natural persons" as the recipients addressed in the  SCM Agreement .47  The United States submits that
"when the Appellate Body found that benefits are received by legal persons, it necessarily wasreferring to such legal persons as defined by 'the legal business structure established pursuant tonational corporate law'".
48  The United States adduces that the Panel, in finding that "the concept of
benefit is independent of the legal business structure established pursuant to national corporatelaw" 
49, unduly ignored this "legal business structure".50  The United States argues that
"[g]overnments subsidize producers, not their shareholders"51, and to conclude, as the Panel did, that
no distinction should be made between a firm and its shareholders for purposes of the  SCM
Agreement , is to ignore the economics of investor behaviour and the "simple logic"52 underlying the
conferring of a benefit upon a foreign producer (not its shareholders) under the  SCM Agreement .
21. The United States further contests the Panel's finding that privatization at arm's length and for
fair market value necessarily extinguishes the benefit the privatized entity received from a non-recurring financial contribution when that entity was owned by the state.
22. The United States argues that the "essence … [of] the Panel's error was to consider the
economic effects of a sale from the perspective of  the new shareholders , rather than from the
perspective of  the legal person producing the subject merchandise, or the parties injured by the
subsidized imports in question".
53 (original emphasis)  Consequently, the Panel ignored the fact that
"a change in the shareholders of a subsidy recipient does not remove the new equipment, extract
knowledge from the workers, or increase the previously lowered debt load."54  According to the
United States, privatization, even if at arm's length and for fair market value, cannot extinguish thebenefit of a financial contribution because of the economic reality that "subsidies shift the recipient'ssupply curve and, as a result, also change the point at which supply and demand for the products made                                                     
46United States' appellant's submission, paras. 58–59.
47Ibid., para. 65.
48Ibid., para. 66, quoting Panel Report, para. 7.50.
49United States' appellant's submission, para. 65, quoting Panel Report, para. 7.50.
50United States' appellant's submission, para. 66.
51Ibid., para. 76.
52Ibid.
53Ibid. , para. 46.
54Ibid. , para. 49.WT/DS212/AB/R
Page 11
by the recipient intersect in the marketplace."55  To the extent that any purchase price paid by new
shareholders fails to reduce the "artificially enhanced competitiveness generated by the subsidies" 56
and thereby return the market to its counterfactual position in the absence of previous subsidization,privatization  per se  has no impact on the continued existence of a benefit in the formerly state-
owned firm.  Accordingly, the United States submits that the Panel erred in finding that, despite the
distinctions between the legal personalities of th e enterprise (a corporation) and its owners (the
shareholders), in an arm's-length privatization, the new owners (that is, the shareholders,  not  the
legal person that was the original recipient of the subsidy) could extinguish the non-amortized part ofthe benefit by paying a fair market price for the state-owned enterprise.
2. The "Same Person" Method
23. The United States additionally challenges the Panel's finding that the "same person" method is
inconsistent with the United States' WTO obligations, in particular, with the findings of the AppellateBody in  US – Lead and Bismuth II .  The United States alleges that this erroneous finding stems from
the Panel's misunderstanding of the Appellate Body's rationale in  US – Lead and Bismuth II .
According to the United States, "[t]he reason why the Appellate Body concluded in  Lead and
Bismuth II (AB)  that the original subsidies at issue did   not  continue to benefit the producer in
question was precisely because that producer was not the same legal person that had received thosesubsidies".
57 (original emphasis)  Therefore, in the United States' view, the critical factor weighing in
the Appellate Body's decision in  US – Lead and Bismuth II  was the creation of a new legal person
subsequent to the privatization transaction.  This is the most logical reading of the decision, the
United States argues, because the "legal or natural person" receiving the benefit is responsible forrepaying the benefit so as to avoid countervailing duty liability.
24. Legal persons such as corporations, the United States reiterates, are separate "persons" from
their shareholder-owners.  It follows that if a le gal person (say, a state-owned enterprise) receives a
benefit and, following privatization, that legal person continues to exist, the benefit would alsocontinue to exist (until fully amortized or repaid),  irrespective of the price paid by its new private
owners.
58  Because the "same person" method focuses on the "benefit" as received by the "legal
person" existing before and after privatization, consistent with the emphasis of the Appellate Body in
Canada – Aircraft  and in  US – Lead and Bismuth II , the United States urges reversal of the Panel's
contrary finding.
                                                     
55United States' appellant's submission, para. 50.
56Ibid. , para. 49.
57Ibid., para. 4.
58Ibid. , para. 6.WT/DS212/AB/R
Page 12
3. Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO Obligations
25. The Panel further erred, according to the United States, in finding a United States statute,
Section 1677(5)(F), inconsistent as such with the United States' WTO obligations.  The United Statescontends that, although the Panel acknowledged the proper standard to apply in evaluating the WTO-consistency of Section 1677(5)(F) as such, it erred in the application of that standard to the facts ofthis case.  The United States agrees with the Panel that "[o]nly legislation that 'requires' a violation ofGATT/WTO rules can be found to be inconsistent w ith WTO rules," and that "legislation 'as such' is
considered mandatory if it cannot be applied in a manner consistent with the SCM Agreement."
59
According to the United States, this standard is contradicted by the Panel's subsequentcharacterization that legislation may be WTO-inconsistent if it does not "systematically"
60 produce a
WTO-mandated outcome.61  The United States submits that the  SCM Agreement  does not require
Members to enact legislation incorporating  per se  rules guaranteeing a WTO-consistent outcome in
every case.  For the Panel to conclude otherwise adds to the rights and obligations of Members,contrary to Articles 3.2 and 19.2 of the DSU.
62
26. The European Communities failed to meet its burden, according to the United States, to show
that the United States legislation prevented the USDOC from arriving at WTO-consistentdeterminations in countervailing duty cases.  Section 1677(5)(F) itself provides the  USDOC with thediscretion to ensure that its countervailing duty in vestigations and reviews are conducted in a manner
consistent with the United States' WTO obligations.
63  In the light of this discretion, the United States
argues that the Panel, had it applied the correct standard, could not have concluded that
Section 1677(5)(F) "mandates WTO-inconsistent action".64
27. The critical error of the Panel in arriving at its conclusion, according to the United States, was
its flawed interpretation of Section 1677(5)(F), particularly based on a misreading of United Statescase law applying this statute.  The United States notes that it repeatedly indicated to the Panel that ifit were found that an arm's-length privatization ex tinguished the benefit from previous non-recurring
financial contributions, the USDOC could make c ountervailing duty determinations consistent with
                                                     
59United States' appellant's submission, para. 107, quoting Panel Report, paras. 7.120–7.121.
60The Panel uses the term "systematically" to describe a result that would follow "automatically",
namely, occurring always as a necessary consequence.  (European Communities' response to questioning at the
oral hearing)
61United States' appellant's submission, para. 108, qu oting Panel Report, paras. 7.132, 7.140, and
8.1(d).
62United States' appellant's submission, para. 109.
63Ibid. , para. 110.
64Ibid. , para. 112.WT/DS212/AB/R
Page 13
such a finding, without any change in legislation.65  The Panel, however, found that, as interpreted in a
United States court case referred to as  Delverde III 66, the USDOC would be precluded from
conducting countervailing duty investigations and reviews in a WTO-consistent manner, as thosecases relate to the calculation of a benefit subsequent to a change in ownership.
67  The United States
argues that  Delverde III , at best, is ambiguous with respect to the specific facts of this case and to the
relevance of a privatization at arm's length  and  for fair market value.68  Although the United States
raised this issue before the Panel during the interim review stage, the Panel did not respond to it.69
Accordingly, the United States submits that the Pane l failed to "perform  an objective assessment of
the matter" before it, as required by Article 11 of the DSU.70
B. Arguments of the European Communities – Appellee
1. Privatizations at Arm's Length and for Fair Market Value
28. The European Communities argues that privatizatio n at arm's length and for fair market value
necessarily extinguishes any benefit remaining from a previously-bestowed financial contribution bythe government when the company was a state-owned enterprise.  According to the EuropeanCommunities, the Panel correctly rejected the distinction between firms and their owners for purposesof determining whether a benefit exists under the  SCM Agreement .  The European Communities
submits that, according to Article 1.1(b) of the  SCM Agreement , a "financial contribution need not be
directly provided to its recipient" 
71 and "the recipient of a financial contribution need not be the same
as the recipient of the benefit conferred thereby, as long as the required causal relationship betweenthe contribution and the benefit is established."
72
29. The finding in  Canada – Aircraft  that the "recipient" of a "benefit" may include a "group of
persons" establishes, in the view of the Europe an Communities, that the "recipient" need not be
limited to the single firm exporting subject merchand ise, but may also include that firm's owners, that
is, its shareholders.73  The European Communities further submits that the Appellate Body, "by
concluding [in paragraph 68 of the Appellate Body Report in  US – Lead and Bismuth II ] that no
                                                     
65United States' appellant's submission, paras. 115–117.
66Delverde III, supra, footnote 31.
67United States' appellant's submission, para. 117.
68Ibid. , paras. 118–121.
69Ibid., para. 122.
70Ibid., para. 113.
71European Communities' appellee's submission, para. 38.
72Ibid. , para. 47.
73Ibid., paras. 23 and 28.WT/DS212/AB/R
Page 14
'benefit' was conferred [on the privatized enterprise] as a result of the payment of fair market value in
an arm's-length transaction limited to the sale of shares … implicitly accepted that the concept of a
'recipient,' as a 'natural or legal person,' is not limited to the company itself, but also includes itsowner." 
74
30. The European Communities alleges that the Un ited States does not itself regard the
shareholder-firm distinction as absolute.  In this regard, the European Communities notes that "theUSDOC recognises that subsidies conferred on one part of an economic entity will liberate resourcesthat can be applied to another part of the entity, and hence, for the purpose of countervailing duties,those subsidies are 'attributed' to the production and exports of the entire entity".
75 (footnote omitted)
The European Communities also argues that the lack  of consistency in the United States' position is
further evidenced in the second step of its "same person" method, where "the United States considersthat a benefit corresponding to the extent of the difference between the transaction value and fair
market value is a benefit to the company as well as its owners." 
76
31. Because a clear line dividing firms from their owners is unsupported by the  SCM Agreement ,
the European Communities rejects the United States' position that a benefit, and therefore acountervailable subsidy, can remain after private purchasers have purchased the shares of a state-owned enterprise for fair market value in an arm's length transaction.  The European Communitiesrecalls that the Appellate Body recognized in  Canada – Aircraft  that a "benefit" is conferred if "the
recipient has received a 'financial contribution' on terms more favourable than those available to therecipient in the market."
77  This is a "well-established market benchmark standard"78 that the United
States does not appear to respect in focusing its economic analysis on the market distortions caused by
previous subsidies.  The European Communities consequently regards such distortions as beyond the
scope of the "benefit" defined in Article 1.1(b) of the  SCM Agreement .79
32. The European Communities submits that the sale of a state-owned firm at arm's length and for
fair market value necessarily satisfies the marketplace comparison contemplated in  Canada – Aircraft
so as to remove any "advantage"80 that a firm may have held before as a result of a non-recurring
                                                     
74European Communities' appellee's submission, para. 27.
75Ibid., para. 63.
76Ibid., para. 52.
77Ibid., para. 68, quoting Appellate Body Report, Canada – Aircraft , para. 157.
78European Communities' appellee's submission, para. 70.
79Ibid. , paras. 76–78.
80Ibid., para. 57, quoting Appellate Body Report, Canada – Aircraft , para. 153.WT/DS212/AB/R
Page 15
financial contribution from the government.81  According to the European Communities, because
"benefit" is defined in relation to the marketplace, as established in  Canada – Aircraft , a firm
privatized at arm's length and for fair market value receives nothing on terms more favourable thanwhat the market itself would have provided.  The benefits derived from previous financial
contributions are reflected in the firm's balance sheet and accordingly reflected in the price attributed
to the firm by the market.  In the argument of the European Communities, once the firm is privatized,"[t]he prior subsidies granted to the state-owned producer neither reduce costs nor enhance revenue asfar as the privatised producer is concerned."
82  Therefore, the firm's products no longer benefit from
previous financial contributions because those products would be competing in the marketplace on thesame terms as those of its competitors.  In this respect, the European Communities recalls that theUSDOC, "[i]n the 'General Issues Appendix' attached to its 1993 determination in Certain Steel
Products from Austria , … explained [the importance of privatization by stating]  that … 'the
privatized company now has an obligation to provid e to its private owners a market return on the
company's full value.'"
83 (footnote omitted)
33. Finally, if the market benchmark standard established by the Appellate Body in  Canada –
Aircraft  for calculating the amount of a subsidy is satisfied, the European Communities argues that it
is not additionally necessary to establish that subsidies have been repaid to the government, althoughthe fair market value paid for a privatized en tity could, as the Panel suggested, "be regarded as
'repayment' of prior subsidies".
84
2. The "Same Person" Method
34. The European Communities argues that, contrary  to the United States' understanding, the
Appellate Body, in  US – Lead and Bismuth II ,  clearly identified the obligation on the part of
investigating authorities to re-examine the exis tence of a subsidy once they are notified of a
privatization resulting in a change of control of the firm at issue.85  In the view of the European
Communities, the interpretation urged by the United States impermissibly inserts an intermediate step
before the investigating authority would be required to determine whether a benefit continues to exist,that is, investigating authorities notified of a privatization would undertake a re-examination only ifthe privatized producer is not the "same person" as the pre-privatized producer.
86  According to the
                                                     
81European Communities' appellee's submission. ., paras. 57–59.
82Ibid. , para. 69.
83Ibid., para. 65, quoting Certain Steel Products from Austria , 58 Fed. Reg. 37217, 37262 (USDOC,
9 July 1993) (General Issues Appendix).
84European Communities' appellee's submission, para. 72.
85Ibid., para. 32.
86Ibid.WT/DS212/AB/R
Page 16
European Communities, no such intermediate step was contemplated by the Appellate Body in  US –
Lead and Bismuth II , as the obligation on the investigating authority flowed directly from the change
in ownership.
35. The European Communities argues that the  SCM Agreement  does not permit imposition or
maintenance of countervailing duties without a re-examination by the investigating authority of the
elements of a subsidy.  Accordingly, the European Communities submits that the "same  person"
method is inconsistent with the United States' WTO obligations because it expressly requires thecountervailing of benefits presumed to continue to exist after such a privatization.  In such aninstance, the United States would effectively be im posing countervailing duties in excess of or in the
absence of subsidization.  Moreover, the European Communities submits that the "same person"method, "[b]y maintaining a focus on the continuity of the productive operations of the producer … ispremised on the same assumption that underlay the 'gamma' methodology, [in respect of which] [t]heAppellate Body has already determined that bind[ing] the benefits of previous subsidies to the
productive operations of a producer is inconsistent with the  SCM Agreement ." 
87 (footnote omitted)   
36. Consequently, according to the European Communities, the "same person" method prevents
the USDOC from undertaking the task imposed by the  SCM Agreement  and the Appellate Body's
decision in  US – Lead and Bismuth II , namely, the re-evaluation of the existence of a benefit upon
notice of a change in ownership.  As a result, the European Communities requests the Appellate Bodyto uphold the Panel's conclusions in paragraphs 8.1(a), 8.1(b), and 8.1(c), as "the 'same-person'methodology leads to the imposition of countervailing duties in the absence of, or in excess of,subsidies, in violation of Articles 10, 14, 19.1, 19.4, 21.1, 21.2, and 21.3 of the  SCM Agreement ."
88
3. Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO Obligations
37. The European Communities argues that the Panel correctly found that Section 1677(5)(F), as
such, is inconsistent with the United States' WTO obligations under the  SCM Agreement .  As an
initial matter, the European Communities argues that a measure is "mandatory" where "a Member'slegislation prohibits the administrative authoritie s from doing something that is WTO-consistent,
without leaving effective options".
89  The European Communities, disagreeing with the Panel in this
regard, insists that the plain language of Section 1677(5)(F) sufficiently denotes the "mandatory"
nature of the measure.90  According to the European Communities, the Appellate Body, in  US – Lead
                                                     
87European Communities' appellee's submission, para. 7, referring to Appellate Body Report, US –
Lead and Bismuth II , paras. 56–58.
88European Communities' appellee's submission, para. 86.
89Ibid., para. 106.
90Ibid. , para. 108.WT/DS212/AB/R
Page 17
and Bismuth II , established that once a firm is privatized for fair market value, benefits from
previously-bestowed financial contributions can no longer exist for the privatized firm.91  Because
Section 1677(5)(F) prevents the USDOC from arriving at such a WTO-mandated conclusion, themeasure, which is mandatory, is, as such, inconsistent with the United States' obligations under the
 SCM Agreement .
38. The European Communities also alleges that the "mandatory" nature of this statute is
reinforced by the fact that the statute, about which guidance is found in the  SAA
92 and as interpreted
by United States courts, denies the USDOC the authority to act as required under the  SCM
Agreement , namely, to conclude that no benefit exists as a direct result of an arm's-length
privatization.93  Because the Panel thoroughly investigated the application of Section 1677(5)(F) by
reviewing its application in the light of other domestic legal tools, and because the Panel provided theUnited States sufficient opportunity to present alternative interpretations before the Panel, theEuropean Communities argues that the Panel acted in accordance with DSU Article 11.
94
39. Even if the measure were found to be discretionary, the European Communities submits that
such discretion is incompatible with the nature of the WTO obligations at issue.  The European
Communities notes that the  SCM Agreement  prohibits absolutely the imposition or maintenance of
countervailing duties in the absence of a subsidy.  Section 1677(5)(F) expressly preserves theUSDOC's discretion to levy countervailing duties notwithstanding the fact that a benefit (and hence, asubsidy) cannot exist for a firm privatized at arm's length and for fair market value.  Such discretionto do what is so clearly prohibited by the  SCM Agreement  "is nothing more than a license for
nuisance."
95  In this regard, given the centrality of security and predictability to the multilateral
trading system, the European Communities argues that  the maintenance of the discretion to act in a
manner prohibited by WTO obligations undermines such predictability and renders even thediscretionary elements of Section 1677(5)(F) WTO-inconsistent, as such.
96
40. The European Communities observes, however, that the Appellate Body may be able to
resolve this issue without reviewing the Panel's decision.  The European Communities submits thatthe Panel's finding in paragraph 8.1(d) of the Pane l Report may be regarded as "moot" if the United
States is correct and can confirm that Section 1677(5)(F) contains discretion to ensure compliance
                                                     
91European Communities' appellee's submission, para. 109.
92See supra , footnote 42.
93European Communities' appellee's submission, paras. 111–119.
94Ibid. , paras. 110–111, 118, and 120.
95Ibid., para. 125.
96Ibid., paras. 126–127.WT/DS212/AB/R
Page 18
with WTO obligations regarding the extinguishing of a benefit after an arm's-length privatization.97
In the view of the European Communities, such confirmation could be presented in the form of:
… good faith assurances from the United States that the USDOC
would determine, systematically, that no benefit passes through to theprivatised producer wherever the facts establish that a change of
ownership transaction has taken place at arm's length and for fair
market value …
98
The European Communities submits that, although the Un ited States failed to offer such assurances to
the Panel, the United States' willingness to do so before the Appellate Body would be sufficient to
render Section 1677(5)(F), as such, not inconsistent with the obligations of the  SCM Agreement , as
understood by the Appellate Body in  US – Lead and Bismuth II .99
C. Arguments of the Third Participants100
1. Brazil
(a) Privatizations at Arm's Length and for Fair Market Value
41. Brazil observes that "[t]he relevant question … is whether [the] benefit survived
privatization"101 (footnote omitted) and contends that the United States, without foundation, "believes
that once equity is provided on terms inconsistent wi th normal considerations of private investors, it
remains on such terms regardless of whether that equity is subsequently sold on terms that are
consistent with normal considerations of private investors."102  Brazil argues that the United States, in
emphasizing the shift in the firm's supply curve caused by subsidization, and requiring a readjustmentof the supply curve before finding no remaining benefit from a financial contribution, confuses theexistence of a countervailable subsidy with the effects of such a subsidy.  Brazil submits that, whereassuch market distortion may result from a subsidy, it is irrelevant for purposes of identifying a subsidy
under Article 1.1 of the  SCM Agreement .
42. Brazil contends that the obligation to determine a benefit under Article 1.1 of the  SCM
Agreement  requires a comparison with the marketplace, as the Appellate Body held in  Canada –
                                                     
97European Communities' appellee's submission, paras. 102–104.
98Ibid., para. 102.
99Ibid. , paras. 102–103.
100Pursuant to Rule 24(2) of the Working Procedures, Mexico did not file a written submission, but it
did make a statement and respond to questioning at the oral hearing.
101Brazil's third participant's submission, para. 23.
102Ibid., para. 29.WT/DS212/AB/R
Page 19
Aircraft  and in  US – Lead and Bismuth II .  Such a comparison, in Brazil's view, necessarily entails
an examination of the conditions surrounding the sales transaction to assess whether a recipientcontinued to be advantaged vis-à-vis its competitors, particularly so in the case of equity infusions, assupported by Article 14(a) of the  SCM Agreement .  A fair market purchase price removes the benefit
of an equity infusion otherwise in the firm because, when compared with the provision of equity in
the marketplace, the shareholders of the new firm will have paid the amount mandated by the marketfor all the corporation's assets, goodwill, etc.  The former beneficiary firm will thus no longer bereceiving any advantage because what had previously  been a "benefit" (that is, an equity infusion
presumably inconsistent with considerations of private investors) has effectively been paid for, andconsequently, "[t]he company's costs are in fact altered because they now include the necessity ofgenerating a return to the owners"
103 for the full value of their investment.
(b) "Same Person" Method
43. Brazil argues that the United States mischaracterizes the decisions of the panel and the
Appellate Body in  US – Lead and Bismuth II .  Contrary to the reading proffered by the United States,
Brazil understands that in that case, the panel found that investigating authorities were obliged underthe  SCM Agreement  to determine whether a benefit continues to exist upon a change in ownership of
the investigated firm, regardless of whether such a transaction resulted in the creation of a new legalentity.  This emphasis on the change in ownership was affirmed by the decision of the AppellateBody, which, under Brazil's reading, also accepted the panel's conclusion that a benefit does not
remain in a post-privatization entity after an arm's-length, fair market value privatization.
Accordingly, Brazil finds no support for the United States' position that the change in legalpersonality was central to the decisions in  US – Lead and Bismuth II , thereby justifying the
shareholder-firm distinction underlying the "same person" method.
44. Brazil further submits that, pursuant to the obligations under Article 1.1 of the  SCM
Agreement , and the precondition in footnote 36 of Article 10 that countervailing duties are only to
offset subsidies, the elements of a subsidy (as identified in Article 1.1) must be established in everyinvestigation.  The "same person" method is inconsistent with the obligations in the  SCM Agreement ,
according to Brazil, because it irrebuttably presumes that the pre-privatization benefit received by a
state-owned firm accrues to the post-privatization entity when the two companies are the same legal
person.  The "same person" method thus permits the imposition of countervailing duties withoutrequiring the investigating authority initially to es tablish the existence of a "benefit" upon a change in
ownership in every case.
                                                     
103Brazil's third participant's submission, para. 52.WT/DS212/AB/R
Page 20
(c) Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO
Obligations
45. Brazil argues that the Panel correctly found that Section 1677(5)(F), as interpreted by the
United States Court of Appeals for the Federal Circuit and the SAA104, is inconsistent, as such, with
United States' obligations under the  SCM Agreement .  The Panel properly recognized that only
legislation compelling a violation of a WTO obligation (that is, "mandatory" legislation) may befound to be inconsistent, as such, with a Member's WTO commitments.
105  As the Panel found the
plain text of Section 1677(5)(F) to vest the US DOC with discretion, Brazil submits that the Panel
correctly looked to the domestic context of Section 1677(5)(F), including its application in practiceand binding legislative history, to determine whether such discretion was "imaginary orineffective".
106  Brazil argues that, based particularly on a review of the legislative history and case
law relating to Section 1677(5)(F), the Panel made numerous findings to substantiate its conclusionthat the USDOC is, in effect, prevented from arriving automatically at the conclusion that, followingan arm's-length, fair market value privatization, a benefit from a previously-bestowed financialcontribution is necessarily extinguished.
107
46. Brazil contests the United States' charge that the Panel effectively employed an erroneous
standard when evaluating the nature of Section 1677(5)(F) as mandatory or discretionary.  Brazil finds
the United States' claim of error to be based on "semantics".108  In the submission of Brazil, the
Panel's conclusion that "Section 1677(5)(F) is WTO-inconsistent because it does not 'systematically'allow for a result consistent with  Lead and Bismuth II  … [is] no different than stating that
Section 1677(5)(F) requires a WTO-inconsistent result."
109 (footnote omitted)
47. Brazil further argues that the United States' claim that the Panel ignored the ambiguity created
by the United States Court of Appeals for the Federal Circuit in the interpretation ofSection 1677(5)(F) in  Delverde III   is not persuasive.  In this respect, Brazil notes that, in any event,
the  Delverde III  court clearly found that Section 1677(5)(F) prevents the USDOC from concluding
that a benefit could be extinguished solely through an arm's-length privatization.
110  Brazil says that
this reasonable interpretation underlay the Panel's finding of a violation as such because, although theUSDOC is empowered to find no benefit after a change in ownership, it would be precluded from
                                                     
104See supra , footnote 42.
105Brazil's third participant's submission, para. 34.
106Ibid.
107Ibid. , para. 36.
108Ibid., para. 39.
109Ibid.
110Ibid. , paras. 41–43.WT/DS212/AB/R
Page 21
making such a finding on the basis of an arm's-length privatization for fair market value "in and of
itself"111, which it is required to do under the  SCM Agreement .
2. India
48. India argues that, when evaluating whether a benefit continues to exist, no distinction should
be made between the benefit conferred as a result of a financial contribution to the shareholders or totheir firms.
112  Accordingly, the Panel correctly focused its analysis on the "recipient," determined to
be the company and shareholders "together" under the  SCM Agreement .113  India notes that the
benefit in such evaluations must be measured against the marketplace, as the Appellate Bodyrecognized in  Canada – Aircraft .
114  India agrees that when a company is sold for fair market value,
its purchase price, as determined by the market, n ecessarily includes the value of the benefit conferred
by the previous financial contribution.  India says that it therefore considers "fair" the conclusion that
privatization at arm's length and for fair market value requires the investigating authority to concludethat a benefit from the prior financial contribution no longer remains with the privatized firm.
115
IV. Issues Raised in this Appeal
49. The following issues are raised in this appeal:
− One is whether the Panel erred in finding that privatization, at arm's length and for
fair market value, " systematically " 116 extinguishes the "benefit" from previously-
bestowed non-recurring financial contributions.
− Another is whether the Panel erred in finding that the United States failed to comply
with its obligations under Articles 10, 14, 19.1, 19.4, 21.1, 21.2, and 21.3 of the  SCM
Agreement , in using a method of calculating the "benefit" to the "recipient" that
presumes conclusively that if the state-owned enterprise and the post-privatizationfirm are the same "legal person", the "benefit"  received by the state-owned enterpriseautomatically  continues to exist with the newly-privatized firm.
                                                     
111Brazil's third participant's submission, para. 38.
112Ibid., p. 5.
113Ibid. , quoting Panel Report, para. 7.54.
114Brazil's third participant's submission, p. 5 and footnote 9.
115Ibid., p. 5.
116As to the term "systematically", see supra , footnote 60.WT/DS212/AB/R
Page 22
− A third is whether the Panel erred in finding that 19 U.S.C. § 1677(5)(F) is,  per se ,
inconsistent with Articles 10, 14, 19, and 21 of the  SCM Agreement , because it
prevents the USDOC from  automatically  concluding that, following privatization at
arm's length and for fair market value, the "benefit" of a prior non-recurring financialcontribution bestowed on the state-owned enterprise no longer "accrue[s]"
117 to the
privatized producers;  and, consequently, that the "United States has failed to ensureconformity with Article 32.5 of the  SCM Agreement  and Article XVI.4 of the  WTO
Agreement ".
118
V. Procedural Issues
50. We turn first to the procedural issues raised in this appeal.  The first procedural issue is the
European Communities' challenge to the sufficiency of the United States' Notice of Appeal.  TheEuropean Communities requests that we dismiss the United States' appeal with respect to threealleged errors by the Panel on the ground that they were not included in the Notice of Appeal.  Thesecond procedural issue relates to the  amicus curiae  brief submitted by an industry association.  We
will deal with each of these procedural issues in turn.
A. Sufficiency of the Notice of Appeal and Re quest for Dismissal of Certain Aspects of
the Appeal
51. The United States filed a Notice of Appeal on 9 September 2002, which provides:
Pursuant to Article 16 of the  Understanding on Rules and
Procedures Governing the Settlement of Disputes   ("DSU") and
Rule 20 of the Working Procedures for Appellate Review, the United
States hereby notifies its decision to appeal to the Appellate Body
certain issues of law covered in the panel report on  United States –
Countervailing Measures Concerning Certain Products from theEuropean Communities  (WT/DS212/R) and certain legal
interpretations developed by the Panel.
The United States seeks review by the Appellate Body of the
conclusions of the Panel set forth in paragraphs 8.1(a)-(d) and 8.2 of
the Panel's report.  These conclusions are in error, and are based uponerroneous findings on issues of law and on related legal
interpretations.
119
                                                     
117Panel Report, para. 8.1(d).
118Ibid.
119WT/DS212/7, attached as Annex I to this Report.WT/DS212/AB/R
Page 23
52. On 10 September 2002, the European Communities the filed a Request for a Preliminary
Ruling (the "Request"), alleging that the United States' Notice of Appeal "is manifestly not inconformity with Rule 20(2)(d) of the  Working Procedures for Appellate Review "
120 because it "fails
to identify the findings or the legal interp retations that it considers to be erroneous."121   The European
Communities argued that "[a]s a consequence, the European Communities is unable to prepare its
response to the appeal."122  The European Communities asked us to "order the United States, pursuant
to Rule 16(1) of the Working Procedures, immediately to file further and better particulars to itsnotice of appeal identifying the precise legal findings and legal interpretations that it is
challenging."
123
53. By letter of 12 September 2002, the United States responded that the Request of the European
Communities was unfounded, arguing that the Notice of Appeal meets the requirements ofRule 20(2)(d) of the  Working Procedures  because "[i]t identifies, by reference to the paragraphs of
the Panel Report concerned, the findings and legal interpretations of the Panel that the United States is
appealing as erroneous.  As interpreted by the Appellate Body, Rule 20(2)(d) requires no more."
124
The United States, relying on our ruling in  US – Shrimp , asserted that it did not have to include
arguments in support of the allegations of error in the Notice of Appeal, as those arguments need onlybe set out in the appellant's submission.
54. The United States rejected the European Communities' argument that a Notice of Appeal
serves to inform the appellee and third parties of the issues to be raised on appeal.  The United Statesargued that providing notice of the subject-matter of the appeal cannot be the objective of a Notice ofAppeal, because there is no requirement to file a Notice of Appeal with respect to a cross-appeal.  The
United States concluded that "it is clear that the notice of appeal serves a limited purpose: rather than
providing a preview of argumentation (of which the cross-appellee (the initial appellant) receivesnone at all), the notice of appeal is simply a formal trigger for initiating the appeal."
125  The United
                                                     
120Request, para. 1.
121Ibid. , para. 4.
122Ibid. , para. 5.
123Ibid. , para. 6.
124Letter dated 12 September 2002 from the Senior Legal Advisor, Permanent Mission of the United
States to the WTO, to the Presiding Member of the Division hearing this appeal, p. 2.
125Ibid.WT/DS212/AB/R
Page 24
States found support for its position  in Articles 16.4126 and 17.5127 o f  t h e  D S U .   B o t h  r e f e r  t o
notifying a decision to appeal;  and neither refers to requirements to notify the grounds of appeal.
55. On 12 September 2002, we invited the United States "to identify the precise findings and
interpretations of the Panel which are alleged, in the Notice of Appeal filed on 9 September 2002, to
constitute errors."128  The United States responded by letter dated 13 September 2002.129  I n  a n
attachment to that letter, the United States quoted in full the paragraphs of the Panel Report to whichit had merely referred by number in the Notice of Appeal.  The United States also providedinformation as to legal errors allegedly committed by the Panel.
130
56. In its appellee's submission, the European Communities alleges that certain issues argued in
the United States' appellant's submission were not included in the United States' Notice of Appeal (orin the attachment to the letter of 13 September 2002).  In particular, the European Communitiesidentifies the following issues as those on which the United States failed to claim error by the Panel inthe Notice of Appeal:
                                                     
126Article 16.4 of the DSU provides as follows:
Within 60 days after the date of circulation of a panel report to the Members,
the report shall be adopted at a DSB meeting unless a party to the dispute
formally notifies the DSB of its decision to appeal or the DSB decides by
consensus not to adopt the report.  If a party has notified its decision toappeal, the report by the panel shall not be considered for adoption by theDSB until after completion of the appeal.  This adoption procedure is withoutprejudice to the right of Members to express their views on a panel report.(footnote omitted)
127Article 17.5 of the DSU provides as follows:
As a general rule, the proceedings shall not exceed 60 days from the date a
party to the dispute formally notifies its decision to appeal to the date theAppellate Body circulates its report.  In fixing its timetable the AppellateBody shall take into account the provisions of paragraph 9 of Article 4, if
relevant.  When the Appellate Body considers that it cannot provide its report
within 60 days, it shall inform the DSB in writing of the reasons for the delaytogether with an estimate of the period within which it will submit its report.In no case shall the proceedings exceed 90 days.
128Letter dated 12 September 2002 from the Director of the Appellate Body Secretariat, to the Senior
Legal Advisor, Permanent Mission of the United States to the WTO.
129Letter dated 13 September 2002, from the Senior Legal Advisor, Permanent Mission of the United
States to the WTO, to the Director of the Appellate Body Secretariat.
130Attachment to letter dated 13 September 2002, from the Senior Legal Advisor, Permanent Mission of
the United States to the WTO, to the Director of the Appellate Body Secretariat.WT/DS212/AB/R
Page 25
– "The United States did not allege error in the Panel's finding
that administering authorities are required, following
notification of a privatisation, to re-examine whether any
'benefit' accrues to the privatised producer";
– "the United States [did not] allege any error in the
interpretation of the 'mandatory-discretionary' standard
adopted by the Panel to find that Section 1677(5)(F) is
inconsistent as such with the SCM Agreement ";  and
– "the United States [did not] raise any claim of error in the
application of Article 11 of the [DSU]."131 (footnotes
omitted)
The European Communities alleges that these issues are therefore not properly before the Appellate
Body and should be dismissed.132
57. The United States responded to these contentions at the oral hearing, arguing that it is
sufficient in a Notice of Appeal to identify the findings of a panel that are being appealed, and thatthere is no requirement to identify in it why a pa rticular finding is in error.  Nor is there any
requirement, according to the United States, to include arguments in the Notice of Appeal, such as anargument that a panel failed to act consistently with Article 11 of the DSU.   The United Statessubmits that arguments are to be elaborated in the appellant's submission.  The United States
consequently rejects the contention that the three issues identified by the European Communities are
outside the scope of the appeal.
58. On this first procedural issue, we begin our analysis by recalling Rule 20 of the  Working
Procedures ,  which, as its title attests, establishes guidelines for the commencement of an appeal.
Paragraph 1 of Rule 20 states that:
Commencement of Appeal
20. (1) An appeal shall be commenced by notification in
writing to the DSB in accordance with paragraph 4 of
Article 16 of the DSU and simultaneous filing of a
Notice of Appeal with the Secretariat.
Paragraph 2 of Rule 20 prescribes the "information" th at must be included in the Notice of Appeal.  In
addition to the title of the panel report being appealed, the name of the appellant, and the service
                                                     
131European Communities' appellee's submission, para. 17.
132Ibid. , para. 19.  India concurs with the European Communities that the United States' Notice of
Appeal is inadequate, arguing that it is "too brief that the [appellee] and the third parties could not make out asto what legal issues were in appeal."  (India's third participant's submission, p. 2.)  India, however, does notexpressly seek the dismissal of certain issues argued by the United States in its appellant's submission.WT/DS212/AB/R
Page 26
address and contact coordinates, subparagraph 20(2)(d) states that the Notice of Appeal "shall
include" the following information:
d) a brief statement of the nature of the appeal, including the
allegations of errors in the issues of law covered in the panelreport and legal interpretations developed by the panel.
59. The requirements in Rule 20(2)(d) for the Notice of Appeal should be contrasted with those in
Rule 21(2)(b) of the  Working Procedures , where we have stated what "shall [be] set out" in the
appellant's submission.  Those requirements are:
(i) a precise statement of the grounds for the appeal, including
the specific allegations of errors in the issues of law covered
in the panel report and legal interpretations developed by thepanel, and the legal arguments in support thereof;
(ii) a precise statement of the provisions of the covered
agreements and other legal sources relied on;  and
(iii) the nature of the decision or ruling sought.
Thus, both the Notice of Appeal and the appellant's submission must set out the allegations of errors;
but, the appellant's submission must be more specific  in this regard.  The appellant's submission must
be precise as to the grounds of appeal, the legal arguments which support it, and the provisions of thecovered agreements and other legal sources upon which the appellant relies.
60. As we have said previously, "the right of a party to appeal from legal findings and legal
interpretations reached by a panel in a dispute settlement proceeding is an important new right
established in the DSU".
133   Furthermore, we have affirmed that "the provisions of Rule 20(2) and other
Rules of the  Working Procedures for Appellate Review  are most appropriately read as to give full
meaning and effect to the right of appeal".134  I n   US – Shrimp , where the Joint Appellees sought
dismissal of the entire appeal on the ground of insuff iciency of the Notice of Appeal, we discussed the
elements required for a Notice of Appeal.  We said there:
                                                     
133Appellate Body Report, US – Shrimp , para. 97.
134Ibid.WT/DS212/AB/R
Page 27
The  Working Procedures for Appellate Review  enjoin the appellant
to be brief  in its notice of appeal in setting out "the nature of the
appeal, including the allegations of errors".  We believe that, in
principle, the "nature of the appeal" and "the allegations of errors"
are sufficiently set out where the notice of appeal adequately
identifies the findings or legal interpretations of the Panel which are
being appealed as erroneous.  The notice of appeal is not expected to
contain the reasons why the appellant regards those findings or
interpretations as erroneous.  The notice of appeal is not designed to
be a summary or outline of the arguments to be made by the
appellant.  The legal arguments in support of the allegations of error
are, of course, to be set out and developed in the appellant'ssubmission.
135  (underlining added) 
In that appeal, we upheld the Notice of Appeal against claims that it was "vague and cursory"136,
finding that, although it did not cite the numbered paragraphs of the Panel Report containing the
findings that were the subject of that complaint, and although the references in it to the panel'sfindings were "terse, … there [was] no mistaking which findings or interpretations of the Panel theAppellate Body [was ] asked to review."
137 (footnote omitted)
61. At the same time, we confirmed in  US – Shrimp  that "an appellee is, of course, always
entitled to its full measure of due process."138   In another appeal,  EC – Bananas  III, we explained
that the Notice of Appeal serves to give notice to the appellee of the findings being appealed.139  In
that appeal, we excluded from the scope of appeal a finding that had not been "covered" in theallegations of error set out in the Notice of Appeal because the appellee "had no notice that the
European Communities was appealing this finding."
140
62. In sum, our previous rulings have underscored the important balance that must be maintained
between the right of Members to exercise the right of appeal meaningfully and effectively, and theright of appellees to receive notice through the No tice of Appeal of the findings under appeal, so that
they may exercise their right of defence effectively.  Hence, we disagree with the contention of theUnited States here that the Notice of Appeal "serves a limited purpose" as "simply a formal trigger forinitiating the appeal."
141  Indeed, if this were the only objective of the notice, our  Working
Procedures  would have included only the first paragraph of Rule 20, which refers to commencement
                                                     
135Appellate Body Report, US – Shrimp , para. 95.
136Ibid. , para. 92.
137Ibid. , para. 96.
138Ibid. , para. 97.
139Appellate Body Report, EC – Bananas III , para. 152.
140Ibid.
141Letter dated 12 September 2002 from the Senior Legal Advisor, Permanent Mission of the United
States to the WTO, to the Presiding Member of the Division hearing this appeal, p. 2.WT/DS212/AB/R
Page 28
of an appeal through written notification to the Dispute Settlement Body and Appellate Body
Secretariat.  However, Rule 20 also prescribes ad ditional requirements for commencing an appeal; it
provides that the Notice of Appeal must include "a brief statement of the nature of the appeal,including the allegations of errors in the issues of law covered in the panel report and legal
interpretations developed by the panel." 
142  The notification under Rule 20(1) serves as the "trigger"
to which the United States refers.  The additional requirements under Rule 20(2) serve to ensure thatthe appellee also receives notice, albeit brief, of the "nature of the appeal" and the "allegations oferrors" by the panel.
63. We turn now to the question whether the United States' Notice of Appeal in this case met the
requirements for a Notice of Appeal set out in Rule 20(2)(d).  We must determine whether the Noticeof Appeal was sufficient to give notice to the European Communities that the three alleged claims oferror by the Panel, which the European Communities argues were not included in the Notice, were infact being appealed.
64. In conducting our analysis, we will examine both the Notice of Appeal and the letter of
13 September 2002 supplementing the Notice of Appeal.  Although the  Working Procedures  do not
expressly provide for the filing of clarifications or further particulars or supplementary or amendedNotices of Appeal, we consider it appropriate, in the particular circumstances of this case, to examineboth documents with a view to giving "full meaning and effect to the right of appeal."
143  We note in
particular that the additional document was filed by the United States in response to our invitation to do
so, based in part on a request for additional particulars filed by the European Communities.  Moreover,the additional document was filed shortly after the filin g of the Notice of Appeal (three days).  Finally,
we note that the European Communities referred to both the Notice of Appeal and the letter of
13 September 2002 in its arguments on this issue.
144
                                                     
142The United States' comparison to the lack of notice provided to a cross-appellee is not appropriate
because the  Working Procedures  do not impose any notification requirements under such circumstances.
143Appellate Body Report, US – Shrimp , para. 97.
144European Communities' appellee's submission, paras. 13 and 16;  European Communities' statement
at the oral hearing as well as responses to questioning at the hearing.WT/DS212/AB/R
Page 29
65. The Notice of Appeal referred only to the paragraph numbers of the Panel Report where the
Panel set out its "Conclusions and Recommendations" (namely paragraphs 8.1(a)-8.1(d) and 8.2).The attachment to the letter of 13 September 2002 quotes the cited paragraphs of the Panel Report infull, and provides the following additional information about the appeal:
In particular, the Panel erred in finding that:
– subsidies are received by hybrid entities consisting of the
company producing subject merchandise and its shareholders
(see, e.g.,  para. 7.54 of the Panel Report), so that a sale of the
company to the new shareholders automatically creates a
"new" producer for which a new determination of theexistence of a benefit is required;
– the payment of fair market value for a company's shares
negates previous subsidies provided to that company ( see,
e.g., para. 7.72 of the Panel Report);
– the so-called "same person methodology" is inconsistent with
the SCM Agreement.
66. The first issue identified by the European Co mmunities as not being included in the Notice of
Appeal or in the letter of 13 September 2002 is the finding by the Panel that "administering authorities
are required, following notification of a privatisation, to re-examine whether any 'benefit' accrues tothe privatised producer."  A plain reading of the "Conclusions and Recommendations" from the PanelReport, referred to in the Notice of Appeal and quoted in full in the attachment to the letter of13 September 2002, makes clear that the obligation to conduct a new determination of whether abenefit continues to exist, following notice of a fi rm's privatization, was a critical component of the
appeal.  Paragraphs 8.1(a), 8.1(b) and 8.1(c) of the "Conclusions and Recommendations" state:
(a) The six determinations in the original investigations, based
on the gamma methodology, are inconsistent with the SCM
Agreement, since the US Department of Commerce did not examine
whether the privatizations were at arm's-length and for fair marketvalue; thus the United States failed to determine whether the new
privatized producer received any benefit from prior financial
contributions previously bestowed to state-owned producers .
…WT/DS212/AB/R
Page 30
(b) The two determinations made in the context of administrative
reviews and based on the gamma methodology (Case No. 7) and on
the same person methodology (Case No. 12), are inconsistent with
the SCM Agreement since the US Department of Commerce did not
examine whether the privatization that occurred after the originalimposition of countervailing duties, was at arm's-length and for fair
market value;  thus the United States failed to determine whether the
privatized producers received any benefit from the financial
contributions previously bestowed to the state-owned producers .
…
(c) The four determinations made in the context of sunset
reviews and based on the gamma methodology are inconsistent with
the SCM Agreement, since the US Department of Commerce did notexamine whether the privatizations, that occurred after the original
imposition of countervailing duties, were at arm's-length and for fair
market value. Thus the United States failed to determine whether the
privatized producers received any benefit from the financial
contributions previously bestowed to the state-owned producers  ...
145
(emphasis added)
67. Each of these paragraphs refers explicitly to  the failure of the USDOC to determine if the
privatized producer received a benefit as a result of the financial contribution bestowed prior to theprivatization.  Inherent in these findings is the Panel's view that authorities are required, upon beingnotified of a privatization, to determine if a privatized producer continues to receive a benefit from afinancial contribution bestowed prior to the privatization.  Moreover, the attachment to the letter of13 September 2002 refers to the Panel having erred in finding that "a sale of the company to the newshareholders automatically creates a ' new' producer for which a new determination of the existence of
a benefit is required ." (emphasis added)  In the light of these explicit references to the obligation to
determine whether a "benefit" continues to exist afte r being informed of a privatization, we find that
the United States provided adequate notice to the European Communities that the United States wasappealing the Panel's finding that the United States acted inconsistently with its WTO obligationsbecause it did not conduct such a determination following notice of a privatization.  Thus, withrespect to the first issue identified by the European Communities, we consider that the Notice ofAppeal meets the requirements of Rule 20(2)(d) and that the first issue is properly before us in thisappeal.
68. The second deficiency claimed by the European Communities is that "[T]he United States
[did not] allege any error in the interpretation of th e 'mandatory-discretionary' standard adopted by the
Panel to find that Section 1677(5)(F) is inconsistent as such with the  SCM Agreement ".
146  In this
                                                     
145Panel Report, paras. 8.1(a)–8.1(c).
146European Communities' appellee's submission, para. 17.WT/DS212/AB/R
Page 31
regard, we note that paragraph 8.1(d) of the "Conclusions and Recommendations" section of the Panel
Report, to which the United States referred in the Notice of Appeal, and quoted in full in theattachment to the letter of 13 September 2002, states:
Once an importing Member has determined that a privatization has
taken place at arm's-length and for fair market value, it must reach
the conclusion that no benefit resulting from the prior financialcontribution (or subsidization) continues to accrue to the privatizedproducer.  To the extent that Section 1677(5)(F), as interpreted by the
US Court of Appeals for the Federal Circuit and the SAA, requires
the US Department of Commerce to apply a methodology where the
benefit from a prior financial contribution is not systematically found
to no longer accrue to the privatized producer solely by virtue of anarm's-length for fair market value privatization, is preventing the
United States from exercising a WTO-compatible discretion.
Therefore, Section 1677(5)(F) is inconsistent with Articles 10, 14, 19
and 21 of the SCM, as interpreted by the Panel and the Appellate
Body Reports in US – Lead and Bismuth II  and this Panel.  As
Section 1677(5)(F) is found to be inconsistent with the SCM
Agreement , the United States has failed to ensure conformity with
Article 32.5 of the SCM Agreement  and Article XVI.4 of the WTO
Agreement respectively. (original emphasis; underlining added)
69. In our view, the reference in this paragraph to the Panel's interpretation of Section 1677(5)(F)
as  preventing USDOC from exercising discretion  in a WTO-compatible manner was sufficient to
alert the European Communities to the fact that  the United States was appealing the Panel's
characterization and application of the mandatory-discretionary standard in interpretingSection 1677(5)(F) as being, as such, inconsistent with the United States' WTO obligations.Therefore, with respect to the second issue identifi ed by the European Communities, we consider that
the Notice of Appeal meets the requirements of Rule 20(2)(d) and that the second issue is properly
before us in this appeal.
70. We observe that, in coming to these conclusions, we have before us a rather unusual example
of the "Conclusions and Recommendations" section of a panel report.  In most panel reports, the"Conclusions and Recommendations" section is relatively brief, setting out findings in summaryfashion.  Detailed legal interpretations and reasoning upon which panels rely are usually found only inthe "Findings" sections of panel reports.  In this case, however, the Panel's "Conclusions and
Recommendations" are more detailed than usual.  Paragraphs 8.1(a)–8.1(d) of the Panel Reportinclude, not only the Panel's findings, but also certain of the reasons leading to those findings.  Hence,
in this case, it is possible, by reading the "Conclusions and Recommendations" section from the Panel
Report, to discern alleged errors of law appealed  by the United States.  We emphasize, however, that
generally, a Notice of Appeal that refers simply to the paragraph numbers found in the "Conclusionsand Recommendations" section of a panel report, or that quotes them in full, will be insufficient toWT/DS212/AB/R
Page 32
provide adequate notice of the allegations of error on appeal, and, hence, will fall short of the
requirements set out in Rule 20(2)(d) of the  Working Procedures .
71. The third issue that the European Communities alleges was not properly notified is that
"[T]he United States [did not] raise any claim of error in the application of Article 11 of the
[DSU]"147, which provides:
Function of Panels
The function of panels is to assist the DSB in discharging its
responsibilities under this Understanding and the covered
agreements.  Accordingly, a panel should make an objective
assessment  of the matter before it, including an objective assessment
of the facts of the case and the applicability of and conformity withthe relevant covered agreements, and make such other findings as
will assist the DSB in making the recommendations or in giving the
rulings provided for in the covered agreements. (emphasis added)
72. We do not find any explicit reference to Article 11 of the DSU, or to the  language of
Article 11 in the Notice of Appeal, or in the att achment to the letter of 13 September 2002.  Nor can
we discern in either of them any suggestion that the United States was alleging that the Panel failed to
make an objective assessment of the matter before it, or an objective assessment of the facts of thecase.
73. The United States acknowledged during the oral hearing that it is not possible to discern from
the Notice of Appeal and attachment to the letter of 13 September 2002 that the United States wasalleging a  claim of error under Article 11 of the DSU.
148  However, as mentioned earlier149, the
United States contended that it was not necessary to refer to this in the Notice of Appeal because thiswas merely an  argument  in support of its allegations of error, and  arguments  need not be included
in a Notice of Appeal.  In addition, the United States posited that it was not appropriate to refer to
"claims" in the context of a Notice of Appeal, as claims are more appropriately referred to in thecontext of requests for establishment of a panel.
 150
74. We disagree with the United States.  A  claim  of error by a panel under Article 11 of the
DSU is possible only in the context of an appeal.  By definition, this  claim  will not be found in
requests for establishment of a panel, and panels therefore will not have referred to it in panel reports.
                                                     
147European Communities' appellee's submission, para. 17.
148United States' response to questioning at the oral hearing.
149See supra , para. 57.
150United States' response to questioning at the oral hearing.WT/DS212/AB/R
Page 33
Accordingly, if appellants intend to argue that issue on appeal, they must refer to it in Notices of
Appeal in a way that will enable appellees to discern it and know the case they have to meet.
75. Accordingly, we do not believe that the Euro pean Communities can be said to have been
notified that the United States intended to argue on appeal that the Panel failed to act consistently with
Article 11 of the DSU, and, consequently, we consider that the issue of the Panel's compliance with
Article 11 of the DSU is not properly before us in this appeal.
B. The Amicus Curiae  Brief
76. We turn next to the issue of the  amicus curiae  brief that we received from an industry
association151 in the course of this appeal.  Both the United States and the European Communities
agreed that we have the authority to accept the brief.152  The United States confirmed that the brief
was not a part of the official submission of the United States, but that the United States agreed with
much, although not all, of the brief.153  The European Communities said that it disagreed with a
number of aspects of the brief, and argued that ther e was no reason for the Appellate Body to take the
brief into account in this appeal.154  We have considered the arguments of the participants and the
third participants.  The brief has not been taken into account by us as we do not find it to be ofassistance in this appeal.
VI. Introduction to the Substantive Issues
77. Having dealt with the procedural issues, we turn now to the substantive issues in this appeal.
Before doing so, it is useful to recall briefly the relevant law, the particular facts and circumstances
155,
and the precise measures  relevant to the appeal.
78. Article VI:3 of GATT 1994 permits Members of the WTO to impose a "countervailing duty"
on products imported from other Members of the WTO "for the purpose of offsetting any bounty orsubsidy bestowed, directly, or indirectly, upon the manufacture, production or export of anymerchandise."
156  Article 10 of the  SCM Agreement  provides that "Members shall take all necessary
steps to ensure that the imposition of a countervailing duty on any product of the territory of any
                                                     
151American Iron and Steel Institute.
152United States' and European Communities' responses to questioning at the oral hearing.  The third
participants disagreed.
153United States' responses to questioning at the oral hearing.
154European Communities' responses to questioning at the oral hearing.
155These are set out in more detail in paras. 1–17 of this Report and in paras. 2.1–2.61 of the Panel
Report.
156Article VI:3 of the GATT 1994.WT/DS212/AB/R
Page 34
Member imported into the territory of another Member is in accordance with the provisions of
Article VI of GATT 1994 and the terms of this Agreement."157 (footnote omitted)
79. Article 1 of the  SCM Agreement  sets out when a "subsidy" that may be "offset[]"158 by
"countervailing dut[ies]"159 "shall be deemed  to exist " for the purpose of the  SCM Agreement .160
(emphasis added)  To satisfy the definition of a "subsidy", a "benefit"161 must be "conferred"162 on a
"recipient".163  Only a "subsidy" that "exist[s]" and that "confer[s]" a "benefit" on a "recipient" may be
"offset" by "countervailing duties".
80. Article 19 of the  SCM Agreement  deals with the "Imposition and Collection of
Countervailing Duties".  Article 19.1 provides that, after, inter alia , "a final determination of the
existence  and amount  of the subsidy", a Member may impose a countervailing duty "in accordance
with the provisions" of that Article.164 (emphasis added)  Among those provisions is Article 19.4,
which provides that "[n]o countervailing duty shall be levied on any imported product in excess of theamount of the subsidy found to  exist, calculated in terms of subsidization per unit of the subsidized
and exported product."
165 (emphasis added, footnote omitted)
81. Article 21 of the  SCM Agreement  deals with the "Duration and Review of Countervailing
Duties and Undertakings".  Article 21.1 provides, "A countervailing duty shall remain in force only aslong as and to the extent necessary to counteract subsidization which is causing injury."
166
Article 21.2 imposes certain obligations relating to "reviews" of countervailing duties, including theadministrative reviews before us on appeal, and Article 21.3 imposes certain obligations relating to"sunset reviews" of countervailing duties.
                                                     
157Article 10 of the  SCM Agreement.
158Article VI of the GATT 1994.
159Article VI:3 of the GATT 1994.
160Article 1.1 of the SCM Agreement .
161Article 1.1(b) of the SCM Agreement .
162Ibid.
163Article 14 of the SCM Agreement .  Although the term "recipient" appears in Article 14 and not in
Article 1 of the SCM Agreement , we recognized in Canada – Aircraft  that the ordinary meaning of
Article 1.1(b), in conjunction with the structure of Article 1.1 and the context provided by the reference to"benefit to the recipient" in Article 14, reveal that "the word 'benefit', as used in Article 1.1 , is concerned with
the 'benefit to the recipient '".  (Appellate Body Report, Canada – Aircraft , para. 155 (original emphasis))
164Article 19.1 of the  SCM Agreement.
165Article 19.4 of the  SCM Agreement.
166Article 21.1 of the  SCM Agreement.WT/DS212/AB/R
Page 35
82. Article 14 of the  SCM Agreement  requires that "any method used by the investigating
authority" of a WTO Member "to calculate the benefit to the recipient … shall be provided for in thenational legislation or implementing regulations of the Member concerned and its application to eachparticular case shall be transparent and adequately explained."
167
83. Article 32.5 of the  SCM Agreement  provides, "Each Member shall take all necessary steps,
of a general or particular character, to ensure … the conformity of its laws, regulations andadministrative procedures with the provisions of this Agreement".
168  Similarly, Article XVI:4 of the
WTO Agreement  provides, "Each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed Agreements", which includethe  SCM Agreement .
169
84. Having set out the provisions of the covered agreements relevant to this dispute, we now
clarify which issues  are  before us, and which issues  are not  before us.   The issues that  are  before
us on appeal arise from the determinations of the USDOC in 12 countervailing duty cases involving
imports of steel products from the European Communities.  The firms under investigation in those
cases were all formerly state-owned enterprises that had been privatized at the time of the UnitedStates administrative determinations.  The European Communities acknowledges that non-recurringfinancial contributions were provided to these formerly state-owned enterprises.
170  Therefore, that is
not in dispute in this appeal.  The United States does not contest that, in all 12 cases, the relevantgovernments privatized the state-owned enterprises by selling "all, or substantially all, [their]ownership interest and clearly no longer [retained] any controlling interest in the privatizedproducer"
171, and that the sales were at arm's length and for fair market value.172  Consequently, that,
too, is not in dispute.  Both parties also concur that "it is a normal and accepted practice … for the
importing Member to presume that a non-recurring subsidy will provide a benefit over a period oftime, which is normally presumed to be the average useful life of assets in the relevant industry."
173
In  US – Lead and Bismuth II , we found this practice permissible under the  SCM Agreement , so long
as the presumption was not irrebuttable.174  Hence, that issue, likewise, is not before us in this appeal.
                                                     
167Article 14 of the   SCM Agreement.
168Article 32.5 of the   SCM Agreement.
169Article XVI:4 of the   WTO Agreement.
170Panel Report, footnote 313 to para. 7.40.
171Ibid., para. 7.62.
172See supra , para. 2 and footnote 4.
173Panel Report, para. 7.75.
174Appellate Body Report, US – Lead and Bismuth II , para. 62.WT/DS212/AB/R
Page 36
85. The issues in this appeal relate solely to th e impact of the privatization of the firms under
investigation in these 12 countervailing duty cases on the continued existence of the benefit derivedfrom a financial contribution.  As the Panel stated
175, the "core legal question" before it was to
determine whether a "benefit" within the meaning of the  SCM Agreement , which benefit is derived
from a non-recurring financial contribution, continues to  exist following a transfer of ownership of a
state-owned enterprise to a new private owner at ar m's length and for fair market value, where the
government retains no "controlling interest in the privatized producer"176 and transfers all or
substantially all the property.177
86. The European Communities challenges the administrative practice followed by the  USDOC
when examining whether a "benefit" continues to exist following a change in ownership.  This
administrative practice is called the "same person" method.178  Before the Panel, the European
Communities challenged this practice  as such  and  as applied  in the administrative review entitled
Grain-Oriented Electrical Steel  from Italy  (Case No. 12).179  In addition, before the Panel, the
European Communities challenged the consistency with the WTO obligations of the United States, of
Section 1677(5)(F) of Title 19 of the United States Code, as such.  The Panel found in favour of theEuropean Communities, and concluded that the United States had acted inconsistently with its                                                     
175Panel Report, para. 7.40.
176Ibid., para. 7.62.
177We observe, in particular, that the Panel has not examined whether a "benefit", within the meaning
of the  SCM Agreement , would be extinguished following a change in ownership under circumstances different
from those in the 12 cases under consideration.  ( Ibid.)  Hence, our analysis will be circumscribed to determine
whether, in the light of the circumstances of this case, the findings and conclusions of the Panel are in
conformity with the  SCM Agreement .
178For an explanation of the "same person" method, see paragraph 14 of this Report.  At the oral
hearing, the United States argued that the "same person" method, as such, was not at issue before the Panel.  TheEuropean Communities recalled that "the practice" of the USDOC was included in its request for theestablishment of the Panel (WT/DS212/4) and noted that the Panel accordingly found, in paragraph 7.90 of the
Panel Report, that "the same person methodology is itself inconsistent with the SCM Agreement".  We note that
the United States has not claimed before us that the Panel, in so finding, exceeded its mandate.  We also note
that the United States claimed, in clarifying its Notice of  Appeal, that "the Panel erred in finding that … the so-
called 'same person methodology' is inconsistent with the SCM Agreement." (Attachment to letter dated13 September 2002, from the Senior Legal Advisor, Permanent Mission of the United States to the WTO, to theDirector of the Appellate Body Secretariat, p.2)
179The 12 cases are listed in footnote 2 to this Report.  Case No. 12, Grain-Oriented Electrical Steel
from Italy , 66 Fed. Reg. 2885 (USDOC, 12 January 2001) (" GOES from Italy "), attached as Exhibit EC–7 to the
European Communities' first submission to the Panel, is an administrative review and the only underlyingadministrative determination in which the USDOC applied the "same person" method in the first instance.  The
method has been applied by the USDOC in certain other countervailing duty determinations upon remand from
the United States Court of International Trade (that is, where the Court has ordered the USDOC to reconductthose determinations).  The United States claimed before the Panel, however, with apparently no rebuttal fromthe European Communities, that the determinations upon remand, which had applied the "same person" method,were not challenged by the European Communities.  (Panel Report, footnote 81 to para. 2.55 (quoting UnitedStates' first submission to the Panel, para. 85))  Thus, in the course of making the twelve initial  determinations
(that is, not subsequent to a United States court appeal) in dispute, USDOC applied the "same person" method
only once, namely, during the administrative review identified as Case No. 12.WT/DS212/AB/R
Page 37
obligations under Articles 10, 14, 19.1, 19.4, 21.1, 21.2, 21.3, and 32.5 of the  SCM Agreement , and
Article XVI:4 of the  WTO Agreement .  The United States appeals these findings.
VII. Privatizations at Arm's Length and for Fair Market Value
A. The Panel's Finding
87. Critical to each of the Panel's conclusions is the Panel's central finding that:
[o]nce an importing Member has determined that a privatization has
taken place at arm's-length and for fair market value, it must  reach
the conclusion that no benefit resulting from the prior financial
contribution (or subsidization) continues to accrue to the privatized
producer.180 (emphasis added)
88. The United States submits that the Panel erred in making this fundamental finding because
the Panel considered the economic effects of privatization from the perspective of the new owner, and
not from that of the " legal person producing the subject merchandise ".181 (original emphasis)  The
United States alleges that, in doing so, the Panel ignored the distinction between firms and theirshareholders.  According to the United States, as legal persons are distinct from their shareholders, a"benefit" received by a legal person cannot be redeemed by its shareholders.  The United Statesargues that, regardless of the price paid by the new private owner for the privatized firm
182, "[a]
subsequent privatization does not move the [privatized enterprise's] supply curve back to where it hadbeen"
 183 before the government's provision of the pr evious financial contribution.  The United States
concludes that the economic analysis made by the Panel is therefore flawed.
89. According to the United States, the term "recipient" cannot include both a  legal person and a
shareholder of that legal person.184  The United States contends that  we acknowledged this distinction
in  Canada – Aircraft   and in US – Lead and Bismuth II  by expressly identifying "legal or natural
persons" as the recipients addressed in the  SCM Agreement .185  Further, the United States argues that,
if a state-owned enterprise (a legal person) receives a benefit and that same legal person continues toexist following privatization, then the benefit also co ntinues to exist (until fully amortized or repaid),
                                                     
180Panel Report, para. 8.1(d).  This finding is also at the core of the Panel's conclusions in para. 8.1(a)–
8.1(c).
181United States' appellant's submission, para. 46.
182"[F]or fair market value (or otherwise)". Ibid., paras. 2 and 6.  See also United States' second
submission to the Panel, para. 10;  United States' response to questioning at the oral hearing.
183United States' appellant's submission, para. 50.
184Ibid. , para. 56.
185Ibid. , para. 65.WT/DS212/AB/R
Page 38
irrespective of the price paid by its new private owners.186  The United States concludes,
consequently, that such privatization, even if at arm's length and for fair market value, cannotextinguish the benefit of a financial contribution previously made to the recipient (that is, to the state-owned firm) because the recipient is the same legal person.
90. In reply, the European Communities argues that, because a "benefit", as we established in
Canada – Aircraft , is defined under the  SCM Agreement  in relation to the marketplace, a firm
privatized at arm's length and for fair market value receives nothing on terms more favourable thanwhat the market itself would have provided.  C onsequently, according to the European Communities,
the sale of a firm at arm's length and for fair market value necessarily satisfies the marketplacecomparison contemplated in  Canada – Aircraft , so as to remove any "advantage"
187 that a firm may
have held previously as a result of a non-recurring financial contribution from the government.188
91. The European Communities argues that the Panel correctly rejected the distinction between
owners and firms for purposes of determining whether a "benefit" exists under the  SCM Agreement .
The European Communities points to our finding in  Canada – Aircraft , that the "recipient" of a
"benefit" could include a "group of persons".  Th e European Communities maintains that this finding
establishes that the "recipient" need not be limited to the firm exporting subject merchandise, but mayalso include that firm's owners.
189
92. The European Communities also submits that, under Article 1.1(b) of the  SCM Agreement , a
"financial contribution need not be directly provided to its recipient"190, and, further, that "the
recipient of a financial contribution need not be the same as the recipient of the benefit conferredthereby, as long as the required causal relationship between the contribution and the benefit is
established."
191  Moreover, the European Communities contends that, in practice, the United States
does not regard the shareholder-firm distinction as absolute because the "the  USDOC recognises thatsubsidies conferred on one part of an economic entity will liberate resources that can be applied toanother part of the entity, and hence, for the purpose of countervailing duties, those subsidies are'attributed' to the production and exports of the entire entity."
192 (footnote omitted)
                                                     
186United States' appellant's submission, para. 6.
187Appellate Body Report, Canada – Aircraft , para. 153.
188European Communities' appellee's submission, paras. 57–59.
189Ibid. , paras. 23 and 28.
190Ibid. , para. 38.
191Ibid. , para. 47.
192Ibid., para. 63.WT/DS212/AB/R
Page 39
93. In considering these arguments, we begin by noting the similarities of the issues in this case to
the issues we examined in  US – Lead and Bismuth II .  In that case, the United States, as appellant,
contended that the panel there had "'exceeded its authority' by,  in effect , dictating a methodology that
a privatization at fair market value  automatically  precludes any benefit from pre-privatization
subsidies from being attributed to the successor, privatized company."193 (emphasis added)  In that
appeal, we found that the panel had acted within the scope of its mandate, and we upheld the panel'sconclusions.
194  However, contrary to that panel, we restricted our ruling to "the particular
circumstances of [that] case" and to "the facts of [that] case".195
94. In the present case, the Panel made explicit what had merely been implicit in the report of the
panel in  US – Lead and Bismuth II:
Privatizations at arm's-length and for fair market value must  lead to
the conclusion that the privatized producer paid for what he got andthus did not get any benefit or advantage from the prior financial
contribution bestowed upon the state-owned producer.  While
Members may maintain a rebuttable presumption that the benefit
from prior financial contributions (or subsidization) continues to
accrue to the privatized producer, privatization[] at arm's-length andfor fair market value is sufficient to rebut such a presumption.
196
(emphasis added)
95. Thus, the Panel found that privatization at arm's length and for fair market value will  always
necessarily extinguish the remaining part of a benefit previously existing with the state-ownedenterprise.  By contrast, the United States argues, on appeal, that a change in ownership, irrespectiveof the price paid for the transaction, will  never  extinguish the benefit when the state-owned
                                                     
193Appellate Body Report, US – Lead and Bismuth II , para. 18.
194Ibid. , para. 73.
195Ibid. , para. 74.
196Panel Report, para. 7.82.  Compare Panel Report, US – Lead and Bismuth II , para. 6.81:
Assuming "financial contributions" bestowed directly on BSC could be
deemed to have been bestowed indir ectly on UES and BSplc/BSES, this fact
alone would not mean that pre-1985/86, untied, non-recurring "financial
contributions" bestowed on BSC necessarily confer any "benefit" on UES orBSplc/BSES.  This would only be the case if those "financial contributions"were found to have been bestowed indirectly ( i.e., through the relevant
change-in-ownership transactions) on UES and BSplc/BSES respectively onterms more favourable than UES and BSplc/BSES respectively could have
obtained in the market.  We consider that such a finding would only be
possible if fair market value was not paid for all productive assets etc.
acquired by UES and BSplc/BSES respectively from BSC.  Since fair
market value was paid for all such productive assets etc., we do not consider
that any untied, non-recurring "financi al contribution" bestowed indirectly
on UES and BSplc/BSES could be deemed to confer a "benefit" on those
entities. (footnote omitted; underlining added)WT/DS212/AB/R
Page 40
enterprise and the new privatized firm are the  same  legal person.  The United States supports this
position by submitting legal and economic arguments seeking to demonstrate that a change inownership, where the state-owned enterprise and the new firm remain the same  legal person,  cannot
remove the benefit
197, irrespective of the price paid for acquiring the state-owned enterprise.198  The
United States does state, however, that if the two firms are  different  legal persons, the "USDOC
would conclude that the new producer never received [the previous] subsidy and could not be subjectto [countervailing duties] on its account."
199
B. Interpretation of "Benefit"
96. We turn first to the interpretation of the term "benefit" under the  SCM Agreement .  The Panel
reasoned that where privatization occurs following a financial contribution that provides a "benefit",
"since the fair market value paid to the state-owned producer is deemed to include ( de facto ) the value
of the advantage or benefit already received, … the privatization transaction for fair market valueincludes the repayment to the government of the subsidy  as valued by the market  at the time of
privatization."
200 (emphasis added, footnote omitted)  As a consequence, the Panel found that, in such
a case, the "benefit" is "extinguish[ed]"201, and, therefore, it no longer "accrue[s] to the privatized
producer."202
97. The term "benefit" is not defined in the  SCM Agreement .  However, it is referred to explicitly
in the definition of "subsidy" set out in Article 1.1, which provides:
                                                     
197"[A] change in the shareholders of a subsidy recipient does not remove the new equipment, extract
knowledge from the workers, or increase the previously lowered debt load." United States' appellant's
submission, para. 49.
198See supra , footnote 182.
199United States' appellant's submission, para. 18.  If the two enterprises are found to be different  legal
persons, the USDOC will continue to examine the terms of the sale to determine whether the purchaser(s) of theprivatized entity received a new subsidy as a result.  (United States' responses to questioning at the oral hearing)
200Panel Report, para. 7.72.
201Ibid. , para. 7.77.
202Ibid. , para. 7.81.WT/DS212/AB/R
Page 41
Definition of a Subsidy
1.1 For the purpose of this Agreement, a subsidy shall be deemed
to exist if:
(a)(1) there is a financial contribution by a government or any
public body within the territory of a Member …
and
(b) a  benefit  is thereby conferred. (emphasis added)
98. In  Canada – Aircraft , we found that:
… the word 'benefit', as used in Article 1.1(b), implies some kind of
comparison.  This must be so, for there can be no 'benefit' to the
recipient unless the 'financial contribution' makes the recipient 'better
off' than it would otherwise have been, absent that contribution.  In
our view, the marketplace provides an appropriate basis for
comparison  in 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.203 (emphasis added)
99. The United States argues, on appeal, that the Panel's finding that the benefit must always
necessarily be extinguished upon privatization suffers from a "basic economic misconception"204
because "subsidies shift the recipient's supply curve and … subsequent privatization does not movethe supply curve back to where it had been, and thus, … does not affect the continued existence of thesubsidy."
205  The United States contends that the fact that the private owner pays full market price for
the enterprise indicates only that the private  owner  is not receiving a  new  subsidy.  It does not
indicate, in the view of the United States, that "from the perspective of  the legal person producing the
subject merchandise "206 (original emphasis), the effect of the subsidy has been eliminated.  The
United States supports this argument by noting that a change in ownership207 "of a subsidy recipient
does not  remove  the new equipment, extract knowledge from the workers, or increase the previously
lowered debt load."208 (emphasis added)
                                                     
203Appellate Body Report, Canada – Aircraft , para. 157.
204United States' appellant's submission, para. 44.
205Ibid. , para. 50.
206Ibid. , para. 46.
207The United States assumes that ownership is held by means of shares.
208United States' appellant's submission, para. 49.WT/DS212/AB/R
Page 42
100. The United States advanced similar arguments before the Panel.209  In considering these
arguments, the Panel found that "[t]he United States seems to be 'attaching' the benefit to theproduction activity"
210, and noted that "countervailing duties are not designed to counteract all market
distortions or resource misallocations which might have been caused by subsidization."211
(underlining in original)
101. In contesting this finding before us, the United States argues that the Panel erred in
characterizing the United States' position as suggesting that countervailing duties are "designed tocounteract all market distortions".
212  The United States informs us that it has, in the light of our
decision in  US – Lead and Bismuth II213, abandoned the position it held in that case,  and that it no
longer insists that benefits are conferred upon "production activity".214  Furthermore, in response to
questioning at the oral hearing, the United States confirmed215 that it continues to stand by the
following principle articulated by the USDOC in the context of an earlier domestic countervailingduty case:
The [countervailing duty] law is designed to provide remedial relief
as a result of subsidies;  it is not intended to recreate the ex ante
conditions that existed prior to the bestowal of such subsidies  ...
[T]he CVD law is concerned with the identification, measurement,
and allocation of subsidies at the time of receipt .
216  (emphasis added)
                                                     
209See United States' first submission to the Panel, paras. 56–61.
210Panel Report, para. 7.80.
211Ibid.
212Ibid.
213In  US – Lead and Bismuth II , para. 56, we stated:
It is true, as the United States emphasi zes, that footnote 36 to Article 10 of
the  SCM  Agreement   and Article VI:3 of the GATT 1994 both refer to
subsidies bestowed or granted directly or indirectly "upon the manufacture,
production or export of any merchandise".  In our view, however, it does notnecessarily follow from this wording that the "benefit" referred to inArticle 1.1(b) of the  SCM Agreement   is a benefit to  productive operations .
(original emphasis)
214United States' appellant's submission, para. 41.
215United States' response to questioning at the oral hearing, discussing Certain Steel Products from
Austria , 58 Fed. Reg. 37217, 37264 (USDOC, 9 July 1993) (General Issues Appendix).
216Certain Steel Products from Austria , 58 Fed. Reg. 37217, 37264 (USDOC, 9 July 1993) (General
Issues Appendix).WT/DS212/AB/R
Page 43
102. We agree with the United States that, irrespective of the price paid by the new private
owner217, privatization does not  remove  the equipment that a state-owned enterprise may have
acquired (or received) with a financial contribution and that, consequently, the same firm may"continue[] to make the same products on the same equipment".
218  However, this observation serves
only to illustrate that, following privatization, the  utility value  of equipment acquired as a result of a
financial contribution is not extinguished, because it is transferred to the newly-privatized firm.  But,the  utility  value  of such equipment to the newly-privatized firm is legally irrelevant for purposes of
determining the continued existence of a "benefit" under the  SCM Agreement .  As we found in
Canada – Aircraft , the value of the "benefit" under the  SCM Agreement  is to be assessed using the
marketplace  as the basis for comparison.
219  It follows, therefore, that once a fair market price is paid
for the equipment, its  market value  is redeemed, regardless of the utility the firm may derive from
the equipment.  Accordingly, it is the  market value  of the equipment that is the focal point of
analysis, and not the equipment's  utility value  to the privatized firm.
103. The United States also argues that, irrespective of the price at which the new owners acquire
the state-owned enterprise, "the artificially enhanced competitiveness generated by the subsidies" willnot be eliminated, as the firm will continue to produce "at the same costs and in the same volumes".
220
We fail to see the basis for the assumption by the United States that, regardless of the sale price of thefirm
221, its costs and volume of production will remain the same, since these costs include, as a
necessary component, the cost of capital.  Indeed, the Panel noted that private investors are "profit-maximizers"
222, who will seek to "recoup[] through the privatized company … a market return on the
full amount of their investment."223  For example, if a government makes a "financial contribution"
that "benefit[s]" a state-owned enterprise, and then sells that enterprise for  less  than its fair market
price, would this not normally result in a "better off"224 return for the private capital newly invested in
that enterprise?  Would that not suggest, as a consequence, that the under-priced enterprise may thenattract more investment than it would have attracte d otherwise, if the government had sold it for fair
market price?  Why would this government-indu ced additional investment not then reduce the
enterprise's cost of raising capital (either by borrowing it from the bank or from, say, shareholders)
                                                     
217See supra , footnote 182.
218Ibid. , para. 49.
219Appellate Body Report, Canada – Aircraft , para. 157.
220United States' appellant's submission, para 49.
221See supra , footnote 182.
222Panel Report, para. 7.60.  The Panel noted that the USDOC agrees with this characterization of
private investors.  ( Ibid. , para. 7.61)
223Ibid. , para. 7.60.
224Appellate Body Report, Canada – Aircraft , para. 157.WT/DS212/AB/R
Page 44
and, ultimately, reduce the firm's overall costs of production?  The United States' argument fails to
address such questions and advances no additional reasons why we should disturb the Panel's findingon this point.  Hence, we fail to see why  a firm's  cost and volume of production will necessarily
remain the same "[o]n the day before and the day after the sale of some or all of a steel producer's
shares", irrespective of the price paid for the property and of whether it adequately reflects "fair
market value" or not.
225
104. Although they are not phrased in terms of productive operations or activities, these arguments
by the United States here are not unlike those advanced by the United States before the panel in  US –
Lead and Bismuth II .226  We therefore do not agree that the Panel has mischaracterized the United
States' position by stating that "[t]he United States seems to be 'attaching' the benefit to the productionactivity"
227, and by suggesting that the United States unduly views countervailing duties as "designed
to counteract all market distortions".228
105. In sum, we do not agree with the United States' interpretation of "benefit" as used in the  SCM
Agreement .
C. Interpretation of the "Recipient"  of the Financial Contribution
106. We turn now to the term "recipient" as used in the  SCM Agreement .  The term "recipient" is
found in Article 14 of the  SCM Agreement , which, as we have noted229, concerns the methods used
by investigating authorities of WTO Members "to calculate the benefit to the recipient" for the
purposes of imposing countervailing duties.  As we held in  Canada – Aircraft , the "benefit" of a
                                                     
225United States' appellant's submission, para. 49.
226"The basic principle underlying USDOC's methodology is that … a subsidy benefits the production
of merchandise and [USDOC] does not envision ever re-visiting the original determination of the existence of asubsidy benefit".  (United States' first submission to the panel, para. 9, attached to the Panel Report in  US – Lead
and Bismuth II , Attachment 2.1, p. 165)  This similarity is seen also in the examples used by the United States in
its appellant's submission.  In one instance (United States' appellant's submission, paras. 47–48), an "uncle"forms for his "nephew" a company ("Nephew, Inc.") and provides that company with a "subsidy" in the form of
a newly-constructed apartment building.  The consequence of  this new building is the depressing of rents in the
local real estate market.  The United States argues th at the new apartment building continues to depress rents in
the town even after the transfer of "Nephew, Inc." for fair market value.  The "only" way to negate the effects of"uncle's subsidy", according to the United States, would be to  return rents in town to their previous levels.  From
the United States' perspective, therefore, the "benefit" persists so long as the distortions of the financialcontribution are detectable in the market , and a transfer in ownership, at fair market price or otherwise, would be
immaterial to the determination of whether a "benefit" continues to exist.
227Panel Report, para. 7.80.
228Ibid.
229See supra , para. 82.WT/DS212/AB/R
Page 45
"financial contribution" is "thereby conferred"  on a "recipient".  With respect to the identity of a
"recipient" of a "benefit", the Panel found that:
… for the purpose of the benefit determination under the SCM
Agreement, no distinction should be made between a company andits shareholders, as together they constitute a producer, a natural or
legal person that may be the "recipient" of the benefit to be assessed.
Any artificial distinction between owners (shareholders) and
company ignores the relationship between a company and its owners,
and it is this relationship that changes upon privatization.  When the
SCM Agreement refers to the recipient of a benefit it means the
company and its shareholders together, being the producer of theexported goods subject to the countervailing investigation (order).
230
107. The United States challenges this finding on various grounds.  First, the United States
contends that "the SCM Agreement regards subsidies as bestowed upon legal  or  natural persons"231
(emphasis added), and argues that this finding of the Panel contradicts our findings in  Canada –
Aircraft  and in  US – Lead and Bismuth II.  The United States contends that, in those two appeals, we
established that the recipient of the subsidy cannot be "both [the legal person]  and also  its
shareholder (or shareholders)".232 (original emphasis)  According to the  interpretation by the United
States of our rulings in those two appeals, when the recipient of the benefit is the "legal person who isthe producer and [the] subsidy recipient"
233 (that is, the state-owned enterprise), the benefit cannot be
extinguished by the recipient's sale, irrespective of the price paid by the new owner234, because the
producer and the owner are  two different persons .  The United States argues that a subsidy can be
received only by one recipient at a time, namely the legal person, and that, consequently, a subsidy
can be repaid only by the recipient, and not by its owners, regardless of the price the owners paid for
the property.  In sum, the United States argues that, in  Canada – Aircraft  and in  US – Lead and
Bismuth II , we drew a clear line separating a legal person (a firm) from its owners (shareholders).
108. The United States has misconstrued our findings in those two appeals.  In  Canada – Aircraft ,
we were asked whether the "cost to government" was relevant to the interpretation of "benefit" within
the meaning of Article 1.1(b) of the  SCM Agreement.   In finding the "cost to government" not to be
the relevant benchmark for identifying the "benefit", we said that Article 14 of the  SCM Agreement
prescribes the guidelines required to "calculate the benefit  to the recipient  conferred pursuant to
                                                     
230Panel Report, para. 7.54.
231United States' appellant's submission, para. 55.
232Ibid. , paras. 56, 65–67.
233Ibid. , para. 58.
234See supra , footnote 182.WT/DS212/AB/R
Page 46
paragraph 1 of Article 1". (emphasis added)  We concluded that this phrase in Article 14 necessarily
provides relevant context for interpreting Article 1.1, and we found that:
[a] "benefit" does not exist in the abstract, but must be received and
enjoyed by a beneficiary or a recipient.  Logically, a "benefit" can be
said to arise only if a person, natural or legal, or a group of persons ,
has in fact received something. The term "benefit", therefore, implies
that there must be a recipient. 235 (emphasis added)
Contrary to what has been argued here by the Un ited States, when referring to "a recipient" in  Canada –
Aircraft , we did not exclude the possibility that "a recipient" could include both a firm236 and its
owner.237  A "group of persons" could include a group of "natural persons", or a group of "natural and
legal persons", or a group exclusively of "legal persons".
109. In  US – Lead and Bismuth II , we affirmed our interpretation of the term "recipient" in
Canada – Aircraft  in the following terms:
The United States argues … that the relevant "benefit" is a benefit to
a company's  productive operations , rather than, as the Panel held, a
benefit to  legal or natural persons .
We … agree with the Panel's findings that benefit as used in
Article 1.1(b) is concerned with the "benefit to the recipient", thatsuch recipient must be a natural or legal person, and that in the present
case:
… in order to determine whether any subsidy was
bestowed on the production by UES and BSplc/BSES
respectively of leaded bars imported into the UnitedStates in 1994, 1995 and 1996, it is necessary to
determine whether there was any "benefit" to UES and
BSplc respectively ( i.e., the producers of the imported
leaded bars at issue).  (original emphasis, footnotes
omitted)
238
110. Contrary to the reading that has been suggested by the United States, when we referred, in
US – Lead and Bismuth II , to "legal or natural persons", we were  not  seeking to distinguish between
a firm and its owners.  We were only responding to the arguments by the United States there about
linking a benefit to "productive operations".  In our reasoning, we simply explained that the focus of
                                                     
235Appellate Body Report, Canada – Aircraft , para. 154.
236We use the term "firm" in this Report to include corporate associations, partnerships, limited liability
partnerships, unincorporated entities, and other forms of business organization.
237We use the term "owner" in this Report to include shareholders, members, proprietors, partners, and
all other holders of an equity interest in the relevant business organization.
238Appellate Body Report, US –Lead and Bismuth II , paras. 56 and 58.WT/DS212/AB/R
Page 47
any analysis of whether a "benefit" exists should be on "legal or natural persons"  instead of  on
productive operations; we did not rely in our reasoning on what the United States describes as"normal corporate law principles".
239  Moreover, there is nothing in these findings indicating that the
"benefit" of a financial contribution, as contemplated in Article 1.1(b) of the  SCM Agreement , should
necessarily be "received and enjoyed"240 by the   same  person or, put differently, there is nothing
indicating that the "benefit" cannot be "received and enjoyed" by two or more distinct persons.
111. The United States also submits that the Panel improperly rejected "the normal distinction
between shareholders and companies"241 in finding that, "[f]or the purpose of benefit determination
based on market criteria … there should be no distinction between the advantage or benefit conferredby the financial contribution to the company or to the shareholders, i.e. the owners of the
company."
242  The United States finds support for this argument in the list of "financial contributions"
included in Article 1.1(a)(1) of the  SCM Agreement243, as "[e]ach of these listed items indicates a
contribution from a government to a legal person who is the producer and subsidy recipient."244
112. The  SCM Agreement  does not include a specific definition of the "recipient" of a "benefit".
However, several terms are used to refer to the "rec ipient" of a "benefit" in the Agreement.  Article 2
refers to "an enterprise or industry or group of enterprises or industries"; Article 6.1(b) refers to "anindustry"; footnote 36 to Article 10 refers to subsidies "bestowed directly or indirectly upon themanufacture, production or export of any merchandise"; Article 14 refers to "the firm";
                                                     
239United States' appellant's submission, para. 64.
240Appellate Body Report, Canada – Aircraft , para. 154.
241United States' appellant's submission, para. 60.
242Panel Report, para. 7.51.
243Article 1.1(a)(1) of the  SCM Agreement  provides:
(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement as
"government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g.
grants, loans,  and equity infusion), potential direct transfers of
funds or liabilities (e.g. loan guarantees);
(ii) government revenue that is otherwise due is foregone or not
collected (e.g. fiscal incentives such as tax credits);
(iii) a government provides goods or services other than general
infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts
or directs a private body to carry out one or more of the type offunctions illustrated in (i) to (iii) above which would normally be
vested in the government and the practice, in no real sense, differs
from practices normally followed by governments; … (footnote
omitted)
244United States' appellant's submission, para. 58.WT/DS212/AB/R
Page 48
Article 11.2(ii) refers to "exporter or foreign producer";  Article 19.3 refers to "sources found to be
subsidized";  Annex I refers to "a firm or an industry";  and Annex IV refers to the "recipient firm".This is not an exhaustive list, but it certainly indicates that the  SCM Agreement  does not identify the
"recipient" of a "benefit" by using any particular legal term of art.  Rather, the  SCM Agreement  uses
several terms to describe the economic entity  that  receives a "benefit".  Thus, the reliance by the
United States on the list of financial contributions in Article 1.1(a)(1) is not persuasive, because, whenviewed in the context of the  SCM Agreement  as a whole, that list cannot be read to imply that the
"recipient" is necessarily defined as a "legal person".
113. In addition, we observe that a transfer of funds could be provided directly from the
government to the legal person that is the producer of the subsidized product, or it could be providedindirectly, say, through an income tax concession to  the natural persons that own the firm (inasmuch
as they invest in the legal person's productive activities).  In both cases, the cost of raising capital forthe legal person that is the producer would be reduced.  Hence, contrary to the contention of the
United States, it is possible to confer a "benefit" on a firm by providing a financial contribution to its
owners, whether natural or legal persons, possibly holding property by means of shares.  Moreover,
we note that Article VI:3 of the GATT 1994
245 and footnote 36 of Article 10 of the  SCM
Agreement246 contemplate this possibility by providing that a subsidy may be bestowed " indirectly "
upon the manufacture, production or export of merchandise.  (emphasis added)
114. Moreover, despite insisting on the distinction between firms and their owners, the United
States recognized, in its appellant's submission, th at a "benefit" can trespass the frontier between the
firm and its owners.  According to the United States, a financial contribution bestowed by a
government on the  owners  of a firm can be attributed to the firm in "some instances" 247;  for
                                                     
245Article VI:3 of the GATT 1994 provides:
No countervailing duty shall be levied on any product of the territory of any
contracting party imported into the territory of another contracting party inexcess of an amount equal to the estimated bounty or subsidy determined tohave been granted, directly or indirectly , on the manufacture, production or
export of such product in the country of origin or exportation, including anyspecial subsidy to the transportation of a particular product. The term
"countervailing duty" shall be understood to mean a special duty levied for
the purpose of offsetting any bounty or subsidy bestowed, directly, orindirectly, upon the manufacture, production or export of any merchandise.(emphasis added, footnote omitted)
246Footnote 36 to Article 10 of the  SCM Agreement provides:
The term "countervailing duty" shall be understood to mean a special duty
levied for the purpose of offsetting any subsidy bestowed directly or
indirectly upon the manufacture, production or export of any merchandise, as
provided for in paragraph 3 of Article VI of GATT 1994. (emphasis  added)
247United States' appellant's submission, footnote 77 to para. 76.WT/DS212/AB/R
Page 49
example, the United States asserts that if the financial contribution were provided to a "holding
company", the consequent benefit could be attributed  to the "subsidiary that is actually engaged in
production", provided that it is "wholly-owned" by the holding company.248
115. For these reasons, the United States is mistaken in its interpretation of our findings in
Canada – Aircraft   and  US – Lead and Bismuth II .  Furthermore, the approach advocated by the
United States could potentially undermine the  SCM Agreement  by opening wide a door enabling
subsidizing governments to circumvent that Agreemen t's provisions by bestowing benefits directly on
the firm's owners rather than on the firms themselves .  In sum, the legal distinction between firms and
their owners that may be recognized in a domestic legal context is not necessarily relevant, andcertainly not conclusive, for the purpose of  determining whether a "benefit" exists under the  SCM
Agreement,  because a financial contribution bestowed on those investing in a firm may confer a
benefit "upon the manufacture, production or export of any merchandise, as provided for inparagraph 3 of Article VI of GATT 1994."
249
116. However, while we disagree with the United States' construction  of our findings in  Canada –
Aircraft  and in  US – Lead and Bismuth II  as establishing a clear dividing line between a firm and its
owners, we are of the view that the Panel went too far in stating, in paragraph 7.54 of the PanelReport, that, "for the purpose of the benefit determination under the SCM Agreement,  no distinction 
should be made [because] … [w]hen the SCM Agreemen t refers to the recipient of a benefit it means
the company and its shareholders together".
250 (emphasis added)  In so finding, the Panel adopted too
sweeping an interpretation of the  SCM Agreement .
117. As we explained251, the "core legal question"252 before the Panel was to determine whether a
"benefit", within the meaning of the  SCM Agreement , continues to exist following privatization at
arm's length and for fair market value.  In consid ering this core legal question, the Panel examined a
very precise set of facts and circumstances, namely, a benefit resulting from a prior non-recurringfinancial contribution bestowed on a state-owned ente rprise where, following a privatization at arm's
length and for fair market value, the government transfers all or substantially all the property andretains no "controlling interest in the privatized producer."
253  The Panel did not examine other
                                                     
248United States' appellant's submission, footnote 77 to para. 76.
249Footnote 36 to Article 10 of the  SCM Agreement .
250Panel Report, para. 7.54.
251See supra , paras. 84–85.
252Panel Report, para. 7.40.
253Ibid., para. 7.62.WT/DS212/AB/R
Page 50
situations254, for instance, situations where a "benefit" is conferred through recurring financial
contributions, or where the seller retains a controlling interest in the firm following its change inownership.  The Panel had to consider only one kind of change in ownership (that is, a privatization at
arm's length and for fair market value where the government transfers all or substantially all the
property and retains no controlling interest in the firm) and only one kind of benefit (that is, a benefit
originating from a non-recurring financial contributio n bestowed to the state-owned enterprise before
privatization).  The Panel should have confined its findings to those specific circumstances.
118. Moreover, we note that the Panel's overly broad finding that a firm and its owners are, for  all
purposes of the  SCM Agreement , virtually the same, could be interpreted as entitling investigating
authorities to assume, in  all  cases, that, for the purpose of calculating the benefit, and irrespective of
the means and conditions imposed by a government for the provision of a financial contribution toowners of the firm, that firm will receive a benefit equivalent to the full financial contribution.  This
may or may not be so in all cases.  We do not express an opinion on this question, but we caution that
this finding of the Panel must not be interpreted as entitling authorities to overlook the possibility that
some of the financial contribution provided to owners  may not flow into the firm.  In sum, it  does not
seem to us that the very narrow set of facts and circumstances analyzed by the Panel providessufficient support to conclude that, in  all  cases, "for the purpose of the benefit determination under
the SCM Agreement, no distinction should be made [because] … [w]hen the SCM Agreement refersto the recipient of a benefit it means the company and its shareholders together".
255 
119. Therefore, although we agree with the Panel's conclusion in paragraph 7.54 as it relates to the
facts of this case, we disagree with the Panel's overreaching conclusion that "for the purpose of the
benefit determination under the SCM Agreement, [investigating authorities should make] no
distinction … between a company and its shareholders [because] … [w]hen the SCM Agreementrefers to the recipient of a benefit it means the company and its shareholders", because, in so
concluding, the Panel went beyond the factual circumstances examined in this case.
256
D. Privatizations at Arm's Length and for Fair Market Value:  Can the "Benefit"
Continue to Exist?
120. Having examined the term "benefit" as used in the  SCM Agreement , and having examined
also the term "recipient" as used in that Ag reement, we examine next whether, under the  SCM
                                                     
254Panel Report, para. 7.62.
255Ibid. , para. 7.54.
256Ibid.WT/DS212/AB/R
Page 51
Agreement , a "benefit" conferred on a "recipient" is necessarily extinguished following privatization
at arm's length and for fair market value.  The Panel found that:
[p]rivatizations at arm's-length and for fair market value  must  lead to
the conclusion that the privatized producer paid for what he got andthus did not get any benefit or advantage from the prior financial
contribution bestowed upon the state-owned producer. 
257 (emphasis
added)
Further, in its "Conclusions and Recommendations", the Panel said:
[o]nce an importing Member has determined that a privatization has
taken place at arm's-length and for fair market value, it must  reach the
conclusion that no benefit resulting from the prior financial
contribution (or subsidization) continues to accrue to the privatized
producer.258 (emphasis added)
121. In effect, the Panel interpreted the  SCM Agreement  as containing an  irrebuttable
presumption  that would compel investigating authorities to conclude that the remaining part of a
benefit resulting from a prior financial contribution necessarily has been extinguished in all cases
where there is privatization at arm's length and for fair market value.  In other words, according to the
Panel, a benefit can  never  continue to exist for the new owner after privatization at arm's length and
for fair market value.  We do not agree.
122. Markets are mechanisms for exchange.  Under certain conditions (e.g., unfettered interplay of
supply and demand, broad-based access to information on equal terms, decentralization of economicpower, an effective legal system guaranteeing the existence of private property and the enforcement ofcontracts), prices will reflect the relative scarcity of goods and services in the market.  Hence, theactual exchange value of the continuing benefit of past non-recurring financial contributions bestowed
on the state-owned enterprise will be fairly reflected in the market price.  However, such market
conditions are not necessarily always present  and they are often dependent on government action.
123. Of course, every process of privatizing public-owned productive assets takes place within the
concrete circumstances prevailing in the market in which the sale occurs.  Consequently, the outcomeof such a privatization process, namely the price that the market establishes for the state-ownedenterprise, will reflect those circumstances.  However, governments may choose to impose economicor other policies that, albeit respectful of the market's inherent functioning, are intended to inducecertain results from the market.  In such circumstances, the market's valuation of the state-owned
                                                     
257Panel Report, para. 7.82.
258Ibid. , para. 8.1(d).WT/DS212/AB/R
Page 52
property may ultimately be severely affected by those government policies, as well as by the
conditions in which buyers will subsequently be allowed to enjoy property.
124. The Panel's absolute rule of "no benefit" may be defensible in the context of transactions
between two private parties taking place in reasona bly competitive markets; however, it overlooks the
ability of governments to obtain certain result s from markets by shaping the circumstances and
conditions in which markets operate.  Privatizations involve complex and long-term investments inwhich the seller—namely the government—is not necessarily always a passive price taker and,consequently, the "fair market price" of a state-owned enterprise is not necessarily always unrelated togovernment action.  In privatizations, governments have the ability, by designing economic and other
policies, to influence the circumstances and the conditions of the sale so as to obtain a certain marketvaluation of the enterprise.
125. In this respect, we note that, before arriving at its conclusion that privatization at arm's length
and for fair market value "must"  necessarily extinguish a benefit bestowed by a prior financial
contribution, the Panel found, in apparent contradiction to its ultimate conclusion, that the
investigating authority was  not  obliged to discontinue its investigation after determining that the
privatization was made at arm's length and for fair market value.
259  The Panel acknowledged that the
investigating authority could find reasons to co ntinue scrutinizing the circumstances of the
privatization with a view to determining whether a benefit still existed.  The Panel found also that if,following a privatization at arm's length and for fair  market value, "[the investigating authority] wants
(to continue) to apply countervailing duties, the importing Member must demonstrate, based on itsexamination of the conditions of the privatization, that the privatized producer (still) benefits from the
prior financial contribution (subsidization)."
260
126. We understand the Panel to be stating that privatization at arm's length and for fair market
value privatization  presumptively  extinguishes any benefit received from the non-recurring financial
contribution bestowed upon a state-owned firm.  The effect of such a privatization is to shift to theinvestigating authority the burden of identifying ev idence which establishes that the benefit from the
previous financial contribution does indeed continue beyond privatization.  In the absence of suchproof, the fact of the arm's-length, fair market value privatization is sufficient to compel a conclusionthat the "benefit" no longer exists for the privatized firm, and, therefore, that countervailing dutiesshould not be levied.  This is an accurate characterization of a Member's obligations under the  SCM
Agreement .
                                                     
259Panel Report, para. 7.76.
260Ibid.WT/DS212/AB/R
Page 53
127. Therefore, we find that the Panel erred in concluding that "[p]rivatizations at arm's length and
for fair market value  must  lead to the conclusion that the privatized producer paid for what he got
and thus did not get any benefit or advantage from the prior financial contribution bestowed upon thestate-owned producer."
261 (emphasis added)  Privatization at arm's length and for fair market value
may  result in extinguishing the benefit.  Indeed, we find that there is a rebuttable presumption that a
benefit ceases to exist after such a privatization.  Nevertheless, it does not  necessarily  do so.  There
is no inflexible rule  requiring  that investigating authorities, in future cases,  automatically  determine
that a "benefit" derived from pre-privatization financial contributions expires following privatizationat arm's length and for fair market value.  It depends on the facts of each case.  Therefore, we reversethe Panel's conclusion that:
[o]nce an importing Member has determined that a privatization has
taken place at arm's-length and for fair market value, it  must  reach
the conclusion that no benefit resulting from the prior financial
contribution (or subsidization) continues to accrue to the privatized
producer.
262 (emphasis added)
VIII.  The "Same Person" Method
128. With all this in mind, we now turn to the admi nistrative practice of the  USDOC that is the
source and subject of this dispute.  The Members of the WTO have anticipated in Article 14 of theSCM Agreement  that the investigating authorities of  WTO Members will use different "method[s]"
to "calculate the benefit to the recipient" when determining the amount of countervailing duties that
are imposed on an imported product to offset a subsidy.  One such method used by the USDOC forthe purpose of determining whether a "benefit" cont inues to exist following a change in ownership—
the gamma  method—was the subject of a previous dispute and a previous appeal.
263  Another method
is the "same person" method, which gives rise to this dispute and this appeal.
129. The United States stated during the hearing that the "same person" method is prescribed
neither by United States statute nor by USDOC regulations.264  Rather, the USDOC developed this
method as an administrative practice in the course of responding to orders of the United States Courtof International Trade in the appeals of certain countervailing duty cases.
265  This administrative
practice was applied for the first time in an initial countervailing duty determination266 in  GOES from
                                                     
261Panel Report, para. 7.82.
262Ibid., para. 8.1(d).
263See Appellate Body Report, US – Lead and Bismuth II .
264United States' response to questioning at oral hearing.
265Ibid.  See also supra , footnote 179.
266See supra , footnote 179.WT/DS212/AB/R
Page 54
Italy, an administrative review determination that is before us on appeal and has been identified as
Case No. 12.  Generally, the USDOC applies the "same person" method to countervailing dutydeterminations following a change in ownership.
267
130. In evaluating the continued existence of a "benefit", the "same person" method provides for a
two-step test.  The first step consists of an analysis of whether the post-privatization entity is the same
legal person that received the original subsidy be fore privatization.  For this purpose, the USDOC
examines the following non-exhaustive criteria:  (i) continuity of general business operations;  (ii)continuity of production facilities;  (iii) continuity of assets and liabilities;  and (iv) retention ofpersonnel.  If, as a result of the application of these criteria, the  USDOC concludes that  no new legal
person   was created, the analysis of whether a "benefit" exists stops there, and the USDOC will not
assess whether the privatization was at arm's length and for fair market value.  The subsidy isautomatically found to continue to exist for the post-privatization firm.
268  By contrast, if, as a
consequence of the application of these criteria , the USDOC concludes that the post-privatization
entity is a  new legal person , distinct from the entity that received the prior subsidy, the  USDOC will
not impose duties on goods produced after privatization on account of the pre-privatization subsidy .269
The USDOC will, however, proceed to examine, in such an event, whether any  new  subsidy had
been bestowed upon the post-privatization entity's ne w owners as a result of the change in ownership
(for example, by assessing whether the sale was for fair market value and at arm's length).270
131. The question before us is whether the "same person" method—as such, and also as applied by
the United States—is inconsistent with the  SCM Agreement .  In the underlying determinations in
these 12 countervailing duty cases, the USDOC used both the gamma  method and the "same person"
method to determine whether a benefit continued to exist following privatization.  Of the 12
determinations at issue in this dispute, 11 were based on the application of the  gamma  method (Case
Nos. 1–11), and one was based on the application of the "same person" method (Case No. 12).
132. The Panel found that the countervailing duty analyses undertaken by the USDOC in
determinations that used the  gamma  method—Case Nos. 1–7—are inconsistent with the obligations
of the United States under the  SCM Agreement .271  On the basis of our finding in  US – Lead and
                                                     
267United States' response to questioning at the oral hearing.
268Ibid.
269Ibid.
270Ibid.
271Panel Report, paras. 8.1(a) and 8.1(b).  In this respect, we note that the United States proposes to
reconduct the determinations made in the course of original investigations (Case Nos. 1–6) and theadministrative review (Case No. 7) on the basis of the "same person" method.  ( Ibid., para. 7.90)WT/DS212/AB/R
Page 55
Bismuth II  that the "irrebuttable"272 presumption established by the  gamma  method prevented the
USDOC from undertaking the necessary determination of  whether a "benefit" continues to exist, the
United States conceded before the Panel that the determinations in Case Nos. 1–7, which employedthe  gamma  method, are inconsistent with the  SCM Agreement .
 273
133. The Panel also found that the determinations by the USDOC that employed the  gamma
method in sunset reviews—Case Nos. 8–11—are likewi se inconsistent with the obligations of the
United States under the  SCM Agreement .274  Specifically, the Panel found that, despite having been
informed that the privatizations took place at arm's length and for fair market value, the  USDOC, inusing the  gamma  method, "failed to examine the conditions of such privatizations and to determine
whether the privatized producers received any benefit from the prior subsidization to the state-ownedproducers".
275  The United States has not conceded that the use of the  gamma   method in these sunset
reviews (Case Nos. 8–11) is inconsistent with the  SCM Agreement .
134. As the United States explains, because "[t]he [first] eleven determinations involved
applications of the now discarded ' gamma ' methodology"276, "the proceedings before the Panel
necessarily centered on  GOES from Italy  [Case No. 12], the only one of the twelve determinations
before the Panel in which USDOC had applied its new ["same person"] methodology."277  I n
reviewing the application of the "same person" method to Case No. 12—an administrative review—
the Panel found that "privatization calls for a (re)determination of the existence of a benefit to theprivatized producer".
278  Based on this finding, the Panel concluded that the "same person" method,
"is itself inconsistent with [the United States' obligations under] the  SCM Agreement "279 because it
"prohibits the examination of the conditions of the privatization-transaction when the privatized
producer is not a distinct legal person based on criteria relating mainly to the industrial activities of
                                                     
272Appellate Body Report, US – Lead and Bismuth II , para. 62.
273Panel Report, paras. 2.29–2.30.  For Case Nos. 1-6, the United States acknowledged the WTO-
inconsistency "to the extent that they were based on the gamma methodology and that the underlyingdeterminations did not fully examine whether the pre- and post-change in ownership entities involved were the
same legal persons."  ( Ibid. , para. 2.29)  For Case No. 7, the WTO-inconsistency was admitted by the United
States "to the extent that the review was based on the gamma methodology and that, therefore, the underlyingdetermination did not fully examine whether the pre- and post-change in ownership entity was the same legalperson."  ( Ibid., para. 2.30)
274Ibid., para. 8.1(c).
275Ibid. , para. 7.116.
276United States' appellant's submission, footnote 28 to para. 26.
277Ibid. , para. 26.
278Panel Report, para. 7.77.
279Ibid. , para. 7.90.WT/DS212/AB/R
Page 56
the producers concerned."280  On appeal, the United States asks us281 to reverse the Panel's conclusion
that "the so-called 'same person methodology' is inconsistent with the SCM Agreement."282
135. Because the 12 determinations challenged in this dispute and on appeal include six original
investigations, two administrative reviews and four sunset reviews,283 we must, in considering
whether "the so-called 'same person methodology' [ as such ] is inconsistent with the SCM
Agreement"284, examine this matter in the light of the provisions of the  SCM Agreement  covering
each of these three types of countervailing duty determinations.  We must also consider whether theapplication  of this "same person" method, which occurred only in Case No. 12, was undertaken in a
manner consistent with the SCM Agreement .
136. The Panel observed that, with the "same person" method, "when the new privatized producer
is not a distinct legal person (based on the activities, productive assets, management, staff) from theprevious state-owned producer, [the  USDOC] considers that the benefit attributed to the state-owned
producer can be  automatically  attributed to the privatized producer without any examination of the
condition[s] of the transaction."
285 (emphasis added)  The Panel reasoned that this method impedes the
calculation of a "benefit" to a "recipient" according to Article 14 of the  SCM Agreement286 because it
prevents the USDOC from focusing its analysis on "the relevant issues … [that is, the determinationof] whether subsidization (and in particular benefit) exists for the privatized producer underinvestigation."
287  Therefore, the Panel concluded that the "same person" method does not permit the
examination of the conditions of the privatization, which may reveal that no benefit exists for theprivatized producer "above what market conditions dictate".  Consequently, the Panel found the "sameperson" method "is itself inconsistent [with the obligations of the United States under] the  SCM
Agreement ".
288  The Panel then considered also the  application  of the "same person" method in
                                                     
280Panel Report, para. 7.77.
281See supra , footnote 178.
282Attachment to letter dated 13 September 2002 from the Senior Legal Advisor, Permanent Mission of
the United States to the WTO, to the Director  of the Appellate Body Secretariat, p. 2.
283See supra , para. 15.
284Attachment to letter dated 13 September 2002 from the Senior Legal Advisor, Permanent Mission of
the United States to the WTO, to the Director  of the Appellate Body Secretariat, p. 2.
285Panel Report, para. 7.78.
286Article 14 of the SCM Agreement , in relevant part, provides that:
any method used by the investigating authority to calculate the benefit to the
recipient conferred pursuant to paragraph 1 of Article 1 shall be …transparent and adequately explained.
287Panel Report, para. 7.78.
288Ibid., para. 7.90.WT/DS212/AB/R
Page 57
GOES from Italy  (Case No. 12), and concluded that the "same person" method,  as applied  in Case
No. 12, is also inconsistent with Articles 10, 14, 19.4, 21.1, and 21.2 of the  SCM Agreement .289
137. The United States challenges the Panel's finding that the "same person" method is inconsistent
with the obligations of the United States under the  SCM Agreement  – both as such and as applied in
Case No. 12.  In particular, the United States claims that the method cannot be inconsistent with the
SCM Agreement  because of the way the United States interprets our decision in  US – Lead and
Bismuth II .  The United States reads our ruling in  US – Lead and Bismuth II   as saying that an
investigating authority is required to re-examine a determination as to the existence of a "benefit"only  when a  new legal person— distinct from the entity that received the original benefit—is
created.
290
138. The European Communities argues that the United States relies on an erroneous interpretation
of our decision in  US – Lead and Bismuth II  to justify the "same person" method.  Our decision in
US – Lead and Bismuth II ,  according to the European Communities,  compels   a finding that the
"same person" method  as such  is inconsistent with the obligation of the  SCM Agreement  that an
investigating authority conduct a new determination of whether a benefit exists when notified of aprivatization that results in a change in control.   The European Communities argues that, because the
"same person" method, like the  gamma  method, establishes an irrebuttable presumption that the
benefit of a previously-bestowed financial contribution remains in the post-privatization enterpriseunless a new legal person is created , the "same person" method is inconsistent with the obligations of
the United States under the  SCM Agreement ,  as those obligations have been interpreted in  US –
Lead and Bismuth II .
291
139. In considering these arguments, we begin by recalling that,  under Article 1.1 of the  SCM
Agreement ,  a "subsidy" is "deemed to exist" only if a "financial contribution" confers a "benefit".
Also, under Article VI:3 of the GATT 1994292, investigating authorities, before imposing
countervailing duties, must ascertain the precise amount of a subsidy attributed to the imported
                                                     
289Panel Report, para. 8.1(b).
290United States' appellant's submission, paras. 86–90.
291European Communities' appellee's submission, paras. 2 and 7.
292Article VI:3 of the GATT 1994 provides as follows:
No countervailing duty  shall be levied on any product of the territory of any
contracting party imported into the territory of another contracting party in
excess of an amount equal to th e estimated bounty or subsidy  determined to
have been granted, directly or indirectly, on the manufacture, production orexport of such product in the country of origin or exportation, including anyspecial subsidy to the transportation of a particular product.  (emphasisadded)WT/DS212/AB/R
Page 58
products under investigation.  In furtherance of this obligation, Article 10 of the  SCM Agreement293
provides that Members must  "ensure" that duties levied for the purpose of offsetting a subsidy are
imposed only "in accordance with" the provisions of Article VI:3 of the GATT 1994 and the  SCM
Agreement.   Moreover, Article 19.4 of the  SCM Agreement , consistent with the language of Article
VI:3 of the GATT 1994, requires that "[ n]o countervailing duty  shall be levied on any imported
product in excess of the amount of the subsidy found to exist ". (emphasis added)  Finally, Article 21.1
of the SCM Agreement  provides that "[a] countervailing duty shall remain in force only as long as
and to the extent necessary to counteract subsidization which is causing injury." (emphasis added)  In
sum, these provisions set out the obligation of Members to limit countervailing duties to the amountand duration of the subsidy found to exist by the investigating authority.  These obligations apply tooriginal investigations as well as to administra tive and sunset reviews covered under Article 21 of the
SCM Agreement .
140. As we have mentioned, of the 12 USDOC determinations that are relevant in this dispute, the
"same person" method was  applied  only in the GOES from Italy  case (Case No. 12), an
administrative review conducted under Article 21.2 of the  SCM Agreement , which provides:  
Article 21
Duration and Review of Countervailing Duties and Undertakings
…
21.2 The authorities shall review the need for the continued
imposition of the duty, where warranted, on their own initiative or,
provided that a reasonable period of time has elapsed since the
imposition of the definitive countervailing duty, upon request by any
interested party which submits positive information substantiating theneed for a review.  Interested parties shall have the right to request
the authorities to examine whether the continued imposition of the
duty is necessary to offset subsidization, whether the injury would be
likely to continue or recur if the duty were removed or varied, or
both.  If, as a result of the review under this paragraph, the authoritiesdetermine that the countervailing duty is no longer warranted, it shall
be terminated immediately.
                                                     
293Article 10 of the  SCM Agreement  provides as follows:
Members shall take all necessary steps to ensure  that the imposition of a
countervailing duty on any product of the territory of any Member importedinto the territory of another Member is in accordance with the provisions ofArticle VI of GATT 1994 and the terms of this Agreement.  Countervailingduties may only be imposed pursuant to investigations initiated andconducted in accordance with the prov isions of this Agreement and the
Agreement on Agriculture. (emphasis added, footnotes omitted)WT/DS212/AB/R
Page 59
141. We considered Article 21.2 for the first time in  US – Lead and Bismuth II , where  we found
that:
[i]n an administrative review pursuant to Article 21.2, the
investigating authority may be presented with "positive information"that the "financial contribution" has been repaid or withdrawn and/or
that the "benefit" no longer accrues.  On the basis of its assessment of
the information presented to it by interested parties, as well as of other
evidence before it relating to the period of review, the investigating
authority must  determine whether there is a continuing need for the
application of countervailing duties.  The investigating authority is not
free to ignore such information .  If it were free to ignore this
information, the review mechanism under Article 21.2 would have no
purpose.
294 (emphasis added)
This finding makes it clear that an investigating au thority undertaking an administrative review has an
obligation under Article 21.2 of the  SCM Agreement  to determine whether a "benefit" continues to
exist when information suggesting that a benefit no  longer exists is presented to that authority.
According to the United States, our finding in  US – Lead and Bismuth II  was limited to the specific
circumstances of that case, which, in the interpretation of the United States, were that the state-ownedenterprise and the newly privatized enterprise were two different legal persons.  The United States
seeks justification for this view in the references in our Report in  US – Lead and Bismuth II  to the
"circumstances" of that case
295, and also in our reasoning in paragraph 62 of that Report, in which,
according to the United States, "[t]he Appellate Body … accepted the panel's conclusion that UESwas a distinct new legal person that could not be held accountable for subsidies bestowed upon BSC[the privatized state-owned enterprise]."
296 (footnote omitted)
142. With respect to the references we made in  US – Lead and Bismuth II  to the "circumstances"
of that case297, we observe that, in those references, we were simply limiting the scope of our findings
in that appeal to  the particular circumstances of that dispute.  We were addressing the conditionsunder which that particular privatization took place (that is, "fair market value paid for all productive
assets, goodwill, etc." 
298);  we were not referring at all to a distinction between legal personalities.
This is clear when the phrase "in the specific circumstances of this case" is viewed in its context:
                                                     
294Appellate Body Report, US – Lead and Bismuth II , para. 61.
295Ibid. , paras. 68 and 74.
296United States' appellant's submission, para. 16.
297Appellate Body Report, US – Lead and Bismuth II, paras. 68 and 74.
298Ibid.,  para. 68.WT/DS212/AB/R
Page 60
The question whether a "financial contribution" confers a "benefit"
depends, therefore, on whether the recipient has received a "financial
contribution" on terms more favourable than those available to the
recipient in the market.  In the present case, the Panel made factual
findings that UES and BSplc/BSES paid fair market value for all the
productive assets, goodwill, etc ., they acquired from BSC and
subsequently used in the production of leaded bars imported into the
United States in 1994, 1995 and 1996.  We, therefore , see no error in
the Panel's conclusion that, in the specific circumstances of this case ,
the "financial contributions" bestowed on BSC between 1977 and
1986 could not be deemed to confer a "benefit" on UES and
BSplc/BSES.299 (emphasis added)
Moreover, in this dispute, the United States expl icitly acknowledged this reading of our Report in
US – Lead and Bismuth II  in its first submission to the Panel.  The United States asserted that
"because  UES's owners had paid fair market value  for UES, the Appellate Body found no error in the
panel's conclusion that the financial contributions bestowed upon BSC [that is, the state-ownedenterprise] could not be deemed to confer a benefit upon UES."
300 (emphasis added)
143. The interpretation of paragraph 62 that is suggested by the United States in this appeal is
equally unfounded.  Paragraph 62 of our Report in  US – Lead and Bismuth II  reads as follows:
Therefore, we agree with the Panel that while an investigating
authority may presume, in the context of an administrative review
under Article 21.2, that a "benefit" continues to flow from an untied,non-recurring "financial contribution", this presumption can never be
"irrebuttable".  In this case, given the  changes in ownership   leading
to the creation of UES and BSplc/BSES, the USDOC was  required 
under Article 21.2 to examine, on the basis of the information before it
relating to these changes, whether a  "benefit" accrued to UES and
BSplc/BSES.  We thus agree with the Panel's finding that:
… the changes in ownership  leading to the creation of
UES and BSplc/BSES should have caused the USDOC to
examine whether the production of leaded bars by UES
and BSplc/BSES respectively, and not BSC, wassubsidized.  In particular, the USDOC should have
examined the continued existence of "benefit" already
deemed to have been conferred by the pre-1985/86
"financial contributions" to BSC, and it should have done
so from the perspective of UES and BSplc/BSESrespectively, and not BSC. (emphasis added, footnote
omitted)
                                                     
299Appellate Body Report, US – Lead and Bismuth I , para. 68. .
300United States' first submission to the Panel, para. 37.WT/DS212/AB/R
Page 61
Contrary to the assertions of the United States, there is nothing in this finding to indicate that, in this
paragraph of our Report in  US – Lead and Bismuth II , we "accepted the panel's conclusion that UES
was a distinct new legal person that could not be held accountable for subsidies bestowed upon BSC[the state-owned enterprise]."
301 (footnote omitted)
144. In sum, we reject the characterization made by the United States of our rationale in  US –
Lead and Bismuth II ,  and we reaffirm our finding in that case302 that an investigating authority, in an
administrative review, when presented with information directed at proving that a "benefit" no longerexists following a privatization,  must  determine whether the continued imposition of countervailing
duties is warranted in the light of that information.  This obligation is premised,  not  on the creation
of a new legal person, as the United States insists, but on the possibility that such a change inownership has affected the continued existence of a benefit.
145. The Panel stated, and the United States agreed before the Panel and on appeal, that the "same
person" method  requires  the USDOC to "consider[] that the benefit attributed to the state-owned
producer can be automatically attributed to the privatized producer without any examination of the
condition of the transaction" when the agency determines the post-privatization entity is not a newlegal person.
303  It is only if the USDOC finds that a new legal person has been created that the agency
will make a determination of whether a benefit exists, and, in such cases, the inquiry will be limited tothe subject of whether a  new  subsidy has been provided to the new owners.
304
                                                     
301United States' appellant's submission, para. 16.  We also note, as does the European Communities (in
the European Communities' appellee's submission, paras. 24–27 and footnote 23 to para. 26;  and also in the
European Communities' response to questioning at the or al hearing), that the creation of a new legal person
could not have been the basis for our requirement of a new benefit determination to be conducted by USDOCbecause the other privatized company at issue in US – Lead and Bismuth II , British Steel plc, became a separate
legal entity before  the privatization took place, rather than establishing a new legal identity as a result of the
privatization transaction.  (See Appellate Body Report, US – Lead and Bismuth II , para. 2)  In finding that a
benefit could have been extinguished under such circumstances and that the USDOC accordingly should haveconducted a new benefit determination, we thus focused necessarily on the change in ownership of thecompanies at issue, and not on their legal personalities.
302Appellate Body Report, US – Lead and Bismuth II , para. 62.
303Panel Report, para. 7.78.  See also ibid., para. 7.77:
In the Panel's view, the United States' same person methodology, as such,
prohibits the examination of the conditions of the privatization-transactionwhen the privatized producer is not a distinct legal person based on criteria
relating mainly to the industrial activities of the producers concerned.  In
applying its methodology the US Department of Commerce does not assesswhether the privatized producer has received any benefit from prior financialcontributions.
This requirement of the "same person" method was confirmed by the United States in its responses to
questioning at the oral hearing.
304United States' responses to questioning at oral hearing.WT/DS212/AB/R
Page 62
146. Thus, under the "same person" method, when the USDOC determines that no new legal
person is created as a result of privatization, the USDOC will conclude from this determination,without any further analysis , and irrespective of the price paid by the new owners for the newly-
privatized enterprise
305, that the newly-privatized enterprise continues to receive the benefit of a
previous financial contribution.  This approach is contrary to the obligation in Article 21.2 of the
 SCM Agreement  that the investigating authority must take  into account in an administrative review
"positive information substantiating the need for a review."  Such information could relate to
developments with respect to the subsidy, privatization at arm's length and for fair market value, orsome other information.  The "same person" me thod impedes the USDOC from complying with its
obligation to examine whether a countervailable "benefit" continues to exist in a firm subsequent tothat firm's change in ownership.  Therefore, we find that the "same person" method, as such , is
inconsistent with the obligations relating to administrative reviews under Article 21.2 of the  SCM
Agreement .
147. In our view, this finding, relating to administ rative reviews, leads inevitably to the conclusion
that the "same person" method, as such, is also inconsistent with the obligations of the  SCM
Agreement  relating to original investigations.  In an original investigation, an investigating authority
must establish all conditions set out in the  SCM Agreement  for the imposition of countervailing
duties.
306  Those obligations, identified in Article 19.1 of the  SCM Agreement , read in conjunction
with Article 1, include a determination of the existence of a "benefit".307  As in the administrative
reviews, the "same person" method necessarily precl udes a proper determination as to the existence of
a "benefit" in original investigations where the pr e- and post-privatization entity are the same legal
person.  Instead, in such cases, the "same person" method establishes an irrebuttable presumption that
the pre-privatization "benefit" continues to exist after the change in ownership.  Because it does notpermit the investigating authority to satisf y all the prerequisites stated in the  SCM Agreement  before
the imposition of countervailing duties, particularly the identification of a "benefit", we find that the"same person" method, as such, is inconsistent with the WTO obligations  that apply to the conduct oforiginal investigations.
                                                     
305See supra , footnote 182.
306Appellate Body Report, US – Lead and Bismuth II , para. 63.
307Article 19.1 permits the imposition of a countervailing duty only after the investigating authority has
found a subsidy (as defined in Article 1), injury, and a causal link between the two.WT/DS212/AB/R
Page 63
148. This brings us to the third kind of determination at issue, namely sunset reviews.  The Panel
found that, under Article 21.3 of the  SCM Agreement 308, and regardless of whether administrative
reviews under Article 21.2 had been requested since the original investigation, the importing Memberis obliged to consider evidence before it relating to subsidization, and to  determine  whether a
"benefit" continues to exist following privatiza tion of the investigated firm, before concluding
"whether subsidization exists and is likely to continue or recur".
309  This finding is inherent in the
Panel's conclusion that "[t]he four determinations made in the context of sunset reviews and based onthe gamma methodology are inconsistent with the SCM Agreement, since the US Department ofCommerce did not examine whether the privatizations, that occurred after the original imposition ofcountervailing duties, were at arm's-length and for fair market value."
310
149. The United States appealed this finding311, but did not advance any supporting arguments.
We have already determined, in  US – Lead and Bismuth II , that the gamma  method is inconsistent
with the obligation under Article 21.2 of the SCM Agreement .  That obligation requires an
investigating authority in an  administrative  review, upon receiving information of a privatization
resulting in a change in ownership, to determine whet her a "benefit" continues to exist.  In our view,
the  SCM Agreement , by virtue of Articles 10, 19.4, and 21.1, also imposes an obligation to conduct
such a determination on an investigating authority conducting a  sunset  review.  As we observed
earlier312, the interplay of GATT Article VI:3 and Articles 10, 19.4 and 21.1 of the  SCM Agreement
prescribes an obligation applicable to original investigations as well as to reviews covered under                                                     
308Article 21.3 of the  SCM Agreement  provides that:
Notwithstanding the provisions of paragraphs 1 and 2, any definitive
countervailing duty shall be terminated on a date not later than five years
from its imposition (or from the date of the most recent review under
paragraph 2 if that review has covered both subsidization and injury, or underthis paragraph), unless the authorities determine, in a review initiated beforethat date on their own initiative or upon a duly substantiated request made byor on behalf of the domestic industry within a reasonable period of time priorto that date, that the expiry of the duty would be likely to lead to continuation
or recurrence of subsidization and injury.  The duty may remain in force
pending the outcome of such a review. (footnote omitted)
309Panel Report, paras. 7.114–7.116.  The Panel found this conclusion consistent with that reached by
the United States Court of International Trade when it found that the USDOC's practices in sunset reviews areinconsistent with the United States legislation, as "[b]y its nature, then, a sunset review is designed to accountfor changes in law that have a bearing on whether coun tervailable subsidies will continue or recur."  (Panel
Report, footnote 359 to para. 7.114, quoting  AG der Dillinger Hüttenwerke v. United States , Court No. 00–09–
00437, slip op. 02–25, at 32 (Court of International Trade, 28 February 2002))  Furthermore, the Panel also
noted "that the [United States] Court rejected the [USDOC's] arguments that it was not appropriate to reach the
privatization issue in a sunset review or that an interested party participating in a sunset review must have first
requested and completed an administrative review."  ( Ibid.)
310Panel Report, para. 8.1(c).
311As we observed earlier, supra , paras. 65–66, the United States quoted paragraph 8.1(c) in full in the
document filed subsequent to its Notice of App eal.  That paragraph includes this finding.
312See supra , para. 139.WT/DS212/AB/R
Page 64
Article 21 of the  SCM Agreement  to limit countervailing duties to the amount and duration of the
subsidy found to exist by the investigating authority.   Consequently, we see no error in the Panel's
finding that, in sunset reviews, the investigating au thority, before deciding to continue to countervail
pre-privatization, non-recurring subsidies, is obliged to "examine the conditions of such privatizations
and to determine whether the privatized producers received any benefit from the prior subsidization to
the state-owned producers".313  Therefore, we agree with the Panel that the "four determinations made
in the context of sunset reviews and based on the gamma  methodology are inconsistent with the SCM
Agreement [because] the United States failed to determine whether the privatized producers receivedany benefit from the financial contributions previously bestowed to the state-owned producers."
314
150. We now turn to the question whether the "same person" method is inconsistent with
Article 21.3 of the SCM Agreement , which applies to sunset reviews.  We have already found that the
"same person" method fails to ensure that a determination of whether a "benefit" continues to existoccurs when the USDOC concludes that no new legal person has been created as a result of
privatization.  We have found also that investigating authorities have an obligation to make such a
determination when conducting a sunset review.  Therefore, we also find that the "same person"method, as such, is inconsistent with Article 21.3 of the  SCM Agreement .
151. In the light of these reasons, as they apply to original investigations, administrative reviews,
and sunset reviews, we uphold the Panel's conclusion that "the same person methodology is itself
inconsistent with the SCM Agreement".
315  (emphasis added)  We find that the same person method
 as such   is inconsistent with the  SCM Agreement .
152. We have also been asked to review the consistency with the  SCM Agreement  of the
application  of the "same person" method in only one instance, the administrative review entitled
GOES from Italy (Case No. 12).  As we have already concluded that the "same person" method,  as
such,  is inconsistent with the obligation that the USDOC determine whether a "benefit" exists when
informed of a change in ownership during an admini strative review, it follows that the application of
                                                     
313Panel Report, para. 7.116.
314Ibid. , para. 8.1(c).
315Ibid., para. 7.90.WT/DS212/AB/R
Page 65
the method by the USDOC in  GOES from Italy316 was also inconsistent with the  SCM Agreement .
Consequently, we also uphold the Panel's conclusion, in paragraph 8.1(b) of the Panel Report, that theapplication   of the "same person" method in Case No. 12 is inconsistent with the  SCM Agreement .
153. Finally, we recall that, before the Panel, the United States conceded
317 that, as the
investigations and review in Case Nos. 1-7 were carried out using the gamma  method, the
determinations in those cases were inconsistent with the  SCM Agreement .  Accordingly, the Panel
found that the countervailing duty determinations in Cases Nos. 1–7 are inconsistent with theobligations of the United States under the  SCM Agreement .
318  The Panel also found, and we have
upheld the finding that, in the sunset reviews (Cas es Nos. 8–11), the United States was obliged to
"examine whether the privatizations, that occurred after the original imposition of countervailingduties, were at arm's-length and for fair market value" and, accordingly, in using the  gamma  method,
it had failed to satisfy this obligation in accordance with the  SCM Agreement .
 319  In  US – Lead and
Bismuth II , we found   that the  gamma  method's "irrebuttable"320 presumption prevented the USDOC
from undertaking the requisite determination as to the continued existence of a "benefit".  And, in the
previous section of this Report, we found that, following privatization at arm's length and for fairmarket value, a "benefit" no longer exists for the private firm unless the investigating authority findsother evidence to the contrary.  Consistent with these findings, we therefore uphold the Panel'sconclusions in paragraphs 8.1(a), 8.1(b) and 8.1(c) of the Panel Report.
                                                     
316In GOES from Italy , the USDOC found the pre- and post-privatization firms to be the same legal
person.  Accordingly, the USDOC, as required under the "same person" method, irrebuttably presumed that the
"benefit" from the financial contribution received by the firm when owned by the state, continued to exist.  See
Issues & Decision Memorandum to GOES from Italy , 66 Fed. Reg. 2885 (USDOC, 12 January 2001), at
comment 1, attached as Exhibit EC–7 to the European Communities' first submission to the Panel:
[The USDOC] seeks to determine whethe r the privatized [respondent] is the
same person that received the pre-privatization financial contributions andbenefits at issue in this review … [W]e would only reach [the respondent's]
fair-market-value claim in the event that we first find the privatized[respondent] to be a different  person from the original recipient … [W]e find
that the privatized [respondent] is for all intents and purposes the same
person that existed prior to the privatization, and accordingly , it received the
pre-privatization financial contributions and benefits at issue in this review.
(emphasis added)
317See supra , footnote 273.
318Panel Report, paras. 8.1(a)–8.1(b).
319Ibid., para. 8.1(c).
320Appellate Body Report, US – Lead and Bismuth II , para. 62.WT/DS212/AB/R
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IX. Consistency of 19 U.S.C. § 1677(5)(F), as such, with WTO Obligations
154. Having upheld the Panel's conclusions in paragraphs 8.1(a) through (c) of the Panel Report,
we now turn to evaluate the Panel's conclusion, in paragraph 8.1(d), regarding the relevant UnitedStates statute.
155. The Panel concluded, in paragraph 8.1(d) of the Panel Report, that:
To the extent that Section 1677(5)(F), as interpreted by the US Court
of Appeals for the Federal Circuit and the SAA, requires the US
Department of Commerce to apply a methodology where the benefit
from a prior financial contribution is not systematically found to no
longer accrue to the privatized producer solely by virtue of an arm's-length for fair market value privatization, is preventing the United
States from exercising a WTO-compatible discretion.  Therefore,
Section 1677(5)(F) is inconsistent with Articles 10, 14, 19 and 21 of
the SCM, as interpreted by the Panel and the Appellate Body Reports
in US – Lead and Bismuth II  and this Panel.  As Section 1677(5)(F)
is found to be inconsistent with the SCM Agreement , the United
States has failed to ensure conformity with Article 32.5 of the SCM
Agreement  and Article XVI.4 of the WTO Agreement respectively.
321
156. Section 1677(5)(F), the so-called "change in ownership" provision, provides:
[a] change in ownership of all or part of a foreign enterprise or the
productive assets of a foreign enterprise does not by itself require a
determination by the administering authority that a past
countervailable subsidy received by the enterprise no longercontinues to be countervailable, even if the change in ownership is
accomplished through an arm's-length transaction.
322
The Panel acknowledged that this "statutory language alone indicates that the competent authority
could have the discretion to implement Section 1677(5)(F) consistently with  WTO law."323  However,
in looking at the statute in the light of "other domestic interpretive tools such as the legislative history,the SAA, and relevant judicial interpretations"
324, the Panel found that it "prohibit[ed] the United
States from exercising its executive discretion so that it can systematically conclude that in cases of
                                                     
321Panel Report, para. 8.1(d).
32219 U.S.C. § 1677(5)(F), attached as Exhibit EC–4 to the European Communities' first submission to
the Panel.
323Panel Report, para. 7.138.
324Ibid., para. 7.139.WT/DS212/AB/R
Page 67
[a]rm's-length privatization for fair market value, no benefit accrues to the privatized producer from
[a] prior financial contribution bestow ed to the state-owned producers".325
157. In short, the Panel found that Section 1677(5)(F) prevents the  USDOC from determining
automatically and in every case that, pursuant to a " per se " rule326, upon privatization at arm's length
and for fair market value, the remaining part of a benefit conferred by a prior financial contribution on
the formerly state-owned enterprise does not "accrue"327 to the private owner.  In the Panel's view,
Section 1677(5)(F), as described in the SAA328 and as interpreted by the United States Court of
Appeals for the Federal Circuit, "bound [the  USDOC] to a non-compliant application of
Section 1677(5)(F)."329  The Panel reached this conclusion because it saw the statute as  compelling  
the USDOC to make its determinations in a way that prevents it from applying the irrebuttablepresumption that the Panel erroneously saw as required by the  SCM Agreement .  On this basis, the
Panel found that Section 1677(5)(F) mandates the United States to act inconsistently with the  SCM
Agreement and with Article XVI:4 of the  WTO Agreement
330, and, as such , is inconsistent with
United States' WTO obligations.
158. As stated earlier, we agree with the Panel that privatization at arm's length and at fair market
price will  usually  extinguish the remaining part of a benefit bestowed by a prior, non-recurring
financial contribution.331  However, we disagree with the Panel that this result will  necessarily  and
                                                     
325Panel Report, para. 7.140.  We note that the United States contests this interpretation, particularly the
Panel's reading of "judicial interpretation" (namely of Delverde III ), in its argument under Article 11 of the
DSU.  However, we found earlier that this issue was not properly raised in the United States' Notice of Appealand is not before us.  (See  supra , paras. 71–75)
326In the words of the United States Court of Appeals for the Federal Circuit:
[Section 1677(5)(F)] clearly states that a subsidy cannot be concluded to have
been extinguished solely by an arm's length change of ownership.  However,it is also clear that Congress did not intend the opposite, that a change inownership always requires a determination that a past countervailablesubsidy continues to be countervailable, regardless whether the change of
ownership is accomplished through an arm's length transaction or not.  If that
had been Congress's intent, the statute would have so stated.  Rather, the
Change of Ownership provision simply prohibits a per se  rule either way.
Delverde III , supra , footnote 31, at 1366.
The Panel interpreted a " per se " rule as a "systematic" rule.  (Panel Report, para. 7.147)
327Panel Report, para. 8.1(d).
328See supra , footnote 42.
329Panel Report, para. 7.156.
330Article XVI:4 of the  WTO Agreement  provides:
Each Member shall ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in the annexed
Agreements.
331See supra , paras. 126–127.WT/DS212/AB/R
Page 68
 always  follow from every privatization at arm's length and for fair market value.332  For this reason,
we reversed the Panel's conclusion that, under the  SCM Agreement ,  investigating  authorities  "must"
determine, automatically , that the remaining part of a benefit bestowed by a prior financial
contribution does not continue to exist for a privatized firm following a transaction at arm's length and
for fair market value.  Accordingly, we have also found that, contrary to the Panel's understanding, the
 SCM Agreement  permits an investigating authority to eval uate evidence directed at proving that,
regardless of privatization at arm's length and for fair market value, the new private owner maynevertheless enjoy a benefit from a prior financial contribution bestowed on the state-ownedenterprise.
333  In the light of these earlier conclusions, we disagree with the Panel that
Section 1677(5)(F) is inconsistent  per se  with the WTO obligations of the United States.  The Panel's
basis for this finding is incorrect.
159. There remains the question whether Section 1677(5)(F) is inconsistent  per se  with the WTO
obligations of the United States because it mandates334 a particular method of determining the
existence of a "benefit" that is contrary to the  SCM Agreement .  We agree with both the appellant and
appellee that "Section 1677(5)(F) does not … prescribe any specific methodology", and,consequently, does not mandate the USDOC to apply the "same person" method.
335  Hence,
Section 1677(5)(F), as such, does not prevent the USDOC from determining whether a "benefit"
continues to exist, as required by the  SCM Agreement .  Moreover, we also see nothing in the
interpretation of Section 1677(5)(F) made by the United States Court of Appeals for the Federal
                                                     
332See supra , paras. 121–124.
333See supra , para. 126.
334We are not, by implication, precluding the possibility that a Member could violate its WTO
obligations by enacting legislation granting discretion to its authorities to act in violation of its WTO obligation.We make no finding in this respect.
335Panel Report, para. 7.134;  United States' and European Communities' responses to questioning at
the oral hearing.
The fact that the "same person" method is not mandated by Section 1677(5)(F) appears also to be the
view of the United States Court of International Trade.  In several recent decisions the Court has held the "sameperson" method inconsistent with Section 1677(5)(F), as interpreted in Delverde III .  See Ilva Lamiere E Tubi
S.r.L. v. United States , 196 F. Supp. 2d 1347 (Court of International Trade, 29 March 2002);  Acciai Speciali
Terni S.p.A. v. United States , No. 99–06–00364, slip op. 02-10 (Court of International Trade, 1 February 2002);
GTS Indus. v. United States , 182 F. Supp. 2d 1369 (Court of International Trade, 4 January 2002);  Allegheny
Ludlum Corp. v. United States , 182 F. Supp. 2d 1357 (Court of International Trade, 4 January 2002).
We also note one decision of the United States Court of International Trade that has upheld the "same
person" method as consistent with  Delverde III  and therefore a permissible exercise of the USDOC's discretion
under the statute.  Acciai Speciali Terni S.p.A. v. United States , 206 F. Supp. 2d 1344 (Court of International
Trade, 4 June 2002).  This decision, however, explicitly recognizes that Section 1677(5)(F) does not prevent theUSDOC from devising any methodology to determine the post-privatization subsidization of a foreign firmunder investigation, provided that a per se  rule is not applied.  ( Ibid., at 1349–50, 1354–55)  These cases were
brought to our attention by the participants and third participants.WT/DS212/AB/R
Page 69
Circuit336 that would prevent the USDOC from co mplying with its obligations under the  SCM
Agreement .
160. For all these reasons, we reverse the Panel's conclusion that:
To the extent that Section 1677(5)(F), as interpreted by the US Court
of Appeals for the Federal Circuit and the SAA, requires the US
Department of Commerce to apply a methodology where the benefit
from a prior financial contribution is not systematically found to nolonger accrue to the privatized producer solely by virtue of an arm's-
length for fair market value privatization, is preventing the United
States from exercising a WTO-compatible discretion.  Therefore,
Section 1677(5)(F) is inconsistent with Articles 10, 14, 19 and 21 of
the SCM, as interpreted by the Panel and the Appellate Body Reportsin US – Lead and Bismuth II  and this Panel.  As Section 1677(5)(F)
is found to be inconsistent with the SCM Agreement , the United
States has failed to ensure conformity with Article 32.5 of the SCM
Agreement  and Article XVI.4 of the WTO Agreement respectively.
337
X. Findings and Conclusions
161. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's findings, in paragraphs 8.1 (a), (b) and (c) of the Panel Report,
that the United States has acted inconsistently with Articles 10, 14, 19.1, 19.4, 21.1,
21.2 and 21.3 of the  SCM Agreement , by imposing and maintaining countervailing
duties without determining whether a "benefit" continues to exist in the followingcountervailing duty determinations:
– Stainless Sheet and Strip in Coils from France  (C–427–815) (Case No. 1);
– Certain Cut-to-Length Carbon Quality Steel from France  (C–427–817)
(Case No. 2);
– Certain Stainless Steel Wire Rod from Italy  (C–475–821) (Case No. 3);
– Stainless Steel Plate in Coils from Italy  (C–475–823) (Case No. 4);
– Stainless Steel Sheet and Strip in Coils from Italy  (C–475–825) (Case No. 5);
– Certain Cut-to-Length Carbon-Quality Steel Plate from Italy  (C-475–827)
(Case No.6);
                                                     
336See supra , footnote 326.
337Panel Report, para. 8.1(d).WT/DS212/AB/R
Page 70
– Cut-to-Length Carbon Steel Plate from Sweden  (C-401–804) (Case No. 7);
– Cut-to-Length Carbon Steel Plate from United Kingdom  (C–412–815)
(Case No. 8);
– Certain Corrosion-Resistant Carbon Steel Flat Products from France
(C-427-810) (Case No. 9);
– Cut-to-Length Carbon Steel Plate from Germany  (C-428–817) (Case No. 10);
– Cut-to-Length Carbon Steel Plate from Spain  (C–469–804) (Case No. 11);
and
– Grain-Oriented Electrical Steel from Italy  (C–475–812) (Case No. 12).
(b) reverses the Panel's finding, in paragraph 8.1(d), first sentence, of the Panel Report,
that "[o]nce an importing Member has determined that a privatization has taken place
at arm's-length and for fair market value, it must reach the conclusion that no"benefit" resulting from the prior financial contribution (or subsidization) continues toaccrue to the privatized producer";  and
(c) reverses the Panel's conclusion, in paragraph 8.1(d), second sentence, of the Panel
Report, that Section 771(5)(F) of the Tariff Act 1930, as amended, 19 U.S.C.
§ 1677(5)(F), is inconsistent with the  SCM Agreement  and that, therefore, "the
United States has failed to ensure conformity with Article 32.5 of the  SCM
Agreement  and Article XVI.4 of the  WTO Agreement  respectively."
(d) upholds the Panel's conclusion, in paragraph 8.2 of the Panel Report, that, insofar as
the United States has infringed its obligations under the   SCM Agreement , as set out
in paragraphs 8.1(a), (b), and (c) of the Panel Report, these actions of the UnitedStates constitute   prima facie  nullification or impairment of benefits accruing to the
European Communities, pursuant to Article 3.8 of the DSU; and, because the UnitedStates has failed to rebut this presumption, the United States has in fact nullified orimpaired benefits accruing to the European Communities under the  SCM  Agreement .
162. The Appellate Body recommends that the Dispute Settlement Body request the United States
to bring its measures and administrative practice (the "same person" method), as found in this Report
and in the Panel Report as modified by this Report, to be inconsistent with the  SCM Agreement , into
conformity with its obligations under that Agreement.WT/DS212/AB/R
Page 71
Signed in the original at Geneva this 22nd day of November 2002 by:
_________________________
John Lockhart
Presiding Member
_________________________ _________________________
Georges Abi-Saab James Bacchus
Member Member ANNEX I
WORLD TRADE
ORGANIZATIONWT/DS212/7
11 September 2002
(02-4760)
Original:  English
UNITED STATES – COUNTERVAILING MEASURES CONCERNING
CERTAIN PRODUCTS FROM THE EUROPEAN COMMUNITIES
Notification of an Appeal by the United States
under paragraph 4 of Article 16 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU)
The following notification, dated 9 September 2002, sent by the United States to the Dispute
Settlement Body (DSB), is circulated to Members.  This notification also constitutes the Notice of
Appeal, filed on the same day with th e Appellate Body, pursuant to the  Working Procedures for
Appellate Review .
_______________
Pursuant to Article 16 of the  Understanding on Rules and Procedures Governing the
Settlement of Disputes   ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the
United States hereby notifies its decision to appeal to the Appellate Body certain issues of law
covered in the panel report on  United States – Countervailing Measures Concerning Certain
Products from the European Communities  (WT/DS212/R) and certain legal interpretations developed
by the Panel.
The United States seeks review by the Appellate Body of the conclusions of the Panel set
forth in paragraphs 8.1(a)-(d) and 8.2 of the Panel's report.  These conclusions are in error, and arebased upon erroneous findings on issues of law and on related legal interpretations.
__________