WT/DS472/AB/R/Add.1  
WT/DS497/AB/R/Add.1  
 
13 December 2018  
(18-7794) Page: 1/42 
  Original: English  
 
BRAZIL – CERTAIN MEA SURES CONCERNING TAX ATION AND CHARGES  
AB-2017-7 
AB-2017-8 
Report s of the Appellate Body  
Addendum  
This Addendum  contains Annexes A to D to the Report of the Appellate  Body circulated as  documents  
WT/DS472/AB/R, WT/DS497/AB/R . 
 
The Notices of Appeal and Other Appeal and the executive summaries of written submissions 
contained in this Addendum are attached as they were received from the participants and 
third participant s. The content has not  been revised or edited by the Appellate Body, except that 
paragraph and footnote numbers that did not start at one in the original may have been re -numbered 
to do so, and the text may have been formatted in order to adhere to WTO sty le. The executive 
summaries do not serve as substitutes for the submissions of the participants and third participants 
in the Appellate Body's examination of the appeal.  
 
 
_______________  
 
 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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LIST OF ANNEXES  
ANNEX  A 
NOTICES OF APPEAL  AND OTHER APPEALS  
Contents  Page  
Annex  A-1 Brazil 's Notice of Appeal  4 
Annex  A-2 The European Union 's Notice of Other Appeal  11 
Annex A -3 Japan's Notice of Other Appeal  12 
ANNEX B  
ARGUMENTS OF THE PARTICIPANTS  
Contents  Page  
Annex  B-1 Executive summary of Brazil 's appellant's submission  14 
Annex  B-2 Executive summary of the European Union 's other appellant's submission  23 
Annex  B-3 Executive summary of Japan 's other appellant 's submission  24 
Annex  B-4 Executive summary of Japan 's appellee's submission  26 
Annex B -5 Executive summary of the European Union's appellee's submission  30 
Annex B-6 Executive summary of Brazil's appellee's submission  36 
ANNEX  C 
ARGUMENTS OF THE THI RD PA RTICIPANTS  
Contents  Page  
Annex  C-1 Executive summary of Argentina 's third participant's submission  38 
Annex  C-2 Executive summary of Australia 's third participant's submission  39 
Annex  C-3 Executive summary of the United States ' third participant's submission  40 
ANNEX  D 
PROCEDURAL RULING  
Contents  Page  
Annex  D-1 Procedural ruling of 12 October 2017 regarding the deadline for filing of  third 
participants' submissions  42 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX  A 
NOTICES OF  APPEAL  AND OTHER APPEALS  
Contents  Page  
Annex  A-1 Brazil 's Notice of Appeal  4 
Annex  A-2 The European Union 's Notice of Other Appeal  11 
Annex A -3 Japan's Notice of Other Appeal  12 
 
 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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ANNEX  A-1 
BRAZIL 'S NOTICE OF APPEAL* 
1. Pursuant to Articles 16.4 and 17 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes ("DSU ") and Rule 20 of the Working Procedures for Appellate Review 
(WT/AB/WP/6) ("Working Procedures"), Brazil hereby notifies the Dispute Settlement Body of its 
decision to appeal certain issues of law and legal interpretation in the reports of the Panel in 
Brazil ‒ Certain Measures Concerning Taxation and Charges  (WT/DS472 , DS497) ("Panel Report").  
2. The seven programmes at issue are: (a) the Informatics programme; (b) the programme of 
Incentives for the Semiconductors Sector ("PADIS programme"); (c) the progra mme of Support for 
the Technological Development of the Industry of Digital TV Equ ipment ("PATVD programme"); 
(d) the programme for Digital Inclusion ("Digital Inclusion programme"); (e) the programme of 
Incentive to the Technological Innovation and Densif ication of the Automotive Supply Chain 
("INOVAR -AUTO"); (f) the regime for predominantly exporting companies ("PEC programme"); and 
the Special Regime for the Purchase of Capital Goods fo r Exporting Enterprises 
("RECAP  programme").1 
3. The issues that Brazil raises in this appeal relate to the Panel's findings and conclusions with 
respect to the consistency of the challenged programmes with various provisions of the General 
Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement o n Subsidies and Countervailing 
Measures  (SCM Agreement), and the Agreement on Trade -Related Investment Measures 
(TRIMS  Agreement).  
4. Pursuant to Rules 20(1) and 21(1) of the Working Procedures, Brazil files this Notice of Appeal 
together with its Appellant's  Submission with the Appellate Body Secretariat.  
5. Pursuant to Rule 20(2)(d)(iii) of the Working Procedures, this Notice of Appeal provides an 
indicative list of the paragraphs of the Panel Report containing the alleged errors of law and legal 
interpretatio n by the Panel, without prejudice to Brazil's ability to rely on other paragraphs of the 
Panel Report in its appeal.  
I. REVIEW OF THE PANEL' S INTERPRETA TION AND APPLICATION  OF ARTICLE  III:8( b) 
OF THE GATT 1994 TO THE INFORMATICS, PAD IS, PATVD , DIGITAL INCLUSION 
PROGRAMMES ("ICT PRO GRAMMES") AND THE IN OVAR -AUTO PROGRAMME  
6. Brazil seeks review by the Appellate Body of the Panel's finding that domestic production 
subsidies within the meaning of Article III:8(b) of the GATT 1994 are not exempt from the disciplines 
of Article III thereof. The Panel's errors of law and legal interpretation include:  
• The Panel erred in finding that the scope of Article III:8(b) of the GATT 1994 is limited to 
the provision of subsidies to domestic producers where those su bsidies do not have any 
component that introduces discrimination between imported and domestic products;2  
• The Panel erred in finding that Article III:8(b) of the GATT 1994 only serves to clarify that 
Members are not required to subsidize foreign producers  in tandem with domestic 
producers;3 
• The Panel erred by failing to determine, in the first instance, whether the measures at 
issue are product -related measures subject to the disciplines of Article III  of the 
                                                
* This document, dated 28 September 2017 , was circulated to Members as document WT/DS 472/8 - 
WT/DS497/6 . 
 
1 The complainants explained in their panel requests that these programmes are "set u p and 
implemented", "established and administered" through the measures identified in paragraph 2.38 of the Panel 
Report.  
2 See Panel Report, para s. 7.83 -7.87. 
3 See Panel Report, para. 7.84.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  GATT  1994 or, conversely, whether the measures provide subsidies to domestic producers 
and are therefore subject to the disciplines of the SCM Agreement.  
7. For these reasons, Brazil respectfully requests that the Appellate Body reverse the Panel's 
interpretative finding, in paragraphs 7.87, 8.3, and 8.14  of the Panel Report, that subsidies that are 
provided exclusively to domestic producers pursuant to Article III:8(b) of the GATT 1994 are not per 
se exempted from the disciplines of Article III of the GATT. As a result, Brazil also requests that the 
Appel late Body reverse all of the Panel's consequential findin gs to this effect in paragraphs  7.93, 
7.184, 7.631, and 7.696 of the Panel Report.  
8. Brazil respectfully requests that the Appellate Body find that the Panel erred by failing to 
determine, in the first  instance, whether the measures at issue are product -related measures subject 
to the disciplines of Article III of the GATT 1994 or, conversely, whether the measures provide 
subsidies to domestic producers and are therefore subject to  the disciplines of th e SCM  Agreement.  
9. Consequently, Brazil also requests that the Appellate Body reverse the Panel's findings in 
paragraphs 7.174, 7.318, 7.319, 7.688, 7.772, 7.773, 8.5(a), 8.5(b), 8.6(a), 8.6(b), 8.16(a), 
8.16(c), 8.17(a), and 8.17(c) of the Panel Report that  the ICT programmes and INOVAR -AUTO are 
inconsistent with Articles III:2 and III:4 of the GATT 1994. The Appellate Body should also reverse  
the Panel's findings in paragraphs 7.365, 7.806, 8.5(d), 8.6(d), 8.16(e), and 8.17(e) of the Panel 
Report that the I CT programmes and INOVAR -AUTO are inconsisten t with Article 2.1 of the 
TRIMs  Agreement.  
II. REVIEW OF THE PANEL' S INTERPRETATION AND  APPLICATION OF ARTI CLE III:2 OF 
THE GATT 1994 TO THE  ICT PROGRAMMES  
10. Brazil seeks review by the Appellate Body of the Panel 's finding that production -step 
requirements under the ICT programmes, and the requirement for products to obtain the status of 
"developed" in Brazil, result in imported products being subject to internal taxes in excess of those 
applied to like domestic p roducts, inconsistently with Article III :2, first sentence, of the GATT  1994. 
The Panel's errors of law and legal interpretation include:  
• The Panel erred in failing to determine that the ICT programmes constitute "payments of 
subsidies exclusively to domes tic producers" within the meaning of Article III:8(b) of the 
GATT 1994;4 
• The Panel erred in finding that the complainants had demonstrated that imported products 
were taxed in excess of domestic like products under the ICT programmes within the 
meaning of Article III:2;5 
• The Panel erred in finding that the "cash flow" and the "time -value of money" effects under 
the ICT programmes result in a higher tax burden on imported intermediate products.6 
11. For these reasons, Brazil requests further that the Appellate B ody reverse the Panel's findings 
in paragraphs 7.174, 8.5(a), and 8.16(a) of the Panel Report that the ICT programmes result in 
imported products being subject to internal taxes in excess of those applied to like domestic 
products, inconsistently with Arti cle III:2, first sentence, of the GATT 1994.  
12. As a result, Brazil also requests that the Appellate Body reverse the Panel's consequential 
finding in paragraphs 7.365, 8.5(d), and 8.16(e) of the Panel Report that the ICT programmes are 
inconsistent with Art icle 2.1 of the TRIMS Agreement.  
III. REVIEW OF THE PANEL' S INTERPRETATION AND  APPLICATION OF ARTI CLE III:4 OF 
THE GATT 1994 TO THE  ICT PROGRAMMES  
13. Brazil seeks review by the Appellate Body of the Panel's finding that the ICT programmes 
accord to imported p roducts treatment less favourable than that accorded to like domestic products, 
                                                
4 See Panel Report, paras. 7.77 -7.87, 7.93.  
5 See Panel Report,  para. 7.151.  
6 See Panel Report, paras. 7.170 -7.172.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  inconsistently with Article III:4 of the GATT 1994. The Panel's errors of law and legal interpretation 
include:  
• The Panel erred in failing to determine that the ICT programmes constitute "payments of 
subsidies exclusively to domestic producers" within the meaning of Article III:8(b) of the 
GATT 1994;7 
• The Panel erred in finding that the accreditation requirements under the ICT programmes 
are inconsistent with Article III:4 of the GATT 1994;8 
• The Panel erred in finding that the ICT programmes are inconsistent with Article III:4 of 
the GATT 1994 by virtue of purported administrative burdens on intermediate products;9  
• The Panel erred in finding that the PPBs and other production step requirements under the 
ICT programmes are inconsistent with Article III:4 of the GATT 1994 because they require 
the use domestic products.10 
14. For these reasons, Brazil respectfully requests that the Appellate Body reverse  the Panel's 
finding in paragrap hs 7.318, 7.319, 8.5(b), and 8.16(c) of the Panel Report that the ICT programmes 
accord to imported products treatment less favourable than that accorded to like domestic products, 
inconsistently with Article III:4 of the GATT 1994.  
15. As a result, Brazil al so requests that the Appellate Body reverse the Panel's consequential 
finding in paragraphs 7.365, 8.5(d), and 8.16(e) of the Panel Report that the ICT programmes are 
inconsistent with Article 2.1 of the TRIMS Agreement.  
IV. REVIEW OF THE PANEL' S INTERPRE TATION AND APPLICATI ON OF ARTICLE 3.1( b) 
OF THE SCM AGREEMENT  TO THE ICT PROGRAMM ES 
16. Brazil seeks review by the Appellate Body of the Panel's finding  that the ICT programmes 
provide subsidies that are contingent upon the use of domestic ov er imported goods under  
 
Article  3.1(b) of the SCM Agreement. The Panel's errors of law and legal interpretation include:  
• The Panel erred in finding that the tax exemptions, suspensions and reductions granted 
under the ICT programmes both on the sales of intermediate goods and on the purchases 
of raw materials, intermediate goods, packaging materials, inputs, capital goods an d 
computational tools constitute financial contributions, in the form of government revenue 
otherwise due that is foregone or not collected, within the meaning of Article 1.1(a)(1)(ii) 
of the SCM Agreement;11  
• The Panel erred in finding that the tax exempti ons, reductions and suspensions granted 
under the ICT programmes are prohibited subsidies within the meaning of Article 3.1(b) 
of the SCM Agreement;12 
17. For these reasons, Brazil respectfully requests that the Appellate Body reverse  the Panel's 
findings in pa ragraphs 7.489 and 7.490 that the exemptions, suspensions and reductions of taxes 
on the sales of intermediate products and on the purchases of inputs by accredited companies under 
the ICT programmes constitute financial contributions in the form of "gover nment revenue that is 
otherwise due is foregone or not collected" within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement.  
                                                
7 See Panel Report, paras. 7.77 -7.87, 7.184.  
8 See Panel Report, para. 7.220 -7.225.  
9 See Panel Report, paras. 7.252 -7.255.  
10 See Panel Report, paras. 7.288, 7.299 -7.301; and 7.311 -7-313.  
11 See Panel R eport, paras. 7.432 -7.433, 7.444 -7.445; 7.454 -7.455; 7.463 -7.464; 7.473 -7.474; and 
7.495.  
12 See Panel Report, paras. 7.274 -7.302, 7.319.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  18. Consequently, the Appellate Body should also reverse  the Panel' s finding in paragraphs  7.493 
and 7.494 that the exemption,  reduction and suspension of taxes on sales of intermediate products 
and on purchases of inputs by accredited companies under the ICT programmes confer a benefit on 
the recipient under Article 1.1(b) of the SCM Agreement. As a result, the Appellate Body sh ould also 
reverse  the Panel's ultimate conclusion in paragraphs 7.495, 8.5(e), and 8.16(f) that the that the 
exemption, reduction and suspension of taxes on sales of intermediate products and on purchases 
of inputs by accredited companies under the ICT programmes constitutes subsidies within the 
meaning of Article 1 of the SCM Agreement.  
19. Brazil further requests that the Appellate Body reverse  the Panel's finding in 
paragraphs  7.500, 8.5(e), and 8.16(f) that the exemptions, reductions, and suspensions grant ed 
under the ICT programmes are subsidies contingent upon the use of domestic over imported goods 
within the meaning of Article 3.1(b) of the SCM Agreement, and thus are prohibited subsidies, 
inconsistent with Article 3.1(b) and 3.2 of the SCM Agreement.  
20. Consequently, Brazil also respectfully requests that the Appellate Body declare moot and of 
no legal effect  the Panel's recommendation under Article 4.7 of the SCM Agreement that Brazil 
withdraw the ICT programs in 90 days, as reflected in paragraphs 8.11 and 8.22 of the Panel Report.  
V. REVIEW OF THE PANEL' S INTERPRETATION AND  APPLICATION OF ARTI CLE III:4 OF 
THE GATT 1994 TO THE  INOVAR -AUTO PROGRAM ME 
21. Brazil seeks review by the Appellate Body of the Panel's finding that  certain aspects of the 
accreditation  requirements under the INOVAR -AUTO Programme related to investments in 
R&D expenditures on engineering, basic industrial technology and to the performance of certain 
manufacturing steps in Brazil accord less favourable treatment to imported products than that 
accorded to like domestic products, inconsistently with Article  III:4 of the GATT 1994. The Panel's 
errors of law and legal interpretation include:  
• The Panel erred in failing to determine that the INOVAR -AUTO Programme constitutes 
"payments of subsidi es exclusively to domestic producers" within the meaning of 
Article  III:8(b);13 
• The Panel erred in failing to conclude that because the accreditation requirements under 
the INOVAR -AUTO Programme do not relate to products, they cannot be per se 
inconsistent with Article III:4 of the GATT 1994 or Article 2.1 of the TRIMs Agreement;14 
• The Panel erred in finding that accreditation requirements to perform a minimum number 
of manufacturing steps in Brazil are per se inconsistent with Article III:4 of t he GATT 
1994;15 
• The Panel erred in finding that the different accreditation processes for companies seeking 
accreditation as "domestic manufacturers" and companies seeking accreditation as 
"investors" or "importers/distributors" would per se  result in less favourable treatment 
being accorded to imported finished motor vehicles, under Article III:4.16 
22. For these reasons, Brazil respectfully requests that the Appellate Body reverse  the Panel's 
finding, in paragraph 7.696 of the Panel Report, that Article III:8(b ) of the GATT 1994 "does not 
exempt from the disciplines of Article III components of [domestic] production subsidies that 
introduce product discrimination in the form of less favourable treatment on imported like products."  
23. Brazil also requests that the A ppellate Body reverse  the Panel's finding in paragraphs 7.773, 
8.6(b) and 8.17(c) of the Panel Report that the accreditation requirements under INOVAR -AUTO to: 
(a) perform a minimum number of manufacturing steps in Brazil; and (b) invest in R&D in Brazil a nd 
make expenditures on engineering, basic industrial technology and capacity -building of suppliers in 
                                                
13 See Panel Report, para. 7.696.  
14 See Panel Report, para. 7.70.  
15 See Panel Report, paras. 7.737 -7.751.  
16 See Panel Report, paras. 7.658 -7.661, 7.732.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  Brazil accord less favourable treatment to imported products than that accorded to like domestic 
products, inconsistently with Article III:4 of the GATT 1994.  
24. As a result, Brazil requests that the Appellate Body also reverse the Panel's consequential 
finding in paragraphs 7.806, 8.6(d), and 8.17(e) of the Panel Report that these aspects of the 
accreditation requirements are inconsistent with Article 2.1 o f the TRIMS Agreement.  
25. To the extent that the Panel 's findings are based on the erroneous assumption that production 
step requirements are sufficient to establish a contingency upon the use of domestic over imported 
goods within the meaning of Article 3.1 (b) of the SCM Agreement, Brazil requests that the Appellate 
Body reverse  the Panel 's findings in paragraphs 7.751, 7.823, 7.847, 8.6(e), and 8.17(f) of the Panel 
Report that INOVAR -AUTO constitutes a prohibited import substitution subsidy under Article 3. 1(b) 
and 3.2 of the SCM Agreement.  
VI. REVIEW OF THE PANEL' S FINDINGS INTERPRET ATION AND APPLICATIO N OF 
ARTICLES 1.1 AND 3.1 (a) OF THE SCM AGREEME NT TO THE TAX SUSPEN SIONS 
GRANTED UNDER THE PE C AND RECAP PROGRAMM ES 
26. Brazil seeks review by the Appellate Bod y of the Panel's finding that the tax suspensions 
granted under the PEC and RECAP programmes are subsidies within the meaning of Article 1.1 of 
the SCM Agreement and contingent upon export performance within the meaning of Article 3.1(a) 
of the SCM Agreeme nt. The Panel's errors of law and legal interpretation include:  
• The Panel erred in failing to use the tax treatment of structural tax accumulators as the 
benchmark treatment;17  
• The Panel erred in its comparison of its preferred benchmark treatment with the  challenged 
treatment under PEC and RECAP;18 
• The Panel erred in finding that "cash availability" and "implicit interest income" are 
government revenue otherwise due;19  
• The Panel acted inconsistently with Article 11 of the DSU in its assessment of the eviden ce 
of export contingency;20 
27. For these reasons, Brazil respectfully requests that the Appellate Body reverse  the Panel's 
conclusions in paragraph 7.1211 of the Panel Report that the PEC and RECAP programmes constitute 
financial contributions in the form of government revenue that is otherwise due and is foregone or 
not collected within the meaning of Article 1.1 (a)(1)(ii) of the SCM Agreement.  
28. As a result, the Appellate Body should also reverse the Panel's finding in paragraph 7.1212 of 
the Panel Report that the PEC and RECAP programmes confer a benefit under Article 1.1(b) of the 
SCM Agreement, and its ultimate conclusion in paragraphs 7.1223, 8.7, and 8.18 that the 
tax suspensions under the PEC and RECAP programmes constitute subsidies within the meaning of 
Article 1.1 of the SCM Agreement.  
29. Brazil respectfully requests that the Appellate Body find that the Pane l acted inconsistently 
with its duty to conduct an objective assessment of the matter under Article 11 of the DSU in 
examining the evidence on export contingency.  
30. Brazil also respectfully requests that the Appellate Body reverse the Panel's finding in 
paragraphs 7.1238, 8.7, and 8.18 that the tax suspensions granted under the PEC and RECAP 
programmes are subsidies that are contingent upon export performance within the meaning of 
Article 3.1(a) of the SCM Agreement.  
                                                
17 See Panel Report, paras. 7.1167, 7.1169, and 7.183.  
18 See Panel Report, paras. 7.1175, 7.1179, 7.1203, 7.1207.  
19 See Panel Report, para. 7.1179, 7.1190, 7.1194.  
20 See Panel Report, para. 7.1234.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  31. As a consequence, Brazil respectfully req uests that the Appellate Body declare moot and of 
no legal effect the Panel's recommendation under Article 4.7 of the SCM Agreement in paragraphs 
8.11 and 8.22 that Brazil withdraws these alleged subsidies within 90 days.  
VII. REVIEW OF THE PANEL' S INTERP RETATION AND APPLICA TION OF THE ENABLING  
CLAUSE TO THE TAX TR EATMENT OF MERCOSUR COUNTRIES UNDER INOV AR-AUTO  
32. Brazil seeks review by the Appellate Body of the Panel's finding that the complainants' claims 
under Article I:1 of the GATT 1994 were within the P anel's terms of reference, that the differential 
tax treatment accorded to Mexico, Argentina, and Uruguay under INOVAR -AUTO was not properly 
notified to the WTO, and that this differential tax treatment is not justified under paragraphs 2(b) 
and 2(c) of th e Enabling Clause. The Panel's errors of law and legal interpretation include:  
• The Panel erred in finding that the complainants were not on notice that the differential 
tax treatment at issue was adopted (and, in Brazil's view, justified) under the 
Enablin g Clause, such that the complainants were required to invoke the Enabling Clause 
in their panel requests in order for the complainants claim s under Article I:1 of the 
GATT  1994 to be within the Panel's terms of reference;21 
• The Panel erred in finding that Brazil had not properly notified the differential tax treatment 
at issue under paragraph 4(a) of the Enabling Clause;22 
• The Panel erred in finding that for a non -tariff measure to be within the scope of paragraph 
2(b) of the Enabling Clause, it must be gove rned by specific provisions on special and 
differential treatment that are distinct from the provisions of the GATT 1994 incorporating 
the GATT 1947;23 
• The Panel erred by conflating the substantive analysis under paragraph 2(c) with the 
obligation to notify  under paragraph 4(a), concluding that  the differential tax treatment at 
issue is not justified under paragraph 2(c) of the Enabling Clause for the same reason that 
it concluded that the differential tax treatment was not properly notified.24  
33. For these rea sons, Brazil respectfully requests that the Appellate Body reverse  the Panel's 
conclusions in paragraphs 7.1083, 7.1120, 8.6(h), and 8.17(i) that the complainants did not have 
an obligation to invoke the Enabling Clause in their panel requests, and reverse  the Panel's 
consequential conclusion that the complaints' claims under Article I:1 of the GATT 1994 were within 
the Panel's terms of reference.  
34. Consequently, Brazil requests that the Appellate Body declare moot and of no legal effect  the 
Panel's findings  under paragraphs 8.6(g) and 8.17(h) that the tax reductions accorded to imported 
products from Argentina, Mexico and Uruguay under INOVAR -AUTO are advantages granted by Brazil 
to products originating in those countries, which are not accorded immediately and unconditionally 
to like products originating in other WTO Membe rs, inconsistently with Article  I:1 of the GATT 1994.  
35. In case the Appellate Body were to find that the complainants ' claim under Article I:1 was 
properly within the Panel 's terms of referen ce, Brazil respectfully requests that the Appellate Body 
reverse  the Panel's conclusions in paragraphs 7.1079, 7.1081, 7.1083, 7.115 and 7.119 that the 
differential tax treatment at issue was not properly notified under  paragraph 4(a) of the 
Enabling  Claus e. 
36. Brazil respectfully requests that the Appellate Body reverse  the Panel's conclusion in 
paragraphs 7.1096 that a non -tariff measure within the scope of paragraph 2(b) of the Enabling 
Clause must be governed by specific provisions on special and different ial treatment that are distinct 
from the provisions of the GATT 1994 incorporating the GATT 1947. Brazil also requests that the 
Appellate Body reverse the Panel's consequential finding in paragraphs 7.1097, 8.6(i), and 8.17(j) 
that the tax reductions accor ded to imported products from Argentina, Mexico and Uruguay and 
                                                
21 See Panel R eport, paras. 7.1076 -7.1083, 7.1108 -7.1115, 7.1120.  
22 See Panel Report, paras. 7.1076 -7.1083, 7.1108 -7.1115, 7.1119.  
23 See Panel Report, paras. 7.1088 -7.1097.  
24 See Panel Report, paras.  7.1108 -7.1118.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  found to be inconsistent under Article I:1 of the GATT 1994 ar e not justified under paragraph  2(b) 
of the Enabling Clause.  
37. Brazil further requests that the Appellate Body complete the analysi s and find that the 
differential tax treatment is justified under paragraph 2(b) and complies with the requirements of 
paragraph 3 of the Enabling Clause.  
38. Brazil respectfully requests that the Appellate Body reverse  the Panel's conclusion in 
paragraph 7.11 18 that Brazil did not meet its burden of proof in respect of the substantive 
requirements of paragraph 2(c) of the Enabling Clause, and the Panel's ultimate conclusion in 
paragraphs 8.6(i) and 8.17(j) that the tax reductions accorded to imported products from Argentina, 
Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 are not justified 
under paragraph 2(c) of the Enabling Clause.  
39. Brazil further requests that the Appellate Body complete the analysis  and find that the 
differential tax treatment is justified under paragraph 2(c) and complies with the requirements of 
paragraph 3 of the Enabling Clause.  
VIII.  REVIEW OF THE PANEL' S RECOMMENDATION U NDER ARTICLE 4.7 OF THE 
SCM AGREEMENT  
40. If the Appellate Body were to uphold the Pan el's findings that the measures at issue are 
prohibited subsidies under Articles 3.1(a) and 3.1(b) of the SCM Agreement, Brazil then seeks review 
by the Appellate Body of the Panel's recommendation that Brazil withdraw the subsidies identified 
in paragraph s 8.5(e), 8.6(e), 8.7, 8.16(f), 8.17(f), and 8.18 of the Panel's Report within 90 days.25 
The Panel's errors of law and legal interpretation include:  
• The Panel erred by failing to provide "reasoned and adequate explanations and coherent 
reasoning" for its 9 0-day recommendation, as required by Article 11 of the DSU;26 
• The Panel erred by failing to provide the "basic rationale" for its 90 -day recommendation, 
as required by Article 12.7 of the DSU;27 
41. For these reasons, Brazil respectfully requests that the Appell ate Body find that the Panel 
acted inconsistently with Articles 11 and 12.7 of the DSU in making its recommendations under 
Article 4.7 of the SCM Agreement and reverse the Panel's recommendation in paragraphs 8.11 and 
8.22 of the Panel Report that Brazil w ithdraw the subsidies identified in paragraphs 8.5(e), 8.6(e), 
8.7, 8.16(f), 8.17(f), and 8.18 within 90 days.  
42. Brazil further requests that the Appellate Body complete the analysis , and specify a time period  
of 18 months for implementation pursuant to Article 4.7 of the SCM Agreement.  
 
                                                
25 Brazil notes that the Panel refers to the prohibited  subsidies in p aragraphs 8.5(f) and 
paragraphs  8.6(f) in paragraphs 8.11 and 8.22 of the Panel Report, but the relevant paragraphs are in fact 
8.5(e) and 8.6(e).  
26 See Panel Report, para. 6.17.  
27 See Panel Report, para. 6.17.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX A -2 
THE EUROPEAN UNION'S  NOTICE OF OTHER APPE AL* 
Pursuant to Article 16.4 and Article 17.1 of DSU, the European Union  hereby notifies to the 
Dispute  Settlement Body its decision to appeal to the Appellate Body certain issues of law covered 
in the Panel Report and certain legal interpretations developed by the Panel in the dispute Brazil  – 
Certain Measures Concerning Taxation and Charges  (WT/DS472) . Pursuant to Rule  23(1) of the 
Working Procedures for Appellate Review , the European Union simultaneously files this Notice of 
Other Appeal with the Appellate Body Secretariat.  
For the reasons to be further elaborated in its submissions to the Appellate Body, the European  Union 
appeals, and requests the Appellate Body to reverse or modify  the findings and conclusions of the 
Panel with respect to the errors of law and legal interpretations contained in the Panel Report 
described below, and where indicated to com plete the analysis on the basis of the Panel's findings 
and uncontested facts on the record :1 
1. The Panel failed to make an objective assessment of the matter before it in accordance with 
Article 11 of DSU by exercising false judicial economy in relation to the European Union's 
request to make findings also on the in -house scenario in the context of the ICT and INOVAR -
AUTO programmes.2 Thus, the European Union requests the Appellate Body to reverse  the 
Panel's findings, to complete the legal analysis  with reg ard to the in -house scenario and to 
find that the production -step requirements  contained in the ICT and INOVAR -AUTO 
programmes  are inconsistent with Articles III:4 of GATT 1994, Article 2.1 of TRIMS Agreement 
and Article 3.1(b) of SCM Agreement also under  the in -house  scenario . 
2. In the alternative, were the Appellate Body to consider that the Panel correctly exercised 
judicial economy when failing to make specific findings on the in -house scenario, the European 
Union requests the Appellate Body to review , pursuant to Article 17.6 of DSU, the legal 
interpretations developed by the Panel and modify, pursuant to Article 17.13 of DSU, the 
findings contained in paragraphs 7.298 -7.314 and 7.746 -7.751 of its Report, so as to make it 
clearer that the Panel indeed did  not need to rule twice on the production step requirements 
(in the in -house and in the outsourcing scenarios) because the Panel had already found that 
those steps are per se  inconsistent with the covered agreements, since they make an 
advantage/subsidy co ntingent upon the use of domestic over imported goods, regardless of 
whether those domestic goods are manufactured by the accredited company or a third party.3 
3. Finally, the European Union makes a subordinate claim of error, subject to the Appellate  Body 
rejecting both the first claim of error formulated by the European Union (that the Panel 
exercised false judicial economy) and the alternative claim of appeal. In that case, t he 
European Union requests the Appellate Body to find that the Panel, by fai ling to consider the 
European Union's claims under Article III:4 of GATT 1994, Article 2.1 of TRIMS  Agreement 
and Article 3.1(b) of SCM Agreement in light of all the relevant facts of the case (which 
included both the in -house and outsourcing scenarios), e rred in the application of those 
provisions.4 Accordingly, the European Union requests the Appellate  Body to reverse  the 
Panel's findings, to complete the legal analysis  with regard to the in -house scenario and to 
find that the production -step requirements  contained in the ICT and INOVAR -AUTO 
programmes  are inconsistent with Articles III:4 of GATT 1994, Article 2.1 of TRIMS Agreement 
and Article 3.1(b) of SCM Agreement also under  the in -house  scenario .  
                                                
* This document, dated 3 Octob er 2017, was circulated to Members as document WT/DS472/9.  
 
1 Pursuant to Rule 23(2)(c)(ii)(C) of the Working Procedures for Appellate Review  this Notice of Other 
Appeal includes an indicative list of the paragraphs of the Panel Report containing the alleg ed errors, without 
prejudice to the ability of the European Union to refer to other paragraphs of the Panel Report in the context of 
its appeal.  
2 Panel Report, paras. 6.10, 6.11 and 6.13, 7.314, 7.749, and 8.5.  
3 See Panel Report, paras. 6.11, final sent ence, 7.292, footnote 683, 7.319, penultimate sentence, 
7.500 and 8.5.  
4 Panel Report, paras. 6.10, 6.11 and 6.13, 7.314, 7.749, and 8.5.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX A -3 
JAPAN 'S NOTICE OF OTHER  APPEAL* 
Pursuant to Article 16.4 and Article 17 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes  ("DSU") and Rule 23 of the Working Procedures for Appellate Review , Japan 
hereby notifies its decision to appeal to the Appella te Body certain issues of law covered in the Panel 
Report in Brazil – Certain Measures Concerning Taxation and Charges  (WT/DS497/R) and certain 
legal interpretations developed by the Panel in this dispute.  
In particular, Japan seeks review by the Appellate  Body of the Panel's findings that it did not need 
to review the WTO -consistency of the challenged INOVAR -AUTO and ICT programmes under an "in-
house " scenario. The Panel's findings to this effect are in error and are based on an erroneous 
interpretation an d application of Article 11 of the DSU, by erroneously exercising judicial economy 
not to extend findings to the so -called "in-house " scenario. Alternatively, the Panel failed to provide 
"coherent reasoning as required under Article 11 of the DSU. The para graphs relating to these errors 
include paragraphs 6.11, 7.302, 7.308, 7.314 and 7.749 of the Panel Report.  
Japan respectfully requests the Appellate Body to reverse and modify the related findings, 
conclusions and recommendations of the Panel. Moreover, to the extent that it reverses the Panel's 
findings in this respect, Japan also requests that the Appellate Body complete the legal analysis by 
extending the Panel's findings regarding the "outsourcing " scenario to the "in-house " scenario, and 
finding that the accreditation and production step requirements under the INOVAR -AUTO programme 
and ICT programmes "as a whole " – i.e., under both the "outsourcing " and "in-house " scenarios – 
are inconsistent with Article III:4 of the GATT 1 994 and Article 3.1(b) of the SCM  Agreement.  
In the alternative, should the Appellate Body consider that the Panel did not exercise judicial 
economy, Japan respectfully requests the Appellate Body to review, pursuant to Article 17.6 of DSU, 
the legal inter pretations developed by the Panel and modify, pursuant to Article 17.13 of the DSU, 
the findings contained in paragraphs 7.298 -7.314 and 7.746 -7.751 of the Report, to the extent that 
they may be understood as referring solely to the "outsourcing " scenario,  and clarify that the Panel's 
findings of the WTO -inconsistency of the challenged INOVAR -AUTO programme and ICT programmes 
are indeed not limited to the "outsourcing " scenario, but that the Panel made a finding with respect 
to the accreditation requirement  under INOVAR -AUTO programme as a whole, as well as the 
production -step requirements of the ICT programmes as a whole. To this end, Japan also requests 
that the Appellate Body complete the analysis, where appropriate.  
_______________  
 
                                                
* This document, dated 3 October 2017, was circulated to Members as document WT/DS497/7.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX  B 
ARGUMENTS OF THE PAR TICIPANTS  
Contents  Page  
Annex  B-1 Executive summary of Brazil 's appellant's submission  14 
Annex  B-2 Executive summary of the European Union 's other appellant's submission  23 
Annex  B-3 Executive summary of Japan's other appellant's submission  24 
Annex  B-4 Executive summary of Japan 's appellee's submission  26 
Annex  B-5 Executive summary of the European Union' s appellee's submission  30 
Annex  B-6 Executive summary of Brazi l's appellee's submission  36 
 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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ANNEX  B-1 
EXECUTIVE SUMMARY OF BRAZIL'S  APPELLANT'S SUBMISSION* 
I. Introduction  
1. With the present appeal, Brazil requests  that the Appellate Body review and reverse a number 
of issues of law and legal interpretation contained in Panel Report . Beyond the specific legal 
provisions under discussion, this appeal concerns more broadly the ability of WTO Members to 
provide subsidies to domestic producers.  
2. Central to the resolution of this dispute is a proper underst anding of the role that 
Article  III:8(b) of the GATT 1994 plays in delineating the product -related disciplines of Article III 
from the subsidy -related disciplines of the SCM Agreement . The Appellate Body recently observed 
in US – Tax Incentives that "Article III:8(b) of the GATT 1994 exempts from the national treatment 
obligation in Article III 'the payment of subsidies exclusively to domestic producers '."1 In diametric 
opposition to this conclusion, the Panel in the present dispute found that "subsidies that are provided 
exclusively to domestic producers pursuant to Article III:8(b) of the GATT 1994 are not per se  
exempted from the disciplines of Article III of the GATT 1994 ."2 
3. In effect, the Panel interpreted Article III:8(b ) of the GATT 1994 as serving only one purpose: 
to "make[] explicit " that the non -discrimination provisions of Article III do "not require subsidization 
of foreign producers in  tandem with domestic producers".3 While Article III:8(b) does serve that 
rather  axiomatic purpose, Article III:8(b) also makes clear that subsidies provided to domestic 
producers, including the effects that those subsidies have on the conditions of competition for 
domestic versus imported products, are not a basis for finding a viola tion of the national treatment 
obligations in Article III.  
4. Moreover, and contrary to at least one implication of the Panel 's analysis, it is immaterial for 
purposes of Article III:8(b) what type of subsidy a Member chooses to provide exclusively to 
domest ic producers. Article III:8(b) of the GATT 1994 does not distinguish among different types of 
producer subsidies. The exemption o r remission of indirect taxes —the type of subsidies at issue in 
the present dispute —is undoubtedly a "subsidy " within the meani ng of Article 1 of the 
SCM Agreement. In addition, the Appellate Body has previously found that the ordinary meaning of 
the term "payment " encompasses revenue foregone, i.e. the exemption or remission of a tax or 
other revenue owed to the government. The "payment of subsidies exclusively to domestic 
producers " under Article III:8(b) therefore includes the exemption or remission of indirect taxes.  
5. A proper application of Article III:8(b)  of the GATT 1994 would have led the Panel to the 
conclusion that the m easures at issue are producer subsidy measures, not measures that 
discriminate against imported products on the basis of their origin. The challenged measures provide 
for the  exemption or remission of  taxes based on whether a producer carries out certain p roduction 
steps in Brazil. A producer that manufactures a covered product using 100% imported components 
will obtain the subsidy if it carries out the required production steps in Brazil, while a producer that 
manufactures the same product using 100% domes tic components will not obtain the subsidy if it 
does not carry out the required production steps in Brazil.  
6. The Panel committed the same basic errors of interpretation and application in its assessment 
of the complainants ' claims under Article 3.1(b) of the SCM A greement pertaining to the ICT 
programmes . Unable to identif y any respect in which the ICT programmes  condition the provision of 
a subsidy upon the use of domestic over imported goods, either in the text of the measures at issue 
or by necessary im plication thereof, the Panel based its finding of prohibited import substitution 
entirely on the effect that the subsidies at issue might have on producers ' sourcing decisions. The 
Appellate Body expressly rejected this line of reasoning in US - Tax Incent ives, ruling that t he fact 
                                                
* Total word count: 5542  
1 Appellate Body Report, US – Tax Incentives , para. 5.16.  
2 Panel Report, para. 7.87.  
3 Ibid. para. 7.79.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  that a domestic production subsidy might affect input sourcing decisions is not a sufficient basis to 
conclude that it is contingent upon the use of domestic over imported goods.  
7. A proper delineation of the national treatment ob ligations of Article III of the GATT 1994 and 
the subsidy disciplines of the SCM Agreement is essential to preserving the rights  that the covered 
agreements reserve for Members to  subsidize domestic producers. The Panel Report in the present 
dispute, if ad opted, would impermissibly constrain the right of Members to subsidize domestic 
production. It would, moreover, result in arbitrary distinctions among the means  by which Members 
subsidize domestic production, favouring methods of subsidization more commonl y practiced by 
developed Members (such as outright grants) over methods of subsidization that are more readily 
available to developing Members (such as, in this case, the exemption or remission of indirect taxes 
based on whether certain production steps ta ke place within the country).   
8. These are not the only important systemic issues presented by this appeal. Another example 
relates to the Panel's finding that the ICT programmes and the PEC and RECAP programmes result 
in "revenue foregone" within the meanin g of the SCM Agreement, based entirely on the flawed notion 
that "implicit interest income" is tax revenue that is "due" to a government when a government 
decides, for reasons of tax administration, either to collect a tax at a later point in time or to fo rgo 
the collection of a tax that the government would later need to refund. This interpretation, if 
accepted, would draw the covered agreements into the realm of tax administration in ways that 
would have far -reaching consequences for WTO Members.  
II. The Panel Erred in Its Interpretation and A pplication of Article  III:8(b) of the 
GATT 1994 to the ICT programmes and to INOVAR -AUTO and Its R elationship with the 
Other Provisions of Article III of the GATT 1994  
9. The Panel erred in its interpretation and applica tion of Article III:8(b) of the GATT 1994 to the 
ICT programmes and to INOVAR -AUTO by failing to determine, at the threshold, that these measures 
are producer subsidy measures subject to the disciplines of the SCM Agreement, rather than to the 
product -related disciplines of Article III of the GATT 1994.  
10. Article III:8(b) makes clear that subsidies provided to domestic producers, including  the 
effects that those subsidies might have on the conditions of competition for domestic versus 
imported products , are not a basis for finding a violation of the product -related disciplines of Article 
III. Production subsidies and their effects are to be analy sed under the SCM Agreement, not under 
Article III of the GATT 1994.  
11. In contrast, t he concern with origin -based dis crimination is reflected in Articles III:2 and III:4 
of the GATT 1994. In both cases , the discipline applies to products , and guards against discriminatory 
treatment of imported products ( "products of the territory of any contracting party imported … ") 
relative to products of national origin ( "domestic products ", "products of national origin "). Articles 
III:2 and III:4  do not apply, by force of Article III:8(b), to differences in treatment that may result 
from payment of subsidies exclusively to domestic producers . 
12. The Panel  conflate d the distinction between the product -related disciplines of Article III and 
the provisions of the covered agreements concerning subsidies provided to domestic producers, 
which  should be assessed under the SCM Agreement. A harmon ious interpretation of these different 
provisions requires any panel evaluating claims under Article III to determine, in the first instance, 
whether the measure at issue is a product -related measure subject to the disciplines of Article III 
or, conversely , whether that measure provides a subsidy to domestic producers under Article 
III:8(b), and is therefore subject to the disciplines of the SCM Agreement.  
13. The Panel did not undertake this threshold inquiry. It simply assumed that, because the 
challenged pro grammes resulted in imported products not having access to the subsidy provided 
therein to domestic producers, the subsidy would not be exempted from the national treatment 
obligations of Article III and, therefore, would automatically constitute a violati on of Articles III:2 
and III:4 of the GATT 1994 and of Article 2.1 of TRIMs.  
14. Accordingly, the Appellate Body should reverse  the Panel's interpretative finding that 
measures providing subsidies exclusively to domestic producers "are not per se  exempted from  the WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 16 - 
 
  disciplines of Article III of the GATT 1994"4, and to reverse  its ultimate conclusion that, because the 
ICT programmes and INOVAR -AUTO are not available to foreign producers , they are necessarily 
inconsistent with Articles III:2 and III:4 of the GATT 1994, and Article 2.1 of the TRIMs  Agreement.5  
III. The Panel Erred in Finding that the ICT programmes Are Inconsistent with 
Article  III:2, First Sentence, of the GATT  1994  
15. The Panel erred in finding that the ICT programmes result in imported finished and 
intermediate products being subject to taxation in excess of domestic like products, within the 
meaning of Article III:2, first sentence, of the GATT 1994, in three distinct  respects.  
16. First, the Panel erred in failing to establish, at the threshold, that the ICT programmes  
constitute the "payment of subsidies to domestic producers " under Article III:8(b) of the GATT  1994 
and therefore are not subject to the disciplines of Art icle III:2 of the GATT 1994.  In ruling that Article 
III:8(b) authorized the provision of domestic production subsidies "so long as they do not have any 
component that introduces discrimination between imported and domestic products "6, the Panel 
effectively  held that such subsidies can never take the form of reductions or exemptions of indirect 
taxes. However, the terms "subsidies " in Article III:8(b) encompasses all types of subsidies listed in 
Article 1.1 of the SCM Agreement, including foregoing of govern ment revenue otherwise due under 
Article 1.1(a)(1)(ii) of the SCM Agreement, in the form of the exemption or remission of indirect 
taxes. Moreover, tax expenditures such as the exemption or remission of indirect taxes 
unquestionably constitute a "payment " of subsidies under Article  III:8(b), and the negotiating 
history referred to the Panel is of little interpretative value considering that it precedes the definition 
of subsidies contained in the SCM Agreement.  
17. In addition, the Panel failed to recognize th at the list of measures in Article III:8(b) is merely 
illustrative, and does not exhaustively define the type of permissible domestic production subsidies. 
The Panel also erred in finding that Articles III:8(b) and Article III:2 have overlapping scopes of 
application. Contrary to the Panel's finding to this effect, the Appellate Body expressly held in US – 
Tax Incentives that Article III:8(b) exempts domestic production subsidies from the product 
disciplines of Article III.  
18. Second, the Panel erred in findi ng that the complainants had established that the 
ICT programmes  result in imported finished products being subject to taxes  in excess of domestic 
like products.  Setting aside the Panel's failure to determine the threshold applicability of 
Article  III:8(b)  to the ICT programmes, it was still incumbent upon the Panel to hold the 
complainants to their burden of proof of establishing that the ICT programmes result in finished 
imported products being subject to taxation in excess of domestic like products. The Panel simply 
assumed that, because foreign producers are ineligible for the subsidies, the ICT programmes de 
jure discriminated against imported products. However, because importers are also subject to the 
application of the debit/credit rule under Brazil' s non -cumulative tax system, the payment of taxes 
on purchases of non -incentivized products generates a corresponding credit that may be offset 
against the importer's liability. Accordingly, the fact that foreign producers are ineligible for the tax 
incent ives does not establish, without more, that imported finished products are taxed in excess of 
domestic like products.  
19. Third and finally, the Panel erred in finding that the ICT programmes  result in imported 
intermediate ICT products being taxe d in excess of domestic like products  by virtue of "cash flow " 
and "time value of money " effects allegedly generated on the purchase of incentivized products . At 
most, such unsubstantiated effects would benefit producers , and the complainants did not produce, 
and the Panel did not examine, any evidence tending to demonstrate that these effects resulted in 
higher taxation of imported intermediate products . Under Brazil's non -cumulative tax system, the 
relevant taxes are not paid upfront but are rather levied each month pursuant to the credits and 
debits recorded in the taxpayer's accounting books. As a general rule all credits are offset against 
debits in the same taxation period, and are neither tax nor product -specific. Thus the purchase of 
                                                
4 Panel Report, para. 7.87.  
5 Panel Report, paras. paragraphs 7.174, 7.318, 7.319, 7.365, 7.688, 7.772, 7.773, 7.806, 8.5(a), 
8.5(b), 8.5(d), 8.6(a), 8.6(b) and 8.6(d).  
6 Panel Report, para. 7.83.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  non-incentivized products ne ither reduces the availability of cash flow by the purchaser, nor does 
the value of the tax credit diminishes over time.   
20. For these reasons, the Appellate Body should reverse the Panel's finding that the 
ICT programmes result in taxation of imported like products in excess of domestic like products, 
inconsistently with Article III:2, first sentence, of the GATT 1994.7  
IV. The Panel Erred in Finding that the ICT Programmes  Accord to I mported Products 
Treatment L ess Favourable than that A ccorded to Like Domestic Products, Inconsistent  
with Article I II:4 of the GATT  1994  and Article 2.1 of the TRIMs  Agreement  
21. Since the Panel erred in failing to determine the threshold applicability of Article III:8(b) of 
the GATT 1994 to the ICT programmes, it misconstrued the relationship of that provision with Article 
III:4 of the GATT 1994. Consistent with the analytical framework adopted by the Appellate  Body in 
US – Tax Incentives and by previous panels, domestic production subsidies are exempt from the 
product discipli nes of Article III:4 of the GATT 1994. Under the Panel's erroneous interpretation, it 
is unclear under what circumstances a WTO Member  would  ever be able to provide subsidies that 
do not distort the conditions of competition in the marketplace to the detri ment of imported products.  
Quite the contrary, as the Panel itself recognized, the very purpose of providing a domestic 
production subsidy is to provide a competitive advantage exclusively to domestic producers.  
22. For this reason, the Panel erred in finding  that accreditation requirements under the 
ICT programmes are inconsistent with Article III:4 because they result in foreign producers not being 
eligible to the subsidies. A corollary of Article III:8(b) is that only producers that produce 
domestically wil l benefit from the subsidies. The accreditation requirements merely define the 
producers that are eligible to the subsidies (i.e. those that undertake certain production steps in 
Brazil), and in and of itself do not reflect any regulatory discrimination be tween imported and 
domestic products. In this respect, the Panel impermissibly conflated tax discrimination under Article 
III:2 with regulatory discrimination under Article III:4, insofar as purported discrimination really 
stems from the reduction or exemp tion of indirect taxes for eligible producers. Moreover, because 
the accreditation requirements apply at the producer  level pursuant to the authorization contained 
in Article III:8(b), by definition they cannot be implicated by the product disciplines of A rticle III:4 
of the GATT 1994.   
23. The Panel's finding that the ICT programmes are inconsistent with Article III:4 because 
imported intermediate products are purportedly subject to more onerous administrative burdens is 
also in error, and reflects a misappre hension of Brazil's non -cumulative tax system. Regardless of 
whether they purchase incentivized or non -incentivized products, all companies in Brazil are required 
to keep and operate a ledger in which all purchases of inputs and sales of final goods are re corded, 
and debits and credits are offset. The suspension, exemption, or reduction of indirect taxes under 
the ICT programmes do not alter in any way the administrative burden incurred by companies to 
assess their monthly tax liabilities, irrespective of t heir sourcing decisions.  
24. Finally, the Panel erred in finding that the PPBs and other production -step requirements are 
tantamount to a requirement to use domestic goods within the meaning of Article III:4 of the GATT 
1994. The PPBs and other production ste p requirements are entirely silent as to the origin of the 
inputs used in the production process. A producer using 100% of imported components will be 
eligible for the subsidies, provided that it undertakes the relevant production steps in Brazil. The 
Panel's rationale that production step requirements are tantamount to a requirement to use domestic 
goods in respect of a producer 's component or sub -assemblies sourcing decisions has been expressly 
addressed – and rejected – by the Appellate Body in US – Tax Incentives . In that dispute, the 
Appellate Body expressly held that domestic production subsidies "can ordinarily be expected to 
increase the supply of the subsidized domestic goods in the relevant market, thereby increasing the 
use of these goods downstream and adversely affecting imports, without necessarily requiring the 
use of domestic over imported goods as a condition for granting the subsidy."8 For this reason, the 
"siting criterion" imposed by the production step requirements under the ICT programmes, even 
when it involves the outsourcing of certain steps, does not constitute a requirement to use domestic 
                                                
7 Panel Report, paras. 7.174, 8.5(a), and 8.16(a).  
8 Appellate Body Report, US – Tax Inc entives , para. 5.15.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  products to the detriment of imported products in a manner inconsistent with Article III:4 of the 
GATT 1994.  
25. Accordingly, the Appellate Bod y should reverse the Panel 's finding that in respect of 
(i) accreditation requirements; (ii) purported lower administrative burdens on purchases of domestic 
intermediate products; and (iii) PPBs and other produc tion step requirements, the ICT  programmes 
accord to imported products treatment less favourable than that accorded to domestic like products, 
inconsistently with Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement.9 
V. The Panel Erred in Finding that the ICT programmes Provide Subs idies that Are 
Contingent upon the Use of Domestic over Imported Goods under Article 3.1(b) of the 
SCM Agreement  
26. The Panel erred in finding that the ICT programmes  provide prohibited import substitution 
subsidies under Article 3.1(b) of the SCM Agreement  in two respects .  
27. First, the Panel erred in finding that the exemptions, suspensions and reductions of taxes 
provided under the ICT programmes on the sale of intermediate goods and on the purchase of raw 
materials, intermediate goods, packaging materials, i nputs, capital goods and computational tools 
(collectively, "inputs ") provide a subsidy under Article 1.1 of the SCM Agreement. More specifically, 
the Panel erred in finding that the ICT programmes provide a financial contribution in the form of 
government  revenue that is otherwise due and is foregone and not collected under Article 
1.1(a)(1)(ii) of the SCM Agreement. By focusing on the exceptional scenario in which the taxpayer 
is unable to fully offset the total amount of taxes paid in the same taxation p eriod, the Panel 
impermissibly failed to compare the treatment of the group of taxpayers in the benchmark treatment 
with the treatment of taxpayers under the ICT programmes. Moreover, the "implicit interest income " 
that the Brazilian government allegedly f oregoes under the ICT programmes as compared to the 
situation of that subset of taxpayers is not a "government revenue " that is "due" within the meaning 
of Article 1.1(a)(1)(ii) of the SCM Agreement.  
28. Second, the Panel erred in finding that the ICT program mes are contingent upon the use of 
domestic over imported goods under Article 3.1(b) of the SCM Agreement  because the PPBs and 
other production step requirements imply a contingency upon production in Brazil . As the 
Appellate  Body held in US – Tax Incentiv es, "something more than mere subsidization of domestic 
production  is required for finding an import substitution subsidy. "10 The contingencies set out in the 
PPBs and similar production step requirements relate to the location of certain manufacturing 
operations in Brazil , and do not prevent the possibility of using imported inputs  in the manufacturing 
process.  
29. The Panel reasoned that because PPBs provide that outsourced components must be produced 
domestically , such condition imposes, in respect of the  accredited producer of the incentivized 
finished product, a requirement to use domestic over imported goods.  This line of argument was 
expressly addressed and rejected by the Appellate Body in US – Tax Incentives , where the Appellate 
Body categorically he ld that, in situations where both an input and the finished product are 
subsidized, the consequences of a requirement to produce an input domestically in respect of the 
producer 's input -sourcing decisions,  and the fact that the producer is likely to use a domestic product 
in its downstream production activities is insufficient, without more , to establish a condition requiring 
the use of domestic over imported goods under Article  3.1(b) of the SCM Agreement.11 
30. For these reasons, the Appellate Body should reverse the Panel's finding that the exemptions, 
reductions, and sus pensions of taxes granted under the ICT programmes  are subsidies contingent 
upon the use of domestic over imported goods within the meaning of Article s 3.1(b)  and 3.2 of the 
SCM Agreement .12 
                                                
9 Panel Report, paras. 7.318, 7.319, 7.365, 8.5(b), 8.5(d), 8.16(c) and 8.16(e).  
10 Appellate Body Report, US – Tax Incentives , para. 5.16. (emphasis added)  
11 See Appellate Body Report, US – Tax Incentives , para . 5.49 ; see also ibid. p ara. 5.76. 
12 Panel Report, paras. 7.500, 8.5(e) and 8.16(f).  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  VI. The Panel Erred in Finding  that Certain Aspects of the Accreditation Requirements 
under INOVAR -AUTO Related to Investments in R&D,  Expenditures on Engineering, Basic 
Industrial Technology and to the Performance of Certain Manufacturing Steps in Brazil 
Accord Less Favourable Treatment to Imported Products than that Accorded to Like 
Domestic Products, Inconsistently with Article I II:4 of the G ATT 1994 and Article 2.1 of 
the TRIMs A greement  
31. Similar to the Panel's finding in respect of the ICT programmes, th e Panel's finding that certain 
accreditation requirements under INOVAR -AUTO are inconsistent with Article III:4 of the GATT 1994 
is based on the incorrect assumption that Article III:8(b) does not exempt domestic production 
subsidies from the product disci plines of Article III. In so finding, the Panel failed to recognize that 
Articles III:8(b) and III:4 have distinct scopes of application. While the former concerns producer 
subsidy measures, the latter concern regulatory discrimination as between imported and domestic 
products . Consequently, any adverse effects that domestic production subsidies may have on the 
competitive opportunities for imported products should fall within the purview of Part III of the SCM 
Agreement.  
32. The Panel's failure to determine, at the threshold, that INOVAR -AUTO constituted a domestic 
production subsidy under Article III:8(b) effectively converted permissible domestic production 
subsidies into per se violations of Article III:4 of the GATT 1994.  Had the Panel properly interpreted 
and applied Articles III:8(b) and III:4 of the GATT 1944 to INOVAR -AUTO, it would have concluded 
that the conditioning of domestic production subsidies to the performance of certain production steps 
in Brazil is insuffici ent, without more, to establish regulatory discrimination under Article III:4 of the 
GATT 1994.  
33. Moreover, t he requirement  to perform certain manufacturing steps in Brazil and to invest in 
R&D and/or engineering in Brazil in order to benefit from the tax in centives established in the 
INOVAR -AUTO programme are  imposed on producers , and not on the products themselves.  As such, 
these requirements cannot be deemed in violation of the product disciplines of Article III:4 of the 
GATT 1994.  
34. The Panel also erred in finding that different accreditation requirements for domestic 
manufacturers vis -à-vis the categories of "investors " or "importer/distributors " entail a more 
burdensome requirement in respect of imported products. The requirement that domestic producers 
undertake certain manufacturing or investment activities in Brazil is a natural corollary of Brazil's 
right under Article III:8(b) of the GATT to pay subsidies exclusively to domestic producers. The Panel 
impermissibly undertook a quantitative assessment of the INOVAR -AUTO requirements, rather than 
a qualitative assessment. Had the Panel adopted  a qualitative approach instead, it would have 
recognized that the differences set forth in the INOVAR -AUTO programme with respect to 
"companies that manufacture vehic les in Brazil " and "companies that do not manufacture but market 
vehicles in Brazil " are not discriminat ory because the differences are inherent to the level of 
contribution made by both manufacturing and distributing companies to the programme 's objective s.  
35. For these reasons, the Appellate Body should reverse  the Panel's finding that the accreditation 
requirements under INOVAR -AUTO to: (a) perform a minimum number of manufacturing steps in 
Brazil; and (b) invest in R&D in Brazil and make expenditures on e ngineering, basic industrial 
technology and capacity -building of suppliers in Brazil accord less favourable treatment to imported 
products than that accorded to like domestic products, inconsistently with Article III:4 of the GATT 
1994 and Article 2.1 of t he TRIMs Agreement.13  
36. Moreover, to the extent that the Panel concluded that domestic production requirements alone 
are sufficient to establish that INOVAR -AUTO is "contingent upon the use of domestic over imported 
goods " within the meaning of Article 3.1(b ) of the SCM Agreement, Brazil further requests that the 
Appellate Body reverse  the Panel's finding that INOVAR -AUTO is a prohibited import substitution 
subsidies under Article 3.1(b) and 3.2 of the SCM Agreement .14  
                                                
13 Panel Report, paras. 7.773, 7.806, 8.6(b), 8.6(d), 8.17(c) and 8.17(e).  
14 Panel Report, paras. 7.751, 7.823, 7.847 , 8.6(e), and 8.17(f).  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  VII. The Panel Erred in Finding that the Tax Suspensions under the PEC and RECAP 
Programmes Are Subsidies Contingent Upon Export Performance Under Article  3.1(a) of 
the SCM Agreement  
37.  The Panel erred in finding that PEC and RECAP provide subsidies in the form o f government 
revenue otherwise due that is foregone or not collected under Article 1.1(a)(1)(ii) of the 
SCM Agreement, in three different respects.  
38. First, the Panel erred in failing to use the treatment of structural credit accumulators as the 
benchmark t reatment for comparison with the tax treatment under the PEC and RECAP  programmes. 
The Panel erroneously sought to ascertain whether a "general rule " of taxation existed under 
Brazilian law pursuant to which all suspensions and exemptions of taxes on input s and capital goods 
is directly linked to the problem of  structural credit accumulation, rather than ascertain the 
"comparably situated taxpayers " that make up the relevant normative benchmark for comparison. 
Had the Panel applied a proper analytical frame work, it would have concluded that all structural 
credit accumulators are comparably situated, as it is evident from the relevant statute. The fact that 
sectors whose products were formerly subject to high taxation may also be eligible for tax 
suspensions confirms rather than disproves the existence of this normative benchmark, insofar as 
companies in those sectors became structural tax credit accumulators by virtue of exemptions or 
suspensions granted in other programmes.   
39. Second, the Panel erred in faili ng to compare the tax treatment applicable to the group of 
taxpayers subject to the benchmark treatment with the tax treatment of the group  of taxpayers 
under PEC and RECAP. The Panel arbitrarily distinguished between taxpayers subject to the 
benchmark tre atment, disregarding the overwhelming majority of taxpayers that are able to fully 
offset their tax credits in the same taxation period, focusing instead on the small subset of taxpayers 
who are unable to do so. In doing so, the Panel found the foregoing o f revenue where there is none.  
40. Third, the Panel erred in finding that alleged "implicit interest income" that the Brazilian 
government purportedly "foregoes" under PEC and RECAP constitutes "government revenue" that is 
otherwise "due" and foregone or not collected under Article 1.1(a)(1)(ii) of the SCM Agreement. The 
terms "government revenue " that is "due" refer to government income that is owed or payable to 
the government as an obligation or debt by the taxpayer (such as taxes or charges), and does not 
encompass any "implicit interest " that the Brazilian Government supposedly "foregoes " as a result 
of tax administration measures which do not alter the amount of taxes due.   
41. Should the Appellate Body consider nonetheless that PEC and RECAP provide a subsidy within 
the meaning of Article 1.1 of the SCM Agreement, Brazil then claims that the Panel acted 
inconsistently with Article 11 of the DSU in its assessment of the evidence on export contingency, 
and therefore erred in finding that the PEC and RECAP programmes are contingent upon export 
performance within the meaning of Article 3.1(a) of the SCM Agreement.   
42. On the basis of the foregoing, the Appellate Body should reverse the Panel's finding that PEC 
and RECAP are subsidies contingent upon export performance under Articles 3.1(a) and 3.2 of the 
SCM Agreement.15  
VIII.  The Panel Erroneously Found t hat the Tax Reduction Accorded to Imports from 
Argentina, Mexico and Uruguay under INOVAR -AUTO Is  Not Justified under Paragraphs 
2(b) or 2(c) of the Enabling Clause  
43. The Panel erred in finding that the tax reduction accorded to imports from MERCOSUR 
countries under INOVAR -AUTO are inconsistent with Article I:1 of the GATT 1994 and n ot justified 
under paragraphs 2(b) or 2(c) of the Enabling Clause.  
44. The Panel preliminarily erred in finding that the complainants' claim under Article I:1 of the 
GATT 1994 was properly within its terms of reference. The measures had unquestionably been 
notified under paragraph 4(a) of the Enabling Clause, and contrary to what the Panel found, any 
                                                
15 Panel Report, paras. 7.1211, 7.1212, 7.1238, 8.7 and 8 .18. WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  substantive disagreement as to the proper characterization of the measures did not alleviate the 
complainants' burden of invoking the Enabling Clause in their pan el requests.  
45. The Panel also erred in failing to examine whether the notification of the Treaty of Montevideo 
and the ECAs  under paragraph 2(c)  could substantively serve as a notification of the specific 
differential and more favourable treatment sought to be justified under paragraph 2(b)  of the 
Enabling Clause. The Panel adopted an impermissibly restrictive interpretation of the Enabling 
Clause, failing to recognize that paragraph 4(a) does not impose on Members any requirement to 
precisely identify the ba sis pursuant to which it notifies its measures. This suggests that the drafters 
of the Enabling Clause provided some flexibility in such notification provisions.  
46. The Panel also erred in limiting the scope of paragraph 2(b) of the Enabling Clause to the S&D  
provisions in the covered agreements other than the GATT itself. The GATT 1994 is unquestionably 
an "instrument multilaterally negotiated under the auspices of the GATT " within the meaning of 
paragraph 2(b). Th e Panel 's restrictive interpretation to the c ontrary impermissibly  render s the 
provision effectively inutile , insofar as the S&D provisions provided for in the agreements in Annex 
1A of the Marrakesh Agreement are mostly hortatory and impose no substantive obligations.  
47. Finally, the Panel impermissibl y conflated the notification requirements with the substantive 
requirements imposed under paragraph 2(c) of the Enabling Clause. The challenged treatment had 
been duly notified under paragraph 2(c). T he Treaty  of Montevideo , the ECAs, and the LAIA clearly 
compris e internal tax ation measures, and as the dissenting Panelist correctly observed, refer to both 
"regional integration " and to tariff preferences in the automotive sector. Internal taxation measures 
are unquestionably "non-tariff measures " within the meaning of paragraph 2(c) of the Enabling 
Clause, and the Panel erred in failing to undertake a substantive analysis of whether the challenged 
treatment satisfied the requirements of that provision.   
48. Accordingly, the Appellate Body should reverse  the Panel 's conclusion that the complainants 
did not have an obligation to invoke the Enabling Clause in their panel requests , and reverse the 
Panel's consequential finding that the complainants' claims under Article I:1 of the GATT 1994 were 
within the Panel's terms of reference.16 
49. The Appellate Body should also reverse the Panel's finding that the differential tax treatment 
at issue was not properly notified under paragraph 4(a) of the Enabling Clause; reverse the Panel's 
finding that the tax treatment at  issue is not justified under paragraphs 2(b) or 2(c) of the Enabling 
Clause; complete the legal analysis and find that the differential tax treatment is justified under 
paragraphs 2(b) or 2(c) and complies with paragraph 3 of the Enabling Clause.17  
IX. The Panel Acted Inconsistently with Articles 11 and 12.7 of the DSU in 
Recommending t hat Brazil Withdraw the Alleged Prohibited Subsidies  in 90  Days  
50. Should the Appellate Body uphold the Panel's finding that the measures at issue are prohibited 
subsidies und er Article 3.1(a) and 3.1(b) of the SCM Agreement, Brazil then claims, in the 
alternative, that the Panel acted inconsistently with its duties under Articles 11 and 12.7 of the DSU 
in recommending pursuant to Article 4.7 of the SCM Agreement that Brazil wi thdraws these 
measures in 90 days.  
51. The fact that the Appellate Body has said that "the expedite d remedy provided under 
Article  4.7 of the SCM Agreement is an 'important consideration '"18 does not constitute a "reasoned 
and adequate explanation " for the Pan el's 90-day recommendation, because it does not explain why 
the Panel believed that a 90 -day timeframe was appropriate. In order for the Panel to provide a 
"reasoned and adequate explanation " or "basic rationale " for its conclusion, the Panel needed to 
explain why 90 days was appropriate in light of the nature of the measures and the procedures that 
may be required to implement [the panel 's] recommendation. The Panel 's failure to provide such an 
explanation cannot  be reconciled with the Panel 's obligations under Articles 11 and 12.7 of the DSU.  
                                                
16 Panel Report, paras. 7.1083, 7.1120 , 8.6(h), and 8.17(i).  
17 Panel Report, paras. 7.1079, 7.1081, 7.1083, 7.1096, 7.115, 7.119, 8.6(i) and 8.17(j).  
18 Panel Report, para. 6.17 (quoting Appellate Body Report, Canada – Renewable Energy / Canada – 
Feed-in Tariff Program , para. 5.7) (referring to Appellate Body Report, EC – Export Subsidies on Sugar , 
paras.  332-335).   WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 22 - 
 
  52. Brazil therefore requests that the Appellate Body reverse the Panel's recommendation that 
Brazil withdraw the measures within 90 days19, complete the legal analysis , and reco mmend, in light 
of the nature of the measures at issue and the length of the legislative process that wil l be required, 
withdrawal within 18 months .  
 
                                                
19 Panel Report, paras. 8.11 and 8.22.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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ANNEX B-2 
EXECUTIVE SUMMARY OF THE EUROPEAN UNION 'S OTHER APPELLANT'S  SUBMISSION1 
1. The European Union brings this other appeal in the interest of clarifying the scope of Brazil's 
implementing obligations in this dispute. The Panel's findings lack clarity as to Brazil's obligations 
under Articles III:4 of GATT 1994, Article 2.1 of TRIMS Agre ement  and Article 3.1(b) of 
SCM Agreement with regard to the in -house scenario.  
2. First, the European Union submits that the Panel failed to make an objective assessment of 
the matter before it in accordance with Article 11 of DSU by exercising false judicia l economy in 
relation to the European Union's request to make findings also on the in -house scenario in the 
context of the ICT and INOVAR -AUTO programmes. Thus, the European Union requests the Appellate 
Body to reverse  the Panel's findings, to complete the  legal analysis  with regard to the in -house 
scenario and to find  that the production -step requirements contained in the ICT and INOVAR -AUTO 
programmes are inconsistent with Articles III:4 of GATT 1994, Article 2.1 of TRIMS  Agreement and 
Article 3.1(b) of SCM Agreement also under the in -house scenario.  
3. Second, in the alternative, were the Appellate Body to consider that the Panel correctly 
exercised judicial economy when failing to make specific findings on the in -house scenario, the 
European Union requests  the Appellate Body to review , pursuant to Article 17.6 of DSU, the legal 
interpretations developed by the Panel and modify, pursuant to Article 17.13 of DSU, the findings 
contained in paragraphs 7.298 -7.314 and 7.746 -7.751 of its Report, so as to make it clearer that 
the Panel indeed did not need to rule twice on the production step requirements (in the in -house 
and in the outsourcing scenarios) because the Panel had already found that those steps are per se  
inconsistent with the covered agreements, since they make an advantage/subsidy contingent upon 
the use of domestic over imported goods, regardless of whether those domestic goods are 
manufactured by the accredited company or a third party.  
4. Finally, the European Union makes a subordinate claim of error, subject to the Appellate  Body 
rejecting both the first claim of error formulated by the European Union (that the Panel exercised 
false judicial economy) and the alternative claim of appeal. In that case, the European Union 
requests the Appellate Body to fi nd that the Panel, by failing to consider the European Union's claims 
under Article III:4 of GATT 1994, Article 2.1 of TRIMS Agre ement and Article 3.1(b) of 
SCM Agreement in light of all the relevant facts of the case (which included both the in -house and 
outsourcing scenarios), erred in the application of those provisions. Accordingly, the European Union 
requests the Appellate Body to reverse  the Panel's findings, to complete the legal analysis  with 
regard to the in -house scenario and to find  that the prod uction -step requirements contained in the 
ICT and INOVAR -AUTO programmes are inconsistent with Articles  III:4 of GATT 1994, Article 2.1 of 
TRIMS Agreement and Article 3.1(b) of SCM Agreement also under the in -house scenario.   
 
                                                
1 Total number of words (including footnotes but excluding executive summary) = 12  851; total number 
of words of the executive summary = 511. WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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ANNEX B-3 
EXECUTIVE SUMMARY OF JAPAN'S OTHER APPELLANT 'S SUBMISSION1 
1. Japan 's Other Appellant Submission is focused on one sing le issue only where, in Japan's  view, 
the Panel could and should have done more . As the Panel appears to have applied judicial economy  
with respect to the INOVAR -AUTO programme and ICT programmes , Japan  submits  that the Panel 
erred by  (1) distinguishing the scenario in which a company undertakes minimum production 
processes by itself ( "in-house "), from that in which the company delegates these activities to a third 
party ( "outsourcing ") and (2) refraining from addressing  the former , which  is inconsistent with Article 
III:4 of the GATT 199 4 and Article 3.1(b) of the SCM  Agreement .  
2. First, Panel  explicitly finds that the production -step requ irements  and the accreditation 
requirements formulated under the relevant legal instruments implementing the challenged 
programmes do not themselves distinguish between an "in-house " and an "outsourcing " scenario. 
The Panel draws  this distinction  merely as an analytical  one to facilitate and organiz e its own 
analysis.  
3. Second, as the Panel itself acknowledged , the complain ants challenged the programmes ' 
production -step requirement s as a whole WTO -inconsistent, irrespective of which scenario applies. 
In Japa n's view, the Panel 's failure to make findings with respect to each accreditation and production 
step requirement s as a whole would lead to a partial resolution of the matter.  
4. Third, because the Panel limited its  finding to the "outsourcing " scenario, a positive solution 
to the dispute is not secured. Due to the lack of necessary findings in the Panel report  with respect 
to the "in-house " scenario , the Panel leaves open the possibility of disagreement between the Parties 
within the meaning of  Article 21.5 of the DSU. This will undermine the "effective resolution of 
disputes to the benefit of all Members " under Article 21.1 of the DSU. Such failure constitutes "false 
judicial economy " and constitutes a breach of the panel 's obligation under Art icle 11 of the DSU.  
5. Therefore, Japan respectfully asks the Appellate Body to reverse the Panel 's decision to  limit 
its finding to the "outsourcing " scenario and  complete the legal analysis by finding that the 
accreditation and production step requirements "as a whole ," encompassing  both the "outsourcing " 
and "in-house " scenarios , are inconsistent with Article III:4 of the GATT 1994 and Article 3.1(b) of 
the SCM Agreement . 
6. Should the Appellate Body  consider the Panel 's application of judicial economy to be 
unwarranted , Japan requests that the Appellate Body complete the legal analysis to find the 
production step requirements under the  challenged programmes,  as a whole , to be inconsistent with 
Article III:4 of the GATT 1994 and Article 3.1(b) of the SCM Agreem ent. The Panel 's findings were 
sufficient for the Appellate Body to complete the analysis and to make such findings . Moreover, 
much of the evidence is in fact identical or substantially the same for the "outsourcing " and "in-
house " scenarios . Thus, the Appellate Body can complete the analysis  as needed . 
7. Japan underscores that the each production step requirement  under  the INOVAR -AUTO  and 
the ICT programmes extends accreditation to the companies that carry out the production steps in 
Brazil by themselves,  as well as to the companies that outsource to third parties  within Brazil. Th is 
necessarily implies that the programme s offer subsidies based on the use of domestic products, 
rather than carrying out a particular production steps.  Accordingly, they  consti tute "a condition 
requiring " manufacturers to use Brazilian products as a precondition to receiving tax benefits , which 
are inconsistent with Article 3.1(b)  of the SCM Agreement .  
8. Alternative ly, should the Appellate Body find that the Panel did not exercis e judicial economy 
with respect to the "in-house " scenario, Japan respectfully requests the Appellate Body to find that 
the Panel 's finding of the WTO -inconsistency of the accreditation and the production -step 
requirements  under INOVAR -AUTO and the ICT pro gramme are  interpreted to cover the challenged 
                                                
1 Other Appellant Submission 7,434  words, Executive Summary 670 words . WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 25 - 
 
  two measures as a whole  including both the "outsourcing " and "in-house " scenario s and the Panel 
erred by failing to provide "coherent reasoning " as required under Article 11 of the DSU.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 26 - 
 
  ANNEX B -4 
EXECUTIVE SUMMARY OF  JAPAN 'S APPELLEE'S SUBMISSIO N1 
I. INTRODUCTION  
1. Japan notes that the Panel's findings did not put into question Brazil's or any other country's 
ability to adopt policies to promote development, support domestic research and de velopment 
(R&D), and/or develop human capital. The Panel  found  that Brazil's measures fall into the much 
more narrowly defined categories of measures that are covered by the National Treatment 
obligations  of Article III: 2 and III:4 of the GATT 1994, the p rohibitions on export subsidies and 
import -substitution subsidies in Articles 3.1(a), 3.1(b) and 3.2 of the SCM Agreement, and Article  2.1 
of the TRIMS Agreement.   
II. THE PANEL DID NOT ER R IN ITS INTERPRETAT ION AND APPLICATION OF 
ARTICLE  III:8( b) OF THE GATT  1994 TO THE ICT AND INOVAR -AUTO PROGRAMM ES 
2. Contrary to Brazil's assertion, as the Panel found, the mere fact that a subsidy was provided 
exclusively to domestic producers is not sufficient for it to be exempt from Articles III:2 and III:4 of 
the GATT 1994. Brazil 's argument is not only legally incorrect but very far -reaching in its potential 
consequences, which would lead to a wide loophole for countries to circumvent the disciplines under 
Articles III:2 and III:4 of the GATT 1994.  
3. By its ordinary meaning, Article III:8(b) does not constitute a blanket exemption for subsidies 
paid exclusively to domestic producers. Instead, measures that take the forms of subsidies paid 
exclusively to domestic producers may still be subject to the disciplines under Article III of the GATT 
1994 if they result in discrimination between products. Brazil also appears to take issue with the 
Panel 's interpretation of the term "payment" in Article III:8(b). Its argument, however, is entirely 
circular.  
4. In addition, Brazil c laims that while the Panel did not rely on it, Japan and the EU, as 
co-complainants misinterpreted the Appellate Body 's findings in Canada – Periodicals . Contrary to 
Brazil 's argument, however, the Appellate Body made clear that a reduction of tax rates is  not 
covered by Article III:8(b). Because INOVAR -AUTO and the ICT programmes both involve a 
reduction of tax rates, Article III:8(b) does not apply.  
III. THE PANEL PROPERLY F OUND THAT THE ICT PR OGRAMMES ARE INCONSI STENT 
WITH ARTICLE III:2, FIRST SENTENCE, OF THE GATT 1994  
5. As a threshold argument, Brazil alleges that the tax treatment at issue  was not within the 
scope of Article III:2. Again, Brazil 's interpretation of Article III:8(b) of the GATT 1994, and its 
relationship to the substantive disciplines of Article III, is incorrect.  
6. Further, Brazil alleges that the Panel failed to "carefully scrutinize the design, structure and 
operation of the ICT programmes in applying Article III:2 of the GATT 1994 to the facts of this 
dispute. " The Panel, however, condu cted a thorough analysis  of the ICT programmes , and correctly 
found that the tax burden on imported finished products is  in excess of that on domestic like 
products .  
7. Additionally, Brazil argu ment that the Panel erred in finding that the "cash flow" and th e "time -
value of money " effects under the ICT programmes result in a higher tax burden on imported 
intermediate products  is flawed . Brazil 's domestic manufacturers of intermediate products must pay 
certain  taxes on inputs, which are subsequently offset by revenues from selling downstream 
products. Thus, during the lag between purchase of inputs and sale of outputs, funds related to the 
payment of taxes are temporarily unavailable. However, the ICT programmes mitigate the negative 
financial consequences of t his lag, by reducing or eliminating the required taxes otherwise due when 
                                                
1 Appellee Submission 27,908 words, Executive Summary 2,202 words . WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 27 - 
 
  domestic manufacturers of intermediate goods purchase inputs  covered by the ICT programmes, 
and thus are not consistent with Article III:2 .  
IV. THE PANEL PROPERLY F OUND THAT THE ICT  PROGRAMMES ARE INCO NSISTENT 
WITH ARTICLE III:4 O F THE GATT 1994 AND ARTICLE 2.1 OF THE 
TRIMS  AGREEMENT  
8.  Brazil 's argument once again that Article III:8 (b) shields a measure from being found to be 
WTO-inconsistent is flawed . Japan also disagrees with Brazi l's claim that the Panel conflated Articles 
III:2 and IIII:4 of the GATT 1994 . A violation of Article III:4 of the GATT 1994 can be found when 
an underlying measure is tax.   
9. Brazil also disputes the Panel 's finding that the requirements  to perform a series of production 
steps  under the ICT program mes require the use of domestic products.  However, the Panel correctly  
found such requirements to be inconsistent with Article III:4 of the GATT 1994 because they "accord 
to imported products tr eatment less favourable than that accorded to like domestic products. "  
V. THE PANEL PROPERLY F OUND THAT CERTAIN AS PECTS OF THE ICT PRO GRAMMES 
ARE INCONSISTENT WIT H ARTICLE 3.1( b) OF THE SCM AGREEME NT  
10. The Panel applied the correct benchmark in finding tha t the tax exemptions under the 
ICT programmes constitute financial contributions within the meaning of Article 1.1(a)(1)(ii) of the 
SCM Agreement. The Panel determined  that, at least in some factual situation s, accredited 
companies benefiting from the ICT Programmes are better off than those within the benchmark, and 
the Brazilian Government, by contrast, is foregoing revenue that would be otherwise due.  
11. Brazil also claims that  the Panel committed legal error when it found that the "cash availability" 
and " implicit interest " constituted revenue "due" that could have been forgone within the meaning 
of Article 1.1(a)(1)(ii) of the SCM Agreement. At the outset, Japan notes that Brazil appears to be 
asking for a de novo  review of the facts or to accept certain f acts that are simply not supported by 
the Panel 's findings. Further, t here is no basis for Brazil 's argument that the interest foregone by 
the Brazilian government is not in fact a form of current or future revenue. Brazil 's claim also appears 
to rest on t he premise that it is only in "exceptional " cases  but the Panel record , makes clear that 
such a situation is "rather frequent".  
12. Brazil argues that the Panel erred in finding that the production -step requirements under the 
ICT programmes require the use of domestic over imported goods. However, the production -step 
requirements under each of the challenged ICT programmes and ultimately concluded that the 
structure of accreditation requirements demonstrated that the challenged measures "give rise to a 
continge ncy on the use of domestic over imported goods in the sen se of Article 3.1(b) of the 
SCM Agreement. "  
VI. THE PANEL PROPERLY F OUND THAT THE INOVAR -AUTO PROGRAMME ACCO RDS 
TREATMENT LESS FAVOU RABLE TO IMPORTS THA N TO LIKE DOMESTIC P RODUCTS, 
INCONSISTENT WITH  ARTICLE III:4 OF TH E GATT 1994 AND ARTI CLE 2.1 OF THE 
TRIMS AGREEMENT  
13. Brazil 's assertions against the Panel 's findings on the measure 's inconsistency with Article  III:4 
of the GATT 1994 are premised on the flawed claim that Article III:8 shields a measure  from being 
found to be WTO -inconsistent, so long as the challenged measure is in the form of a subsidy provided 
exclusively to domestic producers.  
14. Brazil challenges what it calls the Panel 's "quantitative " analysis and appears to request the 
Appellate Bod y to engage in a weighing and balancing of the facts before the Panel to determine the 
burden that INOVAR -AUTO 's requirements imposed on foreign manufactures. This appears to be a  
request for de novo  review of the facts and thus the Appellate Body should r eject Brazil's argument.  
15. The Panel consider[ed] that foreign companies seeking accreditation under the INOVAR -AUTO 
programme must go through a more burdensome accreditation process than domestic 
manufacturers." Additionally, the level of taxation applied t o imported motor vehicles, sold by foreign 
companies that are not accredited, exceed that applied to domestic vehicles sold by accredited WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 28 - 
 
  domestic manufacturers. Japan underscores that the conditions for accreditation accord less 
favourable treatment to fo reign products  imported into Brazil than that accorded to like products of 
Brazilian origin.  
VII. THE PANEL PROPERLY F OUND THAT THE TAX SU SPENSIONS GRANTED UN DER THE 
PEC AND RECAP PROGRA MME ARE CONTINGENT U PON EXPORT PERFORMAN CE,  
16. According to Brazil, the  Panel incorrectly applied Article 1.1(a)(1)(ii) of the SCM Agreement 
because it failed to identify the treatment of structural accumulators as the proper benchmark 
treatment with respect to PEC and RECAP programmes.  
17. In conducting its benchmark analysis, contrary to Brazil 's assertion, the Panel did not attempt 
to identify a "general rule" of taxation under Brazilian law pursuant to which all suspensions and 
exemptions of taxes on inputs and capital goods relate to the problem of structural credit 
accumula tion, but rather, responded to Brazil 's assertion about the "rule". Based on its analysis, the 
Panel correctly found that there was no basis for defining the benchmark as narrowly as Brazil 
proposed.  
18. As an alternative argument, Brazil asserts that even if  the Appellate Body finds that non -
accredited companies are the correct benchmark, the Panel incorrectly " opted to compare the 
treatment under PEC and RECAP with what it erroneously termed the "rather frequent" scenario in 
which non -accredited companies ar e unable to fully offset their tax credits in the same taxation 
period, and have to formally request the reimbursement of taxes paid." Japan has already explained 
why Brazil 's argument is flawed in the analogous in the context of the ICT programmes is flaw ed. 
The same reasoning appl ies here.  
19. Further, Brazil 's claim , asserting  that the Panel erred in the interpretation and application of 
Article 1.1(a)(1)(ii) of the SCM  Agreement when finding that the possible cash availability and 
implicit interest income that the Brazilian Government could earn (had the tax been paid in advance 
and not offset) constitute a kind of revenue otherwise 'due' by the taxpayer , is flawed.  
20. Brazil also argues that the Panel failed to properly assess a table it submitted to show that 
the PEC and RECAP programmes were indeed providing subsidies to credit -accumulating companies 
and not in contingency with exportation under Article 3.1(a) of the SC M Agreement , and thus  acted 
inconsistently with Article 11 of the DSU.  However, it is very clear that the Panel perform ed an 
objective assessment consistent with that provision. Brazil 's argument should be rejected because 
it is effectively seeking a de n ovo review of the facts, but has failed to show any failure by the Panel 
to meet the standard reflected in Article 11 of the DSU.  
VIII.  THE PANEL PROPERLY F OUND THAT THE TAX RE DUCTION ACCORDED TO IMPORTS 
FROM ARGENTINA, MEXI CO AND URUGUAY UNDER  INOVAR -AUTO  IS NOT JUSTIFIED 
UNDER PARAGRAPHS 2( b) OR 2( c) OF THE ENABLING CL AUSE  
21. Paragraph 4 of the Enabling Clause in particular, explicitly requires the Member taking an 
action under the Enabling Clause to notify, ex ante , other Members. A complaining party cannot  be 
obliged to invoke the Enabling Clause in its panel request, unless it is appropriately notified. I f the 
Appellate Body were to follow Brazil 's overly broad approach, this would effectively mean that 
Members are required to simply guess whether some pas t action by another Member was or was 
not meant as a measure taken pursuant to the Enabling Clause.  
22. Brazil also takes issue with the Panel 's substantive rejection of its ex post facto attempts at 
an Enabling Clause -based justification. However, Brazil does  not even assert, much less establish, 
that INOVAR -AUTO provides for an exception with respect to such provisions.  In particular, w ith 
respect to paragraph 2(c), Japan notes that Brazil 's claim appears to be that the Panel did not 
properly analy se and weig h the facts . In addition,  Japan also notes that the INOVAR -AUTO 
programme  did not have a close and genuine link to the Treaty of Montevideo  or ECAs, as the Panel 
correctly concluded.  
23. Finally, Japan also notes, that in any event, the preferential treatment for other MERCOSUR 
countries and Mexico is contrary to paragraph 3 of the Enabling Clause. P ursuant to paragra ph 3(a), 
measures taken under the Enabling Clause "shall be designed to facilitate and promote the trade of WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 29 - 
 
  developing countries and not to raise barriers or to create undue difficulties for the trade of any 
other contracting parties".   
IX. THE PANEL 'S RECOMMENDATION THA T BRAZIL WITHDRAW TH E ALLEGED 
PROHIBITED SUBSIDIES  IN 90 DAYS IS CONSI STENT WITH ARTICLES 11 AND 12.7 
OF THE DSU  
24. With its final g round for appeal, Brazil submits that the  Panel erred in recommending 90  days 
as the appropriate time period for Brazil to withdraw the prohibited subsidies. At the outset, Japan 
notes that panels do not need to address in their reports every argument or e vidence raised by the 
parties. Similarly, panels must set forth explanations and reasons sufficient to disclose the essential, 
or fundamental, justification for those findings and recommendati ons, in light of Article  12.7 of the 
DSU. This does not, however , necessarily imply that Article 12.7 requires panels to expound at 
length on the reasons for their findings and recommendations.  
25. In any event, Japan observes that, the Panel explicitly explained that it had taken into account 
the procedures that may be r equired to implement the recommendation on the one hand, and the 
requirement that Brazil withdraw its subsidies "without delay" on the other hand, when 
recommending that Brazil shall withdraw the subsidies identified in paragraphs 8. 16(f), 8.17(f), and 
8.18 within 90 days. Brazil 's appeal, if anything, appears to be simply an effort to re-litigate  the 
question.  
X. CONCLUSION  
26. As discussed and for the reasons set out above, Brazil 's claims of error are all without merit  
and Japan respectfully requests the Ap pellate Body to reject them.  
 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX B -5 
EXECUTIVE SUMMARY OF THE EUROPEAN UNION'S  APPELLEE'S SUBMISSION1 
1. The European Union considers that overall the Panel made balanced findings in relation to the 
challenged programmes as a whole as well as several specific elements thereof, on issues which, to 
certain extent, are a déjà vu  for the GATT/WTO system: the use of discriminatory taxation and local 
content requirements as a tool to boosting industrial policy development, coupled with tax re liefs for 
companies that achieve an export threshold. Far from disputing each and every legal finding made 
by the Panel, Brazil appears to concede some of these findings and conclusions by not raising an 
appeal against them. In contrast, Brazil's appeal is  premised on seeking to spot weakness in how 
the Panel interpreted and applied the law to the relevant facts, whilst in reality, the Panel's 
assessment is reasoned and reasonable. At times, Brazil also appears to question how the Panel 
weighted all the evi dence on specific matters without raising a claim under Article 11 of the DSU. 
The European Union considers that, whilst Brazil may disagree with the Panel's appreciation of the 
facts and ultimate conclusions, Brazil has failed to show the existence of any  reversible error.  
1.1   Article III:8(b) as a threshold issue  
2. The Panel properly interpreted and applied Article III:8(b) of the GATT 1994 as not excluding 
per se  from the disciplines of Article III subsidies granted to domestic producers. Article III:8(b ) of 
the GATT 1994  exempts payments to domestic producers  from the national treatment obligation, 
but only to the extent that e.g. those payments do not discriminate between domestic and imported 
goods . Brazil's formalistic attempt to isolate the disciplin es under the SCM Agreement from the 
national treatment rules under Article III of the GATT 1994 should be rejected as it goes against the 
principle that the covered agreements should be interpreted in a coherent and consistent manner, 
giving meaning to all  applicable provisions harmoniously . 
1.2  ICT programmes  
1.2.1   Article III:2 of the GATT 1994  
3. With the first claim of appeal under Article III:2 of the GATT Brazil in substance repeats its 
line of argument that the Panel erred when finding that domestic production subsidies do not fall per 
se outside the purview of the disciplines of Article III (i ncluding paragraph 2 of that Article) and it 
adds a few more arguments. The European Union notes first that the expression "domestic 
production subsidies" is not contained in the WTO treaties, which shows that Brazil's claim in 
predicated on an undefined c oncept, perhaps in the hope that the Appellate Body will make the case 
for Brazil. Second, the European Union notes that the Panel found that Article III:8(b) does not carve 
out from the disciplines of Article III:2 subsidies provided exclusively to domest ic producers per se , 
since aspects of a subsidy resulting in product discrimination may fall within that provision. Hence 
the Panel did not need to discuss whether or not Article III:8(b) of the GATT 1994 applies to the 
provision of subsidies  in the form o f reductions in indirect taxes. Therefore, the Appellate Body does 
not need to examine Brazil's allegation that term "subsidies" in Article III:8(b) of the GATT 1994 
encompasses all types of subsidies included in Article 1.1 of the SCM Agreement, as that l egal issue 
is not covered by the Panel's findings. In any event, the European Union submits that Brazil's 
argument is also incorrect as a matter of law.  
4. Brazil's second claim of appeal under Article III:2 of the GATT relates to the findings of the 
Panel co ncerning the taxation of finished incentivised products as opposed to like imported finished 
products. However, Brazil's claim is predicated on a number of false premises, which are contradicted 
by factual findings of the Panel and what Brazil conceded bef ore the Panel, which Brazil does not 
challenge. The Panel analysis of the parties arguments concerning incentivised finished products 
under Article III:2, first sentence, of the GATT 1994 reflects the rules on the allocation of the burden 
of proof in WTO l aw. Hence, Brazil's claim boils down to criticizing the Panel for not having made the 
case for Brazil. In any case, Brazil's claim is wrong on substance: a lower tax rate imposed on 
                                                
1 Total number of words of the executive summary = 3 744.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  incentivised finished products (i.e. domestic) results in a lower fiscal b urden for those products 
compared to like imported finished products.  
5. Brazil's third claim of appeal under Article III:2 of the GATT is in essence that the Panel erred 
in finding that the "cash -flow" and the "time -value of money" effects under the ICT prog rammes 
result in a higher tax burden on imported intermediate products compared to like incentivised 
intermediate domestic products.  Brazil's claim of appeal is however based on a wrong reading of the 
Panel Report. First, nowhere the Panel agreed with Braz il that the nominal amount of taxes is 
decisive, but it clearly indicated that it was concerned with determining the effective tax burden  and 
for that purpose it took into account the functioning of the credit -debit system governing Brazil's 
direct taxes a t issue. The Panel found that the application of the rule of credits and debits for 
purchases of imported (and, therefore, non -incentivized) intermediate ICT products involves the 
payment of a tax that is not faced by companies purchasing incentivized int ermediate domestic ICT 
products.  This payment of the tax upfront has the effect of limiting the availability of cash flow by 
companies purchasing imported intermediate ICT products and results in a higher effective tax 
burden on these products. Moreover, imported intermediate ICT products  are subject to a higher tax 
burden than like incentivized domestic intermediate ICT products, due to depreciation in the value 
of the tax credits over time. The Panel's analysis reflects elementary concepts of economics or rather 
simple common sense consi derations and is confirmed by WTO case law. Moreover, Brazil does not 
assert that the Panel failed to make an objective assessment of the facts when describing the 
functioning of the credit -debit system governing Brazil's direct taxes at issue.  
1.2.2   Article III:4 of the GATT 1994  
6. The first claim of appeal by Brazil under Article III:4 of the GATT relate again to Brazil's reading 
of Article III:8(b) as exempting domestic production subsidies per se  from the disciplines of Article 
III (including obviously A rticle III:4). The European Union has already explained that this reading 
Article III:8(b) is unwarranted and will not repeat the same reasoning.  
7. With its second claim of appeal under Article III:4 of the GATT, Brazil argues in substance that 
the Panel con flated tax discrimination under Article III:2 with regulatory discrimination under Article 
III:4.  However, a careful reading of the Panel Report is sufficient to reject Brazil's claim. Indeed, the 
Panel clearly recalled the Appellate Body jurisprudence whi ch admits that the same measure, or 
certain aspects of the same measures, can fall both within Article III:4 and Article III:2. The Panel 
hence analysed the complainants claims in detail and checked weather the complainants 
demonstrated that the challenged  ICT programmes met all the conditions for finding a violation of 
Article III:4, which Brazil does not seriously contest. The fact that one instance of less favourable 
treatment accorded to imported products results from the different tax burden imposed on  those 
products vis -à-vis like domestic products is simply a consequence of the characteristics of the 
regulatory measure examined by the Panel. At the same time, it is entirely possible that the same 
measure or certain aspects of the same measure also vio late Article III:2, without that 
demonstrating that the Panel made any error in its analysis.  
8. With its third claim of appeal under Article III:4 of the GATT, Brazil  contests the Panels finding 
that requirements related to production of a product may fall within Article III:4 of the GATT, because 
according to Brazil they would fall under Article III:8(b) of the GATT. However, Brazil does not appeal 
Section 7.2.1 of the Report, where the Panel found that that the scope of Article III:4 extends to 
measures pr esented in the form of requirements for producers as opposed to direct requirements 
on products. Brazil does not even formulate any argument trying to distinguish this case from a long 
line of cases, which confirms the Panel's findings. Therefore, Brazil's  appeal appears pointless as it 
is limited to affirming some errors in the Panel Report without challenging the legal and factual 
premises for those findings.  For the rest Brazil is making some undemonstrated assertions and 
ultimately is subsuming its firs t general defence before the Panel about "pre -market" requirements 
in its second general defence according to which the challenged ICT programmes are exempted from 
the disciplines of Article III, by virtue of Article III:8(b). Hence, Brazil's arguments are  based again 
on the wrong premise that, just because Brazil grants subsidies only to domestic producers, it is 
entitled to introduce any differences in treatment between domestic and foreign producers and 
products together with those subsidies.  
9. With the fo urth claim of appeal under Article III:4 of the GATT, Brazil  challenges the Panel 
findings that the challenged ICT programmes result in a heavier administrative burden on imported 
product inconsistent with Article III:4. However, the Panel reasoning is fir mly grounded on the WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 32 - 
 
  functioning of the credit -debit system as described in the Panel Report and on what Brazil 
acknowledged before the Panel. At the same time. Brazil does not even argue (let alone 
demonstrate) that the Panel violated Article 11 of the DSU  by failing to make an objective 
assessment of the facts of the case when it described the functioning of the Brazilian tax system and 
the credit -debit mechanism.  
10. With its fifth claim of appeal under Article III:4 of the GATT, Brazil challenges the Panel' s 
finding that the PPBs and other production step requirements under the ICT programmes are 
inconsistent with Article III:4 of the GATT 1994 because they require the use of domestic products 
to the detriment of imported products, when accredited companies outsource the production of 
components and subassemblies to be used in the production of incentivised products. The European 
Union thinks that the Panel's findings concerning the so called "outsourcing scenario" are correct. 
The complainants claimed before  the Panel that the challenged ICT programmes impose on the 
companies accredited for the production of a given incentivised product (intermediate or finished) a 
condition to use components and subassemblies produced in Brazil (hence domestic products) in 
order to obtain a tax advantage/subsidy in relation with the production of the incentivised product . 
This condition or requirement results from the production step requirements (contemplated by the 
ICT programmes), which are specific to each incentivised pr oduct, and which must be complied with 
in order for a company to be accredited and be eligible for the tax advantages in relation to that 
product. Some of those production steps require the manufacturing in Brazil of components or 
subassemblies for the inc entivised product. Hence, those components or subassemblies are domestic 
products that must be used in the production of the incentivised product.  
11. Brazil confirms that the conditions for companies to obtain accreditation define the condition 
of eligibilit y for the tax advantages provided for under the challenged ICT programmes and it does 
not claim that the Panel made whatever error in the description of the functioning of the PPBs or the 
production steps requirements more generally. Brazil also confirms t hat the production steps 
requirements contained in the challenged programmes result in the production of specific 
components or subassemblies in Brazil and it does not question that these products should be 
considered as domestic.   
12. Accordingly, the Panel d id not err in finding that the certain production step requirements 
under the challenged ICT programme require that domestic component s and subassemblies  be 
incorporated into the incentivised (finished or intermediate product), as a condition for receiv ing the 
tax advantages in relation with that product . Given that accredited companies are required to use 
domestic components if they want to benefit of tax advantages in relation to their incentivised 
products, this condition or requirement distorts the cond itions of competition between domestic 
components and subassemblies and like imported components and subassemblies and therefore 
accords less favourable treatment to imported components and subassemblies.  
13. Brazil's argument that under the ICT programmes acc redited producers are free to source 
inputs from foreign producers provided that the relevant production steps are undertaken in Brazil 
is simply missing the point, since the claim adjudicated by the Panel does not encompass raw 
materials and other basic c omponents, but the domestic components and subassemblies that result 
from the performance in Brazil of certain production steps.   
14. Brazil is also wrong in arguing that the Panel's conclusions imply that the only national 
production process that could be su bsidized in a WTO -consistent manner is the assembly of inputs, 
not their production.  
15. It follows from the above that Brazil's claims of appeal under Article III:4 of the GATT (to the 
exception of the claim based on the interpretation of Article  III:8(b)) do  not concern the Panel's 
findings contained in Section 7.3.2.1.4.2 relating to the mechanism for the calculation of the amount 
of resources required to be invested in R&D under the Informatics and PADIS programmes . Indeed, 
none of the arguments formulated by Brazil take issue with anything the Panel found in that Section. 
Hence, it must necessarily be concluded that Brazil does not challenge the Panel's finding in 
paragraph 7.243 of the Report, according to which the mechanisms under the Informatics and PAD IS 
programmes for the calculation of the amount of resources required to be invested in R&D accord to 
imported products treatment less favourable than that accorded to like domestic products, and thus 
are inconsistent with Article III:4 of the GATT 1994 . WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 33 - 
 
  16. In light of the foregoing, the European Union submits that Brazil has failed to show the 
existence of any reversible error when the Panel found that the ICT programmes were inconsistent 
with Article III:4 of the GATT 1994.  
1.2.3   Article 1.1(a)(1)(ii) of th e SCM Agreement  
17. Brazil wrongly argues that the Panel made errors when finding that the ICT programmes 
amounted to prohibited subsidies under Article 3.1(b) of the SCM Agreement. The Panel properly 
interpreted and applied Article 1.1(a)(1)(ii) of the SCM Ag reement when finding that the tax 
exemptions, suspensions and reductions granted under the ICT programmes amounted to 
"government revenue that is otherwise foregone or not collected". In fact, the Panel carried out a 
balanced assessment when comparing the tax treatment of similarly situated taxpayers in 
accordance with Brazil's general and predominant rules of taxation in relation to non -accredited 
companies.  
1.2.4   Article 3.1(b) of the SCM Agreement  
18. With this claim of appeal Brazil argues that the Panel erred in finding that the tax exemptions, 
reductions and suspensions granted under the ICT programmes are prohibited import substitution 
subsidies within the meaning of Article 3.1(b) of the SCM Agreement. However, the Panel defined 
and applied the correct  legal standard under Article 3.1(b) of the SCM agreement. In line with the 
Appellate Body's findings in US – Tax Incentives , the Panel focussed its analysis from the very 
beginning on the conditions for companies to obtain accreditation and thereby be eli gible for the tax 
exemptions,  reductions or suspensions under the programmes. The Panel stressed that element of 
conditionality all along its analysis. Therefore, it is not correct to say that the Panel based its findings 
on the effects of the subsidies, o r on the fact that accredited companies would likely use more 
domestic products in their downstream production activities. The Panel focused on the conditions of 
eligibility for the subsidies, and found that those conditions impose the use of domestic comp onents 
and subassemblies, under the guise of production steps requirements, in order to obtain the subsidy 
in relation to the production of the incentivised products. At the same time there is no dispute that 
the components and subassemblies at issue in th e present case are domestic because they are 
produced in Brazil (regardless of the origin of their raw materials or inputs).  
19. It is also worth recalling that there are some key differences between this case and the 
situation in US – Tax Incentives and the Appellate Body itself clarified that whether a subsidy is 
conditional upon the use by the subsidy recipient of domestic over imported goods, should be 
assessed on a case -by-case basis. The production steps requirements at issue in the present case 
are not limited to simply specifying the location of an assembly operation of the incentivised product, 
rather they concern the production in Brazil of component and subassemblies of the incentivised 
product. Moreover, those subsidies are not granted because the a ccredited companies are engaged 
in the production of the components of the incentivised product,  but they are explicitly made 
contingent upon the use of certain components or subassemblies made in Brazil (by the accredited 
company or a third  company). Henc e, this case (unlike the US-Tax Incentives  case) concerns 
subsidies granted exclusively for the production of the incentivised products (the final goods) and 
not for the production of their inputs, too. Finally, the components that are manufactured in Braz il 
in order to comply with the production step requirements of the ICT programmes must, by definition, 
be used in the production of the incentivised products.  
20. In nutshell all of Brazil's claims of appeal in respect of the Panel's findings with regard to  the 
imposition of local content requirements boil down to say that if a requirement for granting a subsidy 
is drafted in terms of production activity, it is indifferent, for the purpose of Article  3.1(b) of the SCM 
Agreement, if such production activity r esults in the creation of a domestic component that must be 
used in the production of the incentivised product. As Brazil would have it, Article 3.1(b) of the SCM 
Agreement would prohibit Brazil from requiring accredited companies to "use domestic  componen t 
and subassemblies" when producing incentivised products. However, it would leave it completely 
free to require the same companies to "use component and subassemblies produced in Brazil " when 
producing incentivised products. It goes without saying that th is cannot be the correct interpretation 
of Article 3.1(b) of the SCM Agreement.  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 34 - 
 
  1.3  INOVAR -AUTO PROGRAMM E 
21. In essence, Brazil claims that the Panel erred by excluding the application of Article III:8(b) 
of GATT 1994 and when it found that the accreditation  requirements are inconsistent with Article 
III:4. It also maintains that t he Panel erred in finding that the different processes for companies 
seeking accreditation as " domestic manufacturers" and companies seeking accreditation as 
"investors" or " importe rs/distributors" would per se  result in less favourable treatment being 
accorded to imported finished motor vehicles, u nder Article III:4 of GATT  1994. The European Union 
will explain below why all those claims should be rejected by the Appellate Body.  
22. Brazil's arguments should be rejected entirely. Far from just being a subsidy programme 
exclusively for domestic producers, the INOVAR -AUTO programme discriminates between domestic 
and imported vehicles. F oreign companies seeking accreditation under the INOVA R-AUTO 
programme should opt for becoming "importers/distributors" by establishing in Brazil in order to 
carry out certain marketing and sale activities in the Brazilian market  for the imported vehicles to 
benefit from the same presumed IPI credits granted to domestic vehicles produced by domestic 
manufacturers or investors in Brazil accredited under the programme. Therefore, the Panel properly 
found that the accreditation requirements under the INOVAR -AUTO modify the conditions of 
competition to the detrime nt of imported motor vehicles and in favour of like domestic motor 
vehicles.  
1.4  PEC and RECAP programmes  
23. Brazil raises four claims against the Panel's findings that the PEC and RECAP programmes 
amounted to prohibited export subsidies under Article 3.1(a)  of the SCM Agreement. In particular, 
Brazil disputes the Panel's conclusions that the tax treatment granted through the PEC and RECAP 
programmes amounted to "revenue otherwise due that is foregone or not collected", as well as the 
Panel's conclusions on e xport contingency. Brazil's four claims of error should be rejected. The Panel 
properly applied the test developed by the Appellate Body in US – Large Civil Aircraft (2nd Complaint)  
when, having examined the structure and organising principles of Brazil's tax system, the Panel 
found that the benchmark for comparison was the tax treatment of non -registered/non -accredited 
companies under the PEC/RECAP programmes, as similarly situated taxpayers in comparable 
transactions. The Panel did not err either when examining the tax treatment of those taxpayers 
including the rather frequent scenario where there is tax credit accumulation. The Panel properly 
interpreted and applied Article 1.1(a)( 1)(ii) of the SCM Agreement when finding that the cash 
availability and the implicit interest income that the Brazilian Government could earn (had the tax 
been paid in advance and not offset)  fall under the terms "revenue otherwise due is foregone or not 
collected". Finally, the European Union considers that the Panel properly weighted all the evidence 
in accordance with its duties under Article 11 of the DSU when finding that the PEC/RECAP 
programmes were contingent upon export performance, in particular i n view of the clear requirement 
for companies to have more than 50% of their revenues derived from exports.  
1.5  Enabling Clause  
24. The European Union considers that Brazil's claims of error with respect to the Panel's findings 
on the Enabling Clause should b e rejected by the Appellate Body. First, the Panel correctly found 
that a complaining party cannot be under an obligation to invoke the Enabling Clause in its panel 
request, unless that complaining party is appropriately informed that the responding party considers 
the challenged measure to have been adopted pursuant to (and justified under) the Enabling Clause. 
Second, the Panel correctly established that the conditions in paragraphs 2(b) and 2(c) of the 
Enabling Clause are not met by the Brazilian measure s in the present case. In addition, whilst Brazil 
complaints about the Panel's assessment and characterisation of the facts (such as the Panel's 
finding that the accreditation process under the INOVAR -AUTO programme is more burdensome to 
foreign manufactur ers than to domestic ones), Brazil has no claim under Article 11 of DSU with 
respect to the Panel's assessment of Brazil's invocation of the Enabling Clause under paragraph 2(c).  
1.6  Article 4.7 of the SCM Agreement  
25. The European Union maintains that, con trary to Brazil's allegations, the Panel did not make 
an error under Articles 11 or 12.7 of the DSU when recommending, pursuant to Article 4.7 of the 
SCM Agreement, that Brazil withdraw the prohibited subsidies found within 90 days. The Panel's WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  rationale a nd explanations are sufficiently evident from the Panel Report. Brazil's disagreement on 
substance should not be construed as a reversible error.  
 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 36 - 
 
   
ANNEX B -6 
EXECUTIVE SUMMARY OF  BRAZIL 'S APPELLEE'S SUBMISSIO N1 
1. Brazil requests that the Appellate Body reject all of the claims of error raised by the European 
Union and Japan in their other appeals, for the following reasons:  
2. First, the complainants failed to establish that the Panel acted inconsistently with Article 11 of 
the DSU in failing  to address their  arguments  that in the "in-house " scenario the ICT  programmes 
and INOVAR -AUTO give rise to a contingency on the use of domestic over imported goods under 
Articles III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1( b) of the SCM 
Agreement. The Panel 's decision not to address the complainants ' arguments in this respect could 
not be properly characterized as exercise of judicial economy, which occurs when a panel decides 
not to address multiple claims  raised by a WTO M ember in respect of the same measure. The Panel 
clearly examined and made findings in respect of all of the legal claims raised by the complainants 
in respect of the ICT programmes and INOVAR -AUTO. In any event, the Panel acted within the 
bounds of its dis cretion under Article 11 of the DSU in deciding not to address the complainants ' 
arguments  that in t he "in-house " scenario the ICT  programmes and INOVAR -AUTO allegedly gave 
rise to a requirement to use domestic over imported goods.  
3. Second, the European Un ion's "subordinate claim" that the Panel erred in its application of 
Articles III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement , and Article 3.1(b) of the 
SCM Agreement by failing to address arguments concerning the "in -house" scenario is not prop erly 
within the scope of appellate review. The European Union 's allegation that the Panel failed to consider 
"all relevant facts of the case" is directed at the Panel 's appreciation of the facts, and therefore 
should have been brought under Article 11 of the DSU. The European Union 's failure to bring its 
"subordinate" appeal claim under Article 11 of the DSU is dispositive, and for this reason alone 
should be rejected b y the Appellate Body.  
4. Third, the complainants remain unable to establish that in the "in -house" scenario, both the 
ICT programmes and INOVAR -AUTO are inconsistent with Article III:4  of the GATT 1994, Article  2.1 
of the TRIMs  Agreement, and Article 3.1(b) of the SCM Agreement. The complainants ' interpretation 
that these provisions prohibit subsidies contingent upon domestic production in -country renders 
Article III:8(b) of the GATT 1994 entirely meaningless. Moreover, the comp lainants ' arguments in 
respect of both the "in -house" and "outsourcing" scenarios are based on the proposition expressly 
rejected by the Appellate Body in US – Tax Incentives  that subsidies contingent on producing certain 
goods domestically per se  constitu te prohibited import -substitution subsidies.  
_______________  
 
 
                                                
1 Total word count: 463  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 37 - 
 
  ANNEX  C 
ARGUMENTS OF THE THI RD PARTICIPANTS  
Contents  Page  
Annex  C-1 Executive summary of Argentina 's third participant's submission  38 
Annex  C-2 Executive summary of Australia 's third participant's submission  39 
Annex  C-3 Executive summary of the United States ' third participant's submission  40 
 
 WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
- 38 - 
 
   
ANNEX  C-1 
EXECUTIVE SUMMARY OF  ARGENTINA 'S THIRD PARTICIPANT'S SUBMISSION  
1. Argentina has a strong interest in the proper interpretation of the Enabling Clause and, in 
particular, in the developm ent of an effective and coherent approach to interpreting its paragraphs.  
2. Argentina will refer to the following issues: (1) Whether the Panel erred in finding that the 
claims under Article I:1 of the GATT 1994 were properly included in the terms of reference; 
(2) Whether the challenged treatment accorded to imports from Argentina, Mexico and Uruguay 
under INOVAR -AUTO is just ified under paragraph 2(b) of the Enabling Clause; (3) Whether the 
challenged treatment accorded to imports from Argentina, Mexico and Uruguay under INOVAR -AUTO 
is justified under paragraph 2(c) of the Enabling Clause.  
3. In particular, Argentina considers th at the differential tr eatment accorded through 
Decree  7,819/2012 is part of  a notified regional arrangement and therefore does not require 
additional notification.1 As part of  that notified arrangement, Argentina considers that the 
complainants should have  been on notice that Brazil could invoke the Enabling Clause as a 
justification for the differential treatment granted under INOVAR -AUTO notwithstanding the 
provisions of Article I:1 of the GATT 1994.  
4. Argentina shares the view of Brazil that the Panel´s i nterpretation renders paragraph 2(b) 
useless, since it would limit its provisions to what is already established in the covered agreements. 
Hence, Argentina considers that the analysis under this paragraph should be reversed and completed 
by the Appellate Body.  
5. Regarding the "criteria or conditions for the mutual reduction or elimination of non -tariff 
measures", paragraph 2(c) uses the phrase "may be prescribed". Argentina considers that a correct 
interpretation of this phrase would result in concluding th at it does not constitute a positive 
obligation. The fact that in the last 38 years WTO Members have not established such criteria and 
conditions demonstrated that this phrase cannot be interpreted as a prohibition to apply the 
provisions in paragraph 2(c)  related to non -tariff measures.  
 
                                                
1 See Brazil's second written submission, para. 181; see also Brazil's first written submission (DS472), 
paras. 638 -639.   WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX C -2 
EXECUTIVE SUMMARY OF  AUSTRALIA 'S THIRD PARTICIPANT'S SUBMISSION  
1. Australia considers th at th e Panel was correct  in finding that, while subsidies provided 
exclusively to domestic producers under Article III:8(b) of the GATT 1994 do not per se violate 
Article III:2,1 such a subsidy could still violate Article III:2 if designed and applied in a manner that 
discriminates b etween imported and domestic products.2 
2.  A panel is therefore not required to undertake a 'threshold inquiry' as to whether a subsidy 
is product -related or production -related because the disciplines of Article III apply to both types of 
subsidies.3 
3. Austral ia shares the  concerns of Japan and the EU that the Panel’s use of judicial economy 
casts doubt on whether the Panel found that  the measures in their entirety, or merely as they 
operated in the outsourcing scenario , violated Brazil's WTO obligations .   
4. In Australia's view, a panel's mandate under the DSU to make an objective assessment of the 
matter before it – with a view to its positive resolution – limits the degree to which a panel can 
exercise judicial economy; and requires a panel to ensure its findin gs can lead to a satisfactory 
settlement of the dispute.  
 
                                                
1 Panel Report, Brazil – Taxation , para. 7.77  
2 Panel Report, Brazil – Taxation, paras. 7.85 and 7.88. 
3 Panel Report, Brazil – Taxation, para. 7.88 . WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX C -3 
EXECUTIVE SUMMARY OF  THE UNITED STATES ' THIRD PARTICIPANT'S SUBMISSION  
I. GATT 1994 ARTICLE II I:8(B)1  
1. A measure conditioning an advantage, such as a subsidy, on the use of a domestic good would 
breach Article III:4. In light of Article III:8(b), Article III:4 must be interpreted as not prohibiting 
the provision of subsidies because of  the exclusion of fore ign producers as eligible subsidy recipients. 
Such a payment should not be understood, on the basis of this exclusion alone, to be in conflict with 
Article III:4 (including its requirement of national treatment for measures affecting the "use" of a 
product ).  
2. SCM Agreement Article 3.1(b) and GATT 1994 Article III share similar disciplines. Subsidies 
contingent on the use of domestic over imported products would be inconsistent with both 
provisions. The Panel thus correctly analyzed the disputed programs und er both Article III and 
Article  3.1(b).  
3. While Members must be free to define the domestic producers who are to receive subsidies, 
including the productive activities that make them a domestic producer, we consider that subsidies 
conditioned not solely on d omestic production, but also the use of domestic products, fall outside 
Article III:8(b) 's derogation.  
II. GATT 1994 ARTICLE II I:4  
4. The Panel found that "nested" PPBs —which require the use of inputs that themselves conform 
to another PPB —contain an explici t requirement to use domestic over imported goods. Brazil has not 
appealed these findings. Such a requirement is inconsistent with Article III:4.  
III. SCM AGREEMENT ARTICL E 3.1(B)  
5. With respect to intermediate goods, we note that if a measure exempts  taxes , government 
revenue, otherwise due, is clearly foregone under SCM Agreement Article 1.1(a)(1)(ii). If a measure 
suspends  taxes that are later paid, a financial contribution is still provided: at the time when 
government revenue would otherwise be due, it is foregone (albeit temporarily). In addition, implicit 
interest may also be foregone.  
6. Brazil has not appealed the Panel 's factual findings regarding the disputed programs. Those 
facts show that the tax advantages under the programs are contingent on the u se of domestic over 
imported goods under Article 3.1(b) with respect to nested PPBs.  
_______________  
 
                                                
1 This executive summary contains a total of 382 words (including footnotes), and the U.S. third 
participant submission contains 3831 words (including footnotes).  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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  ANNEX D  
PROCEDURAL RULING  
Contents  Page  
Annex  D-1 Procedural ruling of 12 October 2017  regarding the deadline for filing of third 
participants' submissions  42 
 
 
  WT/DS472/AB/R/Add.1 • WT/DS497/AB/R/Add.1  
 
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ANNEX D -1  
PROCEDURAL RULING OF 12 OCTOBER 2017  
1. On 28 September 2017, Brazil filed a Notice of Appeal in the above proceedings. In accordance 
with Rule 26 of the Working Procedures for Appellate Review (Working Procedures), a 
Working  Schedule for Appeal was drawn up by the Appellate Body Division hearing this appeal and 
communicated to the participants and third parties on 29 Septembe r 2017.  
2. On 9 October 2017, the Division received a joint letter from Argentina, Australia, Canada and 
the United  States requesting an extension of the deadline for the filin g of their third  participants' 
submissions in these proceedings (the joint request) . These third participants explained that some 
of them are also third parties in another pending appellate proceeding, namely, 
Indonesia  ‒ Safeguard on Certain Iron or Steel Products  (DS490 / DS496), and that the third 
participants' submissions in that pro ceeding are due on the same day as the deadline for the filing 
of their third participants' submissions in the present proceedings, i.e.  19 October 2017. In their 
joint request, the four third participants also highlighted the length of the panel report, a nd of Brazil's 
appellant's submission in these appellate proceedings. Argentina, Australia, Canada and the 
United  States therefore requested that the deadline for the filing of the third participants' 
submissions be extended by one week, until 26 October 2 017. 
3. On 9 October 2017, we invited the participants and third parties, if they so wished, to comment 
on the joint request by 12 noon on 11 October 2017. We received no objections to the joint request. 
Brazil indicated that it did not oppose the request and  Japan stated it had no comments.  
4. We consider the reasons identified by Argentina, Australia, Canada and the United  States, in 
particular the fact that the deadlines for the filing of third participants' submissions in two separate 
appeal proceedings curr ently fall on the same day, to be relevant factors in our assessment of the 
joint request. We further note that Brazil, the European Union and Japan and the other third  parties 
have not raised any objection to the joint request.  
5. In these circumstances, th e Division has decided, in accordance with Rule 16(2) of the 
Working  Procedures, to extend the deadline for the filing of third  participants' submissions by one 
week to Thursday, 26 October 2017 .  
Modified Dates for the Submission of Documents  
 
Process  Rule Date  
Notice of Appeal  Rule 20  Thursday, 28 September 2017  
Appellant's submission and  Rule 21(1)  Thursday, 28 September 2017  
executive summary  
Notice of Other Appeal  Rule 23(1)  Tuesday, 3 October 2017  
Other appellant's submission and  Rule 23(3)  Tuesday, 3 October 2017  
executive summary  
Appellee's submission(s) and  Rules 22  Monday, 16 October 2017  
executive summary(ies)  and 23(4)  
Third participants' submissions and  Rule 24(1)  Thursday, 26 October 2017  
executive summaries  
Third participants' noti fications  Rule 24(2)  Thursday, 26 October 2017  
 
 
__________