WT/DS486/R/Add.1  
 
6 July 2017  
(17-3589) Page: 1/77 
  Original: English  
 
  EUROPEAN UNION – COUNTERVAILING MEASU RES ON CERTAIN POLYE THYLENE 
TEREPHTHALATE FROM P AKISTAN  
(WT/DS 486) 
REPORT OF THE PANEL  
Addendum  
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This addendum  contains Annexes A to E to the Report of the Panel to be found in document 
WT/DS486/R.  
 
 
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  LIST OF ANNEXES  
ANNEX A  
WORKING PROCEDURES O F THE PANEL  
Contents  Page  
Annex  A-1 Working Procedures of the Panel  A-2 
Annex  A-2 Additional Working Procedures on Business Confidential Information  A-7 
ANNEX B  
ARGUMENTS OF THE E UROPEAN UNION  
Contents  Page  
Annex  B-1 First Integrated Executive Summary of the European Union  B-2 
Annex B -2 Second Integrated Executive Summary of the European Union  B-12 
ANNEX C  
ARGUMENTS OF PAKISTA N 
Contents  Page  
Annex  C-1 First Integrated Executive  Summary of Pakistan  C-2 
Annex C -2 Second Integrated Executive Summary of Pakistan  C-18 
ANNEX D  
ARGUMENTS OF THE THI RD PARTIES  
Contents  Page  
Annex  D-1 Third Party Oral Statement of China  D-2 
Annex D -2 Executive Summary of United States Third Party writ ten submission  D-4 
ANNEX E  
INTERIM REVIEW  
Contents  Page  
Annex  E-1 Interim Review  E-2 
 
 
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  ANNEX A  
WORKING PROCEDURES O F THE PANEL  
Contents  Page  
Annex  A-1 Working Procedures of the Panel  A-2 
Annex  A-2 Additional Working Procedures on Business Confidenti al Information  A-7 
 
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  ANNEX A -1 
EUROPEAN UNION – COUNTERVAILING MEASU RES ON CERTAIN POLYE THYLENE 
TEREPHTHALATE FROM P AKISTAN (WT/DS486)  
WORKING PROCEDURES O F THE PANEL  
ADOPTED ON 15 MARCH 2016 
1. In its proceedings, the Panel shall follow the relevant prov isions of the Understanding on 
Rules and Procedures Governing the Settlement of Disputes (DSU). In addition, the following 
Working Procedures shall apply.  
 
General  
 
2. The deliberations of the Panel and the documents submitted to it shall be kept confident ial. 
Nothing in the DSU or in these Working Procedures shall preclude a party to the dispute (hereafter 
"party") from disclosing statements of its own positions to the public. Members shall treat as 
confidential information submitted to the Panel by anothe r Member which the submitting Member 
has designated as confidential. Where a party submits a confidential version of its written 
submissions to the Panel, it shall also, upon request of a Member, provide a non -confidential 
summary of the information contai ned in its submissions that could be disclosed to the public.  
 
3. The parties and third parties shall treat business confidential information in accordance with 
the procedures set forth in the Additional Working Procedures of the Panel Concerning Business 
Confidential Information adopted by the Panel.  
 
4. The Panel shall meet in closed session. The parties, and Members having notified their 
interest in the dispute to the Dispute Settlement Body in accordance with Article 10 of the DSU 
(hereafter "third part ies"), shall be present at the meetings only when invited by the Panel to 
appear before it.  
 
5. Each party and third party has the right to determine the composition of its own delegation 
when meeting with the Panel. Each party and third party shall have t he responsibility for all 
members of its own delegation and shall ensure that each member of such delegation acts in 
accordance with the DSU and these Working Procedures, particularly with regard to the 
confidentiality of the proceedings.  
 
Submissions  
 
6. Before the first substantive meeting of the Panel with the parties, each party shall submit a 
written submission in which it presents the facts of the case and its arguments, in accordance with 
the timetable adopted by the Panel. Each party shall also subm it to the Panel, prior to the second 
substantive meeting of the Panel, a written rebuttal, in accordance with the timetable adopted by 
the Panel.  
 
7. A party shall submit any request for a preliminary ruling at the earliest possible opportunity 
and in any event no later than in its first written submission to the Panel. If Pakistan requests such 
a ruling, the European Union shall submit its response to the request in its first written submission. 
If the European Union requests such a ruling, Pakistan shall submit its response to the request 
prior to the first substantive meeting of the Panel, at a time to be determined by the Panel in light 
of the request. Exceptions to this procedure shall be granted upon a showing of good cause. The 
Panel notes that one re quest for a preliminary ruling has already been filed in this dispute, and 
appropriate procedures have been put in place for addressing that request. Unless the Panel 
decides otherwise, any further requests for a preliminary ruling should follow the proced ures in 
this paragraph.  
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  8. Each party shall submit all factual evidence to the Panel no later than during the first 
substantive meeting, except with respect to evidence necessary for purposes of rebuttal, answers 
to questions or comments on answers provid ed by the other party. Exceptions to this procedure 
shall be granted upon a showing of good cause. Where such an exception has been granted, the 
Panel shall accord the other party a period of time for comment, as appropriate, on any new 
factual evidence su bmitted after the first substantive meeting.  
 
9. Where the original language of exhibits is not a WTO working language, the submitting party 
or third party shall submit a translation into the WTO working language of the submission at the 
same time. The Pa nel may grant reasonable extensions of time for the translation of such exhibits 
upon a showing of good cause. Any objection as to the accuracy of a translation should be raised 
promptly in writing, no later than the next filing or meeting (whichever occur s earlier) following 
the submission which contains the translation in question. The Panel may grant exceptions to this 
procedure upon a showing of good cause. Any objection shall be accompanied by a detailed 
explanation of the grounds of objection and an a lternative translation. Should a party be aware of 
any inaccuracies in the translations of the exhibits submitted by that party, it shall inform the 
Panel and the other party promptly, and provide a new translation.  
 
10. Each party and third party is invit ed to make its submissions in accordance with the WTO 
Editorial Guide for Panel Submissions to the extent that it is practical to do so.  
 
11. To facilitate the maintenance of the record of the dispute and maximize the clarity of 
submissions, each party an d third party shall sequentially number its exhibits throughout the 
course of the dispute. For example, exhibits submitted by Pakistan could be numbered PAK -1, 
PAK-2, etc. If the last exhibit in connection with the first submission was numbered PAK -5, the 
first exhibit of the next submission thus would be numbered PAK -6. 
 
Questions  
 
12. The Panel may at any time pose questions to the parties and third parties, orally or in 
writing, including prior to each substantive meeting.   
 
Substantive meetings  
 
13. Each party shall provide to the Panel the list of members of its delegation in advance of each 
meeting with the Panel and no later than 5.00  p.m. the previous working day.  
 
14. The first substantive meeting of the Panel with the parties shall be conducted a s follows:  
 
a. The Panel shall invite Pakistan to make an opening statement to present its case first. 
Subsequently, the Panel shall invite the European Union to present its point of view. 
Before each party takes the floor, it shall provide the Panel and othe r participants at the 
meeting with a provisional written version of its statement. In the event that 
interpretation is needed, each party shall provide additional copies for the interpreters, 
through the Panel Secretary. Each party shall make available to the Panel and the other 
party the final version of its opening statement as well as its closing statement, if any, 
preferably at the end of the meeting, and in any event no later than 5.00  p.m. on the 
first working day following the meeting.  
b. After the conc lusion of the statements, the Panel shall give each party the opportunity to 
ask each other questions or make comments, through the Panel. Each party shall then 
have an opportunity to answer these questions orally. Each party shall send in writing, 
within a timeframe to be determined by the Panel, any questions to the other party to 
which it wishes to receive a response in writing. Each party shall be invited to respond in 
writing to the other party's written questions within a deadline to be determined by the 
Panel.  
c. The Panel may subsequently pose questions to the parties. Each party shall then have an 
opportunity to answer these questions orally. The Panel shall send in writing, within a 
timeframe to be determined by it, any questions to the parties to whi ch it wishes to 
receive a response in writing. Each party shall be invited to respond in writing to such 
questions within a deadline to be determined by the Panel.  WT/DS486/R/Add.1  
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  d. Once the questioning has concluded, the Panel shall afford each party an opportunity to 
present a brief closing statement, with Pakistan presenting its statement first.  
15. The second substantive meeting of the Panel with the parties shall be conducted as follows:  
 
a. The Panel shall ask the European Union if it wishes to avail itself of the right to present 
its case first. If so, the Panel shall invite the European Union to present its opening 
statement, followed by Pakistan. If the European Union chooses not to avail itself of that 
right, the Panel shall invite Pakistan to present its opening stat ement first. Before each 
party takes the floor, it shall provide the Panel and other participants at the meeting 
with a provisional written version of its statement. In the event that interpretation is 
needed, each party shall provide additional copies for  the interpreters, through the Panel 
Secretary. Each party shall make available to the Panel and the other party the final 
version of its opening statement as well as its closing statement, if any, preferably at the 
end of the meeting, and in any event no later than 5.00  p.m. of the first working day 
following the meeting.  
b. After the conclusion of the statements, the Panel shall give each party the opportunity to 
ask each other questions or make comments, through the Panel. Each party shall then 
have an oppo rtunity to answer these questions orally. Each party shall send in writing, 
within a timeframe to be determined by the Panel, any questions to the other party to 
which it wishes to receive a response in writing. Each party shall be invited to respond in 
writing to the other party's written questions within a deadline to be determined by the 
Panel.  
c. The Panel may subsequently pose questions to the parties. Each party shall then have an 
opportunity to answer these questions orally. The Panel shall send in writ ing, within a 
timeframe to be determined by it, any questions to the parties to which it wishes to 
receive a response in writing. Each party shall be invited to respond in writing to such 
questions within a deadline to be determined by the Panel.  
d. Once the questioning has concluded, the Panel shall afford each party an opportunity to 
present a brief closing statement, with the party that presented its opening statement 
first, presenting its closing statement first.  
Third parties  
 
16. The Panel shall invite each third party to transmit to the Panel a written submission prior to 
the first substantive meeting of the Panel with the parties, in accordance with the timetable 
adopted by the Panel.  
 
17. Each third party shall also be invited to present its views or ally during a session of this first 
substantive meeting, set aside for that purpose. Each third party shall provide to the Panel the list 
of members of its delegation in advance of this session and no later than 5.00  p.m. the previous 
working day.  
 
18. The third-party session shall be conducted as follows:  
 
a. All third parties may be present during the entirety of this session.  
b. The Panel shall first hear the arguments of the third parties in alphabetical order. Third 
parties present at the third -party sessio n and intending to present their views orally at 
that session, shall provide the Panel, the parties and other third -parties with provisional 
written versions of their statements before they take the floor. Third parties shall make 
available to the Panel, t he parties and other third parties the final versions of their 
statements, preferably at the end of the session, and in any event no later than 
5.00 p.m. of the first working day following the session.  WT/DS486/R/Add.1  
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  c. After the third parties have made their statements, t he parties may be given the 
opportunity, through the Panel, to ask the third parties questions for clarification on any 
matter raised in the third parties' submissions or statements. Each party shall send in 
writing, within a timeframe to be determined by the Panel, any questions to a third party 
to which it wishes to receive a response in writing.  
d. The Panel may subsequently pose questions to the third parties. Each third party shall 
then have an opportunity to answer these questions orally. The Panel shal l send in 
writing, within a timeframe to be determined by it, any questions to the third parties to 
which it wishes to receive a response in writing. Each third party shall be invited to 
respond in writing to such questions within a deadline to be determin ed by the Panel.  
Descriptive part  
 
19. The description of the arguments of the parties and third parties in the descriptive part of 
the Panel report shall consist of executive summaries provided by the parties and third parties, 
which shall be annexed as a ddenda to the report. These executive summaries shall not in any way 
serve as a substitute for the submissions of the parties and third parties in the Panel's examination 
of the case.  
 
20. Each party shall submit an integrated executive summary of the fact s and arguments as 
presented to the Panel in its first written submissions, first opening and closing oral statements 
and responses to questions following the first substantive meeting, and a separate integrated 
executive summary of its written rebuttal, s econd opening and closing oral statements and 
responses to questions following the second substantive meeting, in accordance with the timetable 
adopted by the Panel. Each integrated executive summary shall be limited to no more than 15 
pages. The Panel wil l not summarize in a separate part of its report, or annex to its report, the 
parties' responses to questions.  
 
21. Each third party shall submit an integrated executive summary of its arguments as 
presented in its written submission and statement in acco rdance with the timetable adopted by the 
Panel. This integrated executive summary may also include a summary of responses to questions, 
if relevant. The executive summary to be provided by each third party shall not exceed 6  pages.  
 
22. The Panel reserves  the right to request the parties and third parties to provide executive 
summaries of facts and arguments presented by a party or a third party in any other submissions 
to the Panel for which a deadline may not be specified in the timetable.  
 
Interim revie w 
 
23. Following issuance of the interim report, each party may submit a written request to review 
precise aspects of the interim report and request a further meeting with the Panel, in accordance 
with the timetable adopted by the Panel. The right to reque st such a meeting shall be exercised no 
later than at the time the written request for review is submitted.  
 
24. In the event that no further meeting with the Panel is requested, each party may submit 
written comments on the other party's written request for review, in accordance with the timetable 
adopted by the Panel. Such comments shall be limited to commenting on the other party's written 
request for review.  
 
25. The interim report, as well as the final report prior to its official circulation, shall b e kept 
strictly confidential and shall not be disclosed.  
 
Service of documents  
 
26. The following procedures regarding service of documents shall apply:  
 
a. Each party and third party shall submit all documents to the Panel by filing them with 
the DS  Registry  (office No. 2047).  
b. Each party and third party shall file 2 paper copies of all documents it submits to the 
Panel. The DS  Registrar shall stamp the documents with the date and time of the filing. WT/DS486/R/Add.1  
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  The paper version shall constitute the official version for  the purposes of the record of 
the dispute.  
c. Each party and third party shall also provide an electronic copy of all documents it 
submits to the Panel at the same time as the paper versions, preferably in Microsoft 
Word format, either on a CD -ROM, a DVD or as an e -mail attachment. If the electronic 
copy is provided by e -mail, it should be addressed to DSRegistry@wto.org, with a copy 
to geoffrey.carlson@wto.org and lina.somait@wto.org. If a CD -ROM or DVD is provided, 
it shall be filed with the DS Registry.  
d. Each party shall serve any document submitted to the Panel directly on the other party. 
Each party shall, in addition, serve on all third parties its written submissions in advance 
of the first substantive meeting with the Panel. Each third party shall serv e any 
document submitted to the Panel directly on the parties and all other third parties. Each 
party and third party shall confirm, in writing, that copies have been served as required 
at the time it provides each document to the Panel.  
e. Each party and thi rd party shall file its documents with the DS Registry and serve copies 
on the other party (and third parties where appropriate) by 5.00  p.m. (Geneva time) on 
the due dates established by the Panel. A party or third party may submit its documents 
to anothe r party or third party in electronic format only, subject to the recipient party or 
third party's prior written approval and provided that the Panel Secretary is notified.  
f. The Panel shall provide the parties with an electronic version of the descriptive pa rt, the 
interim report and the final report, as well as of other documents as appropriate. When 
the Panel transmits to the parties or third parties both paper and electronic versions of a 
document, the paper version shall constitute the official version fo r the purposes of the 
record of the dispute.  
27. The Panel reserves the right to modify these procedures as necessary, after consultation 
with the parties.  WT/DS486/R/Add.1  
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  ANNEX A -2 
EUROPEAN UNION – COUNTERVAILING MEASU RES ON CERTAIN POLYE THYLENE 
TEREPHTHALATE FROM P AKIST AN (WT/DS486)  
ADDITIONAL WORKING P ROCEDURES ON BUSINES S CONFIDENTIAL INFOR MATION  
ADOPTED ON 14 APRIL 2016 
The following procedures apply to any business confidential information (BCI) submitted in the 
course of the Panel proceedings in DS486.  
1. For the pu rposes of these Panel proceedings, BCI includes  
 
a. any information designated as such by the party submitting it that was previously 
treated as confidential by the investigating authority in the countervailing duty 
investigation at issue in this dispute unle ss the Panel decides it should not be treated as 
BCI for purposes of these Panel proceedings based on an objection by a party pursuant 
to paragraph 3 below.  
b. any other information designated as such by the party submitting it, unless the Panel 
decides it s hould not be treated as BCI for purposes of these Panel proceedings based on 
an objection by a party pursuant to paragraph 3 below.  
2. Any information that is available in the public domain may not be designated as BCI. In 
addition, information previously treated as confidential by the investigating authority in the 
countervailing duty investigation at issue in this dispute may not be designated as BCI if the 
person who provided the information in the course of that investigation agrees in writing to make 
the information publicly available.  
 
3. If a party or third party considers that information submitted by the other party or a third 
party should have been designated as BCI and objects to its submission without such designation, 
it shall forthwith bring th is objection to the attention of the Panel, the other party, and, where 
relevant, the third parties, together with the reasons for the objection. Similarly, if a party or third 
party considers that the other party or a third party designated information as  BCI which should 
not be so designated, it shall forthwith bring this objection to the attention of the Panel, the other 
party, and, where relevant, the third parties, together with the reasons for the objection. The 
Panel, in deciding whether information subject to an objection should be treated as BCI for 
purposes of these Panel proceedings, will consider whether disclosure of the information in 
question could cause serious harm to the interests of the originator(s) of the information.  
 
4. No person may have access to BCI except a member of the Secretariat or the Panel, an 
employee of a party or third party, or an outside advisor to a party or third party for the purposes 
of this dispute.  
 
5. A party or third party having access to BCI in these Panel proc eedings shall not disclose that 
information other than to persons authorized to have access to it pursuant to these procedures. 
Any information designated as BCI under these procedures shall only be used for the purposes of 
this dispute. Each party and thi rd party is responsible for ensuring that its employees and/or 
outside advisors comply with these procedures to protect BCI.  
 
6. An outside advisor of a party or third party is not permitted access to BCI if that advisor is 
an officer or employee of an ent erprise engaged in the production, sale, export, or import of the 
product(s) that was/were the subject of the investigation at issue in this dispute, or an officer or 
employee of an association of such enterprises. All third party access to BCI shall be su bject to the 
terms of these working procedures.  
 
7. The party submitting BCI shall mark the cover and/or first page of the document containing 
BCI, and each page of the document, to indicate the presence of such information. The specific WT/DS486/R/Add.1  
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  information in que stion shall be placed between double brackets, as follows: [[xx,xxx.xx]]. The 
first page or cover of the document shall state "Contains Business Confidential Information", and 
each page of the document shall contain the notice "Contains Business Confidenti al Information" at 
the top of the page.  
 
8. Any BCI that is submitted in binary -encoded form shall be clearly marked with the 
statement "Business Confidential Information" on a label of the storage medium, and clearly 
marked with the statement "Business Co nfidential Information" in the binary -encoded files.  
 
9. In the case of an oral statement containing BCI, the party or third party making such a 
statement shall inform the Panel before making it that the statement will contain BCI, and the 
Panel will ensur e that only persons authorized to have access to BCI pursuant to these procedures 
are in the room to hear that statement. The written versions of such oral statements submitted to 
the Panel shall be marked as provided for in paragraph 7.  
 
10. Any person au thorized to have access to BCI under the terms of these procedures shall store 
all documents containing BCI in such a manner as to prevent unauthorized access to such 
information.  
 
11. The Panel will not disclose BCI, in its report or in any other way, to persons not authorized 
under these procedures to have access to BCI. The Panel may, however, make statements of 
conclusion drawn from such information. Before the Panel circulates its final report to the 
Members, the Panel will give each party an opportuni ty to review the report to ensure that it does 
not contain any information that the party has designated as BCI.  
 
12. Submissions containing BCI will be included in the record forwarded to the Appellate Body in 
the event of an appeal of the Panel's Report.  
 
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  ANNEX B  
ARGUMENTS OF THE EUR OPEAN UNION  
Contents  Page  
Annex  B-1 First Integrated Executive Summary of the European Union  B-2 
Annex B -2 Second Integrated Executive Summary of the European Union  B-12 
 
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  ANNEX B -1 
FIRST INTEGRATED EX ECUTIVE SUMMARY OF THE EUROPEAN UNIO N 
1 INTRODUCTION  
1. In this integrated executive summary, the European Union summarizes the facts and 
arguments presented to the Panel in its first written submission, its opening oral statement at the 
first substantive meeting and its responses to the Panel's questions.  
2 THE MEASURES AT ISSUE  AND FACTUAL BACKGROU ND 
2. The measures at issue in this dispute as contained in Pakistan's Panel Request are the 
provisional and definitive countervailing duties imposed by the E uropean Union on imports of 
certain polyethylene terephthalate  ("PET")  from Pakistan, as well as certain aspects of the 
underlying investigation and determinations related thereto, as set forth in the following 
instruments:  
 
Commission Regulation (EU) No 4 73/2010 of 31 May 2010, imposing a provisional 
countervailing duty on imports of certain polyethylene terephthalate originating in Iran, 
Pakistan and the United Arab Emirates, OJ L134/25.  
Council Implementing Regulation (EU) 857/2010 of 27 September 2010 , imposing a 
definitive countervailing duty and collecting definitively the provisional duty imposed on 
imports of certain polyethylene terephthalate originating in Iran, Pakistan and the 
United  Arab Emirates, OJ L254/10.  
3. The European Union refers to th e description of the facts set out in Regulations No 473/2010 
("provisional determination") and No 857/2010 ("definitive determination").  
 
2.1 Original investigation  
4. Pursuant to Council Regulation (EC) No 597/2009 of 11 June 2009 on protection against 
subsidised imports from countries not members of the European Community (the "Basic CVD 
Regulation") , an anti -subsidy proceeding was initiated by the European Union concerning certain 
PET originating, inter alia , in Pakistan on 3 September 2009  following a complaint lodged on 
20 July 2009 by the Polyethylene Terephthalate Committee of Plastics Europe (the "complainant"). 
The European Commission (the "Commission")  imposed a provisional countervailing duty on 
31 May 2010 in Regulation No 473/2010.  
 
5. On 27 S eptember 2010, the Council imposed, by Regulation No 857/2010, definitive 
countervailing duties on imports of certain PET having a viscosity number of 78 ml/g or higher, 
according to ISO Standard 1628 -5, originating inter alia  in Pakistan.   
 
6. The subsidy  investigation period was 1 July 2008 to 30 June 2009 ("the period of 
investigation" or "POI")  and the examination of trends relevant for the assessment of injury 
covered the period from 1 January 2006 to the end of the POI ( "the period considered"). While  
seven measures were investigated by the European Union, only the determinations in relation to 
two measures, the MBS programme and the LTF -EOP programme , are questioned by Pakistan in 
this dispute.  
 
2.2 Legal challenge and amendment of the countervailing duty amounts  
7. On 6 December 2010, Novatex  lodged an application at the General Court seeking the 
annulment of Regulation No 857/2010 in so far as it applied to Novatex, on the ground that the 
FTR is not a subsidy within the meaning of the Basic CVD Regu lation and that the calculation of the 
subsidy amount granted under the LTF -EOP programme was erroneous.  
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  8. The General Court in its judgment in case T -556/10 of 11 October 2012 ("the General Court 
judgment") found that the European Commission and the Co uncil failed to take account of certain 
information as regards the FTR, and that the error resulting therefrom affected the legality of 
Article 1 of Regulation No 857/2010 in so far as the definitive countervailing duty fixed by the 
Council exceeded the du ty applicable in the absence of that error. Therefore, the General Court 
annulled Article 1 of Regulation No 857/2010 in so far as it concerned Novatex and in so far as the 
definitive countervailing duty exceeded that applicable in the absence of the error . The General 
Court dismissed Novatex's claim as regards the LTF -EOP programme. Novatex did not appeal the 
General Court judgment.  
 
9. Following the General Court judgment, the Commission initiated on 17 May 2013, a partial 
reopening of the anti -subsidy pr oceeding with regard to imports of certain PET originating, 
inter alia, in Pakistan.  On 25 September 2013, the Council adopted Implementing Regulation (EU) 
No 917/2013 in order to reduce the countervailing duty rate applicable to Novatex in accordance 
with the General Court judgment. The revised duty rate was applied retroactively as of 
2 June 2010.  
 
2.3 Termination of the countervailing duties  
10. On 26 September 2015, the European Union published in its Official Journal the Notice of the 
expiry of the cou ntervailing duties imposed on certain PET from Pakistan pursuant to Regulation 
No 857/2010. Pursuant to that Notice, the European Union stopped imposing the countervailing 
duties at issue as of 30 September 2015.  
3 LEGAL ARGUMENT  
3.1 Claims relating to the  MBS programme  
11. The MBS programme permits the import of duty -free input material under the condition that 
it is used for subsequent exports.  The Commission found that the MBS constitute d a subsidy in the 
form of revenue forgone by the government which c onfers a benefit upon the recipient company  
and was specific . The subsidy rate established in respect of this scheme  during the POI for the co -
operating exporting producer in Pakistan, namely Novatex Limited ("Novatex"), amounted 
to 2.57%.  
 
3.1.1  Pakistan failed to raise specific claims in its Panel Request regarding an alleged 
incorrect determination of the amount of subsidisation in this case  
12. Pakistan appears to agree that the MBS programme  amounted to a countervailable subsidy, 
even in view of Annexe s II and III of the SCM Agreement. Indeed, Pakistan agrees that  during the 
period of investigation Novatex obtained a refund of imported duties on raw materials "in excess 
of" those actually borne by Novatex. Thus, Pakistan's argument entirely boils down t o a 
disagreement on the amount of subsidisation granted to Novatex during the period of 
investigation.  
 
13. However, Pakistan has not raised any claims in its Panel Request concerning an alleged 
violation by the Commission when calculating the amount of s ubsidisation in the present case (e.g. 
under Article 1.1(b) or 14 of the SCM Agreement, unlike its claims under the LFT -EOP 
programme) . As a result,  the European Union considers that the Panel does not have authority to 
examine whether the Commission's det ermination (that the full amount of import duties foregone 
as opposed to merely the excess amount conceded by Pakistan should be countervailed) was 
inconsistent with the SCM Agreement. In this respect, the European Union considers that 
Pakistan's claims un der Articles 10, 32.1 and 19.1 of the SCM Agreement cannot serve to make 
rulings by the Panel on an alleged incorrect amount of subsidisation found. Those claims  are 
clearly consequential. Pakistan has not developed its claims under those provisions in its  first 
written submission either, other than consequential breaches of the alleged incorrect 
determination by the Commission.  
 
14. Therefore, the European Union requests the Panel to refrain from examining the legal 
arguments and facts brought by Pakistan  in view of the uncontested facts that (i) neither of the 
parties discuss that the MBS programme amounted to a countervailable subsidy in view of 
Articles  1.1, 3.1(a), 3.2 and Annex I(i) of the SCM Agreement; and (2) since Pakistan has not WT/DS486/R/Add.1  
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  raised any claim s under Articles 1.1(b) or 14 of the SCM Agreement concerning an alleged 
violation of the obligations when determining the amount of subsidisation, the Panel should reject 
Pakistan's claim.  
 
3.1.2  Pakistan's interpretation of the relevant provisions of the  SCM Agreement is 
incorrect  
15. Pakistan's view appears to be that the obligation to countervail only the excess of duties 
rebated or refunded is already contained in Annexes I to III of the SCM Agreement and, hence, in 
situations where an alleged duty dra wback system is being investigated, the investigating 
authority can only countervail the amounts provided in excess in order to comply with its 
obligation under those Annexes. However, an examination of Annexes I to III  shows that this is 
not the case . 
 
16. To begin with,  Article 1 of the SCM Agreement  is a definitional provision of what type of 
measures fall under the disciplines of the SCM Agreement  and footnote 1 contains a carve -out or 
scope provision: the exemption of an exported product from duties or  taxes borne by the like 
product when destined for domestic consumption, or the remission of such duties or taxes in 
amounts not in excess of those which have accrued "shall not be deemed to be a subsidy", i.e. 
should not be subject to the disciplines of t he SCM Agreement. The reference to the Ad Note to 
GATT Article XVI  in footnote 1  is merely repetitive, as it contains the same reference to the carve -
out. However, footnote 1 further specifies that for the carve -out to apply, those exemptions and 
remission s of duties must take place "[i]n accordance with the provisions of (…) Annexes I 
through  III of this Agreement". The use of the terms "in accordance with" has an exhortative 
meaning, and usually refers to a set of conditions or rules that need to be compl ied with.  
 
17. Annex I(i) of the SCM Agreement  provides for situations where certain types of subsidies 
would be deemed as prohibited. This provision alone does not speak about how to determine 
whether the remission of import duties was in excess of those levied on imported inputs. It merely 
confirms a situation leading to a prohibited subsidy. In turn, this provision states that "[t]his item 
shall be interpreted in accordance with the guidelines on consumption of inputs in the production 
process contained in Annex II and the guidelines in the determination of substitution drawback 
systems as export subsidies contained in Annex III".  
 
18. Annex II of the SCM Agreement  contains "guidelines on consumption of inputs in the 
production process". Paragraphs 1 and 2 in the first part of Annex II merely recalls footnote 1 and 
Annex I(i) of the SCM Agreement. Again, this provision does not speak about how to calculate the 
amount of subsidisation in those cases. It only contains the consequence of having determined 
that the measure in question amounts to a duty drawback system in accordance with Annexes II 
and III.  
 
19. The second part of Annex II contains certain rules or steps that investigating authorities 
should take in order to determine the inputs that are consum ed or incorporated into the exported 
product. However, those provisions do not establish what happens if the investigating authority 
cannot determine on a reliable basis which inputs are consumed in the production of the exported 
product and in what amount s.  
 
20. In a situation where there is no system to control and confirm the inputs consumed or 
incorporated into the exported product, and where it is clear that the duty drawback scheme is 
totally unreliable, absent reliable evidence on the actual amounts  of inputs incorporated into the 
exported product, the European Union considers that, in view of the guiding principles contained 
under Article 14 of the SCM Agreement, an investigating authority is entitled to countervail the full 
amount refunded. Indeed,  Article 14 of the SCM Agreement specifically deals with the calculation 
of the amount of a subsidy in terms of the benefit to the recipient.  
 
21. In this respect, contrary to what Pakistan alleges, the European Union does not consider 
that, absent a veri fication system or the demonstration by the exporting Member that no excess 
amounts were rebated or refunded, there is an automatic presumption that the entire amount of 
the import duties foregone or refunded can be countervailed. If the conditions under A nnexes II 
and III are not met, the carve -out in footnote 1 (and Annex I(i)) simply is not met either, since 
those provisions stipulate that should be read "in accordance with" Annexes II and III. Annexes I 
to III contain rules which must be complied with i n order to avoid qualifying a remission or WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- B-5 - 
 
  exemption from duties as a subsidy. Then, each case has to be examined on its own merits and in 
view of the guiding principles established under Article 14 of the SCM Agreement to calculate the 
amount of subsidisa tion. 
 
22. Finally, with respect to Annex III of the SCM Agreement , the European Union observes that 
this Annex provides guidelines in the determination of substitution drawback systems as export 
subsidies  Quite tellingly again, Annex III does not speak ab out how to determine the amount of 
subsidisation in cases of substitution drawback systems. Annex III merely provides that, if an 
investigating authority is satisfied with the procedures to verify and demonstrate that the quantity 
of inputs for which drawb ack is claimed does not exceed the quantity of similar products exported, 
in whatever form, and that there is no drawback of import charges in excess of those originally 
levied on the imported inputs in question, "no subsidy should be presumed to exist".  Absent such a 
system of verification, if the exporting Member fails to show whether excess payment occurred on 
the basis of actual transactions, the investigating authority may conclude legitimately that such an 
excess amount took place. Then, the principle s to determine the amount of benefit under 
Article  14 of the SCM Agreement would apply.  
 
23. In sum, the European Union considers that Pakistan is reading too much into the provisions 
in question. Contrary to what Pakistan alleges, nothing in footnote 1, or Annexes I to III require 
investigating authorities to only countervail the excess of duties refunded in all cases, thereby 
imposing an active obligation upon them to estimate in each and every case the amount of import 
duties paid on inputs that were co nsumed and incorporated into the exported products and the 
amounts of refunds granted upon exportation. Annexes II and III contain the rules or the 
necessary steps that must be taken to determine whether an alleged duty drawback system 
results in a prohibi ted subsidy by reason of over rebate or excess drawback of import duties on 
inputs consumed in the production of the exported product. If there is no system or no proper 
application of a system or procedure to confirm which inputs are consumed in the produ ction of 
the exported product and in what amounts, and the exporting Member fails to show that the 
quantity of inputs for which drawback is claimed does not exceed the amounts rebated or refunded 
upon exportation of the products incorporating those inputs,  then the only conclusion can be that 
the alleged subsidy scheme does not fall under the carve -out in footnote 1 (or Annex(i)) of the 
SCM Agreement . Thus, the general principles governing the calculation of benefit apply to that 
measure. If it is found tha t there are no reliable information provided by the exporting Member 
about the actual amounts of imported materials incorporated into the exported products for which 
a rebate or refund was granted, the investigating authority is entitled to consider the fu ll amount 
as the basis for calculating the subsidisation.  
 
3.1.3  Pakistan's wrongly applies its incorrect interpretation of the law to the facts of the 
PET investigation  
24. In its first written submission, Pakistan employs an incorrect interpretation of the relevant 
provisions of the SCM Agreement to create an obligation for the investigating authorities to 
calculate precisely the amount of duties that were refunded in excess of those paid with respect to 
imported inputs consumed and incorporated into the  exported products. There is no such 
obligation and, consequently, Pakistan's claims should be rejected. In any event, in the 
investigation at hand, the Commission complied with the relevant rules foreseen in Annexes II 
and III of the SCM Agreement.  
 
25. Pakistan wrongly asserts that the Commission's view was that the "absence of an adequate 
monitoring process – including sufficient review by the exporting government" was sufficient to 
justify the deeming of the full amount of drawn -back duties to be the am ount of the subsidy, and 
that "the Commission's approach converts the enquiry into a simple binary question – does an 
adequate mechanism exist or not?". However, it is not the EU's position that an absence of an 
adequate control mechanism implies that the full amount rebated or refunded must be 
countervailed. If there is no such a reliable system or procedure of control in place, the exporting 
Member can still show that no excess amounts were rebated or refunded, something that Pakistan 
failed to show in th is case on the basis of the actual transactions.  
 
26. Pakistan also wrongly argues that the Commission failed to provide Pakistan with the 
opportunity to assist the Commission's determination of the excess amount. To recall, according to 
Annexes II and II I, in cases where the investigating authority finds that there is no reliable system 
or procedure in place, it is for the exporting Member to show that there was no excess amounts WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- B-6 - 
 
  rebated or refunded. As can be seen from paragraph 76 of the provisional det ermination, Pakistan 
was sufficiently informed of the Commission's conclusions at that stage of the investigation.  
 
27. Further, Pakistan wrongly considers that it was for the Commission to ask Pakistan to 
provide evidence that no excess amounts were reba ted or refunded through its duty drawback 
system. The European Union disagrees. Paragraph 2 of the second part in Annex II (similar to 
paragraph 3 of the second part in Annex III) does not specify when  the exporting Member has to 
further examine the actual  transactions to show that no excess amounts were rebated or refunded. 
It could well happen after an investigating authority reaches its preliminary conclusions as to the 
countervailability of a particular subsidy programme.  
 
28. Moreover, in making its w rong allegations, Pakistan insinuates that the Commission could 
have estimated the amount of benefit conferred in this case on the basis of information provided 
by Novatex and in the record of the investigation. However, Novatex's argument in reality 
amoun ted to a repetition of its main argument that the duty drawback system was reliable. While 
Novatex provided a list of around 500 transactions relating to the importation of inputs during the 
period of investigation, it was impossible for the Commission on the basis of the information 
provided by Novatex to confirm the amounts incorporated into the exported products, in a 
situation where, moreover, Novatex was selling both domestically and for export. And even more 
so when the Commission also found that an e ffective control done by the Government based on a 
correctly kept actual consumption register did not take place, and where the Pakistani Government 
did not carry out a further examination based on actual inputs involved. Thus, the Commission's 
determinati on to countervail the entire amount of import duties refunded to Novatex was reasoned 
and reasonable in view of the specific circumstances of the case.  
 
29. Finally, Pakistan alleges that the Commission failed to investigate whether the duty 
drawback verif ication mechanisms were based on "generally accepted commercial practices in the 
country of export". The European Union disagrees. Whereas paragraph 1 of the second part in 
Annex II lists the elements that the investigating authority should examine to sati sfy itself with the 
reliability of the verification system (i.e. all the elements, in view of the term "and"), paragraph 2 
of the second part in Annex II is phrased in an alternative manner ("or"), thereby indicating that a 
further examination by the expor ting Member is required when the investigating authority finds 
that the system or procedure in place is "not reasonable, or where it is instituted and considered 
reasonable but is found not to be applied or not to be applied effectively". The Commission di d not 
need to examine whether Pakistan's system was based on "generally accepted commercial 
practices in the country of export" since it already found that system as not reasonable and was 
not applied effectively.  
 
3.2 Claims relating to the LTF -EOP progra mme  
30. With respect to the LTF -EOP programme, Pakistan essentially argues that the Commission 
failed, under the chapeau of Article 14, to explain, as provided by its municipal law, the 
methodology it used in the investigation at issue to calculate the amo unt of benefit to Novatex. 
The Commission also miscalculated the amount of benefit conferred to Novatex through the LTF -
EOP programme in violation of Article 14(b).  
 
31. The LTF -EOP programme was a financing mechanism set up by the State Bank of Pakistan in 
2004. It enabled eligible financial institutions to grant financing facilities to borrowers for up to 
7.5 years on attractive terms and conditions for the import of machinery, plant, equipment and 
accessories thereof. It is only available to companies t hat export, directly or indirectly, at least 
50% of their annual production.  
 
32. The key features of the LTF -EOP programme, as found during the investigation, were the 
following: first, an eligible company could contract financing in a specific amount un der the 
programme. However, it did not have to draw the entire amount at the time it contracted (as 
would be the case e.g. for a standard mortgage loan). Instead, it could draw down tranches when 
and if it needed them. Thus, the LTF -EOP programme is compar able to a line of credit. A "line of 
credit" is not an ex ante  agreement about the disbursement of specific funding amounts at a pre -
determined moment in the future, but rather a lending facility in the form of a promise on the part 
of a lender to make fun ding available (in possibly one or more instalments) to a borrower in the 
event it is requested. The interest rates that the company had to pay for any financing under the 
scheme were fixed at a maximum of up to 3% over and above the rates notified by the State Bank WT/DS486/R/Add.1  
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- B-7 - 
 
  of Pakistan ("SBP"), and benchmarked against the weighted average yields of 12 months Treasury 
Bills and three and five years Pakistan Investment Bonds, depending on the period of financing. 
The actual interest payable, therefore, was determined  only at the moment the company draws 
down any money under the regime. It was therefore a very flexible system of financing, 
comparable with a line of credit, which allowed companies fulfilling the conditions in order to 
benefit from it to raise funds if a nd when they needed them to finance the importation of machines 
and other equipment.  
 
3.2.1  Pakistan's claims under the chapeau of Article 14 of the SCM Agreement have no 
merit  
33. Pakistan claims that the European Union failed to adequately explain the ap plication of its 
method in the light of its own rules for the calculation of the amount of subsidy in countervailing 
duty investigations. Pakistan alleges that the Commission did not follow its own methodology to 
establish "the difference between the amoun t of interest paid on the government loan and the 
interest normally payable on a comparable commercial loan during the investigation period" and, 
hence, the method was not adequately explained in the Commission's determinations. Pakistan 
claims that the Co mmission failed to correctly describe the characteristics of Novatex's loan and to 
explain which type of commercial loan available on the market would be comparable to Novatex's 
loan agreement. According to Pakistan, the Commission disregarded the loans su bmitted by 
Novatex as comparable and did not attempt to identify a comparable loan. The Commission also 
failed to take into account the multi -tranche character of the LTF -EOP programme and proceeded 
on the incorrect basis that the entire amount under the L TF-EOP programme had been drawn 
down during the IP.  
 
34. The Appellate Body previously found that under the chapeau of Article 14 any method used 
to calculate the benefit shall be provided for in national legislation or implementing regulations of 
the Mem ber concerned, that method in each particular case shall be transparent and adequately 
explained and it shall be consistent with the guidelines in paragraphs (a) -(d) of Article 14.  
 
35. In the present case, the Commission undertook to identify a comparable  commercial loan - 
and the related benchmark interest rate - which Novatex could actually obtain on the market with 
respect to the amount under the LTF -EOP programme that Novatex had drawn down during the IP. 
This is exactly what EU law (and Article 14(b) SCM) requires of the investigating authority in case 
of loans (a line of credit is a type of loan, even if it is to be treated differently than a standard 
commercial loan). This benchmark interest rate was found by the Commission to be SBP's average 
intere st rate as regards outstanding loans during the IP. The SBP's rate had been actively and 
repeatedly proposed by Novatex and Pakistan (even if the SBP's rate was proposed for a different 
year than the IP).  
 
36. In the process of identifying this interest r ate proxy the Commission discarded other loans 
(and rates) which Novatex had presented because they were not comparable. The Commission 
explained in the provisional disclosure of 1 June 2010 that the comparable benchmark interest 
used was the interest rate  of 14.44% applied by the SBP during the IP. The Commission in the 
final disclosure and determinations also explained that it had rejected the other loans submitted by 
Novatex because they did not relate to the IP.  
 
37. The Commission made clear in its det erminations that it was treating the LTF -EOP 
programme as a line of credit and not as a standard loan and hence took into account the multi -
layered nature of this scheme. This follows for example from paragraphs 121 ("credit 
provided"),  122 ("interest rate s for financing under the LTF -EOP scheme are benchmarked…, 
depending on the period of financing") and 126 ("long -term loans at preferential interest rates") in 
the provisional determinations. This also follows from Annex II of the provisional and final 
company specific disclosure ("line of credit utilisation"). In the final determination the Commission 
referred to the fact that "the financing negotiated in 2004/2005 was drawn down in tranches."  
 
38. The Commission also properly explained its methodology of  using a proxy prevailing during 
the IP with respect to the amounts outstanding under the LTF -EOP during the IP (i.e., the amounts 
effectively used or enjoyed by Novatex during the IP). The file also shows that Novatex had clearly 
understood the Commission 's methodology of using a proxy for the IP and of countervailing the 
entire amount outstanding during the IP.  WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- B-8 - 
 
  3.2.2  Pakistan's erroneous claims under Article 14(b) of the SCM Agreement  
39. First, Pakistan considers that the Commission failed to identify a  proper benchmark loan and 
hence used an improper benchmark interest rate. Second, Pakistan claims that the Commission 
ignored factual evidence concerning other available loans for Novatex. Third, Pakistan argues that 
the Commission improperly applied the commercial interest rate proxy from the IP; the 
Commission should have used a benchmark from the period 2004 -2005 or should have taken 
different benchmarks depending on when the respective tranches were drawn down.  
 
40. The European recalls that a benchmar k loan under Article 14(b) must be a loan that is 
"comparable" to the investigated government loan and should have as many elements as possible 
in common with the investigated loan to be comparable. The Appellate Body acknowledged that 
the existence of suc h an ideal benchmark loan would be extremely rare and hence a comparison is 
also possible with other loans that present a lesser degree of similarity or with a proxy.  
 
41. The Commission in the present case carefully assessed the information provided by No vatex 
about comparable private loans. The Commission found that the loans submitted were not 
comparable with the special financing mechanism under the LTF -EOP programme, which was more 
akin to a line of credit. The loans and interest rates submitted by Nov atex were also not for the 
correct reference period as they dated from the period 2004 -2005 whereas the Commission 
applied as proxy a rate from the IP, i.e. 2008 -2009. Pakistan and Novatex repeatedly advocated 
and even "requested" the use of the SBP rate a s benchmark. The SBP rate was the proxy that the 
Commission eventually used, even if for a different year than argued by Pakistan and Novatex. It 
was therefore perfectly reasonable for the Commission to rely on a proxy promoted by the 
investigated company rather than using non comparable private loans for an incorrect reference 
period.  
 
42. The Commission was also reasonable in light of the principles contained in Article 14(b) to 
use the SBP rate (KIBOR) in 2008 -2009 as a market benchmark. First, the Commi ssion only 
countervailed the amount that was "effectively used" or enjoyed by Novatex in 2008 -2009 and, 
hence, it was appropriate to also apply a benchmark for that same period. Second, amounts under 
the LTF -EOP programme continued to be drawn down during the IP which further confirms the 
close nexus between the benchmark chosen by the Commission and the LTF -EOP programme. 
Third, Novatex had not provided any information about the start dates of the respective tranches 
and the Commission therefore had no mea ns of calculating the respective benchmarks as now 
requested by Pakistan. Fourth, using different benchmark interest rates for each tranche would 
have disregarded the character of the LTF -EOP mechanism as a single financing scheme and would 
in fact have tr eated the tranches as separate individual loans which would not reflect the reality of 
the financing scheme. The European Union also notes that the EU General Court agreed that the 
Commission was justified to use the KIBOR in 2008 -2009 as a benchmark, and Novatex did not 
appeal this finding before the EU Court of Justice.  
 
43. In fact, the Commission was reasonable in taking the SBP rate suggested by Pakistan and 
Novatex, which was an average of various rates having short -term durations (from one day, one 
week, on month, one year and three years), whereas the repayment terms of the LTF -EOP 
mechanism were in principle 7.5 years. Obviously, a short -term rate is lower than a longer -term 
rate because of the higher risk of non -payment involved. The Commission wa s all the more 
reasonable as it also did not take into account the benefit for Novatex resulting from the flexibility 
under the LTF -EOP, namely the availability of the money for Novatex at any time, nor did it take 
into account the generous grace period fo r repayments under the LTF -EOP programme.  
 
3.3 Claims relating to causation (Article 15.5 of the SCM Agreement)  
3.3.1  Pakistan's erroneous claim concerning the nature of the obligation to examine 
other known factors  
44. Pakistan argues that Article 15.5 re quires investigating authorities not only to separate and 
distinguish the effects of other known factors from those of the subsidised imports, but more 
specifically to perform this analysis in a particular order. According to Pakistan, the effects of other  
factors must be assessed as a "first step", which would then be followed by an analysis of the 
effects of the subsidised imports. At least, Pakistan argues, the injurious effects of other factors 
and of the subsidized imports must be assessed at the same time. Pakistan contends that the WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- B-9 - 
 
  Commission's method of analysing first whether the subsidized imports caused the injury and only 
to assess, in a second step, if the other factors break the causal link, is not in conformity with 
Article 15.5.  
 
45. None of  the case -law cited by Pakistan supports such an interpretation. Contrary to 
Pakistan's assertion, the Appellate Body does not prescribe any particular order of analysis. 
According to the Appellate Body the injurious effects of other known factors must be separated 
and distinguished from those of the subsidised imports. Quite to the contrary, the Appellate Body 
in fact emphasized that no particular method is prescribed for this assessment. And even Pakistan 
acknowledges that authorities enjoy "a degree of d iscretion" to carry out the non -attribution 
analysis. The method applied by the Commission in the present case is also supported by the 
wording of Article 15.5. Article 15.5 requires investigating authorities, in the first sentence, to 
demonstrate that the  subsidised imports caused injury through their effects and only 
subsequently, in the third sentence, to "also examine other factors".  
 
46. What follows from the case -law on non -attribution is that there is no particular method of 
analysis and that such a nalysis will depend on the facts of the case. There is no obligation to 
quantify the amount of injury caused by the subsidised imports and by other factors, respectively. 
Investigating authorities have an obligation to provide a satisfactory explanation of  the nature and 
extent of the injurious effects of other known factors. If adequately reasoned, a qualitative 
explanation is sufficient. The proper standard remains whether the EU properly established the 
facts with respect to the other "known factors" and  evaluated the evidence in an objective and 
unbiased manner.  
 
47. In the investigation at hand, the Commission first examined whether subsidised imports 
caused injury to domestic producers, and concluded that they did. Then, it carefully examined 
whether the effects of any of the other known factors are such as to affect that preliminary 
conclusion, i.e. to "break the causal link". It concluded that they did not. In doing so, the 
Commission fulfilled its obligation to separate and distinguish the effects o f subsidised imports 
from the effects of other known factors.  
 
3.3.2  Pakistan's erroneous claim regarding the Commission's analysis of specific known 
factors  
48. Pakistan claims that the European Union acted inconsistently with Article 15.5 
SCM Agreement b ecause it allegedly improperly assessed the role of other factors which, in 
Pakistan's view, broke the causal link between the subsidy and the injury. The other factors 
challenged by Pakistan are (i) the Korean imports, (ii) the economic downturn, (iii) no n-
cooperating domestic producers and (iv) oil prices.  
 
49. First, regarding the Korean imports  the EU recalls that the Commission separated and 
distinguished their effects and recognised that they may have contributed to injury. In the process 
the Commissi on carried out an extensive analysis of prices, market shares and volumes of Korean, 
subsidised and domestic producers. The Commission reasoned that prices of Korean imports were 
higher than the subsidised imports and only slightly below prices of domestic  producers and hence 
their contribution would only be limited. This type of qualitative explanation is exactly what the 
case-law requires. No precise quantification of the injury is required under Article 15.5.  
 
50. Second, with respect to the economic dow nturn , the Commission acknowledged that it 
contributed to the injury but concluded that it did not break the causal link. Pakistan claims that 
the Commission did not sufficiently distinguish and separate this element as it failed to assess the 
"nature and extent of the hurt". Pakistan errs about the legal standard which is not about the 
precise quantification of injury. The Commission clearly explained that the downturn only started 
in the last quarter of 2008 and that it had a global character, which meant  that it similarly affected 
domestic and importing producers. More is not needed. The role of Korean imports and non -
cooperating domestic producers did not have to be re -assessed in this context as these factors had 
been analysed by the Commission separate ly. Pakistan's claim that the Commission made no 
separate finding of injury for the period prior to the last quarter of 2008 is misguided. The key 
finding of the Commission was that the economic downturn only contributed to the injury as of the 
last quarte r of 2008, i.e. the impact was limited in time and the downturn had no impact 
whatsoever on the third quarter of 2008 during the IP. The Commission's data cover the entire WT/DS486/R/Add.1  
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- B-10 - 
 
  period of 2006 to 2009 and establish injury notably for the period of investigation.  More is not 
needed.  
 
51. Third, regarding the market shares of non-cooperating domestic producers  Pakistan errs 
when it contends that the Commission should have carried out a more in -depth trend analysis 
rather than focusing on a point -to-point assessment . The Commission did not carry out a simple 
point-to-point assessment but analysed the market shares in each year. As set forth in the 
Commission's determinations, the subsidised imports increased their market share by around 
500% from 2.1% to 10.2% betwee n 2006 and 2009 whereas the non -cooperating domestic 
producers lost around 20% of their market share in the same period (i.e. a decrease in market 
share from 20.5% to 16%). Under these circumstances, it was perfectly reasonable for the 
Commission to conclu de that non -cooperating producers did not break the casual link, irrespective 
of whether they managed to increase their market share by a few percentage points between 2008 
and the investigation period (i.e. from 12.4% to 16%). A more detailed trend analys is would not 
have made any difference in the Commission's assessment. In addition, one of companies 
concerned stopped production during the IP and two others shortly after the IP, further confirming 
that these producers could not break the causal link.  
 
52. Fourth, Pakistan's challenge regarding the Commission's assessment of crude oil prices  is 
without merit. The Commission stated in its determinations that crude oil prices were volatile at a 
worldwide level. A factor that equally or similarly affects both  subsidised imports and domestic 
producers by definition cannot break the causal link. Even if crude oil prices and hence PET prices 
may have been low at times, subsidised imports could be priced even lower as a result of the 
subsidies and were priced lowe r as established by the Commission.  
 
3.4 Claims relating to verification visits (Articles 12.6 and 12.8 of the SCM Agreement)  
53. Pakistan claims that the Commission acted inconsistently with Article 12.6 of the SCM 
Agreement because it failed to disclose the "results" of the Commission's verification visit. Pakistan 
argues that the Commission complied neither with the first alternative set out in Article 12.6, 
namely to make the results of the verification visit available separately, nor with the second 
alternative of Article 12.6, namely to disclose the results of the verification visit as part of the 
disclosure of essential facts. Pakistan contends that – with the exception of the MBS – the 
Commission failed to communicate anything even remotely resemblin g the "results" of the 
verification visit. According to Pakistan, "results" of verification visits include "adequate information 
regarding all aspects of the verification, including a description of the information which was not 
verified as well as of info rmation which was verified successfully". The Commission did not provide 
information of what occurred during the verification visit, which additional documents were 
collected, which information was corrected and which topics, other than the MBS, the Commis sion 
discussed with the investigated company.  
 
3.4.1  Legal standard under Article 12.6 of the SCM Agreement  
54. Article 12.6 of the SCM Agreement provides for the possibility of verification visits and lays 
out the general obligations that apply to investi gating authorities if they undertake such a 
procedure. There is no obligation on the part of investigating authorities to carry out verification 
visits. Regarding the disclosure of the results of the verification visit to the verified firms, 
Article  12.6 a llows for two methods: the investigating authority either "shall make the results of 
any such investigations available", or "shall provide disclosure thereof pursuant to paragraph 8, to 
the firms to which they pertain". The results "may" be made available to the applicants, but there 
is no obligation to do so. The ordinary meaning of the term "results" is "the effect, consequence, 
issue, or outcome of some action, process or design" and suggests that what needs to be made 
available is not the process as suc h but rather the "outcome" of that process.  The context of 
Article 12.6 as well as its direct cross -reference to Article 12.8 of the SCM Agreement confirm that 
the term "results " is information that is closely related to the essential facts. Article 12.6 t herefore 
does not require a full report on everything that happened during the verification visit, i.e. lengthy 
minutes.  
 WT/DS486/R/Add.1  
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- B-11 - 
 
  3.4.2  Factual Background  
55. The on -the-spot investigation of Novatex took place from 15 -17 December 2009 at 
Novatex's premises in Kar achi in the presence of Novatex's legal counsel. On 23 -24 February 2010 
a hearing and consultations with the government of Pakistan took place. By provisional disclosure 
of 1 June 2010 the Commission disclosed to Novatex "the essential facts" including the  provisional 
determinations and the company -specific subsidy calculations. Novatex provided its observations 
to the provisional disclosure by way of a written submission on 1 July 2010. Consultations with 
Pakistan took place on 12 July 2010. At the request  of Novatex, a hearing took place on 
14 July 2010.  The definitive disclosure by the Commission took place by letter of 26 July 2010. In 
this final disclosure the Commission informed Novatex of the essential facts which included 
inter alia a specific compan y disclosure document. Both Pakistan and Novatex provided extensive 
comments during the entire procedure.  
 
3.4.3  The European Union's Rebuttal of Pakistan's claims  
56. In the European Union 's view, the results or outcome of a verification visit is the "yes " or 
"no" answer to the fact that certain information was checked (in the sense of reviewed and 
verified) during the verification visit by the investigating authority (and, by implication, that other 
information was not checked). In exceptional circumstanc es, the results of the verification visit 
may also include limited additional information (e.g. in case of the use of facts available the fact 
that the investigating authority requested information during the verification visit and that it was 
not provided ). This interpretation of "results" follows from the close textual and thematic 
relationship between Article 12.6 on verification visits and Article 12.8 on the disclosure of 
essential facts. The purpose of Article 12.8 is to allow interested parties and i nterested Members 
"to defend their interests" by disclosing the essential facts and it is against this background that 
the obligation of Article 12.6 should be interpreted.  
 
57. The European Union takes the position that the term "result" does not include information, 
for example, about whether the Commission requested additional documents, whether Novatex 
provided requested documents or whether the Commission asked questions during the verification 
visit. This is because such actions do not constitute "res ults" or an outcome of the verification visit 
but form part of the "process" of the verification visit. Nor does the term result comprise 
information about whether the Commission could or could not verify the accuracy of the 
information on the spot or whet her the Commission corrected certain information as a result of the 
verification visit. This is because such information does not concern the result of the verification 
visit within the meaning of Annex VI(7) but concerns the overall result of the Commissi on's 
investigation which will be disclosed, to the extent relevant, as essential facts.  
 
58. In the present case, the Commission established a log of exhibits which listed all documents 
that were collected and checked during the verification visit at Novat ex. The European Union also 
recalls that Novatex (and its lawyer) was present during the entire verification visit. The 
Commission can only verify information during the verification visit that is actively provided by the 
company investigated. The Commissi on cannot choose to verify documents at its discretion but 
depends on the cooperation of the company investigated in this respect. Novatex was therefore 
fully aware of what was verified during the verification visit. In addition, Novatex has not claimed 
that any information about the verification visit that is indispensable for its due process rights was 
not made available.  
4 CONCLUSIONS  
59. In view of the foregoing, the European Union requests the Panel to reject Pakistan's claims 
in their entirety.  
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  ANNEX B-2 
SECOND INTEGRATED EXECUTIVE  SUMMARY OF THE EUROPEAN UNIO N 
1. INTRODUCTION  
 
1. In this integrated executive summary, the European Union ("EU") summarizes the facts and 
arguments presented to the Panel in its second written submission, its opening ora l statement at 
the second substantive meeting and its responses to the Panel's questions.  
 
2. LEGAL ARGUMENTS  
 
2.1. ARTICLE 6.2 DSU  / TERMS OF REFERENCE ISSUES  
 
2. The EU has raised important jurisdictional issues in a preliminary ruling request. The EU 
reiterates its stance that the function and role of a panel is to adjudicate disputes (in the sense of 
Article 3.3. of the DSU) for the purposes set out in Articles 3.4 and 3.7 of the DSU. In light of the 
withdrawal of the contested measure without any linge ring effect or a possibility of reintroduction, 
there is no dispute between the parties in the sense of Article 3.3 of the DSU. For this reason and 
not contesting the Panel's jurisdiction, the dispute settlement system should not be used for 
"advisory opin ions". Therefore, the Panel should refrain from taking a formal and final position on 
a given interpretation of the relevant provisions at stake and from making findings on the 
consistency of the Commission's determination. The Panel should limit its repor t to the views of 
the parties and the uncontested facts, without making findings.  
 
3. Annex I(i) of the SCM Agreement provides an example of prohibited export subsidies falling 
under Article 3.1(a) of the SCM Agreement and creates rights and obligations fo r WTO Members. 
The scope of the examples illustrated should be determined pursuant to the requirements of 
Annex  I(i), and Annexes II and III by reference. These requirements in their totality apply to 
panels and WTO Members. In light of Pakistan's agreemen t of the link between Annex I(i) and 
Annexes II and III, the EU argues that the wording in footnote 1 of the SCM Agreement should 
also be read to incorporate the requirements of Annexes I to III and its carve -out should apply 
only pursuant to steps explici tly foreseen in these Annexes.  
 
4. With regard to the limits of Article 6.2 of the DSU, Pakistan should not be allowed to 
repurpose its arguments under its now withdrawn Annexes II(II)(4) -(5) claims, to fall under 
Annex  I(i) and/or Annex II(II)(2), thus ci rcumventing Article 6.2 of the DSU and its own Panel 
Request. Similarly, Pakistan in its first written submission focused only on one of two allegations 
with respect to the MBS programme – on the amount countervailed rather than on the finding of a 
subsidy . It is not possible that both pleas were raised as part of the same analysis due to the 
different obligations applicable to them. Footnote 1 and Annexes I to III are not applicable to the 
issue of the correct amount to be countervailed, however SCM provis ions regarding "benefit", not 
properly raised by Pakistan, would have been relevant. Due to the MBS programme not fulfilling 
the requirements to constitute a proper duty drawback system, this footnote 1 does not apply at 
all. 
 
5. The EU considers that the certain claims, not included in the Panel Request should not be 
accepted by the Panel. These claims are entirely consequential to its main argument on the exact 
calculation of the amount foregone. A party should not be allowed to expand the scope of the 
dispute through its written submissions. Furthermore, Pakistan has itself confirmed in its 
responses that some of its claims are entirely consequential and, should, therefore be dropped.  
 
6. Finally, through its claim of a violation of Annexes II(II) and III (II) "as a whole", Pakistan is 
seeking an advisory opinion from the Panel. Accordingly, this claim should be rejected.  
 
2.2. CLAIMS RELATING TO TH E MBS  PROGRAMME  
 
7. In the view of the EU, footnote 1 of the SCM Agreement is a "scope" provision, similar to  
Ad Note to Article XVI of the GATT 1994, rather than an "exception" provision. Furthermore, WT/DS486/R/Add.1  
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  footnote  1 does not expand or compliment the definition of "financial contribution" in cases of duty 
drawbacks. Such systems could fall either under Article 1.1(a) (1)(i) or (ii), but it rather informs 
the entire Article 1 by specifying a situation of a remission or refund that does not amount to a 
subsidy and does not fall under the disciplines of the SCM Agreement. If the situation described in 
footnote 1 is found to exist, "in accordance with" the provisions in Annexes I to III of the 
SCM Agreement, the disciplines of the SCM Agreement will not apply to it. However, any 
remissions or refunds in excess of the import duties paid on import inputs used on the productio n 
of exported products would be considered an export subsidy, pursuant to Annex I(i) and 
Annexes  II and III. Although being entitled "guidelines", Annexes II and III should be construed as 
binding upon WTO Members, similar to other "principles or "guidelin es" in the Agreement.  
 
8. In connection with Pakistan's claims as to the amount to be countervailed, the determination 
of a "financial contribution" in Article 1.1(a)(1)(ii) of the SCM Agreement should be distinguished 
from any "benefit" granted as a separ ate determination. The "financial contribution" is the revenue 
foregone by the state, owed "but for" the MBS program. The determination of the existence of 
"benefit" is a different, further step. In a case not fulfilling the requirements of footnote 1 and 
where there is an excess remission or refund, the benefit countervailable would only be that 
excess remission, provided that the necessary information to calculate it is available and reliable. 
Footnote 1 does not contain an obligation for an investigating  authority to establish in each case 
whether an excess amount was drawn back.  
 
9. Annexes II(II) and III(II) contain the elements necessary to determine whether there has 
been an excess remission or not, a requirement for the existence of the situation und er footnote 1. 
First, an exporting Member must have a verification system or procedure, allowing the tracing of 
inputs consumed and their quantity in the production of exports. Second, the system or procedure 
should be reasonable, effective and based on ge nerally accepted commercial practices. In this 
regard, the Commission's determination that Pakistan's verification system was inadequate has 
remained unchallenged. Its reasoning for this finding is set out below. Third, if there is no 
(adequate) verificati on system or procedure, a further examination by the exporting Member of 
the actual inputs used in export production must be carried out, so as to determine whether 
excess remission has occurred. Annexes II and III are silent on further steps when no such 
"further examination" takes place. Since footnote 1 refers specifically to them, no other provisions 
of the SCM Agreement apply in this regard.  
 
10. As to the question of who is responsible for the "further examination", Annexes I to III do 
not contain any  obligation for investigating authorities to request the results of any "further 
examination" from the exporting Member, nevertheless, the Commission has never showed any 
unwillingness to allow such further examinations. In its provisional determination, t he Commission 
clearly signalled that Pakistan had failed to conduct a "further examination", alerting it of its 
obligations under Annex II(II)(2) and allowing it multiple occasions to provide it. The list of issues, 
which Pakistan alleges it had to receive  from the Commission to aid it in this task, is not provided 
for in Annex II(II)(2). After the finding of inadequacy of the verification system, the obligation to 
conduct a "further examination" falls only on the exporting Member, as it is the one benefitt ing 
under footnote 1, and no obligation on Members to "give notice" is envisioned.  
 
11. With regard to additional evidence, evidence on the record should be considered even when 
a "further examination" is not provided and, therefore, footnote 1 is found t o be inapplicable. The 
remaining disciplines of the SCM Agreement apply to the measure at issue, resulting in an 
obligation on investigating authorities to conduct a normal assessment of whether the contested 
measure amounts to a subsidy and its amount. Al l foregone or refunded import duties could be 
considered a countervailable subsidy. The determination of the appropriate amount to countervail 
should be judged in view of other obligations of the SCM Agreement (such as Article 14 or 19.4), 
and in light of the totality of the evidence and information available in each case. Absent an 
adequate verification system or a further examination by the exporting Member, as well as no 
other reliable information, investigating authorities should be permitted to conclud e, on the basis 
of the information available, to countervail the entire amount.  
 
12. In this regard, the EU's position and practice has been that when an inadequate verification 
system exists, companies' records may be relied on, if they clearly show what imported inputs 
were used for the production of exports. In the present case, this was not possible, as (1) Novatex 
was not subject to regular customs supervision, (2) was sourcing inputs both locally and from 
abroad, the majority of one of its main raw ma terials being of local origin, (3) did not provide for WT/DS486/R/Add.1  
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  any traceability of the use of differently sourced inputs, and (4) was selling both locally as well as 
on foreign markets. These findings were confirmed through a verification visit. Nevertheless, the 
Commission accepted Nocatex's cost of production and the duty drawback amounts for its 
calculations, however, remained unable to conclude that Novatex was only using imported raw 
materials in the production of exported products. Thus, the Commission could not rely on the 
information.  
 
13. The Commission could not rely on the information of the MBS programme either, due to its 
(1) reliance on company -provided "theoretical" information, (2) lack of verification aside from 
documents provided by the companies t hemselves, (3) lack of regular checks and follow -ups and 
(4) lack of traceability of the uses of domestic and imported raw materials into final products, but 
rather a blind assumption that exported products were entirely produced from imported inputs. A 
systemic risk was identified by the European Union. The exporting Member could not show that no 
excess remissions occurred in its duty drawback scheme. A differing degree of "adequacy" of the 
system due to deference to the company's own data, lacking governm ent verification or 
monitoring, cannot be acceptable for the purposes of footnote 1. Having examined the 
requirement of traceability in a duty drawback system, the Commission did not have to examine 
the element of "generally accepted commercial practices",  another independent reason or finding 
the verification system inadequate.  
 
14. For the foregoing reasons, the Commission reasonably concluded that the subsidy amount 
for Novatex should be calculated on the basis of import duties foregone on the imported m aterial 
under the MBS programme, used for the product concerned during the investigation period.  
 
15. Pakistan's contention that there was ample evidence on the record to permit the 
Commission to determine the exact excess remission is wrong. Even Pakista n could not provide 
examples of such evidence. In any event, footnote 1 (together with Annex I to III) does not place 
a burden of showing that excess remissions occurred on investigating authorities. Such obligation 
relates to the determination of the amou nt to be countervailed and is laid down in other provisions 
of the SCM Agreement, which were not cited by Pakistan in this dispute.  
 
2.3. CLAIMS RELATING TO TH E LTF-EOP PROGRAMME  
 
2.3.1.  Pakistan's claim under the chapeau of Article 14 SCM Agreement  
 
16. The relevant legal standard under the chapeau of Article 14 is whether the Commission 
adequately explained its methodology for calculating the benefit in accordance with its municipal 
law. The legal standard is not whether the Commission's determinations s et forth in sufficient 
detail the material findings and conclusions reached on issues of fact and law (e.g. whether the 
Commission set out in its determinations why it rejected the loans proposed by Novatex as non -
comparable). Such a standard only applies to claims under Article 22.3 which Pakistan decided not 
to pursue in the present case.  
 
17. The Commission's methodology for calculating benefit in the present case is set forth in 
Article 6(b) of the Basic CVD Regulation. Just like Article 14(b) of the S CM Agreement, Article 6(b) 
requires the Commission to calculate the benefit on the basis of the difference between the 
interest paid by the investigated company for the government loan and the interest that would be 
due under a comparable commercial loan. The Commission explicitly referred to Article 6(b) and 
therefore to its calculation method in the provisional determinations.  
 
18. Under the chapeau  of Article 14 the investigating authority has to adequately explain the 
methodology used to calculate bene fit. In the present case the Commission indeed adequately 
explained all the basic parameters of its calculation method:  
 
 It was clear from the determinations and other evidence that the Commission treated 
the preferential credit mechanism as a line of cred it. The Commission explicitly used the 
term "line of credit" in its company specific disclosures and described the LTF -EOP as a 
line of credit in its provisional and final determinations. Irrespective of the Commission's 
legal or factual qualification of t he preferential credit mechanism as a line of credit in its 
determinations, the Commission clearly explained its method for calculating the benefit 
for the LTF -EOP programme, namely the applicable legal provision as well as which 
comparable benchmark rate,  which benchmark year and which amounts it would use WT/DS486/R/Add.1  
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  (see the following bullet points). This is all that matters under the chapeau of Article 14. 
It should be recalled once again that Pakistan did not make a claim under Article 22.3.  
 The Commission explain ed in recital 131 of the provisional determinations that the 
calculation of benefit for the preferential line of credit mechanism was to be carried out 
under Article 6(b) of the Basic CVD Regulation, the applicable municipal law. Article 6(b) 
provides for a calculation of benefit based on a comparison of the interest rate paid by 
the investigated company under the investigated government loan and the rate that the 
company would have paid under a comparable commercial loan.  
 The Commission in the same recita l also explained that the benefit would be calculated 
by comparing the interest rate under the LTF -EOP programme with an "applicable 
commercial credit rate", in line with Article 6(b). This was clearly understood by Novatex 
and Pakistan which submitted com parable loans and interest rates to the Commission.  
 The Commission also explained in the provisional and final disclosure that the proxy 
interest rate applied by the Commission was the SBP rate, i.e. the KIBOR rate. This was 
explicitly so stated in the pro visional company -specific disclosure, in the final company -
specific disclosure, in the General Disclosure Document and in the final determinations. 
In fact, it was Pakistan and Novatex that submitted the KIBOR rates to the Commission. 
Novatex and Pakistan therefore clearly understood that the Commission was going to 
use the KIBOR for the IP and both supported the use of the KIBOR rate as a matter of 
principle (while arguing for a different year).  
 The Commission further explained that the relevant benchmark  year for the comparable 
rate was the IP. This was explicitly so stated in the provisional company -specific 
disclosure, in the final company -specific disclosure, in the General Disclosure Document 
as well as in the final determinations. This was clearly un derstood by Novatex and 
Pakistan which both disagreed with the Commission's choice and repeatedly insisted on 
the use of a different benchmark year.  
 Finally, the Commission explained that it was using the amounts effectively used during 
the IP under the LT F-EOP (including both outstanding amounts and amounts drawn 
down during the IP) to calculate the benefit. This clearly follows from the calculations 
and calculation sheets which were provided by the Commission to Novatex in the 
provisional and final disclo sure. These calculation sheets show that the Commission 
compared the interest rate actually paid by Novatex with the interest rate proxy on the 
basis of the respective outstanding amounts during the IP. The Commission in the 
General Disclosure Document als o stated that it used for its calculation "the amount of 
credit for the IP, as reported by Novatex". This was also clearly understood by Novatex 
which explicitly acknowledged that the benchmark rate would "be applied to the 
outstanding amount in the IP."  
19. Contrary to Pakistan's claims it was also clear from the determinations and other evidence 
that the Commission treated the preferential credit mechanism as a line of credit. The Commission 
explicitly used the term "line of credit" in its company specif ic disclosures and described the 
LTF-EOP as a line of credit in its provisional and final determinations. Irrespective of the 
Commission's legal or factual qualification of the preferential credit mechanism as a line of credit in 
its determinations, the Co mmission clearly explained its method for calculating the benefit for the 
LTF-EOP programme, namely the applicable legal provision as well as which comparable 
benchmark rate, which benchmark year and which amounts it would use (see the following bullet 
points). This is all that matters under the chapeau of Article 14. It should be recalled once again 
that Pakistan did not make a claim under Article 22.3.  
 
20. Therefore, all the essential parameters of the Commission's methodology to calculate benefit 
were c learly explained in the Commission's determinations and were fully understood by Novatex 
and Pakistan. There is no violation of the transparency requirements of the chapeau of Article 14 
as alleged by Pakistan.  
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  2.3.2.  Pakistan's claims under Article 14(b)  of the SCM Agreement  
 
21. The EU recalls that Article 14(b) contains "guidelines" and that investigating authorities have 
a considerable amount of flexibility and discretion when calculating benefit. Article 14(b) requires a 
comparison with a benchmark lo an, comparable to the investigated government loan, with "as 
many elements as possible in common". Where a similar commercial loan to the same borrower 
does not exist, other similar loans may be used, including proxies. The individual calculation 
method is  a matter of case -by-case analysis. The question is whether in the present the 
Commission's methodology to calculate benefit was reasonable and appropriate in light of all 
relevant circumstances.  
 
22. The EU also notes that Pakistan's claims under Article 14(b) - that the Commission's search 
for a comparable commercial loan and the rejection of the loans submitted by Novatex are not 
sufficiently reflected in the Commission's determinations – must be rejected as these aspects are 
sufficiently reflected in th e determinations and, in any event, these claims can only be brought 
under Article 22.3 and not under Article 14(b).  
 
23. Progressive search . The EU has shown that the Commission did carry out a search for a 
comparable loan that was appropriate under the c ircumstances of the case. The Commission in the 
questionnaire asked Novatex to provide comparable commercial loans. The Commission ultimately 
did not use the loans submitted by Novatex for its calculation of benefit (i) because the loans were 
standard comm ercial loans and hence not comparable to a preferential line of credit mechanism 
like the LTF -EOP programme, (ii) because they dated from the years 2004 and 2005 and not from 
the IP and (iii) because they displayed different characteristics with respect to  duration, amounts 
etc. The Commission instead used the KIBOR rate because this rate reflected the average lending 
rate of all companies in Pakistan. The KIBOR rate was also actively and repeatedly promoted by 
Pakistan and Novatex as the record amply shows . For example, already in November 2009, 
Novatex submitted to the Commission a loan, said to be comparable, that was tied to the 
KIBOR/SBP rate. During the investigation, Novatex requested, for example, that the benchmark 
rate should "in any event not be m ore than the SBP website rate" and Pakistan claimed that "it is 
just plain logic" to compare the rate under the LTF -EOP to the KIBOR rate. Therefore, under these 
circumstances, where the investigating authority and the parties agreed on an appropriate 
benchmark rate as a matter of principle, there was no reason for the Commission to search further 
for a comparable loan.  
 
24. Use of KIBOR rate in IP . The EU considers that the moment of drawdown of certain 
amounts, which was the subject of some discussion, is  irrelevant for the legal question whether 
the Commission could use the KIBOR rate during the IP. The EU recalls that it has consistently 
maintained the position that the Commission, at the time of the investigation, had to assume that 
the amounts indicate d on the excel spreadsheets under the heading "Opening" were disbursed in 
July 2008, i.e. during the IP because of the way in which the spreadsheets were provided and 
presented by Novatex. Furthermore, it was also clearly understood by Novatex and Pakistan  which 
amounts the Commission had taken into account in its calculation of benefit, namely the amounts 
outstanding during the IP as reported by Novatex. At no point during the investigation did Novatex 
or Pakistan contest the amounts taken into account by the Commission in its calculations. In any 
event, Pakistan also agrees that the exact moment of drawdown of the amounts in question is in 
fact irrelevant for the legal assessment in this case because it is undisputed that the amounts used 
for the calculati on of benefit were outstanding during the IP. The decisive question is therefore 
whether the Commission was correct to use the IP for the determination of the benchmark proxy 
or was legally required to use a previous year of a "mix" of different years. Thi s question depends 
on the characteristics of the financial instrument under investigation.  
 
25. The LTF -EOP programme was a flexible financing instrument akin to a line of credit, and not 
a typical standard loan with a fixed rate. A previous panel has conf irmed that a line of credit is to 
be distinguished from a standard loan. There are many differences between a standard loan and 
the preferential line of credit mechanism granted to Novatex.  
 
26. Under a standard loan, the entire amount would have been disb ursed in 2005. Under the 
preferential line of credit mechanism, the amounts were disbursed to Novatex during an extended 
period, between 2005 and 2009. Novatex therefore had flexibility as to when to withdraw the 
amounts. The banks had to hold the respecti ve amounts in reserve. Under a standard loan, the 
repayment obligation would have started immediately after conclusion of the contract in WT/DS486/R/Add.1  
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  June 2005. Under the preferential credit mechanism, the repayment obligation for Novatex 
regarding the principal only started more than two years later, in July 2007. Under a standard 
loan, the interest rate would have been fixed for the entire repayment period and for the entire 
amount. Under the preferential line of credit mechanism, the interest rate depended on the 
moment of withdrawal by Novatex. The EU does not contest that the interest rates were fixed for a 
specific tranche once that tranche was drawn down. However, Novatex could decide when to draw 
down the money and hence could in principle influence the interest  rate which is very different 
from a standard commercial loan. The fact that ultimately only one single interest rate applied for 
the different tranches was only decided ex post in view of the market circumstances, in order to 
ensure that Novatex would mai ntain the advantageous financial mechanism, no matter how high 
the market rates would be.  
 
27. Moreover, nothing prevented Novatex from seeking financing from the market if the market 
conditions changed in a more favourable manner than the LTF -EOP mechanis m. Indeed, under a 
standard loan, the borrower decides to get all the necessary financing at a given moment in time. 
In contrast, through the LTF -EOP mechanism, Novatex could decide whether to draw down further 
instalments if and when it needed the money, and it could also decide to borrow the money from 
other sources, market conditions so permitting, without the need to renegotiate the original 
preferential credit mechanism and without incurring any penalties.  
 
28. It is in light of the above consideratio ns, that the alternative calculation methods presented 
by Pakistan and the Commission's calculation method should be assessed.  
 
29. First, the Commission was not obliged to use the year 2005 for the KIBOR rate as requested 
by Pakistan and Novatex during t he investigation. The interest rate under the preferential line of 
credit mechanism was not determined or fixed in 2005 but depended on the moment of drawdown. 
The repayment obligation by Novatex on the principal did not start in 2005 but only in July 2007 . 
The credit amount was not disbursed in 2005 but over a 4 -year period.  
 
30. Second, the Commission was not obliged to use a mix of different years for the 
determination of the benchmark as requested by Pakistan before the Panel. The Commission would 
have needed very detailed information about each disbursement by each individual bank to 
Novatex prior to the IP under the LTF -EOP. It is undisputed that Novatex did not provide this 
information during the investigation. Pakistan did not even provide this info rmation when asked by 
the Panel. Hence, the Commission was simply unable to perform such a calculation, even leaving 
aside the practical difficulties of such a calculation. In addition, neither Pakistan nor Novatex ever 
raised this particular – and very co mplex - calculation method during the investigation. Both 
Pakistan and Novatex consistently and exclusively requested a calculation based on the benchmark 
year of 2005. Such a scientific approach is not legally required and would not only put an 
enormous b urden on parties, investigating authorities and the respective review bodies but would 
also significantly increase the risk of arithmetical errors and hence of legal challenges. Finally, 
using several benchmark years would also treat the LTF -EOP programme as separate mini 
standard loans and hence would disregard the flexibility of this preferential financing instrument 
and its nature as being akin to a line of credit.  
 
31. Third, it was perfectly legitimate for the Commission to use the IP as the KIBOR benc hmark 
year since the IP provided a good "snapshot" of the LTF -EOP line of credit facility for several 
reasons: Novatex continued repaying outstanding amounts under the LTF -EOP during the IP. 
Disbursements under the preferential credit mechanism also contin ued during the IP. And Novatex 
benefited from the respective amounts that were outstanding during the IP. All these elements 
render the IP a perfectly suitable period for the determination of the benchmark rate proxy. The 
Commission certainly complied with  the standard of reasonableness that permeates the guidelines 
under Article 14. This applies all the more so as the Commission acted in the favour of Novatex by 
using the shorter term KIBOR rate for a long -term credit mechanism and by not taking into 
accou nt the 2 -year grace period for the repayment of the principal in its benefit calculation.  
 
32. Therefore, the EU maintains its request that the Panel should reject Pakistan's claims against 
the Commission's determination regarding the preferential credit m echanism in their entirety.  
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  2.4. CLAIMS RELATING TO CA USATION (ARTICLE 15.5  OF THE SCM  AGREEMENT ) 
 
2.4.1.  The Commission's method in the causation analysis  
 
33. Under Article 15.5 of the SCM Agreement investigating authorities must "separate and 
distingui sh" the injurious effects of other known factors from those of the alleged subsidised 
imports. When both subsidised imports and other factors potentially causing injury are present at 
the same time, the investigating authority must assess whether and to wh at extent subsidised 
imports cause injury, and whether and to what extent other factors cause injury. These two 
"steps" can be done in either sequence, and there is no reason why the assessment of one "step" 
should not refer to findings made in the other " step".  
 
34. Article 15.5 imposes no obligation to carry out the causation analysis in a particular order. 
Causation and non -attribution are closely related aspects of the overall assessment of a causal link 
between the subsidized imports and the injury, an d it would be artificial to impose a particular 
order of analysis between them. This position is also supported by the Appellate Body which 
emphasized the discretion enjoyed by the investigating authority in this respect and repeatedly 
stated that no metho d was prescribed for the process of separating and distinguishing the injurious 
effects of subsidized imports from other known factors.  
 
35. Pakistan's claim that the Appellate Body in US - Wheat Gluten  would have mandated the 
three -step analysis advocated  by Pakistan is incorrect. US - Wheat Gluten  concerned non -
attribution under the Safeguards Agreement, and the main focus of the Appellate Body was that 
the effects of other known factors should be properly separated and distinguished. In subsequent 
cases,  the Appellate Body has also repeatedly emphasized that Article 15.5 does not set out a 
specific order of analysis, e.g. in US Hot -Rolled Steel and in EC – Tube or Pipe Fittings  where the 
Appellate Body "underscored" that no method is prescribed for non -attribution.  
 
36. Pakistan's claim that the Commission's preliminary finding of a causal link in the first step of 
the Commission's analysis can never become less than "substantial" or be undone by other factors 
is also obviously incorrect. If that were the case, the Commission would always find a causal link in 
its determinations and could never come to the conclusion that other factors were the true cause 
of injury. Pakistan's allegation is belied by the many terminations of Commission's investigations in 
anti-dumping and anti -subsidy proceedings where other factors were found to be the true cause of 
injury.  
 
37. Pakistan's attempt to find support in previous negative determinations of the Commission in 
which the Commission did not use verbatim the phrase th at the causal link was "broken" by other 
factors is misguided. It is obvious that in case of negative determinations an investigating 
authority will not find interim causation by subsidised imports only to find a few paragraphs later 
that causation was "br oken" and injury was in fact caused by other factors. In such case, an 
investigating authority will simply condense its written analysis and find that the injury was not 
caused, or not sufficiently caused, by the subsidised imports. This does not change th e fact that 
for a positive determination, which is solely at issue in the present case, the Commission's method 
constitutes a logical sequence and useful analytical tool to assess whether the subsidised imports 
constitute a genuine and substantial cause of  injury as required under the case -law. 
 
38. In the present case, the Commission first established that there was a causal link between 
subsidised imports and an injury to domestic producers. Then the Commission examined other 
known factors and whether the y could break the causal link between the imports and the injury, 
concluding that they did not. As such, the Commission fully met its obligation to separate and 
distinguish the effects of subsidized imports from the effects of other known factors.  
 
39. The European Union also recalls that under the case law investigating authorities are not 
required to quantify the injury caused by other factors in order to separate and distinguish it from 
the injurious effects of the alleged subsidized imports.  
 
40. Thus,  Pakistan's claim against the Commission's method of assessing causation should be 
rejected.  
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  2.4.2.  The Commission's analysis of specific known factors  
 
41. Contrary to Pakistan's claims, the Commission provided a well -reasoned explanation in the 
determin ations why the nature and extent of the contribution of specific other factors were 
insufficient to break the causal link.  
 
42. First, regarding the Korean imports  the EU recalls that the Commission separated and 
distinguished their effects and recognised that they may have contributed to injury. In the process 
the Commission carried out an extensive analysis of prices, market shares and volumes of Korean, 
subsidised and domestic producers. The Commission reasoned that prices of Korean imports were 
higher t han the subsidised imports and only slightly below prices of domestic producers and hence 
their contribution would only be limited. This finding is further supported by the lower volumes of 
Korean imports and the fact that subject imports increased by 440%  whereas Korean imports only 
increased by 146% since 2006. This type of qualitative explanation is exactly what the case -law 
requires. No additional quantification of the injury is required under Article 15.5.  
 
43. Regarding the economic downturn , the EU r ecalls that the Commission found that the 
downturn did have an injurious effect. But the downturn did not break the causal link because it 
had a global character and hence affected all companies more or less equally. In addition, the 
Commission stated in t he determinations that the downturn had no impact on the period prior to 
the last quarter of 2008. This made clear that the downturn only affected part of the period 
considered (i.e. 1 January 2006 to the end of the IP), namely three quarters out of 3.5 ye ars and 
part of the IP, namely three out of four quarters starting in September 2008. The downturn 
therefore only affected 3 quarters during the period considered and during the IP and hence had a 
limited impact in terms of duration.  
 
44. The Commission ma de it clear in its determinations that oil prices  were not low but volatile 
during the IP and that they were "world" prices and hence applied to all companies equally. Oil 
price developments did not break the causal link.  
 
45. Regarding non-cooperating EU producers , the EU recalls that the market share of the 
subsidised imports increased by almost 500% during the period considered whereas the non -
cooperating EU producers lost 20% market share during the same time. This would in itself be 
sufficient to count er any argument that these producers would have broken the causal link. The 
Commission also assessed the market shares during a period of 4 years and did not simply carry 
out a point -to-point analysis of two years. In addition, the EU observes that several  non-
cooperating producers exited the market during or shortly after the IP, which confirms that the 
slight increase of market share during the IP of was not a reversal of the previous trend of 
declining market shares.  
 
46. Pakistan's claims under Article 15.5 should therefore be rejected.  
 
2.5. CLAIMS RELATING TO VE RIFICATION VISITS (ARTICLE 12.6  SCM  AGREEMENT ) 
 
2.5.1.  The proper legal standard under Article 12.6 of the SCM Agreement and the 
meaning of "result " 
 
47. Article 12.6 of the SCM Agreement makes  it clear that investigating authorities are not 
required to conduct a verification visit but rather gives permission to do so ("may carry out…"). 
Regarding the disclosure of the results of the verification visit to the verified firms, Article 12.6 
allows for two methods: the investigating authority either "shall make the results of any such 
investigations available", or "shall provide disclosure thereof pursuant to paragraph 8, to the firms 
to which they pertain". The purpose of the disclosure requirement under Article 12.6 is to make 
sure that exporters, and to a certain extent other interested parties, are informed of the 
verification results and can therefore structure their cases for the rest of the investigation in light 
of those results.  
 
48. The phra se "results of any such investigations" within the meaning of Article 12.6 is to be 
understood as category of information closely related to the "essential facts" within the meaning of 
Article 12.8. In fact, the cross -reference to Article 12.8 in Article 1 2.6 confirms this close 
relationship. The "results of any such investigations" are used, together with other information 
available, to form the universe of essential facts used by the investigating authority in its WT/DS486/R/Add.1  
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  determination. This category related to t he essential facts with respect to the verification visit can 
either be made available separately (as is the practice of some investigating authorities) or in the 
context of the disclosure of essential facts under Article 12.8 (as is the practice for examp le of the 
Commission). This is also in line with the interpretation of the term "results" as posited by the 
European Union. A result is an outcome. The "outcome" of a verification visit cannot therefore be 
mere factual information about the verification vi sit as such, e.g., a detailed account of what 
happened during the visit, or which documents were requested by the Commission or were 
provided by Novatex. Such facts are the verification visit (or, in other words, concern the process 
of the verification vis it), but they are not an "outcome" or "result" of the verification visit.  
 
49. There is no requirement that the investigating authority prepare written "minutes" of the 
verification visit. If what Pakistan wants is minutes of the verification visit, such minutes can be 
easily prepared by the company investigated. The investigating authority usually only has 2 
officials on the spot whereas the company may have hundreds of employees available as well as 
its legal representatives. It is not the task of invest igating authorities to draft minutes for the 
company.  
 
50. "Result" does not include an explanation why the authority looks at certain information as 
requested by Pakistan. It is obvious and needs no further detailed explanation that the overarching 
reason  of the verification visit is to verify the accuracy of previously submitted documents and 
possibly of documents submitted during the verification visit. "Result" also does not include 
information as to whether a verification visit was successful or not as  argued by Pakistan 
(e.g. whether the information previously provided is accurate). This is because the ultimate 
"success" of a verification visit can only be determined once all other information has been 
assessed and cross -checked, i.e. at the disclosure  stage. It would also make little sense to report 
on which information was successfully or unsuccessfully verified during the verification visit when 
many of the documents may not even be relied on by the investigating authority in its 
determinations.  
 
2.5.2. Pakistan's claims that the results of the verification visit were needed to defend 
itself are not credible  
 
51. Pakistan has failed to demonstrate how the alleged failure by the Commission to provide the 
results of the verification visit would have im peded Pakistan's or Novatex's rights of defence. Quite 
to the contrary, both parties have been perfectly able to defend themselves during the CVD 
investigation and Pakistan in the present panel proceedings. Pakistan also has not shown 
concretely in the cas e at hand how its rights of defence were allegedly compromised. Pakistan 
argues that if a "result" of the verification visit, as understood by Pakistan, would be provided by 
the authority, then the authority would be unable to "ignore" whatever information  is provided by 
the company. Such a proposition is of course incorrect. The fact that the authority verifies certain 
information provided by the company does not mean that it has to agree with the company's view 
regarding such information. The authority ma y still "ignore" the company's view if it has reasons to 
do so, even if the authority confirms that such information was checked at the company's 
premises, thereby providing the "result" of the verification visit. The disagreement about the 
moment of drawd own of certain amounts in the calculation sheets provides a good example. The 
Commission did verify the calculation sheets submitted by Novatex and sent out a deficiency letter 
regarding the incorrect commercial interest rate provided by Pakistan. Neverthe less, this 
verification did not prevent the Commission from interpreting the column "Opening" differently 
than Pakistan. Nor did the knowledge by Pakistan that the calculation sheets were verified by the 
Commission have any relevance for its defence since Pakistan has not once made reference to this 
fact during the entire proceeding - even though it claims that knowledge about whether certain 
information was verified is of paramount importance.  
 
52. This example shows that the essential due process safeguar d with respect to information 
being "ignored" by the authority cannot be the "result" of the verification visit. Safeguarding due 
process rights is precisely the purpose of instruments such as the disclosure of the essential facts 
which sets out the author ity's factual and legal interpretations and provides the company with the 
possibility to defend itself.  
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  2.5.3.  Pakistan was informed of the result  
 
53. In the present case, Novatex was informed by pre -verification letter that the verification visit 
would  focus on the MBS programme. Recitals 68 -72 of the Provisional Determination set out in 
considerable detail what type of information the Commission checked during the verification visit 
(e.g., the (non)existence of a proper verification system, the records  of input goods received, the 
Analysis Certificates etc.). In addition, several of the items in the log of exhibits concern the MBS 
programme. Even assuming that Novatex was not provided with the log of exhibits, Novatex held 
originals or a copy of all the  documents that were collected during the verification visit (both as 
regards the MBS and other subsidy schemes). Other items that were also relevant for the other 
subsidy schemes were verified in addition, such as the company's turnover and sales figures and 
(KIBOR) interest rates as submitted by the company. Novatex and/or its legal counsel were 
present or had the opportunity to be present during the entire verification visit. Any new 
documents during the visit would have to be handed out by Novatex. The European Union also 
recalls that Pakistan in its First Written Submission did not appear to take issue with a purported 
lack of "result" a as regards the MBS programme, the main aspect of the verification visit.  
 
54. In sum, Pakistan's claim under Article  12.6 should be rejected.  
 
3. CONCLUSIONS  
 
55. In view of the foregoing, the European Union requests the Panel to reject Pakistan's claims 
in their entirety.  
 
_______________  
 
 
 
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  ANNEX C  
ARGUMENTS OF PAKISTA N 
Contents  Page  
Annex  C-1 First Integrated Exe cutive Summary of Pakistan  C-2 
Annex C -2 Second Integrated Executive Summary of Pakistan  C-18 
 
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  ANNEX C -1 
FIRST INTEGRATED EXE CUTIVE SUMMARY OF PA KISTAN  
Prepared with the cooperation of the Advisory Centre on WTO Law  
1.  INTRODUCTION AND OVE RVIEW  
1.1. In this dispute, Pakistan challenges several aspects of the EU's Determinations in a CVD 
investigation concerning polyethylene terephthalate (PET) from, inter alia, Pakistan. Pakistan's 
claims concern various aspects of the subsidy determination, the causati on analysis, as well as the 
lack of disclosure of verification results.  
 
2.  PAKISTAN'S ARGUMENTS  UNDER ARTICLE 6.2 OF  THE DSU  
2.1. The EU makes a number of procedural objections under Article 6.2 of the DSU. First, the EU 
contends that the "references to Annexes I, II and III of the SCM Agreement contain multiple 
obligations and, thus, the European Union fails to understand to which specific obligations within 
those provisions Pakistan is referring".1 The EU's objections are without merit.  
 
2.2. Pakistan's  panel request clearly specifies items (h) and (i) of Annex I to the SCM Agreement, 
each of which contains one particular category or type of export subsidy. Each of these provisions 
contains a specific obligation on investigating authorities. Thus, the EU  clearly could understand 
from the panel request to which "specific obligations" Pakistan referred.  
 
2.3. With respect to Annexes II and III, Pakistan notes that these Annexes are referenced in 
Annex I(h) and I(i) described above and constitute guidelines for the interpretation of the 
obligations set out therein. As such, they provide a detailed explanation of an integrated and single 
process that reflects and leads up to a unified, single and "overarching" fundamental obligation2, 
that is, a determination of whether the alleged subsidy satisfies the definitions in Annex I(h) or 
I(i). In any case, Pakistan has identified in the panel request the specific paragraphs on Annexes II 
and III it considers to have been violated: Annexes II(I)(1) -(2), II(II)(1) -(2), (III)(I) and 
(III)(II)(1) -(3). WTO jurisprudence has made clear that a comprehensive reference to a set of 
legal rules is permissible when the complainant makes a claim concerning this set of rules in its 
totality.  
 
2.4. Moreover, even if Pakistan was req uired under Article 6.2 of the DSU to identify the specific 
procedural step in Annexes II and III, the panel request clearly set out that Pakistan was taking 
issue with the fact the Commission countervailed the entirety of the duty remissions, as opposed 
to the "excess portion of these refunds". Thus, by referring to the "excess portion" it is clear that 
Pakistan referred to the specific part of Annexes II and III that refer to it. In this respect, WTO 
jurisprudence confirms that a reference to, for instanc e, Article 3 of the Anti -Dumping Agreement 
may be sufficient if a reader can discern, from the narrative in the panel request, the specific 
paragraph(s) or obligation(s) to which the complainant refers.3 
 
2.5. Second, with respect to the LTF -EOP programme,  the EU argues that the phrase "by failing 
to explain adequately the application of its method to calculate the benefit in the case at hand" 
does not allow it to "identify in any of the provisions listed therein" the "problem" described by 
Pakistan.4 The E U argues that "[t]he provisions cited by Pakistan appear to address substantive 
violations as opposed to failures to provide adequate reasoning".5 
 
                                                
1 EU's Request for a Preliminary Ruling, para. 41.  
2 Panel Report, China – Broiler Products , para. 7.521.  
3 Appellate Body Report, Thailand – H-Beams , para. 90; and  Panel Report, Thailand – H-Beams , 
para. 7.36.  
4 EU's Request for a Preliminary Ruling, para. 43.  
5 EU's Request for a Preliminary Ruling, para. 43.  WT/DS486/R/Add.1  
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  2.6. Thus, the EU disagrees with Pakistan on whether the "problem" described by Pakistan is 
capable of viola ting the WTO provisions cited in the panel request. This is, however, a matter to be 
dealt with on the merits of this dispute. In fact, in response to similar objections, the 
Appellate  Body has stated that "the question of whether the measures identified i n the panel 
request can violate, or cause the violation of, [a WTO] obligation [] is a substantive issue to be 
addressed and resolved on the merits".6 
 
2.7. At any rate, the EU's objection cannot be upheld because the narrative of Pakistan's panel 
request clearly reflects the wording of, for instance, the chapeau  of Article 14 of the 
SCM Agreement. Moreover, the EU's objection unduly parses out the distinction between 
substantive and procedural violations in the realm of trade remedies. The Appellate Body h as 
consistently stated that substantive violations are to be assessed against the explanation given by 
the authority, and that a lack of appropriate explanation "enables panels to determine" an 
inconsistency with the substantive provisions.7 For these reas ons, the EU's objection cannot stand.  
 
2.8. The EU makes three additional objections to the panel request. In response, first, 
Articles  10, 19.1 and 32 of the SCM Agreement were explicitly referred to in the panel request. 
Second, even though Article 32 ha s been referred to generally, the narrative in the panel request 
makes clear that Pakistan referred to the first paragraph only. Pakistan fails to see how the EU was 
somehow prevented from understanding that Pakistan was referring to Article 32.1. Third, e ven if 
Article 1.1(b) of the SCM Agreement was not explicitly mentioned in the panel request, a violation 
of this provision follows automatically from a violation of Article 1.1(a)(1)(ii), given that revenue 
forgone or not collected is tantamount to provid ing a benefit and no separate analysis of a benefit 
is thereby required.  
 
2.9. Finally, the EU has also argued that Pakistan's claim under Article 12.6 is not properly 
specified because Pakistan did not identify which of the two options for disclosing veri fication 
results the EU chose. This assertion is illogical. Pakistan argues that the EU adopted neither of the 
two alternative means of disclosure under Article 12.6. Moreover, at the time of drafting the panel 
request, Pakistan could not have known which of the two permissible alternative approaches the 
EU would argue it adopted during the investigation.  
 
3.  PAKISTAN'S CLAIM CON CERNING THE MANUFACT URING BOND SCHEME (M BS) 
3.1 Introduction  
3.1. The EU acted inconsistently with Articles 1.1(a)(1)(ii), 1.1(b) , 3.1(a), 10, 19.1, 32.1 and 
Annexes I(i), II(II) as a whole, II(II)(1) and II(II)(2) of the SCM Agreement, as well as 
Article  VI:3 of the GATT 1991. The core of the issue is that the EU incorrectly determined that a 
subsidy existed in the form of the totality of the duties drawn back/remitted, rather than only the 
excess  drawback/remission, if any. Moreover, in reaching that incorrect subsidy determination, the 
EU failed to observe the prescribed analytical process set out in Annexes II and III of the 
SCM Agreement and violated a number of other related requirements enshrined in the above -
mentioned provisions.  
 
3.2 A duty drawback scheme gives rise to a subsidy only if there is an excess 
drawback  
3.2. A subsidy under a duty drawback/remission scheme within  the meaning of Footnote 1 and 
Annex I(i) to the SCM Agreement can exist only if there is an excess  drawback or remission. As a 
matter of legal principle, under the SCM Agreement, the totality of the duties drawn back is never  
the subsidy. For instance, Fo otnote 1 of the SCM Agreement states that duties drawn -back or 
remitted not in excess are deemed not to be a subsidy. However, under the EU's reading, 
Footnote  1 is a conditional exception (a "carve -out") to the otherwise applicable rules of the 
SCM Agreem ent and this exception may or may not apply, depending on whether the duty -
drawback regime of the exporting Member satisfies certain conditions set out in Annexes II 
and III. 
 
                                                
6 Appellate Body Report, Australia – Apples, paras. 423 -425.  
7 Appellate Body Report, US – Steel Safeguards , paras. 301 -303. WT/DS486/R/Add.1  
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  3.3. This is demonstrably incorrect. Footnote 1, together with the Ad Note Artic le XVI of the 
GATT 1994, Annex I(i), and Annexes II and III, reflect a special rule applicable to duty drawback 
systems. This rule stipulates that only the excess drawback  can constitute a subsidy. There are no 
other (default) rules applicable to duty draw back schemes. The principle that only the excess 
drawback or remission can be a subsidy is also explicitly set out in Annex I(g) and I(h), which like 
Annex I(i) relate to indirect  taxes or charges. In contrast, Annex I(e), which relates to direct  
charges, considers any exemption or remission as a subsidy.  
 
3.3 Footnote 1 is not a conditional carve -out and the EU's reading of the "in 
accordance with" introductory clause is nonsensical  
3.4. The EU is incorrect in reading the "In accordance with" introductory clause under Footnote 1 
as a condition for the applicability of the remainder of the footnote. The EU would have the Panel 
read the clause as "If the facts are in accordance with … ". However, the "[i]n accordance with" 
phrase does not express any conditio nality, but instead clarifies that the provisions listed therein 
(the Ad Note Article XVI, and Annexes I through III) reflect the same cardinal and decades -old 
principle as the second part of Footnote 1, that is, that only an excess drawback or remission c an 
be a subsidy. The correct reading of the words "in accordance with" in Footnote 1 is therefore "as 
stated in", "as stipulated in", "in harmony with", "as provided in".  
 
3.5. In this regard, the grammar and syntax of Footnote 1 are similar to, for instan ce, 
Article  19.2 of the DSU, Article 4.1(b) of the Agreement on Safeguards and numerous other 
provisions in the covered agreements. If these provisions were given the reading proposed by the 
EU for Footnote 1 – that of a condition for the application of th e rest of the provision – they would 
become entirely nonsensical. Moreover, the ordinary meaning of the words "in accordance with" is 
not to create a condition, as the EU's interpretation would require. When the drafters wished to 
create a conditionality, and make the applicability of a provision dependent on compliance with 
another provision, they used words or phrasing such as "if", "when", "provided that", "unless that", 
etc. This can be seen, for instance, in Article 1.2 of the SCM Agreement, Article 2. 9 of the 
TBT Agreement or other provisions throughout the covered agreements.  
 
3.4 The drafting history confirms Pakistan's reading of Footnote 1  
3.6. The drafting history of the SCM Agreement during the Uruguay Round confirms Pakistan's 
reading of the phr ase "in accordance with". As late as 1990, the draft text of the SCM Agreement 
contained an introductory ("In accordance with") clause that referred only to the Ad Note to 
Article  XVI, and not also to Annexes I to III. Because the text of the Ad Note is id entical to the 
second clause of the Footnote, the words "in accordance with" must have the meaning argued by 
Pakistan, namely, "as stated in", "as stipulated in", "in harmony with", "as provided in".  
 
3.7. In the final version of the SCM Agreement, the dra fters chose to include also Annexes I 
through III in the "in accordance with" clause. Thus, the drafters obviously must have considered 
that the reference to Annexes I through III fitted within the existing meaning, structure and thrust 
of the sentence, wh ich defined the subsidy as the excess remission or drawback only. The drafters 
cannot have intended to change fundamentally, at the last minute, a clear definition found in 
GATT/WTO law since the 1950s, by creating conditions for the applicability of that definition.  
 
3.5 The EU's reading of footnote 1 contains additional logical problems  
3.8. The EU's reading of Footnote 1 also creates several logical problems. First, Annexes II 
and III apply only in a countervailing duty investigation . It is therefore no t clear how the EU's logic 
would apply when a direct challenge is brought against a subsidy in a WTO dispute under Article 3 
of the SCM Agreement, and when no prior CVD investigation has taken place. Second , Annexes II 
and III contain obligations on an inv estigating authority  to adopt a certain analytical approach, in a 
certain sequence. If the investigating authority fails to comply with these requirements, the 
exporting Member and its companies would then suffer the adverse consequences. Third, it is not 
clear how a WTO panel, in a direct WTO challenge against a subsidy, could comply with a 
definitional provision such as Annex I(i), as a condition for applying another definitional provision.  
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  3.6 Pakistan was not required to make its claim under Article 1 .1(b) or 14 of the 
SCM Agreement  
3.9. The EU also argues that Pakistan accepts that a financial contribution existed and that it 
takes issue only with the Commission calculation of the amount of the subsidy. This, in the EU's 
view means that Pakistan shou ld have brought its claim under the provisions relevant for benefit, 
that is, Articles 1.1(b) and 14 of the SCM Agreement.  
 
3.10.  The EU's assertions are without merit. A subsidy consists of a financial contribution and a 
benefit element. These two element s are separate and must not be confused. In the case of duty 
drawback systems, determining the existence of an excess drawback is part of the definition of a 
financial contribution. Footnote 1, one the key provisions in this dispute, is attached to 
Article  1.1(a)(1)(ii), which is concerned with the determination of the financial contribution. For 
some subsidies, such as grants or government revenue foregone, identifying the financial 
contribution, for all practical purposes, has the effect of quantifying th e benefit also, and relevant 
WTO caselaw confirms this.8 However, this does not undermine the conceptual distinction between 
the two elements. Pakistan's case rests primarily on the issue of identifying the financial 
contribution.  
 
3.7 There is no basis f or the EU's argument that the investigating authority is entitled 
to assume that the entirety of the duty remission is a subsidy  
3.7.1  Introduction  
3.11.  The EU relies on a range of arguments to argue that an investigating authority has discretion 
to "ass ume" that the entirety of the drawn -back duties constitute the excess amount.9 This 
discretion would be triggered by a determination that the exporting Member's monitoring 
mechanism is not adequate, and when no additional investigation by the exporting Mem ber has 
been undertaken.  
 
3.12. However, in this case, the Commission failed to provide the Government of Pakistan with an 
opportunity to conduct that further examination. The absence of the allegedly required information 
is therefore the EU's own responsi bility. Second, even if no additional investigation was conducted, 
there was nevertheless record evidence on which the Commission could have relied to examine the 
existence and amount of any excess. Third, all provisions at issue make clear that, even wher e a 
monitoring system is considered inadequate, the resulting subsidy can only be the amount of any 
excess remission. Nothing in these provisions suggests that all amounts  remitted (including those 
that are clearly not in excess) may be treated as a financ ial contribution.  
 
3.7.1  The EU has failed to provide Pakistan with the opportunity to conduct the "further 
examination"  
3.13.  The EU claims the right to "assume"10 that the entirety of refunded duties constitute a 
subsidy, in part because there was "no re liable information provided by [Pakistan] about the actual 
amounts of imported materials incorporated into the exported products".11 However, the 
investigating authority must provide a meaningful opportunity for the exporting Member to 
conduct the "further examination", which comes only after the monitoring mechanism has been 
found to be inadequate.  
 
3.14.  It is common sense that the exporting Member cannot conduct this investigation before  it 
has been apprised of the ruling of the investigating authority ab out the monitoring mechanism. 
Similarly, an investigating authority cannot determine at the same time  that the verification 
system is insufficient and that the exporting Member has failed to conduct the "further 
examination". Finally, the exporting Member requires at least some time  to conduct that 
examination and subsequently communicate the results to the investigating authority.  
 
                                                
8 Panel Report, US – Aircraft , paras. 7.115 – 7.167; Panel Report, US – FSC (21.5),  paras. 8.3 – 8.43; 
Appellate Body Report, US – FSC (21.5) , para. 106.  
9 EU's first writ ten submission, paras. 91 and 92.  
10 EU's first written submission, paras. 91 and 92.  
11 EU's first written submission, para. 98.  WT/DS486/R/Add.1  
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  3.15.  In this case, the EU made a simultaneous finding, in its Preliminary Determination, that the 
monitoring mechanism was in adequate and that Pakistan "had failed" to conduct the further 
examination. An investigating authority that was genuinely open to seeing the exporting Member 
conduct the "further examination", and was open to relying on the results, would not have used 
the language used by the Commission. Therefore, faced with the Commission's determination and 
tis failure to ask Pakistan to conduct an examination, Pakistan could reasonably conclude only that 
there was no scope for any such "further examination", because th e EU was simply not interested 
in the results. This is confirmed by the subsequent parts of the Determination, in which the 
Commission refers only to its finding that the monitoring mechanism was not adequate, not to any 
failure of Pakistan to follow up. T hese statements reveal, in essence, that the EU considered the 
mandated "further examination" as a dispensable and ultimately not relevant part of the 
investigation. In these circumstances, the Commission's reference to Pakistan's alleged failure to 
conduc t the "further examination" appears at most to pay lip service to the legal text, rather than 
being a proper application of the analytical steps of Annexes II and III.  
 
3.16.  In any event, the Commission was also obliged to inform the exporter of: the type  of 
information the investigating authority would accept as output of the "further examination"; the 
form and format in which the results of the "further examination" had to be reported; the required 
procedural steps taken during the "further examination" and any required communication with the 
investigating authority prior to the conclusion of the "further examination"; and the time frame for 
the further examination and the deadline by which the exporting Member was required to report to 
the investigating authority the results of the "further examination". This obligation is analogous to 
that in Article 12.1 of the SCM Agreement, which requires an investigating authority to "give 
notice" to "[i]nterested Members and all interested parties" "of the informati on which the 
authorities require".  
 
3.7.2  Following the procedures of Annexes II and III does not entitle the investigating 
authority to disregard the investigation record  
3.17.  The EU also argues that Annexes II and III provide for certain investigative s teps, but that 
they do not address "how" an analysis of the excess should be undertaken.12 The EU also argues 
that Annexes II and III do not address the consequences  of the various intermediate conclusions 
that an investigating authority might reach under t hese procedures. In the EU's apparent view, 
these perceived "gaps" under Annexes II and III entitle the investigating authority to "assume" 
that the entire refunded amount, rather than just the excess, amounts to a subsidy.  
 
3.18.  There is no basis for th is view. First, as Pakistan has demonstrated, whatever the outcomes 
of the prescribed analytical steps under Annexes II and III, the underlying legal principle remains 
that only the excess remission or drawback can be a subsidy. Second,  Pakistan does not a gree 
with the EU's reading of certain parts of Annexes II and III. By way of example, contrary to the 
EU's assertions, if a monitoring mechanism is found effectively to apply, a presumption exists that 
no subsidy exists even under Annex II, which is less e xplicit on this particular point than Annex III.  
 
3.19.  Third, nothing in Annexes II and III relieves the investigating authority of its obligation to 
actually analyse the data before it or to explain why the data is considered unreliable. Rather than 
making "assumptions" without any basis on record evidence, the authority must base its decision 
on any other available record evidence, or third -source information. The investigating authority 
can address any data deficiencies in the same manner as it would fo r any other subsidy in a 
countervailing duty investigation, including by relying on facts available.13 
 
3.20.  Annexes II and III provide for additional  rules that apply together with the normal rules and 
principles. This cumulative application of legal prov isions is one of the cardinal rules of WTO law.14 
Hence, application of Annexes II and III does not mean that other rules cease to apply.  
 
3.21.  Finally, the investigation concerns an exporter, and not the government; and any CVD 
action is imposed on the ex porter, and not the government. The investigating authority cannot 
equate misgivings about a government's documents or actions with misgivings about an exporter's 
                                                
12 EU's first written submission, paras. 72 and 74.  
13 Appellate Body, Mexico – Anti-Dumping Measures on Rice , paras. 290 - 295. 
14 See, for instance, Appellate Body Report, Korea – Dairy , para. 74. See also Panel Report, Indonesia – 
Autos , para. 14.56.  WT/DS486/R/Add.1  
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  data. The authority cannot "punish" an exporter for any real or perceived flaws in the 
govern ment's regulatory system or the government's actions in the investigation.  
 
3.7.3  Record evidence does not suddenly become unreliable because the investigating 
authority has determined that the monitoring mechanism is not adequate  
3.22.  The EU also appears  to believe that, when the investigating authority finds that the 
monitoring mechanism is not adequate, all the remaining information on the record, from 
whatever source, is no longer reliable. But that cannot be correct. The monitoring mechanism 
under a d uty drawback scheme relates to how a government operates an overarching system that 
applies to multiple companies. It is separate from the data and financial records of individual 
companies that operate under that regime. The drafters of the SCM Agreement also saw these two 
as separate, since both Annex II and III envisage a "further examination" on the basis of "actual 
inputs"15 or "actual transactions involved".16 In this investigation, the use of the "input/output" 
ratio in the context of the duty drawback  scheme – the main reason why the Commission 
considered the MBS monitoring mechanism unsatisfactory – says nothing about how the company 
in its own records tracks its actual stocks, the quantities produced and exported, and the prices of 
its inputs.  
 
3.23. In certain prior investigations in which it found that a monitoring mechanism did not exist or 
was inadequate, however, the Commission went on to find that the company was able to 
demonstrate that no excess remission had occurred.17 Moreover, in this case , the Commission 
continued to rely extensively on information and data provided by the company, despite its 
misgivings about the government's monitoring mechanism. The Commission relied, for instance, 
on the volume and value of PTA imports imported by Nova tex into the MBS, as well as the volume 
and value of Novatex' exports out of the MBS. Furthermore, the Commission conducted a parallel 
anti-dumping investigation on the same product. Both preliminary AD and CVD determinations 
were published on the same day . In the dumping determination, the Commission relied on a broad 
range of Novatex's data, including cost of production data that tracked separate raw input for 
domestic and for export production that could have been used in determining whether an excess 
existed.  
 
3.7.4  There was extensive record evidence that the Commission could have relied on in 
order to estimate any alleged excess remission  
3.24.  Even though the Commission did not properly investigate, there was record evidence on 
which the Commission c ould have relied to estimate any alleged excess remission. Contrary to 
what the EU claims, Pakistan's arguments on this point do not mean that Pakistan admits that 
there was in fact an actual excess, within the meaning of Footnote 1 and Annex I(i).  
 
3.25.  Finally, the evidence suggests that it was highly unlikely that all of the duties remitted were 
an "excess". Novatex made substantial exports during the PoI, implying that, at the very least, a 
very high proportion of the imported inputs were actually exp orted. They must have been 
incorporated into the final exported product. Consequently, the EU could – if at all – countervail 
only a (small) proportion of the refunded/drawn -back duties as a subsidy.18 
 
3.26.  Contrary to what the EU argues, there is not a s hred of evidence that Novatex diverted 
duty-free (MBS) imported PTA into the domestic market. Indeed, Novatex was legally precluded 
from doing so, unless it paid the import duty. The Commission's determination speaks a different 
language, in that it reflec ts acceptance of the fact that imported inputs were used for production 
for export. The Commission's criticism of the MBS revolves largely around the input/output ratio.  
 
3.27.  Moreover, the Commission had before it extensive evidence that showed how Nova tex 
traced raw inputs throughout its production chain. Specifically, in response to the Commission's 
third deficiency letter19, Novatex filed over 1,000 pages of documentation relating to the MBS, for 
two sample months in the PoI selected by the Commission.  This included examples of the type of 
                                                
15 Annex II(II)(2).  
16 Annex III(II)(3).  
17 Commission Regulation (EC) No 1411/2002 of 29 July 2002 and Commission Decision 
No 284/2000/ ECSC of 4 February 2000.  
18 Pakistan's first written submission, paras. 5.47 – 5.48. 
19 Exhibit PAK -20. WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-8 - 
 
  documentation that Novatex presented to Pakistani customs upon the exportation of PET, in order 
to claim the release of securities posted on imports of raw materials.20 These documents link the 
final exported PET to th e imported raw materials, including PTA, consumed in the production of the 
exported PET. The Commission never mentioned, let alone analysed, that evidence. An 
investigating authority cannot expressly request such extensive highly relevant information and 
then simply act as if that evidence were never part of the investigation record.  
 
3.28.  In addition, there was substantial evidence on the record to confirm whether an excess 
remission was taking place. For instance, the company traced its actual consumptio n data and, on 
its own initiative, periodically reported any differences to the input/output ratio -based consumption 
data to the Pakistani authorities. The Commission explicitly acknowledged this practice by the 
company in its Determination. Novatex conduc ted a similar exercise for the Commission during the 
investigation, by presenting it with its actual consumption data for the period of investigation. This 
data showed a deviation of 0.71% and 1.16%, respectively, for the two key raw materials.21 
Although t his difference was only temporary and would have been later accounted for (and 
therefore was not a real "excess"), the Commission could have used this figure to estimate the 
amount of any perceived excess. The Commission could have estimated that the drawb ack was 
1%, rather than 100% under its unsupported "assumption". This would have meant a 
subsidization margin (from the MBS programme) of 0.0384%, rather than 2.57%. Instead, the 
Commission simply ignored the data.22 
 
3.29.  Pakistan also pointed to other ev idence, such as data from a pre -PoI analytical exercise 
through which Novatex's input/output ratio was revised and adjusted. The relevant data pointed to 
a difference, again, in the range of 1 -2% of an excess (rather than the 100% assumed by the 
Commission ), which would have yielded a subsidization margin of well below 0.1%, instead of the 
2.57% calculated by the Commission.  
 
3.8 Conclusion and request for findings  
3.30.  For all of the above reasons, Pakistan requests that the Commission has acted inconsist ently 
with its multilateral obligations under the SCM Agreement and the GATT 1994, as set out in detail 
in paragraphs 5.133 to 5.135 of Pakistan's first written submission.23 
 
4.  PAKISTAN'S CLAIM CON CERNING THE LTF -EOP PROGRAMME  
4.1. The EU violated Articl es 1.1(b), the chapeau of Article 14, Article 10, 14(b), 19.1, and 32.1 
of the SCM Agreement, and Article VI:3 of the GATT 1994, because it applied a single (and ill -
suited) commercial interest rate benchmark to Novatex's multi -tiered LTF -EOP loan, because  it 
failed to explain the application of the methods enshrined in its domestic law and because it failed 
to analyse whether a comparable commercial loan existed in order to calculate the amount of the 
subsidy.  
 
4.1 The structure of the LTF -EOP loan  
4.2. The basic structure of the LTF -EOP loan was as follows. In 2005, Novatex obtained a loan 
from a consortium of five Pakistani banks. Disbursement of the principal took place in tranches. 
When a particular tranche was drawn down, the interest rate set by the P akistani Government for 
that year got "locked in" for that particular tranche, for the remainder of the duration of the loan. 
Hence, even if the interest rate increased or decreased in subsequent years, this change would 
affect only the tranches drawn down  in each subsequent year. Tranches drawn down in previous 
years remained subject to the interest rate prevailing at the time of draw -down of each tranche.  
 
4.3. The loan agreement was executed on 9 June 2005, and the funds became effectively 
available on 1 6 June 2005 (the "Facility Effective Date"). At least half of the total authorized 
amount of [***]  rupees was to be drawn down within [***]  months of the Facility Effective Date, 
                                                
20 Novatex' Response to the Commission's Third Deficiency Letter, dated 10 December 2009. Exhibit 
PAK-51. 
21 Pakistan's first written submission, para. 5.11 0. 
22 See Exhibit PAK -11. 
23 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the 
SCM Agreement.  WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-9 - 
 
  and the rest within [***]  months of the Facility Effective Date. The [***] -month deadline was 
extended several times due to unforeseen circumstances, such that Novatex made its last draw -
downs during the PoI.  
 
4.4. The principal repayment terms were "up to seven and a half years (90 months)", to be made 
in "up to twelve consecutiv e, equal, semi -annual instalments", with an 18 -month grace period 
before the first repayment of principal. The vast majority (over 90%) of funds outstanding during 
the PoI had been drawn down in years prior to the PoI, in periods when the commercial intere st 
rate was significantly lower than the commercial interest rate during the PoI.  
 
4.5. In its Questionnaire response, Novatex reported to the Commission all of the amounts 
outstanding during the PoI, that is, amounts drawn down prior to the PoI as well a s amounts 
drawn down during the PoI.  
 
4.2 The EU's changing position on the monetary amounts countervailed wholly 
undermines its credibility on this issue  
4.6. During these proceedings, the Commission has changed its description of how it understood 
the fa cts during the investigation. In its first written submission, the Commission stated 
emphatically that it countervailed only the amounts drawn down during  the PoI, to the exclusion 
of amounts drawn down prior to  the PoI. The EU continued to make these asse rtions in its 
Opening Statement at the Panel meeting.24 These assertions are demonstrably incorrect, as the 
spreadsheets used included amounts drawn down prior to and during  the PoI. The Commission 
was thus under a mistaken impression as to what exactly it had calculated.  
 
4.7. In a complete reversal of its previous argument, the EU in its oral responses to the Panel's 
questions at the meeting began to claim that it knew all along that the spreadsheet contained all 
amounts outstanding during the PoI, includ ing drawdowns prior to the PoI. In Pakistan's view, this 
change in the EU's factual description affects the credibility of all of the EU's arguments on this 
issue.  
 
4.3 The Commission countervailed the entire amount outstanding during the PoI, not 
only the  amounts drawn down during the PoI  
4.8. Pakistan explained in detail that the loan amounts listed by Novatex in its Questionnaire 
Response, separately for each of the banks involved in the LTF -EOP loan, were the total amounts 
outstanding during the PoI. N ovatex had been requested to inform the Commission about the loan 
amounts that it "used" during the PoI. In Pakistan's view, this language can only be read as 
including amounts drawn down prior to the PoI. The term "use" in Pakistan's view clearly includes  
all amounts from which the company was drawing some benefit during the PoI, which includes 
amounts drawn down prior to the PoI, but not yet repaid prior to the PoI.  
 
4.9. The "Opening" amount in each of the bank -specific worksheets show the total cumulati ve 
amount drawn down prior to the PoI. This is obvious not only from the ordinary meaning of the 
term "Opening" (balance), which a sophisticated investigating authority such as the EU 
Commission must have understood. These figures also match the "closing" amounts for each of 
those banks in Novatex' financial statements, which the Commission had itself requested Novatex 
to file. Moreover, other columns in the spreadsheets make clear that movements in principal 
(drawdowns or repayments) were marked in an alto gether different column. All these facts meant 
that the Commission either should have known that the amounts indicated all prior draw -downs or 
at the very least could not have assumed that the amounts had all been drawn down during the 
PoI, without asking Novatex at least some relevant questions. Indeed, whenever the Commission 
applied its mind to any issue, it had no difficulties asking additional questions to Novatex.  
 
4.4 The Commission was not entitled to apply the same interest rate for all 
outstanding  amounts  
4.10.  In a reversal of its previous arguments, the EU now accepts that the Commission was aware 
that the reported amounts reflected the total amounts outstanding during the PoI, and not only 
amounts drawn down during the PoI. However, the EU now a rgues that it was entitled to apply one 
                                                
24 See for instance EU's opening statement at the first panel hearing, paras. 29 and 30.  WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-10 - 
 
  single interest rate to these entire outstanding amounts, even though the majority of the funds - 
the tranches drawn -down prior to the PoI – were subject to interest rates locked in in previous 
years.  
 
4.11.  This is entirely incorrect. The EU is asking the Panel for license to ignore the most 
fundamental difference between the terms of loans, whether they have a fixed interest rate or a 
variable interest rate. Novatex's loan is a bundle of fixed -rate tranches and had to be treated as 
such. Thus, the Commission was required to identify the commercial interest rate benchmark for a 
particular year and use it to calculate the amount of the subsidy with respect to the tranches 
drawn down during that year. However, the Commi ssion could not use, for instance, the 
commercial interest rate from 2008 in calculations for amounts drawn down during 2007. For 
amounts drawn down during 2007, the Commission was required to use a commercial interest rate 
from 2007.  
 
4.12.  If the Commiss ion's position were to prevail, investigating authorities could start treating 
any fixed -term loan as a subsidy, not because it was granted at a preferential interest rate at the 
time of disbursement, but rather only because, in a subsequent year, the comm ercial interest rate 
happened to change. This cannot be correct. An investigating authority must respect the basic 
terms and conditions of the subsidized loan when identifying a commercial interest rate 
benchmark. Distinguishing between a fixed -rate and va riable -rate loan is one of the most 
fundamental terms and conditions, and an investigating authority cannot be permitted to ignore it.  
 
4.5 The Commission is incorrect in arguing that Novatex's loan was not a loan, but a 
line of credit  
4.13.  The Commission  argues that it determined that Novatex's loan was not a standard loan, but 
rather a line of credit. This finding, in the Commission's view, justifies the application of a single 
commercial interest rate benchmark from the PoI, rather than multiple interes t rate benchmarks 
that would respect the fact that different parts of Novatex's loan were drawn down in different 
years.  
 
4.14.  The EU is incorrect in its characterization of Novatex's loan. Pakistan is not aware that the 
explanation in the Commission's D etermination contains a finding on this issue, nor did the 
Commission explain in any way to the investigated company that the Commission's subsidy 
calculation methodology would depend on this distinction. Thus, the EU's arguments on this point 
appear to be  an ex post  rationalization.  
 
4.15.  In any event, Novatex's loan is not a line of credit, in the sense that the company – as the 
EU incorrectly insinuates – had the right to draw down any amount at any time. The initial terms 
and credits made clear that 5 0% of the principal had to be drawn down within 9 months, and the 
totality of the principal had to be drawn down within the first 11 months of the entry into force of 
the loan agreement. Each drawdown had to be repaid within 7.5 years. Pakistan fails to se e how 
this kind of arrangement could be equated to, for instance, a revolving line of credit, where 
withdrawals and repayments could be made at any time at the discretion of the borrower. The 
subsequent extensions of the draw -down period came about due to unforeseen circumstances. In 
any event, the Commission never investigated this point and never asked Novatex any questions 
on this topic, even though as a diligent authority that had studied the terms and conditions of the 
agreement, it would have been awa re of the extensions of the strict draw -down deadlines.  
 
4.16.  In any event, Pakistan is not aware that the term line of credit is a term of art for purposes 
of CVD investigations that would enable an investigating authority to ignore the terms and 
conditi ons of the loan agreement/arrangement, especially that the interest rate was locked in for a 
fixed term, and to proceed to apply an interest rate that does not mirror the structure of the loan 
agreement/arrangement. Put differently, even if the Commission were correct that the loan 
agreement could be characterized as a line of credit, this does not mean that the Commission 
could apply the PoI commercial interest rate to tranches drawn down in previous years, for which 
the locked -in interest rate is the rate  applicable in the year of draw -down.  
 WT/DS486/R/Add.1  
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- C-11 - 
 
  4.6 The Commission failed to explain the applied methodology in the light of its own 
domestic law  
4.17.  The Commission's internal rules (the so -called "Guidelines for the Calculation of the Amount 
of Subsidy in Counte rvailing Duty Investigations") require the Commission to undertake a series of 
analytical steps when calculating the benefit on a subsidized loan. These Guidelines are modelled 
on Article 14 of the SCM Agreement. However, none of these steps is discernible  in any way in the 
Commission's Determination. Therefore, the Commission failed to provide the explanation required 
by the chapeau of Article 14.  
 
4.18.  First, the Commission made no effort to identify a comparable commercial loan. The 
Commission failed to  mention, let alone to analyse, the fact that Novatex proposed several 
comparable commercial loans. The Commission also made no effort to identify the interest 
normally payable on that loan. Nor did the Commission attempt to identify the interest payable o n 
a comparable loan to companies in a similar financial situation in the same sector of the economy 
or to identify the interest payable on a comparable loan to companies in any sector of the 
economy. Instead, without any explanation, the Commission used th e so-called Karachi Interbank 
Offered Rate (KIBOR) that the Commission itself identified on the internet. The KIBOR is an 
average of several lending rates in effect in the relevant period for loans of one day, one week, 
one month, one year, two years, and three years' duration. The Commission failed to explain why 
this rate would be appropriate for a loan with a tenor of 7.5 years for every tranche from the date 
of its draw -down.  
 
4.19.  The Commission also failed to reflect in its analysis the particular mu lti-tranche structure of 
the loan at issue by applying a single rate to all of the outstanding amounts, rather than 
differentiating between the sub -amounts depending on when they were drawn down.  
 
4.7 The Commission acted inconsistently with Article 14(b) because it failed to 
identify, nor did it attempt to identify, a comparable commercial loan as benchmark for 
its benefit calculations analysis  
4.20.  Article 14(b) instructs the investigating authority to undertake a "progressive search" to 
identify a compa rable commercial loan, so as to identify the proper benchmark, for an allegedly 
subsidized loan.25 The Commission failed to conduct such a progressive search. It failed to make 
any effort to identify a comparable commercial loan; it failed to acknowledge th at Novatex 
submitted a number of commercial loans it had itself concluded, by way of identifying the proper 
commercial interest rate benchmark, much less explained why it did not use these loans. All of the 
EU's statements on this point before the Panel ar e impermissible ex post rationalizations.  
 
4.21.  The Commission also violated Article 14(b) because it applied the KIBOR, which is a blend of 
interest rates for tenors of up to 3 years, which is much shorter than the 7.5 years under 
Novatex's LTF -EOP loan s. The Commission failed to explain why, these differences 
notwithstanding, the KIBOR was not only an appropriate interest rate benchmark, but also was 
better than any other commercial interest rate benchmark available to the Commission.  
 
4.22.  With respec t to the EU's procedural objection that the requirement to "explain" is contained 
only in the chapeau of Article 14(b), the requirement to provide a reasoned and adequate 
explanation permeates most of the substantive disciplines of the SCM Agreement. This explanation 
is the vehicle by which an investigating authority demonstrates compliance with its substantive 
obligations, including that under Article 14(b). In the absence of any explanation of, for instance, 
how the authority identified, or sought to iden tify a comparable commercial loan, there is no basis 
for a WTO panel to find that the authority acted consistently with its obligations.  
 
4.8 Conclusion and request for findings  
4.23.  For all of the above reasons, Pakistan requests that the Commission has acted inconsistently 
with its multilateral obligations under the SCM Agreement and the GATT 1994, as set out in detail 
in paragraph 6.101 of Pakistan's first written submission.26 
                                                
25 Appellate Body Report,  US – AD/CVD (China) , para. 486.  
26 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the 
SCM Agreement.  WT/DS486/R/Add.1  
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- C-12 - 
 
   
5.  THE COMMISSION'S CAU SATION ANALYSIS IS I NCONSISTENT WITH ART ICLE 15.5 
OF THE SCM AGREEMENT  
5.1. Pakistan submits that the analysis of the existence of a "causal link" between the subject 
imports and the alleged injury to the domestic industry is inconsistent with Article 15.5 of the 
SCM Agreement. Pakistan's allegations are tw o-fold in this respect.  
 
5.1 The Commission's approach to causation is inconsistent with Article 15.5 of the 
SCM Agreement  
5.1.1  The Commission's finding of a causal link conflated the distinct analytical steps in 
Article 15  
5.2. The Commission's causation  analysis conflated the distinct analytical steps that an 
investigating authority is required to follow under Article 15. In this respect, the Appellate Body 
has observed that there is a "logical progression" in paragraphs 2, 4 and 5 of Article 15.27 
Article 15.2 enquires into the effects of the subject imports on the prices of the domestic product, 
notably whether such effects take the form of significant price undercutting, price depression or 
price suppression. Article 15.4 requires an assessment of the r elationship between the subject 
imports and the state of the domestic industry. Finally, and importantly, Article 15.5 requires an 
enquiry into the relationship between the subject imports and the injury to the domestic industry.  
 
5.3. In the challenged De terminations, the Commission found, as an initial matter, that the 
volumes of the subject imports had increased over the PoI28, and that the subject imports had 
undercut the prices of the EU producers.29 Moreover, the Commission found that certain indicators  
of the domestic industry's performance showed a modest decline, while others showed a 
deterioration.30 Turning to its causation analysis, the Commission recalled its finding that the 
subject imports had undercut the prices of the EU producers.  On that basi s, alone, the Commission 
found that "a causal link exists between those imports and the Union industry's injury".31 Finally, 
the Commission assessed whether the other known factors were capable of "breaking the causal 
link" previously found.32 
 
5.4. The Comm ission's causation analysis thus conflated the "logical progression" set out in 
Articles 15.2, 15.4 and 15.5. Particularly, the Commission assumed that its finding of the effects of 
the subject imports on the prices of the domestic product (price undercutt ing) constituted, without 
more, a causal link between the subject imports and the injury. By so doing, the Commission 
conflated the analysis required under Article 15.2 with that required under Article 15.5.  
 
5.5. Pakistan recalls the Appellate Body's und erstanding of the "logical progression" set out in 
Article 15 of the SCM Agreement to the effect that the outcome of the analyses under Articles 15.2 
and 15.4 are not dispositive, but rather "form the basis", of the subsequent causation analysis 
under Arti cle 15.5.33 In other words, the findings under Articles 15.2 and 15.4 do not automatically 
lead to the conclusion that there exists a causal link between the subject imports and the injury to 
the domestic industry within the meaning of Article 15.5 of the S CM Agreement. Rather, under 
Article 15.5, an investigating authority is required to assess whether, through the effects of the 
subsidies (the effects previously found under both Articles 15.2 and 15.4), the subject imports are 
causing injury.  
 
5.6. As sho wn below, by conflating the distinct analytical steps in Article 15, the Commission 
prejudged its causation analysis.  
 
                                                
27 Appellate Body Report, China – GOES , para. 128.  
28 Preliminary Determination, recital 211. Exhibit PAK -1. 
29 Preliminary Determination, recital 217. Exhibit PAK -1.  
30 Preliminary Determination, recital 239. Exhibit PAK -1.  
31 Preliminary Determination, recital 245. Exhibit PAK -1. 
32 Preliminary Determination, recitals 246 -261. Exhibit PAK -1.  
33 Appellate Body Report, China – GOES , para. 149.  WT/DS486/R/Add.1  
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- C-13 - 
 
  5.1.2  The Commission's finding of a "causal link" prior to assessing the effects of "other 
known factors" is inconsistent with Article 15 .5 
5.7. The Appellate Body has laid out a three -step analysis of causation. First, an investigating 
authority must ensure that "the injurious effects caused to the domestic industry by increased 
imports are distinguished from the injurious effects caused b y other factors".34 In "separating and 
distinguishing"35 the effects of these other factors from those of the subject imports, an 
investigating authority must provide a "meaningful explanation of the nature and extent of the 
injurious effects".36 Second, once  the effects of all factors, including those of the subject imports, 
are separated and distinguished, an investigating authority must "attribute to increased imports, 
on the one hand, and, by implication, to other relevant factors, on the other hand, 'inju ry' caused 
by all of these different factors, including increased imports".37 Third, an investigating authority 
must determine, based on the proper attribution of the injury, whether "a causal link" exists 
between the subject imports and the injury to the d omestic industry —that is, "a genuine and 
substantial relationship of cause and effect between these two elements".38 
 
5.8. The Commission's approach to finding, first, a "causal link" between the subject imports and 
the alleged injury, and then ascertaining  whether other factors could "break the causal link" is 
inconsistent with Article 15.5 and with the three -step causation analysis laid out by the Appellate 
Body. The Commission should in the first place have separated and distinguished the injurious 
effect s of all the relevant factors including those of the subject imports. Having properly separated 
and distinguished all such effects, the Commission should then have attributed to the subject 
imports the actual injury that they were causing. This analysis is  what Pakistan called a 
"simultaneous analysis" in response to Panel Question No. 73. Finally, only once the Commission 
had attributed the actual injury caused by the subject imports, would it have been in a position to 
determine whether a "causal relation ship" between these elements existed. Importantly, a finding 
of causation required ascertaining, not any causal link however remote or insignificant, but a 
"genuine and substantial relationship of cause and effect" between the subject imports and the 
alleged injury to the domestic industry.39 
 
5.9. Accordingly, the finding of a "causal link" should have been made at the third step of the 
causation analysis. Yet, by making this finding upfront, the Commission prejudged its later 
non-attribution analysis. By t he time it turned to the analysis of the other factors, the Commission 
had already found a "causal link" by virtue of its earlier finding of significant price undercutting. 
Pakistan questions how under this approach the Commission could ever find that an " other factor" 
could undo its earlier finding of the existence of a causal link between the subject imports and the 
injury to the domestic industry.  
 
5.2 The Commission's analysis of "other factors" is inconsistent with Article 15.5  
5.10.  The methodological  flaws explained above prejudged, and rendered meaningless, the 
Commission's non -attribution analysis of at least four "other factors".  
 
5.11.  First, in the case of the imports from Korea, the Commission merely pointed out that "it 
cannot be excluded" tha t these imports "contributed to the injury suffered by the Union industry". 
The words "cannot be excluded" amount to no more than a speculative statement made without 
any effort to probe the nature and extent of the contribution of those factors to the all eged injury. 
Instead, the Commission should have assessed the injurious effects of the price undercutting of 
Korean imports. In principle, there is no reason to exclude the proposition that this price 
undercutting had a downward effect on domestic prices s imilar to that of the effects of the subject 
imports, all the more so when (1) both imports from Korea and the subject imports had similar 
market shares during the PoI; and (2) imports from Korea grew by almost 150% during the same 
period. If the Commissio n believed that the price undercutting by the Korean imports did not have 
the same injurious effects as the price undercutting by the subject imports, it should have found 
so explicitly, following an appropriate analysis and explanation. Accordingly, the C ommission's 
                                                
34 Appellate Body Report, US – Wheat Gluten , para. 69.  
35 Appellate Body Reports, US – Hot – Rolled Steel , para. 228; and US – Wheat Gluten , para. 68.  
36 Appellate Body Reports, US – Pipe Line , para. 215; and US – Lamb Safe guard , para. 186.  
37 Appellate Body Report, US – Wheat Gluten , para. 69.  
38 Appellate Body Report, US – Wheat Gluten , para. 69.  
39 Appellate Body Report, US – Wheat Gluten , para. 69.  WT/DS486/R/Add.1  
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- C-14 - 
 
  analysis of the imports from Korea cannot constitute a "meaningful explanation of the nature and 
extent of [its] injurious effects".  
 
5.12.  Second, in the case of the 2008 economic downturn, the Commission stated that, regardless 
of its nature and extent, any injury it caused was in any event "exacerbated by the increased 
subsidised imports from the countries concerned, which undercut the prices of the Union 
industry".40 Thus, the Commission based its dismissal of this factor on its previous pric e 
undercutting finding. In other words, regardless of the magnitude of the injurious effects of the 
2008 economic downturn on the domestic industry, this factor could never have been sufficient to 
break the causal link, as the Commission had already found the alleged price undercutting of the 
subject imports. Importantly, The Commission failed to explain what "exacerbate" means and the 
extent to which the subject imports "exacerbated" the negative effects of the 2008 economic 
downturn. This question remaine d unresolved because the Commission did not separate and 
distinguish the injurious effects of the 2008 economic downturn from those of the subject imports. 
Moreover, the Commission partly dismissed the 2008 economic downturn on the grounds that the 
EU indu stry had suffered injury prior to 2008. This statement was unsubstantiated because its 
injury finding was by reference to the period 2008 -June 2009. Thus, the Commission's statement 
that the EU industry was suffering injury prior to 2008 lacked supporting analysis. It is all the 
more puzzling since a large number of injury indicators actually showed a positive performance up 
to 2008 and it was only then that they began to languish.  
 
5.13.  Third, in the case of low prices of crude oil, the Commission again recognized the (at least 
potential) negative effects of this factor on the domestic industry. However, it did not separate and 
distinguish these effects, or provide a "meaningful explanation of the nature and extent of [its] 
injurious effects".41 It merely dismissed this "other factor" by recalling its previous finding that the 
subject imports undercut the prices of the EU producers. The Commission thus failed to ascertain 
the extent of the impact of this factor, if any, on the domestic industry. In fact, it  recognized that 
prices of PET depend to some extent on prices of crude oil, but failed to address the argument that 
low prices of PET in the EU were a function of the low prices of crude oil. Rather, it gave an off -
the-point explanation about the volatili ty of world prices and how this cannot explain "why imports 
of PET were subsidised and therefore undercut the Union producers' prices".42 
 
5.14.  Fourth, the Commission should have addressed the reasons why a part of the EU industry, 
which did not cooperate,  improved their performance from 2008 to the end of the PoI. This period 
coincided with the contraction of global demand and with the expansion of the EU demand. It is at 
least intriguing that the subject imports only affected one part of the EU industry ( those 
supporting the investigation), whereas the other part of the EU industry (those not supporting the 
investigation) showed a positive performance from 2008 to the end of the PoI. The Commission 
failed to explain why a certain part of the overall domest ic industry was able to recover market 
share and sales from 2008 to the end of the PoI, while another part of the same domestic industry 
experienced injury during the same period.  
 
5.3 Conclusion and request for findings  
5.15.  For the reasons set out above , Pakistan requests the Panel to find that the causation 
analysis in the challenged Determinations is inconsistent with Article 15.5 of the SCM Agreement.  
 
6.  PAKISTAN'S CLAIM UND ER ARTICLE 12.6 OF T HE SCM AGREEMENT REG ARDING THE 
RESULTS OF THE VERIF ICATI ON VISIT  
6.1. Pakistan claims that the European Union has acted inconsistently with its obligation under 
Article 12.6 of the SCM Agreement, because it failed either to make the results of the verification 
visit to Novatex available or to provide disclosure  thereof as part of the disclosure of essential facts 
under Article 12.8.  
 
6.2. Article 12.6 requires the investigating authority to provide the companies subject to a 
verification visit with the "results" of these verification visits. It provides, in rel evant part:  
 
                                                
40 Preliminary Determination, recital 254. Exhibit PAK -1. 
41 Appellate Bod y Report, US – Lamb , para. 186.  
42 Definitive Determination, recital 118. Exhibit PAK -2.  WT/DS486/R/Add.1  
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  Subject to the requirement to protect confidential information, the authorities shall 
make the results of any such investigations available , or shall provide disclosure 
thereof  pursuant to paragraph 9, to the firms to which they pertain  and ma y make 
such results available to the applicants.  
6.3. Article 12.6 thus requires the investigating authority to disclose the "results" of the 
verification visits, by means of one or other of two different avenues: the investigating authority 
may either (i)  "make available" a separate report containing the results of the verification visits, or 
(ii) "provide disclosure" of the results as part of the disclosure of the essential facts under 
Article  12.8. Regardless of which avenue is chosen, however, the inves tigating authority must 
disclose the same thing – the "results" of the verification visit.  
 
6.4. The term "result" is defined, in relevant part, as "a thing that is caused or produced by 
something else; a consequence or outcome".43 In US – Steel Safeguards , the Appellate Body has 
stated that the term "result" is to be read as "an effect, issue, or outcome from some action, 
process or design".44 The "result" of any given activity is closely linked to the conduct, content and 
the purpose of that activity. Thus,  the "result" of a verification visit is closely linked to the conduct, 
content and purpose of that verification visit. Annex VI(7) of the SCM Agreement defines the 
purpose of a verification visit as to "verify the information provided or to obtain further  details". As 
noted, the purpose, conduct, and content of a verification visit is to verify the information provided 
by the investigated firms in their questionnaire responses and to enable the investigating authority 
to obtain, and the investigated export er to provide, additional information or explanations 
regarding the exporter's submitted questionnaire responses.  
 
6.5. In the normal course of events, during a verification visit, an investigating authority will 
request the investigated company to provid e access to its accounting system and other records, 
including all of the worksheets and source documents used to prepare the questionnaire 
responses. During the verification visits, the investigating authority normally reviews these 
documents and cross -checks them against the data provided in the questionnaire responses. The 
investigating authority also uses the opportunity to clarify any areas of doubt regarding the 
contents of the questionnaire responses. As part of this process, the investigating author ity may, 
for instance, request access to an entire category of documents or data or focus on certain specific 
documents.  
 
6.6. It is important to note here that the investigating authority normally does not take any final 
decisions during the verification  as to how the verification will affect the investigating authority's 
determinations of subsidization and injury in the investigation until they have returned home and 
had the opportunity to consult with their superiors and other colleagues on any issues a rising 
during the verification. The verification is, therefore, in essence a fact -gathering and a fact -
checking exercise. The results of this exercise, therefore, relate to what facts have been gathered 
and checked and, by implication, what facts have not been gathered or checked. However, the 
results of the verification do not include any subsequent determinations by the investigating 
authority as to how to use the results of the verification, and other items in the record, to calculate 
subsidization margi ns for the exporter in accordance with the SCM Agreement. The subsequent 
decision how to determine the subsidization margins is the result of the investigation , not the 
result of the verification .  
 
6.7. Thus, the results  of a verification visit are reflec ted in the investigating authority's choices as 
to (i) which information to look at; (ii) why it looks at that information and (iii) whether it is 
satisfied during the verification that a given specific piece of information or document was 
successfully ver ified. However, the results of the verification may also include information that was 
provided and substantiated by the exporter, but that the investigating authority did not 
immediately consider relevant to its final determination. This is precisely the c onclusion reached by 
the panel in Korea – Certain Paper , which stated that "results" of verifications include "adequate 
information regarding all aspects of  the verification , including a description of the information 
which  was not verified  as well as of information which was verified successfully ".45 
 
                                                
43 Oxford English Dictionary Online, available at 
http://oxforddictionaries.com/definiti on/english/result?q=result  
44 Appellate Body Report, US – Steel Safeguards , para. 315. (original emphasis)  
45 Panel Report, Korea – Certain Paper , para. 7.192. (emphasis added)  WT/DS486/R/Add.1  
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  6.8. A clear reporting of the results of the verification is essential to enable the exporter to 
structure its case for the rest of the investigation. Pursuant to Annex II(3) of the 
Anti-Dumping  Agreement, whi ch applies by analogy under the SCM Agreement46, all information 
that is "verifiable" and submitted in timely and usable fashion, must be taken into account by the 
investigating authority. The investigating authority is "not entitled to disregard the submit ted 
information and use information from another source to make the determination."47 This means 
that any information that is verifiable – which includes information that has actually been verified 
by the investigating authority – must be taken into conside ration by the investigating authority.  
 
6.9. In addition, the ability of domestic courts (using their own standard of review) and of WTO 
panels (using the standard of review pursuant to Article 11 of the DSU) to review the 
determinations of investigating authorities depends on the existence of a proper disclosure of the 
"results" of the verification visit under Article 12.6 of the SCM Agreement. A failure to disclose the 
results of the verification, or an incomplete disclosure, will thus significantly unde rmine a domestic 
court's or WTO panel's ability to examine, in a "critical and searching" fashion, the establishment 
and evaluation of the facts by the investigating authority.  
 
6.10.  In the investigation at issue, the Commission failed to disclose the re sults of the verification 
visit. To the extent it made an effort to comply with the requirements of Article 12.6, in this case 
the Commission opted to disclose the results of the verification via the disclosure of essential facts 
under Article 12.8. Howeve r, the Commission's disclosures contain no information of what occurred 
during the verification visit and which topics, other than the MBS, the Commission discussed with 
the investigated company, even though the Commission had provided the exporter with an  
extensive list of topics to be verified. However, there is no information whatsoever about 
verification on any of these issues other than the Manufacturing Bond Scheme. Hence, the EU has 
failed to provide any information on the results of its verification  concerning all these other issues.  
 
6.11.  Beyond the list of exhibits collected at verification, the EU disclosed no information on the 
conduct of the verification visit, or any corrections or rectification of the information contained in 
the Questionnai re Response. The EU has not disclosed which particular aspect of these documents 
was discussed, for what purpose, or whether the Commission considered the data and information 
contained in this document to be verified or verifiable.  
 
6.12.  In its submissi ons, the EU attempts to conflate the concept of the results of the verification 
with the results of the investigation. In its opening statement at the first meeting of the Panel with 
the parties, for example, the EU explained that the results of the verifi cation were the facts that 
the investigating authority had decided to include in the essential facts disclosure as those on 
which it intended to base its final determination.  
 
6.13.  This approach would deprive exporters of their rights and ability to defen d themselves. 
Under this approach, the results of the verification would be only those the investigating authority 
subjectively  considers to be important or to support its final determination. The results of the 
verification would not include outcomes of t he verification to which the exporter may attach 
greater importance than the investigating authority or outcomes on which the exporter thinks the 
investigating authority should  base its final determination. This would undermine the exporter's 
ability to ob tain review of the investigating authority's determination in domestic courts and the 
exporting Member's ability to obtain review from a WTO panel.  
 
6.14.  The results of the verification and the results of the verification are not the same thing. The 
SCM A greement imposes separate legal obligations governing each of these concepts. Effect must 
be given to these textual differences in the references to the results of the verification and the 
disclosure of the essential facts.  
 
6.15.  Moreover, these are also  different concepts from a practical point of view. Pakistan has also 
provided to the Panel examples from both this particular investigation and a generic or 
hypothetical cases illustrating how the EU's conflation of the results of the verification with th e 
results of the investigation would negatively affect the ability of interested parties to defend their 
interests, both in this investigation and more generally. These examples make clear that disclosure 
                                                
46 See Appellate Body Report, Mexico – Rice, paras. 290 – 295. 
47 Panel Report, EC – Salmon (Norway) , para. 7.383 (see also Ibid., para. 7.347). Panel Report, US – 
Steel Plate , para. 7.57.  WT/DS486/R/Add.1  
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  of the essential facts of the investigation does no t, in itself, satisfy the EU's obligation to provide a 
clear and objective disclosure of the results of the verification.  
 
6.2 Conclusion and request for findings  
6.16.  For the reasons set out above, Pakistan requests the Panel to find that the EU's failur e to 
disclose the results of the verification visit is inconsistent with Article 12.6 of the SCM Agreement.
 WT/DS486/R/Add.1  
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  ANNEX C -2 
SECOND INTEGRATED EX ECUTIVE SUMMARY OF P AKISTAN  
1 INTRODUCTION AND OVE RVIEW  
1.1. In this dispute, Pakistan challenges several aspects of the EU's Determinations in a CVD 
investigation concerning polyethylene terephthalate (PET) from, inter alia, Pakistan. Pakistan's 
claims concern various aspects of the subsidy determination, the causation analysis, as well as the 
lack of disclosure of veri fication results.  
1.2. This executive summary summarizes Pakistan's submissions since the filing of Pakistan's 
responses to the Panel's first set of questions, that is, Pakistan's second written submission, 
Pakistan's opening and closing statements at the second meeting of the panel with the parties, 
Pakistan's responses to the Panel's second set of questions, and Pakistan's comments on the EU's 
responses to the Panel's second set of questions.  
2 PAKISTAN'S ARGUMENTS  UNDER ARTICLE 6.2 OF  THE DSU  
2.1. The EU  has "confirm[ed] that it no longer objects to Pakistan's claim under the chapeau of 
Article 14 of the SCM Agreement with respect to the LTF -EOP programme". The EU nevertheless 
claims that, to the extent that Pakistan argues that "the determinations at iss ue fail to properly 
explain e.g. its reasons for not using certain private loan information", the claim "would pertain to 
the obligations in Article 22 of the SCM Agreement, which Pakistan has decided not to pursue in 
this case".1 However, this reflects a disagreement that boils down to the applicability of Article 14 
of the SCM Agreement. This is an issue that goes to the merits and not to the Panel's jurisdiction.  
2.2. The EU also continues to insist that the reference to Article VI of the GATT 1994 in Pa kistan's 
panel request is not sufficiently precise so as to be a reference to Article VI:3. However, based on 
the description of Pakistan's claim in the panel request, the only conceivably relevant sub -
paragraph of Article VI could be sub -paragraph 3. Paki stan has also listed a large number of 
disputes in which a reference to Article VI of the GATT 1994 was deemed to be sufficient as a 
reference to Article VI:3. None of these disputes has been addressed by the EU.  
2.3. Next, contrary to the EU's arguments, Pakistan's reference to Article 32 of the 
SCM Agreement can only be read as a reference to Article 32.1. The EU argues that Pakistan's 
claim could also have fallen under Articles 32.5 and 32.6, because "Pakistan could have claimed 
that the Commission appli ed a method that was not foreseen in its municipal law and, thus, its 
administrative procedures were not in accordance with the SCM Agreement".2 But the narrative 
description in the panel request makes clear that Pakistan did not make that claim. Rather, t he 
explanation is clear that Pakistan takes issue with the "specific action against a subsidy of another 
Member" within the meaning of Article 32.1 of the SCM Agreement. Consequently, the reference to 
Article 32 unequivocally means Article 32.1 of the SCM Agreement. Upholding the EU's objection 
would erroneously elevate form over substance.  
2.4. Finally, the EU continues to argue that Pakistan's claim under Article 12.6 was not sufficiently 
clear, because Pakistan did not indicate which of the two options u nder Article 12.6 Pakistan 
considers the EU did not satisfy. The EU continues to argue that Article 12.6 contains two separate 
obligations, which are "alternatives", and that Pakistan was aware that the EU would argue that it 
opted for the second "alternat ive" (disclosure of the verification results together with the essential 
facts disclosure), but failed to specify this "alternative" in the panel request.  
2.5. The EU misunderstands the structure of Article 12.6. Article 12.6 contains two alternative 
"path ways" for achieving compliance with an overarching obligation. These two pathways are not 
two "separate obligations", because neither has to be complied with if the other has been complied 
with. Moreover, from a practical perspective, a complainant cannot know in advance which of the 
                                                
1 EU's response to Panel Question No. 13, para. 5.  
2 EU's response to Panel Question No. 15(b) para. 10.  WT/DS486/R/Add.1  
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  two options the defendant will argue it took and complied with; indeed, the defendant may argue, 
as the EU has overtime done in this case, that it used both options. The EU now argues that 
disclosure of verification results occ urred not only through the "essential facts" disclosure, but also 
at or after verification in the form of the list of documents collected during verification, that is, 
outside the context of the essential facts disclosure.  
2.6. The EU's view is also unten able because the complainant may also have incomplete 
information, since disclosure of verification results may occur through confidential, 
company -specific documents. In any event, under the EU's approach, a complainant would argue 
that both alleged "obli gations" have been violated, which would effectively be the same as 
Pakistan has done in this case, and would not provide any greater level of information to the 
defendant.  
3 PAKISTAN'S CLAIM CON CERNING THE MANUFACT URING BOND SCHEME (M BS) 
3.1 Introduction  
3.1. The EU acted inconsistently with Articles 1.1(a)(1)(ii), 1.1(b), 3.1(a), 10, 19.1, 32.1 and 
Annexes I(i), II(II) as a whole, II(II)(1) and II(II)(2) of the SCM Agreement, as well as 
Article  VI:3 of the GATT 1994. The core of the issue is that the EU i ncorrectly determined that a 
subsidy existed in the form of the totality  of the duties drawn back/remitted, rather than only the 
excess  drawback/remission, if any. Moreover, in reaching that incorrect determination, the EU 
failed to observe the prescribed analytical process set out in Annexes II and III of the 
SCM Agreement and violated a number of other related requirements enshrined in the above -
mentioned provisions.  
3.2 A duty drawback scheme gives rise to a subsidy only if there is an excess drawback  
3.2. The EU continues to deny that a subsidy under a duty drawback/remission scheme within the 
meaning of Footnote 1 and Annex I(i) to the SCM Agreement can exist only if there is an excess  
drawback or remission. As before, the EU argues that Footnote 1 des cribes a "situation" – that is, 
a situation in which a duty drawback system and the monitoring system under that system is to 
the liking of an investigating authority – and if that situation is found to exist, only an excess 
drawback will constitute a subs idy. If the monitoring system does not please the investigating 
authority, the alleged "carve -out" does not apply. In contrast, Pakistan continues to argue that this 
is not what Article 1 and footnote of the SCM Agreement state. The limitation of a financi al 
contribution to the "excess" only, as opposed to the entirety of the drawn -back duties, is not 
conditional on anything. Rather, it is the definition of this type of subsidy.  
3.3. The EU views the limitation of a financial contribution/subsidy to the excess drawback (as 
opposed to the totality  of the drawback) as some kind of a privilege for the exporting Member that 
must be earned. The exporting Member enjoys the privilege only if the exporting government's 
monitoring system is to the satisfaction of th e investigating authority. As the key element of this 
argument, the EU points to the "[i]n accordance with" phrase in Footnote 1 and argues that this 
clause is to be read, effectively, as " [i]f the duty drawback scheme is in accordance with ". Only if 
that is the case should the remainder of the Footnote 1 apply. Otherwise, the totality of the drawn -
back duties constitutes the financial contribution.  
3.4. Pakistan has provided extensive arguments, including numerous references to other WTO 
provisions, to ref ute the EU's position. Pakistan has referred to no less than 15 provisions 
throughout the covered agreements that demonstrate that the EU's reading of Footnote 1 is 
incorrect. These include provisions that use an "in accordance with" clause like that in Fo otnote 1 
that have a meaning different from the meaning postulated by the EU. Moreover, the provisions 
listed by Pakistan demonstrate that, where the drafters wished to express the kind of reading 
proposed by the EU, they used different formulations. The P anel has explicitly asked the EU to 
respond to these arguments. However, the EU has not addressed a single one  of the provisions 
listed by Pakistan. Instead, the EU merely asserts that Pakistan draws an "artificial distinction" 
between provisions that cont ain a condition and other types of provisions. What the EU labels 
"artificial distinction[s]" are, however, essential steps in the process of treaty interpretation under 
the Vienna Convention on the Law of Treaties.  WT/DS486/R/Add.1  
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  3.5. Pakistan notes that the EU has also  so far not provided any response to Pakistan's argument 
that Annexes II and III apply only in CVD investigations and not in a direct subsidy challenge in 
the WTO; that Annexes II and III contain obligations on the investigating authority, compliance 
with which the exporting Member has no control of; and that Footnote 1 refers, in part, to 
definitional provisions. It is not clear how a WTO panel can be said to act consistently or 
inconsistently with definitional provisions. The EU's reading of Footnote 1 is  convoluted and leads 
to logical impasses.  
3.6. The EU's interpretation of the footnote also continues to ignore the fundamental historical 
context of the principle that only the "excess" drawback can constitute a subsidy, including the 
Report of the Work ing Party on Border Tax Adjustments. This Report and the Illustrative List of 
Export subsidies, which dates from the 1960s, reveal that the limitation of a subsidy to an 
"excess" drawback is a long -standing, decades -old principle in GATT law, as well as in  the OECD 
where the original Illustrative List was developed. The "excess" principle is enshrined in several 
other items of the Illustrative List that address so -called indirect  taxes or charges – that is, 
charges imposed on products. These charges have hi storically been considered as eligible for 
border tax adjustment. This is in contrast to so -called direct  charges/taxes (e.g. income taxes or 
social security charges), which are not eligible for border tax adjustment. For direct charges, any 
exemption, rem ission or deferral are considered a subsidy – not just the excess drawback, as 
shown by Annex I(e). These principles were never intended to be subject to qualifications of the 
type the EU now postulates.  
3.7. Moreover, the EU's argument would create an ine xplicable asymmetry in how the 
SCM Agreement treats (finished) products and the inputs for those products. Annex I(g) refers to 
indirect tax drawbacks or remissions on final products, whereas Annexes I(h) and I(i) refer to 
indirect taxes or tariffs on inputs. However, for final products, there are no additional "guidelines" 
like in Annexes II and III, presumably because determining the excess remission on those 
products is a less complex determination. The EU's arguments would mean that the definition of a 
subsidy as consisting of the excess would apply only sometimes  for subsidies under Annex I(h) 
and I(i) (namely, in situations of compliance with Annexes II and III), but would apply always  for 
subsidies under Annex I(g), because there is no Annex II and II I to comply with. There is no 
logical reason for this difference, nor anything in the text or negotiating history of the Ad Note, the 
documents concerning border -tax adjustments, or Footnote 1 to justify such a difference.  
3.3 Pakistan was correct in brin ging a challenge to a financial contribution 
determination and not a benefit determination  
3.8. The EU continues to assert that Pakistan should have brought its claim under provisions 
pertaining to the benefit calculation. The EU argues that "the excess re mission … amounts to a 
financial contribution [under] Article 1.1(a)(1)(ii)", that "[t]his element is easy to be found" and is 
binary (yes/no),3 whereas the determination of benefit involves determining a "quantum".  
3.9. Pakistan does not doubt that the EU  found it "easy" in this investigation to determine the 
existence of a financial contribution, because it conveniently resorted to an unsupported 
"assumption" rather than examining the extensive relevant record evidence before it. However, an 
investigating  authority that actually follows the SCM Agreement will not necessarily find it "easy" 
to determine the existence of an excess. Similarly, it is not clear what the EU means by saying 
that the question behind financial contribution "is not about its quantum , but about their (yes or 
no) existence". That is not correct, because some financial contributions require the determination 
of a "quantum". For instance, a grant of $ 0 is not a financial contribution; a grant of $ 1'000 is. 
Similarly, it may not be true  for other types of financial contribution, such as government revenue 
foregone or a duty drawback scheme. This principle applies also in the context of duty drawback 
schemes, where only the excess remission is a financial contribution. Here, an investigat ing 
authority must compare the total amount of duties (definitively) drawn back with the amount that 
the exporter was entitled to receive. The investigating authority must necessarily come up with a 
"quantum" to determine the existence of a financial contr ibution.  
3.10.  As Pakistan has already explained, this means that indeed for some forms of financial 
contributions, the benefit analysis is for all practical purposes a foregone conclusion. A grant of 
$ 1'000 will virtually always result in a benefit that corresponds precisely to that amount.  
                                                
3 EU's response to Panel Question No. 30, pa ra. 24.  WT/DS486/R/Add.1  
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  3.4 The EU failed to examine relevant evidence, such as the documents contained in 
Exhibit PAK -58 
3.11.  The EU also continues to argue that it was entitled to resort to an unsubstantiated 
assumption or conclusion that  the entirety of duties was an excess remission because there was no 
reliable record evidence. However, in this investigation, the Commission had before it extensive 
evidence submitted by Novatex in direct response to the Commission's explicit requests. Th is 
evidence pertained to how Novatex traces its raw materials through the production process and 
how individual specific export consignments are linked to specific import consignments of raw 
materials; and how Novatex traces its actual consumption data, in  order to perform annual 
reconciliation exercises, to adjust for any difference between the "standard" input -output ratio and 
actual output. Moreover, in the parallel anti -dumping investigation, the Commission also had 
before it cost -accounting data that t racked separately raw inputs for, respectively, the production 
of export products and the production of products for the domestic market.  
3.12.  There is no discussion whatsoever of this evidence in the Commission's determination. 
Whatever the substantive merits of this evidence, the Commission could not ignore it without 
providing a corresponding "reasoned and adequate" explanation. The entirety of the EU's 
arguments on these matters before this Panel is inadmissible ex post facto  rationalisations.  
3.13.  The EU also continues to point to the misgivings expressed by the investigating authority 
about the use of the input/output ratio used by Novatex and the GoP as part of the MBS 
management, to argue that the use of this ratio also means Novatex was unable to  trace its 
imported inputs throughout the production chain. That is incorrect, because one does not exclude 
the other. The input/output ratio is very close to the actual consumption, and the variance 
between the actual input/output ratio and the approved ( or "standard") analysis card ratio was 
between 1% and 2%. Pakistan has made this point repeatedly, but the EU has never responded.  
3.14.  The practical reason, in layman's terms, why a producer such as Novatex might use a 
standard input/output ratio is that  the production process at issue involves pouring bags of various 
raw materials into a melting pot, processing them, and pouring the end product out of the melting 
pot. It is expected that there will be some wastage in the pouring, in the pot in terms of b urn off 
or residue, and spillage when pouring the final product out of the pot. All of these residues, 
spillages, and waste will be very small. It would not make business sense to measure them on a 
bag-by-bag basis. This is precisely why businesses and gov ernments (including the GOP) use 
input/output ratios. In these circumstances, the Commission should have relied on Novatex's 
actual production records and accounting records and systems, to determine whether an excess 
remission occurred. The Commission cou ld have easily done this based on the ample information 
provided by Novatex to the Commission in respect of actual consumption ratios that were 
achieved.  
3.15.  Moreover, the use of standard costs/costing ratios that are converted to actual costs by 
means of a variance is a standard accounting practice with which the Commission is very familiar. 
Pakistan has provided two examples of EU antidumping determinations in which normal value was 
constructed on the basis of standard costs. In contrast, in this case,  the Commission failed to 
review or consider the same type of information.  
3.5 The EU failed to apply facts available  
3.16.  The EU was not entitled to reject the manifold record evidence that was presented by 
Novatex and that would have enabled the Commis sion to approximate the excess drawback. Even 
if the EU had been entitled to do so, it should have provided an explanation for why the 
information was deemed to be unreliable.  
3.17.  An investigating authority in a trade remedy investigation, including in a CVD investigation, 
is required to make its determinations on the basis of record evidence. The record evidence 
consists primarily of data and information submitted by the investigated companies and other 
interested parties, as well as of data and informa tion collected by the investigating authority itself. 
The rules of evidence, including on the conditions under which an investigating authority may 
depart from evidence submitted by an investigated party and instead use other evidence, are 
practically the same under the Anti -Dumping Agreement and under the SCM Agreement. The WT/DS486/R/Add.1  
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  Anti-Dumping Agreement contains detailed rules in Annex II concerning the use of facts available. 
The Appellate Body has found that these rules in Annex II of the Anti -Dumping Agreement  apply – 
by analogy – also under the SCM Agreement.  
3.18.  Annex II(3) of the Anti -Dumping Agreement defines the conditions under which submitted 
information must be taken into account. To the extent that the authority wishes to depart from the 
evidence su bmitted by an investigated company, Annex II(6) sets forth specific rules, in particular 
that the investigating authority inform the company and provide it with an opportunity to provide 
further explanations.  
3.19.  In this investigation, the Commission ha d before it extensive evidence submitted by Novatex 
in direct response to the Commission's explicit requests. This evidence pertained to, for instance, 
how Novatex traces its raw materials through the production process and how individual specific 
export c onsignments are linked to specific import consignments of raw materials; and how 
Novatex traces its actual consumption data, in order to perform annual reconciliation exercises, to 
adjust for any difference between the "standard" input -output ratio and act ual output. In the 
parallel anti -dumping investigation, the Commission also had before it cost -accounting data that 
tracked separately raw inputs for, respectively, the production of export products and the 
production of products for the domestic market.  
3.20. There is no discussion whatsoever of this evidence in the Commission's determination. There 
is not even an acknowledgement that this evidence had been submitted. The EU was, first and 
foremost, obliged to use the record evidence before it supplied by the investigated company. If the 
EU considered this information unreliable, it was required to explain the reasons therefor to the 
company, provide the company with the opportunity to provide further explanation and then make 
a final decision concerning th at evidence. This deliberative process must be discernible from the 
authority's determination and explanation.  
3.21.  Only if the investigating authority has, in this process, properly determined that the data and 
information supplied by the investigated co mpany was unreliable, can the investigating authority 
have recourse to facts available, e.g. second -source information. However, even then the 
investigating authority cannot, in principle, resort to unwarranted "assumptions" without any 
evidentiary support  and must seek, to the greatest extent possible, to rely on some  evidence for 
its determination.  
3.22.  In this investigation, the EU failed to explain why it could not use the information and data 
provided by Novatex. Even assuming that the EU would have b een entitled to reject Novatex' 
record evidence, the EU would then have to apply the best other information available, rather than 
jumping to an unwarranted "assumption" that the totality of the duties constituted a subsidy.  
3.6 The EU failed to provide th e Government of Pakistan with an opportunity to conduct 
the "further examination"  
3.23.  An investigating authority has the obligation to structure its investigation such that there is 
an effective opportunity for the exporting government to conduct the "fu rther examination". At the 
very minimum, the investigating authority cannot make statements – like the Commission did in 
this investigation – that require the exporting government to do the impossible and that effectively 
signal to the exporting Member tha t the investigating authority is not interested in any such 
"further examination" or the results thereof.  
3.24.  The Commission found that Pakistan had "failed" to conduct the "further examination", even 
though logically this was impossible for Pakistan to  have done so prior to being informed about the 
Commission's decision on the monitoring mechanism. The EU now tries to imply that Pakistan 
should have known before  the Provisional Determination that its monitoring mechanism would be 
found deficient. This a rgument should, of course, be rejected because it was only in the Provisional 
Determination that the Commission determined that the monitoring system was inadequate. The 
EU also repeatedly points to the Government of Pakistan's effort to convince the EU of  the merits 
of its monitoring regime, as if that somehow proved that Pakistan was not willing to conduct the 
"further examination". Clearly, Pakistan would have done so had the Commission given it a proper 
opportunity to do so and informed it of what was n eeded.  WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-23 - 
 
  3.25.  An investigating authority has a duty, analogous to Article 12.1 of the SCM Agreement (and 
for instance Annex II(1) to the Anti -Dumping Agreement), to provide certain information to the 
exporting Member explaining what information is required,  in which format, how the further 
examination was to be conducted and within which timeframe. This is because the required scope 
of the "further examination" will vary on a case -by-case basis. For instance, the precise scope of 
the investigation could depe nd on the precise deficiencies that have been found in the monitoring 
system; the authority may be required to point to precise aspects or elements of the "actual 
inputs" or "actual transactions" that should be examined; the exporting Member might require 
access to some of the confidential information that the investigated exporters have provided to the 
investigating authority, but that the exporting Member does not have. The investigating authority 
might also have to provide the relevant information to the  investigated company . The due process 
rights of an investigated company – whether it is access to information, the ability to request 
hearings, the ability to submit evidence, etc. – must be safeguarded also in the context of the 
"further examination". Fi nally, the "further examination" might require the exporting Member to 
consider documents or information of the investigated company that have not been previously 
submitted, either with the Questionnaire Response or in subsequent stages of the investigatio n.  
3.7 The EU's arguments about the alleged unreliability of Novatex's records and 
bookkeeping  
3.26.  The EU also continues to argue that Novatex's records and data were unreliable and 
therefore could be rejected whole -sale by the Commission. These argumen ts are an ex post facto 
explanation provided by the EU in these proceedings. The EU also appears to argue that, because 
it ruled that the monitoring mechanism was inadequate and unreliable, this implicitly also meant 
that all information and data provided by Novatex was also inadequate and unreliable. However, 
real or perceived deficiencies in a monitoring scheme say nothing about the reliability of a 
company's data and records. Moreover, the drafters of Annexes II and III clearly considered that, 
as a gene ral rule, a company's records remain a reliable source of information even if a monitoring 
scheme is considered to be deficient. Finally, the rules on the use of facts available require a clear 
statement by the investigating authority to the affected compa ny as to why information is not 
deemed reliable.  
3.27.  The Commission's refusal to engage with the evidence provided by Novatex, to analyse that 
evidence and – at the very least – to explain why this information could not be used or deemed 
reliable, is particularly inappropriate in this particular investigation where Novatex's data 
addressed the alleged problems in the monitoring system. Even assuming for a moment that the 
Commission's misgivings about the input/output ratio are justified, these concerns sh ould have 
been addressed – at least in principle – by the record evidence regarding the company's actual 
consumption data . In any event, as demonstrated by Exhibit PAK -58, Novatex provided records 
showing how it could trace a given set of raw materials thr oughout the production chain.  
3.8 Pakistan's approach to Footnote 1 and Annexes II and III does not create a risk of 
abuse by exporting governments nor impose an "unreasonable burden" on investigating 
authorities  
3.28.  The EU is also incorrect in arguing t hat its approach to Footnote 1 and Annexes I through III 
is the only manner to avoid abuse by exporting governments or individual companies, or that 
Pakistan's approach would impose an undue burden on the investigating authorities. Under 
Pakistan's approac h, an investigating authority can always ensure that inadequately monitored 
duty drawback schemes do not enjoy the presumption created by Annexes II and III (namely, the 
presumption that an adequately monitored regime does not give rise to an excess drawba ck). 
Indeed, even upon a finding that a monitoring mechanism is adequate, an investigating authority 
may still proceed to examine the exporting company's records to determine whether an excess 
exists, as the EU itself argues. Thus, when an investigating au thority finds that the monitoring 
mechanism is inadequate and then examines the company's own records, it is merely doing what 
it could/should be doing in any event. Thus, no new burden or requirement is imposed on the 
investigating authority.  
3.29.  In oth er words, the investigating authority is simply asked to proceed like it would in any 
other CVD, anti -dumping or safeguard investigation. It must base itself on record evidence 
provided by interested parties. Depending on the circumstances, the investigati ng authority may 
be required to become active and gather evidence on its own. Of course, in the case of duty -WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-24 - 
 
  drawback schemes, the authority must additionally observe the supplementary rules that the 
drafters chose to include in the SCM Agreement. But at t he same time, the investigating authority 
enjoys the same rights that it has in any trade remedy investigation. It can reject evidence and 
data as unreliable if they so are, in accordance with the applicable rules of evidence and subject to 
the requirement  of providing a transparent, reasoned and adequate explanation. This also means 
that the authority can resort to facts available, in order to remedy any data deficiencies.  
3.9 Request for findings  
3.30.  For all of the above reasons, Pakistan requests the Panel to find that the Commission has 
acted inconsistently with its multilateral obligations under the SCM Agreement and the GATT 1994, 
as set out in detail in paragraphs 5.133 to 5.135 of Pakistan's first written submission.4 
4 PAKISTAN'S CLAIM CON CERNING  THE LTF -EOP PROGRAMME  
4.1. The EU violated Articles 1.1(b), the chapeau of Article 14, Article 10, 14(b), 19.1, and 32.1 of 
the SCM Agreement, and Article VI:3 of the GATT 1994, because it applied a single (and ill -suited) 
commercial interest rate benchma rk to Novatex's multi -tiered LTF -EOP loan, because it failed to 
explain the application of the methods enshrined in its domestic law and because it failed to 
analyse whether a comparable commercial loan existed in order to calculate the amount of the 
subsidy.  
4.1 The structure of the LTF -EOP loan  
4.2. The structure of the LTF -EOP loan is described in Pakistan's first integrated executive 
summary.  
4.2 The EU's defence has shifted multiple times throughout these proceedings  
4.3. The EU's defence against Paki stan's claim has changed several times since Pakistan filed its 
first written submission. At first, the EU argued that it did not countervail the entirety of the 
outstanding loan amounts , but rather only the amounts drawn down during the PoI . During the 
first panel hearing, the EU then argued that it had known all along that it had based its 
calculations on the full outstanding amount, that is, including pre -PoI amounts, and not only the 
amounts actually drawn down during the PoI. However, according to the EU, the Commission was 
nevertheless entitled to apply the interest rate prevailing during the PoI, because Novatex's loan 
was akin to a "line of credit", rather than a standard fixed rate loan. Then, in its Responses to the 
Panel's questions, the EU change d its arguments again and argued that that it considered the 
amounts reported by Novatex to have been exclusively amounts drawn down during the PoI. In 
the second panel hearing, the EU admitted that this was erroneous.  
4.4. These shifts in the EU's positio n alone demonstrate that the EU cannot have provided a 
reasoned and adequate explanation for its determination. Where the respondent member is 
uncertain as to what its investigating authority actually did; and where a determination is so vague 
that it perm its multiple shifting of key arguments; this cannot satisfy the requirement of a 
"reasoned and adequate" explanation.  
4.3 It is also irrelevant whether the Commission's error was "excusable"  
4.5. Contrary to what the EU has argued, and to what at least on e question by the Panel suggests, 
it does not matter whether the Commission "should … have been reasonably expected" to 
understand Novatex's spreadsheet. It is abundantly clear from the evidence cited by Pakistan that 
the Commission committed an error, and  indeed that was explicitly admitted by the EU during the 
second panel meeting with the parties. An error by an investigating authority that results in a 
violation of the covered agreements remains an error even if one were to consider that error 
excusable . Pakistan is not aware of any such "excusable error" doctrine that could somehow justify 
                                                
4 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the 
SCM Agreement.  WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-25 - 
 
  a violation of a provision of the SCM Agreement, such as Article 14(d) or Article 1, by the 
investigating authority.5 
4.4 Pakistan fails to understand what the EU's l abelling of the LTF -EOP loan as a "line of 
credit" is meant to achieve  
4.6. Having admitted definitively that the Commission erred in its understanding of the facts, as 
reported in Novatex's spreadsheet, the EU has chosen to center its defence on the argum ent that 
Novatex's LTF -EOP loan was not a loan, but a "line of credit"; and that, therefore, the Commission 
was entitled to apply the KIBOR rate as a commercial interest rate benchmark from the PoI.  
4.7. No matter what label the EU chooses to unilaterally apply to a financing arrangement, it must 
respect the basic parameters of that arrangement when identifying and applying a commercial 
interest rate benchmark. Any financing arrangement has to define at least three major 
parameters: how much, for how long, at which interest rate. Where the investigating authority is 
looking for a commercial benchmark interest rate, it must choose a benchmark rate that best 
approximates or reflects these fundamental parameters. This is also why Article 14(b) refers to a 
"comp arable  commercial loan" (underlining added). The arrangement that is chosen as a 
commercial benchmark must be "comparable". In this case, the evidence is clear that the interest 
rate for each tranche was fixed or locked in on the date on which the tranche was drawn down. 
Furthermore, the interest rate for each tranche was fixed on that date for the duration of the term 
of that tranche. It is not clear why the EU believes that simply relabelling the loan would mean 
that the Commission can start ignoring the basic parameters of Novatex's financing arrangement.  
4.4.1  In any event, the Commission's determinations do not state that it determined that 
the LTF -EOP loan was a "line of credit" and there is no such concept in EU law  
4.8. If, as the EU now argues, the question of whether the loan was a "line of credit" has such 
fundamental impact on the choice of the commercial interest rate benchmark, the Commission was 
required to make this point very clear to the investigated company, disclose it as part of the 
essen tial facts, and provide the company with an opportunity to make representations on this 
point. In response to Panel's Question 54, the EU refers to several passages in the Commission's 
determinations where it allegedly "specifically determine[d] that the L TF-EOP loan to Novatex was 
best considered a 'line of credit', rather than a traditional loan." However, none of the passages to 
which the EU refers even remotely resemble such a determination.  
4.9. More fundamentally, simple logic suggests that the Commi ssion did not make this 
determination. As the EU admits, the Commission erroneously assumed that all reported amounts 
were drawn down during the PoI. By definition, therefore, in its analysis during the investigation, 
the Commission was not concerned with any amounts drawn down pre -PoI. The issue of the 
alleged "line of credit" – and its alleged differences to a "standard commercial loan" – did not arise 
and had no reason to be on the Commission's mind. It is not surprising, therefore, that nothing 
even rem otely related to this point, including the concept of a "line of credit", can be found in the 
Commission's Determination. The EU is now simply creating reasoning that cannot be found in the 
Determinations.  
4.10.  The EU's allegations about the LTF -EOP loan  as a "line of credit" is belied also by the EU's 
own domestic law. The EU's Guidelines for the Calculation of the Amount of Subsidy in 
Countervailing Duty Investigations (98/C 394/04) contain a separate detailed section entitled 
"Loans", which provides de tailed instructions for an investigating authority in identifying a 
comparable commercial loan. These Guidelines even contain separate criteria for "specific cases", 
that is, particular "loan" arrangements that warrant special attention in the identificati on of a 
commercial interest rate benchmark. There is no reference whatsoever to a "line of credit", nor is 
there any trace of a distinction between this alleged category of "line of credit" as compared to a 
"standard loan".  
                                                
5 Pakistan notes that, for instance, the "negligible error" doctrine was rejected in Guatemala – 
Cement  II. Panel Report, Guatema la – Cement II , para. 8.22.  WT/DS486/R/Add.1  
BCI deleted, as indicated [***]  
- C-26 - 
 
  4.5 The EU mischaracterizes the  core features of the LTF -EOP loan  
4.11.  The EU's characterization of the LTF -EOP arrangement also contains other significant 
inaccuracies. For instance, the EU argues that "Novatex could choose when to draw down money 
under the credit facility and could t hereby also choose the applicable interest rate". The 
Commission also argues that the "disbursement terms were also not established in 2004 – 2005".6 
These statements are demonstrably incorrect, and contradict explicit clauses of the LTF -EOP loan. 
Similarl y, the EU is also incorrect to state that "it [was] not possible to know ex ante  with precision 
the duration of the repayment".7 There was no doubt about the duration of the LTF -EOP 
arrangement. The duration of the repayment was fixed at 7.5 years, with an  initial grace period of 
18 months for the principal repayment (but not interest payment).  
4.12.  The EU's misleading description of the LTF -EOP loan – that is, as some sort of variable -rate 
line of credit from which Novatex could draw funds entirely at its  discretion – is also contradicted 
by the manner in which the Government of Pakistan designed and described the LTF -EOP 
programme in the underlying policy documents.  
4.6 The EU is incorrect about the legal standard under Article 14(b)  
4.13.  The EU also at tempts to justify the use of a commercial interest benchmark from the PoI for 
all tranches under Article 14(b). Pakistan fails to see how Article 14(b) justifies the EU's approach. 
The EU argues, for instance, that the Commission countervailed the amount t hat was "effectively 
used" or enjoyed by Novatex in 2008 -2009 and "hence, it was appropriate to also apply a 
benchmark for that same period".8 This argument makes no sense. The fact that Novatex was 
"effectively us[ing]" funds during the PoI cannot mean th at the Commission could use an interest 
rate from the PoI. If the EU were correct, then any not -yet-repaid fix -term loan taken in the past 
could be measured against today's commercial interest rate, because the money is still being 
"used" by the debtor.  
4.14. The EU argues that "amounts under the LTF -EOP programme continued to be drawn down 
during the IP which further confirms the close nexus between the benchmark chosen by the 
Commission and the LTF -EOP programme."9 Pakistan never disputed that the Commis sion could 
use the PoI benchmark (leaving aside Pakistan's misgivings about KIBOR) for amounts drawn 
down during the PoI. However, it makes no sense to use the PoI KIBOR for amounts drawn down 
in previous years, when a different KIBOR was applicable. As in dicated in the preceding paragraph, 
the EU's approach would deprive the term "comparable" of any meaning.  
4.15.  Similarly, the EU's assertion that the LTF -EOP scheme was a "single scheme" constitutes no 
basis for applying a single interest rate. It is perf ectly possible – as was the case here – that a 
"single scheme" contains multiple tranches each one of which is subject to a different interest rate 
from a different period. Thus, the label "single scheme" is an essentially meaningless term.  
4.7 The EU misr epresents the Commission's determination of the commercial benchmark 
interest rate  
4.16.  In response to a Panel question, the EU also misrepresents several aspects related to the 
nature of the commercial benchmark interest rate applied by the Commission. T he EU argues that 
this rate was the KIBOR, and that Novatex itself had suggested that the KIBOR rate be used.  
4.17.  First, neither Novatex nor the GOP suggested the use of this rate. The evidence cited by the 
EU in this regard is inapposite. Second, while  "KIBOR" has been used in these proceedings as a 
convenient short -hand for the Commission's interest rate, and that rate is in the numerical vicinity 
of the KIBOR, the Commission did not apply the KIBOR. Instead, the Commission obtained the 
benchmark inter est rate by selecting, from a wide range of choices, data from the website of the 
State Bank of Pakistan (SBP), made its own calculations and then applied this rate, without 
providing even the most basic explanation of how it had derived this benchmark int erest rate. Due 
to their sophistication and knowledge of the SBP data, the Government of Pakistan and Novatex 
                                                
6 EU's response to Panel Question No. 55, para . 80. 
7 EU's response to Panel Question No. 55, para . 80. 
8 EU's response to Panel Question No. 55, para. 81.  
9 EU's response to Panel Question No. 55, para. 81.  WT/DS486/R/Add.1  
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  were able to reverse engineer this rate and comment on it. However, an uninitiated reader would 
have no basis to even begin to understand how the Commission derived its benchmark interest 
rate. 
4.8 The EU confirmed to the Panel that it failed to follow the analytical process required 
both by its Guidelines and by Article 14(b)  
4.18.  Pakistan has argued that the EU failed to explain why it rejected t he loan benchmark interest 
rates provided by Novatex. In addition, in its responses to Panel questions 58, 59, 60 and 61, the 
EU has confirmed to the Panel that – once the Commission rejected Novatex's proposed 
commercial interest rates – it did not attemp t to identify the interest normally payable on a 
comparable commercial loan to Novatex; and did not attempt to identify the interest payable on a 
commercial loan to companies in a similar financial situation in the same sector of the economy. It 
also did n ot attempt to identify the interest rate payable on a comparable loan to companies in any 
sector of the economy, nor did it attempt to identify a proxy that reflected the duration of the 
subject loan.  
4.19.  This amounts, in effect, to an admission that th e Commission failed to comply with the 
chapeau of Article 14 and with Article 14(b) and the "progressive search" required by the Appellate 
Body under that provision.10 
4.9 The EU's responses contain additional misrepresentations and factual inaccuracies  
4.20. The EU attempts to argue, for instance, that Novatex paid the same interest on the total 
outstanding amount and that this somehow puts into question "the alleged separate nature of each 
tranche." That is incorrect. The fact that the annually -locked in i nterest rate happened to be 
similar in certain successive years does not compromise the separate nature of each tranche.  
4.21.  The EU also claims that that Novatex's data were not sufficiently disaggregated into the 
various tranches (or the tranches aggreg ated by years) and that the Commission therefore would 
have been unable, on the basis of Novatex's Questionnaire response alone, to apply multiple 
interest rate benchmarks and to calculate the respective subsidization amounts.11 That is correct. 
In order to  perform the analysis correctly, the Commission would have had to request Novatex to 
provide more disaggregated data. The reason why Novatex did not provide the data in that format 
was because the Commission's questionnaire template did not permit it to do  so and also 
because Novatex could not know the analytical approach that would be ultimately adopted by the 
Commission. Novatex also took a view that an altogether different benchmark was appropriate. It 
was the responsibility of the Commission as the inve stigating authority, in response to the 
Questionnaire response, to choose the appropriate analytical approach and to request additional 
data from the company, if the Commission considered that it needed this additional data.  
4.10 Conclusion and request for  findings  
4.22.  For all of the above reasons, Pakistan requests that the Commission has acted inconsistently 
with its multilateral obligations under the SCM Agreement and the GATT 1994, as set out in detail 
in paragraph 6.101 of Pakistan's first written su bmission.12 
5 THE COMMISSION'S CAU SATION ANALYSIS IS I NCONSISTENT WITH ART ICLE 15.5 OF 
THE SCM AGREEMENT  
5.1. The Commission's analysis of the existence of a "causal link" between the subject imports and 
the alleged injury to the domestic industry is incons istent with Article 15.5 of the SCM Agreement 
for the following reasons.  
                                                
10 Appellate Body Rep ort, US – AD/CVD (China) , para. 486.  
11 EU's response to Panel Question No. 55, para. 81. 
12 All references to Article 32 of the SCM Agreement are to be read as references to Article 32.1 of the 
SCM Agreement.  WT/DS486/R/Add.1  
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  5.2 The Commission's "breaking the causal link" approach is inconsistent with Article 
15.5 of the SCM Agreement  
5.2. The Commission's "breaking the causal link" approach is inconsiste nt with Article 15.5 of the 
SCM Agreement. Pakistan submits that, as a matter of logic, the Commission could not possibly 
first establish a causal link (i.e. a relationship of cause and effect) between the alleged imports 
and the subsidized imports and sub sequently find that one or more other factors "break" that 
causal link. If an "other factor" is capable of breaking the causal link, this causal link should never 
have existed in the first place. In response to this argument, the EU referred to four anti -dumping 
determinations where the Commission made a negative finding of causation. In none of these four 
determinations did the Commission make a finding at the outset of its causation analysis that a 
causal link existed and then examine whether other factor s "broke" that link. By not making that 
finding at the start in those determinations, the Commission was able to assess properly the 
injurious effects of all the relevant factors on the domestic industry, including those of the subject 
imports, and then de termine that the subject imports "in isolation" could not have caused material 
injury.13 Thus, the EU has not provided any instances on which to base its assertion that the 
Commission can find that a causal link between investigated imports and alleged inju ry existed but 
that the injury caused by other factors "broke" that link.  
5.3. The Commission's "breaking the causal link" approach effectively vitiated the non -attribution 
analysis in the challenged Determinations. The causal link found at the start of i ts causation 
analysis was not "preliminary", as the EU suggests.14 Rather, this causal link was exactly the same 
link that was used to dismiss the significance of the non -attribution factors that the Commission 
purportedly analysed. This explains why, even if the Commission accepted that at least three other 
factors might have been causing injury, it ultimately rejected them because they did not "break" 
the causal link. Had the Commission applied the correct legal standard, it would have examined 
whether the  injurious effects of these other factors were such as to render any link between the 
subject imports and the alleged injury too distant, remote or insubstantial.  
5.4. For these reasons, the EU is incorrect that there is similarity between the Commission's  
"breaking the causal link" approach and Pakistan's understanding of the proper legal standard in 
Article 15.5.15 Under the "breaking the causal link" approach, the Commission failed to analyse the 
injurious effects of the subject imports and the other know n factors independently and objectively . 
Rather, under this approach, the Commission merely assessed these other factors against the 
previously found causal link between the subject imports and the alleged injury. This approach 
effectively pre -judges the i ssue of non -attribution: it appears to be impossible as a matter of logic 
to "break" a causal link once it has been established. This is also evident from the challenged 
Determinations, where the Commission identified certain injurious effects of at least three non -
attribution factors but dismissed them on the grounds that these factors could not "break the 
causal link". Because the "breaking the causal link" approach vitiated the analysis of the non -
attribution factors, the Commission's causation analysis is inconsistent with Article 15.5 of the 
SCM Agreement.  
5.3 The Commission merely assumed  the existence of a causal link based on its finding 
of increased imports which undercut prices  
5.5. The Commission simply assumed  the existence of a causal link based  on its previous finding 
that the investigated imports were undercutting the prices of the domestic product. The 
Commission found its causal link based on nothing more than a "coincidence in time" between 
increased imports, which allegedly undercut the pri ce of the domestic product, and the 
deterioration in the condition of the domestic industry.16  
5.6. The Commission should have gone beyond the mere identification of a coincidence  and 
provided some analysis of causation. By assuming the existence of a caus al link based merely on a 
temporal coincidence, the Commission failed to conduct the analysis required under Article 15.5 
                                                
13 Commission Decision 2008/227/EC. Exhibit PAK -63; Commission Decision, 2007/214/EC, para. 138. 
Exhibit PAK -64. Commission Decision 1999/55/EC. Exhibit PAK -65; and Commission Decision 2005/289/EC. 
Exhibit PAK -67. 
14 EU's second written submission, paras. 179, 180 and 182.  
15 EU's second written submission , para. 164.  
16 Preliminary Determination, para. 262. Exhibit PAK -1. WT/DS486/R/Add.1  
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- C-29 - 
 
  and footnote 47 of the SCM Agreement of how the subject imports had a bearing on the negative 
performance of five economic factors ide ntified by the Commission.17  
5.7. Also, as matter of fact, the Commission's finding of a temporal coincidence was incomplete 
and one -sided. The Commission found that five industry indicators showed negative performance: 
production, sales, profitability, re turn on investment and cash flow.18 All five indicators showed 
positive or neutral performance from 2006 to 2007, and deteriorated only in 2008 and the first 
semester of 2009 (i.e., towards end of the PoI).19 However, this is also the same time period in 
which other known factors had their greatest effects on the condition of the domestic industry: 
the 2008 economic downturn broke out only in 2008; imports from Korea increased by 76% 
in 2008 and during the first semester of 2009; and non -cooperating EU produc ers were able to 
regain significant sales and market share in the first semester of 2009.  
5.8. There is, therefore, the same temporal coincidence between the other known factors and the 
alleged injury. This coincidence was just as compelling as the coinci dence between the subject 
imports and the alleged injury. The Commission, however, improperly attributed greater value to 
the "coincidence" between the subject imports and the injury than to the other coincidence 
between several non -attribution factors and  the same injury, without providing a reasoned and 
adequate explanation of why it did so.  
5.4 The Commission's analysis of "other factors" is inconsistent with Article 15.5  
5.9. The Commission's analysis of other factors was also inconsistent with Article  15.5. First, in the 
case of the imports from Korea, the Commission merely stated that "it cannot be excluded" that 
these imports "contributed to the injury suffered by the Union industry". The words "cannot be 
excluded" admit that this factor may have bee n a cause of injury. However, the Commission made 
no effort to probe the nature and extent of the contribution of those factors to the alleged injury. 
In principle, this price undercutting could have had a similar or even greater downward effect on 
domesti c prices than the subject imports, given that (1) both imports from Korea and the subject 
imports had similar market shares during the PoI; and (2) imports from Korea grew by 
almost  150% during the same period. In these circumstances, the Commission's curs ory analysis 
of the imports from Korea cannot constitute a "meaningful explanation of the nature and extent of 
[its] injurious effects".  
5.10.  Second, the Commission stated that any injury caused by the 2008 economic downturn it 
caused was in any event "ex acerbated by the increased subsidised imports from the countries 
concerned, which undercut the prices of the Union industry".20 In other words, regardless of the 
magnitude of the injurious effects of the 2008 economic downturn, this factor could never have 
broken the causal link, as the Commission had already found price undercutting by the subject 
imports. Importantly, the Commission failed to explain what "exacerbate" means and the extent to 
which the subject imports "exacerbated" the negative effects of t he 2008 economic downturn. This 
question remained unresolved because the Commission did not separate and distinguish the 
injurious effects of the 2008 economic downturn from those of the subject imports. Moreover, the 
Commission partly dismissed the releva nce of the 2008 economic downturn on the grounds that 
the EU industry had suffered injury prior to 2008. However, the Commission's statement that the 
EU industry was suffering injury prior to 2008 lacked supporting analysis. In addition, the 
Commission's s tatement is all the more puzzling since a large number of injury indicators actually 
showed a positive performance up to 2008 and it was only then that they began to languish.  
5.11.  Third, the Commission again recognized the (at least potential) negative effects of the low 
prices of crude oil on the domestic industry. However, it did not separate and distinguish these 
effects, or provide a "meaningful explanation of the nature and extent of [its] injurious effects".21 
It merely dismissed this "other factor"  by recalling its previous finding that the subject imports 
undercut the prices of the EU producers. The Commission thus failed to ascertain the extent of the 
impact of this factor, if any, on the domestic industry. In fact, it recognized that prices of PE T 
                                                
17 Preliminary Determination, paras. 238 -239. Exhibit PAK -1. (production, sales, return on investment, 
profitability and cash flow)  
18 Preliminary Determination, paras. 238 -239. Exhibit PAK -1. 
19 Preliminary Determination, paras. 220, 223, 233 and 235. Exhibit PAK -1. 
20 Preliminary Determination, recital 254. Exhibit PAK -1. 
21 Appellate Body Report, US – Lamb , para. 186.  WT/DS486/R/Add.1  
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  depend to some extent on prices of crude oil, but failed to address the argument that low prices of 
PET in the EU were a function of the low prices of crude oil. Rather, it gave an off -the-point 
explanation about the volatility of world prices and how th is cannot explain "why imports of PET 
were subsidised and therefore undercut the Union producers' prices".22 Of course, the question is 
not whether the low prices explain why imports of PET might have been subsidized, but rather 
whether they explain the all eged injury to the domestic industry.  
5.12.  Fourth, the Commission should have addressed the reasons why a part of the EU industry, 
which did not cooperate, improved its performance from 2008 to the end of the PoI. This period 
coincided with the contractio n of global demand and with the expansion of demand in the EU 
market. It is intriguing to say the least that the subject imports had negative effects on only one 
part of the EU industry (those supporting the investigation), while the other part of the EU i ndustry 
(those not supporting the investigation) showed a positive performance from 2008 to the end of 
the PoI. Moreover, the EU's assertion that the Commission found that the non -cooperating EU 
producers did not cause injury is troublesome in view of the facts before it.23 Specifically, the 
market share of the non -cooperating EU producers was significantly higher than that of the subject 
imports during the PoI (e.g., 16% and 10.2%, respectively, at the end of the PoI). Pakistan thus 
fails to understand why the increasing production and market share of the subject imports caused 
injury, while the more significant increasing production and market share of the non -cooperating 
EU producers did not. Because the Commission failed properly to assess the injurious e ffects of the 
competition from these non -cooperating EU producers, the Commission's causation analysis is 
inconsistent with Article 15.5 of the SCM Agreement.  
5.5 Conclusion and request for findings  
5.13.  For the reasons set out above, Pakistan requests th e Panel to find that the causation analysis 
in the challenged Determinations is inconsistent with Article 15.5 of the SCM Agreement.  
6 PAKISTAN'S CLAIM UND ER ARTICLE 12.6 OF T HE SCM AGREEMENT REG ARDING THE 
RESULTS OF THE VERIF ICATION VISIT  
6.1. Pakistan c ontinues to claim that the European Union has acted inconsistently with its 
obligation under Article 12.6 of the SCM Agreement, because it failed either to make the results of 
the verification visit to Novatex available or to provide disclosure thereof as part of the disclosure 
of essential facts under Article 12.8.  
6.2. The results  of a verification visit are reflected in the investigating authority's choices as to (i) 
which information to look at; (ii) why it looks at that information and (iii) whether i t is satisfied 
during the verification that a given specific piece of information or document was successfully 
verified. However, the results of the verification may also include information that was provided 
and substantiated by the exporter, but that the  investigating authority did not immediately 
consider relevant to its final determination.24 A clear reporting of the results of the verification is 
essential to enable the exporter to structure its case for the rest of the investigation. Pursuant to 
Annex II(3) of the Anti -Dumping Agreement, which applies by analogy under the 
SCM Agreement25, all information that is "verifiable" and submitted in timely and usable fashion, 
must be taken into account by the investigating authority. The investigating authority is "not 
entitled to disregard the submitted information and use information from another source to make 
the determination."26 In addition, the ability of domestic courts (using their own standard of 
review) and of WTO panels (using the standard of review pu rsuant to Article 11 of the DSU) to 
review the determinations of investigating authorities depends on the existence of a proper 
disclosure of the "results" of the verification visit under Article 12.6 of the SCM Agreement.  
6.3. In the investigation at iss ue, the Commission failed to disclose the results of the verification 
visit. To the extent it made an effort to comply with the requirements of Article 12.6, in this case 
the Commission opted to disclose the results of the verification via the disclosure o f essential facts 
                                                
22 Definitive Determination, recital 118. Exhibit PAK -2. 
23 EU's response to Panel question 100, para. 33.  
24 Panel Report, Korea – Certain Paper , para. 7.192. (emphasis added)  
25 See Appellate Body Report, Mexico – Rice, paras. 290 – 295. 
26 Panel Report, EC – Salmon (Norway) , para. 7.383 (see also Ibid., para. 7.347). Panel Report, US – 
Steel Plate , para. 7.57.  WT/DS486/R/Add.1  
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  under Article 12.8. However, the Commission's disclosures contain no information of what occurred 
during the verification visit and which topics, other than the MBS, the Commission discussed with 
the investigated company, even though the Commission had provided the exporter with an 
extensive list of topics to be verified. However, there is no information whatsoever about 
verification on any of these issues other than the Manufacturing Bond Scheme. Hence, the EU has 
failed to provide any in formation on the results of its verification concerning all these other issues.  
6.4. Beyond the list of exhibits collected at verification, the EU disclosed no information on the 
conduct of the verification visit, or any corrections or rectification of th e information contained in 
the Questionnaire Response. The EU has not disclosed which particular aspect of these documents 
was discussed, for what purpose, or whether the Commission considered the data and information 
contained in this document to be verif ied or verifiable.  
6.5. In its submissions, the EU continues to attempt to conflate the concept of the results of the 
verification with the results of the investigation. The EU argues that the results of the verification 
were the facts that the investigat ing authority had decided to include in the essential facts 
disclosure as those on which it intended to base its final determination. Pakistan has explained 
how this approach necessarily deprives exporters of their rights and ability to defend themselves. 
It means that the results of the verification would be only those the investigating authority 
considers to be important or to support its final determination. The results of the verification would 
not include outcomes of the verification to which the expor ter may attach greater importance than 
the investigating authority or outcomes on which the exporter thinks the investigating authority 
should base its final determination. In its answers to the Panel's questions, Pakistan provided 
examples, both specific to this investigation and generic, illustrating how the exporter's interests 
could be negatively affected by a failure to provide information about what happened at the 
verification that goes beyond the investigating authority's subsequent, subjective deci sion as to 
what evidence supports its final determination.27 
6.6. Moreover, in its answers to the Panel's questions, the EU "takes the position that the term 
'result' does not include information, for example, about whether the Commission requested 
addition al documents, whether Novatex provided requested documents or whether the 
Commission asked questions during the verification visit".28 This is an extraordinary proposition. 
The EU considers that its investigating authority could ask for and receive (or, ind eed, not receive) 
key information regarding the exporter's questionnaire responses and business operations and 
subsequently simply ignore that fact or evidence in its final determination. This would mean, for 
instance, that the investigating authority coul d have asked for clarification in the verification that 
the term "Opening" balance in the spreadsheet of interest amounts paid on loans subject to the 
LTF-EOP programme during the PoI included principal amounts drawn down before the PoI, 
received that clar ification, and simply ignored that fact in reporting on the results of the 
verification.29 
6.7. The EU appears to acknowledge that further information about the results of the verification 
may be required to be provided "when such information is indispensab le for interested parties to 
defend their interests with respect to essential facts … (e.g. in the case of the use of facts 
available  …)".30 There are, however, two problems with this statement. First, the same problem 
remains that it would be the EU, not t he exporter itself, which would determine what information 
would be "indispensable" to the defence of the exporter's interests. There is no textual basis in 
Article 12.6 for the EU's position that the "results" of the verification are only those matters th at 
the investigating authority considers to be relevant to the defence of the exporter's interests.  
6.8. In addition, there is no reason why the logic behind requiring more information in cases 
involving facts available would not also apply to other situat ions in which the exporter might 
consider that additional information about the outcome of the verification might be "indispensable 
for interested parties to defend their interests".31 There is no reason why more or less information 
should be disclosed abou t the outcome of the verification visit on one issue rather than the other. 
Certainly, there is textual basis in Article 12.6 for the EU's position that the meaning of the 
                                                
27 Pakistan's response to Panel Question No. 80, paras. 5.1 – 5.9. 
28 EU's response to Panel Question No. 84, para. 124.  
29 See, for instance, Pakistan's response to Panel Question No. 38(c), para. 278.  
30 EU's response to Panel Q uestion No. 84, para. 121.  
31 EU's response to Panel Question No. 84, para. 121.  WT/DS486/R/Add.1  
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  "results" of the verification may be the information at issue or the uses to which i t may be put by 
the investigating authority.  
6.9. In its responses to the Panel's questions, the EU refers to two "examples" of how it disclosed 
the results of the verification visit in the disclosure of the essential facts.32 First, the EU refers to 
the statements regarding the MBS in its company -specific disclosures.33 However, Pakistan, in its 
own responses to the Panel's questions, has explained how the EU's disclosure of the results of the 
verification visit with respect to the MBS was at best incomplet e and left open important issues 
that affected Novatex's and Pakistan's ability to defend their interests before reviewing courts and 
this Panel.34 Second, the EU refers to the fact that it disclosed "Novatex's turnover figures".35 It is 
not clear how the "t urnover figures" represented a sufficiently significant "result" of the verification 
to merit such different treatment than other data that was reviewed during the verification. If the 
turnover figures merited disclosure as a "results" of the verification,  surely so too did the other 
matters to which Pakistan has referred in its answers to the Panel's questions.  
6.10.  The EU also overlooks that one option of disclosing the verification results is a separate 
report that will typically be issued well before the authority decides what the essential facts are. 
Choosing the option of later disclosure, when the authority has decided on what the essential facts 
are, cannot mean that the universe of verification results has suddenly become smaller. If this 
were acc epted, the authority could manipulate the scope of its obligations, and the rights of 
companies, simply by waiting.  
6.11.  Another pillar of the EU's defence is the mantra that an investigating authority is not 
required to provide written "minutes" of the v erification visit. By means of the label "minutes", the 
EU tries to discredit and misrepresent Pakistan's argument as requiring some sort of excessive and 
administratively burdensome level of detail from the investigating authority.  
6.12.  Under this argum ent, the EU would allow an investigating authority to pay lip -service to 
Article 12.6 with generic, boilerplate statements that in reality do not disclose anything 
meaningful. For the EU, stating that, for instance, "documents relating to the company's fin ancial 
accounts were verified" would be enough to satisfy Article 12.6.36 This cannot be so. The disclosed 
results must be sufficiently specific so that the exporter can subsequently make submissions 
relating to (i) what specific information or which specif ic document was verified, (ii) against which 
other document or other information the original document or information was examined, (iii) for 
what purpose a given document or information was considered, and (iii) which final conclusion the 
investigating au thority drew.37 
6.13.  The EU also argues that "accuracy of the information" is not part of the results of the 
verification visit.38 This is wholly untenable. The accuracy of the information and hence its 
reliability for use in the determinations, and the vie ws of the authority on this point, are the very 
core of the verification and therefore are key to the results. This is illustrated well by the questions 
surrounding the LTF -EOP loan. Pakistan argues that, had the EU properly reported the results of 
the ver ification, the Panel would not be required today to seek to divine what the EU thought and 
how its individual investigators read and understood the term "opening" amount in the LTF -EOP 
spreadsheets.  
6.14.  Yet another line of EU arguments is that the resul ts of the verification are a "summary of the 
summary of the information that was checked during the verification visit"39. In Pakistan's view, 
the word "summary" is not a particularly useful tool to gauge compliance with Article 12.6. The 
requirement in Art icle 12.6 is to disclose the "results of the verification". Thus, the word or concept 
of "summary" is not treaty language and is thus a potential red herring in discerning the meaning 
of Article 12.6, to the extent that it may divert the analysis from disc erning the meaning of the 
treaty term "results".  
                                                
32 EU's response to Panel Question No. 84, paras. 114 – 119. 
33 EU's response to Panel Question No. 84, para. 114.  
34 Pakistan's response to Panel Question No. 80, paras. 5.4 – 5.5. 
35 EU's response to Panel Question No. 83, para. 115.  
36 See the EU's second written submission, para. 193.  
37 See for instance Pakistan's first written submission, para. 8.41, referring inter alia  to Panel Report, 
Korea – Certain Paper , para. 7.68.  
38 EU's second written submission, para. 208.  
39 EU's opening statement at the second meeting of the Panel, para. 73.  WT/DS486/R/Add.1  
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  6.15.  Finally, in its answers to questions, as in its opening statement at the Panel's meeting with 
the parties, the EU posits the possibility that no verification visit might take place (as such visits 
are not required). The EU elaborates on what information might or might not have been disclosed 
as essential facts in the event that no verification visit had taken place and suggests that the 
amount of information that must be disclosed under the SCM Agreeme nt does (or should) not vary 
depending on whether a verification visit has taken place.40 However, as Pakistan explained in its 
own answers to the Panel's questions, there is a separate multilateral obligation to report the 
results of any verification visit . The obligation in Article 12.6 of the SCM Agreement cannot be 
rendered inutile by suggesting that it should not result in a different disclosure than if no 
verification visit had occurred.  
6.16.  With respect to the list of documents collected at the ver ification visit, as reflected in 
Exhibit  EU-10, this list was not given to Novatex by the EU officials, although the documents on 
that list match the company -internal list of documents in the company records of the verification 
visit. In any event, the lis t does not disclose the content of the document nor the purpose for 
which the document was inspected and collected. The list does not even make clear whether a 
given document was collected as part of the CVD investigation or the parallel anti -dumping 
investigation.  
6.17.  For the reasons above, Pakistan requests the Panel to find that the EU acted inconsistently 
with its obligations under Article 12.6 of the SCM Agreement, by failing to disclose the results of 
the verification in accordance with that provisi on. 
_______________  
 
 
 
 
                                                
40 EU's response to Panel Question No. 83, paras. 117 -119. WT/DS486/R/Add.1  
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  ANNEX D  
ARGUMENTS OF THE THI RD PARTIES  
Contents  Page  
Annex  D-1 Third Party Oral Statement of China  D-2 
Annex D -2 Executive Summary of United States Third Party written submission  D-4 
 
 WT/DS486/R/Add.1  
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- D-2 - 
 
  ANNEX D -1 
ARGUMENTS OF CHINA  
THIRD PARTY O RAL STATEMENT OF CHI NA 
I. Introduction  
 
1. Mr. Chairman, Members of the Panel, China welcomes this opportunity to present its views 
on European Union – Countervailing Duty Measures on PET from Pakistan (DS486) . In this session, 
China will only touch upon t wo claims by Pakistan under Article 1, Annex II (II) and Article 14 of 
the Agreement on Subsidies and Countervailing Measures (SCM Agreement).  
 
II. Pakistan's Claims Regarding "MBS" Duty Remission Program under Article 1 and 
Annex II(II) of the SCM Agreeme nt 
 
2. One of the core issues, for which China takes no position on the merits of the factual 
allegations, in this dispute is whether it is legally permissible under the SCM Agreement to treat 
the entire amount of import duties otherwise due on imported in puts under a duty drawback 
system as an export subsidy under Article 1.1. Put it into more detail, it consists of two parts: (1) 
Would the lack of an effective system or procedure in the duty drawback system by the exporting 
Member to monitor the inputs co nsumed in the production of the exported product directly form 
the basis for a determination of existence of subsidy; and (2) assuming that a further examination 
regarding the actual inputs involved in determining whether an excess payment occurred has bee n 
failed to carry out, could the entire amount of import duties be treated as an export subsidy?  
 
3. These questions should be answered under the relevant provisions of the SCM Agreement 
and the GATT 1994. Article 1.1(a)(1)(ii) and footnote 1 of the SCM Ag reement as well as the 
Ad Note to Article XVI of the GATT 1994 state that "a subsidy shall be deemed to exist if: … 
government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such 
as tax credits)", and "the exemption of a n exported product from duties or taxes borne by the like 
product when destined for domestic consumption, or the remission of such duties or taxes in 
amounts not in excess of those which have accrued, shall not be deemed to be a subsidy".  
 
4. The text its elf makes it clear that only when a drawback system leads to excessive drawback 
could a subsidy then be deemed to exist. Despite footnote 1 refers to "In accordance with…the 
provision of Annexes I through III of this Agreement", the effectiveness of the du ty drawback 
system cannot replace the criterion for deciding the existence of subsidy. According to the 
Annex  II(II)(1) and (2) of the SCM Agreement, "Where it is alleged that an indirect tax rebate 
scheme, or a drawback scheme, conveys a subsidy by reason  of over -rebate or excess drawback 
of indirect taxes or import charges on inputs consumed in the production of the exported product, 
the investigating authorities should first determine whether the government of the exporting 
Member has in place and applie s a system or procedure to confirm which inputs are consumed in 
the production of the exported product and in what amounts", and "Where… [such system or 
procedure] is found not to be applied or not to be applied effectively, a further examination by the 
exporting Member based on the actual inputs involved would need to be carried out in the context 
of determining whether an excess payment occurred. If the investigating authorities deemed it 
necessary, a further examination would be carried out in accordance  with paragraph 1". From this, 
the fact of non -existence effective system or procedure to monitor the inputs consumed in the 
production of the exported product alone is not decisive for determination of existence of an export 
subsidy. What the investigatin g authorities should do is to decide the existence of a subsidy on the 
ground that the criterion provided in the SCM Agreement has been met.  
                                                
 The deadline for the third parties to submit their executive summaries was 7 October 2 016. China did 
not submit an executive summary by this time. On 9 December 2016, China was informed that if China did not 
submit its executive summary by 16 December 2016, China's third party oral statement dated 
22 September  2016 would be annexed to the P anel report as the description of China's arguments. China did 
not submit an executive summary by 16 December 2016. Thus, we attach China's referenced oral statement 
here. WT/DS486/R/Add.1  
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5. Furthermore, even under the situation that it is determined a drawback system conveys a 
subsidy by reason of ex cess drawback of import duties on inputs consumed in the production of 
the exported product, it does not mean that the entirety of the duties remitted or drawn back are 
in "excess" and constitute a subsidy. Rather, the excess amount remitted or drawn back which 
reflects the subsidy provided to the recipient needs to be ascertained, to ensure that the 
countervailing duty levied does not excess to the amount of the subsidy found to exist. 
Consequently, it is suggested that the Panel should consider whether th e investigating authorities' 
determination, that one hundred percent of drawn back of import duties constitutes a subsidy, was 
based on positive evidence and involved an objective examination.  
 
III. Pakistan's Claims Regarding Its "LTF -EOP" Export Financin g Program under 
Articles 14 of the SCM Agreement  
 
6. Additionally, Pakistan claims that the EU acted inconsistently with Article 1.1(b), the 
chapeau and subsection (b) of Article 14 of the SCM Agreement in calculating the benefit under 
the Long -Term Financ ing of Export -Oriented Projects (LTF -EOP) scheme.1 In examining whether 
the Commission's choice of a national interest rate as the benchmark to calculate the benefit of the 
LTF-EOP loan was in legal error, namely, whether that benchmark is a "comparable" c ommercial 
loan benchmark2, it is necessary to analyze whether the Commission had considered all the 
relevant evidence and adequately explained the application of its own analytical method.  
 
7. Specifically, in identifying the benefit of a preferential loan  program, the approach of 
Articles  14(b) is a straightforward comparison of the interest paid with "the amount the firm would 
pay on a comparable commercial loan which the firm could actually obtain in the market". 
Although the use of the conditional tense , "could", suggests that a benchmark loan under 
Article  14(b) need not in every case be a loan that exists or that can in fact be obtained in the 
market3, the Appellate Body has "observe[d] that the Panel reasoned that the identification of an 
appropriate benchmark under Article 14(b) can be seen as a 'series of concentric circles', where 
the investigating authorities should first seek commercial loans to the same borrower that are 
identical or nearly identical to the investigated loan. ….In the absence of an identical or nearly 
identical loan, an investigating authority should seek, in turn, other similar commercial loans held 
by the same borrower, then similar commercial loans granted to another borrower with a similar 
credit risk profile to the investigat ed borrower. ….Yet, there may be situations where the actual 
differences between any of the existing commercial loans and the investigated government loan 
are so significant that it is not realistically possible to address them through adjustments. In such  
situations, the Panel considered that an investigating authority should be allowed to use proxies as 
benchmarks."4 
 
8. Thus, China does not intend to deny the discretion possessed by the investigating authority 
in selecting an appropriate benchmark. Howev er, the application of the methods set out in national 
legislation or regulations to a situation in which the borrower has no comparable commercial loans 
and a benchmark must be found must be transparent and adequately explained in accordance with 
the chap eau of Article 14 of the SCM Agreement. Namely, it is important to examine whether the 
investigating authority fulfil its obligation to provide a transparent and adequate explanation for 
why it selected a particular benchmark, in which the parties to the i nvestigation can adequately 
and timely defend their interests.  
 
IV. Conclusion  
 
9. China thanks the Panel for its consideration of these comments.  
 
 
                                                
1 Pakistan First Written Submission, para. 6.2.  
2 See Pakistan First Written Submiss ion, paras. 6.28 -6.56. 
3 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 674.  
4 US – Anti-Dumping and Countervailing Duties (China) (AB), para. 676.  WT/DS486/R/Add.1  
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  ANNEX D -2 
ARGUMENTS OF THE UNI TED STATES  
EXECUTIVE SUMMARY OF  U.S. THIRD PARTY WRITTEN SUBMISSION  
1.  INTR ODUCTION  
1. In this submission, the United States presents its views on the proper legal interpretation of 
certain provisions of the Agreement on Subsidies and Countervailing Measures  (the 
"SCM  Agreement") and the General Agreement on Tariffs and Trade 199 4 (the "GATT 1994") as 
relevant to certain issues in this dispute.  
 
2.  CLAIMS REGARDING ART ICLES 1 AND 3 OF THE  SCM AGREEMENT  
2. The United States, while taking no position on the merits of the factual allegations made by 
either party, submits the followi ng comments. The core disagreement between the parties is 
whether it is legally permissible under the SCM Agreement to treat the entire amount of import 
duties otherwise due on imported inputs under a duty drawback system as a financial contribution 
under Article 1.1 where the exporting Member: (1) does not have an effective system or procedure 
in place to monitor the inputs consumed in the production of the exported product and (2) has 
failed to carry out a further examination based on the actual inputs in volved in determining 
whether an excess payment occurred under the duty drawback scheme. The United States submits 
that this question should be answered in the affirmative under the relevant provisions of the SCM 
Agreement and the GATT 1994.  
 
3. Both footn ote 1 to the SCM Agreement and the Ad Note to Article XVI of the GATT 1994 
contemplate that a duty drawback scheme "shall not be deemed to be a subsidy" so long as there 
is no "excess" remission of duties or taxes from those which have accrued. Consequentl y, if a duty 
drawback system were to provide for exemption or remission of duties or taxes in amounts that 
exceed the amounts of "duties or taxes that have accrued," then such a system may be "deemed 
to be a subsidy" under the terms of Article 1.1 of that Agreement.  
 
4. Importantly, footnote 1 also notes that this standard (that "the remission of such duties or 
taxes in amounts not in excess of those which have accrued" shall "not be deemed to be a 
subsidy") is "[i]n accordance with the provisions of Articl e XVI of GATT 1994 (Note to Article XVI) 
and the provisions of Annexes I through III of this Agreement." Article 32.8 of the SCM Agreement 
provides that "[t]he Annexes to this Agreement constitute an integral part thereof."  
 
5. Annex I to the SCM Agreemen t, providing an "illustrative list" of export subsidies, elaborates 
that the "[t]he remission or drawback of import charges in excess of those levied on imported 
inputs that are consumed in the production of the exported product (making normal allowance fo r 
waste)" would constitute an "export subsidy." Again, this suggests that an export subsidy exists in 
cases where there is such an excess.  
 
6. In determining whether a duty drawback scheme provides for remission of import duties in 
amounts that in fact ex ceed a permitted limit, the procedures described in Annexes II and III are 
pertinent. The standard in footnote 1 to the SCM Agreement is "in accordance with" Annexes II 
and III, which each addresses a particular duty drawback scheme. Annex I, item (i), als o states 
that "[t]his item shall be interpreted in accordance with the guidelines on consumption of inputs in 
the production process contained in Annex II and the guidelines in the determination of 
substitution drawback systems as export subsidies containe d in Annex III."  
 
7. For a duty drawback system to operate so as not to provide for excess remission of import 
duties, Annexes II and III provide for procedures to check the system of the exporting Member. 
Annex II(II)(1) provides that the investigating au thority should first determine whether the 
exporting Member has in place an adequate system or procedure to monitor which inputs are 
consumed in the production of the exported product and in what amounts. Annex II(II)(2) WT/DS486/R/Add.1  
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  contemplates an additional analysis  by the exporting Member absent satisfaction of the condition 
under Annex II(II)(1).  
 
8. Therefore, where an exporting Member has a duty drawback scheme in place that does not 
satisfy the requirements for such a scheme to "not be deemed to be a subsidy," then an 
investigating authority would be permitted to consider the full amount of the financial contribution 
as a subsidy under the terms of Article 1.1. The conditions for a duty drawback scheme to be 
considered within the scope of footnote 1 to Article 1 .1(a)(1)(ii) of the SCM Agreement are 
established by reference to Annex II(II)(1) -(2). 
 
9. Finally, an investigating authority need not consider information that post -dates the period 
of investigation in trade remedy proceedings.  
 
3.  CLAIMS REGARDING ART ICLES 1.1(B) AND 14 OF THE SCM AGREEMENT  
10. Because the title of Article 14 indicates that it sets out "guidelines" for determining benefit, 
there exists "a certain degree of flexibility … under Article 14(b) in the selection of benchmarks." 
The selection  of an appropriate benchmark under Article 14(b) is guided by the terms 
"comparable," "commercial," and a "loan which the firm could actually obtain on the market."  
 
11. Of particular relevance to this dispute, the comparable commercial loan benchmark mus t be 
contemporaneous in time with the alleged subsidized loan. For example, in EC and certain member 
States – Large Civil Aircraft , the Appellate Body explained that investigating authorities must rely 
on a benchmark "that would have been available to the recipient firm at the time it received the 
government loan," such that the comparison to determine the benefit "is to be performed as 
though the loans were obtained at the same time." This contemporaneity factor accords with the 
principle that "[t]he inves tor will make its decision to invest on the basis of information available at 
the time the decision is made about market conditions and projections about how those economic 
conditions are likely to develop (future demand and price for the product, future c osts, etc.)."  
 
12. Finally, Article 14(b) also describes a benchmark loan as reflecting one "which the firm could 
actually obtain on the market." The Appellate Body has explained that "[t]he use of the conditional 
tense, 'could', suggests that a benchmark loan under Article 14(b) need not in every case be a 
loan that exists or that can in fact be obtained in the market." The Appellate Body has also 
observed that "could" refers "'first and foremost' to the borrower's risk profile, that is, whether the 
benchm ark loan is one that could be obtained by the borrower receiving the investigated 
government loan." Given these findings, the United States agrees with Pakistan's observation that 
"the investigating authority must, at the very least as the starting point o f its analysis, first seek to 
identify a comparable loan that the specific firm  under investigation would pay."  
 
13. In light of the guideline of comparing the transaction to one the loan recipient might have 
obtained on the market, an investigating author ity might well examine the transaction and rely on 
a benchmark that is contemporaneous with when the loan disbursement terms were established. 
This is because the investigating authority could take the view that each tranche is merely a part 
of the one ove rall loan. The investigating authority might also examine the transaction and apply a 
loan interest rate benchmark that is contemporaneous in time with when each tranche of the 
investigated loan was drawn down, as Pakistan proposes, because the authority m ight determine 
that each tranche should be considered as a distinct loan. These considerations will depend on the 
factual circumstances concerning the terms of the loan.  
 
14. Finally, the United States observes that an investigating authority has an oblig ation to 
provide a transparent and adequate explanation for why it selected a particular benchmark. One 
reason is so the parties to the investigation can adequately and timely defend their interests.  
 
4.  CLAIMS REGARDING ART ICLE 12.6 OF THE SCM  AGREEMENT  
15. The last sentence of Article 6.7 of the AD Agreement largely mirrors the last sentence of 
Article 12.6 of the SCM Agreement. The last sentence of Article 6.7 of the AD Agreement requires 
investigating authorities "to inform the investigated exporters o f the verification results," i.e., the 
results of the verification visit. The disclosure of the results of a verification visit are important 
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  authority's determination under Article 23 of the SCM Agreement, and to protect exporters' rights 
to prepare and present their cases under Article 12.3 of the SCM Agreement.  
 
16. The meaning of the term "results" in the last sentence of Article 12.6 of the SCM Agreement 
informs the  extent of what the investigating authority must provide to "the firms to which they 
pertain." The ordinary meaning of "result" is "an effect, issue, or outcome from some action, 
process or design." The "results" envisaged by Article 12.6 of the SCM Agreem ent are the 
"outcome" of the verification visit, which under Annex VI(7) is an on -the-spot investigation " to 
verify information provided or to obtain further details."  
 
17. Article 12.6 of the SCM Agreement (as does Article 6.7 of the AD Agreement) provide s two 
alternative mechanisms for disclosing the verification visit results: to make the results available to 
the firm to which the results pertain or to disclose the results as part of the essential facts which 
form the basis for a decision to impose defin itive measures. Thus, one such option is to "'make 
available' a separate report containing the results of the verification visits."  
 
18. Consequently, the Panel should consider whether Pakistan has demonstrated that the 
Commission's disclosure of the veri fication visit results was not sufficient to disclose the outcome 
of the verification, was not complete such that essential facts were not disclosed, or was not timely 
such that interested parties were not able to defend their interests.  
 
EXECUTIVE SUMMARY  OF U.S. THIRD -PARTY ORAL STATEMENT  AT THE THIRD PARTY S ESSION OF 
THE FIRST MEETING OF  THE PANEL WITH THE P ARTIES  
5.  INTRODUCTION  
19. The United States appreciates the opportunity to provide our views as a third party in this 
dispute. The United States wi ll focus its remarks on the interpretation and application of Article 1 
of the SCM Agreement, particularly in light of issues raised by Pakistan with respect to footnote 1 
of Article 1.1 and the operation of the annexes related to these provisions.  
 
6.  ARTICLE 1.1 AND FOOTNO TE 1 OF THE SCM AGRE EMENT  
20. Article 1.1(a)(1)(ii) is accompanied by footnote 1. Footnote 1 does two things: first, it limits 
the scope of Article 1.1 subparagraph (a)(1)(ii) where the remission of certain duties or taxes is 
not in exc ess of accrued amounts; and second, it requires that this limitation be read "in 
accordance with" Annexes I, II, and III in determining its applicability. Consequently, if a program 
were to provide for the exemption or remission of duties or taxes in amoun ts that exceed the 
"duties or taxes that have accrued" in a given instance, then such excess may be "deemed to be a 
subsidy" under the text of Article 1.1 of the SCM Agreement. To reach such a conclusion in the 
first place, however, the question of excess remission must be answered per the guidelines and 
procedures of the relevant annexes. Where that inquiry is inconclusive, the limitation found in 
footnote 1 does not apply and, therefore, an investigating authority may determine whether there 
is a financia l contribution irrespective of footnote 1.  
 
21. This interpretation is supported by the language of the annexes themselves. The procedures 
described in Annex II, in particular, are pertinent in determining whether there is remission of 
import duties in amo unts that in fact exceed a permitted limit. Annex II(II) provides for a two -step 
analysis for investigating authorities to confirm whether the scheme in question provides for 
excess remission of import duties.  
 
22. Should the system not satisfy the conditi ons in Annex II(II)(1), Annex II(II)(2) 
contemplates an additional analysis by the exporting Member. Specifically, subparagraph (II)(2) 
provides that the exporting Member take steps to demonstrate the validity of its system in three 
different scenarios. In  each of those scenarios, the step of demonstrating that there is no excess 
remission is left to the exporting Member. Specifically, the exporting Member would need to carry 
out a "further examination ... based on the actual inputs involved" to determine " whether an 
excess payment occurred." Otherwise, the investigating authority would have to determine 
amounts where not possible per the annex guidelines. Such a result would not be consistent with 
meaning of these provisions.  WT/DS486/R/Add.1  
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  23. It is for this very reason that both subparagraphs (1) and (2) to Annex II(II) require that 
the exporting Member ensure and demonstrate that there is no excess remission of import duties. 
If the exporting Member cannot demonstrate that it has an adequate system or procedure in place  
or that there are otherwise no excess import duties remitted, then it would be impossible for the 
investigating authority to make such a determination.  
 
24. An investigating authority must be able to identify with some precision the extent to which 
there  is excess duty remission under the system in order to determine whether the limitation 
provided for in footnote 1 applies to the particular financial contribution at issue. Neither the 
footnote, nor the referenced annexes, suggests their purpose relates t o the determination of 
subsidy amounts. This is particularly true where the investigating authority cannot discern 
whether, and to what extent, there is excess remission, because the exporting Member has not 
been able to make the required demonstration.  
 
25. Thus, the language of the annex supports the interpretation of the United States that 
footnote 1 operates to limit the definition of a financial contribution set forth in 
Article  1.1(a)(1)(ii). Where the criteria for this limitation are not satisfied p er the guidelines of 
Annex II, the limitation does not apply, and the language of footnote 1 has no further bearing on 
the question of whether the alleged program is a financial contribution.  
 
7.  CHANGES AFTER THE PE RIOD OF INVESTIGATIO N 
26. Finally, the United States notes that an investigating authority need not consider information 
that post -dates the period of investigation in a trade remedy proceeding. Rather, the authority 
must consider the system or procedure that was in place during the period of i nvestigation.  
 
EXECUTIVE SUMMARY OF  U.S. RESPONSES TO PA NEL QUESTIONS TO THI RD PARTIES  
27. In the context of an investigation, if the investigating authority cannot satisfy itself that the 
exporting Member has an adequate verification system or procedure i n place under 
Annex  II(II)(1), or the exporting Member does not demonstrate that there are otherwise no excess 
import duties remitted pursuant to Annex II(II)(2), then there is no textual basis for the 
investigating authority to make a determination per fo otnote 1  that the alleged financial 
contribution shall "not be deemed to be a subsidy." Thus, where the inquiry posed by Annex II(II) 
is inconclusive, the limitation in footnote 1 to Article 1.1(a)(1)(ii) does not apply and an 
investigating authority may d etermine whether there exists a financial contribution irrespective of 
footnote 1.  
 
28. Assuming an exporting Member has no "system or procedure to confirm which inputs are 
consumed in the production of the exported product and in what amounts," the only r emaining 
step through which an exporting Member may comport with Annex II (and, therefore, footnote 1) 
is for the exporting Member to perform the "further examination" as envisioned by Annex II(II)(2). 
The exporting Member's opportunity to perform that exa mination is not contingent upon a request 
for such action on the part of an investigating authority.  
 
29. In the view of the United States, the analysis under subparagraphs (II)(1) and (2) is 
sequential. Thus, absent satisfaction of the criteria in paragra ph 1, a "further examination by the 
exporting Member… would need to be carried out". Nothing in the text of paragraph 2 suggests 
that the investigating authority must request that the exporting Member carry out the "further 
examination" "[w]here there is n o such system or procedure" (as is assumed by the Panel's 
question).  
 
30. Suppose that, prior to verification, an exporting Member has acknowledged in its 
questionnaire response that its duty drawback scheme lacks a verification system or procedure 
under A nnex II(II)(1), but has also submitted evidence of the results obtained from conducting a 
further examination of the amount of excess remission based on actual inputs consumed, pursuant 
to Annex II(II)(2). In this scenario, the investigating authority coul d take that information into 
account in determining whether a subsidy exists and the extent of the benefit. During on -the-spot 
verification, the investigating authority would then be able to "satisfy itself" as to the veracity of 
the evidence already submi tted. WT/DS486/R/Add.1  
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  31. By contrast, suppose that an exporting Member has asserted, prior to verification, that its 
duty drawback scheme comports with Annex II(II)(1), but has not undertaken "a further 
examination" as described by Annex II(II)(2). An investigating autho rity then conducting a 
verification to "satisfy itself" as to the veracity of the evidence already submitted would be able to 
spot-check the basis for the Annex II(II)(1) assertion, but would have nothing to "verify" 
regarding Annex II(II)(2) if no "furthe r examination" had been conducted by the exporting 
Member.  
 
32. Whether the entire amount of duty remission or an "excess" amount is countervailed would 
depend on the factual circumstances confronted by an investigating authority.  
 
33. In response to the P anel's final question, generally speaking, a "line of credit" can be 
considered a type  of loan. In considering whether a loan benchmark is "comparable," the 
investigating authority should consider a benchmark that "'ha[s] as many elements as possible in 
common with the investigated loan ...'," although "in practice, the existence of such an ideal 
benchmark loan would be extremely rare," and "a comparison should also be possible with other 
loans that present a lesser degree of similarity." As we have noted, this suggests that factual 
circumstances are central to the benchmark selection.  
 
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  ANNEX E  
INTERIM REVIEW  
Contents  Page  
Annex  E-1 Interim Review  E-2 
 
 
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  ANNEX E -1 
INTERIM REVIEW  
1  INTRODUCTION  
1.1. In compliance with Article 15.3 of the DSU, this Annex sets out the Panel's discussion of the 
arguments made at the interim review stage. We have modified certain aspects of the Report in 
light of the parties' comments where we considered it appropriate, as explained below. In addition, 
the Panel has made certain changes of an editorial nature to improve the clarity and accuracy of 
the Report or to correct typographical and other non -substantive errors.  
1.2. Due to changes as a result of our review, certain numbering of the paragraphs and  footnotes 
in the Final Report has changed from the Interim Report. The text below refers to the numbers in 
the Interim Report, with the numbers in the Final Report in parentheses for ease of reference.  
2  SPECIFIC REQUESTS FO R REVIEW SUBMITTED B Y THE PART IES 
2.1  Paragraph 7.115 (paragraph 7.115)  
2.1. Pakistan asks the Panel to revise this paragraph to more accurately reflect its arguments. 
The European Union considers that Pakistan's request should be dismissed to the extent that 
Pakistan is improperly as king the Panel to modify the sections of the Report containing the Panel's 
assessment. The European Union suggests that where Pakistan requests the Panel to add or clarify 
Pakistan's arguments, such clarifications should be better made in sections of the r eport 
summarising Pakistan's arguments.  
2.2. Although we do not consider that the language previously used in this paragraph did not 
represent Pakistan's position accurately, we have decided to accommodate Pakistan's request, and 
also made further conform ing changes to paragraphs 7.114, 7.115, and 7.116 (paragraphs 7.114, 
7.115, and 7.116) to more fully account for this revision.  
2.2  Paragraph 7.117 (paragraph 7.117)  
2.3. Pakistan asks the Panel to revise this paragraph to more fully reflect its arguments . The 
European Union considers that Pakistan's request should be dismissed to the extent that Pakistan 
is improperly asking the Panel to modify the sections of the Report containing the Panel's 
assessment. The European Union suggests that where Pakistan re quests the Panel to add or clarify 
Pakistan's arguments, such clarifications should be better made in sections of the report 
summarising Pakistan's arguments.  
2.4. We have decided to accommodate Pakistan's request, and also made conforming changes to 
parag raphs 7.117 and 7.118 (paragraphs 7.118 and 7.119) and footnotes thereto to more fully 
account for this revision.  
2.3  Paragraph 7.124 (paragraph 7.125)  
2.5. Pakistan asks the Panel to revise the part of the Report in which this paragraph appears to 
more f ully reflect its arguments. The European Union considers that Pakistan's request should be 
dismissed to the extent that Pakistan is improperly asking the Panel to modify the sections of the 
Report containing the Panel's assessment. The European Union sugge sts that where Pakistan 
requests the Panel to add or clarify Pakistan's arguments, such clarifications should be better 
made in sections of the report summarising Pakistan's arguments.  
2.6. We consider that the Section of the Report that contains paragraph  7.124 (paragraph 7.125) 
already accurately describes and cites the arguments that Pakistan asks us to include.1 We 
                                                
1 See paragraph 7.120 and footnotes 254 and 255 (paragraph 7.121 and footnotes 256 and 257) .  WT/DS486/R/Add.1  
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  therefore decline Pakistan's request. We further emphasize that the manner in which we dispose of 
these arguments is consistent with the man ner in which Pakistan presented them in its 
submissions.  
2.4  Paragraph 7.178 (paragraph 7.179)  
2.7. Pakistan asks the Panel to revise this paragraph to more fully reflect its arguments. The 
European Union considers that Pakistan's request should be dismis sed to the extent that Pakistan 
is improperly asking the Panel to modify the sections of the Report containing the Panel's 
assessment. The European Union suggests that where Pakistan requests the Panel to add or clarify 
Pakistan's arguments, such clarifica tions should be better made in sections of the report 
summarising Pakistan's arguments.  
2.8. We have decided to accommodate Pakistan's request.  
 
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