WT/DS472/AB/R  
WT/DS497/AB/R  
 
13 December 2018  
(18-7793) Page: 1/154 
  Original: English  
 
 
BRAZIL – CERTAIN MEA SURES CONCERNING TAX ATION AND CHARGES  
AB-2017-7 
AB-2017-8 
Report s of the Appellate  Body WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Table of Contents  
 
1   INTRODUCTION  ................................ ................................ ................................ ........  11 
2   ARGUMENTS OF THE  PARTICIPANTS  ................................ ................................ .........  18 
3   ARGUMENTS OF THE  THIRD PARTICIPANTS  ................................ ..............................  18 
4   ISSUES RAISED IN  THIS APPEAL  ................................ ................................ ..............  18 
5   ANALYSIS OF THE APPELLATE  BODY  ................................ ................................ .........  21 
5.1   Articles  III:2 and III:4 of the GATT  1994 ................................ ................................ .......21 
5.1.1    Whether the Panel erred in finding that imported finished and intermediate ICT  products 
were taxed in excess of like domestic finished and intermediate ICT  products inconsistently with 
Article  III:2, first sentence, o f the GATT  1994 ................................ ................................ .......22 
5.1.2    Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  III:4 of the GATT  1994 ................................ ................................ ............................. 31 
5.1.3    Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  2.1 of the TRIMs  Agreement  ................................ ................................ ...................... 36 
5.1.4    Whether the Panel erred in finding that the accreditatio n requirements under the 
INOVAR -AUTO programme are inc onsistent with Article  III:4 of the GATT  1994 because they are 
more burdensome for companies seeking accreditation as importers/distributors as opposed to 
domestic manufacturers  ................................ ................................ ................................ .....37 
5.1.5    Whether the Panel erred in finding that the INOVAR -AUTO programme is inconsistent with 
Article  2.1 of the TRIMs  Agreement  ................................ ................................ ...................... 40 
5.2   Article  III:8(b) of the GATT  1994 ................................ ................................ .................. 41 
5.2.1    Introduction  ................................ ................................ ................................ ............ 41 
5.2.2    The legal standard under Article  III:8(b) of the GATT  1994 ................................ ........... 42 
5.2.3    Whether the Panel erred in its interpretation and application of Article  III:8(b) of the 
GATT  1994 ................................ ................................ ................................ ........................ 46 
5.2.4    Conclusion with respect to Article  III:8(b)  ................................ ................................ ...55 
5.2.5    Separate opinion of one Appellate Body Member on Article III:8(b) of the GATT  1994 ......56 
5.3   Article 3.1(a) of the SCM  Agreement  ................................ ................................ ............. 60 
5.3.1    Article  1.1(a)(1)(ii) of the SCM  Agreement: PEC and RECAP  programmes  ....................... 60 
5.4   Article  3.1(b) the SCM  Agreement  ................................ ................................ ................ 70 
5.4.1    Article  1.1(a)(1)(ii) of the SCM  Agreement: ICT programmes  ................................ ........ 70 
5.4.2    Article  3.1(b) the SCM  Agreement – import substitution  ................................ ............... 81 
5.4.3    The European Union 's and Japan's appeal concerning the in -house scenario  ..................  102 
5.5   Article I:1 of the GATT  1994 and the Enabling  Clause  ................................ ...................  111 
5.5.1    Whether the Panel erred in finding that the claims raised by the European  Union and Japan 
under Article  I:1 of the GAT T 1994 were within its terms of reference  ................................ .... 111 
5.5.2    Whether the Panel erred in its interpretation of paragraph  2(b) of the Enabl ing Clause and 
in finding that the differential tax treatment under the INOVAR -AUTO programme was not justified 
under that provision  ................................ ................................ ................................ .........  125 
5.5.3    Whether the Panel erred in its interpretation of paragraph  2(c) of the Enabling  Clause and 
in finding that the differential tax treatment under the INOVAR -AUTO programme was not justified 
under that provision  ................................ ................................ ................................ .........  130 
5.5.4    Conclusion with respect to the Enabling Clause  ................................ ..........................  133 
5.6   Articles  11 and 12.7 of the DSU and Article  4.7 of the SCM  Agreement  ...........................  135 
5.6.1    Introduction  ................................ ................................ ................................ ..........  135 WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.6.2    Relevant legal standards under Articles  11 and 12.7 of the DSU and Article  4.7 of the 
SCM Agreement  ................................ ................................ ................................ ...............  136 
5.6.3    Whether the Panel acted inconsistently with Articles  11 and 12.7 of the DSU in 
recommending that Brazil withdraw the prohibited subsid ies within 90 days  ............................  139 
6   FINDINGS AND CON CLUSIONS  ................................ ................................ ................  145  
6.1   Articles  III:2 and III:4 of the GATT  1994 and Article  2.1 of the TRIMs  Agreement  ............  145 
6.1.1    Whether the Panel erred in finding that imported finished ICT  products were taxed in 
excess of like domestic finished ICT  products inconsistently with Article  III:2, first sentence, of the  
GATT  1994 ................................ ................................ ................................ ......................  145 
6.1.2    Whether the Panel erred in finding that imported intermediate ICT  products were taxed in 
excess of like do mestic intermediate ICT  products inconsistently with Article  III:2, first sentence, 
of the GATT  1994 ................................ ................................ ................................ .............  146 
6.1.3    Whether the Panel erred in finding that the accreditation requirements under the 
ICT programmes accord treatment less favourable to imported products than that accorded to like 
domestic products inconsistently with Article  III:4 of the GATT  1994 ................................ ...... 146 
6.1.4    Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  III:4 of the GATT  1994 by virtu e of the lower administrative burden on companies 
purchasing incentivized domestic intermediate products  ................................ .......................  147 
6.1.5    Whether the Panel erred in finding that the PPBs and other production -step requirements 
under the ICT programmes are contingent upon the use of domestic goods, inconsistently with 
Article  III:4 of the GATT  1994 ................................ ................................ ...........................  147 
6.1.6    Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  2.1 of the TRIMs  Agreement  ................................ ................................ ....................  147 
6.1.7    Whether the Panel erred in finding that the accreditatio n requirements under the 
INOVAR -AUTO programme are inconsistent with Article  III:4 of the GATT  1994 because they are 
more burdensome for companies seeking accreditation as importers/distributors as opposed to 
domestic manufacturers  ................................ ................................ ................................ ... 148 
6.1.8    Whether the Panel erred in finding that the INOVAR -AUTO programme is inconsistent with 
Article  2.1 of the TRIMs  Agreement  ................................ ................................ ....................  148 
6.2   Article  III:8(b) of the GATT  1994 ................................ ................................ ................  149 
6.3   Article  3.1(a) of the SCM  Agreement  ................................ ................................ ...........  149 
6.4   Article  3.1(b) of the SCM  Agreement  ................................ ................................ ...........  150 
6.5   Article  I:1 of the GATT  1994 and the Enabling Clause  ................................ ...................  151 
6.5.1    Whether the Panel erred in finding that the claims raised by the European  Union and Japan 
under Article  I:1 of the GATT  1994 were within its terms of reference  ................................ .... 151 
6.5.2    Whether the Panel erred in its interpretation of paragraph  2(b) of the Enabling  Clause and 
in finding that the differential tax treatment under the INOVAR -AUTO programme was not justified 
under that provision  ................................ ................................ ................................ .........  152 
6.5.3    Whether the Panel erred in its interpretation of paragraph  2(c) of the Enabling  Clause and 
in finding that the differential tax treatment under the INOVAR -AUTO programme was not justified 
under that provision  ................................ ................................ ................................ .........  153 
6.6   Article  4.7 of the SCM  Agreement  ................................ ................................ ...............  153 
6.7   Recommendation  ................................ ................................ ................................ ...... 154 
 
 
  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 ABBREVIATIONS USED I N TH ESE REPORT S 
Abbreviation  Description  
Anti-Dumping  
Agreement  Agreement on Implementation of Article  VI of the General  Agreement  on Tariffs 
and Trade 1994  
CIDE Contribution of Intervention in the Economic Domain  
COFINS  Contribution to Social Security Financing  
COFINS -Importation  Contribution to Social Security Financing applicable to Imports of Goods or Services  
DSB Dispute Settlement Body  
DSU Understanding  on Rules and Procedures Governing the Settlement of Disputes  
ECAs economic complementation  agreements  
ECA No. 2  Economic Complementation  Agreement  No. 2 between Brazil and Uruguay  
ECA No. 14  Economic Complementation  Agreement  No. 14 between Argentina and Brazil  
ECA No. 55  Economic Complementation  Agreement  No. 55 between MERCOSUR and Mexico  
Enabling Clause  Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller 
Participation of Developing Countries, D ecision of 28  November  1979 
European Union's 
panel request  Request for the Establishment of a Panel by the European Union, WT/DS472/5  
GATT  1994 General  Agreement  on Tariffs and Trade 1994  
GSP Generalized System of Preferences  
ICT Information and Communication Technology  
ICT products  Information and Communication Technology, Automation and Related Goods  
ICT programme  tax treatment established under the Informatics, PADIS, PATVD, and Digital 
Inclusion programmes  
INMETRO  National Institute of Metrology, Quality and Technology  
INOVAR -AUTO 
programme  programme of Incentive to the Technological Innovation and Densification of the 
Automotive Supply Chain  
IPI tax  Tax on Industrialised Products  
Japan's panel request  Request for the Establishment of  a Panel by Japan, WT/DS497/3  
LAIA Latin American Integration Association  
MDIC  Ministry of Development, Industry and Trade  
MERCOSUR  Mercado Común del Sur  (Southern Common Market)  
MFN most-favoured nation  
NTMs non-tariff measure s 
PADIS  programme  programme of Incentives for the Semiconductors Sector  
PASEP  Civil Service Asset Formation Programme  
PATVD  Programme of Support to the Technological Development of the Industry of Digital 
TV Equipment  
PEC programme  regime for Predominantly Exporting Companies  
PIS  Social Integration Programme  
PIS/PASEP  Social Integration Programme/Civil Service Asset Formation Programme  
PIS/PASEP -
Importation  Social Integration and Civil Service Asset Formation Programmes contribution 
applicable to Imports of Foreign  Goods or Services  
PPB Basic Productive Process  
PTA preferential trade arrangement  
R&D research and development  
RECAP  programme  Special Regime for the Purchase of Capital Goods for Exporting Enterprises  
REIMCOMP  Special Regime to Incentive Computers for Educational Use  
RETAERO  Special Regime for the Brazilian Aerospace Industry  
RTA regional trade agreement  
S&D special and differential treatment  
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
TRIMs  Agreement  Agreement on Trade -Related Investment Measures  
Vienna Convention  Vienna Convention on the Law of Treaties, Done at Vienna, 23  May 1969, 
1155 UNTS  331; 8 International Legal Materials 679  
Working Procedures  Working Procedures for Appellate Review  
WTO World Trade Orga nization  
PANEL EXHIBITS CITED  IN THE SE REPORT S 
Exhibit 
No. Short Title  
(if any)  Full Case Title and Citation  
BRA-93 1980 Treaty of 
Montevideo  Treaty of Montevideo, concluded at Montevideo on 12 August 1980  
BRA-100 Law 10,637/2002  Law 10,637 of 30 December 2002 
BRA-114  Communication from LAIA to the Chair of the Trade and Development 
Committee  of the  WTO, 19  May 2016 (original version)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Exhibit 
No. Short Title  
(if any)  Full Case Title and Citation  
BRA-115  Communication from LAIA to the Chair of the Trade and Development 
Committee of the  WTO, 19  May 2016 (translated version)  
JE-7 Decree 5,906/2006  Decree 5,906 of 26 September 2006 (regulating Articles 4, 9, 11, and 
16-A of Law 8,248 of 23 October 1991 ) (Informatics Law)  
JE-8 Decree 6,759/2009  Decree 6,759 of 5 February 2009 governing the administration of 
customs activities and the inspection, control and taxation of foreign 
trade operations  
JE-9 Decree 7,212/2010  Decree 7,212 of 15 June 2010 regulating the charging, inspection, 
collection and administration of the Industrial Goods Tax (IPI)  
JE-31 Interministerial 
Implementing Order 
93/2013  Interministerial Implementing Order ( Portaria ) 93 of 1 April 2013 
establishing a Basic Production process for optical splice closures 
produced in Brazil  
JE-32 Interministerial 
Implementing Order 
103/2013  Interministerial Implementing Order ( Portaria ) 103 of 2 April 2013  on 
the Basic Production Process for products for speed alarms, tracking and 
control produced in Brazil  
JE-71 Law 11,484/2007  Law 11,484, of 31 May 2007 providing for the incentives to the Digital 
TV equipment and electronic semiconductor components industries and 
on the intellectual property protection of integrated circuit topographies, 
establishing the Semiconductor Technological Development Support 
Program (PADIS ) and Support Program for  the Technological 
Development of the Digital TV Equipment Industry (PATVD ) 
JE-73 Decree 6,233/2007  Decree 6,233, of 11 October 2007 establishing the criteria for the 
purpose of accreditation to the Semiconductor Technological 
Development Support Program (PADIS ), which grants income tax 
exemption and reduces PIS/PASEP, COFINS and IPI contributions to zero  
JE-75 Decree 8,247/2014  Decree 8,247 of 23 May 2014, amending Decree 6,233/2007  
JE-76 Regulatory Instruction 
RFB 852/2008  Regulatory Instruction RFB 852 of 13 June 2008 laying down procedures 
for qualification for the Programme for the Technological Development 
of the Semiconductor Industry (PADIS) by Secretary of the Federal 
Revenue Department of Brazil  
JE-94 Law 10,637/200 2 Law 10,637 of 30 December 2002  
JE-95 Law 12,715/2012  Law 12,715 of 17 September 2012  
JE-132 Decree  7,819/2012  Decree 7,819 of 3 October 2012 regulating Articles 40 to 44 of Law 
12,715 of 17 September 2012, which contain provisions on the 
Incentive Scheme for Technological Innovation and Consolidation of the 
Automotive Supply Chain (INOVAR -AUTO) and Articles 5 and 6 of Law 
12,546 of 14 December 2011, which contain provisions on a reduction 
of the Industrial Goods Tax, as the case dictates  
JE-163 
(rev) Decree 350/1991  Decree  350 of 21  November  1991 on the Treaty for the Formation of a 
Common Market between the Republic of Argentina, the Federative 
Republic of Brazil, the Republic of Paraguay and the Oriental Republic 
of Uruguay (MERCOSUR)  
JE-164 
(rev) Decree 4,458/2002  Decree  4,458 of 5  November  2002 on the Economic 
Complementation  Agreement  No. 55 between MERCOSUR and the 
United Mexican States  
JE-165 
(rev) Decree  6,500/2008  Decree  6,500 of 2  July 2008 on the Economic 
Complementation  Agreement  No. 14 between the Republic of Argentina 
and the Federative Republic of Brazil  
JE-181 Law 10,865/2004  Law 10,865 of 30 April 2004  
JE-182 Law 11,196/2005  Law 11,196 of 21 November 2005 (RECAP)  
JE-186  Exporters  2014 study on Brazilian expor ts – delays in refunds 
(original  version)  
JE-191 Normative Instruction 
RFB 948/2009  Normative Instruction ( Instrução Nor mativa ) RFB 948 of 15 June 2009  
JE-193 Normative Instruction 
SRF 595/2005  Normative Instruction SRF 595 of 27 December 2005  
JE-203 
(rev) Decree 6,518/2008  Decree  6,518 of 30  July 2008 providing for the implementation of the 
68th Additional Protocol to Economic Complementation  Agreement  
No. 2, signed between the Governments of the Federative Republic of 
Brazil and the Oriental Republic of Uruguay  
JE-204 
(rev) Decree 7,658/2011  Decree  7,658 of 23  December  2011 laying down provisions concerning 
the implementation of the 69th Additional Protocol to Economic 
Complementation  Agreement  No. 2 signed by the Governments of the 
Federal Republic of Brazil and  the Oriental Republic of Uruguay  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 CASES CITED IN THE SE REPORT S 
Short Title  Full Case Title and Citation  
Argentina – Hides and 
Leather  Panel  Report , Argentina – Measures Affecting the Export of Bovine Hides and the 
Import of Finished Leather , WT/DS155/R  and Corr.1 , adopted 16  February  2001, 
DSR 2001:V, p. 1779  
Australia – Automotive 
Leather II  Panel  Report , Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather , WT/DS126/R , adopted 16  June 1999, DSR 1999:III, p. 951  
Australia – Salmon  Appellate  Body Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/AB/R , adopted 6  November  1998, DSR 1998:VIII, p. 3327  
Brazil – Aircraft  Appellate  Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R , adopted 20  August  1999, DSR 1999:III, p. 1161  
Brazil – Aircraft  Panel  Report , Brazil – Export Financing Programme for Aircraft , WT/DS46/R , 
adopted 20  August  1999, as modified by Appellate  Body Report WT/DS46/AB/R, 
DSR 1999:III, p. 1221  
Brazil – Retreaded  
Tyres  Appellate  Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres , 
WT/DS332/AB/R , adopted 17  December  2007, DSR 2007:IV, p. 1527  
Brazil – Taxation  Panel  Reports , Brazil – Certain Measures Concerning Taxation and Charges , 
WT/DS472/R , Add.1 and Corr.1 / WT/DS497/R , Add.1 and Corr.1, circulated to 
WTO Members 30  August  2017  
Canada – Aircraft  Appellate  Body Report, Canada – Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/AB/R , adopted 20  August  1999, DSR 1999:III, p. 1377  
Canada – Aircraft  Panel  Report , Canada – Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/R , adopted 20  August  1999, upheld by Appellate  Body Report 
WT/DS70/AB/R, DSR 1999:IV, p. 1443  
Canada – Aircraft 
(Article  21.5 – Brazil)  Appellate  Body Report, Canada – Measures Affecting the Export of Civilian Aircraft 
– Recourse by Brazil to Article  21.5 of the DSU , WT/DS70/AB/RW , adopted 
4 August  2000, DSR 2000:IX, p. 4299  
Canada – Aircraft 
Credits and 
Guarantees  Panel  Report , Canada – Export Credits  and Loan Guarantees for Regional Aircraft , 
WT/DS222/R  and Corr.1, adopted 19  February  2002, DSR 2002:III, p. 849  
Canada – Autos  Appellate  Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R , WT/DS142/AB/R , adopted 19  June 2000, 
DSR 2000:VI, p. 2985  
Canada – Autos  Panel  Report , Canada – Certain Measures Affecting the Automotive Industry , 
WT/DS139/R , WT/DS142/R , adopted 19  June 2000, as modified by Appellate  Body 
Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043  
Canada – FIRA GATT Panel  Report , Canada – Administration of the Foreign Investment Review 
Act, L/5504 , adopted 7  February  1984, BISD  30S, p.  140 
Canada – Periodicals  Appellate  Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30  July 1997, DSR 1997:I, p. 449  
Canada – Renewable 
Energy / Canada – 
Feed-in Tariff Program  Appellate  Body Reports, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector / Canada – Measures Relating to the Fee d-in Tariff 
Program , WT/DS412/AB/R / WT/DS426/AB/R, adopted 24  May 2013, DSR 2013:I, 
p. 7 
Chile – Alcoholic 
Beverages  Appellate  Body Report, Chile – Taxes on Alcoholic Beverages , WT/DS87/AB/R , 
WT/DS110/AB/R , adopted 12  January  2000, DSR 2000:I, p. 281  
Chile – Price Band 
System 
(Article  21.3(c))  Award of the Arbitrator, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products – Arbitration under Article  21.3(c) of the 
DSU, WT/DS207/13 , 17 March  2003, DSR 2003:III, p. 123 7 
Chile – Price Band 
System ( Article  21.5 – 
Argentina)  Appellate  Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products – Recourse to Article  21.5 of the DSU by 
Argentina , WT/DS207/AB/RW , adopted 22  May 2007, DSR 2007:II, p. 513  
China – HP-SSST 
(Japan) / China – 
HP-SSST (EU)  Appellate  Body Reports, China – Measures Impos ing Anti -Dumping Duties on 
High-Performance Stainless Steel Seamless Tubes ("HP -SSST") from Japan / 
China  – Measures Imposing Anti -Dumping Duties on High -Performance Stainless 
Steel Seamless Tubes ("HP -SSST") from the European  Union , WT/DS454/AB/R  and 
Add.1 / WT/DS460/AB/R  and Add.1, adopted 28  October  2015, DSR 2015:IX, 
p. 4573 WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Short Title  Full Case Title and Citation  
China – Publications 
and Audiovisual 
Products  Appellate  Body Report, China – Measures Affecting Trading Rights and Distribution 
Services for Certain Publications and Audiovisual Entertainment Products , 
WT/DS363/AB/R, adopted 19  January  2010, DSR 2010:I, p. 3  
China – Rare Earths  Appellate  Body Reports , China – Measures Related to the Exportation of Rare 
Earths, Tungsten, and Molybdenum , WT/DS431/AB/R  / WT/DS432/AB/R  / 
WT/DS433/AB/R , adopted 29  August  2014, DSR 2014:III, p. 805  
Colombia – Textiles  Appellate  Body Report, Colombia – Measures Relating to the Importation of 
Textiles, Apparel and Footwear , WT/DS461/AB/R  and Add.1, adopted 
22 June 2016, DSR 2016:III, p. 1131  
Dominican Republic – 
Import and Sale of 
Cigarettes  Appellate  Body Report, Dominican Republic – Measures Affecting the Importation 
and Internal Sale of Cigarettes , WT/DS302/AB/R , adopted 1 9 May 2005, 
DSR 2005:XV, p. 7367  
EC – Asbestos  Appellate  Body Report, European Communities – Measures Affecting Asbestos and 
Asbestos -Containing Products , WT/DS135/AB/R , adopted 5  April 2001, 
DSR 2001:VII, p. 3243  
EC – Bananas III  
(Article  21.5 – 
Ecuador II) /  
EC – Bananas III  
(Article  21.5 – US) Appellate  Body Reports, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas – Second Recourse to Article  21.5 of the DSU by 
Ecuador , WT/DS27/AB/RW2/ECU , adopted 11  December  2008, and Corr.1 / 
European Communities – Regime for the Importation, Sale and Distribution of 
Bananas – Recourse to Article  21.5 of the DSU by the United  States , 
WT/DS27/AB/RW/USA  and Corr.1, adopted 22  December  2008, DSR 2008:XVIII, 
p. 7165 
EC – Bed Linen  
(Article  21.5 – India)  Appellate  Body Report, European Communities – Anti-Dumping Duties on Imports 
of Cotton -Type Bed Linen from India – Recourse to Article  21.5 of the DSU  by 
India, WT/DS141/AB/RW , adopted 24  April 2003, DSR 2003:III, p.  965 
EC – Chicken Cuts 
(Article  21.3(c))  Award of the Arbitrator, European Communities – Customs Classification of Frozen 
Boneless Chicken Cuts – Arbitration under Article  21.3(c) of the DSU , 
WT/DS269/13 , WT/DS286/15 , 20 February  2006 
EC – Export Subsidies 
on Sugar 
(Article  21.3(c))  Award of the Arbitrator, European Communities – Export Subsidies on Sugar – 
Arbitration under Article  21.3(c) of the DSU , WT/DS265/33 , WT/DS266/33 , 
WT/DS283/14 , 28 October  2005, DSR 2005:XXIII, p. 11581  
EC – Fasteners 
(China)  Appellate  Body Report, European Communities – Definitive Anti -Dumping 
Measures on Certain Iron or Steel Fasteners from China , WT/DS397/AB/R , 
adopted  28 July 2011, DSR 2011:VII, p. 3995  
EC – Hormones  Appellate  Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R , WT/DS48/AB/R , adopted 13  February  1998, 
DSR 1998:I, p. 135  
EC – Poultry  Appellate  Body Report, European Communities – Measures Affecting the 
Importation of Certain Poultry Products , WT/DS69/AB/R , adopted 23  July 1998, 
DSR 1998:V, p. 2031  
EC – Sardines  Appellate  Body Report, European Communities – Trade Description of Sardines , 
WT/DS231/AB/R , adopted 23  October  2002, DSR 2002:VIII, p. 3359  
EC – Seal Products  Appellate  Body Reports, European Communities – Measures Prohibiting the 
Importation and Marketing of Seal Products , WT/DS400/AB/R  / WT/DS401/AB/R , 
adopted 18  June 2014, DSR 2014:I, p. 7  
EC – Selected 
Customs Matters  Appellate  Body Report, European Communities – Selected Customs Matters , 
WT/DS315/AB/R , adopted 11  December  2006, DSR 2006:IX, p. 3791  
EC – Tariff Preferences  Appellate  Body Report, European Communities – Conditions for the Granting of 
Tariff Preferences to Developing Countries , WT/DS246/AB/R , 
adopted  20 April 2004, DSR  2004:III, p. 925  
EC – Tube or Pipe 
Fittings  Appellate  Body Report, European Communities – Anti-Dumping Duties on Malleable 
Cast Iron Tube or Pipe Fittings from Brazil , WT/DS219/AB/R , adopted 
18 August  2003, DSR 2003:VI, p. 2613  
EC and certain 
member States – 
Large Civil Aircraft  Appellate  Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 
1 June 2011, DSR 2011:I, p. 7  
EC and certain 
member States – 
Large Civil Aircraft  Panel  Report , European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , WT/DS316/R , adopted 1 June 2011, as 
modified by Appellate  Body Report WT/DS316/AB/R, DSR 2011:II, p. 685  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Short Title  Full Case Title and Citation  
EC and certain 
member States – 
Large Civil Aircraft 
(Article  21.5 – US) Appellate  Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft  – Recourse to Article  21.5 of the 
DSU by the United  States , WT/DS316/AB/RW  and Add.1, adopted 28  May 2018 
EC and certain 
member States – 
Large Civil Aircraft 
(Article  21.5 – US) Panel  Report , European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft  – Recourse to Article  21.5 of the DSU by the 
United  States , WT/DS316/RW  and Add.1, adopted 28  May 2018, as modified by 
Appellate  Body Report WT/DS316/AB/RW  
Guatemala – Cement I  Appellate  Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from  Mexico , WT/DS60/AB/R , adopted 25  November  1998, 
DSR 1998:IX, p. 3767  
India – Agricultural 
Products  Panel  Report , India – Measures Concerning the Importation of Certain Agricultural 
Products , WT/DS430/R  and Add.1, adopted 19  June 2015, as modified by 
Appellate  Body Report WT/DS430/AB/R, DSR 2015:V, p. 2663  
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R , WT/DS55/R , WT/DS59/R , WT/DS64/R , Corr.1 and Corr.2, adopted 23 
July 1998, and Corr.3 and Co rr.4, DSR 1998:VI, p. 2201  
Indonesia – Import 
Licensing Regimes  Appellate Body Report, Indonesia – Importation of Horticultural Products, Animals 
and Animal Products , WT/DS477/AB/R , WT/DS478/AB/R , and Add.1, adopted 22 
November 2017  
Italy – Agricultural 
Machinery  GATT Panel  Report , Italian Discrimination Against Imported Agricultural Machinery , 
L/833, adopted 23  October  1958, BISD  7S, p.  60 
Japan – Agricultural 
Products II  Appellate  Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R , adopted 19  March  1999, DSR 1999:I, p. 277  
Japan – Alcoholic 
Beverages II  Appellate  Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, 
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1  November  1996, DSR 1996:I, p. 97  
Japan – Apples  Appellate  Body Report, Japan – Measures Affecting the Importation of Apples , 
WT/DS245/AB/R , adopted 10  December  2003, DSR 2003:IX, p. 4391  
Korea – Alcoholic 
Beverages  Appellate  Body Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/AB/R , 
WT/DS84/AB/R , adopted 17  February  1999, DSR 1999:I, p. 3  
Korea – Alcoholic 
Beverages 
(Article  21.3(c))  Award of the Arbitrator, Korea – Taxes on Alcoholic Beverages – Arbitration under 
Article  21.3(c) of the DSU , WT/DS75/16 , WT/DS84/14 , 4 June 1999, DSR 1999:II, 
p. 937 
Korea – Commercial 
Vessels  Panel  Report , Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R , adopted 11  April 2005, DSR 2005:VII, p. 2749  
Korea – Dairy Appellate  Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R , adopted 12  January  2000, DSR 2000:I, 
p. 3 
Korea – Various 
Measures on Beef  Appellate  Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and 
Frozen Beef , WT/DS161/AB/R, WT/DS169/AB/R, adopted 10  January  2001, 
DSR 2001:I, p. 5  
Mexico – Corn Syrup 
(Article  21.5 – US) Appellate  Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn 
Syrup (HFCS) from the United  States  – Recourse to Article  21.5 of the DSU  by the 
United  States , WT/DS132/AB/RW , adopted  21 November  2001, DSR 2001:XIII, 
p. 6675 
Mexico – Taxes on 
Soft Drinks  Panel  Report , Mexico – Tax Measures on Soft Drinks and Other Beverages , 
WT/DS308/R, adopted 24  March  2006, as modified by Appellate  Body Report 
WT/DS308/AB/R, DSR 2006:I, p. 43  
Thailand – Cigarettes 
(Philippines)  Appellate  Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from 
the Philippines , WT/DS371/AB/R, adopted 15  July 2011, DSR 2011:IV, p. 2203  
US – Anti-Dumping 
Methodologies (China)  Appellate  Body Report, United  States  – Certain Methodologies and Their 
Application to Anti -Dumping Proceedings Involving China , WT/DS471/AB/R  and 
Add.1, adopted 22  May 2017 
US – Carbon Steel  Appellate  Body Report, United  States – Countervailing Duties on Certain 
Corrosion -Resistant Carbon Steel Flat Products from Germany , WT/DS213/AB/R  
and Corr.1, adopted 19  December  2002, DSR  2002:IX, p.  3779 WT/DS472/AB/R • WT/DS497/AB/R  
 
- 9 - 
 
 Short Title  Full Case Title and Citation  
US – Carbon Steel 
(India)  Appellate  Body Report, United  States  – Counter vailing Measures on Certain 
Hot-Rolled Carbon Steel Flat P roducts from India , WT/DS436/AB/R , adopted 
19 December 2014, DSR 2014:V, p. 1727  
US – Certain EC 
Products  Appellate  Body Report, United  States  – Import Measures on Certain Products from 
the European Communities , WT/DS165/AB/R , adopted 10  January  2001, 
DSR 2001:I, p. 373  
US – Countervailing 
Measures on Certain 
EC Products  Appellate  Body Report, United  States  – Countervailing Measures Concerning 
Certain Products from the European Communities , WT/DS212/AB/R , adopted 
8 January 2003, DSR 2003:I, p. 5  
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, p. 1619  
US – FSC Panel  Report , United  States  – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R , adopted 20 March  2000, as modified by Appellate  Body Report 
WT/DS108/AB/R, DSR 2000:IV, p. 1675  
US – FSC 
(Article  21.5 – EC) Appellate  Body Report, United  States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Article  21.5 of the DSU by the European Communities , 
WT/DS108/AB/RW , adopted 29  January  2002, DSR 2002:I, p. 55  
US – FSC 
(Article  21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – 
Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW , adopted 29 January 2002, as modified by Appellate Body Report 
WT/DS108/AB/RW, DSR 2002:I, p. 119  
US – Gambling  Appellate  Body Report, United  States  – Measures Affecting the Cross -Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R , adopted 20  April 2005, 
DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)  
US – Hot-Rolled Steel  Appellate  Body Report, United  States  – Anti-Dumping Measures on Certain 
Hot-Rolled Steel Products from Japan , WT/DS184/AB/R , adopted 23  August  2001, 
DSR 2001:X, p. 4697  
US – Large Civil 
Aircraft 
(2nd complaint)  Appellate  Body Report, United  States  – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23  March  2012, 
DSR 2012:I, p. 7  
US – Large Civil 
Aircraft (2nd 
complaint)  Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft 
(Second Complaint) , WT/DS353/R, adopted 23 March 2012, as modified by 
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649  
US – Malt Beverages  GATT Panel Report, United States – Measures Affecting Alcoholic and Malt 
Beverages , DS23/R, adopted 19  June 1992, BISD  39S, p. 206 
US – Offset Act (Byrd 
Amendment)  Panel Report, United States – Continued Dumping and Subsidy Offset Act of 2000 , 
WT/DS217/R , WT/DS234/R , adopted 27 January 2003, as modified by Appellate 
Body Report WT/DS217/AB/R, WT/DS234/AB/R, DSR 2003:II, p. 489  
US – Offset Act (Byrd 
Amendment) 
(Article  21.3(c))  Award of the Arbitrator, United  States  – Continued Dumping and Subsidy Offset 
Act of 2000 – Arbitration under Article  21.3(c) of the DSU , WT/DS217/14 , 
WT/DS234/22 , 13 June 2003, DSR 2003:III, p. 1163  
US – Oil Country 
Tubular Goods Sunset 
Reviews  Appellate  Body Report, United  States  – Sunset R eviews of Anti -Dumping Measures 
on Oil Country Tubular Goods from Argentina , WT/DS268/AB/R , adopted 
17 December 2004, DSR 2004:VII, p. 3257  
US – Section 211 
Appropriations Act  Appellate  Body Report, United  States  – Section 21 1 Omnibus Appropriations Act 
of 1998, WT/DS176/AB/R , adopted 1  February  2002, DSR 2002:II, p. 589  
US – Section 337 
Tariff Act  GATT Panel Report, United States Section 337 of the Tariff Act of 1930 , L/6439, 
adopted 7  November  1989, BISD  36S, p. 345 
US – Softwood 
Lumber IV  Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/AB/R , adopted 
17 February 2004, DSR 2004:II, p. 571  
US – Softwood 
Lumber VI 
(Article  21.5 – 
Canada)  Appellate  Body Report, United  States  – Investigation of the International Trade 
Commission in Softwood Lumber from Canada – Recourse to Article  21.5 of the 
DSU by Canada , WT/DS277/AB/RW , adop ted 9 May 2006, and Corr.1, 
DSR 2006:XI, p. 4865  
US – Tax Incentives  Appellate  Body Report, United  States  – Conditional Tax Incentives for Large Civil 
Aircraft , WT/DS487/AB/R  and Add.1, adopted 22  September  2017 WT/DS472/AB/R • WT/DS497/AB/R  
 
- 10 - 
 
 Short Title  Full Case Title and Citation  
US – Tax Incentives  Panel  Report , United  States  – Conditional Tax Incentives for Large Civil Aircraft , 
WT/DS487/R  and Add.1, adopted 22  September  2017, as modified by 
Appellate  Body Report WT/DS487/AB/R  
US – Tuna II (Mexico)  Appellate  Body Report, United  States  – Measures Concerning the Importation, 
Marketing and Sale of Tuna and Tuna Products , WT/DS381/AB /R, adopted 
13 June 2012, DSR 2012:IV, p. 1837  
US – Upland Cotton  Panel  Report , United  States  – Subsidies on Upland Cotton , WT/DS267/R , Add.1 to 
Add.3 and Corr.1, adopted 21  March  2005, as modified by Appellate  Body Report 
WT/DS267/AB/R, DSR 2005:II, p. 299 
US – Upland Cotton 
(Article  21.5 – Brazil)  Appellate  Body Report, United  States  – Subsidies on Upland Cotton – Recourse to 
Article  21.5 of the DSU by Brazil , WT/DS267/AB/RW , adopted 20  June 2008, 
DSR 2008:III, p. 809  
US – Wheat Gluten  Appellate  Body Report, United  States  – Definitive Safeguard Measures on Imports 
of Wheat Gluten from the European Communities , WT/DS166/AB/R , adopted 
19 January 2001, DSR 2001:II, p. 717  
US – Wool Shirts and 
Blouses  Appellate Body Report, United States – Measure Affecting Imports of Woven Wool 
Shirts and Blouses from India , WT/DS33/AB/R , adopted 23 May 1997, and Corr.1, 
DSR 1997:I, p. 323  
 WT/DS472/AB/R • WT/DS497/AB/R  
 
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 WORLD TRADE ORGANIZATION  
APPELLATE  BODY 
 
 
Brazil – Certain Measures Concerning 
Taxation and Charges  
 
Brazil, Appellant/Appellee  
European  Union , 
Other Appellant1/Appellee2/Third Participant3 
Japan,  
Other Appellant4/Appellee5/Third Participant6 
 
Argentina, Third Participant  
Australia, Third Participant  
Canada, Third Participant  
China, Third Participant  
Colombia, Third Participant  
India, Third Participant  
Korea, Third Participant  
Russia , Third Participant  
Singapore, Third Participant7 
South Africa, Third Participant8 
Chinese Taipei, Third Participant9 
Turkey, Third Participant  
Ukraine, Third Participant10 
United  States, Third Participant  AB-2017-7 
AB-2017-8 
 
Appellate  Body Division:  
 
Graham, Presiding Member  
Van den Bossche, Member  
Zhao, Member  
 
 
1  INTRODUCTION  
1.1.  Brazil, the European  Union , and Japan each appeal certain issues of law and legal 
interpretations developed in the Panel  Reports , Brazil – Certain Measures Concerning Taxation and 
Charges .11  
1.2.  On 31  October  2014, the European  Union  requested the establishment of a panel pursuant to 
Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), 
Article  XXIII of the General  Agreement  on Tariffs and Trade 1994 (GATT  1994), Articles  4.4 and 30 
of the  Agreement  on Subsidies and Countervailing Measures (S CM Agreement ), and Article  8 of 
the Agreement  on Trade -Related Investment Measures (TRIMs  Agreement ) concerning certain tax 
measures adopted  by Brazil through various programmes aimed at the information and 
communication technology (ICT) and automotive sectors .12 On 17  December  2014, pursuant to the 
request of the European  Union , a Panel was established to consider this complaint.13  
1.3.  On 17  September  2015, Japan requested the establishment of a panel pursuant to Article s 4.7 
and 6 of the DSU, Article  XXIII of the GATT  1994, Articles  4.4 and 30 of the SCM Agreement , and 
Article  8 of the TRIMs  Agreement  concerning certain tax measures adopted  by Brazil through various 
                                                
1 In DS472 only.  
2 In DS472 only.  
3 In DS497 only.  
4 In DS497 only.  
5 In DS497 only.  
6 In DS472 only.  
7 In DS497 only.  
8 In DS472 only.  
9 In DS472 only.  
10 In DS497 only.  
11 WT/DS472 /R, WT/DS497 /R, 30 August  2017. 
12 Request for the Establishment of a Panel by the European  Union , WT/DS47 2/5 (European  Union 's 
panel request ). 
13 Panel  Reports , para. 1.5 (referring to the Minut es of the DSB Meeting held on 17  December  2014, 
WT/DSB/M/3 53). WT/DS472/AB/R • WT/DS497/AB/R  
 
- 12 - 
 
 programmes aimed at the ICT and automotive sectors .14 On 28  September  2015, pursuant to the 
request by Japan, a Panel was established to consider this complaint.15  
1.4.  Following the establishment of the Panel upon request from Japan, and pursuant to Article  9.3 
of the DSU, the Panels were composed with the same persons and adopted their Joint Working 
Procedures and joint timetable on 9  October  2015.16  
1.5.  The taxes and contributions relevant for the purposes of the present appeals are: (i) the Tax 
on Industrialised Products (IPI tax)17; (ii) the Social Integration Programme/Civil Service Asset 
Formation Programme  (PIS/PASEP)  contribution and the Contribution to Social Security Financing 
(COFINS)18; (iii) the Social Integration and Civil Service Asset Formation Programmes contribution 
applicable to Imports of Foreign Goods or Services (PIS/PASEP -Importation ) and the Contribution 
to Social Security Financing applicable to Imports of Goods or Services (COFINS -Importation)19; and 
(iv) the Contribution of Intervention in the Economic Domain (CIDE).20 
1.6.  The measures at issue can be divided into three groups of measur es through which Brazil 
provides  exemptions, reductions, or suspensions of the federal taxes and contributions mentioned 
above. The first group of measures concerns the ICT sector and comprises tax treatment granted  
under: (i) the Informatics programme; (i i) the programme of Incentives for the Semiconductors 
Sector (PADIS programme); (iii) the programme of Support for the Technological Development of 
the Industry of Digital TV Equipment (PATVD programme); and (iv) the programme for 
Digital  Inclusion (Digita l Inclusion programme).21 The second group comprises tax treatment 
granted  under the programme of Incentive to the Technological Innovation and Densification of the 
Automotive Supply Chain (INOVAR -AUTO programme), which targets the automotive sector. The 
third group of measures comprises tax treatment granted  under: (i) the regime for Predominantly 
                                                
14 Request for the Establishment of a Panel by Japan , WT/DS4 97/3 (Japan's panel request ). 
15 Panel  Reports , para.  1.9 (referring to Minut es of the DSB Meeting held on 28  September  2015, 
WT/DSB/M/368).  
16 Panel  Reports , paras.  1.14-1.15. 
17 The IPI tax  is a Brazilian federal tax that applies to all national or fore ign industrialized 
(i.e. manufactured) products.  IPI tax rates are product -specifi c and  linked to the price or value of the 
industrialized product on which it is imposed. In the case of domestic products, the taxable base is the 
transaction value , while for  imported products, the taxable base is the customs value plus the import duties 
and charges paid.  The IPI tax is not paid directly by the entity bearing the u ltimate burden of paying the IPI 
tax. In the case of domestic products, the  IPI tax is charged by the industrial establishment selling the 
industrialized product to the entity  that buys  the industrialized product. The taxes retained by the industrial 
estab lishment selling the industrialized product must be remi tted to the Federal Revenue Service on a monthly 
basis. In the case of imported products, the IPI tax is charged by the customs authorities to the importer of the 
industrialized product during the cus toms clearance process.  The IPI tax is non-cumulative, and the tax due in 
each transaction shall be compensated by the amount charged in previous transactions.  This is effected by 
means of a credit system, by which the tax due on products entering the faci lities of the taxpayer is deducted 
from the amount due on the exit of products in the same taxation period , which, in turn, means that when a 
taxpayer remits to the government the IPI tax collected for any given transaction, the taxpayer may deduct 
the IPI  tax paid in earlier stages of the supply chain , thereby ensuring  that the tax is levied only on the 
value  added.  (Panel  Reports , paras.  2.3-2.20)  
18 The PIS/PASEP contribution and the COFINS contribution  are Brazilian federal contributions that apply 
to gross revenues earned by all types of legal entities.  These  contributions are subject, as a general rule, to 
the non -cumulative regime and operate as taxes on value added, where companies generate credits in relation 
to their purchases of taxed products, whi ch they can offset with debits when paying their PIS/PASEP and 
COFINS liabilities . The system o f tax credits ensures that prior -stage PIS/PASEP and COFINS contributions can 
be deduc ted at each stage of the supply  chain.  (Panel  Reports , paras.  2.21-2.29)  
19 The PIS/PASEP -Importation  and COFINS -Importation  contributions  are the import -focused variants of 
the PIS/PASEP and COFINS  contributions . These contributions apply to individual import transactions and a re 
levied upon importation of goods. The taxable base  is the customs value of the goods . Importers are subject to 
the non -cumulative regime, so they can offset the amounts paid upon importation with their domestic 
PIS/PASEP and COFINS liabilities.  Importers , therefore, pay the contributions only with respect  to the value  
added , i.e. the difference between the customs value and the importers' sales price . The tax credit mechanism 
with respect to the non -cumulative PIS/PASEP and COFINS domestic regime applies equally in the case of 
importers.  (Panel  Reports , paras. 2.30-2.34)  
20 The CIDE contribution is a Brazilian federal  contribution that applies to remittances/royalty payments 
abroad.  The tax rate is 10% , and the taxable persons are legal entities holding a license of use or acquiring 
technological knowledge, as well as those entering into agreements that imply technological transfer, made 
with persons residing or domiciled abroad.  The basis of calculation is the amount paid, credited, delivered, 
used, or remitted every month to persons residing or domiciled ab road. (Panel  Reports , paras.  2.35-2.36)  
21 Panel  Reports , para.  2.37. WT/DS472/AB/R • WT/DS497/AB/R  
 
- 13 - 
 
 Exporting Companies (PEC programme); and (ii) the Special Regime for the Purchase of Capital 
Goods for Exporting Enterprises ( RECAP programme).22 
1.7.  The Informatics p rogramme provides for exemptions and reductions on the IPI tax on the sale 
of information technology goods. It also provides for suspensions of the IPI tax on the purchase or 
import of raw materials, intermediate goods , and packaging materials used in the production of 
information technology, and automation goods incentivi zed under the programme.23 In order to 
benefit from the tax treatment, companies must obtain an accreditation.24 The eligible companies 
under the Informatics programme are companies that: (i ) develop or produce information 
technology and automation goods and services in compliance with the relevant Basic Productive 
Processes (PPBs)25; and (ii)  invest in information technology research and development (R&D) 
activities in Brazil.26 Moreover, unde r this programme, products that have obtained the status of 
"developed in Brazil" are subject to additional tax reductions.27 
1.8.  The PADIS programme exempts, through zero rates, accredited companies from paying certain 
taxes with respect to semiconductors and information displays, as well as inputs, tools, equipment, 
machinery, and software for the production of semiconductors and displays.28 In order to obtain 
accreditation, legal persons must: (i) invest in R&D in Brazil; and (ii) engage in certain activities in 
Brazil with respect to semiconductor electronic devices, information displays, and inputs and 
equipment intended for the manufacture of electronic semiconductor devices and information 
displays.29 
1.9.  The PATVD programme exempts accredited companies from pay ing certain taxes with respect 
to radio frequency signal transmitting equipment for digital television (digital television transmission 
equipment), as well as machinery, apparatus, instruments, equipment, inputs, and software for the 
production of digital television transmission equipment (production goods).30 In order to obtain 
accreditation, legal persons must: (i) invest in R&D in Brazil; (ii) engage in developing and 
manufacturing activities of digital television transmission equipment; and (iii) either comply with the 
relevant PPB or, alternatively, meet the criteria for a product to be considered "developed in Brazil".31 
1.10.   The Digital Inclusion programme exempts, through zero rates, Brazilian retailers from paying 
PIS/PASEP and COFINS contributions with re spect to the sale of certain digital consumer goods 
produced in Brazil in accordance with the relevant PPBs.32 
1.11.   The INOVAR -AUTO programme provides for reduction of the IPI tax burden on certain motor 
vehicles either: (i) through presumed IPI tax credits gran ted to accredited companies; or  (ii) through 
reduced IPI tax rates on the importation of vehicles originating in certain countries, as well as on 
certain domestic vehicles.33 All companies using presumed IPI tax credits, and certain companies 
using reduced IPI tax rates, must obtain one of three forms of accreditation: (i)  domestic 
manufacturer; (ii) importer/distributor; or (iii)  investor.34 In order to obtain accreditation, a 
                                                
22 Panel Reports, para.  2.37. 
23 Panel  Reports , para.  2.39. 
24 Panel  Reports , para.  2.49. 
25 The Panel defined a PPB as " the minimum set of operations performed at a manufacturing facility that 
characterizes the actual industrialization of a given product ". (Panel  Reports , para.  2.62 (referring to 
Decree  5,906 of 26  September  2006 (regulating Articles  4, 9, 11, and 16 -A of Law 8,248 of 23  October  1991) 
(Informatics Law)  (Decree 5,906/2006)  (Panel Exhibit JE -7), Article  16)) In other words, the Panel explained 
that PPBs indicate the minimum stages or steps of the manufacturing process of a product that must be 
performed in Brazil.  (Ibid.) On appeal, the participants do not take issue with the definition of a PPB set out by 
the Panel.  
26 Panel  Reports , para.  2.48. 
27 Panel  Reports , para.  2.67. For an information technology or automation good to be considered as 
"developed in Brazil", two requirements must be met: (i) p roducts must comply with the specifications, rules , 
and standards laid out in Brazilian legislation; and  (ii) the specifications, projects , and developments must 
have been carried out in Brazil by technicians of proven skill in such activities who are residents and domiciled 
in Brazil . (Panel  Reports , para.  2.68)  
28 Panel  Reports , para.  2.71. 
29 Panel  Reports , para.  2.76. 
30 Panel  Reports , para.  2.82. 
31 Panel  Reports , para.  2.87. (emphasis omitted)  
32 Panel  Reports , para.  2.91. 
33 Panel  Reports , para.  2.97. 
34 Panel  Reports , paras.  2.112 -2.113.  WT/DS472/AB/R • WT/DS497/AB/R  
 
- 14 - 
 
 company must comply with certain requirements of both a general and specific natur e. All such 
companies must comply with the same two general requirements and also with certain additional 
specific requirements that vary by the type of accreditation.35 A company applying for accreditation 
as a domestic manufacturer shall comply with the t wo general requirements36 as well as "three out 
of four specific requirements, one of which must be the performance of a minimum number of 
defined manufacturing and engineering infrastructure activities in Brazil".37 A company applying for 
accreditation as importer/distributor shall comply with the two general requirements and 
"the following three specific requirements: (i)  investments in R&D in Brazil; (ii)  expenditure on 
engineering, basic industrial technology and capacity -building of suppliers in Brazil; and, 
(iii) participation in the vehicle labelling programme by [the] National Institute of Metrology, Quality 
and Technology (INMETRO)".38 A company applying for accreditation as an investor shall submit to 
the Mini stry of Development, Industry and Trade (MDIC) an investment project containing a 
description and the technical features of the vehicles to be imported and manufactured. Accreditation 
shall be granted once the investment project is approved by that Ministr y. An investor shall be 
required to apply for a specific accreditation for every factory, plant, or industrial project that it plans 
to establish.39 
1.12.   Under the PEC  programme, the IPI tax and the PIS/PASEP, COFINS, PIS/PASEP -Importation, 
and COFINS -Importation contributions are suspended with respect to raw materials, intermediate 
goods, and packaging materials purchased by predominantly exporting companies.40 Similarly, 
under the RECAP  programme, the PIS/PASEP, COFINS, PIS/PASEP -Importation, a nd 
COFINS -Importation contributions are suspended with respect to purchases of new machinery, tools, 
apparatus, instruments, and equipment by predominantly exporting companies.41  
1.13.   Additional factual aspects of the measures at issue and the relevant taxes an d contributions 
are set forth in g reater detail in paragraphs 2.1 -2.176 of the Panel  Reports . 
1.14.   Before the Panel, the European  Union and Japan raised claims , inter alia , under Articles  III:2, 
III:4, and III:5 of the GATT  1994; Article  2.1 of the TRIMs  Agreem ent; and Article  3.1(b) of the 
SCM Agreement  with respect to tax treatment established under the Informatics, PADIS, PATVD, 
and Digital Inclusion programmes (the ICT programmes) and the INOVAR -AUTO programme. Brazil 
invoked Article  XX(a) of the GATT  1994 t o justify certain inconsistencies with respect to the PATVD 
programme and Articles  XX(b) and XX(g) to justify certain inconsistencies with respect to the 
INOVAR -AUTO programme. The European  Union  and Japan also raised claims under Article  I:1 of 
the GATT  1994 with respect to the INOVAR -AUTO programme, in response to which Brazil invoked 
the Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of 
Developing Countries, Decision of 28 November 1979  (Enabling Clause ) as a defence. With respect 
to the PEC and RECAP programmes, the European  Union and Japan raised claims under Article  3.1(a) 
of the SCM  Agreement .42 
1.15.   In the Panel  Reports , circulated to Members of the World  Trade  Organization (WTO) on 
30 August 2017, the Panel f irst addressed two broad defences raised by Brazil concerning the 
ICT and INOVAR -AUTO programmes. First, the Panel rejected Brazil's argument that Article  III of 
the GATT  1994, Article  2 of the TRIMs  Agreement , and Article  3.1(b) of the SCM  Agreement  are 
inapplicable to "pre -market" measures.43 The Panel found that these provisions are not per se 
                                                
35 Panel  Reports , para.  2.114.  
36 The two general requirements that all companies seeking accreditation under the INOVAR -AUTO 
programme must meet are: (i) compliance with tax obligations at the federal level; and (ii) commitment to 
achiev e certain minimum levels of energy efficiency for products marketed in Brazil. ( Panel  Reports , 
para. 2.121)  
37 Panel  Reports , para.  2.115. (fn omitted)  
38 Panel  Reports , para.  2.116. (fn omitted)  
39 Panel  Reports , para.  2.117.  
40 Panel  Reports , paras.  2.148 an d 2.150 (referring to Law 10,637 of 30  December  2002 (PIS/PASEP – 
non-cumulative) (Law 10,637/2002) (Panel Exhibits JE -94 and BRA -100), Article  29, section 1.II (for IPI tax); 
Law 10,865 of 30  April 2004 providing for the Contribution to Social Integration  and the Civil Servants 
Investment Programmes and the Contribution to the Financing of Social Security levied on the import of goods 
and services and sets forth other provisions (Law 10,865/2004) (Panel Exhibit  JE-181), Article  40 (for 
PIS/PASEP and COFINS  contributions)).  
41 Panel  Reports , paras.  2.163 and 7.1138. We note the definition of a predominantly exporting 
company in paragraphs 5.144 -5.145 of these Reports below.  
42 Panel Reports, paras.  3.1-3.3. 
43 Panel Reports, para.  7.70. WT/DS472/AB/R • WT/DS497/AB/R  
 
- 15 - 
 
 inapplicable to certain measures, in particular "pre -market" measures, directed at producers.44 
Second, the Panel rejected Brazil's argument that the ICT and INOVAR -AUTO programmes constitute 
payment of subsidies exclusively to domestic producers within the meaning of Article  III:8(b) of the 
GATT  1994, and therefore are exempted from the disciplines  of Article  III of the GATT  1994 and 
Article  2.1 of the TRIMs  Agreement . To the Panel, those aspects of a measure resulting in product 
discrimination are not exempted per se  from these disciplines, even if the measure takes the form 
of a subsidy paid exclu sively to domestic producers.45 The Panel also made the following findings  
concerning the measures at issue:  
a. with re spect  to the ICT programmes:  
i. the production -step requirements under the Informatics, PADIS, PATVD, and Digital 
Inclusion programmes; and the  requirement for products to obtain the status of 
"developed in Brazil", under the Informatics, PATVD, and Digital Inclusion 
programmes, result in imported products being subject to internal taxes in excess of 
those applied to like domestic products, incon sistently with Article  III:2, first sentence, 
of the GATT  199446; 
ii. the production -step requirements under the Informatics, PADIS, PATVD, and Digital 
Inclusion programmes, and the requirement for products to obtain the status of 
"developed in Brazil", under t he Informatics, PATVD, and Digital Inclusion 
programmes; the aspect of the mechanism for the calculation of the amount of 
resources required to be invested in R&D under the Informatics and PADIS 
programmes relating to the deductible part; and the lower adm inistrative burden on 
companies purchasing domestic incentivi zed intermediate products under the 
Informatics and PADIS programmes accord to imported products treatment less 
favourable than that accorded to like domestic products, inconsistently with 
Article III:4 of the GATT  199447; 
iii. it is not necessary to make findings with respect to the complaining parties' claims 
under Article  III:5 of the GATT  1994 in order to secure a positive solution to this 
dispute, and the Panel therefore exercises judicial economy with respect to these 
claims48; 
iv. the Informatics, PADIS, PATVD, and Digital Inclusion programmes constitute 
trade -related investment measures, and the aspects of these programmes found to be 
inconsistent with Articles  III:2 and III:4 of the GATT  1994 are als o inconsistent with 
Article  2.1 of the TRIMs  Agreement49; 
v. the tax exemptions, reductions, and suspensions granted under the Informatics, 
PADIS, PATVD, and Digital Inclusion programmes are subsidies within the meaning of 
Article  1.1 of the SCM  Agreement , which are contingent upon the use of domestic over 
imported goods within the meaning of Article  3.1(b) of the SCM  Agreement , and thus 
are prohibited subsidies, inconsistent with Articles  3.1(b) and 3.2 of the 
SCM Agreement50; and  
vi. those aspects of the PATVD pr ogramme found to be inconsistent with the GATT  1994 
and the TRIMs  Agreement  are not justified under Article  XX(a) of the GATT  1994.51 
                                                
44 Panel  Reports , paras.  7.70, 8.2, and 8.13.  
45 Panel  Reports , paras.  7.87, 8.3, and 8.14.  
46 Panel  Reports , paras.  7.173 -7.174, 8.5.a, and 8.16.a. The Panel exercised judicial economy with 
respect to Japan's claim under Article  III:2, second sentence, of the GATT  1994. ( Panel  Reports , paras.  7.180 
and 8.16.b)  
47 Panel  Reports , paras.  7.318, 8.5.b, and 8.16.c.  
48 Panel  Reports , paras.  7.347, 8.5.c, and 8.16.d.  
49 Panel  Reports , paras.  7.365, 8.5 .d, and 8.16 .e. 
50 Panel  Reports , paras.  7.500, 8.5.e, and 8.16.f.  
51 Panel  Reports , paras.  7.626, 8.5.f, and 8.16.g. On appeal, Brazil does not challenge this finding by 
the Panel.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 b. with re spect  to the INOVAR -AUTO programme:  
i. certain aspects of the accreditation process, the system of rules on accrual and  
calculation of presumed tax credits, and the rules on the use of presumed tax credits 
resulting from expenditure on strategic inputs and tools in Brazil result in imported 
products being subject to internal taxes in excess of those applied to like domesti c 
products, inconsistently with Article  III:2 of the GATT  199452; 
ii. certain aspects of the accreditation process, the system of rules on accrual and 
calculation of presumed tax credits, and the rules on the use of presumed tax credits 
resulting from expenditure on strategic inputs and tools in Brazil; the accreditation 
requirement to perform a minimum number of manufacturing steps in Brazil; that 
aspect of the rules on accrual of presumed IPI tax credits pertaining to expenditure in 
strategic inputs a nd tools; and those aspects of the accreditation requirements to 
invest in R&D in Brazil and make expenditures on engineering, basic industrial 
technology, and capacity -building of suppliers in Brazil, pertaining to the purchase of 
Brazilian laboratory equ ipment , accord less favourable treatment to imported products 
than that accorded to like domestic products, inconsistently with Article  III:4 of the 
GATT  199453; 
iii. it is not necessary to make findings with respect to the complaining parties' claims 
under Article III:5 of the GATT  1994 in order to secure a positive solution to this 
dispute, and the Panel therefore exercises judicial economy with respect to these 
claims54; 
iv. the INOVAR -AUTO programme constitutes a trade -related investment measure, and 
those aspects  of the programme found to be inconsistent with Articles  III:2 and III:4 
of the GATT  1994 are also inconsistent with Article  2.1 of the TRIMs  Agreement55; 
v. tax reductions through presumed tax credits granted under the INOVAR -AUTO 
programme are subsidies with in the meaning of Article  1.1 of the SCM  Agreement  and 
contingent upon the use of domestic over imported goods within the meaning of 
Article  3.1(b) of the SCM  Agreement , and thus are prohibited subsidies, inconsistent 
with Articles  3.1(b) and 3.2 of the SC M Agreement56; 
vi. those aspects of the INOVAR -AUTO programme found to be inconsistent with the 
GATT  1994 and the TRIMs  Agreement  are not justified under Article  XX(b) or XX(g) of 
the GATT  199457; 
vii. the tax reductions accorded to imported products from Mercado Com ún del Sur 
(Southern Common Market) ( MERCOSUR ) memb ers and Mexico under the 
INOVAR -AUTO programme are advantages granted by Brazil to products originating in 
those countries, which are not accorded immediately and unconditionally to like 
products originati ng in other WTO Members, inconsistently with Article  I:1 of the 
GATT  199458; 
viii. the complaining parties were not under a burden to invoke the Enabling Clause in their 
panel requests, and their claims under Article  I:1 of the GATT  1994 are therefore 
within the Panel's terms of reference59; and  
                                                
52 Panel  Reports , paras.  7.688, 8.6.a, and 8.17.a. The Panel exercised judicial economy with respect to 
Japan's claim under Article  III:2, second sentence, of the GATT  1994. ( Panel  Reports , paras.  7.691 and 8.17.b) 
On appeal, Brazil, however, does not challenge the Panel's finding under Article  III:2, first sentence, of the 
GATT  1994.  
53 Panel  Reports , paras.  7.772 -7.773, 8.6.b, and 8.17.c.  
54 Panel  Reports , paras . 7.792, 8.6.c, and 8.17.d.  
55 Panel  Reports , paras.  7.806, 8.6.d, and 8.17.e.  
56 Panel  Reports , paras.  7.847, 8.6.e, and 8.17.f.  
57 Panel  Reports , paras.  7.965, 7.1011, 8.6.f, and 8.17.g. On appeal, Brazil does not challenge these 
findings by the Panel.  
58 Panel  Reports , paras.  7.1048, 8.6.g, and 8.17.h.  
59 Panel  Reports , paras.  7.1083, 7.1120, 8.6.h, and 8.17.i.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 ix. the tax reductions accorded to imported products from Argentina, Mexico, and Uruguay 
and found to be inconsistent under Article  I:1 of the GATT  1994 are not justified under 
paragraph 2(b) or 2(c) of the Enabling Clause60; and 
c. with re spect  to the PEC and RECAP programmes:  
i. the tax suspensions granted thereunder are subsidies within the meaning of Article  1.1 
of the SCM  Agreement  and contingent upon export performance within the meaning 
of Article  3.1(a) of the SCM  Agreement , and thus are prohibited subsidies, inconsistent 
with Articles  3.1(a) and 3.2 of the SCM  Agreement .61 
1.16.   In accordance with Article  19.1 of the DSU, and having found that Brazil acted inconsistently 
with its obligations under Articles  I:1, III:2, and III:4 of  the GATT  1994; Article  2.1 of the 
TRIMs  Agreement ; and Articles  3.1(a), 3.1(b), and 3.2 of the SCM  Agreement  with respect to the 
measures at issue, the Panel recommended that the Dispute Settlement Body (DSB) request Brazil 
to bring its measures into conf ormity with its obligations under the covered agreements.62 Pursuant 
to Article  4.7 of the SCM  Agreement , the Panel further recommended that Brazil withdraw the 
subsidies found to be WTO-inconsistent within 90 days.63  
1.17.   On 28  September  2017, Brazil notified t he DSB, pursuant to Articles  16.4 and 17 of the DSU, 
of its intention to appeal certain issues of law covered in the Panel  Reports  and certain legal 
interpretations developed by the Panel, and filed a Notice of Appeal64 and an appellant's submission 
pursuan t to Rule  20 and Rule 21, respectively, of the Working Procedures for Appellate  Review65 
(Working Procedures).  
1.18.   On 29  September  2017, the Appellate  Body Secretariat transmitted the Working Schedule for 
Appeal drawn up by the Appellate  Body Division hearing these appeals, setting out the deadlines for 
filing further written submissions.  
1.19.   On 3 October  2017, the European  Union  notified the DSB, pursuant to Articles  16.4 and 17 of 
the DSU, of its intention to appeal certain issues of law covered  in the Panel  Reports  and certain 
legal interpretations developed by the Panel, and filed a Notice of Other Appeal and an other 
appellant's submission66 pursuant to Rule 23 of the Working  Procedures . On the same date, Japan 
also notified the DSB, pursuant to Articles  16.4 and 17 of the DSU, of its intention to appeal certain 
issues of law covered in the Panel  Reports  and certain legal interpretations developed by the Panel, 
and filed a Notice of Othe r Appeal and an other appellant's submission67 pursuant to Rule 23 of the 
Working  Procedures.   
1.20.   On 9 October  2017, the Appellate  Body Division hearing these appeals received a joint letter 
from Argentina, Australia, Canada, and the United  States requesting a n extension of the deadline 
for the filing of their third participants' submissions in these proc eedings (the joint request). 
On 9 October 2017, the Appellate  Body Division hearing these appeals invited the participants and 
the other third participants , if they so wished, to comment on the joint request by 11  October  2017. 
No objections were received. On 12  October  2017, the Appellate  Body Division hearing these appeals 
issued a Procedural  Ruling deciding, in accordance with Rule 16(2) of the Working  Proced ures, to 
extend the deadline for the filing of third  participants' submissions by one week  to 26 October  2017.  
1.21.   On 16  October  2017, Brazil, the European  Union , and Japan each filed an appellee's 
submission.68 On 26  October  2017, Argentina, Australia, and the  United  States  each filed a 
third participant's submission.69 On the same day, Canada, China, Colombia, Korea, Russia , 
Singapore, South Africa, the Separate Custo ms Territory of Taiwan, Penghu, Kinmen and 
                                                
60 Panel  Reports , paras.  7.1097, 7.1121, 8.6.i, and 8.17.j.  
61 Panel  Reports , paras.  7.1238, 8.7, and 8.18.  
62 Panel  Reports , paras.  8.9 and 8.20 . 
63 Panel Reports , paras.  8.11 and 8.22.  
64 WT/DS472/8; WT/DS497/6 . 
65 WT/AB/WP/6 , 16 August  2010.  
66 WT/DS472/9 . 
67 WT/DS497/7 . 
68 Pursuant to Rule 22 of the Working Procedures.  
69 Pursuant to Rule 24(1) of the Working Procedures.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Matsu  (Chinese Taipei), and Turkey each notified its  intention to appear at the oral hearing as a 
third participant.70 On 15  June 2018, India and Ukraine each notified its intention to appear at the 
oral hearing as a third  participant.71  
1.22.   On 24  November  2017, the participants and third participants were infor med that, in 
accordance with Rule  15 of the Working Procedures, the Chair of the Appellate  Body had notified the 
Chair of the DSB of the Appellate  Body's decision to authorize Appellate  Body Member 
Mr Peter Van den Bossche to complete the disposition of th ese appeals, even though his second term 
of office was due to expire before the completion of the appellate proceedings.  
1.23.   On 27  November  2017, the Chair of the Appellate  Body notified the Chair of the DSB that the 
Appellate  Body would not be able to circula te its Reports in these appeals within the 60 -day period 
pursuant to Article  17.5 of the DSU, or within the 90 -day period pursuant to the same provision.72 
The Chair of the Appellate  Body explained that this was due to a number of factors, including the 
enhanced workload of the Appellate  Body in 2017, scheduling difficulties arising from appellate 
proceedings running in parallel with an overlap in the composition of the Divisions hearing the 
appeals, the number and complexity of the issues raised in this and  concurrent appellate 
proceedings, together with the demands that these concurrent appeals place on the 
WTO Secretariat's translation services, and a shortage of staff in the Appellate  Body Secretariat. 
Although the appeals in th is dispute were initiated o n 28 September  2017, due to the multiple 
appeals pending before the Appellate  Body, the reduced number of Appellate  Body Members , and 
the shortage of staff in the Appellate  Body Secretariat, work on these appeals could gather pace 
only in March 2018. On 19 November  2018, the Chair of the Appellate  Body informed the Chair of 
the DSB that the Reports in these proceedings wo uld be circulated no later 
than 13 December  2018.73 
1.24.   The oral hearing was held on 19 and 20  June 2018. The participants and three  third 
participants (Argentina, Australia, and the United  States ) made opening statements. The 
participants and one third participant (the United  States ) responded to questions posed by the 
Members of the Appellate  Body Division hearing these appeals. The participa nts made closing 
statements. None of the third participants made closing statements.  
2  ARGUMENTS OF THE PAR TICIPANTS  
2.1.  The claims and arguments of the participants are reflected in the executive summaries of their 
written submissions provided to the Appellate  Body.74 The Notices of Appeal and Other  Appeal, and 
the executive summaries of the participants' claims and arguments,  are contained in Annexes  A 
and B of the Addendum to these Reports, WT/DS472/AB/R/Add.1, WT/DS497/AB/R/Add.1.  
3  ARGUMENTS OF THE THI RD PARTICIPANTS  
3.1.  The arguments of the third participants that filed a written submission (Argentina, Australia, 
and the United  States ) are reflected in the executive summaries of their written submissions 
provided to the Appellate  Body75, and are contained in A nnex C of the Addendum to these Reports, 
WT/DS472/AB/R/Add.1, WT/DS497/AB/R/Add.1.  
4  ISSUES RAISED IN THI S APPEAL  
4.1.  The following issues are raised in these appeals by Brazil:  
                                                
70 Pursuant to Rule 24(2) of the Working Procedures.  
71 Pursuant to Rule 24( 4) of the Working Procedures.  
72 WT/DS472 /10; WT/DS497 /8. 
73 WT/DS472/ 11; WT/DS497/ 9. 
74 Pursuant to the Appellate  Body's communication on "Executive Summaries of Written Submissions in 
Appellate Proceedings" and "Guidelines in Respect of Executive  Summaries of Written Submissions in 
Appellate  Proceedings" (WT/AB/23, 11  March 2015).  
75 Pursuant to the Appellate  Body's communication on "Executive Summaries of Written Submissions in 
Appellate Proceedings" and "Guideli nes in Respect of Executive  Summaries of Written Submissions in 
Appellate  Proceedings" (WT/AB/23, 11  March 2015).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 a. with respect to the Panel's findings under Article  III:8(b) of the GATT  1994: 
i. whethe r the Panel erred in its interpretation and application of Article  III:8(b) of the 
GATT  1994 in finding that subsidies that are provided exclusively to domestic 
producers pursuant to Article  III:8(b) are not per se exempted from the disciplines of 
Article  III of the GATT  199476; 
b. with respect to the Panel's findings under Articles  III:2 and III:4 of the GATT  1994 and 
Article  2.1 of the TRIMs  Agreement :  
i. whether the Panel erred in the application of Article  III:2 of the GATT  1994 in finding 
that imported finis hed and intermediate Information and Communication Technology, 
Automation and Related Goods (ICT products ) were taxed in excess of like domestic 
finished and intermediate ICT  products;  
ii. whether the Panel erred in the application of Article  III:4 of the GATT  1994 in finding 
that the accreditation requirements under the ICT  programmes accord treatment less 
favourable to imported ICT products than that accorded to like domestic ICT products 
inconsistently with Article  III:4 of the GATT  1994; 
iii. whether the Panel erred in the application of Article  III:4 of the GATT  1994 in finding 
that the ICT  programmes are inconsistent with Article  III:4 of the GATT  1994 by virtue 
of the lower administrative burden on companies purchasing incentivized domestic 
intermediate products;  
iv. whether the Panel erred in finding that the PPBs and other production -step 
requirements under the ICT programmes are contingent upon the use of domestic 
goods, inconsistently with Article  III:4 of the GATT  1994;  
v. consequently, whethe r the Panel erred in finding that the above -mentioned aspects of 
the ICT programmes are inconsistent with Article  2.1 of the TRIMs  Agreement ; 
vi. whether the Panel erred in the application of Article  III:4 of the GATT  1994 in finding 
that the accreditation req uirements under the INOVAR -AUTO programme are 
inconsistent with Article  III:4 because they are more burdensome for companies 
seeking accreditation as importers/distributors as opposed to domestic manufacturers; 
and 
vii. consequently, whether the Panel erred in finding that the above -mentioned aspect of 
the INOVAR -AUTO programme is inconsistent with Article  2.1 of the TRIMs  Agreement ; 
c. with respect to the Panel's findings under Article  3.1(a) of the SCM  Agreement : 
i. whether the Panel erred in the application of Article  1.1(a)(1)(ii) of the 
SCM Agreement  by identifying the benchmark treatment as the treatment applicable 
to non -accredited companies and rejecting the treatment of structural credit 
accumulators as the benchmark treatment;  
ii. conditionally, in the event that the Appellate  Body upholds the Panel's findings 
concerning the benchmark treatment, whether the Panel:  
• erred in the application of Article  1.1(a)(1)(ii) of the SCM  Agreement  in its 
comparison of the benchmark treatment with the challenged treatment un der the 
PEC and RECAP programmes;  
• erred in finding that "cash availability" and "implicit interest income" are 
government revenue "otherwise due" within the meaning of Article  1.1(a)(1)(ii) of 
the SCM  Agreement ; and  
                                                
76 Panel  Reports , para.  7.87. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 • failed to conduct an objective assessmen t of the facts of the case under Article  11 
of the DSU in its assessment of a piece of evidence submitted by Brazil;  
d. with respect to the Panel's findings under Article  3.1(b) of the SCM  Agreement : 
i. whether the Panel erred in the application of Article  1.1(a )(1)(ii) of the 
SCM Agreement  by: (i) failing to compare the tax treatment accorded to the group of 
taxpayers in the benchmark treatment with the group of taxpayers under the ICT 
programmes; and (ii)  finding that "cash availability" and "implicit interest income" are 
government revenue otherwise due within the meaning of Article  1.1(a)(1)(ii) of the 
SCM Agreement ; and  
ii. whether the Panel erred in finding that the PPBs and other production -step 
requirements under the ICT programmes and the accreditation requir ement to perform 
a number of manufacturing steps in Brazil under the INOVAR -AUTO programme 
constitute a requirement to use domestic over imported goods under Article  3.1(b) of 
the SCM  Agreement ; 
e. with respect to the Panel's findings under Article  I:1 of the  GATT  1994 and the 
Enabling  Clause:  
i. whether the Panel erred in its interpretation of paragraph  4(a) of the Enabling  Clause 
in finding that the European  Union and Japan did not have the burden to raise the 
Enabling  Clause in their panel requests; and conse quently, whether the Panel erred in 
finding that the claims raised by the European  Union and Japan under Article  I:1 of 
the GATT  1994 with regard to the INOVAR -AUTO programme were within its terms of 
reference;  
ii. whether the Panel erred in its interpretation  of paragraph  2(b) of Enabling  Clause and 
in finding that the differential tax treatment under the INOVAR -AUTO programme was 
not justified under that provision; and  
iii. whether the Panel erred in its interpretation of paragraph  2(c) of the Enabling  Clause 
and in finding that the differential tax treatment under the INOVAR -AUTO programme 
was not justified  under that provision;  and 
f. with respect to the Panel's findings under Article  4.7 of the SCM  Agreement : 
i. whether the Panel acted inconsistently with Articles  11 and 12.7 of the DSU in 
recommending that Brazil withdraw the prohibited subsidies found to exist within 
90 days.   
4.2.  The following issues are raised in these appeals by the European  Union  and Japan with respect 
to the Panel's findings concerning the in -house scenario under the PPBs and other production -step 
requirements:  
a. whether the Panel's failure to make findings on the in -house scenario, in its analysis of the 
claims under Article  III:4 of the GATT  1994, Article  2.1 of the TRIMs  Agreement , and 
Article  3.1(b ) of the SCM  Agreement , in relation to the ICT  programmes and the 
INOVAR -AUTO programme, constitutes false judicial economy and a failure to make an 
objective assessment of the matter before the Panel, inconsistent with Article  11 of the 
DSU (raised by the  European  Union  and Japan);  
b. conditionally, in the event that the Appellate  Body finds that the Panel did not exercise 
judicial economy, whether the Panel acted inconsistently with Article  11 of the DSU by 
failing to provide coherent reasoning for its findi ngs (raised by Japan);  
c. in the event that that the Appellate  Body considers that the Panel correctly exercised 
judicial economy by not making specific findings in the in -house scenario, whether the 
Appellate  Body should review and modify the Panel's legal i nterpretation and findings to 
"make it clearer", pursuant to Article  17.3 of the DSU, that the Panel did not need to rule WT/DS472/AB/R • WT/DS497/AB/R  
 
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 on both the "in -house" and "outsourcing" scenarios because the measures at issue are 
per se inconsistent with the relevant covered agr eements (raised by the European  Union  
and Japan); and  
d. in the event that the Appellate  Body rejects the above -mentioned claims by the 
European  Union, whether the Panel erred in the application of Article  III:4 of the 
GATT  1994, Article  2.1 of the TRIMs  Agreement , and Article  3.1(b) of the SCM  Agreement , 
by failing to consider the European  Union 's claims under these provisions in light of all the 
relevant facts of the case (raised by the European  Union ).  
5  ANALYSIS OF THE APPELLATE  BODY  
5.1  Articles  III:2 and III: 4 of the GATT  1994  
5.1.  We begin our analysis with Brazil's claims on appeal concerning Articles  III:2 and III:4 of the 
GATT  1994, namely that the Panel erred in finding that: (i) the ICT  programmes are inconsistent 
with Article  III:2, first sentence, of the GA TT 1994 because under these programmes imported 
ICT products are taxed in excess of like domestic ICT products77; (ii) the ICT  programmes are 
inconsistent with Article  III:4 of the GATT  1994 because they accord to imported products treatment 
less favourable  than that accorded to like domestic products78; and (iii)  the accreditation 
requirements under the INOVAR -AUTO programme are inconsistent with Article  III:4 of the 
GATT  1994 because they accord to imported products treatment less favourable than that accor ded 
to like domestic products.79  
5.2.  We are, however , mindful of the fact that a substantial part of Brazil's appeal of the Panel 's 
findings under Articles  III:2 and III:4 of the GATT  1994 is closely connected with Brazil's appeal that 
the Panel erred in its interpretation and application of Article  III:8(b) of the GATT  1994, given that 
Brazil advanced arguments under Article  III:8(b) as a "general defence"80 to all of the complaining 
parties' claims of inconsistency with Article  III. For instance, in its appeal of the Panel's findings 
under Articles  III:2 and III:4, Brazil contends that the Panel erred in failing to establish, "at the 
threshold"81, that the ICT  and INOVAR -AUTO programmes constitute the "payment of subsidies to 
domestic producers" under Article  III:8(b) and therefore are not subject to the disciplines of 
Articles  III:2 and III:4.82 While Brazil puts forth stand -alone arguments that the Panel erred  in its 
interpretation of Article  III:8(b), it also advances arguments highlighting the Panel's allegedly flawed 
understanding of the scope of that provision as part of its appeal of the Panel's findings under 
Articles  III:2 and III:4. We address all of th ese connected arguments in section 5.2 of these Report s. 
5.3.  At this juncture , we also consider it useful to recall certain terminologies employed by the Panel 
in this dispute regarding the categories of products involved under the ICT  and INOVAR -AUTO 
programm es. We do not understand the participants to take issue or dispute on appeal the Panel's 
understanding set out below.  
5.4.   The Panel noted that the European  Union's and Japan's claims with respect to the ICT  and 
INOVAR -AUTO programmes  pertained to two distinct  types of products: "incentivised products" and 
inputs for the "incentivised products".83 The Panel further noted that Brazil subcategorized the 
                                                
77 Brazil's appellant's submission, para.  15. 
78 Brazil's appellant's submission, para.  15. We note that Brazil's a ppeal under Article  III:4 of the 
GATT  1994 also concerns those aspects of the ICT  programmes that allegedly contain local content 
requirements that the Panel found to be inconsistent with Article  III:4 and, consequently, with Article  2.1 of 
the TRIMs  Agree ment. However, we do not address these aspects of Brazil's claims on appeal in this section. 
We address them in section 5.4.2.4 of these Reports when addressing Brazil's claims under Article  3.1(b) of the 
SCM Agreement . 
79 Brazil's appellant's submission, p ara. 15. We note that Brazil's appeal under Article  III:4 of the 
GATT  1994 also concerns those aspects of the INOVAR -AUTO programme that allegedly contain local content 
requirements that the Panel found to be inconsistent with Article  III:4 and, consequent ly, with Article  2.1 of 
the TRIMs  Agreement . However, we do not address these aspects of Brazil's claims on appeal in this section. 
We address them in section 5.4.2.4.3 of these Reports when addressing Brazil's claims under Article  3.1(b) of 
the SCM  Agreement . 
80 Panel Reports, para. 7.71.  
81 Brazil's appellant's submission, paras. 15 and  42. 
82 Brazil's appellant's submission, paras.  15, 42, and 247.  
83 Panel  Reports , para.  7.23. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 "incentivised products" as "intermediate" and "finished" products.84 The Panel acknowledged that 
these terms are not "treaty language", but nonetheless considered that "these distinctions form a 
useful analytical tool in understanding the arguments and claims of the parties ."85  
5.5.  The Panel noted that a "finished product", as identified by Brazil, is a product that will  not 
undergo any further manufacturing and will be "incentivised" if "the company producing them is 
accredited under a particular programme ."86 The Panel explained that , "[i]f a finished product is 
'incentivised', it means that it receives a particular tax benefit on its sale."87  
5.6.  "Intermediate products", the Panel explained, will  be subject to further manufacturing  and will 
also be "incentivised" if the company producing them is accredited under a particular programme.88 
The Panel noted that , "[i]f an interme diate product is incentivised, it will be subject to a particular 
tax benefit on its sale ."89 The Panel also recognized that "such intermediate products will be further 
used in the production of a 'finished' product."90  
5.7.  With the aforesaid background in mind , we now turn to address Brazil's claim on appeal that 
the Panel erred in finding that imported finished and intermediate ICT  products were taxed in excess 
of like domestic ICT  products inconsistently with Article  III:2, first sentence, of the GATT  1994.  
5.1.1   Whether the Panel erred in finding that imported finished and intermediate 
ICT products were taxed in excess of like domestic finished and intermediate ICT  products 
inconsistently with Article  III:2, first sentence, of the GATT  1994  
5.8.  Before the Panel, Brazil  put forth a broad defence contending that Article  III of the GATT  1994 
does not apply to the ICT  programmes because "the disciplines of Article  III govern discrimination 
on products , whereas the challenged programmes are not product -related but rather imp ose process 
and production -step requirements"91 and "concern only pre -market obligations" regarding 
production and investment in R&D by producers.92 
5.9.  The Panel considered  that the "plain text" of Article  III "is sufficient to refute Brazil's 
argument"93 and explained that "there is no reason why a measure directed at a producer rather 
than a product could not 'affect' the internal sale, offering for sale, purchase, etc. of domestic and 
imported products."94 The Panel concluded that " Article  III … is not per se inapplicable to certain 
measures, in particular 'pre -market' measures directed at producers"95 and therefore that the 
"general defence by Brazil … fails ."96 
5.10.   Thereafter, the Panel turned to address the European  Union's and Japan's claims under 
Article  III:2, first sentence, of the GATT  1994. The Panel found that the complaining parties have 
made a prima facie  case that the relevant tax treatment provided for in the ICT  programmes was 
exclusively based on the origin of the products and that Brazil had fai led to successfully rebut the 
prima facie  case of likeness made by the complaining parties.97 The Panel then considered whether 
                                                
84 Panel  Reports , para.  7.23. 
85 Panel  Reports , para.  7.23. 
86 Panel  Reports , para. 7.24. 
87 Panel  Reports , para.  7.24. 
88 Panel  Reports , para.  7.25. 
89 Panel  Reports , para.  7.25. 
90 Panel  Reports , para.  7.25. 
91 Panel  Reports , para.  7.58. (emphasis original)  
92 Panel  Reports , para.  7.61 (referring to Brazil's first written submission to  the Panel, paras.  167, 173, 
181, 184, 229, 231 -232, 287, 327, 340, 377, 461, 477, 489, 578, 586, and 744 and sections 5.1.2.3.1, 
5.2.2.3.1, 5.3.2.3.1, and 5.4.3.2.1 (DS472) and paras.  125, 140, 143, 182, 185 -186, 208, 238, 276, 290, 
318, 333, 398, 413, 42 4, 426, 497, 514, and 519 and sections 4.1.2.4.1, 4.2.2.4.1, 4.3.2.4.1, and 4.4.2.4.1 
(DS497)).  
93 Panel  Reports , para.  7.63. 
94 Panel  Reports , para.  7.63. 
95 Panel  Reports , para.  7.70. 
96 Panel  Reports , para.  7.67. 
97 Panel  Reports , paras.  7.139 -7.140.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the relevant tax treatment provided for in the ICT  programmes result ed in imported ICT  products 
being taxed in excess of like dom estic ICT  products.98  
5.11.   With respect to finished ICT  products , the Panel noted that "neither the complaining parties 
nor Brazil question [s] the fact that the challenged programmes establish different levels of 
taxation."99 Recalling the relevant requirements under each of the ICT  programmes100, the Panel 
noted that the tax reductions and exemptions apply to the relevant domestic ICT  products, provided 
that "the companies that manufacture these products, which must be located (and  operate) in Brazil, 
fulfil certa in requirements."101 The Panel considered that only ICT  products manufactured in Brazil 
can satisfy the requirements to benefit from the tax reductions or exemptions.102 As for imported 
finished ICT  products, the Panel noted that these products will never be a ble to qualify for the tax 
reductions and exemptions established in the ICT  programmes because "such products are never 
manufactured in Brazil by companies located or operating in Brazil; such finished products are never 
produced in accordance with the rel evant PPBs or similar production requirements."103 The Panel 
further noted that imported ICT  products developed outside of Brazil will never be able to obtain 
"the status of being 'developed in Brazil' and thus will never be able to qualify for the additiona l 
reductions".104 For these reasons, the Panel found that, contrary to domestic finished ICT  products 
manufactured in Brazil by accredited companies, "like imported ICT  finished products cannot benefit 
from the tax reductions and exemptions (including throug h zero rates) established in the 
ICT programmes and are , therefore, subject to a higher tax burden than like domestic 
ICT products."105 
5.12.   With respect to intermediate ICT  products , the Panel recalled that Brazil contended that "there 
is no difference in the ta x treatment between intermediate ICT  products manufactured by accredited 
and non -accredited companies."106 The Panel proceeded to examine "how the Brazilian tax system 
applies to both incentivized domestic intermediate ICT  products and like imported intermed iate 
ICT products in order to determine whether the latter bear a higher tax burden".107 The Panel 
observed that:  
In the case of sales of incentivized domestic intermediate ICT  products, which are 
manufactured  by accredited companies , companies purchasing these products do not 
pay the IPI tax and PIS/PASEP and COFINS contributions (under the PADIS programme) 
or do not pay or pay a reduced IPI tax (under the Informatics programme). 
Consequently, they do not obtain any credit (in the case of tax exemptions) o r they 
obtain a reduced credit (in the case of tax reductions) to offset against debits when 
paying their monthly liabilities.  
In the case of sales of imported intermediate ICT  products , which are never incentivized 
because they are manufactured  by compani es that cannot get accredited, the 
companies purchasing the imported (and, therefore, non -incentivized) intermediate 
ICT products must pay the IPI tax and PIS/PASEP and COFINS contributions. As a result 
of this payment, they obtain a tax credit that can la ter be used to offset debits from the 
same taxes and contributions, or ask for compensation with other taxes or 
reimbursement.108 
5.13.   The Panel considered that , to the extent the transaction involves the payment of a tax as well 
as the granting of a tax credit, "these two elements must be taken into account in order to make an 
overall assessment of the actual tax burden imposed on imported intermediate ICT  products, on the 
one hand, and like domestic incentivized intermediate ICT  products, on the other."109 The Pan el 
                                                
98 Panel  Reports , para.  7.142.  
99 Panel  Reports , para.  7.149 (referring to Brazil's first written submissions  to the Panel , paras.  336, 
382, and 485 (DS472) and paras.  286, 324 , and 422 (DS497) ). 
100 Panel  Reports , para.  7.150.  
101 Panel  Reports , para.  7.150. (fn omitted)  
102 Panel  Reports , para.  7.151 (referring to Panel  Reports , para.  7.135).  
103 Panel  Reports , para.  7.151.  
104 Panel  Reports , para.  7.151 (referring to Panel  Reports , para.  7.136).  
105 Panel  Reports , para.  7.154.  
106 Panel  Reports , para.  7.157.  
107 Panel  Reports , para.  7.160.  
108 Panel  Reports , paras.  7.161 -7.162. (fn omitted; emphasis original)  
109 Panel  Reports , para.  7.164 (referring to Panel  Report , Argentina – Hides and Leather , para. 11.184 ). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 found that "there is a different effective tax burden" on imported ICT  products vis -à-vis like domestic 
ICT products for two reasons: (i) the availability of cash flow for those companies that benefit from 
the tax exemption or reduction, and (ii) the "t ime-value" of money.110 For these reasons, the Panel 
concluded that "imported intermediate ICT  products, which are never incentivized, are subject to a 
higher tax burden than like domestic incentivized intermediate ICT  products ."111  
5.14.   As a preliminary matter, w e note that, on appeal, Brazil takes issue with the Panel's finding 
that " Article  III of the GATT  1994 is not per se inapplicable to certain measures, in particular 
'pre-market' measures directed at producers."112 Brazil contends that Article  III deals with 
non-discrimination between domestic and imported products, "thus being applicable only to 
measures which affect a product  once it has been produced and enters the marketplace"113 and 
"not to production (pre -market)" measures.114 In response to questioning at t he oral hearing in 
these appellate proceedings, Brazil, however, confirmed that it does not wish to pursue any further 
this line of argument regarding the inapplicability of Article  III to producer -related measures.  
5.15.   Article  III:2, first sentence, of the GA TT 1994 stipulates that " [t]he products of the territory 
of any Member imported into the territory of any other Member shall not be subject, directly or 
indirectly ," to internal taxes in excess of those applied to like domestic products. The Appellate  Body 
has explained that "[t]his language suggests that the provision applies to a broad range of 
measures."115 Article  III:2, first sentence, thus has a broad scope of application by not only 
disciplining internal taxes that directly affect products but also int ernal taxes that indirectly affect 
products.116 Moreover, we observe that Article  III:1 of the GATT  1994 is couched in broad and 
inclusive language referring to among  other things internal taxes, other internal charges, laws, 
regulations and requirements affecting the internal sale, and the offering for sale of products. 
The Appellate  Body has explained that " Article  III:1 constitutes part of the context of Article  III:2, 
in the same way that it constitutes part of the context of each of the other paragraphs in 
Article  III."117 These considerations suggest that, while the focus of Article  III:2, first sentence is, in 
particular, "on the treatment accorded to 'products'"118, it does not exclude from its scope measures 
that are on their face directed at producers , which nevertheless subject the product concerned to 
taxation in excess, and thereby have an impact on the conditions of competition .119  
5.16.   Article  III:4 of the GATT  1994 prohibits treatment less favourable to products of foreign origin 
imported into the territory of a Member than that accorded to like domestic products. Article  III:4 
specifies that this obligation is applicable with respect to all laws, regulations, and r equirements 
"affecting their internal sale, offering for sale, purchase, transportation, distribution or use". The 
Appellate  Body has interpreted the word "affecting" as "having a 'broad scope of application'".120 
The Appellate  Body has found that "measures that restrict the rights of traders may violate GATT 
obligations with respect to trade in goods", recalling, in particular, that "restrictions imposed on 
investors, wholesalers, and manufacturers, as well as on points of sale and ports of entry, have been 
found to be inconsistent with Article  III:4."121 Thus, measures directed at producers that may affect 
the "specific transactions, activities and uses"122 mentioned in Article  III:4, such that they modify 
                                                
110 Panel  Reports , para.  7.169.  
111 Panel  Reports , para. 7.172.  
112 Brazil's appellant's submission, para.  263 (quoting Panel  Reports , para.  7.70).  
113 Brazil's appellant's submission, para.  264. (emphasis original)  
114 Brazil's appellant's submission, para.  265. 
115 Appellate  Body Report, Thailand – Cigarettes (P hilippines) , para.  112. (fn omitted)  
116 The Appellate  Body has found that "[a]ny measure that indirectly affects the conditions of 
competition between imported and like domestic products would come within the provisions of Article  III:2, 
first sentence ." (Appellate  Body Report, Canada – Periodicals , p. 19 ) 
117 Appellate  Body Report, Japan – Alcoholic Beverages II , p. 18 . 
118 Appellate  Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para.  5.62. 
119 However, whether measures directed at producers subject the product concerned to taxation in 
excess, and thereby have an impact on the conditions of competition, must be determined on the basis of the 
facts and circumstances at issue . 
120 Appellate  Body Report, US – FSC ( Article  21.5 – EC), para.  210. The Appellate  Body explained that 
"[i]t is … not any 'laws, regulations and requirements' which are covered by Article  III:4, but only those which 
'affect ' the specific transactions, activities and uses mentioned in that  provision."  (Appellate  Body Report, 
US ‒ FSC ( Article  21.5 – EC), para.  208 (emphasis original))  
121 Appellate  Body Report, China – Publications and Audiovisual Products , para.  227. (fn omitted)  
122 Appellate  Body Report, US – FSC ( Article  21.5 – EC), para. 208. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the conditions of competition to the detriment of import ed products vis -à-vis like domestic products, 
fall within the scope of Article  III:4.123  
5.17.   With this background in mind, we now turn to address Brazil's claim on appeal that the Panel 
erred in finding that imported finished ICT  products were taxed in excess of like domestic finished 
ICT products inconsistently with Article  III:2, first sentence, of the GATT  1994.  
5.1.1.1   Whether the Panel  erred in finding that imported finished ICT  products were 
taxed in excess of like domestic finished ICT  products  
5.18.   On appeal, Brazil  contends that the Panel failed "to undertake a thorough analysis of the case 
presented by complainants and to carefully scrutinize the design, structure and operation of the 
ICT programmes in applying Article  III:2 … to the facts of this dispute".124 Instea d, according to 
Brazil, the Panel completely disregarded the fact that the complaining parties had not submitted any 
evidence that "the tax treatment under the ICT  programmes resulted in de jure  discrimination based 
exclusively on the origin of products in  a manner contrary to the principles set forth in Article  III."125 
Brazil submits that " there is nothing in the design, structure and operation of the challenged 
measures that by 'necessary implication' would amount to de jure  tax discrimination within the 
meaning of Article  III:2."126 
5.19.   In response, the European  Union  submits that " the Panel focused on the impact of the tax 
incentives on domestic versus imported products " in order to conclude that imported ICT  products , 
which are manufactured outside Brazil, wil l never be able to obtain the tax reductions and 
exemptions available under the ICT programmes to like domestic ICT  products manufactured by 
accredited companies.127 According to the European  Union , the Panel found that imported 
ICT products will be subject to taxes in excess of those applied to finished domestic ICT  products by 
"looking into the design, structure and operation of the ICT  programmes".128 The European  Union  
submits that "[n]o more is required to find discrimination under Article  III:2, first sentence, of the 
GATT  1994."129 
5.20.   Japan  submits that the Panel did not "simply assume" that the ICT  programmes were 
inconsistent with Article  III:2.130 According to Japan, the Panel engaged in a thorough analysis of 
Article  III:2 and its application to the ICT  programmes, ultimately finding that these programmes 
led to imported products being taxed in excess of domestic products in violation of Article  III:2, first 
sentence.131  
5.21.   We recall that , as part of its analysis concerning "whether the complaining parties … m ade a 
prima facie  case that the relevant ICT  programmes draw distinctions between the relevant products 
based exclusively on origin"132, the Panel noted that , in order for an ICT  product to be subject to the 
tax treatment provided for in the ICT  programmes, companies that manufacture these products 
"must be located (and  operate) in Brazil"133 and "must comply with one or more"134 of the following 
requirements:  
a. invest in R&D in Brazil (in the case of the Informatics, PADIS, and PATVD 
programmes);  
                                                
123 However, the determination of whether such measures modify the conditions of  competition to the 
detriment of imported product s so as to accord treatment less favourable within the meaning of Article  III:4 of 
the GATT  1994 must be determined on  the basis of the facts and circumstances at issue.  
124 Brazil's appellant's submission, para.  87. 
125 Brazil's appellant's submission, para.  88. 
126 Brazil's appellant's submission, para.  93. 
127 European  Union's appellee's submission, para.  107 (referring to Panel Reports , para.  7.151). 
(emphasis original)  
128 European  Union's appellee's submission, para.  107. 
129 European  Union's appellee's submission, para.  107. 
130 Japan's appellee's submission, para.  53. 
131 Japan's appellee's submission, para.  53 (referring to Panel  Reports , paras.  7.154  and 7.172 ). 
132 Panel  Reports , para.  7.127.  
133 Panel  Reports , para.  7.150.  
134 Panel  Reports , para.  7.134.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 b. manufactur e in Brazil in accordance with the relevant PPBs (in the case of the 
Informatics, PADIS, PATVD, and Digital Inclusion programmes) or carry out certain 
manufacturing steps in Brazil (in the case of the PADIS and PATVD programmes); 
and/or  
c. develop  the products in Brazil (in order to obtain additional tax reductions under the 
Informatics programme or to obtain tax exemptions (through zero rates) under the 
PATVD programme).135 
5.22.   With respect to the requirement that ICT  products be manufactured in accorda nce with the 
relevant PPBs136, the Panel considered that "only ICT  products manufactured in Brazil can meet this 
requirement given that PPBs require that a certain number of manufacturing operations that 
characterize the effective 'production' of a certain p roduct be performed in Brazil."137 The Panel 
further considered that the same applies for the requirement that certain manufacturing steps be 
performed in Brazil.138 The Panel found that , "by necessary implication, only a product manufactured 
in Brazil can ben efit from the tax treatment under the ICT  programmes."139 As for the requirement 
that products be "developed in Brazil", the Panel recalled that "the relevant Implementing Order 
explains that in order to meet this requirement, the 'specifications, projects a nd developments 
[of the products benefiting from the relevant tax treatment] must be carried out in Brazil'."140 The 
Panel considered that imported products that have been "developed" outside of Brazil, but are like 
domestic products developed in Brazil, "ca n never meet this requirement, and therefore cannot 
qualify for the relevant tax treatment".141 The Panel concluded that , for the purposes of Article  III:2, 
"all incentivized products that receive the tax treatment under the challenged programmes [] can be 
considered to be Brazilian domestic products ."142 On this basis, the Panel found that the complaining 
parties had made a prima facie  case that "the differential tax treatment provided for in the challenged 
ICT programmes is exclusively based on the o rigin of the products."143 
5.23.   Brazil accepts that "[i]t is undisputed that foreign producers cannot be accredited under the 
ICT programmes."144 We note that "'finished' products will be 'incentivised' if the company producing 
them is accredited under a particular  programme" and "[i]f a finished product is 'incentivised', it 
means that it receives a particular tax benefit on its sale."145 Imported finished ICT  products are 
therefore not eligible for either tax reductions or exemptions under the ICT  programmes and 
consequently, bear the full tax burden, as opposed to like domestic finished ICT  products. The Panel 
rightly considered that imported finished ICT  products cannot qualify for the relevant tax 
treatment146 because they: (i) "are never manufactured in Brazil by c ompanies located or operating 
in Brazil [and] … are never produced in accordance with the relevant PPBs or similar production 
requirements"; and (ii) "will never be able to obtain the status of being 'developed in Brazil'".147 
This, in our view, demonstrates  that the Panel analysed the design, structure, and operation of the 
ICT programmes and came to the conclusion that they are designed in such a manner that only 
"Brazilian domestic products"148 can "benefit from the tax reductions or exemptions"149 to the 
exclusion of imported finished ICT  products. We, therefore, reject Brazil's argument that there is 
                                                
135 Panel  Reports , para.  7.134. (fns omitted)  
136 The Panel defined a PPB as " the minimum set of operations performed at a manufacturing facility 
that characterizes the actual industrialization of a given product ". (Panel  Reports , para.  2.62 (referring to 
Decree  5,906 /2006 (Panel Exhibit JE -7), Article  16)). In other words, the Panel explained that PPBs indicate 
the minimum st ages or steps of the manufacturing process of a product that must be performed in Brazil.  
(Ibid.) On appeal, the participants do not take issue with the definition of a PPB set out by the Panel.  
137 Panel  Reports , para.  7.135 (referring to Brazil's first wri tten submissions  to the Panel , para. 128 
(DS472) and  para. 85 (DS497) ). 
138 Panel  Reports , para.  7.135.  
139 Panel  Reports , para.  7.135.  
140 Panel  Reports , para.  7.136 (referring to Panel  Reports , fn 228 to para.  2.87) . 
141 Panel  Reports , para.  7.136. (fn omitted)  
142 Panel  Reports , para.  7.137.  
143 Panel  Reports , para.  7.139.  
144 Brazil's appellant's submission, para.  97. 
145 Panel  Reports , para.  7.24. 
146 Panel  Reports , para.  7.136.  
147 Panel  Reports , para.  7.151.  
148 Panel  Reports , para.  7.137.  
149 Panel  Reports , para.  7.151 (referring to Panel  Reports , para.  7.135).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 nothing in the design, structure, and operation of the ICT  programmes that would amount to de jure  
discrimination based exclusively on the origin of products.150 
5.24.   Brazil further contends that , "[g]iven the non -cumulative nature of Brazil's indirect taxes", 
the application of the credit -debit system to the products manufactured by non -accredited 
companies "results in principle in the same tax burden" as for products m anufactured by accredited 
companies, to which the credit -debit system does not apply.151 Thus, Brazil asserts that "[i]t was … 
incumbent upon the Panel to examine evidence of the effects  of the ICT  programmes on the effective  
tax burden borne by the imported  products in order to establish a violation of Article  III:2."152 
5.25.   In response, the European  Union submits that Brazil "clearly indicated" before the Panel that 
its rebuttal based on the functioning of the credit -debit system was "relevant only with regard to  
incentivised intermediate products".153 In any event, the European  Union submits that Brazil's 
contention regarding imported  finished ICT  products is "wrong on substance".154 
The European  Union explains that the sale of a finished product to a distributor or a consumer 
represents the last possible stage of the application of the product taxes in question. 
The European  Union reasons that , "[i]f at that stage the tax rate is higher for imported products 
than for like domestic incentivized products, then the tax burden imposed on the product is higher 
for the former products."155 
5.26.   Japan recalls that the Panel noted that , with respect to finished ICT products,  none of the 
parties disputed that the ICT  programmes establish different levels of taxation, and that only 
ICT products manufactured in Brazil could satisfy the requirements to qualify for tax reductions.156 
Japan contends that the Panel conducted a thorough and detailed analysis of the actual tax burden 
under the ICT  programmes.157 
5.27.   We note that , with respect to finished ICT  products, Brazil argued before the Panel that 
"any possible difference in taxation aims at compensating accredited companies for the costs they 
must incur in order to meet the requirements provided for in the challenged progra mmes."158 As 
noted above, imported finished ICT  products are not eligible for either tax reductions or exemptions 
because foreign producers cannot be accredited under the ICT  programmes and , consequently, bear 
the full tax burden, as opposed to like domestic  finished ICT  products. For intermediate ICT  products, 
Brazil, however, argued that "there is no difference in the tax burden on imported products compared 
to domestic products, because its tax system is neutral in terms of tax collection throughout the 
production chain."159 Therefore, it appears that Brazil does not dispute that finished ICT  products 
are subject to different levels of taxation . Indeed, as noted by the Panel,  with respect to finished 
products, "neither the complaining parties nor Brazil quest ion[s] the fact that the challenged 
programmes establish different levels of taxation "160 and further that the parties " acknowledge []" 
that "the level of taxation on like imported and domestic finished [ICT] products  is different because 
of the tax reduction s and exemptions provided for in the relevant ICT  programmes."161 These 
considerations suggest that Brazil is conflating its defence with respect to finished ICT  products with 
that of intermediate ICT  products by drawing arguments that it made in the specifi c context of 
intermediate ICT  products. In any event, Brazil's justification that "any possible difference in 
taxation" under the ICT programmes with respect to domestic finished ICT products is aimed at 
"compensating accredited companies for the costs the y must incur in order to meet the 
requirements" seem s to flow largely from policy reasons and considerations.162 As also noted by the 
                                                
150 Brazil's appellant's submission, paras.  88 and 93.  
151 Brazil's appellant's submission, para.  97. 
152 Brazil's appellant's submission, para.  98. (emphasis original)  
153 European  Union's appellee's submis sion, para.  96. (emphasis omitted)  
154 European  Union's appellee's submission, para.  104. 
155 European  Union's appellee's submission, para.  104. 
156 Japan's appellee's submission, para.  56 (referring to Panel  Reports , paras.  7.149 and  7.151 ). 
157 Japan's appellee' s submission, para. 58. 
158 Panel  Reports , para.  7.95 (referring to Brazil's first written submissions  to the Panel , paras.  156 
and 205 (DS472) and  paras.  105 and 161 (DS497) ). 
159 Panel  Reports , para.  7.95 (referring to Brazil's first written submissions  to the Panel , para. 185 
(DS472) and para. 144 (DS497) ). 
160 Panel  Reports , para.  7.149 (referring to Brazil's first written submissions  to the Panel , paras.  336, 
382, and 485 (DS472) and paras.  286, 324 , and 422 (DS497) ). (emphasis added)  
161 Panel  Reports , para. 7.149. (emphasis added)  
162 Panel Reports, para.  7.95. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Panel163, the justification for a measure that is found to be inconsistent with Article  III:2, first 
sentence, can be assessed, for example, in the context of the general exceptions under Article  XX 
of the GATT  1994.  
5.28.   That said, we note that a finished product " is a product that will not undergo any further 
manufacturing"164 and therefore the  sale of a finished product represents the last stage of a 
transaction. In the case of an imported finished ICT  product, w hen an importer sells the imported 
finished ICT  product to a wholesaler , retailer , or distributor, the importer will charge the IPI tax to 
the wholesaler , retailer , or distributor and remit the tax to the Brazilian Government.165 In contrast, 
in the case of a like domestic finished ICT  product that is subject to IPI tax exemption or reduction 
under the ICT  programmes, the seller does not cha rge any tax or charges a reduced tax, as the case 
may be, to the wholesaler , retailer , or distributor.166 At this last stage the tax rate is thus higher for 
imported finished ICT  products than for like domestic finished ICT  products, and the tax burden on 
the former is necessarily in excess of that on the latter.167 In other words, imported finished 
ICT products bear the full value of the taxes as prescribed under the ICT  programmes in comparison 
to like domestic finished ICT  products. In these circumstances, w e fail to see how the credit -debit 
system, as Brazil contends, applies and offsets any tax burden in the case of imported finished 
ICT products and "results in principle in the same tax burden" as imposed on like domestic finished 
ICT products.168  
5.29.   Thus,  we agree with the Panel that , because imported finished ICT  products are "subject to a 
higher tax burden than like domestic ICT  products", they are consequently "taxed in excess of like 
domestic finished ICT  products, contrary to Article  III:2, first sentence , of the GATT  1994".169 
5.1.1.2   Whether the Panel erred in finding that imported intermediate ICT  products were 
taxed in excess of like domestic intermediate ICT  products  
5.30.   We now turn to intermediate ICT  products regarding which Brazil asserts on appeal that the 
Panel erred in its assessment of "the impact of the tax suspension and exemptions granted under 
the ICT  programmes in the beginning or in the middle of the production chain".170 According to 
Brazil, the Panel "opted to ignore the fact that the credit -debit system in a value added tax … ensures 
that the amount collected at each step of production is equivalent to the value added at that step".171 
Brazil thus submits that "[i]n the en d, the tax burden of a product subject to the payment of a tax, 
which generates a credit, and a product that is subject to a suspension, but  receives no credit, will 
be the same."172 
5.31.   In response, the European  Union submits that the Panel did not agree with B razil that 
"the suspension or exemption of indirect value -added taxes in the beginning or in the middle of the 
production chain does not affect the final amount of tax collected by the tax authorities."173 Instead, 
the European  Union contends that the Panel clearly indicated that it was concerned with determining 
the effective tax burden. The European  Union further contends that the Panel clearly stated that it 
was required to take account of the functioning of the tax credit -debit system in assessing the 
effective tax burden imposed on imported products compared to the burden imposed on incentivized 
domestic products.174 The European  Union asserts that "Brazil does not take issue with the Panel's 
description of the Brazilian tax debit -credit mechanism … which p rovide[s] the factu al basis for the 
Panel analysis ."175 
                                                
163 Panel  Reports , para.  7.153.  
164 Panel  Reports , para.  7.24. 
165 Panel  Reports , para.  2.14. 
166 Panel  Reports , para.  2.15. 
167 European  Union's appellee's submission, para.  104. 
168 Brazil's appellant's subm ission, para.  97. 
169 Panel  Reports , para.  7.154. (fn omitted)  
170 Brazil's appellant's submission, para.  100. 
171 Brazil's appellant's submission, para.  101. 
172 Brazil's appellant's submission, para.  101. 
173 European  Union's appellee's submission, para.  127 (refe rring to Brazil's appellant's submission, 
para. 101).  
174 European  Union's appellee's submission, para.  126 (referring to Panel  Reports , paras.  7.160 
and 7.164).  
175 European  Union's appellee's submission, para.  132. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.32.   Japan submits that "the ICT  programmes' structure and design impose origin -based 
discrimination with respect to tax burdens imposed on products covered by the programmes ."176 
According to Japan, the Panel  came to this conclusion after "thoroughly analysing the actual tax 
burden under the programmes as well as by fully addressing the arguments put forward".177 
5.33.   The Panel described the functioning of the credit -debit system, in  particular, in 
paragraphs  2.11-2.13 of the Panel  Reports . On appeal, Brazil neither takes issue with the 
understanding set out by the Panel in the above -mentioned paragraphs of the Panel  Reports , nor 
has raised a claim under Article  11 of the DSU. That said, we recall that when comparing the 
situations concerning the sale of "incentivized domestic intermediate ICT  products" , on the one 
hand, and "imported … intermediate ICT  products" , on the other hand,  the Panel explained that:  
First, the tax exemptions (including through zero rates) … do  not involve any payment 
by the purchaser of the incentivized domestic intermediate ICT  product but, at the same 
time, do not generate any tax credit that the purchaser can later use to offset future 
tax liabilities (i.e. tax debits). Second, the tax reduc tions … involve a smaller tax 
payment by the purchaser of the incentivized domestic intermediate ICT  product but, 
at the same time, generate a lower tax credit to be used later to offset future tax 
liabilities. Third, the situation absent the tax exemption s and/or reductions involves the 
full payment of the tax by the purchaser and, at the same time, the granting to the 
purchaser of tax credits to be used later to offset tax liabilities.178 
5.34.   Therefore , when tax exemptions or reductions are applied, no credit o r lower tax credit is 
accrued because the tax is not due, or is due at a lower rate, whereas under the credit -debit 
non-cumulative system that applies to imported (and, therefore, non -incentivized) intermediate 
ICT products, a tax credit (of  the same value  as the tax paid) is granted to the purchaser. However, 
while on the face of it, the tax system may appear to be neutral in terms of tax collection with 
respect to intermediate ICT  products (whether domestic or imported), t he Panel, in our view, rightly 
considered that " a thorough look into the operation of the tax holistically is necessary in order to 
determine the effective tax burden on the products at issue ."179 This exercise, as the Panel also 
noted, would require taking into consideration "the grantin g of tax credits to purchasers of imported 
(and, therefore, non -incentivized) intermediate ICT  products following the payment of the tax".180  
5.35.   Article  III:2, first sentence, of the GATT  1994 is concerned with the protection of " the equal 
competitive relation ship between imported and domestic products".181 The Appellate  Body explained 
that " the words of the first sentence require an examination of the conformity of an internal tax 
measure with Article  III" by determining, first, "whether the taxed imported and d omestic products 
are 'like'" and, second, "whether the taxes applied to the imported products are 'in excess of ' those 
applied to the like domestic products".182 With respect to the second element, the Appellate  Body 
has found that "[e]ven the smallest amoun t of 'excess' is too much ."183 A determination of whether 
an infringement of Article  III:2, first sentence, exists must be made on the basis of an overall 
assessment of the actual tax burdens imposed on imported products, on the one hand, and like 
domestic p roducts, on the other hand.184 The Panel was mindful that , under the credit -debit system , 
"the same tax rate may be applied"185 but nonetheless considered, and rightly so, that "the fact that 
the nominal value of the tax collected may be identical is not deter minant of the tax measure's 
consistency under Article  III:2."186 The Panel took into account Brazil's argument that the effect of 
the tax treatment under the ICT  programmes in relation to intermediate products is "neutral" 
                                                
176 Japan's appellee's submission, para.  64. 
177 Japan's appellee's submission, para.  64. 
178 Panel  Reports , para.  7.163.  
179 Panel  Reports , para.  7.164.  
180 Panel  Reports , para.  7.164.  
181 Appellate  Body Report, Japan – Alcoholic Beverages II , p. 16. (fn omitted) The Appellate  Body 
explained that "the first s entence of Article  III:2 is, in effect, an application of [the] general principle " of 
Article  III:1 of the GATT  1994. (Ibid., p. 18) We also recall that the panel in Argentina – Hides and Leather  
considered that " the purpose of Article  III:2, first sentenc e, … is to ensure ' equality of competitive conditions 
between impo rted and like domestic products.'" ( Panel  Report , Argentina – Hides and Leather , para.  11.182 
(quoting Appellate  Body Report , Canada – Periodicals , p. 18))  
182 Appellate  Body Report, Japan – Alcoholic Beverages II , pp. 18 -19. 
183 Appellate  Body Report, Japan – Alcoholic Beverages II , p. 23.  
184 Panel  Report , Argentina – Hides and Leather , para.  11.184.  
185 Panel  Reports , para.  7.167.  
186 Panel  Reports , para.  7.165.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 because "both products covered by the relevant ICT  programmes and products outside these 
programmes are subject to the same tax burden ."187 However, the Panel ultimately found that " there 
is a different effective tax burden on imported ICT  products vis -à-vis like domestic ICT  products for 
two reasons: the availability of cash flow for those companies that benefit from the tax exemption 
or reduction, and the 'time -value' of money."188 
5.36.    In this regard, Brazil contends on appeal that the relevant Brazilian taxes are "not paid up 
front but are levi ed monthly on the whole of the previous month's activities" and, therefore, "it is 
simply not correct to conclude that the payment of taxes necessarily reduces the cash flow 
availability of purchasers of non -incentivized products, or that credits lose thei r value over time, to 
the detriment of imported products."189 Brazil submits that the Panel " improperly concluded" that 
the ICT  programmes result in a higher tax burden on imported intermediate ICT  products because 
"the payment of tax up front would limit th e cash availability of the purchaser and generate a tax 
credit, the value of which diminishes over time."190 
5.37.   In response, the European  Union explains that "the payment of a tax at the moment of the 
purchase of an intermediate product deprives the purchaser o f the sum paid and therefore affects 
its cash -flow."191 By the same token, the European  Union notes that "money depreciates over time 
through the effect of inflation."192 Thus, the European  Union submits that , if the purchase of an 
imported intermediate produc t involves the payment of a tax at the moment of the purchase and 
the generation of a tax credit that can be compensated at some later point in time, "it follows 
necessarily that the imported intermediate product carries a tax burden that is effectively he avier 
[than] that imposed on the purchase of an incentivised domestic intermediate product, which is tax 
exempted or subject to a lower tax rate."193 
5.38.   Japan  contends that, during the time lag between purchase of inputs and sale of outputs, 
funds related to th e payment of taxes are temporarily unavailable. The ICT  programmes, according 
to Japan, "mitigate the negative financial consequences of this lag, by reducing or eliminating the 
required IPI, PIS/PASEP, and COFINS taxes otherwise due" when domestic manufac turers of 
intermediate goods purchase inputs covered by the ICT  programmes.194 Thus, Japan submits that 
"the Panel properly concluded that 'this has the effect of limiting the availability of cash flow by 
companies purchasing imported intermediate ICT  produc ts and results in a higher effective tax 
burden on these  products.'"195  
5.39.   Under the credit -debit system, purchases of non -incentivized imported intermediate 
ICT products involve the payment of a tax upfront that is not faced by companies that purchase 
incenti vized like domestic intermediate ICT  products, which are exempted from the relevant 
taxes.196 Even in the case of tax reductions, companies purchasing incentivized like domestic 
intermediate ICT  products have to pay a lower tax as compa red to companies purch asing 
non-incentivized imported intermediate ICT  products. Indeed, as the Panel also noted, "the tax to 
be paid would be lower than the tax for like imported intermediate ICT  products, which are not 
incentivized."197 We fail to see how these situations do no t have the effect of limiting the availability 
of cash flow for companies purchasing non -incentivized imported intermediate ICT  products.198 The 
fact that purchasers of imported intermediate ICT  products have to pay the relevant taxes under the 
                                                
187 Brazil's appellant's submission, para.  102. 
188 Panel  Reports , para.  7.169 (referring to  European  Union 's second written submission  to the Panel , 
paras.  57-59 and 331; response to Panel question No. 43, paras.  188-191; Japan's second written submission  
to the Panel , para. 143). 
189 Brazil's appellant's submission, para.  107. (fn omitted)  
190 Brazil's appellant's submission, para.  103. 
191 European  Union's appellee's submission, para.  134. 
192 European  Union's appellee's submission, para.  134. 
193 European  Union's appellee's submission, para.  134. 
194 Japan's appellee's submission, para.  62. 
195 Japan's appellee's submission, para.  62 (quoting Panel  Reports , para.  7.170).  
196 Panel  Reports , para.  7.170.  
197 Panel  Reports , para.  7.170.  
198 We observe that, in  the context of its assessment of whether the tax treatment under the 
ICT programmes constitute s financial contributions,  the Panel noted that "the Brazilian Government … will hold 
the advantage of cash availability or cash flow … that could be generated o n the full amount of that tax that it 
has collected from the seller ", noting further the European  Union 's contention that " the benchmark rate of the 
… Central Bank [of Brazil] … was, at the time of writing of its first written submission, 13.25% ." 
(Panel  Reports , para.  7.433 and fn 790 thereto (additional fns to para.  7.433 omitted))  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 ICT programme s, irrespective of the point in time, compared  to purchasers of incentivized like 
domestic intermediate ICT  products, who do not have to pay the relevant tax or pay a reduced 
amount, "limit[s] the availability of cash flow"199, resulting in a higher effectiv e tax burden on 
imported intermediate ICT  products.  
5.40.   Brazil also contends that the "tax credits accrued from the purchase of imported inputs do 
not necessarily have to be compensated with debits related to the same tax, and they can be used 
before the sale  of the final product."200 Brazil, therefore, submits that no heavier tax burden is 
imposed on imported intermediate ICT  products.201 
5.41.   We observe that the Panel noted that "Bra zil has indicated that the time period that it takes 
a company to offset its tax cred its can be very short ."202 The Panel also noted that in cases where 
the IPI tax debits are lower than the IPI tax credits, and the company buying a product cannot offset 
the credits with debits after a three -month period, "it can request compensation of the credits with 
other taxes, or  reimbursement from the Brazilian Government."203 In this regard, we are mindful of 
the fact that Brazil also indicated to the Panel that the process for compensation with other taxes or 
reimbursement can take a long time.204 The Pa nel, in particular, noted that "[t]he reimbursement 
process may take from several months to years."205 The value of the tax credit that is generated 
upon the payment of the relevant tax on the sale of a non -incentivized imported intermediate 
ICT product will  depreciate over time until it is used or adjusted. To that extent, in as much as there 
is a time  lag between the accrual of the tax credit and the adjustment or use thereof, it necessarily 
results in the value of money (in the form of accrued tax credits)  depreciating over time. Therefore, 
imported intermediate ICT  products, the purchase of which is subject to a payment of tax upfront, 
bear a higher tax burden than that faced by the incentivized like domestic intermediate ICT  products, 
which benefit from t ax exemption or reduction. These considerations support the Panel's finding 
that, in the case of imported intermediate ICT  products, even if credits are generated and can be 
offset later in time, they are subject to a higher tax burden than like incentiviz ed domestic 
intermediate ICT  products purchased from accredited companies, "due to depreciation in the value 
of money over time".206  
5.42.   Accordingly, we agree with the Panel that "imported intermediate ICT  products are taxed in 
excess of like domestic incentivi zed intermediate ICT  products contrary to Article  III:2, 
first sentence, of the GATT  1994."207  
5.1.2   Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  III:4 of the GATT  1994  
5.43.   We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the 
ICT programmes accord to imported products treatment less favourable than that accorded to like 
domestic products inconsistently with Article  III:4 of the GATT  1994, and, consequently , also erred 
in its finding under Article  2.1 of the TRIMs  Agreement .  
5.44.   Before the Panel, the European  Union and Japan argued that the conditions for accreditation 
necessary for products to obtain the tax advantages under the ICT  programmes and the lower 
administrative burden on companies purchasing domestic incentivized inter mediate ICT  products 
                                                
199 Panel  Reports , para.  7.170.  
200 Brazil's appellant's submission, para.  108. 
201 Brazil's appellant's submission, para.  108. 
202 Panel  Reports , para.  7.171.  
203 Panel  Reports , para. 7.171 (referring to Brazil's second written submission  to the Panel , paras.  11-12 
and 17 ). 
204 Panel  Reports , para.  7.171 (referring to Brazil's closing statement at the first meeting of the Panel, 
para. 15; second written submission  to the Panel , paras. 185 and 234; comments on para.  2.28 of the draft 
descriptive part of the Panel Reports). We observe that Brazil made these statements in the context of 
describing the phenomenon of tax credit accumulation. (Brazil's second written submission to the Pane l, 
paras.  182-185 and 234)  
205 Panel  Reports , para.  2.20. (fn omitted)  
206 Panel  Reports , para.  7.171. (fn omitted)  
207 Panel  Reports , para.  7.172.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 accord less favourable treatment to imported ICT  products than that accorded to like domestic 
ICT products inconsistently with Article  III:4.208 
5.45.   The Panel  first considered the claim with respect to the conditions of accreditation, 
i.e. "the conditions that companies must fulfil in respect of particular incentivized products to 
become accredited producers of, and thus [become] eligible for the tax incentives on, those 
products ."209 The Panel noted that "the purpose of complying with the requ irements for 
accreditation" is to obtain a tax exemption, reduction, or suspension on the sales or purchases of 
products.210 The Panel recalled that "only products produced in Brazil can satisfy the conditions … 
for accreditation … and only products develope d in Brazil can satisfy the requirement of being 
'developed in Brazil'."211 Imported like products, the Panel recalled, "cannot satisfy those 
requirements, and thus can never qualify for the tax exemptions, reductions or suspensions granted 
under the relevan t ICT programmes".212 The Panel further recalled that , as a consequence of these 
accreditation requirements, "imported finished  and intermediate  products bear a higher tax burden 
than like domestic finished  and intermediate  products."213 The Panel considered t hat "the conditions 
for accreditation, which when fulfilled  create a lower internal tax burden on domestic products than 
on like imported products, modify the conditions of competition to the detriment of the imported 
products."214 The Panel, therefore, conc luded that "the accreditation requirements of the 
ICT programmes, by restricting access to the tax incentives only to domestic products, result in less 
favourable treatment being accorded to imported products than to like domestic products."215 
5.46.   With respect to the claim concerning the lower administrative burden placed on companies 
purchasing domestic incentivized intermediate ICT  products, the Panel noted that a purchaser of an 
incentivized intermediate product subject to a tax exemption or reduction will no t need to anticipate 
any tax, or will only need to anticipate a reduced amount of tax.216 However, the Panel considered 
that the purchaser of a non -incentivized intermediate ICT  product will need to anticipate the full 
amount of those taxes when purchasing t he products, and will have to undergo the administrative 
procedure to claim a tax credit in relation to those taxes, to request compensation with the same or 
other taxes, or to ask for reimbursement.217 The Panel reasoned that , when faced with a decision to 
choose from either "a product whose purchase w ill entail no payment of taxes"  or "a product whose 
purchase will entail the payment of the tax and the administrative burden that comes with the 
procedure of offsetting the tax w ith other debits (or  requesting compensation or reimbursement)", 
a purchaser, under normal circumstances, "will  prefer to avoid the administrative burden that comes 
with the payment of the tax" .218 Recalling that an imported intermediate ICT  product will nev er be 
eligible for the tax reductions or exemptions, the Panel, therefore, found that "the incentive to avoid 
the administrative burden, by purchasing incentivized intermediate  products, modifies the conditions 
of competition between domestic and like impo rted products, to the detriment of the 
imported  products."219 
                                                
208 Panel  Reports , para.  7.181. The European  Union and Japan also raised a claim regarding t he aspect 
of the mechanism for the calculation of the amount of resources required to be invested in R&D under the 
Informatics and PADIS programmes, where the amounts paid when purchasing incentivi zed products are 
deducted from the calculation . (Ibid.) The Panel found that  "the mechanisms under the Informatics and PADIS 
programmes for the calculation of the amount of resources required to be invested in R&D accord to imported 
products treatment less favourable than that accorded to like domestic products, and thus are incon sistent with 
Article  III:4 of the GATT  1994." ( Panel  Reports , para.  7.243) On appeal, Brazil does not challenge this finding 
by the Panel. (Brazil's response to questioning at the oral hearing)  
209 Panel  Reports , para.  7.214.  
210 Panel  Reports , para.  7.197.  
211 Panel  Reports , para.  7.223 (referring to Panel  Reports , paras.  7.135 -7.140).  
212 Panel  Reports , para.  7.223 (referring to Panel  Reports , paras.  7.135 -7.140).  
213 Panel  Reports , para.  7.224 (referring to Panel  Reports , paras.  7.154 and 7.172). (emphasis origina l) 
214 Panel  Reports , para.  7.225. (fn omitted)  
215 Panel  Reports , para.  7.225.  
216 Panel  Reports , para.  7.252.  
217 Panel  Reports , para.  7.252.  
218 Panel  Reports , para.  7.253.  
219 Panel  Reports , para.  7.254. (emphasis original)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.1.2.1   Whether the Panel erred in finding that the accreditation requirements under the 
ICT programmes accord treatment less favourable to imported products than that 
accorded to like domestic products i nconsistently with Article  III:4 of the GATT  1994  
5.47.   On appeal, Brazil asserts that the Panel's analysis with respect to the accreditation 
requirements under the ICT  programmes "conflates tax discrimination, which is under the purview 
of Article  III:2 … with regulatory discrimination, to which Article  III:4 applies".220 Brazil contends 
that "the Panel … seems to have found that [the] accreditation requirements under the 
ICT programmes are inconsistent with Article  III:4 because they allegedly restrict access to the tax 
incentives only to domestic products."221 Brazil submits that in order to find a violation of Article  III:4 
of the GATT  1994, the Panel was required to identify a regulatory discrimination other than the 
differences in tax treatment that may result i n a violation of Article  III:2 of the GATT  1994. 
Therefore, Brazil contends that "[t]o the extent that the Panel's findings that the ICT  programmes 
violate Article  III:4 were based on this flawed reasoning, they should be  reversed."222 
5.48.   In response, the Europ ean Union submits that "[t]he conditions for accreditation amount to a 
regulatory discrimination since only domestic products are incentivised; that the incentive consists 
in lower taxation when compared to imported like products is the consequence of the fact that the 
incentives are only granted to domestic products in detriment of imported like products ."223 
The European  Union further submits that the Panel, having recalled the relevant Appellate  Body 
jurisprudence, found that the same measure, or certain a spects of the same measures, can fall both 
within Articles  III:2 and III:4 of the GATT  1994, and that Brazil has not appealed this finding.224 
5.49.   Japan disagrees with Brazil's claim that the Panel conflated Articles  III:2 and  III:4 of the 
GATT  1994.225 Japan subm its that the Panel determined that , as a result of the accreditation 
requirements, imported finished and intermediate ICT  products bear a higher tax burden than 
domestic finished and intermediate ICT  products.226 Japan submits that , "[f]rom this factual 
premise, the Panel correctly concluded that the accreditation requirements modify the conditions of 
competition to the detriment of imported products."227 
5.50.   Article  III:4 of the GATT  1994 prohibits Members from according treatment less favourable to 
products of fo reign origin than that accorded to like domestic products. It specifies that this 
obligation is applicable with respect to all laws, regulations, and requirements "affecting their internal 
sale, offering for sale, purchase, transportation, distribution or use". The Appellate  Body found that 
"the mere fact that a Member draws regulatory distinctions between imported and like domestic 
products is, in itself, not determinative of whether imported products are treated less favourably 
within the meaning of Article III:4."228 Rather, the Appellate  Body explained that "what is relevant 
is whether such regulatory differences distort the conditions of competition to the detriment of 
imported products ."229 Thus, according to the Appellate  Body, whether a measure involves treatment 
less favourable "must be founded on a careful analysis of the contested measure and of its 
implications in the marketplace".230  
5.51.   We note that the aspect of the ICT  programmes challenged by the complaining parties as 
being inconsistent with Article  III:4 concerned the accreditation requirements, the fulfilment of 
which enabled the  obtaining of the relevant tax exemption, reduction, or suspension on the sales or 
purchases of ICT  products.  Indeed, as the Panel also recogni zed, "[i]n respect of Article  III:4, the 
complaining parties challenge the laws, regulations and requirements, namely the accreditation 
requirements for gaining access to the tax incentives ."231 The Panel further considered that 
                                                
220 Brazil's appellant's submission, para.  138. 
221 Brazil's appellant's submission, para.  139. 
222 Brazil's appellant's submission, para.  140. 
223 European  Union's appellee's submission, para.  176. 
224 European  Union's appellee's submission, para.  174. 
225 Japan's appellee's submission, para.  69. 
226 Japan's appellee's submission, para.  68 (referring to Panel  Reports , paras.  7.154 -7.172 ). 
227 Japan's appellee's submission, para.  68 (referring to  Panel  Reports , para. 7.225 ). 
228 Appellate  Body Report, Thailand – Cigarettes (Philippines) , para.  128. (fn omitted)  
229 Appellate  Body Report, Thailand – Cigarettes (Philippines) , para.  128. 
230 Appellate  Body Report, US – FSC ( Article  21.5 – EC), para.  215. The Appellate  Body, however, 
cautioned that "the examination need no t be based on the actual effects of the contested measure in the 
marketplace." (Ibid. (emphasis original; fn omitted))  
231 Panel  Reports , para.  7.220.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 "the aspects challenged by the complaining parties under Article III:4 are different from, albeit 
related to, the differential tax treatment of like domestic and imported products that they challenge 
under Article  III:2."232 We recall that the Panel also noted that "a single measure can be inconsistent 
with two or m ore provisions of Article  III at the same time" since " multiple features of a single 
measure may operate simultaneously " and therefore, in such a situation, "different aspects of the 
same measure could be considered to be covered by the disciplines of eith er or both Article  III:2 
and III:4."233 
5.52.   As noted, Brazil contends that the Panel's analysis with respect to the accreditation 
requirements conflates tax discrimination under Article  III:2 with regulatory discrimination under 
Article  III:4.234 However, the Pane l was mindful of the fact that the ICT  programmes included both 
fiscal and regulatory aspects that were applicable to the products at issue.235 While the accreditation 
requirements relate to regulatory aspects236, the tax exemptions or reductions under the 
ICT programmes relate to fiscal aspects. This is evident from the Panel's conclusion that the 
conditions for accreditation "modify the conditions of competition to the detriment of the imported 
products" by creating "a lower internal tax burden on domestic pr oducts than on like imported 
products".237 It is undisputed that , in order to be eligible for the tax exemption, reduction, or 
suspension under the ICT  programmes, companies must fulfil the accreditation requirements. The 
accreditation requirements under the  ICT programmes therefore result in less favourable treatment 
for imported ICT  products in the form of  the differential tax burden that imported ICT  products are 
subjected to by virtue of the fact that " foreign producers cannot be accredited under the 
ICT programmes ."238 The consequence being, as the Panel also noted, imported ICT products  "can 
never qualify for the tax exemptions, reductions or suspensions".239  
5.53.   We note that  the aspects of the ICT  programmes found to be inconsistent with Article  III:2, 
first sentence, and Article  III:4 are distinct. In the case of Article  III:2, first sentence, the aspect of 
the ICT  programme found to be inconsistent is the differential tax treatment that results in a higher 
tax burden on imported ICT  products, i. e. imported ICT  products are taxed in excess of like domestic 
ICT products. Whereas, for the purposes of Article  III:4, the aspect of the ICT  programmes found to 
be inconsistent is the accreditation requirements that result in less favourable treatment in the form 
of the differential burden that  imported ICT  products  are subjected to . We do not see why that 
cannot be the case since d ifferent aspects of the same measure may be found to be inconsistent 
with one or more paragraphs of Article  III of the GATT  1994. As the Appellate  Body explained in 
Thailand  ‒ Cigarettes (Philippines) , "[a]lthough Thailand may be correct in stating that prior WTO 
reports have examined measures consisting of 'administrative requirements relating to the sale of 
imported products' u nder Article  III:4", it does not exclude the possibility that "if such requirements 
subject imported and like domestic products to internal taxes or other internal charges, the same 
                                                
232 Panel  Reports , para.  7.220. We observe that the Panel also noted that:  
The complaining parties allege tha t certain tax aspects of the programmes, insofar as they apply 
to incentivized finished  and intermediate products, are discriminatory and inconsistent with 
Article  III:2. The complaining parties also allege that the specific conditions and criteria to be 
satisfied by incentivized finished and intermediate products in order to receive the tax 
advantages [] are inconsistent with Article  III:4 of the GATT  1994, by consisting of conditions for 
obtaining the advantage in respect of the incentivized products.  
(Ibid., para.  7.35 (emphasis original))  
233 Panel  Reports , para.  7.34. (fn omitted)  
234 Brazil's appellant's submission, para.  138. 
235 Panel  Reports , para.  7.35. 
236 The Panel, as we recall, found that " the purpose of complying with the requirements for accredita tion 
is to obtain a tax exemption, reduction or suspension on the sales or purchases of products, so it is clear that 
the requirements at issue affect the sale, offering for sale or purchase of products ." (Panel  Reports , 
para. 7.197)  
237 Panel  Reports , para.  7.225. (fn omitted)  
238 Brazil's appellant's submission, para.  97. 
239 Panel  Reports , para.  7.223.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 measures, or certain aspects of the same measures, could not also be scrut inized under 
Article  III:2."240  
5.54.   In light of the foregoing  considerations, we agree with the Panel that the accreditation 
requirements of the ICT  programmes, by restricting access to the tax incentives only to domestic 
products, modify the conditions of competition to the detriment of imported products, and result in 
less favourable treatment being accorded to imported ICT  products than to like domestic 
ICT products  inconsistently with Article  III:4 of the GATT  1994.241  
5.1.2.2   Whether the Panel erred in finding t hat the ICT  programmes are inconsistent with 
Article  III:4 of the GATT  1994 by virtue of the lower administrative burden on companies 
purchasing incentivized domestic intermediate products  
5.55.   We now turn to Brazil's claim on appeal that the Panel erred in fin ding that imported 
intermediate ICT  products are subject to more onerous administrative requirements than like 
domestic intermediate ICT  products.242 
5.56.   On appeal, Brazil asserts that the Panel's reasoning concerning the alleged lower 
administrative burden on c ompanies purchasing domestic incentivized intermediate products "has  no 
grounds, either in law or in the facts of the present dispute".243 Brazil submits that "[t]he  Panel 
misconstrued the functioning of the Brazilian tax system and found an administrative b urden in the 
operation of the debit and credit tax system where there is none."244 Brazil explains that a "careful 
review" of the functioning of the credit -debit system applicable to "IPI, PIS, PASEP and COFINS taxes 
under the Brazilian Tax Code shows unequi vocally that incentivised domestic intermediate products 
are not subject to a lower administrative burden when compared to like imported intermediate 
products".245 
5.57.   In response, the European  Union submits that the Panel's reasoning is firmly grounded on the 
functioning of the credit -debit system as described in the Panel  Reports .246 The European  Union adds 
that, while Brazil makes the claim that the Panel's findings have no factual or legal ground, "it  is 
unable to argue that the Panel violated Article  11 of the  DSU by failing to make an objective 
assessment of the facts of the case when it described the functioning of the Brazilian tax system and 
the credit -debit mechanism."247 The European  Union recalls that the parties to the dispute agreed 
on the basic function ing of Brazil's tax system before the Panel248 and "it  was Brazil itself who 
explained that offsetting tax credits in certain situations can be burdensome, and can take  years."249 
5.58.   Japan submits that "Brazil cannot seek a de novo  review of the facts at this sta ge of the 
proceeding."250 Japan contends that Brazil's argument also fails to account for the "undisputed fact" 
that purchasers of non -incentivized  imported intermediate ICT products will have to "claim 
compensation from the Brazilian Government, which could  take years, whereas the purchasers of 
incentivized domestic intermediate products do not".251 
                                                
240 Appellate  Body Report, Thailand – Cigarettes (Philippines) , fn 144 to para.  114 (quoting Thailand's 
appellant's submission, para.  69). (additional text theret o omitted) We also observe that a similar proposition 
was considered by the panel in Mexico – Taxes on Soft Drinks  where the panel found that the measure at issue 
in that dispute (i.e. the Law on the Special Tax on Production and Services (LIEPS ) that prov ided for the soft 
drink tax, the distribution tax, and the bookkeeping requirements) was inconsistent with both Articles  III:2 and 
III:4 of the GATT  1994. ( Panel  Report , Mexico – Taxes on Soft Drinks , paras.  8.59, 8.96, and 8.123) 
Particularly, with respect to the claim under Article  III:4, the panel found that "through the soft drink tax, the 
distribution tax and the bookkeeping requirements, Mexico accords less favou rable treatment to imported 
non-cane sugar  sweeteners … than that accorded to like products of national origin … inconsistent[ly] with 
Article  III:4." (Panel  Report , Mexico – Taxes on Soft Drinks , para. 8.123)  
241 Panel  Reports , para.  7.225.  
242 Brazil's appellant's submission, para.  121. 
243 Brazil's appellant's submission, para.  152. 
244 Brazil's appellant's submission, para.  152. 
245 Brazil's appellant's submission, para.  153. 
246 European  Union's appellee's submission, para.  204. 
247 European  Union's appellee's submission, para.  205. 
248 European  Union's appe llee's submission, para.  206 (referring to Panel  Reports , para.  2.1). 
249 European  Union's appellee's submission, para.  206. 
250 Japan's appellee's submission, para.  73. 
251 Japan's appellee's submission, para.  73. (fn omitted)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.59.   We have considered above that the Panel took into account the functioning of the credit -debit 
system. We are mindful of Brazil's contention that this "system … ope rates as a ledger in which both 
purchases of inputs and intermediate goods and sales of final goods are recorded, and debits and 
credits are offset"252 and that there is "no[] change in the event of suspensions, reductions or 
exemptions of indirect taxes".253 Brazil's contention would not, however, change the fact that 
purchasers of imported intermediate ICT  products that are not incentivized under the 
ICT programmes will have to anticipate and pay the full amount of tax due on such imported 
intermediate ICT  products. Although any such tax paid on the purchase of imported intermediate 
ICT products will generate a corresponding tax credit in favour of the purchaser, nonetheless, 
offsetting this tax credit entails an administrative burden  that is not faced and/or faced to a lesser 
extent by a purchaser of domestic intermediate ICT  products that are incentivized.254 This is the 
case because , under the credit -debit system , "if the tax credit cannot be offset by debits after three 
taxation periods", the process of compe nsating the tax credit with other federal taxes, or 
reimbursement thereof can "be burdensome fo r companies, and can take years ".255 We therefore 
reject Brazil's argument that the Panel erroneously "found an administrative burden in the operation 
of the debit  and credit tax system" in the context of its analysis under Article  III:4.256 
5.60.   The ICT  programmes are designed in a manner that creates incentives for the market 
participants, that is, purchasers of intermediate ICT  products, to behave in a manner that has the 
"direct practical effect"257 of treating imported intermediate ICT  products less favourably than like 
domestic intermediate ICT  products. In this case, by creating an incentive to purchase incentivized 
domestic intermediate ICT  products in order to be re lieved from and/or to face reduced 
administrative burdens. Accordingly, we agree with the Panel that , "when faced with a decision to 
choose" , a purchaser, "under normal circumstances, will prefer to avoid the administrative burden 
that comes with the payme nt of the tax"258 and thus prefer to purchase incentivized domestic 
intermediate ICT  products.259  
5.61.   In light of the foregoing considerations, we agree with the Panel that "the ICT  programmes 
are inconsistent with Article  III:4 of the GATT  1994, because they acc ord to imported intermediate  
products treatment less favourable than that accorded to like domestic intermediate  products, due 
to the lower administrative burden imposed on firms purchasing incentivised intermediate  
products."260 
5.1.3   Whether the Panel erred in f inding that the ICT  programmes are inconsistent with 
Article  2.1 of the TRIMs  Agreement  
5.62.   Before the Panel, the European  Union and Japan argued that the ICT  programmes are 
inconsistent with Article  2.1 of the TRIMs  Agreement , both independently and in conjun ction with 
Article  2.2 and paragraph 1(a) of that  Agreement 's Illustrative List, because they are inconsistent 
with Article  III of the GATT  1994.261 Brazil agreed that the ICT  programmes are investment 
measures, submitting, however, that they do not relate t o trade in goods.262 
5.63.   The Panel found that "the ICT  programmes affect, and … are aimed at promoting, investment" 
and "also have an impact on trade, by affecting the sale and purchase of imported products, including 
                                                
252 Brazil's appellant's submission,  para. 155. 
253 Brazil's appellant's submission, para.  155. 
254 In this regard, we note that purchasers of incentivized intermediate domestic ICT products, in most 
cases, will not need to anticipate the tax due on the purchase of such intermediate  ICT products  since the 
Informatics, PADIS, PATVD, and Digital Inclusion programmes provide for tax exemptions, through zero rates, 
to accredited companies selling domestic intermediate ICT products. It is only in the context of the IPI tax 
reduction provided under the  Informatics programme that purchasers of domestic intermediate ICT products 
may have to anticipate and pay the reduced amount of IPI tax due.  
255 Panel  Reports , para.  7.251 (referring to Brazil's first written submission  to the Panel , para. 702 
(DS497) ). 
256 Brazil's appellant's submission, para.  152. 
257 Appellate  Body Report, Korea – Various Measures on Beef , para.  145. 
258 Panel  Reports , para.  7.253.  
259 Panel  Reports , para.  7.254.  
260 Panel  Reports , para.  7.255. (emphasis original)  
261 Panel  Reports , para.  7.348 (r eferring to European  Union 's first written submission  to the Panel , 
paras.  690, 841, 998 , and 1118; Japan's first written submission  to the Panel , paras.  371, 437, 479 -496, and 
533-548). 
262 Panel  Reports , para.  7.351.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the inputs used in the production of incenti vized finished and intermediate  products".263 The Panel 
concluded that the ICT  programmes are trade -related investment measures within the meaning of 
the TRIMs  Agreement .264 Having so found, the Panel recalled its findings that certain aspects of the 
ICT progr ammes are inconsistent with Articles  III:2 and III:4 of the GATT  1994.265 Therefore, the 
Panel found that "those aspects of the ICT  programmes found to be inconsistent with Article  III:2 
and III:4 … are also inconsistent with Article  2.1 of the TRIMs  Agreeme nt."266 
5.64.   On appeal, Brazil does not make any specific arguments in connection with the Panel's finding 
under Article  2.1 of the TRIMs  Agreement . Rather, Brazil's request for reversal of the Panel's finding 
under that provision is premised on us reversing the Panel's findings under Article  III:4 of the 
GATT  1994.267 We have, however, for the reasons stated above, agreed with the Panel's finding s 
that certain aspects of the ICT  programmes are inconsistent with Article  III:4 of the GATT  1994. 
Consequently, we agree with the Panel's finding that those aspects of the ICT  programmes found to 
be inconsistent with Article  III:4 are also inconsistent with Article  2.1 of the TRIMs  Agreement .268 
5.1.4   Whether the Panel erred in finding that the accreditation requirements under the 
INOVAR -AUTO programme are inconsistent with Article  III:4 of the GATT  1994 because 
they are more burdensome for companies seeking accreditation as importers/distributors 
as opposed to domestic manufacturers  
5.65.   We now turn to Brazil's claim on appeal with respect to Article  III:4 of the GATT  1994 
concerning the INOVAR -AUTO programme. Brazil contends that the Panel erred in finding that "the 
accreditation requirements under the INOVAR -AUTO programme were … discrimina tory because 
they would be … more burdensome" for companies seeking accreditation as importers/distributors 
than for  domestic manufacturers.269 We note that , unlike in the context of the ICT  programmes 
where foreign manufacturers cannot be accredited270, under  the INOVAR -AUTO programme foreign 
manufacturers can be accredited as importers/distributors and thus be entitled to the relevant tax 
benefits.271 Therefore, the claim of error under Article  III:4 with respect to the INOVAR -AUTO 
programme is primarily direct ed towards, as Brazil contends, the Panel's alleged erroneous 
conclusion that "foreign companies seeking accreditation under the INOVAR -AUTO programme must 
go through a more burdensome accreditation process than domestic manufacturers."272  
5.66.   We recall that with respect to the accreditation requirements under the INOVAR -AUTO 
programme, the Panel noted that "the purpose of complying with the requirements for accreditation 
is to obtain presumed IPI tax credits on the sale of products ."273 The Panel  noted that there are 
three types of accreditation that entitle companies to accrue and use presumed IPI tax credits: 
(i) accreditation for domestic manufacturers; (ii) accreditation for importers/distributors ; and 
(iii) accreditation for investors.274 The P anel recalled that foreign manufacturers, as such, cannot 
obtain accreditation under the INOVAR -AUTO programme, because they are not located or do not 
operate in Brazil.275 The Panel observed that such foreign manufacturers would have to become 
accredited as  importers/distributors in order for their products to be eligible for the tax benefits.276 
The Panel recalled its earlier conclusion that "this results in a higher tax burden on imported vehicles 
manufactured by foreign manufacturers" because "foreign manuf acturers are required to be legally 
                                                
263 Panel  Reports , para.  7.360. (emphasis  original)  
264 Panel  Reports , para.  7.361.  
265 Panel  Reports , para.  7.363 (referring to Panel  Reports , paras.  7.174 and 7.318 -7.319).  
266 Panel  Reports , para.  7.363.  
267 Having sought reversal of the Panel's findings under Article  III:4 of the GATT  1994, specifically with 
respect to paragraphs  7.318 -7.319, 8.5.b, and 8.16.c of the Panel  Reports , Brazil submits that "[a] s a result, 
Brazil also requests that the Appellate  Body reverse the Panel's finding in paragraphs  7.365, 8.5(d) an d 
8.16(e) of the Panel  Report [s] that in respect of those elements the  ICT programmes are inconsistent with 
Article  2.1 of the TRIMs  Agreement ." (Brazil's appellant's submission, para.  172 (emphasis original))  
268 Panel  Reports , para.  7.363.  
269 Brazil's appel lant's submission, para.  278. 
270 Brazil's appellant's submission, para.  97. 
271 Panel  Reports , para.  7.731 (referring to Panel  Reports , paras.  7.656 -7.661).  
272 Brazil's appellant's submission, para.  286 (quoting Panel  Reports , para.  7.658).  
273 Panel  Reports , para. 7.706.  
274 Panel  Reports , para.  7.656. The Panel noted that "[a]ll accredited companies must comply with two 
general requirements and with a series of specific requirements that differ depending on the type of 
accreditation ." (Ibid. (fn omitted))  
275 Panel Reports , para.  7.731.  
276 Panel  Reports , para.  7.731 (referring to Panel  Reports , paras.  7.656 -7.661).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 established in Brazil" in order to be accredited as importers/distributors , and "foreign manufacturers 
seeking accreditation as importers/distributors are required to comply with more accreditation 
requirements than dome stic manufacturers in order to obtain the tax benefits."277 Consequently, the 
Panel considered that "[f]oreign manufacturers … bear a higher burden than domestic manufacturers 
in becoming accredited."278  
5.67.   For these reasons, the Panel found that , "under the INO VAR-AUTO programme, the conditions 
for accreditation in order to receive presumed tax credits … accord less favourable treatment to 
imported products than that accorded to like domestic products, inconsistently with Article  III:4 of 
the GATT  1994."279 
5.68.   On appeal, Brazil takes issue with the Panel's finding that the accreditation requirements 
under the INOVAR -AUTO programme are discriminatory because "they would be allegedly more 
burdensome to 'importers/distributors' than to 'domestic manufacturers'" and  therefore result in less 
favourable treatment being accorded to imported finished motor vehicles.280 Brazil submits that , in 
reaching its conclusions on the discriminatory impact of the types of accreditation provided under 
the INOVAR -AUTO programme, "the P anel limited itself to conducting a quantitative  analysis of the 
requirements provided under INOVAR -AUTO [programme] (number of requirements)."281 According 
to Brazil, the "mere difference in the number of requirements" to be fulfilled by domestic 
manufactur ers and importers/distributors was "enough" for the Panel to find that the accreditation 
requirements were inconsistent with Article  III:4.282 Brazil contends that , in order to find a "potential 
discriminatory impact", the Panel was required to have conducte d a " qualitative analysis of the 
requirements taking into account the actual and relative weight of such requirements in terms of 
the overall burden imposed to companies – foreign and domestic alike – that request accreditation 
to the programme".283 
5.69.   In respo nse, the European  Union recalls that , in order to be eligible for the presumed IPI tax 
credits, "companies must obtain accreditation, and in order to obtain accreditation companies must 
comply with certain requirements."284 The European  Union notes that the Panel distinguished two 
different consequences flowing from this design of the INOVAR -AUTO programme. First, according 
to the European  Union, the Panel "rightly noted that the requirement with respect to domestic 
manufacturing activities is automatically c omplied with by domestic manufacture[r]s, whereas 
foreign manufacturers should comply with three (instead of two ) different requirements ".285 Second, 
in the European  Union's view, "the Panel considered that foreign companies seeking to establish 
themselves i n Brazil face a supplementary burden in comparison to domestic producers already 
established in Brazil" in as much  as "compliance with the accreditation criteria necessarily entails 
establishing in Brazil, with a corresponding administrative and economic b urden."286 Thus, the 
European  Union submits that "no more was required" for the Panel to determine that the 
accreditation requirements modify the conditions of competition to the detriment of imported motor 
vehicles and in favour of like domestic motor vehic les.287 
5.70.   Japan notes that Brazil asserts that "the Panel should have conducted a ' qualitative analysis 
of the requirements taking into account the actual and relative weight of such requirements in terms 
of the overall burden imposed to companies – foreign an d domestic alike – that request accreditation 
to the programme.'"288 Japan submits that Brazil, however, does not provide any legal authority for 
this proposition, and, "beyond generalized assertions, fails to explain why the Panel's thorough 
analysis of the  burden imposed on foreign products was inadequate".289 According to Japan, the 
                                                
277 Panel  Reports , para.  7.731 (referring to Panel  Reports , paras.  7.656 -7.661).  
278 Panel  Reports , para.  7.731 (referring to Panel  Reports , paras.  7.656 -7.661).  
279 Panel  Reports , para.  7.772.  
280 Brazil's appellant's submission, para.  278 (referring to Panel  Reports , para.  7.732).  
281 Brazil's appellant's submission, para.  287. (emphasis original)  
282 Brazil's appellant's submission, para.  287. 
283 Brazil's appellant's submission, para.  288. (emphasis original)  
284 European  Union's appellee's submission, para.  359 (referring to Panel  Reports , paras.  2.113 -2.122).  
285 European  Union's appellee's submission, para.  362. 
286 European  Union's appellee's submission , para.  363 (quoting Panel  Reports , para.  7.660 
(fns omitted)).  
287 European  Union's appellee's submission, para.  364. 
288 Japan's appellee's submission, para. 114 (quoting Brazil's appellant's submission, para. 288 
(emphasis original)).  
289 Japan's appellee's s ubmission, para.  114. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Panel properly reached the conclusion that the INOVAR -AUTO programme, through the accreditation 
requirements, favours domestic over imported products and  it performed an analysis  that included 
all relevant elements.290 
5.71.   We begin by recalling that , under the INOVAR -AUTO programme, "all companies using 
presumed IPI tax credits, and certain companies using reduced IPI tax rates, must obtain one of 
three forms of accreditation"291: (i) dom estic manufacturers; (ii)  importers/distributors; or 
(iii) investors.292 The "purpose" of complying with the requirements for accreditation is "to obtain 
presumed IPI tax credits on the sale of products".293 Thus, in order to enjoy a  reduction on IPI tax 
liability on a product, in this case motor vehicles, companies "must  comply with a set of 
requirements"294, for example, the performance of a minimum number of defined manufacturing 
and engineering infrastructure activities in Brazil, or investments in R&D in Bra zil. 
5.72.   It is undisputed that , in order for companies to obtain any sort of accreditation that entitles 
them to accru e and us e presumed IPI tax credits, they must either be located and operate in Brazil, 
in the case of domestic manufacturers and importers/distributors, or be in the process of establishing 
in the country as domestic manufacturers, in the case of investors.295 This i n turn implies, as the 
Panel also acknowledged, that "foreign companies exclusively located outside Brazil that 
manufacture products imported into Brazil cannot, per se , get accredited and, consequently, cannot 
accrue and use presumed IPI tax credits."296 The only viable way for foreign manufacturers to be 
able to enjoy the benefit of the presumed IPI tax credits in reducing their IPI tax liability under the 
INOVAR -AUTO programme is to become accredited as importers/distributors.297 However, in order 
to do so, foreign manufacturers must, first and foremost, be located and operate in Brazil.298 This 
indicates that foreign manufacturers seeking accreditation as importers/distributors face a 
corresponding burden that necessarily comes with having to operate, or estab lish themselves , in 
Brazil, unlike domestic manufacturers, who already operate or are established in Brazil. We, 
therefore, agree with the Panel that "unlike for domestic manufacturers, for foreign manufacturers 
compliance with the accreditation criteria n ecessarily entails establishing in Brazil, with a 
corresponding administrative and economic burden ."299 
5.73.   Moreover, we note that , in order to become accredited as importers/distributors, a company 
must comply with the following three specific requirements: (i)  investments in R&D in Brazil; 
(ii) expenditure on engineering, basic industrial technology, and capacity -building of suppliers in 
Brazil; and (iii)  participation in the vehicle -labelling programme by INMETRO.300 A fourth 
requirement also exists, which calls  for the performance in Brazil of certain manufacturing steps.301 
These activities cannot be considered to be typical for foreign manufacturers seeking to import motor 
vehicles into Brazil. The fact that foreign manufacturers have to undertake these activiti es to get 
accredited as importers/distributors implies that foreign manufacturers face a burden that domestic 
manufacturers do not face. We also see merit in the Panel's reasoning that foreign manufacturers 
that are accredited as importers/distributors do not carry out manufacturing activities in Brazil, and 
there is no reason "why they would purchase strategic inputs and tools in Brazil for the manufacture 
of motor vehicles"302 or, for that matter, invest in R&D or make expenditures on engineering, basic 
industrial technology, and capacity -building of suppliers in  Brazil.  
5.74.   On the other hand, we observe that , in order to be accredited, domestic manufacturers need 
to comply with three out of four specific requirements. One of these must be the performance of a 
minimum number of defined manufacturing and engineering infrastructure activities in Brazil.303 
                                                
290 Japan's appellee's submission, para.  114. 
291 Panel  Reports , para.  2.112.  
292 Panel  Reports , para.  2.113.  
293 Panel  Reports , para.  7.706.  
294 Brazil's appellant's submission, para.  266. 
295 Panel  Reports , para.  7.657 (referring to Brazil's responses to Panel questions Nos. 28 and 57).  
296 Panel  Reports , para.  7.657.  
297 The Panel noted that Brazil acknowledged that accreditation as investors is " a temporary 
accreditation which eventually becomes an accreditat ion as a manufacturer in Brazil ". (Panel  Reports , fn 1053 
to para.  7.657 (referring to Brazil's response to Panel question No. 28))  
298 Panel  Reports , para.  7.660 (referring to Brazil's response to Panel question No. 57).  
299 Panel  Reports , para.  7.660.  
300 Panel  Reports , para.  7.658.  
301 Panel  Reports , fn 1056 to para.  7.658.  
302 Panel  Reports , para.  7.733 (referring to Panel  Reports , paras.  7.662 -7.672).  
303 Panel  Reports , para.  7.658.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 The other two requirements must be among the following three: (i)  investments in R&D in Brazil; 
(ii) expenditure on engineering, basic industrial technology, and c apacity -building of suppliers in 
Brazil; or (iii)  participation in the vehicle -labelling programme by INMETRO.304 Almost all of these 
requirements can be considered to be typical of the nature of activity carried out by a domestic 
manufacturer. Indeed, any d omestic manufacturer will carry out and perform a minimum number of 
manufacturing activities in Brazil, and in that process is also likely to make investments in R&D in 
Brazil and make expenditures in the categories indicated in the INOVAR -AUTO programme.305 To 
that extent, we agree with the Panel that the performance of a minimum number of manufacturing 
activities in Brazil "is inherent to any domestic manufacturer".306 This in turn, as the Panel rightly 
noted, results in domestic manufacturers being subject de facto to only two other specific 
requirements.307 
5.75.   Therefore, the INOVAR -AUTO programme is designed in such a manner that the accreditation 
requirements thereunder adversely modify the "equality of competitive conditions for imported 
products"308 compared  to like domestic products. This is so because , first,  foreign manufacturers 
seeking accreditation as importers/distributors in order  to enjoy a  reduction on IPI tax liability have 
to operate or establish themselves in Brazil with the corresponding burden unli ke domestic 
manufacturers, who already operate and are established in Brazil. Second, foreign manufacturers 
seeking accreditation as importers/distributors are required to comply with more accreditation 
requirements and undertake certain activities prescri bed under the INOVAR -AUTO programme, 
which are, in any event, as we have considered above, not typical for foreign manufacturers seeking 
to import motor vehicles into Brazil. Brazil contends that " the Panel limited itself to conducting a 
quantitative  analy sis"309 and instead should have "conducted a qualitative analysis of the 
[accreditation] requirements".310 Brazil does not, however, elaborate on the type or kind of 
qualitative analysis that the Panel should have undertaken. In any event, the Panel, in our vi ew, 
conducted a qualitative analysis in as much as it recognized that " even if it were to consider that 
the number of requirements imposed on domestic manufacturers and importers/distributors is the 
same", foreign manufacturers bear a higher burden since " compliance with the accreditation criteria 
necessarily entails establishing in Brazil, with a corresponding administrative and economic burden", 
which is not faced by domestic manufacturers who are already established in Brazil.311 These 
considerations are sufficient to support the conclusion that "[f]oreign manufacturers … bear a higher 
burden than domestic manufacturers in becoming accredited" in order for "their products to be 
eligible for the tax benefits".312 Thus, the accreditati on requirements "modify the conditions of 
competition to the detriment of imported motor vehicles and in favour of like domestic motor 
vehicles".313 
5.76.   For these reasons, we agree with the Panel that , "under the INOVAR -AUTO programme, the 
conditions for accredi tation in order to receive presumed tax credits  … accord less favourable 
treatment to imported products than that accorded to like domestic products" within the meaning of 
Article  III:4 of the GATT  1994.314 
5.1.5   Whether the Panel erred in finding that the INOVAR -AUTO programme is 
inconsistent with Article  2.1 of the TRIMs  Agreement  
5.77.   Before the Panel , the European  Union and Japan argued that the INOVAR -AUTO programme 
is inconsistent with Article  2.1 of the TRIMs  Agreement , both independently and in conjunction with 
Article  2.2 and paragraph 1(a) of that  Agreement 's Illustrative List, because it is inconsistent with 
                                                
304 Panel  Reports , fn 1055 to para.  7.658.  
305 We observe that the Panel also cons idered that one of the other requirements involving " investing in 
R&D in Brazil" is also "linked to the development of their manufacturing activity in the country ". 
(Panel  Reports , para.  7.659)  
306 Panel  Reports , para.  7.659.  
307 Panel  Reports , para.  7.659.  
308 Appellate  Body Report, Thailand – Cigarettes (Philippines) , para.  126. (fn omitted)  
309 Brazil's appellant's submission, para.  287. (emphasis original)  
310 Brazil's appellant's submission, para.  288. (emphasis omitted)  
311 Panel  Reports , para.  7.660.  
312 Panel  Reports , para.  7.731.  
313 Panel  Reports , para.  7.732.  
314 Panel  Reports , para.  7.772.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Article  III of the GATT  1994.315 Brazil agreed that the INOVAR -AUTO programme is an investment 
measure, submitting, however, that it does not relate to trad e in goods.316 
5.78.   The Panel found that the INOVAR -AUTO programme constitutes a trade -related investment 
measure within the meaning of the TRIMs  Agreement .317 The Panel further recalled that it had found 
that "the INOVAR -AUTO programme is inconsistent with Article  III:2 and III:4 of the GATT  1994."318 
The Panel therefore considered that "those aspects of the INOVAR -AUTO programme found to be 
inconsistent with Article  III:2 and III:4 … are also inconsistent with Article  2.1 of the 
TRIMs  Agreement ."319 
5.79.   On appeal, Brazil does not make any specific arguments in connection with the Panel's finding 
under Article  2.1 of the TRIMs  Agreement . Rather, as we understand it, Brazil's request for reversal 
of the Panel's finding under Article  2.1 of the TRIMs  Agreement  is premised on us reversing the 
Panel's findings under Article  III:4 of the GATT  1994.320 We have, however, for the reasons stated 
above, agreed with the Panel's finding s that certain aspects of the INOVAR -AUTO programme are 
inconsistent with Article  III:4 of the GATT  1994. Consequently, we agree with the Panel's finding 
that those aspects of the INOVAR -AUTO programme found to be inconsistent with Article  III:4 of the 
GATT  1994 are also inconsistent with Article  2.1 of the TRIMs  Agreement .321 
5.2  Article  III:8(b) of the GATT  1994322 
5.2.1   Introduction  
5.80.   We now address Brazil's  appeal of the Panel's interpretation and application of Article  III:8(b) 
of the GATT  1994. Before examining the complainants' claims of inconsistencies under Article  III of 
the GATT  1994, the Pan el addressed the two "general defences" put forth by Brazil.323 Rejecting 
Brazil's first defence that the product -based disciplines of Article  III are not applicable to measures 
directed at producers, the Panel found that " Article  III of the GATT  1994 is not  per se inapplicable 
to certain measures, in particular 'pre -market' measures directed at producers ."324 With respect to 
Brazil's second defence that the measures at issue fall under Article  III:8(b), the Panel found that 
"subsidies that are provided exclusi vely to domestic producers pursuant to Article  III:8(b) of the 
GATT  1994 are not per se exempted from the disciplines of Article  III of the GATT  1994."325 Instead, 
in the Panel's view, "aspects of a subsidy resulting in product discrimination (including requ irements 
to use domestic goods, as prohibited by Article  3.1 of the SCM  Agreement ) are not exempted from 
the disciplines of Article  III pursuant to Article  III:8(b) ."326 The Panel thus turned to assess the 
consistency of the challenged measures with Article  III of the GATT  1994 and Article  2.1 of the 
TRIMs  Agreement . The Panel found, inter alia , that certain aspects of the ICT programmes are 
inconsistent with Article  III:2, first sentence, and Article  III:4327, and that the accreditation 
requirements under the INOVAR -AUTO programme are inconsistent with Article  III:4.328 Flowing 
from its findings of inconsistency under Articles  III:2 and III:4, the Panel also found the same 
                                                
315 Panel  Reports , paras.  7.793 (referring to European  Union 's first written submission  to the Panel , 
paras.  435-451; Japan's first written submission  to the Panel , paras . 253-266). 
316 Panel  Reports , para.  7.795.  
317 Panel  Reports , para.  7.802.  
318 Panel  Reports , para.  7.804 (referring to Panel  Reports , paras.  7.645, 7.688, and 7.772 -7.773).  
319 Panel  Reports , para.  7.804.  
320 Having sought reversal of the Panel's findings under Article III:4 of the GATT  1994, specifically with 
respect to paras.  7.773, 8.6.b, and 8.17.c of the Panel  Reports , Brazil submits that:  
As a result, Brazil further requests that the Appellate  Body reverse the Panel's consequential 
finding in paragraphs 7.806 , 8.6(d) and 8.17(e) of the Panel  Report  that these aspects of [the] 
INOVAR -AUTO [programme] are inconsistent with Article  2.1 of the TRIMs  Agreement . 
(Brazil's appellant's submission, para.  294 (emphasis original))  
321 Panel  Reports , para.  7.804.  
322 One Member of the Division expressed a separate opinion regarding  the scope of the term "payment 
of subsidies" in Article III:8(b) of the GATT  1994. This separate opinion can be found in subsection 5.2.5 of 
these Report s. 
323 Panel  Report s, para.  7.53. 
324 Panel  Report s, para. 7.70. See also Panel  Report s, para. 7.67. 
325 Panel  Report s, para. 7.87. 
326 Panel  Report s, para. 7.88. 
327 Panel  Report s, paras.  7.173 -7.174, 7.230, 7.243, and 7.255.  
328 Panel  Report s, para.  7.772.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 aspects of the ICT and INOVAR -AUTO programmes to be inconsistent with Article  2.1 of the 
TRIMs Agreement .329 
5.81.   On appeal, Brazil takes issue with the Panel's analysis of its second defence and claims that 
the Panel erred in its interpretation of Article  III:8(b) in finding that "subsidies that are provided 
exclusively to domestic producers pursuant to Article  III:8(b) of the GATT  1994 are not per se 
exempted from the disciplines of Article  III of the GATT  1994."330 Brazil further contends that the 
Panel,  premised on its erroneous interpretation331, also erred in its application of Article  III:8(b) in 
finding that: (i) the ICT programmes are inconsistent with Article  III:2, first sentence, and 
Article  III:4 of the GATT  1994 and Article  2.1 of the TRIMs  Agreement ; and (ii) the accreditation 
requirements under the INOVAR -AUTO programme are inconsistent with Article  III:4 of the 
GATT  1994 and Article  2.1 of the TRIMs  Agreement .332 We begin our analysis by discussing, briefly, 
the legal standard under Article  III:8(b) of the GATT  1994 before addressing Brazil's claims of error 
on appeal.  
5.2.2   The legal standard under Article  III:8(b) of the GATT  1994  
5.82.   Article  III:8 of the GATT  1994 provide s as follows:  
(a) The provisions of this Article  shall not apply to laws, regulations or requirements 
governing the procurement by governmental agencies of products purchased for 
gover nmental purposes and not with a view to commercial resale or with a view to use 
in the production of goods for commercial sale.  
(b) The provisions of this Article  shall not prevent the payment of subsidies exclusively 
to domestic producers, including paym ents to domestic producers derived from the 
proceeds of internal taxes or charges applied consistently with the provisions of this 
Article  and subsidies effected through governmental purchases of domestic products.  
5.83.   Article  III:8(b) states that the provisio ns of Article  III "shall not prevent "333 the payment of 
subsidies exclusively to domestic producers. This language is comparable to the chapeau  of 
Article  XX of the GATT  1994, which states, in relevant part, that "nothing in this  Agreement  shall be 
construed  to prevent  the adoption or enforcement by any Member of measures" enumerated in 
paragraphs (a) -(j) of Article  XX.334 It is well established that Article  XX is an affirmative defence and 
sets out the "general exceptions" to the obligations contained in other  provisions of the 
GATT  1994.335 In other words, recourse to Article  XX serves as a justification for WTO Members to 
adopt and enforce measures that are found to be inconsistent with other provisions of the 
GATT  1994.  
5.84.   In contrast  to the opening clause of Article III:8(b), Article  III:8(a) begins with the words 
"[t]he provisions of this Article  shall not apply to " the measures enumerated thereunder.336 The 
Appellate  Body in Canada – Renewable Energy / Canada – Feed-in Tariff Program  explained that:  
The opening clause of Article  III:8(a) uses the term "apply" in the negative, thus 
precluding the application of the other provisions of Article  III to measures that meet 
the requirements of that paragraph. Article  III:8(a) therefore establishes a derogati on 
from the national treatment obligation of Article  III for government procurement 
activities falling within its scope. Measures satisfying the requirements of Article  III:8(a) 
are not subject to the national treatment obligations set out in other paragra phs of 
Article  III. Article  III:8(a) is a derogation limiting the scope of the national treatment 
                                                
329 Panel  Report s, paras.  7.363 and 7.804.  
330 Brazil's appellant's submission, paras.  5 and 16 (quoting Panel  Report s, para. 7.87). See also ibid., 
paras. 31 and 34.  
331 Brazil's appellant's submission, para.  35. 
332 Brazil's appellant's submission, paras.  35-36 (referring to Panel  Report s, paras.  7.174,  7.318 -7.319, 
7.365, 7.688, 7.772 -7.773, 7.806, 8.5.a -b, 8.5.d, 8.6.a -b, and 8.6.d).  
333 Emphasis added.  
334 Emphasis added.  
335 Appellate  Body Report, Indonesia – Import Licensing Regimes , para.  5.42 (referring to 
Appellate  Body Report, US – Wool Shirts and Blo uses, p. 16, DSR 1997:I, p. 337 ). See also Appellate  Body 
Report, Thailand  ‒ Cigarettes , para.  177. 
336 Emphasis added.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 obligation and it is not a justification for measures that would otherwise be inconsistent 
with that obligation.337  
The opening clause of Article  III:8(a) thus  makes clear that the provision is a derogation  limiting the 
scope of the national treatment obligation by making it inapplicable to certain government 
procurement activities. By contrast, the differently  worded opening clause of Article  III:8(b), which 
is similar to the text of the chapeau  of Article  XX, suggests to us that the provision is akin to an 
exception  to the national treatment obligation and serves as  a justification or affirmative defence for 
measures that would otherwise be in consistent with that obligation .338 Thus, while Article  III:8(a) 
precludes  the application of the national treatment obligation in Article  III to government 
procurement activities falling within its scope, Article  III:8(b) provides a justification  for measur es 
that would otherwise be inconsistent with the national treatment obligation in Article  III.339  
5.85.   Turning to the term "payment of subsidies" used in Article  III:8(b), we note that neither 
"payment" nor "subsidies" is defined in the GATT  1994. Although the t erm "subsidies" is used in 
several other provisions of the GATT  1994, and Article  1.1 of the SCM  Agreement  defines what 
constitutes a "subsidy", Article  III:8(b) uses the term " payment of subsidies", and not "subsidies"  
alone . The interpretative issue at h and therefore relates not to the definition of "subsidies" under 
the GATT  1994 generally or under the SCM  Agreement , but focuses instead on the precise scope of 
the term "payment of subsidies" as used in Article  III:8(b), in particular.  
5.86.   The dictionary mea nings of "payment" include "[a] sum of money (or equivalent) paid or 
payable" and "the remuneration of a person with money or its equivalent".340 We note that whereas 
the conduct made permissible by Article  III:8(b) is the " payment  of subsidies", other provisions of 
the GATT  1994, including Article  XVI, and the SCM  Agreement , dealing with subsidies, use the terms 
"grant" or "maintain" when referring to subsidies.341 This difference in language suggests to us that 
the term "payment of subsidies" in Article  III:8(b) encompasses a narrower range of conduct than 
that covered by the terms "subsidy" or the "granting" or "maintaining" of a subsidy, as used 
elsewhere in the GATT  1994 and in the SCM  Agreement .  
5.87.   In Canada – Periodicals , the Appellate Body was tasked with determining whether the reduced 
postal rates for certain eligible Canadian publishers constituted a "payment of subsidies" within the 
meaning of Article  III:8(b).342 Answering in the negative, the Appellate  Body concluded that 
Article III:8(b) "was  intended to exempt from the obligations of Article  III only the payment of 
subsidies which involves the expenditure of revenue by a government".343 In this regard, the 
Appellate  Body quoted and expressly agreed with the GATT panel in  US – Malt Beverages that: 
Article  III:8(b) limits, therefore, the permissible producer subsidies to "payments" after 
taxes have been collected or payments otherwise consistent with Article  III. This 
separation of tax rules, e.g. on tax exemptions or reductions, and subsidy rules makes 
sense economically and politically. Even if the proceeds from non -discriminatory product 
                                                
337 Appellate  Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para. 5.56 
(referring to Appellate  Body Reports, China – Raw Materials , para. 334).  
338 See Appellate  Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program , 
para. 5.56 (referring to Appellate  Body Reports, China – Raw Materials , para. 334).  
339 It is in this vein that  the Appellate  Body in US – Tax Incentives  observed that Article  III:8(b) 
"exempts  from the national treatment obligation in Article  III 'the payment of subsidies exclusively to domestic 
producers'" . (Appellate  Body Report, US – Tax Incentives , para. 5.16) 
340 Oxford English Dicti onary online, definition of "payment", 
http://www.oed.com/view/Entry/139189?rskey=9c29D2&result=1#eid . 
341 Article  XVI:1 of the GATT  1994, for example, provide s, in relevant part:  
If any Member  grants or maintains any subsidy , including any form of income o r price support, 
which operates directly or indirectly to increase exports of any product from, or to reduce 
imports of any product into, its territory, it shall notify the WTO in writing of the extent and 
nature of the subsidization, of the estimated effe ct of the subsidization on the quantity of the 
affected product or products imported into or exported from its territory and of the 
circumstances making the subsidization necessary. In any case in which it is determined that 
serious prejudice to the intere sts of any other Member is caused or threatened by any such 
subsidization, the Member  granting the subsidy  shall, upon request, discuss with the other 
Member or Members concerned , or with the WTO, the possibility of limiting the subsidization.  
(emphasis added)  
342 Appellate  Body Report, Canada – Periodicals , pp. 33 -34. 
343 Appellate  Body Report, Canada – Periodicals , p. 34.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 taxes may be used for subsequent subsidies, the domestic producer, like his foreign 
competitors, must pay the product taxes due. The separation  of tax and subsidy rules 
contributes to greater transparency. It also may render abuses of tax policies for 
protectionist purposes more difficult, as in the case where producer aids require 
additional legislative or governmental decisions in which the dif ferent interests involved 
can be balanced.344 
5.88.   Turning to the immediate context of the term "payment of subsidies", Article  III:8(b) defines 
this term as "including payments to domestic producers derived from the proceeds of internal taxes 
or charges applied consistently with the provisions of [ Article  III]". It also includes "subsidies 
effected through governmental purchases of domestic products ". Although the use of the word 
"including" makes clear that these two examples in Article  III:8(b) are not meant to  provide an 
exhaustive  list of what constitutes the "payment of subsidies", the Appellate  Body in 
Canada  – Periodicals  considered that they nonetheless "exemplify the kinds of programmes which 
are exempted from the obligations of Articles  III:2 and  III:4 o f the GATT  1994".345 These examples 
must therefore be given due importance in the interpretation of the term "payment of subsidies".  
5.89.   The text of the first example, namely, "payments to domestic producers derived from the 
proceeds of internal taxes or charge s applied consistently with the provisions of [ Article  III]", makes 
it clear that it is not the payment of subsidies that must be consistent with the obligations under  
Article  III of the GATT. Instead, it is the internal taxes applied to products, the proc eeds of which 
are used for the payment of subsidies, which must be consistent with the obligations under 
Article  III.346 When these internal taxes are applied in a manner consistent with Article  III, the 
proceeds derived from such  taxes may be used for payments of subsidies exclusively to domestic 
producers, and such payments of subsidies , as well as any resulting discrimination against like 
imported products , will be justified under Article  III:8(b).347 However, when the internal ta xes are 
higher on imported products than on like domestic products, or otherwise accord less favourable 
treatment to imported products, and are thus inconsistent with Article  III, the payment of subsidies 
derived from the proceeds of such GATT -inconsistent  taxes would not be justified under 
Article  III:8(b). In other words, the text of the first example suggests that subsidies that are paid 
through the proceeds of discriminatory internal taxes applied, directly or indirectly, on products 
continue to be subj ect to the obligations in Article  III.348 We note in this regard that the 
Appellate  Body in Canada – Periodicals  agreed with the GATT  panel in  US – Malt Beverages that, 
"[e]ven if the proceeds from non -discriminatory product taxes may be used for subsequent 
subsidies, the domestic producer, like his foreign competitors, must pay the product taxes due ."349 
5.90.   In addition to the immediate context, we consider that Article  III:2, which sets out the 
national treatment obligation with respect to internal tax measures, also provides relevant context 
for the interpretation of the term "payment of subsidies". As we see it, the prohibition against 
discriminatory internal taxes in Article  III:2 may be rendered ineffective if discriminatory internal 
taxes on imported products  could be justified as subsidies for competing domestic producers in terms 
                                                
344 Appellate  Body Report, Canada – Periodicals , p. 34 (quoting GATT Panel  Report , US ‒ Malt 
Beverages , para. 5.10).  
345 Appellate  Body Repor t, Canada – Periodicals , pp. 33 -34. 
346 We note that subsidies to domestic producers can be paid in product markets other than those from 
which the tax proceeds are derived.  
347 Insofar as the payments of subsidies are derived from  the general budget , and cannot be traced to a 
particular tax,  they would, of course, be justified under III:8(b).  
348 Giving due importance to the examples means that one cannot accept that the opposite of 
the situation  reflected in the first  example, namely the payment of su bsidies derived from proceeds of taxes 
applied inconsisten tly with Article  III, would also be covered by Article  III:8(b). One cannot but understand 
the inclusion in  the scope of Article  III:8(b) of payments of  subsidies  derived  from proceeds of taxes consistent  
with Article  III as the  exclusion  from the scope of Article  III:8(b) of  payments of subsidies derived  from 
proceeds of taxes inconsistent with Article  III. 
349 Appellate  Body Report, Canada – Periodicals , p. 34 (quoting GATT Panel  Report , US ‒ Malt 
Beverages , para. 5.10, where the GATT panel further explained that "[t]he separation of tax and subsidy rules 
contributes to greater transparency. It also may render abuses of tax policies for protectionist purposes more 
difficult, as in the case where p roducer aids require additional legislative or governmental decisions in which 
the different interests involved can be balanced." ). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 of Article  III:8(b).350 For example, instead of applying differential tax rates on imported and like 
domestic products, a WTO Member could apply the same tax rate to imported and like  domestic 
products and subsequently  provide for a reduction of the tax rate for products produced by domestic 
producers, but not those produced by foreign producers. Indeed, if the scope of "payment of 
subsidies" is seen as encompassing a n exemption or red uction  of internal product taxes that are 
"otherwise due", it would allow WTO Members to circumvent Article  III:2 and adopt discriminatory 
tax measures by disguising them in the form of a scheme of exemption or reduction of internal 
product taxes for domestic producers alone.  
5.91.   Our above discussion  is supported by the negotiating history of Article  III:8(b), which was 
also relied on by the Appellate  Body in Canada – Periodicals .351 Specifically, we consider relevant 
the following discussion from the Report s of the Committees and Principal Sub -Committees of the 
Interim Commission for the International Trade Organization concerning Article  18 of the 
Havana Charter, which corresponds to Article  III of the GATT  1994:  
This sub -paragraph [i.e. what is now Article  III:8(b) of the GATT  1994] was redrafted 
in order to make it clear that nothing in Article  [III] could be construed to sanction 
[i.e. to allow for] the exemption of domestic products from internal taxes imposed on 
like imported products or the remission o f such taxes. At the same time the 
Sub-Committee recorded its view that nothing in this sub -paragraph or elsewhere in 
Article  [III] would override the provisions [of Article  XVI].352  
5.92.   An examination  of the text and context of Article  III:8(b), as supported b y its negotiating 
history, therefore suggests that the term "payment of subsidies" in Article  III:8(b) does not include 
within its scope the exemption or reduction of internal taxes applied, directly or indirectly, on 
domestic products. Instead, as the Appellate  Body has observed, Article  III:8(b) "was  intended to 
exempt from the obligations of Article  III only the payment of subsidies which involves the 
expenditure of revenue by a government".353  
5.93.   Regarding the phrase  "exclusively to domestic producers", we note that the dictionary 
meaning of "exclusively" is "[s]o as to exclude all except some particular object, subject, etc.; 
solely ."354 Placed in its context, the use of the term "exclusively" therefore indicates that 
Article  III:8(b) exempts from the discipl ines of Article  III those "payments of subsidies" that are 
made solely  to domestic producers,  to the exclusion of foreign producers. Subsidies provided 
exclusively to domestic producers will often, if not always, have an impact on the conditions of 
competition between the product produced by the subsidized domestic producers (for example,  by 
lowering the cost of production of such products) and the like imported product produced by foreign 
producers that are not paid the subsidy.355 In the absence of Article III:8(b), such subsidies paid 
exclusively to domestic producers could therefore be seen as being inconsistent with the broadly 
worded national treatment obligation in Article  III insofar as they alter the conditions of competition 
in favour of the p roduct produced by the domestic producer to whom the subsidy is paid.356  
                                                
350 See e.g. GATT Panel  Report , US – Malt Beverages , para. 5.9. The GATT panel further noted that an 
"expansive interpretation  of Article III:8(b) … , if carried to its logical conclusion, … would virtually eliminate the 
prohibition in Article  III:2 of discriminatory internal taxation by enabling contracting parties to exempt all 
domestic products from indirect taxes." Ibid., para. 5.12. 
351 Appellate Body Report, Canada – Periodicals , p. 34.  
352 Interim Commission for the International Trade Organization, Reports of the Committees and 
Principal Sub -Committees: ICITO I/8, Geneva, September 1948, p. 66. Article 18 and Section C of Chapt er IV 
of the Havana Charter for an International Trade Organization correspond, respectively, to Article III and 
Article XVI of the GATT 1947. See also Appellate  Body Report, Canada – Periodicals , p. 34 . 
353 Appellate  Body Report, Canada – Periodicals , p. 34. 
354 Oxford English Dictionary online, definition of "exclusively", 
http://www.oed.com/view/Entry/65834?redirectedFrom=exclusively#eid . 
355 In US – Tax Incentives , the Appellate  Body observed that "[s]ubsidies that relate to domestic 
production … can ordina rily be expected to increase the supply of the subsidized domestic goods in the relevant 
market". ( Appellate  Body Report, US – Tax Incentives , para.  5.15)  
356 In this regard, we note that t he chair of the working party of Sub -Committee A , which redrafted 
Article 18 of the Havana Charter (which corresponds to Article  III of the GATT  1994), acknowledged that the 
text of Article  III:8(b) was added "because it was felt that if subsidies were paid on domestic and not on 
imported products, it might be construed tha t Members were not applying the 'national treatment' rule ." 
(E/CONF.2/c.3/A/W.49, p. 2)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.94.   In US – Tax Incentives , the Appellate  Body observed that Article  III:8(b)  "makes clear that 
the provision of subsidies to domestic producers only, and not to foreign ones, does not in itself 
constitute a breach  of Article  III."357 Insofar as the payment of a subsidy only to domestic producers, 
to the exclusion of foreign producers, affects the conditions of competition in the relevant product 
market(s), Article  III:8(b) carves out an exce ption for the payment of such subsidies from the 
national treatment obligation under Article  III. In other words, to the extent that the payment of 
subsidies exclusively to domestic producers of a given product affects the conditions of competition 
between  such a product and the like imported product, resulting in an inconsistency with the national 
treatment obligation in Article  III, such a payment would be justified under the exception contained 
in Article  III:8(b), provided that the conditions thereunder  are met.358  
5.95.   Moreover , besides the effect of the payment of subsidies exclusively to domestic producers 
on the conditions of competition in the relevant product market(s), there will often be conditions for 
eligibility that attach to such payments.  For inst ance, insofar as Article  III:8(b) justifies the payment 
by WTO Members of subsidies exclusively to domestic producers, conditions for eligibility that define 
the class of eligible "domestic producers" by reference to their activities in the subsidized prod ucts' 
markets would be justified under Article  III:8(b). By contrast, a requirement to use domestic over 
imported goods in order to have access to the subsidy may , however , not be covered by the 
exception in Article  III:8(b) and would therefore continue to  be subject to the national treatment 
obligation in Article  III. This is because, while the payment of subsidies and certain eligibility criteria 
may affect the conditions of competition between the product produced by the producer receiving 
the subsidy and the like imported products, a requirement to use domestic produ cts in order to have 
access to the subsidy would impact the conditions of competition between a different set of domestic 
and like imported products , namely, the domestic product whose use is mandated and the like 
imported product.359 
5.96.   Turning to the term "do mestic producers", as used in Article  III:8(b), we note that the 
dictionary meaning of "producer" is "[a] person who … produces (in  various senses)".360 The scope 
of Article  III:8(b) suggests that the focus of inquiry under that provision ought to be on whet her the 
domestic entity at issue is a producer  of the product with respect to which a violation of the national 
treatment obligation arising from the "payment of subsidies" is alleged. This is because 
Article  III:8(b) serves as a justification only for dis crimination resulting from the effects  of the 
payment of a subsidy on the conditions of competition in the relevant product market(s). Therefore, 
whether a domestic entity is a "domestic producer" within the meaning of Article  III:8( b) is a 
question that m ust be answered in light of the specific facts and circumstances of a given case, 
including the nature of discrimination that is alleged.  
5.2.3   Whether the Panel erred in its interpretation and application of Article  III:8(b) of 
the GATT  1994  
5.97.   Having set out the  legal standard under Article  III:8(b), we now turn to address Brazil's claim 
that the Panel erred in its interpretation and application of Article  III:8(b) of the GATT  1994. Brazil 
claims that the Panel erred in its interpretation of Article  III:8(b) in finding that "subsidies that are 
provided exclusively to domestic producers pursuant to Article  III:8(b) of the GATT  1994 are not per 
se exempted from the disciplines of Article  III of the GATT  1994."361 Brazil further contends that the 
Panel,  premised on its  erroneous interpretation362, also erred in its application of Article  III:8(b) in 
finding that: (i) the ICT programmes are inconsistent with Article  III:2, first sentence, and 
Article  III:4 of the GATT  1994 and Article  2.1 of the TRIMs  Agreement ; and (ii) t he accreditation 
                                                
357 Appellate  Body Report, US – Tax Incentives , para. 5.16. (emphasis added)  
358 That said, the payment of such subsidies and the effects thereof would continue to be regul ated by 
other relevant provisions of the GATT  1994 and the SCM  Agreement . 
359 The Appellate  Body in US – Tax Incentives observed that, "[t]o the extent that 'domestic  producers ' 
may generally be expected to manufacture a certain amount of 'domestic goods ' in a Member's territory, 
Article  III:8(b) comports with our reading of Article  3.1(b) under which  something more than mere 
subsidization of domestic production is required for finding an import  substitution subsidy." (Appellate  Body 
Report, US – Tax Incen tives, para. 5.16)  
360 Oxford English Dictionary online, definition of "producer", 
http://www.oed.com/view/Entry/151981?redirectedFrom=producer#eid . 
361 Brazil's appellant's submission, paras.  5 and 16 (quoting Panel  Report s, para. 7.87). See also ibid., 
paras . 31 and 34.  
362 Brazil's appellant's submission, para.  35. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 requirements under the INOVAR -AUTO programme are inconsistent with Article  III:4 of the 
GATT  1994 and Article  2.1 of the TRIMs  Agreement .363  
5.98.   According to Brazil, the Panel's interpretation and application of Article  III:8(b) erroneously 
"conflate [] the distinction between the product -related disciplines of Article  III and the provisions of 
the covered  agreement s concerning subsidies provided to domestic producers, which should be 
assessed under the SCM  Agreement ".364 Brazil takes the overarching position that Article  III:8(b) 
"delineat[es]", in a mutually exclusive  manner, the respective scopes of application of the 
"product -related" disciplines of Article  III, on the one hand, and the disciplines  of Article  XVI and t he 
SCM Agreement  concerning "producer subsidy measures", on the other hand.365 In Brazil's view, a 
"harmonious interpretation"366 of these different provisions requires any panel evaluating claims 
under Article  III to determine, as a "threshold analysis",367 whether the measure at issue is a 
"product -related" measure subject to the disciplines of Article  III or whether the measure provides 
a subsidy to domestic producers and is therefore subject to the disciplines of the SCM  Agreement .368 
Brazil faults the Panel fo r not undertaking such a "threshold inquiry ".369 In support of its claim, Brazil 
advances several arguments focusing on different interpretative elements of Article  III:8(b), 
including the introductory clause, the scope of the term "payment of subsidies", an d the examples 
set out in that provision.  
5.99.   The European  Union responds that Brazil's "formalistic interpretation", drawing a "strict line" 
between the discipline under Article  III and the provisions relating to subsidies, goes against the 
principle of "cohe rent interpretation".370 Given that the disciplines under Article  III of the GATT  1994 
and the SCM  Agreement  are not mutually exclusive, the European  Union  maintains that a measure 
may be found to be inconsistent with both sets of disciplines, as in the pres ent case.371 Moreover, in 
the European  Union's view, Article  III:8(b) cannot be interpreted as excluding the manner in which 
WTO Members condition the granting of subsidies to domestic producers only because the subsidies 
are given only to domestic producers . Thus, although the European  Union agrees that the 
product -related effects of payments granted exclusively to domestic producers cannot result in  
discrimination contrary to Article  III, it disagrees that the provision of subsidies containing a 
requirement  to use domestic over imported inputs as a condition to benefit from the subsidy can fall 
under the carve -out in Article  III:8(b).372 According to the European  Union , there was no intention 
to "compartmen talise" the obligations in case  of measures consisting  of subsidies exclusively within 
Article  XVI of the GATT  1947, nor was that the intention of negotiators during the Uruguay Round 
when agreeing to Article  3.1(b) of the SCM  Agreement .373 
5.100.   Japan asserts that the ordinary meaning of the text of Article  III:8(b) renders it clear that 
the provision does not constitute a blanket exemption for subsidies paid exclusively to domestic 
producers. Instead, for Japan, measures that take the form of subsidies paid exclusively to domestic 
producers may still be subj ect to the disciplines under Article  III if they, or certain elements thereof, 
result in discrimination between products.374 For Japan,  therefore, if a subsidy is not only contingent 
on the fact that the recipient is a domestic producer, but also on the use of local content, then this 
"element" discriminating between foreign and domestic products would be a violation of the national 
treatment obligation.375 Moreover, Japan also considers that Article  III:8(b) applies to not all, but 
only " some  types" of , subsid ies to domestic producers.376 
5.101.   We begin by recalling our discussion above that the  national treatment obligation under 
Article  III of the GATT  1994, by the terms of that provision, has a broad scope of application. In 
                                                
363 Brazil's appellant's submission, paras.  35-36 (referring to Panel  Report s, paras.  7.174, 7.318 -7.319, 
7.365, 7.688, 7.772 -7.773, 7.806, 8.5.a -b, 8.5.d, 8.6.a -b, and 8.6.d).  
364 Brazil's appellant's submission, para. 26. 
365 Brazil's appellant's submission, para. 25. 
366 Brazil's appellant's submission, para.  26. 
367 Brazil's appellant's submission, para. 33. 
368 Brazil's appellant's submission, para. 26. 
369 Brazil's appellant's submission, para. 30. 
370 European Union's appellee's submission, para. 42.  
371 European  Union 's appellee's submission, para. 44. 
372 European  Union 's appellee's submission, para. 57. 
373 European  Union 's appellee's submission, para. 45. 
374 Japan's appellee's submission, paras.  17-19 (referring to  Panel  Report , Indonesia – Autos , 
para. 14.43)  
375 Japan's appellee's submission, para. 20. 
376 Japan's appellee's submission, para. 42. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 particular, a discussion of the relevant WTO jurisprudence reveals that, although the national 
treatment obligation in Articles  III:2 and III:4 is made effective in the context of "products", this 
does not ipso facto suggest that measures that are primarily directed at "producers" are excluded 
from that obligation.377 We thus agree with the Panel's view that, based on the plain text of Article  III 
and relevant WTO jurisprudence, " Article  III of the GATT  1994 is not per se inapplicable to certain 
measures, in particular 'pre -market' measures directed  at producers ."378 The Panel, in our view, 
correctly observed that, "if the formalistic approach … were correct, it would be simple to entirely 
avoid the bedrock national treatment requirement of the multilateral trading system ."379 
5.102.   Having agreed with the Pane l that the text of Articles  III:2 and III:4 does not , in and of 
itself, exclude from the scope of the national treatment obligation measures that are directed at 
"producers", we turn to Brazil's argument that Article  III:8(b) "delineat[es]", in a mutually exclusive 
manner, the respective scopes of application of the "product -related" disciplines of Article  III, on the 
one hand, and the disciplines  of Article  XVI and the SCM  Agreement  concerning "producer subsidy 
measures", on the other hand.380 On this basis,  Brazil claims that the Panel erred in its interpretation 
of Article  III:8(b) in finding that "subsidies that are provided exclusively to domestic producers 
pursuant to Article  III:8(b) of the GATT  1994 are not per se exempted from the disciplines of 
Article III of the GATT  1994."381 
5.103.   The Panel began its analysis under Article  III:8(b) of the GATT  1994 by noting, first, that 
"at a minimum" the text of the provision makes it clear that "subsidies given exclusively to domestic 
producers do not per se and for that reason alone violate Article  III of the GATT  1994."382 The Panel 
explained that, in fact, "subsidies as such are not regulated by Article  III, but rather by the provisions 
of Article  XVI of the GATT  1994 and by the SCM  Agreement ."383 The Panel fur ther noted that, 
"without Article  III:8(b), Article  III as a whole, and Article  III:4 in particular, might  be seen as 
prohibiting all subsidization that was provided only to domestic, and not to foreign , producers. This 
is because both Article  III:1 … and Article  III:4 speak of, and discipline, inter alia regulatory 
measures 'affecting ' the sale, offering for sale, purchase, trans portation, distribution, or use , of 
products. "384 The Panel considered it "clear that a subsidy is a form of regulatory measure tha t can 
and often does 'affect' the sale, purchase, etc. of products in ways that create advantages in the 
domestic market vis-à-vis products that have not benefited from the subsidy, including for example 
imported products".385 In the Panel's view, providing a "competitive advantage " in relation to market 
conditions is, in fact, the "typical intention " behind subsidization.386  
5.104.   For the Panel, "the 'adverse effect s' provisions of the subsidy disciplines in Article  XVI of the 
GATT  1994 and the SCM  Agreement  are 'precisely aimed ' at the adverse trade effects that can be 
caused by the competitive advantages provided by subsidization. "387 Thus, the Panel explained that , 
"in the absence of a provision such as Article  III:8(b), Article  III:4 might be read to require 
governments of importing Members to provide subsidies to foreign competitor firms whenever they 
subsidize their own domestic firms; or alternatively to prohibit all subsidies provided only to domestic 
and not also to foreign producers. "388 For the Panel , "[s]u ch an approach would be inconsistent with 
the very existence of the SCM  Agreement , which in principle permits subsidies, except for two 
precise types of prohibited subsidies (namely export contingent subsidies and import substitution 
subsidies), and contains  no requirement that subsidies, to be permitted, must be provided to foreign 
as well as domestic recipients. "389 On this basis, the Panel found that the exclusive provision of 
subsidies to domestic producers (or any eventual effects thereof in the domestic m arket) does not 
                                                
377 Appellate  Body Report, China – Publications and Audiovisual Products , para. 227; GATT  Panel  Report , 
US – Section 337 Tariff Act , para. 5.10; Panel  Report , Argentina – Hides and Leathers , para. 11.211; 
Appellate  Body Report, Thailand  – Cigarettes (Philippines) , para. 114. See also paragraphs 5.14 -5.16 above . 
378 Panel  Report s, para. 7.70. 
379 Panel  Report s, para. 7.63. 
380 Brazil's appellant's submission, para. 25. 
381 Brazil's appellant's submission, paras.  16, 31, and 34 (quoting Panel  Report s, para. 7.87). 
382 Panel  Report s, para. 7.77. 
383 Panel  Report s, para. 7.77. 
384 Panel Reports, para. 7.78.  
385 Panel Reports, para. 7.78. 
386 Panel  Report s, para. 7.78. 
387 Panel Reports, para. 7.78.  
388 Panel Reports, para. 7.78.  
389 Panel  Report s, para. 7.78. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 by itself constitute discriminatory treatment with respect to imported products, as prohibited by 
Article  III.390 
5.105.   Next, the Panel addressed Brazil's argument that "Article  III:8(b) effectively exempts all tax 
and regulatory discrimination bet ween imported and domestic products from the disciplines of 
Article  III to the extent that the measures in question are subsidies to domestic producers. "391 The 
Panel noted, first, that "multilateral rules on subsidies have coexisted with those on national 
treatment – including the proviso in Article  III (Article  III:8(b)) that clarifies the nature of that 
coexistence – since the entry into force of the GATT 1947. "392 According to the Panel, the adoption 
of the SCM  Agreement  did not alter this "basic harmonious  coexistence".393 The Panel considered 
that "the negotiating history of the Uruguay Round suggest [ed] that the intention of Article  3.1(b) 
of the SCM  Agreement  was simply to codify the already  existing prohibition, pursuant to Article  III:4 
of the GATT  1994, of subsidies contingent upon the use of domestic over imported goods. "394 The 
Panel also noted that "the provisions on discrimination in Article  III of the GATT  1994 and the 
provisions of the SCM  Agreement  can apply to the same measur e simultaneously. "395 
5.106.   Concerning the element of discrimination that could be introduced by a subsidy, the Panel 
viewed  the text of Article  III:8(b) as confirming that, "even if a measure is a subsidy that is provided 
exclusively to domestic producers, this fact is not sufficient to remove the measure from the 
application of Article  III."396 Specifically, with respect to tax -based measures, the Panel noted that 
Article  III:8(b) allows WTO Members to provide subsidies exclusively to domestic products using the 
proceeds of internal taxes or charges, as long as those taxes or charges are applied consistently 
with Article  III.397 For the Panel, therefo re, if " Article  III:8(b) exempts tax discrimination from the 
scope of Article  III, the reference in Article  III:8(b) itself to 'taxes and charges applied consistently 
with the provisions of [ Article  III]' would be meaningless ."398 On this basis, the Panel co ncluded that 
"Article  III:8(b) does not change the applicability of Article  III to discriminatory application of a 
product tax, even where such a discriminatory application constituted a subsidy exclusively to 
domestic producers ."399 The Panel found support for its conclusion in the travaux préparatoires of 
the Havana  Charter.400 Furthermore, the Panel was of the view that discriminatory non -tax 
regulatory measures that involve the provision of a subsidy exclusively to domestic producers are 
also, for that reas on alone, not outside the disciplines of Article  III:4, given that the text of 
Article  III:8(b) refers to Article  III in its entirety and not just Article  III:2.401 
5.107.   Having agreed with the panel in Indonesia – Autos that "a  subsidy to domestic producers 
that introduces discrimination between imported and domestic like products is covered by – and 
inconsistent with  – the provisions of Article  III"402, the Panel thus concluded that "subsidies that are 
provided exclusively to domestic producers pursuant to Article  III:8(b) of the GATT  1994 are not 
per se exempted from the disciplines of Article  III of the GATT  1994."403 Specifically, the Panel 
considered that the "aspects of a subsidy resulting in product discrimination (including requirements 
                                                
390 Panel  Report s, para. 7.79. 
391 Panel  Report s, para. 7.80. 
392 Panel Reports, para.  7.82. 
393 Panel  Report s, para. 7.82. 
394 Panel  Report s, para. 7.82. 
395 Panel  Report s, paras.  7.39-7.49 and 7.82. 
396 Panel  Report s, para. 7.85. 
397 Panel  Report s, para. 7.85. 
398 Panel  Report s, para, 7.85.  
399 Panel  Report s, para. 7.85. 
400 Panel  Report s, para. 7.85 and fn 479 thereto (referring to E/CONF.2 /C.3/6, p. 17; 
E/CONF.2/C.3/A/W.32, p. 2 ). The Panel observed that:  
The Reports of the Committees and Principal Sub -Committees of the Interim Commission for the 
International Trade Organization concerning the provision of the Havana Charter for an 
International Trade Organization that corresponds to Article  III:8(b) of the  GATT  1994 state that: 
"nothing in Article  18 could be construed to sanction the exemption of domestic products from 
internal taxes imposed on like imported products or the remission of such taxes".  
(Ibid.  (quoting Interim Commission for the International  Trade Organization, Reports of the Committees and 
Principal Sub -Committees: ICITO I/8,  Geneva, September 1948, p. 66))  
401 Panel  Report s, para. 7.86. 
402 Panel  Report s, para. 7.83 (referring to Panel  Report , Indonesia – Autos , paras.  14.43 -14.46).  
403 Panel  Report s, para. 7.87. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 to use domestic goods, a s prohibited by Article  3.1 of the SCM  Agreement ) are not exempted from 
the disciplines of Article  III pursuant to Article  III:8(b)."404 
5.108.   We recall that, in US – Tax Incentives , the Appellate  Body stated that "Article  III:8(b) makes 
clear that the provision  of subsidies to domestic producers only, and not to foreign ones, does not 
in itself  constitute a breach of Article  III."405 As explained in paragraph 5.94 above, insofar as the 
payment of subsidies exclusively to domestic producers, to the exclusion of forei gn producers, affects 
the conditions of competition in the relevant product market(s), the resulting inconsistency with the 
national treatment obligation in Article  III will be justified under the exception contained in 
Article  III:8(b), provided that the conditions thereunder are met.406 We therefore agree with the 
Panel's view that the "exclusive provision of subsidies (or any eventual effects therefrom in the 
domestic market) does not by itself constitute discriminatory treatment in respect of imported 
products of the type prohibited by Article  III."407 That said, as discussed above, we note that other 
aspects of a measure directed at producers that go beyond the mere payment of subsidies 
exclusively to domestic producers408, such as, for example, an additional  requirement to use 
domestic over imported goods in order to have access to the subsidy, may not be covered by the 
exception in Article  III:8(b) and would therefore continue to be subject to the national treatment 
obligation in Article  III. 
5.109.   Although we agree with the Panel's preliminary observations that discrimination resulting 
from the payment of subsidies exclusively to domestic producers and the market effects thereof may 
be justified under Article  III:8(b), we have several concerns about  the Panel's subsequent analysis 
leading to its conclusion that "aspects of a subsidy resulting in product discrimination (including 
requirements to use domestic goods, as prohibited by Article  3.1 of the SCM  Agreement ) are not 
exempted from the discipline s of Article  III pursuant to Article  III:8(b)."409 We note, in particular, 
the Panel's unqualified reference to "aspects of a subsidy", as well as its use of the term "including" , 
when referring to domestic content requirements in the statement quoted above.  The Panel adopts 
a similar view when describing the findings of the panel in Indonesia – Autos , noting that th e "panel 
found that Article  III:8(b) confirms that subsidies to domestic producers do not violate Article  III so 
long as they do not have any com ponent that introduces discrimination between imported and 
domestic products".410 
5.110.   The Panel's interpretation appears to contradict its earlier finding that the "exclusive 
provision of subsidies (or any eventual effects thereof in the domestic market) does no t by itself 
constitute discriminatory treatment in respect of imported products of the type prohibited by 
Article  III."411 As part of our analysis above, we have agreed with this statement by the Panel, as 
well as  with its observation that "providing a compe titive advantage in relation to market conditions 
is a typical intention behind subsidization".412 Accepting the Panel's conclusion would suggest that 
virtually all of the subsidies paid exclusively to domestic producers would be subject to the national 
treatment obligation set out in the other paragraphs of Article  III and would not be justifiable under 
Article  III:8(b). This is because, as the Panel itself acknowledged, subsidies provided to domestic 
producers will almost always have an impact on the condit ions of competition between the product 
produced by the subsidized domestic producers and the like imported product produced by foreign 
                                                
404 Panel  Report s, para. 7.88. 
405 Appellate  Body Report, US – Tax Incentives , para. 5.16. (emphasis added)  
406 We recall that the chair of the working party of Sub -Committee A , which redrafted Article  18 of the 
Havana Charter (which c orresponds to Article  III of the GATT  1994), acknowledged that the text of 
Article  III:8(b) was added "because it was felt that if subsidies were paid on domestic and not on imported 
products, it might be construed that Members were not applying the 'natio nal treatment' rule".  
(E/CONF.2/c.3/A/W.49, p. 2 ) 
407 Panel  Report s, para. 7.79. We also agree with the Panel that "providing a competitive advantage in 
relation to market conditions is a typical intention behind subsidization". (Ibid., para.  7.78)  
408 As disc ussed above, insofar as Article  III:8(b) justifies the payment by WTO Members of subsidies 
exclusively to domestic producers, conditions for eligibility that define the class of eligible "domestic producers" 
by reference to their  activities in the subsidized products ' markets may also be justified  under Article  III:8(b).  
409 Panel  Report s, para. 7.88. 
410 Panel  Report s, para.  7.83 (referring to Panel  Report , Indonesia – Autos , paras.  14.43 -14.46). 
(emphasis added)  
411 Panel  Report s, para. 7.79. 
412 Panel  Report s, para. 7.78. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 producers that are not in receipt of the subsidy.413 In other words, the Panel's interpretation, taken 
to its logical conc lusion, denies effect to the exception contained in Article  III:8(b), because, 
following the Panel's logic, in order to justify discrimination inconsistent with the national treatment 
obligations in Article  III pursuant to Article  III:8(b), the "payment of  subsidies exclusively to 
domestic producers" must not be discriminatory in the first place. Seen in this light, the Panel's 
conclusion embodies a circular logic inasmuch as it delimits the scope of Article  III:8(b) – an 
exception to the national treatment  obligation for certain specific types of subsidies – on the basis 
of the discriminatory effects of the subsidies themselves.  
5.111.   To be clear, while we agree with the Panel that certain elements of a subsidy, such as a 
requirement conditioning access to the s ubsidy based on the use of domestic over imported goods, 
may violate the national treatment obligation under Article  III in ways other than subsidization, this 
does not mean that the mere payment of a subsidy, in and of itself, is not justifiable under 
Article III:8(b).414 In our view, although the Panel correctly noted that discrimination resulting from 
requirements to use domestic over imported goods, as prohibited under Article  3.1(b) of the 
SCM Agreement , is not justified under Article  III:8(b), the Panel 's unqualified reference to "aspects 
of a subsidy resulting in product discrimination" not being exempted under Article  III:8(b) is overly 
broad and deprives that provision of any effect because, as acknowledged by the Panel, the very act 
of subsidization will, in and of itself, often result in product discrimination. Similarly, we find 
problematic the Panel's endorsement of the panel's conclusion in Indonesia – Autos  that 
"Article  III:8(b) confirms that subsidies to domestic producers do not violate Article  III so long as 
they do not have any component  that introduces discrimination between imported and domestic 
products."415  
5.112.   Because of the aforementioned shortcomings in the Panel's reasoning, we reverse  the Panel's 
overly broad and unqualified finding s that "subsidies that are provided exclusively to domestic 
producers pursuant to Article  III:8(b) of the GATT  1994 are not per se exempted from the disciplines 
of Article  III of the GATT  1994"416 and that "aspects of a subsidy resulting in product discrimin ation 
(including requirements to use domestic goods, as prohibited by Article  3.1 of the SCM  Agreement ) 
are not exempted from the disciplines of Article  III pursuant to Article  III:8(b)."417 Instead, based 
on the proper interpretation of Article  III:8(b) set  out above, insofar as the payment of subsidies 
exclusively to domestic producers of a given product affects the conditions of competition between 
such a product and the like imported product, resulting in an inconsistency with the national 
treatment oblig ation in Article  III, such a payment would be justified under Article  III:8(b), provided 
that the conditions thereunder are met. Moreover, conditions for eligibility for the payment of 
subsidies that define the class of eligible "domestic producers" by ref erence to their activities in the 
subsidized products' markets would be justified under Article  III:8(b). By contrast, a requirement to 
use domestic over imported goods in order to have access to the subsidy would not be covered by 
the exception in Article  III:8(b) and would therefore continue to be subject to the national treatment 
obligation in Article  III.  
5.113.   The consequences of the Panel's erroneous conclusion that "subsidies that are provided 
exclusively to domestic producers pursuant to Article  III:8(b)  are not per se exempted from the 
                                                
413 We recall that in US – Tax Incentives  the Appellate  Body observed that "[s]ubsidies that relate to 
domestic production … can ordinarily be expected to increase the supply of the subsidized domestic goods in 
the relev ant market…." ( Appellate  Body Report, US – Tax Incentives , para.  5.15)  
414 As discussed above, we consider that conditions for  eligibility for a subsidy that relate to the 
producer's activities in the subsidized products markets  are justified under Article  III:8(b). In this regard, we 
note Brazil's argument that:  
A logical consequence of the right to provide subsidies under WTO law is that Members must be 
free to define what constitutes a domestic producer for the purposes of partici pating in subsidies 
progra mmes.  It is typical for regulations authorizing a subsidy to define the basic requirements 
and qualifying conditions for identifying domestic producers to ensure that only domestic 
producers  – and not foreign produ cers – benefit from the subsidy. It would therefore be 
inappropriate to consider that those requirements per se  violate Article  III:4 of the GATT  1994. 
(Brazil's appellant's submission, para.  136) 
415 Panel  Report s, para.  7.83 (referring to Panel  Report , Indonesia – Autos , paras.  14.43 -14.46). 
(emphasis added)  
416 Panel  Report s, para. 7.87. 
417 Panel  Report s, para. 7.88. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 disciplines of Article  III" manifest themselves in its analysis under Article  III:4.418 Having reached 
the interpretative conclusion above, the Panel turned to determine "whether the product -related 
aspects of any subsidies that it may find to exist under the challenged measures are discriminatory 
in a manner inconsistent with Article  III:2, III:4, and III:5  of the GATT 1994 ".419 With respect to the 
consistency of the conditions of accreditation under the ICT programmes with Article III:4, the Panel 
found "that the conditions of accreditation, which when fulfilled create a lower internal tax burden 
on domestic products than on like imported products, modify the conditions of competition to the 
detriment of the imported products" .420 Thus, the aspect of the ICT  programmes found to be 
inconsistent is the accreditation requirements that result in less favourable treatment in the form of 
the differential tax treatment for imported ICT products. Crucially, this aspect of the subsidy tha t 
the Panel found to be inconsistent with Article  III:4 was the very aspect of the alleged subsidization 
sought to be justified by Brazil under Article  III:8(b), but never examined by the Panel.  In this 
manner, the Panel's interpretation of Article  III:8(b ) obviated the need for it to consider whether 
the "differential tax treatment" arising out of the ICT programmes constitutes the "payment of 
subsidies" and whether the conditions of accreditation are legitimate conditions for eligibility that 
are limited to ensuring that such payments are made "exclusively to domestic producers" within the 
meaning of Article  III:8(b).  
5.114.   Having reversed the Panel's findings under Article  III:8(b), we turn to Brazil's argument that 
the term "subsidies" in Article  III:8(b) enc ompasses all types of subsidies listed in Article  1.1 of the 
SCM Agreement .421 Because the exemption or remission of "indirect taxes" is a "subsidy" within the 
meaning of the SCM  Agreement , for Brazil, it is also a subsidy for the purpose of Article  III:8(b)  of 
the GATT  1994.422 Brazil alleges that the Panel's interpretation, therefore, fails to give effect to the 
definition of a "subsidy" contained in Article  1.1 of the SCM  Agreement .423 Brazil argues that the 
Appellate  Body's interpretation of the term "payment " in the context of Article  III:8(b) in Canada – 
Periodicals  is in "direct contradiction" with the Appellate  Body's interpretation of the term "payment", 
in the context of Article  9.1(c) of the  Agreement  on Agriculture, in Canada – Dairy .424 Moreover, 
recall ing that the Appellate  Body in Canada – Periodicals stated that Article  III:8(b) was "intended 
to exempt from the obligations of Article  III only the payment of subsidies which involves the 
expenditure of revenue by a government"425, Brazil asserts that "when a government foregoes the 
collection of a known amount of tax revenue that it would otherwise collect, it expends revenue in 
that amount", and "these expenditures are commonly referred to as 'tax expenditures '".426 Finally, 
Brazil considers that "the benefit to a domestic producer of a subsidy in the form of a 'grant ' is 
equivalent to the benefit of an exemption of indirect taxes in the corresponding ratio", such that a 
narrow interpretation of Article  III:8(b) that limits its scope to certain type s of subsidies only would 
be "void of any economic logic" and would "elevate form over substance".427 
5.115.   The European  Union submits that the Panel did not need to discuss the overlap between the 
meaning of the term "subsidy" in Article  III:8(b) of the GATT  1994 and the definition provided in 
Article  1.1 of the SCM  Agreement  because "[t]he Panel excluded the application of Article  III:8(b) 
on the basis that th at provision does not carve out subsidies provided to domestic producers 
per se."428 Thus, the European  Union submits that the Appellate  Body need not address Brazil's 
arguments concerning the interpretation of the term "subsidy" in Article  III:8(b) as this did not form 
a part of the Panel's reasoning.429 Nonetheless, referring to the Appellate  Body Report in 
Canada ‒ Periodicals , the European  Union submits that a reduction or exemption of tax does not 
                                                
418 Panel Reports, para. 7.87. Our discussion of the Panel's analysis under Articles  III:2 and III:4 of the 
GATT  1994 does not indicate an endorsement of the Panel's order of analysis  with respect to these provisions 
and Article  III:8(b).  
419 Panel  Report s, para. 7.88. 
420 Panel  Report s, para.  7.225.  
421 Brazil's appellant's submission, heading B.1 . 
422 Brazil's appellant's submission, para. 52. 
423 Brazil's appellant's submission, para. 55. 
424 Brazil's appellant's submission, para. 60 (referring to Appellate  Body Report, Canada – Dairy , 
paras.  110 and 112) . 
425 Brazil's appellant's submission, para. 61 (quoting  Appellate  Body Report, Canada  ‒ Periodicals , 
p. 34). 
426 Brazil's appellant's submission, para. 61 (referring to OECD, Tax Expenditures in OECD Countries  
(2010), p.  12; Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813).  
427 Brazil's appellant's submission, paras.  62-63. 
428 European Union' s appellee's submission, para. 66.  
429 European  Union 's appe llee's submission, para. 66. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 amount to "the payment of subsidies" under Article  III:8(b).430 The European  Union also relies on 
the term "payment" used in Article  III:8(b), as opposed to "granting " or "subsidies" used in 
Article  XVI of the GATT  1994, to highlight the limited scope of Article  III:8(b).431 For these reasons, 
the European  Union submits that Article  III:8(b) "only carves out 'the payment of subsidies …' (and 
not any type of subsid ies such as revenue foregone ), to the extent that such payments do not 
contain aspects resulting in product discrimination, such as the requirement to use domestic over 
imported goods. "432 
5.116.   Japan considers Brazil's argument concerning the term "payment of subsid ies" in 
Article  III:8(b) to be "entirely circular" inasmuch as it states that because revenue foregone is 
included in the definition of a subsidy under the SCM  Agreement , it must therefore also fall within 
the scope of Article  III:8(b).433 As to Brazil's rel iance on the Appellate  Body Report in 
Canada  ‒ Dairy , Japan points out that the Appellate  Body's interpretation of the term "payment" in 
that dispute related to "very specific language " of a provision in a different covered ag reement434 
and ignores the Appel late Body's "very specific language" in Canada – Periodicals .435 
5.117.   We note the European  Union's argument that the Panel did not need to discuss the overlap 
between the meaning of the term "subsidy" in Article  III:8(b) and the definition provided in 
Article  1.1 of the SCM  Agreement  because "[t]he Panel excluded the application of Article  III:8(b) 
on the basis that such provision does not carve out subsidies provided to domestic producers 
per se."436 The European  Union submits that the Appellate  Body need not addre ss Brazil's arguments 
concerning the interpretation of the term "payment of subsidies" in Article  III:8(b) as it did not form 
part of the Panel's reasoning.437 We agree with the European  Union that one reason why the Panel 
may not have felt compelled to inte rpret the terms "payment of subsidies exclusively to domestic 
producers" could have been its finding that such p ayments are, in any event, not per se  exempt 
from the national treatment obligation under Article  III. As discussed, however, this line of reaso ning 
embodies a circular logic and denies effect to the terms of Article  III:8(b). Having reversed that 
finding by the Panel, we consider it appropriate to address Brazil's claim on appeal relating to the 
interpretation of the term "payment of subsidies" i n Article  III:8(b).  
5.118.   Brazil argues that, "[b]ecause the exemption or re mission of indirect taxes is a ' subsidy ' 
within the meaning of the SCM  Agreement , it is also a 'subsidy ' for purposes of Article  III:8(b) of 
the GATT  1994. "438 As the European  Union rightly points out, however, the issue at hand relates not 
to the definition of a "subsidy", in the abstract, but, instead, to the scope of the term "payment of 
subsidies" in Article  III:8(b).439 Even if the exemption of indirect produ ct taxes is a "subsidy" within 
the meaning of Article  1.1 of the SCM  Agreement , this does not answer the question whether such 
exemption constitutes the " payment  of subsidies" under Article  III:8(b).440  
5.119.   As discussed above, while the conduct made permissible  by Article  III:8(b) is the " payment  
of subsidies", other provisions of the GATT  1994, including Article  XVI, and the SCM  Agreement , 
                                                
430 European  Union 's appellee's submission, paras.  67-68 (referring to Appellate Body Report, 
Canada  ‒ Periodicals , p. 34). 
431 European  Union 's appellee's submission, para. 70. 
432 European  Union 's appellee's submission, para. 74. 
433 Japan's appellee's submission, para. 43. 
434 Japan's appellee's submission, para. 45 (referring to Appellate  Body Report, Canada  ‒ Dairy , 
para. 110).  
435 Japan's appellee's submission, para. 46 (q uoting Appellate  Body Report, Canada  ‒ Periodicals , 
p. 34). 
436 European Union's appellee's submission, para. 66.  
437 European  Union 's appellee's submission, para. 66. 
438 Brazil's appellant's submission, para. 52. 
439 European  Union 's appellee's submission, para. 70. 
440 Moreover, we recall our discussion above that the definition of a subsidy provided in Article  1.1 of the 
SCM Agreement  is "for the purposes of this  Agreement ", i.e. the SCM  Agreement , and does not apply to the 
GATT  1994.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 dealing with subsidies, use the terms "grant" or "maintain" when referring to subsidies.441 This 
difference in terminology su ggests that the term "payment of subsidies" in Article  III:8(b) 
encompasses a narrower range of conduct than that covered by the terms "subsidy" or the "granting" 
or "maintaining" of a subsidy elsewhere in the GATT  1994 and the other covered agreements.  
5.120.   We recall our discussion above of the first example of what constitutes the "payment of 
subsidy" under Article  III:8(b), namely, "payments to domestic producers derived from proceeds of 
internal taxes or charges applied consistently with the provisions of [ Article  III]". If subsidies 
provided in the form of an exemption or reduction of taxes that are "otherwise due" are seen as 
being within the scope of Article  III:8(b), then such discriminatory taxation effectuated through a 
scheme of foregoing revenue that  reduces the tax burden on like domestic products or otherwise 
affects the conditions of competition to the detriment of the imported products would be justified 
under Article  III:8(b). However, subsidies that are paid through the proceeds of discriminator y 
taxation would fall outside the scope of the exception in Article  III:8(b) by virtue of the first example 
and would therefore continue to be subject to the national treatment obligation. We further note in 
this regard that the Appellate  Body in Canada – Periodicals  expressly agreed with the GATT  panel in  
US – Malt Beverages that "[e]ven if the proceeds from non -discriminatory product taxes may be 
used for subsequent subsidies, the domestic producer, like his foreign competitors, must pay the 
product taxes  due."442 Moreover, the prohibition of discriminatory internal taxes in Article  III:2 would 
also be rendered ineffective if discriminatory internal taxes on imported products could be justified 
as subsidies for competing domestic producers in terms of Article III:8(b).443 Indeed, if the scope of 
"payment of subsidies" is seen as encompassing a reduction or exemption in internal product taxes 
that are "otherwise due", it would allow WTO Members to adopt discriminatory tax measures by 
disguising them in the form of a scheme of exemption or reduction of taxes for domestic producers 
alone.  
5.121.   We note Brazil's argument that, in Canada – Dairy , the Appellate  Body interpreted the term 
"payment", in relation to subsidies, as including "revenue foregone".444 That dispute addressed the 
issues of whether the provision of discounted milk to processors or exporters under a Canadian 
scheme constitutes an export subsidy within the meaning of Article  9.1(c) of the  Agreement  on 
Agriculture. The Appellate  Body's interpretation of the term "payment " in Article  9.1(c) in that 
dispute was guided by the language of that provision and was specific to the context in which it 
appears. For instance, the Appellate  Body in Canada – Dairy  agreed with the panel that " none of the 
export subsidies listed in Article 9.1 is restricted to grants made solely in money form and several 
expressly involve subsidies granted in a form other than money ."445 The Appellate  Body also 
considered Article  1(c) of the  Agreement  on Agriculture as providing relevant context and explai ned 
that "[i]n terms of that provision [i.e.  Article  1(c)], 'revenue foregone' is to be taken into account in 
determining whether 'budgetary outlay' commitments, made with respect to export subsidies as 
listed in Article  9.1, have been exceeded."446 For the Appellate  Body in Canada – Dairy , "if a 
                                                
441 Article  XVI:1 of the GATT  1994, for example, provide s, in relevant part:  
If any Member  grants or maintains any subsidy , including any form of income or price support, 
which operates directly or indirectly to increase exports of any product from, or to reduce 
imports of any pr oduct into, its territory, it shall notify the WTO in writing of the extent and 
nature of the subsidization, of the estimated effect of the subsidization on the quantity of the 
affected product or products imported into or exported from its territory and o f the 
circumstances making the subsidization necessary. In any case in which it is determined that 
serious prejudice to the interests of any other Member  is caused or threatened by any such 
subsidization, the Member  granting the subsidy  shall, upon  request , discuss with the other 
Member or Members , or with the WTO, the possibility of limiting the subsidization.  
(emphasis added)  
442 Appellate  Body Report, Canada – Periodicals , p. 34 (quoting GATT Panel  Report , US ‒ Malt 
Beverages , para. 5.10). The GATT panel further explained that "[t]he separation of tax and subsidy rules 
contributes to greater transparency. It also may render abuses of tax policies for protectionist purposes more 
difficult, as in the case where producer aids require additional legislative or  governmental decisions in which 
the different interests involved can be balanced." ( Ibid.) 
443 See e.g. GATT Panel  Report , US – Malt Beverages , para. 5.9. The GATT panel further noted that an 
"expansive interpretation  of Article III:8(b) … , if carried to its logical conclusion, … would virtually eliminate the 
prohibition in Article  III:2 of discriminatory internal taxation by enabling contracting parties to exempt all 
domestic products from indirect taxes." (Ibid., para. 5.12) 
444 Brazil's ap pellant's submission, para. 60 (quoting Appellate  Body Report, Canada – Dairy, paras.  110 
and 112).  
445 Appellate  Body Report, Canada – Dairy , para. 109 (referring to Panel  Report , Canada  ‒ Dairy , 
para. 7.95).  (emphasis original)  
446 Appellate  Body Report, Canada – Dairy , para. 110. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 restrictive reading of the words 'payments' were adopted, such that 'payments' under Article  9.1(c) 
had to be monetary, no account could be taken, under Article  9.1(c), of 'revenue foregone'" and this 
would "prevent a proper assessment of the commitments made by WTO Members under Article  9.2, 
as envisaged by Article  1(c)".447 Given the Appellate  Body's context -specific interpretation of the 
term "payment" in Article  9.1(c) of the  Agreement  on Agriculture, we consider it s observations to 
be of limited relevance to the interpretation of the term "payment of subsidies" in Article  III:8(b).  
5.122.   An examination of the text and context of Article  III:8(b), in light of its object and purpose 
and as confirmed by the negotiating histo ry, therefore suggests that the term "payment of subsidies" 
in Article  III:8(b) does not include within its scope the exemption or reduction of internal taxes 
affecting the conditions of competition between like products. Instead, as noted by the 
Appellate  Body in Canada – Periodicals , Article  III:8(b) "was  intended to exempt from the obligations 
of Article  III only the payment of subsidies which involves the expenditure of revenue by a 
government".448  
5.2.4   Conclusion with respect to Article  III:8(b)  
5.123.   Although the Panel did, at an early stage of its analysis, acknowledge that the payment of 
subsidies exclusively to domestic producers (and the resulting market effects) does not by itself 
constitute discriminatory treatment with respect to imported products of the type prohibited by 
Article  III449, the Panel's interpretation of Article  III:8(b) and its application to the measures at issue 
obfuscate the distinction between the effects of the payment of a subsidy to a domestic producer on 
the conditions of compet ition in the relevant product market(s) and the conditions for eligibility 
attaching thereto, on the one hand, and any other effects arising from requirements to use domestic 
over imported inputs in the production process, on the other hand. Moreover, at n o stage did the 
Panel undertake an assessment of whether the measures at issue constitute the "payment of 
subsidies exclusively to domestic producers" within the meaning of Article  III:8(b). Because of these 
shortcomings in the Panel's reasoning, we revers e the Panel's overly broad and unqualified findings 
that "subsidies that are provided exclusively to domestic producers pursuant to Article  III:8(b) of 
the GATT 1994  are not per se exempted from the disciplines of Article  III of the GATT 1994 "450 and 
that "a spects of a subsidy resulting in product discrimination (including requirements to use domestic 
goods, as prohibited by Article  3.1 of the SCM  Agreement ) are not exempted from the disciplines of 
Article  III pursuant to Article  III:8(b)."451 
5.124.   Article  III:8(b) carves out from the national treatment obligation in Article  III the payment 
of subsidies exclusively to domestic producers. Insofar as the payment of subsidies exclusively to 
domestic producers of a given product affects the conditions of competition betw een such a product 
and the like imported product, resulting in an inconsistency with the national treatment obligation 
in Article  III, such a payment would be justified under Article  III:8(b), provided that the conditions 
thereunder are met. Moreover, conditions for eligibility for the payment of subsidies that define the 
class of eligible "domestic producers" by reference to their activities in the subsidized products' 
markets would also be justified under Article  III:8(b). By contrast, a req uirement to use domestic 
over imported goods in order to have access to the subsidy would not be covered by the exception 
in Article  III:8(b) and would therefore continue to be subject to the national treatment obligation in 
Article  III. Furthermore, an ex amination of the text and context of Article  III:8(b), in light of its 
object and purpose and as confirmed by the negotiating history, suggests that the term "payment 
of subsidies" in Article  III:8(b) does not include within its scope the exemption or redu ction of 
internal taxes affecting the conditions of competition between like products. Instead, as noted by 
the Appellate  Body in Canada – Periodicals , Article  III:8(b) "was  intended to exempt from the 
obligations of Article  III only the payment of subsidi es which involves the expenditure of revenue by 
a government".452 Under a proper interpretation of Article  III:8(b), none of the measures at issue in 
this dispute is capable of being justified under that provision because they all involve the exemption 
or reduction of internal taxes affecting the conditions of competition between like products and 
therefore cannot constitute the "payment of subsidies" within the meaning of Article  III:8(b).  
                                                
447 Appellate  Body Report, Canada – Dairy , para. 110. 
448 Appellate  Body Report, Canada – Periodicals , p. 34.  
449 Panel  Report s, para. 7.79. 
450 Panel  Report s, para. 7.87. 
451 Panel  Report s, para. 7.88. 
452 Appellate  Body Report, Canada – Periodicals , p. 34.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.2.5   Separate opinion of one Appellate  Body Member on Article III:8(b) of the 
GATT  1994  
5.125.   While I agree  with the majority's reversal of the Panel's "overly broad and unqualified" 
findings in paragraphs 7.87 and 7.88 of its Reports453, despite our best efforts to arrive at a 
consensus, I part company with my distinguished colleagues holding the majority view on the 
interpretation of the term "payment of subsidies" in Article  III:8(b) of the GATT  1994 for the reasons 
set out below.  
5.126.   While neither Article  III:8(b)  nor any other provision of the GATT  1994 dealing with 
subsidies, including Article  XVI, define s a "subsidy" , a detailed definition of what constitut es a 
"subsidy" is found in Article  1.1 of the SCM  Agreement . Although the chapeau  of Article  1.1 states 
that the definition of a subsidy under that provision is "[f]or the purpose of this  Agreement ", i.e. the 
SCM Agreement, I  note that Article  1.1 contains several textual references to the provision of the 
GATT  1994 dealing  expressly  with subsidies, namely Article  XVI. In indicating that "a subsidy sh all 
be deemed to exist if: … (a)(1)(ii) government revenue that is otherwise due is foregone or not 
collected (e.g. fiscal incentives such as tax credits )", footnote 1 to Article  1.1(a)(1)(ii) clarifies that:  
In accordance with the provisions of Article  XVI of GATT  1994 (Note to Article  XVI) and 
the provisions of Annexes I through III of this  Agreement , 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.454 
Article  1.1(a)(2) further states that a "subsidy shall be deemed to exist if: … (a)(2) there is any form 
of income or price support in the sense of Article  XVI of the GATT  1994".455 There are thus explicit 
textual linkages between the definition of a subsidy set out in Article  1 of the SCM  Agreement  and 
Article  XVI of the GATT  1994 dealing with subsidies.  
5.127.   Moreover, the main object of the SCM  Agreement , taken as a whole, is "to increase and 
improve GATT disciplines relating to the use of both subsidies and countervailing measures" .456 
Indeed, I  do not consider that , for the regulation of subsidies,  the provisions of the GATT  1994 and 
the SCM  Agreement operate in isolation ; instead, the relevant provisions of the GATT  1994 and the 
SCM Agreement  together define and reflect the whole package of rights and obligations  of 
WTO Members with respect to subsidies.457 Besides the various textual linkages between th e 
GATT  1994 and the SCM  Agreement, I consider that the General Interpretative Note to Annex 1A to 
the WTO  Agreement, which clarifies that "in the event of conflict between … the [GATT ] 1994 and … 
anothe r agreement in Annex 1A, … the other agreement shall p revail to the extent of the conflict", 
further supports the existence of a package of rights and obligations of WTO Members as reflected 
in the covered agreements.  
5.128.   For purposes of this package of rights and obligations, " [t]he SCM Agreement  defines the 
concept of 'subsidy' ."458 Given the textual linkages between the definition of a subsidy set out in 
Article  1.1 of the SCM  Agreement and the provisions of the GATT  1994 dealing with subsidies, as 
well as the object and purpose of the SCM  Agreement and its relat ionship with the GATT  1994, I see 
no reason why the term "subsidies" under the GATT  1994, including in Article  III:8(b), should have 
a different meaning than the definition of a subsidy set out in Article  1.1 of the SCM  Agreement.459 
5.129.   I now turn to consider t he implication of the use of the term "payment" in Article  III:8(b), 
as opposed to "granting" or "maintaining" as used in other provisions dealing with subsidies. As 
noted by the majority, t he dictionary meanings of "payment " include "[a] sum of money 
                                                
453 See paragraph  5.123 above.  
454 Emphasis added.  
455 Emphasis added.  
456 Appellate  Body Report, US – Carbon Steel , para.  73. 
457 See Appellate  Body Report, Brazil – Desiccated Coconut , pp. 12-13 and 17.  
458 Appellate  Body Report, US – Carbon Stee l, para.  73. (emphasis added)  
459 As discussed further below, ascribing different definitions to the term "subsidies" under the 
GATT  1994 and the SCM  Agreement may also alter the carefully constructed balance between the rights and 
obligations with respect t o the provision of subsidies under the covered agreements. See paras.  5.136 -5.137 
above.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 (or equivalent ) paid or payable" or "the remuneration of a person with money or its equivalent ".460 
Importantly, the  reference to "money" or its " equivalent " in these dictionary definitions suggests  
that the scope of "payment" is not limited to direct monetary transfers, but may also include other 
transfers having an " equivalent " value or effect. I recall in this regard that, having considered the 
dictionary  meaning of "payment"461, which is independen t of the context within which the term is 
used,  the Appellate  Body in Canada – Dairy  observed that "according to these meanings, a 'payment' 
could be made in a form, other than money, that confers value, such as by way of goods or 
services."462 I also recall  that the Appellate  Body in Canada  ‒ Periodicals  stated that Article  III:8(b) 
"was intended to exempt from the obligations of Article  III only the payment of subsidies which 
involves the expenditure of revenue by a government".463 While I agree that the "pay ment of 
subsidies" must involve the "expenditure of revenue by a government" in order for it to be justified 
under Article  III:8(b), I do not consider that the Appellate  Body's statement in Canada  – Periodicals 
quoted above establishes that the only way th rough which a government can expend revenue is by 
means of a direct monetary transfer.  Instead, I consider that t his was clarified by the Appellate  Body 
in its subsequent report in Canada – Dairy , where it explained that a "payment made in the form of 
goods or services is also 'financed' in the same way as a money payment, and, likewise, 'a charge 
on the public account' may arise as a result of a payment, or a legally binding commitment to make 
payment by way of goods or services, or as a result of revenue foregone ."464 Indeed,  inasmuch as 
a charge on the public account is also an expenditure of revenue by the government,  I consider that 
"payments" involving the expenditure of revenue by a government may take various forms and are 
not necessarily limited to di rect monetary transfers. As the Appellate  Body explained in 
Canada  ‒ Dairy,  the foregoing of revenue, such as through a reduction, exemption, or suspension 
of taxes "otherwise due", incurs a charge on the public account and therefore involves the 
expenditu re of rev enue by a government.  
5.130.   I now address the contextual relevance of  the first example of what constitutes the "payment 
of subsidies"  set out  under  Article  III:8(b) , namely "payments to domestic producers derived from 
the proceeds of internal taxes or charges applied consistently with the provisions of [ Article  III] …". 
I note that the text of the first example serves as the lynchpin of both the Panel's analysis as well 
as my fellow Division Members' interpretation of Article  III:8(b).  Essentially , they reason that "if  … 
Article  III:8(b) exempts tax discrimination from the scope of Article  III, the reference in 
Article  III:8(b) itself to ' taxes and charges applied consistently with the provisions of [ Article  III]' 
would be meaningless. "465 I note, how ever, that the reference in Article  III:8(b) to "taxes or charges 
applied consistently with the provisions of [ Article  III]" is not an independent or express requirement 
for all measures falling within the scope of Article  III:8(b). Instead, this reference  is made in the 
context of the first of the two examples of the "payment of subsidies" contained in that provision, 
which reads, in relevant part: "the payment of subsidies exclusively to domestic producers, including 
payments to domestic producers derived  from the proceeds of internal taxes or charges applied 
consistently with the provisions of [ Article  III] and subsidies effected through governmental 
purchases of domestic products" .466 As my distinguished colleagues forming the majority note, the 
use of the  word "including" makes clear that these examples are "not  an exhaustive list" of the kind 
of programmes that would qualify as "payment of subsidies exclusively to domestic producers".467 
The treaty text relied on by the Panel, namely, "taxes or charges appl ied consistently with the 
provisions of [ Article  III]", is, by the terms of that provision, a requirement only in the case of 
"payments to domestic producers derived from the proceeds of internal taxes or charges ".468 Given 
                                                
460 Oxford English Dictionary online, definition of "payment", 
http://www.oed.com/view/Entry/139189?rskey=9c29D2&result=1#eid . (emphasis added)  
461 We note that the Appellate  Body in Canada – Dairy referred to definitions of "payment" that are 
similar to the ones used by us: "[T] he Oxford English Dictionary  … defines ' payment' as 'the remuneration of a 
person with money or its equivalent '. … Similarl y, the Shorter Oxford English  Dictionary describes a 'payment' 
as a ' sum of money ( or other thing ) paid '." (Appellate  Body Report, Canada – Dairy , para.  107 (quoting 
Panel  Report, Canada – Dairy , para.  7.92, in turn quoting The Shorter Oxford English Dicti onary , C.T.  Onions 
(ed.) (Guild Publishing, 1983), Vol. II, p. 1532) (emphasis added by the Appellate  Body; fns  omitted))  
462 Appellate  Body Report, Canada – Dairy , para.  107. 
463 Appellate  Body Report, Canada – Periodicals , p. 34. Although the Appellate  Body in 
Canada  ‒ Periodicals  relied on the GATT panel report in US – Malt Beverages , I consider that report to be of 
limited relevance as it was issued before the coming into force of the SCM  Agreement, in general, and the 
definition of a subsidy set out in Art icle 1.1 of the SCM  Agreement, in particular.  
464 Appellate  Body Report, Canada – Dairy , para.  108. (emphasis added)  
465 Panel  Reports, para.  7.85. 
466 Emphasis added.  
467 Appellate  Body Report, Canada – Periodicals , pp. 33-34. 
468 Emphasis added.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the non -exhaustive nature of the l ist, I do not consider that this text can be divorced from the 
context of one specific example in Article  III:8(b) and be regar ded as an independent and 
stand -alone requirement that definitively delimits the scope of Article  III:8(b) and applies to all 
instances o f "payment of subsidies" that could possibly fall within the scope of that provision.  In 
particular, subsidies provided through the foregoing of government revenue that is otherwise due, 
such as tax exemptions, are, by definition, not "derived from  the proceeds of internal taxes or 
charges", thereby rendering the first example of limited relevance in such cases.  
5.131.   Instead of regarding the textual reference in the first example set out in Article  III:8(b) as 
controlling under all circumstances, a prop er understanding of the scope of Article  III:8(b) ought to 
be grounded in the interpretation of the term "payment of subsidies" in accordance with the 
customary international rules of treaty interpretation.  
5.132.   As for the contextual relevance of Article  III:2 of the GATT  1994, I am not entirely convinced 
that interpreting  "payment of subsidies" as including "revenue foregone" would necessarily render 
the prohibition against tax discrimination in Article  III:2 meaningless . In this regard, I  note that 
Article  1.1(a)(1)(ii) of the SCM  Agreement  provides that there is a "financial contribution" by a 
government, sufficient to fulfil that element in the definition of a subsidy, where "government 
revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax 
credits) ."469 The Appellate  Body has explained that :  
[T]he "foregoing " of revenue " otherwise due" implies that less revenue has been raised 
by the government than would have been raised in a different situation, or, that is, 
"otherwis e". Moreover, the  word "foregone" suggests that the government has given up 
an entitlement to raise revenue that it could "otherwise" have raised . This  cannot , 
however, be an entitlement in the abstract, because governments, in theory, could tax 
all revenu es.470  
According to the Appellate  Body, there must  therefore  be "some defined, normative benchmark 
against which a comparison can be made between the revenue actually raised and the revenue that 
would have been raised 'otherwise'".471 In US – FSC, the Appella te Body agreed with the panel that 
"the basis of comparison must be the tax rules applied by the Member in question ."472 
5.133.   The Appellate  Body's interpretation of Article  1.1(a)(1)(ii) of the SCM  Agreement  therefore 
suggests that the notion of financial contrib ution in the form of "revenue foregone"  that is "otherwise 
due" is narrower than just any form of discriminatory taxation  which may be prohibited under 
Article  III:2, in the abstract. In particular, revenue foregone must be "otherwise due" under the tax 
rules applied b y the Member in question. I consider that  a scheme applying discriminatory taxes to 
imported products and like domestic products would not constitute "revenue foregone" in as much 
as the lesser tax burden on domestic products would not, in and  of itself, suggest that the 
government would have given up an entitlement to raise revenue that it could "otherwise" have 
raised as there would be no such entitlement under the tax rules in the first place. Seen in this light, 
"revenue foregone" is a narr ower concept than tax discrimination in general , such that not all tax 
discrimination would ipso facto amount to "revenue foregone" and would thereby not be justified 
under Article  III:8(b).  
5.134.   Therefore, f ar from rendering the prohibition against discriminat ory taxation in Article  III:2 
redundant, an interpretation of the term "payment of subsidies" as including revenue foregone gives 
meaning and effect to the terms of both Article s III:2 and III:8(b), while at the same time respecting 
the carefully negotiated balance of rights and obligations under the SCM  Agreement . As the majority 
correctly notes, the fact that a measure qualifies as the "payment of subsidies exclusively to 
domestic producers" and the resulting inconsistency with the national treat ment obligation under 
Article  III is therefore justified under Article  III:8(b) does not suggest that such a measure would 
not be subject to the other relevant provisions of the GATT  1994 and the SCM  Agreement. This was 
confirmed by the Appellate  Body in US – Tax Incentives , where it explained that " even if the granting 
of a subsidy  is exempt from the GATT national treatment obligation by virtue of it being paid 
exclusively to domestic producers withi n the meaning of Article  III:8(b) of the GATT  1994, it ma y 
                                                
469 Emphasis added; fn omitted.  
470 Appellate  Body Report, US – FSC, para. 90. (emphasis original)  
471 Appellate  Body Report, US – FSC, para. 90. 
472 Appellate  Body Report, US – FSC, para. 90. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 still be found to be contingent upon the use by those producers of domestic over imported goods 
under Article  3.1(b) of the SCM  Agreement."473 Thus,  in my view, the payment of subsidies 
exclusively to domestic producers through a reduction or exemption of internal taxes , though 
covered by the exception under Article  III:8(b), would continue to be subject to the other relevant 
provisions of the GATT 1994 and the SCM Agreement . 
5.135.   The GATT  1994 and the SCM  Agreement are both a part of a single treaty, namely, th e 
WTO Agreement. The Appellate  Body in  Korea – Dairy explained that:  
In light of the interpretive principle of effectiveness, it is the  duty of any treaty 
interpreter to "read all applicable provisions of a treaty in a way that gives meaning 
to all of them , harmoniously ". An important corollary of this principle is that a treaty 
should be interpreted as a whole, and, in particular, its sections and parts should be 
read as a whole. Article  II:2 of the  WTO Agreement  expressly manifests the intention 
of the Ur uguay Round negotiators that the provisions of the  WTO Agreement  and the 
Multilateral Trade  Agreement s included in its Annexes  1, 2 and  3 must be read as a 
whole.474 
To me, the restrictive interpretation of "payment of subsidies" as excluding "revenue forego ne" 
arrived at by the majority denies effect to the key legal terms of the SCM  Agreement.  
5.136.   As discussed, with the establishment of the WTO, the relevant provisions of the GATT  1994 
and the SCM  Agreement  together define and reflect the whole package of right s and obligations of 
WTO Members with respect to subsidies.475 The object and purpose of the SCM  Agreement  includes 
strengthening and improving  the GATT disciplines relating to the use of both subsidies and 
countervailing measures, while, recognizing at the same time, the right of Members to impose such 
measures under certain conditions.476 The SCM  Agreement  does not prohibit all subsidies, but 
instead contains detailed and intricate rules disciplining their use.477 While some subsidies are 
"prohibited" under Part II of the  Agreement , Part III makes it clear that others are only "actionable" 
and must be withdrawn (or  their "adverse effects" removed), if they are "specific", within the 
meaning of Article  2 of the SCM  Agreement , and when they cause "adverse effects"478 to the 
interests of other Members.479 In contrast to the detailed provisions of the SCM  Agreement  that, in 
disciplining the use of  "actionable"  subsidies, including revenue foregone, take into account the tra de 
effects of the alleged subsidization, Article  III:2 of the GATT  1994 sets out the national treatment 
obligation with respect to internal taxes and charges. Under Article  III:2 any tax, however small, 
that is borne by products imported into the territory  of a WTO Member, but not by the domestic like 
product s would, without more, lead to a breach of that obligation.480 Importantly, it is well 
established that the  actual  effects of such differential tax burden on imports are irrelevant to the 
analysis under Article III:2 of the GATT  1994.481 The focus on the trade effects of subsidization, 
including through revenue foregone, which pervades the SCM  Agreement  disciplines concerning the 
use of "actionable" subsidies is therefore absent in the context of Article  III:2 of the GATT  1994.  
5.137.   An interpretation of "payment of subsidies" in Article  III:8(b) as excluding revenue foregone 
would  undermine , inconsistently with Article  3.2 of the DSU as well as the fundamental principle of 
                                                
473 Appellate  Body Report, US – Tax Incentives , para.  5.16. (emphasis adde d) 
474 Appellate  Body Report, Korea – Dairy , para. 81. See also Appellate  Body Report, 
Argentina  ‒ Footwear (EC) , para.  81. 
475 See Appellate  Body Report, Brazil – Desiccated Coconut , p. 17. 
476 Appellate  Body Report, US – Softwood Lumber IV , para.  64. The Appellate  Body went on to note that 
"[i]t is in furtherance of this object and purpose that Article  1.1(a)(1)(iii) recognizes that subsidies may be 
conferred, not only through monetary transfers, but also by the provision of non -monetary inputs. " (Ibid.)  
477 In Canada – Aircraft ( Article  21.5 – Brazil) , the Appellate  Body found it "worth recalling that the  
granting of a subsidy is not, in and of itself, prohibited under the SCM Agreement . Nor does granting a  
'subsidy', without more, constitute an inconsistenc y with that  Agreement . The universe of subsidies is vast. Not  
all subsidies are inconsistent with the SCM Agreement . The only 'prohibited' subsidies are those identified in 
Article  3 of the SCM Agreement ." (Appellate  Body Report, Canada – Aircraft ( Article  21.5 – Brazil) , para. 47) 
478 Article  5 of the SCM  Agreement  defines "adverse effects" as including "injury" to the domestic 
industry of another WTO Member, "nullification or impairment" of benefits accruing to other Members, and 
"serious prejudice" to the interests of another Member . 
479 See e.g. Panel  Report , US – Offset Act (Byrd Amendment) , para. 7.106.  
480 Appellate  Body Report, Japan – Alcoholic Beverages II , p. 23, DSR 1996:I, p. 97; see also 
Appellate  Body Report, Thailand – Cigarettes (Philippines) , para. 112. 
481 Appellate  Body Report, Japan – Alcoholic Beverages II , pp. 16-17, DSR 1996:I, pp.  109-110. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 effectiveness in treaty interpretation,  the careful balance of rights and obligations under the 
SCM Agreement  with respect to an entire category of measures that are expressly included within 
the definition of a subsidy in Article  1.1, namely, the foregoing of government revenue that is 
otherwise  due. In other words, the majority's interpretation of the term "payment of subsidies" in 
Article  III:8(b) would fundamentally alter the carefully constructed balance of rights and obligations 
under the SCM Agreement and the GATT 1994 with respect to subsi dies and would risk rendering 
redundant the actionable subsidies disciplines of the SCM  Agreement  insofar as subsidies in the form 
of the foregoing of revenue are concerned . 
5.138.   For the above reasons, I am of the view that the term "payment of subsidies" in 
Article III:8(b) refers to the provision by a WTO  Member, whether through monetary or 
non-monetary transfers  having an equivalent effect , of a subsidy, as defined in Article  1.1 of the 
SCM Agreement . In my view, this is the only interpretation that, consistently with the customary 
rules of treaty interpretation, gives  meaning and effect to the precise terms of Article  III:8(b), while 
at the same time respecting the carefully negotiated balance of rights and obligations under the 
SCM Agreement, which f orms part of the single package under the WTO  Agreement . Insofar as they 
constitute the "payment of subsidies exclusively to domestic producers"482, the measures at issue in 
this dispute, as well as any conditions for eligibility for the payment of subsidies  that define the class 
of eligible "domestic producers" by reference to their  activities in the subsidized products ' markets, 
would, in my view, be justified under Article  III:8(b).  
5.3  Article  3.1(a) of the SCM  Agreement  
5.3.1   Article  1.1(a)(1)(ii) of the SCM  Agree ment : PEC and RECAP  programmes  
5.3.1.1   Introduction  
5.139.   We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the tax 
suspensions granted  under the PEC  programme and the RECAP  programme  are subsidies within the 
meaning of Article  1.1(a) (1)(ii) of the SCM  Agreement  and are contingent upon export performance 
under Article  3.1(a) of the SCM  Agreement .483  
5.140.   Brazil contends that the Panel erred in the application of Article  1.1(a)(1)(ii) of the 
SCM Agreement  by failing to use the tax treatment o f companies that are structural tax accumulators 
as the benchmark treatment.484 Brazil argues, in particular, that , "[i]nstead of examining the 
principles and structure of Brazil's taxation regime and identifying what constitutes 'comparably 
situated taxpayers', the Panel erroneously focused on identifying a 'general rule of taxation' and its 
potential exemptions."485 In the event that we were to conclude that the Panel did not err in its 
identification of the relevant benchmark treatment, Brazil submits three alternative claims of error. 
First, Brazil claims that the Panel erred in its comparison of the selected benchmar k treatment with 
the challenged treatment under the PEC and RECAP  programmes by "arbitrarily distinguish[ing] 
between taxpayers situated within the benchmark".486 Second, Brazil submits that the Panel erred 
in concluding that the possible cash availability a nd implicit interest income that the Brazilian 
Government could generate , had the tax been paid in advance and not offset , constitute 
"government revenue that is otherwise due" under Article  1.1(a)(1)(ii) of the SCM  Agreement .487 
Finally, Brazil contends tha t the Panel failed to make an objective assessment of the matter before 
it pursuant to Article  11 of the DSU by "misreading" and disregardi ng data in a table submitted 
by Brazil.488 
                                                
482 As correctly noted by the majority, in addition to the scope of "payment of subsidies", the focus of 
inquiry under Article  III:8(b) is also on whether  the domestic entity at issue is a producer  of the product with 
respect to which a violation of the national treatment obligation arising from the "payment of subsidies" is 
alleged.  
483 Brazil's Notice of Appeal, para.  26; Brazil's appellant's submission, pa ra. 307. 
484 Brazil's appellant's submission, paras.  309 and 324.  
485 Brazil's appellant's submission, para. 316. 
486 Brazil's appellant's submission, para.  327. (emphasis omitted)  
487 Brazil's appellant's submission, para.  333 
488 Brazil's appellant's submission, p aras. 345, 351, and 360. Specifically, Brazil argues that, "[i]n  direct 
contradiction to Brazil's explanation that the study was elaborated with data 'from all companies', the Panel 
found that the study 'appears to reflect the situation of 22 companies'." (Ibid., para.  351) WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.141.   The European  Union  and Japan request that we reject Brazil's claims.489 With r espect to the 
Panel's identification of a benchmark for comparison, the European  Union  and Japan argue that the 
Panel did not try to identify a "general rule"490, as suggested by Brazil, but instead was examining 
"the structure of [Brazil's] domestic tax reg ime and its organising principles".491 With respect to 
Brazil's alternative claims, the European  Union  and Japan first submit that the Panel did not 
disregard the treatment of a particular group of taxpayers (i.e. those that normally offset tax credits 
during the same taxation period) within the benchmark when making a comparison.492 Instead, the 
Panel weigh ed "all the scenarios to conclude that there was revenue for egone or not collected in the 
'rather frequent scenario' where taxpayers cannot offset their tax  credits within the same taxation 
period" .493 Second, the European  Union and Japan contend that the Panel did not make an error in 
considering that the cash availability and implicit interest income that the Brazilian Government 
foregoes or does not collect by virtue of tax suspensions under the PEC and RECAP  programmes 
amount to a financial contribution under Article  1.1(a)(1)(ii) of the SCM  Agreement .494 Finally, the 
European  Union  and Japan  assert that Brazil has failed to show that the Panel made an error u nder 
Article  11 of the DSU in assessing the table submitted by Brazil.495 
5.142.   We begin with an overview of the relevant aspects of the PEC and RECAP  programmes. We 
also include a summary of the relevant Panel findings and our understanding of Article  1.1(a)(1)(i i) 
of the SCM  Agreement . 
5.3.1.2   PEC and RECAP  programmes  
5.143.   With respect to the programmes at issue, the Panel explained that, under the 
PEC programme, the IPI tax and the PIS/PASEP, COFINS, P IS/PASEP -Importation , and 
COFINS -Importation contributions are suspended with respect to raw materials, intermediate goods, 
and packaging materials purchased by predominantly exporting companies.496 The tax suspension 
applies either at the time when the product leaves the industrial establishment (for purchases in the 
domestic ma rket) or at the time of the customs clearance (for imports).497 The suspension expires 
and the tax becomes definitively non -due upon exportation or sale in the domestic market of the 
final good incorporating the raw materials, intermediate goods, and packagi ng materials for which 
the taxes were suspended.498 
5.144.   For purposes of the IPI tax suspension  under the PEC programme , a predominantly exporting 
company is a legal person whose gross revenue derived from exports to other countries during the 
calendar year immed iately prior to the year of purchase of the covered products, exceeded 50% of 
its total gross revenue from the sales of goods and services over the same period, after taxes and 
other contributions levied on sales.499 
5.145.   For purposes of the suspensions of the PI S/PASEP, COFINS, PIS/PASEP -Importation , and 
COFINS -Importation contributions  under the PEC programme , a predominantly exporting company 
                                                
489 European  Union 's appellee's submission, para. 369; Japan's appellee's submission, para. 126. 
490 European  Union's appellee's submission, para.  398; Japan's appellee's submission, para.  133. 
491 European  Union's appellee's submission, para.  398 (quoting Appellate  Body Report, US – Large Civil 
Aircraft  (2nd complaint) , para.  815); Japan's appellee's submission, para.  133. 
492 European  Union's appellee's submission, para.  409; Japan's appellee's submission, para.  135. 
493 European  Union's appellee's submission, para.  412. 
494 European  Union's appellee's submission, para.  428; Japan's appellee's submission, para.  137. 
495 European  Union's appellee's submission, para.  439; Japan's appellee's submission, para.  138. 
496 Panel  Report s, paras.  2.148 and 2.150 (referring to Law 10,637/2002  (Panel Exhibits JE -94 and 
BRA-100), Article  29, section 1.II (for IPI tax); Law 10,865/2004 ( Panel Exhibit  JE-181), Article  40 
(for PIS/PASEP and COFINS contributions)).  
497 Panel  Reports , para.  2.151 ( referring to Normative Instruction ( Instrução Normativa ) RFB 948 of 
15 June 2009 ( Normative  Instruction RFB 948/2009)  (Panel Exhibit  JE-191), Articles  12 and 13 ; Normative 
Instruction SRF 595 of 27 December 2005 ( Normative Instruction SRF 595/2005 ) (Panel Exhibit  JE-193), 
Article  8; and Decree 6,759 of 5  February  2009 governing the administration of customs activities and the 
inspection, control and taxation of foreign trade operations (Decree  6,759/2009) (Panel Exhibit JE -8), 
Article  247). 
498 Panel  Reports , para. 2.152 (referring to Law 10,637/2002 ( Panel Exhibits JE -94 and BRA -100), 
Article  29, section  I.II; Law 10,865/2004 ( Panel Exhibit  JE-181), Article  40; Normative Instruction RFB 
948/2009 ( Panel Exhibit  JE-191), Article  20; Normative Instruction SRF 595/2005 ( Panel Exhibit  JE-193), 
Article  9). 
499 Panel  Reports , paras.  2.156 and 7.1136 (referring to Law 10,637/2002 ( Panel Exhibits JE -94 and 
BRA-100), Article  29, section 3).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 is a legal person whose gross revenue from exports, in the calendar year immediately prior to the 
year of purchase of th e covered products, was equal to or greater than 50% of its total gross revenue 
from the sale of goods and services in the same period, after taxes and other contributions levied 
on sales.500 
5.146.   Under the RECAP  programme, the PIS/PASEP, COFINS, PIS/PASEP -Import ation, and 
COFINS -Importation contributions are suspended with respect to purchases of new machinery, tools, 
apparatus, instruments, and equipment by predominantly exporting companies.501 As the Panel 
explained, "[t]he suspension becomes a zero rate once the  export commitments have been 
achieved."502 
5.147.   For purposes of the RECAP  programme, a predominantly exporting company is a legal person 
whose gross revenue from exports, in the calendar year immediately before the year in which it 
became a member of the program me, was equal to or greater than 50% of its total gross revenue 
from the sale of goods and services over the same period, and who commits to maintaining that 
percentage of exports for a period of two calendar years.503 
5.3.1.3   Whether the Panel erred in the applicat ion of Article  1.1(a)(1)(ii) of the 
SCM Agreement  in determining the benchmark treatment  
5.148.   Brazil claims that the Panel erred in finding that the tax suspensions granted under the PEC 
and RECAP programmes are subsidies within the meaning of Article  1.1(a)(1) (ii) of the 
SCM Agreement . As a first ground of its appeal, Brazil considers that the Panel erred in its 
determination of the benchmark for comparison. In the event that we uphold the Panel's benchmark 
determination, Brazil submits three alternative claims . As noted above, Brazil argues that the Panel: 
(i) erred in its comparison of the selected benchmark treatment with the challenged treatment under 
the PEC and RECAP  programmes; (ii) erred in finding that the possible cash availability and implicit 
interes t income constitute "government revenue that is otherwise due"; and (iii) failed to make an 
objective assessment of the matter before it pursuant to Article  11 of the DSU by disregarding certain 
evidence submitted by Brazil.504 
5.149.   We recall that, in its analysi s, the Panel first examined whether the tax suspensions granted 
under the PEC and RECAP  programmes constituted financial contributions in the form of government 
revenue that is otherwise due, which is foregone or not collected.  
5.150.   The Panel noted that the ch allenged tax treatment comprised the following categories:  
(i) the IPI tax suspensions on purchases of raw materials, intermediate goods , and packaging 
materials (for purposes of the PEC programme ); (ii) the suspensions of the PIS/PASEP and COFINS 
contribu tions, or PIS/PASEP -Importation and COFINS -Importation contributions, on purchases of 
raw materials, intermediate goods , and packaging materials (for purposes of the PEC programme ); 
and (iii) the suspensions of the PIS/PASEP and COFINS contributions, or PI S/PASEP -Importation and 
COFINS -Importation contributions, on purchase s of new machinery, apparatus, instruments , and 
equipment incorporated into the fixed assets of the accredited company (for purposes of the RECAP  
programme ).505 The Panel found that there was "evidence demonstrating that the objective reasons 
                                                
500 Panel  Reports , paras.  2.157 and 7.1137 (referring to Law 10,865/2004  (Panel Ex hibit JE-181), 
Article  40, section 1). In addition, companies that are just starting activities in Brazil, or that have not achieved 
the export percentage required in the previous year, may be entitled to the PIS/PASEP and COFINS 
contribution suspensions i f they commit to reach and maintain the required export level for a period of three 
calendar years. (Ibid., paras.  2.158 and 7.1137 (referring to Normative Instruction SRF 595/2005  
(Panel  Exhibit  JE-193), Article  3, section 1))  
501 Panel  Reports , paras.  2.163 and 7.1138.  
502 Panel  Reports , para.  7.1138.  
503 Panel  Reports , paras.  2.170 and 7.1139. Companies that are starting activities in Brazil, or that have 
not reach ed the export percentage required in the previous year, may be entitled to the suspensions if they 
commit to reach and maintain the required export level for a period of three calendar years . (Ibid., para.  2.171 
(referring to Law 11,196 of 21  November  2005 e stablishing the special scheme for the acquisition of capital 
goods for exporting companies (RECAP) ( Law 11,196/2005 ) (Panel Exhibit  JE-182), Article  13, section 2)).  
504 Brazil's appellant's submission, paras.  326-327, 333, 345, 351, and 361.  
505 Panel  Report s, para. 7.1156.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 behind the tax treatment [are] to tackle the problem of credit -accumulation, and in so doing to 
increase the competitiveness of Brazilian companies" .506 
5.151.   In its identification of the benchmark treatment for each of the three categories of the 
identified tax treatments, the Panel rejected Brazil's argument that tax suspensions are the 
benchmark treatment for structurally credit -accumulating companies, including the predominantly 
exporting companies.507 The Panel agreed with Brazil that there are other companies, in addition to 
predominantly exporting companies , that are entitled to the suspension of relevant taxes.508 The 
Panel considered, however, that nothing in the evidence on the record seemed to suggest that "other 
companies to which the tax suspensions apply are structural credit accumulators, or that the tax 
suspensions … were created to tackle the problem of structural credit accumulation for these 
companies."509 
5.152.   The Panel furthe r noted that there are producers of low -taxed products, which are more 
likely to accumulate tax credits , that are not entitled to tax suspensions, on the one hand, and 
producers of higher  taxed products, which are less likely to accumulate tax credits , that are entitled 
to such tax suspensions, on the other hand.510 The Panel found, with respect to the three categories 
of tax treatment, that "the benchmarks to be applied are the economy -wide tax treatments from 
which the suspensions are taken or, in other wor ds, the tax treatment applicable to non -accredited 
companies."511  
5.153.   The Panel then compared the challenged treatment with the "rather frequent" scenario, in 
which companies are not able to offset their credits and have to request compensation or 
reimbursement .512 The Panel considered that, "under the challenged treatment, the Government will 
never be able to benefit from the cash availability and implicit interest income, which could have 
lasted from the moment of importation (in the case of imported products) o r from one taxation 
period (in the case of domestic products) to 360 days after the request for compensation or 
reimbursement, under the benchmark treatment."513 The Panel thus concluded, with respect to the 
three categories of tax treatment at issue, that , "under  this rather frequent scenario, the 
Government is foregoing revenue in the form of the implicit interest on the tax revenue collected 
where the offsetting credits have not (yet) been used."514 The Panel also concluded that the subsidies 
at issue confer  a benefit and that they thus constitute subsidies within the meaning of Article  1 of 
the SCM  Agreement .515 Subsequently, the Panel found that the subsidies granted under the PEC and 
RECAP  programmes are contingent upon export performance within the meaning of Article  3.1(a) of 
the SCM  Agreement , and thus prohibited under Articles  3.1(a) and 3.2 of the SCM  Agreement .516 
5.154.   We start by addressing Brazil's claim that the Panel erred in determining the benchmark for 
comparison. In Brazil's view, the Panel erroneously  rejected the tax treatment of structural credit 
accumulators as a benchmark for comparison and instead concluded that the proper benchmark was 
the treatment applicable to purchases by non -accredited companies, i.e. the obligation to pay the 
full amount of  the applicable tax.517 Brazil submits that "[t]he Panel erroneously sought to ascertain 
whether a 'general rule' of taxation existed under Brazilian law pursuant to which all suspensions 
                                                
506 Panel  Reports , para. 7.1162.  
507 Panel  Reports , paras.  7.1171, 7.1186, and 7.1199.  
508 Panel  Reports , para.  7.1167 (referring to Law 10,637/2002 (Panel Exhibit  JE-94) and to Brazil's 
response to Panel question No. 21). See also Panel  Reports , para.  7.1183 (referring to Brazil's response to 
Panel question No. 21).  
509 Panel  Reports , para. 7.1167.  
510 Panel  Reports , paras.  7.1168, 7.1184, and 7.1199.  
511 Panel  Reports , para. 7.1164. See also paras.  7.1172, 7.1187, and 7.1200.  
512 Panel  Reports , paras.  7.1174, 7.1189, and 7.1202 . The Panel explained that "[i]t is fairly common 
that companies are not able to offset the full amount of their credits and have to request compensation or 
reimbursement, so this sce nario seems rather frequent." ( Ibid. (referring  to Brazil's first written submission, 
para. 758 (DS472) and para. 691 (DS497))). In this case, "the Brazilian Government will retain the amount of 
tax paid by the seller until the non -accredited company buying the products is able to offset it (during 
subsequent taxation periods); or until the Brazilian Government compensates or reimburses the face amount 
of the credit, without interest, to the non -accredited company buying the products (within 360 days of the date 
of the request for compensation or rei mbursement)." ( Panel  Reports , paras.  7.1175, 7.1190, and 7.1203)  
513 Panel  Reports , paras.  7.1179, 7.1194, and 7.1207. (fns omitted)  
514 Panel  Reports , paras.  7.1179, 7.1194, and 7.1207.  
515 Panel  Reports , paras.  7.1212 and 7.1223.  
516 Panel  Reports , para. 7.1237.  
517 Brazil's appellant's submission, paras.  307 and 309.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 and exemptions of taxes on inputs and capital goods relate to the prob lem of structural credit 
accumulation"518, despite the Appellate  Body's reservations, expressed in US – FSC 
(Article  21.5 – EC) and US – Large Civil Aircraft (2nd complaint) , about panels trying to identify such 
a "general rule of taxation".519 Brazil recalls that, "in identifying the relevant benchmark treatment, 
a panel is required to 'develop an understanding of the tax structure and principles that best explains 
that Member's tax regime, and to provide a reasoned basis for identifying what c onstitutes 
comparable income of comparably situated taxpayers. '"520 
5.155.   Brazil also maintains that, in order to avoid structural accumulation of indirect taxes, it 
created "an alternative taxation method for the income of structural credit accumulators", which 
applies "to companies of many different sectors of the economy which have no or low taxation on 
their sales".521 In particular, Brazil points out that Article  29 of the Law 10,637/2002 "exempts from 
the payment of taxes on inputs a wide variety of sectors of the Brazilian economy whose products 
are subject to low or no taxation, including producers of animal and vegetable products and oils, 
foodstuffs, chemicals, footwear, auto and aircraft parts, informatics products, and predominantly 
exporting companies".522 In Brazil's view, the appropriate benchmark treatment for comparison is 
the tax treatment afforded to other structural credit accumulators.523 
5.156.   The European  Union  and Japan contend that the Panel properly applied the test developed 
by the Appellate  Body in US – Large Civil Aircraft (2nd complaint)  to determine the benchmark 
treatment.524 They also submit that, contrary to Brazil's allegations, the Panel did not attempt to 
identify a "general rule" of taxation pursuant to which all suspensions and exemptions of t axes on 
inputs and capital goods would relate to a problem of structural credit accumulation, but rather was 
addressing Brazil's own argument about the existence of such a rule.525 
5.157.   We recall that, before  the Panel, as well as on appeal, Brazil has argued tha t the appropriate 
benchmark for comparison with the tax suspensions and exemptions under the PEC and 
RECAP  programmes is the treatment granted to companies that tend to structurally accumulate 
credits.526 In its analysis of the benchmark treatment with respe ct to the IPI tax suspensions527, 
"[t]he Panel agree[d] with Brazil that there are other companies, in addition to the companies 
accredited or registered as predominantly exporting companies, which are entitled to the IPI tax 
suspension on the purchase of ra w materials, intermediate goods and packaging materials."528 
Specifically, the Panel noted that, pursuant to Article  29 of Law 10,637/2002, the tax suspension 
also applies to: (i)  establishments dedicated primarily to the manufacture of products classified i n 
chapters 2, 3, 4, 7, 8, 9, 10, 11, 12, 15, 16, 17, 18, 19, 20, 23, 28, 29, 30, 31, and 64 (21 chapters 
in total) of the Industrial Goods Tax Classification Table, as well as under codes 2209.00.00 and 
2501.00.00, and at positions 21.01 to 21.05.00 of the  Industrial Goods  Tax Classification Table; 
(ii) industrial establishments that primarily manufacture components, chassis, bodies, parts , and 
pieces of automotive products; (iii) industrial establishments that primarily manufacture parts and 
pieces intende d for the aerospace industry; and (iv) industrial establishments that primarily 
manufacture the goods benefit ing from the I nformatics programme.529 Moreover, the Panel observed 
that "[t]he suspension also applies to companies qualified under the Special Regi me for the Brazilian 
Aerospace Industry [(RETAERO )] and the Special Regime to Incentive Computers for Educational 
Use (REIMCOMP)."530 
                                                
518 Brazil's appellant's submission, para.  309 (quoting Panel  Reports , paras.  7.1167, 7.1169, and 
7.1183). (fn omitted; emphasis omitted)  
519 Brazil's appellant's submission, para.  310 (referring to Appel late Body Report s, US – FSC 
(Article  21.5 – EC), para. 91; US – Large Civil Aircraft (2nd complaint) , para.  815).   
520 Brazil's appellant's submission, para.  310 (quoting Appellate  Body Report, US – Large Civil Aircraft 
(2nd complaint) , para.  813). (emphasis omitted)  
521 Brazil's appellant's submission, para.  312. 
522 Brazil's appellant's submission, para.  313. 
523 Brazil's appellant's submission, para.  315. 
524 European  Union's appellee's submission, para.  395; Japan's appellee's submission, para.  129. 
525 European  Union's appellee's submission, para.  398; Japan's appellee's submission, para.  133. 
526 Panel  Reports , para.  7.1165; Brazil's second written submission to the Panel, para.  216; Brazil's 
appellant's submission, para.  309. 
527 We recall that the Panel sub sequently applied this analysis to other categories of the tax treatment.  
528 Panel  Reports , para.  7.1167.  
529 Panel  Reports , para.  7.1167.  
530 Panel  Reports , para.  7.1167 (referring to Brazil's response to Panel question No. 21).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.158.   The Panel, however , considered that the selection of companies entitled to the tax 
suspensions "d[id] not seem to be directl y linked to the problem of credit -accumulation, so as to 
create a general rule for structurally or predominantly credit accumulating companies" .531 In the 
Panel's view, the evidence on the record did not demonstrate that companies to which the 
suspension app lied were structural credit accumulators.532 The Panel observed that, on the one hand, 
there are producers of low -taxed products, which are more likely to accumulate tax credits, that are 
not entitled to tax suspensions and, on the other hand, producers of h igher taxed products, which 
are less likely to do so, that were entitled to the suspensions.533 The Panel further referred to Japan's 
observation that "companies that export products but do not reach the 50% threshold of gross 
revenue derived from export s can be credit accumulators  and yet  cannot benefit from the tax 
suspensions ", which, in the Panel's view, "puts further into question the existence of a general rule 
for credit accumulators" .534 The Panel was "not convinced" that the availability of suspensions  for 
other companies, in addition to the predominantly exporting companies, was "sufficient to prove the 
existence of a general rule for structurally or predominantly credit accumulating companies" .535 The 
Panel thus found that Brazil has not demonstrated th at the tax suspensions were the benchmark 
treatment for structurally credit -accumulating companies and, instead, defined the benchmark as 
"the treatment applicable to purchases by non -accredited companies of raw materials, intermediate 
goods and packaging materials used in the manufacture of their products".536 
5.159.   The Panel  subsequently relied on these findings in determining the benchmark for 
comparison with the suspensions of the PIS/PASEP and COF INS contributions and 
PIS/PASEP -Importation and COFINS -Importati on contributions on purchases of raw materials, 
intermediate goods, and packaging materials (for purposes of PEC)537, as well as the suspensions of 
the PIS/PASEP and COFINS contributions and PIS/PASEP -Importation and COFINS -Importation 
contributions on purch ases of new machinery, apparatus instruments, and equipment (for purposes 
of RECAP).538 For these two categories of treatment, the Panel also determined the benchmark to 
be the treatment applicable to purchases by non -accredited companies, i.e. the obligatio n to pay 
the full amount of the applicable tax.539 
5.160.   On appeal , the participants disagree as to whether, in determining the benchmark treatment, 
the Panel erroneously sought to ascertain the existence of a "general rule of taxation" instead of 
examining the or ganizing principles and structure of Brazil's taxation regime and identifying what 
constitutes comparable income of comparably situated taxpayers .540  
                                                
531 Panel  Reports , para.  7.1167.  
532 Panel  Reports , para.  7.1167.  
533 Panel  Reports , para.  7.1168. The Panel observed that " an examination of the products for which the 
IPI tax is suspended or exempted pursuant to Article  29 of Law 10,637/2002 indicates that there is no pattern 
of suspending the IPI tax only for products with no or low taxation ." (Ibid.) In  particular, the Panel noted that 
"many of the products that are subject to special regimes are subject to a ta x rate of 5%, 10%, 20% and 
even 30% and, for instance, Chapters 50 to 54 of the [Table of Application of the Tax on Industrialised 
Products (TIPI) ] are subject to 0% rate and are not covered by Article  29 of Law 10,637/2002 ." (Ibid. 
(referring to European  Union's response to Panel questi on No. 41, para.  156))  
534 Panel  Reports , para.  7.1169.  
535 Panel  Reports , para.  7.1170.  
536 Panel  Reports , para.  7.1172.  
537 Panel  Reports , paras.  7.1181 -7.1187.  
538 Panel Reports, paras.  7.1197 -7.1200.  
539 Panel  Reports , paras.  7.1186 -7.1187 and 7.1200. With respect  to the suspension of PIS/PASEP and 
COFINS contributions and their importation equivalents on purchases of new machinery, apparatus, 
instruments , and equipment (for purposes of PEC), the Panel observed that "the selection by the Brazilian 
Government of com panies entitled to the suspensions of PIS/PASEP and COF INS contributions, or 
PIS/PASEP -Importation and COFINS -Importation contributions, does not seem to be directly linked to the 
problem of credit -accumulation, so as to create a general rule for structura lly or predominantly credit 
accumulating companies." (Ibid ., para. 7.1183) With respect to the suspension of PIS/PASEP and COFINS 
contributions and their importation equivalents on purchases of new machinery, apparatus, instruments , and 
equipment (for purp oses of RECAP), the Panel observed that "the accredited and n on-accredited companies 
purchasing the new machinery, apparatus, instruments and equipment used to manufacture products are 
identically situated, except for the fact of accreditation ." (Ibid., pa ra. 7.1200)  
540 Brazil's appellant's submission, paras.  309-310, 317, and 323; European  Union's appellee's 
submission, para.  398; Japan's appellee's submission, para.  128. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.161.   Article  1.1(a)(1)(ii) of the SCM  Agreement  provides:  
1.1 For the purpose of this  Agreement , a subsidy shall  be deemed to exist if:  
(a)(1)  there is a financial contribution by a government or any public body 
within the territory of a Member (referred to in this  Agreement  as 
"government"), i.e. where:  
 … 
 (ii) government revenue that is otherwise due is foregone or not 
 collected (e.g. fiscal incentives such as tax credits)[.]541  
5.162.   The Appellate  Body has previously explained that a  panel examining a claim under 
Article  1.1(a)(1)(ii) of the SCM  Agreement  must: (i) identify the tax treatment that applies to the 
income of the alleged subsidy recipients542; (ii) identify a benchmark for comparison543; and 
(iii) compare the challenged tax treatment and the reasons for it with the benchmark tax 
treatment.544 The Appellate  Body has also expressed reservations about a panel seeking to identify 
a general rule and exception relationship in determining the existence of a revenue otherwise due 
that is for egone or not collected under Article  1.1(a)(1)(ii). The Appellate  Body explained that, 
"[g]iven the variety and complexity of domestic tax systems, it will usually be very difficult to isolate 
a 'general' rule of taxation and 'exceptions' to that 'general' rule"545, and that an examination under 
Article  1.1(a)(1)(ii) "must be  sufficiently flexible to adjust to the complexities of a Member's 
domestic rules of taxation".546 In fact, "a domestic tax system may be so replete with exceptions " 
that the rate applicable to the general category of income would no longer represent a gener al rule 
but, rather, an exception.547 In seeking to identify a general rule and an exception, "a panel might 
artificially create a rule and an exception where no such distinction exists."548 
5.163.   The determination  of a benchmark for comparison entails , instead,  identifying "the  tax 
treatment of comparable income o f comparably situated taxpayers ".549 This exercise "involves an 
examination of the structure of the domestic tax regime and its organizing principles" and requires 
the panel "to develop an understanding of the tax structure and principles that best explains that 
Member's tax regime".550 Such a n examination must be conducted on the basis of the "rules of 
taxation that each Member, by its own choice, establishes for itself".551 In its identification of a 
benchmark, a panel must be aware of the limitations inherent in identifying and comparing a gen eral 
rule of taxation and an exception from that rule since such an approach "could result in a finding 
that government revenue otherwise due has been foregone anytime the tax rate applicable to a 
recipient is lowered".552 
5.164.   In addressing  Brazil's contention t hat the suspension of taxes for credit -accumulating 
companies, including the predominantly exporting companies, is the benchmark treatment, the 
Panel agreed with Brazil that there were other companies, in addition to those accredited or 
registered as predo minantly exporting companies, for which the IPI tax was suspended.553 We recall 
the Panel's finding that those were companies referred to in Article  29 of the Law 10,637/2002 and 
                                                
541 Fn omitted.  
542 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  812. The Appellate  Body has 
observed that "[i]dentifying such tax treatment will entail consideration of the objective reasons behind that 
treatment and, where it involves a change in a Member's tax rules, an assessment of the reasons underlying 
that change." (Ibid.)  
543 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  813. 
544 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 814. The Appellate  Body has 
explained that "[s]uch a comparison will enable a panel  to determine whether, in the light of the treatment of 
the comparable income of comparably situated taxpayers, the government is foregoing revenue that is 
otherwise due in relation to the income of the alleged recipients." (Ibid.)  
545 Appellate  Body Report,  US – FSC ( Article  21.5 – EC), para. 91. 
546 Appellate  Body Report, US – FSC ( Article  21.5 – EC), fn 66 to para. 91. 
547 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815. 
548 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815. 
549 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  813. 
550 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  813. 
551 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  813 (quoting Appellate  Body 
Report, US – FSC, para.  90). 
552 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815. 
553 Panel  Reports , para. 7.1167.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 under the RETAERO554 and REIMCOMP regimes.555 We note that, pursuant to Article  29 of the Law 
10,637/2002, tax suspensions apply to companies that are dedicated primarily to the manufacture 
of products classified under 21  chapters and codes 2209.00.00 and 2501.00.00, and positions 21.01 
to 21.05.00 of the Industrial Classification Table,  as well as companies that primarily manufacture: 
(i) components, chassis, bodies, parts , and pieces of automotive products; (ii) parts and pieces 
intended for the aerospace industry; and (iii) goods benefiting from the Informatics programme.556 
5.165.   Notwithstand ing this observation, the Panel rejected the treatment of companies that are 
subject to tax suspensions as a benchmark because, in its view, "the IPI tax suspensions d[id] not 
seem to be directly linked to the problem of credit -accumulation, so as to creat e a general rule  for 
structurally or predominantly credit accumulating companies."557 In reaching this conclusion, the 
Panel found that there were: (i) producers of low -taxed products, which are more likely to 
accumulate tax credits, that were not entitled t o the suspensions ; and (ii) producers of higher taxed 
products, which are less likely to accumulate tax credits, that were entitled to the suspensions.558 
Thus, the fact that, on the one hand, not all actual or potential credit accumulators were entitled to 
the suspensions and, on the other hand, some of the companies entitled to the suspensions were 
unlikely to accumulate credits, confirmed the Panel's vie w that there was no "general  rule"559 for 
structurally or predominantly credit -accumulating companies. The Panel further mentioned Brazil's 
argument that "it is not possible to predict as a general rule  and for all situations when a company 
that accumulates credits becomes a structurally credit accumulating company ."560 Having said that, 
the Panel concluded again that it was "not  convinced" that the availability of tax suspensions for 
other companies, in addition to the predominantly exporting companies , was "s ufficient to prove the 
existence of a general rule  for structurally or predominantly credit accumulating companies".561 
5.166.   In its analysis, the Panel sought  to determine the existence of a "general rule" for companies 
that structurally accumulat e credits .562 The Panel considered that such a general rule would exist if 
the tax suspensions were to apply to all the actual or potential credit accumulators and were not to 
apply to companies that do not or are unlikely to accumulate credits. The Panel rejected the tax 
suspensions as the benchmark treatment because it considered that some companies to which the 
tax suspensions applied were not actual or potential credit accumulators, and because some 
companies to which the suspensions did not apply were accumulating credi ts. As a result, the Panel 
could not establish the existence of a "general rule" of taxation.  
5.167.   However, as noted, in determining a benchmark for comparison, a panel must be cognizant 
of the limitations inherent in seeking to identify a general rule of taxat ion and an exception from 
that rule, because such an approach may lead to an overly narrow conception of which rules are 
relevant in identifying a benchmark.563 It is not sufficient, once a general rule of taxation has been 
identified, to conduct an analysis  limited to the determination that, but for the challenged measure, 
a higher tax liability would have attached by virtue of a general rule.564 Rather, even if scrutiny of a 
Member's tax regime indicates the presence of a general rule and an exception relatio nship, a panel 
would be expected "to further examine the structure of the domestic tax regime and its organising 
principles"565 in order to determine what is "the tax treatment of comparable income of comparably 
                                                
554 Before the Panel, Brazil explained that RETAERO is aimed at addressing the issue of credit 
accumulation within suppliers of aerospace inputs by providing a zero rate or suspension of indirect taxes for 
such inputs. (Brazil's first written submission to th e Panel, para.  768 (DS472))  
555 Panel  Reports , para. 7.1167. Brazil explained before the Panel that REIMCOMP was aimed at avoiding 
tax credit accumulation by computer -equipment manufacturers that win the public bidding process required to 
sell computers to p ublic schools . (Brazil's first written submission to the Panel, para. 770 (DS472) ). 
556 Panel  Reports , para.  7.1167 (referring to Law 10,637/2002 (Panel Exhibit  JE-94)). 
557 Panel  Reports , para.  7.1167. (emphasis added)  
558 Panel  Reports , paras.  7.1168 -7.1169.  
559 Panel  Reports , paras.  7.1167 and 7.1169 -7.1170.  
560 Panel  Reports , para.  7.1170 (quoting Brazil's response to Panel question No. 21). (emphasis added)  
561 Panel  Reports , para.  7.1170. (emphasis added) In the similar vein, in its analysis of the benchmark 
treatment for the suspensions of the PIS/PASEP and COFINS contributions and their importation equivalents, 
the Panel observed that the selection of companies entitled to  the tax suspensions did not seem to be directly 
linked to the problem of structural credit accumulation, so as to create a general rule for structurally or 
predominantly credit -accumulating companies. ( Panel  Reports , para.  7.1183)  
562 Panel  Reports , paras.  7.1167 and 7.1169 -7.1170.  
563 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , paras.  815 and 818.  
564 Appellate  Body Reports, US – FSC, para.  91; US – Large Civil Aircraft (2nd complaint) , paras.  815 
and 818. 
565 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  815. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 situated taxpayers".566 The Panel commenced its analysis with an examination of Brazil's domestic 
tax regime by identifying categories of companies subject to tax suspensions. The Panel determined, 
in this respect, that there were other companies, in addition to those qualified as predominantly 
exportin g companies, that were entitled to the relevant tax suspensions. Having done so, however, 
the Panel ultimately limited its analysis to seeking to identify the existence of a general rule of 
taxation to which the challenged treatment would be an exception. By doing so, the Panel effectively 
predetermined a finding of the existence of the revenue otherwise due that is for egone or not 
collected under Article  1.1(a)(1)(ii) of the SCM  Agreement . 
5.168.   In our view, instead  of seeking to determine the existence of a general rule whereby the tax 
suspensions would only apply to companies structurally accumulating credits, the Panel should have 
determined the tax treatment of comparably situated taxpayers.  
5.169.   We recall, with respe ct to the IPI tax suspensions, that Article  29 of the Law  10,637/2002, 
which grants tax suspensions  to predominantly exporting companies, also provides for tax 
suspensions for several other categories of companies.567 The range of companies covered by 
Article 29 is wide, given that the tax suspensions apply, in particular, to companies that primarily 
manufacture: (i ) products classified under 21  chapters of the Indust rial Classification Table; 
(ii) components, chassis, bodies, parts , and pieces of automotive products; (iii) parts and pieces 
intended for the aerospace industry; and (iv) goods benefiting from the Informatics programme.568 
In addition, as the Panel found, the IPI tax suspensions apply to companies accredited under the 
RETAERO and REIMCOMP regimes.569 Likewise, with respect to the suspensions of PIS/PASEP and 
COFINS contributions and their importation equivalents for the purposes of the PEC  programme, the 
Panel found that, in addition to the predominantly exporting companies, such suspensions also appl y 
to other companies. These are the companies that: (i) manufacture certain products when such 
products are destined for direct public administration bodies; (ii) are accredited under PADIS and 
PATVD; and (iii) are qualified under the REPES, RETAERO, RETID , and REIMCOMP regimes.570 
5.170.   Thus, the companies that are entitled, or potentially entitled, to the suspension of taxes fall 
into many categories , each covering a broad number of entities. In our view, the Panel should have 
considered in detail the treatment o f these categories of companies to determine whether they are 
comparably situated to the predominantly exporting companies rather than seeking to identify the 
existence of a general rule of taxation for structurally credit -accumulating companies.  
5.171.   The European  Union and Japan argue that the Panel did not seek to establish the existence 
of a general rule for credit -accumulating companies, but rather was responding to Brazil's own 
argument that there was a "rule" for credit -accumulating companies providin g for the tax 
suspensions on their supplies.571 We note, in this respect, that the Panel is not bound by the 
arguments raised by a party  and can use those arguments freely to develop its own legal reasoning 
to supports its findings and conclusions in the mat ter under consideration. Moreover, if the panel's 
analysis was shaped solely by the parties' arguments, the panel may not be able to conduct an 
objective assessment of the matter, as required under Article  11 of the DSU.572 It was therefore 
incumbent upon th e Panel to identify the benchmark for comparison in accordance with the legal 
                                                
566 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  813. 
567 Panel  Reports , para.  7.1167 (referring to Law 10,637/2002 (Panel Exhibit JE -94)). 
568 Panel  Reports , para. 7.1167 (referring to  Law 10,637/2002  (Panel Exhibit JE -94)). Similarly, i n its 
determination of the benchmark treatment for the suspensions of the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -Importation and COFINS -Importation contributions on purchases of raw materials, intermediate 
goods, and packaging materials for purposes of the PEC programme , the Panel observed that, in addition to 
the predominantly exporting companies, the relevant suspensions or exemptions app ly to: (i) manufacturers of 
certain products when such products are destined for direct public administration bodies; (ii) companies 
accredited under PADIS and PATVD; (iii) companies qualified under the Special Tax Regime for the Exportation 
Platform of In formation Technology Services (REPES); (iv) companies qualified under the RETAERO; 
(v) companies qualified under the Special Regime for the Defense Industry (RETID); and (v i) companies 
qualified under the REIMCOMP. ( Panel  Reports , para. 7.1183 (referring t o Brazil's response to Panel question 
No. 21))  
569 Panel  Reports , para.  7.1167.  
570 Panel  Reports , para.  7.1183 (referring to Brazil's response to Panel question No. 21).  
571 European  Union's appellee's submission, para.  398; Japan's appellee's submission, para.  133. 
572 Appellate  Body Reports, EC – Hormones , para. 156; Korea – Dairy , para. 139; US – Certain EC 
Products , para. 123. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 standard under Article  1.1(a)(1)(ii) of the SCM  Agreement , regardless of how Brazil had presented 
its arguments on this issue.573 
5.172.   In light of the above, we reverse  the Panel's conc lusions, in paragraphs 7.1171 and  7.1172 
of the Panel  Reports , that "Brazil has not demonstrated that the tax suspensions are the benchmark 
treatment for structurally credit -accumulating companies"574 and that "the treatment applicable to 
purchases by non -accredited companies of raw materials, intermediate goods and packaging 
materials … can be considered as the benchmark treatment or normal rule of general application ."575 
We recall that the Panel relied on its reasoning and findings concerning the IPI tax sus pensions in 
identifying the benchmark treatment for the remaining two categories of the challenged tax 
treatment.576 We therefore also reverse  the Panel's findings, in paragraphs 7.1186 -7.1187  
and 7.1199 -7.1200 of the Panel  Reports , that Brazil has not demon strated that the tax suspensions 
are the benchmark for comparison and that the appropriate benchmark is, instead, the treatment 
applicable to purchases by non -accredited companies of the relevant products. As a result, we also 
reverse  the Panel's findings,  in paragraphs 7.1211, 7.1223, and 7.1238, as well as in paragraphs 
8.7 and 8.18 , of the Panel  Reports , that the tax suspensions granted to registered or accredited 
companies under the PEC and RECAP  programmes constitute financial contributions in the form  of 
government revenue otherwise due that is foregone or not collected and are hence subsidies within 
the meaning of Article  1.1 of the SCM  Agreement  that are  contingent upon export performance 
under  Article  3.1(a) of the SCM  Agreement . 
5.173.   Having reversed the Panel's findings concerning the identification of the benchmark for 
comparison, we do not need to further address Brazil's alternative claims concerning the application 
of Article  1.1(a)(1)(ii) of the SCM  Agreement  and the Panel's asses sment of evidence under 
Article  11 of the DSU.  
5.174.   We now turn to consider whether we can complete the analysis in finding whether the tax 
suspensions granted  to registered or accredited companies under the PEC and RECAP  programmes 
constitute a financial contr ibution in the form of government revenue otherwise due that is foregone 
or not collected under Article  1.1(a)(1)(ii) of the SCM  Agreement . We recall that, in previous 
disputes, the Appellate  Body has completed the analysis with a view to facilitating the prompt 
settlement and effective resolution of the dispute577 and has completed the analysis where the 
factual findings in the panel report and undisputed facts on the panel record provided it with a 
sufficient basis for conducting its own analysis.578 The Appellate Body has declined to complete the 
analysis in light of the complexity of issues, the absence of full exploration of the issues before the 
panel, and considerations pertaining to the parties' due process rights.579 
5.175.   We recall  that the Panel's assessment under Article  1.1(a)(1)(ii) of the SCM  Agreement  was 
based on the benchmark that the Panel considered to be correct, i.e.  the treatment applicable to 
purchases by non -accredited companies. Thus, we first have to determine wheth er we can complete 
                                                
573 We also note that the main point of Brazil's arguments before the Panel was that "an appropriate 
comparison under Article  1.1(a)(1)(i i) should be made between the fiscal treatment of predominantly exporting 
companies and other companies that tend to structurally accumulate credits." (Brazil's second written 
submission to the Panel, para.  216) 
574 Panel  Reports , para.  7.1171.  
575 Panel  Repor ts, para.  7.1172.  
576 We recall that these are: ( i) the suspensions of the PIS/PASEP and COFINS contributions, or 
PIS/PASEP -Importation and COFINS -Importation contributions, on purchases of raw materials, intermediate 
goods , and packaging materials  (for purp oses of PEC); and (ii ) the suspensions of the PIS/PASEP and COFINS 
contributions, or PIS/PASEP -Importation and COFINS -Importation contributions, on purchases of new 
machinery, apparatus, instruments , and equipment incorporated into the fixed assets of the accredited 
company (for purposes of RECAP).  (Panel  Reports , paras.  7.1181 -7.1187 and 7.1197 -7.1200)  
577 See Appellate  Body Reports, EC and certain member States – Large Civil Aircraft , para. 1178; 
US ‒ Large Civil Aircraft (2nd complaint) , para. 1351; EC – Asbestos , para. 78. 
578 See Appellate  Body Reports, Australia – Salmon , paras.  241 and 255; Korea – Dairy , para. 102; 
US ‒ Large Civil Aircraft ( 2nd complaint) , para. 653; US – Section 211 Appropriations Act , para. 343; 
EC ‒ Asbestos , para. 78; China – HP-SSST (Japan) / China – HP-SSST (EU) , para. 5.135; US ‒ Anti-Dumping  
Methodologies (China) , paras.  5.163 -5.164.  
579 See Appellate  Body Reports, Korea – Dairy , para. 102; Canada – Renewable Ene rgy / Canada – 
Feed-in Tariff Program , para.  5.224; EC ‒ Seal Products , paras.  5.63 and 5.69; US – Anti-Dumping  
Methodologies (China) , para. 5.178 . WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the analysis and determine for ourselves the benchmark treatment for the three categories of the 
tax treatment under the PEC and RECAP  programmes identified by the Panel.  
5.176.   We note that the Panel acknowledged that there are other companies , in addition to the 
predominantly exporting companies, that are entitled to the tax suspensions.580 The Panel, however, 
did not examine in detail and did not make specific findings concerning the conditions of eligibility 
for the tax exemptions  of these oth er companies and their operation.  Moreover, in their arguments 
on appeal, the participants focused on  whether the Panel erro neously determined the benchmark by 
focusing on identifying the general rule of taxation, rather than on the identification of the c orrect 
benchmark . In these circumstances, we cannot complete the analysis to find whether there exists a 
financial contribution in the form of government revenue otherwise due that is foregone or not 
collected within the meaning of Article  1.1(a)(1)(ii) of  the SCM  Agreement . Accordingly, we are 
unable to complete the analysis to find whether the tax suspensions granted under the PEC and 
RECAP  programmes constitute subsidies under Article  1.1 of the SCM  Agreement . 
5.4  Article  3.1(b) the SCM  Agreement  
5.4.1   Article  1.1(a)(1)(ii) of the SCM  Agreement : ICT programmes  
5.4.1.1   Introduction  
5.177.   We now turn to consider  Brazil's claim on appeal that the Panel erred in finding that the tax 
treatment of intermediate products and inputs under the ICT programmes constitutes a subsidy 
under Article  1.1 of the SCM  Agreement .581 Brazil contends that the Panel erred in finding that the 
"implicit interest income" with respect to intermediate products and inputs constitutes government 
revenue otherwise due that is for egone under Article  1.1(a)(1)(ii ) of the SCM  Agreement  for two 
reasons. First, Brazil claims that "the Panel failed to compare the treatment accorded to the group  
of taxpayers in the benchmark treatment with the group of taxpayers under the challenged 
treatment."582 Second, Brazil contends  that "the Panel erroneously found that the 'implicit interest 
income' that Brazil purportedly 'foregoes' in respect of intermediate products and inputs under the 
ICT programmes constitutes 'government revenue' that is otherwise 'due' under Article  1.1(a)( 1)(ii) 
of the SCM  Agreement ."583 At the oral hearing, Brazil stated that it also takes issue with the Panel's 
determination of the benchmark treatment for the comparison with the challenged treatment of 
intermediate products and inputs.584 
5.178.   The European  Union a nd Japan submit that the Panel did not err in finding the existence of 
a financial contribution  under Article  1.1(a)(1)(ii) of the SCM  Agreement  for certain categories of the 
tax treatment under the ICT programmes.585 In particular, the European  Union  and Ja pan note that 
the Panel did not disregard within the benchmark the treatment of a group of taxpayers that normally 
offset tax credits within the same taxation period.586 Rather, the Panel took, according to the 
European  Union , a "balanced approach" and weigh ed "all the scenarios that may arise under the 
normal operation of Brazil's tax system and notably the credit -debit mechanism to conclude that 
there was revenue foregone or not collected in the 'rather frequent scenario' where taxpayers cannot 
offset their  tax credits within the same taxation period ".587 The European  Union  and Japan further 
disagree with Brazil's claim that the Panel erred in the interpretation and application of 
                                                
580 Panel  Reports , paras.  7.1167 and 7.1183 (referring to Brazil's response to Panel question No. 21).  
581 Brazil's appellant's submission, para.  177. 
582 Brazil's appellant's submission, para.  180. (emphasis original)  
583 Brazil's appellant's submission, para.  180. Should we agree with Brazil and reverse the relevant 
findings, Brazil requests that we also reverse  the Panel's consequential finding that "the exemption, reduction 
and suspension of taxes on sales of intermediate goods and on purchases of raw materials, intermediate 
goods, packaging materials, inputs, capital goods and computational tools under the ICT  programmes confer a 
'benefit' on the recipient under Article  1.1(b) of the SCM Agreement ." (Ibid., para. 242) Brazil further requests 
that we reverse the Panel's ultimate finding that the relevant tax reductions and exemptions constitute 
subsidies under Article 1 of the SCM Agreement  and declare moot and of no legal effect the Panel's 
recommendation under Article  4.7 of the SCM Agreement  that Brazil withdraw the ICT programmes in 90 days. 
(Ibid., paras.  242-244 (referring to Panel Reports, paras. 7.489 -7.490, 7.493 -7.495, 7.500, 8.5.e, 8.11, 
8.16.f, and 8.22) ) 
584 Brazil's response to questioning at the oral hearing.  
585 Panel  Reports , para. 7.406. d-h. 
586 European  Union's appellee's submission, para.  279; Japan's appellee's submission, para.  90. 
587 European  Union 's appellee's submission, para.  282. See also Japan's appellee's submission, 
paras.  92-94. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Article  1.1(a)(1)(ii) of the SCM  Agreement  in finding that the possible cash availability and implicit 
interest income that the Brazilian Government could earn (had the tax been paid in advance and not 
offset) constitute  revenue otherwise "due" by the taxpayer.588 
5.4.1.2    Panel's findings  
5.179.   At the outset of it s analysis, the Panel recalled the Appellate  Body's statement in US – Large 
Civil Aircraft (2nd complaint)  that, in order to determine whether there is a financial contribution in 
the form of government revenue otherwise due that is for egone or not collect ed under 
Article  1.1(a)(1)(ii) of the SCM  Agreement , a panel must: (i) identify the treatment applicable to the 
alleged recipients of the subsidy and the objective reasons behind it; (ii) identify a benchmark for 
comparison; and (iii) compare the challenge d treatment, and its reasons, to the benchmark 
treatment.589 
5.180.   First, the Panel identified the challenged tax treatment applicable to the accredited 
companies and the objective reasons behind that treatment.590 The Panel noted that "each of the 
examined programm es provides a different package of exemptions, reductions, and/or suspensions 
from one or more particular types of tax."591 The Panel then classified the different tax treatments 
at issue on the basis of: (i) the tax at issue; (ii) whether the tax treatment is on the purchase of 
products by accredited companies or on their sale of incentivized products; and (iii) the degree of 
transformation of the incentivized products. Based on these criteria, the Panel grouped the tax 
treatments into ten categories.592 
5.181.   The Panel then identified a benchmark for each categor y of tax treatment. In every instance, 
the Panel found that "the benchmarks to be applied are the economy -wide tax treatments from 
which the exemptions, reductions and suspensions are taken."593 Having compar ed the challenged 
tax treatments to the benchmark treatments, the Panel concluded that each of the challenged tax 
reductions, exemptions, and suspensions granted to accredited companies on the sales of: 
(i) finished goods that they produce (under the Infor matics, PATVD , and Digital Inclusion 
programmes); (ii)  intermediate goods that they produce (under the Informatics and PADIS 
programmes); and (iii) raw materials, intermediate goods , and packaging materials (under the 
Informatics programme) and inputs, cap ital goods , and computational tools (under the PADIS and 
PATVD programmes) constitute s financial contributions where "government revenue that is 
otherwise due is foregone or not collected ."594 
5.182.   In its analysis with respect to the various tax exemptions and re ductions on the sales of the 
intermediate goods and raw materials, intermediate goods and packaging materials and inputs, and 
capital goods and computational goods, the Panel followed the same analytical approach for all the 
challenged categories of tax tr eatment.595 
5.183.    In particular, regarding the IPI tax exemptions and reductions on sale of incentivized 
intermediate goods (for purposes of the Informatics and PADIS programmes), the Panel observed 
that, under the benchmark treatment, the non -accredited company selling the non -incentivized 
product would charge the relevant tax to the buyer and would transmit it to the Federal Revenue 
Service, while the buyer would accrue a credit that it would be allowed to use to offset its IPI debits 
during the same (i.e. when it pays its monthly liabilities on the twenty -fifth day of the month 
following the transaction) or subsequent taxation periods. If the buyer is not able to offset the credit 
after three taxation periods, it could ask the Brazilian Government for compensati on with other 
                                                
588 European  Union's appellee's submission, paras.  266 and 289; Japan's appellee's submission, 
para. 99. 
589 Panel  Reports , paras.  7.394 -7.395 (referring to Appellate  Body Report, US – Large Civil Aircraft 
(2nd complaint) , paras.  812-815).  
590 Panel  Reports , para.  7.401.  
591 Panel  Reports , para.  7.406.  
592 Panel  Reports , para. 7.406. a-j. On appeal, Brazil takes issue with the Panel's analysis under 
para. 7.406. d-h. (Brazil's  appellant's submission, para. 185 (referring to Panel  Reports , paras.  7.430 -7.475))  
593 Panel  Reports , para.  7.414.  
594 Panel  Reports , paras.  7.488 -7.490. We thus set out the summary of the Panel's findings with respect 
to the IPI tax exemptions and reductions on the sale of incentivized intermediate goods (for purposes of the 
Informatics and PADIS  programmes ) as an example.  
595 Panel  Reports , paras.  7.430 -7.475.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 federal debits or reimbursement.596 The Panel noted that "[i]t is fairly common that companies are 
not able to offset the full amount of their credits and have to request compensation or 
reimbursement, so this scenario seems  rather frequent."597 
5.184.   The Panel observed that, "under the best case scenario for the buyer of the non -incentivized 
intermediate products, the Government will receive the full amount of IPI tax due from the 
non-accredited company selling the non -incentivized intermediate product s and the buyer … will be 
able to offset the amount of IPI tax paid during the same taxation period."598 The Panel further 
observed that, when the buyer of the non -incentivized products is unable to offset the credit during 
the same taxation period, the Brazilian Government will retain the amount of the tax paid by the 
non-accredited company selling the non -incentivized product until the buyer is able to offset it or 
until the Brazilian Government compensates or reimburses the face amount of the credit, without 
interest, to the buyer. The Panel considered that, under the second scenario (i.e. the scenario under 
which the buyer is unable to offset the tax credit during same taxation period ), the Brazilian 
Government would "hold the advantage of cash availability or cash flow, along with the associated 
implicit interest income (revenue) that could be generated on the full amount of that tax that it has 
collected from the seller" .599 The cash a vailability and implicit interest could last from one taxation 
period (i.e. one month) to 360 days. If the reimbursement is made to the buyer within 360 days 
after the request, the Brazilian Government does not have to pay any interest on the use of the 
buyer's money.600 
5.185.   By contrast, the Panel noted that, under the challenged treatment, the accredited seller 
would not charge the tax to the buyer and would not remit it to the Brazilian Government, while the 
buyer would not accrue any tax credits.601 The Panel co nsidered that, in the scenario where the tax 
is paid to the Brazilian Government and offset during the same taxation period, there would be no 
revenue for egone for the Brazilian Government. However, in the Panel's view, in the "rather frequent 
scenario" wh en the buyer is not able to offset the tax credit during the same taxation period, the 
Brazilian Government would forego revenue in the form of the implicit interest on the tax revenue 
collected where the offsetting credits have not been used.602 The Panel n oted that, even though 
ultimately the Brazilian Government would collect the same nominal  amount of tax, this would not 
diminish or eliminate the advantage that the  buyer of the inc entivized intermediate products , rather 
than the Brazilian Government, woul d enjoy in the form of cash availability and the implicit interest 
income due to not having to pay the tax.603 
5.186.   The Panel further recalled that several panels had previously concluded that, whenever there 
is revenue foregone by the government, a benefit is co nferred.604 Thus, having concluded that the 
tax treatments at issue constituted financial contributions where "government revenue that is 
otherwise due is foregone or not collected", the Panel also concluded that the tax measures at issue 
conferred a benefit  because the buyers of the incentivized products under the relevant programmes 
are better off with the exemptions and reductions than in the benchmark scenario.605 The Panel thus 
concluded that the measures at issue constitute subsidies within the meaning of  Article  1 of the 
SCM Agreement .606 
                                                
596 Panel  Reports , para.  7.432. See also Panel  Reports , paras.  7.440, 7.449, 7.458, and 7.468 . 
597 Panel  Reports , para.  7.432. (fn omitted) See also Panel  Reports , paras.  7.440, 7.449, 7.458, 
and 7.468.  
598 Panel  Reports , para.  7.433. See also Panel  Reports , paras.  7.441, 7.450, 7.459, and 7.469.  
599 Panel  Reports , para.  7.433. (fn omitted) See also Panel  Reports , paras.  7.441, 7. 450, 7.459, 
and 7.469.  The Panel remarked that, "[a]ccording to the European  Union, the benchmark rate of the … Central 
Bank [of Brazil] … was, at the time of writing of its first written submission, 13.25%." ( Panel  Reports , fn 790 to 
para. 7.433 (referring to European  Union's first written submission to the Panel, fn 883 to para.  1201))  
600 Panel  Reports , para.  7.433. See also Panel  Reports , paras.  7.441, 7.450, 7.459, and 7.469 . 
601 Panel  Reports , para.  7.434. See also Panel  Reports, paras.  7.442, 7.451, 7.461, and 7.471 . 
602 Panel  Reports , para.  7.436. See also Panel  Reports , paras.  7.444, 7.454, 7.463, and 7.473.  
603 Panel  Reports , para.  7.437. See also Panel  Reports , paras.  7.445, 7.455, 7.464, and 7.474.  
604 Panel  Reports , para.  7.491 (referring to Panel  Reports , US – Large Civil Aircraft (2nd complaint) , 
paras.  7.169 -7.171; Canada – Renewable Energy / Canada – Feed-in Tariff Program , fn 509  to para. 7.271 ; 
US – FSC, para.  7.103; US – FSC (Article 21.5 – EC), paras. 8.44 -8.48; Appellate Body Reports, US – FSC, 
para. 140; US – FSC (Article 21.5 – EC), para. 198 ). 
605 Panel  Reports , paras.  7.493 -7.494.  
606 Panel  Reports , para.  7.495.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.4.1.3   The Panel's benchmark determination  
5.187.   Before turning to address Brazil's claims regarding the Panel's comparison of the benchmark 
treatment with the challenged treatment, we address Brazil's statement, made at the oral heari ng, 
that it takes issue with the Panel's determination of the benchmark in the context of its analysis 
under the ICT programmes. We recall that, in its Notice of Appeal, Brazil did not expressly raise a 
claim concerning the Panel's determination of the ben chmark treatment as relevant to its findings 
under Article  3.1(b) of the SCM  Agreement .607 Furthermore, in its appellant's submission, Brazil has 
argued that "[t]he Panel … correctly held that the appropriate benchmark treatment is 'the treatment 
applicable to sales … by non -accredited companies' ."608 In response to questioning at the oral 
hearing, however, Brazil stated that it takes issue with the Panel's identification of the benchmark 
for comparison with the challenged treatment of intermediate goods and in puts under the 
ICT programmes.609 The European  Union responded that, since this claim was not raised by Brazil 
in its Notice of Appeal and its appellant's submission, we should dismiss it.610 
5.188.   We recall, in this respect, that Rule 20(2)(d) and Rule 21(2)(b) of the Working Procedures 
set out the requirements for the Notice of Appeal and the appellant's submission, respectively. In 
particular, in accordance with Rule 20(2)(d), the Notice of Appeal "shall include" a brief statement 
of the nature of the appeal, comp rising: (i)  "identification of the alleged errors in the issues of law 
covered in the panel  report and legal interpretations developed by the panel"; (ii) "a list of the legal 
provision(s) of the covered agreements that the panel is alleged to have erred i n interpreting or 
applying"; and (iii) "an indicative list of the paragraphs of the panel report containing the alleged 
errors".611 Pursuant to the Rule 21(2)(b)(i) of the Working Procedures, the appellant's submission 
"shall" set out, inter alia, "a precise  statement of the grounds for the appeal, including the specific 
allegations of errors in the issues of law covered in the panel report and legal interpretations 
developed by the panel, and the legal arguments in support thereof".612 
5.189.   Rule 20(2)(d) of the Wor king Procedures serves an important due process function as it 
helps to ensure the balance "that must be maintained between the right of Members to exercise the 
right of appeal meaningfully and effectively, and the right of appellees to receive notice thro ugh the 
Notice of Appeal of the findings under appeal , so that they may exercise their right " to respond.613 
The Appellate  Body has also cautioned that, if a particular claim of error is not raised by the appellant 
in the Notice of Appeal, then that claim is  "not properly within the scope of the appeal, and the 
Appellate  Body will not make findings thereon".614 With regard to the appellant's submission, the 
Appellate  Body has stated that, compared to the Notice of Appeal, this submission "must be more 
specific" , in that it "must be precise as to the grounds of appeal, the legal arguments which support 
it, and the provisions of the covered agreements and other legal sources upon which the appellant 
relies".615 
                                                
607 Brazil's Notice of Appeal, para.  16. We recall that, by contrast, Brazil raised a claim concerning the 
Panel's determination of benchmark treatment under the PEC and RECAP programmes. See section 5.3 of 
these Reports.  
608 Brazil's appellant's submission, para.  186. 
609 Brazil's response to questioning at the oral hearing.  
610 European  Union 's response to questioning at the oral hearing.  
611 Working Procedures, Rule 20(2)(d).  
612 Working Procedures, Rule 21(2)(b)(i).  
613 Appellate  Body Report, US – Countervailing Measures on Certain EC Products , para. 62. 
614 Appellate  Body Report, EC – Fasteners (Ch ina), para. 582 (referring to Appellate  Body Reports,  
US ‒ Countervailing Measures on Certain EC Products , para. 72; EC – Bananas II I (Article  21.5 – Ecuador II) / 
EC – Bananas III ( Article  21.5 – US), para. 285; Japan – Apples , paras.  124-128).  
615 Appellate  Body Report, US – Countervailing Measures on Certain EC Products , para.  59. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.190.   We recall that Brazil's Notice of Appeal provides , in relevant part:  
The Panel erred in finding that the tax exemptions, suspensions and reductions granted 
under the ICT programmes both on the sales of intermediate goods and on the 
purchases of raw materials, intermediate goods, packaging materials, inputs, ca pital 
goods and computational tools constitute financial contributions, in the form of 
government revenue otherwise due that is foregone or not collected, within the meaning 
of Article  1.1(a)(1)(ii) of the SCM  Agreement ;[*]616 
[*fn original]11 See Panel  Report [s], paras.  7.432 -7.433; 7.444 -7.445; 7.454 -7.455; 
7.463 -7.464; 7.473 -7.474; and 7.495.  
5.191.   In its Notice of Appeal, Brazil thus framed its claim under Article  1.1(a)(1)(ii) of the 
SCM Agreement  in broad terms by stating that "[t]he Panel erred in finding that [the tax treatments 
at issue] constitute financial contributions, in the form of government revenue otherwise due that is 
foregone or not collected ." We note, however, that the indicative list of paragraphs in the 
Panel  Reports  containing the alleged errors provided by Brazil in footnote 11 of its Notice of Appeal 
does not refer to paragraphs in which the Panel addressed the benchmark determination. Moreover, 
we note that, in its appellant's submission, Brazil stated, in several instances, that  it agreed with 
the Panel's determination of the benchmark treatment. In particular, Brazil affirmed that "the Panel 
began by correctly stating, in broad terms, the appropriate benchmark for comparison."617 Brazil 
also stated, to the same effect, that the Pa nel "correctly held that the appropriate benchmark 
treatment is 'the treatment applicable to sales … by non -accredited companies, i.e. the obligation to 
pay the full amount of the applicable tax'".618  
5.192.   Thus, in its Notice of Appeal, Brazil formulated its cla im under Article  1.1(a)(1)(ii) of the 
SCM Agreement  in broad terms, which, in principle, could include the Panel's identification of the 
benchmark treatment. However, in its appellant's submission, which is supposed to be "more 
specific" and "precise as to  the grounds of appeal"619, Brazil clearly indicated that it agreed with the 
Panel's identification of the benchmark treatment. Accordingly, Brazil's Notice of Appeal, read 
together with Brazil's appellant's submission, demonstrates that, until the oral hear ing, Brazil did 
not raise a claim regarding the Panel's benchmark determination as it related to its findings under 
Article  3.1(b) of the SCM  Agreement . Moreover, at the oral hearing, Brazil did not develop 
argumentation in support of that claim.  
5.193.   In these circumstances, we consider that Brazil's claim that the Panel erred in its 
determination of the benchmark in the context of its analysis under the ICT programmes was not 
properly raised before us and hence is not within the scope of this appeal. We thus pr oceed to 
address the claims that Brazil has properly raised on appeal.  
5.4.1.4   Whether the Panel erred in its comparison of the benchmark treatment with the 
challenged treatment  
5.194.   Brazil claims that the Panel erred in its comparison of the treatment of intermediate goods 
and inputs under the ICT programmes with the benchmark treatment by "arbitrarily distinguish[ing] 
between taxpayers situated within the benchmark".620 Specifically, Brazil points out that "the Panel 
failed to compare the treatment accorded to the group  of taxpayers in the benchmark treatment 
with the  group of taxpayers under the challenged treatment."621 In Brazil's view, the Panel 
"dismissed as a mere 'best case scenario' the treatment"622 applicable to the companies offsetting 
the entire amount of taxes p aid during the same taxation period and opted to compare the 
challenged treatment to a small group of taxpayers within the benchmark, i.e. those that are unable 
to offset the full amount of tax credits during the same taxation period.623 Brazil considers tha t the 
comparison that the Panel should have undertaken is analogous to the assessment of less favourable 
                                                
616 Brazil's Notice of Appeal, para.  16 and fn 11 thereto.  
617 Brazil's appellant's submission, para.  185. 
618 Brazil's appellant's submission, para.  186 (quoting Panel  Reports , paras.  7.430, 7.438, 7.447, 7.456, 
and 7.466).  
619 Appellate  Body Report, US – Countervailing Measures on Certain EC Products , para. 59. 
620 Brazil's appellant's submission, para.  189. (emphasis omitted)  
621 Brazil's appellant's submission, para.  180. (emphasis original)  
622 Brazil's appellant's submission, para.  188. 
623 Brazil's appellant's submission, para.  189. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 treatment under Article  III:4 of the GATT  1994.624 Specifically, Brazil contends that, "[i]n order to 
establish that the ICT programmes involved the fore going of revenue otherwise due, the Panel was 
required to compare the treatment of the group  of taxpayers under those programmes with the 
group  of taxpayers in the benchmark treatment."625 
5.195.   The European  Union  and Japan submit that the Panel did not commit an error in comparing 
the treatment provided under the ICT programmes with the tax treatment granted to the 
non-accredited companies.626 Rather, as the European  Union explains, the Panel conducted an 
"overall a ssessment of the tax treatment provided to similarly situated taxpayers, i.e.  including 
those more frequently accumulating tax credits".627 Japan adds that the Panel "made a carefully 
considered determination that, at least in some factual situations , accred ited companies … are better 
off than those within the benchmark , and the Brazilian Government, by contrast, is foregoing 
revenue that would be otherwise due".628 
5.196.   The foregoing (or non -collection) of revenue otherwise due under Article  1.1(a)(1)(ii) of the 
SCM Agreement  implies that less (or no) revenue has been raised by the government than would 
have been raised in a different situation.629 As noted above, the Appellate  Body has previously 
explained that  a panel should follow a three -step test  in order to dete rmine whether the revenue 
that is otherwise due is foregone or not collected under Article  1.1(a)(1)(ii) of the 
SCM Agreement .630 Specifically, a panel examining a claim under Article  1.1(a)(1)(ii) of the 
SCM Agreement  must: (i)  identify the tax treatment th at applies to the income of the alleged subsidy 
recipients631; (ii) identify a benchmark for comparison632; and (iii) compare the challenged treatment 
and reasons for it with the benchmark tax treatment.633 Brazil takes issue with the Panel's analysis 
under the third step of the test, i.e. the comparison of the challenged treatment and its reasons with 
the benchmark tax treatment.634 We recall that the Appellate  Body observed, in this respect, that 
"[s]uch a comparison will enable a panel to determine whether, in t he light of the treatment of the 
comparable income of comparably situated taxpayers, the government is foregoing revenue that is 
otherwise due in relation to the income of the alleged recipients."635 
5.197.   We note that the structure and operation of the tax exemptions and suspensions under the 
various categories of the tax treatments identified by the Panel are similar. Moreover, the Panel's 
comparison of the benchmark treatment follows the same logic and st ructure for all the relevant 
                                                
624 Brazil's appellant's submission, para.  190 (referring to Appellate  Body Report, EC – Asbestos , 
para. 100).  
625 Brazil's appellant's submission, para. 191. (emphasis original)  
626 European  Union's appellee's submission, para.  284; Japan's appellee's submission, para.  95. 
627 European  Union's appellee's submission, para.  284. 
628 Japan's appellee's submission, para. 94. 
629 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (referring to 
Appellate  Body Report, US – FSC, para. 90). 
630 See paragraph 5.162 above.  
631 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  812. The Appellate  Body has 
observed that "[i]dentifying such tax treatment will entail consideration of the objective reasons behind that 
treatment and, where it involves a change in a Member's tax rules, an assessment of the reasons underlying 
that change." (Ibid.)  
632 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  813. 
633 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 814. 
634 Brazil's appellant's submission, para.  191. 
635 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 814. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 categories of tax treatment of intermediate products and inputs.636 We thus review the Panel's 
analysis with respect to the IPI tax exemptions and reductions on the sales of the incentivized 
intermediate goods under the Informati cs and PADIS programmes as an example.637 
5.198.   We recall that, having identified the benchmark treatment as the treatment of 
non-accredited companies, the Panel proceeded to examine how the relevant general rules of 
taxation operate with respect to the non -accred ited companies. The Panel explained that, under the 
benchmark treatment, the buyer of the non -incentivized product would pay the tax to the 
non-accredited seller, who would transmit it to the Brazilian Government. The buyer, in turn, would 
accrue a tax cre dit, which it would be able to offset against its future tax liabilities, i.e. tax debits. 
It would be able to do so within the same taxation period or within three months since the date of 
the transaction. If the company is unable to do so, it could reque st the  Brazilian  Government to 
compensat e or reimburse the taxes that could not be offset. The Brazilian Government has 360 days 
to respond to such a request, and if it does not do so within that time, the buyer of the 
non-incentivized products will be ent itled to compensation or reimbursement a nd the interest 
generated.638 The Panel then noted that "[i]t is fairly common that companies are not able to offset 
the full amount of their credits and have to request compensation or reimbursement, so this scenario 
seems rather frequent."639 
5.199.   In comparing  "the challenged treatment with the best case scenario for the buyer of the 
non-incentivized  products at issue under the benchmark treatment " (i.e. the scenario where the tax 
is paid to the Brazilian Government and offs et during the same taxation period), the Panel found 
that "there would be no revenue forgone by the Brazilian Government, as the government would 
not earn the implicit interest on unused credits."640 
5.200.   By contrast , the Panel noted that, under the "rather frequent scenario", the buyer of the 
non-incentivized products would not be able to offset the tax credit it has accrued during the same 
taxation period in which the tax is paid.641 According to the Panel, in this scenario, the Brazilian 
Government would ret ain the amount  of tax paid by the non -accredited company until the buyer is 
able to offset it during the subsequent taxation periods, or until the Brazilian Government 
compensates or reimburses the amount of the credit to the buyer within 360 days from the  request 
for compensation or reimbursement.642 Having compared this scenario to the challenged treatment, 
the Panel concluded that,  "under this rather frequent scenario, the Brazilian Government is foregoing 
revenue in the form of the implicit interest on th e tax revenue collected where the offsetting credits 
have not (yet) been used."643 
5.201.   In Brazil's view, the Panel "dismissed as a mere 'best case scenario' the treatment generally 
applicable to taxpayers in the benchmark", i.e. offsetting the entire amount of t axes paid during the 
same taxation period, and "opted to compare" the tax treatment at issue with what it considered to 
                                                
636 Panel  Reports , paras.  7.430 -7.475. We recall that Brazil takes issue with the Panel's analysis with 
respect to the following categories of the tax treatment: (i) t he IPI tax exemptions (including through zero 
rates) and reductions granted to accredited companies on their sales of the incentivized intermediate goods 
that they produce (for purposes of the Informatics and PADIS  programmes ); (ii) the exemptions (through  zero 
rates) of the PIS/PASEP and COFINS contributions granted to accredited companies on their sales of the 
incentivized intermediate goods that they produce (for purposes of the PADIS  programme); (iii) t he IPI tax 
suspensions on purchases of raw material s, intermediate goods , and packaging materials (for purposes of the 
Informatics  programme ) and IPI tax exemptions (through zero rates) on purchases of inputs (for purposes of 
the PADIS and PATVD  programmes ) used to manufacture the incentivized products ; (iv) the exemptions 
(though zero rates) of the PIS/PASEP and COFINS contributions or PIS/PASEP -Importation and 
COFINS -Importation contributions on purchases of inputs (for purposes of the PADIS and PATVD  programmes ) 
used to manufacture the incentivized produ cts; and (v) t he exemptions (through zero rates) of the PIS/PASEP 
and COFINS contributions or P IS/PASEP -Importation and COFINS -Importation contributions on purchases of 
certain capital goods and computational tools (for purposes of the PADIS and PATVD  programmes ) used to 
manufa cture the incentivized products  that will be incorporated into the fixed assets of the accredited 
company . (Brazil's appellant's submission, para. 185)  
637 Panel  Reports , paras.  7.431 -7.437.  
638 Panel  Reports , para. 7.432.  
639 Panel  Reports , para.  7.432 (referring to Brazil's first written submission  to the Panel , para. 758 
(DS472) and para.  691 (DS497); Exporters  2014 study on Brazilian exports – delays in refunds ( Panel Exhibit 
JE-186), p.  55; European  Union 's first written submission  to the Panel , fn 849 to para.  1172).  
640 Panel  Reports , para.  7.436.  
641 Panel  Reports , paras.  7.432 -7433.  
642 Panel  Reports , para.  7.433.  
643 Panel  Reports , para.  7.436.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 be the " 'rather frequent ' scenario".644 By doing so, in Brazil's view, the Panel "arbitrarily 
distinguish[ed] between taxpayers situated within  the benchmark".645 
5.202.   We disagree with Brazil's characterization of the Panel's approach to comparing the 
challenged treatment to the selected benchmark treatment. As we see it, the Panel did not treat 
only one subset of taxpayers (i.e. those that are un able to offset the amount of the tax paid during 
the same taxation period) as the benchmark for the purposes of comparison. Rather, having 
explained in detail how the mechanism of credits and debits under the principle of non -accumulation 
works, the Panel concluded that, under the normal rule of general application of Brazil's tax system, 
there are two possible factual scenarios: one in which the buyer of non -incentivized products will be 
able to offset the amount of the tax paid during the same taxation pe riod, and the other one when 
this would not be possible. The Panel then reached a conclusion as to whether the Brazilian 
Government overall foregoes revenue otherwise due based on both scenarios.  
5.203.   In our view, the Panel did not "dismiss", as Brazil argues, the scenario in which the buyer of 
non-incentivized products is able to offset the amount of the tax paid during the same taxation 
period. Rather, the Panel made an express finding that, under this scenario, "there would be no 
revenue forgone by the Brazil ian Government ."646 We consider that, in comparing the challenged 
tax treatment to the benchmark treatment, the Panel correctly examined both possible factual 
scenarios that result from the application of the normal rules of Brazil's tax system.  
5.204.   Brazil also takes issue with the Panel's characterization of the scenario in which the buyer is 
not able to offset the amount of the tax paid during the same taxati on period as a "rather frequent  
scenario ".647 Brazil points out that "normally" taxpayers offset the taxes  paid during the same 
taxation period and that the group of taxpayers that do es not is "exceedingly small".648 According 
to Brazil "between 18.5 and 22.5% of exporting c ompanies tend to accumulate credits ."649 We 
understand credit accumulation to occur when th e tax liability is very low or subject to a zero rate, 
so that companies that have acquired tax credits by purchasing inputs and components would not 
have sufficient tax debits to offset them.650 
5.205.   As we see it, the Panel's finding that "[i]t is fairly common that companies are not able to 
offset the full amount of their credits and have to request compensation or reimbursement"651 was 
based on the evidence on the record, including that submitted by Brazil. In particular, the Panel 
explained that:  
Brazil acknowle dges that "many sectors of the economy have their products subject to 
low or no taxation, reflecting the selective nature and the extra -fiscal character of 
indirect taxes in Brazil. These sectors tend to accumulate tax credits, as the tax debits 
due are lo wer than the credit acquired in the previous step of the production chain."652 
5.206.   Indeed, before the Panel, Brazil explained that, while normally companies offset their tax 
credits within the same taxation period, "many sectors " of the economy "tend to accumula te" 
them.653 Brazil made this statement in the context of the PEC and RECAP programmes, which were 
challenged under Article  3.1(a) of the SCM  Agreement . In that context, Brazil argued that certain 
sectors of the Brazilian economy tend to accumulate credits. However, we consider that this 
                                                
644 Brazil's appellant's submission, para.  188. 
645 Brazil's appellant's submission, para.  189. (emphasis original)  
646 Panel  Reports , para.  7.436.  
647 Panel  Reports , para. 7.432.  
648 Brazil's appellant's submission, para.  192 and fn 128 thereto.  
649 Brazil's appellant's submission, fn 128 to para.  192. (emphasis original)  
650 For example, as Brazil explained before the Panel, in the context of its claims under Article  3.1(a) of 
the SCM  Agreement , the n ational  defence sector accumulates credits because industrial defenc e products and 
services are subject to zero PIS/ COFINS rates when destined for use by the a rmy. (Brazil's first written 
submission to the Panel, para.  769 (DS472))  
651 Panel  Reports , para.  7.432.  
652 Panel  Reports , fn 789 to para.  7.432.  Footnote 789 continues: " Also, for instance, according to a 
2014 Study by the Brazilian Industry Confederation, 'a little more than one third of the surveyed exporting 
companies (34.3%) possess tax credits under PIS/COFINS, IPI and/or ICMS accumulated and not refunded for 
a period  over three months.'  (22.5% of the companies possess tax credits under the PIS/COFINS contributions 
and 18.5% possess tax credits under the IPI tax). " See Exporters  2014 study on Brazilian exports – delays in 
refunds ( Panel Exhibit JE -186), p. 55; European  Union 's first written submission, fn 849 . 
653 Brazil's first written submission to the Panel, para. 758 (DS472) and para. 691 (DS497).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 statement is also relevant to the ICT programmes. This is because structural accumulation may 
occur whenever taxes on added value are lower than those on inputs or intermediate products, with 
the effect  that the buyer would not owe enough taxes to make use of its accumulated  tax credits . 
5.207.   We further note Brazil's argument that the Panel should have undertaken a comparison akin 
to the assessment  of less favourable treatment under Article  III:4 of the GATT  1994. Specifically, 
Brazil refers to the Appellate  Body Report in EC ‒ Asbestos , in which the Appellate  Body stated that, 
in assessing the existence  of less favourable trea tment, imported products as a group must be 
compared to the group of like domestic products.654 
5.208.   We do not see how this legal test, used for determining less favourable treatment under 
Article  III:4 of the GATT  1994, could be transplanted into the analysis un der Article  1.1(a)(1)(ii) of 
the SCM  Agreement . We recall that, under Article  III:4 of the GATT  1994, the less favourable 
treatment must affect  the group of imported products, as compared to the group of like domestic 
products. There is an inconsistency un der Article  III:4 only if imported products from the 
complaining Member, as a group, are treated less favourably than the group of like domestic 
products.655 
5.209.   By contrast, a subsidy is always conferred upon certain recipients. The Appellate  Body has 
observed that, in determining  the existence of the revenue otherwise due that is for egone under 
Article  1.1(a)(1)(ii), "like will be compared with like", and that it is important to ensure that the 
examination under Article  1.1(a)(1)(ii) "involves a comparison of t he fiscal treatment of the relevant 
income for taxpayers in comparable situations".656 Thus, to determine whether the revenue that is 
otherwise due is foregone, the challenged treatment must be compared to an objectively identifiable 
benchmark. This does not  presuppose, however, that such a comparison should necessarily be made 
between the group of the entities that allegedly benefit s from a subsidy, on the one hand, and the 
group of all the other entities, on the other hand. Accordingly, even if not all taxpayers in the 
benchmark group are paying the full amount of the relevant tax, this would not necessarily mean 
that there is no revenue foregone with respect to the taxpayers benefit ing from a subsidy.  
5.210.   Thus, while both the analysis of less favourable treatment under Article  III:4 and the 
examination under Article  1.1(a)(1)(ii) involve comparisons, this does not mean that the same 
analytical framework that applies to the examination of le ss favourable treatment under Article  III:4 
of the GATT  1994 is also applicable mutatis mutandis to the comparison of the benchmark tax 
treatment and the challenged tax treatment for purposes of determining whether revenue for egone 
under Article  1.1(a)(1)( ii) of the SCM  Agreement  exists.  
5.211.   In any event, comparing the fiscal treatment of taxpayers in comparable situations is exactly 
what the Panel did by comparing the treatment applicable to sales by non -accredited companies of 
non-incentivized products to tha t of the accredited companies. The fact that some non -accredited 
companies are able to offset their tax credits while others are not stems from the application of the 
normal rules of the Brazilian tax system, including the functioning of the credit -debit m echanism. 
We see nothing improper with the manner in which the Panel addressed both possible scenarios in 
its analysis.  
5.4.1.5   Whether the Panel erred in finding that cash availability and implicit interest 
constitute revenue "otherwise due"  
5.212.   Brazil claims that "t he Panel failed to give adequate meaning to the terms 'government 
revenue' and 'otherwise due' in Article  1.1(a)(1)(ii) of the SCM  Agreement " by considering that the 
cash availability and the implicit interest on unused credits that the Brazilian Governmen t earns in 
the situations when tax credits were not offset withi n the same taxation period fall  under the scope 
of these terms.657 Brazil contends that "the alleged 'implicit interest' is not a form of 'government 
                                                
654 Brazil's appellant's submission, para.  190 (referring to Appellate  Body Report, EC – Asbestos , 
para. 100).  
655 Appellate  Body Report, EC – Asbestos , para. 100. 
656 Appellate  Body Report, US – FSC ( Article  21.5 – EC), paras.  90 and 92. 
657 Brazil's appellant's submission, para.  195. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 revenue' that is 'due' to the Brazilian gove rnment by the taxpayer."658 In Brazil's view, due to the 
functioning of the credit -debit mechanism , the Brazilian Government is not due to benefit from any 
cash availability or any implicit interest income in relation to the time when the tax is collected.659 
5.213.   In response, the European  Union and Japan submit that Brazil's narrow interpretation of the 
"government revenue … otherwise due [that] is foregone or not collected" should be rejected. The 
European  Union considers that the foregoing of the cash availabilit y and implicit interest by the 
Brazilian Government is akin to tax deferrals, which constitute the revenue for egone.660 The 
European  Union points out that "paragraph (e) in Annex  I to the SCM  Agreement  explicitly 
contemplates the 'deferral' of direct taxes o r social welfare charges as an illustration of what can 
amount to an export subsidy ."661 Japan submits that it sees "no basis" for Brazil's argument that the 
interest foregone by the Brazilian Government, even if implicit, "is not … a form of current or futu re 
revenue".662 
5.214.   The United  States , as a third participant, recalls that the Appellate  Body stated in US – Large 
Civil Aircraft (2nd complaint)  that " 'the foregoing of revenue otherwise due implies that less revenue 
has been raised by the government than woul d have been raised in a different situation ,' and that 
'the word "foregone " suggests that the government has given up an entitlement to raise revenue 
that it could "otherwise " have raised. '"663 To the United  States, "if a measure exempts taxes that 
would otherwise have to be paid but for the measure, a financial contribution has been provided: 
government revenue, otherwise due, is clearly foregone."664 Likewise, "if a measure suspends  taxes 
that are later paid further down the production chain, a financial c ontribution has still been provided: 
at the time in which government revenue would otherwise be due, it is foregone (albeit 
temporarily)."665 
5.215.   Turning to Brazil's claim, we recall that, in conducting its comparison of the challenged 
treatment to the benchmark  treatment, the Panel considered that, under a "rather frequent " 
scenario666, non-accredited companies will not be able to offset the full amount of their tax credits 
during the same taxation period and would have to: (i) offset them during the subsequent ta xation 
periods; or (ii) request compensation or reimbursement from the government.667 As the Panel 
observed, in these circumstances, the government "will retain the amount of tax paid by the 
non-accredited company selling the non -incentivized intermediate pr oduct until the buyer of the 
non-incentivized products is able to offset it (during subsequent taxation periods); or until the 
Brazilian Government compensates or reimburses the face amount of the credit, without interest, to 
the buyer of the non -incentivi zed products" .668 
5.216.   By contrast, when the challenged tax exemptions and reductions apply, the buyer of the 
intermediate products or raw and packaging materials, inputs, capital goods, or computational tools 
does not pay the IPI tax and does not obtain a tax cr edit, while the seller does not transmit any 
money to the Brazil ian Government . Only after the industrialized finished or intermediate product is 
sold to the wholesaler will the industrial establishment transfer the amount of tax to the 
Brazil ian Governmen t.669 
5.217.   In the scenario when a non -accredited company is not able to offset its tax credits during 
the same taxation period, the key difference between the situation when the tax exemptions and 
reductions apply and the benchmark treatment is the time when the Brazilian Government obtains 
                                                
658 Brazil's appellant's submission, para.  199. Brazil also points out that "[g]overnments are not akin to 
financial institutions and do not recognize 'float' interest that accrues between the time of collection and 
payment of taxes as a revenue against which  public expenses are met." (Ibid., para.  198) 
659 Brazil's appellant's submission, para.  200. 
660 European  Union's appellee's submission, paras.  289-291 (referring to Panel  Report , US ‒ FSC, 
para. 7.98; Appellate  Body Report, US – FSC, para.  90). 
661 European  Union's appellee's submission, para.  290. (emphasis original)  
662 Japan's appellee's submission, para.  99. 
663 United  States ' third participant's submission, para.  25 (quoting Appellate  Body Report, US – Large 
Civil Aircraft (2nd complaint) , para.  806).  
664 United  States ' third participant's submission, para.  25. (emphasis original)  
665 United  States ' third participant's submission, para.  25. (emphasis original)  
666 Panel  Reports , para.  7.432. (fn omitted)  
667 Panel  Reports , paras.  7.432 -7.433.  
668 Panel  Reports , para. 7.433.  
669 Panel  Reports , paras.  7.434, 7.442, 7.452, 7.461, and 7.471.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the tax from the seller of the product. Under the benchmark treatment, this would be at the 
beginning of the industrialization process, i.e. when the non -accredited seller tra nsmits the tax to 
the Brazilian  Government . By contr ast, when the taxes are exempted or reduced, the Brazilian 
Government would receive the applicable amount of the tax when the industrialized product is sold 
to the wholesaler.  
5.218.   Under the credit -debit mechanism pursuant to the principle of non -accumulation, the amount 
of the tax paid by the non -accredited company ultimately  will be offset either against its tax debits 
(within three taxation periods) or compensated or reimbursed by the Brazilian Government within 
360 days (or later, in which case interest will  apply).670 In the meantime, however, the Brazilian 
Government will retain the amount of the tax transmitted to it. The Panel explained, with respect to 
the position of the Government in these circumstances, the following:  
[T]he Brazilian Government thus wil l hold the advantage of cash availability or cash 
flow, along with the associated implicit interest income (revenue) that could be 
generated on the full amount of that tax that it has collected from the seller. This cash 
availability and associated implici t interest can last from one taxation period (if the 
buyer is able to offset the credit during the second taxation period) to 360 days after 
the request for compensation or reimbursement (if the buyer has to request it). During 
this period, the government is able to make use of the taxes received (i.e., "earning" 
implicit interest). So long as the compensation or reimbursement is made to [the] buyer 
of the non -incentivized products within 360 days after the request, the Brazilian 
Government will not have to  pay the buyer of the non -incentivized products any interest 
on the use of the buyer's money during that period. Only if 360 days are surpassed is 
the government obligated to compensate or repay to the buyer of the non -incentivized 
products not just the fa ce amount of the credit but also the associated interest. Thus, 
it is only after 360 days that the government would no longer enjoy the implicit interest 
revenue from the free use of the buyer's money that is blocked in the form of its 
credit.671 
5.219.   Indeed, as the Panel explained, under the benchmark treatment, the Brazilian Government 
will collect the tax and retain the amount of the tax paid for a period that can last from one month 
to 360 days. During this period of time, the Brazilian Government will be able  to use it and generate 
interest on it until the non -accredited company is able to offset its tax credits or until the Brazilian 
Government compensates or reimburses the amount of the tax paid. In this respect, the amount of 
the tax and the potential impli cit interest that could be generated constitutes what is "due" to the 
Brazilian Government under the benchmark treatment. We note that, in its analysis, the Panel 
referred to the European  Union's observation that the benchmark interest rate of the Central Bank 
of Brazil  was, at the time of writing of its first written submission  to the Panel, 13.25%, a rate that 
appears to be significant.672 As noted, while the amount of the tax that is collected by the Brazilian 
Government under the challenged treatment and under the benchmark scenario may nominally be 
the same, the timing of the tax collection will differ. When the relevant taxes are exempted or 
reduced, the payment of the tax will be postponed until the final stage of the production chain, when 
the industri alized product is sold to the wholesaler.  
5.220.   A government foregoes or does not collect the "revenue that is otherwise due" in a situation 
where it gives up or relinquishes its entitlement to collect revenue that is owed or payable in other 
circumstances.673 In the present dispute, when the tax exemptions and reductions apply, the 
Brazilian Government does not collect in full the tax revenue when it normally would, or collects it 
in part. The fact that, ultimately, the amount of the tax collected under the benchm ark treatment 
and the challenged treatment may nominally  be the same does not detract from the fact that, under 
the benchmark treatment, in the scenario when non -accredited companies are unable to offset their 
credits immediately, the Brazilian Government would collect and retain, for a certain period, the 
amount of tax payable to it. During this period of time, the Brazilian Government can enjoy the cash 
                                                
670 Panel  Reports , para.  7.433.  
671 Panel  Reports , para.  7.433. (fns omitted)  
672 Panel  Reports , fn 790 to para.  7.433 (referring to the European  Union's first written submission to 
the Panel, fn 883 to para.  1201).  
673 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  806 (referring to 
Appellate  Body Report, US – FSC, para.  90). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 available to it and earn interest on it.674 By contrast, when tax exemptions and reductions are 
applied, the Brazilian Government collect s the tax later in time and does not enjoy the availability 
of cash as it otherwise would under the benchmark treatment. Thus, under the challenged treatment, 
the Brazilian Government would not collect the tax at the time it  normally would under the 
benchmark treatment. By doing so, in our view, the Brazilian Government would not collect the 
revenue that would be otherwise due to it.675 
5.221.   Accordingly, in the scenario where the buyer is unable to offset the credit during the same 
taxation period, the non -collection of the tax revenue by the Brazilian Government at the time when 
it normally would do so amounts to "government revenue that is otherwise due" being  "foregone or 
not collected" within the meaning of Article  1.1(a)(1)(ii) of the SCM  Agreement . 
5.222.   On the basis of the above, we do not consider that the Panel erred in finding that the tax 
treatment  of intermediate products and inputs under the ICT programmes constitutes a subsidy 
under Article 1.1 of the SCM Agreement. W e thus uphold the Panel's findings, in paragraphs 7.436, 
7.444, 7.454, 7.463, 7.473, 7.489 -7.490, and 7.495 of the Panel  Reports , that each of the 
challenged tax exemptions, reductions, and suspensions granted to accredited companies on (i) the 
sales of intermediate goods that they produce , and (ii) the purchases of raw materials, intermediate 
goods , and packaging materials  (under the Informatics programme) and inputs, capital goods , and 
computational goods (under the PADIS and PATVD programmes) constitut es financial contributions 
where "government revenue that is otherwise due is foregone or not collected" under 
Article  1.1(a)(1)(ii) of the SCM  Agreement . 
5.4.2   Article  3.1(b) the SCM  Agreement  – import substitution  
5.4.2.1   Introduction  
5.223.   We now turn to consider Brazil's claim on appeal that the Panel erred in finding that the PPBs 
and other production -step requirements under the four ICT  programmes (Informatics, PADIS, 
PATVD, and Digital Inclusion programmes) are contingent upon the use of  domestic goods, 
inconsistently with Article  III:4 of the GATT  1994, and that they also constitute a contingency on 
the use of domestic over imported goods within the meaning of Article  3.1(b) of the 
SCM Agreement .676  
5.224.   Brazil submits that the Panel's finding s under Article  III:4 of the GATT  1994 imply that 
"whenever the requirement to perform certain manufacturing steps in Brazil as a condition to receive 
the subsidy involves the production of a specific input, part or component that could have been 
sourced f rom foreign producers, there would be ipso facto, and without further examination, 
discrimination within the meaning of Article  III:4."677 Moreover, Brazil considers that the Panel found 
that the ICT  programmes are inconsistent with Article  3.1(b) simply bec ause the subsidy at issue is 
contingent upon production in Brazil. In this respect, Brazil contends that the Panel's reasoning is 
inconsistent with the Appellate  Body's findings under Article  3.1(b) of the SCM  Agreement  in 
US ‒ Tax Incentives .678 In Brazil's  view, the Panel "simply presumed that because PPBs can result 
in the production of inputs and components and that some of the production steps can be outsourced, 
the subsidy granted under the ICT  programmes will always be de jure  conditioned upon the use of 
domestic over imported goods, despite the fact that the PPBs do not contain any language requiring, 
either in explicit terms or by necessary implication … the use of products, whether domestic or 
imported" .679 Brazil underscores that the PPBs and similar production -step requirements relate to 
                                                
674 We recall, in this respect, the Panel's observation that, according to the European Union, the 
benchmark interest rate of the Central Bank of Brazil was, at the time of the first written  submission to the 
Panel, 13.25%. ( Panel  Reports , fn 790 to para. 7.4 33) 
675 Taxes are deferred  when they are collected later in time than they would normally be.  We note that 
paragraph (e) of Annex  I to the SCM  Agreement  refers to "[t]he full or partial exemption remission, or deferral 
specifically related to exports, of dir ect taxes or social welfare charges paid or payable by industrial or 
commercial enterprises" as an example of what could constitute an export subsidy.  
676 Brazil's appellant's submission, paras.  157 and 240.  
677 Brazil's appellant's submission, para.  159. 
678 In Brazil's view, the statements of the Appellate  Body in that dispute "apply with equal force in the 
context of Article  III:4 of the GATT  1994". (Brazil's appellant's submission, para.  163) 
679 Brazil's appellant's submission, para. 220. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the location of certain manufacturing steps in Brazil and do not prevent the possibility of using 
imported products.680  
5.225.   The European  Union  and Japan respond that the Panel' s analysis under Article  III:4 focused 
on the "conditions for companies to obtain accreditation and thereby be eligible for the tax 
exemptions, reductions or suspensions under the programmes" .681 With respect to Brazil's claim that 
the Panel erred in finding  that the tax exemptions and reductions granted under the ICT  programmes 
constitute prohibited subsidies under Article  3.1(b) of the SCM  Agreement , the European  Union and 
Japan submit that the Panel did not base its findings on the effects of the subsidies , but on the 
conditions of eligibility for them, which impose the use of domestic components under the guise of 
production -step requirements.682 In the European  Union's view, by doing so, the Panel correctly 
applied the legal standard under Article  3.1(b) as  elaborated by the Appellate  Body in US – Tax 
Incentives . The European  Union notes that, in US – Tax Incentives , the Appellate  Body observed 
that "the term 'use' may also refer to incorporating a component into a separate good and that it 
may refer to any type of good that may be used by the subsidy recipient, including parts or 
components that are incorporated into another good."683 In the European  Union's view, this is exactly 
the situation in the present case. For its part, Japan considers that what the Pa nel found to be 
problematic was not the outsourcing of the production steps, but the structure of accreditation under 
which PPBs and other production -step requirements condition the receipt of the subsidies on the use 
of domestic over imported goods under Article  3.1(b) of the SCM  Agreement .684 
5.226.   Before addressing the issues raised on appeal, we provide a summary of the relevant Panel 
findings and set out the legal standard under Article  3.1(b) of the SCM  Agreement .  
5.4.2.2   Panel's findings  
5.227.   Before the Panel, the Europ ean Union  and Japan raised claims under Article  III:4 of the 
GATT  1994 and Article  3.1(b) of the SCM  Agreement  in relation to the four ICT  programmes. 
In particular, the complainants claimed that the ICT  programmes: (i) introduce regulatory 
discrimination against imported inputs , in the form of incentives to use domestically produced 
components and subassemblies in the production of finished or intermediate products, inconsistently 
with Article  III:4 of the GATT  1994; and  (ii) constitute prohibited subsidie s contingent upon the use 
of domestic over imported products, inconsistent with Article  3.1(b) of the SCM  Agreement .685  
5.228.   The European  Union  and Japan explained before the Panel that, to receive the relevant tax 
benefits under the ICT  programmes, manufacturer s must comply with certain production -step 
requirements. According to the complainants, the process of complying with each required 
production step specified in PPBs or otherwise results in the creation of an "input" good that then 
must be "used" in an ens uing step or steps in the production of the incentivized finished or 
intermediate product.686 The complainants made this argument regardless of whether a single 
company itself performs all of the production steps and thus itself creates the inputs in questio n (the 
"in-house" scenario), or instead outsources some production steps to third parties, by acquiring from 
                                                
680 Brazil's a ppellant's submission, para.  222. 
681 European  Union's appellee's submission, para.  259 (quoting Panel  Reports , para.  7.193) (emphasis 
omitted). The European  Union notes that the Panel found that the PPBs are a set of product -specific production 
steps that m ust be performed in Brazil in order for a company to benefit from the tax incentives with respect to 
that product. (Ibid.) See also Japan's appellee's submission, para.  79 (referring to Panel  Reports , para.  7.313).  
682 European  Union's appellee's submission,  para. 320; Japan's appellee's submission, paras.  103 and 
108. The European  Union recalls, in particular, the Panel's finding that any accredited company has to comply 
with production steps "in order to obtain accreditation and then [to] obtain the relevan t tax benefits".  
(European  Union's appellee's submission, para.  319 (quoting Panel  Reports , para.  7.277) (emphasis omitted)) 
The European  Union also notes that the Panel focused on the element of contingency when examining the 
nested PPBs. (Ibid.)  
683 Europe an Union's appellee's submission, para.  321 (referring to Appellate  Body Report, US – Tax 
Incentives , paras.  5.8-5.9). (fns omitted)  
684 Japan's appellee's submission, para.  102. 
685 Panel  Reports , paras.  7.2, 7.271, and 7.366.  
686 Panel  Reports , para. 7.271. T he complainants considered that "'the requirement to perform certain 
manufacturing steps in Brazil [in all cases] is tantamount to requiring the incorporation of domestic co ntent 
into the finished product' , whenever the performance of those manufacturing st eps results in the creation of a 
product. " (Ibid., para.  7.272 (quoting Japan's first written submission to the Panel, para.  296; referring to 
European  Union's first written submission to the Panel, para.  600))  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 them the outputs of those production steps, which it then incorporates as inputs into its production 
of the incentivized product (the "outsourcing"  scenario).687 
5.229.   The Panel observed that a finding that the alleged requirement to use domestic goods exists 
would "lead ipso facto to the further finding of inconsistency with Article  III:4 of the GATT  1994"688, 
and would also constitute a finding of contingenc y in the sense of Article  3.1(b) of the 
SCM Agreement .689  
5.230.   The Panel noted that all four ICT  programmes refer to production -step requirements 
contained in PPBs or in other legal instruments.690 Depending on the PPB, certain production steps 
must be performed by the accredited company producing the incentivized finished or intermediate 
product at issue, while others may be performed by "third parties" based in Brazil.691 The Panel 
examined how PPBs  operate in practice in the ICT  programmes, including through two illustrative 
examples692, namely, the PPB for Optical Splice Closures and th e one  for Speed Alarms, Tracking 
and Control, which it considered "broadly representative of how the PPBs as a whole  operate".693  
5.231.   With respect to the PPB for Optical Splice Closures, the Panel observed that Article  1 of that 
PPB requires that all of the relevant steps "must be undertaken in Brazil".694 The Panel observed 
that the envisaged production processes "consist of fundamental manufacturing from basic inputs", 
as opposed to simple assembly of components and subassemblies, which would not satisfy the 
PPB.695 Similarly, the Panel noted that all of the steps outlined in Article  1 of the PPB for Speed 
Alarms, Tracking and Control must be undertaken in Brazil. The Panel underscored that "these are 
not mere assembly operations but fundamental manufacturing processes from basic inputs ."696 The 
Panel further observed that the PPB for Speed Alarms, Tracking and Control contains an  additional 
element, "namely a PPB within a PPB (a so -called 'nested PPB')", according to which  "at least 90% 
of the GSM modules used to produce any of the products for speed alarms, tracking and control 
listed in the Annex to the PPB must be produced in c ompliance with their own PPB."697 According to 
the Panel, a nested PPB is analytically similar to that of the production -step requirements, with the 
key difference from main PPBs being that there is "an implicit presumption that the products that 
are subject  to the nested PPBs [would] be outsourced".698 
5.232.   The Panel noted that "in every case the PPBs allow the accredited company to outsource at 
least some of the required production steps to third parties, so long as those third parties themselves 
comply with the r equirements of the PPB in respect of the steps they perform."699 Thus, a producer 
of a given incentivized product does not necessarily have to perform all the steps by itself in order 
to retain its accreditation, although it "takes responsibility for all of the production steps required in 
                                                
687 Panel  Reports , para.  7.271.  
688 Panel  Reports , para.  7.258 (referring to Appellate  Body Report, US – FSC ( Article  21.5 – EC), 
para. 220; GATT Panel  Reports , Canada – FIRA, paras.  5.7-5.11; Italy – Agricultural Machinery , para.  13). 
689 Panel  Reports , para.  7.259. The Panel also noted, in footnote 646 of its Reports, that, although its 
discussion of the alleged imposition under PPBs or other similar requirements of an obligation to use domestic 
inputs in the production of the incentivized products is limited to issues related to Article  III:4 of the 
GATT  1994 and Article  3.1(b) of the SCM Agreement , this did not mean that such discussion would not also be 
relevant to the claims under Article  2.1 of the TRIMs  Agreement . (Ibid., fn  646 to para.  7.256)  
690 Panel  Reports , para.  7.279. A PPB is defined as " the minimum set of operations, in a manufacturing 
establishment, which characterizes the effective industrialization of [a] given product" . (Ibid., para.  7.280 
(referring to Decree 5,906/2 006 (Panel Exhibit JE-7), Article  16)) 
691 Panel  Reports , para.  7.281.  
692 Panel  Reports , paras.  7.286 -7.287 and 7. 289. We reproduce the text of these PPB s in 
paras.  5.264 -5.265.  
693 Panel  Reports , para.  7.286 (referring to Interministerial Implementing Order (Portaria ) 93 of 
1 April 2013 establishing a Basic Production Process for optical splice closures produced in Brazil 
(Interministerial  Implementi ng Order 93/2013) (Panel  Exhibit  JE-31); Interministerial Implementing Order 
(Portaria ) 103 of 2  April 2013 on the Basic Product ion Process for products for speed alarms, tracking and 
control produced in Brazil ( Interministerial  Implementing Order 103/2013 ) (Panel Exhibit JE -32)). 
694 Panel  Reports , para. 7.288.  
695 Panel  Reports , para. 7.288.  
696 Panel  Reports , para.  7.290.  
697 Panel  Reports, para.  7.291. (fn omitted)  
698 Panel  Reports , para.  7.295. (fn  omitted)  
699 Panel  Reports , para. 7.292. ( fn omitted)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the respective PPB, and correspondingly … receives the tax advantages in respect of that incentivized 
product".700  
5.233.   In examining the Informatics programme, the Panel noted that there seemed to be "no 
theoretical disagreement among the parties that at least in the case in which a company is required, 
when it acquires a product from an outside source, to only acquire a domestic product, there would 
be a requirement to use domestic goods in the sense covered by Article  III:4 of t he GATT  1994 and 
Article  3.1(b) of the SCM  Agreement ."701 The Panel considered that, given these views of the parties, 
it would be "useful to separately analyse the two possible scenarios for compliance with the PPBs": 
the in -house scenario and the outsourci ng scenario.702  
5.234.   The Panel first examined the outsourcing scenario with respect to main PPBs that contain 
nested PPBs, and began by recalling its earlier finding that the products that are the subject of the 
challenged measures are "domestic products".703 On this basis, the Panel found that the incentivized 
products produced in accordance with nested PPBs, which are used as components and 
subassemblies in the production of the products covered by the main PPBs, constituted Brazilian 
domestic products in their o wn right.704 The Panel further noted that, because components and 
subassemblies that are the subject of nested PPBs are in most cases outsourced rather than 
produced "in -house", the requirements that at least a certain proportion of products subject to 
neste d PPBs comply with their respective PPBs constituted "explicit requirements to use domestic 
goods", in the sense of Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .705 
Therefore, according to the Panel, whenever a producer of a product  covered by a main PPB obtained 
components or subassemblies covered by their own nested PPB, it was obtaining "domestic 
goods".706 Furthermore, according to the Panel, because nested PPBs imposed a mandatory 
minimum amount of such "domestic goods" to be used  in producing the product subject to the main 
PPB, the only way to satisfy the requirement, when outsourcing, is to acquire and use domestic 
goods.707 Thus, the Panel concluded that "every PPB with a nested PPB inside contains an explicit 
requirement to use domestic goods in the cases where the goods covered by the nested PPB are 
outsourced."708 
5.235.   The Panel further observed that "[t]his analysis also holds true for the basic production step 
requirements of all PPBs under the Informatics programme, which typically  are set forth in the PPBs' 
Article  1."709 The Panel elaborated that all PPBs "contain outsourcing provisions that require that 
outsourced production steps comply with the respective requirements of the PPBs, and in every case 
at least some of those outsourcing provisions apply to production steps for the creation of 
manufactured components or subassemblies from basic components and raw materials which, as 
the Panel has found, are for that reason domestic products".710 The Panel considered that, similar ly 
to nested PPBs, the outsourcing provisions under the main PPBs give rise to a requirement to use 
domestic goods under Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .711  
5.236.   The Panel added that, even if certain PPBs contain "alternati ve options to compliance with 
certain production -steps in the PPBs", the "mere existence of options for compliance that are 
potentially WTO -consistent could not preclude a finding of inconsistency in respect of the PPBs as a 
whole", so that the existence o f alternative, potentially WTO -consistent options, would not "alte r[] 
                                                
700 Panel  Reports , para.  7.292.  
701 Panel  Reports , para.  7.297.  
702 Panel  Reports , para.  7.298.  
703 Panel  Reports , para.  7.299 (referring to Panel  Reports , para.  7.117). The Panel considered that the 
"manufacturing process, starting with basic materials and resulting in an intermediate or finished good to be 
sold on the market", which must take place in Brazil, "leaves no doubt that these produ cts are Brazilian 
domestic products". (Ibid., para.  7.117) The Panel  thus found that "all products produced in accordance with a 
PPB are, as such, Brazilian domestic products, by virtue of having been produced in Brazil from basic raw 
materials and other i nputs through a specified mandatory manufacturing process."  (Ibid., para.  7.299)  
704 Panel  Reports , para.  7.299.  
705 Panel  Reports , para.  7.299.  
706 Panel  Reports , para.  7.300.  
707 Panel  Reports , para.  7.300.  
708 Panel  Reports , para.  7.300.  
709 Panel  Reports , para. 7.301.  
710 Panel  Reports , para.  7.301.  
711 Panel  Reports , para.  7.301.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the inconsistency … of an option that requires the use of domestic products over imported 
products".712 
5.237.   The Panel applied this reasoning to the other three ICT  programmes. With respect to  the 
PATVD programme, the Panel concluded, for the same reasons, that "the PPBs in the PATVD 
programme require the use of domestic goods in the sense covered by Article  III:4 of the GATT  1994 
and Article  3.1(b) of the SCM  Agreement ."713 In the case of the PAD IS programme, the Panel found 
that a company seeking accreditation had to comply with different production -step requirements 
depending on the type of products, and that for certain products, no PPBs have been adopted yet.714 
In this respect, the Panel noted that "to the extent that any futu re PPBs adopted under the 
PADIS  programme contain outsourcing provisions or nested PPBs in respect of manufactured 
components and subassemblies that operate in the same manner as those in the Informatics and 
PATVD programme s, such PPBs would require the use of domestic goods ."715 With respect to the 
existing production -step requirements, the Panel concluded, for the same reasons as under the 
Informatics programme, that they require the use of domestic goods under Article  III:4 of the 
GATT  1994 and Article  3.1(b) of the SCM  Agreement .716 
5.238.   With respect to the Digital Inclusion programme, the Panel noted that it is different from 
other ICT  programmes in that, under this programme, "the tax benefits are in respect of sales of 
certain products by retailers, rather than in respect of production of certain products by 
producers."717 Under the Digital Inclusion programme, retailers that sell in Brazil certain digital 
consumer goods produced in accordance with their respective PPBs qualify fo r certain tax benefits.718 
Having recalled its earlier finding that all products produced in accordance with PPBs are Brazilian 
domestic products, the Panel concluded that the only goods eligible for the tax benefits under the 
Digital Inclusion programme wou ld be domestic goods.719 Thus, for the same reasons as under other 
ICT programmes, the Panel found that the Digital Inclusion programme is inconsistent with 
Article  III:4 of the GATT  1994 and that it involves a contingency on the use of domestic over 
importe d goods within the meaning of Article  3.1(b) of the SCM  Agreement .720 
5.239.   The Panel thus concluded  that the PPBs and other production -step requirements of the 
ICT programmes "accord to imported products treatment less favourable than that accorded to like 
domest ic products, inconsistently with Article  III:4 of the GATT  1994" and that "the same aspects 
of these programmes give rise to contingency on the use of domestic over imported goods in the 
sense of Article  3.1(b) of the SCM  Agreement ."721 
5.4.2.3   Article  3.1(b) of the  SCM Agreement  
5.240.   Article  3.1(b) of the SCM  Agreement  reads:  
Except as provided in the  Agreement  on Agriculture, the following subsidies, within the 
meaning of Article  1, shall be prohibited:  
… 
(b) subsidies contingent, whether solely or as one of several other conditions, upon 
the use of domestic over imported goods.  
Article  3.2 adds that "[a] Member shall neither grant nor maintain subsidies referred to in 
paragraph  1." 
                                                
712 Panel  Reports , para.  7.303.  
713 Panel  Reports , para.  7.308.  
714 Panel  Reports , paras.  7.309 and 7.312.  
715 Panel  Reports , para.  7.312.  
716 Panel  Reports , para.  7.311.  
717 Panel  Reports , para.  7.316.  
718 Panel  Reports , para.  7.315.  
719 Panel  Reports , para.  7.316 (referring to Panel  Reports , para.  7.299).  
720 Panel  Reports , para. 7.317.  
721 Panel  Reports , para. 7.319.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.241.   Article  3.1(b) of the SCM  Agreement  prohibits subsidies the granting of which is 
"contingent  … upon the use of domestic over imported goods". The legal standard for establishing 
the existence of "contingency" under Article  3.1(b) is the same as under Article  3.1(a) of the 
SCM Agreement .722 Since the ordinary meaning of " 'contingent ' is 'condi tional ' or 'dependent for its 
existence on something else '", a subsidy would be prohibited under Article  3.1(b) if it is "conditional" 
or "dependent for its existence " on the use of domestic over imported goods.723 Therefore, a subsidy 
would be "contingent" upon the use of domestic over imported goods where the use of those goods 
is a condition, in the sense of a requirement724, for receiving the subsidy.725  
5.242.   The Appellate  Body in US – Tax Incentives  noted that the term "use" in Article  3.1(b) refers 
to the actio n of using or employing something726 and "may, depending on the particular 
circumstances, refer to consuming a good in the process of manufacturing, but may also refer to, 
for instance, incorporating a component into a separate good, or serving as a tool in the production 
of a good" .727 The Appellate  Body also noted that the term "goods" in Article  3.1(b) is qualified by 
the adjectives "domestic" and "imported", which implies that the "goods" concerned should be at 
least potentially tradable.728 Finally, the term  "over" expresses a preference between two things 
and, in the context of the phrase "contingent … upon the use of domestic over imported goods", 
refers to the use of domestic goods in preference to, or instead of, imported goods.729 
5.243.   The term "contingency" un der Article  3.1(b) covers contingency both in law and in fact. The 
legal standard expressed by the term "contingent" is the same for both.730 The Appellate  Body has 
said that a subsidy will be de jure contingent upon the use of domestic over imported goods "when 
the existence of that condition can be demonstrated on the basis of the very words of the relevant 
legislation, regulation or other legal instrument constituting the measure", or can "be  derived by 
necessary implication from the words actually used i n the  measure".731 The existence of de facto 
contingency "must be inferred  from the total configuration of the facts constituting and surrounding 
the granting of the subsidy, none of which on its own is likely to be decisive in any given case".732 
The Appellat e Body has observed that proving de facto contingency "is a much more difficult task".733  
5.244.   Where an analysis of contingency does not yield a finding of inconsistency under 
Article  3.1(b) on the basis of the words actually used in the measure, or any necessar y implication 
therefrom, the existence of a requirement to use domestic over imported goods may still be found 
de facto  on the basis of the factual circumstances that form part of the total configuration of the 
                                                
722 Appellate  Body Report, Canada – Autos , para.  123. 
723 Appellate  Body Report, Canada – Autos , para.  123 (referring to Appellate  Body Report, 
Canada  ‒ Aircraft , para. 166).  
724 For instance, the Appellate  Body observed in Canada – Autos  that the measure at issue in that case 
would be inconsistent with Article  3.1(b)  if "the use of domestic good s [was]  a necessity and thus … required 
as a condition for eligibility" under the measure. ( Appellate  Body Report, Canada – Autos , para. 130 (emphasis 
original))  
725 Appellate  Body Report, Canada – Autos , para.  126. The link between "contingency" and 
"condit ionality" is also borne out by the text of Article  3.1(b), which states that import substitution contingency 
can be either the sole or "one of several other conditions ". (Appellate  Body Report, Canada – Aircraft , 
para. 166 (emphasis added by the Appellate  Body)) As with Article  3.1(a), this "relationship of conditionality or 
dependence" lies at the "very heart" of the legal standard in Article  3.1(b) of the SCM Agreement . 
(Appellate  Body Reports, Canada – Aircraft , para. 171; Canada – Aircraft ( Article 21.5 – Brazil) , para. 47) 
726 Appellate  Body Report, US – Tax Incentives , para. 5.8 (referring to Appellate  Body Report, 
US ‒ Carbon Steel (India) , para. 4.374 and fn 1009 thereto , in turn  referring to  Shorter Oxford English 
Dictionary , 6th edn, A.  Stevenson (ed.) (Oxford University Press,  2007), Vol. 2, p.  3484).  
727 Appellate  Body Report, US – Tax Incentives , para. 5.8. 
728 Appellate  Body Report, US – Tax Incentives , para. 5.9. T he Appellate Body explained that t his term 
may refer to any type of good that  may be used by the subsidy recipient, including parts or components that 
are incorporated into another go od, material,  or substance that are consumed in the production process of 
another good, or tools or instruments that are used in the production proces s. (Ibid.)  
729 Appellate  Body Report, US – Tax Incentives , para. 5.11. 
730 Appellate  Body Reports, Canada – Aircraft , para. 167; Canada – Autos , para. 143. 
731 Appellate  Body Report, Canada – Autos , paras.  100 and 123.  (fn omitted)  
732 Appellate  Body Report, Canada – Aircraft , para. 167. (emphasis original)  Factors that may be 
relevant in this regard include the design and structure of the measure granting the subsidy, the modalities of 
operation set out in such a measure, and  the relevant factual circumstances surrounding the granting of the 
subsidy that provide the context for understanding the measure's design, structure, and modalities of 
operation.  (Appellate  Body Report, US – Tax Incentives , para. 5.12 (referring to Appellate  Body Report, 
EC and certain member States – Large Civil Aircraft , para. 1046) ) 
733 Appellate  Body Report, Canada – Aircraft , para. 167. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 facts constituting and surrounding the granti ng of the subsidy.734 The Appellate  Body in US – Tax 
Incentives  noted that the analysis of de jure and de facto  contingency under Article  3.1(b), in light 
of the above -mentioned factors and circumstances, should be understood as a continuum, and a 
panel shou ld conduct a holistic assessment of all relevant elements and evidence on the record.735  
5.245.   Accordingly, Article  3.1(b) prohibits those subsidies that are de jure  or de facto  contingent 
such that they require the use of domestic goods in preference to, or inst ead of, imported goods as 
a condition for receiving the subsidy. While the distinction between de jure and de facto contingency 
lies in the "evidence [that] may be employed to prove" that a subsidy is contingent upon the use of 
domestic over imported goods736, in both its de jure and de facto analyses, a  panel assesses the 
consistency of the granting of a subsidy under Article  3.1(b) with the same  obligation and against a 
single legal standard of contingency.  
5.246.   The Appellate  Body in US – Tax Incentives further  observed that, insofar as, by its terms, 
Article  3.1(b) does not prohibit the subsidization of domestic "production" per se, but rather the 
granting of subsidies contingent upon the use of domestic over imported goods, subsidies that relate 
to domestic pr oduction are not, for that reason alone, prohibited under Article  3 of the 
SCM Agreement .737 In particular, such subsidies can ordinarily be expected to increase the supply 
of the subsidized domestic goods in the relevant market, thereby increasing the use of these goods 
downstream and adversely affecting imports, without necessarily requiring th e use of domestic over 
imported goods as a condition for granting the subsidy.738  
5.247.   With regard to the relevance of Article  III:8(b) of the GATT  1994, we note that this provision 
excepts from the national treatment obligation in Article  III "the payment of su bsidies exclusively to 
domestic producers", and thus makes clear that the provision of subsidies only to domestic 
producers, and not to foreign producers, does not in itself constitute a breach of Article  III.739 The 
Appellate  Body in US – Tax Incentives observed that, while Article  III:8(b) of the GATT  1994 
comports with a reading of Article  3.1(b) of the SCM  Agreement  under which something more than 
mere subsidization of domestic production is required for finding an import substitution subsidy , a 
subsidy e xcepted from the Article  III national treatment obligation by virtue of it being paid 
exclusively to domestic producers within the meaning of Article  III:8(b) of the GATT  1994 may still 
be found to be contingent upon the use by those producers of domestic over imported goods under 
Article  3.1(b) of the SCM  Agreement .740 
5.248.    As the Appellate  Body observed in US – Tax Incentives , the relevant question in determining 
the existence of contingency under Article  3.1(b) is not whether the eligibility requirements under  a 
subsidy may result  in the use of more domestic and fewer imported goods. Rather, the question is 
whether a condition  requiring the use of domestic over imported goods can be discerned from the 
terms of the measure itself or inferred from its design, str ucture, modalities of operation, and the 
relevant factual circumstances constituting and surrounding the granting of the subsidy that provide 
context for understanding the operation of these factors.741 
                                                
734 Appellate  Body Report, US – Tax Incentives , para. 5.13. In that report, the Appellate  Body 
mentioned that, for instance, factual circumst ances potentially relevant to an assessment of whether a subsidy 
is de facto  contingent may include the existence of a multi -stage production process, the level of specialization 
of the subsidized inputs, or the level of integration of the production chain  in the relevant industry. (Ibid., fn 49 
to para. 5.13) 
735 Appellate  Body Report, US – Tax Incentives , para. 5.13. 
736 Appellate  Body Report, Canada – Aircraft ( Article  21.5 – Brazil) , fn 46 to para. 47 (quoting 
Appellate  Body Report, Canada – Aircraft , para. 167).  
737 Appellate  Body Report, US – Tax Incentives , para. 5.15 (referring to Appellate  Body Report, 
Canada  – Aircraft ( Article  21.5 – Brazil) , para. 47). 
738 Appellate  Body Report, US – Tax Incentives , para. 5.15. 
739 See Appellate  Body Report, US – Tax Incentives , para. 5.16. 
740 Appellate  Body Report, US – Tax Incentives , para. 5.16. 
741 Appellate  Body Report, US – Tax Incentives , para. 5.18. The Appellate  Body further explained that,  
to the extent that no condition requiring the use of domestic over import ed goods exists, but the effect of the 
subsidy is to displace or impede, or  otherwise cause adverse effects to imports, those effects are disciplined 
under Part III of the SCM  Agreement . (Ibid.)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.4.2.4   Whether the Panel erred in finding that the PPBs and ot her production -step 
requirements under the ICT  programmes are inconsistent with Article  3.1(b) of the 
SCM Agreement  and Article  III:4 of the GATT  1994  
5.249.   On appeal, Brazil takes issue with the Panel's finding that t he PPBs or analogous 
production -step require ments in the ICT  programmes are explicitly contingent upon the use of 
domestic goods, within the meaning of Article  III:4 of the GATT  1994 and Article  3.1(b) of the 
SCM Agreement .742 Brazil argues that the Panel erroneously considered that "whenever the 
requirement to perform certain manufacturing steps in Brazil as a condition to receive the subsidy 
involves the production of a specific input, part or component that could have been s ourced from 
foreign producers, there would be ipso facto, and without further examination, discrimination within 
the meaning of Article  III:4."743 In a similar vein, with respect to the Panel's finding under 
Article  3.1(b), Brazil submits that the PPBs and o ther production -step requirements "establish the 
production process of specific products and leave no doubt that the tax incentives under the 
ICT programmes are contingent on domestic production "744, which, according to the Appellate  Body 
in US – Tax Incenti ves, is "insufficient  to establish a prohibited import substitution subsidy under 
Article  3.1(b) of the SCM  Agreement ".745 Thus, in Brazil's view, the Panel erroneously equated 
a condition that certain production activities take place domestically with a  contingency on the use 
of domestic over imported goods.746  
5.250.   In addition, Brazil contends that the Panel made "a  sweeping finding" that all 
ICT programmes are contingent upon the use of domestic over imported goods despite the fact that 
not all of these measures  require compliance with production steps as a  necessary condition for 
payment of subsidies.747 Brazil submits that this is particularly the case with respect to the PADIS 
and PATVD programmes, both of which allow accreditation for companies regardless of wh ether they 
comply with PPBs.748  
5.251.   The European  Union  and Japan contend that the Panel did not err in its findings under 
Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement . The European  Union  
disagrees with Brazil's contention that "the Pan el based its findings on the effects of the subsidies , 
or on the fact that accredited companies would likely use more domestic products in their 
downstream production activities."749 Rather, in the European  Union's view, "[t]he Panel focused on 
the condition s of eligibility for the subsidies, and found that those conditions impose the use of 
domestic components and subassemblies, under the guise of production step [] requirements, in 
order to obtain the subsidy ."750 
5.252.   Japan submits that, "because of the very struc ture of the measure involved, the 
requirements that covered ICT  products be produced in accordance with PPBs can only be satisfied 
if the final products are domestic, and certain inputs are domestic as well", which "means that the 
use of … imported inputs can disqualify a final product for eligibility under the ICT  programmes" .751 
Japan agrees with the proposition that "granting subsidies to firms so long as they engage in 
domestic production activities, without more, should not be equated to making those sub sidies 
contingent on the use of domestic over imported goods and hence prohibited ."752 However, in 
Japan's view, in the present case, the ICT  programmes are not mere production subsidies because 
they condition the receipt of the tax advantages upon use of do mestic over imported goods through 
production -step requirements.753  
                                                
742 Panel  Reports , paras.  7.313 and 7.317.  
743 Brazil's appellant's submission, para.  159. 
744 Brazil's appellant's submission, para.  221. (emphasis original)  
745 Brazil's appellant's submission, para.  221 (referring to Appellate  Body Report, US – Tax Incentives , 
para. 5.16). (emphasis original)  
746 Brazil' s opening statement at the oral hearing.  
747 Brazil's opening statement at the oral hearing.  
748 Brazil's opening statement at the oral hearing.  
749 European  Union's appellee's submission, para.  295. 
750 European  Union's appellee's submission, para.  295. 
751 Japan's  appellee's submission, para.  78. 
752 Japan's appellee's submission, para.  79 (quoting Panel  Report , EC and certain member 
States  ‒ Large Civil Aircraft ( Article  21.5 – US), para.  6.785).  
753 Japan's appellee's submission, para.  79. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.253.   We recall that the Panel addressed the question whether the ICT  programmes contain a 
requirement to use domestic goods in the section of the Panel  Reports  addressing the complainants' 
claim s under Article  III:4 and subsequently referred to this analysis in its examination under 
Article  3.1(b).754 The Panel considered that a finding that the production -step requirements listed in 
PPBs and other legal instruments required the use of domestic components and subassemblies in 
the manufacturing of incentivized products as a condition to obtain a subsidy  would entail an 
inconsistency under Article  III:4 of the GATT  1994 and would satisfy the contingency element under 
Article  3.1(b) of the SCM  Agreement .755 
5.254.   We note that the legal standard under Article  3.1(b) of the SCM  Agreement  is not the same 
as that under Article  III:4 of the GATT  1994. In order to establish an inconsistency with Article  3.1(b) 
of the SCM  Agreement , a measure must be "contingent … upon the use of the domestic over 
imported goods". By contrast, to find an inconsistency with Article  III:4 o f the GATT, it is sufficient 
that the measure at issue alters the conditions of competition to the detriment of the imported 
products by providing an incentive to use domestic goods. Establishing the existence of a 
contingency requirement to use domestic o ver imported products under Article  3.1(b) of the 
SCM Agreement  is thus a more demanding standard than demonstrating that an incentive to use 
domestic goods exists under Article  III:4 of the GATT  1994. Accordingly, while establishing that a 
measure provide s an incentive to producers to use domestic goods would be sufficient to find an 
inconsistency with Article  III:4 of the GATT  1994, it would not suffice to also find that the same 
measure is contingent upon the use of domestic over imported goods under Article 3.1(b) of the 
SCM Agreement . 
5.255.   Nevertheless, we consider that the Panel's reliance on its findings of inconsistency of the 
ICT programmes with Article  III:4 of the GATT  1994 to find the existence of the requirement to use 
domestic over imported goods wi thin the meaning of Article  3.1(b) of the SCM  Agreement  is not 
necessarily, for that reason alone, incorrect. This is so if the findings under Article  III:4, on which  
the Panel relied in its analysis under Article  3.1(b), establish the existence of a conti ngency 
requirement to use domestic over imported goods. In other words, as long as the Panel made 
findings of inconsistency with Article  III:4 due to the existence of a contingency requirement , as 
opposed to a mere incentive, to use domestic goods, it coul d rely on these findings as a basis for its 
findings of inconsistency with Article  3.1(b) of the SCM  Agreement . However, if we were to find that 
the Panel relied in its analysis under Article  3.1(b) on findings it made under Article  III:4 that merely 
estab lish the existence of an incentive  to favour domestic over imported goods, such reliance would 
be incorrect.756 
5.256.   Brazil has set out its claims of error regarding the Panel's findings that the ICT  programmes 
require the use of domestic components and subassemb lies in the sense of Article  III:4 of the 
GATT  1994 and Article  3.1(b) of the SCM  Agreement  in separate subsections of its appellant's 
submission. The essence of Brazil's arguments with respect to both claims of error is, however, the 
same and concerns whe ther the Panel correctly found that the PPBs and similar production -step 
requirements require accredited producers to use domestic goods. Moreover, Brazil's arguments 
under both provisions rely preponderantly on the Appellate  Body's findings in US – Tax In centives . 
In our assessment, we will focus on whether the Panel was correct in finding that the PPBs and other 
production -step requirements of the four I CT programmes establish a requirement to use domestic 
over imported goods in the sense of Article  3.1(b) of the SCM  Agreement . To the extent that they 
do, this would also be inconsistent with Article  III:4 of the GATT  1994. If, however, we establish 
that the Panel made a finding of inconsistency under Article  3.1(b) merely because it considered 
that the relevant measures provide an incentive to use domestic over imported goods, this would 
not be consistent with the legal standard under Article  3.1(b) of the SCM  Agreement . 
5.257.   As noted, the European  Union  and Japan contend that the Panel correctly found that  the 
PPBs and other production -step requirements explicitly require the use of domestic over imported 
goods.757 By contrast, Brazil considers that the Panel equated a production requirement with the 
requirement to use domestic over imported goods.758 All the p articipants refer, in their 
                                                
754 Panel  Reports , paras.  7.313, 7.319, and 7.386.  
755 Panel  Reports , paras.  7.258 -7.259.  
756 We recall, in this respect, that the Panel found that imported products alleged to be discriminated 
against are similar to  the domestic products at issue. ( Panel  Reports , para.  7.269) This finding is not 
challenged on appeal.  
757 European  Union 's appellee's submission, para. 295; Japan's appellee's submission, paras.  78-79. 
758 Brazil's appellant's submission, paras.  159 and 221.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 argumentation, to the Appellate  Body Report in US – Tax Incentives . We recall that, in that report, 
the Appellate  Body explained that both import substitution subsidies and other subsidies that relate 
to domestic production may have detrimental effects with respect to imported goods. Subsidies 
contingent upon import substitution, by their nature, adversely affect the competitive conditions of 
imported goods. Yet also subsidies that relate to the production of certain goods in a M ember's 
domestic territory can ordinarily be expected to increase the supply of the subsidized goods in the 
relevant market, which would have the consequence of increasing the use of subsidized domestic 
goods downstream and adversely affecting imports. How ever, while such subsidies may foster the 
use of subsidized domestic goods and affect  imported goods, such effects do not, in and of 
themselves, demonstrate the existence of a requirement to use domestic over imported goods.759 
As observed, the relevant ques tion in determining the existence of contingency under Article  3.1(b) 
is not whether conditions for eligibility and access to the subsidy may result in the use of more 
domestic and fewer imported goods, but whether the measure reflects a condition  requirin g the use 
of domestic over imported goods.760 
5.258.   We note that the Panel did not expressly indicate whether it conducted a de jure  or a de facto 
analysis of inconsistency with Article  3.1(b) of the SCM  Agreement .761 We understand the Panel, 
however, to have made a de jure  finding of inconsistency. First, the Panel relied on the text of the 
relevant legal instruments and its own understanding of the operation of the PPBs and other 
production -step requirements. The Pane l did not examine the factual circumstances surrounding the 
granting of the subsidy. Second, the Panel stated that it was analysing "the  specific provisions of 
the PPBs" and that the PPBs contain "an explicit requirement to use domestic goods".762 Finally, i n 
response to questions at the oral hearing, the participants agreed that the Panel made a finding of 
de jure inconsistency with Article  3.1(b) of the SCM  Agreement  with respect to the 
ICT programmes.763 
5.259.   In setting out its understanding  of Article  3.1(b) of the SCM  Agreement , the Panel noted that 
"a subsidy is 'contingent upon the use of domestic over imported goods', and thus, prohibited under 
Article  3.1(b) of the SCM  Agreement , if the use of domestic goods is required  or necessary  in order 
to receive the s ubsidy."764 We thus consider that the Panel understood the legal standard under 
Article  3.1(b) correctly and sought to determine, in its analysis, whether the PPBs and other 
production -step requirements require the use of domestic goods. Indeed, the Panel co ncluded that 
certain aspects of the ICT  programmes are inconsistent with Article  3.1(b) of the SCM  Agreement  
precisely because, in its view, they constitute requirements to use domestic goods, and not because 
it considered that they condition the receipt o f the subsidy upon production in Brazil.  
5.4.2.4.1   Informatics programme  
5.260.   We start our examination of Brazil's claims of error concerning the Panel's findings under 
the Informatics programme by recalling the relevant aspects of the Panel's analysis that led it to 
reach the finding that the PPBs and other production -step requirements in the ICT  programmes 
require the use of domestic over imported goods. We note that the Panel's description of the 
operation of PPBs and other production -step requirements is not challenge d on appeal.  
5.261.   The Panel started by setting out the relevant factual aspects of "the PPBs and other 
production step requirements themselves".765 As noted above, the Panel explained that "a PPB is 
essentially a set of product -specific production steps that must be performed in Brazil, in order for 
a company to benefit from the tax incentives in respect of that product under the relevant 
                                                
759 Appellate  Body Reports, US – Tax Incentives , para.  5.49; EC and certain member States – Large Civil 
Aircraft ( Article  21.5 – US), para.  5.65. 
760 Appellate  Body Reports, US – Tax Incentives , para.  5.18; EC and certain member States – Large Civil 
Aircraft ( Article  21.5 – US), para.  5.65. 
761 Panel  Reports , paras.  7.285 and 7.300.  
762 Panel  Reports , paras.  7.285 and 7.300 . 
763 Brazil's, the European  Union's, and Japan's responses to questioning at the oral hearing.  
764 Panel  Reports , para.  7.261. (emphasis original)  
765 Panel  Reports , para.  7.274.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 programme(s )."766 The Panel also found that all products produced in accordance with PPBs are 
Brazilian domestic products.767 Brazil does not challenge this finding on appeal.768 
5.262.   The Panel further noted that not all production -step require ments are contained in PPBs. 
In particular, there are no PPBs for some of the products covered by the PADIS programme; instead 
there are "production -step details".769 Under the PATVD programme, the tax benefits can be 
obtained either by complying with the production steps in the PPBs, or by meeting the criteria for 
the product to be considered "developed in Brazil".770 Finally, the Panel specified that "not all PPBs 
or other production step requirements are relevant under all of the ICT  programmes."771 
5.263.   The Panel did not analyse in detail each of the numerous PPB s and other relevant 
production -step requirements under the ICT  programmes in addressing the complainants' claims. 
Instead, the Panel summarized the details of each PPB and other production -step requirements in 
the Appendix to the Panel  Reports772 and, "by way of example", examined the PPB for Optical Splice 
Closures and the PPB for Speed Alarms, Tracking and Control, which, in the Panel's view, "are broadly 
representative of how the PPBs as a whole operate".773  
5.264.   The Panel reproduced the wording  of the two PPBs. The PPB for Optical Splice Closures 
provides , in relevant part : 
Article  1. Establishes the following Basic Production Process for OPTICAL SPLICE 
CLOSURES:  
I - manufacture of the moulds for the injection of the plastic parts;  
II - inject ion of the plastic parts;  
III - stamping of the metal parts;  
IV - assembly of the air valve and closure kit sub -assemblies and base items;  
V - final integration of the product; and  
VI - product impermeability test.  
Sole Paragraph. Provided that the Ba sic Production Process is complied with, the 
activities or operations required in the production stages may be carried out by third 
parties in Brazil, except with regard to stages V and VI which may not be conducted by 
third parties.  
Article  2. Whenever d uly corroborated technical or economic factors so determine, any 
stage of the Basic Production Process may be temporarily suspended or changed 
through a joint Implementing Order issued by the Ministers of State for Development, 
Industry and Foreign Trade a nd Science, Technology and Innovation. 774 
5.265.   In turn, the PPB for Speed Alarms, Tracking and Control provides , in relevant part : 
Article  1. The Basic Production Process for PRODUCTS FOR SPEED ALARMS, 
TRACKING AND CONTROL industrialized in Brazil, as set out in  the Annex  to 
                                                
766 Panel  Reports , para.  7.280.  
767 Panel  Reports , paras.  7.115 and 7.299.  The Panel explained that, "to qualify as an incentivized 
product, the production process, all of which must be carried out in Brazil, starts with basic raw materials and 
components unassembled and in many cases unmanu factured." (Ibid., para.  7.116) The Panel explained that, 
because  the "manufacturing process, starting with basic materials and resulting in an intermediate or finished 
good to be sold on the market, must take  place in Brazil", there is "no  doubt that thes e products are Brazilian 
domestic products".  (Ibid., para.  7.117)  
768 Brazil's response to questioning at the oral hearing.  
769 Panel  Reports , para.  7.276.  
770 Panel  Reports , para.  7.282.  
771 Panel  Reports , para. 7.283. The Panel noted that " a large number of PPBs  are relevant under the 
Informatics programme, and a subset of these is relevant under the Digital Inclusion programme. Other PPBs 
are relevant, respectively, under the PADIS and PATVD programmes. In addition, only PADIS has production 
step requirements th at are not contained in separate PPBs. " (Ibid.)  
772 Panel  Reports , paras.  9.1-9.323.  
773 Panel  Reports , para.  7.286.  
774 Panel  Reports , para.  7.287. (emphasis original)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Interministerial Implementing Order MDIC/MCT No 14 of 22  January  2007, shall now 
read as follows:  
 
I - stamping, cutting, folding and surface treatment of metal parts, when applicable;  
II - injection of the housing's plastic parts, when app licable;  
III - manufacture of the printed circuits from laminate;  
IV - assembly and soldering, or equivalent process, of all components on the printed 
circuit boards;  
V - assembly of the electrical and mechanical parts, totally separated, at a basic 
component level; and  
VI - integration of the printed circuit boards and the electrical and mechanical parts in 
the formation of the final product, in accordance with indents I to V above.  
 
§ 1 Provided that the Basic Production Process is complied with, the  activities or 
operations required in the production stages may be carried out by third parties, except 
with regard to the stage set out in indent VI which may not be conducted by third 
parties.  
 
§ 2 Liquid crystal, plasma and other display technologies are temporarily exempted 
from assembly.  
 
§ 3 The following assembled modules and sub -assemblies are temporarily exempted 
from compliance with the stages set out in indents III and IV, of the header  paragraph 
to this Article:  
 
I - Frequency Modulation (FM) communication modules;  
II - Pager communication modules;  
III - Global Positioning System (GPS) communication modules;  
IV - satellite communication modules;  
V - thermal printer mechanisms; and  
VI - Code Division Multiple Access (CDMA) communication modules.  
 
Article  2. 90% of the total number of Global System for Mobile Communications (GSM) 
communication modules used in the production of PRODUCTS FOR SPEED ALARMS, 
TRACKING AND CONTROL as set o ut in the Annex  to this Implementing Order shall be 
produced in accordance with their respective Basic Production Process in the calendar 
year.775 
 
5.266.   With respect to both PPBs, the Panel noted that all of the production steps outlined in 
Article  1 must be unde rtaken in Brazil. According to the Panel, these steps are not mere assembly 
operations, but "fundamental manufacturing" processes from basic inputs, and a product produced 
through simple assembly of components and subassemblies would not satisfy the condit ions of the 
PPBs.776 We have reservations with respect to the Panel's unqualified statement that all the steps 
outlined in Article  1 of these PPBs are not assembly operations, but fundamental manufacturing 
processes. It is not clear whether certain of the steps listed in these PPBs constitute manufacturing 
or assembly operations (for example, the injection of the plastic parts in the process of 
manufacturing the optical splice closures, and the injection of the housing's plastic parts and 
assembly and soldering, or equivalent process, of all components on the printed circuit boards in the 
production of speed alarms, tracking and contro l products). More generally, we have reservations 
as to whether a clear line can be drawn between manufacturing and assembly, and as to its relevance 
to the question whether a measure requires the use of domestic over imported goods.  
5.267.   Notwithstanding, we r ecall that, in order to find a de jure inconsistency with Article  3.1(b) 
"a condition  requiring the use of domestic over imported goods [must] be discerned from the terms 
of the measure itself ", or by necessary implication therefrom.777 Thus, for purposes of  analysis, the 
distinction between manufacturing and assembly, while instructive, is not determinative. What 
                                                
775 Panel  Reports , para.  7.289. (emphasis original)  
776 Panel  Reports , paras.  7.288 and 7.290.  
777 Appellate  Body Report, US – Tax Incentives , para.  5.18. (emphasis original)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 matters, instead, is whether the measure reflects a condition requiring the use of domestic over 
imported goods.  
5.268.   The Panel also noted that both PPB s allow for outsourcing of some production steps to the 
third parties.778 However, unlike the PPB for Optical Splice Closures, the PPB for Speed Alarms, 
Tracking and Control contains an additional feature, "a PPB within a PPB", which the Panel termed a 
"nested PPB".779 Specifically, Article  2 of that PPB provides that at least 90% of the GSM modules 
used to produce any of the products for speed alarms, tracking and control listed in the Annex  to 
the PPB must be produced in compliance with their own PPB. The Pan el explained that this means 
that a separate PPB exists for GSM  modules, and that this separate PPB must be complied with for 
at least 90% of the GSM  modules used in production of speed alarms, tracking and control products 
listed in the Annex.780  
5.269.   In its an alysis in the context of the Informatics programme, the Panel separately addressed 
the case of the "main" PPBs that contain nested PPBs and the case of basic production -step 
requirements for all PPBs. With respect to the nested PPBs, the Panel first noted that all products 
produced in accordance with PPBs, including those that are produced in accordance with nested 
PPBs, are domestic products. Moreover, the Panel recalled that at least some proportion of the 
components and subassemblies covered by the neste d PPBs must be produced in accordance with 
those nested PPBs. Finally, the Panel recalled that, in most cases, the components and 
subassemblies subject to the nested PPBs will be outsourced.781 On this basis, the Panel arrived at 
the conclusion that, "where products subject to nested PPBs are outsourced, the requirements that 
(at least a certain proportion of) such products comply with their respective PPBs thus constitute 
explicit requirements to use domestic goods – the components and subassemblies covered by the 
nested PPBs – in the sense covered by Article  III:4 of the GATT  1994 and Article  3.1(b) of the 
SCM Agreement ."782 The Panel then elaborated that:  
[W]henever a producer of a product covered by a main PPB obtains components or 
subassemblies covered by t heir own nested PPB it is obtaining domestic goods. Because 
the nested PPB imposes a mandatory minimum amount of such domestic goods to be 
used in producing the product subject to the main PPB, the only way to satisfy this 
requirement, when outsourcing, is  by acquiring and using domestic goods. Thus, every 
PPB with a nested PPB inside contains an explicit requirement to use domestic goods in 
the cases where the goods covered by the nested PPB are outsourced.783 
According to the Panel, the same analysis holds true for the basic production -step requirements of 
all PPBs, all of which contain outsourcing provisions. The Panel concluded that "the outsourcing of 
production steps for the manufacture in Brazil of components and subassemblies from basic 
components and raw materials gives rise to a requirement to use domestic goods in the sense 
covered by Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement ."784 
5.270.   We recall that PPBs are defined as a "minimum set of operations performed at a 
manufacturing f acility that characterizes the actual industrialization of a given product ".785 The Panel 
characterized the PPBs as "a set of product -specific production steps that must be performed in 
Brazil, in order for a company to benefit from the tax incentives".786 In other words, to obtain tax 
incentives under the relevant ICT  programmes, a company has to manufacture a given product in 
accordance with the requirements of the PPBs or other production -step requirements.  
                                                
778 The PPB for Optical Splice Closures allows an accredited producer to outsource steps I -IV, i.e. 
manufacture the injection moulds, inject the plastic parts, stamp the metal parts,  and assemble the air valve 
and closure kit sub assemblies  and base items.  Under PPB for Speed Alarms, Tracking and Control, the 
accredited producer can outsource all of the production steps other than the final step of integrating the 
printed circuit board s, and all of the electrical and mechanical parts to form the final product.  (Panel  Reports , 
para. 7.293)  
779 Panel  Reports , para.  7.291. (fn omitted)  
780 Panel  Reports , para.  7.291.  
781 Panel  Reports , para.  7.299.  
782 Panel  Reports , para.  7.299.  
783 Panel  Reports , para. 7.300.  
784 Panel  Reports , para. 7.301.  
785 Panel  Reports , para.  2.62. (emphasis added)  
786 Panel  Reports , para.  7.280.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.271.   The Panel started its analysis by examining the "ne sted" PPBs, i.e.  those PPBs that contain 
an additional PPB within a main PPB. As the Panel observed, "the main PPBs that contain nested 
PPBs require that at least some minimum proportion of the components and subassemblies of the 
type covered by the nested  PPBs must have been produced in accordance with those nested PPBs."787 
We understand the Panel to have seen "nested" PPBs as an explicit manifestation of the requirement 
to use domestic goods over imported products. For example, Article  2 of the PPB for Spe ed Alarms, 
Tracking and Control requires that "90% of the total number of Global System for Mobile 
Communications (GSM) communication modules used in the production of PRODUCTS FOR SPEED 
ALARMS, TRACKING AND  CONTROL  … shall be produced in accordance with t heir respective 
[PPB] ."788 The PPB for GSM communication modules is thus "nested" into the main PPB for Speed 
Alarms, Tracking and Control.  
5.272.   The main PPB mandates that 90% of the GSM communication modules used in the 
production of products for speed alarms, t racking and control be produced in accordance with their 
own (nested) PPB. Pursuant to the Panel's findings that are not contested on appeal, goods produced 
in accordance with PPBs are Brazilian domestic goods.789 The GSM communication modules 
manufactured i n line with their respective PPBs will thus be Brazilian domestic products. Accordingly, 
it follows that 90% of the GSM  communication modules used in the production of products for speed 
alarms, tracking and control "shall be"790 Brazilian domestic goods. Th us, by requiring that 90% of 
the GSM communication modules used in the production of products for speed alarms, tracking and 
control be produced in accordance with their respective PPBs, the PPB at issue effectively requires 
that 90% of GSM communication m odules used in the production of speed alarms, tracking and 
control be of domestic origin.  
5.273.   We recall that a subsidy is de jure contingent upon the use of domestic over imported goods 
when the existence of that condition can be demonstrated on the basis of the very words of the 
measure, or can be  derived by necessary implication from them.791 The above -mentioned example 
demonstrates that, the nested PPBs within the main PPBs, by their very words, or at least by 
necessary implication therefrom, require that a c ertain percentage of inputs used in the production 
steps performed in accordance with the main PPB be sourced domestically. Thus, the use of domestic 
components and subassemblies, for which there is a nested PPB, in the production of the products 
covered b y the main PPB will not be merely incidental.792 Rather, it is a condition that must be 
fulfilled in order for the relevant product to benefit from the tax incentives under the 
ICT programmes.  
5.274.   The main PPBs that incorporate a nested PPB thus contain a condition requiring the use of 
domestic over imported goods in the sense of Article  3.1(b) of the SCM  Agreement  that stems from 
the very text of the nested PPBs, or at least by necessary implicatio n therefrom. As a consequence 
of that condition, the nested PPBs also provide less favourable treatment to imported goods than to 
like domestic products within the meaning of Article  III:4 of the GATT  1994.  
5.275.   We thus agree with the Panel's conclusion that t he main PPBs that incorporate nested PPBs 
contain a requirement to use domestic goods, i.e. the components and subassemblies covered by 
the nested PPBs, in the sense of Article  3.1(b) of the SCM  Agreement  and Article  III:4 of the 
GATT  1994.793 Accordingly, w e uphold  the Panel's findings, in paragraphs 7.299 -7.300, 7.302, 
7.313, 7.319, 8.5.b, 8.5.e, 8.16.c, and 8.16.f of the Panel Reports, that the main PPBs that 
incorporate nested PPBs under the Informatics programme are inconsistent with Article  3.1(b) of th e 
SCM Agreement and Article  III:4 of the GATT  1994.  
                                                
787 Panel  Reports , para.  7.299.  
788 Panel  Reports , para.  7.289 (quoting PPB for Products for Speed Alarms, Tracking and Control).  
789 Panel  Reports , paras.  7.117 and 7.299.  
790 Panel  Reports , para.  7.289 (quoting PPB for Products for Speed Alarms, Tracking and Control).  
791 Appellate  Body Report, Canada – Autos , paras.  100 and 123.  
792 As the Appellate  Body observed in US – Tax Incentives , production subsidies "can ordinarily be 
expected to increase the supply of the subsidized domestic goods in the relevant market, thereby increasing 
the use of these goods downstream and adversely affecting imports". This, however, does not necessarily 
indicate the existence of a requirement to use domestic over imported goods as a condition for granting the 
subsidy. ( Appellate  Body Report, US – Tax Incentives , para. 5.15)  
793 Panel  Reports , para.  7.299.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.276.   We now turn to examine the main PPBs that do not contain nested PPBs.794 We recall that 
PPBs are defined as the "minimum set of operations, in a manufacturing establishment, which 
characterizes the effectiv e industrialization of [a] given product".795 The PPBs prescribe "a set of 
product -specific production steps that must be performed in Brazil, in order for a company to benefit 
from the tax incentives in respect of that product under the relevant programme(s )".796 In its 
analysis, the Panel observed that all PPBs "contain outsourcing provisions that require that 
outsourced production steps comply with the respective requirements of the PPBs, and in every case 
at least some of those outsourcing provisions apply to production steps for the creation of 
manufactured components or subassemblies from basic components and raw materials which, as 
the Panel has found, are for that reason domestic products" .797 The Panel considered that "the 
outsourcing of production steps for the manufacture in Brazil of components and subassemblies from 
basic components and raw materials gives rise to a requirement to use domestic goods ."798 Thus, to 
the Panel, the possibility to outsource the production of components and subassemblies in Br azil 
under the PPBs amounted to a requirement to use domestic over imported goods under Article  3.1(b)  
of the SCM  Agreement . 
5.277.   We recall that a subsidy is said to be de jure contingent upon the use of domestic over 
imported goods "when the existence of that condition can be demonstrated on the basis of the very 
words of the relevant legislation, regulation or other legal instrument constituting the measure".799 
A requirement to use domestic over imported products that is not set out expressly in the relevant 
legislation may nevertheless be derived by necessary implication if it results inevitably from the 
words actually used in the legislation, or if any other interpretation would be unreasonable.800 In 
addition, while production subsidies "can ordinarily be expec ted to increase the supply of the 
subsidized domestic goods in the relevant market, thereby increasing the use of these goods 
downstream and adversely affecting imports", this does not necessarily indicate the existence of a 
requirement to use of domestic over imported goods as a condition for granting the subsidy.801  
5.278.   The Panel considered that compliance with the PPBs is possible by either outsourcing the 
performance of production steps to a third party in Brazil or by perf orming such production steps 
in-house in Brazil.802 In the Panel's view, the possibility to outsource the production of components 
and subassemblies in Brazil under the PPBs "g[ave] rise to a requirement to use domestic goods"803 
under Article  3.1(b). We disagree with the Panel that the mere possibility of outsourcing under PPBs 
of production steps to be performed by a third party in Brazil, in and of itself, gives rise to a 
requirement to use domestic over imported goods under Article  3.1(b) of  the SCM  Agreement . 
Instead, the Panel should have explored, when establishing whether there was de jure  inconsistency 
with Article  3.1(b), how the text of the PPBs gives rise to a requirement to use domestic over 
imported goods or how such a requirement c an be derived from the text of the PPBs by necessary 
implication.  
5.279.   Moreover, in reaching its conclusion, the Panel observed that, "when an accredited company 
outsources components and subassemblies it can only comply with the PPB in question if the 
producti on step requirements for those components and subassemblies are respected, and 
respecting those requirements in turn means that those components and subassemblies must be 
                                                
794 We note that the Panel refers to them also as "basic production step requirements". ( Panel  Reports , 
para. 7.301)  
795 Panel  Reports , para.  7.280 (referring to Decree 5,906/2006 (Panel Exhibit JE -7), Article 16).  
796 Panel  Reports , para.  7.280.  
797 Panel  Reports , para.  7.301.  
798 Panel  Reports , para.  7.301.  
799 Appellat e Body Report, Canada – Autos , para. 100. 
800 The panel in US – Tax Incentives  explained that, for the purpose of the de jure determination, 
including by necessary implication, the relevant facts are therefore the text of the legislation at issue and any 
additional facts that can assist the Panel in understanding the meaning of the terms as used in that legislation. 
For example,  such facts could include relevant context within the legislation itself, or other clarifications of legal 
meaning within the dome stic legal system in question (such as the interpretation of pertinent terms by 
domestic courts, or administrative regulations directly implementing the legislation). However, any such facts 
would serve to illuminate the meaning of words used in the legisl ation and would not extend to other factual 
circumstances surrounding the granting of the subsidy that provide the context for understanding the 
measure's design, structure, and modalities of operation. ( Panel  Report , US ‒ Tax Incentives , para.  7.273 and 
fn 556 thereto)  
801 Appellate  Body Report, US – Tax Incentives , para. 5.15. 
802 Panel  Reports , para.  7.298.  
803 Panel  Reports , para.  7.301.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Brazilian domestic goods."804 The focus of this statement is on the domestic origin of the goods 
produced in accordance with production -step requirements under the PPBs. Article  3.1(b) of the 
SCM Agreement  indeed prohibits subsidies contingent "upon the use of  domestic over imported 
goods".805 Brazil has not challenged the Panel's finding that  components and subassemblies 
produced in accordance with PPBs will be Brazilian domestic goods.806 However, the mere fact that 
goods produced in accordance with the production -step requirements under the PPBs will be 
domestic does not indicate the existence  of a condition requiring the use of domestic over imported 
goods. We recall, in this respect, that under the Siting Provisions, which were part of the measure 
at issue in US – Tax Incentives , it was uncontested, but not determinative, that the wings and 
fuselages that had to be produced in Washington State , and the planes that had to be assembled in 
Washington State, were of US origin because of the location where these production and assembly 
steps took place. We further emphasize, as the Appellate  Body explained in US – Tax Incentives , 
that the relevant question in determining the existence of a contingency under Article  3.1(b) is 
"whether a condition requiring  the use of domestic over imported goods can be discerned" from the 
measure.807 
5.280.   As noted, the PPBs  are defined as "a minimum set of operations, in a manufacturing 
establishment, which characterizes the effective industrialization of a given product".808 It follows 
that, to characterize the actual industrialization of a given product and to qualify for th e tax 
incentives, the steps outlined in the PPBs, such as manufacture of components and subassemblies, 
product testing, and final integration, must be performed in Brazil. For instance, the PPB for Optical 
Splice Closures provides that the following produc tion steps be performed in Brazil: (i) manufacture 
of the moulds for the injection of the plastic parts; (ii) injection of the plastic parts; (iii) stamping of 
the metal parts; (iv) assembly of the air valve and closure kit sub assemblies  and base items; (v ) final 
integration of the product; and (vi)  product impermeability test.809 Similarly, steps I -V of the PPB 
for Speed Alarms, Tracking and Control PPB require performance in Brazil of certain production 
steps, in particular: (i) stamping, cutting, folding a nd surface treatment of metal parts; (ii) injection 
of the housing's plastic parts; (iii) manufacture of the printed circuits from laminate; (iv)  assembly 
and soldering, or equivalent process , of all components on the printed circuit boards; and 
(v) assemb ly of the electrical and mechanical parts, totally separated, at a basic component level. 
Production step VI of this PPB further provides for "integration of the printed circuit boards and the 
electrical and mechanical parts in the formation of the final p roduct" in accordance with steps I -V of 
that PPB.810 
5.281.   The PPBs thus set out a number of sequential production steps, starting from manufacturing 
of components and subassemblies and ending with the final assembly and testing of the product. As 
the Panel put it , "[i]n terms of their content, all of the PPBs consist of a collection of production 
steps, most of which involve the conversion through a manufacturing process of basic raw materials 
in completely disaggregated form into a component or set of components or subassemblies, with 
the final step or steps involving the integration of all of these components or subassemblies into the 
final product along with, in some cases, testing and other final steps."811 The structure of the PPBs 
suggests that the subsidy reci pients will likely "use" in a subsequent production step the domestic 
components and subassemblies that were manufactured in a previous production step. For example, 
production step I under the PPB for Optical Splice Closures provides for the "manufacture of the 
moulds for the injection of the plastic parts", while production step II envisages the "injection of the 
plastic parts".812 Thus, the moulds produced for the injection of the plastic parts in accordance with 
the first production step are likely to be used in the injection of the plastic parts under the second 
production step. Subsequently, the moulds and the components and subassemblies resulting from 
the ensuing production steps are likely to be incorporated into the incentivized product as part of 
final integration under production step V. However, while such use of domestic goods may be a likely 
consequence of the eligibility requirements for the tax incentives under the Informatics programme, 
                                                
804 Panel  Reports , para.  7.301.  
805 Emphasis added.  
806 Brazil's response to questioning at the oral hearing.  
807 Appellate  Body Report, US – Tax Incentives , para. 5.18. (emphasis original)  
808 Panel  Reports , para.  7.280 (quoting Decree 5,906/2006 (Panel Exhibit JE -7), Article  16). 
809 Panel  Reports , para.  7.287 (quoting Interministerial Implementing Order 93/2013 (Panel Exhibit 
JE-31)). 
810 Panel  Reports , para.  7.289 (quoting PPB for Products for Speed Alarms, Tracking and Control).  
811 Panel  Reports , para.  7.285.  
812 Panel  Reports , para.  7.287 (quoting Interministerial Implementing Order 93/2013 (Panel Exhibit 
JE-31), Article  1). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 this does not, in and of itself, indicate the existence o f a condition requiring the use of domestic over 
imported products.  
5.282.   Article  3.1(b) does not prohibit per se  conditioning eligibility for tax incentives on conducting 
certain production, processing , or assembly steps domestically.813 Inherent effects of prod uction 
subsidies are not sufficient for a finding of contingency upon import substitution.814 Instead, as the 
Appellate  Body explained in US – Tax Incentives , the key question for a measure to be found de jure  
inconsistent with Article  3.1(b) of the SCM  Agreement  is whether " a condition requiring  the use of 
domestic over imported goods" can be discerned from its very words or by necessary implication 
therefrom.815 
5.283.   In this respect, we do not consider that the main PPBs that do not contain nested PPBs 
provid e for more than "a collection of production steps", which must be carried out in Brazil, in order 
for a company to benefit from the tax incentives with respect to the product subject to the PPB under 
the relevant programme.816 Although compliance with the pr oduction steps set out in the PPBs is 
likely to result in the use of domestic components and subassemblies, this is not sufficient for a 
de jure finding of inconsistency to be made under Article  3.1(b) of the SCM  Agreement .817 Such use 
of domestic products w ill be a consequence of the requirement to perform the production steps in 
Brazil, but this does not mean that a contingency requirement not to use imported products can be 
discerned from the wording of the PPBs or by necessary implication therefrom.  
5.284.   The P anel also found that the main PPBs that do not contain nested PPBs are inconsistent 
with Article  III:4 of the GATT  1994 because it considered that they give rise to a requirement to use 
domestic over imported goods. We recall that, in an inquiry under Article III:4 of the GATT  1994, 
"what is relevant is whether … regulatory differences distort the conditions of competition to the 
detriment of imported products".818 Thus, an examination of whether a measure involves treatment 
less favourable "must be founded o n a careful analysis of the contested measure and of its 
implications in the marketplace" .819 As noted, while the existence of an incentive to use domestic 
over imported goods will not be sufficient to establish an inconsistency with Article  3.1(b) of the 
SCM Agreement , it will suffice to find less favourable treatment under Article  III:4 of the GATT  1994. 
We recall that compliance with the PPBs is mandatory in order for a company to receive tax benefits 
under the ICT  programmes.820 We also recall that the Pane l found that "the products alleged by the 
complaining parties to be disadvantaged are like the products that are allegedly favoured."821 As we 
                                                
813 As the Appellate Body noted, in agreeing with the panel in US – Tax Incentives , "while the terms of 
the First Siting Provision could result in the use by Boeing of some wings and fuselages produced in 
Washington, this did not necessarily mean that the provision, by i ts terms, requires Boeing to use domestic 
over imported wings and fuselages. " (Appellate  Body Report, US – Tax Incentives , para.  5.27 (fn omitted)) T he 
panel in US – Tax Incentives  also concluded that "[t]he contingency on siting certain production activit ies 
within the state of Washington [under the First Siting Provision] does not entail any explicit, or any necessarily 
implied, requirement to use domestic goods", and that "[n]o express or obvious contingency results from the 
terms used in the [Second Sit ing Provision], nor can one be derived inevitably from its terms."  (Panel  Report , 
US ‒ Tax Incentives , paras.  7.296 and 7.310)  
814 In this vein, the Appellate  Body concurred in US – Tax Incentives  with "the panel's conclusions that 
the First and Second Siting Provisions are not de jure contingent under Article  3.1(b) were based on [the 
Panel's]  findings that: (i) the contingencies set out in the terms of these provisions relate to the location of 
certain assem bly operations within Washington; (ii) the provisions are silent as to the use of domestic or 
imported goods; and (iii)  the terms of the provisions do not, by necessary implication, prevent the possibility of 
using imported goods. " (Appellate  Body Report, US – Tax Incentives , para. 5.30)  
815 Appellate  Body Report, US – Tax Incentives , para.  5.18. (emphasis original) Indeed, in US – Tax 
Incentives , in the context of its de jure  analysis of the First Siting Provision, the Appellate  Body found that, 
even if Boei ng was "likely [to] use some amount of domestically produced wings and fuselages, this 
observation [was] not in itself sufficient to establish the existence of a condition, reflected in the measure's 
terms or arising by necessary implication therefrom, req uiring the use of domestic over imported goods". 
(Ibid., para.  5.40)  
816 Panel  Reports , para.  7.285.  
817 As discussed above, we note that, in response to questioning at the oral hearing, the participants 
agreed that the Panel's findings under the ICT programme s were of a de jure  nature. (Brazil's, 
the European  Union's, and Japan's responses to questioning at the oral hearing)  
818 Appellate  Body Report, Thailand – Cigarettes (Philippines) , para.  128. 
819 Appellate  Body Report, US – FSC ( Article  21.5 – EC), para.  215. The Appellate  Body, however, 
cautioned that "the examination need not be based on the actual effects of the contested measure in the 
marketplace". (Ibid. (emphasis original))  
820 Panel  Reports , para.  7.280.  
821 Panel  Reports , para.  7.269. (emphasi s original)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 observed above, given the structure of the PPBs, which comprises  a number of sequential production 
steps, it is lik ely that components and subassemblies produced in compliance with PPBs will be used 
as inputs in the subsequent production steps. Accordingly, given that compliance with the PPBs is 
mandatory in order for a company to qualify for the tax incentives and tha t, in complying with the 
PPBs, the producers of an incentivized product will be likely to use domestic components and 
subassemblies, we consider that the main PPBs without nested PPBs provide an incentive to use 
domestic over imported goods. By doing so, t he main PPBs in the Informatics programme accord 
treatment less favourable to imported goods than that accorded to like domestic goods inconsistently 
with Article  III:4 of the GATT  1994. We thus agree with the Panel, albeit for different reasons, that 
the main PPBs that do not contain nested PPBs under the Informatics programme are inconsistent 
with Article  III:4 of the GATT  1994.  
5.285.   In light of the above, with respect to the main PPBs that do not incorporate nested PPBs, we 
consider that the Panel erred in fi nding that, "under the Informatics programme, regarding the 
outsourcing requirements in respect of the production step requirements for components and 
subassemblies used in the production of an incentivized product, the PPBs require the use of 
domestic goo ds."822 Accordingly, we reverse  the Panel's findings, in paragraphs 7.301 -7.302, 7.313, 
7.319, 8.5.e, and 8.16.f of the Panel  Reports , that the main PPBs without nested PPBs under the 
Informatics programme are contingent upon the use of domestic over imported goods within the 
meaning of Article  3.1(b) of the SCM  Agreement . However, we uphold , albeit for different reasons, 
the Panel's fi ndings, in paragraphs 7.301 -7.302, 7.313, 7.319, 8.5.b, and 8.16.c of the 
Panel  Reports , that the main PPBs that do not incorporate nested PPBs under the Informatics 
programme are inconsistent with Article  III:4 of the GATT  1994.  
5.4.2.4.2   PADIS, PATVD, and Digital Inclusion programmes  
5.286.   Brazil further argues that the Panel made "a  sweeping finding" that all ICT  programmes are 
contingent upon the use of domestic over imported goods despite the fact that the PADIS and PATVD 
programmes allow accreditation regardless of w hether companies comply with PPBs.823 We recall 
that, in order to obtain accreditation and the relevant tax benefits under the PATVD programme, a 
company must either comply with the relevant PPBs or meet the criteria for the product to be 
"developed in Brazi l".824 We understand Brazil to take issue with the fact that the Panel made a 
finding of inconsistency with respect to the PPBs operating under the PATVD programme despite the 
fact that complying with PPBs is only one of the options for obtaining accreditati on under the PATVD 
programme. We note, in this respect, that the Panel considered the possibility of accreditation under 
the PATVD programme by virtue of meeting the criteria for a product to be "developed in Brazil" as 
"a potentially WTO -consistent altern ative option for compliance" , which, in its view, did not alter its 
conclusion that the PPBs in the PATVD programme required the use of domestic goods under 
Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .825  
5.287.   Indeed, the Panel found t hat "the PPBs in the PATVD programme  require the use of domestic 
goods in the sense covered by Article  III:4 of the GATT  1994 and Article  3.1(b) of the 
SCM Agreement ."826 Accordingly, we understand the Panel to have made findings of inconsistency 
only with r espect to the PPBs, in the scenario when a company obtains accreditation by virtue of 
complying with the relevant PPB, and not with respect to the criteria for a product to be "developed 
in Brazil". The Panel found that the PPBs in the PATVD programme requ ire the use of domestic goods 
under Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement  "[f]or the same 
reasons [as it gave] in respect of the Informatics programme".827  
5.288.   We understand that the PPBs under the PATVD programme follow the sam e structure and 
logic as those under the Informatics programme.828 Above, we have agreed with the Panel's 
                                                
822 Panel  Reports , para.  7.302.  
823 Brazil's opening statement at the oral hearing.  
824 Panel  Reports , para.  7.307. (fn omitted)  
825 Panel  Reports , para.  7.308.  
826 Panel  Reports , para.  7.308. (emphasis added)  
827 Panel  Reports , para. 7.308.  
828 As the Panel  observed, " all of the PPBs consist of a collection of production steps, most of which 
involve the conversion through a manufacturing process of basic raw materials in completely disaggregated 
form into a component or set of components or subassemblies, wi th the final step or steps involving the 
integration of all of these components or subassemblies into the final product along with, in some cases, 
testing and other final steps." ( Panel  Reports , para. 7.285)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 conclusion that the main PPBs that incorporate nested PPBs contain "explicit requirements to use 
domestic goods", i.e. the components and subassemblies covered by the nested PPBs, under 
Article  3.1(b) of the SCM  Agreement  and Article  III:4 of the GATT  1994. For the same reasons, to 
the extent the PPBs under the PATVD programme incorporate nested PPBs, we consider them to 
require de jure  the use of domesti c over imported goods inconsistently with Article  3.1(b) of the 
SCM Agreement  and Article  III:4 of the GATT  1994. With respect to the main PPBs that do not 
incorporate nested PPBs, however, we have reversed the Panel finding that they reflect a condition 
requiring the use of domestic over imported goods under Article  3.1(b). This is so because, even if 
compliance with the production steps set out in the PPBs is likely to result in the use of more domestic 
components and subassemblies, this is not sufficient for a finding of inconsistency under 
Article  3.1(b) of the SCM  Agreement . 
5.289.   We thus uphold  the Panel's findings of inconsistency under Article 3.1(b) of the 
SCM Agreement  concerning the PATVD programme, in paragraphs 7.308, 7.313, 7.317, 7.319, 
8.5.e, and 8.16.f of the Panel Reports, to the extent they relate to the ma in PPBs that contain nested 
PPBs, and we reverse  the Panel's findings, contained in the same paragraphs of the Panel Reports, 
to the extent they relate to the main PPBs that do not contain nested PPBs.  
5.290.   Under the PADIS programme accredited companies are exe mpted from paying certain taxes 
with respect to semiconductors and information displays, as well as  to inputs, tools, equipment, 
machinery, and software for the production of semiconductors and displays.829 In order to become 
accredited under the PADIS progr amme, a company must, in particular, engage in certain 
manufacturing activities in Brazil that depend on the products for which a company is seeking tax 
benefits.830 Specifically, with respect to semiconductor electronic devices, a company must perform: 
(i) concept, development, and design; (ii) diffusion o r physical -chemical processing; or (iii) cutting, 
encapsulation , and testing.831 With respect to information displa ys, a company must perform: 
(i) concept, development , and design; (ii) manufacture of photose nsitive, photo , or 
electroluminescent elements and light -emitting diodes; or (iii) final assembly of displays and 
electrical and optical testing.832 Finally, with respect to inputs and equipment intended for the 
manufacture of electronic semiconductor device s and information displays, the company must 
manufacture those products in accordance with the relevant PPBs.833 
5.291.   We note that, in order to be accredited with respect to semiconductor electronic devices or 
information displays, it is sufficient for a company to comply with one of the listed production -step 
requirements.834 For example, in order to receive tax benefits for manufacturing semiconductor 
electronic devices, a company must perform either concept, development, and design ; diffusion o r 
physical -chemical  processing ; or cutting, encapsulation , and testing in Brazil. While the company 
could, in principle, engage in all of these activities and be accredited under the PADIS programme, 
                                                
829 Panel  Reports , para.  2.71. 
830 Panel  Reports , para. 7.309.  
831 Panel  Reports , para.  2.76. (referring to Law 11,484 of 31  May 2007 providing for the incentives to 
the Digital TV equipment and electronic semiconductor components industries and on the intellectual property 
protection of integrated circuit topographies, establishing the Semiconductor Technological Development 
Support Program (PADIS) and Support Program for the Technological Development of the Digital TV Equipment 
Industry (PATVD) ( Law 11,484/2007 ) (Panel Exhibit JE -71), Article  2(I), as amen ded by Law 12,715 of 
17 September  2012 ( Law 12,715/2012 ) (Panel Exhibit JE -95), Article  57; Decree 6,233 of 11  October  2007 
establishing the criteria for the purpose of accreditation to the Semiconductor Technological Development 
Support Program (PADIS), w hich grants income tax exemption and reduces PIS/PASEP, COFINS and IPI 
contributions to zero ( Decree 6,233/2007 ) (Panel Exhibit JE -73), Article  6(I), as amended by Decree 8,247 of 
23 May 2014, amending Decree 6,233/2007 ( Decree  8,247/20 14) (Panel Exhibit J E-75), Article  1; Regulatory 
Instruction RFB 852 of 13  June 2008 laying down procedures for qualification for the Programme for the 
Technological Development of the Semiconductor Industry (PADIS) by Secretary of the Federal Revenue 
Department of Brazil (Re gulatory Instruction  RFB 852/2008 ) (Panel Exhibit JE -76), Article  4(I); Decree 
6,759/2009 ( Panel Exhibit JE -8), Article  283(I); Decree 7,212 of 15  June 2010 regulating the charging, 
inspection, collection and administration of the Industrial Goods Tax (IPI ) (Decree 7,212/2010 ) (Panel Exhibit 
JE-9), Article  150, section  1(I)).  
832 Panel  Reports , para.  2.76. (referring to Law 11,484/2007 ( Panel Exhibit JE -71), Article  2(II); 
Decree  6,233/2007 ( Panel Exhibit JE -73), Article  6(II), as amended by Decree  8,247/2 014 (Panel Exhibit 
JE-75), Article  1; Normative Instruction RFB  852/2008 ( Panel Exhibit JE -76), Article  4(II); Decree  6,759/2009 
(Panel Exhibit JE -8), Article  283(II); Decree 7,212/2010 ( Panel Exhibit JE -9) Article  150, section 1(II)).  
833 Panel  Reports , para.  2.76 (referring to Law 11,484/2007 ( Panel Exhibit JE -71), Article  2, section 3, 
as amended by Law  12,715/2012 ( Panel Exhibit JE -95), Article  57; Decree 6,233/2007 ( Panel Exhibit JE -73), 
Article  6, section 3, as amended by Decree  8,247/2 014 (Panel Exhibit J E-75), Article  1). 
834 Panel  Reports , para.  7.310.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 performing just one of them would suffice to get accreditation. Thus, in co ntrast to some PPBs that 
require incorporation of components and subassemblies produced in accordance with the PPBs in 
the ensuing stage of production, the PADIS programme does not reflect such a requirement. It is 
possible that, in the scenario when a com pany seeking accreditation complies with all or several 
requirements under the PADIS programme, it would use the inputs produced in accordance with the 
PADIS programme in the ensuing stage of production. In our view, however, this would be a result  
of the eligibility requirements under the PADIS programme rather than a condition requiring the use 
of domestic over imported goods. As the Appellate  Body noted in US – Tax Incentives , production 
subsidies "can ordinarily be expected to increase the supply of the  subsidized domestic goods in the 
relevant market, thereby increasing the use of these goods downstream and adversely affecting 
imports, without necessarily requiring the use of domestic over imported goods as a condition for 
granting the subsidy ."835 Such e ffects of eligibility criteria for tax incentives are not sufficient for a 
finding of  contingency upon the use of domestic over imported goods.  
5.292.   Accordingly, we agree with the Panel that the eligibility requirements under the PADIS 
programme are inconsiste nt with Article  III:4 of the GATT  1994 because these eligibility 
requirements provide an incentive  to use domestic ICT  products and accord treatment less 
favourable to like imported ICT  products covered under the PADIS programme. We do not consider, 
howeve r, that these eligibility requirements under the PADIS programme also constitute a 
contingency requirement  to use domestic over imported goods under Article  3.1(b) of the 
SCM Agreement .  
5.293.   We further note Brazil's argument that no PPBs have been developed un der the PADIS 
programme for inputs and equipment intended for the manufacture of electronic semiconductor 
devices and information displays.836 We note that the Panel expressly recognized this fact in its 
analysis.837 The Panel further stated that, although the  PADIS programme contemplates the adoption 
of PPBs in the future, the Panel could not "make findings in respect of production -step requirements 
that do not (yet) exist".838 The Panel also remarked that it sufficed for it to note that,  "to the extent 
that any  future PPBs adopted under the PADIS programme contain outsourcing provisions or nested 
PPBs in respect of manufactured components and subassemblies that operate in the same manner 
as those in the Informatics and PATVD programmes, such PPBs would require t he use of domestic 
goods."839 We consider the Panel's statement unfortunate and unnecessary given that it concerned 
a potential WTO -inconsistency of a measure that Brazil had not taken. While the Panel  made this 
statement, the Panel was clear in that it was not making a finding of inconsistency with respect to 
the PPBs under the PADIS programme that have not been adopted. We thus reject Brazil's argument 
that the Panel erroneously made a finding of inconsistency with respect to the PPBs that do not exist.  
5.294.   In light of the above, we reverse  the Panel's findings, in paragraphs 7.313, 7.319, 8.5.e, 
and 8.16.f of the Panel Reports , that the PADIS programme requires the use of domestic over 
imported goods inconsistently with Article 3.1(b) of the SCM  Agreement . 
5.295.   Finally, we recall that, "[t]he Digital Inclusion programme provides for zero rates with 
respect to PIS/PASEP and COFINS contributions for companies that sell in Brazil at retail level certain 
digital consumer goods produced in accordance with the relevant PPB s."840 As the Panel observed, 
"the role of PPBs under the Digital Inclusion programme depart s from that under the other 
ICT programmes … because under this programme the tax benefits are in respect of sales of certain 
products by retailers, rather than in re spect of production of certain products by producers ."841 
Having recalled its finding that all products produced in accordance with PPBs are Brazilian domestic 
products, the Panel found that only domestic goods are eligible for the tax benefits under the Dig ital 
Inclusion programme.842 The Panel concluded that "this is a straightforward situation of incentives 
that are provided in respect of a preference (in this case by retailers) for domestic over imported 
goods ."843 In the Panel's view, for the same reasons as  with respect to the Informatics programme, 
                                                
835 Appellate  Body Report, US – Tax Incentives , para. 5.15. 
836 Brazil's response to questioning at the oral hearing.  
837 Panel  Reports , para.  7.312. The Panel noted that, in reviewing the evidence before it, it found that 
"no PPBs have as yet been adopted in respect of these particular products." (Ibid.)  
838 Panel  Reports , para.  7.312.  
839 Panel  Reports , para.  7.312.  
840 Panel  Reports , para.  2.95. 
841 Panel  Reports , para.  7.316.  
842 Panel  Reports , para.  7.316.  
843 Panel  Reports , para.  7.317.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the Digital Inclusion programme is inconsistent with Article  III:4 of the GATT  1994 and "involves a 
contingency on the use of domestic over imported goods in the sense covered by Article  3.1(b) of 
the SCM  Agreement ".844 
5.296.   As the Panel noted, the Digital Inclusion programme provides a tax incentive to the retailers 
"in respect of a preference … for domestic over imported goods".845 In our view, such a preference 
results in the less favourable treatment under Article III:4 of the GATT  1994 for like imported digital 
consumer  products due to the differential tax burden that imported products are subjected to by 
virtue of the fact that foreign producers  cannot be accredited under that programme. We thus agree 
with the  Panel that the accreditation requirements under the Digital Inclusion programme are 
inconsistent with Article  III:4 of the GATT  1994 since they provide an incentive to use domestic over 
imported goods .  
5.297.   We note, however, that no inconsistency with  Article  3.1(b) of the SCM  Agreement  arises 
unless the granting of a subsidy is found to be contingent "upon the use  of domestic over imported 
goods". We recall, in this respect, that the Panel found that the Digital Inclusion programme presents 
"a straightforward  situation of incentives that are provided in respect of a preference (in this case 
by retailers) for domestic over imported goods".846 On that basis, the Panel found that the Digital 
Inclusion programme is inconsistent both with Article  III:4 of the GATT  1994 and with Article  3.1(b) 
of the SCM  Agreement . While the existence of an incentive to buy and resell like domestic goods 
may be sufficient to meet the legal standard under Article  III:4 of the GATT  1994, it is not sufficient 
to establish an inconsistency  with Article  3.1(b). Instead, in order to find an inconsistency with 
Article  3.1(b) of the SCM  Agreement , a measure must be found to contain " a condition  requiring the 
use of domestic over imported goods".847  
5.298.   We observe, in addition, that the Panel stated that it was reaching its findings "for th e same 
reasons as outlined in [s ection 7.3.2.2.4.1 of its Report s]".848 That section of the Panel  Reports , 
however, merely sets out the factual background of the operation of the PPB s and other 
production -step requirements. We thus fail to see how the discussion in that section could provide 
the reasons for the Panel's finding that the Digital Inclusion programme contains a contingency 
requirement that is inconsistent with Article  3.1(b) of the SCM  Agreemen t.  
5.299.   In light of the above, we consider that the Panel did not have a proper basis to conclude that 
the Digital Inclusion programme contains a requirement to use domestic over imported goods under 
Article  3.1(b) of the SCM  Agreement . We thus reverse  the Pan el's findings, in paragraph s 7.317, 
7.319, 8.5.e , and 8.16.f  of the Panel  Reports , as they relate to the Digital Inclusion programme, 
that the Digital Inclusion programme involves a contingency upon the use of domestic over imported 
goods that is inconsist ent with Article  3.1(b) of the SCM  Agreement . 
5.300.   We, however, agree with the Panel that the PPBs and other production -step requirements 
under the PATVD, PADIS, and Digital Inclusion programmes provide an incentive to use domestic 
ICT products. We therefore uphold the Panel's findings, in paragraphs 7.308, 7.311, 7.313, 7.317, 
7.319, 8.5.b, and 8.16.c of the Panel Reports, that the Informatics, PATVD, PADIS, and Digital 
Inclusion programmes accord less favourable treatment to imported ICT products than that acc orded 
to like domestic products, inconsistently with Article III:4 of the GATT  1994. 
5.4.2.4.3   INOVAR -AUTO programme  
5.301.   Brazil further requests, "[t]o the extent that the Panel 's findings are based on the erroneous 
assumption that production step requirements are sufficient to establish a contingency upon the use 
of domestic over imported goods within the meaning of Article  3.1(b) of the SCM  Agreement "849, 
that we reverse the Panel 's findings that certain aspects of the INOVAR -AUTO programme constitute 
a prohibited import substitution subsidy under Articles  3.1(b) and 3.2 of the SCM  Agreement .850 
                                                
844 Panel  Reports , para.  7.317.  
845 Panel  Reports , para.  7.317.  
846 Panel  Reports , para.  7.317.  
847 Appellate  Body Report, US – Tax Incentives , para. 5.18. (emphasis original)  
848 Panel  Reports , para.  7.317.  
849 Brazil's Notice of Appeal, para.  25. 
850 Brazil's Notice of Appeal, para.  25 (referring to Brazil's appellant's submission, para.  295; 
Panel  Reports , paras.  7.751, 7.823, 7.847 , 8.6.e, and 8.17.f).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Brazil, however, has not developed any argumentation in support of this claim. In respons e to 
questioning at the oral hearing, Brazil explained that it requests the Appellate  Body to reverse those 
findings to the extent the Appellate  Body would reverse the corre sponding findings under the 
ICT programmes.  
5.302.   The Panel made  a finding of inconsistency with Article  3.1(b) of the SCM  Agreement  with 
respect to: (i) the accreditation requirement to perform a minimum number of manufacturing steps 
in Brazil; (ii) the rules on accrual of presumed tax credits, with respect to purchas es of strategic 
inputs and tools; and (iii) the accreditation requirements with respect to expenditure and investment 
in R&D in Brazil, pertaining to the purchase of Brazilian laboratory equipment.851 We understand 
that Brazil's claim concerns the Panel's fi ndings relating to the accreditation requirements to perform 
a minimum number of manufacturing steps in Brazil.  
5.303.   In its reasoning concerning the accreditation requirement  to perform a minimum number of 
manufacturing steps in Brazil, the Panel relied on its previous analysis with respect to the PPBs and 
other production -step requirements under the ICT programmes.852 The Panel observed that the 
"production step requirements under the INOVAR -AUTO programme operate in an analogous 
manner" to those under the ICT pr ogramme s.853 As we see it, the requirement to perform a minimum 
number of manufacturing steps in Brazil operates in a way similar to the main PPBs that do not 
incorporate nested PPBs under the ICT programmes. The Panel's findings under the INOVAR -AUTO 
progra mme, similarly to those under the ICT programmes, also concern manufacturing steps that 
must be performed in Brazil in order to qualify for certain tax benefits.  
5.304.   Above, we have reversed the Panel's findings of inconsistency  with Article  3.1(b) of the 
SCM Agreement  with respect to the main PPBs that do not incorp orate nested PPBs under the 
ICT programmes. As noted, the production -step requirements under the INOVAR -AUTO programme 
operate in a similar manner to the main PPBs that do not incorporate nested PPB s and, in reaching 
its findings of inconsistency with respect to the production -step requirements under the 
INOVAR -AUTO programme, the Panel relied on its analysis under the ICT programmes. Accordingly, 
having reversed the Panel's findings with respect to the main PPBs that do not incorporate nested 
PPBs under the ICT  programmes, we also reverse  the Panel's findings of inconsistency with 
Article  3.1(b) with respect to the requirement to perform a minimum number of manufacturing steps 
under the INOVAR -AUTO programme contained in paragraphs 7.751, 7.823, 7.847, 8.6 .e, and 8.17 .f 
of the Panel  Reports . 
5.4.3   The European Union's and Japan's appeal concerning the  in-house scenario  
5.4.3.1   Introduction  
5.305.   We now turn to consider the European  Union's and Japan's claims on appeal. The 
European  Union and Japan submit that, by not making specific findings on the in -house scenario, 
the Panel exercised false judicial economy and failed to make an objective assessment of the matter 
before it under Article  11 of the DSU.854 The European  Union and Japan contend that they have 
challenged the production -step requirements of the ICT  and INOVAR -AUTO programmes "as a 
whole", without distinguishing between the in -house and outsourcing scenarios855, such that the 
matter referred to the Panel "comprise d both" scenarios.856 The European  Union and Japan request 
that we reverse the relevant Panel findings and complete the legal analysis to find that the 
production -step requirements in the ICT and INOVAR -AUTO programmes are inconsistent with 
                                                
851 Panel  Reports , para.  7.773.  
852 Panel  Reports , paras.  7.747 -7.750 and 7.770 (referring to Panel Reports, paras. 7.290 -7.304 and 
7.307 -7.313).  
853 Panel  Reports , para.  7.747.  
854 European  Union's other appellant's submission, para.  36; Japan's other appellant's submission, 
paras.  20, 31, and 50.  
855 European  Union's other appellant's submission, para.  36; Japan's other appellant's submission, 
paras.  35-36 and 51.  
856 European  Union's other appellant's submission, paras.  56 and 63. See also Japan's other appellant's 
submission, paras.  18-19. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Article  III:4 of the GATT  1994, Article  2.1 of the TRIM s Agreement , and Article  3.1(b) of the 
SCM Agreement  under both the in-house a nd outsourcing scenarios.857  
5.306.   In the alternative, if we were to consider that the Panel correctly exercised judicial economy 
by not making spe cific findings in the in -house scenario, the European  Union requests that we 
"review , pursuant to Article  17.6 of DSU, the legal interpretations developed by the Panel and 
modify, pursuant to Article  17.13 of DSU, the findings … so as to make it clearer that the Panel 
indeed did not need to rule twice on the production -step requirements (in the in -house and 
outsourcing scenarios) because [it] had already found that those steps are per se  inconsistent with 
the covered agreements".858 Similarly, if we were to f ind that the Panel actually made a finding with 
respect to the ICT and INOVAR -AUTO programmes "as a whole", Japan requests that we review, 
pursuant to Article  17.6 of the DSU, the legal interpretations developed by the Panel, and modify, 
pursuant to Article 17.13 of the DSU, the relevant findings, to the extent they may be understood 
as referring solely to the outsourcing scenario.859 Should we decide that the Panel did not exercise 
judicial economy at all with respect to the in -house scenario, Japan also cla ims that the Panel acted 
inconsistently with Article  11 of the DSU because it failed to provide "coherent reasoning" under that 
provision.860  
5.307.   Finally, the European  Union raises "a subordinate claim of error, subject to the 
Appellate  Body rejecting" both of the above -mentioned claims.861 The European  Union requests that 
we "find that the Panel, by failing to consider the European  Union's claims under Article  III:4 of [the] 
GATT  1994, Article  2.1 of [the] TRIMs Agreement  and Article  3.1(b) of  [the] SCM Agreement  in light 
of all the relevant facts of the case (which included both the in -house and outsourcing scenarios), 
erred in the application of those provisions."862 
5.308.   In response, Brazil claims that the other appellants' claims of error under Article 11 of the 
DSU should be rejected.863 Brazil argues that the issue of judicial economy is "only  relevant to the 
manner in which a panel deals with a party's claims "864, and that the in -house scenario was not a 
claim but an argument.865 Brazil considers, how ever, that the Panel duly examined and made 
findings with respect to all of the legal claims raised by the European  Union and Japan under the ICT 
and the INOVAR -AUTO programmes under Article  III:4 of the GATT, Article  2.1 of the 
TRIMs  Agreement , and Article 3.1(b) of the SCM  Agreement .866 Accordingly, Brazil considers that 
the Panel "did  not act inconsistently with Article  11 of the DSU by not addressing the European  Union 
and Japan's argument that in the in -house scenario the ICT programmes and INOVAR -AUTO g ave 
rise to a requirement to use domestic over imported goods within the meaning of Article  III:4 of the 
GATT  1994, Article  2.1 of the TRIMs  Agreement , and Article  3.1(b) of the SCM  Agreement ".867 
5.4.3.2   Panel's findings  
5.309.   We note that the other appeals in this dispute relate to a specific aspect of the ICT and 
INOVAR -AUTO programmes, namely, the in -house scenario in the context of compliance with the 
production -step requirements contained in PPBs or other instruments under the relevant 
programmes. In section 5.4.2.2 above, we have summarized the Panel's findings concerning the 
inconsistency of the PPBs and other production -step requirements under the ICT programmes with 
                                                
857 The European  Union  requests we reverse the Panel  findings in paragraphs 6.10 -6.11, 6.13, 7.314, 
7.749, and 8.5 of the Panel  Reports . (European  Union's other appellant's submissi on, para.  125) Japan 
requests that we reverse  the Panel  findings in paragraphs  7.302, 7.308, 7.314, and 7.317  of the Panel  Reports . 
(Japan's other appellant's submission, paras.  52-53) 
858 European  Union's other appellant's su bmission, para.  125. (emphasis original)  
859 Japan's other appellant's submission, paras.  30 and 49.  
860 Japan's other appellant's submission, para.  21. 
861 European  Union's other appellant's submission, para.  125. 
862 European  Union's other appellant's submission , para.  125. (fn omitted) The European  Union thus 
requests that we  reverse the Panel's findings, complete the legal analysis with regard to the in-house scenario 
and find that the production -step requirements contained in the ICT and INOVAR -AUTO programmes  are 
inconsistent with Article  III:4 of the GATT  1994, Article  2.1 of the TRIMs Agreement , and Article  3.1(b) of the 
SCM Agreement  also under the in-house  scenario.  (Ibid.)  
863 Brazil's appellee's submission, para.  29. 
864 Brazil's appellee's submission, para.  6 (quoting Appellate  Body Report, EC – Fasteners (China) , 
para. 511 (emphasis original)) . 
865 Brazil's appellee's submission, para.  8. 
866 Brazil's appellee's submission, para.  7. 
867 Brazil's appellee's submission, para. 12. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .868 In the summary below,  
we recall the Panel's findings relevant for the in -house scenar io under the ICT and the INOVAR -AUTO 
programmes.  
5.310.   Before the Panel, the complainants argued, inter alia , that  the production -step requirements 
with which manufacturers must comply to receive th e tax incentives under the four ICT  programmes 
involve requirements to use domestic inputs in the production of the incentivized products869, and 
that "the requirement to perform certain manufacturing steps in Brazil [in all cases] is tantamount 
to requiring  the incorporation of domestic content into the finished product", whenever the 
performance of those manufacturing steps results in the creation of a product.870 The Panel observed 
that the complainants "ma[de] this argument without regard for whether a sing le company itself 
performs all of the production steps and thus itself creates the 'inputs'  in question (so -called 
'in-house ' production), or instead outsources some production steps to third parties, by acquiring 
from them the outputs of those production steps, which it then incorporates as 'inputs ' into its 
production of the incentivized product."871 
5.311.   The Panel observed that, depending on the PPB, "[c]ertain production -step requirements 
must be performed by the company accredited as the producer of the incen tivized finished or 
intermediate product that is subject of the PPB, while other production -step requirements may be 
performed by 'third parties' based in Brazil."872 The Panel further noted that, in the complainants' 
view, the production -step requirements " on their own" constituted requirements to use domestic 
goods in the production of incentivized products, without regard to whether those requirements are 
met "in -house" or through outsourcing some of those steps.873 The Panel further observed that Brazil 
had argued that production -step requirements had "exclusively to do with production and in no case 
require the use of domestic goods".874 Nevertheless, the Panel sta ted that there seemed to be 
"no theoretical disagreement among the parties that at least in the case in which a company is 
required, when it acquires a product from an outside source, to only acquire a domestic product, 
there would be a requirement to use domestic goods in the sense covered by Article  III:4 of the 
GATT  1994 and Article  3.1(b) of the SCM Agreement ."875 The Panel considered that "[g]iven these 
views of the parties", it would be "useful to separately analyse the two possible scenarios for 
compliance with the PPBs  … : the in -house scenario and the outsourcing scenario" .876  
5.312.   With respect to th e outsourcing scenario, the Panel found that, because nested PPBs imposed 
a mandatory minimum amount of such "domestic goods" to be used in producing the product subject 
to the main PPB, the only way to satisfy the requirement, when outsourcing, was to acq uire and use 
domestic goods.877 The Panel further considered that "[t]his analysis also holds true for the basic 
production step requirements of all PPBs under the Informatics programme ."878 
5.313.   The Panel added that, even if certain PPBs contained alternative opti ons to comply with 
certain production steps in those PPBs, the "mere existence of options for compliance that are 
potentially WTO -consistent could not preclude a finding of inconsistency in respect of the PPBs as a 
whole", so that the existence of alternat ive, potentially WTO -consistent options would not "alte[r] 
the inconsistency … of an option that requires the use of domestic products over imported 
                                                
868 See section 5.4.2.2 above.  
869 Panel  Reports , para.  7.256.  
870 Panel  Reports , para.  7.272 (quoting Japan's first written submission  to the Panel , para. 296; 
referring to European  Union 's first written submission  to the Panel , para. 600).  
871 Panel  Reports , para. 7.271.  
872 Panel  Reports , para.  7.281. (emphasis omitted; fn omitted)  
873 Panel  Reports , para.  7.297. See also ibid., para.  7.271.  
874 Panel  Reports , para.  7.297.  
875 Panel  Reports , para.  7.297.  
876 Panel  Reports , para.  7.298.  
877 Panel  Reports , para. 7.300.  
878 Panel  Reports , para. 7.301. The Panel applied this reasoning to each of the four ICT programmes and 
concluded for each of them that, "regarding the outsourcing requirements" with respect to the production -step 
requirements for components and subassemblies used in the production of an incentivized product, t he PPBs or 
analogous production -step requirements in the ICT programmes require the use of domestic goods , in the 
sense covered by Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM Agreement . (Panel  Reports , 
paras.  7.302, 7.308, 7.311, and 7.316)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 products".879 In light of this, and given the parties' "divergent views in respect of the in -house 
scenario f or complying with the PPBs", the Panel found i t "unnecessary" to address the in-house 
scenario.880 In the Panel's v iew, even if it found that the in-house scenario did not involve a 
requirement to use domestic goods, this would not alter its finding with respect to the outsourcing 
scenario that such measures are inconsistent with Article  III:4 of the GATT  1994 and Article  3.1(b) 
of the SCM  Agreement .881 
5.314.   With respect to the INOVAR -AUTO programme, the Panel noted that, to be eligible for the 
tax benefits under this programme, a company must comply with a minimum number of defined 
manufacturing and engineering infrastructure activities that "must be performed in Brazil either by 
the accredited company or through third parties".882 Further, the performance of these steps must 
cover at least 80% of manufactured vehicles, and is subject to a schedule of the minimum number 
of activities to be performed, which varies by calendar year and type of vehicle manufactured.883 
The Panel then recalled its analysis regarding the ou tsourcing scen ario in the context of the 
ICT programmes, and considered that the production -step requirements in the INOVAR -AUTO 
programme operated in an "analogous manner".884 Thus, the Panel concluded that, in the 
outsourcing scenario , the production -step requirements under the INOVAR -AUTO programme 
require the use of domestic goods under Article  III:4 and Article  3.1(b).885  
5.315.   Furthermore, the Panel considered that for the same reasons as under the ICT  programmes, 
it did not need to examine "whether under the 'in-house' scenario the production step requirements 
also would constitute a requirement to use domestic goods".886 The Panel added that it did not 
consider that the existence of an alternative, WTO -consistent option for compliance would alter the 
fact that the option that requires the use of domestic over imported goods is inconsistent with 
Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .887 
5.316.   In its comments on the Interim Report, the European  Union, raising concerns about 
paragraphs  7.314 and 7.747 of the Report, argued that "the Panel's completion of its legal analysis 
in respect of the 'in -house scenario' is 'essential to secure a positive solution' to the dispute", because 
otherwise, "the 'complainants would be compelled to start a new  panel procedure and repeat their 
legal claims, even though those legal claims [were] properly before [the] Panel .'"888 
The European  Union thus requested the Panel to complete its legal analysis with regard to the 
in-house scenario, or to include elements in  the Panel  Reports  that would allow the Appellate  Body 
to do so.889  
5.317.   In responding to the European  Union's request, the Panel first recalled the Appellate  Body's 
statement in EC – Fasteners (China) , that:  
[A] panel has the discretion " to address only those a rguments it deems necessar y to 
resolve a particular claim" and " the fact that a particular argument relating to that claim 
is not specifically addressed in the 'Findings' section of a panel report will not, in and of 
itself, lead to the conclusion that tha t panel has failed to make the 'objective assessment 
of the matter before it' required by Article  11 of the DSU. "890 
5.318.   For the Panel, its findings that the "relevant aspects of the programmes concerning 
production -step requirements, as challenged by the complaining parties in this dispute", are 
                                                
879 Panel  Reports , para.  7.303. See also ibid., paras.  7.304, 7.308, 7.311, and 7.314. In the Appendix to 
its Report, the Panel set out its analysis regarding individual production -step requirements that must be 
complied with to benefit from tax treatments under the four ICT  programmes, in the outsourcing scenario. The 
Panel did not set out the potentially WTO -consistent alternative options referred to above. (Ibid., para.  9.4) 
880 Panel  Reports , para.  7.314 . 
881 Panel  Reports , para.  7.314.  
882 Panel  Reports , para.  7.743.  
883 Panel  Reports , para.  7.743.  
884 Panel  Reports , para.  7.747.  
885 Panel  Reports , para.  7.748.  
886 Panel  Reports , para.  7.749.  
887 Panel  Reports , para.  7.750.  
888 Panel  Reports , para.  6.9 (quoting European  Union 's comments on the Interim Report, para. 26). 
889 Panel  Reports , para.  6.9 (quoting European  Union 's comments on the Interim Report, para. 26). 
890 Panel  Reports , para.  6.10 (quoting Appellate  Body Report, EC – Fasteners  (China) , para.  511, in tu rn 
referring to Appellate  Body Report, EC – Poultry , para. 135).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 inconsistent with certain provisions of the covered agreements makes it unneces sary to address the 
complainants' argument that the relevant production  steps are inconsistent with the exact same 
provisions, for reasons other than those identified by the Panel.891 The Panel further noted that 
"its factual findings are sufficient should t he Appellate  Body decide to rule on this issue", and that 
"should the Appellate  Body want to review the Panel's analysis, it will be able to benefit from the 
descriptive part of the Report, the exhibits contained in the Panel record (and identified in the 
descriptive part), and the Appendix attached to the Report."892 Finally, the Panel considered it 
"inappropriate at this stage to prejudge the manner in which Brazil may come into compliance with 
[its] obligations", and found that issues pertaining to the man ner of Brazil's compliance can be 
addressed in Article  21.5 proceedings.893 Thus, the Panel refused to make additional findings on the 
in-house scenario.  
5.4.3.3   Analysis  
5.319.   The European  Union and Japan maintain that they have challenged the production -step 
requireme nts of the ICT  and the INOVAR -AUTO programmes "as a whole", without distinguishing 
between the in -house and outsourcing scenarios894, such that the matter referred to the Panel 
"comprised both" scenarios.895 They also raise before us a series of alternative cl aims concerning 
the Panel's findings regarding the in -house scenario under the ICT and INOVAR -AUTO programmes.  
5.320.   As noted, the European  Union and Japan submit that the Panel, by deciding not to make 
specific findings on the in -house scenario, exercised fals e judicial economy and failed to make an 
objective assessment of the matter before it contrary to the requirements of Article  11 of the DSU.896 
In the European  Union's and Japan's view, by distinguishing between the in -house scenario and 
outsourcing scenario s on its own volition and by making specific findings only with regard to the 
latter scenario, the Panel failed to secure "a positive solution" to the dispute, in the sense of 
Article  3.7 of the DSU.897  
5.321.   As an alternative to this claim, the European  Union an d Japan each raise a similar claim 
predicated on different conditions. If we were to consider that the Panel correctly exercised judicial 
economy by not making findings concerning the in -house scenario, the European  Union requests 
that we " review , pursuant  to Article  17.6 of [the] DSU, the legal interpretations developed by the 
Panel and modify, pursuant to Article  17.13 of [the] DSU, the findings … so as to make it clearer 
that the Panel indeed did not need to rule twice on the production step requirements  (in the in -house 
and in the outsourcing scenarios) because [it] had already found that those steps are per se  
inconsistent with the covered agreements".898 Japan makes a similar request conditioned upon us 
concluding that the Panel actually made a finding w ith respect to the ICT and INOVAR -AUTO 
programmes "as a whole".899 In the alternative, if we were to decide that the Panel did not exercise 
judicial economy at all with respect to the in -house scenario, Japan claims that the Panel acted 
inconsistently with Article 11 of the DSU because it failed to provide "coherent reasoning" under that 
provision.900 
5.322.   Finally, the European  Union also raises "a subordinate claim of error", subject to us rejecting 
both of the above -mentioned claims.901 The European  Union thus requests that we reverse the 
                                                
891 Panel  Reports , para.  6.11 (referring to sections 7.3.2.2.4, 7.3.4, 7.4.2.4.2 , and 7.4.5 of the 
Panel  Reports ). 
892 Panel  Reports , para.  6.12. 
893 Panel  Reports , para.  6.13. 
894 European  Union's other appellant's submission, para.  36; Japan's other appellant's submission, 
paras.  35-36 and 51.  
895 European  Union's other appellant's submission, paras.  56 and 63. See also Japan's other appellant's 
submission, paras.  18-19. 
896 European  Union's other appellant's submission, para.  36; Japan's other appellant's submission, 
paras.  20, 31, and 50.  
897 Japan's other appellant's submission, para.  20; European  Union's other appellant's submission, 
para. 48. 
898 European  Union's other appellant's submission, para.  125. (emphasis original)  
899 Japan's other appellant's submission, paras.  30 and 49.  
900 Japan's other appellant's submission, para.  21. 
901 European  Union's other appellant's submission, para.  125. In partic ular, the European  Union submits 
that "the Panel made an error in the application of Article  III:4 of [the] GATT  1994, Article  2.1 of [the] 
TRIMs Agreement  and Article  3.1(b) of [the] SCM Agreement  by failing to consider those provisions in light of 
all the relevant facts of the case, i.e. the in -house scenario."  (Ibid., para.  122. (emphasis omitted))  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Panel's findings and complete the legal analysis with regard to the in -house scenario and find that 
the production -step requirements contained in the ICT and INOVAR -AUTO programmes are 
inconsistent with  Article  III:4 of the GATT  1994, Article  2.1 of the TRIMs Agreement , and 
Article  3.1(b) of the SCM Agreement  under both the in-house and outsourcing scenarios.902 
5.323.   The European  Union and Japan submit that the lack of clarity concerning the 
WTO-consistency of the in -house scenario could prevent effective implementation of the Panel's 
recommendations and rulings in this dispute.903 The European  Union considers that the 
Panel  Reports  could be understood as "not requiring Brazil to amend in any way the challenged 
measures, in  so far as applicable to the in -house scenario", and leaving the participants and other 
WTO Members "in a situation of legal uncertainty" as regards the compatibility of the in -house 
scenario with the relevant WTO provisions.904 Similarly, Japan ar gues that the lack of findings 
regarding the in -house scenario may lead to future disagreement as to whether Brazil is still 
permitted to maintain the measure s at issue with respect to the in-house scenario. Furthermore, 
because a compliance panel's terms of reference are limited to measures taken to comply with the 
recommendations and rulings of the DSB, and it is unclear whether the Panel 's findings, 
recommendations, and rulings (and thus Brazil's future compliance obligations) extend to the 
accreditation  requirement as a whole, a positive solution to the dispute is not secured.905 
5.324.   For its part, Brazil does not contest that  the European Union and Japan,  in making their 
claims before the Panel, did not distinguish between in -house and outsourcing scenarios.906 Brazil 
also agrees with the European  Union and Japan that the scope of the Panel's findings at issue is 
unclear.907 Brazil, however, claims that the issue of judicial economy is "only relevant to the manner 
in which a panel deals with a party's claims "908, and that the in -house scenario was not a claim, but 
an argument.909 Hence, in Brazil's view, the European  Union's and Japan's claims of error under 
Article  11 of the DSU should be rejected because judicial economy cannot be exercised improperly 
with respect to arguments.910  
5.325.   Brazil submits that the Panel was not required to "address every conceivable 'factual 
situation'" in which the European  Union and Japan considered that the measures at issue are 
inconsistent with the covered agreements, and neither was the Pan el's decision not to address the 
in-house scenario "internally contradictory with any interpretative finding made by the Panel, as 
Japan incorrectly posits".911 Rather, the Panel simply "considered all of the arguments put forward 
… but effectively decided t o attribute to the in -house scenario the weight and significance it 
considered appropriate", within the bounds of its discretion under Article  11.912 
5.326.   As we see it, at the heart of the European  Union's and Japan's appeal is the concern that, 
due to an alleged  lack of clarity in the Panel's findings concerning the in -house scenario, the 
implementation of the Panel's recommendations and rulings in this dispute may be compromised 
and certain issues may be left unresolved.913 We thus start our analysis by examining whether the 
Panel's findings cover the in -house scenario.  
5.327.   We recall that, prior to its analysis of the ICT programmes, the Panel noted that there 
seemed to be "no theoretical disagreement among the parties" that, in case a company is required, 
when it acqu ires a product from an outside source, to only acquire a domestic product, there would 
be a requirement to use domestic goods.914 The Panel, however, also noted that, while the 
                                                
902 European  Union's other appellant's submission, para.  125. 
903 European  Union's and Japan's responses to questioning at the oral hearing.  
904 European  Union's ot her appellant's submission, para.  85. 
905 Japan's other appellant's submission, paras.  38-39. See also European  Union's other appellant's 
submission, para.  86. 
906 Brazil's responses to questioning at the  oral hearing.  
907 Brazil's responses to questioning at the oral hearing.  
908 Brazil's appellee's submission, para. 6 (quoting Appellate  Body Report, EC – Fasteners (China) , 
para. 511 (emphasis original)).  
909 Brazil's appellee's submission, para. 8. 
910 Brazil' s appellee's submis sion, para.  29. 
911 Brazil's appellee's submission, para.  11 (referring to  European  Union 's other appellant's submission, 
para. 77; Japan's other appellant's submission, para. 21, in turn referring to Appellate  Body Report, 
Colombia  – Textiles , para. 5.27). 
912 Brazil's appellee's submission, para.  12. 
913 European  Union's and Japan's responses to questioning at the oral hearing.  
914 Panel  Reports , para.  7.297.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 complainants considered that "the production -step requirements on their own const itute 
requirements to use domestic goods", Brazil argued that production -step requirements have 
exclusively to do with production and do not require the use of domestic goods.915 The Panel 
therefore considered that it would be "useful" to separately analyse the two possible scenarios, 
starting with the outsourcing one.916 Accordingly, the Panel's subsequent analysis explored how the 
production -step requirements may result in a "requirement to use domestic goods" in the context 
of the "outsourcing scenario".917 The Panel observed, in particular, that, whenever a producer of a 
product covered by a main PPB obtained components or subassemblies covered by its own nested 
PPB, it was obtaining "domestic goods". Furthermore, in the Panel's view, because nested PPBs 
impos ed a mandatory minimum amount of such "domestic goods" to be used in producing the 
product subject to the main PPB, the only way to satisfy the requirement, when outsourcing, was to 
acquire and use domestic goods.918 
5.328.   In addition, with regard to three out of four of the ICT programmes (i.e. the Informatics, 
PATVD, and PADIS programmes), the Panel found that, "regarding the outsourcing requirements  in 
respect of the production step requirements for components and subassemblies"919 used in the 
production of an incentivized product, the PPBs required the use of domestic goods in the sense of 
Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .920 The explicit references 
to the outsourcing scenario in those findings m ay be viewed as suggesting that the Panel's findings 
of inconsistency, in paragraphs  7.302, 7.308, and 7.311 -7.314 of its Report, concern the meas ures 
only as they apply in the outsourcing scenario, without prejudice to how they may apply in the 
in-house s cenario.921 Similarly, with regard to the INOVAR -AUTO programme, the Panel found that, 
in the outsourcing scenario, the production -step requirements under the INOVAR -AUTO programme 
require the use of domestic goods under Article  III:4 of the GATT  1994 and Article 3.1(b) of the 
SCM Agreement .922  
5.329.   Other elements of the Panel's analysis, however, can be understood as covering the in -house 
scenario. In particular, in its analysis under the ICT programmes, the Panel repeatedly observed 
that, even if certain PPBs con tain "alternative options to compliance with certain production -steps in 
the PPBs", the "mere existence of options for compliance that are potentially WTO -consistent could 
not preclude a finding of inconsistency in respect of the PPBs as a whole", so that the existence of 
alternative, potentially WTO -consistent options, would not "alte[r] the inconsistency … of an option 
that requires the use of domestic products over imported products".923 The Panel subsequently 
referred to these observations in its analysis  of the consistency of the INOVAR -AUTO programme 
with Article  III:4 of the GATT  1994 and Article  3.1(b) of the SCM  Agreement .924 These statements 
by the Panel may be seen as suggesting that the in-house scenario could be a "potentially 
WTO-consistent" option , had the Panel examined it.925 We also note that the Panel is unclear in 
stating, on the one hand, that "potentially WTO -consistent [options] could not preclude a finding of 
inconsistency in respect of the PPBs as a whole ", and, on the other hand, that pote ntially 
                                                
915 Panel  Reports , para.  7.297.  
916 Panel  Reports , para.  7.298.  
917 Panel  Reports , paras.  7.298 -7.314 and 7.746 -7.751.  
918 Panel  Reports , para.  7.300.  
919 Panel Reports, para. 7.302. (emphasis added)  
920 Panel  Reports , paras.  7.302, 7.308, 7.311, and 7.316. In the case of the PADIS programme, the 
Panel found that a company seeking accreditation had to comply with di fferent production -step requirements 
depending on the type of products, and that for certain products, no PPBs have been adopted yet. In this 
respect, the Panel noted that " to the extent that any future PPBs adopted under the PADIS programme contain 
outsou rcing provisions or nested PPBs in respect of manufactured components and subassemblies that operate 
in the same manner as those in the Informatics and PATVD programmes, such PPBs would require the use of 
domestic goods ." (Ibid., para.  7.312 (emphasis adde d)) 
921 We note that, for the Digital Inclusion programme, however, the Panel did not make such explicit 
references to the outsourcing scenario, because it applies to sales of certain products by retailers. The Panel 
simply found that " this programme involve s a contingency on the use of domestic over imported goods in the 
sense covered by Article  3.1(b) of the SCM Agreement ." (Panel  Reports , para.  7.317)  
922 Panel  Reports , para.  7.748.  
923 Panel  Reports , para.  7.303. See also ibid., para.  7.304.  
924 Panel  Reports , paras.  7.749 -7.750 (referring to Panel  Reports , paras.  7.303 -7.304) and 7.770 
(referring to Panel  Reports , paras.  7.258, 7.303, and fn 648 to para.  7.258).  
925 Panel  Reports , para.  7.314.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 WTO-consistent options would not "alte[r] the inconsistency … of an option  that requires the use of 
domestic products over imported products".926  
5.330.   We also note that the Panel's overall conclusions regarding the ICT  and INOVAR -AUTO 
programmes under Article III:4 of the GATT  1994 appear to suggest that the Panel's findings of 
inconsistency cover the measures as a whole. In particular, the Panel  found, with respect to the 
ICT programmes, that:  
[T]he production -step requirements and the requirement for pr oducts to obtain the 
status of "developed" in Brazil under the Informatics, PADIS, and PATVD programmes, 
and certain eligibility requirements under the Digital Inclusion programme … accord to 
imported products treatment less favourable than that accorded t o like domestic 
products, inconsistently with Article  III:4 of the GATT  1994.927 
5.331.   Similarly, in the conclusions regarding the INOVAR -AUTO  programme under Article  III:4 of 
the GATT  1994, the Panel found that, "under the INOVAR -AUTO programme, the conditions fo r 
accreditation in order to receive presumed tax credits … accord less favourable treatment to imported 
products than that accorded to like domestic products, inconsistently with Article  III:4 of the 
GATT  1994. "928 Thus, in its overall conclusions on those two programmes, the Panel did not specify 
the factual scenarios in which the relevant production -step requirements and analogous 
requirements are WTO -inconsistent. Neither did the Panel refer to such distinction in the conclusions 
and recommendations of it s Report s.929  
5.332.   In its overall conclusions and recommendations, the Panel may be seen as having made a 
finding of inconsistency with the relevant provisions for the measures as a whole, without 
distinguishing between the two factual scenarios used by the Pane l in its analysis.  
5.333.   Our examination of the relevant Panel's analysis and findings thus reveals that some aspects 
of the Panel's reasoning and conclusions appear to refer to the outsourcing scenario, while excluding 
the in -house scenario. Other aspects of th e Panel's analysis, including the overall conclusions and 
recommendations can be understood as cove ring measures as a whole and thu s extending to the 
in-house scenario.  In this respect, we share the concern of the European  Union and Japan that the 
lack of clarity with respect to the scope of the Panel's findings may compromise the effective 
implementation of the recommendations and rulings in this dispute. This would not contribute to 
achieving a positive solution to this dispute, as required under Article  3.7 of the DSU.  
5.334.   We recall, that the Panel reached its findings of inconsistency under Article  III:4 of the 
GATT  1994 and Article  3.1(b) of the SCM  Agreement  with respect to the ICT  programmes because 
it considered that the PPBs and other production -step re quirements require the use of domestic 
goods.930 Subsequently, the Panel referred to its analysis under the ICT programmes in reaching 
findings of inconsistency under Article  III:4 of the GATT  1994 and Article  3.1(b) of the 
SCM Agreement  with respect to the accreditation requirement to perform certain manufacturing 
steps in Brazil under the INOVAR -AUTO programme.931 The Panel also relied on these findings to 
reach its findings of inconsistency under Article  2.1 of the TRIMs  Agreement  with respect to the ICT 
and INOVAR -AUTO programmes.932 Accordingly, the Panel used its findings of the existence of the 
requirement to use domestic goods under Article  III:4 of the GATT  and Article  3.1(b) of the 
SCM Agreement  under the ICT programmes as a basis for its subsequent find ings. 
5.335.   We also recall that the participants agree that the Panel's finding of inconsistency with 
respect to the PPBs and other production -step requirements under the ICT  programmes was of a 
de jure nature.933 In its analysis, under the ICT programmes, the Panel relied on the text of the 
relevant legal instruments and its own understanding of the operation of the PPBs and other 
production -step requirements and did not examine the factual circumstances surroundi ng the 
                                                
926 Panel  Reports , para.  7.303. (emphasis added)  
927 Panel  Reports , para. 7.318.  
928 Panel  Reports , para.  7.772.  
929 Panel  Reports, paras.  8.5.b, 8.5.d -e, 8.6b, 8.6.d -e. 8.16.c, 8.16.e -f, 8.17.c, and 8.17.e -f. 
930 Panel  Reports , paras.  7.313 and 7.319.  
931 Panel  Reports , paras.  7.747 -7.751.  
932 Panel  Reports , paras.  7.364 and 7.805.  
933 Participants' responses to questioning at the oral hearing.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 granting of the subsidy.934 Moreover, in examining the claims concerning the ICT programmes, the 
Panel indicated that it was analysing "the  specific provisions of the PPBs"935 and that the PPBs contain 
"an explicit requirement to use domestic goods".936 Similarly, in the context of the INOVAR -AUTO 
programme, the Panel considered "that the accreditation requirements to invest in R&D in Brazil and 
make expenditure [s] in engineering, basic industrial technology and capacity -building of suppliers 
in Brazil, with respect to laboratory equipment used in performing R&D in Brazil, by the necessary 
implication of the wording of the measure , require the use of domestic over imported goods in order 
to be accredited and obtain the tax benefits."937 Likewise, in our analy sis above, we have focused 
on whether the PPBs and other production -step requirements under the ICT programmes contain in 
their very terms, or by necessary implication therefrom, a requirement to use domestic over 
imported goods under Article  3.1(b) and pr ovide less favourable treatment under Article  III:4 of the 
GATT  1994.938  
5.336.   We further recall that the legal standard under Article  3.1(b) of the SCM  Agreement  and 
Article  III:4 of the GATT is not the same. While an inquiry under Article  3.1(b) of the SCM  Agreement  
focuses on  whether there is a condition requiring the use of domestic over imported goods, an 
incentive to use domestic goods is sufficient to find an inconsistency with Article  III:4 of the 
GATT  1994.939 
5.337.   We recall that the legal standard under Article  3.1(b) of the SCM  Agreement  requires that 
a condition  requiring the use of domestic over imported goods be discerned from the terms of the 
measure itself, or inferred from its design, structure, modalities of operation, and the relevant factual 
circumstan ces constituting and surrounding the granting of the subsidy that provide context for 
understanding the operation of these factors.940 Accordingly, for purposes of establishing an 
inconsistency with Article  3.1(b) of the SCM  Agreement , whet her a company prod uces goods 
in-house or whether it outsources its production is not decisive. What matters, instead, is whether 
such a measure reflects a condition requiring the use of domestic over imported goods.941  
5.338.   By contrast, local content requirements that alter the conditions of competition to the 
detriment of the imported products by providing an incentive to use domestic goods will be found to 
be inconsistent with Article  III:4 of the GATT  1994.942 For purposes o f analysis under Article  III:4 of 
the GATT, as well as under Article  2.1 of the TRIMs  Agreement , whether a company produces goods 
in-house or whether it outsources its production would not be determinative. Instead, the relevant 
inquiry is whether the meas ure accords to imported products treatment less favourable than that 
accorded to the domestic products.943  
5.339.   In light of the above, we consider that it did not matter, for purposes of the Panel's analysis, 
what factual scenarios were available for compliance with the requirements under the ICT and 
INOVAR -AUTO programmes. The Panel's bifurcation of its analysis into the two possible factual 
scenarios was thus unnecessary. Moreover, as noted, for purposes of establishing an inconsistency 
                                                
934 Panel  Reports , para.  7.285.  
935 Panel Reports, para.  7.285.  
936 Panel  Reports , para.  7.300.  
937 Panel  Reports , para.  7.770. (emphasis added)  
938 See section 5.4.2.4.1 above.  
939 See paragraph 5.254 above.  
940 Appellate  Body Report, US – Tax Incentives , para. 5.18. 
941 We recall, however, that, in US – Tax Incentives , the Appellate  Body explained that " the existence of  
de facto contingency ' must be inferred from the total configuration of the facts constituting and surrounding 
the granting of the subsidy, none of which on its own is likely to be decisive in any  given case '." 
(Appellate  Body Report, US – Tax Incentives , para.  5.12 (quoting Appellate  Body Report, Canada – Aircraft , 
para. 167. (emphasis original) )) Such "f actual circumsta nces potentially relevant to an assessment of whether 
a subsidy is de facto contingent may include the existence of a multi -stage production process, the level of 
specialization of  the subsidized inputs, or the level of integration o f the production chain in the relevant 
industry ." (Ibid., fn 49 to para.  5.13)  
942 Appellate  Body Report, US – FSC ( Article  21.5 – EC), para. 220. 
943 We also recall that the Panel considered that the in -house scenario is one of "the  two possible 
[factual] scenarios for compliance with the PPBs" under the ICT  programmes. ( Panel  Reports , para. 7.298) We 
note, in this respect, that, for purposes of a de jure  analysis, the factual circumstances surrounding the 
measure are of limited importance.  Rather, a subsid y will be de jure contingent upon the use of domestic over 
imported goods under Article  3.1(b) of the SCM  Agreement  when the existence of that condition can be 
demonstrated on the basis of the very words of the measure, or can be derived from them  by neces sary 
implication . (Appellate  Body Report, Canada – Autos , paras.  100 and 123 ) WT/DS472/AB/R • WT/DS497/AB/R  
 
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 with Article  3.1(b) of t he SCM  Agreement , Article  III:4 of the GATT  1994, and Article  2.1 of the 
TRIMs  Agreement , the possible factual scenarios existing under the measure are not decisive. What 
matters, instead, is whether the respective legal standard has been met.  
5.340.   In light of  the above, we reverse  the Panel's findings, in paragraphs 7.303 -7.304 and 7.314 
of the Panel  Reports , made in the context of its analysis under ICT programmes, to the extent that 
they can be understood as suggesting that the in -house scenario was not cove red by the Panel's 
findings. We also reverse  the Panel's findings, in paragraphs 7.749 -7.750 and 7.770 of the 
Panel  Reports , made in the context of INOVAR -AUTO programme and referring to the mentioned 
Panel's findings under the ICT  programmes, to the exten t that they can also be understood as 
suggesting that the in -house scenario was not covered by the Panel's findings. We thus consider 
that the Panel's findings, in paragraphs 7.319, 7.772 -7.773, 8.5.e, 8.6.b, 8.6.e, 8.16.c, 8.16.f, 
8.17.c, and 8.17.f of th e Panel  Reports , apply also in the in -house scenario. For these reasons, we 
need not further address the European  Union's and Japan's claims raised on appeal.  
5.5  Article I:1 of the GATT  1994 and t he Enabling  Clause  
5.341.   We now turn to consider Brazil's claim on ap peal that the Panel erred in finding that the 
claims raised by the European  Union and Japan under Article  I:1 of the GATT  1994 were within its 
terms of reference and that the differential and more favourable treatment in the form of internal 
tax reductions  accorded to imports from Argentina, Mexico, and Uruguay under the INOVAR -AUTO 
programme was not justified under paragraphs 2(b) and 2(c) of the Enabling  Clause .944 We will begin 
by examining whether the Panel erred in its interpretation and application of p aragraph  4(a) of the 
Enabling Clause. In so doing, we will first address the notification requirement in paragraph  4(a). 
We then review whether the differential tax treatment under the INOVAR -AUTO programme was 
notified pursuant to paragraph  4(a) as having  been adopted under paragraphs 2(b) and 2(c) of the 
Enabling Clause, such that the complaining parties could be considered to have been on notice and , 
consequently, could have been  expected to raise the Enabling  Clause and identify the relevant 
provision(s ) thereof in their panel requests. We then examine  whether the Panel erred in its 
interpretation and application of paragraph  2(b) of the Enabling  Clause, where we first examine the 
scope of that provision. Next, we review  whether , as claimed by Brazil, the differential tax treatment 
under the INOVAR -AUTO programme falls within the scope of paragraph  2(b) and is therefore 
substantively justified under that provision. Finally, we examine Brazil's claim on appeal that the 
Panel erred  in finding that Brazil has not identified any arrangement adopted under paragraph  2(c) 
that has a genuine link to the internal tax reductions under the INOVAR -AUTO programme such that 
the differential and more favourable treatment at issue can be substant ively justified under that 
provision.  
5.5.1   Whether the Panel erred in finding that the claims raised by the European  Union 
and Japan under Article  I:1 of the GATT  1994 were within its terms of reference  
5.342.   Before the Panel, the European  Union and Japan raised cla ims under Article  I:1 of the 
GATT  1994 with respect to  certain aspects of  the INOVAR -AUTO programme. The European  Union 
and Japan argued that Brazil accords an advantage in the form of internal tax reductions 
implemented through Articles  21 and  22(I) of De cree 7,819/2012 to motor vehicles imported into 
Brazil from a member -country of MERCOSUR and Mexico  that is not accorded to like motor vehicles 
imported into Brazil from other WTO Members, including the European  Union and Japan.945 
5.343.   The Panel found that the t ax reductions accorded to motor vehicles imported from 
MERCOSUR members and Mexico under the INOVAR -AUTO programme are advantages granted by 
Brazil to products originating in those countries that are not accorded immediately and 
unconditionally to like pro ducts originating in other WTO Members, inconsistently with Article  I:1 of 
the GATT  1994.946 
5.344.   The Panel then turned to consider Brazil's defences under the Enabling  Clause. Brazil argued 
that the differential tax treatment accorded to Argentina, Mexico, and U ruguay under the 
INOVAR -AUTO programme was justified under both paragraphs 2(b) and 2(c) of the Enabling  Clause 
                                                
944 GATT Document L/4903, 28  November  1979, BISD 26S/203.  
945 Panel  Reports , para.  7.1012 (referring to European  Union 's first written submission  to the Panel, 
paras.  346-365; Japan' s first written submission  to the Panel , paras.  274-281). 
946 Panel  Reports , para.  7.1048.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 and was notified to the WTO, as required under paragraph  4(a) of the Enabling  Clause.947 Brazil 
further argued that the European  Union and Japan h ad the burden of invoking the Enabling  Clause 
in their panel requests and "since they did not do so, they cannot challenge the right of Brazil to 
invoke paragraph[s]  2(b) and 2(c) of the Enabling  Clause to justify the inconsistency of the 
INOVAR -AUTO progr amme with Article  I:1 of the GATT  1994."948  
5.345.   The Panel began by examining who had the burden of in voking the Enabling  Clause. 
The Panel stated that the issue of whether the Enabling  Clause has been properly invoked pertains 
to the jurisdiction of the Panel, and specifically "whether the complaining parties' claim under 
Article  I:1 of the GATT  1994 is within the Panel's terms of reference".949  
5.346.   The Panel noted Brazil's argument that the Appellate  Body has established that 
"a complaining party has the burden of indicating in its panel request that a particular challenged 
measure is not consistent with the relevant provisions of the Enabling  Clause."950 The Panel 
considered that the Appellate  Body's statem ents in EC – Tariff Preferences  were made in the specific 
context of that dispute.951 According to the Panel, the Appellate  Body's findings indicated that 
"the burden of invoking the Enabling  Clause is placed on the complaining party in situations where 
the complaining party is on notice that the challenged measure was adopted (and in the view of the 
adopting member, justified) under the Enabling  Clause ."952 The Panel, therefore, considered that in 
situations where a WTO Member has notified a particular arrange ment imposing discriminatory 
treatment as adopted or modified under the Enabling  Clause, other WTO Members are presumed to 
be aware that the specific discriminatory treatment was adopted pursuant to the Enabling  Clause.953 
The Panel concluded that a complain ing party does not have the burden to invoke the 
Enabling  Clause in its panel request, unless that complaining party is informed that the responding 
party considers the challenged measure to have been adopted pursuant to the Enabling  Clause.954 
5.347.   The Panel nex t considered "whether the challenged measures and their related justifications 
were notified to the  WTO"955 such that the complaining parties were on notice and therefore had the 
burden to invoke the  relevant  provisions of the Enabling  Clause in their panel requests.  
5.348.   The Panel recalled that Brazil submitted that the differential tax treatment under the 
INOVAR -AUTO programme was notified to the WTO, as required under paragraph  4(a) of the 
Enabling  Clause.956 Brazil argued that the notification requirement was s atisfied because "the  1980 
Treaty of Montevideo establishing the Latin American Integration Association (LAIA) was notified to 
the WTO under [paragraph]  2(c) of the Enabling  Clause"957 and that the differential tax treatment 
granted to Argentina, Mexico, and  Uruguay is based on economic complementation  agreements 
(ECAs) negotiated under the auspices of the 1980 Treaty of Montevideo.958 Brazil also argued that 
the "ECAs 'are implementation measures of the {1980}  Treaty of Montevideo and [we]re notified to 
                                                
947 Panel  Reports , para.  7.1054. The  Panel noted that Brazil did not invoke the Enabling  Clause with 
respect to the differential and more favourable treatment accorded to motor vehicles imported from Paraguay 
and Venezuela. (Ibid.) In response to questioning at the oral hearing in these appellate proceedings, Brazil 
confirmed that it does not challenge the Panel's findings contained in paragraphs 7.1048, 8.6.g -h, and 8.1 7.h-i 
of the Panel  Reports  that the internal tax reductions under the INOVAR -AUTO programme are inconsistent with 
Article  I:1 of the GATT  1994 to the extent they concern Paraguay and Venezuela. (Brazil's response to 
questioning at the oral hearing)  
948 Panel  Reports , para.  7.1054 (referring to Brazil's first written submissions  to the Panel , 
paras.  694-742 (DS472) and paras.  627-674 (DS497);  second written submission  to the Panel , 
paras.  166-181; response t o Panel question s Nos. 4 and 53 -55; comments on other  parties' responses to Panel 
questions Nos. 53-55). 
949 Panel  Reports , para.  7.1062.  
950 Panel  Reports , para.  7.1057 (referring to Brazil's response to Panel question No. 4, in turn referring 
to Appellate  Body Report, EC – Tariff Preferences , para. 110).  
951 Panel  Reports , para.  7.1063 . 
952 Panel  Reports , para.  7.1064.  
953 Panel  Reports , para.  7.1066.  
954 Panel  Reports , para.  7.1068. We note that, although one panelist appended a separate opinion, this 
panelist, however, does not disagree with this standard articulated by the Panel. ( Panel  Reports , para.  7.1130)  
955 Panel  Reports , para.  7.1068.  
956 Panel  Reports , para.  7.1069.  
957 Panel  Reports , para.  7.1072.  
958 Panel  Reports , para.  7.1072 (referring to Brazil's first written submission s to the Panel , 
paras.  706-707 (DS472) and paras.  638-639 (DS497) ). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the WT O'" and that the differential tax treatment under the INOVAR -AUTO programme is 
"the corollary of these ECAs and does not require further notification".959 
5.349.   The Panel noted that the 1980 Treaty of Montevideo was notified to the WTO by Uruguay on 
behalf of the LAIA on 1  July 1982, "as adopted pursuant to paragraph  2(c) of the 
Enabling  Clause".960 The Panel, however, stated that "no explicit notification in respect of 
paragraph  2(b) ha[d] been identified by any party, or submitted to the Panel as evidence."961 
Theref ore, in order to determine whether the complaining parties were on notice that the challenged 
measure w as adopted under paragraph  2(b) and, accordingly, whether or not they were required to 
invoke this provision of the Enabling Clause in their panel reques ts, the Panel turned to the question 
whether a notification of an arrangement adopted pursuant to paragraph  2(c) could also serve as a 
notification of an arrangement adopted pursuant to paragraph  2(b) of the Enabling  Clause.962 
The Panel found that a notific ation of a regional trade agreement (RTA) adopted under 
paragraph  2(c) of the Enabling  Clause, even if valid, is not  sufficient to serve as a notification of a 
preferential trade arrangement (PTA) adopted under paragraph  2(b) of the Enabling  Clause and tha t 
"there was no notification made under [paragraph] 4(a) to support a justification under 
paragraph  2(b)."963 The Panel concluded that "Brazil has not demonstrated that any arrangement 
providing for the differential and more favourable treatment at issue was  notified to the WTO as 
adopted pursuant to paragraph  2(b)."964 
5.350.   The Panel next considered whether the notification of the 1980 Treaty of Montevideo and 
the ECAs could substantively serve as a notification of the adoption under paragraph  2(c) of the 
Enabling  Clause of the arrangement introducing the differential and more favourable treatment 
found to be inconsistent with Article  I:1 of the GATT  1994, i.e. the differential tax treatment under 
the INOVAR -AUTO programme.965 The Panel stated that "the differential a nd more favourable 
treatment sought to be justified under paragraph  2(c) must have a close and genuine link to the 
arrangement notified to the WTO such as to put other WTO Members on notice  as to the adoption 
of the differential and more favourable treatme nt pursuant to the Enabling  Clause ."966 The Panel 
found that "none of the provisions cited to in the [1980] Treaty of Montevideo bear the slightest 
relation [,] in and of themselves, to the internal tax reductions found to be inconsistent with 
Article  I:1 of the GATT  1994."967 The Panel also found that Brazil had failed to point to "a single 
provision of any ECA that would attest to the fundamental premise of Brazil's argument, namely that 
the INOVAR -AUTO programme is implementing the objectives of the ECAs".968 Accordingly, the Panel 
found  that "Brazil has not demonstrated how the relevant tax reductions found to be inconsistent 
under Article  I:1 of the GATT  1994" are related to the 1980 Treaty of Montevideo or the ECAs that 
were notified as having been adopted pu rsuant to paragraph  2(c).969  
                                                
959 Panel  Reports , para.  7.1072 (quoting Brazil's second written submission, para. 181; referring to  
Brazil's response to Panel question No. 53; Communication from LAIA to the Chair of the Trade and 
Development Committee  of the  WTO, 19  May 2016 (Panel  Exhibit s BRA-114 and BRA-115)). (curly brackets 
added) The Panel noted:  
[T]he MERCOSUR agreement was allegedly notified on 5  March  1992 in document L/6985;  
ECA No. 55 [between MERCOSUR and Mexico ] was allegedly notified on 21 November  2012 in 
document WT/COMTD/77; the 38th Additional Protocol to ECA No. 14 [between Argentina and 
Brazil ] and the 68th Additional Protocol to ECA No. 2 [between Brazil and Uruguay] were 
allegedly notified on 8  November  2010, in document WT/COMTD/ 72; and the 69th Additional 
Protocol to ECA No. 2 [between Brazil and Uruguay] was allegedly notified on 25  October  2013 in 
document WT/COMTD/82 . 
(Panel  Reports , fn 1443 to para.  7.1080 (referring to Communication from LAIA to the Chair of the Trade and 
Development Committee  of the  WTO, 19  May 2016 (Panel  Exhibit s BRA-114 and BRA-115))) 
960 Panel  Reports , para. 7.1074.  (fn omitted)  
961 Panel  Reports , para.  7.1074.  
962 Panel  Reports , para.  7.1075.  
963 Panel  Reports , para.  7.1081. The Panel considered that paragraph  4(a) of the Enabling  Clause "does 
not … permit[] notification of a measure adopted under one provision of the Enabling  Clause to serve equally 
as a notification of that measure being adopted under another provision of the Enabling  Clause, unless 
indicated in the notification itself".  (Panel  Reports , para.  7.1079)  
964 Panel  Reports , para.  7.1082. (fn omitted)  
965 Panel  Reports , para.  7.1105.  
966 Panel  Reports , para.  7.1108. (emphasis original)  
967 Panel  Reports , para.  7.1112.  
968 Panel  Reports , para.  7.1112.  
969 Panel  Reports , para.  7.1115.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.351.   Thus, the Panel concluded that the challenged measure and its related justifications under 
the Enabling Clause (i.e. under paragraphs 2(b) and 2(c) thereof) were not notified to the WTO 
pursuant to paragraph 4(a) of the Enabling  Clause, such that the complaining parties could be 
considered to have been on notice. Consequently, the Panel found that there was no burden on the 
complaining parties to invoke paragraphs  2(b) and 2(c) of the Enabling  Clause in their panel 
requests, and therefore their claims under Article  I:1 of the GATT  1994 were within the Panel's terms 
of reference.970 
5.5.1.1   Whether the Panel erred in its interpretation of paragraph  4(a) of the 
Enabling  Clause  
5.352.   On appeal, Brazil takes issue with the Panel's finding that " the obligation to invoke the 
Enabling  Clause would only apply if the complaining party had been 'appropriately informed that the 
responding party considers the challenged measure to have been adopted pursuant to (and justified 
under) the Enabling  Clause. '"971 According to Brazil, the Panel considered that "a  disagreement 
regarding whether the notification was deemed appropriate suffices to waive the complainants' 
burden of invoking the Enabling  Clause in their panel requests."972 In Brazil's view, "[t]his logic, if  it 
were to stand, would raise important systemic questions", because "a  disagreement on the method 
of notification could justify ex post  the lack of inclusion of the Enabling  Clause " in a complainant's 
panel request.973 Therefore, Brazil submits that , by conflating the substantive obligation to notify 
properly the measures and the threshold presumption of being informed that a Member considers a 
measure to be justified under the Enabling  Clause, the Panel's understanding deprives of any 
meaningful effe ct the Appellate  Body's finding that it is incumbent on the complaining party to raise 
the Enabling  Clause in its panel request.974 
5.353.   In response, the European  Union submits that the Appellate  Body's findings in EC – Tariff 
Preferences  have to be understood in  the context of that particular case and of the specific provision 
of the Enabling  Clause at issue.975 The European  Union explains that measures taken pursuant to 
paragraph  2(a) of the Enabling  Clause "are different from measures taken pursuant to other 
paragraphs of the Enabling  Clause, and in particular those pertaining to regional trade 
agreements".976  
5.354.   Japan contends that the present dispute can be distinguished from that in EC ‒ Tariff 
Preferences , which involved tariff preferences for developing countries  adopted pursuant to 
paragraph  2(a) of the Enabling  Clause, as opposed to issues relating to RTAs.977 According to Japan, 
"[i]n the case of a preference accorded pursuant to a Generalized System of Preferences ('GSP') it 
can be expected that the legal disput e would revolve around the (in)application of the 
Enabling  Clause" and thus the complaining party "has to 'present the problem clearly' as required 
                                                
970 Panel  Reports , paras.  7.1083 and 7.1120. One Panelist appended a separate opinion on Brazil's 
defence under paragraph  2(c) of the Enabling  Clause. According to this Panelist, references in the relevant 
ECAs to "tariff prefere nces [were]  sufficient to put Members on notice that, at a minimum, motor vehicles 
imported into Brazil from Mexico, Argentina and Uruguay will be treated differently to motor vehicles imported 
into Brazil from other Members ." (Ibid., para.  7.1127) In the view of this Panelist, it was therefore " reasonable 
for Members to assume that such preferences would not be limited to fiscal measures applied at the border, 
but could potentially include internal fiscal measures " and Members could be  considered to have b een informed 
that "motor vehicles imported into Brazil from Mexico, Argentina and Uruguay may be subject to a differential 
tax burden ". (Ibid.) Accordingly, this Panelist considered that " the ECAs are … substantively sufficient to satisfy 
the notification obligation in paragraph  4(a) of the Enabling  Clause." (Ibid., para.  7.1128) Moreover, this 
Panelist was of the view that " Brazil has at a minimum demonstrated that the European  Union  and Japan were 
informed that the Treaty of Montevideo, the MERCOSUR  Agree ment, and the relevant ECAs were adopted 
pursuant to paragraph  2(c) of the Enabling  Clause." (Ibid., para.  7.1129) This Panelist therefore considered 
that "the European  Union  and Japan were sufficiently on notice that the Enabling  Clause might be invoked b y 
Brazil, a signatory to those ECAs, as a defence to a claim under Article  I:1 of the GATT  1994, in respect of 
preferences granted to the signatories to those ECAs ." (Ibid.) For these reasons, this Panelist conclude d that 
the European  Union  and Japan were under an obligation to have include d the relevant provisions of the 
Enabling  Clause  within their respective panel requests  and the failure to do so "mean[t]  that their claims under 
Article  I:1 of the GATT  1994 [were]  outside the Panel's ter ms of reference ". (Ibid., para.  7.1131)  
971 Brazil's appellant's submission, para.  374 (quoting Panel  Reports , para.  7.1068 ). 
972 Brazil's appellant's submission, para.  376. 
973 Brazil's appellant's submission, para.  377. 
974 Brazil's appellant's submission, para.  378. 
975 European  Union's appellee's submission, para.  451. 
976 European  Union's appellee's submission, para.  453. 
977 Japan's appellee's submission, paras.  153 and 155.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 under Article  6.2 of the DSU by referring to the Enabling  Clause explicitly in its panel request".978 
However,  Japan submits that , in a dispute such as the present one, a complaining party cannot be 
expected to assume that the "measures were adopted pursuant to the Enabling  Clause (particularly 
when the responding Member has never said so and never made any notification of the sort to 
the WTO)."979 
5.355.   We begin our analysis with the text of paragraph  4(a) of the Enabling  Clause, which 
provides, in relevant part:  
Any Member taking action to introduce an arrangement pursuant to paragraphs 1, 2 
and 3 above or subsequently t aking action to introduce modification or withdrawal of 
the differential and more favourable treatment so provided shall: [*] 
(a) notify the WTO and furnish [Members] with all the information they may deem 
appropriate relating to such action [.] 
[*fn origina l]4 Nothing in these provisions shall affect the rights of Members under the 
General  Agreement . 
5.356.   Paragraph 4(a) of the Enabling Clause thus deals with the requirement to notify  any action 
by a Member seeking to introduce, modify, or withdraw differential and more favourable 
arrangements adopted pursuant  to paragraphs 1 throug h 3 of the Enabling  Clause. 
The Appellate  Body has described paragraph  4 as setting forth "procedural conditions for the 
introduction, modification, or withdrawal of a preferential mea sure for developing countries".980  
5.357.   The use of the word "shall" indicates that paragraph  4(a) imposes an obligation on a Member 
according differential and more favourable treatment to notify the WTO of the arrangement it has 
adopted. In addition to the oblig ation to notify the introduction of an arrangement, paragraph  4(a) 
also imposes an obligation on Members to notify any modification or the withdrawal of the 
arrangement according differential and more favourable treatment. Paragraph 4(a) thus envisages 
that, at all times, Members are kept informed of any changes to, including the withdrawal of , an 
arrangement according differential and more favourable treatment.  
5.358.   Moreover, we observe that paragraph  4(a) provides that a Member adopting an arrangement 
accordi ng differential and more favourable treatment "furnish" Members "with all the information 
they may deem appropriate" relating to the introduction, modification, or withdrawal of the 
arrangements adopted. This requirement to furnish " all"981 the information s uggests that a 
notification pursuant to paragraph  4(a) should be sufficiently detailed so as to put the Members on 
notice regarding any "action" taken pursuant to paragraphs 1 through 3 of the Enabling  Clause. The 
need for notifications under paragraph  4(a) to be sufficiently detailed is also borne out by the 
requirement to notify not only the introduction or withdrawal of an arrangement according 
differential and more favourable treatment but also of any modifications thereof.  
5.359.   Turning to the immediate cont ext provided by paragraph  4(b) of the Enabling  Clause, we 
observe that paragraph  4(b) stipulates that a Member introducing, modifying, or withdrawing an 
arrangement according differential and more favourable treatment shall "afford adequate 
opportunity for  prompt consultations at the request of any interested Member with respect to any 
difficulty or matter that may arise" in connection with the adopted arrangement. Paragraph 4(b) 
thus builds upon the notification issued pursuant to paragraph  4(a) of the Ena bling Clause by calling 
upon the WTO Member adopting an arrangement according differential and more favourable 
treatment to "afford adequate opportunity" for "prompt consultations" as may be requested by any 
other WTO Member in connection with the adopted arrangement.  
5.360.   A notification pursuant to paragraph  4(a) of the Enabling Clause thus speaks to and has a 
direct bearing on a complaining party's knowledge and , consequently, on the question whether it is 
                                                
978 Japan's appellee's submission, para.  155. (fn omitted)  
979 Japan's appellee's submission, para.  155. 
980 Appellate  Body Report, EC – Tariff Preferences , para.  112. 
981 Emphasis added.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 required to raise the Enabling Clause and identify th e relevant provision(s) thereof in its panel 
request.  
5.361.   We recall that although the dispute in EC – Tariff Preferences  did not involve the notification 
requirement in paragraph  4(a) specifically, the Appellate  Body set out relevant considerations 
concerning  the interpretation of the Enabling Clause. The Appellate  Body considered that the 
Enabling  Clause is not a "typical 'exception', or 'defence'".982 The Appellate  Body stated that , when 
a complaining party considers that a preference scheme of another Member does not meet one or 
more of the requirements set forth in the Enabling  Clause, "the specific provisions of the 
Enabling  Clause with which the scheme allegedly falls afoul[] form critical components of the 'legal 
basis of the complaint' and, therefore, of the 'matter' in dispute."983 However, at the same time, the 
Appellate  Body cautioned that "[t]he responsibility of the complaining party in such an instance … 
should not be overstated."984 Although the Appellate  Body found that "it is insufficient in WTO dispu te 
settlement for a complainant to allege inconsistency with Article  I:1 of the GATT  1994 if the 
complainant seeks also to argue that the measure is not justified under the Enabling  Clause"985, the 
Appellate  Body also explained that "[t]his is especially so if the challenged measure … is plainly 
taken pursuant to the Enabling  Clause."986  
5.362.   However, the Appellate  Body's statements in EC – Tariff Preferences  concerning the burden 
on the complaining party to raise the Enabling Clause and identify the relevant provi sion(s) thereof 
in its panel request should be read in the context of the challenged measure at issue in that dispute, 
i.e. the tariff preference scheme, which as the Appellate  Body itself indicated, was " plainly taken 
pursuant to the Enabling  Clause ".987 The Appellate  Body further noted that the challenged measure 
in that dispute was " unmistakably a preferential tariff scheme, granted  by a developed -country 
Member in favour of developing countries, and proclaiming to be in accordance with the GSP".988 
Thus,  the Appellate  Body found it "clear, on the face of the Regulation  and from official, 
publicly -available explanatory documentation", that the "Drug Arrangements " at issue in that dispute 
were "part of a preferential tariff scheme implemented by the Europea n Communities pursuant to 
the authorization in paragraph  2(a) of  the Enabling  Clause".989 Accordingly, in that dispute, the 
Appellate  Body noted that India would have been "well  aware" that the Drug Arrangements must 
comply with the requirements of the Enabl ing Clause, and that "the European Communities was 
likely to invoke the Enabling  Clause in response to a challenge of inconsistency with Article  I:1."990  
5.363.   Paragraph  4(a) of the Enabling Clause envisages a degree of specificity in the notification 
adopted the reunder. At a minimum, a notification pursuant to paragraph  4(a) should state under 
which provision of the Enabling  Clause the differential and more favourable treatment has been 
adopted. Paragraph 4(a) indicates that arrangements or measures adopted under  different 
subparagraphs of paragraph  2 would have to be notified to the WTO so as to put other Members on 
notice regarding the relevant differential and more favourable treatment sought to be accorded and 
justified under the Enabling Clause. In such circu mstances, the mere procedural propriety of the 
notification itself, for example, in terms of "whether such notification was … sent by the right actor 
or body, under the right procedure, at the right time, etc."991, is, however,  not sufficient to dislodge 
the presumption that the complaining party is on notice that the responding party has adopted an 
arrangement or a measure that may be inconsistent with its obligations under Article  I:1 of the 
GATT  1994, but that may nonetheless be justified under the Enablin g Clause.  
5.364.   Moreover, paragraph  4(a) does not exclude the possibility that a single notification can state 
that the notifying Member considers an arrangement or a measure to have been adopted pursuant 
to one or more subparagraphs of paragraph  2 of the Enabl ing Clause. We do not detect anything in 
the text of paragraph  4(a) that indicates otherwise. To the contrary, paragraph  4 is broadly worded 
                                                
982 Appellate  Body Report, EC – Tariff Preferences , para.  106. 
983 Appellate  Body Report, EC – Tariff Preferences , para.  113 (quoting Article  6.2 of the DSU; 
Appellate  Body Report, US – Carbon Steel , para.  125, in turn referring to Appellate  Body Report, 
Guatemala  ‒ Cement I , paras.  69-76). 
984 Appellate  Body Report, EC – Tariff Preferences , para.  115. 
985 Appellate  Body Report, EC – Tariff Preferences , para.  110. 
986 Appellate  Body Report, EC – Tariff Preferences , para.  110. 
987 Appellate  Body Report, EC – Tariff Preferences , para.  110. (emphasis added)  
988 Appellate  Body Report, EC – Tariff Preferences , para.  116. (emphasis added)  
989 Appellate  Body Report, EC – Tariff Preferences , para.  117. (emphasis added)  
990 Appellate  Body Report, EC – Tariff Preferences , para.  117. 
991 Panel  Reports , para.  7.1105.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 in providing that any "action to introduce an arrangement pursuant to paragraphs 1, 2 and  3" of the 
Enabling Clause  be notified to the WTO.992 However, in the absence of any such indication in the 
notification issued under paragraph  4(a), it cannot be taken for granted that a complaining party is 
on notice of those subparagraphs of paragraph 2 that the notifying Member c onsiders applicable.  
5.365.   A complaining party is therefore required to raise the Enabling Clause and identify the 
relevant provisions thereof in its panel request when a measure according differential and more 
favourable treatment  is: (i) plainly taken pursuan t to the Enabling  Clause, or when it is clear from 
the face of the measure itself that it has been adopted pursuant to t he Enabling  Clause; and/or 
(ii) notified pursuant to paragraph  4(a) of the Enabling  Clause. How ever, the complaining party 
"is merely to  identify  those provisions of the Enabling Clause with which the [measure] is allegedly 
inconsistent, without bearing the burden of establishing  the facts necessary to support such 
inconsistency".993 Thus, while it is for the complaining party to identify th e relevant provision(s) of 
the Enabling Clause in its panel request, the burden to " prove " that the measure "satisf[ies] the 
conditions set out in the Enabling Clause"994 still "remains on the responding party" relying on 
"the Enabling  Clause as a defence".995  
5.366.   In light of the foregoing considerations, we agree with the Panel that , in situations where a 
Member has notified a particular arrangement imposing discriminatory treatment as adopted or 
modified under the Enabling  Clause, other Members would be considered to be aware that the 
specific discriminatory treatment was adopted pur suant to the Enabling  Clause.996 Therefore, to the 
extent that the Panel conditioned a complaining party's knowledge of an arrangement or a measure 
according differential and more favourable treatment as having been adopted under the 
Enabling  Clause to the n otification by the responding party of that arrangement or measure pursuant 
to paragraph  4(a), we see no reason to disagree with this standa rd articulated by the Panel. 
As explained, a notification pursuant to paragraph  4(a) of the Enabling Clause speaks t o and has a 
direct bearing on a complaining party's knowledge and , consequently, on its burden to raise the 
Enabling Clause and identify the relevant provision(s) thereof in its panel request. We, therefore, 
uphold  the Panel's finding that a complaining pa rty has to raise the Enabling Clause and identify the 
relevant provision(s) thereof in its panel request "in situations where the complaining party is on 
notice that the challenged measure was adopted (and in the view of the adopting member, justi fied) 
under the Enabling  Clause ".997 
5.5.1.2   Whether the Panel erred in finding that the differential tax treatment under the 
INOVAR -AUTO programme was not notified pursuant to paragraph  4(a) as having been 
adopted under paragraph  2(b) of the Enabling  Clause  
5.367.   We now turn to r eview whether the measure at issue (the differential tax treatment under 
the INOVAR -AUTO programme in the form of internal tax reductions accorded to some but not other 
Members) was notified pursuant to paragraph  4(a) of the Enabling  Clause as having been adopted 
under paragraph  2(b) thereof, such that the complaining parties could be considered to have been 
on notice and, consequently, had the burden to raise and identify paragraph  2(b) in their panel 
requests.  
5.368.   We recall that Decree  No. 7,819/2012 is one o f the instruments that administers  the 
INOVAR -AUTO programme998 and provides for the differential and more favourable treatment at 
issue in the form of internal tax reductions on imports of motor vehicles from certain countries.  
5.369.   Brazil's case before the Pan el rested on its contention that , since the 1980 Treaty of 
Montevideo and the relevant ECAs were notified to the WTO as having been adopted under 
paragraph  2(c), the notification requirement in paragraph  4(a) with respect to the differential tax 
                                                
992 Emphasis added.  
993 Appellate  Body Report, EC – Tariff Preferences , para. 115. (emphasis original)  
994 Appellate  Body Report, EC – Tariff Preferences , para.  105. (emphasis original)  
995 Appellate  Body Report, EC – Tariff Preferences , para.  115. 
996 Panel  Reports , para.  7.1066.  
997 Panel  Reports , para.  7.1064.  
998 Panel  Reports , para.  2.100 (referring to Decree  7,819 of 3  October  2012 regulating Articles 40 to 44 
of Law 12,715 of 17  September  2012, which contain provisions on the Incentive Scheme for Technological 
Innovation and Consolidation of the Automotive Supply Chain (INOVAR -AUTO) and Articles  5 and 6 of 
Law 12,546 of 14  December  2011, which contain provisions on a reduction of the Industrial Goods Tax, as the 
case dictates (Decree 7,819/2012) (Panel  Exhibit JE -132), Articles 11 -19). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 treatment under the INOVAR -AUTO programme stood satisfied.999 However, in its defence, Brazil 
contended that the differential tax treatment under the INOVAR -AUTO programme was justified not 
only under paragraph  2(c)1000, but also under paragraph  2(b).1001 We therefore under stand, as did 
the Panel, Brazil to have contended that the differential tax treatment under the INOVAR -AUTO 
programme was adopted pursuant to both paragraphs 2(b) and 2(c) of the Enabling  Clause and did 
not require additional notification, since the 1980 T reaty of Montevideo and the relevant ECAs were 
notified as adopted pursuant to paragraph  2(c).  
5.370.   It is undisputed that the differential tax treatment under the INOVAR -AUTO programme, 
which is the measure at issue in this case, was not specifically notified to the WTO pursuant to 
paragraph  4(a) as having been adopted under paragraph  2(b). The Panel, as we recall, noted that 
"no explicit notification in respect of paragraph  2(b) ha[d] been identified by any party, or submitted 
to the Panel as evidence."1002 The P anel therefore considered that its task was to determine whether 
a notification of an arrangement adopted pursuant to paragraph  2(c) could also serve as a 
notification of an arrangement adopted pursuant to paragraph  2(b).1003 As a second step, the Panel 
considered that if the answer to the first question was in the positive, it would then determine 
whether the notification under paragraph  2(c) could substantively serve as a notification of the 
specific differential and more favourable treatment sought to be ju stified under paragraph  2(b).1004  
5.371.   Unlike what Brazil seems to contend1005, the Panel did not consider the question before it to 
concern the procedural propriety of the notification. Rather, the Panel's enquiry focused on whether 
or not the complaining parties c ould be considered to have been on notice that the differential tax 
treatment under the INOVAR -AUTO programme was notified as having been adopted pursuant to 
paragraph  2(b) by virtue of the notification under paragraph  2(c). The analysis of whether or not an 
arrangement or a measure alleged to be adopted under paragraph  2(b) was notified pursuant to 
paragraph  4(a) was necessary in determining the complaining partie s' burden to raise the 
Enabling  Clause and identify the relevant provisions(s) thereof in thei r panel requests and allege the 
inconsistency of the differential tax treatment under the INOVAR -AUTO programme with these 
relevant provisions of the Enabling  Clause, including paragraph  2(b). However, in so doing, neither 
do we nor did the Panel pre judge  the question whether the differential tax treatment under the 
INOVAR -AUTO programme was notified pursuant to paragraph  4(a) as having been adopted under 
paragraph  2(c).1006 Indeed, that is the question we address in the next section of these Reports 
when we r eview Brazil's claim on appeal that the Panel erred in finding that the differential tax 
treatment under the INOVAR -AUTO programme was not notified pursuant to paragraph  4(a) as 
having been adopted under paragraph  2(c).  
5.372.   Brazil also challenges the Panel's finding that "a notification of an RTA adopted under 
paragraph  2(c) of the Enabling  Clause, even if valid, is not sufficient to serve as a notification of a 
PTA adopted under paragraph  2(b) of the Enabling  Clause."1007 Brazil asserts that the Panel's 
reasonin g was based on the provisions of the Transparency Mechanism for Preferential Trade 
Arrangements1008 and the Transparency Mechanism for Regional Trade  Agreement s1009, which the 
Panel found to constitute subsequent agreements within the meaning of Article  31(3)(a)  of the 
Vienna Convention on the Law of Treaties  (Vienna Convention) regarding the interpretation of the 
                                                
999 Panel  Reports , para.  7.1072. See also Brazil's appellant's submission, para.  395. 
1000 Panel  Reports , para.  7.1099 (referring to Brazil's second written submission to the Panel, 
para. 181).  
1001 Panel  Reports , para.  7.1069.  
1002 Panel  Reports , para.  7.1074.  
1003 Panel  Reports , para.  7.1075.  
1004 Panel  Reports , para.  7.1075.  
1005 We note that Brazil argues that " the Panel concluded that because the challenged tax treatment was 
not notified in a specific format, Brazil had not met the notification requirements under the Enabling Clause, 
and the complainants could not have been pres umed to be informed that the challenged measures were 
adopted under the Enabling Clause ." (Brazil's appellant's submission, para.  375) 
1006 The Panel, as we recall, eventually concluded that " a notification of an RTA adopted under 
paragraph  2(c) of the Enabling Clause, even if valid , is not sufficient to serve as a notification of a PTA adopted 
under paragraph  2(b) of the Enabling Clause ." (Panel  Reports , para.  7.1081 (italics original; underlining 
added))  
1007 Brazil's appellant's submission, p ara. 398 (quoting Panel  Reports , para.  7.1081). (emphasis original)  
1008 Transparency Mechanism for Preferential Trade Arrangements, General Council Decision of 
14 December  2010, WT/L/806 . 
1009 Transparency Mechanism for Regional Trade  Agreement s, General Counci l Decision of 
14 December  2006, WT/L/671 . WT/DS472/AB/R • WT/DS497/AB/R  
 
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 notification obligation under the Enabling  Clause.1010 In particular, Brazil asserts that the Panel found 
that the Transparency Mechanisms indicate that " Members notifying an RTA or PTA must specify 
under which precise provision of the Enabling Clause the RTA or PTA is being notified."1011 According 
to Brazil, "the Transparency Mechanisms both explicitly state that they do not affect the 'substance 
and timing of the notifications required under … the Enabling  Clause' in the case of the Transparency 
Mechanism for RTAs"1012 nor "the  'substance of the relevant provisions of the Enabling  Clause' in the 
case of the Transparency Mechanism for PTAs".1013 
5.373.   The European  Union contends that Brazil "misrepresents the Panel's findings and attempts 
to create the impression that the Panel based its decision on a flawed interpretation of the 
Transparency Mechanisms".1014 The European  Union submits that the Panel made it clear that it had 
already reached its conclusions by analysing the provisions of paragraph  4(a) and that 
"the Transparency Mechanisms were assessed only in order to confirm  its conclusions."1015 
The European  Union adds that even documents that were not found by previous pane ls to constitute 
"subsequent agreements regarding the interpretation of the treaty or the application of its 
provisions" under Article  31(3)(a) of the Vienna Convention were nevertheless considered as 
providing useful guidance.1016 Accordingly, the European  Union submits that , "even if Brazil would 
be right ( quod non ), the Transparency Mechanisms would still be able to play a useful interpretative 
role on the notification issue ."1017 
5.374.   Similarly, Japan submits that "Brazil appears to make much of the fact" that the  Panel 
referred to the Transparency Mechanisms as "subsequent agreements regarding the interpretation 
of the treaty or the application of its provisions" under Article  31(3)(a) of the Vienna  Convention.1018  
5.375.   In interpreting paragraph  4(a), we have considered that this provision envisages a degree 
of specificity in the notification adopted thereunder and, at a minimum, a notification pursuant to 
paragraph  4(a) should state under which provision of the Enabling  Clause the differential and more 
favourable treatme nt has been adopted. At the same time, we have also considered that 
paragraph  4(a) does not exclude the possibility that a single notification can state that the notifying 
Member considers an arrangement or a measure to have been adopted pursuant to one or  more 
subparagraphs of paragraph  2. However, we have also explained that in the absence of any such 
indication, it cannot be taken for granted that a complaining party is on notice that the notifying 
Member considers the notified arrangement or measure to have been adopted pursuant to one or 
more subparagraphs of paragraph  2. Therefore, to the extent that the Panel observed that 
paragraph  4(a) "does not explicitly indicate what precisely is required to be notified"1019, 
we disagree.  
5.376.   That said, we note that th e Panel ultimately found that paragraph  4(a) "does not … permit[] 
notification of a measure adopted under one provision of the Enabling  Clause to serve equally as a 
notification of that measure being adopted under another provision of the Enabling  Clause, unless 
indicated in the notification itself".1020 We agree with this conclusion of the Panel.  
5.377.   Contrary to what Brazil contends, in reaching this conclusion, the Panel did not base its 
reasoning exclusively on the provisions of the Transparency Mechanisms. Rat her, the Panel found 
that "the  Transparency Mechanisms serve to further confirm " that paragraph  4(a) does not permit 
a notification of a measure adopted under one provision of the Enabling  Clause to function as a 
                                                
1010 Brazil's appellant's submission, para.  397 (referring to Panel  Reports , fn 1443  to para.  7.1080) . 
1011 Brazil's appellant's submission, para.  397. 
1012 Brazil's appellant's submission, para.  399 (quoting Transparency M echanism for Regional 
Trade  Agreement s, General Council Decision of 14  December  2006, WT/L/671 , para.  1). 
1013 Brazil's appellant's submission, para.  399 (quoting Transparency Mechanism for Preferential Trade 
Arrangements, General Council Decision of 14  Decem ber 2010, WT/L/806 , Article  A.2). 
1014 European  Union's appellee's submission, para.  486 (referring to Brazil's appellant's submission, 
para. 397).  
1015 European  Union's appellee's submission, para.  485 (referring to Panel  Reports , fn 1443 to 
para. 7.1080). (emphasis original)  
1016 European  Union's appellee's submission, para.  488 and fns 465 -466 thereto (referring to 
Appellate  Body Report, US – Tuna II (Mexico) , para.  372; Panel  Report , India – Agricultural Products , fn 1197 
to para.  7.679).  
1017 European  Union's appellee's submission, para.  490. 
1018 Japan's appellee's submission, para.  163. 
1019 Panel  Reports , para.  7.1106.  
1020 Panel  Reports , para.  7.1079.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 notification of adoption of that same measu re under another provision of the Enabling  Clause.1021 
The Panel further recalled that it had " concluded … without reference  to the Transparency 
Mechanisms" that paragraph  4(a) does not permit notification of a measure adopted pursuant to 
one provision of the  Enabling  Clause to suffice as notification of that same measure being adopted 
pursuant to a different provision of the Enabling  Clause.1022 Thus, having already reached a 
conclusion on what is permitted under paragraph  4(a), the Panel found added support for  its 
conclusion from the provisions of the Transparency Mechanisms.  
5.378.   Brazil further contends that "in the case of developing country Members, paragraphs 2(a) 
and 2(b) of the Enabling  Clause are both contained in paragraph  2(c)."1023 According to Brazil, under  
paragraph  2(c) "[ d]eveloping country Members may adopt tariff preferences vis-à-vis other 
developing country Members without having to create a Generalized System of Preferences."1024 
Similarly, under that provision "a developing country Member may adopt preferential treatment with 
regard to non -tariff measures."1025 Therefore, Brazil submits that the fact that a given agreement 
has been notified under paragraph  2(c), as was the case in t he present dispute, suffices for the 
complaining parties to have been on notice that the measures at issue fell under the 
Enabling  Clause.1026 
5.379.   Paragraph 2 of the Enabling  Clause provides , in relevant part:  
2.  The provisions of paragraph  1 apply to the follow ing: 
(a) Preferential tariff treatment accorded by developed country Member s to 
products originating in developing countries in accordance with the 
Generalized System of Preferences;  
(b) Differential and more favourable treatment with respect to the provis ions 
of the General  Agreement  concerning non -tariff measures governed by the 
provisions of instruments multilaterally negotiated under the auspices of 
the GATT;  
(c) Regional or global arrangements entered into amongst developing country 
Members for the mut ual reduction or elimination of tariffs and, in 
accordance with criteria or conditions which may be prescribed by the WTO, 
for the mutual reduction or elimination of non -tariff measures, on products 
imported from one another[.]1027 
 
5.380.   Subparagraphs (a) to (c) o f paragraph  2 of the Enabling  Clause provide for differential and 
more favourable treatment with respect to which the authorization of paragraph  1 of the 
Enabling  Clause applies. Paragraph 2(a) provides for differential and more favourable treatment in 
the form of preferential tariff treatment accorded by developed -country Members to products 
originating from developing countries. Paragraph  2(b) provides for differential and more favourable 
treatment concerning non -tariff measures. Unlike paragraph  2(a), wh ich specifically speaks of 
"[p]referential tariff treatment accorded by developed country Member s to … developing countries", 
paragraph  2(b) does not define either the grantor or the beneficiary of the differential and more 
favourable treatment. Paragraph 2(c), unlike both paragraphs 2(a) and 2(b), provides for differential 
and more favourable treatment concerning tariff and non -tariff measures between developing 
country Members pursuant to "[r]egional or global arrangements".  
5.381.   As noted above, Brazil assert s that "in the case of developing country Members, 
paragraphs  2(a) and 2(b) … are both contained in paragraph  2(c)."1028 Even assuming it to be so, it 
does not necessarily follow that the notification of a measure as having been adopted under 
                                                
1021 Panel  Reports , para.  7.1080. (emphasis added) The Panel noted this to be the case "at least in 
respect of those al leged notifications that took place subsequent  to the adoption of one or both transparency 
mechanisms" . (Ibid. (emphasis original))  
1022 Panel  Reports , fn 1443 to para. 7.1080. (emphasis added) The Panel noted that " with respect to 
those alleged notifications  that occurred prior to the adoption of the transparency mechanisms, it [was] 
sufficient for the Panel's purposes to note that its interpretation of paragraph  4(a) of the Enabling  Clause is not 
contradicted by the Transparency Mechanisms ." (Ibid. (emphasis  original))  
1023 Brazil's appellant's submission, para.  400. 
1024 Brazil's appellant's submission, para.  400. 
1025 Brazil's appellant's submission, para.  400. 
1026 Brazil's appellant's submission, para.  400. 
1027 Fns omitted.  
1028 Brazil's appellant's submission, para.  400. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 paragraph  2(c) w ould suffice for the purposes of paragraph  2(b) insofar as the complaining party's 
burden to raise and identify paragraph  2(b) of the Enabling Clause in its panel request is concerned. 
This would be the case in circumstances where, as we have explained and  as the Panel also noted, 
it is "indicated in the notification itself".1029 As we have explained, a notification pursuant to 
paragraph  4(a) speaks to and has a direct bearing on a complaining party's knowledge and, 
consequently, on its burden to raise the Ena bling Clause and identify the relevant provision(s) 
thereof in its panel request.  
5.382.   In light of the foregoing considerations, we uphold  the Panel's findings , in 
paragraphs  7.1082 -7.1083 of the Panel  Reports , that Brazil has not demonstrated that the 
differe ntial tax treatment under the INOVAR -AUTO programme was notified to the WTO as adopted 
pursuant to paragraph  2(b), and therefore, in the circumstances of this case, the complaining parties 
were not required to raise and identify paragraph  2(b) of the Enabl ing Clause in their panel requests.  
5.5.1.3   Whether the Panel erred in finding that the differential tax treatment under the 
INOVAR -AUTO programme was not notified pursuant to paragraph  4(a) as having been 
adopted under paragraph  2(c) of the Enabling  Clause  
5.383.   We now  turn to review whether the differential tax treatment under the INOVAR -AUTO 
programme was notified pursuant to paragraph  4(a) of the Enabling  Clause as having been adopted 
under paragraph  2(c) of the Enabling  Clause, such that the complaining parties coul d be considered 
to have been on notice and, consequently, had the burden to raise and identify paragraph  2(c) in 
their panel requests.  
5.384.   Before the Panel, Brazil contended that "the complainants were sufficiently 'on notice' that 
the challenged measure was a dopted (and justified) under the Enabling  Clause because the 1980 
Treaty of Montevideo … was notified to the WTO under paragraph  2(c) of the Enabling  Clause."1030 
Brazil further submitted that the differential and more favourable treatment granted to Argentin a, 
Mexico, and Uruguay (in the form of internal tax reductions) is based on ECAs that were negotiated 
under the auspices of the 1980 Treaty of Montevideo and that in turn "were also notified to the 
WTO".1031 Brazil contended that the differential tax treatmen t at issue under the INOVAR -AUTO 
programme is "a corollary of these ECAs, and thus did not require additional notification".1032  
5.385.   The Panel stated that it should first decide "whether the notification of the [1980] Treaty of 
Montevideo and the ECAs could subs tantively serve as a notification of the adoption under 
paragraph  2(c) … of the arrangement introducing the differential and more  favourable treatment 
(in the form of tax treatment) found to be inconsistent with Article  I:1 of the GATT  1994".1033 
The Panel considered that "the differential and more favourable treatment sought to be justified 
under paragraph  2(c) must have a close and genuine link to the arrangement notified to the WTO 
such as to put other WTO Members on notice as to the adoption of the diffe rential and more 
favourable treatment pursuant to the Enabling  Clause."1034  
5.386.   The differential tax treatment under the INOVAR -AUTO programme was not specifically 
notified to the WTO pursuant to paragraph  4(a) of the Enabling Clause as having been adopted under  
paragraph  2(c). In order to determine that the complaining parties could be considered to have been 
on notice that the differential tax treatment under the INOVAR -AUTO programme was taken 
pursuant to arrangements adopted under paragraph  2(c), the Panel needed to determine whether 
the notification of the 1980 Treaty of Montevideo and the ECAs could substantively serve as a 
                                                
1029 Panel  Reports , para.  7.1079.  
1030 Brazil's appellant's submission, para.  395. (fn omitted)  
1031 Brazil's appellant's submission, para.  395 (referring to Bra zil's first written submission  to the Panel, 
para. 742 (DS472)). The Panel, as we recall, noted that th e ECAs were allegedly notified at various times 
between 1992 and 2013. ( Panel  Reports , fn 1443 to para. 7.1080 ) 
1032 Brazil's appellant's submission, para.  395 (referring to Brazil's second written submission to the 
Panel, para.  181; first written submission to the Panel, paras.  638-639 (DS 472)).  
1033 Panel  Reports , para.  7.1105.  
1034 Panel  Reports , para.  7.1108. (emphasis omitted) As explained below in section 5.5.3 of these 
Report s, it suffices that the differential and more favourable treatment sought to be justified under 
paragraph  2(c) has a "genuine" link or a rational connection with the arrangement notified to the WTO. 
Therefore, we disagree with the Panel to the extent it con sidered that in order for any differential and more 
favourable treatment to be justified under paragraph  2(c), there must exist both a "close" and "genuine" link to 
the arrangement notified to the WTO.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 notification of the adoption under paragraph  2(c) of the differential tax treatment under the 
INOVAR -AUTO programme found to be inconsis tent with Article  I:1 of the GATT  1994.1035 In so 
doing, the Panel rightly considered the question to be whether Brazil had demonstrat ed that "the  RTA 
notified to the WTO put the rest of the Membership on notice as to the adoption of the particular 
differenti al and more favourable treatment sought to be justified under paragraph  2(c)."1036  
5.387.   We recall that Decree  No. 7,819/2012 is the instrument that provides for the differential tax 
treatment under the INOVAR -AUTO programme, the measure at issue in this case.1037 Articles 21 
and 22(I) of Decree  7,819/2012, respectively, provide for a 30 -percentage -point reduction of the 
IPI tax rates on certain categories of motor vehicles if:  
a. Under Article  21, those motor vehicles are imported into Brazil by companies 
accredited as "domestic manufacturers" or "investors" under the INOVAR -AUTO 
programme, and the motor vehicles are imported from "countries that are signatories 
to the agreements established by Legislative Decree  350 of 21  November  1991, 
Decree  4,458 of 5  November  2002 and Decree  6[,]500 of 2  July 2008"; or  
b. Under Article  22(I), those motor vehicles are imported into Brazil by any company 
(whether accredited or unaccredited) under the INOVAR -AUTO programme, and the 
motor vehicles are imported "under the agreement est ablished by Decree  6,518 of 
30 July 2008 and Decree  7,658 of 23  December  2011".1038 
5.388.   Decree  350 of 21  November  1991, referred to in Article  21 of Decree  7,819/2012, provides 
for the implementation of the MERCOSUR Treaty for the formation of a common market bet ween 
Argentina, Brazil, Paraguay, and Uruguay.1039 Decree  4,458 of 5  November  2002, referred to in 
Article  21 of Decree  7,819/2012, provides for the implementation of the Economic 
Complementation  Agreement  No. 55 between MERCOSUR and Mexico (ECA No.  55).1040 
Decree 6,500 of 2  July 2008, referred to in Article  21 of Decree  7,819/2012, provides for the 
implementation of the 38th Additional Protocol to Economic Complementation  Agreement  No. 14 
between Argentina and Brazil (ECA  No. 14).1041 Decree  6,518 of 30  July 2008,  referred to in 
Article  22(I) of Decree  7,819/2012, provides for the implementation of the 68th Additional Protocol 
to Economic Complementation  Agreement  No. 2 between Brazil and Uruguay (ECA No. 2).1042 
Decree  7,658 of  23 December  2011, referred to in Article 22(I) of Decree 7,819/2012, lays down 
provisions concerning the implementation of the  69th Additional Protocol to Economic 
Complementation  Agreement  No. 2 between Brazil and Uruguay.1043 
5.389.   Brazil submits that the 1980 Treaty of Montevideo and the ECAs "have a n ample scope 
comprising internal tax reduction measures".1044 Brazil refers to Articles  3(c), 3(e), and, 
in particular, Article  9(g) of the 1980 Treaty of Montevideo.1045 Brazil asserts that Article  21 of 
                                                
1035 Panel  Reports , para.  7.1105.  
1036 Panel  Reports , para. 7.1108.  
1037 Panel  Reports , para.  2.100 (referring to Decree  7,819/2012 (Panel  Exhibit JE -132)).  
1038 Panel  Reports , para.  7.1014. (emphasis omitted; fns  omitted)  
1039 Panel  Reports , fn 246 to para.  2.102 (referring to Decree  350 of 21  November  1991 on the Tr eaty 
for the Formation of a Common M arket between the Republic of Argentina, the Federative Republic of Brazil, 
the Republic of Paraguay and the Oriental  Republic of Uruguay (MERCOSUR) (Degree 350/1991) (Panel  Exhibit 
JE-163 (rev))).  
1040 Panel  Reports , fn 246 to para.  2.102 (referring to Decree  4,458 of 5  November  2002 on the 
Economic Complementation  Agreement  No. 55 between MERCOSUR  and the United Mexican States  
(Decree  4,458/2002) (Panel  Exhibit JE -164 (rev))).  
1041 Panel  Reports , fn 246 to para.  2.102 (referr ing to Decree  6,500 of 2  July 2008 on the Economic 
Complementation  Agreement  No. 14 between the Republic of Argentina and the Federative Republic of Brazil  
(Decree  6,500/2008) (Panel  Exhibit JE -165 (rev))).  
1042 Panel  Reports , fn 255 to para.  2.102 (referring  to Decree  6,518 of 30  July 2008 providing for the 
implementation of the 68th Additional Protocol to Economic Complementation  Agreement  No. 2, signed 
between the Governments of the Federative Republic of Brazil and t he Oriental Republic of Uruguay  
(Decree  6,518/2008)  (Panel  Exhibit  JE-203 (rev))). 
1043 Panel  Reports , fn 255 to para.  2.102 (referring to Decree  7,658 of 23  December  2011 laying down 
provisions concerning the implementation of the 69th Additional Protocol to Economic 
Complementation  Agreement  No. 2 signed by the Governments of the Federal Republic of Brazil and the 
Oriental Republic of Uruguay ( Decree  7,658/2011)  (Panel  Exhibit JE -204 (rev))).  
1044 Brazil's appellant's submission, para.  422. 
1045 Brazil's appellant's submission, para.  422. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Decree  7,819/2012 "makes an explicit reference to these legal instruments"1046, and therefore 
"the tax treatment at issue under [the] INOVAR -AUTO [programme] was a corollary of these ECAs, 
and thus did not require additional notification."1047 
5.390.   In response, Japan submits that the 1980 Treaty of Montevideo "does not contemplate the 
specific preferential tax treatment conferred by Articles  21 and 22 of Decree  7,819".1048 
The European  Union adds that the references to the three decrees in Article  21 of  
Decree  7,819/2012 "nowhere mention the provisions in those decrees referring to preferential tax 
treatment".1049 Both the European  Union and Japan further contend that Brazil makes reference to 
those decrees in Article  21 of Decree  7,819/2012 simply because it wants to avoid referring to the 
beneficiary countries directly by  name.1050 
5.391.   We recall that the Panel examined the provisions of the 1980 Treaty of Montevideo to 
determine if the internal tax reductions under the INOVAR -AUTO programme, i.e. the differential  tax 
treatment at issue, had a genuine link  to the 1980 Treaty of Montevideo that had been notified as 
adopted under paragraph  2(c) of the Enabling Clause. The  Panel, in particular, reviewed Articles  3(c) 
and 3(e)1051, Article  91052, and  Article  111053 of the 1980 Treaty of Montevideo and, based on its 
                                                
1046 Brazil's app ellant's submission, para.  382. 
1047 Brazil's appellant's submission, para.  395. (fn  omitted) See also Panel  Reports , para.  7.1072 
(referring to Brazil's second written submission to the Panel, para.  181). We observe that the Panel noted that 
"Brazil maintain s that the tax reductions under Article  21 of Decree 7,819/2012 'are not accorded because of 
the MERCOSUR Treaty' ". (Panel  Reports , para. 7.1031 (quoting Brazil's comments to other parties' responses 
to Panel question No. 52)) On appeal, Brazil does not ta ke issue with this statement by the Panel.  
1048 Japan's appellee's submission, para.  160. 
1049 European  Union's appellee's submission, para.  515. 
1050 European  Union's appellee's submission, para.  515; Japan's appellee's submission, para.  175. 
1051 Article  3 of the 19 80 Treaty of Montevideo provides, in relevant part:  
In the implementation of this Treaty and in the advance towards its final objective, the member 
countries shall bear in mind the following principles:  
… 
(c) Flexibility, characterized by the capacity to allow the conclusion of partial agreements, 
regulated in a manner compatible with the gradual achievement of their convergence and with 
the strengthening of ties of integration;  
… 
(e) Multiplicity, to make possible various types of agreement between membe r countries in 
harmony with the objectives and functions of the integration process, using all instruments 
capable of activating and expanding regional markets.  
(Panel  Reports , para.  7.1110 and fn 1472 thereto (quoting the 1980 Treaty of Montevideo (Panel  Exhibit 
BRA-93), Article  3; referring to Brazil's response to Panel question No.  52)) 
1052 Article  9 of the 1980 Treaty of Montevideo provides:  
Partial agreements shall be subject to the following general rules:  
(a) They shall be open for accession, after prior negotiations, to the other member countries;  
(b) They shall contain clauses advocating convergence so that their benefits extend to all 
member countries;  
(c) They may contain clauses advocating convergence w ith other Latin American countries, in 
conformity with the mechanisms established in this Treaty;  
(d) They shall recommend different treatment for the three categories of countries recognized by 
this Treaty; each agreement shall specify the kind of treatm ent to be applied and negotiation 
procedures for its periodic revision at the request of any member country which considers itself 
at a disadvantage;  
(e) Tariff reductions may be applied to the same products or tariff sub -items and on the basis of 
a perce ntage reduction in the tariffs on imports originating from non-participating countries;  
(f) They shall be applied for a minimum period of one year; and  
(g) They may include, among others, specific rules regarding origin, safeguard clauses, non-tariff 
restrictions, withdrawal of concessions, renegotiation of concessions, denunciation, co -ordination 
and harmonization of policies. In the event that such specific rules have not been adopted, 
account will be taken of the provisions adopted by member countries on the matters in question . 
(Panel  Reports , para.  7.1110 and fn 1473 thereto (quoting the 1980 Treaty of Montevideo (Panel  Exhibit 
BRA-93), Article  9; referring to Brazil's second written submission to the Panel, para.  179))  
1053 Article  11 of the 1980 Treaty  of Montevideo provides:  
The economic complementarity agreements shall be designed inter alia  to promote the maximum 
utilization of the factors of production, to stimulate economic complementarity, to ensure 
equitable conditions of competition, to facilita te the competitiveness of products on the 
international market and to encourage the balanced and harmonious development of member 
countries.  
These agreements shall be subject to the specific rules to be established for this purpose.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 review, found that "none of the provisions cited to in the [1980] Treaty of Montevideo" had any 
relation "in and of themselves" to the differential tax treatment  under the INOV AR-AUTO programme  
(in the form of interna l tax reductions accorded to some but not other Members) found to be 
inconsistent with Article  I:1 of the GATT  1994.1054  
5.392.   Articles  21 and 22(I) of Decree  7,819/2012 , which  provide for the differential tax treatment 
under the INOVAR -AUTO programme at issue , do not refer to th e 1980 Treaty of Montevideo. 
We observe that Article  4 of the 1980 Treaty of Montevideo provides for the conclusion of partial 
agreements, which in turn, pursuant to  Article  9(g), "may include … specific rules regarding … 
non-tariff restric tions". Article  3 of the 1980 Treaty of Montevideo enumerates the "principles" that 
signatories shall bear in mind and includes in subparagraph  (e) the principle of "[m]ultiplicity", 
pursuant to which signatories are "to make possible various types of agre ement between member 
countries in harmony with the objectives and functions of the integration process, using all 
instruments capable of activating and expanding regional markets". The 1980 Treaty of Montevideo 
thus does not itself specify any rules regard ing internal tax reductions. We therefore see no reason 
to disagree with the Panel's finding that "none of the provisions cited to in the [1980] Treaty of 
Montevideo" have any relation, "in and of themselves", to the differential tax treatment under the 
INOVAR -AUTO programme (in the form of internal tax reductions accorded to some but not other 
Members) found to be inconsistent with Article  I:1 of the GATT  1994.1055 
5.393.   That said, we note that Articles  21 and 22(I) of Decree  7,819/2012 fall under Chapter VII 
there of, entitled "Tax Rates and Suspension of IPI". As noted, Articles  21 and 22(I) of 
Decree  7,819/2012 provide for a reduction of the IPI tax rates on certain categories of motor vehicles 
when they are imported into Brazil from the countries that are signato ries to the above -mentioned  
ECAs. The reference to the ECAs in Articles  21 and 22(I) of Decree  7,819/2012, in our view, is limited 
to identifying the countries, imports from which benefit from the IPI tax reduction. These ECAs, in 
turn, do not, however, in and of themselves , refer to internal taxation. In this regard, we recal l that 
the Panel reviewed the provisions of the relevant ECAs to determine if the internal tax reductions 
(in the form of IPI tax reductions) under the INOVAR -AUTO programme had a genuine link to these 
ECAs that had been notified as adopted under paragraph  2(c) of the Enabling Clause . 
5.394.   The Panel noted that "Brazil has not pointed to a single provision of any ECA" that would 
attest to "the fundamental premise of Brazil's argument, namely that the INOVAR -AUTO programme 
is implementing the objectives of the ECA s".1056 Based on its review, the Panel found that it "could 
not discern any such relationship".1057  
5.395.   We observe that, in reaching this conclusion, the Panel noted that , while "ECA No.  55, 
between MERCOSUR and Mexico, indicates that its objective is to 'lay the f oundations for the 
establishment of free trade in the motor vehicle sector and to promote the productive integration 
and complementation of their respective motor vehicle sectors'", the definition of "free trade" is 
limited to "tariff reductions", and the term "tariff" is defined as c oncerning "taxes or charges 
'in connection with importation of goods'".1058 With respect to the 38th Additi onal Protocol to 
ECA No. 14 between Argentina and Brazil, the Panel noted that this Additional Protocol indicates that 
"automotive goods shall be placed on the market between the parties with a 100% preferential tariff 
(0% of ad valorem tariff within the area) provided that the origin requirements and the conditions 
laid down in the  Agreement s have been met."1059 Similarly, we ob serve that with respect to the 68th 
Additional Protocol to ECA No.  2 between Brazil and Uruguay, the Panel noted that this Additional 
Protocol indicates that "motor vehicle products shall be sold bet ween the Parties with 100% 
(one hundred) preference (0% ( zero) 'ad valorem ' intra-zone tariff), whenever they meet the 
                                                
(Panel  Reports , para.  7.1110 and fn 1474 thereto (quoting the 1980 Treaty of Montevideo (Panel  Exhibit 
BRA-93), Article  11; referring to Brazil's first written submissions to the Panel, para.  706 (DS472) and 
para. 638 (DS497)))  
1054 Panel  Reports , para.  7.1112.  
1055 Panel  Reports , para. 7.1112.  
1056 Panel  Reports , para.  7.1112.  
1057 Panel  Reports , para.  7.1112.  
1058 Panel  Reports , para.  7.1113 (quoting Decree 4,458/2002 (Panel Exhibit JE -164 (rev)), Articles  1 
and 2). 
1059 Panel  Reports , para.  7.1113 (quoting Decree  6,500/2008 (Panel Exhibit JE -165 (rev)), Article  9). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 requirements of origin and the conditions set out in this  Agreement ."1060 The Panel thus found that 
"these provisions are indicative of tariff preferences … [and] do not refer to internal taxation ."1061  
5.396.   On appeal, Brazil has not identified any provisions of the ECAs that would support its 
contention that "the [differential] tax treatment … under [the] INOVAR -AUTO [programme is] a 
corollary of these ECAs."1062 Neither do we find Brazil to have demonstrate d that there is a rational 
connection between the IPI tax reduction provided under the INOVAR -AUTO programme and the 
above -mentioned ECAs, save to the extent of identifying the countries that are signatories to the se 
ECAs. To the contrary, the above -mentio ned ECAs, in our view (and as also noted by the Panel), 
provide for the adoption of tariff preferences in the automotive sector and do not refer to internal 
taxation and therefore have no genuine link to the differential tax treatment in the form of IPI ta x 
reductions under the INOVAR -AUTO programme. In the absence of a genuine link with the ECAs, we 
do not see how the INOVAR -AUTO programme according the differential and more favourable 
treatment in the form of IPI tax reductions could be considered to have  been notified as having been 
adopted under paragraph  2(c), pursuant to paragraph  4(a), of the Enabling  Clause. Accordingly, we 
agree with the Panel that "Brazil has not demonstrated how the … tax reductions found to be 
inconsistent under Article  I:1 of th e GATT  1994 are related to the RTA that Brazil has notified to the 
WTO (the [1980] Treaty of Montevideo) or the ECAs allegedly implementing that RTA."1063  
5.397.   In light of the foregoing considerations, we uphold  the Panel's finding , in paragraph  7.1119 
of the Panel Reports , that the differential and favourable treatment (i.e. the differential tax 
treatment in the form of internal tax reductions) under the INOVAR -AUTO programme was not 
notified as adopted under paragraph  2(c) of the Enabling Clause , as required pur suant to 
paragraph  4(a). Consequently, we also uphold  the Panel's finding , in paragraph  7.1120 of the 
Panel  Reports , that, in the circumstances of this case, there was no burden on the complaining 
parties to raise and identify paragraph  2(c) of the Enabling  Clause in their panel requests.  
5.5.2   Whether the Panel erred in its interpretation of paragraph  2(b) of the 
Enabling  Clause and in finding that the differential tax treatment under the INOVAR -AUTO 
programme was not justified under that provision  
5.398.   Having upheld the Panel's finding that the complaining parties' claims were within its terms 
of reference, we now turn to addres s Brazil's claim on appeal that the Panel erred in its interpretation 
and application of the Enabling  Clause in the present dispute, starting with paragraph  2(b) of the 
Enabling  Clause.1064 In so doing, we first examine the scope of paragraph  2(b), particular ly the 
phrase "non -tariff measures governed by the provisions of instruments multilaterally negotiated 
under the auspices of the GATT", following which we review the Panel's finding of whether the 
differential tax treatment under the INOVAR -AUTO programme falls within the scope of that 
provision.  
5.399.   Before the Panel, Brazil argued that "the tax reductions challenged by the complaining 
parties fall within the scope of paragraph  2(b)."1065 Brazil submitted that the internal tax reductions 
at issue "are non -tariff measures (NTMs) because they constitute internal taxes subject to Article  III 
of the GATT  1994 and, consequently, are subject to the [most-favoured nation ] MFN obligation under 
Article  I:1 of the GATT  1994" .1066 Brazil further submitted that "internal taxes a re NTMs 'governed 
by the provisions of instruments multilaterally negotiated under the auspices of the GATT' because 
the GATT  1947 (and subsequently the GATT  1994) are relevant multilaterally -negotiated 
instruments covering internal taxation, and there is no specific agreement covering internal 
taxes."1067 
                                                
1060 Panel  Reports , para.  7.1113 (quoting Decree  6,518/2008 (Panel Exhibit JE -203 (rev)), Article  3). 
1061 Panel  Reports , para.  7.1114.  
1062 Brazil's appellant's submission, para.  395. 
1063 Panel  Reports , para.  7.1115.  
1064 Brazil's appellant's submission, paras.  387-388. 
1065 Panel  Reports , para.  7.1086.  
1066 Panel  Reports , para.  7.1086 (referring to Brazil's first written submissions  to the Panel , 
paras.  708-709 and 729 (DS472) and paras.  640-641 and 661 (DS497); second written submission  to the 
Panel , paras.  167-171). 
1067 Panel  Reports , para.  7.1086 (quoting Brazil's second written submission to the Panel, 
paras.  167-175). WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.400.   The Panel noted that the issue before it included "whether internal taxes are 'non-tariff 
measures governed by the provisions of instruments multilaterally negotiated under the auspices of 
the GATT '".1068 The Panel, however, did not consider it necessary to define the term "non -tariff 
measures" in isolation from the rest of paragraph  2(b)1069, and considered instead the question of 
"[w]hether the alleged non -tariff measures at issue … have been demonstrated to be w ithin the 
scope of [paragraph] 2(b)".1070 Accordingly, the  Panel proceeded to assess whether paragraph  2(b) 
applies to non -tariff measures governed exclusively by those provisions of the GATT  1994 that were 
incorporated from the GATT  1947.1071 
5.401.   The Panel consider ed that paragraph  2(b), in referring to "[d]ifferential and more favourable 
treatment with respect to the provisions of the General  Agreement  concerning non-tariff measures 
governed by the provisions of instruments multilaterally negotiated under the auspi ces of the 
GATT {}" at the time the Enabling  Clause was adopted, "meant non -tariff measures other than  those 
non-tariff measures governed exclusively by the provisions of the GATT  1947".1072 Recalling that the 
Enabling  Clause was adopted by the GATT  Contractin g Parties during the Tokyo Round when a 
number of plurilateral agreements covering certain non -tariff measures were concluded1073, the 
Panel considered that "the intended application of paragraph  2(b) must have been limited to the 
discrimination explicitly pr ovided for in specific [special and differential  (S&D) ] provisions of the 
Tokyo Round Codes."1074 The Panel noted that the provisions of the GATT  1994 that Brazil relied on, 
namely Articles  III:2 and III:4, "do not introduce any special and differential treat ment for taxes in 
the form of non -tariff measures" and "are substantively identical to provisions in the GATT  1947".1075 
Accordingly, the Panel concluded that "a  non-tariff measure within the scope of paragraph  2(b) must 
be governed by specific provisions on special and differential treatment[] that are distinct from the 
provisions of the GATT  1994 incorporating the GATT  1947."1076 
5.402.   For these reasons, the Panel found that "the tax reductions accorded to imported products 
from Argentina, Mexico and Uruguay and foun d to be inconsistent under Article  I:1 of the GATT  1994 
are not justified under paragraph  2(b) of the Enabling  Clause."1077 
5.403.   On appeal, Brazil disagrees that "instruments multilaterally negotiated under the auspices 
of the GATT" must be "'distinct from the pro visions of the GATT  1994 incorporating the GATT  1947' 
because the GATT  1994 itself is an instrument which was multilaterally negotiated under the 
auspices of the GATT (institution)".1078 Brazil argues that "[t]he GATT  1994 is the covered agreement 
that govern s internal taxation, in Article  III" and the Enabling Clause itself "as it was incorporated 
to the WTO as part of the GATT  1994, is, therefore , an 'instrument multilaterally negotiated under 
the auspices of the GATT. '"1079 Brazil contends that the Panel inter preted paragraph  2(b) to apply 
"only to specific Special and Differential (S&D) provisions present in the covered agreements other 
than the GATT itself".1080 Brazil submits that , according to the Panel's reasoning, if the 
Enabling  Clause is incorporated in th e GATT  1994 but only applies to provisions outside of the GATT, 
"it also follows that the S&D provisions prevail over the GATT and therefore the Enabling  Clause 
                                                
1068 Panel  Reports , para.  7.1088.  
1069 Panel  Reports , para.  7.1088. The  Panel  further considered that  paragraph  2(b) when read as a 
whole does not refer to " non-tariff measures" generally, but rather refers to a limited category of non-tariff 
measures, namely " non-tariff measures governed by the provisions of instruments multilaterally negotiated 
under the auspices of the GATT".  Therefore, the Panel considered that "[i]t would be unnecessary and 
inappropriate … to interpret only one part of paragraph  2(b) without reference to the rest of the provision."  
(Ibid., fn  1449 the reto) We note that, to the extent that the Panel chose not to define the term "non -tariff 
measures" and determine  whether internal taxes are " non-tariff measures governed by the provisions of 
instruments multilaterally negotiated under the auspices of the GATT",  on appeal, none of the participants take  
issue with the Panel's approach . 
1070 Panel  Reports , fn 1449 to para.  7.1088.  
1071 Panel  Reports , para.  7.1088.  
1072 Panel  Reports , para.  7.1089. (emphasis original; curly brackets added)  
1073 Panel  Reports , para.  7.1092 . 
1074 Panel  Reports , para.  7.1093.  
1075 Panel  Reports , para.  7.1096. The  Panel further noted that Brazil conceded  that other than the 
GATT  1994 there is no specific covered agreement dealing with internal taxation.  (Ibid.)  
1076 Panel  Reports , para.  7.1096. (fn omi tted) 
1077 Panel  Reports , para.  7.1097.  
1078 Brazil's appellant's submission, para.  410 (quoting Panel  Reports , para. 7.1096 ). 
1079 Brazil's appellant's submission, para.  410. 
1080 Brazil's appellant's submission, para.  408 (referring to Panel  Reports , para.  7.1096).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 itself, according to [the general interpretative note to] Annex  1A of the Marrakesh  Agreement ."1081 
Brazil therefore asserts that " [t]he Panel's interpretation renders the text of paragraph  2(b) of the 
Enabling  Clause  inutile ."1082 Brazil therefore seeks reversal of the Panel's conclusion that a non -tariff 
measure within the scope of paragraph  2(b) must b e governed by specific provisions on S&D 
treatment that are distinct from the provisions of the GATT  1994 incorporating the GATT  1947.1083 
Brazil also seeks reversal of the Panel's "consequential finding" that the internal tax reductions 
accorded to imported products from Argentina, Mexico, and Uruguay and found to be inconsistent 
under Article  I:1 of the GATT  1994 are not justified under paragraph  2(b) of the Enabling  Clause1084 
and requests the Appellate  Body to complete the analysis and find that "the differen tial tax treatment 
is justified under paragraph  2(b) and complies with the requirements of paragraph  3 of the 
Enabling  Clause."1085  
5.404.   In response, the  European  Union asserts that "Brazil's over -creative reading", according to 
which paragraph  2(b) refers to "al l the provisions of the GATT relating to non -tariff measures as 
being negotiated under the auspices of the GATT (or of the WTO), does not find any support in the 
text, context or the object and purpose of the Enabling  Clause".1086 The European  Union points to  
the Panel's explanation that the Enabling  Clause was adopted by the GATT CONTRACTING PARTIES 
during the Tokyo Round in the context of which  a number of plurilateral agreements governing 
certain non -tariff measures were concluded.1087 The European  Union submits that it is in this context 
that the reference in paragraph  2(b) to "instruments multilaterally negotiated under the auspices of 
the GATT" should be understood.1088 
5.405.   Japan submits that paragraph  2(b) "does not endorse exceptions to t he MFN  principle with 
respect to 'non -tariff measures' themselves" but instead "pertains to differential and more favourable 
treatment with respect to ' the provisions of the General  Agreement  concerning  non-tariff measures 
governed by the provisions of ins truments multilaterally negotiated under the auspices of the 
GATT '".1089 According to Japan, the Panel carefully interpreted those terms and confirmed that they 
mean "since ' Article  III:2 and III:4 of the GATT  1994 [] do not introduce any special and differen tial 
treatment for taxes in the form of non -tariff measures'" and "there is no specific WTO  Agreement  
dealing with internal taxation, Brazil's measures cannot be substantially covered by 
paragraph  2(b)."1090 
5.406.   We begin by analysing the scope of the phrase "non -tariff measures governed by the 
provisions of instruments multilaterally negotiated under the auspices of the GATT" as it appears in 
paragraph  2(b) of the Enabling  Clause. This paragraph provides, in relevant part : 
2. The provisions of paragraph  1 apply to  the following:  
… 
(b) Differential and more favourable treatment with respect to the provisions of the 
General  Agreement  concerning non -tariff measures governed by the provisions of 
instruments multilaterally negotiated under the auspices of the GATT[.]1091 
5.407.   Paragraph 2(b) thus identifies a certain form of differential and more favourable treatment 
to which the authorization of paragraph  1 of the Enabling  Clause applies. In  other words, a measure 
that a Member claims to be excepted from a finding of inconsisten cy with Article  I of the 
                                                
1081 Brazil's appellant's submission, para.  412. (fn  omitted)  
1082 Brazil's appellant's submission, para.  412. (emphasis original)  
1083 Brazil's appellant's submission, para.  431 (referring to Panel  Reports , para.  7.1096).  
1084 Brazil's appellant's submission, para.  431 (referring to Panel  Reports , paras.  7.1097 , 8.6.i, 
and 8.17.j).  
1085 Brazil's appellant's submission, para.  432. 
1086 European  Union's appellee's submission, para.  496. 
1087 European  Union's appellee's submission, para.  494. 
1088 European  Union's appellee's submiss ion, para.  494. 
1089 Japan's appellee's submission, para.  168 (quoting paragraph  2(b) of the Enabling  Clause). 
(emphasis added  by Japan)  
1090 Japan's appellee's submission, para.  168 (quoting Panel  Reports , para. 7.1096; referring to 
para. 7.1097 ). 
1091 Fn omitted.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 "General  Agreement " "must fit within"1092 the meaning of paragraph  2(b). To this effect, 
paragraph  2(b) provides for the adoption of a limited category of differential and more favourable 
treatment, namely treatment that concerns "non -tariff measures governed by the provisions of 
instruments multilaterally negotiated under the auspices of the GATT [as an institution]". The text 
of paragraph  2(b) does not, however, support a reading of that provision as extending to the 
adoption of diff erential and more favourable treatment concerning non -tariff measures governed by 
"provisions of the General  Agreement " itself. Indeed, had it been so, the latter part of paragraph  2(b) 
in referring to "provisions of instruments multilaterally negotiated  under the auspices of the GATT" 
would be deprived of any meaning.  
5.408.   We find support for this reading from the contextual history surrounding the adoption of the 
Enabling Clause. We recall that the Enabling  Clause was adopted in 1979 during the Tokyo Round of  
multilateral trade negotiations, which also witnessed the conclusion of a number of plurilateral 
agreements governing various non -tariff measures, i.e. the Tokyo Round Codes.1093 The Tokyo 
Round Codes were "negotiated under the auspices of the GATT [as an in stitution]". We observe that 
a number of these plurilateral agreements sought to further the objectives of and/or build upon 
existing provisions of the GATT 1947 , and contained provisions on S&D treatment for developing 
countries. The reference in paragrap h 2(b) to differential and more favourable treatment "with 
respect to the provisions of the General  Agreement  concerning non -tariff measures governed by the 
provisions of instruments multilaterally negotiated under the auspices of the GATT" was in relation  
to these plurilateral agreements that were negotiated under the auspices of the GATT, as an 
institution and furthered the objectives of and/or built upon existing provisions of the GATT 1947. 
Moreover, in using the phrase " provisions  of instruments multil aterally negotiated under the auspices 
of the GATT"1094, as opposed to "instruments multilaterally negotiated under the auspices of the 
GATT", paragraph  2(b) referred to specific provisions of these plurilateral agreements, in particular , 
the S&D treatment provisions, and not the entire agreements themselves.  
5.409.   We find additional support from contemporaneous decisions adopted during the Tokyo Round 
of multilateral trade negotiations. In particular, we recall the decision entitled "Action by the 
CONTRACTING PARTIES on the Multilateral Trade Negotiations"1095, which recogni zed in paragraph  2 
thereof that "as a result of the Multilateral Trade Negotiations, a  number of  Agreement s covering 
certain non -tariff measures … have been drawn up."1096 We observe t hat paragraph  1 of that decision 
provided that the CONTRACTING PARTIES "reaffirm their intention to ensure the unity and 
consistency of the GATT system, and to this end they shall oversee the operation of the system as 
a whole and take action as appropriat e".1097 Paragraph 3, in  particular, stated that "[t]he 
CONTRACTING PARTIES also note that existing rights and benefits under the GATT of contracting 
parties not being parties to these  Agreement s, including those derived from Article  I, are not affected 
by the se Agreement s."1098  
5.410.   In other words, the GATT CONTRACTING PARTIES addressed the issue of MFN treatment 
arising out of Article  I of the GATT  1947 by reaffirming "their intention to ensure the unity and 
consistency of the GATT system" and expressly confirming t hat the benefits of the Tokyo Round 
plurilateral agreements were to accrue to all the contracting parties to the GATT, even those that 
were not parties to the plurilateral agreements, insofar as the subject matter of those agreements 
were covered by Article I of the GATT  1947. Therefore, at the time of the conclusion of the Tokyo 
                                                
1092 Appellate  Body Report, EC – Tariff Preferences , para.  112. 
1093 The Tokyo Round witnessed the conclusion of (i) the  Agreement  on Technical Barriers to Trade 
(TBT Agreement); (ii)  the Agreement  on Government Procurement; (iii) the  Agreement  on Interpretation and 
Application of Articles  VI, XVI, and XXIII of the General  Agreement  on Tariffs and Trade (Subsidies and 
Countervailing Duties); (iv)  the Agreement  on Implementation of Article  VII of the General  Agreement  on 
Tariffs and Trade (Custom s Valuation Agreement); (v)  the Agreement  on Import Licensing Procedures; 
(vi) the Agreement  on Implementation of Article  VI of the General  Agreement  on Tariffs and Trade 
(Anti-Dumping Agreement); (vii)  the Agreement  on Trade in Civil  Aircraft; (viii) the International 
Dairy  Agreement ; and (ix) the International Bovine Meat  Agreement . 
1094 Emphasis added.  
1095 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting 
Parties of 28  November  1979, GATT Document L/4905 , BISD 26S/201.  
1096 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting 
Parties of 28  November  1979, GATT Document L/4905, BISD 26S/201, para.  2. 
1097 Action by the Contracting Parties on the Multilateral Trade Ne gotiations, Decision by the Contracting 
Parties of 28  November  1979, GATT Document L/4905, BISD 26S/201, para.  1. 
1098 Action by the Contracting Parties on the Multilateral Trade Negotiations, Decision by the Contracting 
Parties of 28  November  1979, GATT Docu ment L/4905, BISD 26S/201, para.  3. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Round Codes, absent the Enabling Clause, a Contracting Party who was not a party to a Tokyo Round 
plurilateral agreement could have challenged a measure taken by a party to that pl urilateral 
agreement pursuant to a S&D treatment provision thereof in favour of a developing country as being 
inconsistent with Article  I of the GATT  1947.  
5.411.   The adoption of the Enabling  Clause, particularly paragraph  2(b), addressed this situation. 
Paragra ph 2(b) provided an umbrella by excepting differential and more favourable treatment 
concerning non -tariff measures governed by the provisions of instruments multilaterally negotiated 
under the auspices of the GATT, i.e. differential and more favourable tr eatment accorded pursuant 
to the S&D treatment provisions of the Tokyo Round Codes, from the purview of a challenge under 
Article  I of the GATT  1947.  
5.412.   The foregoing considerations therefore suggest that the phrase "non -tariff measures 
governed by the provi sions of instruments multilaterally negotiated under the auspices of the GATT" 
in paragraph  2(b), at the time of the adoption of the Enabling  Clause, concerned non -tariff measures 
taken pursuant to the S&D treatment prov isions of the Tokyo Round Codes  and not the provisions 
of the  GATT  1947.  
5.413.   We note that with the entry into effect of the WTO  Agreement , the Tokyo Round Codes are 
no longer in force. The Enabling  Clause, however, stands incorporated as an "integral part" of the 
GATT  1994.1099 The Appellate  Body considered in EC – Tariff Preferences  that "Members reaffirmed 
the significance of the Enabling  Clause … with [its] incorporation … into the GATT  1994."1100 The 
Uruguay Round of multilateral trade negotiations culminated in the establishment of the WTO, 
following which GATT as an institution was replaced by the WTO. Article  II:1 of the WTO  Agreement  
expressly recognizes that "[t]he WTO shall provide the common institutional framework for the 
conduct of trade relations among its Members in matters related to th e agreements and associated 
legal instruments included in the Annexes to [the WTO]  Agreement ".1101 The Enabling Clause as an 
"integral part" of the GATT  1994 falls within the scope of Article  II:1 of the WTO  Agreement . 
Therefore, while at the time of its adop tion, paragraph 2(b) of the Enabling Clause speaks of 
"instruments multilaterally negotiated under the auspices of the GATT" as an institution, following 
the entry into force of the WTO  Agreement , paragraph 2(b) refers to "instruments multilaterally 
negoti ated under the auspices of the [WTO]" as an institution.1102 Paragraph 2(b) of the Enabling 
Clause, following the entry into force of the WTO  Agreement , thus provides for the adoption of a 
limited category of differential and more favourable treatment, namely  treatment that concerns 
non-tariff measures governed by provisions of instruments multilaterally negotiated under the 
auspices of the WTO. The GATT  1994, while an integral part of the WTO  Agreement , was not 
negotiated under the auspices of the WTO as an i nstitution.  
5.414.   These considerations, read in light of the text, context, and circumstances surrounding the 
adoption of the Enabling  Clause and thereafter the establishment of the WTO, indicate that 
paragraph  2(b) does not concern non -tariff measures governed  by the provisions of the GATT  1994. 
Instead, paragraph  2(b) speaks to non -tariff measures taken pursuant to S&D treatment provisions 
of "instruments multilaterally negotiated under the auspices of the [WTO]".1103 Brazil's contention 
that paragraph  2(b) appli es to non -tariff measures taken pursuant to the provisions of the 
GATT  1994 incorporating the GATT  19471104, in our view, calls for paragraph  2(b) to be given a 
meani ng that was not ascribed to it either at the time of its adoption or thereafter with the 
establishment of the WTO. We therefore uphold  the Panel's finding , in paragraph  7.1096 of the 
                                                
1099 Appellate  Body Report, EC – Tariff Preferences , para.  90. 
1100 Appellate  Body Report, EC – Tariff Preferences , para.  108 (referring to paragraph  1(b)(iv) of the 
language of Annex  1A to the WTO  Agreement  incorporating the GATT  1994 into the WTO  Agreement ). 
1101 Article  II:1 of the WTO  Agreement . We also note that Article  III:2 of the WTO  Agreement  states in 
relevant part that "[t]he WTO shall provide the forum for negotiations among its Members concerning their 
multilateral trade relations in matters dealt with under the agreements in the Annexes to [the WTO]  
Agreement ." (Article  III:2 of the WTO  Agreement ) 
1102 We note Brazil's contention that the terms "under the auspices of the GATT" in paragraph 2(b) of 
the Enabling Clause, "at present, should be read 'under the auspices of the WTO'". (Brazil's appellant's 
submission, para.  410 (quoting Brazil's se cond written submission to the Panel, para.  174))  
1103 This reading of paragraph 2(b) of the Enabling Clause does not, however, affect the S&D treatment 
provisions contained in the other multilateral agreements on trade in goods in Annex 1A to the 
WTO Agreeme nt. The S&D treatment provisions of these multilateral agreements on trade in goods apply in 
their own right in the context of their respective agreements as among all WTO Members.  
1104 Brazil's appellant's submission, para.  410. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 Panel  Reports , that "a non -tariff measure within the scope of paragraph  2(b) must be governed by 
specific provisions on special and differe ntial treatment, that are distinct from the provisions of the 
GATT  1994 incorporating the GATT 1947."1105 
5.415.   Turning to the Panel's application of paragraph  2(b) of the Enabling  Clause, we recall that 
the Panel found that the provisions of the GATT  1994 relied o n by Br azil, namely Articles  III:2 
and III:4, "do not introduce any special and differential treatment for taxes in the form of non -tariff 
measures".1106 We have considered above that paragraph  2(b) of the Enabling  Clause did not apply, 
at the time of its ado ption, with respect to Articles  III:2 and III:4 of the GATT 1947, and following 
the entry into force of the WTO  Agreement , does not apply with respect to Articles  III:2 and III:4 of 
the GATT  1994. Thus, subjecting like products of different WTO Members to different internal taxes 
inconsistently with Article  I:1 of the GATT  1994 cannot be justified under paragraph  2(b) of the 
Enabling  Clause. We therefore uphold  the Panel's finding , in paragraph  7.1097 of the Panel  Reports , 
that the internal tax reductions u nder the INOVAR -AUTO programme accorded to imported products 
from Argentina, Mexico, and Uruguay and found to be inconsistent under Article  I:1 of the 
GATT  1994 are not justified under paragraph  2(b) of the Enabling  Clause.1107 
5.5.3   Whether the Panel erred in its interpretation of paragraph  2(c) of the 
Enabling  Clause and in finding that the differential tax treatment under the INOVAR -AUTO 
programme was not justified under that provision  
5.416.   We now turn to paragraph  2(c) of the Enabling Clause. We recall that we have a greed with 
the Panel to the extent the Panel found that there is no genuine link or a rational connection between 
differential tax treatment under the INOVAR -AUTO programme and the notified arrangements 
adopted under paragraph  2(c). Consequently, we have u pheld the Panel's finding that the differential 
and favourable treatment (i.e. the differential tax treatment in the form of internal tax reductions 
accorded to some but not other Members) under the INOVAR -AUTO programme was not notified as 
adopted under p aragraph  2(c), as required pursuant to paragraph  4(a) of the Enabling Clause . In 
this section , we review whether the Panel erred in finding that the differential tax treatment under 
the INOVAR -AUTO programme was not substantively justified under paragraph  2(c).  
5.417.   The Panel recalled that , to satisfy the notification requirement in paragraph  4(a), any 
differential and more favourable treatment adopted under paragraph  2(c) must have "a close and 
genuine link to an RTA sufficient to alert other WTO Members to th e adoption of such differential 
and more favourable treatment pursuant to the Enabling  Clause".1108 The Panel considered that a 
"similar standard" applies with respect to the substantive justification under paragraph  2(c) itself.1109 
Thus, the Panel found that , "[i]n order for any differential and more favourable treatment to be 
justified under paragraph  2(c) of the Enabling  Clause, there must exist a close and genuine link to 
a 'regional arrangement entered into amongst less -developed contracting parties'."1110 In this case , 
the Panel found that Brazil ha d not identified an RTA with a close and genuine link to the internal 
tax reductions at issue.1111 The Panel stated that, while "Brazil has made assertions regarding the 
[1980] Treaty of Montevideo and the ECAs", Brazi l has not pointed to a provision providing for tax 
preferences in those RTAs nor "demonstrated how the tax reductions at issue are related to those 
RTAs", and therefore how the relevant differential and more favourable treatment could be justified 
under pa ragraph  2(c).1112 The Panel therefore found that "Brazil has not met its burden of proof in 
respect of the substantive requirements of paragraph  2(c)."1113 
                                                
1105 Panel  Reports , para.  7.1096 . (fn omitted)  
1106 Panel  Reports , para.  7.1096. In particular, the Panel noted that "Brazil concedes that other than the 
GATT  1994 there is no specific WTO covered agreement dealing with internal taxation ." (Ibid. (referring to  
Brazil's second written submis sion to the Panel , para. 174)) 
1107 Panel  Reports , para.  7.1097.  
1108 Panel  Reports , para.  7.1117 (referring to ibid., para.  7.1108) . 
1109 Panel  Reports , para.  7.1117.  
1110 Panel  Reports , para.  7.1117.  
1111 Panel  Reports , para.  7.1118.  
1112 Panel  Reports , para.  7.1118. (fn omitted)  
1113 Panel  Reports , para.  7.1118.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.418.   For these reasons, the Panel concluded that "the tax reductions accorded to imported 
products from Argenti na, Mexico and Uruguay and found to be inconsistent under Article  I:1 of the 
GATT  1994 are not justified under paragraph  2(c) of the Enabling  Clause."1114 
5.419.   On appeal, Brazil contends that the Panel's substantive evaluation of paragraph  2(c) 
"is essentially ind istinguishable from its evaluation of whether the notification was sufficient under 
paragraph  4(a)".1115 Brazil submits that the Panel rested its finding on its "flawed conclusion that 
because the [1980] Treaty of Montevideo and the provisions of the relevant  ECAs do not expressly 
make reference to internal taxation, they did not have a genuine link with paragraph  2(c)" and 
therefore "WTO Members could not have been expected to be informed that Brazil intended to accord 
internal tax reductions to motor vehicle s from Argentina, Mexico and Uruguay".1116 Brazil further 
submits that the Panel's finding that "Brazil has not demonstrated 'how the tax reductions at issue 
are related to [the] RTAs'"1117 is "directly contradicted by the facts on the record".1118 Brazil asserts 
that the 1980 Treaty of Montevideo, the relevant ECAs, and LAIA have "an ample scope comprising 
internal tax reduction measures".1119 Accordingly, Brazil requests the Appellate  Body to reverse the 
Panel's conclusion that Brazil did not meet its burden of proof  with respect to the substantive 
requirements of paragraph  2(c)1120 and to complete the analysis and find that "the  differential tax 
treatment is justified under paragraph  2(c) and complies with the requirements of paragraph  3 of 
the Enabling  Clause."1121 
5.420.   In res ponse, the European  Union asserts that what Brazil "in essence" claims in its appeal is 
that "the Panel failed to make an objective assessment of the matter before it, while Brazil has not 
raised a claim under Article  11 of DSU."1122 Thus, the European  Union submits that 
"the Appellate  Body can and should … dismiss this part of Brazil's appeal."1123 That said, the 
European  Union disagrees with Brazil's contention that Article  21 of Decree  7,819/2012 contains the 
necessary references and argues instead that the ar ticle does not mention the provisions in the 
relevant decrees referring to preferential tax treatment.1124  
5.421.   Japan submits that "Brazil's claim appears to be that the Panel did not properly analyse and 
weigh the facts."1125 Japan contends that "[s]uch a claim … c annot be raised by Brazil at this stage 
(at least not under any other basis than potentially a DSU Article  11 claim, which Brazil did not 
raise)."1126 That said, Japan submits that the Panel reached the correct conclusion concerning 
paragraph  2(c) of the Enab ling Clause.1127 Japan submits that Article  21 of Decree  7,819/2012 refers 
to "vehicles […] originating from countries that are signatories to the agreements" established by 
the relevant decrees.1128 According to Japan, "[t]he references to the relevant decrees do not identify 
the provisions in those decrees referring to preferential tax treatment."1129 Japan contends that 
"Brazil makes reference to those decrees … because it wants to avoid referring to the beneficiary 
countries directly by name."1130 
                                                
1114 Panel  Reports , para.  7.1121.  
1115 Brazil's appellant's submission, para.  414. 
1116 Brazil's appellant's submission, para.  419 (referring to Panel  Reports , para. 7.1115 ). 
1117 Brazil's appellant's submission, para.  421 (quot ing Panel  Reports , para. 7.111 8). 
1118 Brazil's appellant's submission, para.  422. 
1119 Brazil's appellant's submission, para.  422. 
1120 Brazil's appellant's submission, para.  433 (referring to Panel  Reports , para.  7.1118).  
1121 Brazil's appellant's submission, para.  434. 
1122 European  Union's appellee's submission, para.  508. (fn omitted)  
1123 European  Union's appellee's submission, para.  508. 
1124 European  Union's appellee's submission, para.  515. 
1125 Japan's appellee's submission, para.  171. 
1126 Japan's appellee's submission, para.  171. 
1127 Japan's appellee's submission, paras.  172-174. 
1128 Japan's appellee's submission, para. 175 (quoting Decree  7,819 /2012  (Panel  Exhibit  JE-132), 
Article  21). 
1129 Japan's appellee's submission, para. 175. 
1130 Japan's appellee's submission, para. 175. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.422.   Paragraph 2 of th e Enabling  Clause provides, in relevant part:  
The provisions of paragraph  1 apply to the following:  
… 
(c) Regional or global arrangements entered into amongst developing country Members 
for the mutual reduction or elimination of tariffs and, in accordance with criteria or 
conditions which may be prescribed by the [WTO Members], for the mutual reduction 
or elimination of non -tariff measures, on products imported from one another[.]1131  
5.423.   Paragraph 2(c) excepts differential and more favourable treatment accorded pursuant to 
"[r]egional or global arrangements entered into amongst" developing country Members from a 
finding of inconsistency with Article  I of the GATT  1994. Paragraph  2(c) limits the kind of differential 
and more favourable treatment to the: (i) mutual  reduction or elimination of tariffs; and (ii) mutual 
reduction or elimination of non -tariff measures. In case of the latter, paragraph  2(c) adds that the 
"mutual reduction or elimination of non -tariff measures" have to be "in  accordance with criteria or 
conditions which may be prescribed" by the WTO Members. Paragraph 2(c) does not exclude the 
possibility that developing country Members that are parties to regional or global arrangements may 
adopt such instruments that they may deem appropriate for the mut ual reduction or elimination of 
tariffs and non -tariff measures. However, it suffices that the instrument adopted that way, to be 
justified under paragraph  2(c) for the differential and more favourable treatment it accords, has a 
"genuine" link or a ration al connection with the regional or global arrangement adopted and notified 
to the WTO. Therefore, we disagree with the Panel to the extent it considered that , in order for any 
differential and more favourable treatment to be justified under paragraph  2(c), there must exist 
both a "close" and "genuine" link to a "regional arrangement entered into amongst" developing 
country Members.1132 
5.424.   As noted, Brazil submits that the Panel rested its finding on its "flawed conclusion that 
because the [1980] Treaty of Montevideo and the provisions of the relevant ECAs do not expressly 
make reference to internal taxation, they did not have a genuine link with paragraph  2(c)".1133 We 
consider that  Brazil mischaracterizes the Panel's finding. The  Panel did not find, as Brazil contends, 
that the 1980 Treaty of Montevideo and the relevant ECAs do not bear a genuine link with the 
requirements of paragraph  2(c).1134 Instead, the Panel found that "Brazil ha s not demonstrated how  
the relevant tax reductions  [under the INOVAR -AUTO programme] found to be inconsistent under 
Article  I:1 of the GATT  1994 are related  to the RTA that Brazil has notified to the WTO (the Treaty 
of Montevideo) or the ECAs allegedly imp lementing that RTA ."1135 Consequently, the Panel was not 
satisfied "how the relevant differential and more favourable treatment could be justified under 
paragraph  2(c)".1136 In reaching this conclusion, the Panel examined the provisions of 
the 1980 Treaty of Mon tevideo and found that "none of the provisions cited to in the [1980] Treaty 
of Montevideo" had any relation "in and of themselves" to the differential tax treatment  under the 
INOVAR -AUTO programme  (in the form of internal tax reductions accorded to some b ut not other 
Members) found to be inconsistent with Article  I:1 of the GATT  1994.1137 Turning to the relevant 
ECAs referred to in Articles  21 and 22(I) of Decree  7,819/2012, the Panel noted that it "could not 
discern any  … relationship" that would attest to " the fundamental premise of Brazil's argument, 
namely that the INOVAR -AUTO programme is implementing the objectives of the ECAs".1138 
5.425.   The Panel was required to undertake this analytical exercise given that, as Brazil explains 
on appeal, it contended before the  Panel that "the tax treatment accorded within the framework of 
[the] INOVAR -AUTO [programme] … is inscribed in the context of the implementation process of 
the … [ECAs] negotiated … under the umbrella of the 1980  Treaty of Montevideo ."1139 Consequently, 
                                                
1131 Fn omitted.  
1132 Panel  Reports , para.  7.1117.  
1133 Brazil's appellant's submission, para.  419 (referring to Panel  Reports , para. 7.1115 ). 
1134 Brazil's appellant's submission, para.  418. 
1135 Panel  Reports , para.  7.1115. (em phasis added)  
1136 Panel  Reports , para.  7.1118. (fn  omitted)  
1137 Panel  Reports , para.  7.1112.  
1138 Panel  Reports , para.  7.1112.  
1139 Brazil's appellant's submission, para.  367. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 as B razil further explains, the differential tax treatment was not only justified under 
paragraph  2(c)1140 but also "did not require additional notification".1141  
5.426.   We have considered above the question whether or not the differential tax treatment under 
the INOVAR -AUTO programme was notified pursuant to paragraph  4(a) of the Enabling  Clause as 
having been adopted under paragraph  2(c) by virtue of the notification of the 1980 Treaty of 
Montevideo and the relevant ECAs under paragraph  2(c). In so doi ng, we have noted t hat Articles  21 
and 22(I) of Decree  7,819/2012 do not refer to the 1980 Treaty of Montevideo and that 
the 1980 Treaty of Montevideo does not itself specify any rules regarding internal tax reductions. 
We have also considered that, while Articles  21 and 22( I) of Decree  7,819/2012 refer to the relevant 
ECAs, those ECAs provide for the adoption of tariff preferences in the automotive sector and do not 
refer to internal taxation. Accordingly, in the absence of a genuine link between the differential tax 
treatme nt under the INOVAR -AUTO programme, on the one hand, and the 1980 Treaty of 
Montevideo and the relevant ECAs, on the other hand, we have agreed with the Panel's finding that 
"Brazil has not demonstrated how the … tax reductions found to be inconsistent und er Article  I:1 of 
the GATT  1994 are related to the RTA that Brazil has notified to the WTO (the [1980] Treaty of 
Montevideo) or the ECAs allegedly implementing that RTA."1142 Therefore, to the extent that the 
Panel relied on its earlier analysis concerning wh ether or not the INOVAR -AUTO programme, which 
accords  the differential and more favourable treatment (i.e. the differential tax treatment in the form 
of internal tax reductions accorded to some but not other Members), had a genuine link to 
"the arrangement  notified to the WTO"1143 in determining if the differential and more favourable tax 
treatment was substantively justified under paragraph  2(c), we find no error in the Panel's approach. 
The considerations outlined by the Panel in that part of its analysis we re bound to have a substantial 
bearing on whether or not the differential and more favourable treatment under the INOVAR -AUTO 
programme was substantively justified under paragraph  2(c), given the manner in which Brazil 
framed its arguments before the Panel . Indeed, if there is no genuine link between the measure at 
issue according the differential and more favourable treatment and the arrangements notified to the 
WTO, it is difficult to see how the measure at issue could be substantively justified under 
paragraph  2(c).  
5.427.   In light of the foregoing considerations, we uphold  the Panel's finding , in paragraph  7.1118 
of the Panel  Reports , to the extent that the Panel found  that Brazil has not identified any 
arrangement with a genuine link to the differential tax treatment envisaged under the INOVAR -AUTO 
programme. Consequently, we also uphold  the Panel's finding , in paragraph  7.1121 of the 
Panel  Reports , that the internal tax reductions accorded under the INOVAR -AUTO programme to 
imported products from Argentina, Mexico, and Uruguay and found to be inconsistent under 
Article  I:1 of the GATT  1994 are not justified under paragraph  2(c) of the Enabling  Clause.  
5.5.4   Conclusion with r espect to the Enabling Clause  
5.428.   Paragraph 4(a) of the Enabling  Clause envisages a degree of specificity in the notification 
adopted thereunder. At a minimum, a notification pursuant to paragraph  4(a) should state under 
which particular provision of the Enabl ing Clause the differential and more favourable treatment has 
been adopted so as to put other Members on notice. Paragraph 4(a) does not exclude the possibility 
that a single notification can state that the notifying Member considers an arrangement or a me asure 
to have been adopted pursuant to one or more subparagraphs of paragraph  2 of the Enabling  Clause. 
However, in the absence of any such indication, it cannot be taken for granted that a complaining 
party is on notice of those subparagraphs of paragraph  2 that the notifying Member considers to be 
applicable. A notification pursuant to paragraph  4(a) therefore speaks to and has a direct bearing 
on a complaining party's knowledge. Consequently, it speaks to whether the complaining party is 
required to rais e the Enabling Clause and identify the relevant provision(s) thereof in its panel 
request and assert that an arrangement or a measure adopted by the responding party is 
inconsistent not only with Article  I:1 of the GATT  1994, but also with the relevant pro visions of the 
Enabling  Clause. While it is for the complaining party to raise the Enabling Clause and identify the 
relevant provision(s) thereof in its panel request, the burden to prove that the measure satisfies the 
                                                
1140 Brazil's appellant's submission, para.  367. 
1141 Brazil's appellant's submission, para.  395. (fn omitted)  
1142 Panel  Reports , para.  7.1115.  
1143 Panel  Reports , para.  7.1108.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 conditions set out in the Enabling Cl ause remains on the responding party relying on the 
Enabling  Clause as a defence.  
5.429.   With regard  to whether the measure at issue (i.e. differential tax treatment under the 
INOVAR -AUTO programme in the form of internal tax reductions accorded to some but not other 
Members) was notified pursuant to paragraph  4(a) as having been adopted under paragraph  2(b) of 
the Enabling  Clause, our review of the Panel's findings indicates that Brazil has not demonstrated 
that the differential tax treatment under the INOVAR -AUTO programme was notified to the WTO as 
adopted under paragraph  2(b), as required pursuant to paragraph  4(a) of the Enabling  Clause. We 
therefore uphold  the Panel's finding , in paragraph s 7.1082 -7.1083 of the Panel  Reports , that Brazil 
has not demonstrated  that the differential tax treatment under the INOVAR -AUTO programme was 
notified to the WTO as adopted pursuant to paragraph  2(b), and therefore, in the circumstances of 
this case, there was no burden on the complaining parties to raise and identify parag raph 2(b) of 
the Enabling  Clause in their panel requests.  
5.430.   With regard to whether the measure at issue (i.e. the differential tax treatment under the 
INOVAR -AUTO programme in the form of internal tax reductions accorded to some but not other 
Members) was n otified pursuant to paragraph  4(a) as having been adopted under paragraph  2(c) of 
the Enabling  Clause, our review of the Panel's findings indicates that Brazil has not demonstrated 
that the 1980 Treaty of Montevideo and the ECAs notified to the WTO have a genuine link to the 
INOVAR -AUTO programme providing for the differential and more favourable treatment at issue, 
and, consequently, the differential and more favourable treatment at issue was not notified to the 
WTO as adopted under paragraph  2(c), as requ ired pursuant to paragraph  4(a) of the 
Enabling  Clause. We therefore uphold  the Panel's finding , in paragraph  7.1119 of the Panel  Reports , 
that the differential tax treatment under the INOVAR -AUTO programme was not notified as adopted 
under paragraph  2(c), as required pursuant to paragraph  4(a). Consequently, we also uphold  the 
Panel's finding , in paragraph  7.1120 of the Panel  Reports , that, in the circumstances of this case, 
there was no burden on the complaining parties to raise and identify paragraph  2(c) of the 
Enabling  Clause in their panel requests.  
5.431.   In light of the foregoing considerations, we uphold  the Panel's findings , in paragraphs 8.6 .h 
and 8.17 .i of the Panel  Reports , that there was no burden on the complaining parties to raise and 
identify the r elevant provisions of the Enabling  Clause in their panel requests, and their claims under 
Article  I:1 of the GATT  1994 were therefore within the Panel's terms of reference.  
5.432.   With respect to paragraph  2(b) of the Enabling  Clause, we note that paragraph  2(b) provides 
for the granting of "[d]ifferential and more favourable treatment with respect to the provisions of 
the General  Agreement  concerning non -tariff measures governed by the provisions of instruments 
multilaterally negotiated under the auspices of the GATT". Paragraph 2(b) provides for the adoption 
of a limited category of differential and more favourable treatment, namely treatment that concerns 
"non-tariff measures governed by the provisions of instruments multilaterally negotiated under the 
auspices of the GATT " as an institution. The phrase "non -tariff measures governed by the provisions 
of instruments multilaterally negotiated under the auspices of the GATT", at the time of the adoption 
of the Enabling  Clause, concerned non -tariff measures taken pursuant to the S&D treatment 
provisions of the Tokyo Round Codes, and not the provisions of the GATT  1947. Following the entry 
into force of the WTO  Agreement , paragraph 2(b) of the Enabling Clause provides for the adoption 
of a limited category of differ ential and more favourable treatment, namely treatment that concerns 
non-tariff measures governed by the provisions of instruments multilaterally negotiated under the 
auspices of the WTO. The GATT  1994, while an integral part of the WTO  Agreement , was not 
negotiated under the auspices of the WTO. These considerations read in light of the text, context, 
and circumstances surrounding the adoption of the Enabling  Clause and thereafter the establishment 
of the WTO indicates that paragraph  2(b) does not concern non-tariff measures governed by the 
provisions of the GATT  1994. Instead, paragraph  2(b) speaks to non -tariff measures taken pursuant 
to S&D treatment provisions of "instruments multilaterally negot iated under the auspices of 
the [WTO]".  
5.433.   We therefore uphol d the Panel's finding , in paragraph  7.1096 of the Panel  Reports , that 
"a non-tariff measure within the scope of paragraph  2(b) must be governed by specific provisions 
on special and differential treatment, that are distinct from the provisions of the GATT  1994 
incorporating the GATT 1947."1144 We also uphold  the Panel's findings , in paragraphs 7.1097, 8.6 .i, 
                                                
1144 Panel  Reports , para.  7.1096. (fn omitted)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 and 8.17 .j of the Panel  Reports , that the tax reductions accorded under the INOVAR -AUTO 
programme to imported products from Argentina, Mexico, and Uruguay  and found to be inconsistent 
under Article  I:1 of the GATT  1994 are not justified under paragraph  2(b) of the Enabling  Clause.  
5.434.   With respect to paragraph  2(c) of the Enabling  Clause, we note that paragraph 2(c) excepts 
differential and more favourable trea tment accorded pursuant to "[r]egional or global arrangements 
entered into amongst" developing country Members from a finding of inconsistency with Article  I of 
the GATT  1994. Paragraph 2(c) does not exclude the possibility that developing country Members 
that are parties to regional or global arrangements may adopt such instruments that they may deem 
appropriate for the mutual reduction or elimination of tariffs and non -tariff measures. However, it 
suffices that the instrument adopted that way, to be justi fied under paragraph 2(c) for the differential 
and more favourable treatment it accords, has a "genuine" link or a rational connection with the 
regional or global arrangement adopted and notified to the WTO.  
5.435.   Our review of the Panel's findings indicates th at the  Panel did not find, as Brazil contends, 
that the 1980 Treaty of Montevideo and the relevant ECAs do not bear a genuine link with the 
requirements of paragraph  2(c). Instead, the Panel found that Brazil has not demonstrated how  the 
internal tax reduc tions under the INOVAR -AUTO programme found to be inconsistent under 
Article  I:1 of the GATT  1994 are related to the RTA (the 1980 Treaty of Montevideo) that Brazil has 
notified to the WTO or the ECAs allegedly implementing that RTA. Consequently, the Pane l was not 
satisfied how the relevant differential and more favourable treatment under the INOVAR -AUTO 
programme could be justified under paragraph  2(c). Therefore, to the extent that the Panel relied 
on its earlier analysis concerning whether or not the IN OVAR -AUTO programme, according the 
differential and more favourable treatment (i.e. the differential tax treatment in the form of internal 
tax reductions accorded to some but not other Members), had a genuine link to "the  arrangement 
notified to the WTO" i n determining if the differential and more favourable treatment was 
substantively justified under paragraph  2(c), we find no error in the Panel's approach. Indeed, if 
there is no genuine link between the measure at issue according the differential and more  favourable 
treatment and the arrangements notified to the WTO, we find it difficult to see how the measure at 
issue could be substantively justified under paragraph  2(c).  
5.436.   We therefore uphold  the Panel's finding , in paragraph  7.1118 of the Panel  Reports , to the 
extent that the Panel found that Brazil has not identified any arrangement with a genuine link to the 
differential tax treatment envisaged under the INOVAR -AUTO programme. Consequently, we also 
uphold  the Panel's findings , in paragraphs 7.1121, 8.6 .i, and 8.17 .j of the Panel  Reports , that the 
tax reductions accorded under the INOVAR -AUTO programme to imported products from Argentina, 
Mexico, and Uruguay and found to be inconsistent under Article  I:1 of the GATT  1994 are not 
justified under paragraph  2(c) of the Enabling  Clause.  
5.6  Articles  11 and 12.7 of the DSU and Article  4.7 of the SCM  Agreement  
5.6.1   Introduction  
5.437.   In this section, we address Brazil's claim that the Panel acted inconsistently with Articles  11 
and 12.7 of the DSU in recommending, pursuant to Article  4.7 of the SCM  Agreement , that Brazil 
withdraw the prohibited subsidies identified by the Panel within 90 days.1145 To recall briefly, during 
the interim review stage of the Panel proceedings, the European  Union and Japan requested that 
the Panel spec ify in its recommendations the time  period within which the measures must be 
withdrawn, pursuant to Article  4.7 of the SCM  Agreement .1146 On 6 December 2016, the Panel thus 
submitted an additional question to the parties regarding the appropriate tim e period that the Panel 
should specify in its recommendations. The Panel received the parties' responses to this question 
                                                
1145 Brazil's appellant's submission, para. 436. Brazil's claim is conditional upon us upholdin g the Panel's 
findings that the measures at issue are prohibited subsidies under Articl es 3.1(a) and 3.1(b) of the 
SCM Agreement. (Ibid., para. 436) Having partially upheld the Panel's findings under Article 3.1(b) of the 
SCM Agreement in s ection 5.4 above , we are therefore called upon to address Brazil's claim under Articles 11 
and 12.7 of the DSU and Article 4.7 of the SCM Agreement.  
1146 Panel  Reports , para.  6.15. Article  4.7 of the SCM  Agreement  specifies that " the panel shall 
recommend that the subsidizin g Member withdraw the subsidy without delay ". (emphasis added)  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 and the parties' comments on each other's responses on 9  December  2016 and 12  December  2016, 
respectively.1147  
5.438.   In its Report s, the Panel noted th at previous pane ls addressing the specific time period 
contemplated under Article  4.7 of the SCM  Agreement  have "tended"  to specify 90  days as the time 
period in which the subsidy must be withdrawn.1148 The Panel considered it "difficult" to "reconcile" 
the "'reasonable period of time' (ostensibly up to 15 months, subject to the arbitrator's discretion)" 
contemplated in Article  21.3(c) of the DSU and the requirement to withdraw prohibited subsidies 
"'without delay' (i.e. typically 90 days)" under Article  4.7 o f the SCM  Agreement .1149 Recalling the 
Appellate  Body's statements in Canada – Renewable Energy / Canada – Feed-in Tariff Program  that 
"the expedited remedy provided under Article  4.7 … is an 'important consideration'", the Panel 
decided to "respect the speci fic remedy contemplated in Article  4".1150 The Panel thus added 
paragraphs  8.11 and 8.22 to its Report, wherein, "[t]aking into account the procedures that may be 
required to implement [its] recommendation on the one hand, and the requirement that Brazil 
withdraw its subsidies 'without delay' on the other", the Panel recommended that the prohibited 
subsidies identified by it be withdrawn within 90  days.1151  
5.439.   On appeal, Brazil claims that the Panel acted inconsistently with Articles  11 and 12.7 of the 
DSU because it failed to engage with the arguments put forward by the parties and to provide a 
"reasoned and adequate explanation" or a "basic rationale" for its conclusion that the prohibited 
subsidies at issue be withdrawn within 90 days.1152 Noting that the Panel's re asoning was limited to 
a single paragraph of its Report s, Brazil asserts, in particular, that the Panel was required – but 
failed  – to "explain why 90 days was appropriate in light of the 'nature of the measures' and the 
'procedures that may be required to  implement [the panel's] recommendation'".1153  
5.440.   We begin our analysis by discussing, briefly, the relevant legal standards under Articles  11 
and 12.7 of the DSU as well as Article  4.7 of the SCM  Agreement . Subsequently, we consider whether 
the Panel acted inc onsistently with Articles  11 and 12.7, as alleged by Brazil.  
5.6.2   Relevant legal standards under Articles  11 and 12.7 of the DSU and Article  4.7 of 
the SCM  Agreement  
5.441.   Article  11 of the DSU provides, in relevant part, that:  
[A] panel should make an objective assessment of the matter before it, including an 
objective assessment of the facts of the case and the applicability of and conformity 
with the relevant covered agreements, and make such other findings as will assist the 
DSB in making the recommendations o r in giving the rulings provided for in the covered 
agreements.  
The provision requires a panel to make an objective assessment of the matter before it, which 
includes a requirement that the panel provide a "'reasoned and adequate' explanation" and coherent  
reasoning for its findings as the initial trier of facts.1154 A panel is required to "consider all the 
evidence presented to it, assess its credibility, determine its weight, and ensure that its factual 
                                                
1147 Panel  Reports , para.  6.16. 
1148 Panel  Reports , para.  6.17 (referring to Panel  Reports , Australia – Automotive Leather II , para. 10.7; 
Brazil – Aircraft , para. 8.5; Canada – Aircraft Credits and Guarantees , para. 8.4; Canada – Autos , para. 11.7; 
Korea – Commercial Vessels , para.  8.5; US – Tax Incentives , para.  8.6). 
1149 Panel  Reports, para.  6.17. 
1150 Panel  Reports, para.  6.17 (referring to Appellate  Body Reports, Canada – Renewable Energy  / 
Canada  – Feed-in Tariff Program , para.  5.7, in turn referring to Appellate Body Report, EC – Export Subsidies 
on Sugar , paras. 332 -335).  
1151 Panel  Reports , paras.  8.11 and 8.22.  
1152 Brazil's appellant's submission, paras.  437, 443, and 445.  
1153 Brazil's appellant's submission, para.  453 (referring to Panel  Reports , Australia  ‒ Automotive 
Leather  II, para. 10.7; Brazil – Aircraft , para. 8.5; Canada – Aircraft , para. 10.4; Canada – Autos , para. 11.6; 
EC and certain member States – Large Civil Aircraft , para. 8.6; Korea  ‒ Commercial Vessels , para. 8.5; 
US ‒ Tax Incentives , para. 8.6). 
1154 Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  881 (quoting and 
referring to Appellate  Body Report s, US – Softwood Lumber VI ( Article  21.5 – Canada) , para. 97; US – Upland 
Cotton ( Article  21.5 – Brazil) , para. 293  and fn 618 thereto and para. 294).  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 findings have a proper basis in that evidence".1155 Thus, when called on to review a panel's analysis, 
the Appellate  Body "cannot base a finding of inconsistency under Article  11 simply on the conclusion 
that [it] might have reached a different factual finding from the one the panel reached".1156 Neither 
does a pane l err simply because it declines to accord to the evidence the weight that one of the 
parties believes should be accorded to it.1157 
5.442.   Article  12.7 of the DSU provides that "the report of a panel shall set out the findings of fact, 
the applicability of relevant  provisions and the basic rationale behind any findings and 
recommendations that it makes." What constitutes a "basic rationale" is not defined in the covered 
agreements. In Mexico  – Corn Syrup ( Article  21.5 – US), the Appellate  Body noted that Article  12.7 
"establishes a minimum standard for the reasoning that panels must provide in support of their 
findings and recommendations" .1158 However, the Appellate  Body cautioned that it was neither 
possible nor desirable "to determine, in the abstract, the minimum st andard of reasoning that will 
constitute a 'basic rationale' for the findings and recommendations made by a panel."1159 Instead, 
whether a basic rationale has been set out should be decided on a case -by-case basis, taking into 
account the "facts of the case, the specific legal provisions at issue, and the particular findings and 
recommendations made by a panel" .1160 In all circumstances, panels must set forth explanations 
and reasons sufficient to disclose the "essential, or fundamental, justification" for their findings and 
recommendations.1161 In particular, panels must identify the relevant facts and the applicable legal 
norms. In applying those legal norms to the relevant facts, the reasoning of the panel must reveal 
how and why the law applies to the facts. In t his way, panels will, in their reports, disclose the 
essential or fundamental justification for their findings and recommendations.1162 This does not, 
however, necessarily imply that Article  12.7 requires panels to expound at length on the reasons for 
their findings and recommendations. There may, for example, be instances where a panel's "basic 
rationale" could  be found in reasoning that is set out in other documents, such as in previous pane l 
or Appellate  Body reports – provided that such reasoning is quoted or, at a minimum, incorporated 
by reference.1163 
5.443.   We now consider the legal standard under Article  4.7 of the SCM  Agreement , which is the 
specific legal provision applied by the Panel in the present dispute. Article  4.7 provides:  
If the measure in question is found to be a prohibited subsidy, the panel shall 
recommend that the subsidizing Member withdraw the subsidy without de lay. In this 
regard, the panel shall specify in its recommendation the time -period within which the 
measure must be withdrawn.  
5.444.   Through the use of the word "shall", Article  4.7 requires a panel to recommend that 
prohibited subsidies found to exist be withdr awn "without delay".1164 Further, Article  4.7 mandates 
that a panel must specify the time  period within which such withdrawal must occur.1165  
                                                
1155 Appellate  Body Reports, China – Rare Earths , para. 5.178  (quoting Appellate  Body Report , 
Brazil  ‒ Retreaded Tyres , para. 185, in tu rn referring to Appellate  Body Report,  EC – Hormones , 
paras.  132-133). See also Appellate  Body Reports,  Australia  – Salmon , para. 266; EC – Asbestos , para. 161; 
EC – Bed Linen ( Article  21.5 – India) , paras.  170, 177, and  181; EC – Sardines , para. 299; EC – Tube or Pipe 
Fittings , para. 125; Japan – Apples , para. 221; Japan – Agricultural Products  II, paras.  141-142; 
Korea  ‒ Alcoholic Beverages , paras.  161-162; Korea  – Dairy , para. 138; US – Carbon Steel , para.  142; 
US ‒ Gambling , para. 363; US – Oil Country Tubular Goods Sunset Reviews , para. 313; EC – Selected Customs 
Matters , para. 258. 
1156 Appellate  Body Report, EC and certain member States – Large Civil Aircraft , para.  1317 (quoting  
Appellate  Body Report, US – Wheat Gluten , para. 151). 
1157 Appellate  Body Reports, Australia – Salmon , para. 267; Japan  – Apples , para. 221; 
Korea  ‒ Alcoholic Beverages , para. 164. 
1158 Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), para.  106. 
1159 Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), para.  108 (referring to 
Appellate  Body Report, Korea – Alcoholic Beverages , para. 168). 
1160 Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), para. 108. See also Appellate  Body 
Report, US – Carbon Steel (India) , para.  4.194.  
1161 Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), para.  106. 
1162 Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), para.  108 (referring to 
Appellate  Body Report, Chile – Alcoholic Beverages , para. 78). 
1163 Appellate  Body Report, Mexico – Corn Syr up (Article  21.5 – US), paras.  108-109. 
1164 Appellate  Body Report, Brazil – Aircraft , para.  192. 
1165 Appellate  Body Report, Brazil – Aircraft , paras.  191-192. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.445.   The remedy under Article  4.7 of the SCM  Agreement  to withdraw prohibited subsidies 
"without delay" is distinct from the  remedy contemplated under Article  21 of the DSU. Paragraph  1 
of Article  21 of the DSU requires "prompt compliance with recommendations or rulings of the DSB", 
and paragraph 3 thereof  allows the implementing Member "a  reasonable period of time" to 
implemen t the recommendations or rulings of the DSB, where it is impracticable to comply 
"immediately".1166 We note in this regard that Article  4.7 of the SCM  Agreement  is listed in 
Appendix  2 to the DSU as a "special or additional rule or procedure" on dispute settl ement, and the 
provisions of Article  21.3 of the DSU therefore "are not relevant in determining the period of time 
for implementation of a finding of inconsistency with the prohibited subsidies provisions of Part  II of 
the SCM  Agreement ".1167  
5.446.   As regards the meaning of "without delay" in Article  4.7, the dictionary meanings of "delay" 
include, as a noun, " procrastination … ; waiting, lingering "1168, and as a verb, "[t]o put off to a later 
time; to defer, postpone ".1169 As to the context, we note that,  in requiring that prohibited subsidies 
be withdrawn "without delay", Article  4.7 states that panels have to specify the time period within 
which the measures must be withdrawn. Furthermore, Article  4.10 requires the DSB to grant 
authorization to the compl aining Member to take appropriate countermeasures in the event the 
recommendations of the DSB are not followed within the time  period specified by a panel pursuant 
to Article  4.7. The text and the context of Article  4.7 therefore suggest to us that the ter m "without 
delay" in Article  4.7 is not used in the sense of requiring  immediate  compliance. Nor does the term 
"without delay", combined with the requirement that the panel specify a time  period, impose a single 
standard or time  period applicable in all ca ses. Instead, Article  4.7 requires a panel to specify a time  
period that constitutes "without delay" within the realm of possibilities in a given case and 
considering the domestic legal system of the implementing Member. In determining the time  period 
under Article  4.7 that constitutes "without delay", a panel should typically take into account the 
nature of the measure(s) to be revoked or modified and the domestic procedures available for such 
revocation or modification. These domestic procedures include a ny extraordinary procedures that 
may be available within the legal system of a WTO Member.1170 
5.447.   Finally, we consider it useful to contrast the text of Article  4.7 of the SCM  Agreement  with 
that of Article  21.3(c) of the DSU. Article  21.3 of the DSU specifies t hat, "[i]f  it is impracticable to 
comply immediately with the recommendations and rulings, the Member concerned shall have a 
reasonable period of time in which to do so." Article  21.3(c) of the DSU in turn provides that an 
arbitrator may be appointed where  a reasonable time  period c annot be agreed on, and that 
"a guideline for the arbitrator should be that the reasonable period of time … should not e xceed 
15 months from the date of adoption", although that time  period "may be shorter or longer, 
depending up on the particular circumstances".1171 By contrast, Article  4.7 of the SCM  Agreement  
contains no reference to flexibilities depending on "circumstances". Article  4.7 simply mandates that 
"the panel shall recommend that the subsidizing Member withdraw the subsidy without delay" and 
that "the panel shall specify in its recommendation the time  period within which the measure must 
be withdrawn ." Therefore, in contrast to Article  21.3(c) of the DSU, the use of the term "without 
delay" in Article  4.7 constrains the latitude available to a panel  in specifying the time  period under 
that provision.  
                                                
1166 Appellate  Body Report, Brazil – Aircraft , para.  191. 
1167 Appellate  Body Report, Brazil – Aircraft , para. 192. 
1168 Oxford English Dictionary online, definition of " delay " (noun) , 
http://www.oed.com/view/Entry/49277?rskey=23TzlE&result=1&isAdvanced=false#eid . 
1169 Oxford English Dictionary online, definition of " delay " (verb) , 
http://www.oed.com/view/Entry/492 78?rskey=23TzlE&result=2&isAdvanced=false#eid . 
1170 By contrast, we note that the existence of, and recourse to, extraordinary procedures within the 
domestic legal system of a WTO Member State is a factor that is generally not taken into account in 
determinin g the "reasonable period of time" under Article  21.3(c) of the DSU. See Award of the Arbitrator, 
EC – Chicken Cuts ( Article  21.3(c)) , para.  49 (referring to Award of the Arbitrator, Korea – Alcoholic Beverages 
(Article  21.3(c)) , para.  42; Award of the Arbitrator, Chile – Price Band System ( Article  21.3(c)) , para.  51; 
Award of the Arbitrator, US – Offset Act (Byrd Amendment) ( Article  21.3(c)) , para.  74). 
1171 The three governing principles applicable to an arbitrator's determination  of the reasonable period of 
time under Article  21.3(c) of the DSU are as follows: (i) the reasonable period of time should be the shortest 
period of time possible within the legal system of the implementing Member; (ii) the implementing Member 
must utilize all the flexibility and discretion available within  its legal and administrative system in order to 
implement within the shortest period of time possible; and (iii)  the "particular circumstances" of the case must 
be taken into account in determining the reasonable period of time. ( Award of the Arbitrator, EC – Export 
Subsidies on Sugar ( Article  21.3(c)) , para. 61) WT/DS472/AB/R • WT/DS497/AB/R  
 
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 5.6.3   Whether the Panel acted inconsistently with Articles  11 and 12.7 of the DSU i n 
recommending that Brazil withdraw the prohibited subsidies within 90 days  
5.448.   On appeal, Brazil claims that the Panel acted inconsistently with Articles  11 and 12.7 of the 
DSU in recommending that Brazil withdraw the prohibited subsidies found to exist in th e present 
dispute within 90 days.1172 In Brazil's view, the Panel failed to engage with the arguments put 
forward by the parties and to provide a "reasoned and adequate explanation" or a "basic rationale" 
for its conclusion that the recommended timeframe of 9 0 days was adequate, as required under 
those provisions.1173 Brazil alleges that the Panel did not explain why "respect[ing] the specific 
remedy contemplated in Article  4 of the SCM  Agreement " necessitated the granting of only 90 days, 
when other panels have afforded considerably more than 90 days when making specific 
recommendations under Article  4.7.1174 In Brazil's view, in order to provide a "reasoned and 
adequate explanation" or "basic rationale" for its conclusion, the Panel was required to explain why 
90 days was appropriate in light of the "nature of the measures"1175 and the "procedures that may 
be required to implement [the panel's] recommendation".1176 By failing to provide such an 
explanation, Brazil alleges that the Panel acted inconsistently with its oblig ations under Articles  11 
and 12.7 of the DSU.1177 Consequently, Brazil requests us to reverse the Panel's findings, in 
paragraphs  8.11 and 8.22 of its Report s, and to complete the legal analysis and recommend that 
Brazil withdraw the prohibited subsidies at issue within 18  months from the adoption of the 
recommendations and rulings of the DSB.1178  
5.449.   Requesting the Appellate  Body to reject Brazil's claim1179, the European  Union  and Japan 
observe that panels  do not need to address in their reports every argument or all evidence raised 
by the parties1180, and the fact that panels are required to set forth explanations and reasons 
"sufficient to disclose the essential, or fundamental, justification" for their findings and 
recommendations does not necessarily imply that Article 12.7 requires panels "to expound at length 
on the reasons for their findings and recommendations".1181 In the appellees' view, the Panel came 
to its conclusion after considering the parties' views and had "taken into account the procedures that 
may be req uired to implement the recommendation", on the one hand, and the requirement under 
Article  4.7 of the SCM  Agreement  that prohibited subsidies be withdrawn "without delay", on the 
other hand.1182 The European  Union further notes that the Panel supported its co nclusion by 
observing a trend to specify 90  days in previous cases.1183 Moreover, the European  Union considers 
that Brazil  "appears to disagr ee with the Panel's conclusion"  and that this does not mean that the 
Panel has failed to provide a basic rationale for  its recommendation.1184 Japan makes a similar 
argument that Brazil's claim on appeal "appears to be simply an effort to relitigate the question that 
the Panel already raised and on which it carefully considered all of the parties' views, as reflected in 
Panel question 83 to the Parties".1185 The European  Union  observes that panels in previous cases 
"have motivated the 90 -days period on the same basis [as the Panel], i.e. without the need to go 
                                                
1172 Brazil's appellant's submission, para.  436. 
1173 Brazil's appellant's submission, paras.  437, 443, and 445.  
1174 Brazil's appellant's submission, p ara. 447 (referring to Panel  Reports , US – Upland Cotton , 
para. 8.3(b); US – FSC, para. 8.8). 
1175 Brazil's appellant's submission, para.  453 (quoting Panel  Reports , Australia – Automotive Leather  II, 
para. 10.7; Brazil – Aircraft , para. 8.5; EC and certain m ember States – Large Civil Aircraft , para. 8.6; 
US ‒ Tax Incentives , para. 8.6). 
1176 Brazil's appellant's submission, para.  453 (quoting Panel  Reports , Brazil – Aircraft , para. 8.5; 
Canada  – Aircraft , para. 10.4; Canada – Autos , para. 11.6; Korea – Commercia l Vessels , para. 8.5). 
1177 Brazil's appellant's submission, para.  453. 
1178 Brazil's appellant's submission, paras.  454 and 461.  
1179 European  Union's appellee's submission, para.  532; Japan's appellee's submission, para.  184. 
1180 European  Union's appellee's submission, para.  528; Japan's appellee's submission, para.  181. 
1181 European  Union's appellee's submission, para.  528 (referring to Appellate  Body Report, 
Mexico  ‒ Corn Syrup ( Article  21.5 – US), paras.  108-109); Japan's appellee's submission, para.  181 (referring 
to Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), paras.  108-109).  
1182 European  Union's appellee's submission, para.  529; Japan's appellee's submission, para.  182. 
1183 European Union's appellee's submission, para.  529. 
1184 European  Union's appellee's submission, para.  530. 
1185 Japan's appellee's submission, para.  184. Panel question No. 83 to the parties stated: "in  light of the 
reference in Article  4.7 of the SCM Agreement  to withdrawal of a subsidy 'without delay' , could the parties 
please indicate what they consider is the time period within which the relevant subsidies in this dispute should 
be withdrawn, as well as their reasons for indicating such a time period? ". WT/DS472/AB/R • WT/DS497/AB/R  
 
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 into a detailed reasoning to support their conclusions"1186, and conside rs that, in any event, the 
Panel did not err in recommending a timeframe of 90 days, because Brazil " can withdraw the 
prohibited subsidies immediately through provisional measures ( Medida  Provisória ) which are 
adopted by the executive branch".1187 
5.450.   The main is sue before us in the present case is whether the Panel provided a "reasoned and 
adequate explanation" or "basic rationale", in accordance with Articles  11 and 12.7 of the DSU, for 
its recommendation, in paragraphs  8.11 and 8.22 of its Report s, that Brazil withdraw the prohibited 
subsidies found to exist within 90 days. We do not share the appellees' view that Brazil simply 
appears to take issue with the Panel's conclusion and is thus merely recasting its arguments before 
the Panel in the guise of a claim un der Article  11 of the DSU.1188 Although Brazil also disagrees with 
the Panel's final conclusion regarding the time  period of 90  days, we note that its appeal is directed 
at the Panel's analysis in its Report s and whether that analysis constituted a "reasoned and adequate 
explanation" or "basic rationale" for its conclusion that 90  days is the appropriate time. We thus do 
not consider that Brazil is simply recasting factual arguments made before the Panel in the guise of 
an Article  11 claim.1189 Rather, the issue that Brazil raises on appeal concerns the Panel's treatment 
of information on the record and, in particular, whether its failure to engage with the parties' 
arguments and to "explain why 90 days was appropriate in light of the 'nature of the measures' and 
the 'procedures that may be required to implement [the panel's] recommendation'" constitute error s 
under Article  11 and Article  12.7 of the DSU.1190 
5.451.   Turning to the Panel's analysis, we note that the Panel referred to the practice of previous 
panels and noted that they have "tended" to specify 90 days as the time  period under Article  4.7 of 
the SCM  Agreement .1191 The Panel further considered the difference s between the timeframe 
contemplated under Article  21.3 of the DSU and Article  4.7 of the SCM  Agreement  and observed 
that:  
[A] local content requirement in a subsidy would need to be remedied "without delay" 
(i.e. typically 90 days) when challenged as a p rohibited subsidy under the 
SCM Agreement , whereas the same local content requirement in the same instruments 
when challenged under the GATT  1994 would need to be remedied within a "reasonable 
period of time" (ostensibly up to 15 months, subject to the arb itrator's discretion). It is 
difficult for the Panel to reconcile these provisions.1192 
Noting the Appellate  Body's statements in Canada  ‒ Renewable Energy / Canada – Feed-in Tariff 
Program  "that the expedited remedy provided under Article  4.7 … is an 'import ant 
consideration'"1193, the Panel decided to "respect the specific remedy contemplated in Article  4"1194 
and added paragraphs 8.10, 8.11, 8.21 , and 8.22 to its conclusions. In those paragraphs, the Panel 
recommended that Brazil withdraw the subsidies identified  by the Panel "without delay".1195 
Furthermore, "[t]aking into account the procedures that may be required to implement [the Panel's] 
recommendation on the one hand, and the requirement that Brazil withdraw its subsidies 'without 
                                                
1186 Europea n Union's appellee's submission, para.  530 (referring to Panel  Reports , 
Australia  ‒ Automotive Leather II , para. 10.7; Brazil – Aircraft , para. 8.5; Canada – Aircraft Credits and 
Guarantees , para. 8.4; Canada – Autos , para. 11.7; Korea – Commercial Vessels , para. 8.5; US –Tax 
Incentives , para. 8.6). 
1187 European  Union's appellee's submission, para.  531. The European  Union incorporated by reference 
its arguments in response to Panel question No. 83 and its comments on Brazil's response to Panel question 
No. 83. (Ibid., fn 510 thereto)  
1188 European  Union's appellee's submission, para.  530; Japan's appellee's submission, para.  184. 
1189 Appellate  Body Report, EC – Fasteners (China) , para. 442. 
1190 Brazil's appellant's submission, para.  453 (referring to Panel  Reports , Australia  ‒ Automotive 
Leather  II, para. 10.7; Brazil – Aircraft , para. 8.5; Canada – Aircraft , para. 10.4; Canada – Autos , para. 11.6; 
EC and certain member States – Large Civil Aircraft , para. 8.6; Korea  ‒ Commercial Vessels , para. 8.5; 
US ‒ Tax Incentives , para. 8.6). 
1191 Panel  Reports , para.  6.17 (referring to Panel  Reports , Australia – Automotive Leather II , para. 10.7; 
Brazil – Aircraft , para. 8.5; Canada – Aircraft Credits and Guarantees , para. 8.4; Canada – Autos , para. 11.7; 
Korea – Commercial Vessels , para. 8.5; US – Tax Incentives , para. 8.6). 
1192 Panel  Reports , para. 6.17. 
1193 Panel  Reports, para.  6.17 (quoting Appellate  Body Reports, Canada – Renewable Energy  / 
Canada  ‒ Feed-in Tariff Program , para.  5.7, in turn referring to Appellate Body Report, EC – Export Subsidies 
on Sugar , paras. 332 -335).  
1194 Panel  Reports , para.  6.17. 
1195 Panel  Reports , paras.  8.10 and 8.21.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 delay' on the other", the Pan el specified a time  period of 90 days for the withdrawal of the subsidies 
at issue.1196 
5.452.   The Panel's analysis under Article  4.7 proceeded in three steps. First, referring to the practice 
of previous panels, the Panel considered that the time  period for a recom mendation under Article  4.7 
of the SCM  Agreement  was "typically" 90 days. As the second step, referring to the Appellate  Body's 
statements in Canada  ‒ Renewable Energy / Canada – Feed-in Tariff Program , the Panel considered 
that, because the specific remed y under Article  4.7 of the SCM  Agreement  is an "important 
consideration"1197, the stricter time period of "typically 90  days" under Article  4.7 of the 
SCM Agreement  should prevail over the possibly longer time  frame of up to 15 months contemplated 
under Article  21.3(c) of the DSU. Finally, "[t]aking into account the procedures that may be required 
to implement [the Panel's] recommendation on the one hand, and the requirement that Brazil 
withdraw its subsidies 'without delay' on the oth er", the Panel speci fied a time period of 90 days for 
the withdrawal of the subsidies at issue.1198 
5.453.   The Appellate  Body has found that a panel provide s a "basic rationale" where it incorporate s, 
as part of its findings, a reference to past jurisprudence supporting its reasoning.1199 In the present 
case, the Panel referred to prior panel reports  specifying 90 days as the time period under Article  4.7 
as well as the Appellate  Body Reports in Canada  ‒ Renewable Energy / Canada – Feed-in Tariff 
Program . Beginning with the latter, we do n ot consider that the Panel's reference to the 
Appellate  Body's observations in Canad a ‒ Renewable Energy / Canada  ‒ Feed-in Tariff Program  is 
germane to the issue at hand in the present dispute. In those earlier disputes, the Appellate  Body's 
statement tha t the "specific remedy provided under Article  4.7 of the SCM  Agreement  is an 
important consideration" related to the issue of whether the panel had erred in the sequence of its 
analysis by choosing not to start with the claims under the SCM  Agreement .1200 We fail to see how 
the Appellate  Body's statement in Canada – Renewable Energy / Canada – Feed-in Tariff Program , 
although not incorrect, serves as reasoning underpinning the Panel's in dication of 90 days as the 
time period under Article  4.7 in light of the s pecific facts and circumstances of this case.  
5.454.   Next, we turn to the Panel's observation that "previous pane ls addressing the specific time 
period under Article  4.7 of the SCM  Agreement  have tended  to specify 90 days as the time period in 
which the subsidy must be withdrawn ."1201 In considering whether the Panel's reference to the 
practice of prior panels  specifying 90 days as the time period under Article  4.7 constitutes sufficient 
reasoning for its conclusions in the present case, we note that the Panel it self acknowledged that 
the time period specified by prior panels was " typically  90 days".1202 Indeed, while many panels have 
tended  to specify 90 days as the time period for withdrawal of prohibited subsidies "without delay", 
other panels have specified longe r periods under Article  4.7.1203 This is in line with our discussion 
above that the use of the term "without delay" in Article  4.7 does not establish a bright -line sta ndard 
of 90 days to be specified in all cases under that provision. Instead, a panel's duty under Article  4.7 
is to specify the time period taking into account the facts and circumstances of each case, such that 
it applies the "without delay" standard in Article  4.7 on a case -by-case basis. Although there may 
well be  a trend of 90 days as the tim e period for the withdrawal of prohibited subsidies, this does 
not ipso facto support the Panel's conclusion that 9 0 days was the appropriate time period in the 
present dispute. Moreove r, while we agree that the time period under Article  21.3(c) of the DSU  is 
not relevant to the determ ination of the appropriate time period under Article  4.7 of the 
SCM Agreement1204, we also do not consider that the language "without delay" in Article  4.7 should 
                                                
1196 Panel  Reports , paras.  8.11 and 8.22.  
1197 Panel  Reports , para.  6.17 (quoting Appellate  Body Reports, Canada – Renewable Energy  / 
Canada  ‒ Feed-in Tariff Program , para.  5.7, in turn referring to Appellate Body Report, EC – Export Subsidies 
on Sugar , paras. 332 -335).  
1198 Panel  Reports , paras.  8.11 and 8.22.  
1199 Appellate  Body Report, US – Carbon Steel  (India) , para.  4.195 . 
1200 Appellate  Body Reports, Canada – Renewable Energy  / Canada – Feed-in Tariff Program , para. 5.7. 
1201 Panel  Reports, para. 6.17 (referring to Panel  Reports, Korea – Commercial Vessels , para. 8.5; 
Canada – Aircraft Credits and Guarantees , para. 8.4; Canada – Autos , para. 11.7; Australia – Automotive 
Leather II , para. 10.7; Brazil – Aircraft , para. 8.5; US – Tax Incentives , para. 8.6).  
1202 Panel  Reports , para.  6.17. (emphasis added)  
1203 Panel  Reports , US – FSC, para.  8.8; US – Upland  Cotton , para.  8.3. 
1204 The Appellate  Body has noted in past jurisprudence that Article  4.7 of the SCM  Agreement  is listed 
in Appendix 2 to the DSU as a "special or additional rule[] and procedure[]" on dispute settlement, and that 
the provisions of Article  21.3 of the DSU "are not relevant in determining the period of time for implementation 
of a finding of inconsistency with the prohibited subsidies provisions of Part  II of the SCM Agreement ". 
(Appellate  Body Report, Brazil – Aircraft , para.  192) WT/DS472/AB/R • WT/DS497/AB/R  
 
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 automatically lead to a recommendation of 90 days for the withdraw al of prohibited subsidies in all 
circumstances.  
5.455.   As the third  step in its analysis, in specifying a period of 90  days as part of its conclusions 
under Article  4.7 in this case, the Panel stated that it took into account "procedures that may be 
required to implement [its] recommendation on the one hand, and the requirement that Brazil 
withdraw its subsidies 'without delay' on the other".1205 We recall that a panel is not required under 
Article  11 of the DSU to "consider each and every argument put forward by th e parties in support of 
their respective cases".1206 Furthermore, it is generally "within the competence of a panel 'freely to 
use arguments submitted by any of the parties – or to develop its own legal reasoning – to support 
its own findings and conclusions on the matter under its consideration'."1207 Thus, the fact that the 
Panel did not engage with each of the parties' arguments would not in and of itself constitute a 
failure to make an objective assessment of the matter in the sense of Article  11 of the DSU. A panel 
is, however, required to "consider all the evidence presented to it, assess its credibility, determine 
its weight, and ensure that its factual findings have a proper basis in that evidence".1208 
5.456.   As Brazil rightly points out, during the interim review stage of the panel proceedings, the 
parties presented extensive arguments as part of their responses and comments on each other's 
responses to the Panel's additional question on this issue. The Eu ropean  Union  and Japan sought a  
time period of 90  days1209, whe reas Brazil advocated for a period of 18 months.1210 In particular, 
Japan argued, recalling previous disputes where panels established a time period of 90 days,  that, 
in determining the time period for a withdrawal "without delay", a p anel may take into accou nt 
"the nature of the measures and the procedures which may be required to implement [the] 
recommendation"1211, but need not consider the time required to "design replacement 
measures ".1212 The European  Union  emphasized that it was possible for Brazil to withdra w the 
measures found to be prohibited subsidies within 90 days, through the use of provisional measures 
in the Brazilian system ( Medida  Provisória ), and alleged that such provisional measures had been 
used many times to amend the programmes at issue in thi s dispute.1213 The European  Union had 
also noted that many of the legal instruments ensuring the operation of the challenged programmes, 
and notably those containing the discriminatory local content requirements, were administrative 
acts, such as the Portaria s containing PPBs, which the executive branch can amend by simple 
administrative action.1214 The European  Union further argued that it would be "incongruous" to 
interpret "without delay", under Article  4.7, as being equal or longer than the maximum period by 
which an actionable subsidy shall be withdrawn or its adverse effects removed, namely, 
six months.1215 
5.457.   Brazil, for its part, pointed out that, "in circumstances where the withdrawal of the subsidies 
would entail significant economic consequences, or where leg islative action was required, panels 
                                                
1205 Panel  Reports, paras.  8.11 and 8.22.  
1206 Appellate  Body Report, Domin ican Republic – Import and Sale  of Cigarettes , para. 125. 
1207 Appellate  Body Reports, China – HP-SSST (Japan) / China – HP-SSST (EU) , para.  5.116 (quoting 
Appellate  Body Reports, Canada – Renewable E nergy / Canada – Feed-in Tariff Program , para. 5.215 , in turn 
quoting Appellate  Body Reports , EC – Hormones , para.  156; referring to Appellate Body Report, US ‒ Certain 
EC Products , para.  123).  
1208 Appellate  Body Reports, China – Rare Earths , para. 5.178  (quoting  Appellate  Body Report, 
Brazil  ‒ Retreaded Tyres , para. 185, in turn referring to Appellate Body Report , EC – Hormones , 
paras.  132-133; referring to Appellate Body Reports, Australia  – Salmon , para.  266; EC ‒ Asbestos , para.  161; 
EC – Bed Linen (Art icle 21.5 – India) , paras.  170, 177, and  181; EC – Sardines , para. 299; EC – Tube or Pipe 
Fittings , para. 125; Japan  – Apples , para. 221; Japan – Agricultural Products  II, paras.  141-142; Korea – 
Alcoholic Beverages , paras.  161-162; Korea  – Dairy , para. 138; US – Carbon Steel , para. 142; US – Gambling , 
para. 363; US – Oil Country Tubular Goods Sunset Reviews , para. 313; EC ‒ Selected Customs Matters , 
para. 258).  
1209 European  Union's response to Panel question  No. 83; Japan's response to Panel question No.  83. 
1210 Brazil's response to Panel question No. 83.  
1211 Panel  Reports , Australia  – Automotive Leather  II, para.  10.4; Brazil  – Aircraft , para. 8.5. 
1212 Japan's response to Panel question No. 83, paras.  4 and 6.  
1213 See European  Union's response to Panel question No. 83, para.  4. According to the European  Union, 
provisional measures "allow the executive branch to swiftly enact infra -constitutional norms [that]  … are as a 
rule immediately effective but … must be submi tted to the Parliament for conversion into law (possibly with 
amendments) within a certain period (60 to 120 days), failing which they expire. " (Ibid., para.  3 (fn omitted))  
1214 European  Union's response to Panel question No. 83, para.  6. 
1215 European  Union's response to Panel question No. 83, para.  8. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 ha[d] afforded up to one year for implementation under Article  4.7."1216 Brazil also elaborated 
extensively on: (i) the nature of the measures; and (ii) the procedures that would be required to 
implement the Panel's recommendation. According to Brazil, the nature of those measures meant 
that they "constitute a series of inter -connected tax exemptions, tax reductions, and tax suspensions 
established under distinct federal laws and regulations that apply to a wide range of production 
processes in key economic sectors of the Brazilian economy".1217 Further, Brazil considered that the  
procedures for withdrawal would involve legislative action, entailing "a complex and lengthy process 
that usually takes more than 2 years, involving both the executive and the legislative branch".1218 
Brazil estimated that, following the normal legislative p rocess, "even under the most expeditious 
scenario the withdrawal of the measures at issue could not be accomplished in less than 18 months 
from adoption of the DSB recommendations and rulings in this dispute ."1219 
5.458.   The parties further submitted extensive comme nts rebutting each other's arguments, with 
the European  Union  arguing, inter alia , that the difficulties described by Brazil were "contradicted by 
the frequency with which those programmes have been amended … during their life".1220 Likewise, 
Japan commented that, while Brazil was free to consider each step of the entire production chain in 
the affected sectors or the risk of judicial challenges, this should have no bearing on the Panel's 
interpretation and application of the phrase "without delay", and that t hese were factors to be 
considered within Brazil in the design of compliance measures, not factors for the Panel to con sider 
when determining the time period for withdrawal.1221 By contrast, Brazil denied that provisional 
measures could be used to implement t he Panel's recommendation, as the European  Union  argued, 
because they "lose effect retroactively if not converted into law within [120 days], through a 
legislative process similar to the one described by Brazil in its response to the Panel, and cannot be 
re-enacted" .1222 Accordingly, in Brazil's view, the enactment of a provisional measure would "at most 
affect a temporary  withdrawal of the measures at issue, and [would] not obviate the need to go 
through Brazil's ordinary legislative process ".1223  
5.459.   Other than th e Panel's indication, in paragraphs 8.11 and 8.22 of its Report s, that it had 
taken into account "the procedures that may be required to implement [its] recommendation on the 
one hand, and the requirement that Brazil withdraw its subsidies 'without delay' on the other", there 
is no way to determine the extent to which the Panel took into account the practical aspects of the 
procedures necessary for withdrawal in the present case. In particular, we consider that the parties' 
arguments regarding the two poten tial avenues for implementation – namely, through the normal 
legislative process or through provisional measures – are relevant to the Panel's assessment of 
whether or not 90  days was appropriate in view of the facts of the case. While we disagree with 
Brazil's suggestion that the Panel was required to engage in an inquiry similar to that under 
Article  21.3(c) of the DSU, we nonetheless consider that the Panel's failure to engage with these 
arguments is particularly glaring in light of Brazil's argument that certain panels have afforded more 
than 90 days "in circumstances … where legislative action was required "1224 and the 
European  Union 's rebuttal thereof.1225 The single statement by the Panel in its conclusions on 
Article  4.7 does not allow us to ascertain w hether the panel's findings and recommendations were 
based on a sufficient evidentiary basis on the record and an adequate engagement with the 
arguments presented by the parties, and whether its recommendation was based on a reasoned and 
                                                
1216 Brazil's response to Panel question No. 83 (r eferring  to Panel  Reports , US – Upland Cotton , 
para. 8.3(b);  US – FSC, para. 8.8). 
1217 Brazil's response to Panel question No. 83.  
1218 Brazil's response to Panel question No. 83.  
1219 Brazil's response to Panel question No. 83.  
1220 European  Union's comments on Brazil's response to Panel question No. 83, para.  14. See also 
Japan's comments on Brazil's response to Panel question No. 83, para.  5. 
1221 Japan's comments on Braz il's response to Panel question No. 83, para.  3. 
1222 Brazil's comments on the European  Union's and Japan's responses to Panel question No.  83, para.  3. 
1223 Brazil's comments on the European  Union's and Japan's responses to Panel question No.  83, para.  3. 
(emph asis original)  
1224 Brazil's response to Panel question No. 83 (r eferring  to Panel  Reports , US – Upland Cotton , 
para. 8.3(b);  US – FSC, para. 8.8). See Brazil's appellant's submission, para.  448. 
1225 The European  Union argued, inter alia , that the panel in US – FSC did not set the time period for the 
United  States  to withdraw the export contingent subsidies only because legislative action was necessary . 
Instead, the panel looked into "what was absolutely necessary for the United  States to withdraw 'without 
delay '" the subsidies, which required legislative action, as acknowledged by the European Communities. 
(European  Union's comments on Brazil's response to Panel question No. 83, paras.  8-9) WT/DS472/AB/R • WT/DS497/AB/R  
 
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 adequate explanati on, in accordance with Article  11 of the DSU.1226 Moreover, in our view, as a 
result of the Panel's failure to engage with the participants' arguments on the relevant procedures 
necessary to implement its recommendation, the Panel's analysis does not "reveal how and why the 
law applies" to the facts at hand , in accordance with Article  12.7 of the DSU.1227 
5.460.   In light of the above, we do not consider that the Panel established a sufficient link between 
the time  period of 90 days specified by it for the withdrawal of the subsidies at issue and the domestic 
procedure within Brazil for such withdrawal. Instead, the Panel appears to have treated the practice 
of specifying 90  days by some prior panels as the de facto standard  to be applied in all cases. 
As discussed, Article 4.7 requires a case -by-case analysis of the time  period to be prescribed for the 
withdrawal of prohibited subsidies "without delay". We therefore find that by failing to provide a 
"reasoned and adequate explanation" or a "basic rationale" in recommendin g a time  period of 
90 days under Article  4.7 of the SCM  Agreement  in the present case, the Panel acted inconsistently 
with Articles  11 and 12.7 of the DSU. Consequently, we reverse  the Panel's conclusions, in 
paragraphs 8.11 and 8.22 of its Report s, that B razil withdraw the prohibited subsidies identified at 
paragraphs 8.5.e, 8.6.e, 8.7, 8.16.f, 8.17.f, and 8.18 of the Panel  Reports  within 90  days.  
5.461.   Having reversed the Panel's findings, we turn to Brazil's request to complete the legal 
analysis.1228 Brazil all eges that it is "undisputed that legislation is required in order to withdraw the 
relevant measures" and that the "unresolved disagreement between the parties concerns whether 
the measures must be withdrawn using Brazil's 'ordinary legislative process', or  whether the 
withdrawal of the relevant measures could be made effective through provisional measures".1229 
Further, Brazil asserts that, because "the enactment of a provisional measure will at most effect a 
temporary withdrawal of the measures", the "questio n left unresolved by the Panel is whether the 
temporary withdrawal of the subsidies is consistent with the requirement under Article  4.7".1230 
Accordingly, in Brazil's view, the Appellate  Body "should conclude that the only avenue for Brazil to 
withdraw the s ubsidies in a manner consistent with Article  4.7 [was] pursuant to the ordinary 
legislative process in Brazil", namely, within 18 months.1231 
5.462.   In previous disputes, the Appellate  Body has emphasized that it can complete the analysis 
"only if the factual findings of the panel, or the undisputed facts in the panel record" provide a 
sufficient basis for it to do so.1232 We have already noted that the Panel made no factual findings 
relating t o the domestic procedure for the withdrawal of the subsidies at issue under Brazil's legal 
system. We further note that, before the Panel, besides agreeing that the measures at issue are 
contained in multiple legal instruments having the nature of laws, re gulations , and administrative 
acts1233, the parties disagreed over all factual aspects related to the procedures that may be 
employed to implement the Panel's recommendation.1234 
5.463.   We do not, for example, agree with Brazil's assertion that it is undisputed  that "l egislation 
is required in order to withdraw the relevant measures" and that the "unresolved disagreement 
between the parties concerns whether the measures must be withdrawn using Brazil's 'ordinary 
legislative process', or whether the withdrawal of the rel evant measures could be made effective 
through provisional measures".1235 In this regard, we recall that the European  Union, in refuting 
                                                
1226 Appellate  Body Reports, China – Rare Earths , para. 5.178  (quoting  Appellate  Body Report, 
Brazil  ‒ Retreaded Tyres , para. 185, in turn referring to Appellate Body Report , EC – Hormones , 
paras.  132-133; referring to Appellate Body Reports, Australia  – Salmon , para.  266; EC ‒ Asbestos , para.  161; 
EC – Bed Linen (Article  21.5 – India) , paras.  170, 177, and  181; EC – Sardines , para. 299; EC – Tube or Pipe 
Fittings , para. 125; Japan  – Apples , para. 221; Japan – Agricultural Products  II, paras.  141-142; 
Korea  ‒ Alcoholic Beverages , paras.  161-162; Korea  – Dairy , para. 138; US – Carbon Steel , para. 142; 
US ‒ Gambling , para. 363; US – Oil Country Tubular Goods Sunset Reviews , para. 313; EC ‒ Selected Customs 
Matters , para. 258).  
1227 Appellate  Body Report, Mexico – Corn Syrup ( Article  21.5 – US), para.  108. 
1228 Brazil's appellant's submission, para.  456. 
1229 Brazil's appellant's submission, para.  457. 
1230 Brazil's appellant's submission, para.  457. 
1231 Brazil's appellant's submission, paras.  458 and 461.  
1232 Appellate  Body Report, US – Hot-Rolled Steel , para.  235. 
1233 European  Union's response to Panel question No. 83, para.  2; Brazil's comments on the 
European  Union's and Japan's responses to Panel question No. 83, para.  2. 
1234 We note that because this issue was raised during the interim review stage, the information on th e 
record concerning this issue is limited to the Panel's analysis, the parties' responses to Panel question No. 83, 
and their comments on each other's responses.  
1235 Brazil's appellant's submission, para.  457. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 before the Panel that legislative action is absolutely necessary, alleged that Brazil is not only 
equipped with provisiona l measures, but also with "other administrative acts at Brazil's disposal that 
would eliminate the discriminatory elements of the subsidy programmes found to be inconsistent in 
this case".1236 As the Panel's description of the challenged programmes states, ea ch of the 
programmes that were found to grant prohibited subsidies operated through various legal 
instruments including laws, decrees, implementing orders, inter ministerial  implementing orders, and 
accreditations granted pursuant to the programmes.1237 Determ ining whether it is possible to 
withdraw the relevant measures at issue through means other than Brazil's normal legislative 
process would therefore require us to study each of the legal instruments at issue and make our 
own factual findings about the mean s of implementation available to Brazil,  which would be outside 
the scope of appellate review. Similarly, we find no undisputed facts on  the record concerning the 
time periods for the legislative process in Brazil1238, as well as on the issue of whether provi sional 
measures by Brazil would result in a "permanent" or a "temporary" withdrawal of the measures at 
issue.1239 
5.464.   In such circumstances, we are unable to complete the legal analysis, as requested by Brazil, 
and cannot specify the time  period within which the prohibited subsidies identified by the Panel must 
be withdrawn by Brazil. We note, however, that the Panel's recommendations, in paragraphs  8.10 
and 8.21, that Brazil withdraw the subsidies identified by the Panel "without delay", stand 
undisturbed.  
6  FINDINGS AND CONCLUS IONS  
6.1.  For the reasons set out in these Reports, the Appellate  Body makes the following findings and 
conclusions.1240  
6.1  Articles  III:2 and III:4 of the GATT  1994  and Article  2.1 of the TRIMs  Agreement  
6.1.1   Whether the Panel erred in finding that imported finished ICT  products were taxed 
in excess of like domestic finished ICT  products inconsistently with Article  III:2, first 
sentence, of the GATT  1994  
6.2.  Imported finished ICT  products are not eligible for either tax reductions or exempti ons because 
foreign producers cannot be accredited under the ICT  programmes and , consequently, bear the full 
tax burden, as opposed to like domestic finished ICT  products. In the case of an imported finished 
ICT product, w hen an importer sells the imported  finished ICT  product to a wholesaler , retailer , or 
distributor, the importer will charge the IPI tax to the wholesaler , retailer , or distributor and remit 
the tax to the Brazilian Government.1241 In contrast, in the case of a like domestic finished 
ICT produ ct that is subject to IPI tax exemption or reduction under the ICT  programmes, the seller 
does not charge any tax or charges a reduced tax, as the case may be, to the wholesaler , retailer , 
                                                
1236 European  Union's comments on Brazil's response  to Panel question No. 83, para.  9. 
1237 Panel  Reports , para.  2.38. 
1238 Brazil estimated before the Panel that, following the normal legislative process, " even under the 
most expeditious scenario the withdrawal of the measures at issue could not be accomplished  in less than 
18 months from adoption of the DSB recommendati ons and rulings in this dispute". (Brazil's response to Panel 
question No. 83) Japan contested the fact that Brazil's normal legislative process must necessarily take longer 
than 90 days, because  "Brazil fails to explain why these processes cannot be accelerated in order to bring itself 
into compliance with its international legal obligations ." (Japan's comments on Brazil's response to Panel 
question No. 83, para.  4) 
1239 According to Brazil, legislative action is required to withdraw the measures at issue because it must 
be the case that the term  "withdraw the subsidy" in Article  4.7 require s the permanent  withdrawal of the 
subsidies , and provisional measures would a t mos t affect  only "a temporary  withdrawal of the measures at 
issue, and [would]  not obviate the need to go through Brazil' s ordinary legislative process ". (Brazil's comments 
on the European  Union's and Japan's responses to Panel question No.  83, para.  3 (empha sis original)) The 
European  Union and Japan both contested Brazil's position, asserting that Brazil had used provisional measures 
to introduce or modify several of the prohibited subsidies at issue in this dispute and citing multiple factual 
examples of su ch modifications. (See European  Union's response to Panel question No. 83, para.  4; Japan's 
comments on Brazil's response to Panel question No. 83, para.  5) 
1240 One Member of the Division expressed a separate opinion regarding  the scope of the term "payment 
of subsidies" in Article  III:8(b) of the GATT  1994. This separate opinion can be found in section 5.2.5 of the se 
Report s. 
1241 Panel  Reports , para.  2.14. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 or distributor.1242 At this last stage , the tax rate is thus higher fo r imported finished ICT  products 
than for like domestic finished ICT  products, and the tax burden on the former is necessarily in 
excess of that on the latter.  
6.3.  We therefore uphold  the Panel's findings, in paragraphs 7.154, 8.5 .a, and 8.16 .a of the 
Panel  Reports , that  imported finished ICT  products are subject to a higher tax burden than like 
domestic ICT  products and are consequently taxed in excess of like domestic finished ICT  products, 
contrary to Article  III:2, first sentence, of the GATT  1994.  
6.1.2   Whethe r the Panel erred in finding that imported intermediate ICT  products were 
taxed in excess of like domestic intermediate ICT  products inconsistently with 
Article  III:2, first sentence, of the GATT  1994  
6.4.  Under the credit -debit system, purchases of non -incenti vized imported intermediate 
ICT products involve the payment of a tax upfront that is not faced by companies that purchase 
incentivized like domestic intermediate ICT  products, which are exempted from the relevant 
taxes.1243 Even in the case of tax reductions , companies purchasing incentivized like domestic 
intermediate ICT  products have to pay a lower tax compa red to companies purchasing 
non-incentivized imported intermediate ICT  products. We fail to see how these situations do not 
have the effect of limiting the availability of cash flow for companies purchasing non -incentivized 
imported intermediate ICT  products. The fact that purchasers of imported intermediate ICT  products 
have to pay the relevant taxes under the ICT  programmes, irrespective of the point in time, in 
comparison to purchasers of incentivized like domestic intermediate ICT  products, who do not have 
to pay the relevant tax or p ay a reduced amount, "limit[s] the availability of cash flow"1244, resulting 
in a higher effective tax burden on imported intermediate ICT  products. Moreover, the value of the 
tax credit that is generated upon the payment of the relevant tax on the sale of a non-incentivized 
imported intermediate ICT  product will depreciate over time until it is used or adjusted. To that 
extent, in as much as there is a time  lag between the accrual of the tax credit and the adjustment 
or use thereof, it necessarily results in the value of money (in the form of accrued tax credits) 
depreciating over time. Therefore, imported intermediate ICT  products, the purchase of which is 
subject to a payment of tax upfront, bear a higher tax burden than that faced by the incentivized 
like d omestic intermediate ICT  products, which benefit from tax exemption or reduction.  
6.5.  We therefore uphold  the Panel's findings, in paragraphs 7.172, 8.5 .a, and 8.16 .a of the 
Panel  Reports , that imported intermediate ICT  products are taxed in excess of like do mestic 
incentivized intermediate ICT  products contrary to Article  III:2, first sentence, of the GATT  1994.  
6.1.3   Whether the Panel erred in finding that the accreditation requirements under the 
ICT programmes accord treatment less favourable to imported products  than that 
accorded to like domestic products inconsistently with Article  III:4 of the GATT  1994  
6.6.  The aspect of the ICT  programmes challenged by the complaining parties as being inconsistent 
with Article  III:4 of the GATT  1994 concerned the accreditation re quirements, the fulfilment of which 
enabled the  obtaining of the relevant tax exemption, reduction, or suspension on the sales or 
purchases of ICT  products. It is undisputed that in order to be eligible for the tax exemption, 
reduction, or suspension under  the ICT  programmes, companies must fulfil the accreditation 
requirements. The accreditation requirements under the ICT  programmes therefore result in less 
favourable treatment for imported ICT  products in the form of  the differential tax burden that 
impor ted ICT  products are subjected to by virtue of the fact that foreign producers cannot be 
accredited under the ICT  programmes. The consequence being, as the Panel also noted, that foreign 
producers "can never qualify for the tax exemptions, reductions or su spensions".1245 We note that 
the aspects of the ICT  programmes found to be inconsistent with Article  III:2, first sentence, and 
Article  III:4 are distinct. In the case of Article  III:2, first sentence, the aspect of the ICT  programme 
found to be inconsistent is the differential tax treatment that results in a higher tax burden on 
imported ICT  products, i.e. imported ICT  products are taxed in excess of like domestic ICT  products. 
Whereas, for the purposes of Article  III:4, the aspect of the ICT  programmes found  to be 
                                                
1242 Panel  Reports , para.  2.15. 
1243 Panel  Reports , para.  7.170.  
1244 Panel  Reports , para.  7.170.  
1245 Panel  Reports , para. 7.223.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 inconsistent is the accreditation requirements that result in less favourable treatment in the form of 
the differential tax treatment for imported ICT  products.  
6.7.  We therefore uphold  the Panel's findings , in paragraphs 7.225, 8.5 .b, and 8.16 .c of the  
Panel  Reports , that the accreditation requirements of the ICT  programmes, by restricting access to 
the tax incentives only to domestic products, modify the conditions of competition to the detriment 
of imported products and result in less favourable treat ment being accorded to imported 
ICT products than to like domestic ICT  products  inconsistently with Article  III:4 of the GATT  1994.  
6.1.4   Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  III:4 of the GATT  1994 by virtue of  the lower administrative burden on companies 
purchasing incentivized domestic intermediate products  
6.8.  Under the credit -debit system , purchasers of imported intermediate ICT  products that are not 
incentivized under the ICT  programmes will have to anticipate and pay the full amount of tax due 
on such imported intermediate ICT  products. Although any such tax paid on the purchase of 
imported intermediate ICT  products will generate a corresponding tax credit in favour of the 
purchaser, nonetheless, offsetting thi s tax credit entails an administrative burden  that is not faced , 
or faced to a lesser extent , by a purchaser of domestic intermediate ICT  products that are 
incentivized.1246 This is the case because under the credit -debit system , "if the tax credit cannot be 
offset by debits after three taxation periods", the process of compensating the tax credit with other 
federal taxes, or reimbursement thereof can "be burdensome for companies, and can take years."1247  
6.9.  We therefore uphold  the Panel's findings, in paragraphs 7 .255, 8.5 .b, and 8.16 .c of the 
Panel  Reports , that the ICT  programmes are inconsistent with Article  III:4 of the GATT  1994, 
because they accord to imported intermediate ICT products treatment less favourable than that 
accorded to like domestic intermediate  ICT products, due to the lower administrative burden imposed 
on firms purchasing incentivi zed domestic intermediate ICT products.  
6.1.5   Whether the Panel erred in finding that the PPBs and other production -step 
requirements under the ICT programmes are continge nt upon the use of domestic goods, 
inconsistently with Article  III:4 of the GATT  1994  
6.10.   We agree with the Panel that the PPBs and other production -step requirements under the 
Informatics, PATVD, PADIS, and Digital Inclusion programmes provide an incentive to  use domestic 
ICT products. We therefore uphold  the Panel's findings, in paragraphs 7.299, 7.301 -7.302, 7.308, 
7.311, 7.313, 7.317, 7.319, 8.5.b, and 8.16.c of the Panel  Reports , that the Informatics, PATVD, 
PADIS, and Digital Inclusion programmes accord less favourable treatment to imported intermediate 
ICT products than that accorded to like domestic products.  
6.1.6   Whether the Panel erred in finding that the ICT  programmes are inconsistent with 
Article  2.1 of the TRIMs  Agreement  
6.11.   On appeal, Brazil does not mak e any specific arguments in connection with the Panel's finding 
under Article  2.1 of the TRIMs  Agreement . Rather, Brazil's request for reversal of the Panel's finding 
under that provision is premised on us reversing the Panel's findings under Article  III:4 of the 
GATT  1994.1248 We have, however, for the reasons stated above, upheld the Panel's findings that 
certain aspects of the ICT  programmes are inconsistent with Article  III:4 of the GATT  1994.  
                                                
1246 We note that purchasers of incentivized intermediate domestic ICT products, in most cases, will not 
need to anticipate the tax due on the purchase of such intermediate  ICT products  since the Informatics, 
PATVD, PADIS, and Digital Inclusion programmes provide for tax exemptions, through zero rates, to accredited 
companies selling domestic intermediate ICT products. It is only in the context of the IPI tax reduction 
provided under the  Informatics programme that purchasers of domestic intermediate ICT products may have 
to anticipate and pay the reduced amount of IPI tax due.  
1247 Panel  Reports , para.  7.251 (referring to Brazil's first written submission  to the Panel , para. 702 
(DS497) ). 
1248 Brazil's appellant's submission, para.  172. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 6.12.   Consequently, we uphold  the Panel's findings, in paragraphs 7. 363, 8.5 .d, and 8.16 .e of the 
Panel  Reports , that those aspects of the ICT  programmes found to be inconsistent with Article  III:4 
of the GATT  1994 are also inconsistent with Article  2.1 of the TRIMs  Agreement . 
6.1.7   Whether the Panel erred in finding that the ac creditation requirements under the 
INOVAR -AUTO programme are inconsistent with Article  III:4 of the GATT  1994 because 
they are more burdensome for companies seeking accreditation as importers/distributors 
as opposed to domestic manufacturers  
6.13.   It is undisput ed that, in order for companies to obtain any sort of accreditation under the 
INOVAR -AUTO programme, which entitles them to accruing and using presumed IPI tax credits, they 
must either be located and operate in Brazil, in the case of domestic manufacturer s and 
importers/distributors, or be in the process of establishing in the country as domestic manufacturers, 
in the case of investors.1249 The only viable way for foreign manufacturers to be able to enjoy the 
benefit of the presumed IPI tax credits in reducin g their IPI tax liability under the INOVAR -AUTO 
programme is to become accredited as importers/distributors. However, in order to do so, foreign 
manufacturers must, first and foremost, be located and operate in Brazil.1250 This indicates that 
foreign manufact urers seeking accreditation as importers/distributors face a corresponding burden 
that necessarily comes with having to operate in, or establish themselves in, Brazil, unlike domestic 
manufacturers, who already operate or are established in Brazil. Moreove r, we note that in order to 
become accredited as importers/distributors, a company shall comply with the following three 
specific requirements: (i)  investments in R&D in Brazil; (ii)  expenditure on engineering, basic 
industrial technology, and capacity -building of suppliers in Brazil; and (iii)  participation in the 
vehicle -labelling programme by INMETRO.1251 A fourth requirement also exists, which calls for the 
performance in Brazil of certain manufacturing steps.1252 These activities cannot be considered to be 
typical for foreign manufacturers seeking to import motor vehicles into Brazil. The fact that foreign 
manufacturers have to undertake these activities to get accredited as importers/distributors implies 
that foreign manufacturers face a burden that domestic  manufacturers do not face. Almost all of 
these requirements can be considered to be typical of the nature of activity carried out by a domestic 
manufacturer. Indeed, any domestic manufacturer will carry out and perform a minimum number of 
manufacturing ac tivities in Brazil, and, in that process, it is likely to make investments in R&D in 
Brazil and make expenditures in the categories indicated in the INOVAR -AUTO programme.  
The INOVAR -AUTO programme is thus designed in such a manner that the accreditation 
requirements thereunder adversely modify the competitive conditions for imported products in 
comparison to like domestic products.  
6.14.   We therefore uphold  the Panel's findings, in paragraphs 7.772, 8.6 .b, and 8.17 .c of the 
Panel  Reports , that, under the INOVAR -AUTO programme, the conditions for accreditation in order 
to receive presumed tax credits accord less favourable treatment to imported products than that 
accorded to like domestic products inconsistently with Article  III:4 of the GATT  1994.  
6.1.8   Whether the Panel erred in finding that the INOVAR -AUTO programme is 
inconsistent with Article  2.1 of the TRIMs  Agreement  
6.15.   On appeal, Brazil does not make any specific arguments in connection with the Panel's finding 
under Article  2.1 of the TRIMs  Agreement . Rather Brazil's request for reversal of the Panel's finding 
under Article  2.1 of the TRIMs  Agreement  is premised on us reversing the Panel's findings under 
Article  III:4 of the GATT  1994.1253 We have, however, for the reasons stated above, upheld the 
Panel' s findings that certain aspects of the INOVAR -AUTO programme are inconsistent with 
Article  III:4 of the GATT  1994.  
6.16.   Consequently, we uphold  the Panel's findings, in paragraphs 7.804, 8.6 .d, and 8.17 .e of the 
Panel  Reports , that those aspects of the INOVAR -AUTO programme found to be inconsistent with 
Article  III:4 of the GATT  1994 are also inconsistent with Article  2.1 of the TRIMs  Agreement . 
                                                
1249 Panel  Reports , para.  7.657 (referring to Brazil's responses to Panel questions Nos. 28 and 57).  
1250 Panel  Reports , para.  7.660 (referring to Brazil's response to Panel question No. 57).  
1251 Panel  Reports , para.  7.658. 
1252 Panel  Reports , fn 1056 to para.  7.658.  
1253 Brazil's appellant's submission, para.  294. WT/DS472/AB/R • WT/DS497/AB/R  
 
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 6.2  Article  III:8(b) of the GATT  19941254 
6.17.   Insofar as the payment of subsidies exclusively  to domestic producers of a given product 
affects the conditions of competition between such a product and the like imported product, the 
resulting inconsistency with the national treatment  obligation under Article  III is justified under 
Article  III:8(b), provided that the conditions thereunder are met. Moreover, conditions for eligibility 
for the payment of subsidies that define the class of eligible "domestic producers" by reference to 
their activities in the subsidized products' markets are also justifie d under Article  III:8(b). By 
contrast, a requirement to use domestic over imported goods in order to have access to the subsidy 
is not covered by the exception in Article  III:8(b) and would therefore continue to be subject to the 
national treatment obligat ion in Article  III. Furthermore, an examination of the text and context of 
Article  III:8(b), in light of its object and purpose and as confirmed by the negotiating history, 
suggests that the term "payment of subsidies" in Article  III:8(b) does not include within its scope 
the exemption or reduction of internal taxes affecting the conditions of competition between like 
products. Instead, as noted by the Appellate  Body in Canada – Periodicals , Article  III:8(b) "was 
intended to exempt  from the obligations of Article  III only the payment of subsidies which involves 
the expenditure of revenue by a government".1255 
6.18.   The Panel's interpretation and application of Article  III:8(b) to the measures at issue 
obfuscate the distinction between the ef fects of the payment of a subsidy to a domestic producer on 
the conditions of competition in the relevant product markets and the conditions for eligibility 
attaching thereto, on the one hand, and any other effects arising from requirements to use domestic  
over imported inputs in the production process, on the other hand. Moreover, at no stage did the 
Panel undertake an assessment of whether the measures at issue constitutes the "payment of 
subsidies exclusively to domestic producers" within the meaning of Article  III:8(b).  
6.19.   Because of these shortcomings in the Panel's reasoning, we reverse  the Panel's overly broad 
and unqualified f indings, in paragraphs 7.87 -7.88 of the Panel  Reports , that "subsidies that are 
provided exclusively to domestic producers pursu ant to Article  III:8(b) … are not per se  exempted 
from the disciplines of Article  III" and that "aspects of a subsidy resulting in product discrimination 
(including requirements to use domestic goods, as prohibited by Article  3.1 of the SCM  Agreement ) 
are not exempted from the disciplines of Article  III pursuant to Article  III:8(b)." Under a proper 
interpretation of Article  III:8(b), none of the measures at issue in this dispute are capable of being 
justified under that provision because they all involve th e exemption or reduction of internal taxes 
affecting the conditions of competition between like products and therefore cannot constitute the 
"payment of subsidies" within the meaning of Article  III:8(b).  
6.3  Article  3.1(a) of the SCM  Agreement  
6.20.   In its identific ation of the benchmark treatment for the three categories of the treatments 
under the PEC and RECAP programmes, the Panel sought to determine the existence of a general 
rule for companies that structurally accumulate credits.  The Panel limited its analysis  to seeking to 
identify the existence of a general rule of taxation to which the challenged treatment would be an 
exception. Instead of doing so, however, the Panel should have determined the tax treatment of 
comparably situated taxpayers, as the legal sta ndard under Article  1.1(a)(1)(ii) of the 
SCM Agreement  requires.  
6.21.   We therefore reverse  the Panel's conclusions, in paragraphs 7.1171 -7.1172, 7.1186 -7.1187, 
and 7.1199 -7.1200 of the Panel  Reports , that Brazil has not demonstrated that the tax suspensions 
are the benchmark for comparison and that the appropriate benchmark is, instead, the treatment 
applicable to purchases by non -accredited companies of the relevant products. As a result, we also 
reverse  the Panel's findings, in paragraphs 7.1211, 7.1223, and 7 .1238, as well as in paragraphs  8.7 
and 8.18 of the Panel  Reports , that the tax suspensions granted to registered or accredited 
companies under the PEC and RECAP  programmes constitute financial  contributions in the form of 
government revenue otherwise due that is foregone or not collected and are hence subsidies within 
the meaning of Article  1.1 of the SCM  Agreement  and contingent upon export performance within 
the meaning of Article  3.1(a) of t he SCM  Agreement . 
                                                
1254 For the separate opinion on this issue, see section 5.2.5 of these Reports.  
1255 Appellate  Body Report, Canada – Periodicals , p. 34.  WT/DS472/AB/R • WT/DS497/AB/R  
 
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 6.4  Article  3.1(b) of the SCM  Agreement  
6.22.   With respect to Brazil's claim that the Panel erred in its comparison of the treatment of 
intermediate goods and inputs under the ICT programmes with the benchmark treatment by 
arbitrarily distinguishin g between taxpayers within the benchmark, we disagree with Brazil's 
approach to comparing the challenged treatment to the selected benchmark treatment. As we see 
it, the Panel did not treat only one subset of taxpayers (i.e. those that are unable to offset  the 
amount of the tax paid during the same taxation period) as the benchmark for the purposes of 
comparison. Rather, having explained in detail how the mechanism of credits and debits under the 
principle of non -accumulation works, the Panel concluded that , under the normal rule of general 
application of Brazil's tax system, there are two possible factual scenarios: one in which the buyer 
of non -incentivized products will be able to offset the amount of the tax paid during the same 
taxation period, and the other one when this would not be possible. We consider that, in comparing 
the challenged tax treatment to the benchmark treatment, the Panel correctly examined both 
possible factual scenarios that result from the application of the normal rules of Brazil's  tax system.  
6.23.   With respect to Brazil's claim that the Panel erred in finding that cash availability and implicit 
interest constitute revenue "otherwise due" under Article 1.1(a)(1)(ii) of the SCM Agreement, we 
consider that, in the present dispute, when the  tax exemptions and reductions apply, the Brazilian 
Government does not collect in full the tax revenue when it normally would, or collects it in part. 
The fact that, ultimately, the amount of the tax collected under the benchmark treatment and the 
challen ged treatment may nominally be the same does not detract from the fact that, under the 
benchmark treatment, in the scenario when non -accredited companies are unable to offset their 
credits immediately, the Brazilian Government would collect and retain, for  a certain period, the 
amount of tax payable to it. During this period of time, the Brazilian Government can enjoy the cash 
available to it and earn interest on it. By contrast, when tax exemptions and reductions are applied, 
the Brazilian Government colle cts the tax later in time and does not enjoy the availability of cash as 
it otherwise would under the benchmark treatment. Thus, under the challenged treatment, the 
Brazilian Government would not collect the tax at the time it normally would under the benc hmark 
treatment. By doing so, in our view, the Brazilian Government would not collect the revenue that 
would be otherwise due to it.  
6.24.   In light of the above, we do not consider that the Panel erred in finding that the tax treatment 
of intermediate products a nd inputs under the ICT programmes constitutes a subsidy under 
Article  1.1 of the SCM Agreement. We thus uphold  the Panel's findings, in paragraphs 7.436, 7.444, 
7.454, 7.463, 7.473, 7.489 -7.490, and 7.495 of the Panel Reports, that each of the challenged tax 
exemptions, reductions, and suspensions granted to accredited companies on (i) the sales of 
intermediate goods that they produce, and (ii) the purchases of raw materials, intermediate goods, 
and packaging materials (under the Informatics programme) and  inputs, capital goods, and 
computational goods (under the PADIS and PATVD programmes) constitutes financial contributions 
where "government revenue that is otherwise due is foregone or not collected" under 
Article  1.1(a)(1)(ii) of the SCM Agreement.  
6.25.   With respect to the main PPBs that incorporate nested PPBs under the Informatics 
programme, we consider that they contain a condition requiring the use of domestic components 
and subassemblies, which must be fulfilled in order for the relevant products to benef it from the tax 
incentives.  We therefore agree with the Panel's conclusion that the main PPBs that incorporate 
nested PPBs contain a requirement to use domestic goods, i.e. the components and subassemblies 
covered by the nested PPBs, under Article  3.1(b) o f the SCM  Agreement . Accordingly, we uphold  the 
Panel's findings, in paragraphs 7.299 -7.300, 7.302, 7.313, 7.319, 8.5.e, and 8.16.f of the 
Panel  Reports , that the main PPBs that incorporate nested PPBs under the Informatics programme 
are inconsistent with Article  3.1(b) of the SCM  Agreement . 
6.26.   With respect to the main PPBs that do not contain nested PPBs under the Informatics 
programme, we consider that  they do not provide for more than a collection of production steps, 
which must be carried out in Brazil, in  order for a company to benefit from the tax incentives with 
respect to the product subject to the PPB under the relevant programme.  Although compliance with 
the production steps set out in the PPBs is likely to result in the use of domestic components and  
subassemblies, such use of domestic products will be a consequence of the requirement to perform 
the production steps in Brazil. Accordingly, we reverse  the Panel's findings, in paragraphs 
7.301 -7.302, 7.313, 7.319, 8.5.e, and 8.16.f of the Panel  Reports , that the main PPBs without WT/DS472/AB/R • WT/DS497/AB/R  
 
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 nested PPBs under the Informatics programme are contingent upon the use of domestic over 
imported goods within the meaning of Article  3.1(b) of the SCM  Agreement . 
6.27.   With respect to the PATDV programme, we understand that the PPBs  under that programme 
follow the same structure and logic as those under the Informatics programme. Accordingly, for the 
same reasons as under the Informatics programme, to the extent the main PPBs under the PATVD 
programme incorporate nested PPBs, we cons ider them to require the use of domestic over imported 
goods inconsistently with Article  3.1(b) of the SCM  Agreement . However, we do not consider that 
the main PPBs that do not contain nested PPBs contain a condition requiring the use of domestic 
over impo rted goods. We thus uphold  the Panel's findings  concerning the PATVD programme , in 
paragraphs 7.308, 7.313, 7.317, 7.319, 8.5.e , and 8.16.f of the Panel  Reports , to the extent they 
relate to the main PPBs that contain nested PPBs, and we reverse  the Panel' s findings, contained in 
the same paragraphs of the Panel  Reports , to the extent they relate to the main PPBs that do not 
contain nested PPBs.  
6.28.   With respect to the PADIS programme, we do not consider that the eligibility requirements 
under that programme co nstitute a contingency requirement to use domestic over imported goods 
under Article  3.1(b) of the SCM  Agreement . 
6.29.   With respect to the Digital Inclusion programme, our review of the Panel's findings 
demonstrates that the Panel did not have a proper basis to  conclude that the Digital Inclusion 
programme contains a requirement to use domestic over imported goods inconsistent with 
Article  3.1(b) of the SCM  Agreement . 
6.30.   In light of the above, we reverse  the Panel's findings, in paragraphs 7.313, 7.317, 7.319, 
8.5.e-f of the Panel  Reports , that the PADIS and Digital Inclusion programmes require the use of 
domestic over imported goods inconsistently with Article  3.1(b) of the SCM  Agreement . 
6.31.   With respect to the INOVAR -AUTO programme, we note that the requirement to pe rform a 
minimum number of manufacturing steps in Brazil under that programme operates in a way similar 
to the main PPBs that do not incorporate nested PPBs under the ICT programmes. Thus, having 
reversed the Panel's findings with respect to the main PPBs t hat do not incorporate nested PPBs 
under the ICT  programmes, we also reverse  the Panel's findings of inconsistency with Article  3.1(b) 
with respect to the manufacturing steps under the INOVAR -AUTO programme, contained in 
paragraphs 7.751, 7.823, 7.847, 8.6 .e, and 8.17 .f of the Panel  Reports . 
6.32.   With respect to the European  Union 's and Japan's appeals of the Panel's findings concerning 
the in -house scenario, we note that, for purposes of establishing an inconsistency with Article  3.1(b) 
of the SCM  Agreement , whether a company produces goods in -house or whether it outsources their 
production is not decisive. What matters, instead, is whether such measure reflects a condition 
requiring the use of domestic over imported goods.  We thus consider that it did not mat ter, for 
purposes of the Panel's analysis, what factual scenarios were available for compliance with the 
requirements under the ICT and INOVAR -AUTO programmes.  We thus reverse  the Panel's findings, 
in paragraphs 7.303 -7.304 and 7.314 of the Panel  Reports , made in the context of its analysis under 
ICT programmes, to the extent that they can be understood as suggesting that the in -house scenario 
was not covered by the Panel's findings. We also reverse  the Panel's findings, in 
paragraphs  7.749 -7.750, and 7.770  of the Panel  Reports , made in the context of INOVAR -AUTO 
programme and referring to the mentioned Panel's findings under the ICT  programmes, to the extent 
that they can also be understood as suggesting that the in -house scenario was not covered by the 
Panel's findings. We thus consider that the Panel's findings, in paragraphs 7.319, 7.772 -7.773, 8.5.e, 
8.6.b, 8.6.e, 8.16.c, 8.16.f, 8.17.c, and 8.17.f of the Panel  Reports , also apply the in -house scenario.  
6.5  Article  I:1 of the GATT  1994  and the Enabling Claus e 
6.5.1   Whether the Panel erred in finding that the claims raised by the European  Union 
and Japan under Article  I:1 of the GATT  1994 were within its terms of reference  
6.33.   Paragraph 4(a) of the Enabling  Clause envisages a degree of specificity in the notification 
adopted thereunder. At a minimum, a notification pursuant to paragraph  4(a) should state under 
which particular provision of the Enabling  Clause the differential and more favourable treatment has 
been adopted so as to put other Members on notice. A notificat ion pursuant to paragraph  4(a) speaks WT/DS472/AB/R • WT/DS497/AB/R  
 
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 to and has a direct bearing on a complaining party's knowledge. Consequently, it speaks to whether 
the complaining party is required to raise the Enabling Clause and identify the relevant provision(s) 
thereof in its pa nel request and assert that an arrangement or a measure adopted by the responding 
party is inconsistent not only with Article  I:1 of the GATT  1994, but also with the relevant provisions 
of the Enabling  Clause. While it is for the complaining party to raise  the Enabling Clause and identify 
the relevant provision(s) thereof in its panel request, the burden to prove that the measure satisfies 
the conditions set out in the Enabling Clause remains on the responding party relying on the 
Enabling  Clause as a defen ce. 
6.34.   With respect to whether the measure at issue (i.e. differential tax treatment under the 
INOVAR -AUTO programme in the form of internal tax reductions accorded to some but not other 
Members) was notified pursuant to paragraph  4(a) as having been adopted under paragraph  2(b) of 
the Enabling  Clause, our review of the Panel's findings indicates that Brazil has not demonstrated 
that the differential tax treatment under the INOVAR -AUTO was notified to the WTO as adopted 
under paragraph  2(b), as required pursua nt to paragraph  4(a) of the Enabling  Clause.  
6.35.   We therefore uphold  the Panel's finding, in paragraph s 7.1082 -7.1083 of the Panel  Reports , 
that Brazil has not demonstrated that the differential tax treatment under the INOVAR -AUTO 
programme was notified to th e WTO as adopted pursuant to paragraph  2(b), and therefore, in the 
circumstances of this case, there was no burden on the complaining parties to raise and identify 
paragraph  2(b) of the Enabling  Clause in their panel requests.  
6.36.   With respect to whether the measure at issue (i.e. the differential tax treatment under the 
INOVAR -AUTO programme in the form of internal tax reductions accorded to some but not other 
Members) was notified pursuant to paragraph  4(a) as having been adopted under paragraph  2(c) of 
the Enabling  Clause, our review of the Panel's findings indicates that Brazil has not demonstrated 
that the 1980 Treaty of Montevideo and the ECAs notified to the WTO have a genuine link to the 
INOVAR -AUTO programme providing for th e differential and more favourable treatment at issue, 
and consequently, the differential and more favourable treatment at issue was not notified to the 
WTO as adopted under paragraph  2(c), as required pursuant to paragraph  4(a) of the 
Enabling  Clause.  
6.37.   We therefore uphold  the Panel's finding, in paragraph  7.1119 of the Panel  Reports , that the 
differential tax treatment under the INOVAR -AUTO programme was not notified as adopted under 
paragraph  2(c), as required pursuant to paragraph  4(a). Consequently, we also uphold  the Panel's 
finding , in paragraph  7.1120 of the Panel  Reports , that, in the circumstances of this case, there was 
no burden on the complaining parties to raise and identify paragraph  2(c) of the Enabling  Clause in 
their panel requests.  
6.38.   For thes e reasons, we uphold  the Panel's findings, in paragraphs 8.6 .h and 8.17 .i of the 
Panel  Reports , that there was no burden on the complaining parties to raise and identify the relevant 
provisions of the Enabling  Clause in their panel requests, and their clai ms under Article  I:1 of the 
GATT  1994 were therefore within the Panel's terms of reference.  
6.5.2   Whether the Panel erred in its interpretation of paragraph  2(b) of the 
Enabling  Clause and in finding that the differential tax treatment under the INOVAR -AUTO 
prog ramme was not justified under that provision  
6.39.   Paragraph  2(b) provides for the granting of "[d]ifferential and more favourable treatment with 
respect to the provisions of the General  Agreement  concerning non -tariff measures governed by the 
provisions of inst ruments multilaterally negotiated under the auspices of the GATT". Paragraph 2(b) 
provides for the adoption of a limited category of differential and more favourable treatment, namely 
treatment that concerns "non -tariff measures governed by the provisions of instruments 
multilaterally negotiated under the auspices" of the GATT, as an institution. The phrase "non -tariff 
measures governed by the provisions of instruments multilaterally negotiated under the auspices of 
the GATT", at the time of the adoption of  the Enabling  Clause, concerned non -tariff measures taken 
pursuant to the S&D treatment provisions of the Tokyo Round Codes and not the provisions of the 
GATT  1947. Following the entry into force of the WTO  Agreement , paragraph 2(b) of the Enabling 
Clause provides for the adoption of a limited category of differential and more favourable treatment, 
namely treatment that concerns non -tariff measures governed by the provisions of instruments 
multilaterally negotiated under the auspices of the WTO. The GATT  1994, while an integral part of WT/DS472/AB/R • WT/DS497/AB/R  
 
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 the WTO  Agreement , was not negotiated under the auspices of the WTO. These considerations read 
in light of the text, context, and circumstances surrounding the adoption of the Enabling  Clause , and 
thereafter the establishment of the WTO , indicate that paragraph  2(b) does not concern non -tariff 
measures governed by the provisions of the GATT  1994. Instead, paragraph  2(b) speaks to 
non-tariff measures taken pursuant to S&D treatment provisions of "instruments multilaterally 
negot iated under the auspices of the [WTO]".  
6.40.   We therefore uphold  the Panel's finding, in paragraph  7.1096 of the Panel  Reports , that 
"a non-tariff measure within the scope of paragraph  2(b) must be governed by specific provisions 
on special and differential treatment, that are distinct from the provisions of the GATT  1994 
incorporating the GATT 1947."1256 We also uphold  the Panel's findings , in paragraphs 7.1097, 8.6 .i, 
and 8.17 .j of the Panel  Reports , that the tax reductions accorded under the INOVAR -AUTO 
progr amme to imported products from Argentina, Mexico, and Uruguay and found to be inconsistent 
under Article  I:1 of the GATT  1994 are not justified under paragraph  2(b) of the Enabling  Clause.  
6.5.3   Whether the Panel erred in its interpretation of paragraph  2(c) of the 
Enabling  Clause and in finding that the differential tax treatment under the INOVAR -AUTO 
programme was not justified under that provision  
6.41.   Paragraph 2(c) excepts differential and more favourable treatment accorded pursuant to 
"[r]egional or global arran gements entered into amongst" developing country Members from a 
finding of inconsistency with Article  I:1 of the GATT  1994. To the extent that the Panel relied on its 
earlier analysis concerning whether or not the INOVAR -AUTO programme, according the diffe rential 
and more favourable treatment (i.e. the differential tax treatment in the form of internal tax 
reductions accorded to some but not other Members), had a genuine link to "the  arrangement 
notified to the WTO" in determining if the differential and mo re favourable treatment was 
substantively justified under paragraph  2(c), we find no error in the Panel's approach. Indeed, if 
there is no genuine link between the measure at issue according the differential and more favourable 
treatment and the arrangemen ts notified to the WTO, we find it difficult to see how the measure at 
issue could be substantively justified under paragraph  2(c). 
6.42.   We therefore uphold  the Panel's finding, in paragraph  7.1118 of the Panel  Reports , to the 
extent that the Panel found that B razil has not identified any arrangement with a genuine link to the 
differential tax treatment envisaged under the INOVAR -AUTO programme. Consequently, we also 
uphold  the Panel's findings, in paragraphs 7.1121, 8.6 .i, and 8.17 .j of the Panel  Reports , that the 
tax reductions accorded under the INOVAR -AUTO programme to imported products from Argentina, 
Mexico, and Uruguay and found to be inconsistent under Article  I:1 of the GATT  1994 are not 
justified under paragraph  2(c) of the Enabling  Clause.  
6.6  Article  4.7 of the SCM  Agreement  
6.43.   The term "without delay" in Article  4.7 is not used in the sense of requiring  immediate  
compliance. Nor does the term "without delay", combined with the requirement that the panel 
specify a time  period, impose a single standard or time  period applicable in all cases. Instead, 
Article  4.7 requires a panel to specify a time  period that constitutes "without delay" within the realm 
of possibilities in a given case and considering the domestic legal system of the implementing 
Member. In dete rmining the time  period under Article  4.7 that constitutes "without delay", a panel 
should typically take into account the nature of the measure(s) to be revoked or modified and the 
domestic procedures available for such revocation or modification. These d omestic procedures 
include any extraordinary procedures that may be available within the legal system of a 
WTO Member.  The Panel did not establish a sufficient link between the time  period of 90 days 
specified by it for the withdrawal of the subsidies at i ssue and the domestic procedure within Brazil 
for such withdrawal. Instead, the Panel treated the practice of specifying 90  days by some prior 
panels as the de facto standard to be applied in all cases.  
6.44.   We, therefore, find that by failing to provide a "re asoned and adequate explanation" or a 
"basic rationale" in recommending a time  period of 90 days under Article  4.7 of the SCM  Agreement  
in the present case, the Panel acted inconsistently with Articles  11 and 12.7 of the DSU. 
Consequently, we reverse  the Panel's conclusions, in paragraphs 8.11 and 8.22 of the Panel  Reports , 
                                                
1256 Panel  Reports , para.  7.1096. (f n omitted)  WT/DS472/AB/R • WT/DS497/AB/R 
- 154 -
that Brazil withdraw the prohibited subsidies identifi ed at paragraphs 8.5.e, 8. 6.e, 8.7, 8. 16.f, 8.17.f, 
and 8.18 of the Panel Reports within 90 days.  
6.45.  Furthermore, we are unable to complete the legal analysis, as requested by Brazil, and cannot 
specify the time period within which the prohibited subsidies identified by the Panel must be 
withdrawn by Brazil. We note, however, that the Panel's recommendations, in paragraphs 8.10 and 
8.21 of the Panel Reports, that Brazil withdraw the subsidies identified by the Panel "without delay", 
stand undisturbed.  
6.7  Recommendation 
6.46.  The Appellate Body recommends that the DSB request Brazil to bring its measures, found in 
these Reports, and in the Panel Reports as modified by these Reports, to be inconsistent with 
Articles I:1, III:2, and III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement, and 
Article 3.1(b) of the SCM Agreement into conformity with its obligations under those Agreements. 
Signed in the original in Geneva this 15th day of October 2018 by: 
_________________________ 
Thomas R. Graham 
Presiding Member 
_________________________
Peter Van den Bossche 
Member
__________