WT/DS486/AB/R  
 
16 May 2018 
(18-2914) Page: 1/66 
    
 
EUROPEAN UNION – COUNTERVAILING MEASURES  ON CERTAIN  
POLYETHYLENE TEREPHT HALATE FROM PAKISTAN  
AB-2017-5 
Report of the Appellate Bod y 
 
 
 
 
 WT/DS486/AB/R  
 
- 2 - 
 
 
  Table of Contents  
 
1   INTRODUCTION  ................................ ................................ ................................ ..........  9 
2   ARGUMENTS OF THE PAR TICIPANTS  ................................ ................................ .........  13 
3   ARGUMENTS OF THE UNI TED STATES AS A THIRD PA RTICIPANT  ..............................  13 
4   ISSUES RAISED IN THI S APPEAL  ................................ ................................ ..............  14 
5   ANALYSIS OF THE APPE LLATE BODY  ................................ ................................ .........  14 
5.1   European  Union's claim of error regarding the expiry of the measure at issue  .................... 14 
5.1.1    Background information ................................ ................................ ............................ 14 
5.1.2    The Panel's findings  ................................ ................................ ................................ .15 
5.1.3    Whether the Panel erred in deciding to make findings on Pakistan's claims in this 
dispute after the measure at issue had expired  ................................ ................................ ......16 
5.1.3.1    Review of the considerations that the Panel took into account at paragraph  7.13 
of its Report  ................................ ................................ ................................ ...................... 22 
5.1.4    Conclusion  ................................ ................................ ................................ .............. 26 
5.1.5   Separate opinion of one Appellate  Body Member regarding the Panel's decision to 
make findings on Pakistan's claims in this dispute, notwithstanding the expiry of the 
measure at issue  ................................ ................................ ................................ ............... 26 
5.2   European  Union's claim of error regarding government revenue foregone  .......................... 28 
5.2.1    Background information ................................ ................................ ............................ 29 
5.2.2    The Panel's findings  ................................ ................................ ................................ .31 
5.2.3    Whether the Panel erred in its interpretation of Article  1.1(a)(1)(ii), footnote  1, 
and Annexes  II and III to the SCM  Agreement  ................................ ................................ .......34 
5.2.4    Conclusion  ................................ ................................ ................................ .............. 45 
5.3   Pakistan's claim of error regarding the Commission's causation analysis  ............................ 46 
5.3.1    Background information ................................ ................................ ............................ 46 
5.3.2    The Panel's findings  ................................ ................................ ................................ .48 
5.3.3    Whether the Panel erred in its interpretation and application of Article  15.5 of the 
SCM Agreement  ................................ ................................ ................................ ................. 50 
5.3.3.1    Interpreta tion of Article  15.5 of the SCM  Agreement  ................................ ................. 51 
5.3.3.2    Analysis of the Panel's findings  ................................ ................................ ............... 54 
5.3.4    Conclusion  ................................ ................................ ................................ .............. 63 
6   FINDIN GS AND CONCLUSIONS  ................................ ................................ ..................  64 
 
  WT/DS486/AB/R  
 
- 3 - 
 
 
  ABBREVIATIONS USED I N THIS REPORT  
Abbreviation  Description  
Anti-Dumping Agreement  Agreement on Implementation of Article VI of the General Agreement 
on Tariffs and Trade 1994  
BCI business confidential information  
Commission  European Commission  
Council  Council of the European Union  
Definitive Determination  Council Implementing Regulation (EU) No . 857/2010 of 
27 September 2010 impos ing a definitive countervailing duty and 
collecting definitively the provisional duty imposed on imports of 
certain polyethylene terephthalate originating in Iran, Pakistan,  and 
the United Arab Emirates,  Official Journal of the European Union , 
L Series, No . 254 (29  September 2010)  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes  
EU Basic CVD Regulation  Council Regulation (EC) No . 597/2009 of 11  June 2009 on protection 
against subsidi sed imports from countries not members of the 
European  Community,  Official Journal of the European Union , 
L Series, No. 188 (18  July 2009)  
GATT  1994 General Agreement on Tariffs and Trade 1994  
investigation period  12-month period from 1  July 2008 to 30  June 2009  
LTF-EOP Long Term Financing of Export -Oriented Projects  
MBS Manufacturing Bond Scheme  
MBS New Rules  Amendments to the Customs Rules 2001 of Pakistan through 
Notification S.R.O.  601(I)/2010, published on 28  June 2010  
MBS Old Rules  Chapter XV of the Customs  Rules 2001 of Pakistan  through 
Notification S.R.O.  450(I)/2001, published on 18  June 2001  
Novatex  Novatex Limited, Karachi  
Panel Report  Panel Report,  European Union – Countervailing Measures on Certain 
Polyethylene Terephthalate from Pakistan , WT/DS486/R  
Panel Request  Request for the Establishment of a Panel by Pakistan, WT/DS486/2  
period considered  Period from 1  January 2006 to the end of the investigation period 
(30 June 2009)  
PET polyethylene terephthalate  
Provisional Determination  Commission Regulation (EU) No . 473/2010 of 31  May 2010 imposing 
a provisional countervailing duty on imports of certain polyethylene 
terephthalate originating in Iran, Pakistan,  and the United Arab 
Emirates, Official Journal of the European Union , L Series , No. 134 
(1 June 2010)  
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
verification system  System or procedure to confirm which inputs are consumed in the 
production of the exported product and in what amounts  
Working Procedures  Working Procedures for Appellate Review, WT/AB/WP/6, 16  August 
2010 
WTO World Trade Organization  WT/DS486/AB/R  
 
- 4 - 
 
 
  PANEL EXHIBITS CITED  IN THIS REPORT  
Exhibit 
Number  Short Title  
(if applicable)  Description  
EU-2 MBS Old Rules  Chapter XV of the Customs Rules 2001 of Pakistan  
through Notification S.R.O.  450(I)/2001, published on 
18 June 2001  
EU-3 MBS New Rules  Amendments to the Customs Rules 2001 of Pakistan 
through Notification S.R.O.  601(I)/2010, published on 
28 June 2010  
EU-5  Submission of the Government of Pakistan of 
21 December 2009  to the European Commission   
PAK-1 Provisional Determination  Commission Regulation (EU) No.  473/2010 of 31  May 
2010 imposing a provisional countervailing duty on 
imports of certain polyethylene t erephthalate originating 
in Iran, Pakistan, and the United Arab Emirates, Official 
Journal of the European Union , L Series, No. 134 (1  June 
2010)  
PAK-2 Definitive Determination  Council Implementing Regulation (EU) No.  857/2010 of 
27 September 2010 imposing a definitive countervailing 
duty and collecting definitively the provisional duty 
imposed on imports of certain polyethylene terephthalate 
originating in Iran, Pakistan, and th e United Arab 
Emirates, Official Journal of the European Union , L Series, 
No. 254 (29  September 2010)  
PAK-8  Exhibit  6 from the verification visit (BCI)  
PAK-15  European  Commission, Notice of initiation of an 
anti-subsidy proceeding concerning imports of  certain 
polyethylene terephthalate originating in Iran, Pakistan, 
and the United Arab Emirates, Official Journal of the 
European Union , C Series, No. 208 (3  September 2009)  
PAK-33  Definitive company -specific disclosure to Novatex, dated 
26 July 2010 (BCI)  
 
CASES CITED IN THIS REPORT  
Short Title  Full Case Title and Citation  
Argentina – Footwear (EC)  Appellate Body Report, Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/AB/R , adopted 12 January 2000, DSR 2000:I, p. 515  
Argentina – Textiles and 
Apparel  Panel Report, Argentina – Measures Affecting Imports of Footwear, Textiles, 
Apparel and Other Items , WT/DS56/R , adopted 22 April 1998, as modified by 
Appellate Body Report WT/DS56/AB/R, DSR 1998:III, p. 1033  
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 – Desiccated Coconut  Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut , 
WT/DS22/AB/R , adopted 20 March 1997, DSR 1997:I, p. 16  
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  
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  WT/DS486/AB/R  
 
- 5 - 
 
 
  Short Title  Full Case Title and Citation  
Canada – Wheat Exports and 
Grain Imports  Appellate Body Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/AB/R , adopted 27 September 2004, 
DSR 2004:VI, p. 2739  
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R , adopted 23 October 
2002, DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)  
China – Broiler Products  Panel Report, China  Anti-Dumping and Countervailing Duty Measures on 
Broiler Products from the United States , WT/DS427/R  and Add.1, adopted 
25 September 2013, DSR 2013:IV, p. 1041  
China – Electronic Payment 
Services  Panel Report, China – Certain Measures Affecting Electronic Payment Services , 
WT/DS413/R  and Add.1, adopted 31 August 2012, DSR 2012:X, p. 5305  
China – GOES  Appellate Body Report, China – Countervailing and Anti -Dumping Duties on 
Grain Oriented Flat -Rolled Electrical Steel from the United States , 
WT/DS4 14/AB/R , adopted 16 November 2012, DSR 2012:XII, p. 6251  
China – HP-SSST (Japan) / 
China – HP-SSST (EU)  Appellate Body Reports, China – Measures Imposing 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 
China – Raw Materials  Appellate Body Reports, China  – Measures Related to the Exportation of 
Various Raw Materials , WT/DS394/AB/R  / WT/DS395/AB/R  / WT/DS398/AB/R , 
adopted 22 February 2012, DSR 2012:VII, p. 3295  
Dominican Republic – Import 
and Sale of Cigarettes  Panel Report, Dominican Republic – Measures Affecting the Importation and 
Internal Sale of Cigarettes , WT/DS302/R , adopted 19 May 2005, as modified 
by Appellate Body Report WT/DS302/AB/R, DSR 2005:XV, p. 7425  
EC – Approval and Marketing 
of Biotech Products  Panel Reports, European Communities – Measures Affecting the Approval and 
Marketing of Biotech Products , WT/DS291/R , Add.1 to Add.9 and Corr.1 / 
WT/DS292/R , Add.1 to Add.9 and Corr.1 / WT/DS293/R , Add.1 to Add.9 and 
Corr.1, adopted 21 November 2006, DSR 2006:III, p. 847  
EC – Bananas III  Appel late Body Report, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas , WT/DS27/AB/R , adopted 25 September 
1997, DSR 1997:II, p. 591  
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 fo r the Importation, Sale and Distribution o f 
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 – 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 – IT Products  Panel Reports, European Communities and its member States – Tariff 
Treatment of Certain Information Technology Products , WT/DS375/ R / 
WT/DS376/R  / WT/DS377/R , adopted 21 September 2010, DSR 2010:III, 
p. 933 
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 A ugust 2003, DSR 2003:VI, p. 2613  
EC – Tube or Pipe Fittings  Panel Report, European Communities – Anti-Dumping Duties on Malleable Cast 
Iron Tube or Pipe Fittings from Brazil , WT/DS219/R , adopted 18 August 2003, 
as modified by Appellate Body Report WT/DS219/AB/R, DSR 2003:VII, p. 2701  
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  WT/DS486/AB/R  
 
- 6 - 
 
 
  Short Title  Full Case Title and Citation  
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, circulated to WTO Members 
22 September 2016  
EU – Biodiesel (Argentina)  Appellate Body Report, European Union – Anti-Dumping Measures on Biodiesel 
from Argentina , WT/DS473/AB/R  and Add.1, adopted 26 October 2016  
EU – Fatty Alcohols 
(Indonesia)  Appellate Body Report, European Union – Anti-Dumping Measures on Imports 
of Certain Fatty Alcohols from Indonesia , WT/DS442/AB/R  and Add.1, adopted 
29 September 2017  
EU – Footwear (China)  Panel Report, European Union – Anti-Dumping Measures on  Certain Footwear 
from China , WT/DS405/R , adopted 22 February 2012, DSR 2012:IX, p. 4585  
EU – PET (Pakistan)  Panel Report, European Union – Countervailing Measures on Certain 
Polyethylene Terephthalate from Pakistan , WT/DS486/R , Add.1 and Corr.1, 
circulated to WTO Members 6 July 2017  
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 – Additional Import 
Duties  Panel Report, India – Additional and Extra -Additional Duties on Imports from 
the United States , WT/DS360/R , adopted 17 November 2008, as reversed by 
Appellate Body Report WT/DS360/AB/R, DSR 2008:XX, p. 8317  
India – Patents (US)  Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R , adopted 16 January 1998, 
DSR 1998:I, p. 9  
India – Solar Cells  Appellate Body Report, India – Certain Measures Relating to Solar Cells and 
Solar Modules , WT/DS456/AB/R  and Add.1, adopted 14 October 2016  
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 Corr.4, DSR 1998:VI, p. 2201  
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. 4 391 
Japan – DRAMs (Korea)  Appellate Body Report, Japan – Countervailing Duties on Dynamic Random 
Access Memories from Korea , WT/DS336/AB/R  and Corr.1, adopted 
17 December 2007, DSR 2007:VII, p. 2703  
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 – Anti-Dumping 
Measures on Rice  Appellate Body Report, Mexico – Definitive Anti -Dumping Measures on Beef 
and Rice, Complaint with Respect to Rice , WT/DS295/AB/R , adopted 
20 December  2005, DSR 2005:XXII, p. 10853  
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  Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other  
Beverages , WT/DS308/AB/R , adopted 24 March 2006, DSR 2006:I, p. 3  
Peru – Agricultural Products  Appellate Body Report, Peru – Additional Duty on Imports of Certain 
Agricultural Products , WT/DS457/AB/R  and Add.1, adopted 31 July 2015  
US – 1916 Act  Appellate Body Report, United States – Anti-Dumping Act of 1916 , 
WT/DS136/AB/R , WT/DS162/AB/R , adopted 26 September 2000, DSR 2000:X, 
p. 4793  
US – Anti-Dumping and 
Countervailing Duties (China)  Appellate Body Report, United States – Definitive Anti -Dumpin g and 
Countervailing Duties on Certain Products from China , WT/DS379/AB/R , 
adopted 25 March 2011, DSR 2011:V, p. 2869  WT/DS486/AB/R  
 
- 7 - 
 
 
  Short Title  Full Case Title and Citation  
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 
US – Carbon Steel (India)  Appellate Body Report, United States – Countervailing Measures on Certain 
Hot-Rolled Carbon Steel Flat Products 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 – Corrosion -Resistant 
Steel Sunset Review  Appellate Body Report, United States – Sunset Review of Anti -Dumping Duties 
on Corrosion -Resistant Carbon Steel Flat Products from Japan , 
WT/DS244/AB/R , adopted 9 January 2004, DSR 2004:I, p. 3  
US – Countervailing 
Measures (China)  Appellate Body Report, United States – Countervailing Duty Measures on 
Certain Products from China , WT/DS437/AB/R , adopted 16 January 2015  
US – Countervailing 
Measures (China)  Panel Report, United States – Countervailing Duty Measures on Certain 
Products from China , WT/DS437/R  and Add.1, adopted 16 January 2015, as 
modified by Appellate Body Report WT/DS437/AB/R  
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 (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 – Gasoline  Panel Report, United States – Standards for Reformulated and Conventional 
Gasoline , WT/DS2/R , adopted 20 May 1996, as modified by Appellate Body 
Report WT/DS2/AB/R, DSR 1996:I, p. 29  
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 – Lamb  Appellate Body Report, United States – Safeguard Measures on Imports of 
Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia , 
WT/DS177/AB/R , WT/DS178/AB/R , adopted 16 May 2001, DSR 2001:IX, 
p. 4051 
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 – Lead and Bismuth II  Appellate Body Report, United States – Imposition of Countervailing Duties on 
Certain Hot -Rolled Lead and Bismuth Carbon Steel Products Originating in the 
United Kingdom , WT/DS138/AB/R , adopted 7 June 2000, DSR 2000:V, p. 2595  
US – Poultry (China)  Panel Report, United States – Certain Measures Affecting Imports of Poultry 
from China , WT/DS392/R , adopted 25 October 2010, DSR 2010:V, p. 1909  
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 Bod y 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 , adopted 9 May 2006, and Corr.1, 
DSR 2006:XI, p. 4865  
US – Tyres (China)  Appellate Body Report, United States – Measures Affecting Imports of Certain 
Passenger Vehicle and Light Truck Tyres from China , WT/DS399/AB/R , 
adopted 5 October 2011 , DSR 2011:IX, p. 4811  
US – Upland Cotton  Appellate Body Report, United States – Subsidie s on Upland Cotton , 
WT/DS267/AB/R , adopted 21 March 2005, DSR 2005:I, p. 3  
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  WT/DS486/AB/R  
 
- 8 - 
 
 
  Short Title  Full Case Title and Citation  
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 – Upland Cotton  
(Article 21.5 – Brazil)  Panel Report, United States – Subsidies on Upland Cotton – Recourse to 
Article  21.5 of the DSU by Brazil , WT/DS267/RW  and Corr.1, adopted 20 June 
2008, as modified by Appellate Body Report WT/DS267/AB/RW, DSR 2008 :III, 
p. 997  
US – Washing Machines  Appellate Body Report,  United States – Anti-Dumping and Countervailing 
Measures on Large Residential Washers from Korea , WT/DS464/AB/R  and 
Add.1, adopted 26 September 2016  
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  
US – Wool Shirts and 
Blouses  Panel Report, United States – Measure Affecting Imports of Woven Wool Shirts 
and Blouses from India , WT/DS33/R , adopted 23 May 1997, upheld by 
Appellate Body Report WT/DS33/AB/R, DSR 1997:I, p. 343  
 WT/DS486/AB/R  
 
- 9 - 
 
 
  WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
European Union – Countervailing Measures 
on Certain Polyethylene Terephthalate 
from Pakistan  
 
European Union, Appellant/Appel lee 
Pakistan, Other Appellant/Appellee  
 
China, Third Participant  
United  States, Third Participant  
 AB-2017-5 
 
Appellate Body Division:  
 
Servansing, Presiding Member  
Bhatia, Member  
Van den Bossche, Member  
 
 
 
1  INTRODUCTION  
1.1.  The European  Union and Pakistan each appeals certain issues of law and legal interpretations 
developed in the Panel Report, European Union – Countervailing Measures on Certain Polyethylene 
Terephthalate from Pakistan1 (Panel Report). The Panel was establis hed on 25 March 2015 to 
consider a complaint by Pakistan2 with respect to countervailing measures imposed by the 
European  Union on imports of certain polyethylene terephthalate (PET3) from Pakistan.4 
1.2.  In its countervailing duty investigation, the European  Commission (Commission) investigated 
several schemes that allegedly involved the granting of subsidies by the Government of Pakistan, 
including the Manufacturing Bond Scheme (MBS).5 The MBS permits the import of duty -free 
material on condition that it is us ed as an input in the manufacture of goods that are subsequently 
exported.6  
1.3.  On 31 May 2010, the Commission issued a regulation imposing provisional countervailing 
duties  on imports of PET originating in  Iran, Pakistan, and the United  Arab Emirates (Provis ional 
Determination).7 In its Provisional Determination, t he Commission found the MBS to be a 
countervailable subsidy contingent in law upon export performance.8 The Commission also found 
that the subsidized imports of PET from Iran, Pakistan, and the United Arab Emirates  had caused 
material injury to the EU industry.9 In carrying out its causation analysis, the Commission 
examined factors  other than the subsidized PET imports10 but found that none of these other 
factors had contributed to the injury to the EU industry to the extent that they had broken the 
causal link between the subsidized PET  imports and the injury.11 
1.4.  On 27  September 2010, the Council of the European  Union (Council) issued a regulation 
imposing definitive countervailing dut ies and colle cting definitively the provisional duty imposed on 
                                                
1 WT/DS486/R, 6 July 2017.  
2 Request for the Establishment of a Panel by Pakistan, WT/DS486/2 (Panel Request).  
3 PET is a chemical product that is normally used in the plastics industry for the production of bottles 
and sheets. (Commission Regulation (EU) No.  473/2010 of 31  May 2010 imposing a provisional countervailing 
duty on imports of certain polyethylene terephthalate originating in Iran, Pakistan, and the 
United  Arab Emirates, Official Journal of the European Union , L Series, No. 134 (1  June 2010) (Provisional 
Determination) (Pa nel Exhibit PAK -1), recitals  16-17) 
4 Panel Report, para.  2.1. 
5 Provisional Determination (Panel Exhibit PAK -1), recital  59. 
6 Panel Report, para.  7.29; Provisional Determination (Panel Exhibit PAK -1), recital  60. 
7 Panel Report, para.  2.1 (referring to P rovisional Determination (Panel Exhibit PAK -1)). The provisional 
countervailing duty rate for imports from Pakistan was 9.7%. (Provisional Determination (Panel Exhibit PAK -1), 
recital  307) 
8 Provisional Determination (Panel Exhibit PAK -1), recitals  73-77. See also Panel Report, para.  7.57. 
9 Provisional Determination (Panel Exhibit PAK -1), recital  264. 
10 These other factors included: the export activity of the EU industry; imports from Korea and other 
third countries; competition from the non -cooperating EU  producers; the 2008 economic downturn and the 
accompanying contraction in demand; the geographical location of the European Union; and the lack of vertical 
integration. (Provisional Determination (Panel Exhibit PAK -1), recitals  246-261) 
11 Panel Report, pa ra. 7.118; Provisional Determination (Panel Exhibit PAK -1), recital  263. WT/DS486/AB/R  
 
- 10 - 
 
 
  imports of PET originating in  Iran, Pakistan, and the United Arab Emirates12 (Definitive 
Determination).  
1.5.  Additional factual aspects of this dispute are set forth in the Panel Report13 and in subsequent 
sections of this Report.14 
1.6.  Following consultation with the parties, the Panel adopted its Working Procedures and 
Additional Working Procedures on Business Confi dential Information on 15  March  2016 and 
14 April 2016, respectively.15 
1.7.  Before the Panel, Pakistan claimed that the countervailing measures imposed by the 
European  Union are inconsistent with several provisions of the Agreement on Subsidies and 
Countervailing Measures (SCM  Agreement) and the General Agreement on Tariffs and Trade 199 4 
(GATT  1994). In particular, Pakistan challenged the findings by the Commission that Pakistan's 
MBS and its Long Term Financing of Export -Oriented Projects (LTF -EOP) were countervailable 
subsidies contingent upon export performance.16 Pakistan also claimed  that, in its causation 
analysis , the Commission acted inconsistently with Article  15.5 of the SCM Agreement.17 
Additionally, Pakistan claimed that the Commission acted inconsistently with Article  12.6 of the 
SCM Agreement in connection with its obligation to disclose the results of the verification visit to 
the exporting producer in Pakistan.18 
1.8.  On 3 March 2016, the  European  Union submitted a request for a preliminary ruling asking the 
Panel to cease all work in this dispute because the relevant EU countervailing measures on PET 
from Pakistan had expired on 30  September 2015. If the Panel denied  the request to cease all 
work i n this dispute, then the European  Union requested the Panel to find instead that certain of 
Pakistan's claims were outside the Panel's terms of reference under the standards set forth in 
Article  6.2 of the Understanding on Rules and Procedures Go verning the Settlement of Disputes 
(DSU).19 
1.9.  On 19  May 2016, the Panel sent a communication to the parties denying the 
European  Union's request  that the Panel cease all work i n this dispute.20 The Panel provided the 
reasons for its decision in its Report.21 The Panel also addressed, in its Report, the 
European  Union's request for a preliminary ruling concerning the Panel's terms of reference under 
Article  6.2 of the DSU.22 
1.10.   The Panel circulated its Report to Members of the Wo rld Trade Organization (WTO) 
on 6 July 2017. Pursuant to the Panel's Additional Working Procedures on Business Confidential 
Information, the Panel redacted certain information from its Report that it considered to be 
business confidential information (BCI). In its Report:  
a. with respect to the E uropean  Union's request for a preliminary ruling concerning the 
Panel's terms of reference under Article  6.2 of the DSU:  
i. the Panel found that  Pakistan's claim that the Commission acted inconsistently with 
Annex  II(II)(1) and/or Annex III(II)(2) to the SCM  Agreement "because it failed to 
                                                
12 Panel Report, para.  2.1 (referring to Council Implementing Regulation (EU) No.  857/2010 of 
27 September 2010 imposing a definitive countervailing duty and collecting definitively th e provisional duty 
imposed on imports of certain polyethylene terephthalate originating in Iran, Pakistan, and the 
United  Arab Emirates, Official Journal of the European Union , L Series, No.  254 (29  September  2010) 
(Definitive  Determination) (Panel Exhibit  PAK-2)). The definitive countervailing duty rate for imports from 
Pakistan was  5.1%. (Definitive Determination (Panel Exhibit PAK -2), recital  169) 
13 Panel Report, paras.  2.1, 7.29 -7.30, 7.57, 7.62, 7.72 -7.90, 7.107, 7.122 -7.124, 7.136, 7.156, 
and 7.179 -7.180. 
14 See paras. 5.66-5.74 and 5.146 -5.155  below.  
15 Panel Report, paras.  1.7 and 1.9 and Annexes A -1 and A -2. 
16 Panel Report, para.  3.1.a and b.  
17 Panel Report, para.  3.1.c.  
18 Panel Report, para.  3.1.d.  
19 Panel Report, paras.  7.1 and 7.9.  
20 Panel Report, para.  7.12. 
21 Panel Report, para.  7.13. 
22 Panel Report, paras.  7.14-7.28. WT/DS486/AB/R  
 
- 11 - 
 
 
  examine the 'generally accepted commercial [practices]' prevailing in Pakistan when 
examining the verification system and procedures under the MBS" was outside the 
Panel's terms of reference as Pakistan had failed to present  the problem clearly  in its 
request for the establishment of a panel ( Panel Request )23;  
ii. the Panel rejected the European  Union's objection to Pakistan's claim under 
Article  1.1(a)(1)(ii) of the SCM Agreement, and thus found that this claim was within 
the Pa nel's terms of reference24; and  
iii. the Panel rejected the European  Union's objection to Pakistan's claim under 
Article  12.6 of the SCM  Agreement, and thus found that this claim was within the 
Panel's terms of reference25; 
b. with respect to Pakistan's claims regar ding the MBS, the Panel found that:  
i. the Commission acted inconsistently with Article  1.1(a)(1)(ii) of the SCM  Agreement 
by failing to provide a reasoned and adequate explanation for why the entire amount 
of remitted duties was "in excess of those which hav e accrued" within the meaning of 
footnote  1 of the SCM  Agreement26; and  
ii. the Commission also acted inconsistently with Article  3.1(a) of the SCM  Agreement 
by improperly finding the existence of a "subsidy" that was contingent upon export 
performance27;  
c. with respect to Pakistan's claims regarding the LTF -EOP, the Panel found that:  
i. the Commission acted inconsistently with Article  14(b) of the SCM  Agreement by 
failing to properly identify what Novatex Limited, Karachi (Novatex) would have paid 
on a "comparable c ommercial loan" in calculating t he benefit conferred by the 
LTF-EOP Loan28;  
ii. the Commission acted inconsistently with Article  1.1(b) of the SCM  Agreement as a 
consequence of having acted inconsistently with Article  14(b) of the 
SCM Agreement29; and  
iii. the Commi ssion acted inconsistently with the chapeau  of Article  14 of the 
SCM Agreement by failing to transparently and adequately explain how it identified a 
"comparable commercial loan"30; 
                                                
23 Panel Report, para.  8.1.a.i. See also para.  7.22. 
24 Panel Report, para.  8.1.a.ii. See also para.  7.24. 
25 Panel Report, para.  8.1.a.iii. See also paras.  7.27-7.28. Th e Panel found that the remaining objections 
raised by the European  Union had become moot and therefore did not address them. (Ibid., para.  8.1.a.iv. 
See also para.  7.18)  
26 Panel Report, para.  8.1.b.i. See also para.  7.60. 
27 Panel Report, para.  8.1.b.ii. Se e also para.  7.60. In addition, the Panel exercised judicial economy or 
found that, for other reasons, it did not need to address Pakistan's claims that the Commission: (a) failed to 
investigate whether Pakistan's duty drawback system verification mechanis ms were based on generally 
accepted commercial practices in Pakistan; (b) failed to provide Pakistan with the opportunity to assist the 
Commission's determination of the excess amount; (c) failed to take into account evidence regarding the 
amount of any ex cess drawback; (d) failed to make normal allowance for waste; (e) violated Annexes  II(II) 
and III(II) to the SCM  Agreement "as a whole"; (f) violated Annex I(i) to the SCM Agreement; (g) violated 
Articles  1.1(b), 10, 19, and 32 of the SCM  Agreement; and (h ) violated Article  VI of the GATT  1994. (Ibid., 
para. 8.1.b.iii. See also para.  7.61)  
28 Panel Report, para.  8.1.c.i. See also para.  7.102.  
29 Panel Report, para.  8.1.c.ii. See also para.  7.102.  
30 Panel Report, para.  8.1.c.iii. See also para.  7.104. In addit ion, the Panel exercised judicial economy 
with respect to Pakistan's claims that, as a result of violating Article  14(b) of the SCM  Agreement and/or the 
chapeau  of Article  14 of the SCM Agreement, the Commission acted inconsistently with Articles  10, 19, a nd 32 
of the SCM Agreement and Article  VI of the GATT  1994. (Ibid., para.  8.1.c.iv. See also para.  7.105)  WT/DS486/AB/R  
 
- 12 - 
 
 
  d. with respect to Pakistan's claims under Article  15.5 of the SCM  Agreement , the Panel 
found that : 
i. Pakistan failed to establish that the Commission's use of the "break the causal link" 
methodology in this case was inconsistent with Article  15.531; 
ii. Pakistan failed to establish that the Commission acted inconsistently with Article  15.5 
by failing to conduct a proper non -attribution analysis of imports from Korea32; 
iii. Pakistan failed to establish that the Commission acted inconsistently with Article  15.5 
by failing to conduct a proper non -attribution analysis of the economic downturn33; 
iv. the Commission acted inconsistently with Article  15.5 with respect to its analysis of 
competition from non -cooperating producers34; and  
v. the Commission acted inconsistently with Article  15.5 with respect to its analysis of 
oil prices35; and  
e. with respect to Pakistan's claim under Article  12.6 of the SCM  Agreement , the Panel 
found that  the Commission acted inconsistently with Article  12.6 because it failed to 
adequately provide the "results" of the verification visit to Novatex.36 
1.11.   The Panel explained that, give n that the measures at issue in this dispute had expired, it 
would make no recommendation to the Dispute Settlement Body (DSB) pursuant to Article  19.1 of 
the DSU.37 
1.12.   On 30  August 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 Report and certain 
legal interpretations developed by the Panel and filed a Notice of Appeal38 and an appellant's 
submission pursuant to Rule  20 and Rule  21, respectively, of th e Working Procedures for Appellate 
Review39 (Working Procedures).  
1.13.   On 4 September 2017 , Pakistan 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 Report and certain legal 
interpretations developed by the Panel and filed a Notice of Other Appeal40 and an other 
appellant's submission pursuant to Rule  23 of the Working  Procedures . 
1.14.   On 18  September 2017, Pakistan and the European  Union each filed an appellee's 
submission.41 On 20  September 2017, the United  States  filed a third participant's submission.42 On 
the same day, China notified its intention to appear at the oral hearing as a third participant.43 
1.15.   On 27  October  2017, the Chair of the Appellate Body notified the Chair of the DSB t hat the 
Appellate Body would not be able to circulate its Report in this appeal within the 60 -day period 
pursuant to Article  17.5 of the DSU, or within the 90 -day period pursuant to the same provision.44 
The Chair of the Appellate Body explained that this w as due to a number of factors including a 
substantially enhanced workload in 2017 with several appeals proceeding in parallel and the 
demands that these concurrent appeals place on the WTO  Secretariat's translation services, 
                                                
31 Panel Report, para.  8.1.d.i. See also para.  7.127.  
32 Panel Report, para.  8.1.d.ii. See also para.  7.135.  
33 Panel Report, para.  8.1.d.iii. See also p ara. 7.145.  
34 Panel Report, para.  8.1.d.iv. See also para.  7.152.  
35 Panel Report, para.  8.1.d.v. See also para.  7.160.  
36 Panel Report, para.  8.1.e. See also para.  7.182.  
37 Panel Report, para.  8.3. See also fn  33 to para.  7.13. 
38 WT/DS486/6.  
39 WT/AB/WP/6, 16  August 2010.  
40 WT/DS486/7.  
41 Pursuant to Rules 22 and 23(4), respectively, of the Working Procedures.  
42 Pursuant to Rule 24(1) of the Working Procedures.  
43 Pursuant to Rule 24(2) of the Working Procedures.  
44 WT/DS486/8.  WT/DS486/AB/R  
 
- 13 - 
 
 
  scheduling issues arising from an increasing overlap in the composition of the Divisions hearing the 
different appeals  owing to the current vacancies on the Appellate Body , and the shortage of staff in 
the Appellate Body Secretariat. On 7 May 2018, the  Chair of the Appellate Body inform ed the  Chair 
of the DSB that the Appellate Body Report in these proceedings would be circulated no  later than  
16 May 2018.45 
1.16.   On 17  October 2017, Pakistan and the European  Union jointly requested the Appellate  Body 
Division hearing this appeal to adopt addit ional procedures for the protection of BCI in these 
appellate proceedings. In their joint request, the participants sought protection for any information 
that was submitted by the participants as BCI in the context of the Panel proceedings, including  
any information that was treated as such by the Panel. On the same day , the Division invited the 
third participants to comment in writing on the joint request. By letter dated 19  October 2017, the 
United  States commented on the joint request. China did not comm ent. On 25  October 2017, the 
Division issued a Procedural Ruling informing the participants of its decision to accord additional 
protection to the information that the Panel had treated as BCI in its Report and on the Panel 
record.46 
1.17.   On 14 November 2017, th e Division info rmed the participants and third  participants that the 
oral hearing in this appeal wa s scheduled to take place o n 12 and 13 February  2018. By letter 
dated 28  November 2017, Pakistan and the European  Union jointly requested the Division to 
reschedule the date of the hearing . On 29  November 2017,  the Division invited the 
third participants to comment on the request by the participants. N either  of the third participants 
commented on the request.  On 4 December 2017, the Division issued a Procedural Ruling  under 
Rule 16 of the Working  Procedures  informing the participants and third participants of its decision 
to reschedule the date of the hearing.47 
1.18.   The oral hearing in this appeal was held on 8 and 9  February 2018. The participants and 
third participants made oral statements and responded to questions posed by the Division.  
1.19.   On 24  November 2017, the participants and third participants were informed that, in 
accordance with Rule  15 of the Working Procedures, the Appellate Body had notified the  Chair of 
the DSB of its decision to authorize Appellate Body Member Mr Peter Van  den Bossche to complete 
the disposition of this appeal, as his second term of office was due to expire before the completion 
of the appellate proceedings.  
2  ARGUMENTS OF THE PA RTICIPANTS  
2.1.  The claims and arguments of the participants are reflected in the executive summaries of 
their written submis sions provided to the Appellate Body.48 The Notices of Appeal and 
Other  Appeal and the executive summaries of the participants' claims an d arguments are 
contained in Annexes  A and B of the Addendum to this Report, WT/DS486/AB/R/Add.1.  
3  ARGUMENTS OF THE UNI TED STATES AS A THIRD PA RTICIPANT  
3.1.  The arguments of the United States are reflected in the executive summary of its written 
submission prov ided to the Appellate  Body49, which is contained in Annex  C of the Addendum to 
this Report, WT/DS486/AB/R/Add.1.  
                                                
45 WT/DS486/9.  
46 The Procedural Ruling of 25  October 2017 is contained in Annex  D-1 of the Addendum to this Report, 
WT/DS486/AB/R/Add.1.  
47 The Procedural Ruling of 4  December 2017 is contained in Annex  D-2 of the Addendum to this Report, 
WT/DS486/AB/R/Add.1.  
48 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).  
49 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).  WT/DS486/AB/R  
 
- 14 - 
 
 
  4  ISSUES RAISED IN THI S APPEAL  
4.1.  The following issues are raised in this appeal:  
a. whether the Panel acted inconsistently with Article  11 of the DSU, as informed by 
Article  3 of the DSU, by deciding to make findings on Pakistan's claims in this dispute , 
notwithstanding the expiry of the measure at issue  (raised by the European Union) ; 
b. whether the Panel erred in finding that, in making its determination that the MBS was a 
countervailable subsidy contingent upon export performance, the European  Union acted 
inconsistently with Article  1.1(a)(1)(ii) of the SCM  Agreement by failing to provide a  
reasoned and adequate explanation for why the entire am ount of remitted duties was 
"in excess of those which have accrued" within the meaning of footnote  1 of the 
SCM Agreement  (raised by the European Union) . In particular, whether the Panel erred 
in find ing that:  
i. the "excess remissions principle" provides the legal standard under which to 
determine whether remissions of import duties obtained under a duty drawback 
scheme constitute a financial contribution in the form of  government  revenue 
foregone that is otherwise due within the meaning of Article  1.1(a)(1)(ii)  and 
footnote 1  of the SCM  Agreement; and  
ii. even if, pursuant to Annex  II and/or Annex III to the SCM Agreement , an 
investigating authority establishes that the exporting Member has no reliable  system 
of tracking inputs consumed in the production of a relevant exported product and , in 
the absence of a further examination by the exporting Member of that issue, the 
investigating authority should still determine whether an excess remission occurred ; 
and 
c. whether the Panel erred in its interpretation and application of Article  15.5 of the 
SCM Agreement in finding that Pakistan failed to establish that the Commission's use of 
the "break the causal link" approach  in this case was inconsistent with Artic le 15.5 
(raised by Pakistan) . 
5  ANALYSIS OF THE APPE LLATE BODY  
5.1  European  Union's  claim of error regarding the expiry of the measure at issue  
5.1.  The European  Union claims that the Panel failed to comply with its duty under Article  11 of 
the DSU, as informed by Article  3 of the DSU, by deciding to make findings on Pakistan's claims in 
this dispute , notwithstanding the expiry of the measure at issue during the Panel proceedings.50 
The European  Union requests us to reverse the entirety of the Panel Report and to dec lare moot 
and of no legal effect the findings and legal interpretations contained therein.51 
5.2.  In order to situate the European  Union's claim under Article  11 of the DSU in its proper 
context, we begin by providing, as background information, the relevant asp ects of the 
communication between the parties and the Panel concerning the expiry of the measure at issue. 
We also include a summary of the relevant Panel findings before addressing the merits of the 
European  Union's claim under Article  11 of the DSU.  
5.1.1   Back ground information  
5.3.  At its meeting on 25  March 2015, the DSB established a panel at the request of Pakistan.52 
On 13  May 2015, the parties agreed on the composition of the Panel.53 
                                                
50 Europea n Union's Notice of Appeal, p.  1; appellant's submission, paras.  2 and 24.  
51 European  Union's Notice of Appeal, p.  2; appellant's submission, paras.  2 and 53.  
52 Panel Report, para.  1.3 (referring to Pakistan's Panel Request).  
53 Panel Report, para.  1.5. WT/DS486/AB/R  
 
- 15 - 
 
 
  5.4.  Five years after the imposition of the definitive duties, on 26  September 2015 , a notice of 
expiry of the relevant countervailing measures was published in the Official Journal of the 
European  Union . The notice indicated that, as "no duly substantiated request for a review" had 
been lodged, the countervailing measure prescribed by t he Definitive  Determination would expire 
at midnight on 30  September  2015.54 By letter dated 1  October  2015, before the Panel began its 
work55, the European  Union informed the Panel and Pakistan that the measure at issue had 
expired. In view of this developm ent, and subject to Pakistan's agreement, the European  Union 
requested the Panel to terminate its work. On 15  October 2015, the Panel invited Pakistan to 
respond to the European  Union's letter. By letter dated 11  November 2015, Pakistan indicated that 
it did not agree with the European  Union's request and asked the Panel to continue its work in this 
dispute.  
5.5.  On 3  March 2016, the European  Union filed a request for a preliminary ruling, asking, 
inter alia, that the Panel cease all work in this dispute because  the measure at issue had expired.56 
On 19  May 2016, the Panel sent a communication to the parties denying the European  Union's 
request and indicating that it would provide the reasons for its decision in due course. The Panel 
provided its reasons for denyi ng the request by the European  Union in its Report.57 
5.1.2   The Panel's findings  
5.6.  The European  Union requested that the Panel cease all work in this dispute because the 
measure at issue had expired.58 The European  Union referred to Articles  3.4, 3.7, and 11 of the 
DSU in support of its assertion that the role of a panel is to make recommendations or rulings 
when these contribute to securing a positive solution to a dispute. According to the 
European  Union, as the measure at issue had expired, it could be understood to have been 
"withdrawn" within the meaning of Article  3.7 of the DSU, and thus a positive solution had been 
secured.59 
5.7.  Pakistan asked the Panel to reject the European  Union's request, arguing that it lacked any 
basis in the text of the DSU or the practice of panels and the Appellate Body. Relying on past 
Appellate Body reports, Pakistan asserted that the expiry of a measure does not limit a panel's 
jurisdiction to issue findings regarding that measure, and that a panel cannot decline to rule on the 
entirety  of the claims over which it has jurisdiction.60 Pakistan indicated that the present dispute 
involved a number of claims that, although directed at the specific measure at hand, were 
nevertheless also of systemic importance to Pakistan. In particular, Pakis tan informed the Panel 
that the MBS  was the subject of other countervailing duty investigations by other WTO  Members, 
including the United  States, and that these other Members had relied on the European Union's 
Definitive Determination at issue in this dis pute as one of the reasons for the initiation of their 
respective countervailing duty investigations.61 
5.8.  The Panel acknowledged that the measure at issue had expired on 30  September  2015, at 
which time the countervailing duties on certain PET from Pakistan h ad been removed. Thus, the 
Panel considered that the measure at issue had ceased to have legal effect. For the Panel, this 
meant that it was not possible for the European  Union to "withdraw" the measure at issue within 
the meaning of Article  3.7 of the DSU .62 Taking note of WTO panel and Appellate Body 
jurisprudence stating that panels have discretion in deciding whether to make findings regarding 
                                                
54 Notice of the expiry of certain countervailing measures, Official Journal of the European  Union , 
C Series, No. 319 (26  September 2015).  
55 Panel Report, para.  1.7. The Panel began its work on this case later than it would have wished to due 
to staff constrai nts in the WTO Secretariat. (Ibid.)  
56 Panel Report, para.  7.9. 
57 Panel Report, para.  7.12. 
58 Panel Report, para.  7.9. 
59 Panel Report, para.  7.10 (referring to European Union's request for a preliminary ruling, 
paras.  14-15). 
60 Panel Report, para.  7.11 (ref erring to Pakistan's response to the European  Union's request for a 
preliminary ruling, paras.  1.3, 4.14 (quoting Appellate  Body Report, Mexico – Taxes on Soft Drinks , para.  46), 
and 4.36).  
61 Pakistan's response to the European Union's request for a prelim inary ruling, paras.  4.60-4.62. 
62 Panel Report, para.  7.13 and fn  33 thereto.  WT/DS486/AB/R  
 
- 16 - 
 
 
  expired measures, the Panel indicated that it had not identified any reason to depart from this 
jurisprudence.63 
5.9.  In deciding how to exercise its discretion, the Panel first noted that the measure at issue 
expired after the Panel had been established. Second, the Panel took into account the fact that 
Pakistan continued to request that the Panel make findings with resp ect to the expired measure. 
Third, the Panel considered it a reasonable possibility that the European  Union could impose 
countervailing measures on Pakistani goods in a manner that could give rise to certain potential 
WTO inconsistencies that would be the same as, or materially similar to, those alleged in this 
dispute. In particular, the Panel took note of Pakistan's assertion that a wide range of Pakistani 
exports benefit from the MBS, and of the fact that the parties disputed, on a fundamental level, 
how investigating authorities should determine the extent to which duty drawback schemes like 
the MBS may constitute countervailable subsidies within the meaning of the SCM  Agreement.64 
5.10.   For these reasons, the Panel decided to proceed with its work in this disp ute.65 
5.1.3   Whether the Panel erred in deciding to make findings on Pakistan's claims in this 
dispute  after the measure at issue had expired  
5.11.   The European  Union submits that the measure at issue had expired and had ceased to have 
any legal effect before the Panel  commenced its work, thereby rendering the Panel proceeding 
moot. The European  Union contends that the Panel disregarded its basic obligations under 
Article  11 of the DSU, as informed by Article  3 of the DSU, by deciding to make findings on 
Pakistan's clai ms despite the expiry of the measure at issue. Consequently, the European  Union 
requests us to reverse the entirety of the Panel  Report and to declare moot and of no legal effect 
the findings and legal interpretations contained therein.66 
5.12.   The European Union 's claim under Article  11 of the DSU raises issues relating to a panel's 
jurisdiction to hear disputes and, specifically, the limits of a panel's discretion in the exercise of 
that jurisdiction. In this regard, we note that the European  Union prefaces its arguments in 
support of its claim under Article  11 of the DSU by emphasizing that it does not question that, 
once a panel is established, it has jurisdiction to rule on the matter before it. However, the 
European  Union maintains that a panel having "jurisd iction" or "authority" on the matter before it 
"does not mean that the exercise of such an authority is boundless".67 For the European  Union, the 
Panel "wrongly exercised its alleged discretion in breach of Article  11 of the DSU when making 
findings in this  dispute".68 
5.13.   Article  6.1 of the DSU provides that the DSB has the authority to establish a panel at the 
request of the complaining Member. Article  6.2 of the DSU sets forth the requirements applicable 
to a complaining Member's request for the establishment of a panel . A panel request must meet, 
inter alia, two distinct requirements: (i)  the identification of the specific measures at issue; and 
(ii) the provision of a brief summary of the legal basis of the complaint (or the claims). Together, 
the two element s referred to in Article  6.2 of the DSU – the specific measures at issue and the 
claims – comprise the "matter referred to the DSB", which forms the basis for a panel's terms of 
reference under Article  7.1 of the DSU once the panel  is established by the DS B.69 Thus, by 
establishing a panel, the DSB also establishes the jurisdiction of that panel to adjudicate the 
"matter" before it, as circumscribed by the panel's terms of reference.70 
                                                
63 Panel Report, para.  7.13 (referring to Appellate Body Reports, EC – Bananas III (Article  21.5 – 
Ecuador II) / EC – Bananas  III (Article  21.5 – US), para. 270; China – Raw Mater ials, para.  263; 
Panel  Reports, US – Poultry (China) , para.  7.54; EC – IT Products , para.  7.165).  
64 Panel Report, para.  7.13. 
65 Panel Report, para.  7.13. 
66 European  Union's appellant's submission, paras.  2, 4, 6, 41, and 53.  
67 European  Union's appellant's submission, para.  40. 
68 European  Union's appellant's submission, para.  24. 
69 Appellate Body Reports, US – Countervailing Measures (China) , para.  4.6; US – Carbon Steel , 
para. 125; Guatemala – Cement I , paras.  69-76. 
70 Appellat e Body Report, Brazil – Desiccated Coconut , p. 22, DSR 1997:I, p. 186. As the Appellate Body 
has explained, this "vesting of jurisdiction in a panel is a fundamental prerequisite for lawful panel 
proceedings". (Appellate Body Report, US – 1916 Act , para.  54) WT/DS486/AB/R  
 
- 17 - 
 
 
  5.14.   Once a panel's jurisdiction is established, the panel is required to address the "matter" 
before it in accordance with Article  11 of the DSU, which sets out the function of panels.71 
Article  11 of the DSU states:  
The function of panels is to assist the DSB in discharging its responsibilities under this 
Understanding and the covered agreements. Accordingly, a panel should make an 
objective assessment of the matter before it, including an objective assessment of the 
facts of the case and the applicability of and conformity with the relevant covered 
agreements, and make such oth er findings as will assist the DSB in making the 
recommendations or in giving the rulings provided for in the covered agreements. 
Panels should consult regularly with the parties to the dispute and give them adequate 
opportunity to develop a mutually satis factory solution.  
5.15.   Article  11 of the DSU describes the function of panels as assisting the DSB in discharging its 
responsibilities under the DSU and the covered agreements. To this end, "a panel should make an 
objective assessment of the matter before it, i ncluding an objective assessment of the facts of the 
case and the applicability of and conformity with the relevant covered agreements." In addition, a 
panel should "make such other findings as will assist the DSB in making the recommendations or 
in giving  the rulings provided for in the covered agreements". Thus, panels carry out their 
adjudicative mandate, as set out in Article  11 of the DSU, so as to assist the DSB in discharging its 
responsibilities under the DSU and the covered agreements.  
5.16.   WTO panels h ave certain powers that are inherent in their adjudicative function under 
Article  11 of the DSU.  For instance, panels have the authority to determine whether they have 
jurisdiction in a given case and to determine the scope and limits of that jurisdiction,  as defined by 
their terms of reference.72 Panels also have "a margin of discretion to deal, always in accordance 
with due process, with specific situations that may arise in a particular case and that are not 
explicitly regulated."73 
5.17.   Thus, a panel has a mar gin of discretion in the exercise of its inherent adjudicative powers. 
However, as the Appellate  Body cautioned in Mexico – Taxes on Soft Drinks , it does not necessarily 
follow from the existence of these inherent adjudicative powers that, once jurisdictio n has been 
validly established, a WTO panel has the authority to decline to exercise jurisdiction entirely in a 
case that is properly before it.74 The Appellate Body noted, in that case, that a decision by a panel 
to decline to exercise validly established jurisdiction would seem to "diminish" the right of the 
complaining Member to "seek the redress of a violation of obligations" within the meaning of 
Article  23 of the DSU.75 Pakistan refers to these Appellate Body's statements in Mexico  – Taxes on 
Soft Drink s in support of its argument that, "if a panel does not at all address measures validly 
placed before it, it is tantamount to improperly denying a complainant its WTO rights."76 We recall 
that the issue in Mexico – Taxes on Soft Drinks  concerned a request b y Mexico that the panel in 
that dispute decline to exercise its jurisdiction entirely so that the matter could be heard, in the 
context of a "broader dispute", by a panel established under the North American Free Trade 
Agreement (NAFTA).77 The panel's rejec tion of that request was then appealed by Mexico. Thus, in 
that dispute, the Appellate Body was addressing a situation in which the responding Member was 
requesting a WTO panel to refrain from exercising its compulsory jurisdiction entirely in favour of a 
different adjudicative forum. Indeed, in that dispute, the Appellate Body highlighted that it was 
"[m]indful of the precise scope of Mexico's appeal", and expressed "no view as to whether there 
                                                
71 We note that the panel's jurisdiction, once established by the DSB, remains valid throughout the 
panel proceedings and may be curtailed in only two instances, both of which are described in detail in 
paragraph 5.18 below.  
72 Appellate Body Report, Mexico – Taxes on Soft Drinks , para.  45 and fn  90 thereto (referring to 
Appellate  Body Reports, US – 1916 Act , fn 30 to para.  54; Mexico – Corn Syrup (Article  21.5 – US), paras.  36 
and 53).  
73 Appellate Body Report, Mexico – Taxes on Soft Drinks , para.  45 and fn 91 thereto (quoting 
Appellate  Body Report, EC – Hormones , fn 138 to para.  152; referring to Appellate Body Report, US – FSC 
(Article  21.5 – EC), paras.  247-248).  
74 Appellate Body Report, Mexico – Taxes on Soft Drinks , paras.  46, 52, and 53.  
75 Appella te Body Report, Mexico – Taxes on Soft Drinks , para.  53. 
76 Pakistan's appellee's submission, para.  3.54 (referring to Appellate Body Report, Mexico – Taxes on 
Soft Drinks , para.  53). 
77 Appellate Body Report, Mexico – Taxes on Soft Drinks , para.  54. WT/DS486/AB/R  
 
- 18 - 
 
 
  may be other circumstances in which legal impediments could ex ist that would preclude a panel 
from ruling on the merits of the claims that are before it".78 
5.18.   In this vein, we observe that there are instances, explicitly provided for in the DSU, in which 
a panel whose jurisdiction has been validly established by the DSB  is precluded from ruling on the 
merits of the claims that are before it. For example, where the parties to a dispute arrive at a 
mutually satisfactory solution, Article  12.7 of the DSU provides that "the report of the panel shall 
be confined to a brief de scription of the case and to reporting that a solution has been reached." 
Similarly, pursuant to Article  12.12 of the DSU, a panel may suspend its work at the request of a 
complaining party. If the work of the panel is then suspended for more than 12  month s, 
Article  12.12 states that "the authority for establishment of the panel shall lapse", thereby 
terminating the panel's jurisdiction. These provisions illustrate that there may be instances where 
a panel would be precluded from ruling on the merits of the  matter before it.  
5.19.   Moreover, with respect to the dispute before us, we take note of the European  Union's 
assertion that it does not question that the Panel in this dispute had jurisdiction to rule on the 
matter before it.79 Instead, the European  Union argue s that the Panel, in the exercise of its 
jurisdiction, "wrongly exercised its alleged discretion in breach of Article  11 of the DSU when 
making findings in this dispute"80, notwithstanding the expiry of the measure at issue. We recall 
that a panel has a mar gin of discretion in the exercise of its inherent adjudicative powers under 
Article  11 of the DSU. Within this  margin of discretion , it is for a panel to decide how it takes into 
account subsequent modifications to, or expiry or repeal of, the measure at i ssue.81 We recall that 
the fact that a measure has expired is not dispositive of the question of whether a panel can 
address claims with respect to  that measure.82 Rather, among its inherent adjudicative powers is 
the authority of a panel to assess objective ly whether the "matter" before it, within the meaning of 
Article  7.1 and Article  11 of the DSU, has been fully resolved or still requires to be examined 
following the expiry of the measure at issue. Hence, we would draw a distinction between a 
situation in  which a  WTO panel declines to exercise its jurisdiction entirely at the outset of a 
proceeding in favour of a different adjudicative forum and a situation in which a panel, in the 
exercise of its jurisdiction, objectively assesses whether the "matter" bef ore it, within the meaning 
of Article  7.1 and Article  11 of the DSU, has been fully resolved or still requires to be examined 
following the expiry of the measure at issue.  
5.20.   Similarly, we stress that a situation in which a panel is precluded from addressing83, or 
declines to address, the merits of all of the claims before it is distinct from a situation where a 
panel exercises judicial economy. Judicial economy refers to the discretion of a panel to address 
only those claims that must be addressed "in order to  resolve the matter in issue in the dispute".84 
It follows that a panel can exercise judicial economy only after it has addressed some of the claims 
before it, particularly those claims that must be addressed in order to resolve the matter. If a 
panel were to decline to address the merits of all of the claims before it, the occasion for 
exercising judicial economy would not arise. As the Appellate Body has explained, the discretion of 
a panel to exercise judicial economy is consistent with the aim of the WTO  dispute settlement 
mechanism, as articulated in Article  3.7 of the DSU, to "secure a positive solution to a dispute".85 
In this regard, we recall that, in its opening statement at the hearing, the European  Union 
suggested that a panel's decision not to rul e on the entirety of the claims before it owing to the 
                                                
78 Appel late Body Report, Mexico – Taxes on Soft Drinks , para.  54.  
79 European  Union's appellant's submission, para.  40. 
80 European  Union's appellant's submission, para.  24. 
81 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.180 (referring to Appell ate Body 
Reports, EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article  21.5 – US), para.  270).  
82 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179 (referring to Appellate Body 
Reports, EC – Bananas III (Article  21.5 – Ecuador II) / EC – Bananas III (Article  21.5 – US), para.  270).  
83 See para.  5.18 above.  
84 Appellate Body Report, US – Wool Shirts and Blouses , p. 19, DSR  1997:I, p.  340. See also Appellate 
Body Reports, India – Patents (US) , para.  87; Brazil – Retreaded Ty res, para.  257; Canada – Wheat Exports 
and Grain Imports , para.  133; US – Lead and Bismuth  II, paras.  71 and  73; Argentina – Footwear (EC) , 
para. 145; Australia – Salmon , para.  223; Japan – Agricultural Products II , para.  111. 
85 Appellate Body Reports, US – Wool Shirts and Blouses , p. 19, DSR  1997:I, p.  340; India – Patents 
(US), para.  87; Brazil – Retreaded Tyres , para.  257; Canada – Wheat Exports and Grain Imports , para.  133; 
US – Lead and Bismuth II , paras.  71 and  73; Argentina – Footwear (EC) , para.  145; Australia – Salmon , 
para. 223; Japan – Agricultural Products II , para.  111. WT/DS486/AB/R  
 
- 19 - 
 
 
  expiry of the measure at issue is akin to a panel's exercise of judicial economy.86 However, as 
explained above, given that a panel can exercise judicial economy only after it has addressed 
some of the claims, and thereby resolved the matter before it, we consider the European  Union's 
suggestion to be inapposite.  
5.21.   Bearing these considerations in mind, we recall that the European  Union's claim under 
Article  11 of the DSU raises issues concerning the limits  of a panel's discretion in the exercise of its 
jurisdiction to adjudicate disputes. As stated above, the European  Union does not question that the 
Panel established in this dispute had jurisdiction to rule on the matter before it.87 However, the 
European  Union maintains that a panel having "jurisdiction" or "authority" on the matter before it 
"does not mean that the exercise of such an authority is boundless".88 For the European  Union, the 
Panel "wrongly exercised its alleged discretion in breach of Article  11 of the DSU when making 
findings in this dispute".89 In response to questioning at the hearing, the European  Union clarified 
that its claim is that, by exercising its discretion in deciding to make findings on the measure at 
issue after it had expired, th e Panel failed in its duty under Article  11 of the DSU to assist the DSB 
in discharging its responsibilities under the DSU. For the European  Union, these "responsibilities" 
referred to in Article  11 of the DSU are identified in Article  3 of the DSU.90 
5.22.   Indee d, the European  Union's arguments in support of its claim under Article  11 on appeal 
primarily rely on the provisions of Article  3 of the DSU. In particular, the European  Union highlights 
Articles  3.3, 3.4, 3.7, 3.8, and 3.9 as informing its claim under Ar ticle 11 of the DSU.91 The 
European  Union asserts that Article  11 of the DSU  regulates a panel's exercise of its discretion. For 
the European  Union, in exercising its discretion, a panel must take into account the purpose that 
the WTO dispute settlement mechanism serves, as set out in Article  3 of the DSU.92 The 
European  Union makes no arguments under Article  11 of the DSU that are independent of its 
arguments under Article  3. Accordingly, we examine how the specific paragraphs of Article  3 
referred to by the European  Union inform a panel's exercise of its function  under  Article  11 of 
the DSU.93 
5.23.   The European  Union argues that Article  3.3 of the DSU, which indicates that "[t]he prompt 
settlement of situations … is essential to the effective functioning of the  WTO", suggests that the 
settlement of disputes after the expiry of the measure at issue, when there is no longer any 
measure impairing any benefit, "is both non -essential and contrary to the very objectives of the 
WTO dispute settlement system".94 In respo nse to questioning at the hearing, Pakistan highlighted 
that Article  3.3, like Article  3.7 of the DSU, emphasizes the self -regulating nature of the right of 
WTO Members to bring disputes.  
5.24.   Article  3.3 of the DSU states that "the prompt settlement of situati ons" in which a Member 
considers that any benefits accruing to it directly or indirectly under the covered agreements are 
being impaired by measures taken by another Member "is essential to the effective functioning of 
the WTO and the maintenance of a prop er balance between the rights and obligations of 
Members." The fact that a Member may initiate a WTO  dispute whenever it considers that any 
                                                
86 See also European Union's appellant's submission, para.  36. 
87 European  Union's appellant's submission, para.  40. 
88 European  Union's appellant's submission, para.  40. 
89 European  Union's appellant's submission, para.  24. 
90 Article  3 of the DSU, which bears the title "General Provisions", sets out, in 12 paragraphs, principles 
that underpin the WTO dispute settlement mechanism, its rules, and its procedures.  
91 European  Union's appe llant's submission, paras.  31-38. 
92 European  Union's appellant's submission, para.  36. 
93 On 30  August 2017, the European  Union filed its Notice of Appeal in the present dispute. On 
5 September 2017, the Appellate Body circulated its report in EU – Fatty Al cohols (Indonesia)  to 
WTO Members. The panel in that dispute had made rulings with respect to an anti -dumping measure that had 
expired during the panel proceedings. On appeal, the Appellate Body rejected a request by the 
European  Union, supported by argume nts relating to Article  3 of the DSU, to declare moot and of no legal 
effect all of the findings and conclusions made by that panel. (Appellate Body Report, EU – Fatty Alcohols 
(Indonesia) , paras.  5.175 -5.186 and  6.6) As the Appellate Body report in EU – Fatty Alcohols (Indonesia)  was 
circulated after the European Union filed its appeal in this dispute, the European  Union's Notice of Appeal and 
appellant's submission do not take into account the relevant Appellate Body findings in EU – Fatty Alcohols 
(Indon esia).  
94 European  Union's appellant's submission, para.  31. WT/DS486/AB/R  
 
- 20 - 
 
 
  benefits accruing to it are being impaired by measures taken by another Member, pursuant to 
Article  3.3 of the DSU, "implies that that Member is entitled to a ruling by a WTO  panel".95 
5.25.   Moreover, as stated by the Appellate  Body in EU – Fatty Alcohols (Indonesia) , with respect 
to a challenged measure that expired during the panel proceedings, there is contextual support in  
Article  3.3 of the DSU for interpreting the words "measures at issue" in Article  6.2 of the DSU96 as 
not excluding expired measures from its scope. Article  3.3 connects the words "prompt 
settlement", not to "existing" measures or measures "currently in for ce", but to "measures taken" 
by a Member, which include measures taken in the past.97 Thus, the fact that a measure has 
expired is not dispositive of the question of whether a panel can address claims with respect to  
that measure98, or how it can or should d o so "promptly". Accordingly, we are not convinced by 
the European  Union's contention that the settlement of disputes after the expiry of the measure at 
issue "is both non -essential and contrary to the very objectives of the WTO dispute settlement 
system".99 
5.26.   The European Union also contends that, in accordance with Article  3.4 of the DSU, a 
"satisfactory settlement of the matter" was achieved in this dispute when the European  Union 
terminated the countervailing measure at issue. Similarly, referring to Artic le 3.7 of the DSU, the 
European Union contends that, in the present dispute, "a positive solution to the dispute", being 
the expiry of the measure at issue, "was already achieved and this is the first objective of the 
dispute settlement system".100 
5.27.   These arg uments by the European  Union reflect the proposition that a dispute no longer 
exists after the expiry of the measure at issue. However, the Appellate Body has expressly 
rejected the proposition that the repeal of a measure necessarily constitutes, without more, a 
"satisfactory settlement of the matter"101 within the meaning of Article  3.4, or a "positive solution 
to the dispute" within the meaning of Article  3.7. The fact that a measure has expired is not 
dispositive of the question of whether a panel can add ress claims with respect to  that measure.102 
5.28.   In this regard, we recall that the "matter" before a panel under Article  11 of the DSU is the 
"matter referred to the DSB" by the complaining Member within the meaning of Article  7.1 of the 
DSU. As discussed at pa ragraph  5.13 above, this "matter" comprises the specific measures at  
issue and the claims.103 Indeed, in addition to the duty under Article 11 of the DSU to make  an 
objective assessment of the facts of the case, a panel is charged with the duty to "make an 
objective assessment of … the applicability of and conformity with the relevant covered 
agreements" . Hence, the expiry of the measure at issue, on its own, while relevant , does not 
dispense with the "matter" that a panel is tasked with examining. As Article  7.2 of the DSU  
stipulates, "[p]anels shall address the relevant provisions in any covered agreement or 
agreements cited by the parties to the dispute." Hence, in our view, the expiry of the measure at 
issue after the Panel was established in this dispute did not, without more, render it unnecessary 
for the Panel to exercise its function under Article  11 of the DSU to make findings with respect to 
the claims raised by Pakistan.104 
                                                
95 Appellate Body Report, Mexico – Taxes on Soft Drinks , para.  52. (emphasis omitted) See also 
paras.  5.17- 5.20 above.  
96 As discussed at paragraph  5.13 above, the jurisdiction of a panel established by the DSB is prescribed 
by a panel's terms of reference, as governed by Articles  6.2 and 7 of the DSU.  
97 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.182 (referring to Appellate Body 
Reports, US – Upland Cotton , para. 264; EC – Bananas III (Article 21.5 – Ecuador  II) / EC – Bananas III 
(Article 21.5 – US), para.  268).  
98 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179 (referring to Appellate Body 
Reports, EC – Bananas III (Article  21.5 – Ecuador II) / EC – Bananas III (Article  21.5 – US), para.  270).  
99 European Union's appellant's submission, para.  31. 
100 European Union's appellant's submission, paras.  32-33. (emphasis omitted)  
101 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179 (referring t o Appellate Body 
Report, US – Upland Cotton , para.  270).  
102 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179 (referring to Appellate Body 
Reports, EC – Bananas III (Article  21.5 – Ecuador II) / EC – Bananas III (Article  21.5 – US), para.  270).  
103 Appellate Body Report, US – Carbon Steel , para.  125 (referring to Appellate Body Report,  
Guatemala – Cement I , paras.  69-76). 
104 See Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179.  WT/DS486/AB/R  
 
- 21 - 
 
 
  5.29.   The European  Union further argues that the fact that the measure at issue had e xpired 
constituted at least a prima  facie rebuttal of the presumption that the measure was continuing to 
have an adverse impact within the meaning of Article  3.8 of the DSU.105 In these circumstances, 
the European  Union maintains that proceeding towards reta liation is pointless, because there is 
and will be no nullification or impairment to quantify.106 In response to questioning at the hearing, 
Pakistan pointed out that Article  3.8 applies to a situation where a panel has already made a 
finding that there has been "an infringement of the obligations assumed under a covered 
agreement" by the respondent. For this reason, Pakistan contends  that Article  3.8 does not 
support the European  Union's position that a panel can decide not to make any findings at all 
addres sing the matter before it, and it is therefore not relevant to the issues raised in this appeal.  
5.30.   By placing emphasis on quantifying the "nullification or impairment", the European  Union 
appears to read Article  3.8 in the inverse. While the "infringement of  the obligations assumed 
under a covered agreement" creates a rebuttable presumption of nullification or impairment, 
demonstrating nullification or impairment is not a prerequisite for bringing a dispute under the 
DSU.107 Moreover, while the European  Union p osits that where a measure has expired "proceeding 
towards retaliation is pointless"108, we consider that such a view stands at odds with Article  3.7 of 
the DSU. Article  3.7 provides that "[t]he aim of the dispute settlement mechanism is to secure a 
positive  solution to a dispute " and identifies the suspension of concessions and obligations 
(referred to by the European  Union as "retaliation") as "[t]he last resort", which the DSU provides 
to the complaining Member in case a WTO -inconsistent measure is not wit hdrawn.109 
5.31.   The European Union also posits that WTO dispute settlement proceedings are intended to 
secure a positive solution to a dispute and should not serve as a vehicle to obtain "advisory 
opinions" on legal matters.110 Pointing to Article  3.9 of the DSU, t he European Union submits that 
there are other procedures that allow Members to obtain an authoritative interpretation of 
particular provisions of a covered agreement.111 
5.32.   In the present dispute, Pakistan did not request an interpretation of the relevant prov isions 
of the covered agreements in the abstract. Instead, the Panel's legal interpretations and reasoning 
were made in the context of addressing Pakistan's claims that specifically challenged a measure 
that was in existence at the time that the DSB establ ished the Panel and set out its terms of 
reference.112 Hence, we consider the European  Union's arguments relating to Article  3.9 of the 
DSU to be inapposite.  
5.33.   For these reasons, we consider that none of the European  Union's arguments relating to 
Articles  3.3, 3.4, 3.7, 3.8, and 3.9 of the DSU demonstrate that, by deciding to make findings after 
the measure at issue had expired, the Panel failed to comply with its function under Article  11 of 
the DSU of adjudicating the "matter" before it so as to assist the DS B in discharging its 
responsibilities under the DSU and the covered agreements.  
                                                
105 Article  3.8 of the DSU states:  
In cases wher e there is an infringement of the obligations assumed under a covered agreement, 
the action is considered prima facie  to constitute a case of nullification or impairment. This 
means that there is normally a presumption that a breach of the rules has an adv erse impact on 
other Members parties to that covered agreement, and in such cases, it shall be up to the 
Member against whom the complaint has been brought to rebut the charge.  
106 European  Union's appellant's submission, para.  34. 
107 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.183.  
108 European  Union's appellant's submission, para.  34. 
109 Still in this regard, we take note that Article 3.7 of the DSU provides that, "[i]n the absence of a 
mutually agreed solution, the first objective of the di spute settlement mechanism is usually to secure the 
withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the 
covered agreements." Given the expiry of the measure at issue in this dispute before the Panel could make a 
determination regarding its WTO consistency, as the Panel noted, it would not have been possible for the 
European Union to "withdraw" the measure at issue within the meaning of Article 3.7 of the DSU. 
(Panel  Report, fn 33 to para. 7.13)  
110 European Union's appellant's submission, paras.  46 and 51 -52. 
111 European  Union's appellant's submission, para.  37 (referring to Appellate Body Reports, US – Wool 
Shirts and Blouses , p. 19, DSR  1997:I, p. 340; Japan – Apples , para.  215).  
112 See also Appellate Bo dy Report, EU – Fatty Alcohols (Indonesia) , para.  5.185.  WT/DS486/AB/R  
 
- 22 - 
 
 
  5.34.   Beyond its specific arguments under Articles  3.3, 3.4, 3.7, 3.8, and 3.9 of the DSU, the 
European  Union maintains that, in the present dispute, contrary to what the Panel found , there 
were no "compelling factors" for the Panel to make findings, and none of the factors mentioned by 
the Panel to exercise its alleged discretion pointed towards the need to make findings to secure a 
positive solution to this dispute.113 
5.35.   We recall that the fact that a measure has expired is not dispositive of the question of 
whether a panel can address claims with respect to  that measure.114 As a general matter, it is 
within the panel's discretion to decide how it takes into account subsequent modification s to, or 
expiry or repeal of, the measure at issue.115 
5.36.   The Panel in this dispute acknowledged that the measure at issue had expired and had 
"ceased to have legal effect".116 For the Panel, this meant that it was not possible for the 
European  Union to "withdraw " the challenged measure  within the meaning of Article  3.7 of the 
DSU. Nor did the Panel consider it possible to issue meaningful recommendations under 
Article  19.1 of the DSU that the European  Union bring its measure into conformity with the 
relevant cove red agreements if the Panel were to find the measure to be inconsistent with the 
relevant provisions of the covered agreements.117 Importantly, the Panel emphasized the 
fact-specific nature of its conclusions.118 We note that, on appeal, neither the European  Union nor 
Pakistan questions the Panel's decision not to make a recommendation to the DSB in 
this dispute.119 
5.37.   Having acknowledged that the measure at issue had expired, the Panel reasoned that this 
expiry did not affect its jurisdiction to issue findings with  respect to this measure.120 The Panel 
considered that it had discretion as to whether to make findings with respect to this measure. In 
deciding how to exercise its discretion, the Panel took note of certain "circumstances surrounding 
this dispute".121 We review below the Panel's assessment of these "circumstances", bearing in 
mind our discussion above on the considerations that a panel has to take into account in carrying 
out its function under Article  11 of the DSU.  
5.1.3.1   Review of the considerations that t he Panel took into account at paragraph  7.13 
of its Report  
5.38.   First, the Panel noted that the measure at issue had expired only after panel establishment. 
The Panel observed that, while some past panels have declined to make findings with respect to a 
measure  that had expired before  panel establishment, no panel has declined to hear the entirety 
of a dispute due to the expiry of the challenged measure  after panel establishment .122 On appeal, 
                                                
113 European  Union's appellant's submission, para.  44. 
114 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179 (referring to Appellate Body 
Reports, EC – Bananas III (Article 21.5 – Ecuad or II) / EC – Bananas III (Article  21.5 – US), para. 270).  
115 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.180 (referring to Appellate Body 
Reports, EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article  21.5 – US), para. 270).  
116 Panel Report, para.  7.13. 
117 Panel Report, fn  33 to para.  7.13 (referring to Appellate Body Report, US – Certain EC Products , 
paras. 80 -82) and para.  8.3. 
118 Panel Report, fn  33 to para.  7.13 (referring to Panel Report, EC and certain member St ates – Large 
Civil Aircraft (Article 21.5 – US), paras.  6.831 -6.838).  
119 In this regard, we recall the Appellate Body's observation that the expiry of the measure may affect 
what recommendations a panel may make. Thus, while some panels have found it inappr opriate or 
unnecessary to make a recommendation to the DSB after they found that the measure was no  longer in force, 
the Appellate Body has also clarified that, where a measure has expired, a panel is not legally precluded from 
making a recommendation on t hat measure. (See  Appellate Body Reports , EU – Fatty Alcohols (Indonesia) , 
para. 5.200; US – Upland Cotton , para.  272; US – Certain EC Products , para.  81; China – Raw Materials , 
para. 264. See also Panel Reports, Dominican Republic – Import and Sale of Cig arettes , paras.  7.359 -7.363, 
7.389 -7.393, and  7.415 -7.419; US – Poultry (China) , para.  8.7)  
120 Panel Report, fn  34 to para.  7.13 (referring to Appellate Body Reports, EC – Bananas III  
(Article  21.5 – Ecuador II) / EC – Bananas III (Article  21.5 – US), para.  270; China – Raw Materials , para. 263; 
Panel Reports, US – Poultry (China) , para. 7.54; EC – IT Products , para.  7.165).  
121 Panel Report, para.  7.13. 
122 Panel Report, para.  7.13 and fn 35 thereto (referring to Panel Reports, Dominican  Republic – Impor t 
and Sale of Cigarettes , para.  7.343; Indonesia – Autos , para.  14.9; China – Electronic Payment Services , 
para. 7.227; EC – Approval and Marketing of Biotech Products , paras.  7.1307 -7.1308; US – Gasoline , 
para. 6.19; Argentina – Textiles and Apparel , para s. 6.4 and  6.12-6.13).  WT/DS486/AB/R  
 
- 23 - 
 
 
  the European  Union appears to overlook this temporal distinction, stati ng that the "case -law 
shows, however, a mixed picture regarding whether panels and/or the Appellate Body have made 
'findings' in cases where the measure at issue expired or was term inated before or during the 
WTO proceedings."123 
5.39.   We recall that, pursuant to Article  7 of the DSU, a panel's terms of reference are governed 
by the complaining Member's panel request.124 In addition to establishing the jurisdiction of the 
panel, a  panel's terms of reference fulfil an important due process objective by giving the 
respondent and third parties sufficient information concerning the claims at issue in the dispute, 
and granting the respondent an opportunity to respond to the complainant's case.125 As the 
Appellate Body has explained, generally spea king, the demands of due process are such that a 
complaining party should not have to adjust its pleadings throughout dispute settlement 
proceedings in order to deal with a disputed measure as a "moving target".126 Hence, if a panel 
were to decline to make f indings with respect to a measure that expired after the DSB had 
established the panel and set out the panel's terms of reference, on the grounds of expiry of that 
measure alone, this may have the unintended consequence of providing a tool for shielding 
measures from scrutiny by a panel, or indeed by the Appellate Body.127 For these reasons, we do 
not consider the Panel to have erred by giving importance to the fact that, in the present dispute, 
the measure expired after the DSB had established the Panel.  
5.40.   As discussed above, by establishing  a panel, the DSB also establishes the jurisdiction of that 
panel to adjudicate the "matter" before it. In exercising their jurisdiction, panels "have certain 
powers that are inherent in their adjudicative function".128 In our  view, among these powers is the 
authority of a panel to assess objectively whether the "matter" before it, within the meaning of 
Article  7.1 and Article  11 of the DSU, has been fully resolved or still requires to be examined. This 
is especially so in a si tuation like in the present dispute  where the measure at issue has expired 
and has ceased to have legal effect . 
5.41.   In addition to the timing of the expiry of the measure at issue , the Panel took into account 
the fact that Pakistan had continued to request the  Panel to make findings with respect to the 
expired measure at issue.129 On appeal, the European  Union posits that the fact that Pakistan 
continued asking for findings, on its own, could not be a determinative factor for the Panel to 
continue to make finding s in this dispute. According to the European  Union, the Panel should have 
looked into whether there was an "actual need" to adjudicate the matter.130 
5.42.   We observe that the Panel considered Pakistan's continued request for findings as one of 
three explicitly id entified considerations in deciding whether to proceed to make findings in this 
dispute.  Hence, the Panel did not consider Pakistan's continued request for findings, on its own, to 
be dispositive of the Panel's need to make findings in this dispute. We further recall that , pursuant 
to Article  3.3 of the DSU, a Member may initiate WTO dispute settlement proceedings whenever it 
considers that any benefits accruing to it are being impaired by measures taken by another 
Member. Similarly, pursuant to Article  3.7, Members are expected to be largely self -regulating in 
deciding if any action under the DSU would be "fruitful".131 This means that a complaining 
Member's continued request for findings following the expiry of the measure at issue is a 
relevant  considera tion.  
                                                
123 European  Union's appellant's submission, para.  26. See also paras.  27-30. 
124 Article  6.2 of the DSU. See also Appellate Body Reports, US – Carbon Steel , para.  125;  
Guatemala – Cement I , paras.  69-76. 
125 Appellate Body Report, Brazil  – Desiccated Coconut , p. 22, DSR 1997:I, p. 186.  
126 Appellate Body Report, Chile – Price Band System , para.  144. 
127 Appellate Body Report, Chile – Price Band System , para.  144. We do not suggest that this is what 
occurred in the present dispute.  
128 Appellate  Body Report, Mexico – Taxes on Soft Drinks , para.  45. 
129 Panel Report, para.  7.13 and fn  36 thereto (referring to Appellate Body Report, Peru – Agricultural 
Products , paras.  5.18-5.19; Panel Reports, US – Wool Shirts and Blouses , para.  6.2; Indonesia – Autos, 
paras.  14.134 -14.135; Dominican Republic – Import and Sale of Cigarettes , para.  7.343).  
130 European  Union's appellant's submission, para.  46. 
131 Appellate Body Report, EU – Fatty Alcohols (Indonesia) , para.  5.179 (referring to Appellate Body 
Report, EC – Bananas III , para.  135).  WT/DS486/AB/R  
 
- 24 - 
 
 
  5.43.   Nonetheless, the deference accorded to a Member's exercise of its judgement in bringing a 
dispute is not entirely boundless.132 Rather, as discussed at paragraph  5.40 above , where a 
measure expires in the cours e of the panel proceedings, the panel sho uld, in the exercise of its 
jurisdiction, objectively assess whether the "matter" before it, within the meaning of Article  7.1 
and Article  11 of the DSU, has been fully resolved  or still requires to be examined . Thus, we agree 
with the European  Union that a panel 's considerations  should go beyond a complainant's continued 
request for findings and assess whether there still remains a "matter" with respect to which a 
positive solution is required , notwithstanding the expiry of the measure at issue .133 
5.44.   In this v ein, we recall that, in addition to making an objective assessment of the facts of the 
case, under Article  11 of the DSU, a panel is charged with the duty to "make an objective 
assessment of … the applicability of and conformity with the relevant covered a greements". As 
noted above , the expiry of the measure at issue, on its own, while relevant, does not dispense 
with the "matter" that a panel is tasked with examining. As Article  7.2 of the DSU stipulates, 
"[p]anels shall address the relevant provisions in any covered agreement or agreements cited by 
the parties to the dispute ." The extent to which a panel needs to address these treaty provisions is 
not boundless and is necessarily informed by the specific circumstances of the case before it, 
including the s pecific aspects of the measure at issue that are the subject of the complaining 
Member's claims.  Therefore,  the expiry of the measure at issue does not mean that the measure 
and the specific aspects thereof that have been challenged cease to serve as the n ecessary 
framework within which the panel will, pursuant to Article  7.2, address the relevant 
WTO provisions cited by the parties. Hence, the measure at issue, notwithstanding its expiry, 
continues to serve as the framework for the panel's duty, under Arti cle 11 of the DSU, to assess 
objectively "the applicability of and conformity with the relevant covered agreements".  
5.45.   Turning to the case before us, we observe that the Panel considered it a "reasonable 
possibility" that the European  Union could impose coun tervailing measures on Pakistani goods in a 
manner that may give rise to certain of the same, or materially similar, WTO inconsistencies that 
are alleged in this dispute.134 In particular, the Panel took note of Pakistan's assertion, not 
contested by the Eur opean  Union, that a wide range of Pakistani exports benefit from the MBS. 
The Panel also took account of the fact that the parties disagreed , "on a fundamental level", on 
how investigating authorities should determine the extent to which the MBS may consti tute a 
countervailable subsidy within the meaning of the SCM  Agreement.135 
5.46.   The European  Union challenges the Panel's consideration of the "reasonable possibility" that 
the European  Union could impose countervailing measures on Pakistani goods in a manner that 
may give rise to certain of the same, or materially similar, WTO inconsistencies that are alleged in 
this dispute.136 The European  Union submits that, in the last decade, the only countervailing duties 
imposed by the European  Union against products from  Pakistan were those under the measure at 
issue in this dispute.137 According to the European  Union, the Panel failed to examine the record of 
EU countervailing duty investigations against Pakistan and lightly assumed that there was a "risk" 
of re-imposition  of the expired measure. The European Union, however, maintains that there was 
no such risk with respect to PET or any other product from Pakistan.138 For the European  Union, 
                                                
132 Panel Report, fn  36 to para.  7.13 (referring to Appellate Body Report, Peru – Agricultural Products , 
paras.  5.18-5.19).  
133 Indeed, as we observed at paragraph  5.25 above, the reference in Article  3.3 of the DSU to the  
"measures t aken" by another Member in Article  3.3 includes measures taken  in the past. Hence, the fact that a 
measure has expired is not dispositive of the question of whether a panel can address claims with respect to 
that measure.  
134 Panel Report, para.  7.13 and fn  37 thereto (referring to Panel Reports, US – Gasoline , para.  6.19; 
Argentina – Textiles and Apparel , para.  6.14; India – Additional Import Duties , paras.  7.69-7.70; US – Poultry 
(China) , para.  7.55; EC – IT Products , para.  7.1159; China – Electronic Paymen t Services , para. 7.227;  
EC – Approval and Marketing of Biotech Products , para.  7.1310).  
135 Panel Report, para.  7.13. 
136 Panel Report, para.  7.13 and fn  37 thereto (referring to Panel Reports, US – Gasoline , para.  6.19; 
Argentina – Textiles and Apparel , para. 6.14; India – Additional Import Duties , paras.  7.69-7.70; US – Poultry 
(China) , para.  7.55; EC – IT Products , para.  7.1159; China – Electronic Payment Services , para. 7.227;  
EC – Approval and Marketing of Biotech Products , para.  7.1310).  
137 We consider the European  Union's assertion that it has imposed only one set of countervailing 
measures on Pakistan in the last decade to be irrelevant to the issues raised in this appeal.  
138 European Union's appellant's submission, para.  50. WT/DS486/AB/R  
 
- 25 - 
 
 
  the Panel sought to clarify existing provisions of the SCM  Agreement outside the co ntext of 
resolving a particular matter at issue in the dispute.139 
5.47.   We note the Panel's consideration of  the "reasonable possibility" that the European  Union 
could impose countervailing measures on Pakistani goods in a manner that may give rise to certain 
of the same, or materially similar, WTO inconsistencies that are alleged in this dispute.140 To the 
extent that this statement by the Panel  could be read as suggesting that the Panel  considered it a 
"reasonable possibility" that the European  Union could re -impose the very same measure that had 
expired and had ceased to have legal effect , we would disagree with such a consideration . As the 
European  Union asserts, the Commission would first need to initiate a new countervailing duty 
investigation within the meanin g of Article  11 of the SCM  Agreement. This new countervailing duty 
investigation would necessarily cover a different investigation period from that covered by the 
countervailing duty investigation at issue.141 
5.48.   However, we do not understand the Panel's statem ent to suggest that the European  Union 
could re -impose the same measure that had expired and had ceased to have legal effect. Rather, 
the Panel was concerned with the " reasonable possibility t hat the European  Union could impose 
CVDs on Pakistani goods in a  manner that may give rise to certain of the same, or materially 
similar, WTO inconsistencies that are alleged in this dispute ".142 Thus, whereas  the 
European  Union's arguments focus on the likelihood of re -imposition of the expired countervailing 
measure on  PET originating from Pakistan, the Panel's preoccupation in its consideration of the 
"reasonable possibility" appears to have been different.143 In our view, the Panel was concerned 
with the correct interpretation of the relevant provisions of the SCM  Agree ment and the 
GATT  1994, and the conformity, with this correct interpretation, of the Commission's reasoning 
and findings underpinning the now expired measure. While the Panel specifically identified the 
Commission's findings relating to the MBS in its expl anation of what the parties were in 
disagreement about144, we note that, in its Report, the Panel addressed several additional aspects 
of the Commission's findings, including the Commission's analysis of causation.145 Hence , the 
measure at issue , notwithstandi ng its expiry, continued to serve as the framework for the Panel's 
duty, under Article  11 of the DSU, to assess objectively "the applicability of and conformity with 
the relevant covered agreements" as invoked by the complainant.  
5.49.   From our consideration of the arguments of the parties before the Panel, and the Panel's 
reasoning as discussed above, it is apparent that there still existed a dispute between the parties 
on the "applicability of and conformity with the relevant covered agreements"146 as regards the 
Commission's findings underpinning the measure at issue , despite its expiry . As noted, the Panel 
referred to the "WTO inconsistencies that are alleged in this dispute" and recognized that the 
parties still disagreed on how investigating aut horities should determine the extent to which the 
MBS may constitute a countervailable subsidy within the meaning of the SCM  Agreement.147 
Therefore , the "matter" within the jurisdiction of the Panel was not fully resolved by the expiry of 
the measure. Given  that the  Panel objectively determine d that a dispute still persist ed between the 
parties as regards the "applicability of and conformity with the relevant covered agreements" with 
respect to the expired measure at issue , the P anel would not  have fulfilled its duty under Article  11 
of the DSU if it had declined to exercise its validly established jurisdiction and abstained from 
                                                
139 European Union's appellan t's submission, para.  51 (referring to Appellate Body Reports, US – Wool 
Shirts and Blouses , p. 19, DSR 1997:I, p. 340; India – Solar Cells , para.  5.161; Japan – Apples , para.  21). 
140 Panel Report, para.  7.13 and fn  37 thereto (referring to Panel Reports, US – Gasoline , para.  6.19; 
Argentina – Textiles and Apparel , para.  6.14; India – Additional Import Duties , paras.  7.69-7.70; US – Poultry 
(China) , para.  7.55; EC – IT Products , para.  7.1159; China – Electronic Payment Services , para. 7.227;  
EC – Approval and Marketing of Biotech Products , para.  7.1310).  
141 European Union's request for a preliminary ruling, para.  21. 
142 Panel Report, para.  7.13. 
143 In this regard, we recall that,  in response to questioning at the hearing, the European  Union 
contended that the failure by the Panel to attribute significance to the absence of a risk of re -imposition of the 
expired PET measure was a failure on the part of the Panel to make "an objective assessment of the facts of 
the case" as required by Article  11 of the DSU. Howe ver, in light of our reasoning at paragraphs 5.47-5.49, we 
consider it unnecessary to address further this argument by the European  Union.  
144 Panel Report, para.  7.13. 
145 See e.g. Panel Report, section  7.5. 
146 Article  11 of the DSU.  
147 Panel Report, para.  7.13. WT/DS486/AB/R  
 
- 26 - 
 
 
  making any finding on the "matter" before it.148 Accordingly, we do not agree with the 
European  Union that the Panel's reasoning, fin dings, and conclusions contained in its Report in 
relation to the expired measure at issue were made "outside the context of resolving [this]  
particular dispute".149 
5.50.   For all of these reasons, we find that the European  Union has not demonstrated that the 
Panel failed to comply with its duty under Article  11 of the DSU, as informed by Article  3 of the 
DSU, by deciding, at paragraph  7.13 of its Report, to proceed to make findings on Pakistan's 
claims in this dispute, notwithstanding the expiry of the measure at issue.  
5.1.4   Conclusion  
5.51.   Panels have a margin of discretion in the exercise of their inherent adjudicative powers 
under Article  11 of the DSU. Within  this margin of discretion , it is for a panel to decide how it takes 
into account subsequent modifications to, or expiry or repeal of, the measure at issue. The fact 
that a measure has expired is not dispositive of the question of whether a panel can address 
claims with respect to  that measure. Rather, a panel, in the exercise of its jurisdiction, has the 
authority to  assess objectively whether the "matter" before it, within the meaning of Article  7.1 
and Article  11 of the DSU, has been fully resolved or still requires to be examined following the 
expiry of the measure at issue. In our view, the Panel in this dispute m ade an objective 
assessment that "the matter" before it still required to be examined because the parties continued 
to be in disagreement as to the "applicability of and conformity with the relevant covered 
agreements" with respect to  the Commission's find ings underpinning the expired measure at issue.  
5.52.   Accordingly, we find that the European  Union has not demonstrated that the Panel failed to 
comply with its duty under Article  11 of the DSU, as informed by Article  3 of the DSU, by deciding, 
at paragraph  7.13 of its Report, to proceed to make findings on Pakistan's claims in this dispute, 
notwithstanding the expiry of the measure at issue.  
5.53.   We therefore reject  the European  Union's request that we re verse the entirety of the 
Panel  Report and declare moot and of no legal effect the findings and legal interpretations 
contained the rein. 
5.1.5   Separate opinion of one Appellate  Body  Member regarding the Panel's decision to 
make findings on Pakistan's claims in this dispute, notwithstanding the expiry of the 
measure at issue  
5.54.   At the outset, I would like to clarify that I agree with the legal interpretation and reasoning, 
set out in section  5.1.3 above, regarding a panel's terms of reference, jurisdiction, its margin of 
discretion in deciding how to take into account the expiry of a measure, and the parameters that 
should guide a panel's object ive assessment of whether a "matter" before it has been fully 
resolved or still requires to be adjudicated. This separate opinion is limited to the question of 
whether , in the specific circumstances of this case, the Panel 's reasoning, contained in 
paragra ph 7.13 of its Report , reflects an objective assessment of  whether the "matter" before it, 
within the meaning of Article  7.1 and Article  11 of the DSU, had been fully resolved or still required 
to be examined, following the expiry of the measure at issue.  The majority's response to this 
question is contained in section  5.1.3.1  above.  
5.55.   I recall that, in its Report, the Panel acknowledged that the measure at issue had expired on 
30 September  2015, at which time the countervailing duties on certain PET from Pak istan had 
been removed. A panel's decision to proceed to make findings in a dispute following the expiry of 
the measure at issue should not be taken lightly. In my view, having acknowledged that the 
measure at issue in this dispute had expired and had ceas ed to have legal effect150, the Panel was 
required to undertake a diligent assessment of the central question, i.e. whether the "matter" 
before it, within the meaning of Article  7.1 and Article  11 of the DSU, had been fully resolved or 
still required to be e xamined.  
                                                
148 Appellate Body Report, Mexico – Taxes on Soft Drinks , para.  51. 
149 Appellate Body Report, US – Wool Shirts and Blouses , p. 19, DSR 1997:I, p.  340. 
150 Panel Report, para.  7.13 and fn  33 thereto.  WT/DS486/AB/R  
 
- 27 - 
 
 
  5.56.   In this regard, I observe that the Panel took  note of WTO panel and Appellate Body 
jurisprudence stating that panels have a margin of discretion in exercising their inherent 
adjudicative powers to decide whether to make findings regarding expired  measures . The Panel 
indicated that it had not identified any reason to depart from this jurisprudence.151 In deciding how 
to exercise its  adjudicative powers within its margin of discretion, the Panel first noted that the 
measure at issue expired after the Panel had been established. Second, the Panel took into 
account the fact that Pakistan continued to request that the Panel make findings with respect to 
the expired measure. Third, the Panel considered it a reasonable possibility that the 
European  Union co uld impose countervailing measures on Pakistani goods in a manner that could 
give rise to certain of the same, or materially similar, WTO inconsistencies t hat were alleged in this 
dispute . In particular, the Panel took note of Pakistan's assertion , not con tested by the 
European  Union,  that a wide range of Pakistani exports benefit from the MBS, and of the fact that 
the parties dis agreed , on a fundamental level, on how investigating authorities should determine 
the extent to which duty drawback schemes like the MBS may constitute countervailable subsidies 
within the meaning of the SCM  Agreement.152 For these reasons, the Panel decided to proceed with 
its work in this dispute.153 
5.57.   As I see it, the Panel's ruling on whether it needed to continue to make findings with respect 
to the claims challenging the expired measure at issue was essentially based on the possibility of 
re-imposition  of the same or similar measure, as well as the f act that such investigations had been 
initiated in other jurisdictions , and that a wide range of Pakistani exports other than PET benefit 
from the MBS . In this regard, I consider that the Panel did not properly engage with the 
European  Union's argument tha t the expired measure at issue could not be easily re -imposed. 
According to the European  Union, the Commission would first need to initiate a new countervailing 
duty investigation on the MBS within the meaning of Article  11 of the SCM  Agreement. This new 
countervailing duty investigation would necessarily cover a different investigation period from that 
covered by the countervailing duty investigation at issue. At the time when the European  Union 
requested that the Panel cease its work on this dispute, the European  Union had not received any 
application to initiate such an investigation.154 Moreover, as the European  Union  points out on 
appeal, the MBS Old Rules that the Commission examined in the context of the countervailing duty 
investigation at issue  have s ince been replaced by the MBS New Rules.155 As such, any new 
investigation concerning the MBS would be focused on the MBS New Rules.156 Therefore, I consider 
the European  Union's assertion – that there was no reasonab le possibility for the European  Union 
to affect Pakistan's imports of PET in the near future on issues in volving the same or similar 
WTO inconsistencies that were alleged in the present dispute  – to be prima  facie credible .157 The 
European Union's assertion, regarding the absence of a risk of re -imposition of the same measure, 
therefore warranted a detailed examination by the Panel. Yet the Panel dismissed this 
assertion  summarily.  
5.58.   That said, I recognise that, as the majority seems to suggest, the Panel Report may be read 
as suggesting that the Panel was concerned with the correct interpretation of the relevant 
provisions of the SCM  Agreement and the GATT  1994, and the conformity, with this correct 
interpretation, of the Commission's reasoning and findings underpinning the now expired measure. 
However,  such a reading of the Panel Report is anchored in a single sentence in paragraph 7.13 of 
the Report by the Panel acknowledging the parties ' disagreement "on a fundamental level" about 
the Commission's findings as to what extent duty drawback schemes like the MBS may constitute 
countervailable subsidies.158 As discussed at paragraph  5.19 above, among its inherent 
adjudicative powers is the authority of a panel to assess objectively whether the "matter" before 
it, within the meaning of Article  7.1 and Article  11 of the DSU, has been fully resolved or still 
requires to be examined, following  the expiry of the measure at issue. A panel should make this 
assessment before undertaking its duty under Article  11 of the DSU to "make an objective 
                                                
151 Panel Report, para.  7.13 (referring to Appellate Body Reports, EC – Bananas III (Article  21.5 – 
Ecuador II) / EC – Bananas  III (Article  21.5 – US), para. 270; China – Raw Materials , para.  263; 
Panel  Reports, US – Poultry (China) , para.  7.54; EC – IT Produ cts, para.  7.165).  
152 Panel Report, para.  7.13. 
153 Panel Report, para.  7.13. 
154 European Union's request for a preliminary ruling, para.  21. 
155 See paragraph 5.70 and fn 176 thereto below.  
156 European  Union's appellant's submission, para.  50. 
157 European  Union's appellant's submission, para.  50. 
158 Panel Report, para.  7.13. WT/DS486/AB/R  
 
- 28 - 
 
 
  assessment of the matter before it, including an objective assessment of the facts of the case and 
the ap plicability of and conformity with the relevant covered agreements". Turning to the case 
before us, I do not see any reasoning in the Panel Report demonstrating an objective assessment 
by the Panel of whether the "matter" before it, within the meaning of A rticle 7.1 and Article  11 of 
the DSU, had been fully resolved or still required to be examined, following the expiry of the 
measure at issue.  
5.59.   Thus, in my view, none of the three considerations relied upon by the Panel, at 
paragraph  7.13 of its Report suff iciently demonstrate s that the Panel objectively assessed  whether 
the "matter" before it, within the meaning of Article  7.1 and Article  11 of the DSU, had been fully 
resolved or still required to be examined , following the expiry of the measure at issue in  this 
dispute.  
5.60.   For these reasons, I disagree with the finding of the majority that the European  Union has 
not demonstrated that in the circumstances of this case, the Panel failed to comply with its duty 
under Article  11 of the DSU, as informed by Article  3 of the DSU, by deciding, at paragraph  7.13 of 
its Report, to proceed to make findings on Pakistan's claims in this  dispute , notwithstanding the 
expiry of the measure at issue.  
5.61.   Nonetheless, acknowledging that the majority's decision carries the day, I agr ee with and 
fully endorse the legal analyses, findings , and conclusions in this Report concerning: (i)  the 
European  Union's claim of error on appeal concerning government revenue foregone within the 
meaning of  Article  1.1(a)(1)(ii) and footnote  1 of the SC M Agreement ; and (ii)  Pakistan's claim of 
error on appeal under Article  15.5 of the SCM  Agreement concerning the Commission's approach 
to its causation analysis.  
5.2  European  Union's claim of error regarding government revenue foregone  
5.62.   The European  Union appeals the Panel's interpretation of Article  1.1(a)(1)(ii), footnote  1, 
and Annexes  I to III to the SCM  Agreement, in connection with the Commission's finding that the 
MBS is a countervailable subsidy contingent upon export performance.159 In particular, th e 
European  Union challenges the Panel's finding that, in the context of duty drawback schemes, a 
subsidy exists only when an "excess" remission occurs representing government revenue  foregone 
that is otherwise due  within the meaning of Article  1.1(a)(1)(ii ) and footnote  1 of the 
SCM Agreement.160 
5.63.   The Panel considered that , in the context of duty drawback schemes, the financial 
contribution, in the form of government revenue foregone, is limited to the excess  amount of the 
remission. The Panel referred to this  as the "excess remissions principle".161 The Panel concluded 
that the excess remissions principle "provides the legal standard under which to determine 
whether remissions of import duties obtained under a duty drawback scheme constitute[] a 
financial contri bution in the form of revenue forgone otherwise due under Article  1.1(a)(1)(ii) of 
the SCM  Agreement".162 
5.64.   The European  Union requests us to reverse this interpretation by the Panel of the relevant 
provisions of the SCM  Agreement.163 Owing to the expiry of the measure at issue, and "with a view 
to limiting the Appellate Body's review", the European  Union does not request us to complete the 
legal analysis in the present case.164 Instead, the European  Union requests us to declare moot and 
                                                
159 European Union's Notice of Appeal, p.  2; appellant's submission, para.  54 (referring to Panel Report, 
para. 7.56).  
160 European Union's Notice of Appeal, p.  2; appellant's subm ission, para.  54; Panel Report, paras.  7.37 
and 7.56.  
161 Panel Report, para.  7.37. On appeal, both participants used the term "excess remissions principle" in 
their submissions to convey the same understanding as that of the Panel. (See e.g. European  Union' s 
appellant's submission, paras.  68-69; Pakistan's appellee's submission, paras.  2.35, 2.49, 2.61, 2.84, 
and 2.88-2.89)  
162 Panel Report, para.  7.56. 
163 European Union's Notice of Appeal, p.  2; appellant's submission, para.  54 (referring to Panel Report, 
paras. 7.33-7.56).  
164 European Union's Notice of Appeal, p.  2; appellant's submission, para.  54. WT/DS486/AB/R  
 
- 29 - 
 
 
  of no legal effect the enti rety of the Panel's findings with respect to the MBS on the grounds that 
the Panel applied the wrong legal standard.165 
5.65.   Before commencing our analysis of the issues raised on appeal, we provide, as background 
information, the relevant aspects of the countervailing duty investigation and the measure at 
issue. We also include a summary of the relevant Panel findings.  
5.2.1   Background information  
5.66.   On 3 September 2009, pursuant to Article  10 of Council Regulati on (EC) No. 597/2009 of 
11 June 2009 on protection a gainst subsidi sed imports from countries not members of the 
European  Community166 (EU Basic CVD Regulation), the Commission initiated a countervailing duty 
investigation concerning imports of PET167 originating in Iran , Pakistan, and the 
United  Arab Emirates.168 The investigation of subsidization and injury covered the 12 -month period 
from 1  July 2008 to 30  June 2009 (investigation period). The examination of trends relevant for 
the assessment of injury covered the period from 1  January 2006 to the end of the inv estigation 
period (period considered).169 
5.67.   The investigated exporting producer from Pakistan was Novatex.170 During the 
countervailing duty investigation, the Commission carried out an on -the-spot investigation at 
Novatex's premises.171 
5.68.   The Commission investigate d several schemes that allegedly involved the granting of 
subsidies by the Government of Pakistan, including the MBS. The  MBS permits the import of 
duty-free material on condition that it is used as an input in the manufacture of goods that are 
subsequentl y exported.172 Systems like the MBS are commonly referred to as duty drawback 
schemes. Duty drawback schemes allow domestic producers to obtain exemptions or remissions of 
import duties otherwise payable on production inputs, if such inputs are consumed in t he 
manufacture of finished goods destined for export.173 
5.69.   During the investigation period, Novatex obtained duty exemptions under the MBS in 
connection with its importation of inputs for the manufacture of PET.174 The main inputs consumed 
in the production of P ET are purified terephthalic acid and mono  ethylene glycol.175 
                                                
165 European Union's Notice of Appeal, p.  2; appellant's submission, para.  54 (referring to Panel Report, 
paras.  7.57-7.60 and 8.1.b.i -ii). 
166 European  Union's first w ritten submission to the Panel, para.  19 and fn  6 thereto (referring to Council 
Regulation (EC) No.  597/2009 of 11 June 2009 on protection against subsidised imports from countries not 
members of the European Community, Official Journal of the European Uni on, L Series, No. 188 
(18 July 2009), available at http://eur -lex.europa.eu/%20LexUriServ/LexUriServ.do?uri=OJ:L:2009:188:0093:  
0126:EN:PDF).  
167 Supra , fn 3 to para.  1.1. 
168 European  Commission, Notice of initiation of an anti -subsidy proceeding concerning i mports of 
certain polyethylene terephthalate originating in Iran, Pakistan, and the United Arab Emirates, Official Journal 
of the European Union , C Series, No. 208 (3  September 2009) (Panel Exhibit PAK -15), pp.  7-8. 
169 Provisional Determination (Panel Exhib it PAK -1), recital  15. 
170 Provisional Determination (Panel Exhibit PAK -1), recitals  12-14. See also Panel Report, para.  7.161. 
Pakistan informed the Commission that Novatex is the only Pakistani company involved in the production and 
sale of PET in the domestic and international m arkets. (Submission of the Government of Pakistan of 
21 December 2009 to the European Commission  (Panel Exhibit EU -5), para.  16) 
171 Provisional Determination (Panel Exhibit PAK -1), recitals  12-14. See also Panel Report, para.  7.161.  
172 See para. 1.2 above.  
173 Panel Report, para.  7.29. Before the Panel, Pakistan emphasized that the MBS is a duty drawback 
scheme and not a substitution drawback scheme. The European  Union did not dispute Pakistan's assertion 
during the Panel proceedings. Furthermore, the Panel fou nd no basis on its record upon which to conclude that 
the MBS is a substitution drawback scheme. (Ibid., fn  94 to para.  7.37) On appeal, in response to questioning 
at the hearing, the European  Union confirmed that the facts of the MBS subject to the counte rvailing duty 
investigation at issue corresponded to a duty drawback scheme rather than a substitution drawback scheme.  
174 Panel Report, para.  7.30; Provisional Determination (Panel Exhibit PAK -1), recital  67. 
175 Pakistan's first written submission to the Panel, para.  5.97; Exhibit  6 from the verification visit (Panel 
Exhibit PAK -8 (BCI)), p.  1. Novatex identified eight other input goods that it used in the manufacture of PET. 
(Exhibit  6 from the verification visi t (Panel Exhibit PAK -8 (BCI)), p.  1) WT/DS486/AB/R  
 
- 30 - 
 
 
  5.70.   During the investigation period, the domestic legal bases for the MBS in Pakistan were 
Section  219 (Chapter  XX) of the Customs Act  1969, as amended on 30  June 2008, and Chapter  XV 
of the Customs Rules  2001 through Notification  S.R.O.  450(I)/2001 , published on 18  June 2001 
(MBS Old Rules).176 Pursuant to the MBS Old Rules, in order to obtain the remission of import 
duties under the MBS, at the time of importation of the inputs, the producing company must 
deposit with the Pakistan Customs Department an indemnity bond and post -dated cheques 
covering the total amount of the customs duty and sales tax that would be applied to such 
imported inputs, valid for a period of three years.177 
5.71.   At the time of exporta tion, the producing company prepares a declaration certifying that the 
finished goods destined for export are from the manufacturing bond. A consumption sheet of the 
inputs used in manufacturing the finished goods for export is attached to the Goods Declar ation 
form. After examining all  of the aspects of the Goods Declaration form, the Pakistani customs 
official allows the exportation of the finished goods.178 In addition, once the Pakistani customs 
official is satisfied, on the basis of documentary evidence presented by the producing company, 
that the imported inputs were used to manufacture the finished exported goods, (s)he releases the 
indemnity bond and th e post -dated cheques deposited at the time of the importation of the 
inputs.179 
5.72.   In its Provisional Determination, the Commission considered that, in practice, the Pakistani 
authorities did not apply a proper verification system to monitor the amount of duty -free imported 
inputs consumed in the production of the exported finished goods. The Commission found "serious 
discrepancies and malfunctions" in how the system operated in practice as compared to the duty 
drawback sy stem provided for under the MBS  Old Rule s.180 Accordingly, the Commission 
considered the MBS to be an impermissible duty drawback system within the meaning o f 
Article  3(1)(a)(ii) of the EU  Basic CVD Regulation because it did not conform to the rules laid dow n 
in Annexes  I to III to the EU  Basic CV D Regulation, owing to the failures or malfunctions in the 
Government of Pakistan's system of verification.181 
5.73.   For these reasons, the Commission considered the MBS to be a countervailable subsidy 
contingent in law upon export performance.182 The Commission exp lained that, in the absence of a 
permitted drawback system, the benefit consist ed of the remission of total import duties normally 
due upon importation of inputs. The Commission noted that, according to Article  3(1)(a)(ii) and 
Annex  I(i) to the EU  Basic CV D Regulation, only an excess  remission of duties can be 
countervailed, "provided " that the conditions of Annexes  II and III to the EU  Basic CVD Regulation 
are met. However, according to the Commission, these conditions were not fulfilled in this case. 
Thus, the exception for drawback schemes was not applicable , and the normal rule of 
countervailing the amount of revenue foregone, in the form of all the unpaid duties, applied.183 
5.74.   On 29  September 2010, the Council published its Definitive Determination.184 In its  
Definitive Determination, the Council confirmed the Commission's position in the Provisional 
Determination that no effective implementation and monitoring system existed for the MBS.185 
                                                
176 Provisional Determination (Panel Exhibit PAK -1), recital  61. The MBS Old Rules were submitted to the 
Panel as Exhibit EU -2. On 28  June 2010, before the European  Union published its Definitive Determination in 
the coun tervailing duty investigation at issue, Pakistan published amendments to the MBS  Old Rules through 
Notification S.R.O.  601(I)/2010 (MBS New Rules). The MBS New Rules were submitted to the Panel as 
Exhibit  EU-3. 
177 Provisional Determination (Panel Exhibit PA K-1), recitals  62-63. 
178 Provisional Determination (Panel Exhibit PAK -1), recital  65. 
179 Provisional Determination (Panel Exhibit PAK -1), recital  66. 
180 Provisional Determination  (Panel Exhibit PAK -1), recital  68. 
181 Provisional Determination (Panel Exhibit PA K-1), recitals  73-75. The content of Annexes  I, II, and III 
to the EU Basic CVD Regulation is similar to the content of Annexes  I, II, and  III to the SCM  Agreement.  
182 Provisional Determination (Panel Exhibit PAK -1), recitals  73-77. See also Panel Report, p ara. 7.57. 
183 Provisional Determination (Panel Exhibit PAK -1), recital  78. See also Panel Report, paras.  7.30 
and 7.57-7.58. The subsidy rate established in the Provisional Determination with respect to  the MBS 
amounted to  2.57%. (Provisional Determination (Panel Exhibit PAK -1), recital  80) 
184 Definitive  Determination (Panel Exhibit PAK -2). 
185 Definitive  Determination (Panel Exhibit PAK -2), recital  44. WT/DS486/AB/R  
 
- 31 - 
 
 
  Consequently, the Council confirmed the finding in the Provisional Dete rmination that the MBS 
constitutes a countervailable subsidy contingent upon export performance.186 
5.2.2   The Panel's findings  
5.75.   Before the Panel, Pakistan argued that by finding that all duties remitted under the MBS, 
rather than only the excess remission, constitu ted a financial contribution and thus a 
countervailable subsidy, the European  Union acted inconsistently with, inter alia, 
Articles  1.1(a)(1)(ii) and 3.1(a) of the SCM  Agreement. Pakistan asserted that, when examining 
duty drawback schemes like the MBS to determine whether a financial contribution exists in the 
form of government revenue foregone otherwise due , within the meaning of Article  1.1(a)(1)(ii) of 
the SCM Agreement, footnote  1 of the SCM  Agreement limits the financial contribution that may be 
found to exist to the excess remission.187 
5.76.   The European  Union argued that footnote  1 and Annexes  I to III to the SCM  Agreement 
contain no requirement that investigating authorities, with respect to duty drawback schemes, 
must always equate excess remissions with  the amount of the subsidy. The European  Union 
agreed with Pakistan that footnote  1 describes a subsidy in terms of excess remissions. However, 
the European  Union maintained that, if the conditions set out in Annexes  II and III are not 
satisfied, footnote  1 cannot be interpreted to mean that a subsidy can exist only by reason of 
excess remissions.188 
5.77.   The Panel recalled the Appellate Body's statement that Article  1.1(a)(1)(ii) requires a 
comparison between the challenged measure and a "defined, normative bench mark".189 The Panel 
observed that the text of Article  1.1(a)(1)(ii) is silent regarding what should be compared to 
determine whether import duty remissions obtained by a company under a duty drawback scheme 
like the MBS constitute government revenue foregone  that is otherwise due. However, the Panel 
considered that footnote  1, which attaches to this provision, offers guidance on this issue.190 
5.78.   The Panel observed that footnote  1 identifies two situations that "shall  not be deemed to be 
a subsidy": (i)  the exempt ion of an exported product from duties or taxes borne by the like 
product when destined for domestic consumption; and (ii)  the remission of such duties or taxes in 
amounts not in excess of those which have accrued.191 In this regard, the Panel noted the 
explanation in Annex  II(I)(2) to the SCM  Agreement that, pursuant to Annex  I(i), drawback 
schemes can constitute an export subsidy to the extent that they result in a remission or drawback 
of import charges in excess of those actually levied on inputs that are  consumed in the production 
of the exported product. Thus, the Panel considered the "duties … which have accrued" within the 
meaning of footnote  1 to be those import duties accrued on imported inputs consumed in the 
production of a subsequently exported pr oduct.192 
5.79.   Hence, the Panel considered the comparison required under Article  1.1(a)(1)(ii) to be one 
between the remission of duties obtained by a company under a duty drawback scheme, on the 
one hand, and the duties that accrued on imported production inputs  used by that company to 
produce a subsequently exported product, on the other hand. For the Panel, a subsidy, in the form 
of government revenue foregone that is otherwise due, exists only insofar as the former exceeds 
                                                
186 Definitive  Determination (Panel Exhibit PAK -2), recital  53. The subsidy rate established in the 
Definitive  Determination with respect to  the MBS amounted to  2.57%. ( Definitive company -specific disclosure 
to Novatex, dated 26  July 2010 (Panel Exhibit PAK -33 (BCI)), p.  2) 
187 Panel Report, para.  7.31 (referring to Pakistan's first written submission to the Panel, p ara. 5.3; 
opening statement at the first Panel meeting, paras.  3.2-3.3). Pakistan further claimed that the 
European  Union acted inconsistently with Annexes  I(i), II(II), and III(II) to the SCM  Agreement. Pakistan also 
raised claims that were consequential to the other alleged violations of the SCM  Agreement. Specifically, 
Pakistan contended that the European Union acted inconsistently with Articles  1.1(b), 10, 19, and 32 of the 
SCM Agreement and Article  VI of the GATT  1994. (Ibid., para.  7.61)  
188 Panel Repor t, para.  7.32 (referring to European  Union's first written submission to the Panel, 
para. 98; second written submission to the Panel, para.  20). 
189 Panel Report, para.  7.36 and fn  88 thereto (quoting Appellate Body Report, US – Large Civil Aircraft 
(2nd complaint) , para.  808).  
190 Panel Report, para.  7.36. 
191 Panel Report, para.  7.37. 
192 Panel Report, para.  7.37 and fn  94 thereto.  WT/DS486/AB/R  
 
- 32 - 
 
 
  the latter, i.e. where an "excess" re mission occurs. The Panel referred to this as the "excess 
remissions principle".193 
5.80.   The Panel observed that the first part of footnote  1 of the SCM Agreement states: "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 Panel noted that the word "accordance" is 
synonymous with "agreement", "conformity", and "harmony".194 Thus, the Panel understood 
footnote  1 to indicate that the excess remissions principle identif ied therein is equally in 
agreement with each of the other provisions cited in that footnote.195 The Panel rejected the 
European  Union's proposition that the cited provisions in footnote  1, particularly Annex  II(II)(2) 
and Annex  III(II)(3) to the SCM  Agreeme nt, limit the situations in which the excess remissions 
principle applies. For the Panel, one provision could not be said to be in agreement with another if 
the latter provision potentially eliminates the principle underpinning the former provision. 
Moreov er, the Panel found no instance in which the SCM  Agreement uses the term "in accordance 
with" to create an exception to an otherwise stated rule by cross -referencing another provision. 
Rather, the Panel noted that such exceptions are generally achieved by using the word "except".196 
5.81.   Turning to the provisions mentioned in footnote  1197, the Panel took account of the Ad Note 
to Article  XVI of the GATT 1994 , which provides, inter alia, that the remission of duties or taxes in 
amounts not in excess of those which h ave accrued shall not be deemed to be a subsidy. The 
Panel considered it significant that the Ad Note to Article  XVI states the excess remissions principle 
"without qualification".198 
5.82.   As regards Annex  I to the SCM  Agreement, the Panel noted that paragraph  (i) addresses 
situations involving drawback schemes of the type at issue in this dispute. In particular, Annex  I(i) 
identifies, as an export subsidy, the "remission or drawback of import charges in excess of those 
levied on imported inputs that are consumed in the production of the exported product (making 
normal allowance for waste)".199 The Panel considered this to be a restatement of the excess 
remissions principle.200 
5.83.   The Panel then noted that Annex  II(I)(2) to the SCM  Agreement states that, pursuant to 
Annex  I(i), drawback schemes can constitute an export subsidy to the extent that they result in a 
remission or drawback of import charges in excess of those actually levied on inputs that are 
consumed in the production of the exported product. The Panel conside red that Annex  II(I)(2) 
contains no language restricting the application of the excess remissions principle in any relevant 
way.201 
5.84.   In addition, the Panel observed that Annex  II(II) provides guidance to investigating 
authorities on how to determine whether inputs are consumed in the production of the exported 
product. According to the Panel, pursuant to Annex  II(II)(1), this guidance applies only where it is 
alleged that an indirect tax rebate scheme, or a drawback scheme, conveys a subsidy by reason of 
over-rebate or excess drawback of indirect taxes or import charges on inputs consumed in the 
production of the exported product. For the Panel, this language assumes the operation of the 
excess remissions principle.202 
5.85.   The Panel noted that Annex  II(II)(2) addres ses the situation in which, pursuant to the 
inquiries performed under Annex  II(II)(1), it is determined that the exporting Member has no 
reliable system of tracking inputs consumed in the production of a relevant exported product. In 
                                                
193 Panel Report, para.  7.37. 
194 Panel Report, para.  7.39 (quoting  Shorter Oxford English Dictionary , 6th edn, A.  Stevenson (ed.) 
(Oxford University Press, 2007), Vol.  1, p. 15). 
195 Panel Report, para.  7.39. 
196 Panel Report, para.  7.40 and fn 97 thereto.  
197 The Panel highlighted that the European  Union had argued that Annex  II(II)(2) and Annex  III(II)(3) 
limit the availability of the ex cess remissions principle. The European  Union had not referred to the other 
provisions identified in footnote 1 of the SCM Agreement. (Panel Report, para.  7.40 and fn  98 thereto)  
198 Panel Report, paras.  7.41-7.42. 
199 Fn omitted.  
200 Panel Report, paras.  7.43-7.44. 
201 Panel Report, para.  7.47. 
202 Panel Report, paras.  7.49-7.50. WT/DS486/AB/R  
 
- 33 - 
 
 
  this scenario, "a furt her examination by the exporting Member based on the actual inputs involved 
would need to be carried out in the context of determining whether an excess payment occurred." 
The Panel further observed that Annex  II(II)(2) operates "in the context of determin ing whether 
an excess payment occurred", reinforcing the idea that Annex  II is focused on identifying excess 
remissions. However, the Panel recogni zed that Annex  II(II)(2) does not indicate what would 
happen if an exporting Member did not carry out the env isaged further examination. The Panel 
noted that, according to the European  Union, this "silence" meant that the excess remissions 
principle ceases to apply. The European  Union argued that different principles apply such that an 
investigating authority – like the Commission in this investigation – may find that the entire sum 
of drawn back duties, rather than excess, is a countervailable subsidy.203 
5.86.   The Panel disagreed with the European  Union's view that this "silence" means that the 
excess remissions princip le ceases to apply. While acknowledging that Annex  II provides 
incomplete guidance as to how to investigate a particular issue in this context, the Panel saw no 
reasonable basis on which to interpret that silence as a directive to read footnote  1 out of th e 
SCM Agreement.204 In the Panel's view, this "silence " in Annex  II(II)(2) does not mean that other 
portions of Annex  II cease to speak. Nor did the Panel interpret such "silence " as disturbing the 
provisions that the otherwise intact SCM  Agreement provides,  including footnote  1.205 
5.87.   The Panel noted that Annex  III to the SCM  Agreement applies to substitution drawback 
schemes. While such a scheme is not at issue in this dispute206, the Panel remarked on the 
similarities between Annex  II and Annex III. In particular , the Panel pointed out that, like 
Annex  II(II)(2), Annex  III(II)(3) provides guidance that is designed to allow investigating 
authorities to identify excess remissions. The Panel observed that the European  Union had put 
forward the same argument with resp ect to Annex  III(II)(3) as it had with respect to 
Annex  (II)(II)(2). For the same reasons, the Panel rejected the European  Union's argument.207 
5.88.   For all of these reasons, the Panel concluded that the excess remissions principle provides 
the legal standard for  determining whether remissions of import duties obtained under a duty 
drawback scheme constitute a financial contribution in the form of government revenue foregone 
that is otherwise due within the meaning of Article  1.1(a)(1)(ii) of the SCM  Agreement. Th e Panel 
rejected the European  Union's position that Annex  II and/or Annex  III provides a relevant reason 
to depart from the excess remissions principle. The Panel considered that, even if an exporting 
Member has no reliable system of tracking inputs consum ed in the production of a relevant 
exported product, and in the absence of a further examination by the exporting Member of that 
issue, investigating authorities must still determine whether an excess remission occurred.208 
5.89.   Turning to the facts of this case,  the Panel noted the Commission's conclusion that the MBS 
is an export subsidy in the form of government revenue foregone, which confers a benefit upon 
Novatex.209 The Panel also observed that the Provisional Determination made it clear that the 
financial co ntribution was not the excess remissions but rather the total amount of unpaid 
duties.210 The Panel took note of the Commission's explanation that its approach was justified 
because: ( i) Pakistan did not effectively apply its verification system; and ( ii) Pakistan did not 
carry out a further examination, based on actual inputs involved.211 The Panel found this approach 
                                                
203 Panel Report, para.  7.51. 
204 Panel Report, paras.  7.51-7.52. 
205 Panel Report, para.  7.52. 
206 The Panel reiterated that it had found no basis on its record to conclude that the MBS is a 
substitution drawback scheme. (Panel Report, fn  109 to para. 7.53)  
207 Panel Report, paras.  7.54-7.55. 
208 Panel Report, para.  7.56. In arriving at this conclusion, th e Panel emphasized that it did not a priori 
exclude the possibility that an investigating authority might permissibly reject a company's characterization of 
monies obtained from a government as remissions obtained under a duty drawback scheme. However, the  
Panel considered that the facts of this case did not lend themselves to such a possibility. (Ibid., fn  114 to 
para. 7.56)  
209 Panel Report, para.  7.57 (quoting Provisional Determination (Panel Exhibit PAK -1), recital  73). 
210 Panel Report, para.  7.57 and fn  118 thereto (quoting Provisional Determination (Panel Exhibit 
PAK-1), recital  78). 
211 Panel Report, para.  7.58 (quoting Provisional Determination (Panel Exhibit PAK -1), recital  76). WT/DS486/AB/R  
 
- 34 - 
 
 
  by the Commission to be problematic, given that none of the reasons proffered by the Commission 
could justify its departure from the excess re missions principle.212  
5.90.   The Panel also addressed the European  Union's concern that its decision would require 
investigating authorities essentially to administer another Member's duty drawback system in the 
event that the system is found to be deficient unde r Annex  II(II). In the Panel's view, if an 
exporting Member's system is found to be wanting under Annex  II(II), the amount of the excess 
remissions would need to be determined on the basis of information available to the investigating 
authority, including the possibility of relying on facts available, pursuant to Article  12.7 of the 
SCM Agreement.213 
5.91.   The Panel concluded that, by failing to provide a reasoned and adequate explanation for 
why the entire amount of unpaid duties was a financial contribution and t hat those duties were "in 
excess of those which have accrued" , within the meaning of footnote  1 of the SCM Agreement, the 
Commission acted inconsistently with Article  1.1(a)(1)(ii) of the SCM  Agreement.214 Owing to its 
finding that the Commission had incorre ctly identified the existence of a subsidy, the Panel also 
found that the Commission acted inconsistently with Article  3.1(a) of the SCM Agreement by 
improperly finding the existence of a "subsidy" that was contingent upon export performance.215 
5.2.3   Whether the Panel erred in its interpretation of Article  1.1(a)(1)(ii), footnote  1, 
and Annexes  II and III to the SCM  Agreement  
5.92.   The MBS, the programme of the Government of Pakistan that is at the heart of this issue on 
appeal, operates as a duty drawback scheme.216 With duty drawback schemes as the kind of 
measure at issue, the European  Union's claim of error on appeal concerns the financial contribution 
element of that subsidy.217 Specifically, the European  Union challenges the Panel's reasoning that, 
in the context of du ty drawback schemes, the financial contribution, in the form of government 
revenue foregone, is limited to the excess  amount of the remission. As noted at paragraph  5.63 
above, t he Panel referred to this as the "excess remissions principle"218, and found tha t: 
the Excess Remissions Principle provides the legal standard under which to determine 
whether remissions of import duties obtained under a duty drawback scheme 
constitute[]  a financial contribution in the form of revenue forgone otherwise due 
under Artic le 1.1(a)(1)(ii) of the SCM  Agreement, and reject the European  Union's 
position that Annex  II and/or Annex  III provides a relevant reason to depart from the 
Excess Remissions Principle. Thus, even if the exporting Member has no reliable 
system of tracking inputs consumed in the production of a relevant exported product 
and in the absence of a further examination by the exporting Member of that issue, 
investigating authorities should still determine if an excess remission occurred.219 
5.93.   The European  Union suppor ts its claim of error by arguing that the Panel attributed a wrong 
meaning to the words "in accordance with" in footnote  1 of the SCM  Agreement220, and incorrectly 
                                                
212 Panel Report, para.  7.58. 
213 Panel Report, para.  7.59 and fn  120 thereto (r eferring to Appellate Body Report, US – Countervailing 
Measures (China) , paras.  4.178 -4.179).  
214 Panel Report, paras. 7.58 and 7.60.  
215 Panel Report, para.  7.60. 
216 See para.  5.68 above. We recall that the Panel did not a priori exclude the possibility that an  
investigating authority might permissibly reject a company's characterization of monies obtained from a 
government as remissions obtained under a duty drawback scheme. However, as the Panel noted, the 
Commission's findings in the countervailing duty investigation at issue in this dispute did not concern this 
possibility. (Panel Report, fn  114 to para.  7.56)  
217 Article  1.1 of the SCM  Agreement explains that a subsidy shall be deemed to exist if there is a 
financial contributio n by a government or any public body within the territory of a Member, or if there is any 
form of income or price support in the sense of Article  XVI of the GATT  1994, and a benefit is thereby 
conferred. Thus, the "financial contribution" and "benefit" are  two separate legal elements in Article  1.1 of the 
SCM Agreement, which together determine whether a subsidy exists. (Appellate Body Report, Brazil – Aircraft , 
para. 157) 
218 Panel Report, para.  7.37. 
219 Panel Report, para.  7.56. (fn  omitted)  
220 European  Union 's appellant's submission, para.  69. WT/DS486/AB/R  
 
- 35 - 
 
 
  interpreted the alleged "silence" in Annexes  II and III to the SCM  Agreement.221 The 
European  Union further argues that the Panel's interpretation would in essence relieve 
WTO Members from "making any efforts" to establish a reliable and effective monitoring system in 
order to comply with Annexes  I to III.222 
5.94.   In appealing this finding by the Panel, the  European  Union's claim of error and its 
arguments in support thereof raise the question of what, in the context of duty drawback schemes, 
constitutes the financial contribution element of the subsidy within the meaning of 
Article  1.1(a)(1)(ii) and footnot e 1 of the SCM  Agreement.  
5.95.   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) [.] 
 (fn omitted)  
5.96.   The foregoing (or non -collection) of revenu e otherwise due, within the meaning of 
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, and the word "foregone" 
suggests that the governmen t has given up an entitlement to raise revenue that it could 
"otherwise" have raised.223 This implies that there must 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'".224 Given that "Members, in principle, have the sovereign 
authority to determine their own rules of taxation"225, the comparison under Article  1.1(a)(1)(ii) 
should be between the rules of taxation applied by the Member concerned t o the alleged subsidy 
recipients, on the one hand, and the rules of taxation applied by the same Member to comparably 
situated taxpayers that are not recipients of the alleged subsidy, on the other hand.226 
5.97.   One of the ways that governments generate revenue i s through the imposition of duties or 
taxes. The exemption from, or the remission227 of, these duties or taxes, such as those referred to 
in paragraphs (g), (h), and (i) of Annex I to the SCM Agreement, may be found to meet the 
definition of government reven ue foregone in Article  1.1(a)(1)(ii) of the SCM  Agreement.228 In this 
regard, while Article  1.1(a)(1)(ii) provides a general description of revenue foregone, footnote  1, 
appended thereto, identifies specific instances of revenue foregone that "shall not be d eemed to 
                                                
221 European  Union's appellant's submission, paras.  69 and 74.  
222 European Union's appellant's submission, paras.  70, 78, and 80. The European  Union also argues 
that Article  14 of the SCM  Agreement supports its view that a n investigating authority is entitled to countervail 
the full amount refunded in a situation where the monitoring system is ineffective. (Ibid., paras.  76-77) The 
issue raised in this appeal focuses on the financial contribution element of the subsidy, whe reas Article  14 of 
the SCM  Agreement concerns the benefit conferred to the recipient. Hence, we consider the European  Union's 
argument relating to Article  14 to be inapposite and find it unnecessary to address this argument further.  
223 Appellate Body Report , US – Large Civil Aircraft (2nd complaint) , para.  806 (referring to 
Appellate  Body Report, US – FSC, para.  90). 
224 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para.  806 (quoting Appellate Body 
Report, US – FSC, para. 90).  
225 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para.  808. 
226 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras.  808 and 812.  
227 Footnote  58 of the SCM  Agreement explains that the "remission" of taxes includes the refund or 
rebate of taxes.  
228 By way of example, in Canada – Autos , the Appellate Body found that, by operating an import duty 
exemption on the importation of motor vehicles, Canada had ignored the "defined, normative benchmark" that 
it established for itself for import duties on motor vehicles under its normal most -favoured nation  rate and, in 
so doing, had foregone "government revenue that is otherwise due". (Appellate Body Report, Canada – Autos , 
para. 91. See also Panel Report, Indonesia – Autos , para.  14.155)  WT/DS486/AB/R  
 
- 36 - 
 
 
  be" subsidies. Footnote  1 deals with the exemption or remission of duties or taxes on exported 
products.229 Footnote  1 provides:  
In accordance with the provisions of Article  XVI of GATT  1994 (Note to Article  XVI) 
and the provisions of Annexes  I thro ugh 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.  
5.98.   The "duties or taxes" referred to in footnote  1 include duties or taxes directly borne by the 
exported product.230 At the same time, the "duties or taxes" referred to in footnote  1 also include 
the duties or taxes levied on inputs consumed in the production of the exported product.231 
Importantly, Annex  I(i) to the SCM  Agreement makes it clear that duty drawback schemes are 
concerned with the "import charges"232 that are "levied on imported inputs that are consumed in 
the production of the exported product". Thus, with respect to duty drawback schemes, the 
government revenue foregone that is described in footnote  1 of the SCM  Agreement is concerned 
with the "duties or taxes" in the form of "import charges" on inputs that are consumed in the 
production of goods destined for export.  
5.99.   Additionally, the language of footnote  1 identifies certain aspects that are all vital to the 
understanding of what constitutes the financial contribution element of a subsidy, in the form of 
government revenue foregone that is otherwise due, particularly as it relates to duty drawback 
schemes.  
5.100.   The first aspect relates to the comparison to be made under Article  1.1(a)(1)(ii) between 
the rules of taxation applied by the Member concerned to the alleged subsidy reci pients, on the 
one hand, and the rules of taxation applied by the same Member to the comparably situated 
taxpayers that are not recipients of the alleged subsidy, on the other hand.233 With particular 
respect to duty drawback schemes  as defined in Annex  I(i), footnote  1 of the SCM Agreement 
highlights that the comparison to be made is between the tax treatment of the inputs imported 
under the duty drawback scheme that are consumed in the production of the goods destined for 
export, on the one hand, and the "d uties or taxes borne by the like" imported input "when 
destined for domestic consumption", on the other hand.  
5.101.   Second, as regards the definition of a subsidy, footnote  1 identifies what falls outside this 
definition. Footnote  1 indicates that "the exemption ", or remission , of duties or taxes in amounts 
"not in excess  of those which have accrued " shall not be deemed to be a subsidy.234 
5.102.   Third, footnote  1 is prefaced by the words "in accordance with", followed by a list  of 
several provisions of the GATT  1994 and the SCM  Agreement: "Article  XVI of GATT  1994 (Note to 
Article  XVI) and the provisions of Annexes  I through III to this Agreement". The significance of this 
third reference in footnote  1 is a key point of contention between the participants.  
5.103.   For the Europea n Union, the first part of footnote  1, "[i]n ac cordance with the provisions 
of ... Annexes  I through III", refers to "the elements that must be taken into account to determine 
whether the said  situation benefits from the 'carve -out'" reflected in the second part of footnote  1, 
i.e. that the financial contribution, in the form of government revenue foregone, is limited to the 
                                                
229 Appel late Body Report, Canada – Autos , para.  92. 
230 For instance, paragraph  (g) of Annex  I to the SCM  Agreement identifies, as an export subsidy, the 
exemption or remission, in respect of the production and distribution of exported products, of indirect taxes in 
excess of those levied in respect of the pro duction and distribution of like products when sold for domestic 
consumption.  
231 For instance, paragraph (h) of Annex  I to the SCM  Agreement refers to prior stage cumulative taxes 
on goods or services used directly or indirectly in the production of exporte d products. Similarly, substitution 
drawback schemes provided for in Annexes  I(i), II, and III to the SCM  Agreement concern charges on the 
inputs consumed in the production process of an exported product.  
232 Footnote  58 of the SCM  Agreement defines "import charges" as "tariffs, duties, and other fiscal 
charges not elsewhere enumerated in this note that are levied on imports".  
233 See para.  5.96 above.   
234 Emphasis added.  WT/DS486/AB/R  
 
- 37 - 
 
 
  excess  amount of the remission.235 The European  Union posits that, if an exporting Member fails to 
comply with all of the elements of the guidelines in Annexes  II and  III to the SCM  Agreement, the 
investigating authority need not identify the excess  amount of the remission as indicated in 
footnote  1. Instead, the investigating authority may consider the entire  amount of the remission to 
be the financial contribution that may be countervailed.236 
5.104.   Pakistan considers that the words "in accordance with" mean "in agreement with" in the 
sense of "by reference to". Pakistan does not agree with the Eu ropean  Union that the words 
"in accordance wi th" can be used to create an exception to the rule that only remissions in excess 
may be countervailed when an exporting Member does not comply with the elements of the 
guidelines in Annexes  II and III. Pakistan agrees with the Panel that footnote  1, along  with the 
other provisions identified there in, defines a subsidy under a duty drawback system as the excess 
remission. For Pakistan, this definition applies always and is not subject to any conditions, and the 
existence of any excess must be determined on the basis of facts.237 
5.105.   The word "accordance" means "agreement, conformity, harmony".238 It follows, therefore, 
that the words "in accordance with" in footnote  1 may be understood as implying that footnote  1 is 
to be read "in agreement", "in conformity", or "in harmony" with all of the provisions referred to 
therein. Thus, the words "in accordance with" are a reference that can be properly understood only 
in context when regard is had to the provisions that follow these words. This suggests that all of 
the provi sions identified in footnote  1, along with the content of footnote  1, together inform the 
understanding of what shall constitute the financial contribution, in the for m of government 
revenue foregone that  is otherwise due within the meaning of Article  1.1(a)(1)(ii) and footnote  1 
of the SCM  Agreement. This is consonant with the obligation of a treaty interpreter to read all 
applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously.239 Thus, 
a proper reading of Article  1.1(a)(1 )(ii), footnote  1, and the rele vant paragraphs of Annexes  I 
to III to the SCM  Agreement and the Ad Note to Article  XVI of GATT  1994 must be one that gives 
meaning to all of these provisions.240 Accordingly, we examine each of the provisions referred to in 
footnote  1 of the SCM  Agreement.  
5.106.   The Ad Note to Article  XVI of the GATT  1994 states:  
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 
amoun ts not in excess of those which have accrued, shall not be deemed to be a 
subsidy.  
5.107.   The language of the Ad Note to Article  XVI of the GATT 1994 is identical to the second part 
of footnote  1 of the SCM  Agreement. Like footnote  1, the Ad Note is explicit in l imiting the financial 
contribution element of the subsidy to the excess  amount of the remission, as opposed to the 
entire amount of the remission. The Ad Note reflects this focus on the excess amount of the 
remission without making any reference to any oth er provisions of the covered agreements.  
5.108.   We recall the European  Union's argument that the focus, in the second part of footnote  1 
of the SCM  Agreement, on the excess amount of the remission as the limit of the financial 
contribution element of the subsidy "is qualified by the first part" of footnote  1, which begins with 
the words "in accordance with" and is followed by a list of provisions, including the Ad Note to 
Article  XVI of the GATT 1994 . According to the European  Union, this first part of footnote  1 refers 
to "the elements that must be taken into account to determine whether the said  situation benefits 
from the 'carve -out'" reflected in the second part of footnote  1, i.e. the focus on the excess 
amount of the remission.241 However, the absence of a refe rence in the Ad Note to Article  XVI to 
                                                
235 European  Union's appellant's submission, para.  71. 
236 European  Union's appellant's submission, paras.  69 and 71.  
237 Pakistan's appellee's submission, paras.  2.1-2.4 and 2.54 -2.58. 
238 Shorter Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), 
Vol. 1, p. 15; Appellate Body Re port, Korea – Various Measures on Beef , para.  111; Panel Report, para.  7.39. 
239 Appellate Body Report, Argentina – Footwear (EC) , para.  81. 
240 We highlight that, in response to questioning at the hearing, both the European  Union and Pakistan 
expressed the vi ew that there is no conflict between the Ad Note to Article  XVI of the GATT  1994 and the other 
provisions of the SCM  Agreement referred to in footnote  1 thereto.  
241 European  Union's appellant's submission, para.  71. WT/DS486/AB/R  
 
- 38 - 
 
 
  any such "qualification" appears to undermine the suggestion by the European  Union that there 
are "elements" in the provisions referred to in the first part of footnote  1 that remove the focus on 
the excess  amount of the remission as the limit of the financial contribution element of the 
subsidy.242 
5.109.   Annex  I to the SCM  Agreement provides an illustrative list of export subsidies. We observe, 
as the Panel did, that paragraphs  (g), (h), and (i) of that Annex all refer to exe mptions or 
remissions "in excess", thus mirroring the language of footnote  1 of the SCM  Agreement.243 
Annex  I(i) is of particular relevance to this dispute, as it concerns duty drawback schemes. 
Annex  I(i) and footnote 58 thereto state:  
The remission or drawback of import charges58 in excess of those levied on imported 
inputs that are consumed in the production of the exported product (making normal 
allowance for waste); provided, however, that in particular cases a firm may use a 
quantity of home market inputs equal to, and having the same quality and 
characteristics as, the imported inputs as a substitute for them in order to benefit 
from this provision if the import and the corresponding export operations both occur 
within a reasonable time period, not to exceed two years. This item shall be 
interpreted in accordance with the guidelines on consumption of inputs in the 
production process contained in Annex  II and the guidelines in the determination of 
substitution drawback systems as export subsidies cont ained in Annex  III. 
58 For the purpose of this Agreement:  
 …  
The term "import charges" shall mean tariffs, duties, and other fiscal charges not elsewhere 
enumerated in this note that are levied on imports;  
…  
"Remission" of taxes includes the refund or rebate of taxes;  
"Remission or drawback" includes the full or partial exemption or deferral of import charges.  
5.110.   Like footnote  1 of the SCM  Agreement and the Ad Note to Article  XVI of the GATT  1994, 
the first sentence of Annex  I(i) of the SCM Agreement identifies, as an export subsidy, "the 
remission or drawback of import charges in excess  of those levied on imported inputs that are 
consumed in the production of the exported product (making normal allowance for waste)".244 The 
wording of this first sentence of Annex  I(i) confirms that, for duty drawback schemes, the focus on 
the excess  amount of the remission or drawback underpins the definition of the subsidy, and in 
particular the financial contribution element thereof, in the form of government revenue forego ne. 
5.111.   The second sentence of Annex  I(i) explicitly states that it "shall be interpreted in 
accordance with the guidelines" in Annexes  II and III to the SCM  Agreement.245 Annex  II contains 
guidelines on the consumption of inputs in the production process. Annex  III contains guidelines 
on the determination of substitution drawback schemes. Both Annexes provide guidance to 
investigating authorities and exporting Members, as the case may be, on how to ascertain the 
precise level of the excess amount of remission or  drawback. To this extent, Annexes  II and III 
inform the understanding of duty and substitution drawback schemes as defined in Annex  I(i), and 
their focus on the excess amount of remission or drawback.246 
                                                
242 The Panel also noticed the absence of a ny such "qualification" in the Ad Note to Article  XVI of the 
GATT  1994. (Panel Report, para.  7.42)  
243 Panel Report, para.  7.43. 
244 Fn omitted; emphasis added.  
245 Pursuant to Article  32.8 of the SCM Agreement, the Annexes constitute an integral part of the 
Agreement.  
246 We recall that the Panel found no basis on its record upon which to conclude that the MBS is a 
substitution drawback scheme. (Panel Report, fn  94 to para.  7.37) Accordingly, the guidelines in Annex  III to 
the SCM Agreement on the determination of  substitution drawback schemes as export subsidies are not 
directly implicated in this case. Nonetheless, in our view, this does not obviate the contextual relevance of 
Annex  III to footnote  1 of the SCM  Agreement. Accordingly, with respect to the financia l contribution element 
of the subsidy, in the form of government revenue foregone that is otherwise due, as identified in footnote  1 
and Annex I(i) to the SCM  Agreement and the Ad Note to Article  XVI of the GATT  1994, we discuss the 
provisions of Annex  III, jointly with those of Annex  II, to the extent that the provisions of Annex  III are 
relevant context to the interpretative issues raised in this appeal.  WT/DS486/AB/R  
 
- 39 - 
 
 
  5.112.   We note that Annex  II and Annex III  are labelled as " Guidelines". Moreover, the chapeau  
of Annex  II(II) states that "[i]n examining whether inputs are consumed in the production of the 
exported product, as part of a countervailing duty investigation pursuant to this Agreement, 
investigating authorities shoul d proceed on the following basis" .247 Similarly, the chapeau  of 
Annex  III(II) states that , "[i]n examining any substitution drawback system as part of a 
countervailing duty investigation pursuant to this Agreement, investigating authorities should  
proceed on  the following basis" .248 Indeed, the use of the word "should" is rife in both Annexes. 
The labelling of both Annexes as "Guidelines" and the extensive use of the word "should" therein 
suggest that the content of Annexes  II and III, while crucial to the unde rstanding of duty 
drawback schemes and substitution drawback schemes, ought not to be interpreted as "rigid rules 
that purport to contemplate every conceivable factual circumstance"249 with respect to the 
assessment of such schemes. Bearing this in mind, we examine the content of these two Annexes.  
5.113.   Both Annex  II and Annex III  have tw o parts. Annex  II(I) and Annex  III(I) provide 
descriptions of the export subsidies in Annex  I to which the guidelines in the respective Annex  II 
or III apply. Annex  II(II) sets ou t how, in conducting its countervailing duty investigation, an 
investigating authority should proceed when examining whether inputs are consumed in the 
production of the exported product. Annex  III(II) sets out how an investigating authority should 
proceed  when examining any substitution drawback system as part of a countervailing duty 
investigation.  
5.114.   Annex  II(I)(1) recognizes that drawback schemes can allow for the remission or drawback 
of import charges levied on inputs that are consumed in the production of the exported product 
(making normal allowance for waste). Importantly, Annex  II(I)(2) reiterates that, pursuant to 
Annex  I(i), drawback schemes can constitute an export subsidy "to the extent that they result in a 
remission or drawback of import charges  in excess of those actually levied on inputs that are 
consumed in the production of the exported product." This statement in Annex  II(I)(2) is in 
harmony with footnote  1 and the Ad Note to Article  XVI of the GATT  1994, both of which indicate 
that, absent the excess remission, the drawback "shall not be deemed to be" a subsidy. This 
statement is also in harmony with Annex  I(i), which identifies, as an export subsidy, "the 
remission or drawback of import charges in excess  of those levied on imported inputs t hat are 
consumed in the production of the exported product".250 Hence, Annex  II recognizes that, for 
drawback schemes, an export subsidy exists only if there is remission or drawback of import 
charges "in excess" of those actually levied on inputs consumed in the production of the exported 
product. This lends further credence to the view that, for duty drawback schemes, the focus is on 
the excess amount of the remissions. Moreover, as the Panel observed, Annex  II contains no 
language providing for a deviation from this focus.251 
5.115.   Annex  II(II) outlines how an investigating  authority should proceed when examining 
whether inputs are consumed in the production of the exported product252 "[w]here it is alleged 
that … a drawback scheme  … conveys a subsidy by reason of … excess drawback of … import 
charges on inputs consumed in the  production of the exported product".253 Thus, in the context of 
duty drawback schemes, the examination into the consumption of inputs is an intermediate task in 
the investigating authorit y's inquiry into whether there wa s excess drawback of import charges. To 
this extent, this inquiry is aligned with the focus on the excess amount of the remissions as the 
limit of the financial contribution element of the subsidy, reflected in footnote  1, Annex  I(i), and 
Annex  II(I) to the SCM  Agreement, and the Ad Note to A rticle XVI of the GATT  1994.  
5.116.   Pursuant to Annex  II(II)(1), an investigating authority should first determine whether the 
government of the exporting Member has in place and applies a system or procedure to confirm 
which inputs are consumed in the production  of the exported product and in what amounts 
(verification system). Where such a verification system is determined to be applied, the 
investigating authorities should then examine the verification system to see whether it is 
                                                
247 Emphasis added.  
248 Emphasis added.  
249 Appellate Body Reports, US – Carbon Steel (India) , para.  4.147; US – Softwood Lumber  IV, para.  92 
(in the context of the use of the word "guidelines" in Article  14 of the SCM  Agreement).  
250 Emphasis added.  
251 Panel Report, para.  7.47. 
252 See the chapeau  of Annex  II(II) to the SCM  Agreement.  
253 Annex  II(II)(1) to the SCM  Agreement.  WT/DS486/AB/R  
 
- 40 - 
 
 
  reasonable, effective for the p urpose intended, and based on generally accepted commercial 
practices in the country of export.254 For ease of reference, we describe this examination by the 
investigating authority  "to see whether [a verification system] is reasonable, effective for the 
purpose intended, and based on generally accepted commercial practices in the country of export" 
as an examination into whether the verification system is "fit for purpose". Moreover, the last 
sentence of Annex  II(II)(1) provides that an investigating authori ty may deem it necessary to 
carry out, in accordance with Article  12.6 of the SCM  Agreement255, "certain practical tests" in 
order to verify the accuracy of the information or to satisfy itself that the verification system is 
being effectively applied.256 
5.117.   The guidance in Annex  II(II)(1), as described above, underscores the importance of the 
exporting Member having a properly functioning verification system.257 In this regard, we take 
note of Annex  III(II)(1), which states:  
The existence of a verification system or procedure is important because it enables 
the government of the exporting Member to ensure and demonstrate that the quantity 
of inputs for which drawback is claimed does not exceed the quantity of similar 
products exported, in whatever form, and that th ere is not drawback of import 
charges in excess of those originally levied on the imported inputs in question.  
5.118.   This provision highlights that the primary function of a verification system, and particularly 
one that is fit for purpose, is to ensure that the re is no excess drawback of import charges on 
inputs. In the same vein, Annex  III(II)(2) indicates that, to the extent that an investigating 
authority determines that a verification sy stem is fit for purpose and is effectively applied, 
"no subsidy should b e presumed to exist ".258 This presumption further reinforces the explanation 
set out in Annex  III(II)(1) that a verification system is aimed at ensuring that an exporting 
Member's substitution drawback scheme does not result in a drawback of import charges " in 
excess" of those originally levied.  
5.119.   We underline that no such presumption is explicitly provided for in Annex  II(II)(1) with 
respect to duty drawback schemes. In response to questioning at the hearing, the participants 
agreed that the practical conseque nces of an exporting Member effectively applying a verification 
system that is fit for purpose would be the same for duty drawback schemes and substitution 
drawback schemes. We share the participants' view and find support for this view in the first 
senten ce of Annex  II(II)(2). This provision refers to "a further examination by the exporting 
Member based on the actual inputs involved … in the context of determining whether an excess 
payment occurred." Pursuant to the first sentence of Annex  II(II)(2), such "further examination", 
aimed at determining "whether an excess payment occurred", would need to be carried out only if 
there is no verification system in place, or a verification system is in place but is not fit for 
                                                
254 Annex  II(II)(1) to the SCM  Agreement.  
255 Article  12.6 of the SCM  Agreement states, in relevant part:  
The investigating authorities may carry out investigations in the territory of other Members as 
required, provided that they have notified in goo d time the Member in question and unless that 
Member objects to the investigation. Further, the investigating authorities may carry out 
investigations on the premises of a firm and may examine the records of a firm if (a) the firm so 
agrees and (b) the Mem ber in question is notified and does not object. … Subject to the 
requirement to protect confidential information, the authorities shall make the results of any 
such investigations available, or shall provide disclosure thereof pursuant to paragraph  8, to the 
firms to which they pertain and may make such results available to the applicants.  
256 As described in footnote 255 above, Article  12.6 of the SCM  Agreement permits investigating 
authorities to carry out on -the-spot investigations. In EU – Fatty Alcohols  (Indonesia) , the Appellate Body 
explained that the disclosure of the results of an on -the-spot investigation must be "in sufficient detail and in a 
timely manner" to allow the investigated company and the exporting Member the opportunity to defend 
effecti vely their interests in the remaining stages of the investigation. (Appellate Body Report, EU – Fatty 
Alcohols (Indonesia) , para.  5.140) In that dispute, the Appellate Body was addressing Article  6.7 of the 
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 
(Anti-Dumping  Agreement). Given the similarity in language and scope between Article  6.7 of the 
Anti-Dumping  Agreement  and Article  12.6 of the SCM  Agreement, we consider that the Appellate  Body's 
reasoning in EU – Fatty Alcohols (Indonesia)  is also relevant to Article  12.6 of the SCM  Agreement.  
257 The language of Annex  III(II)(2) is similar to that of Annex  II(II)(1).  
258 We recall that, in arriving at this determination, an investigating authority may deem it necess ary to 
carry out, in accordance with Article  12.6 of the SCM  Agreement, on -the-spot investigations in order to verify 
the accuracy of the information or to satisfy itself that the verification system is being effectively applied.  WT/DS486/AB/R  
 
- 41 - 
 
 
  purpose, or it has not been applied eff ectively. This suggests that, in a countervailing duty 
investigation concerning a duty drawback scheme, if an investigating authority determined  – 
including through carrying out on -the-spot investigations pursuant to Article  12.6 of the 
SCM Agreement where  necessary  – that the exporting Member had effectively applied a 
verification system that was fit for purpose, the duty drawback scheme under investigation would  
not result in a drawback of import charges "in excess" of those originally levied. Consequently, the 
investigating authority would need not continue its line of inquiry into whether there was excess 
drawback of import charges on inputs. This understanding  is in harmony with the description in 
footnote  1 and Annex  I(i) to the SCM  Agreement, and the Ad Note to Article  XVI of the GATT  1994, 
limiting the financial contribution element of the subsidy to the excess  amount of the remission.  
5.120.   At the heart of the Eu ropean  Union's claim of error on appeal is its contention that 
Annex  II(II)(2) does not prescribe what happens in the event that an exporting Member does not 
carry out the "further examination" prescribed in the first sentence of this provision , or where s uch 
"further examination" is unsatisfactory. The European  Union refers to this absence of prescription 
as a "silence", the consequence of which is that the remission of import duties no longer qualifies 
as a duty drawback scheme and the entire amount of du ties refunded or not collected upon 
exportation can be countervailed by the investigating authority.259 Pakistan disagrees with the 
significance that the European  Union attributes to this perceived "silence". Moreover, in response 
to questioning at the heari ng, Pakistan opined that the investigating authority ha s a duty to give 
the exporting Member the opportunity to conduct a "further examination", as provided for in the 
first sentence of Annex  II(II)(2), before proceeding to engage with the perceived "silen ce" that 
follows th is provision. Before addressing this alleged "silence" highlighted by the European  Union, 
we first examine what Annex  II(II)(2) provides for and its relationship to the first step of the 
inquiry articulated in Annex  II(II)(1), discussed in paragraph  5.116  above.  
5.121.   Pursuant to the first sentence of Annex  II(II)(2), the need for a "further examination by 
the exporting Member" prescribed therein  does not arise in each countervailing duty investigation. 
Such need only arises in a situation wher e the investigating authority has determined, from its 
inquiry under Annex  II(II)(1), that there is no verification system in place in the exporting 
Member, or a verification system is in place but it is not fit for purpose, or it has not been applied 
effectively  by the exporting Member .260 
5.122.   Should an investigating authority determine that a "further examination" by the exporting 
Member needs to be carried out pursuant to the first sentence of Annex  II(II)( 2), it follows that 
the investigating authority has th e responsibility of informing the exporting Member of this need. 
In our view, the investigating authority should inform the exporting Member of the need for a 
"further examination" in sufficient detail and in a timely manner. When an investigating authorit y 
provides this information to the exporting Member in a timely manner, it permits the exporting 
Member to carry out a "further examination" , in accordance with the first sentence of 
Annex  II(II)(2), before the conclusion of the authority's investigation. In so doing, this allows the 
exporting Member, and indeed the investigated company, the opportunity to defend effectively 
their interests in the remaining stages of the countervailing duty investigation. This is of particular 
importance bearing in mind tha t the further examination by the exporting Member is aimed at 
establishing whether "an excess payment occurred" – a crucial element in the investigating 
authority's determination of whether the duty drawback scheme under investigation "conveys a 
subsidy by  reason of … excess drawback of … import charges on inputs".261 
5.123.   Beyond Annex  II(II)(2) and Annex  III(II)(3), the se two Annexes do not provide for specific 
procedural steps on what is to happen if no "further examination" by the exporting Member is 
carried ou t, or if an investigating authority is still unsatisfied with the results of a "further 
examination". This leads us to the "silence" argument by the European  Union in support of its 
claim of error.  
5.124.   As discussed above, the European  Union submits that the Pa nel incorrectly interpreted 
footnote  1 and Annexes  II and III to the SCM  Agreement when considering that the words 
                                                
259 European  Union's appella nt's submission, paras.  69 and 80 -81 (referring to Panel Report, 
para. 7.56).  
260 See also Panel Report, fn 107 to para. 7.51.  
261 Annex  II(II)(1) to the SCM  Agreement.  WT/DS486/AB/R  
 
- 42 - 
 
 
  "in accordance with the provisions" in those Annexes, together with the "silence" in cases where 
the verification system in place was not functioning effectively and there was no further 
examination by the exporting Member, mean that investigating authorities should still determine 
whether an excess remission occurred. For the European  Union, such "silence" can only mean that, 
if there is no verification system in place or the investigating authority concludes that the system 
in place is not functioning effectively, and the exporting Member fails to conduct a further 
examination based on  the actual inputs involved, then "the Excess Remissions principle ceases to 
apply" because such remission was not granted "in accordance with" (i.e. in conformity with) the 
conditions listed in those Annexes.262 Consequently, the European  Union contends tha t, in such 
circumstances, the remission of import duties no longer qualifies as a duty drawback scheme and 
the entire amount of duties refunded or not collected upon exportation can be countervailed by the 
investigating authority.263 
5.125.   Pakistan disagrees with the European  Union's proposition that the perceived "silence" in 
Annexes  II and III to the SCM  Agreement means that the "excess remissions principle" ceases to 
apply.264 Pakistan avers that t he subsidy is defined as the excess  remission, and not as the entir e 
amount of the remission. Annexes  II and III provide detailed procedural guidance on how to 
calculate th is excess remission. Referring to the Panel's finding, Pakistan maintains that there is no 
reason why the incomplete guidance on the procedural steps i n Annexes  II and III  should mean 
that the definition of the subsidy, in footnote  1 and Annex  I(i), shou ld change or be read out of 
the Agreement.265 
5.126.   We recall that the guidelines in Annexes  II and III emphasize that the focus of the 
investigating authority's  inquiry is to determine whether there has been a drawback of the import 
charges "in excess" of those originally levied on the inputs consumed in the production of the 
exported product.266 Thus, we agree with the Panel that any perceived "silence" connected to the 
procedural step in Annex  II(II)(2) "does not mean that other portions of Annex  II cease to speak, 
and [the Panel] recall[ed] that the entirety of Annex  II(II)(2) only operates in the presence of an 
allegation that a 'drawback scheme[] conveys a subs idy by reason of over -rebate or excess 
drawback'" .267 
5.127.   In this vein, we emphasize that this perceived "silence" referred to by the European  Union 
is not one that pertains to the definition of the subsidy, and in particular to what constitutes the 
financial co ntribution element of the subsidy. In that respect, Annex  II(I)(2) is unambiguous in 
stating that "drawback schemes can constitute an export subsidy to the extent that they result in a 
remission or drawback of import charges in excess  of those actually lev ied on inputs that are 
consumed in the production of the exported product."268 This echoes the limitation of the financial 
contribution to the excess amount of the remission, articulated in footnote  1 and Annex  I(i) to the 
SCM Agreement, and the Ad Note to A rticle XVI of the GATT  1994. Instead, the perceived "silence" 
referred to by the European  Union relates only to a procedural step in the context of an 
investigating authority's inquiry into whether the excess  remission or drawback occurred.  
5.128.   Moreover, we do  not consider what the European  Union perceives as "silence" to be 
without cure in the SCM  Agreement.269 According to the European  Union, this perceived "silence" 
relates to a situation where an investigating authority determines that there is no verificatio n 
system in place in the exporting Member, or a verification system is in place but it is not fit for 
purpose, or it has not been applied effectively  by the exporting Member , and where the 
subsequent "further examination" that needs to be carried out by th e exporting Member, at the 
behest of the investigating authority, is not undertaken or is unsatisfactory. In our view, this 
                                                
262 European  Union's appellant's submission, para.  69. 
263 European  Union's appellant's submiss ion, paras.  69 and 80 -81 (referring to Panel Report, 
para. 7.56).  
264 Pakistan's appellee's submission, paras. 2.60 -2.61 (quoting European  Union's appellant's submission, 
para. 69). 
265 Pakistan's appellee's submission, paras.  2.62 and 2.66 (referring to Panel  Report, para.  7.52).  
266 We further recall that Annex  III(II)(1) provides that the existence of a verification system is aimed at 
ensuring that there is no drawback of import charges "in excess" of those originally levied on the imported 
inputs in question.  
267 Panel Report, para.  7.52. 
268 Emphasis added.  
269 European  Union's appellant's submission, paras.  69, 73 -75, and 78 -81. WT/DS486/AB/R  
 
- 43 - 
 
 
  situation finds accommodation in Article  12.7 of the SCM  Agreement, which envisages instances 
"in which any interested Member or int erested party refuses access to, or otherwise does not 
provide, necessary information  within a reasonable period".270 In the context of duty drawback 
schemes, the "necessary information" relates to the consumption of inputs in the production 
process, and thi s information is aimed at determining whether the duty drawback scheme under 
investigation conveys a subsidy by reason of excess drawback on import charges on inputs.271 
5.129.   Article  12.7 therefore provides an investigating authority with the alternative of filli ng the 
gaps of missing information with "facts available". As the Panel observed272, pursuant to 
Article  12.7, an investigating authority may use the facts available on its record to replace the 
missing "necessary information" in order to assess whether the inputs imported under the 
drawback scheme were consumed in the production process  of the finished exported product , as 
part of the larger inquiry into whether there is "excess drawback of … import charges".273 
5.130.   This reliance, pursuant to Article  12.7, on the "facts available" on the investigation record 
is in keeping with the provisions of the SCM  Agreement and the GATT  1994 that govern the 
imposition of countervailing duties.274 These provisions all encompass a requirement for an 
investigating authority "to conduct a sufficiently diligent 'investigation' into, and solicitation of, 
relevant  facts, and to base its determination on positive evidence in the record" .275 Thus, in 
conducting its investigation, an investigating authority "must actively seek out pertinent 
information" and may not remain "passive in the face of possible shortcomings in  the evidence 
submitted".276 In the context of duty drawback schemes, the second sentence of Annex  II(II)(2) 
lends further credence to this view that an investigating authority may not remain passive, by 
providing that , "[i]f the investigating authorities de emed it necessary, a further examination would 
be carried out in accordance with paragraph  1".277 
5.131.   For these reasons, we consider that the European  Union's argument regarding the 
significance of the perceived "silence" in Annexes  II and III to the SCM  Agreeme nt to be 
inapposite. This perceived "silence" is not one that pertains to the definition of the subsidy and , in 
particular , to what constitutes the financial contribution element of the subsidy. Instead, the 
perceived "silence" relates to a procedural step  in the context of an investigating authority's 
inquiry into whether the excess  remission or drawback occurred. As regards th e procedural step  in 
question , we recall that it relates to a situation where an investigating authority determines that 
there is n o verification system in place in the exporting Member, or a verification system is in place 
but it is not fit for purpose, or it has not been applied effectively  by the exporting Member , and 
where a further examination by the exporting Member has not been  undertaken or is considered 
unsatisfactory by the investigating authority. In such a situation, it is true that Annexes  II and III 
                                                
270 Emphasis added. Article  12.7 of the SCM  Agreement provides:  
In cases in which any interested Member or interested party refuses access to, or otherwise does 
not provide, necessary information within a reasonable period or significantly impedes the 
investigation, preliminary and final determinations, affirmative or negative, may be made on the 
basis of the facts available.  
271 In such a situ ation, Article  12.7 permits the use of facts on the record solely for the purpose of 
replacing information that may be missing, in order to arrive at an accurate subsidization or injury 
determination. To this end, the Appellate Body has emphasized that the re has to be a connection between the 
necessary information that is missing and the particular facts available on which a determination under 
Article  12.7 is based. Thus, an investigating authority must use those "facts available" that "reasonably 
replace"  the information that an interested party failed to provide, with a view to arriving at an accurate 
determination. The "facts available" refer to those facts that are in the possession of the investigating authority 
and on its written record. (See Appellat e Body Reports, US – Carbon Steel (India) , paras.  4.416 -4.417;  
US – Countervailing Measures (China) , para.  4.178; Mexico – Anti-Dumping Measures on Rice , paras.  293-294) 
272 Panel Report, para.  7.59. 
273 Annex  II(II)(1) to the SCM  Agreement.  
274 These provision s include Article  10 and Article  19.4 of the SCM  Agreement and Article  VI:3 of the 
GATT  1994.  
275 Appellate Body Report, US – Carbon Steel (India) , para.  4.152 (quoting Appellate Body Report,  
US – Anti-Dumping and Countervailing Duties (China) , para.  602).  
276 Appellate  Body Report, US – Washing Machines , para.  5.268 (quoting Appellate  Body Report,  
US – Wheat Gluten , paras.  53 and 55; referring to Appellate  Body Reports, US ‒ Corrosion -Resistant Steel 
Sunset Review , para.  199; US – Anti-Dumping and Countervai ling Duties (China) , para.  344; Panel Report, 
China – Broiler Products , para.  7.261).  
277 The third sentence of Annex  III(II)(3) contains similar language in the context of substitution 
drawback schemes.  WT/DS486/AB/R  
 
- 44 - 
 
 
  do not explicitly provide for the steps to be taken by an investigating authority. However, the 
SCM Agreement, as a whole, i s not silent, and the perceived "silence" in Annexes  II and III does 
not grant an investigating authority the liberty to depart from these other disciplines of the 
SCM Agreement. In particular, Article  12.7 of the SCM  Agreement allows an investigating auth ority 
to rely on the facts available on its record to replace the missing "necessary information" in its 
assessment of whether the inputs imported under the drawback scheme were consumed in the 
production of the finished exported product , as part of the la rger inquiry into whether there is 
"excess drawback of … import charges on inputs consumed in the production of the exported 
product".278 
5.132.   As an additional line of argument, albeit one closely related to the one discussed above, 
the European  Union opines that , by limiting the financial contribution to the excess remission, 
irrespective of whether the conditions of Annexes  I to III are met, the Panel 's interpretation  would 
in essence relieve WTO Members from "making any efforts " to establish a reliable and effe ctive 
monitoring system in order to comply with Annexes  I to III.279 Pakistan disagrees, underlining that 
the continued threat of either multilateral or unilateral action against an export subsidy is a 
"powerful incentive" to ensure adequate monitoring of du ty drawback systems, an incentive that 
exists independently of Annexes  II and III.280 
5.133.   We take note of the participants' debate regarding the incentives attached to the exporting 
Member's operation of a verification system that is fit for purpose.281 Annex  II(II)(1) and 
Annex  (III)(II)(2) appear to suggest that exporting Members should have in place and apply 
verification systems that are fit for purpose. Annex  II(II)(2) and  III(II)(3)  also indicate that, where 
an exporting Member either does not have a verifica tion system, or the existing verification system 
is not fit for purpose or was not effectively applied, such exporting Member may be faced with the 
additional burden of carrying out a "further examination" based on the actual inputs to determine 
whether an  excess payment occurred. However, these roles of the exporting Member as reflected 
in Annexes  II and III do not void an investigating authority's obligation "to conduct a sufficiently 
diligent 'investigation' into, and solicitation of, relevant facts, and  to base its determination on 
positive evidence in the record."282 Instead, as discussed above, an investigating authority "must 
actively seek out pertinent information" and may not remain "passive in the face of possible 
shortcomings in the evidence submitt ed".283 To this end, Article  12.7 of the SCM  Agreement serves 
as an essential tool284, allowing an investigating authority to complete its inquiry into whether a 
duty "drawback scheme conveys a subsidy by reason of … excess drawback of … import charges 
on inputs consumed in the production of the exported product."285 
5.134.   In sum, a harmonious reading of Article  1.1(a)(1)(ii), footnote  1, and Annexes  I(i), II, 
and III to the SCM  Agreement  and the Ad Note to Article  XVI of the GATT  1994 confirms that duty 
drawback s chemes can constitute an export subsidy that can be countervailed only if they result in 
a remission or drawback of import charges "in excess" of those actually levied on the imported 
inputs that are consumed in the production of the exported product. Thus , in the context of duty 
drawback schemes, the financial contribution element of the subsidy (i.e. the government revenue 
foregone  that is otherwise due ) is limited to the excess  remission or drawback of import charges 
and does not encompass the entire amo unt of the remission or drawback of import charges.  
                                                
278 Annex  II(II)(1) to the SCM  Agreement.  
279 European Uni on's appellant's submission, para.  70. 
280 Pakistan's appellee's submission, paras.  2.70-2.74. 
281 In addressing these arguments by the participants, we are mindful that our "interpretation must be 
based above all upon the text of the treaty" and that we are r equired to "read and interpret the words actually 
used by the agreement under examination". (See Appellate Body Reports, Japan – Alcoholic Beverages II , 
p. 11, DSR  1996:I, p.  105; EC – Hormones , para.  181) 
282 Appellate Body Report, US – Carbon Steel (India) , para.  4.152 (quoting Appellate Body Report,  
US – Anti-Dumping and Countervailing Duties (China) , para.  602).  
283 Appellate  Body Report, US – Washing Machines , para.  5.268 (quoting Appellate  Body Report,  
US – Wheat Gluten , paras.  53 and 55; referring to A ppellate  Body Reports, US ‒ Corrosion -Resistant Steel 
Sunset Review , para.  199; US – Anti-Dumping and Countervailing Duties (China) , para.  344; Panel Report, 
China – Broiler Products , para.  7.261).  
284 Panel Report, US – Countervailing Measures (China) , para . 7.308.  
285 Annex  II(II)(1) to the SCM  Agreement.  WT/DS486/AB/R  
 
- 45 - 
 
 
  5.135.   For all of these reasons, we find that the European  Union has not demonstrated that the 
Panel erred in finding that:  
the Excess Remissions Principle provides the legal standard under which to determine 
whether remissions of import duties obtained under a duty drawback scheme 
constitute [] a financial contribution in the form of revenue forgone otherwise due 
under Article  1.1(a)(1)(ii) of the SCM  Agreement, and reject the European Union's 
position that Annex  II and/or Annex  III provides a relevant reason to depart from the 
Excess Remissions Principle. Thus, even if the exporting Member has no reliable 
system of tracking inputs consumed in the production of a relevant exported product 
and in the absence of a f urther examination by the exporting Member of that issue, 
investigating authorities should still determine if an excess remission occurred.286 
5.136.   We recall that , on appeal, in addition to the European  Union's request that we reverse the 
Panel's articulation of the applicable legal standard, quoted above, the European  Union also  
requests  us to declare moot and of no legal effect the entirety of the Panel's findings with respect 
to the MBS on the grounds that the Panel applied the wrong legal standard.287 However, t he 
European  Union does not raise separate and distinct arguments challenging the Panel's review of 
the Commission's findings concerning the MBS, beyond its claim that the Panel applied the wrong 
legal standard to the facts of this case.288 
5.137.   Having rejected th e European Union's claim that the Panel erred with respect to its 
articulation of the applicable legal standard, we find that the European  Union has not 
demonstrated that the Panel erred in finding that, by failing to provide a reasoned and adequate 
explan ation for why the entire amount of remitted duties, which the Commission found to be the 
financial contribution, was "in excess of those which have accrued" within the meaning of 
footnote  1 of the SCM Agreement, the Commission acted inconsistently with Art icle 1.1(a)(1)(ii) of 
the SCM  Agreement. For the same reason , we find that the European  Union has not demonstrated 
that the Panel erred in concluding that the Commission acted inconsistently with Article  3.1(a) of 
the SCM Agreement by improperly finding th e existence of a "subsidy" that was contingent upon 
export performance.289 
5.2.4   Conclusion  
5.138.   A harmonious reading of Article  1.1(a)(1)(ii), footnote  1, and Annexes  I(i), II, and  III to 
the SCM  Agreement  and the Ad Note to Article  XVI of the GATT  1994 confirms that duty drawback 
schemes can constitute an export subsidy that can be countervailed only if they result in a 
remission or drawback of import charges "in excess" of those actually levied on the imported 
inputs consumed in the production of the exported product . Thus, in the context of duty drawback 
schemes, the financial contribution element of the subsidy (i.e. the government revenue foregone 
that is otherwise due) is limited to the excess  remission or drawback of import charges on inputs 
and does not encompas s the entire amount of the remission or drawback of import charges.  
5.139.   Furthermore, the perceived "silence" in Annexes  II and III to the SCM  Agreement, referred 
to by the European  Union, is not one that pertains to the definition of the subsidy, and in partic ular 
to what constitutes the financial contribution element of the subsidy, in the form of government 
revenue foregone. Instead, the perceived "silence" relates to a procedural step in the context of an 
investigating authority's inquiry into whether the excess remission or drawback of import charges 
occurred. As regards this procedural step, where an investigating authority determines that there 
is no verification system in place in the exporting Member, or a verification system is in place but 
it is not fi t for purpose, or it has not been applied effectively  by the exporting Member , and where 
a further examination by the exporting Member has not been undertaken or is considered 
unsatisfactory by the investigating authority, it is true that Annexes  II and II I do not explicitly 
provide for what should happen next. Nonetheless, the SCM  Agreement, as a whole, is not silent, 
and the perceived "silence" in Annexes  II and III does not grant an investigating authority the 
                                                
286 Panel Report, para.  7.56. (fn omitted)  
287 European Union's Notice of Appeal, p.  2; appellant's submission, paras.  54 and 82 -83 (referring to 
Panel Report, paras.  7.57-7.60 and 8.1.b.i -ii). 
288 Indeed, in resp onse to questioning at the hearing, the European  Union confirmed that its appeal 
raises an interpretative question only.  
289 Panel Report, para.  7.60. WT/DS486/AB/R  
 
- 46 - 
 
 
  liberty to depart from these other disciplin es of the SCM  Agreement. In particular, Article  12.7 of 
the SCM  Agreement allows an investigating authority to rely on the "facts available" on its 
investigation record to complete its inquiry into whether a duty drawback scheme conveys a 
subsidy by reason  of excess drawback of import charges on inputs.  
5.140.   Accordingly, we find that the European  Union has not demonstrated that the Panel erred in 
its interpretation of Article  1.1(a)(1)(ii), footnote  1, and Annexes  I(i), II, and III to the 
SCM Agreement  and the Ad Note to Article  XVI of the GATT  1994, as summarized at 
paragraph  7.56 of its Report.  
5.141.   The European  Union does not challenge the Panel's review of the Commission's findings on 
the MBS, beyond the European  Union's claim that the Panel applied the wrong legal standard to 
the facts of this case.  
5.142.   Accordingly, we find that the European  Union has not demonstrated that the Panel erred in 
its application of Article  1.1(a)(1)(ii) and footnote  1 of the SCM  Agreement to the facts of this 
case. 
5.143.   Consequently, we uphold the Panel's findings, in paragraphs  7.60 and 8.1.b.i of its Report , 
that the Commission erred under  Article  1.1(a)(1)(ii) of the SCM  Agreement by failing to provide a 
reasoned and adequate explanation for why the entire amount of remitted duties was "i n excess of 
those which have accrued" within the meaning of footnote  1 of the SCM  Agreement; and , in 
paragraphs  7.60 and 8.1.b.ii of its Report , that the Commission acted inconsistently with 
Article  3.1(a) of the SCM  Agreement by improperly finding the exi stence of a "subsidy" that was 
contingent upon export performance.  
5.3  Pakistan's claim of error regarding the Commission's causation analysis  
5.144.   Pakistan challenges the Panel's rejection of Pakistan's claim that the Commission's use of 
the "break the causal link " approach290 in this case was inconsistent with Article  15.5 of the 
SCM Agreement because this approach  had pre cluded  the Commission  from satisfying the 
non-attribution requirements of th is provision .291 Consequently, Pakistan requests us to reverse 
the Panel 's finding that Pakistan had failed to establish that the Commission's use of the "break 
the causal link" approach in this case was inconsistent with Article  15.5.292 Pakistan also requests 
us to complete the legal analysis and find that the Commission ac ted inconsistently with 
Article  15.5 by using the "break the causal link" approach in its causation analysis.293 
5.145.   Before turning to our analysis of the issues raised on appeal, we provide , as background 
information,  the relevant aspects of the Commission's deter mination of injury and causation in the 
countervailing duty investigation at issue . We also include  a summary of the relevant Panel 
findings.  
5.3.1   Background information  
5.146.   The Commission's analys es of injury and causation in the countervailing duty investigation 
at issue are set out in sections  4 and 5 of the Provisional Determination and in sections  4 and 5 of 
the Definitive Determination.294 
                                                
290 We note that, while the Commission used the phrase "break the causal link" in its analysis of the 
effects  of other known factors in its determination, there is no reference in the EU  Basic CVD  Regulation to the 
notion of "breaking the causal link" or to a "break the causal link" approach or methodology. Thus, we 
understand the terms "'break the causal link' a pproach" or "'break the causal link' methodology" used by the 
parties and the Panel as shorthand to refer to the specific manner in which the Commission conducted its 
causation analysis in the countervailing duty investigation at issue. We use the term "'b reak the causal link' 
approach" in the same manner.  
291 Pakistan's other appellant's submission, para. 1.2 (referring to Panel  Report, paras.  7.117 -7.120).  
292 Pakistan's other appellant's submission, para. 4.1 (referring to Panel  Report, paras.  7.120 
and 8.1.d.i). 
293 Pakistan's other appellant's submission, para. 4.2.  
294 The Definitive  Determination was issued by the Council based on the proposal submitted by the 
Commission. (Definitive Determination (Panel Exhibit PAK -2), p. 1)  WT/DS486/AB/R  
 
- 47 - 
 
 
  5.147.   In section  4 of the Provisional  Determination (entitled "Injury"), the Commission began its 
analysis by statin g that, for the purpose of its injury and causation determination, it would 
examine the subsidized imports from Iran, Pakistan, and the United Arab Emirates cumulatively.295 
The Commission then examined the evolution of the volume and prices of the subsidize d imports 
and of various economic indicators pertaining to the state of the EU industry.  
5.148.   The Commission observed that the volume and market share of the subsidized imports 
increased approximately five times296 during the period considered297, whereas the EU producers 
lost their market share by about 10 percentage points during the same period.298 The Commission 
also observed that, during the investigation period, the subsidized imports undercut the sales 
prices of the domestic producers by 3.2% on a weighted -average basis.299 
5.149.   With respect to the state of the EU industry, the Commission observed that the following 
six economic indicators showed negative trends during the period considered: production; sales; 
market share; profitability; return on investment; and ca sh flow. The Commission thus concluded 
that the EU industry had suffered material injury.300 
5.150.   In section  5 of the Provisional Determination (entitled "Causation") , the Commission 
examined  whether the subsidized imports had "caused" the obs erved material injur y to the 
EU industry.301 The Commission carried out its causation analysis in two steps.302 First, the 
Commission examined the relationship between the subsidized imports and the observed injury by 
considering the "[e]ffect of the subsidised imports".303 The Com mission recalled that, during the 
period considered, the volume and market share of the subsidized imports increased significantly, 
while their prices undercut the domestic prices.304 The Commission c onsidered that, given that 
"PET is a commodity and competi tion takes place mainly via price"305, the subsidized imports 
exerted a downward pressure on prices, preventing the EU industry from keeping its sales prices 
to realize a profit.306 The Commission therefore stated that "it is considered that a causal link 
exists between those imports and the [EU] industry's injury".307 
5.151.   Second, the Commission examined the "[e]ffect of other factors"308 that could have injured 
the EU industry at the same t ime as the subsidized imports. The Commission examined each of the 
following "other factors" in turn: (i)  the export activity of the EU industry; (ii)  imports from Korea 
and other third countries; (iii)  competition from the non -cooperating producers in the  
European  Union; (iv) the economic downturn in 2008 and the contraction in demand that 
accompanied this downturn; (v)  the geographical location of the EU  industry; and (vi)  the lack of 
vertical integration.309 
5.152.   The Commission found that the export activity of  the EU industry310, imports from third 
countries other than Korea311, competition from the non -cooperating producers312, the 
geographical location of the European Union313, and the lack of vertical integration314 had not 
contributed to the injury observed. With res pect to imports from Korea315, and the 2008 economic 
                                                
295 Provisional Determination (Pane l Exhibit PAK -1), recital 210.  
296 Provisional Determination (Panel Exhibit PAK -1), Table 2 at recital 211.  
297 See para. 5.66 above.  
298 Provisional Determination (Panel Exhibit PAK -1), Table 7 at recital 224.  
299 Provisional Determination (Panel Exhibit PAK -1), recital 217.  
300 Provisional Determination (Panel Exhibit PAK -1), recital 240.  
301 Provisional Determination (Panel Exhibit PAK -1), recital 241.  
302 Provisional Determination (Panel Exhibit PAK -1), recital  241. 
303 Provisional Determination (Panel Exhibit PAK -1), section  5.2. 
304 Provisional Determination (Panel Exhibit PAK -1), recitals 242 -243. 
305 Provisional Determination (Panel Exhibit PAK -1), recital 243.  
306 Provisional Determination (Panel Exhibit PAK -1), recital  245. See also recital 262.  
307 Provisional Determination (Panel Exhibit PAK -1), recital 245. See also recitals 242 -243 and 262.  
308 Provisional Determination (Panel Exhibit PAK -1), section  5.3. 
309 Provisional Determination (Panel Exhibit PAK -1), recitals 246 -261. 
310 Provisional Determination (Panel Exhibit PAK -1), recital 246.  
311 Provisional Determination (Panel Exhibit PAK -1), recital 251.  
312 Provisional Determination (Panel Exhibit PAK -1), recital 252.  
313 Provisional Determination (Panel Exhibit PAK -1), recital 259.  
314 Provisional Determination (Panel Exhibit PAK -1), recital 261.  
315 Provisional Determination (Panel Exhibit PAK -1), recital 249.  WT/DS486/AB/R  
 
- 48 - 
 
 
  downturn and the contraction in demand  that accompanied this downturn316, the Commission 
found that each of these factors contributed to the EU industry's injury , but only to a limited 
degree , and, therefore , these factors did not "break the causal link" found between the subsidized 
imports and the injury  to the EU industry . 
5.153.   Consequently, in section  5.4 of the Provisional  Determination (entitled "Conclusion on 
causation"), the Commission "provisionally conclu ded that the imports from the countries 
concerned have caused material injury to the [EU] industry".317 
5.154.   In its Definitive Determination, the Council confirmed the Commission's overall analyses 
and conclusions on injury and causation contained in the Provisio nal Determination.318 However, it 
made certain adjustments to the calculation of the price -undercutting margin for the subsidized 
imports319 and found that the weighted -average undercutting margin of those i mports after the 
adjustment was  2.5%.320 In addition, with respect to the non -attribution analysis, the Council 
addressed arguments concerning certain other factors alleged to be causing injury that had been 
advanced by some interested parties following the Provisional Determination, namely: (i)  low 
prices of crude oil; (ii) financial and technical problems of some EU producers; (iii)  contraction in 
demand during the investigation period; and (iv) lack of investment by the EU PET producers.321  
5.155.   The Council found that oil prices322, financial and tech nical problems of some 
EU producers323, and lack of investment by the EU PET producers324 did not materially contribute 
to the injury  observed . In addition, while the Council acknowledged that the contraction in demand 
"was a factor contributing to the injury suffered", it confirmed the Commission's finding in the 
Provisional  Determination that the impact of this factor seen in the context of the 2008 economic 
downturn "did not break the causal link" .325 
5.3.2   The Panel's findings  
5.156.   Before the Panel, Pakistan submitted t wo claims under Article  15.5 of the SCM  Agreement. 
First, Pakistan claimed that the Commission's "approach to causation", and specifically its use of 
the "break the causal link" approach, was inconsistent with the requirements of Article  15.5.326 
Second, Pak istan argued that the Commission had failed to conduct a proper non -attributio n 
analysis with respect to four  specific other known factors, namely: (i)  imports from Korea; (ii) the 
economic downturn  in 2008 ; (iii)  competition from non -cooperating EU produc ers; and (iv)  oil 
prices.327 On appeal, Pakistan challenges only the Panel's finding on its first claim.  
5.157.   In support of its first claim, Pakistan argued, inter alia , that the Commission's approach 
had "prejudged" its non -attribution analysis.328 Pakistan assert ed that this approach led to a 
disregard of "the correct legal standard , … [i.e.] whether the injurious effects of … other factors 
were such as to render the causal link between the subject imports and the alleged injury too 
distant, remote or insubstantia l".329 Pakistan also stated that the "causal link " that the Commission 
                                                
316 Provisional Determination (Panel Exhibit PAK -1), recitals 254 and 256.  
317 Provisional Determination (Panel Exhibit PAK -1), recit al 264.  
318 Definitive Determination (Panel Exhibit PAK -2), recitals 116 and 126.  
319 Definitive Determination (Panel Exhibit PAK -2), recitals 108 and  165. 
320 Definitive Determination (Panel Exhibit PAK -2), recital 110. The individual undercutting margin for 
imports from Pakistan was 0.5%.  
321 Definitive Determination (Panel Exhibit PAK -2), recitals 118 -125. 
322 Definitive Determination (Panel Exhibit PAK -2), recital 118.  
323 Definitive Determination (Panel Exhibit PAK -2), recital 119.  
324 Definitive Determination (Pane l Exhibit PAK -2), recital 125.  
325 Definitive Determination (Panel Exhibit PAK -2), recital 120 (referring to Provisional Determination 
(Panel Exhibit PAK -1), recitals 254 -256).  
326 Panel  Report, paras.  7.106 -7.107.  
327 Panel Report, paras. 7.106 and 7.128.  
328 Panel Report, para.  7.117 (referring to Pakistan's opening statement at the second Panel meeting, 
para. 4.4). See also Pakistan's second written submission to the Panel, para.  4.7. 
329 Panel Report, para. 7.117 (quoting Pakistan's opening statement at the secon d Panel meeting, 
para. 4.4). WT/DS486/AB/R  
 
- 49 - 
 
 
  had found at the start of its causation analysis was "used to dismiss the significance of the 
non-attribution factors the Commission purported to analy ze".330 
5.158.   The Panel began its analysis of Pakistan's claim by setting out its understanding of the 
relevant legal standard. The Panel explained that Article 15.5 requires an investigating authority to 
demonstrate the existence of a causal link between the subsidized  imports and the injury to the 
domestic industry, and this "causal link" must involve a "genuine and substantial relationship of 
cause and effect" between the subsidized imports and the injury.331 The Panel also stated that the 
non-attribution language in th e third sentence of Article  15.5 calls for an assessment that involves 
separating and distinguishing the injurious effects of other known factors from the injurious effects 
of the subsidized imports. The third sentence also requires an investigating author ity to provide a 
satisfactory explanation of the nature and extent of the injurious effects of other known factors, as 
distinguished from the injurious effects of the subsidized imports.332  
5.159.   With respect to Pakistan's argument that the Commission's finding o f a "causal link"  
prejudged its non -attribution analysis, the Panel observed that, in the introduction to the causation 
section of the Provisional Determination, the Commission referred to its non -attribution analysis as 
forming part of its analysis of the  existence of a "causal link" between the subsidized imports and 
the injury to the EU industry.333 The Panel further noted that the Commission "considered" that a 
"causal link " existed between the subsidized imports and the observed injury to the EU industry  
before it examined whether other known factors "broke the causal link".334 The Panel observed 
that it was only after the assessment of the other known factors that the Commission "concluded" 
that the subsidized imports had caused material injury to the EU i ndustry.335 On this basis, the 
Panel found it "evident" that the Commission "allowed for the possibility that the analysis of other 
known factors could have negated its initial consideration that a causal link existed between 
subject imports and the observed  injury to the domestic industry".336 
5.160.   The Panel further explained that it failed to see how the Commission's approach had led to 
a disregard of the relevant legal standard "in this case" or how this approach had precluded the 
Commission from separating and d istinguishing the injurious effects of any other known factors 
from those of the subsidized imports.337 The Panel recalled that Pakistan had raised separate 
claims pertaining to purported deficiencies in the Commission's analysis of four specific 
non-attribu tion factors.338 While the Panel, in later sections of its Report, found the Commission's 
analysis of two of those specific factors (i.e. competition from non -cooperating EU producers and 
oil prices) to be inconsistent with the requirements in Article 15.5339, it did not consider  that the 
use of the overall "break the causal link" framework had necessarily led to such inconsistency.340 
In addition, the Panel considered that its finding that the Commission had sufficiently separated 
and distinguished the effects o f the remaining two non -attribution factors (i.e. imports from Korea 
and the 2008 economic downturn) from the effects of the subsidized imports illustrated that the 
Commission did not dismiss the role of the other known factors simply because it had earlie r 
considered that a "causal link" existed between the subsidized imports and the EU industry's 
injury.341 
                                                
330 Panel  Report, para.  7.117 (quoting Pakistan's opening statement at the second Panel meeting, 
para. 4.4). 
331 Panel  Report, para.  7.111.  
332 Panel  Report, para.  7.111 (referring to Appellate Body Report, EU – Biodiesel (Argentina) , 
para. 6.125).  
333 Panel Report, para. 7.118 (referring to Provisional Determination (Panel Exhibit PAK -1), recital 241).  
334 Panel  Report, para.  7.118 (referring to Provisional Determination (Panel Exhibit PAK -1), recital  245).  
335 Panel Report, para. 7.118 (r eferring to Provisional Determination (Panel Exhibit PAK -1), recitals 245 
and 264).  
336 Panel Report, para. 7.118.  
337 Panel Report, para. 7.119 (referring to Appellate Body Reports, US – Tyres (China) , para.  191;  
EC and certain member States – Large Civil Ai rcraft , para. 1376; EU – Biodiesel (Argentina) , para. 6.125; 
Panel Report, EU – Footwear (China) , para.  7.489).  
338 These non -attribution factors were: (i)  imports from Korea; (ii)  the economic downturn in 2008 and 
the contraction in demand that accompanied this downturn; (iii)  competition from non -cooperating producers; 
and (iv) oil prices. (Panel Report, para. 7.128)  
339 Panel Report, paras. 7.128, 7.152, and 7.160.  
340 Panel Report, para. 7.119.  
341 Panel Report, para. 7.119. See also paras. 7.135 and 7.145.  WT/DS486/AB/R  
 
- 50 - 
 
 
  5.161.   In light of the foregoing, the Panel rejected Pakistan's argument that the Commission's 
"break the causal link" approach h ad precluded the Commission fr om satisfying the non -attribution 
requirements of Article  15.5 of the SCM Agreement in this case.342 Having also rejected Pakistan's 
other arguments in support of its claim343, the Panel concluded that Pakistan had failed to 
demonstrate that the Commission's u se of the "break the causal link" approach in this case was 
inconsistent with Article  15.5 of the SCM Agreement .344 
5.3.3   Whether the Panel erred in its interpretation and application of Article  15.5 of the 
SCM Agreement  
5.162.   On appeal, Pakistan submits that the Panel erred in rejecting Pakistan's claim  that the 
Commission's use of the "break the causal link" approach in this case was inconsistent with 
Article  15.5 of the SCM Agreement because this approach had precluded the Commission from 
satisfying the non -attributio n requirement s of this provision. Pakistan asserts  that the Panel failed 
to apply the "correct legal standard" under Article  15.5 when assessing the WTO  consistency of the 
"break the causal link" approach used by the Commission in its causation analysis.345 
5.163.   Pakistan argues that the "primary objective" of a causation analysis under Article  15.5 is to 
determine whether there exists a "genuine and substantial relationship of cause and effect" 
between the subsidized imports and the observed injury.346 Pakistan  refers to WTO jurisprudence 
regarding the causation analysis under Articles  5 and 6  of the SCM  Agreement and argues that a 
proper test for determining the existence of a causal relationship is whether other known factors 
"attenuate" or "dilute" the link found between the subsidized imports and the injury such that this 
link cannot be characterized as a "genuine and substantial relationship of cause and effect".347 
Pakistan thus considers that the Panel erred in "endors[ing]"348 the Commission's "break the 
causal li nk" approach because, instead of examining whether each of the other known factors 
individually "broke" the causal link between the subsidized imports and the injury, the Commission 
should have examined whether those factors "attenuated" or "diluted" such a causal link.  
5.164.   The European Union submits that Pakistan takes issue with the terminology of the 
Commission's approach while ignoring its practical operation.349 The European Union contends 
that, in the countervailing duty investigation at issue, the Commissi on properly separated and 
distinguished the effects of the other known factors and ensured that their injurious effects were 
not attributed to the subsidized imports. In the European  Union's view, whether the Commission 
used the word "breaking" instead of "attenuating" or "diluting" the causal link is purely a matter of 
semantics.350 
5.165.   We address Pakistan's claim of error by first setting out our interpretation of Article  15.5 of 
the SCM  Agreement. Thereafter, we review the Panel's findings and examine whether the Panel 
erred in rejecting Pakistan's claim that the Commission's use of the "break the causal link" 
approach precluded the Commission fr om satisfying the requirements of Article  15.5 of the 
SCM Agreement.  
                                                
342 Panel Report, para. 7.120.  
343 Panel  Report, paras.  7.116 and 7.126.  
344 Panel  Report, para.  8.1.d.i.  
345 Pakistan's other appellant's submission, para. 1.3.  
346 Pakistan's other appellant's submission, para.  3.12 (referring to Appellate Body Reports, US – Lamb , 
para. 179; US – Large Civil Aircraft (2nd complaint) , para. 914).  
347 Pakistan's other appellant's submission, paras.  3.7-3.12 (referring to Panel Reports, US – Upland 
Cotton , para. 7.1363; US – Upland Cotton (Article 21.5 – Brazil) , para. 10.252; Appellat e Body Reports,  
US – Upland Cotton , para. 458; US – Upland Cotton (Article 21.5 – Brazil) , para.  379; EC and certain member 
States – Large Civil Aircraft , para. 725; US – Large Civil Aircraft (2nd complaint) , para. 914).  
348 Pakistan's other appellant's sub mission, para. 3.24.  
349 European Union's appellee's submission, para. 25.  
350 European Union's appellee's submission, paras. 2 -3 and  30. WT/DS486/AB/R  
 
- 51 - 
 
 
  5.3.3.1   Interpretation of Article  15.5 of the SCM  Agreement  
5.166.   Article 15 of the SCM Agreement (entitled "Determination of Injury"351) sets out disciplines 
that apply to an investigating authority's d etermination of injury caused by subsidized imports in a 
countervailing duty investigation. The paragraphs of this provision provide an investigating 
authority with the relevant framework and disciplines for conducting such an analysis and 
contemplate a "l ogical progression" of inquiry leading to an investigating authority's ultimate injury 
and causation determination.352 Article  15.1 sets forth the "overarching obligation"353 that an 
investigating authority must comply with in carrying out its injury determina tion and provides that 
a determination of injury shall be based on positive evidence and involve a n objective examination 
of: (a)  the volume of the subsidized imports and their effe cts on domestic prices; and (b)  the 
consequent impact of these imports on t he domestic industry. Article  15.2 specifies the content of 
an investigating authority's consideration regarding the volume of subsidized imports and their 
price effects. Articles  15.4 and 15.5 concern the consequent impact of the subsidized imports on 
the domestic industry. Article  15.4 sets out the economic factors that must be evaluated in the 
examination of the impact of the subsidized imports on the domestic industry. Article  15.5, which 
is at issue in this appeal, requires that an investigating author ity establish that the subsidized 
imports are "causing" injury to the domestic industry and, in doing so, ensure that the injuries 
caused by factors other than the subsidized imports are not attributed to the subsidized imports.  
5.167.   Article  15.5 and footnote 4 7 thereto provide:  
It must be demonstrated that the subsidized imports are, through the effects47 of 
subsidies, causing injury within the meaning of this Agreement. The demonstration of 
a causal relationship between the subsidized imports and the injury to  the domestic 
industry shall be based on an examination of all relevant evidence before the 
authorities. The authorities shall also examine any known factors other than the 
subsidized imports which at the same time are injuring the domestic industry, and t he 
injuries caused by these other factors must not be attributed to the subsidized 
imports. Factors which may be relevant in this respect include, inter alia , the volumes 
and prices of non -subsidized imports of the product in question, contraction in 
deman d or changes in the patterns of consumption, trade restrictive practices of and 
competition between the foreign and domestic producers, developments in technology 
and the export performance and productivity of the domestic  industry.  
47 As set forth in paragraphs 2 and 4. 
5.168.   Article  15.5 requires an investigating authority ultimately to establish that the subsidized 
imports are "causing" injury to the domestic industry or, in other words, the existence of a "causal 
relationship between the subsidized imports and the injury  to the domestic industry ". While the 
SCM Agreement does not provide a definition of the term "causal relationship", t he Appellate Body 
has held that a showing of a "causal relationship" between the subsidized imports and the injury 
requires the existence of a "genuine and substantial relationship of cause and effect" between 
those elements.354 
5.169.   Article  15.5 recognizes that there may be factors other than the subsidized imports that 
are injuring the domestic industry  "at the same time" . Hence, in order for a "genuine and 
substantial" causal relationship to exist between the subsidized imports and the injury to the 
                                                
351 Footnote 45 of the SCM Agreement defines the term "injury" as material injury to a domestic 
industry, threat of material  injury to a domestic industry, or material retardation of the establishment of such 
an industry. In the countervailing duty investigation at issue in this dispute, the Commission found that the 
domestic industry had suffered material injury. (Provisional Determination (Panel Exhibit PAK -1), recital 264; 
Definitive Determination (Panel Exhibit PAK -2), recital  126) 
352 Appellate  Body Report, China – GOES , para.  128. See also Appellate  Body Reports, China – HP-SSST 
(Japan) / China – HP-SSST (EU) , para. 5.140 (i n the context of Article  3 of the Anti -Dumping  Agreement).  
353 Appellate  Body Report, China – GOES , para. 127.  
354 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para.  132. See also 
Appellate Body Reports, US – Wheat Gluten , para.  69; US – Lamb , para. 179 (addressing the causation 
standard under Article  4.2(b) of the Agreement on Safeguards); US – Upland Cotton , para.  438; US – Large 
Civil Aircraft (2nd complaint) , para. 913 (addressing the causation standard under Articles  5 and 6 of t he 
SCM Agreement).  WT/DS486/AB/R  
 
- 52 - 
 
 
  domestic industry, such imports need not be the sole cause of that injury.355 Rather, the existence 
of a "genuine and substantial " causal relationship is a function of both: (i) the existence and extent 
of the link between the subsidized imports and the injury suffered by the domestic industry; and 
(ii) the comparative significance of such a link in relation to the contributions of other known 
factors to that injury. As the Appellate  Body has explained, the "genuine" component of the 
"genuine and substantial" causation test requires that the nexus between the causal agent and the 
consequence at issue be "real" or "true". The "substan tial" component of the test concerns the 
"relative importance" of the causal agent in bringing about the consequence.356 As such, 
Article  15.5 requires an investigating authority to determine whether, in light of the injurious 
effects of other known factors,  the subsidized imports can be considered a "genuine and 
substantial" cause of the injury  suffered by the domestic industry . 
5.170.   The four sentences of Article 15.5 refer to the specific elements that an investigating 
authority must consider in reaching an over all conclusion as to the existence of a "causal 
relationship" between the subsidized imports and the injury  to the domestic industry . The first two 
sentences of Article  15.5, read together with footnote  47 to the first sentence, require that the 
demonstrat ion of a causal relationship be carried out by following the analyses set forth in 
Articles  15.2 and 15.4 for examining the "effects" of the subsidized imports.357 Such an 
examination co ncerns : (i) whether there has been a significant increase in subsidized imports; 
(ii) the effect of the subsidized imports on prices; and (iii) the consequent impact of the subsidized 
imports on the domestic industry.358 
5.171.   The third and fourth sentences of Article 15.5, in turn, refer to the "non -attribution" 
requirement, stipulat ing that an investigating authority must not attribute to the subsidized 
imports the injuri es caused by other known factors and providing an illustrative list of such factors. 
This analysis involves separating and distinguishing the injurious effects of ot her known factors 
from the injurious effects of the subsidized imports.359 By doing so, an investigating authority can 
ensure that the injury it ascribes to the subsidized imports is actually caused by those imports, 
rather than by the other factors.360 Import antly, an investigating authority must provide  a 
satisfactory explanation of the nature and extent of the injurious effects of the other known 
factors, as distinguished from the injurious effects of the subsidized imports.361 
5.172.   The language of Article 15.5 mak es clear that an investigating authority must separate and 
distinguish the injurious effects of other known factors from the injurious effects of the subsidized 
imports before  it reaches an overall conclusion as to the existence of a "causal relationship" 
between the subsidized imports and the injury to the domestic industry.362 However, Article  15.5 
does not prescribe any particular methodology or approach that an investigating authority must 
                                                
355 With respect to the causation standard under Article  4.2(b) of the Agreement on Safeguards, the 
Appellate  Body has held that this provision does not require that increased imports be  the sole cause of the 
serious injury. (Appellate Bod y Report, US – Wheat Gluten , para.  67) In addition, with respect to the causation 
analysis under Articles  5 and 6 of the SCM  Agreement, the Appellate  Body has stated that, in order for a 
"genuine and substantial relationship of cause and effect" to exist, the causal agent need not be the sole cause 
of its alleged consequence or even the only substantial cause of that consequence. (Appellate  Body Report, 
US – Large Civil Aircraft (2nd complaint) , para. 914)  
356 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , fns 1865 -1866 to para.  913 
(addressing the causation standard under Articles  5 and 6 of the SCM  Agreement) (referring to Shorter Oxford 
English Dictionary , 6th edn, A.  Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 1094; Vol. 2, 
p. 3088).  
357 In Japan – DRAMs (Korea) , the Appellate Body held that the phrase "through the effects of subsidies" 
in the first sentence of Article 15.5 requires an examination of the effects of the subsidized imports  as set forth 
in paragraphs 2 and 4 of the same Article. However, the Appellate  Body stated that there is no separate 
requirement that an investigating authority must examine the effects of the subsidies  as distinguished from the 
effects of the subsidized imports. (Appellate Body Report, Japan – DRAMs (Korea) , paras. 263 -264) 
358 Appellate Body Report, Japan – DRAMs (Korea) , para. 263.  
359 Appellate Body Report, China – GOES , para. 151 (referring to Appellate  Body Report,  
US – Hot-Rolled Steel , para. 223).  
360 Appellate  Body Reports, US – Hot-Rolled Steel , para. 223; China – HP-SSST (Japan)  /  
China – HP-SSST (EU) , para. 5.283 (in the context of Article 3.5 of the Anti -Dumping Agreement).  
361 Appellate Body Report, US – Hot-Rolled Steel , para. 226 (in the context o f Article 3.5 of the 
Anti-Dumping Agreement).  
362 See Appellate Body Report, US – Wheat Gluten , para. 69 (addressing the causation standard under 
Article  4.2(b) of the Agreement on Safeguards).  WT/DS486/AB/R  
 
- 53 - 
 
 
  adhere to in carrying out its analysis.363 Thus, provided that an investigating authority does not 
attribute the injuries caused by other known factors to the subsidized imports, an investigating 
authority is free to choose the methodology it will use in determining the existence of a "causal 
relationship" between the subsidized imports and the injury.364 
5.173.   There are different approaches to assessing causation while accounting for the injurious 
effects of other known factors. For example, it is pos sible for an investigating authority to address 
the two components of the causation analysis in two separate steps, by first examining the 
existence and extent of a causal link between the subsidized imports and the injury suffered by the 
domestic industry  through an assessment of the "effects" of the subsidized imports , and then by 
conducting an assessment of the injurious effects of other known factors. Alternatively, an 
investigating authority could, as appropriate in the specific investigation, choose a  single -step 
"counterfactual" causation analysis, whereby it assesses whether and to what extent the state of 
the domestic industry would have been better off in the absence of the effects of the subsidized 
imports while the effects of other known factors remain. This "unitary" analysis directly evaluates 
the significance of the impact of the subsidized imports alone and, thus, there is no need for a 
separate non-attribution analysis.365 
5.174.   When an investigating authority chooses a two -step approach to assessing  causation, it 
may consider, on the basis of the first step of its analysis, that a "causal link" exists between the 
subsidized imports and the injury  suffered by the domestic industry . Such consideration, however, 
will not in itself qualify as a "demonstr ation of a causal relationship" within the meaning of 
Article  15.5. This is because Article  15.5 also requires that an assessment of the effects of other 
known factors be completed before a n overall  conclusion as to the existence of a "causal 
relationship"  can be reached.366 
5.175.   In addition, while an investigating authority need not show that the subsidized imports are 
the sole cause of the injury suffered by the domestic industry in order to make a finding of a 
"causal relationship" between such imports and the injury, it must establish that the subsidized 
imports, on their own, qualify as a "genuine and substantial" cause of the injury. Hence, when the 
subsidized imports and several  other factors are simultaneously injuring the domestic industry, an 
investigatin g authority must ensure that the contribution of the subsidized imports to the injury is 
"genuine and substantial" in light of the effects of all of these other factors. In our view, an 
investigating authority can discharge its obligation under Article 15. 5 in different ways depending 
on the specific circumstances of the case . 
5.176.   For example, in a situation where multiple other known factors , taken together, have a 
significant impact on the state of the domestic industry – while the impact of each of them in 
isolation may be only insignificant – an investigating authority may be required to assess whether 
the effects of all of these factors, collectively, are so significant that the subsidized imports cannot 
be characterized as a "genuine and substantial" cause  of the injury.367  
5.177.   There may also be circumstances in which an investigating authority's assessment of the 
individual  effects of each of the other known factors already provides a sufficient basis to conclude 
that the subsidized imports are a "genuine and s ubstantial" cause of the injury despite the effects 
of those other factors. This may be the case where an investigating authority's assessment of the 
individual effects of the other known factors reveals that only a limited number of those other 
                                                
363 Appellate Body Report, US – Hot-Rolled Steel , para. 224 (in th e context of Article 3.5 of the 
Anti-Dumping Agreement).  
364 Appellate Body Report, EC – Tube or Pipe Fittings , para. 189.  
365 See Appellate Body Reports, US – Upland Cotton (Article 21.5 – Brazil) , para. 375; EC and certain 
member States – Large Civil Aircraf t, para.  1265. 
366 See Appellate Body Reports, US – Wheat Gluten , para. 69; US – Lamb , para. 178 (addressing the 
causation standard under Article  4.2(b) of the Agreement on Safeguards).  
367 In EC – Tube or Pipe Fittings , the Appellate Body acknowledged such possibility by agreeing with the 
statement by the panel in that case that "multiple 'insignificant factors' might collectively  constitute a 
significant cause of injury such as to sever the link between dumped imports and injury". (Appellate Body 
Report, EC – Tube or Pipe Fittings , fn 232 to para. 192 (quoting Panel Report, EC – Tube or Pipe Fittings , 
para. 7.369) (emphasis original)) It should be noted, however, that, given that the subsidized imports need 
not be the sole cause of the injury, the mere fact that multiple other known factors, taken together, constitute 
a "significant" cause of the injury would not necessarily preclude the conclusion that the subsidized imports are 
at the same time a "genuine and substanti al" cause of the injury.  WT/DS486/AB/R  
 
- 54 - 
 
 
  factors co ntribute to the injury , and each of them to a limited degree. Thus, as the Appellate  Body 
has explained with respect to identical non -attribution language in Article 3.5 of the Agreement on 
Implementation of Article VI of the General Agreement on Tariffs a nd Trade 1994 
(Anti-Dumping  Agreement ), an investigating authority may not be required, in each and every 
case, to carry out an assessment of the collective  effects of the other known factors in addition to  
examining those factors' individual effects.368 
5.178.   In any event, the core question in reviewing the appropriateness of an investigating 
authority's causation analysis is whether the authority has objectively determined that the 
subsidized imports qualify as a  "genuine and substantial" cause of  the injury suffered by  the 
domestic industry having taken into consideration  the injurious effects of other known factors. This 
question must be answered on a case -specific basis.  
5.3.3.2   Analysis of the Panel's findings  
5.3.3.2.1   Whether the Commission's initial consideration of a "ca usal link" is compatible 
with the requirements of Article 15.5  of the SCM Agreement  
5.179.   We recall that the Panel rejected Pakistan's proposition that the Commission's approach to 
causation had prejudged its non -attribution analysis merely because it had found a "causal link" to 
exist between the subsidized imports and the injury before it turned to an assessment of the other 
known factors. According to the Panel, while the Commission "considered" that a "causal link" 
existed between the subsidized imports and t he injury to the EU industry before turning to its 
non-attribution analysis, such consideration was not final, and it was only after its examination of 
the effects of the other known factors that the Commission "concluded" that the subsidized 
imports cause d material injury to the EU industry.369 The Panel thus considered it "evident" that 
the Commission had allowed for the possibility that the analysis of the other known factors could 
have negated its "initial consideration" that a causal link existed between  the subsidized imports 
and the injury.  
5.180.   We agree with the Panel's interpretation of Article  15.5 of the SCM Agreement that an 
investigating authority's "initial consideration" of a "causal link" before completing its 
non-attribution analysis is compatible  with the requirements of this provision. As we have noted at 
paragraph  5.173  above , it is permissible for an investigating authority to carry out its causation 
analysis in two steps , by first examining the causal link between the subsidized imports and the 
injury , and by then examining the injurious effects of other known factors. While Article  15.5 
requires an investigating authority to complete the non -attribution analysis before  it reaches an 
overall conclusion as to the existence of a "causal relatio nship"  within the meaning of this 
provision , the mere fact that an investigating authority has considered a "causal link" to exist 
based only on the first step of its analysis does not amount to a violation of Article  15.5. On the 
contrary, provided that s uch consideration is made only on a preliminary basis and its validity is 
verified against the significance of the injurious effects of the other known factors before an overall 
conclusion on causation is reached, such an approach is consistent with the re quirements of 
Article  15.5. 
5.181.   We also agree with the Panel's application of the above interpretation, in particular its 
reading of the language used by the Commission in recital 245 of the Provisional  Determination. As 
the Panel observed, the use of the verb  "consider" in that recital appears to suggest that the 
Commission did not, at this stage, reach a final conclusion as to the existence of a causal 
relationship  – i.e. a "genuine and substantial relationship of cause and effect" between the 
subsidized impo rts and the injury. Rather, it expresses the Commission's initial or preliminary view 
regarding the existence of a causal relationship between the subsidized imports and the injury. 
This is confirmed by the Commission's turning to its analysis of the other  known factors under the 
subheading "Effect of other factors"370 immediately after its statement that a "causal link" existed 
between the subsidized imports and the injury. Only subsequently did the Commission, under the 
                                                
368 Appellate Body Report, EC – Tube or Pipe Fittings , paras.  190-191.  
369 Panel Report, para. 7.118 (referring to Provisional Determination (Panel Exhibit PAK -1), recitals 241 
and 264).  
370 Provisional Determination (Panel Exhibit PAK -1), recitals 246 -261. WT/DS486/AB/R  
 
- 55 - 
 
 
  heading "Conclusion on causation", st ate its overall conclusion regarding causation.371 Understood 
in this way, the language in recital 245 does not suggest that the further examination of  the other 
known factors conducted by the Commission was necessarily "prejudged" by its prior finding of a 
"causal link".  
5.182.   Accordingly, we do not consider that the Panel erred in rejecting Pakistan's proposition that 
the Commission's approach to causation had prejudged its non -attribution analysis merely because 
the Commission had considered a "causal link" to exist before it examined the effects of the other 
known factors.  
5.3.3.2.2   Whether the Commission's approach led to a disregard  of the correct 
causation standard  
5.183.   We recall that the Panel also stated that the Commission's "break the causal link" approach 
had not nece ssarily precluded the Commission from properly separating and distinguishing the 
injurious effects of specific other known factors from the injurious effects of the subsidized imports 
in this case . The Panel noted in particular that, while it acknowledged that the Commission had 
failed to separate and distinguish properly the effects of some of the other known factors372, it 
found no reason to think that the use of the overall "break the causal link" framework had 
necessarily led to those deficiencies.373 
5.184.   On ap peal, Pakistan suggests that the Panel's reasoning is insufficient. According to 
Pakistan, even if the Panel were correct in finding that the Commission's approach allowed for a 
proper separation and distinction of the injurious effects of individual  other  known factors, " the 
question is what the Commission was required to assess after properly separating and 
distinguishing these effects ."374 
5.185.   Pakistan argues that the primary objective of a causation analysis is to determine whether 
there exists a "genuine and  substantial relationship of cause and effect" between the subsidized 
imports and the injury375, and , for this purpose, an investigating authority must examine whether 
the effects of other known factors "attenuate" or "dilute" the link between the subsidized  imports 
and the injury such that those imports cannot be considered a "genuine and substantial" cause of 
the injury.376 Pakistan considers that the Commission's "break the causal link" approach fell short 
of this standard and , thus, the Panel erred by "endo rs[ing]" such an approach.377 
5.186.   Pakistan explains that its claim  against the Commission's approach to causation or the 
Panel's "endorsement" thereof is "not just about semantics" and raises four arguments as to why 
its claim goes beyond the difference between the words "break"  and "attenuate"  or "dilute".378 
Specifically, according to Pakistan, the Commission's "break the causal link" approach:  
a. was "illogical" because, if factors other than the subsidized imports are capable of 
breaking the causal link, this caus al link should never have existed in the first place379;  
b. precluded the Commission from assessing the effects of the subsidized imports alone  
because, by examining whether each non -attribution factor individually  broke the causal 
link, the Commission assessed  the effect of each non -attribution factor against the 
                                                
371 Provisional Determination (Panel Exhibit PAK -1), recitals 262 -264. 
372 These factors are competition from non -cooperating EU producers and oil prices.  
373 Panel Report, para. 7.119.  
374 Pakist an's other appellant's submission, para.  3.24. (emphasis original)  
375 Pakistan's other appellant's submission, para.  3.12 (referring to Appellate Body Reports, US – Lamb , 
para. 179; US – Large Civil Aircraft (2nd complaint) , para. 914).  
376 Pakistan's other a ppellant's submission, paras.  3.7-3.12 (referring to Panel Reports, US – Upland 
Cotton , para. 7.1363; US – Upland Cotton (Article 21.5 – Brazil) , para. 10.252; Appellate Body Reports,  
US – Upland Cotton , para. 458; US – Upland Cotton (Article 21.5 – Brazil), para.  379; EC and certain member 
States – Large Civil Aircraft , para. 725; US – Large Civil Aircraft (2nd complaint) , para. 914).  
377 Pakistan's other appellant's submission, para.  3.17. 
378 Pakistan's other appellant's submission, para. 3.25. (emphasis om itted)  
379 Pakistan's other appellant's submission, paras. 3.26 -3.32. WT/DS486/AB/R  
 
- 56 - 
 
 
  compounded  effects of the subsidized imports plus the effects of the remaining other 
factors380; 
c. was not "even -handed" and skewed the Commission's causation analysis because it 
required each non -attribution factor to be "the cause" of the injury, while requiring the 
subsidized imports to be only "a contributing cause" of the injury381; and  
d. tainted the Commission's analysis of non -attribution factors and precluded the 
Commission from properly separat ing and distinguishing the effects of those factors.382 
5.187.   The European Union rebuts the four arguments raised by Pakistan by stating, in essence, 
that: 
a. Pakistan's first argument only takes issue with the specific terminology used by the 
Commission in its causa tion analysis, and the difference between the words "break" and 
"attenuate" or "dilute" is of no legal relevance383; 
b. Pakistan's argument that the Commission assessed the effect of each non -attribution 
factor against the compounded effects of the subsidized i mports plus the effects of the 
remaining other factors is contradicted by the facts on the investigation record384; 
c. the concept of "even -handedness" as argued by Pakistan has no legal basis in 
WTO jurisprudence385; and  
d. to the extent that Pakistan's fourth argu ment repeats an argument rejected by the Panel 
regarding the necessity of an assessment of the collective effects of all of the other 
known factors386 or takes issue with the specific wording used by the Commission, such 
argument lacks any valid basis.387 
5.188.   We recall that Pakistan appeals only the Panel's finding  that Pakistan failed to demonstrate 
that the Commission's "break the causal link" approach had precluded the Commission from 
satisfying the non -attribution requirem ents of Article 15.5 of the SCM  Agreeme nt in this case .388 
However, by raising the four alleged deficiencies in the Commission's approach , described at 
paragraph  5.186  above , Pakistan does not directly engage with the Panel's reasoning that led to  
the above finding but  seems  to reargue why the Commission's "break the causal link" approach 
was deficient and fell short of the requirements of Article  15.5 of the SCM Agreement .389 We 
examine below each of the four deficiencies in the Commission's approach alleged by Pakistan to 
the ex tent that they pertain to the Panel's finding under appeal .390 
5.3.3.2.2.1   Pakistan's  first alleged flaw in the Commission's approach to causation  
5.189.   Pakistan argues that the Commission's use of the "break the causal link" approach was 
"illogical " because, if factors other  than the subsidized imports are capable of breaking the causal 
link, this causal link should never have existed in the first place.391 
                                                
380 Pakistan's other appellant's submission, paras. 3.33 -3.40. 
381 Pakistan's other appellant's submission, paras. 3.41 -3.48. 
382 Pakistan's other appellant's submission, paras. 3.49 -3.56. 
383 European Union's appellee's submission, paras. 25 and 27.  
384 European Union's appellee's submission, paras. 31 -32. 
385 European Union's appellee's submission, para. 38.  
386 Panel  Report, para.  7.142. Pakistan has not appealed this Panel finding.  
387 European Union's  appellee's submission, para. 44.  
388 Pakistan's Notice of Other Appeal, pp. 1 -2 (referring to Panel Report, paras. 7.117 -7.120 
and 8.1.d.i); other appellant's submission, para. 1.2 (referring to Panel Report, paras. 7.117 -7.120).  
389 See Panel  Report, paras.  7.117 -7.120.  
390 Panel  Report, paras.  7.120 and 8.1.d.i.  
391 Pakistan's other appellant's submission, para. 3.26 (referring to Pakistan's response to Panel 
question No. 74, para. 4.27). (emphasis omitted) See also para. 3.30.  WT/DS486/AB/R  
 
- 57 - 
 
 
  5.190.   We note that the verb "break" may mean, inter alia , "[s]ever, fracture, part; shatter, 
crush, destroy".392 Thus, a possible reading of the phrase "break the causal link" used by the 
Commission might be that, when carrying out its non -attribution analysis, the Commission 
examined whether the injurious effects of each non -attribution factor  were so significant that they 
eliminate  the link between the subsidized imports and the injury.393 Such an approach would be 
inconsistent with the correct causation standard under Article  15.5 of the SCM Agreement , which 
requires an examination of whether, in light of the injurious effects of oth er known factors, the link 
found between the subsidized imports and the injury can be considered a "genuine and 
substantial" causal relationship.394 It would also have been illogical for the Commission to find first 
a certain "link" to exist between the subs idized imports and the injury and then question the very 
existence of that link.  
5.191.   That said, an investigating authority's use of a single phrase or verb should not be, by 
itself, dispositive of whether an investigating authority's overall causation analysis  was 
appropriate. As noted, the core obligation that an investigating authority must discharge in 
establishing the existence of a "causal relationship " within the meaning of Article 15.5 is to 
examine whether, in light of the significance of the injurious effects of other known factors, the 
contribution of the subsidized imports to the injury can be considered "genuine and substantial". 
Thus, to the extent that a contextual reading of the explanation provided by an investigating 
authority reveals that it ha s discharged such an obligation, an investigating authority's use of a 
particular verb or phrase such as "break the causal link" will not detract from the validity of the 
authority's overall causation analysis.  
5.192.   Turning to the fact s of this case , we note th at the Commission recognized that only the 
following two other known factors395 had contributed to the injury  suffered by the EU industry : 
(i) imports from Korea396; and (ii) the 2008 economic downturn and the contraction in demand 
that accompanied this downturn.397 In addition, the Commission examined the extent of the 
contribution of each of these factors to the injury and found that t he contribution of each factor 
was only limited compared to  the impact of the subsidized imports.  
5.193.   Specifically, with respe ct to imports from Korea, the Commission stated that, while the 
imports from Korea had contributed to the injury, the degree of such contribution was "only 
limited" compared to the impact of the subsidized imports, taking into account that the average 
price of the Korean imports remained higher than the prices of the subsidized imports.398 The 
                                                
392 Shorter Oxford English Dictionar y, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), 
Vol. 1, p. 286. 
393 By contrast, the phrases "attenuate the (causal) link" and "dilute the (causal) link" referred to by the 
Appellate  Body suggest that the impact of other known factors leaves the link between the subsidized imports 
and the injury intact while diminishing its relative significance. (See e.g. Appellate Body Reports, EC and 
certain member States – Large Civil Aircraft , para.  725; US – Large Civil Aircraft (2nd complaint) , para. 914;  
US – Upland Cotton (Article  21.5 – Brazil) , para.  375) The meaning of the verb "attenuate" includes "[m]ake 
thin" and "[w]eaken; reduce in force, effect, value, etc." ( Shorter Oxford English Dictionary , 6th edn, 
A. Stevenson (ed.) (Oxford Uni versity Press, 2007), Vol. 1, p.  148) The meaning of the verb "dilute" includes 
"[w]eaken; take away the strength or force of, esp. by addition". (Ibid., p.  685) 
394 See para. 5.169  above.  
395 In its other appellant's submission, Pakistan states that the Commission found the following 
four non-attribution factors to have contributed to the injury suffered by the EU industry: imports from Korea; 
the 2008 economic downturn; the geographical locat ion; and the contraction in demand. (Pakistan's other 
appellant's submission, para. 3.36) However, with respect to the geographical location, we note that the 
Commission explained that "the investigation and the verified data from the sampled [EU] producer s … did not 
show any significant correlation between the geographical location and the economic performance of the [EU] 
producers". (Provisional Determination (Panel Exhibit PAK -1), recital  258) Thus, the Commission found that 
"geographical location did no t materially contribute to the injury suffered by the [EU] industry to a material 
extent". (Ibid., recital 259) With respect to the contraction in demand, the Commission considered this factor 
to be only one aspect of the 2008 economic downturn, rather tha n a factor separate from the economic 
downturn. (Ibid., recitals 253 -254. See also Definitive Determination (Panel Exhibit PAK -2), recital 120)  
396 Provisional Determination (Panel Exhibit PAK -1), recital 249.  
397 Provisional Determination (Panel Exhibit PAK -1), recitals 254 and 256; Definitive Determination 
(Panel Exhibit PAK -2), recital 120.  
398 Provisional Determination (Panel Exhibit PAK -1), recital 249.  WT/DS486/AB/R  
 
- 58 - 
 
 
  Panel found this conclusion to be "reasonable" given that the EU PET market is characterized by 
price competition.399 
5.194.   With respect to the 2008 economic downturn and the c ontraction in demand that 
accompanied this downturn, the Commission acknowledged that these factors "clearly had an 
effect on the overall performance of the [EU] industry".400 However, such negative effects were 
"exacerbated" by the lower  priced subsidized i mports with an increasing volume, rather than those 
negative effects "diminish[ing] the damaging injurious effects of low priced subsidised imports ".401 
In the Commission's view, the EU industry should have been able to limit th e negative effects of 
any decr ease in the growth of consumption by maintaining its prices at an acceptable level had it 
not been for the unfair competition with the low -priced imports.402 In addition, the Commission 
noted that the economic downturn in 2008 could not have had any impact o n the injury suffered 
before the last quarter of 2008.403 Thus, the Commission appears to have considered that the 
injurious effects of the 2008 economic downturn and the accompanying contraction in demand 
were distinguishable from, and limited compared to, the injurious effects of the subsidized imports 
in terms of both their magnitude and temporal duration.  
5.195.   These explanations contained in the Provisional Determination suggest that the 
Commission evaluated the significance of the injurious effect of each of the above -mentioned other 
known factors compared to the impact of the subsidized imports, rather than determining whether 
the impact of each factor was so overwhelming as to negate the existence of any link between the 
subsidized imports and the injury. Moreover, for each of those factors, the Commission explained 
why the impact of each factor did not materially diminish the relative significance of the subsidized 
imports for that injury.  
5.196.   Under these ci rcumstances, we acknowledge that the Commission's choice of the particular 
phrase "break the causal link" in its determination was rather unfortunate . However , we do not 
consider that the Commission's use of this phrase, when read within the context of the  further 
considerations in its Provisional Determination , mean s that the Commission failed to comply with 
Article 15.5  of the SCM Agreement in conducting its causation analysis in th is case . 
5.197.   Pakistan also asserts that the Commission's "break the causal lin k" approach allow ed the 
Commission to establish a causal link based on "the mere fact that the subject products secure [d] 
part of the market and somehow contributed to the overall injury".404  
5.198.   This argument seems to  lack any support in the facts o n the record. Contrary to what 
Pakistan argues, the Panel found that the Commission had considered a "causal link" to exist 
between the subsidized imports and the injury on the basis of a number of elements.405 
In essence, the Commission reasoned that, given that PET i s a commodity and competition takes 
place mainly via price406, the lower  priced407 subsidized imports that had increased their volume 
and market share drastically408 during the period considered were responsible for the injury 
suffered by the EU industry, which manifested itself in, inter alia, negative trends in production,  
                                                
399 Panel  Report, para.  7.134.  
400 Provisional Determination (Panel Exhibit PAK -1), recital 253. See also Defi nitive Determination (Panel 
Exhibit PAK -2), recital 120.  
401 Provisional Determination (Panel Exhibit PAK -1), recital 254.  
402 Provisional Determination (Panel Exhibit PAK -1), recital 254.  
403 Provisional Determination (Panel Exhibit PAK -1), recital 255.  
404 Pakistan's other appellant's submission, para. 3.29.  
405 Panel Report, para. 7.125. The Panel stated:  
[I]n establishing a causal link between subject imports and the observed injury to the domestic 
industry, the Commission considered: (a) the condition of the dom estic industry; (b) price 
undercutting by subject imports; (c) the fact that "PET is a commodity and competition takes 
place mainly via price", due to which it attached special significance to price undercutting by 
subject imports; (d) the observation that  subject imports "exerted a downward pressure on 
prices, preventing the [EU] industry from keeping its sales prices to a level that would have been 
necessary to cover its costs and to realise a profit"; (e) the increase in volume of subject 
imports; and (f ) an increase in market shares of subject imports.  
(Ibid. (fn omitted)) Pakistan did not appeal this Panel finding.  
406 Provisional Determination (Panel Exhibit PAK -1), recital 243.  
407 Provisional Determination (Panel Exhibit PAK -1), recital 217.  
408 Provisiona l Determination (Panel Exhibit PAK -1), Table 2 at recital 211.  WT/DS486/AB/R  
 
- 59 - 
 
 
  sales, market share, and profitability.409 This clearly contradicts Pakistan's allegation that the 
Commission found a "causal link" based on "the mere fact that the subject products secure [d] part 
of the market and somehow contributed to the overall injury".410 
5.199.   Accordingly, we disagree with Pakistan's first alleged flaw in the Commission's approach to 
causation  in support of its claim of error on appeal.  
5.3.3.2.2.2   Pakistan's  second alleged flaw in the Com mission's approach to causation  
5.200.   Pakistan takes issue with the Commission's examination of whether each of the other 
known factors individually  broke the causal  link previously established between the subsidized 
imports and the injury  to the domestic industry . Pakistan argues that, by employing such an 
approach,  the Commission assessed the effects of each non -attribution factor against the effects of 
the subsidized imports plus the effects of the remaining non-attribution factors.411 
5.201.   We have explained that Article  15.5 of the SCM Agreement requires an examination of 
whether the subsidized imports qualify as a "genuine and substantial" cause of the injury in light of 
the injurious effects of other known factors.412 Thus, it is inappropria te for an investigating 
authority to compare the effect of each non-attribution factor against the compounded  effects of 
the subsidized imports plus the effects of the remaining other factors.  
5.202.   However, with respect to the countervailing duty investigation at issue, we see no 
indication on the record that the Commission undertook the type of approach described by 
Pakistan or that the Panel endorsed such an approach. On the contrary, the explanations 
contained in the Provisional  Determination suggest that the  Commission assessed the significance 
of the injurious effects of each non -attribution factor against the link that it had found to exist 
between the subsidized imports alone  and the injury  suffered by the EU industry . 
5.203.   Specifically, the Commission reached its initial consideration of a "causal link" based on its 
assessment of the "[e]ffect of the subsidised imports"413 without making any reference to the 
other known factors.414 The Commission then proceeded to examine the other known factors 
individually in tur n, and observed that only two of those factors – i.e. imports from Korea; and the 
2008 economic downturn and the contraction in demand that accompanied this downturn  – had 
contributed to the injury. As we have observed, for each of these factors, the Commi ssion 
examined the relative significance of its injurious effects compared to  the injurious effects of the 
subsidized imports without referring to the effects of the remaining non -attribution factors.415 
5.204.   Thus, we fail to see any basis for Pakistan's allegati on that the Commission assessed the 
effect of each of the other known factors against the compounded effects of the subsidized imports 
plus the remaining other factors.  
5.205.   In addition, at the hearing, Pakistan argued that, instead of (or in addition to) exami ning 
the effect of each non-attribution factor individually , the Commission should have examined 
whether, after separating and distinguishing all the contributions of the other known factors from 
the injury suffered by the domestic industry, the link that emerged between the subsidized imports 
and the injury still qualified as a "genuine and substantial relationship of cause and effect".  
5.206.   We note th at, before the Panel, Pakistan argued that the "specific factual circumstances" in 
the challenged investigation warranted a collective  analysis of the injurious effects of all of the 
other known factors.416 The Panel rejected this argument417, and Pakistan doe s not appeal this 
                                                
409 Provisional Determination (Panel Exhibit PAK -1), recitals 238 -240. 
410 Pakistan's other appellant's submission, para. 3.29.  
411 Pakistan's other appellant's submission, para. 3.34.  
412 See paras. 5.169 and 5.175  above.  
413 Provisional Determination (Panel Exhibit PAK -1), section  5.2. 
414 Provisional Determination (Panel Exhibit PAK -1), recital  245. 
415 See para.  5.195  above.  
416 Panel Report, para.  7.137  (referring to Pakistan's second written submission to the Panel, 
para. 4.52).  
417 Panel  Report, para.  7.142.  WT/DS486/AB/R  
 
- 60 - 
 
 
  Panel finding.418 Pakistan emphasized at the hearing that its argument on appeal regarding the 
Commission's alleged failure to assess the impact of the subsidized imports after separating and 
distinguishing  all the injurious effects of the other known factors is distinguished from its argument 
before the Panel regarding the collective analysis. Nevertheless, we have difficulty understanding 
how these arguments differ from each other.  
5.207.   Furthermore , with respect to the countervailing duty investigation at issue, we have noted 
that the Commission found that only two of the other known factors contributed to the injury.419 
The Commission examined the significance of the contribution of each of th ese factors and 
explained why the impact of each facto r was only limited and did not materially diminish the 
relative importance of the role that the subsidized imports played in bringing about the injury 
suffered by the EU industry.420 In addition, as the Panel found, the Commission reached its initial 
conside ration of a "causal link" between the subsidized imports and the injury on a number of 
elements .421 
5.208.   To us, these observations and explanations by the Commission regarding the significance 
of the injurious effects of the two other factors  that it found to hav e contributed to the injury , 
coupled with the basis on which it found a "causal link" between the subsidized imports and the 
injury, appear to indicate that the Commission took into account all the injurious effects of the 
other known factors compared to the strength of the initial "causal link" between the subsidized 
imports and the injury when it reached its final conclusion that the subsidized imports had 
"caused" material injury to the EU industry.422 Indeed, just before describing its final conclusion on 
causation, the Commission summarized and reviewed its evaluation of the injurious effects of each 
of the other known factors.423 
5.209.   In addition, while the Panel found that the Commission had failed to conduct a proper 
non-attribution analysis with  respect to two o f the other known factors (i.e.  competition from 
non-cooperating EU producers and oil prices)424, Pakistan confirmed at the hearing that it does not 
posit that a proper assessment of the effects of these two factors would have invalidated th e 
Commission's overall conclusion as to the existence of a causal relationship.425 
5.210.   Under these circumstances, we do not consider that the Commission's alleged failure to 
separate and distinguish the injurious effects of all of the other known factors in addi tion to its 
assessment of the individual  effects of those factors amounted to a violation of its obligation not to 
attribute the injurious effects of other known factors to the subsidized imports or its obligation to 
provide a reasoned and adequate explana tion for why the subsidized imports could be considered 
a "genuine and substantial" cause of the injury despite the injurious effects of those other factors.  
5.211.   Accordingly, we disagree with Pakistan's second alleged flaw in the Commission's approach 
to causa tion in support of its claim of error on appeal.  
5.3.3.2.2.3   Pakistan's  third alleged flaw in the Commission's approach to causation  
5.212.   Pakistan contends that the Commission's approach wa s not "even -handed" because it 
employ ed "a low causation threshold for subsidized im ports (a contributing cause) and a high one 
for the other factors ( the cause)".426 
5.213.   We observe that Pakistan's allegation is not supported  by, and instead contradicts , the 
findings by the Panel and the evidence on the investigation record . In fact, with respect to the link 
between the subsidized imports and the injury, the Panel found that the Commission  reached its 
                                                
418 Pakistan's other appellant's submission, para.  3.1. Pakistan also confirmed at the hearing that the 
necessity of a collective assessment is not at issue before us.  
419 See para. 5.192  above.   
420 See paras. 5.192 -5.195  above.  
421 Panel  Report, para.  7.125.  
422 Provisional  Determination (Panel Exhibit PAK -1), recital  264. 
423 Provisional Determination (Panel Exhibit PAK -1), recital  263. 
424 Panel Report, paras.  7.152, 7.160, and 8.1.d.iv -v. 
425 Pakistan's response to questioning at the hearing.  
426 Pakistan's other appella nt's submission, paras. 3.44 -3.45. (emphasis original)  WT/DS486/AB/R  
 
- 61 - 
 
 
  initial consideration of a "causal link" on the basis of a number of elements427, rather than on the 
basis of " the mere fact that the subject p roducts secure [d] part of the market and somehow 
contributed to the overall injury", as suggested  by Pakistan.428 This undermines Pakistan's 
allegation that the Commission adopted "a low causation threshold" for the subsidized imports.  
5.214.   We also fail to see an y indication on the record that the Commission required each of the 
other known factors to be "the cause" of the injury. On the contrary, as we have explained, a 
contextual reading of the relevant recitals of the Provisional  Determination reveals that the 
Commission examined and explained the extent of the injurious effects of each non-attribution 
factor in comparison to the impact of the subsidized imports, rather than determining whether 
each non -attribution factor was the sole cause or a predominant caus e (the cause) of the injury.429 
5.215.   We further note that Pakistan's understanding that the Commission required each 
non-attribution factor to be "the true" cause of the injury is based on a statement by the 
European  Union made in the context of responding to a P anel question.430 However, such an 
isolated statement by the European Union in the course of WTO dispute settlement proceedings 
does not equate to a demonstration  that, in the countervailing duty investigation at issue, the 
Commission required each non -attribution factor to be "the true" cause of the injury.  
5.216.   In addition,  Pakistan refers to Appellate  Body jurisprudence relating to the interpretation of 
Article  15.4 of the SCM  Agreement , and notes that this provision requires an investigating 
authority to derive an understanding of the impact of subsidized imports on the state of the 
domestic industry on the basis of an evaluation of the various economic indicators referred to in 
this provision.431 According to Pakistan, a consideration of "even -handed[ness]"  would have 
required the Commission to undertake a similar type of analysis for the other known factors and to 
examine  the impact of those factors in relation to the negative trends in the six specific economic 
indicators432 on which the Commission based its  finding of injury.433 
5.217.   The Appellate Body has stated that Article 15.4 requires an investigating authority to, 
inter alia, derive an understanding of the impact  of the subsidized imports on the state of the 
domestic industry on the basis of an examination of  "all relevant economic factors and indices 
having a bearing on the state of the industry".434 The non -attribution language of Article  15.5 of 
the SCM Agreement also requires an investigating authority to assess the  degree of the  impact  of 
other known factor s on the state of the domestic industry. However, we disagree with Pakistan 
that Article  15.5 requires an investigating authority to assess the impact of the other known 
factors in the exact  same manner as its analysis of the impact of the subsidized imports under 
Article  15.4. Indeed, Article  15.5 does not prescribe any particular methodology that an 
investigating authority must use in assessing the impact of other known factors.435 Moreover, 
while the focus of Article 15.4 is to examine the state of the domestic industry and the relationship 
between the subsidized imports and the state of the domestic industry, the focus of the 
non-attribution analysis under Article  15.5 is to determine whethe r, in light of the injurious effects 
                                                
427 Panel  Report, para.  7.125.  
428 Pakistan's other appellant's submission, para. 3.29.  
429 See paras.  5.192 -5.195  above.  
430 Pakistan's other appellant's submission, para. 3.42 (referring to Panel Report, par a. 7.109, in turn 
referring to European Union's response to Panel question No. 78, para.  111). More specifically, in its response 
to Panel question No.  78, the European Union stated:  
No matter in which order of analysis this assessment [of other known fact ors] is carried out, the 
ultimate objective remains to separate and distinguish the various injurious effects and to 
identify the true cause for the injury. If the Commission considers that the other known factors 
break the causal link, or, in other words,  are the true  cause of the injury, the Commission's order 
of analysis will not prevent the Commission from reaching that conclusion.  
(European Union's response to Panel question No. 78, para. 111 (emphasis added))  
431 Pakistan's other appellant's submission,  para. 3.46 (referring to Appellate Body Reports,  
China – HP-SSST (Japan)  / China – HP-SSST (EU) , para. 5.205; China – GOES , para.  149).  
432 These six economic indicators are: production; sales; market share; profitability; return on 
investment; and cash flow. ( See para. 5.149  above ) 
433 Pakistan's other appellant's submission, para. 3.47.  
434 Appellate  Body Reports, China – GOES , para. 149. See also Appellate Body Reports,  
China – HP-SSST (Japan)  / China – HP-SSST (EU) , para. 5.205 (in the context of Article  3.4 of the 
Anti-Dumping Agreement).  
435 Appellate Body Report, US – Hot-Rolled Steel , para. 224 (in the context of Article 3.5 of the 
Anti-Dumping Agreement).  WT/DS486/AB/R  
 
- 62 - 
 
 
  of other known factors, the link found between the subsidized imports and the injury can be 
considered a "genuine and substantial relationship of cause and effect".  
5.218.   Thus, contrary to what Pakistan argues, the mere fact that the Commission did not 
examine the impact of the other known factors in the exact same manner as its assessment of the 
impact of the subsidized imports under Article  15.4 by taking into account the six specific 
economic indicators does not, in our vie w, demonstrate that the Commission's causation analysis 
lacked even -handedness and that it amounted to an inconsistency with the requirements of 
Article  15.5 of the SCM Agreement . 
5.219.   Accordingly, we disagree with Pakistan's third alleged flaw in the Commissio n's approach 
to causation in support of its claim of error on appeal.  
5.3.3.2.2.4   Pakistan's  fourth alleged flaw in the Commission's approach to causation  
5.220.   Lastly, Pakistan contends that the Commission's "break the causal link" approach 
effectively precluded it from pr operly separating and distinguishing the effects of the other known  
factors found to have contributed to the injury .436 Pakistan observes that, although the 
Commission acknowledged that some of the other known factors contributed to the injury, it failed 
to assess whether those factors "attenuated" or "diluted" the causal link between the subsidized 
imports and the injury , and instead applied the wrong standard of whether each of them 
individually "broke" such causal link.437 
5.221.   Pakistan's argument is not entirely clear to us but, to the extent that Pakistan takes issue 
with the Commission's use of the word "breaking" the causal link (as opposed to "attenuating" or 
"diluting" the causal link), we have observed, at paragraph  5.195  above, that , despite its use of 
the term "break" the causal link, the Commission assessed whether and to what extent the effects 
of the other known factors diminished the relative importance of the role that the subsidized 
imports played in bringing about the injury suffered by the EU industry. Pakistan also seems to 
suggest that the Commission failed to assess the impact of the subsidized imports after separating 
and distinguishing the effects of all of the other known factors. However, the Commission 
recognized that only two of the other known factors – i.e. imports from Korea; and the 
2008 economic downturn and the contraction in demand that accompanied this downturn  – had 
contributed to the injury.438 As we have observed, the Commission's reasoning as refl ected in its 
determination indicates that , in rea ching its overall conclusion on causation,  the Commission took 
into account the injurious effects of both of these other known factors , which, in the Commission's 
view, were limited .439 Therefore, Pakistan's argument lacks any basis in the facts of this case . 
5.222.   Pakistan also takes issue with the Commission's specific explanations in its 
Provisional  Determination pertaining to the effects of the imports from Korea440 and the 
2008 economic down turn.441 According to Pakistan, these explanations fell short of the required 
assessment of whether these factors "attenuated" or "diluted" the causal link.442  
5.223.   However, we have observed that , despite the Commission's unfortunate use of the term 
"break" the ca usal link, the Commission assessed the significance of the injurious effects of 
imports from Korea and the 2008 economic downturn (as well as the contraction in demand that 
accompanied this downturn) in relation to the impact of the subsidized imports and explained why 
these factors did not materially diminish the relative importance of the subsidized imports in 
bringing about the injury.443 
                                                
436 Pakistan's other appellant's submission, para. 3.49.  
437 Pakistan's other appellant's submission, paras. 3.51 -3.56. 
438 See para. 5.192  above.   
439 See para.  5.208  above.  
440 Pakistan's other appellant's submission, paras. 3.51 -3.52 (referring to Provisional Determination 
(Panel Exhibit PAK -1), recitals 248 -249).  
441 Pakistan's other appellant's submission, pa ras. 3.53 -3.56 (referring to Provisional Determination 
(Panel Exhibit PAK -1), recitals 254 and 256).  
442 Pakistan's other appellant's submission, paras. 3.52 and 3.54.  
443 See paras.  5.192 -5.195  above.  WT/DS486/AB/R  
 
- 63 - 
 
 
  5.224.   In any event, we note that Pakistan claimed before the Panel that the Commission had 
failed to separate and distinguish  properly the injurious effects of imports from Korea and the 
2008 economic downturn, among others. The Panel rejected Pakistan's claims and found that the 
Commission properly separated and distinguished the effects of those two factors.444 Pakistan has 
not appealed these Panel findings.445 In these circumstances, we do not consider that Pakistan can 
put forward this argument again on appeal . 
5.225.   Accordingly, we disagree with Pakistan's fourth alleged flaw in the Commission's approach 
to causation in support of its claim of error on appeal.  
5.3.4   Conclusion  
5.226.   The key objective of a causation analysis under Article  15.5 of the SCM Agreement is for 
an investigating authority to establish whether there is a "genuine and substantial relationship of 
cause and effect" between the subsidized imports and the injury to the domestic industry. 
A showing of such a "genuine and substantial" causal relationship entails: (i) an examination of the 
existence and extent of the link betw een the subsidized imports and the injury suffered by the 
domestic industry through an assessment of the "effects" of the subsidize d imports; and 
(ii) a non-attribution analysis of the injurious effects of other known factors. As such, an 
investigating aut hority is required under Article 15.5 to determine whether, in light of the injurious 
effects of other known factors, the subsidized imports can be considered a "genuine and 
substantial" cause of  the injury  suffered by the domestic industry . 
5.227.   While an inves tigating authority must complete a non -attribution analysis before it reaches 
an overall conclusion as to the existence of a "causal relationship", Article  15.5 does not prescribe 
any particular methodology an investigating authority must use in carrying o ut such analysis. 
Thus, it is possible for an investigating authority to address the two components of causation in 
two separate steps. In doing so, an investigating authority can consider a "causal link" to exist 
between the subsidized imports and the inj ury on the basis of the first step of its analysis, 
provided that the authority compares the significance of such a "causal link" with the significance 
of the injurious effects of other known factors and objectively assess es whether  this link qualifies 
as a "genuine and substantial" causal relationship in light of those other factors.  
5.228.   We have observed that the Panel correctly found that, while the Commission stated that a 
"causal link" existed between the subsidized imports and the injury before it turned t o its 
non-attribution analysis, such consideration of a "causal link " was not a final conclusion, and it had 
not necessarily prejudged the Commission's assessment of the effects of the other known factors.  
5.229.   We have also addressed, and rejected, Pakistan's arguments  regarding the four alleged 
flaws in  the Commission's approach  to causation that are raised in support of its claim that this 
approach precluded the Commission from satisfying the correct legal standard under Article  15.5. 
In particular, we have st ated that it is inappropriate for an investigating authority to examine 
whether other known factors "break" the causal link in the sense that the injurious effects of each 
non-attribution factor are so significant that they eliminate the link between the s ubsidized imports 
and the injury. This is because the correct causation standard requires instead an examination of 
whether, in light of the significance of the injurious effects of other known factors, the subsidized 
imports can be considered a "genuine a nd substantial" cause of the injury. However, with respect 
to the countervailing duty investigation at issue, we have observed that the Commission effectively 
examined whether and why the subsidized imports can be considered a "genuine and substantial" 
cause of the injury taking into account the injurious effects of all of the other known factors  that it 
found to have contributed to the injury . 
5.230.   Accordingly, we find that the Panel did not err in its interpretation or application of 
Article  15.5 of the SCM Agreement in rejecting Pakistan's claim that the Commission's use of the 
"break the causal link" approach precluded the Commission from satisfying the non -attribution 
requirements of Article  15.5 in this case. Consequently, we uphold  the Panel's  finding , in 
paragraph  8.1.d.i of its Report , that Pakistan failed to establish that the Commission's approach to 
causation in this case was inconsistent with Article  15.5 of the SCM  Agreement.  
                                                
444 Panel Report, paras. 7.135 and 7.145.  
445 Pakistan's other appellant's submission, para. 3.1.  WT/DS486/AB/R  
 
- 64 - 
 
 
  6  FINDINGS AND CONCLUS IONS  
6.1.  For the reasons set out in this Repor t, the Appellate Body makes the following findings and 
conclusions.  
Expiry of the measure at issue  
6.2.  Panels have a margin of discretion in the exercise of their inherent adjudicative powers under 
Article  11 of the DSU. Within this margin of discretion , it is  for a panel  to decide how it takes into 
account subsequ ent modifications to, or expiry  or repeal of, the measure at issue. The fact that a 
measure has expired is not dispositive of the question of whether a panel can address claims with 
respect to  that me asure. Rather, a panel, in the exercise of its jurisdiction, has the authority to 
assess objectively whether the "matter" before it, within the meaning of Article  7.1 and Article  11 
of the DSU, has been fully resolved or still requires to be examined follo wing the expiry of the 
measure at issue. In our view, the Panel in this dispute made an objective assessment that "the 
matter" before it still required to be examined because the parties continued to be  in disagreement 
as to the "applicability of and confo rmity with the relevant covered agreements" with respect to  
the European Commission's findings underpinning the expired measure at issue.  
6.3.  Accordingly, we find that the European  Union has not demonstrated that the Panel failed to 
comply with its duty under Article  11 of the DSU, as informed by Article  3 of the DSU, by deciding, 
at paragraph  7.13 of the Panel  Report, to proceed to make findings on Pakistan's claims in this 
dispute, notwithstanding the expiry of the measure at issue.  
6.4.  We therefore reject  the European  Union's request that we reverse  the entirety of the 
Panel  Report  and declare moot and of no legal effect the findings and legal interpretations 
contained therein.  
Government revenue foregone  
6.5.  A harmonious reading of Article  1.1(a)(1)(ii), foot note 1, and Annexes  I(i), II, and  III to the 
SCM Agreement  and the Ad Note to Article  XVI of the GATT  1994 confirms that duty drawback 
schemes can constitute an export subsidy that can be countervailed only if they result in a 
remission or drawback of impo rt charges "in excess" of those actually levied on the imported 
inputs consumed in the production of the exported product. Thus, in the context of duty drawback 
schemes, the financial contribution element of the subsidy (i.e. the government revenue foregon e 
that is otherwise due) is limited to the excess  remission or drawback of import charges on inputs 
and does not encompass the entire amount of the remission or drawback of import charges.  
6.6.  Furthermore, the perceived "silence" in Annexes  II and III to the S CM Agreement, referred to 
by the European  Union, is not one that pertains to the definition of the subsidy, and in particular to 
what constitutes the financial contribution element of the subsidy, in the form of government 
revenue foregone. Instead, the pe rceived "silence" relates to a procedural step in the context of an 
investigating authority's inquiry into whether the excess  remission or drawback of import charges 
occurred. As regards this procedural step, where an investigating authority determines tha t there 
is no verification system in place in the exporting Member, or a verification system is in place but 
it is not fit for purpose, or it has not been applied effectively  by the exporting Member , and where 
a further examination by the exporting Member has not been undertaken or is considered 
unsatisfactory by the investigating authority, it is true that Annexes  II and III do not explicitly 
provide for what should happen next. Nonetheless, the SCM  Agreement, as a whole, is not silent, 
and the perceived " silence" in Annexes  II and III does not grant an investigating authority the 
liberty to depart from these other disciplines of the SCM  Agreement. In particular, Article  12.7 of 
the SCM  Agreement allows an investigating authority to rely on the "facts avail able" on its 
investigation record to complete its inquiry into whether a duty drawback scheme conveys a 
subsidy by reason of excess drawback of import charges on inputs.  
6.7.  Accordingly, we find that the European  Union has not demonstrated that the Panel erred  in 
its interpretation of Article  1.1(a)(1)(ii), footnote  1, and Annexes  I(i), II, and III to the 
SCM Agreement  and the Ad Note to Article  XVI of the GATT  1994, as summarized at 
paragraph  7.56 of the Panel  Report.  WT/DS486/AB/R  
 
- 65 - 
 
 
  6.8.  The European  Union does not challenge the Panel's review of the European Commission's 
findings on the MBS, beyond the European  Union's claim that the Panel applied the wrong legal 
standard to the facts of this case.  
6.9.  Accordingly, we find that the European  Union has not demonstrated that the Panel e rred in 
its application of Article  1.1(a)(1)(ii) and footnote  1 of the SCM  Agreement to the facts of this 
case. 
6.10.   Consequently, we uphold  the Panel's findings:  
a. in paragraphs  7.60 and 8.1.b.i of the Panel  Report that the European Commission erred 
under  Article  1.1(a)(1)(ii) of the SCM  Agreement by failing to provide a reasoned and 
adequate explanation for why the entire amount of remitted duties was "in excess of 
those which have accrued" within the meaning of footnote  1 of the SCM  Agreement; and  
b. in paragraphs  7.60 and 8.1.b.ii of the Panel Report that the European Commission acted 
inconsistently with Article  3.1(a) of the SCM  Agreement by improperly finding the 
existence of a "subsidy" that was contingent upon export performance.  
The European Comm ission's causation analysis  
6.11.   The key objective of a causation analysis under Article  15.5 of the SCM Agreement is for an 
investigating authority to establish whether there is a "genuine and substantial relationship of 
cause and effect" between the subsidize d imports and the injury to the domestic industry. A 
showing of such a "genuine and substantial" causal relationship entails: (i) an examination of the 
existence and extent of the link between the subsidized imports and the injury suffered by the 
domestic industry through an assessment of the "effects" of the subsidized imports; and (ii) a 
non-attribution analysis of the injurious effects of other known factors. As such, an investigating 
authority is required under Article 15.5 to determine whether, in ligh t of the injurious effects of 
other known factors, the subsidized imports can be considered a "genuine and substantial" cause 
of the injury  suffered by the domestic industry . 
6.12.   While an investigating authority must complete a non -attribution analysis before it reaches 
an overall  conclusion as to the existence of a "causal relationship", Article  15.5 does not prescribe 
any particular methodology an investigating authority must use in carrying out such analysis. 
Thus, it is possible for an investigating authori ty to address the two components of causation in 
two separate steps. In doing so, an investigating authority can consider a "causal link" to exist 
between the subsidized imports and the injury on the basis of the first step of its analysis, 
provided that the authority compares the significance of such a "causal link" with the significance 
of the injurious effects of other known factors and objectively assesses whether  this link qualifies 
as a "genuine and substantial" causal relationship in light of those o ther factors.  
6.13.   We have observed that the Panel correctly found that, while the European Commission 
stated that a "causal link" existed between the subsidized imports and the injury before it turned 
to its non -attribution analysis, such consideration of a "causal link " was not a final conclusion, and 
it had not necessarily prejudged the European Commission's assessment of the effects of the other 
known factors.  
6.14.   We have also addressed, and rejected, Pakistan's arguments regarding the four alleged 
flaws in the European Commission's approach to causation that are raised in support of its claim 
that this approach precluded the European Commission from satisfying the correct legal standard 
under Article  15.5. In particular, we have stated that it is inappropriate for an investigating 
authority to examine whether other known factors "break" the causal link in the sense that the 
injurious effects of each non -attribution factor are so significant that they eliminate the link 
between the subsidized imports and the inju ry. This is because the correct causation standard 
requires instead an examination of whether, in light of the significance of the injurious effects of 
the other known factors, the subsidized imports can be considered a "genuine and substantial" 
cause of t he injury. However, with respect to the countervailing duty investigation at issue, we 
have observed that the European Commission effectively examined whether and why the 
subsidized imports can be considered a "genuine and substantial" cause of the injury taking into