WT/DS267/RW 
 Page D-1 
 
 
 
 
ANNEX D 
 
RESPONSES OF PARTIES TO THE PANEL'S QUESTIONS  
AND OTHER COMMENTS AND DOCUMENTS  
RECEIVED FROM PARTIES 
 
 
Contents Page 
Annex D-1 Brazil's Request for the Panel to Seek Production of 
Documents and Information Pursuant to Article 13 of the DSU – 1 November 2006 D-2 
Annex D-2 Responses of Brazil to the Panel's Questions on the DSU 
Article 13 Issue - 19 January 2007 D-18 
Annex D-3 Responses of the United States to the Panel's Questions 
on the DSU Article 13 Issue - 19 January 2007 D-21 
Annex D-4 Comments of Brazil on the Oral Statements of the 
United States at the Meeting with the Panel – 9 March 2007 D-24 
Annex D-5 Comments of the United States on the Oral Statements of 
Brazil at the Meeting with the Panel – 9 March 2007 D-46 
Annex D-6 Responses of Brazil to th e Panel's First Set of Questions 
(Sections A-C) – 26 February 2007 D-78 
Annex D-7 Responses of Brazil to th e Panel's First Set of Questions 
(Sections D&E) – 6 March 2007 D-114 
Annex D-8 Responses of the United States to the Panel's First Set of 
Questions (Sections A-C) – 27 February 2007 D-134 
Annex D-9 Responses of the United States to the Panel's First Set of 
Questions (Sections D&E) – 6 March 2007 D-152 
Annex D-10 Brazil's Comments on the Responses of the United States 
to the Panel's First Set of Questions – 16 March 2007 D-177 
Annex D-11 United States' Comments on the Responses of Brazil to 
the Panel's First Set of Questions – 16 March 2007 D-220 
Annex D-12 Responses of Brazil to the Panel's Second Set of 
Questions – 2 April 2007 D-269 
Annex D-13 Responses of the United States to the Panel's Second Set 
of Questions – 2 April 2007 D-355 
Annex D-14 Brazil's Comments on the Responses of the United States 
to the Panel's Second Set of Questions – 24 April 2007 D-443 
Annex D-15 United States' Comments on the Responses of Brazil to 
the Panel's Second Set of Questions – 24 April 2007 D-518 WT/DS267/RW  
Page D-2  
 
ANNEX D-1 
 
BRAZIL'S REQUEST FOR THE PA NEL TO SEEK PRODUCTION  
OF DOCUMENTS AND INFO RMATION PURSUANT  
TO ARTICLE 13 OF THE DSU 
 
(1 November 2006) 
 
 1. The Government of Brazil would like to thank you, as well as Ambassador Ahn and 
Ambassador Matus, for agreeing to serve as panelists in United States - Subsidies on Upland Cotton 
(Recourse by Brazil to Article 21.5 of the DSU).  We appreciate your willingness to devote time and 
energy to assisting Brazil and the United States to re solve this matter.  Brazil also looks forward to 
providing you, the panelists  and the Secretariat with whatever  assistance it can in these proceedings. 
 
2. In this letter, Brazil seeks that the compli ance Panel exercise its discretion under Article 13.1 
of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU")
1 to 
request the United States to produce documents and information relating to (a) payments to 
U.S. producers of upland cotton under the U.S. counter-cyclical payment program established by the FSRI Act of 2002, and (b) the U.S. agricultural export credit guarantee programs (principally the 
General Sales Manager 102 ("GSM 102") export credit guarantee program).  Annex 1 to this letter 
sets out the precise documents and information th at Brazil requests the Panel to seek from the 
United States.  3. All of the documents and information sought by  Brazil is within the exclusive control of the 
United States.  All of it is highly relevant to Br azil's claims and the issues before this compliance 
Panel.  Therefore, Brazil considers that it is "n ecessary and appropriate" for the compliance Panel to 
seek the documents and information requested at th is early stage of the compliance proceeding.  
Doing so is also "necessary and appropriate" given the shortened timeframe for the panel procedure, 
provided for in Article 21.5 of the DSU, and in light of the importance accorded to this information by 
the panel in the original proceeding.  
4. Prior to making this request, Brazil sought to  secure the agreement of the United States to 
produce this information.    5. Annex 2a to this letter contains Brazil's letter , dated 7 June 2006, requesting informal 
discussions on the U.S. implementation of the recomm endations and rulings of the Dispute Settlement 
Body in this dispute;  Annex 2b contains the questions presented by Brazil prior to and during the 
informal discussions on this matter on 19 July 2006. 
6. In the few instances in whic h the United States provided documents or information during the 
informal discussions, Brazil has not repeated the ques tion in Annex 1 to this letter.  For the majority 
of the documents and information requested by Braz il, the United States indicated during the informal 
discussions that it was not in a position to produc e the documents or information.  Nor has the 
United States subsequently offere d to produce the requested documents  or information.  During those 
discussions, the United States indicated that at least part of the documents or information requested 
                                                     
 
1 Article 13.1 provides, in relevant part:  "Each panel shall have the right to seek information . . .  from 
any individual or body which it deems appropriate. . . . A Member should respond promptly and fully to any request by a panel for such information as the pane l considers necessary and appropriate.  Confidential 
information which is provided shall not be revealed without formal authorization from.  the individual, body, or 
authorities or the Member providing the information."  WT/DS267/RW 
 Page D-3 
 
 
was confidential and that it was not prepared to provide them in the context of discussions not 
formally protected by confidentiality.  The United Stat es added that the situation would be different if 
such request was presented during panel proceedings which, pursuant to Article 18 of the DSU, take 
place under a confidentiality clause.  
7. Brazil and its representatives also made re quests seeking these documents and information 
under the U.S. Freedom of Information Act ("FOIA").  In most instances, Brazil has not received documents or information pursuant to those FOIA requests.  In the few instances in which Brazil 
received documents or information in response to th ose FOIA requests, relevant questions have been 
eliminated from Annex 1 to this letter. 
 
8. Brazil sets out the requested documents and information regarding the U.S. counter-cyclical 
payment program in Part A of Annex 1.  This request is essentially identical to the original panel's 
final request to the United States pur suant to Article 13.1 of the DSU.
2  The United States eventually 
provided considerable data to the original panel in response to this request.  The relevant background 
concerning the original panel's final request (as we ll as previous requests) under Article 13.1 of the 
DSU is set out in paragraphs 7. 20-7.42 of the Panel Report in United States - Subsidies on Upland 
Cotton. 
 
9. That data produced by the United States allo wed the original panel to make an assessment of 
both the amount and type of counter-cyclical paym ents received by current upland cotton producers.  
For the reasons set out below, it is "necessary and a ppropriate" for the compliance Panel to exercise 
its discretion, under Article 13.1 of the DSU, to re quest the United States to produce an update of this 
same data.    10. Brazil recalls that the original panel found that the "support delivered to upland cotton by 
[counter-cyclical payments] is a central issue in this dispute."
3  Using the information on counter-
cyclical payments obtained from the United States in  response to its Article 13.1 request, the original 
panel made extensive findings of fact.4  For example, the original panel found that "the overwhelming 
majority of farms enrolled in the programmes which plant upland cotton also hold upland cotton 
base."5  The original panel further found that the data produced by the United States  
 
show a strongly positive relationship between those recipients who hold upland cotton base acres and those who continue to plant upland cotton, despite their 
entitlement to plant other crops, which is indicative of the relationship between payments calculated with respect to upland cotton base acreage and recipients who plant upland cotton.
6 
In addition, the original panel found that the ma gnitude of the price-contingent counter-cyclical 
payments received by current producers of up land cotton ($869.4 million us ing Brazil's Methodology, 
or $864.9 using the Cotton-to-Cotton methodology7) constituted "very large amounts of United States 
government money benefiting United States upland cotton production."8 
 
                                                      
2 Panel Report, United States - Subsidies on Upland Cotton , Annexes L-1.22, dated 3 February 2004, 
and L-1.23, dated 16 February 2004.   
3 Panel Report, United States - Subsidies on Upland Cotton , para. 7.633.   
4 See, inter alia , Panel Report, United States - Subsidies on Upland Cotton , paras. 7.608-7.633 
and 7.634-7.647. 
5 Panel Report, United States - Subsidies on Upland Cotton, para. 7.636.   
6 Panel Report, United States - Subsidies on Upland Cotton, para. 7.637.   
7 Panel Report, United States - Subsidies on Upland Cotton, Tables A-5, A-6, paras. 7.641-7.647. 
8 Panel Report, United States - Subsidies on Upland Cotton, para. 7.1349.   WT/DS267/RW  
Page D-4  
 
11. Before the compliance Panel, a central question will be whether the failure of the 
United States to withdraw, or remove the adverse effects of, the counter-cyclical payment program of 
the FSRI Act of 2002 causes present serious prejudice to the interests of Brazil, or a threat thereof.  The existence and strength of a causal link between counter-cyclical payments and serious prejudice 
is, in part, a function of the magnitude and type of counter-cyclical payments received by current 
producers of upland cotton.  Thus, the magnitude and type of these subsidies continues to be a central 
issue.  As in the original panel proceeding, the da ta requested by Brazil would constitute the basis for 
factual findings regarding the magnitude and type of countercyclical payments that continue to 
support the production and export of U.S. upland cotton.    
12. Publicly-available USDA data shows that, in  marketing year ("MY") 2005 for example, total 
counter-cyclical payments to holders of upland cotton base acreage exceeded $1.3 billion.  While 
USDA collects data on plantings of each recipient that  allow the calculation of the amount of counter-
cyclical payments that were received annually by  current upland cotton farmers, these data are not 
publicly available.  They are therefore not availabl e to Brazil or the compliance Panel.  Significantly, 
during the original proceedings, the United States produced these data for MY 2002.  The original 
panel relied on certain methodologies of using the da ta to calculate the amount of counter-cyclical 
subsidies received by current U.S. upland cotton farmers for MY 2002.
9 
 13. Wile awaiting the production of the requested data by the United States, Brazil, based on the 
best information currently available to it and the compliance Panel, intends to rely on the 
methodology found "appropriate" by the original panel.   
 14. Brazil sets out its questions with respect to the agricultural export credit guarantee 
("ECG") programs, and in particular, the GSM 102 program
10, in Part B of Annex 1 to this letter.  
Brazil notes that it has considerably reduced the numb er of questions compared to those originally 
requested prior to and during the 19 July 2006 inform al discussions.  Brazil was able to obtain some 
of the originally requested documents through FOIA requests, and has taken account of limited 
responses from the United States in informal discussions on 19 July.  (The United States provided no 
documents in connection with these informal discussions.)  
 15. The documents and information regarding expo rt credit guarantees requested in Annex 1 are 
exclusively within the control of the United States.  The majority of the questions seek documents and 
information concerning the risk profile of the GSM 102 portfolio, how GSM 102 takes the various risks encountered in guaranteed transactions into  account, and default rates on GSM 102 guarantees.  
The requested documents and information will he lp the compliance Panel fulfill its mandate to 
undertake an objective assessment of the United Stat es' ECG-related measures taken to comply, and 
to consider Brazil's claims that GSM 102 guarantees constitute export subsidies, as well as that they 
circumvent U.S. agricultural export subsidy commitm ents.  Brazil believes, therefore, that it is 
"necessary and appropriate" for the compliance Panel to  exercise its discretion under Article 13.1 of 
the DSU, and to request this in formation from the United States. 
 16. Finally, Brazil asks the compliance Panel to request the United States to produce this 
information within three weeks of th e date the Panel issues its request.
11  Brazil considers this time 
period is justified in view of the shortened timeframe provided for in Article 21.5 of the DSU.  It is 
also consistent with the relative impor tance of the information requested.   
                                                      
9 Panel Report, United States - Subsidies on Upland Cotton, Attachment to Section VII:D, 
paras. 7.634-7.647. 
10 Brazil notes that one questions relates also to the GSM 103 and Supplier Credit Guarantee programs. 
 11 Brazil recalls that the original panel allotted the Un ited States eight days (until 11 February 2004) to 
respond to its 3  February 2004 request for information.  See, Panel Report, United States - Subsidies on Upland 
Cotton, Annex I-1.22.  WT/DS267/RW 
 Page D-5 
 
 
ANNEX 1 
 
Brazil's Request to the Compliance Panel to Pose Questions  
to the United States, under Article 13.1 of the DSU  
 
1 November 2006 
 
 
Part A:  Documents and Information on Base and Planted Acres 
 1. Brazil requests updated information on upland co tton planted and base acres under the Direct
 
and Counter-Cyclical Payment Program  for each of the 2003, 2004, 2005 and 2006 marketing years , 
showing as many of the underlying calculations as po ssible.  Brazil also requests information on base 
acreage and planted acreage for other "program crops" ( i.e., corn, barley, oats, sorghum, rice, wheat, 
soybeans, peanuts and minor oilseeds) and other acr eage on farms with upland cotton planted acreage 
in these same years.  Finally, Brazil requests the amount of payments units for Direct Payments and 
Counter-Cyclical Payments by program crop for each category of farms.   Brazil requests this information in the format  outlined by the Panel in part (b) of its 
"Supplementary Request for Information Pursuant to  Article 13 of the DSU," dated 3 February 2004.
1  
Specifically, Brazil requests that the Unite d States address the following questions:   
 
(A) How many farms that planted upland cotton had fewer upland cotton planted 
acres than upland cotton base acres, or equal numbers of each?  We refer to these as "Category A" farms.  What was the total of their upland cotton base acreage?  What was the total of th eir upland cotton planted acreage?   
 
(1) How many farms that have upland cotton base acres did not plant any 
upland cotton?  What was the total upland cotton base acreage on these farms?  We refers to these as "Category A-1" farms.
2 
 (B) How many farms had more upland co tton planted acres than upland cotton 
base acres?  We refer to these as "Categor y B" farms.  What was the total of 
their base acreage for each covered commodity, including upland cotton?  What was the total of their planted acreage for each covered commodity, including upland cotton?  Please also  provide the following information 
concerning these farms: 
 
(1) How many Category B farms had e qual numbers of acres planted to 
all covered commodities and base acres  for all covered commodities?  
We refer to these as "Category B-1" fa rms.  What was the total of the 
base acreage of Category B-1 farms for each covered commodity, including upland cotton?  What was the total of the planted acreage 
                                                     
 
1 Panel Report, Annex L, item 22.  The Panel's request for information is contained in the 
Communication from the Panel on 3 February 2004.  The full Communication (Panel Report, Annex L, item 22) 
is attached in Appendix I of this document. 
2 For Category A Farms, the Panel requested "farms [that] had fewer upland cotton planted acres than 
upland cotton base acres." ( See Panel Report, Annex L, item 22, p. 2 ).2  The United States interpreted this 
request as covering all farms that had upland cotton base and planted less than their full upland cotton base to 
upland cotton or that planted no upland cotton at all. ( The full response by the United States is attached in 
Appendix II of this document ).  In its updated request, Brazil would like the United States to separate (i) farms 
that had upland cotton base acres and planted fewer  upland cotton planted acres than upland cotton base acres 
and (ii) farms that had upland cotton base acres but planted no upland cotton. (See also Panel Report, Annex L, 
item 26, para. 5 ) WT/DS267/RW  
Page D-6  
 
of Category B-1 farms for each covered commodity, including upland cotton? 
 (2) How many Category B farms had fewer acres planted to all covered 
commodities than base acres for all covered commodities?  We refer 
to these as "Category B-2" farms.  How much was the total acreage 
of Category B-2 farms planted to all covered commodities less than their base acreage for all covered co mmodities?  What was the total 
of the base acreage of Category B-2 farms for each covered commodity, including upland cotton?  What was the total of the 
planted acreage of Category B-2 farms for each covered commodity, 
including upland cotton? 
 (3) How many Category B farms had mo re acres planted to all covered 
commodities than base acres for all covered commodities?  We refer 
to these as "Category B-3" farms.  How much did the total acreage of 
Category B-3 farms planted to all covered commodities exceed their base acreage for all covered commoditie s?  What was the total of the 
base acreage of Category B-3 farms for each covered commodity, including upland cotton?  What was the total of the planted acreage of Category B-3 farms for each covered commodity, including 
upland cotton? 
 (C) How many farms had upland cotton pl anted acres but no upland cotton base 
acres?  We refer to these as "Category C" farms.  What was the total of the base acreage of Category C farms for each covered commodity?  What was 
the total of the planted acreage of  Category C farms for each covered 
commodity, including upland cotton?   
 (D) In addition, for the marketing years 2003 through 2006, please reply to the 
above questions with respect to all crops on cropland covered by the acreage 
reports, not simply commodities covered by the programs. 
 
 Brazil requests that the United States continue to provide the requested information on both state level and federal level ( i.e., totals).  Further, as noted above, Brazil requests that the 
United States provide aggregate payment unit data by crop for each group of farms.   
 For convenience, Brazil attaches the Pane l's communication dated 3 March 2004, which 
contains the Panel's "Supplementary Request for Info rmation Pursuant to Article 13 of the DSU," in 
Appendix I to this document.  Brazil further attaches , in Appendix II to this document, an excerpt of 
the U.S. response to the Panel's data request, dated 3 March 2004.  
Part B:  Documents and Informat ion on Export Guarantee Programs 
 2. In the original panel proceedings in WT/DS267, the United States provided, as Exhibit 
US-150, two memoranda, dated 8 April 2002 and 25 March 2003, titled "Annual Review of Fees for 
USDA Credit Programs".  Please provide any memoranda or similar documents constituting annual reviews for subsequent years. 
 
3. What return does the U.S. government require on capital employed for the GSM 102 
program?  WT/DS267/RW 
 Page D-7 
 
 
4. Please provide data regarding the value of GSM 102 guaranteed transactions, by tenor and by 
country (rather than by Commodity Cred it Corporation ("CCC") regional groupings)3, for the cohort 
of GSM 102 guarantees issued in each fiscal year for FY 2002-2006.  5. For FY 2006, please separate GSM 102 ECGs in to applications received by individual 
country (rather than by CCC regional groupings).
4 
 6. Please provide data regarding GSM 102 fees collected, by country (rather than by CCC 
regional groupings), by year for each of FY 2002-2006.
5 
 
7. For each country eligible for export credit guarantees through the GSM 102 program, please 
provide the current sovereign-risk rating and the private risk-rating established through the Interagency Country Risk Assessment System (" ICRAS"), as well as any ICRAS papers or analyses 
justifying those ratings.  Please provide the same  information and documen ts for FY 2002-2006, to 
the extent ratings in that period diverge from current ratings. 
 
8. Please indicate the number of risk categori es into which CCC classifies guarantees for the 
GSM 102 program, and explain:  (i) how those risk categories are established;  and (ii) how those risk categories correspond to the ICRAS categories.  9. Whether CCC uses the ICRAS risk categori es or its own risk categories, please: 
 
(a) provide a correspondence table and documentary support showing the 
correspondence between the CCC risk categories and the ratings ( e.g., BB, BBB, 
BBB-, etc.) in the Moody's or Standard and Poor's rating systems; 
 
(b) for FY 2002-2006, indicate the value of guaranteed transactions in each CCC risk 
category for GSM 102 guarantees issued in each of those years; 
 (c) for FY 2005 and 2006, indicate the value of  guaranteed transactions in each CCC risk 
category for the portfolio of GSM 102 guarantees outstanding on the last day of each fiscal year; 
 
10. For the cohort of GSM 102 guarantees issued in  each of FY 2002-2006, please provide data 
dividing the cohort according to the value of the transactions guaranteed.  Please use increments 
of $1000.  
11. For the cohort of GSM 102 guarantees issued in  each of FY 2002-2006, please provide data 
dividing the cohort according to the credit rating of the foreign bank.  12. For the cohort of GSM 102 guarantees issued in  each of FY 2002-2006, please provide data 
dividing the cohort according to the credit rating of the foreign purchaser of U.S. agricultural exports.  
13. For the cohort of GSM 102 guarantees issued in each of fiscal years 2002-2006, please 
provide data dividing the cohort according to the va lue of the transactions guaranteed, and, further, 
indicates loss or default rates for each $1000 increment of transaction value.  
                                                     
 
3 Monthly exposure reports for GSM 102 demonstrat e that CCC maintains data on a country-specific 
basis. 
4 Monthly exposure reports for GSM 102 demonstrat e that CCC maintains data on a country-specific 
basis. 
5 Monthly exposure reports for GSM 102 demonstrat e that CCC maintains data on a country-specific 
basis. WT/DS267/RW  
Page D-8  
 
14. Please provide data and documentary support addressing default rates for the GSM 102 
program for each fiscal year during the period 2002-2006.  15. For each country eligible for export credit guarantees through the GSM 102 program, please 
provide the Office of Management and Budget's (OMB) default estimate.
6 
 
16. With respect to the total amount of outstandi ng principal and interest guaranteed through 
GSM 102, GSM 103 and SCGP on 1 July 2005: 
 (a) What proportion of that outstanding principa l and interest was associated with exports 
of unscheduled products, and what propor tion was associated with exports of 
scheduled products?   
 (b) Of the proportion associated with schedul ed products, what proportion was associated 
with exports of rice? 
 
17. Please provide monthly "Exposure Reports" for GSM 102 all months beginning in July of 
FY 2006.
7 
 18. Please provide the "FAS Risk Assessment Handbook".
8 
 
19. Please provide any "FAS Portfolio Analys is" of the export credit guarantee programs 
conducted and/or reported s ubsequent to 24 March 2003.9 
 20. Please provide the quarterly "Commercial Export Credit Reports" for all quarters from Q2 of 
FY 2004 to the present.
10 
 
21. Please provide the quarterly "Geographic and Commodity Analyses" for all quarters from 
FY 2002 to the present.11 
 22. Please provide the quarterly "FAS GSM to Exports Powerpoints" from Q3 of FY 2004 to the 
present.
12 
 
23. Please provide the "Contingent Liability by Country Risk Grade Powerpoints" from FY 2002 
to the present.13 
  
[Appendix 1 and Appendix 2 omitted.] 
                                                     
 
6 OMB's default estimate methodology is discussed on page 79 of the "Analytical Perspectives" 
document associated with the U.S. 2007 budget, av ailable at http://www.white house.gov/omb/budget/fy2007/ . 
7 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html . 
8 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html . 
9 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html . 
10 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html . 
11 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html . 
12 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html . 
13 Cited as "evidence" in an OMB assessm ent of the ECG programs, available at 
http://www.whitehouse.gov/omb/expect more/detail.10002020.2005.html .  WT/DS267/RW 
 Page D-9 
 
 
ANNEX 2a 
 
BRAZIL'S LETTER OF 7 JUNE 2006  
TO THE UNITED STATES 
  
The Government of Brazil is concerned that measures taken by the United States to comply 
with the recommendations and rulings adopted by  the WTO Dispute Settlement Body ("DSB) on 
21 March 2005 in United States - Subsidies on Upland Cotton
 (DS 267) may not exist or not be 
consistent with the U.S.  obligations under the Dispute Settlement Understanding, the Agreement on 
Subsidies and Countervailing Measures and the Agreement on Agriculture.  In particular, the 
Government of Brazil believes that it would be useful to hold further substantive discussions 
concerning ongoing and future efforts by the U.S.  Government to eliminate or make significant 
changes to the marketing loan and countercyclical programs for upland cotton under the Farm Security and Rural Investment Act of 2002, as well as the GSM 102 and SCGP export credit 
guarantee programs. 
 Therefore, the Government of Brazil suggests that informal contacts be held at your earliest 
convenience to provide an opportunity to exchan ge views and information regarding the above-
mentioned concerns.  To prepare for this meeting,  and in order to facilitate the discussions, Brazil 
would send in advance a list of questions that coul d be addressed during the talks.  I look forward to 
your response to this suggestion. 
 Please accept, Excellency, the assurances of my highest consideration. 
  
 WT/DS267/RW  
Page D-10  
 
ANNEX 2b 
 
BRAZIL'S LETTER OF 29 JUNE 2006 
TO THE UNITED STATES 
  
With reference to your letter of 23 June 2006 confirming the disposition of the United States 
to discuss with Brazil issues related to the implem entation of the Dispute Settlement Body's ("DSB") 
rulings and recommendations in the context of the dispute United States - Subsidies on Upland Cotton
 
(DS 267), I would like to propose that representatives of our countries meet on 17 July 2006  in 
Geneva. 
 As anticipated in my letter of 7 June 2006, and with a view to ensuring that this exchange of 
views and information be as valuable and inform ative as possible, please find enclosed a list of 
questions. 
 
Please accept, Excellency, the assurances of my highest consideration.  
  WT/DS267/RW 
 Page D-11 
 
 
Questions for the United States  
29 June 2006 
 
 
Information on the Amount of Step 2 Payments by Marketing Year 
 
1. Brazil requests information on the annual am ount of user marketing (Step 2) payments for 
upland cotton in marketing years 2002-2005.  Brazil re quests separate data for Step 2 export payments 
and Step 2 payments for domestic users.  Information on the United States' Intention to Take Further Implementing Action   
2. Does the United States intend to change th e Counter-Cyclical Payment Program and/or 
Marketing Loan Program to bring them/it into confor mity with U.S. WTO obligations?  If so, what is 
the envisioned outline and time-frame of such ch anges.  If not, please provide a reasoned and 
substantiated explanation of why it believes that no further implementing action is needed to comply 
with the DSB's rulings and recommendations in United States – Subsidies on Upland Cotton .  
 
Information on Base and Planted Acres 
 
3. Brazil requests updated inform ation on upland cotton planted and base acres under the Direct
 
and Counter-Cyclical Payment Program  for each of the marketing years 2003, 2004, 2005 and 
20061, showing as many of the underlying calculations as possible.  Brazil also requests information 
on base acreage and planted acreage for other "program crops" ( i.e., corn, barley, oats, sorghum, rice, 
wheat, soybeans, peanuts and minor oilseeds) and ot her acreage on farms with upland cotton planted 
acreage in these same years.  Finally, Brazil re quests the amount of payments units for Direct 
Payments and Counter-Cyclical Payments by program crop for each category of farms. 
  Brazil requests this information in the format  outlined by the Panel in part (b) of its 
"Supplementary Request for Information Pursuant to  Article 13 of the DSU," dated 3 February 2004.
2  
Specifically, Brazil requests that the Unite d States address the following questions:   
 
(A) How many farms that planted upland cotton had fewer upland cotton planted 
acres than upland cotton base acres, or equal numbers of each?  We refer to these as "Category A" farms.  What was the total of their upland cotton base acreage?  What was the total of th eir upland cotton planted acreage?   
 
(1) How many farms that have upland cotton base acres did not plant any 
upland cotton?  What was the total upland cotton base acreage on these farms?  Brazil refers to these as "Category A-1" farms.
3 
                                                      
1 Brazil understands that information on marketing year 2006 may be preliminary or incomplete.  
2 Panel Report, Annex L, item 22.  The Panel's request for information is contained in the 
Communication from the Panel on 3 February 2004.  The full Communication (Panel Report, Annex L, item 22) 
is attached in Annex I of this document. 
3 For Category A Farms, the Panel requested "farms [that] had fewer upland cotton planted acres than 
upland cotton base acres." ( See Panel Report, Annex L, item 22, p. 2 ).3  The United States interpreted this 
request as covering all farms that had upland cotton base and planted less than their full upland cotton base to 
upland cotton or that planted no upland cotton at all. ( The full response by the United States is attached in 
Annex II ).  In its updated request, Brazil would like the United States to separate (i) farms that had upland cotton 
base acres and planted fewer  upland cotton planted acres than upland co tton base acres and (ii) farms that had 
upland cotton base acres but planted no upland cotton. (See also Panel Report, Annex L, item 26, para. 5 ) WT/DS267/RW  
Page D-12  
 
(B) How many farms had more upland co tton planted acres than upland cotton 
base acres?  We refer to these as "Categor y B" farms.  What was the total of 
their base acreage for each covered commodity, including upland cotton?  What was the total of their planted acreage for each covered commodity, including upland cotton?  Please also  provide the following information 
concerning these farms: 
 
(1) How many Category B farms had e qual numbers of acres planted to 
all covered commodities and base acres  for all covered commodities?  
We refer to these as "Category B-1" fa rms.  What was the total of the 
base acreage of Category B-1 farms for each covered commodity, 
including upland cotton?  What was the total of the planted acreage of Category B-1 farms for each covered commodity, including upland cotton? 
 
(2) How many Category B farms had fewer acres planted to all covered 
commodities than base acres for all covered commodities?  We refer 
to these as "Category B-2" farms.  How much was the total acreage of Category B-2 farms planted to all covered commodities less than their base acreage for all covered co mmodities?  What was the total 
of the base acreage of Category B-2 farms for each covered 
commodity, including upland cotton?  What was the total of the 
planted acreage of Category B-2 farms for each covered commodity, including upland cotton? 
 (3) How many Category B farms had mo re acres planted to all covered 
commodities than base acres for all covered commodities?  We refer 
to these as "Category B-3" farms.  How much did the total acreage of Category B-3 farms planted to all covered commodities exceed their base acreage for all covered commoditie s?  What was the total of the 
base acreage of Category B-3 farms for each covered commodity, including upland cotton?  What was the total of the planted acreage 
of Category B-3 farms for each covered commodity, including 
upland cotton? 
 (C) How many farms had upland cotton pl anted acres but no upland cotton base 
acres?  We refer to these as "Category C" farms.  What was the total of the 
base acreage of Category C farms for each covered commodity?  What was 
the total of the planted acreage of  Category C farms for each covered 
commodity, including upland cotton?   
 (D) In addition, for the marketing years 2003 through 2006, please reply to the 
above questions with respect to all crops on cropland covered by the acreage 
reports, not simply commodities covered by the programs. 
 
 Brazil requests that the United States continue to provide the requested information on both state level and federal level ( i.e., totals).  Further, as noted above, Brazil requests that the 
United States provide aggregate payment unit data by crop for each group of farms.  
 
 For the United States' convenience, Brazil atta ches the Panel's comm unication dated 3 March 
2004, which contains the Panel's "Supplementary Requ est for Information Pursuant to Article 13 of 
the DSU," in Annex I.  Brazil further attaches, in Annex II, an excerpt of the U.S. response to the 
Panel's data request, dated 3 March 2004. 
  WT/DS267/RW 
 Page D-13 
 
 
Information on the General Sales Manager 102 (GSM 102), General Sales Manager 103 
(GSM 103) and Supplier Credit Guarantee (SCGP) Programs  
4. In a press release dated 5 July 2005, USDA announced that the Bush Administration was 
sending to Congress proposed statutory changes to remove the one-percent cap on fees for guarantees 
issued under the GSM 102 and SCGP programs (the one-percent fee cap is required by 
7 U.S.C. § 5641(b)(1)), and terminate the Inte rmediate Export Guaran tee Program (GSM-103).
4  In a 
paper dated 17 February 2 006 and titled "WTO Litigation and Negotia tion:  Potential Implications for 
Cotton", at page 2, Carol Goodloe, Senior Econom ist in USDA's Office of the Chief Economist, 
suggested that the proposal to repeal the fee cap  and to eliminate the GSM-103 program was not 
"included" in budget reconciliation legislation because of "Senate rules".5 
 With respect to this issue, Brazil has the following questions: 
 
(a) Was the 2005 Administration proposal not  "included" in budget reconciliation 
legislation because of "Senate rules"?  If yes, please explain the nature of the Senate 
rules.  If not, please explain why the proposal was not "included" in budget reconciliation legislation. 
 (b) Please provide a copy of any subsequent legislative proposals concerning repeal of 
the fee cap or termination of GSM-103 progr am provided by the Executive Branch to 
the US Congress.  What is the legislative vehicle and timeline for consideration and 
adoption of these proposals? 
 
(c) Does the United States expect that the Congress will vote on an FY 2007 budget 
reconciliation bill in calendar year 2006?  Please explain. 
 
5. Please explain why the United States stopped i ssuing ECGs under the SCGP program as of 
1 October 2005.   6. On 23 January 2006, USDA invited public co mment on "options to reform" SCGP.  Those 
comments were due by 23 February 2006.  What form  will the results of USDA's reform inquiry take, 
and when will those results be released?  Wh en does USDA intend to re-commence issuance of 
guarantees under the SCGP program?  7. Please prepare a table showing corresponden ce between the so-called "scheduled" products 
listed in Table ES:1 of document G/AG/N/USA/53 and the list of products eligible for guarantees 
under the GSM 102 and the SCGP programs. 
 8. Please provide the calculation underlying the "subsidy rates for credit guarantee programs" 
stated on page 21 to the Notes to Financial St atements of the CCC for fiscal years 2004 and 2005 
(available at http://www.usda.gov/oig/rptsauditsccc.htm
).  Please provide these calculations also for 
fiscal years 2002 and 2003.  
 
9. Please provide the calculation underlying the "o riginal subsidy rate" a nd "current reestimated 
rate" columns in Table 8 of the Federal Credit Su pplement to the Fiscal Year 2007 Budget of the 
United State Government (available at  http://www.whitehouse.gov/omb/budget/fy2007/ ), with respect 
to the CCC Export Loan Guarantee Programs. 
 
                                                      
4 See http://www.usda.gov/wps/portal/! ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2005/  
07/0242.xml . 
5 See http://www.usda.gov /oce/forum/2006%20Speeches/PDF%2 0speech%20docs/Goodloe2806.pdf . WT/DS267/RW  
Page D-14  
 
10. In the original panel proceedings in WT/D S267, the United States provided, as Exhibit US-
150, two memoranda, dated 8 April 2002 and 25 March 2003, titled "Annual Review of Fees for 
USDA Credit Programs".  Please provide any memoranda or similar documents constituting annual reviews for subsequent years.  
11. Please list and describe all criteria taken in to account by CCC in setting the fee schedule for 
the GSM 102 and SCGP programs, and in determin ing the applicable fee for a guarantee for a 
particular transaction.  12. In determining the applicable fee for a GSM 102 or SCGP guarantee for a particular 
transaction, is the interest rate spread charged by  the market to banks or borrowers in the foreign 
country involved examined, to identify changing  market conditions?  If the answer is in the 
affirmative, please provide documentary proof that de monstrates how this factor is taken into account. 
 13. What return does CCC require on capital employ ed, both across all of its programs and, more 
specifically, for the GSM 102 and SCGP programs? 
 14. Please indicate at what interval fee schedules for the GSM 102 and SCGP programs are reviewed.  Please provide CCC regulations or procedur es listing the elements to be taken into account 
during a review of the fee schedules.  
15. Please provide data regarding the value of gua ranteed transactions, by tenor and by country 
(rather than by CCC regional groupings), separately for GSM 102, GSM 103 and SCGP, by year for each of fiscal years 2000-2006.  16. For fiscal year 2006, please separate announced  allocations for GSM 102 into individual 
country allocations, rather than  CCC regional group allocations. 
 17. Please provide data regarding fees collected , by country (rather than by CCC regional 
groupings), separately for ECGs issued under GS M 102, GSM 103 and SCGP, by year for each of 
fiscal years 2000-2006.  
18. For each country eligible for export cr edit guarantees through the GSM 102 and the SCGP 
programs, please provide the sovereign-risk rati ng and the private risk-rating established through the 
Interagency Country Risk Assessment System (ICR AS), as well as any ICRA S papers or analyses 
justifying those ratings.  
19. Brazil understands that ICRAS has established eleven sovereign and nine nonsovereign risk 
categories for use by U.S. government agencies and programs providing cross-border loans, guarantees or insurance.  Does CCC classify GSM-approved foreign banks, as well as foreign borrowers under the GSM 102 and SCGP programs, according to these same eleven sovereign and 
nine nonsovereign risk categories?  
20. If the answer to the previous question is in  the negative, please indicate the number of risk 
categories into which CCC classifies guarantees for the GSM 102 and SCGP programs, and explain:  (i) how those risk categories are established;  a nd (ii) how those risk categories correspond to the 
ICRAS categories.  
21. Whether CCC uses the ICRAS risk categor ies or its own risk categories, please: 
 
(a) provide a correspondence table and documentary support showing the 
correspondence between the CCC risk categories and the ratings ( e.g., BB, BBB, 
BBB-, etc.) in the Moody's or Standard and Poor's rating systems; 
  WT/DS267/RW 
 Page D-15 
 
 
(b) for fiscal years 2000-2006, indicate the va lue of guaranteed transactions in each CCC 
risk category for GSM 102 guarantees issued in each of those years; 
 (c) for fiscal years 2000-2006, indicate the va lue of guaranteed transactions in each CCC 
risk category for SCGP guarantees issued in each of those years; 
 (d) for fiscal years 2005 and 2006, indicate the value of guaranteed transactions in each 
CCC risk category for the portfolio of GSM 102 guarantees outstanding on the last day of each fiscal year; 
 
(e) for fiscal years 2005 and 2006, indicate the value of guaranteed transactions in each 
CCC risk category for the portfolio of SCGP guarantees outstanding on the last day of each fiscal year. 
 
22. In each of fiscal years 2000-2006, please list th e percentage of importers/purchasers in export 
transactions for which an SCGP guarantee is provide d that are government-owned or -controlled, or 
quasi-government-owned or -controlled. 
 23. Please describe the profile of a typical importer/purchaser in export transactions for which an 
SCGP guarantee is provided, in terms of loan size, importer/purchaser's asset size, and 
importer/purchaser's credit rating. 
 24. Please describe how loss or default ra tes on SCGP guarantees vary for different 
importer/purchaser profiles (again, in terms of loan size, importer/purchaser's asset size, and 
importer/purchaser's credit rating). 
 25. For the cohort of SCGP guarantees issued in  each of fiscal years 2000-2006, please provide a 
chart that divides the cohort according to the va lue of the transactions guaranteed.  Please use 
increments of $1000.  
 
26. For the cohort of SCGP guarantees issued in  each of fiscal years 2000-2006, please provide a 
chart that divides the cohort according to the credit rating of the borrower/purchaser. 
 27. For the cohort of SCGP guarantees issued in  each of fiscal years 2000-2006, please provide a 
chart that divides the cohort accord ing to the value of the transactions guaranteed, and, further, 
indicates loss or default rates for each increment of transaction value. 
 28. For the cohort of SCGP guarantees issued in  each of fiscal years 2000-2006, please provide a 
chart that divides the cohort according to the cred it rating of the borrower/purchaser, and, further, 
indicates loss or default rates for each category of credit rating. 
 29. For the cohort of GSM 102 guarantees issued in each of fiscal years 2000-2006, please 
provide a chart that divides the cohort according to  the value of the transactions guaranteed.  Please 
use increments of $1000. 
 
30. For the cohort of GSM 102 guarantees issued in each of fiscal years 2000-2006, please 
provide charts that divide the cohort according to  the credit rating of the foreign bank, and of the 
borrower/purchaser. 
 
31. For the cohort of GSM 102 guarantees issued in each of fiscal years 2000-2006, please 
provide a chart that divides the cohort according to  the value of the transactions guaranteed, and, 
further, indicates loss or default rates for each increment of transaction value. 
 WT/DS267/RW  
Page D-16  
 
32. For the cohort of GSM 102 guarantees issued in each of fiscal years 2000-2006, please provide charts that divide the cohort according to  the credit rating of the foreign bank, and of the 
borrower/purchaser, and, further, indicates loss or default rates for each category of credit rating. 
 33. Please provide data and documentary support addressing default rates for the GSM 102 and 
SCGP programs (both separately and together) for each fiscal year during the period 2000-2006. 
 34. How does CCC arrive at the default and loss estimates presumably used to determine fees for 
GSM 102 and SCGP guarantees? 
 35. For each country eligible for export cr edit guarantees through the GSM 102 and the SCGP 
programs, please provide the Office of Management  and Budget's (OMB) default estimate.  (OMB's 
default estimate methodology is discussed on page 79 of the "Analytical Perspectives" document 
associated with the U.S. 2007 budget, ava ilable at http://www.whitehouse.gov/omb/budget/fy2007/
). 
 36. How does the OMB default estimate affect the fee schedule for the GSM 102 and SCGP 
programs?  What, if any, discretion does CCC enjoy to depart from the OMB default estimate in 
setting fees for the GSM 102 and SCGP programs? 
 37. How does CCC fund accumulated losses?  38. What was the total amount of outstandi ng principal and interest guaranteed through 
GSM 102, GSM 103 and SCGP on 1 July 2005?  Pleas e provide data separately for each of the 
three programs.  With respect to this data: 
 
(a) What proportion of the outstanding principa l and interest was associated with exports 
of unscheduled products, and what propor tion was associated with exports of 
scheduled products?   
 (b) Of the proportion associated with schedul ed products, what proportion was associated 
with exports of rice? 
 
39. Page 30 of the "Notes to Financial Statements " included with the CCC's Financial Statements 
for Fiscal Years 2005 and 2004 (available at  http://www.usda.gov/oig/rptsauditsccc.htm
) lists the 
value of guaranteed transactions outstanding on 1 September 2005, divided by maturity date.  Please 
provide a similar chart with data as of 1 July 2005. 
 
40. Does the CCC require that a party ( e.g., the exporter) to an export transaction for which an 
SCGP guarantee is requested seek and provide to CCC credit references for the importer/purchaser?  
Does the CCC itself seek such credit references?  If answered in the affirmative, please provide the 
relevant regulations or proce dures setting out this requirement. 
 
41. Does CCC require information regarding the credit rating of an importer/purchaser in an 
export transaction for which and SCGP guarantee is requ ested?  If answered in the affirmative, please 
provide the relevant regulations or pr ocedures setting out this requirement. 
 42. CCC maintains a list of foreign bank obligor s approved for particip ation in the GSM 102 
program.  The list is available at http ://www.fas.usda.gov/excredits/foreignbanks.html
.  Does CCC 
inquire into the credit rating for these banks?  If so, please provide the credit rating for the banks 
currently approved. 
43. Are there statutory or regulatory limits on th e level of exposure (in terms of the value of 
transactions, or any other variable) CCC can mainta in, under the SCGP program, with respect to any  WT/DS267/RW 
 Page D-17 
 
 
given importer?  If answered in the affirmative, please provide regulations or procedures setting out 
the limits.  44. Are importers included on the default lists of the American Cotton Exporters Association 
(ACEA) or the World Cotton Exporters Association (WCEA) allowed to participate in transactions 
involving GSM 102 or SCGP guarantees?
6   
 45. Please provide a copy of any agreement governing the relationship between the U.S. 
government and CoBank, with respect to CoBank's role as a lender under the GSM 102 program.  
46. ExpectMore.gov has undertaken an assessment  of the "Agricultural Export Credit Guarantee 
Programs" subject to these consultations.  The as sessment (program code 10002020), is available at 
http://www.whitehouse.gov/omb/expectmore/detail.10002020.2005.html
.  Please provide the 
following documents, identified as "Evidence" in the assessment (each of which is highlighted in the 
attached copy of the assessment): 
 
• FAS Credit Guarantee Program Analysis;   
 
• FAS GSM to Exports Powerpoint; 
 
• FAS Portfolio Analysis (annual) (please provide for FY 1999 to the present, or if 
maintained on a calendar or marketing year basis, then for calendar or marketing years 1999 to the present); 
 
• Contingent Liability by Country Risk Grade Powerpoint; 
 
• FAS Decision Memo, 4/12/04 depart ment wide meeting with OMB 
 
• CCC Exposure Report (monthly) (please provide for all months from FY 1999 to the 
present); 
 
• FAS Risk Assessment Handbook; 
 
• Geographic and Commodity Analysis (quart erly) (please provide for all quarters from 
FY 1999 to the present); 
 
• Commercial Export Credit Report (quarterly) (please provide for all quarters from 
FY 1999 to the present). 
 
 
 
[Annex 1 and Annex 2 to this document omitted.] 
 
 
                                                     
 
6 These lists are maintained at ht tp://www.acsa-cotton.org/Default_Lists/  
ACEA_Default_List/body_acea_default_list.asp  (for ACEA) and http://www.acsa-cotton.org/  
Default_Lists/WCEA_Default_List/body_wcea_default_list.asp  (for WCEA). WT/DS267/RW  
Page D-18  
 
ANNEX D-2 
 
RESPONSES OF BRAZIL TO THE PANEL'S QUESTIONS  
ON THE DSU ARTICLE 13 ISSUE 
 
(19 January 2007) 
 
 
Question 1  (to Brazil) 
 
Does Brazil deem that the questions posed in Part B1 of Annex 1 of its request submitted 
on 1 November 2005 ("1 November request" hereafter) are now unnecessary? 
 
1. Brazil continues to believe that the informati on, documents and data requested in Part B of 
Annex 1 of its request submitted on 1 November  2005 ("1 November Request") will assist the 
compliance Panel in making "an objective assessment of  the matter before it," within the meaning of 
Article 11 of the Understanding on Rules and Pr ocedures Governing the Settlement of Disputes 
("DSU"). 
 
2. Brazil notes that the documents requested in questions 17-23 of Annex 1 to Brazil's 1 November Request were cited by the U.S. Depart ment of Agriculture's Foreign Agriculture Service 
in a self-assessment of the export credit guarant ee ("ECG") programs.  This self-assessment was 
provided to the compliance Panel as Exhibit Bra-588. 
 
3. In previous discussions, the United States noted  uncertainty regarding the definition of the 
term "default rate," as used in questions 13 and 14 of Annex 1 to Brazil's 1 November Request.  To 
clarify, Brazil uses the term as it is used by the Commodity Credit Corporation ("CCC") in its financial statements.  Specifica lly, on page 28 of the Notes to the CCC's fiscal year 2006 and 2005 
financial statements, provided to the compliance Panel as Exhibit Bra-585, CCC details "defaults" for 
the ECG programs, phrased in percentage terms (and therefore as rates  of default).
2 
 
Question 2  (to Brazil) 
 
Is Brazil asking the United States to respond to all of the questions posed in Part A of its 
1 November request? 
 
4. Brazil asks that the compliance Panel request the United States to provide data responsive to 
all questions in Part A of Brazil's 1 November Request.  The information provided by the United 
States in the table in Section VI.A.(c) of its First Written Submission3 demonstrates that the United 
States has already collected and compiled the data necess ary to respond to most, if not all, of Part A of 
Annex I of Brazil's 1 November Request.   
 5. Brazil recalls that its 1 November Request , like the request by the original panel, 
distinguishes between three categories of U.S. upland cotton farms:  A, B and C.   
                                                     
 
1 Concerning Export Guarantee Programs. 
2 These rates are only offered in the aggregate, and not for individual ECG programs or as related to the 
credit ratings of obligors;  Brazil has asked for further detail in its questions. 
3 U.S. First Written Submission, para. 224.  WT/DS267/RW 
 Page D-19 
 
 
6. With respect to Category A farms4, i.e., upland cotton farms that "underplant" their base 
acreage, Brazil notes that the table in Section VI.A.(c) of the U.S. First Written Submission5 provides 
incomplete information.  While the United States provides information responsive to the question:  
"What was the total of their upland cotton planted acreage?"6,  the United States does not  provide 
information responsive to the following question:  "What was the total of their upland cotton base 
acreage?"  Further, the United  States provides no information  for farms that have upland cotton bases 
acres but no planted acres (Category A-1 farms7).  These omissions make it impossible for Brazil to 
update Tables A-1 and A-3 of the original panel's report.8  Finally, the United States provides no 
information on the actual number of farms  that fall into these categories. 
 
7. With respect to Category B farms, i.e., farms that "overplant" their upland cotton base 
acreage9, and with respect to Category C farms, i.e., upland cotton farms that have no upland cotton 
base acreage10, Brazil notes that the United States also provides information that is partially 
responsive to the questions proposed by Brazil.  In pa rticular, the table in Section VI.A.(c) of the U.S. 
First Written Submission11 provides information on the total number of upland cotton base and upland 
cotton planted acres on these farms.  This information, along with the limited information provided 
with respect to Category A farms, enables Brazil to  update Tables A-2, A-4 and A-5 of the original 
panel's report.12  However, the United States does not  provide information on the base and planted 
acreage of other covered commodities on these farms.   This makes it impossible for Brazil to update 
Table A-6 of the original panel's report.13  The United States also provides no information on the 
actual number of farms  in these categories. 
 
8. Finally, the United States does not provide information on direct and counter-cyclical payment units for each program crop and each category of farm.  9. In sum, the U.S. First Written Submission an swered some of the questions in Part A of 
Annex I to Brazil's 1 November Request.  This pa rtial response demonstrates that the United States 
has collected and compiled most, if not all, of the data necessary to fully respond to Brazil's 1 November Request.  Brazil, therefore, requests that the compliance Panel ask the United States to 
fully respond to Brazil's 1 November Request.    10. Specifically, Brazil identifies the questions th at it considers remain unanswered based on the 
data submitted by the United States as part of its First Written Submission.  For each of these 
questions, Brazil asks that the compliance Panel re quest the United States to provide annual data 
covering the period MY 2002-2005:  
(a) How many Category A farms were there in the period?  How many base acres were 
on Category A farms?  
 
(b) How many Category A-1 farms were there in the period?  How many base acres were 
on Category A-1 farms? 
 
                                                     
 
4 See Part A of Question 1(A) of Annex I of Brazil's 1 November 2006 Request.  
5 U.S. First Written Submission, para. 224. 
6 See Row 1 of the United States table at paragr aph 224 of the U.S. First Written Submission. 
7 See Part A, Question 1(A)(1) of Annex I of Brazil's 1 November 2006 Request. 
8 See Panel Report, U.S. – Upland Cotton , paras. 7.636 and 7.639. 
9 See Part A, Question 1(B) of Annex I of Brazil's 1 November 2006 Request. 
10 See Part A, Question 1(C) of Annex I of Brazil's 1 November 2006 Request. 
11 U.S. First Written Submission, para. 224. 
12 See Panel Report, U.S. – Upland Cotton , paras. 7.636, 7.639 and 7.641. 
13 See Panel Report, U.S. – Upland Cotton , para. 7.642. WT/DS267/RW  
Page D-20  
 
(c) How many Category B farms had equal numbers of acres planted to all covered 
commodities and base acres for all covered co mmodities?  Brazil refers to these as 
"Category B-1" farms.  What was the total of the base acreage of Category B-1 farms for each covered commodity, including uplan d cotton?  What was the total of the 
planted acreage of Category B-1 farms for each covered commodity, including 
upland cotton? 
 
(d) How many Category B farms had fewer acres planted to all covered commodities 
than base acres for all covered commodities?  Brazil refers to these as "Category B-2" 
farms.  How much was the total acreage of  Category B-2 farms pl anted to all covered 
commodities less than their base acreage for all covered commodities?  What was the 
total of the base acreage of Category B-2 farms for each covered commodity, including upland cotton?  What was the to tal of the planted acreage of Category B-2 
farms for each covered commodity, including upland cotton? 
 
(e) How many Category B farms had more acr es planted to all covered commodities than 
base acres for all covered commodities?  Brazil refers to these as "Category B-3" farms.  How much did the total acreage of Category B-3 farms planted to all covered 
commodities exceed their base acreage for a ll covered commodities?  What was the 
total of the base acreage of Category B-3 farms for each covered commodity, including upland cotton?  What was the to tal of the planted acreage of Category B-3 
farms for each covered commodity, including upland cotton? 
 
(f) How many Category C farms were there in the period?  What was the total of the 
base acreage of Category C farms for each covered commodity?  What was the total 
of the planted acreage of Category C farms for each covered commodity, including 
upland cotton?   
 
(g) What were the average counter-cyclical  payment yields for each program crop on 
each category of farm? 
  
 
  WT/DS267/RW 
 Page D-21  
 
 
ANNEX D-3 
 
RESPONSES OF THE UNITED STATES TO THE PANEL'S  
QUESTIONS ON THE DSU ARTICLE 13 ISSUE 
 
(19 January 2007) 
 
 
The United States is in receipt of the Panel's communication dated January 17, 2007, in which 
it poses questions to the parties regarding Brazil's N ovember 1, 2006, request that the Panel collect 
more than 35 different data items or documents pursuant to Article 13 of the Understanding on Rules 
and Procedures Governing the Settlement of Disputes ("DSU").  My authorities have instructed me to 
provide the following responses: 
 
Question 3  (to the United States) 
 
If the United States is of the view that the Panel should not pose to the United States any 
or all of the questions in Part  A of Brazil's 1 November request, please cite the reasons for that 
view.  
 Question 4
 (to the United States) 
 
If the United States is of the view that the United States cannot respond to any or all of 
the questions (or any part thereof) in Part A of  Brazil's 1 November request, please explain that 
view, bearing in mind the fact that the United States did provide the data to the original Panel. 
 
1. The Panel notes in its communication that, in  its rebuttal submission, Brazil reiterated its 
request that the Panel collect certain data and documents from the United States pursuant to 
Article 13.1 of the DSU.1  Brazil complains in that submission that the Panel does not have before it 
certain data collected by the original panel at Brazil's urging regarding farms that hold base acres 
under the counter-cyclical program and those farm s' planted acres for cotton and other program 
crops.2  However, Brazil's assertion is factually inco rrect as the United States submitted the relevant 
data as an exhibit to its first written submission.  
2. In Exhibit US-64, the United States submitte d precisely the same data in precisely the same 
format as that submitted in response to the original panel's Article 13 request.
3  Moreover, the 
United States explained in Annex I to its first wr itten submission how these data are relevant to the 
claims and arguments at hand.  Specifically, th e data fatally undermine the analysis of Brazil 
regarding the effects of the counter-cyclical payment program.4  Brazil has attempted to attribute an 
entirely exaggerated effect to the c ounter-cyclical program by speculating, inter alia , that restrictions 
on payments when fruits and vegetables are plante d on acreage in excess of a farm's non-base acres 
serve to funnel planting decisions towards uplan d cotton because fruits and vegetables are allegedly 
"the most relevant alternative in some major cotton areas."5  However, the empirical data requested by 
                                                      
1 January 17, 2007 Communication from the Panel. 
2 See Brazil Rebuttal Submission, para. 164. 
3 See Response of the United States to the Panel's Fe bruary 3, 2004, Data Request, As Clarified on 
February 16, 2004 (providing 8 data files via CD-ROM) (March 3, 2004). 
4 U.S. First Written Submission, Annex I, paras. 36-37. 
5 Brazil First Written Submission, Annex I, para. 63. WT/DS267/RW  
Page D-22  
 
Brazil and presented in Exhibit US-64 demonstrate that  Brazil's argument is pure speculation and contradicted by the facts.
6  
 3. The United States also notes that the Panel shoul d reject Brazil's argument for how the data in 
Exhibit US-64 should be used;  namely, to allo cate counter-cyclical payments for both cotton base 
acres and non-cotton base acres to upland co tton production using its self-titled "Brazil 
methodology."
7  This argument misrepresents the panel and Appellate Body's analyses in the original 
proceeding and ignores the resulting recommendations a nd rulings of the DSB.  First, this "Brazil 
methodology" was not applied in the context of the panel's assessment of significant price 
suppression, as Brazil has implied, and therefore neither the Panel's finding of serious prejudice, nor 
the resulting DSB recommendations and rulings, ex tended to counter-cyclical payments for non-
cotton base acres.8  Rather, as is clear from a review of Brazil's citations9, it was only addressed in the 
context of the original panel's analysis of  "support to a specific commodity" under Article 13(b) of the Agreement on Agriculture  (the "Peace Clause" analysis).  And, even in that context it was 
specifically rejected .  In fact, while Brazil touts the original panel's characterization of this 
methodology as "appropriate,"
10 that panel did not rely on the methodology in its Peace Clause 
analysis.11  Moreover, Brazil fails to mention that when it raised the methodology on appeal, the 
Appellate Body specifically indicated that the methodology was unacceptable:  
[W]e see little in the Panel's finding or on the record that would allow us to discern a link between the support-conferring measures with respect to non-cotton historical 
base acres and current production of upland cotton.  We do not, therefore, accept the 
methodology submitted by Brazil that included, in the Article 13(b)(ii) calculation, 
payments with respect to both cotton and non-cotton base acres flowing to current 
production of upland cotton.
12 
4. Thus, because "support-conferring measures with respect to non-cotton historical base acres" 
were not included in the support found to exceed the limitation in the Peace Clause proviso, such 
measures were exempt, by virtue of the Peace Clause, from actions, including Brazil's serious prejudice claims.  Therefore, there could have been no, and there were no, DSB recommendations and 
                                                     
 
6 Specifically, the ratio of upland cotton base acr es to planted acres on such farms was low (for 
example, only 32.7 percent in California), showing that there is no basis for the funneling effect claimed by 
Brazil.  Further, only about one third  of the acres planted to cotton in the historical "base" period were still 
planted to cotton in MY 2005.  Moreover, in those areas in  which fruits and vegetables are a viable alternative to 
cotton, substantial acreage was planted to fruits and vege tables on farms with upland cotton base acreage (for 
example, 600,000 acres in California and more than 1 million acres nationwide).  This too demonstrates that 
farmers do not feel compelled to plant cotton rather th an fruits and vegetables on these farms.  As the 
United States will explain in its forthcoming rebuttal subm ission, Brazil has no answer to these U.S. arguments. 
7 This is the methodology under which Brazil attempts to further exaggerate the amount of counter-
cyclical payments by including payments made in respect  of base acres for other pr ograms crops simply because 
they were made on farms on which the number of acres planted to cotton exceeded the number of upland cotton 
base acres held by the farm operator.  Brazil Rebuttal Submission, para. 171. 
8 See, e.g.,  Brazil's November 1, 2006 request, paras. 9-13.  Indeed, it is surprising that Brazil makes 
this argument given that it vehemently opposed any precise calculation of the subsidy in the context of the 
significant price suppression analysis (arguing that it was su fficient for the original panel to simply to find that 
the payments under the Step 2, marketing loan, and counter-cyclical payment programs were allegedly, 
respectively, "very large").  See, e.g., United States – Upland Cotton (AB) , paras. 98-99. 
9  Most of Brazil's citations in its November 1 re quest are to the following paragraphs:  7.608-7.633 
and 7.641-7.647.  These refer to the section of the original panel report entitled "Conclusion regarding 
Article 13(b)" and to an "Attachment to Section VII: D" (which is itself entitled "Domestic Support Measures 
and Article 13 of the Agreement on Agriculture ").  
10 See, e.g.,  Brazil Rebuttal Submission, para. 172. 
11 United States – Upland Cotton (Panel) , para. 7.580. 
12 United States – Upland Cotton (AB) , para. 380.  WT/DS267/RW 
 Page D-23  
 
 
rulings with respect to such measures, and counte r-cyclical payments for non-cotton base acres are not 
"measures taken to comply" within the meaning of DSU Article 21.5. 
 5. In sum, Brazil's renewed request in its rebutta l submission that the Panel collect the data items 
listed in Part A of Annex 1 of Braz il's November 1 request is moot since the United States has already 
provided the data for the period relevant to Brazi l's present serious prejudice claims.  Moreover, 
Brazil's arguments about the relevance of this inform ation are incorrect and misleading;  to the extent 
they are relevant, the data support the U.S. view.  In light of the foregoing, the United States respectfully requests the Panel to reject the renewed request.  
6. As the Panel has invited each of the parties to comment on any of the questions posed to the 
other party, the United States also provides the following brief comment relating to Question 1 directed to Brazil:  
Question 1
 (to Brazil) 
 
Does Brazil deem that the questions posed in Part B of Annex 1 of its request submitted 
on 1 November 2005 ("1 November request" hereafter) are now unnecessary?   
 
7. To date, Brazil has failed to provide any reason in its November 1 request, its first 
submission, or its rebuttal submission why the Pane l should collect the more than 25 items listed in 
Part B of Annex 1 of its November 1 request.  Nor has Brazil provided the type of item-by-item 
explanation that is needed for the Panel  to determine whether these items are indeed "necessary and 
appropriate" within the meaning of Article 13 of the DSU for the Panel's objective assessment of the 
evidence and arguments submitted by the parties.  Under these circumstances, there is no basis to 
grant Brazil's request.  
 
 WT/DS267/RW   
Page D-24  
 
ANNEX D-4 
 
COMMENTS OF BRAZIL ON  THE ORAL STATEMENTS 
OF THE UNITED STATES AT THE MEETING  
WITH THE PANEL 
 
(9 March 2007) 
 
 
TABLE OF CONTENTS 
Page  
 
LIST OF FIGURES AND TABLES   25 
LIST OF ABBREVIATIONS   26 
LIST OF EXHIBITS   27 
TABLE OF CASES   28 
1. I NTRODUCTION   29 
2. L OWER U.S.  EXPORTS IN MY  2006  ARE DRIVEN BY LOWER WORLD DEMAND , 
NOT THE ELIMINATION OF THE STEP 2 PROGRAM   30 
3. B RAZIL HAS NOT CHANGED ITS POSITION REGARDING THE CAUSE OF 
SIGNIFICANT PRICE SUPPRESSION   31 
4. A N ANALYSIS OF UPLAND COTTON VARIABLE COSTS AND RETURNS SUPPORTS 
BRAZIL ’S SERIOUS PREJUDICE CLAIMS   31 
5. C OMMENTS BY DANIEL SUMNER   41 
5.1. U.S. criticism:  "lacks cross-commodity impacts and cross-price 
elasticities, potentially leading to biased price effects"    41 
5.2. U.S. criticism:  "is static with no explicit relationship is for changes in 
cotton stock levels and no stock’s equations"    42 
5.3. U.S. criticism:  "contains foreign supply elasticities that are different 
from FAPRI that underestimate the response of foreign producers to changes in world prices"   
 42 
5.4. U.S. criticism:  "treats produc tion flexibility payments and direct 
payments differently even though they operate in the same way"    43 
5.5. U.S. criticism:  "incorporates step 2 payments directly into the producer 
retinal function as fully coupled payment"    43 
5.6. U.S. criticism:  "appears to igno re statutory parameters, for example by 
including countercyclical payment rates in each of the various price expectations that sometimes exceed statutory maximum.  The maximum 
countercyclical payment paid on 85 percent of pace and program yields 
cannot exceed 13.7 three cents.  Yet Dr. Sumner incorporates a value as high as 19.10 cents, which is 39 percent greater than the maximum allowed rate"   
 45 
 5.7. Conclusion    45 
6. C ONCLUSION   45 WT/DS267/RW 
 Page D-25 
 
 
LIST OF FIGURES AND TABLES 
 
Page  
 
Figure 7   – Expected Returns in Excess of th e Cash Costs of Growing Cotton, Corn or 
Soybeans on a Base Acre of Cotton in MY 2005   33 
Figure 8   –  Expected Returns in Excess of  the Cash Costs in MY 2005 with No Cotton 
Marketing Loan or CCP Subsidies   34 
Figure 9   –  Expected Returns in Excess of the Cash Costs of Growing Cotton, Corn or 
Soybeans on a Base Acre of Cotton in MY 2007  35 
Figure 10  –  Expected Returns in Excess of the Cash Costs in MY 2007 with No Cotton 
Marketing Loan and CCP Subsidies  36 
Figure 11  –  Average Actual Returns in Excess of the Average Cash Co sts Associated with 
Planting Cotton, Corn or Soybeans on an Cotton Base Acre in MY 2002-2006  37 
Figure 12  –  Average Actual Returns in Excess of the Average Cash Costs with No Cotton 
Marketing Loan or CCP Subsidies in MY 2002-2006  38 
Figure 13  –  U.S. Adoption of GE Cotton Varieties  40 
Figure 14  –  Simple Graphical Demonstration of the Equivalence of a Production or 
Demand Subsidy   44 WT/DS267/RW   
Page D-26  
 
LIST OF ABBREVIATIONS 
 
DSU  Understanding on Rules and Procedur es Governing the Settlement of Disputes 
FAPRI  Food and Agricultural Policy Research Institute FSRI Act Farm Security and Rural Investment Act of 2002 
ICAC  International Cotton Advisory Committee 
MY  Marketing Year 
SCM Agreement Agreement on Subsidies and Countervailing Measures 
U.S.  United States 
USDA  U.S. Department of Agriculture 
WTO  World Trade Organization 
  WT/DS267/RW 
 Page D-27 
 
 
LIST OF EXHIBITS 
U.S. Export Sales Data, accessed at www.fas.usda.gov/export-sales/h1404.htm  Exhibit Bra-663 
Monthly Export Sales Exhibit Bra-664 
Analysis of Planting Decisions Based on Expected  Returns and Cash  Costs Exhibit Bra-665 
Actual  Costs and Returns Analysis Based on Cash  Costs Exhibit Bra-666 
Expected Costs and Returns Using Variable Costs Exhibit Bra-667 
Actual Costs and Returns Using Variable Costs Exhibit Bra-668 
"Adoption of Genetically Engineered Cr ops in the U.S.:  Cotton Varieties," 
Economic Research Service, U.S. Depart ment of Agriculture, accessed March 2007 
at http://www.ers.usda.gov/data/biotechcrops/ExtentofAdoptionTable2.htm  Exhibit Bra-669 
 
 WT/DS267/RW   
Page D-28  
 
TABLE OF CASES 
Short Title Full Case Title and Citation 
Brazil – Aircraft (21.5) Appellate Body Report, Brazil – Export Financing Program for Aircraft
 – Recourse by Canada to Article 21.5 of the DSU , WT/DS46/AB/RW, adopted 
4 August 2000, DSR 2000:VIII, 4067. 
U.S. – FSC (21.5) 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, 55. 
U.S. – FSC (21.5 II) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW2, adopted 14 March 2006. 
U.S. – 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, 571.  WT/DS267/RW 
 Page D-29 
 
 
1. I NTRODUCTION  
 
1. Brazil thanks the compliance Panel for the opportunity to comment on the United States' 
Opening and Closing Statement at the Panel Meeting.  In this submission, Brazil comments on 
selected issues and arguments raised by the United St ates.  Brazil also refers the compliance Panel to 
its own Closing Statement at the Panel Meeting, in which Brazil responded to the majority of new 
U.S. arguments.   2. Specifically, in its Closing Statement, Brazil made, inter alia , the following points in response 
to U.S. adverse effects-related arguments: 
 
 
• Mandatory and price-contingent marketi ng loan and counter-cyclical subsidies 
granted subsequent to the original panel' s reference period are properly before this 
compliance Panel.1 
 
 • Brazil's argument that there is a rapid tran smission of prices in an integrated world 
market is consistent with the fact that farmers outside the United States react more 
slowly to higher prices from the elimination of U.S. subsidies.2 
 
 • The fact that the average acre planted to  upland cotton covered its production costs 
with market returns in MY 2003 was an aberration.3 
 
 • Brazil has demonstrated that the world market price-suppressing effects from 
marketing loan and counter-cyclical subsidies are "significant."4  
 
3. Additionally, in its Closing Statement, Braz il made the following points in response to the 
U.S. export credit guarantee-related ("ECG") arguments:  
 
• The amended GSM 102 program does not meet its long-term costs and losses, under 
item (j) of the Illustrative List.  The U.S. government continues, every year, to project 
that GSM 102 ECGs issued in that year will result in losses.5 
 
 • Even if the GSM 102 program meets its long-term operating costs and losses, within 
the meaning of item (j), this does not, under the proper interpretation of footnote 5 to 
the SCM Agreement, "demonstrate[] dis positively" that GSM 102 ECGs are not 
export subsidies.6 
 
 • Even if the GSM 102 program meets its long-term operating costs and losses, the 
United States has failed to achieve "full withdrawal" of the prohibited subsidy, 
instead merely replacing it with another pr ohibited subsidy.  Specifically, under the 
amended fee schedule, GSM 102 ECGs are export-contingent contributions that 
confer "benefits".7 
 
                                                      
1 Brazil's Closing Statement, paras. 2-4. 
2 Brazil's Closing Statement, paras. 5-8. 
3 Brazil's Closing Statement, paras. 15-16. 
4 Brazil's Closing Statement, paras. 17-20. 
5 Brazil's Closing Statement, paras. 21-22. 
6 Brazil's Closing Statement, para. 24, quoting  U.S. Oral Statement, heading III.A.1. 
7 Brazil's Closing Statement, paras. 25-27, quoting  Appellate Body Report, U.S. – FSC (21.5 II) , 
para. 83. WT/DS267/RW   
Page D-30  
 
 
• Article 14(c) of the SCM Agreement sets forth only "guidelines" that the Appellate 
Body, at the United States' urging, has concluded must not be followed rigidly, even 
in countervailing measure disputes to which the provision expressly applies.8 
 
 • By continuing to pay claims on certain ECGs outstanding on 1 July 2005,  the United 
States has failed to "withdraw the subsidy" , under the interpretation of that phrase 
made by the Appellate Body.9 
 4. Brazil will not revisit these points, but w ill instead address a number of additional adverse 
effects-related issues raised in the United States' Op ening and Closing Statements.  In this submission, 
Brazil does not offer any additional comments on ECG-related issues raised in the United States' 
Opening and Closing Statements.  
2. L
OWER U.S.  EXPORTS IN MY  2006  ARE DRIVEN BY LOWER WORLD DEMAND , NOT THE 
ELIMINATION OF THE STEP 2 PROGRAM  
 
5. The United States continues to argue that the elimination of the Step 2 program caused the 
decrease in U.S. upland cotton exports in MY 2006.10  As explained in Brazil's Closing Statement, 
this is inaccurate.11   
 
6. The United States has provided weekly February export data to show that the repeal of the 
Step 2 program has resulted in a decline in exports.  By comparing MY 2006 to MY 2005, the United States claims that "U.S. exports are down 30 per cent ".
12  However, the United States fails to mention 
that exports surged prior  to the repeal of the Step 2 program.  Data shows that prior to the elimination 
of Step 2 subsidies, sales were at their second highest level for the MY 2002-2007 period.13  
Considering the average of the two months prior to  the repeal of Step 2 subsidies (June-July 2006) 
and the two subsequent months (A ugust-September 2006), reveals that exports fell by 85 per cent.  In 
other words, they were 7 times less.14  Brazil also notes that during the two months prior to the 
elimination of Step 2 subsidies, U.S. exports we re close to double their av erage over the previous 
five- marketing years (MY 2000-2004).15  One consequence of these massive sales in MY 2005 is a 
subsequent decline in exports in MY  2006.  This is consis tent with the attempt by  rational exporters to 
cash in the last available Step 2 payments.  7. During the first weeks of calendar year 2007, i.e., half-way through MY 2006, data on U.S. 
exports continues to show lower sales.  The United Stat es attributes this to the elimination of Step 2.  
A close analysis of world trade however provides a different explanation.  In fact, all major cotton 
exporters, with the exception of India, ha ve seen their exports decline in MY 2006.
16  The primary 
reason for this decline is weak international dema nd.  As Brazil has repeatedly shown by providing 
market reports, China, the biggest importer, is usi ng up "a large supply of cotton imported prior to the 
                                                      
8 Brazil's Closing Statement, paras. 28-29, citing  Appellate Body Report, U.S. – Softwood Lumber IV , 
para. 92. 
9 Brazil's Closing Statement, para. 30, citing  Appellate Body Report, U.S. – FSC (21.5) , 
paras. 2, 223-231, and Appellate Body Report, Brazil – Aircraft (21.5) , para. 45. 
10 Brazil notes that the United States fails to provide the source for some of its data ( See, e.g., U.S. Oral 
Statement, para. 11) or does not provide the link to its data ( See, e.g., U.S. Oral Statement, para. 10.). 
11 Brazil's Closing Statement, para. 11.  
12 U.S. Oral Statement, para. 10. 
13 Exhibit Bra-663 (U.S. Export Sales Data, acce ssed at www.fas.usda.gov/ export-sales /h1404.htm ). 
14 Exhibit Bra-664 (Monthly Export Sales). 
15 Exhibit Bra-664 (Monthly Export Sales). 
16 Exhibit Bra-652 (International Cotton Advisory Committee Review, Volume 60, Number 3 January-
February 2007, accessed February 2007, p. 4).    WT/DS267/RW 
 Page D-31 
 
 
expiration of the Step 2 program."17  Increasing Indian exports have added to export declines in the 
United States and other exporting countries.18  These undisputed facts largely explain the decline in 
the U.S. share of Chinese imports and in the U.S. share of world exports.19  
 8. Moreover, the reduction in U.S. exports must be viewed in perspective.  Brazil notes that 
USDA (and ICAC) currently project U.S. exports in MY 2006 to be the second highest in history  and 
comparable to MY 2004 levels.
20  In addition, projections for MY 2007 and 2008 show an expected 
annual increase of almost 10 percent compared to MY 2006 and 2007, respectively.21  
 9. Thus, the present decline in U.S. share of exports is not
 a result of Step 2 elimination but a 
result of overall declining world trade.   
 
3. B RAZIL HAS NOT CHANGED ITS POSITION REGARDING THE CAUSE OF SIGNIFICANT 
PRICE SUPPRESSION  
 
10. The United States claims that Brazil has shifted position from asserting that exports  cause 
price suppression, to asserting that stocks and production  cause price suppression.  Moreover, the 
United States asserts that it is "too late … to be a ltering fundamental factors" and that Brazil submits 
"no evidence or argument to substantiate its new assertion."22  These U.S. claims are false.   
 
11. Brazil has not changed its position.  Productio n, stocks and exports are interlinked – all 
constitute supply;  any supply not consumed  domestically must eventually be exported.23  Indeed, this 
is a question of basic economics.  Whether U.S. supply – generated by U.S. subsidies – ends up 
temporarily in a warehouse, or is exported immedi ately, this excess supply suppresses world market 
prices.  In his Oral Statement during the Pane l Meeting, Andrew Macdonald confirmed this 
relationship.24   
 12. In its Oral Statement, the United States not ed that domestic U.S. mill use for MY 2006 is 
decreasing.
25  This lack of domestic demand for U.S. supply also contributes to the accumulation of 
stocks of subsidy-generated U.S. upland cotton that will eventually be exported.  Again, whether U.S. 
supply resulting from subsidized produc tion is exported immediately, or  ends up temporarily as stocks 
and is exported later, it affects, and in fact  suppresses, world market prices for upland cotton. 
 
4. A N ANALYSIS OF UPLAND COTTON VARIABLE COSTS AND RETURNS SUPPORTS BRAZIL 'S 
SERIOUS PREJUDICE CLAIMS  
 
13. Next, Brazil addresses U.S. arguments regardi ng the "expected" and "actual" total costs and 
return charts presented in Brazil's Oral Statement.   These charts visually illustrate two effects of 
upland cotton marketing loan and counter-cyclical subsidies.26  First, the charts show that marketing 
loan and counter-cyclical subsidies are essential for upland cotton farmers to be able to cover their 
                                                      
17 Exhibit Bra-662 (Elton Robinson, "High certificated cotton stocks slow trade, weigh on prices," 
Delta Farm Press, 1 December 2006, accessed February 2007 at 
http://deltafarmpress.com/mag/farming_high_certificated_cotton/ ).  
18 Exhibit Bra-652 (International Cotton Advisory Committee Review, Volume 60, Number 3 January-
February 2007, accessed February 2007, p. 4). 
19 U.S. Oral Statement, paras. 10-11. 
20 Exhibit Bra-651 (Cotton and Wool  Outlook, USDA, 12 February 2007 , p. 4, accessed February 2007 
at http://usda.mannlib.cornell.edu/usda/current/CWS/CWS-02-12-2007.pdf ). 
21 Exhibit Bra-635 (2002-2007 USDA Agri cultural Baseline Projections, p. 46). 
22 U.S. Closing Statement, para. 15. 
23 Brazil's Closing Statement, paras. 9-14. 
24 See Brazil's Oral Statement, paras. 147, 160-162. 
25 U.S. Oral Statement, para. 11. 
26 Brazil's Oral Statement, paras. 63-78. WT/DS267/RW   
Page D-32  
 
costs of production and stay in the business of growing upland cotton.  Market revenue by itself is almost never sufficient, nor is it e xpected to be sufficient, to cover total costs.  Further, expected and 
actual market revenue is below or just above average variable  costs in a number of years, suggesting 
that many upland cotton farmers would exit cott on faming without marketing loan and counter-
cyclical subsidies even in the short term.  Si milar evidence on the gap between U.S. upland cotton 
producers production costs and market returns has been presented in Brazil's First Written 
Submission
27, Rebuttal Submission28 and Oral Statement.29    
 14. Second, the charts in Brazil's Oral Statement show that upland cotton farmers would exit upland cotton production by switching to the production of alternative crops but for the effect of 
marketing loan and counter-cyclical subsidies.  Absent those subsidies, expected returns from 
growing corn or soybeans in almost every year make it more attractive to grow one of these alternative crops.  This evidence re sponds to U.S. criticisms that Br ail has not properly examined the 
relative attractiveness of competing crops at the time of planting.
30 
 
15. In its Oral Statement, the United States asserte d that variable costs and market returns are the 
determinative factors driving farmers' year-to-year planting decisions.31  Yet, during the second day of 
the Panel Meeting and in its Closing Statement, th e United States admitted that certain fixed costs, 
including those that are "cash costs,"32 are also pertinent to planting decisions.33  Indeed, the second 
U.S. chart in the "U.S. Exhibit of February, 28 2007," entitled "Costs of producing cotton," includes variable and fixed costs that constitute cash costs.   It excludes land, own-labour and capital recovery 
costs.  However, these non-cash costs
34 account for almost 30 percent of the total cost of producing 
cotton.35   
 16. Brazil also notes that the first chart in the "U .S. Exhibit of February, 28 2007" is based on 
actual  costs and actual market returns as realized in marketi ng year 2005.  Brazil is puzzled that the 
United States presents a chart of actual  returns minus cash costs, when , in the words of the United 
States, a farmer "cannot rewind time and make di fferent production decisions based on how things 
actually turn out."
36  In other words, it is costs and expected returns at the time of planting that provide 
one useful means to assess the impact of marketing loan and counter-cyclical subsidies.  This is the 
approach that Brazil has followed in figures 1-4 of its Oral Statement,    
17. In any event, farmers can only survive by  seeking to maximize their market and subsidy 
returns over total costs, including cash and imputed costs, when making planting decisions.  
Nevertheless, comparing total costs, variable costs or  even cash costs to expect ed market returns leads 
                                                     
 
27 Section 7.11 of Brazil's First Wr itten Submission, paras. 156-164. 
28 Section 2.3.6 of Brazil's Rebuttal Submission, paras. 245-289. 
29 Section 2.4 of Brazil's Oral  Statement, paras. 54-91. 
30 See U.S. First Written Submission para. 255.  See also  U.S. Rebuttal Submission, paras. 269, 275, 
300-301. 
31 U.S. Oral Statement, paras. 12 and 73. 
32 According to The Commodity Costs and Returns Estimation Handbook  "cash costs are costs that 
require a cash payment at the time the transaction occurs or during a spec ified reported period such as a week or 
month." See Exhibit Bra-649 ("Conceptual I ssues in Cost and Return Estimates," Chapter 2 of Commodity 
Costs and Returns Estimation Handbook, a report of the AAEA Task Force on Commodity Costs and Returns). 
33 See U.S. Exhibit of February 28, 2007.  In this exhibit, the United States compares cash costs and 
actual market returns of growing upland cotton, corn and soybeans in MY 2005.  According to the United 
States, cash costs include operating costs, hired labour, taxes, insurance and general overhead.  See also  U.S. 
Closing Statement, para. 17.  
34 Brazil notes that land is only a non-cash cost to th e extent it is owned by the farm operator.  Rented 
land is a cash cost. 
35 Exhibit Bra-648 (Actual Costs and Returns Analysis). 
36 U.S. Oral Statement, paras. 4 and 65.  WT/DS267/RW 
 Page D-33 
 
 
to the same basic conclusion:  planting upland co tton without marketing loan and counter-cyclical 
payments would be economically irrational.    18. This irrationality is seen even when examini ng "cash costs," as identified by the United States 
in the U.S. Exhibit presented on 28 February 2007, compared to expected  as well as actual  revenue.  
Based on the relevant USDA and FAPRI data found in the attached exhibits, Figures 7 through 12, 
below, are based on cash costs, but conceptually mirror figures 1 through 6, respectively, of Brazil's 
Oral Statement, which were based on total cost.   
 
Figure 7 – Expected Returns
 in Excess of the Cash Costs  of Growing Cotton,  
Corn or Soybeans on a Base Acre of Cotton in MY 200537 
 
Corn
Soybeans
CottonNo SubsidiesMLML, Cotton CCP ML, Cotton CCP & DP
-$50$0$50$100$150$200$250dollars per acre
 
 
19. Figure 7 demonstrates that in MY 2005 the average acre planted to upland cotton did not 
expect to be able to cover its cash costs with market revenue.  Producing corn and soybeans, on the 
other hand, was expected to yield market  returns well in excess of cash costs ( see first row in red).  
However, when expected marketing loan subsidi es are factored into farmers' expectations, the 
expected returns in excess of  cash costs are nearly equalized for all three crops ( see second row in 
yellow).    
                                                     
 
37 Exhibit Bra-665 (Analysis of Planting Decisions Based on Expected  Returns and Cash  Costs). WT/DS267/RW   
Page D-34  
 
Figure 8 – Expected Returns
 in Excess of the Cash Costs  in MY 2005  
with No Cotton Marketing Loan or CCP Subsidies38 
 
Corn
Soybeans
CottonML, Cotton DP$0$20$40$60$80$100$120$140$160dollars per acre
 
 
20. As depicted in figure 8, if upland cotton mark eting loan and counter-cyc lical subsidies did not 
exist in MY 2005, expected returns in excess of cas h costs for soybeans and corn would have been 
much higher than for upland cotton, suggesting th at many farmers would have switched to the 
production of alternative crops.  
                                                     
 
38 Exhibit Bra-665 (Analysis of Planting Decisions Based on Expected  Returns and Cash  Costs).  WT/DS267/RW 
 Page D-35 
 
 
Figure 9- Expected Returns  in Excess of the Cash Costs  of Growing Cotton,  
Corn or Soybeans on a Base Acre of Cotton in MY 200739 
 
Corn
Soybeans
CottonNo SubsidiesMLML, Cotton CCP ML, Cotton CCP & DP
$0$50$100$150$200$250$300$350$400$450dollars per acre
 
 
21. The first row of figure 9 shows that market returns in excess of cash costs are expected in 
February 2007 to be nearly five times higher for co rn than for cotton and n early three times higher for 
soybeans than for upland cotton in MY 2007.  Considering only market returns, it would be very surprising if upland cotto n acreage declined by only 14 percent in MY 2007, as predicted by the 
National Cotton Council.
40  However, when marketing loan su bsidies are factored into farmers' 
expectations, returns for upland cotton are expected  to be almost as high as those for soybeans and 
just 40 percent less than returns for corn.41  Viewed in this context, it makes sense that only 14 percent 
of upland cotton acres switched to alternative crops.  
                                                     
 
39 Exhibit Bra-665 (Analysis of Planting Decisions Based on Expected  Returns and Cash  Costs). 
40 Exhibit Bra-646 (Planting Intentions Survey, National Cotton Council).  
41 Exhibit Bra-665 (Analysis of Planting Decisions Based on Expected  Returns and Cash  Costs). WT/DS267/RW   
Page D-36  
 
Figure 10 – Expected Returns
 in Excess of the Cash Costs  in MY 2007  
with No Cotton Marketing Loan and CCP Subsidies42 
 
Corn
Soybeans
CottonML, Cotton DP$0$50$100$150$200$250$300$350$400dollars per acre
 
 
22. Figure 10 summarizes the planting decision fo r an acre of upland cotton base in February 
2007 in the absence of upland cotton marketing loan a nd counter-cyclical subsidies.  It again suggests 
that more than 14 percent of upland cotton acreage w ould switch to alternative crops in the absence of 
these subsidies.   
23. As were figures 5 and 6 in Brazil's Oral Statement, the following figures 11 and 12 are based 
on actual market returns:  
                                                     
 
42 Exhibit Bra-665 (Analysis of Planting Decisions Based on Expected  Returns and Cash  Costs).  WT/DS267/RW 
 Page D-37 
 
 
Figure 11 – Average Actual Returns  in Excess of the Average Cash Costs   
Associated with Planting Cotton, Corn or Soybeans on an Cotton Base  
Acre in MY 2002-200643 
 
Corn
Soybeans
CottonNo SubsidiesML ML, Cotton CCPML, Cotton CCP & DP
$0$50$100$150$200$250$300dollars per acre
 
 
24. Figure 11 illustrates what actually happened between MY 2002 and 2006.  The chart shows 
that actual market returns in ex cess of cash costs for upland cotton we re far less than those for corn 
and soybeans.  However, when upland cotton market ing loan subsidies are taken into account, returns 
in excess of cash costs were higher for upland cotton than for soybeans, and only slightly lower than 
for corn.  
 
                                                      
43 Exhibit Bra-666 (Actual  Costs and Returns Analysis Based on Cash  Costs). WT/DS267/RW   
Page D-38  
 
Figure 12 – Average Actual Returns
 in Excess of the Average Cash Costs   
with No Cotton Marketing Loan or CCP Subsidies in MY 2002-200644 
 
Corn
Soybeans
CottonML, Cotton DP$0$50$100$150$200$250dollars per acre
 
 
25. Figure 12 illustrates that absent upland cotton marketing loan and counter-cyclical payments, 
growing corn or soybeans on an upland cotton base acre would have been more profitable.  Similar to 
Brazil's figure 6 presented as part of its Oral Statem ent, and based on total costs, these charts based in 
cash costs continue to show that planting soyb eans and corn on upland cotton base acres would be 
attractive without price-contingent upland cotton subsidies.   
 
26. This evidence shows that the effect of mark eting loan and counter-cyclical subsidies is to 
provide strong financial incentives to maintain upla nd cotton acreage – even in the unlikely event that 
farmers only consider variable or cash costs when making planting decisions.  But for the marketing 
loan and counter-cyclical payments for upland co tton, it would be far more profitable for upland 
cotton farmers, on average, to plant corn or soybeans.  Thus, as Brazil indicated during the Panel 
Meeting, the usefulness of the comparisons based on total costs presented in figures 1-6 as part of its 
Oral Statement is not diminished by the use of cash costs in figures 7-12 above.  Removing non-cash 
costs45 changes the level of expected or actual market returns minus costs, but does not change the 
relative attractiveness of producing corn or soybean s – as compared to upland cotton – on a base acre 
of upland cotton.   
 
                                                      
44 Exhibit Bra-666 (Actual  Costs and Returns Analysis Based on Cash  Costs). 
45 According to The Commodity Costs and Returns Estimation Handbook  "noncash costs are those in 
which the timing of the physical use of resources and the cash payments differs." See Exhibit Bra-649 
("Conceptual Issues in Cost and Return Estimates," Chapter 2 of Commodity Costs and Returns Estimation 
Handbook, a report of the AAEA Task Force on Commodity Costs and Returns).  WT/DS267/RW 
 Page D-39 
 
 
27. Analyzing actual and expected returns in excess of variable (as opposed to only cash) costs46 
yields a similar result.  Removing fixed costs changes the level of returns minus costs, but not the relative attractiveness of growing cotton, corn or soybeans on a base acre of upland cotton.  Exhibit 
Bra-667 provides a complete comparison of expected returns
 in excess of variable costs in 
MY 2002-2007.  Exhibit Bra-668 provides a comparison of actual returns  in excess of variable 
costs.47   
 28. The United States presented a number of other misleading arguments about U.S. upland cotton costs and returns in its Op ening Statement.  The United States argued that an examination of 
costs and returns in MY 2003 demonstrates that 92 pe rcent of upland cotton farmers are able to cover 
their variable and total costs of production.
48  As Brazil explained in its Opening Statement49, Closing 
Statement50 and in response to oral questions from the compliance Panel, this assertion is misleading, 
and to some extent simply incorrect.    29. First, it is important to un derstand that the allegedly "new" cost information broken down by 
costs groups
51 (i.e., low-, mid- and high-cost producers) is based on the same  underlying survey data 
presented in Brazil's First Written Submission and u sed by Brazil in subsequent submissions and 
statements.52  It is not "new," but instead an elaboration of USDA data that Brazil has relied upon 
throughout this proceeding.  In fact, the "new" gr ouping of farms into those that are low-cost, mid-
cost and high-cost is somewhat arbitrary.  Brazi l has long maintained that upland cotton producers' 
costs are not uniform.53  It is entirely unremarkable that some farmers have a lower cost structure than 
others.   
 30. However, the critical flaw in the United States reliance on the "new" cost information is that it 
pertains to MY 2003, a year in which cotton prices we re the highest they have been in the past ten 
years.  Concluding that upland cotton farmers are ge nerally able to cover their costs with market 
revenue based on market returns in MY 2003 is misl eading and incorrect.  In the past eight years, 
MY 2003 is the only year in which the average acre planted to upland cotton was able to cover its 
total costs of production.   31. The United States also claims  that a fundamental shift occurred in the production costs of 
U.S. upland cotton farmers.  One reason cited by the United States is the adoption of genetically 
engineered ("GE") cotton seeds.  However, an exam ination of the rate of adoption of GE varieties 
shows that this argument, once again, is incorrect.         
                                                     
 
46 Variable costs include operating, land and labour costs.  See, inter alia , Brazil's Rebuttal Submission, 
Sections 2.3 and 6.2. 
47 Brazil notes that the excel files in Exhibits Bra-634, 648, 665, 666, 667 and 668 easily permit an 
alteration of the "cost" to which market and subsidy returns are compared.  The cells in the row entitled "No 
subsidies" in the first three worksheets can be changed to reflect different cost concepts .  The charts in the later 
worksheets of the excel file will automatically update to reflect the new cost concept.  
48 U.S. Oral Statement, paras. 11 and 72. 
49 Brazil's Oral Statement, para. 84. 
50 Brazil's Closing Statement, paras. 15-16. 
51 Exhibit U.S.-93 (WTO Confidential). 
52 See Section 7.11 of Brazil's First Written Submission;  Section 2.3.6 of Brazil's Rebuttal Submission;  
and  Section 2.4 of Brazil's Oral Statement.  
53 See, e.g. , Brazil's Rebuttal Submission, paras. 267-272;  Brazil's Oral Statement, para. 85. WT/DS267/RW   
Page D-40  
 
Figure 13 – U.S. Adoption of GE Cotton Varieties
54 
 
0102030405060708090
2000 2001 2002 2003 2004 2005 2006
marketing yearPercentage
 
 
32. The chart based on USDA data shows that th e adoption of GE varieties increased from 71 
percent in 2002 to 79 percent MY 2005, hardly a dramatic shift.  Furthe r, while GE varieties 
undoubtedly raise yields (and thus lower per-acre costs) , they also increase the co st of seed, as seen in 
USDA's new cost survey of MY 2003.  In any event,  all of these developments are already reflected in 
the USDA's costs and return data relied upon by Brazil and the United States. 
 
33. Moreover, the United States implies that the average profit made by upland cotton farmers in 
MY 2003 and the small loss in MY 2004 is the beginning of a dramatic new trend.  It is not.  High 
prices in MY 2003 allowed upland cotton farmers to c over their total costs for the first time in six 
years.  Record high yields and a relatively high harv est price (despite lower prices in the subsequent 
marketing year) enabled upland cotton farmers to al most cover their costs in MY 2004.  Yet, in 
MY 2005, despite another year of abnormally high  yields, the average gap between total costs and 
market returns widened to $80 per acre.  With lower yields and stagnant prices in MY 2006, the gap is 
expected to grow even wider.55  Further, projections of future costs and market prices by USDA and 
FAPRI suggest that the gap between total co sts and returns will continue indefinitely.56   
 
34. In sum, the upland cotton cost and return s analysis presented by Brazil demonstrates that 
marketing loan and counter-cyclical subsidies have  played a decisive role in U.S. upland cotton 
producers' ability to grow upland cotton profitably.  
                                                     
 
54 Exhibit Bra-669 ("Adoption of Genetically Engi neered Crops in the U.S.:  Cotton Varieties," 
Economic Research Service, U.S. Departme nt of Agriculture, accessed March 2007 at 
http://www.ers.usda.gov/data/biotechcrops/ExtentofAdoptionTable2.htm ).  
55 Exhibit Bra-648 (Actual Costs and Returns Analysis). 
56 See, e.g., Brazil's First Written Submission, Figure 28 at para. 292.  WT/DS267/RW 
 Page D-41 
 
 
5. C OMMENTS BY DANIEL SUMNER  
 
35. In this Section, Brazil presents the comments of Professor Sumner on the U.S. critique of his analysis, presented by Dr. Glauber:   
 
36. In several documents, including the statement of Dr. Glauber
57, the United States lists what it 
identifies as "key problem with Brazil's new model. "  This same list appears in the U.S. Rebuttal 
Submission58 and in U.S. responses to ques tions of the compliance Panel.59  I have dealt with each of 
the issues listed by the United St ates in earlier documents.  Some of the issues were discussed further 
at the Panel Meeting.  My comments below summ arize the main points with reference to floor 
discussion at the Panel Meeting and to earlier documents.  37. I respond to the claims of the United States in  the order in which they appear in the U.S. 
Opening Statement.
60 
 
5.1. U.S. criticism:  "lacks cross-commodi ty impacts and cross-price elasticities, 
potentially leading to biased price effects"61 
 38. The United States is simply wrong on this point.  My model fully accounts for cross-commodity feedbacks to the cotton supply function that are relevant to assessing the impact of the 
removal of U.S. subsidy programs.  It does so ba sed on the U.S. supply elasticity parameter that I 
apply.  Of course, my model does not explicitly address the effect of removing cotton subsidies on, 
for example, corn or hay acreage, because reporting tho se effects is not relevant to this proceeding.  
To include explicit cross-commodity impacts and cr oss-price elasticities in the model would only be 
justified if one has a policy interest in these othe r commodities.  Yet, the impact of removing cotton 
subsidies on corn or hay acreage in the United States is  not at issue before this compliance Panel.     
 39. The United States argues that leaving out these cross-commodity impacts and elasticities 
could "potentially" lead to bias.  However, the only way that leaving out these extraneous equations 
could lead to "bias" with respect  to the price effects for cotton is if the model used failed to 
incorporate feedbacks from induced  changes in other crop prices on upland cotton supply.  However, 
my model uses a supply elasticity that fully account s for the feedback effects.  This point was 
explicitly and clearly raised and discussed in my Annex I analysis.
62  I also discussed the issue more 
fully and provided citations in my rebuttal comments.63  Finally, I reviewed these previous discussions 
in my supplemental statement submitted as Exhibit Bra-659.    
40. While it is easy to make models more complic ated, complications for their own sake are just a 
sign of poor modeling and a lack of understanding of the reason that models are created in the first 
place.  The continued repetition of this claim by the United States, with no acknowledgment or 
engagement on the issue should not mislead the comp liance Panel.  The use of general equilibrium 
supply elasticities, such as the one I apply to my model, is well-known and well-established among 
modelers.  There is no ambiguity on this point.   
 
                                                     
 
57 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
58 U.S. Rebuttal Submission, Annex I, para. 4.   
59 U.S. Response to Questions of the Panel, Parts D-E, 27 February 2007, para. 35. 
60 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
61 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
62 "Analysis of Effects of U.S. Upland Cotton Su bsidies on Upland Cotton Prices and Quantities by 
Daniel A. Sumner," Annex I, Brazil' s First Written Submission, para. 17. 
63 "Response to the Submission of the United States titled ‘Annex I:  A Review of the Simulation 
Analysis Presented by Dr. Sumner,'" Brazil's Rebuttal Submission, Annex I, paras. 14-17. WT/DS267/RW   
Page D-42  
 
5.2. U.S. criticism:  "is static with no ex plicit relationship for changes in cotton stock 
levels and no stock's equations"
64 
 
41. Once again, the United States asserts that  the model should have been made more 
complicated simply for the sake of complicati ons.  The United States does not indicate why a 
"dynamic" model with respect to cotton stocks would be useful in this case.  Certainly there are cotton 
stock fluctuations from month-to-month and year-t o-year, just as there are weather events and 
consumer trends in textile demand.  The existen ce of stock fluctuations does not imply that such 
changes in stocks would be induced by the kind of policy changes under consideration here. 
 
42. While, one could create a complicated model designed to account for these extraneous events 
or trends, such a model would not improve our ability to understand the effect of U.S. cotton 
subsidies.  Indeed, introducing unnecessary complica tions serves only to make a model unwieldy and 
is likely to introduce unknown biases because it becom es impossible to trace clearly the effects of 
policy change. 
 
43. In its reparameterization of my model, th e United States simply uses a very large price 
elasticity of demand for cotton in the short run.  This  is a mistake.  Stocks respond in the short run to 
unanticipated, temporary fluctuations in price, as firms liquidate stocks when prices are high in order 
to rebuild stocks when prices are low.  Modeling endogenous stockholding may be valuable for some 
applications, but not for modeling policy changes th at are fully anticipated and expected to be 
permanent.   
 44. Furthermore, as I explain more fully in the supplemental statement submitted as 
Exhibit Bra-659, the econometric exercise used to create the so-called stocks demand elasticity 
referred to by the United States is based on data from small year-to-year fluctuations in cotton stocks 
and cotton prices.  The policy experiment we are cons idering here is far outside the range of the data 
used to create the estimates used by the United States.  More importantly, the policy experiment we 
are considering here is conceptua lly different from the kinds of pri ce fluctuations used to generate 
stock changes in the statistical ex ercise relied on by the United States. 
 
5.3. U.S. criticism:  "contains foreign supply elasticities that are different from 
FAPRI that underestimate the response of foreign producers to changes in world 
prices"
65 
 
45. I have devoted many pages to explaining the reasons for the parameter choices that are most 
appropriate for application in my model to estimate  the effects of removing U.S. cotton subsidies on 
cotton market prices and quantities.  An initial discu ssion appeared in my original Annex I analysis66 
and I included more discussion in my supplemental statement in Exhibit Bra-659.  FAPRI estimates of this parameter tend to overestimate the degree of supply response to world market price changes 
that would be generated by a reduction in or elimination of U.S. cotton subsidies. 
 46. Anticipated and permanent removal of U.S. cotton subsidies would cause a substantial initial 
decline in U.S. cotton acreage and production.  The reduced production and exports from the United 
States would cause higher world market prices for cott on.  Foreign producers would respond to that 
higher world market price gradually and in a mute d fashion.  There are several reasons for this 
gradual and muted response:  (i) the degree of pr ice increase would not be known with certainty;  
(ii) the price received by many growers would fail to fully reflect the price change in the world 
market;  and (iii) many growers have a limited ability to expand cotton acreage in the short run.  
                                                     
 
64 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
65 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
66 "Analysis of Effects of U.S. Upland Cotton Su bsidies on Upland Cotton Prices and Quantities by 
Daniel A. Sumner," Annex I, Brazil's First Written Submission, paras. 20-24.  WT/DS267/RW 
 Page D-43 
 
 
I explain these points more fully in my original Annex I analysis67 and in subsequent documentation.68  
The United States may disagree but has provided no r easoning or evidence, other than the claim that 
FAPRI uses a different parameter value.  That do es not constitute a "key problem" with my model. 
 
5.4. U.S. criticism:  "treats production flexibility payments and direct payments 
differently even though they operate in the same way"69 
 47. This is a puzzling claim.  Production flex ibility payments applied during the period MY 1996 
to 2001, and were replaced by direct payments under the provisions of the FSRI Act of 2002.  Both 
payment programs enter the cotton supply function as a partially coupled sour ce of revenue.  The only 
difference in the treatment of th e two programs is that I use a sm aller coupling factor for production 
flexibility payments than I use for direct payments.  48. Throughout my analysis, going back to my an alysis presented to the original panel in 2003, 
I explained carefully why direct payments provi de larger production incentives than did production 
flexibility payments.  I used a coupling factor of 0.15 for production flexibility payments and a 
coupling factor of 0.25 for direct payments.  The main reason for the higher coupling factor for direct payments is that the FSRI Act of 2002 allowed pr oducers to update their payment base for direct 
payments.  This update of base acres has two effects.  First, it tied the direct payments more closely to 
the actual acreage used for cotton production.  S econd, it enhanced growers' perceptions of the 
likelihood of future base acre updates, which is  a major contributor to the production incentives 
inherent in so-called decoupled payments.  I deal with this issue more fully in my 2003 article in the  
Australian Journal of Agricu ltural and Resource Economics .
70 
 49. For the purposes of this proceeding, it is also worth reminding ourselves that production flexibility payments were discontinued in 2001 and, therefore, play little, if any, role in the results of 
my analysis that are relevant for the compliance Panel's assessment. 
 
5.5. U.S. criticism:  "incorporates step 2 payments directly into the producer retinal 
function as fully coupled payment"
71 
 
50. This is not a problem in my model and raisi ng this issue suggests that the United States fails 
to understand some basic microeconomic principles.   
 51. As I explain in my Annex I analysis
72, basic microeconomic analysis  confirms that taxes or 
subsidies applied to buyers or sellers may be an alyzed as either consumer subsidies or producer 
subsidies at the convenience of the modeler without a ffecting the results of the analysis.  A vertical 
shift down in the effective price paid by buyer s (as in the case of Step 2 subsidies) may be 
equivalently modeled as a vertical increase of the same magnitude in the supply price received by 
sellers.  The impacts on prices and quantities are identical no matter which way the subsidy is 
                                                      
67 "Analysis of Effects of U.S. Upland Cotton Su bsidies on Upland Cotton Prices and Quantities by 
Daniel A. Sumner," Annex I, Brazil's First Written Submission, paras. 27-31. 
68 "Response to the Submission of the United States titled ‘Annex I:  A Review of the Simulation 
Analysis Presented by Dr. Sumner,'" Brazil's Rebuttal Submission, Annex I, paras. 20-24. 
69 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
70 Sumner, Daniel. "Implications of the US Farm Bill of 2002 for Agricultural Trade and Negotiations." 
The Australian Journal of Agricultural and Resources Economics , Volume 47, Number 1, March 2003, 
pp. 99-122. 
71 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
72 "Analysis of Effects of U.S. Upland Cotton Su bsidies on Upland Cotton Prices and Quantities by 
Daniel A. Sumner," Annex I, Brazil's First Written Submission, paras. 54-56. WT/DS267/RW   
Page D-44  
 
incorporated in the analysis.  This is a standa rd exercise on the incidence of taxation (negative 
subsidy) for undergraduate students in microeconomics.
73   
 
Figure 14 – Simple Graphical Demonstration of the Equivalence  
of a Production or Demand Subsidy 
 
 
 
52. In Figure 14, a demand subsidy is shown as a lower effective price paid by buyers in the 
amount of P 0 – P 1d.  This lower effective price (which incl udes the subsidy) elicits a higher quantity 
demanded Q 1.  In order to encourage that amount of add itional production, the market price must rise 
to P 1s (the new price received by producers).  Th us, the demand subsidy causes the market price 
received by producers to rise to P 1s, while the price paid by buyers falls to P 1d.  The amount of the 
subsidy is P 1s – P 1d.  Alternatively, if a subsidy of this amount is paid to producers, the quantity 
supplied would rise to Q 1, the net price received by producers (inclusive of the subsidy) would be P 1s 
and the price paid by buyers would be P 1d.  The equilibrium results are identical to those that would be 
obtained if the subsidy were initially provided to bu yers.  The net result in terms of price and quantity 
effects of the subsidy depends on the magnitude of the per-unit subsidy and the supply and demand 
slopes, or elasticities.  53. This conceptual framework is directly applied to my modeling of the Step 2 program.  The results of my analysis would be identical whether th e subsidy enters the model on the demand side or 
the supply side.  Thus, the United States has not identified a "key problem."  Rather, it has identified a 
natural modeling approach that I used to make the analysis transparent and straightforward. 
 54. Finally, I note that the United States' argumen ts do not affect my results from removing 
marketing loan and counter-cyclical subsidies only, which are the most releva nt simulation results for 
the compliance Panel's assessment.  
 
                                                     
 
73 See Robert S. Pindyck. and Daniel L. Rubinfeld, Microeconomics , fifth edition Prentice Hall, 2001, 
pages 313-320.  See also exercise 13, page 323. P
QS
P1s 
P0 
P1d 
Q0 Q1 D  WT/DS267/RW 
 Page D-45 
 
 
5.6. U.S. criticism:  "appears to ignore  statutory parameters, for example by 
including countercyclical payment rates in each of the various price expectations 
that sometimes exceed statutory maximum.  The maximum countercyclical payment paid on 85 percent of pace and program yields cannot exceed 13.7 three cents.  Yet Dr. Sumner incorporates a value as high as 19.10 cents, 
which is 39 percent greater than the maximum allowed rate"
74 
 
55. The United States is also in error on this point .  As I explained briefly in my oral remarks75, 
the United States failed to read with care the s econd Appendix of my Annex I analysis, where my 
approach to modeling counter-cyclical payments is di scussed in detail.  In particular, Table A.4, on 
page 45 of my Annex I analysis, explicitly and cl early shows the projected counter-cyclical payment 
rate per unit of output .76  The statutory maximum applies to counter-cyclical program payments per 
unit of program base .  Hence, there is no conflict.  My pr ojected counter-cyclical payment rate per 
unit of output  is independent from the statutory limit placed on the counter-cyclical payment rate per 
unit of program base .  In particular, because counter-cyclical payment base exceeds production, we 
expect the counter-cyclical payment rate per unit of  output to be larger than the counter-cyclical 
payment rate per unit of base.    
 5.7. Conclusion 
 
56. In sum, during the Panel Meeting, the United States has again criticized my model, but not 
identified any real problems.  Its repeated criticism result from a number of obvious U.S. errors that I 
addressed above.  In some cases, the United Stat es also simply repeats criticisms with no 
acknowledgment of my earlier responses thereto.  
6. C
ONCLUSION  
 
57. Brazil looks forward to answering the fo rthcoming questions posed by the Panel. 
 
 
  
 
                                                      
74 U.S. Oral Statement, Statem ent of Dr. Glauber, para. 3. 
75 Brazil's Oral Statement, para. 120. 
76 "Analysis of Effects of U.S. Upland Cotton Su bsidies on Upland Cotton Prices and Quantities by 
Daniel A. Sumner," Annex I, Brazil's First Written Submission. WT/DS267/RW   
Page D-46  
 
ANNEX D-5 
 
COMMENTS OF THE UNITED STATES ON THE  
ORAL STATEMENTS OF  BRAZIL AT THE  
MEETING WITH THE PANEL 
 
(9 March 2007) 
 
 
TABLE OF CONTENTS 
 
Page  
 
Table of Exhibits   48 
Table of Reports   49 
I. I NTRODUCTION   50 
II. T HE EXPORT CREDIT GUARANTEE PROGRAMS MEET THE TESTS IN 
THE SCM A GREEMENT  FOR NOT BEING EXPORT SUBSIDIES   50 
A. There Is No Difference Between the Amount Paid On Loans Subject to a 
GSM-102 Guarantee and Other Comparable Commercial Loans  51 
B. Brazil Fails to Show That There Is a Difference Between the Amount Paid 
on Loans Subject to a GSM-102 Guarantee and Other Comparable 
Commercial Loans, and Fails to Rebut the U.S. Evidence in this Regard  52 
C. There is No Basis to Ignore All of Textual Provisions Dealing With 
Export Credit Guarantees and Loan Guarantees and to Use Instead a "Severable Benefit" Approach Specifically Precluded Under the 
SCM Agreement  With Respect to Such Measures 
 53 
D. Brazil's Argument That GSM-102 Guarantees Necessarily Provide a 
Benefit Because They Constitute a "Unique Financial Instrument" Is Legally and Factually Unfounded 
 55 
E. Brazil's Argument Would Effectively Render Most, If Not All, Export 
Credit Guarantees Prohibited Export Subsidies  56 
III. B RAZIL HAS FAILED TO ESTABLISH ITS CLAIMS REGARDING THE STEP 2, 
MARKETING LOAN, AND COUNTER -CYCLICAL PAYMENT PROGRAMS AND ALL 
PAYMENTS THEREUNDER   58 
A. Brazil's Arguments About the Effects of the Step 2 Program and World 
Market Price Effects Continue to Shift  58 
B. Brazil's Arguments About the Alleged Effects of the Marketing Loan and 
Counter-Cyclical Payment Programs A re Misleading, and the Evidence 
Brazil Submits Actually Confirms the U.S. Position Regarding the 
Marketing Loan and Counter-Cyclical Payment Program  59 
1. None of the Evidence Submitted By Brazil Regarding the Nature, 
Magnitude and Effects of the Marketing Loan and Counter-Cyclical Payments Indicates That the Payments Are Having Significant Price Suppressive Effects 
 60  WT/DS267/RW 
 Page D-47 
 
 
2. The Cost of Production Analysis Submitted By Brazil Is 
Fundamentally Flawed and the Pr oper Assessment of the Data 
Supports the U.S. Argument That Marketing Loan and Counter-Cyclical Payments Are Not H aving Any Significant Price 
Suppressive Effects 
 66 
a. Variable costs – not total costs – are the relevant measure 
in assessing year-to-year planting decisions  67 
b. U.S. farmers expected to m eet and exceed variable costs in 
each year, and in most yea rs upland cotton was the most 
attractive option  68 
c. U.S. farmers actually met and exceeded variable costs and 
even total cash costs in most years under the FSRI Act of 2002 
 71 
d. Conclusion  72 
3. The Sumner II Model Is Oversimplified and Relies on Arbitrary 
Parameters and Assumptions That Have No Basis in the 
Economic Literature  72 
IV. C ONCLUSION   75 
ANNEX   77 
 
 WT/DS267/RW   
Page D-48  
 
Table of Exhibits 
 
  
Exhibit US-   
Title  
 
131  
Export Finance and Insurance Corporation (Australia) - Mission and 
Objectives;  http://www.efic.gov.au/static/efi/corporateinfo/mission.htm  
Overview of EFIC's role;  http://www.efic.gov.au/static/efi/corporateinfo/governance.htm
 
 
132  
AuslandsGeschaftsAbsicherung der Bu desrepublik Deutschland, Federal 
Export Credit Guarantees, Basics:  Main Features of Export Credit Cover;  http://www.agaportal.de/en/aga/grundz uege/grundzuege_exportkredit.html 
 
133  
Korea Export Insurance Corporation , preface (emphasis added);  
http://www.keic.or.kr/homepage2/english/main.html. ; 
 East-West Debt:  "about the Korea Export Insurance Corporation";  
http://www.eastwest.be/east_west/keic.htm 
 
134  
Bancomext 2005 Annual Report, pp. 2, 26;  
http://www.bancomext.com/Banc omext/publicasecciones/secciones/7304/A
nnualReportBancomext2005.pdf 
 
135  
Daily A-Index and NY Futures Price Data 
 
136  
ICAC Cotton This Month (March 1, 2007) (Exhibit US -137). 
 
137  
Cecil Davison and Brad Crowder, "Northeast Soybean Acreage Response 
Using Expected Net Returns" Northeastern Journal of Agriculture and 
Resource Economics , April 1991 
 
138 
  
Duncan M. Chembezi and Abner W. Womack, "Regional Acreage Response 
for U.S. Corn and Wheat:  The Effects of Government Programs", Southern 
Journal of Agricultural Economics , July 1992 
 
139  
Data Supporting Expected Market Returns Above Variable Costs Chart 
  WT/DS267/RW 
 Page D-49 
 
 
Table of Reports  
  
Short Form  
Full Citation 
 Brazil – Aircraft (Article 21.5 II)   
Panel Report, Brazil – Export Financing Program for Aircraft – 
Second Recourse by Canada to Article 21.5 of the DSU , 
WT/DS46/RW/2, adopted August 23, 2001 
 
Canada – Aircraft (AB)   
Appellate Body Report, Canada – Measures Affecting the Export 
of Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999 
 
Canada – Aircraft II   
Panel Report, Canada – Export Credits and Loan Guarantees for 
Regional Aircraft , WT/DS222/R, adopted 19 February 2002 
 
EC – DRAMs   
Panel Report, European Communities – Countervailing Measures 
on Dynamic Random Access Memory Chips from Korea , 
WT/DS299/R, adopted 3 August 2005 
 
Korea – Commercial Vessels   
Panel Report, Korea – Measures Affecting Trade in Commercial 
Vessels , WT/DS273/R, adopted 11 April 2005 
 
US – Upland Cotton (AB)   
Appellate Body Report, United States – Subsidies on Upland 
Cotton , WT/DS267/AB/R, adopted 21 March 2005 
 WT/DS267/RW   
Page D-50  
 
I. I
NTRODUCTION  
 
1. The United States appreciates the opportunity provided by the Panel to comment on Brazil's "oral" presentation at the meeting with the Panel.  In that meeting, Brazil not only presented 77 pages 
of arguments and evidence orally over the course of approximately four and a half hours – unilaterally 
consuming almost the entire first day of the mee ting with the Panel – but it also submitted 42 new 
"exhibits" (and 9 resubmitte d exhibits) containing information that Brazil did not present orally but 
simply attached to its oral statement.  
2. The "exhibits" included with Brazil's oral statement include a third written submission 
produced by Brazil allegedly to address issues "which  there was not time to discuss in [Brazil's 
economists'] brief statement before the Panel."
1  Leaving aside the irony of describing a four and a 
half hour oral presentation – of which a substantia l portion was taken up by Brazil's economist – as 
"brief," Brazil's written submission was made in breach of the Panel's working procedures.  The 
working procedures provide for two written submis sions, a first written submission and a rebuttal 
submission, both of which are to be submitted "[b]ef ore the substantive meeting of the Panel with the 
parties to the dispute."2  The working procedures do not contemplate any third written submission 
either in or after the meeting of the Panel with the parties.  While the Panel's working procedures do 
contemplate – indeed, require – that the parties submit a written product either at or shortly after the meeting with the Panel, the procedures are very clear as to what that written product must be.  
Specifically, parties must submit "a written version of their oral statement " presented to the Panel and 
the other parties during the meeting.
3  The Panel's working procedures neither contemplate nor permit 
the submission of arguments and evidence which were not part of any oral statement ("which there 
was [allegedly] not time to discuss in" an oral pr esentation that otherwise spanned almost an entire 
day).4  Given that the third written submission in BRA-659 is not permitted under the Panel's working 
procedures, the United States respectfully requ ests that the Panel reject that submission. 
 3. The United States also notes that much of  the new evidence and arguments presented by 
Brazil in its oral statement was known and availabl e to Brazil well before the date of the Panel 
meeting.  Yet Brazil appears to have chosen to w ithhold it until the meeting with the Panel when little 
time remained to subject it to scrutiny.  Upon review  of this new evidence and argument, it is apparent 
why Brazil would be anxious to avoi d any meaningful assessment thereof.
5  Although voluminous, 
this evidence and argument offer little support for Brazi l's claims.  In fact, much of the data newly 
submitted by Brazil confirms the U.S. arguments that the United States has complied with its obligations to implement the DS B's recommendations and rulings. 
 II. T
HE EXPORT CREDIT GUARANTEE PROGRAMS MEET THE TESTS IN THE 
SCM A GREEMENT FOR NOT BEING EXPORT SUBSIDIES  
 
4. In the case of the export credit guarantees, the fact remains that: 
 
• the United States has provided no GSM 103 guarantees since 1 July 2005; 
 
                                                      
1 See Supplementary Statement of Daniel  Sumner, para. 1 (Exhibit BRA-659). 
2 See United States – Subsidies on Upland Cotton (DS267), Working Procedures for the Panel, para. 4 
(8 November 2006). 
3 See United States – Subsidies on Upland Cotton (DS267), Working Procedures for the Panel, para. 4 
(8 November 2006).  
4 See Supplementary Statement of Daniel  Sumner, para. 1 (Exhibit BRA-659). 
5 In this regard, the United States recalls Brazil's ef forts at the Panel meeting and thereafter to preclude 
or limit any opportunity for the United States to respond in writing to Brazil's "oral" presentation.  WT/DS267/RW 
 Page D-51 
 
 
• the United States has provided no Supplier Credit Guarantee Program (or "SCGP") 
guarantees since 1 October 2005 and there are, presently, no longer any guarantees even "outstanding" under that program; 
 
• following carefully the guidance provided by the original panel, the United States 
imposed a new fee schedule with respec t to GSM-102 guarantees under which higher 
fees are assessed for obligations  in higher-risk countries;   
 
• the United States reclassified into an ineligible risk category twenty-two countries 
posing a higher risk of default that had been eligible for GSM-102 guarantees before 
1 July 2005; 
 
• as a result of the changes in the fee sche dule, fees have increased 46 percent on 
average over fiscal year 2004, the last year  in which the old fee schedule applied; 
 
• all of the U.S. changes, together, increase d the premiums and decreased the likelihood 
of incurring substantial operating costs a nd losses over the long-term of the portfolio 
of programs examined by the original panel;  and 
 
• according to the U.S. budget data, premiums under the three U.S. export credit 
guarantee programs were more than adequate  to cover their long-term operating costs 
and losses even before the United States took steps to implement the DSB's recommendations and rulings and are even mo re assured of doing so in the future 
given all of the changes made by the United States. 
 
5. The substantial evidence before the Panel thus  shows that the United States is not providing 
any export subsidies within the mean ing of item (j) in Annex I of the Agreement on Subsidies and 
Countervailing Measures  ("SCM Agreement").  Under the proper interpretation of the 
SCM Agreement , the assessment of whether or not expor t credit guarantees constitute prohibited 
export subsidies can – indeed should – begin and end with that assessment under item (j). 
 6. Nothing in Brazil's oral presentation – nor in any of its submissions prior to that – undermine 
the evidence of profitability before the Panel or th e fact that the U.S. export credit guarantee programs 
are entirely consistent with item (j) of the Illustrative List.
6  Rather, Brazil seeks to invent new 
obligations not provided for in the SCM Agreement , in particular, by asserting a separate standard for 
"export subsidy" under the general de finitional elements of Articles 1.1 and 3.1(a).  Even leaving 
aside that Brazil's approach is unsupported by the text, that approach fails even on its own terms. 
 
A. There Is No Difference Between the Amount Paid On Loans Subject to a 
GSM-102 Guarantee and Other Comparable Commercial Loans  
 
7. The substantial evidence before the Panel, t hus, shows that the United States is not providing 
any export subsidies within the meaning of item (j).   In the view of the United States, under a proper 
                                                      
6 The United States does not address here Brazil's arguments attempting to undermine the substantial 
evidence showing that the U.S. export credit guarantee programs have historically been profitable even without 
the recent changes made to implement the recommendations and rulings of the DSB.  Nor does the United States 
address Brazil's arguments about export credit guarantees issued prior to 1 July 2005 and rescheduled debt.  
Brazil's oral presentation contain nothing new in respect of those arguments and the United States has them in its submissions already before the Panel.  The U.S. ar guments can be found in the U.S. first written submission 
at paragraphs 71-104, the U.S. Rebuttal Submission at paragraphs 84-133, and the U.S. oral statement at 
paragraphs 16-49. WT/DS267/RW   
Page D-52  
 
interpretation of SCM Agreement , the assessment of whether or not export credit guarantees constitute 
prohibited export subsidies begins and e nds with that assessment under item (j). 
 8. Nothing in Brazil's oral presentation – nor in  any of its prior submissions – undermine the 
evidence of profitability before the Panel or the fact that the United States export credit guarantee 
programs are entirely consistent with item (j) of the Illustrative List.  Rather, Brazil seeks to invent 
new obligations not provided for in the SCM Agreement , in particular, by asserting a separate standard 
for "export subsidy" under the genera l definitional elements of Articles 1.1 and 3.1(a).  Even leaving 
aside that Brazil's approach is unsupported by the text, that approach fails even on its own terms. 
 
B. Brazil Fails to Show That There Is a Difference Between the Amount Paid on 
Loans Subject to a GSM-102 Guarantee and Other Comparable Commercial 
Loans, and Fails to Rebut the U.S. Evidence in this Regard  
 
9. Article 14 of the SCM Agreement  sets out the conditions under which a "benefit" may be 
considered to be "conferred" for countervailing duty purposes and defi nes how to measure "benefit" in 
such a case.  While Article 14 does not apply dir ectly in the case of actions under Part II of the 
SCM Agreement , it interprets and applies the definition of "b enefit" set out in Article 1.1.  Thus, the 
Appellate Body has relied upon Article 14 as important  contextual guidance in interpreting "benefit."7  
Indeed, its was Brazil that originally invoked Ar ticle 14 to justify its prohibited export subsidy 
arguments against the export credit guarantees in the present proceeding.8 
 
10. Paragraph (c) of Article 14 provides that  a government-provided loan guarantee confers a 
benefit for countervailing duty purposes only where there is "a difference between the amount that the 
firm receiving the guarantee pays on a loan guarant eed by the government and the amount that the 
firm would pay on a comparable commercial loan absent the government guarantee."  The "benefit" is 
measured as "the difference between these two amounts adjusted for any differences in fees." 
 11. Even by this standard, however, Brazil fails to show that the U.S. GSM-102 guarantees 
constitute prohibited export subsidies. In fact, Brazil does not submit a single piece of evidence to 
show – with respect to any loans subject to a GSM-102 guarantee – that there is "a difference between 
the amount that the firm receiving the guarantee pays  on a loan guaranteed by the government and the 
amount that the firm would pay on a comparable commercial loan absent the government guarantee."   
 12. Moreover, Brazil has failed to rebut the U. S. evidence showing that commercial lenders 
regularly involved in both the GSM-102 program and other lending in the foreign agricultural sector, in fact, do provide – and have provided – uns ecured financing to foreign banks that are 
CCC-approved obligors on terms the annualized cost of which was less than that available under the 
GSM-102 program.
9  In fact, Mr. Sundaram, the consultant retained by Brazil for purposes of this 
proceeding, acknowledged that the examples the United States provided, as supplied by [[     ]], show 
"lower annualized costs than under GSM-102."10 
13. While Mr. Sundaram went on to criticize the U.S. examples, his criticism is without basis.  
According to Mr. Sundaram, the "average life" is allegedly insufficient to capture some hypothesized 
riskiness that is greater in a three-year term GSM transaction than in a two year bullet payment.11  
However, in each of the examples provided by the Un ited States, the short-term and long-term ratings 
                                                      
7 Canada – Aircraft (AB) , para. 155. 
8 Brazil First Written Submission, paras. 371-375 
9 U.S. First Written Submission, paras. 119-130 and Exhibit US-22; U.S. Rebuttal Submission, 
paras. 145-170. 
10 Brazil Oral Statement, para. 214 
11 Brazil Oral Statement, para. 219  WT/DS267/RW 
 Page D-53 
 
 
for each of the banks are comparable.12   Indeed, Mr. Sundaram acknowledged that the Panamanian 
and Mexican banks are both "investment grade."13  Thus, the theoretical difficulty that Brazil tries to 
create is inapplicable to those comparisons as a matt er of fact.  Despite Brazil's allegations to the 
contrary14, the comparisons offered by the United States are fully "apples-to-apples" comparisons. 
 
14. Moreover, Brazil appears to ignore the pricing of risk inherent in the transactions.  While it 
emphasizes that "fully one-third of the pr incipal remains at risk after two years"15 in a GSM-
guaranteed transaction, Brazil fails to acknowledge that fully one-third of the principal has been paid  
after one year in the same transaction.  In contrast, the entire bullet payment remains outstanding for 
the first two years.  As a matter of commercial logic,  the risk inherent in an obligor's capacity to 
service debt increases with the amount of debt outstanding.  The repayment term of the GSM 
transaction compels an early payment of principal reducing the outstanding debt.16 
 15. Finally, the United States notes Brazil's assertion that "the examples provided by the United States do not appear to prove anything about the ability of GSM-102's target foreign obligors 
[allegedly non-investment grade] to secure foreign credit."
17  However, this assertion serves to 
undermine what has been Brazil's own – entirely unfounded – argument in this proceeding;  namely, that the United States allegedly "targets" and services only non-investment grade foreign obligors.  The United States welcomes Brazil's acknowledgment that GSM credit guarantees are offered in 
many markets where other financing is readily obtained,  including in Mexico and Panama – two of the 
countries involved in the examples provided by the United States.  And the U.S. examples are not the 
only ones involving investment grade participan ts in the GSM program;  scores of CCC-approved 
foreign bank obligors enjoy an investment grade rating.
18  Brazil's sweeping assertions that GSM-102 
guarantees are provided only where there is no financ ing available to foreig n obligors is undermined 
not only by the particular examples provided by the United States, but also by this evidence of the 
large number of investment-grade participants. 
 
C. There is No Basis to Ignore All of Textual Provisions Dealing With Export 
Credit Guarantees and Loan Guarantees and to Use Instead a "Severable 
Benefit" Approach Specifically Precluded Under the SCM Agreement  With 
Respect to Such Measures  
 16. Unable to make its case under any provision of the SCM Agreement  dealing either with export 
credit guarantees or loan guarantees, Brazil essentially asks the Panel to ignore the SCM Agreement  
altogether and to create and impose obligations not found anywhere in the text.  Towards this end, 
Brazil argues that other panels have disregarded th e text as well.  Brazil's arguments are simply not 
tenable. 
17. Brazil asserts, for example, that the panel in EC-DRAMs  "agreed that a government guarantee 
confers a 'benefit' per se  if without the guarantee, commercial lending would not have been available.  
Where commercial lending would not have been available without the government guarantee, the 
panel in EC-DRAMs  did not require the type of quantitativ e assessment on which the United States 
here insists."
19  As a threshold matter, however, that panel did not – indeed, could not – "undo" the 
disciplines agreed upon in Article 14(c) of the SCM Agreement .  To the contrary, the EC-DRAMs  
                                                      
12 U.S. Rebuttal Submission, para. 150. 
13 Brazil Oral Statement, para. 223. 
14 Brazil Oral Statement, para. 222. 
15 Brazil Oral Statement, para. 221. 
16 In fact, GSM-102 guarantees often require semi-annual payments of principal. 
17 Brazil Oral Statement, para. 223.  Brazil appears to  make the same incorrect and irrelevant point in 
paragraph 177 of its oral statement. 
18 U.S. First Written Submission, para. 110. 
19 Brazil Oral Statement, para. 194. WT/DS267/RW   
Page D-54  
 
panel expressly acknowledged the proper approach for the determination of "benefit" in the context of 
a government guaranteed loan in Article 14(c) of the SCM Agreement :  "[I]t appears that the 
examination is to focus on the difference between the amount paid on a loan guaranteed by the government, compared to the amount that would have  to be paid on a comparable commercial loan, 
absent the government guarantee."
20  The panel's ultimate finding – that the EC could properly find a 
"benefit" where there was no "evidence on the record  . . . to contradict the EC's conclusion that, 
absent the government guarantee, the banks would not ha ve been willing to agree to the [financing] at 
all"21 – is entirely consistent with the standard in Article 14(c) of the SCM Agreement .  But the facts 
of that dispute are not the same as the facts before this Panel.  As the United States has shown, this is 
not a situation where "absent the government guarant ee" banks "would not have been willing to agree 
to . . . [financing] at all." 
 18. Brazil also cites the panel report in Canada-Aircraft II  for the proposition that "even in 
assessing 'benefit' under Article 14(c), the legal sta ndard boiled down to an assessment whether fees 
for the government guarantee were consis tent with fees for commercial guarantees."
22  There, too, 
however, the panel expressly acknowledged that the a ppropriate standard was set out in Article 14(c) 
of the SCM Agreement .  The panel found that under the circumstances of that dispute, it was "safe to 
assume" that it the fees charged for the loan gu arantee were not "market based," the test in 
Article 14(c) would be met.  Moreover, even while  it asserted that it was "safe" to make such an 
assumption, the panel actually required Brazil, as the complaining party, to provide "arguments or 
information regarding what the [airline] might have had to pay on a comparable commercial loan  
absent the IQ loan guarantee."23  The panel noted that: 
 
Brazil has made no arguments to the effect that 'there is a difference between the amount that the [Mesa Air Group] pays on a loan guaranteed by [IQ] and the amount that the [Mesa Air Group] would pay on a comparable commercial loan absent the 
[IQ] guarantee', adjusted for any differen ce in fees.  In particular, although Brazil 
does not deny that loan guarantees are av ailable on a commercial basis, Brazil has 
failed to adduce any arguments or inform ation regarding what Mesa Air Group might 
have had to pay on a comparable commer cial loan absent the IQ loan guarantee.
24 
19. On the basis of that failure on the part of Brazil – as well as Brazil's failure to "make any 
other argument to the effect that  IQ's fee for its loan guarantee to Mesa Air Group is not market 
based" – the panel "reject[ed] Brazil's claim that the IQ loan guarantee to Mesa Air Group confers a 
'benefit.'"25 
 20. Brazil has, thus, failed to provide any basis for the panel to disregard all of the textual 
provisions relating to export credit guarantees and loan guarantees and to use, instead, its "severable 
benefit" approach.  As the United States explained in the meeting with the Panel, Brazil's approach 
fundamentally undermines the drafters' acknowle dgment, expressed in Article 14(c), that the 
provision of a loan guarantee is fundamentally different from the provision of other government 
services.  While a comparison of fees for a government  service against the fees charged in the market 
for a comparable service is the proper approach in  the case of other government services – as provided 
in Article 14(d) – Article 14(c) specifically precludes  such an approach for loan guarantees.  Instead, 
it recognizes that a loan guarantee is made for the sole purpose of supporting a loan transaction ;  the 
guarantee becomes an integral part of that transac tion and has no value beyond it.  An assessment of 
the total costs of the transaction is necessary to asse ss whether a "benefit" is actually conferred by the 
                                                     
 
20 EC-DRAMs , para. 7.190. 
21 EC-DRAMs , para. 7.190. 
22 Rebuttal Submission of Brazil, para. 410. 
23 Canada-Aircraft II , para. 7.399 (emphasis added). 
24 Canada-Aircraft II , para. 7.399. 
25 Canada-Aircraft II , para. 7.399.  WT/DS267/RW 
 Page D-55 
 
 
guarantee.  A simple comparison of the fee charged for the issuance of one loan guarantee to the fee charged for another may provide an incomple te and distorted picture in this regard. 
 
D. Brazil's Argument That GSM-102 Guar antees Necessarily Provide a Benefit 
Because They Constitute a "Unique Financial Instrument" Is Legally and 
Factually Unfounded  
 
21. In its oral presentation, Brazil once again asser ts that the GSM-102 export credit guarantee is 
"a unique financial instrument without any parallel at market."26   In Brazil's view, "that is the 
beginning and end of the analysis" and demonstr ates that the GSM-102 program confers benefits 
per se.27  Brazil has not shown any textual basis for this kind of per se  test. 
 22. Indeed, the United States wonders if Brazil has thought through fully the consequences of its 
argument.  If the SCM Agreement  were found to actually contain the standard advocated by Brazil, 
one would have expected Brazil – Aircraft (Article 21.5 II)  to have been decide d differently.  There, 
Canada challenged certain "PROEX" interest rate equalization paymen ts made "in support of export 
credits extended to the purchaser, and not to the producer, of Brazilian regional aircraft."
28  The panel 
noted that, in those circumstances, Canada could make a prima facie  showing of "benefit" if it 
established that "PROEX III payments allow the purchasers of a product to obtain export credits on 
terms more favourable than those available to them in the market, this will, at a minimum, represent a 
prima facie case that the payments confer a bene fit on the producers of that product as well, as it 
lowers the cost of the product to their purchasers a nd thus makes their product more attractive relative 
to competing products."29  The panel did not consider whether PROEX payments were a "unique 
financial instrument."  Brazil did not argue there, as it has attempted to do here, that "the beginning 
and end of the analysis" was the question of whet her PROEX III payments were "a unique financial 
instrument without any parallel at market."30  Indeed, that question could presumably have been 
answered fairly easily, because un like PROEX, commercial actors are not in the business of making 
payments for nothing.   23. In any event, the United States has provide d examples of other in ternational financial 
institutions – such as such as the European Bank for Reconstruction and De velopment ("EBRD"), the 
International Finance Corporation ("IFC"), and th e Inter-American Development Bank ("IDB") – that 
provide similar guarantees to the GSM-102.  While  Brazil attempts to di smiss these examples by 
arguing that these entities cannot, by definition, pr ovide commercial products, Brazil's argument is 
without merit.
31  As the principal basis for this argument,  Brazil continues to fo cus on the ability of 
such entities to "borrow from govern ment treasuries," asserting that "as a result, public entities tend to 
enjoy a lower cost of funds than  their market-based counterparts."32  Brazil further suggests that these 
entities cannot provide commercial products because they "enjoy a guarantee flowing from the full 
faith and credit of governments."33 
 24. However, Brazil has not show n that the entities identified by the United States rely on such 
borrowing for their operations or that they enjoy such guarantees from governments.   The IFC, for 
example, receives no sovereign guarantee.
34   Furthermore, the IFC indicates that "the major source of 
IFC's borrowings is the international capital mark ets.  Under the Articles of Agreement, the 
                                                      
26 Oral Statement of Brazil, para. 174. 
27 Oral Statement of Brazil, para. 174. 
28 Brazil – Aircraft (Article 21.5 II) , para. 5.28, n. 42. 
29 Brazil – Aircraft (Article 21.5 II) , para. 5.28, n. 42. 
30 Oral Statement of Brazil, para. 174. 
31 Brazil Oral Statement, para. 187. 
32 Brazil Oral Statement, para. 188. 
33 Brazil Oral Statement, para. 188. 
34 U.S. Rebuttal Submission, para. 166. WT/DS267/RW   
Page D-56  
 
Corporation may borrow in the public markets of a member country only with approvals from that 
member and also the member in whose currency is denominated."
35  Further, "market borrowings are 
generally swapped into floating-rate ob ligations denominated in US dollars."36  EBRD issues medium 
and long-term debt obligations on the market.37 
 
25. Moreover, the ability of an entity to borro w from a government does not necessarily preclude 
an entity from providing products  on commercial terms.38  For example, the panel recognized in 
Korea – Commercial Vessels  that: 
 
The fact that KEXIM may receive subsidi zed government funding does not mean that 
it will inevitably provide subsidized financi ng to its customers.  It is possible that 
KEXIM might charge market rates and increase its profit margin instead."39  
26. Brazil also asserts that a former U.S. official  – specifically, a former Secretary of the U.S. 
Treasury – has recognized that international fina ncial institutions cannot offer commercial products.40  
However, Brazil's own exhibit shows that the statement referenced by Brazil did not relate to any of 
the international financial instituti ons noted above, but, rather, to st ate-owned or controlled "market 
window" institutions of individual OECD members th at restrict financing to national exporters.  
International financial institutions such as IFC, ID B, and EBRD are fundamentally different entities.  
They do not operate at the behest of any single go vernment.  Indeed, Brazil itself has noted that the 
IDB is owned by 47 member countries41;  EBRD by 60 governments42;  and IFC by 178 member 
countries.43  Rather, they operate commercially without  benefitting any particular government or 
citizen constituency.  Brazil has provided no le gitimate basis for asserting that such financial 
institutions can never pr ovide commercial products. 
 27. In short, Brazil fails to show either  that its "unique financial in strument" test is required under 
the SCM Agreement  or that the measures it challenges are in  fact "unique financial instruments." 
 
E. Brazil's Argument Would Effectively Re nder Most, If Not Al l, Export Credit 
Guarantees Prohibited Export Subsidies  
 
28. Brazil's ultimate argument appears to be that export credit guarantees are prohibited export 
subsidies unless there is a purely private bank (like a Citibank, for example) already providing the 
same export credit guarantees and, even in that case,  the guarantees are prohibited subsidies unless the 
fees charged by the private bank for the export credit guarantees are lower than the fees charged by 
the government entity.  These assertions are without basis in the SCM Agreement  and, given the 
nature of the market for export credit guarantees, would effectively render all export credit guarantees 
provided by any Member anywhere in the world to be prohibited subsidies. 
 
                                                      
35 Exhibit US-79, p. 13. 
36 Exhibit US-79, p. 13. 
37 Exhibit US-77, p.10. 
38 U.S. Rebuttal Submission, para. 156.  
39 Korea – Commercial Vessels , para. 7.84. 
40 Brazil Oral Statement, para. 186 and Exhibit Bra-654. 
41 Rebuttal Submission of Brazil, para. 442. 
42 Rebuttal Submission of Brazil, para. 441. 
43 Rebuttal Submission of Brazil, para. 440.  Brazil also criticizes the United States for finding 
"significance in that fact that public entities like the E BRD, IDB and IFC are 'profitabl e'."Brazil Oral Statement, 
para. 189.  The United States, however, was merely responding to the significance that Brazil  had ascribed to its 
assertion that such institutions are incapable of provid ing commercial products because they are "not a private 
sector actor motivated by profit."  Re buttal Submission of Brazil, para. 441.  WT/DS267/RW 
 Page D-57 
 
 
29. As Brazil is well aware, export credit guar antees and other similar loan guarantees are now 
and have always been instruments provided predomin antly – if not exclusively – by governments and 
international financial institutions, as opposed to pu rely private banking institutions.  It is hardly 
surprising then that Members would have agreed to  a standard for "prohibited export subsidy" in 
item (j) that imposes disciplines based on the net costs of a program.44  Nor is it surprising that, in the 
context of countervailing duty investigations, Members would have agreed to a standard that looks to 
the effect of a guarantee on the underlying loan.  Br azil's efforts to have the Panel ignore the text itself 
– what Members actually agreed to given the particul ar nature of the measure and the market – and to 
impose instead a fee-based comparison to some th eoretical purely private bank is untenable.   
 
30. This would effectively render most if not all export credit guarantees to be prohibited export 
subsidies, in contravention of the express intent of  the drafters in item (j) and Article 14(c) of the 
SCM Agreement .  Furthermore, Brazil's approach is contradicted by Article 10.2 of the Agreement on 
Agriculture .  If the test for being a prohibited export s ubsidy were as simple as  Brazil claims, then 
there would have been no need for the negotiators of  the WTO agreements to have specifically called 
for the development of international disciplines on export credit guarantees.  Indeed, by calling for the 
development of additional disciplines on e xport credit guarantees, Article 10.2 of the Agreement on 
Agriculture  supports the fact that at present the analysis  can – indeed should – begin and end with the 
disciplines currently in item (j).  31. The ramifications of such an impermissible interpretation are significant.  The compliance 
panel will recall India provides similar services th rough the Export Credit Guarantee Corporation of 
India, Ltd.  Further examples include the following:  
• The Export Finance and Insurance Corpora tion of Australia, which offers export 
credit insurance (also subject to item(j))  "when the private market lacks capacity or 
willingness, filling the market gap."45 EFIC operates "primarily in that part of the 
market that is not served by the private market."46  
 
• Euler Hermes, the provider of export cred it guarantees for the Federal Republic of 
Germany, provides such products "to support German enterprises to open difficult 
markets."47   
 
• The Korea Export Insurance Corporation – an official export credit agency of Korea – 
provides "agro-fishery" export insurance th at "compensates the losses arising from 
export transactions and overseas investments that cannot be handled by the general 
insurance systems ."48   
 
                                                      
44 The United States notes in this regard that in the Illustrative List to the Tokyo Round Subsidies 
Code, item (j) provided that premium rates could not be " manifestly  inadequate operating costs and losses of the 
programs."  (Emphasis added).  In the Uruguay Round, the negotiators deleted the word "manifestly" from 
item (j).  It is difficult to accept that the negotiators w ould have gone to the trouble of modifying the standard in 
item (j) if, as argued by Brazil, that standard could readily be ignored in favour of a different standard. 
45 Export Finance and Insurance Corporation (Australia) - Mission and Objectives; 
http://www.efic.gov.au/static/e fi/corporateinfo/mission.htm  (Exhibit US-131). 
46 Export Finance and Insurance Corporation (Australia) - Mission and Objectives; 
http://www.efic.gov.au/static/e fi/corporateinfo/mission.htm  (Exhibit US-131). 
47 AuslandsGeschaftsAbsicherung der Budesrepublik Deutschland, Federal Export Credit Guarantees, 
Basics: Main Features of Export Credit Cover; 
http://www.agaportal.de/en/aga/grundzuege/grun dzuege_exportkredit.html (Exhibit US-132). 
48 Korea Export Insurance Corpor ation, preface (emphasis added); 
http://www.keic.or.kr/homepage2/english/main.html.   (Exhibit US-133); see also East-West Debt: "about the 
Korea Export Insurance Corporation" h ttp://www.eastwest.be/east_west/keic.htm  (Exhibit US-133). WT/DS267/RW   
Page D-58  
 
• Banco Nacional de Comercio Exterior of Mexico, a bank "owned by the Mexican 
government, offers "export credit insurance to  cover Mexican firms against default of 
credit sales to foreign [] customers."49  
 
32. Are each of these Members, as well as scores of other Members, breaching their WTO 
obligations simply because purely pr ivate banks do not now, a nd have not historically, operated in this 
particular segment of the market?  Brazil has utte rly failed to show anything in the text of the 
SCM Agreement  indicating that Members agreed  upon such an absurd result. 
 33. The text confirms, instead, that the standards reflected in item (j) provide the exclusive test 
for whether export credit guarantees provide prohibit ed export subsidies.  As discussed above, in the 
U.S. submissions, and in the meeting with the Panel,  the U.S. budget data show – definitively – that 
premiums collected under the U.S. export credit guarantee program are more than adequate to cover the long-term operating costs and losses of the program s.  In short, the United States is fully in 
compliance with the standard in item (j). 
 
III. B
RAZIL HAS FAILED TO ESTABLISH ITS CLAIMS REGARDING THE STEP 2, MARKETING 
LOAN, AND COUNTER -CYCLICAL PAYMENT PROGRAMS AND ALL PAYMENTS 
THEREUNDER  
 
34. Brazil's "oral" presentation also fails to reme dy the fact that Brazil has provided virtually no 
empirical evidence  to support its claims that (a) terminati on of the Step 2 program "will likely have no 
impact  on the level of U.S. production or exports" and " little positive impact  on the world price for 
cotton in the long term;"50 or (b) that "the effect" of U.S. ma rketing loan and counter-cyclical payment 
programs is "present" significant price suppression within the meaning of Article 5(c) and 6.3(c) of the SCM Agreement . 
 
A. Brazil's Arguments About the Effects of  the Step 2 Program and World Market 
Price Effects Continue to Shift  
 
35. Although Brazil has argued thro ughout the original panel proceedings and in this proceeding 
that allegedly high levels of U.S. exports ar e the cause of significantly suppressed world market 
prices51, Brazil attempts now to change its basic theory of significant price suppression.  Indeed, it 
does so after having attempted to simply dism iss the evidence of dec lining U.S. exports as a 
temporary phenomenon that was simply a function of U. S. producers "cleaning out the stocks in their 
warehouses" prior to the termination of the Step 2 program.52  In the face of the substantial 
countervailing evidence, Brazil has been  forced to seek a new theory to fit the facts.  In its "oral" 
presentation, Brazil now argues that it is increasing U. S. stocks of upland cotton – not the export of 
U.S. cotton – that is suppressing world market prices. 
 
36. Brazil has submitted no evidence – or even fully laid out the arguments – to support its 11
th hour theory of significant price suppression.  And Brazil cannot simply transpose its earlier 
arguments regarding the effects of exports.  While stocks of any commodity are an important factor 
influencing the world supply and demand balance and,  therefore, prices, there is no basis – and Brazil 
has not provided any – for sugges ting that an increase in stocks can have the same impact on world 
                                                      
49 Bancomext 2005 Annual Report, pp. 2, 26; 
http://www.bancomext.com /Bancomext/publicasecciones/secciones/7 304/AnnualReportBan comext2005.pdf 
(Exhibit US-134). 
50 Brazil First Written Submission, para. 206 (quo ting Brazil First Written Submission, Annex II, 
paras. 41-43). 
51 See, e.g. , Brazil First Written Submission, para. 2. 
52 Brazil Rebuttal Submission, para. 82.  WT/DS267/RW 
 Page D-59 
 
 
market prices as actual exports.  When stocks are held – i.e., are removed from trade on the world 
market – any possible impact on prices is necessarily s ubstantially less than if they were being traded. 
 37. Moreover, the price impact of existing U.S. stocks is necessarily greater within the 
United States than it is in the worl d market.  And, consistent with th is, U.S. prices have been lower 
than normal in relation to the A index almost throughout the entire 2006 marketing year.
53  Between 
August 2001 and July 2005, the A Index averaged 4.69 cents above the nearby NY futures.  Since August 2006, the "A" has averaged between 5 and 10 cents above NY futures.
54  As a result of this 
and other market signals, U.S. producers are reduc ing plantings.  Returns to cotton producers are 
below expectations and plantings in the United Stat es are expected to decline 14 percent or more 
in 2007.55  In short, the evidence concerning the effect s of stocks on U.S. prices and the corresponding 
response of U.S. farmers is not consistent with Brazil's new theo ry that U.S. stocks are suppressing 
world market prices.  38. This conclusion is reinforced when one cons iders other factors in the world market.  For 
example, total world stocks are expected to decline in 2006 from 2005 levels.
56  Moreover, the world 
stocks-to-use ratio for cotton has declined for the second year in a row, meaning that the world is 
using more cotton than is being produced.57  This is consistent with the fact that world market prices 
are rising and are expected to continue to do so .  While Brazil asserts these prices should be even 
higher, it has offered no evidence – other than unf ounded allegations by its hired economist – to 
support that assertion. 
 
39. Similarly, the behaviour of other market pa rticipants – including Brazil – does not evidence 
any perception of significant price suppression as a resu lt of U.S. stocks.  To the contrary, Brazil and 
India are expected to increase production in 2007, with recent reports from Brazil anticipating a near-
record crop in 2007.58  By planting and producing more cotton in 2007, India's and Brazil's farmers 
would appear to be receiving positive signals from current world prices.  U.S. production, meanwhile, 
decreased in 2006, exports are declining in 20 06, and U.S. planting is expected to decline 
substantially in 2007.  Again, these are not facts indicative of significant price suppression as a result 
of U.S. stocks.  40. Thus, Brazil's last minute theory that U.S. stocks  – not exports – are causing significant price 
suppression is unsupported by evidence.  
 
B. Brazil's Arguments About the Alleged Effects of the Marketing Loan and 
Counter-Cyclical Payment Programs Are Misleading, and the Evidence Brazil 
Submits Actually Confirms the U.S. Posi tion Regarding the Marketing Loan and 
Counter-Cyclical Payment Program  
 
41. Brazil's "oral" statement seeks to respond to  the U.S. observation that Brazil has failed to  
provide an evidentiary basis for its claims that the marketing lo an and counter-cyclical payment 
programs are presently causing significant price suppression.  Brazil asserts that certain allegedly 
                                                      
53 Daily A-Index and NY Futures Price Data (Exhibit US-135). 
54 Daily A-Index and NY Futures Price Data (Exhibit US-135). 
55 National Cotton Council 2007 Acreage Survey available at 
http://www.cotton.org/econ/reports/intentions.cfm. 
56 USDA Foreign Agricultural Service, Cotton: Worl d Markets and Trade, February 2007 (available at 
http://www.fas.usda. gov/currwmt.asp). 
57 USDA Foreign Agricultural Service, Cotton: Worl d Markets and Trade, February 2007 (available at 
http://www.fas.usda. gov/currwmt.asp). 
58 ICAC Cotton This Month (1 March 2007) (Exhibit US -136). WT/DS267/RW   
Page D-60  
 
"key" pieces of evidence support its claims of a breach of Articles 5(c) and 6.3(c) of the SCM Agreement .
59  None of this evidence withstands scrutiny, however. 
 
1. None of the Evidence Submitted By Brazil Regarding the Nature, 
Magnitude and Effects of the Marketing Loan and Counter-Cyclical 
Payments Indicates That the Payments Are Having Significant Price 
Suppressive Effects  
 
42. Counter-cyclical Payments:   Brazil's "oral" presentation contains no empirical evidence to 
support Brazil's claims that counter-cyclical paym ents are having significant production- or export-
inducing effects, or that they are significantly suppressing world market prices.  Indeed, Brazil's 
"empirical evidence" appears to consist of little more than the naked assertion that counter-cyclical 
payments "restrict planting flexibility," "reduce the risk associated with producing the base crop" 
"increase the ability of farmers to invest in pro duction-enhancing equipmen t" and "smooth revenue 
flow. . . and ease access to credit."60  While all these things may well be true to some extent, Brazil 
has not explained why they support a finding that the payments cause significant price suppression.  
Indeed, almost all of these consequences asserted by Brazil also can be attributed to direct payments and, indeed, to any payment to a producer of a crop.  The exact  same planting flexibility restrictions 
apply in the case of both direct and counter-cyclical payments.  Moreover, any payment to producers 
will "increase the ability of farmers to invest in  production-enhancing equi pment," "smooth revenue 
flow. . . and ease access to credit."
61  However, those factors did not support any finding of significant 
price suppression with respect to direct payments in  the original proceeding.  And, in indeed, the 
negotiators of the WTO agreement expressly found that Members could provide a whole range of 
payments to agricultural producers, all of which presumably would have the general effects Brazil 
attributes to counter-cyclical payments, and yet still have "no, or at most minimal, trade-distorting 
effects or effects on production."62  
 
43. Indeed, from a structural standpoint, Brazil r ecognizes that the "cruci al difference" between 
the direct and counter-cyclical payments is that the farmer is assured of receiving the former each year 
but not the latter, because counter-cyclical paymen ts are provided only if the season-average farm 
price ends up being below the threshold set out in the statute.63  As the United States has explained in 
response to questions from the Panel, some analysts have examined whether this difference results in 
any substantial differences in the effects  of the two programs, and they have concluded that it likely 
does not .64  For example, Westcott et. al.  determined that the link to prices may, in some 
circumstances, result in indirect production effects stemming primarily from lowered risk of price volatility.  However, they concluded that the degr ee of any such production effects is likely to be 
minimal and mitigated by a number of factors including that: 
 
(a)  where prices are expected to be above maximum threshold – counter-cyclical 
payments behave just like the fixed direct payments
65; 
 (b)  "cross-commodity effect[s] suggest[] th at CCPs may provide a general reduction in 
revenue risks rather than a crop-specific effect. Net returns among alternative crops 
would remain the primary consider ation underlying production choices;"
66 
                                                      
59 Brazil Oral Statement, para. 25. 
60 Brazil Oral Statement, para. 41.  
61 Brazil Oral Statement, para. 41.  
62 See Annex 2 of the Agreement on Agriculture . 
63 Brazil Oral Statement, para. 50. 
64 See U.S. Answers to Parts D-E of the First Set of Panel Questions, para. 27 (6 March 2007). 
65 Paul A. Westcott, "Counter-Cyclical Payments Under the 2002 Farm Act: Production Effects Likely 
to be Limited" at 203 (Exhibit US-35).  WT/DS267/RW 
 Page D-61 
 
 
(c) "while a number of studies indicate that farmers are risk averse (Chavas and Holt, 
1990, 1996, for example), other risk reducti on instruments already exist to manage 
risks. Thus, with revenue risk reduction now provided by CCPs as part of farm 
programs, farmers may adjust their use of these other farm and nonfarm risk management strategies;"
67 and  
 
(d) "a large portion of output in the U.S. agri cultural sector is produced by a small share 
of large producers. . . . Evidence that risk  aversion decreases as income rises (Chavas 
and Holt, 1990, 1996) suggests that risk av ersion may also tend to decline as the size 
of farms increases.  Thus, with larger fa rms that account for most production being 
less averse to facing risk, this lowers potential production effects of CCPs due to risk 
reduction.  And while smaller fa rms may be more risk averse in their farm enterprise, 
off-farm income may reduce the overall level of household income risk."68 
 44. Studies looking to the actual effects of counter-cyclical payments confirm their minimal 
impacts on planted acreage and production.  For exam ple, as the United States has explained, a 2007 
study by Lin & Dismukes found that "[t]he effect of CCPs on producers' planting decisions . . . appears to be very negligible – an increase in the acreage of major field crops of less than 1% ... ."
69  
The United States has submitted this and other studi es examining the empirical evidence regarding the 
actual effects of counter-cyclical payments on corn, wheat, and  soybean producers in recent years, 
including MY 2005, the marketing year on which Brazil has placed special emphasis.  The United 
States also has provided studies taking a more qualitative assessment of the question at hand.70  These 
studies support a finding that counter-cyclical payments  have – at best – minimal effects on plantings 
and production (and,  thus, are likely to have negligible effects on world market prices). 
 45. In its unsolicited third wr itten submission – BRA-659 – Braz il asks the Panel simply to 
disregard all of these studies.
71  For the reasons discussed above, Brazil's submission was made in 
breach of the Panel's working procedures and is not properly part of the reco rd before the Panel.  
Nonetheless, the United States would make the fo llowing points as to why the arguments made by 
Brazil therein are unavailing.  Braz il complains that the studies do not relate specifically to counter-
cyclical payments made in respect of upland cott on.  However, as the United States has explained, 
there is no reason why that should preclude the Pa nel from considering the studies as being highly 
relevant.72  Indeed, Brazil has not submitted any eviden ce – save for the unsupported assertions of its 
                                                                                                                                                                     
66 Paul A. Westcott, "Counter-Cyclical Payments Under the 2002 Farm Act: Production Effects Likely 
to be Limited" at 204 (Exhibit US-35). 
67 Paul A. Westcott, "Counter-Cyclical Payments Under the 2002 Farm Act: Production Effects Likely 
to be Limited" at 204 (Exhibit US-35). 
68 Paul A. Westcott, "Counter-Cyclical Payments Under the 2002 Farm Act: Production Effects Likely 
to be Limited" at 204 (Exhibit US-35). 
69 Lin, William and Dismukes, Robert.  "Supply Re sponse Under Risk: Implications for Counter- 
cyclical Payments' Production Impacts ," Review of Agricultural Econ omics–Volume 29, Number 1– 
Pages 64-86 , forthcoming, p. 83  (Exhibit US-85) (emphasis added). 
70 U.S. Rebuttal Submission, para. 226-252. 
71 Supplementary Statement of Daniel Sumner, paras. 18-38. 
72 Brazil also makes the inexplicable argument that a number of the studies submitted by the United 
States are not relevant because they allegedly do "not examine whether CCPs are decoupled from production.  
Rather, [they] examine whether CCPs in crease acreage."  Suppleme ntary Statement of Daniel Sumner, para. 21.  
Brazil applies this criticism, for example, to the 2007 study by Lin & Dismukes finding "very negligible" increases in the acreage of major field crops.  Brazil appears to be confused  about its own claims and arguments 
in this proceeding.  As the United States understands it,  Brazil's claim here is that marketing loan and counter-
cyclical payments are presently significantly suppressing world market prices.  Brazil's theory to support this 
claim has been that these payments a ffect the planting decision, causing U.S.  producers to plant more than they 
otherwise would and that this ultimately leads to ove rsupply and suppressed world market prices.  It is 
remarkable, therefore, that Brazil would attempt to dismiss  studies because they look at effects of payments on WT/DS267/RW   
Page D-62  
 
hired economist – to show that the effects woul d be substantially different in the case of upland 
cotton, especially given that no base acre holder has to produce anything, let alone the base crop, in 
order to receive any payments under the program .  More importantly, Brazil appears to forget that it 
is Brazil that bears the burden of pr oving its claims in this proceeding .  Indeed, while Brazil insists 
that only cotton-specific studies may be considered as relevant, Brazil has not itself provided a single 
study that examines the actual effects of  counte r-cyclical payments made specifically in respect of 
upland cotton production.  Moreover, what studi es Brazil has provided do not detract from the 
substantial evidence showing that – as a matter of fact – counter-cyclical payments have minimal 
acreage and production effects.
73  Therefore, Brazil's allegations of significant planting effects are just 
that – allegations.  They are supported neither by the empirical evidence nor any studies conducted in 
light of such evidence. 
 46. Brazil has no answer either to the studies findi ng that a substantial part of counter-cyclical 
payments are capitalized into land values and land rents.  Although Brazil argues that the Panel should 
simply disregard this evidence, Brazil has not expl ained why the following conclusion of the OECD is 
not valid and entirely relevant to the question at hand: 
 
Empirical work suggests that PFC and MLA payments had a significant effect on land values and rental rates.  Given the impor tance of the rental market for land in the 
United States, it appears that there was a relatively high "pass-through" of the 
additional income generated by the payments  to landowners, many of whom are not 
the actual operators of the land . It appears that the payments primarily had the effect 
of increasing the value of the princi pal fixed asset in agriculture—land.
74 
47. Indeed, the United States recalls that Brazil h as argued that the more certainty there is about 
whether payments will be received, the more likely they are to be capitalized  into land values and 
                                                                                                                                                                     
acreage and suggest that what is relevant is some undefined inquiry into whether payments are "coupled" to 
production (an inquiry, incidentally, that has no basis in the text of Articles 5(c) and 6.3(c)). 
73 Indeed, the study that Brazil has touted as "m ore recent and more relevant" than the numerous 
studies submitted by the United States does not even examine the behaviour of actual farmers – let alone upland 
cotton farmers.  See McIntosh, Christopher R, Jason F. Shogren and Erik Dohlman,"Supply Response to 
Counter-Cyclical Payments and Base Updating under Uncertainty: An Experimental Study,: forthcoming paper in the American Journal of Agricultural Economics , November 2006, page 18 (Exhibit BRA-565).  Rather, it 
looks to the results of a laboratory experiment conducted using University students as "laboratory decision-
makers."  Brazil criticizes the United States for allege dly "attempt[ing] to discredit research findings in 
economics simply because they deri ve from controlled experiments."  Supplementary Stat ement of Daniel 
Sumner, para. 38.  According to Brazil, this is "30 years out of date." Supplementary Statement of Daniel Sumner, para. 38.  However, Brazil makes no effort to re concile this view with its  own arguments that U.S. 
studies should be dismissed if they do not  examine the precise acreage responses of upland cotton  farmers.  Nor 
does Brazil address the fundamental limitations noted by authors themselves in respect of the laboratory 
experiment.  See McIntosh, Christopher R, Jason F. Shogren and Erik Dohlman,"Supply Response to Counter-
Cyclical Payments and Base Updating under Uncertainty: An Experimental Study,: forthcoming paper in the 
American Journal of Agricultural Economics , November 2006, page 18 (Exhibit BRA-565) ("Our design did 
not address two features of the 2002 Ac t which could affect the interpretation of our results.  First, there are no 
adjustments made in our bonuses for the fact that direct and counter-cy clical payments are made only on a 
percentage (85 percent) of base acres. If these adju stments were incorporated, the lump sum bonuses would 
have been lower, implying our results could overstate the effects of CCPs.  Second, we excluded the marketing 
loan program to focus on the basic CCP structure—target price, market price, and direct rate. Adding the 
marketing loan program into our design would temper the basic effects of CCPs by providing an additional price support mechanism.")   
74 Abler, David, and David Blandford.  A Review Of Empirical Studies Of The Acreage And 
Production Response To US Production Flexibility C ontract Payments Under The Fair Act And Related 
Payments Under Supplementary Legislation, Directorat e For Food, Agriculture And Fisheries Committee For 
Agriculture, OECD, Paris, AGR/CA/APM(2004)21/FINAL, p.17 (25 March 2005) (Exhibit US-32) (emphasis 
added).  WT/DS267/RW 
 Page D-63 
 
 
rents.75  Given that MLA payments were provided as part of ad hoc  legislation – unlike counter-
cyclical payments which have been established well ahead of time as a part of the FSRI Act of 2002 – 
farmers were presumably even less likely to have anticipated MLA payments than counter-cyclical 
payments.  Thus, the degree of capitalization into land values and rents is presumably even greater  
than that found in the OECD study for MLA pa yments.  And, as the OECD study concluded: 
 
If PFC and MLA payments were captured larg ely by landowners through higher land 
values and land rents, then the scope for these payments to influence agricultural 
production would be narrowed.  Farmers re nting land would not be able to use 
payments associated with their rented land to cover fixed or variable costs.  These 
farmers would be no more able to secure capital from traditional lenders than in the 
absence of the payments.  They would see no increase in wealth, at least on the land 
that they rent, ruling out a risk-related wealth  effect. Expectations of future payments 
associated with rented land would not affect decisions by renters because they would not capture these payments.  The payments would not affect a renter's decision to 
remain in or to exit from agriculture, although they could affect a landlord's decision 
to keep land in agriculture.
76 
48. Brazil's only response to this evidence is that it is "mathematically impossible" that direct and 
counter-cyclical payments "are capitalized into land rents and captured by the land owner."77  Brazil 
has not explained why – if this were so – the OE CD could have come to such a fatally flawed 
conclusion (especially given that the OECD conc lusions cited above were actually reached after 
reviewing a number  of different studies all examining th e pass-through effects of PFC and MLA 
payments).    49. In fact, the flaw is in the data that Brazil uses to allege its "mathema tical impossibility."  As 
the United States explained in its rebuttal submissi on, instead of examining actual land rents – as 
Brazil purports to do – Brazil actually considers an imputed economic cost to land that the USDA 
calculates by valuing the alternative uses of the ass et (for example, renting it to another producer).
78  
To make matters worse, Brazil looks at av erage imputed rental values for land on farms with payment 
base acres and without payments base acres, despite the fact that the former would have a 
substantially higher rental value precisely because of the payments associated with them.  Brazil's 
response that different  levels of payments are made on different base acres because of differences in 
historical yields misses the point entirely, and is no justification for comparing farmland linked to 
payment base with farmland not linked to payment base acres as Brazil attempts to do. 
 
                                                      
75 Brazil Rebuttal Submission, para. 146. 
76 Abler, David, and David Blandford.  A Review Of Empirical Studies Of The Acreage And 
Production Response To US Production Flexibility C ontract Payments Under The Fair Act And Related 
Payments Under Supplementary Legislation, Directorat e For Food, Agriculture And Fisheries Committee For 
Agriculture, OECD, Paris, AGR/CA/APM(2004)21/FINAL, p.17 (25 March 2005) (Exhibit US-32). 
77 Brazil Oral Statement, para. 46. 
78 U.S. Rebuttal Submission, para. 259. WT/DS267/RW   
Page D-64  
 
50. While it is sparse, it is also instructive to consider the type of evidence that Brazil actually 
does rely upon to support its claims regarding count er-cyclical payments.  Brazil invokes as evidence 
of "present" significant price suppression resulting from counter-cyclical payments,  a statement made in February 2001  – i.e., before either the 2002 FSRI Act or the counter-cyclical payments authorized 
thereunder went into effect – by a National Cotton Council representative about emergency relief 
provided under the FAIR Act of 1996  as to whether that relief helped cotton farmers "avoid 
bankruptcy" in the period MY 1999-2001.
79  This statement – quoted out of context – about 
emergency relief under the FAIR Act of 1996 including production flexibility contract payments, 
marketing loss assistance payments, and disaster pa yments, offers no insight regarding the role of 
counter-cyclical payments in production decisions or  about U.S. farmers' costs and revenues today.  
Certainly it does nothing to detract from the actual da ta regarding "present" co sts and revenue, which, 
as discussed below, flatly contradict Brazil's cl aims that U.S. upland cotton farmers would be 
bankrupt without the marketing loan and counter-cyclical payment programs.  In fact, while this "evidence" makes no substantive contribution to the issu es before the Panel, the fact that this is the 
type and quality of "empirical evidence" upon wh ich Brazil must rely speaks volumes about the lack 
of an evidentiary basis for Brazil's claims. 
 51. Marketing Loan Payments:   Brazil's arguments regarding marketing loan payments are no 
more availing than its arguments about the counter-c yclical payments.  Indeed, rather than providing 
actual evidence regarding the effects of the marke ting loan payments, Brazil attempts to simply 
sidestep the issue by, again, (a) asserting that the matter has already been r esolved by the original 
panel while at the same time (b) mischaracterizing th e U.S. arguments to avoid engaging on the real 
issues at hand.  Brazil's approach lacks merit.  52. First, the United States reiterates that the qu estion of whether or not marketing loan payments 
are causing "present" significant price suppression today was not considered by the original panel.  To 
the contrary, that panel expressly declined to consid er the effects of any future payments allegedly 
"mandated" to be made under the Step 2, marke ting loan, and counter-cyclical payment programs.  
The original panel also declined to consider whet her the marketing loan and counter-cyclical payment 
programs  would necessarily have adverse effects in th e future;  a finding that – by Brazil's own 
admission – would have been required for the original panel to have made a finding against the 
programs as such.
80  Moreover, as Brazil has conceded, the ma rket conditions that existed at the time 
of the original proceeding are very diffe rent from those that prevail at present.81 
53. Indeed, the market conditions are even more different now than Brazil cares to admit.  The 
Step 2 program is no longer in effect, and since the termination of the program, U.S. exports in 
                                                      
79 Brazil Oral Statement, para. 43. 
80 For example, in the case of its clai ms against the challenged programs, per se , Brazil asked the Panel 
"to find that the mandatory provisions of the 2002 FSRI Act and the 2000 ARP Act together with their 
implementing regulations, as listed above, cannot be applied in a WTO consistent manner ."  Brazil's 
9 September 2003 Further Submission, para. 435-436.  Explaining what this would mean in the context of this 
dispute, Brazil argued "[f]irst, the Panel need s to evaluate whether the U.S. subsidies will necessarily threaten  to 
cause serious prejudice at price levels below the trigger pr ices of the U.S. subsidies.  Second, the Panel needs to 
consider whether the U.S. subsidies threaten to cause serious prejudice even at price levels at which only crop 
insurance subsidies and direct payments are made ."  Brazil's 9 September 2003 Further Submission, para. 426 
(emphasis added).  The original panel did not conduct the requested evaluation and did not make the requested 
findings. 
81 See Brazil Rebuttal Submission, paras. 235-236 (In an effort to excuse itself from having even to 
show any coincidence  of U.S. payments and price suppression, Brazil argued that "the underlying statutory and 
regulatory bases for U.S. upland cotton subsidies and mark et conditions provided the original panel with a fairly 
dynamic environment in which to examine temporal coincidences.  The period MY 2001-2005 (principally under the FSRI Act of 2002) was more stable.  After MY 2001, it did not involve the same extreme declines in 
the world market prices for upland cotton or signific ant additional increases in the U.S. share of world 
production and exports, compared to the period MY 1998-2002.")    WT/DS267/RW 
 Page D-65 
 
 
MY 2006 are sharply lower than in recent years.  U.S. exports for MY 2006 are down 30 percent from 
the levels observed at the same time last year.82  Weekly cotton sales are 31 percent below  the 5-year 
average.83  And total U.S. export commitments are currently approximately 40 percent below last 
year's level and 27 percent below the 5-year average.84  Forecasts for the future are similarly gloomy.  
As the United States explained in the panel mee ting, in February, USDA lowered the U.S. cotton 
export forecast for MY 2006 by nearly 8 per cent, following a 2 percent downward revision in 
January.85  These downward revisions are taking place at the same time that USDA estimates record 
high foreign cotton mill use, which means that U.S. shar e of foreign consumption is expected to drop 
from 16 percent in MY 2005 to 12 percent in MY 2006 .  Moreover, U.S. share of world exports is 
expected to drop from 40 percent in MY 2005 to 36 percent in MY 2006.  U.S. domestic mill use for 
MY 2006 is projected at just 5 million bales, the lowest since MY 1931.  The declining demand for 
U.S. upland cotton is also being reflected in plan ting and production decisions.  The annual survey of 
planting intentions conducted by the National Cotton Council indicates that U.S. upland cotton plantings are likely to be down an average of 14 percent in MY 2007 from 2006 levels.
86 
 
54. To the extent that Brazil asserts that the or iginal panel already examined and resolved the 
question of what effects the marketing loan has under such market circumst ances as prevail now, the 
United States submits that Brazil's argument is wholly without merit.  55. Second, it is astonishing that Brazil yet again asserts that "the United States never explains 
how marketing loan subsidies could have no effect on producers' decision to plant cotton ... ."
87  Not 
only has the United States never alleged that " marketing loan subsidies could have no effect on 
producers' decision to plant cotton,"88 but the United States and Brazil's own economist appear to 
agree on precisely the conditions under which mark eting loan payments might affect producers' 
decision to plant cotton.  Specifically, to determine whether marketing loan payments have effects in 
any given year, it is necessary to examine the plan ting decisions made by U.S. producers in light of 
the conditions as they existed as of the time of  planting for each marketing year (i.e., January-
March).89  A producer's expectations at that time  about market revenue and/or revenue from 
government payments, costs and other factors will determine whether cotton or some other crop is 
planted, or if the land is put to other use.  Brazil conceded this point both in this proceeding90, and in 
the original proceeding.91 
                                                      
82 Weekly Export Performance Report for week ending February 15, 2007 (Exhibit US-113). 
83 Weekly Export Performance Report for week ending February 15, 2007 (Exhibit US-113). 
84 Weekly Export Performance Report for week ending February 15, 2007 (Exhibit US-113). 
85 February 2007 World Agricultural Supply and Demand Estimates (WASDE) Report 
(Exhibit US-114). 
86 National Cotton Council Planting Intenti ons Survey MY 2007 (Exhibit US-115). 
87 Brazil Oral Statement, para. 35. 
88 This is the second time that the United States has addressed the same mischar acterization of the U.S. 
position.  See e.g.,  U.S. Rebuttal Submission, para. 268 ("Brazil's rebuttal arguments about the structure, design, 
and operation of the marketing loan program are, yet again, premised on a mischa racterization of the U.S. 
arguments.  Brazil asserts that 'the United States argues that  upland cotton producers do not expect to receive 
marketing loan payments. . . .The United States argues that marketing loan payments . . . have no effect on 
planted acreage, no effect on production, no effect on exports, and no effect on the world price of cotton.'  Brazil 
Rebuttal Submission, para.101.  This is not what the United States has argued and the United States respectfully 
refers the Panel to the U.S. first written submission at paragraphs 203-225 where the actual U.S. arguments are 
set out in detail.") 
89 See e.g.,  Cotton Percent Planted, 15 Sel ected States (Exhibit US-44). 
90 See Brazil First Written Submission, Annex I, para. 36 ("U.S. cotton producers respond to the 
expected prices and expected rates of subsidy that apply at the time pl anting and other key decisions are made in 
the production cycle") (emphasis added) and Brazil First Written Submission, Annex I, para. 58 ("[t]he 
magnitude of the impact on incentives to produce cotton is equal to the expected difference between the loan 
rate, which is known at planting time, and the grower's expectations at the time of planting about the AWP for WT/DS267/RW   
Page D-66  
 
56. Nonetheless, while Brazil agrees with the Un ited States as to the correct analysis, Brazil 
continues to present evidence that directly contradi cts this analysis.  For example, in its "oral" 
presentation, Brazil alleges that marketing loan paym ents in MY 2005 were 29 percent higher than in 
MY 2002 and, according to Brazil, this " alone strongly suggests that its effects on U.S. production 
and exports as well as on world market prices are much  greater [than in the period before the original 
panel]."
92  Yet Brazil concedes that the effects  of the marketing loan payments  are a function of 
expectations regarding payments, not actual paymen ts received.  Indeed, in its modeling exercise 
purporting to examine the effects of marketing loan s, Brazil's economist does not even include actual 
payments, explaining:  
U.S. producers respond to revenue they exp ect to receive from market prices and 
expected government subsidies, where releva nt expectations are those that are held 
around the time that planting and other key production decisions are made.  U.S. producers do not know with certainty what actual prices and subsidies will turn out to 
be as they unfold during the marketing year.  Therefore, as in reality, the model 
assumes that actual prices  or subsidies in a marketing year do not affect cotton 
growers' behaviour in  that marketing year .
93 
57. It is telling that Brazil repeatedly misstates the U.S. position and continues to offer evidence 
that is fundamentally at odds with the correct anal ysis of possible price effects (which it has expressly 
acknowledged).  The fact is that Brazil has not – indeed, cannot – show that U.S. cotton producers' expectations regarding marketing loan payments in have actually led to "present" significant shifts in 
planting.  Indeed, as discussed next, the data submitted by Brazil regarding producers' expected 
revenues and costs show that producing upland co tton was both economically viable and rational in 
every year under the FSRI Act, including MY 2006 (the relevant year for purposes of Brazil's 
"present" serious prejudice claims).  
2. The Cost of Production Analysis Submitted By Brazil Is Fundamentally 
Flawed and the Proper Assessment of the Data Supports the U.S. Argument That Marketing Loan and Counter-Cyclical Payments Are Not Having Any Significant Price Suppressive Effects  
 
58. The centerpiece of Brazil's oral presentation regarding serious prejudice is a series of six charts
94 and accompanying discussion that Brazil presen ts to show the allegedly "economically 
irrational business of growing cotton in the United St ates within marketing loan and CCP subsidies."95  
Brazil submits that this evidence establishes that U.S. upland cotton producers would not plant upland 
cotton and could not survive without marketing loan and counter-cyclical payments.  As the United States shows below, however, Brazil's analysis is in consistent with the econom ic literature regarding 
the role of costs in planting decisions, the findings of the Appellate Body regarding the relevance of 
variable versus total costs, and the approach ta ken in all econometric models of which the United 
States is aware that look to costs as a factor in pl anting decisions (including Brazil's own model in the 
original proceeding).  Indeed, viewed consistently  with the principles recognized therein, the data 
show that (a) upland cotton producers expected and we re able to meet their variable costs in every 
                                                                                                                                                                    
 
cotton that will apply when the grower makes that ma rketing loan transaction.") (emphasis added). Brazil 
Further Submission, Annex I, para. 17-18. 
91 US – Upland Cotton (AB) , para. 440 ("Brazil counters that farmers decide what to plant based on 
expected market prices as well as expected payments under the challenged subsidy programs, such that planted 
acreage responds to both these factors.") 
92 Brazil Oral Statement, para. 31. 
93 Brazil First Written Submission, Annex I, para. 4 (emphasis added). 
94 In fact, there are only three charts, with a second associated ch art for each that isolates one of the 
columns therein. 
95 Brazil Oral Statement, para. 57 and paras. 57-91.  WT/DS267/RW 
 Page D-67 
 
 
year under the FSRI Act solely with market revenue ;  (b) that upland cotton was the most attractive 
crop from a cost/revenue perspective in most y ears;  (c) upland cotton producers met and exceeded 
even their total cash costs in almost every year under the FSRI Act of 2002. 
 59. What Brazil's analysis lays bare is not th e "economically irrational business of growing cotton 
in the United States within marketing loan and CCP subsidies,"
96 as Brazil alleges, but rather the 
distortive and unfounded nature of Brazil's cost analysis.  
a. Variable costs – not total co sts – are the relevant measure in 
assessing year-to-year planting decisions 
 
60. It is useful to begin with a summary of what Brazil purports to show.  Specifically, Brazil 
asserts that it is providing:  (a) a chart showing expected market revenue net of total costs of production for corn, soybeans, and cotton in MY 2005;  (b) a chart showing expected market revenue 
net of total costs of production for corn, soybeans,  and cotton in MY 2007;  and (c) a chart showing 
average market revenue net of total costs of production for corn, soybeans, and cotton in MY 2002-
2006.  Brazil argues that in each of these time periods, U.S. farmers would have lost money across the 
board  producing any of these crops (or would have expected to do so) "but for" marketing loan and 
counter-cyclical payments.  According to Brazil, this analysis shows that U.S. farmers producing 
cotton, soybeans, or corn can only survive because of those payments.  Brazil further alleges that it is 
only when those payments are taken into account that upland cotton  becomes an attractive crop 
relative to the others.  Brazil is wrong. 
 61. Even before addressing the numerous technical fl aws in Brazil's analysis, it is useful to put 
Brazil's argument in perspective;  in particular, th e remarkable assertion that U.S. farmers could not 
produce soybeans , corn, or cotton in the United States in any of the periods examined absent 
marketing loan and counter-cyclical payments.  Indeed, although the United States has almost one 
billion acres of farmland, and although corn and soyb eans were two of the top five top agricultural 
commodities in MY 2005, Brazil would have the Pane l believe that producing those crops and cotton 
– indeed, perhaps even agriculture itself – is an  ""economically irrational business" in the United 
States.  This premise is simply untenable.  In fact , it demonstrates precisely the flaws in the analysis 
presented by Brazil – that total costs in each year are not
 the proper considerations in assessing the 
viability of farmer's year-to-year planting decisions . 
 
62. Rather, for a farmer, the relevant costs in d eciding what to plant in each year are variable 
costs of production.  Recall the simplified example ex amined in the first U.S. submission of a farmer 
deciding in January of a particular year whethe r to plant all soybeans, some soybeans and some 
cotton, all cotton, or to allow the land to sit idle.  This farmer will consider, inter alia , the expected 
price of cotton at harvest, the expected price of so ybeans at harvest, as well as the anticipated costs of 
growing each crop.  In so doing, he does not need to  consider fixed asset and overhead costs.  He has 
already incurred those cost s;  they will not differ based on whet her the farmer plants soybeans, cotton, 
a mix, or nothing.  Rather, the farmer will consid er projected net revenues taking into account costs 
for such items as seed, fertilizer, chemicals, and othe r expenses that are directly related to planting, 
harvesting, and marketing each crop.  The economica lly rational decision for him will be to plant the 
crop, or mix of crops, that both covers his variable costs and maximizes his net revenue.  In other 
words, the farmer will choose the option that gives hi m the largest margin above variable costs.  This 
will not only allow him to cover his variable expen ses but will also give him the most revenue to pay 
down total costs. 
 
63. That variable costs are the relevant consider ation in year-to-year planting decisions is well-
accepted in agricultural economics.  The United States di scussed the extensive litera ture in this regard 
                                                      
96 Brazil Oral Statement, para. 57 and paras. 57-91. WT/DS267/RW   
Page D-68  
 
in its submissions to the panel in the original proceeding.
97  To supplement that discussion, the United 
States submits two other studies that confirm that va riable costs are the appropriate consideration in 
assessing year-to-year planting decisions.98  Considering the evidence su bmitted earlier in the dispute, 
the Appellate Body expressly recognized that:  
We agree with the general propos ition of the United States that variable costs may 
play a role in farmers' decision-making as to whether to plant upland cotton or some 
alternative crop, and how much of each crop to plant .  From a short-term perspective, 
variable costs may be particularly important .
99 
64. Moreover, the fact that variable costs – not total costs – is the appropriate measure is also 
evidenced by the fact that there is no economic model  of which the United States is aware that uses 
total costs in its supply response equations (that is , to examine the planting decision).  Indeed, FAPRI 
uses variable costs in its modeling framework.  And even Brazil's model in the original proceeding – 
purportedly based on the FAPRI model – used vari able costs in the net revenue equation that 
determined the planting decision of farmers. 
 
65. Thus, there is no basis whatsoever for Brazil's use of total costs to examine planting decisions 
in any particular year.  
b. U.S. farmers expected to meet  and exceed variable costs in each 
year, and in most years upland cotton was the most attractive 
option 
 
66. When a proper examination is undertaken rega rding the expected returns and variable costs, 
the data show that U.S. farmers expected to cove r their variable costs regardless of whether they 
decided to grown cotton, corn, or soybeans.  Braz il has acknowledged that if a "farmer would not be 
able to cover even variable costs, he or she would not plant anything at all to minimize losses."
100  
Conversely, where, as here, the farmer is covering his variable costs, it is economically rational for 
him to plant something .  The question is then what  to plant.  On that question, the assessment depends 
on a number of factors including the relative ne t revenue, considerations of weather, and 
considerations of other factors affecting yields (s uch as pests and disease).  As shown below, in most 
years, upland cotton was the most attractive option from the standpoint of costs and revenues. 
 
                                                      
97 See e.g. , U.S. Further Rebuttal Su bmission in the Original Proceeding, paras. 117-122 
(18 November 2003). 
98 See Cecil Davison and Brad Crowder, "Northeast Soybean Acreage Response Using Expected Net 
Returns" Northeastern Journal of Agriculture and Resource Economics , April 1991, pp. 33-41 (Exhibit US-137) 
and Duncan M. Chembezi and Abner W. Womack, "Regional Acreage Respons e for U.S. Corn and Wheat:  The 
Effects of Government Programs", Southern Journal of Agricultural Economics , July 1992, pp 187-198 
(Exhibit US-138). 
99 US – Upland Cotton (AB) , para. 453. 
100 Brazil Oral Statement, para. 67.  WT/DS267/RW 
 Page D-69 
 
 
 
 67. The U.S. analysis above seeks to replicate th e revenue expected and variable costs faced by 
actual U.S. cotton farmers.  Each aspect of  the calculation is described in Annex I.
101  As discussed 
therein, the United States has examined relative costs and revenue of growing upland cotton, corn, 
and soybeans in the 17 U.S. cotton-producing states.102 
 68. The analysis shows that for the entire peri od MY 2002-2007, U.S. cotton farmers expected to 
meet or exceed their variable costs of planting cotton, corn, or soybeans.  Therefore, it was 
economically rational for those farmers to plant something , rather than leaving the land idle.  In terms 
of what  to plant, upland cotton was the most attrac tive option – from the standpoint of costs and 
revenue – in at least three of the years (MY 2003, MY 2004, and MY 2006).  In MY 2002, 2005, and 
2007, cotton was not the most attractive option.  It is  instructive to examine more closely shifts in 
upland cotton acreage in those years because that s hows precisely that, contrary to Brazil's assertions, 
U.S. farmers' planting decisions correspond to market signals.  
69. In MY 2002, upland cotton was least attractive of the three options, and U.S. planted acreage 
declined correspondingly from 15.5 million acres in MY 2001 to 13.7 million acres in MY 2002.  70. In MY 2005, soybeans appeared to be the most  attractive crop, followed by cotton.  In this 
circumstance, the expectation was that cotton acr eage would fall slightly.  In fact, however, it 
increased slightly – by approximately 600,000 acres.  What explains this increase?  Brazil has 
attempted repeatedly to attribute this to the alle ged effects of marketing loans and counter-cyclical 
payments.  However, the data point fairly preci sely to the reason for the slight increase in cotton 
acreage in MY 2005 – a shift away from soybean acreage due to concerns about an outbreak of Asian soybean rust at the end of MY 2004.  Soybean ru st, a recurrent problem for soybean producers in 
much of the southern hemisphere, was first detect ed in the United States in the Fall of 2004, late 
enough in the season that it posed no threat to that  year's soybean crop.  After overwintering in the 
South, soybean rust posed a new, uncertain, and pot entially large threat at the beginning of the 2005 
                                                     
 
101 The back-up data is also provided in Exhibit US-139. 
102 In other states, cotton does is not a competitor crop and, therefore, corn and soybean costs from 
those states would distort the picture. Expected Market Returns Above Variable Costs
$0$50$100$150$200$250$300
2002 2003 2004 2005 2006 2007Cotton Soybeans CornWT/DS267/RW   
Page D-70  
 
U.S. soybean season.
103  Soybean rust has been detected in eight states in the Delta and Southeast 
regions since late 2004.104  It was in these regions that the sh ift from soybean acreage to upland cotton 
acreage occurred in MY 2005.   Of the 600,000 acre increase from MY 2004 to MY 2005, almost the entire shift occurred in the Delta region, where an increase  in 530,000 acres of cotton was offset 
precisely by a decrease  of 530,000 acres of soybeans.  Thus, it was soybean rust, and not marketing 
loan or counter-cyclical payments, that was responsible for increased acreage in MY 2005. 
 
Changes in planted acreage, 2004 to 2005 
 
Cotton Soybeans State/ 
Region Change in 
acres  % change  Change in 
acres  % change  
DELTA 530 15.6 -530 -4.4 
Arkansas 140 15.4 -170 -5.3 
 Louisiana 110 22.0 -220 -20.0 
 Mississippi 110 10.0 -60 -3.6 
 Missouri 60 15.8 0 0 
 Tennessee 110 20.6 -80 -6.6 
     
SOUTHEAST 74 2.5 -330 -10.6 
 Alabama 0 0 -60 -28.6 
 Florida -3 -3.3 -10 -52.6 
 Georgia -70 -5.4 -100 -35.7 
 North Carolina 85 11.6 -40 -2.6 
 South Carolina 51 23.7 -110 -20.3 
 Virginia 11 13.4 -110 -1.9 
       
SOUTHWEST 94 1.5 75 2.2 
 Kansas -11 -12.9 100 3.6 
 Oklahoma 50 2.2 5 1.6 
 Texas 100 1.7 -30 -10.3 
 Source:  Crop Production, October 2006, Agricultural Statistics Board, NASS, USDA. 
 
71. In MY 2007, corn is expected to provide great er net revenue than either cotton or soybeans.  
Cotton acreage is shifting consistent with these, and other, market signals.  As the United States noted 
in the meeting with the Panel, the annual survey  of planting intentions conducted by the National 
Cotton Council indicates that U.S. upland cotton pl antings are likely to be down an average of 
14 percent in MY 2007 from 2006 levels.105  While Brazil attempts to dismiss this data – arguing that 
acreage shifts should be even higher – it provides no basis for this assertion.  Indeed, a 14 percent shift 
in acreage would be substantial, amounting to more  than a 2 million acre drop in planted acreage and 
                                                      
103 The Value of Plant Disease Early-Warning Syst ems: A Case Study of USDA's Soybean Rust 
Coordinated Framework/ERR-18. Econ. Res. Ser., USDA., pg. 1. 
http://www.ers.usda.gov/publications/err18/err18.pdf   
104 As of October 3, 2006, National Soybean Rust Commentary, South Carolina officials reported a 
new county with soybean rust, Saluda County. Soybean rust was found in Washington and Sampson Counties in 
North Carolina on soybeans. Currently rust has been found infecting this year's soybeans in 68 different counties 
in eight states: AL, FL, GA, LA, MS, SC, TX, and NC.  Including reports on kudzu, there are a total of 88 
counties in eight states with rust this year, including 7 in Alabama; 15 in Florida; 18 in Louisiana and South 
Carolina; 13 in Georgia; 3 in Texas; 2 in Mississi ppi; and 12 in North Carolina.  http://www.sbrusa.net/   
105 National Cotton Council Planting Intenti ons Survey MY 2007 (Exhibit US-115).  WT/DS267/RW 
 Page D-71 
 
 
– applying MY 2006 yields – a 3.7 million bale decline in production.106  Brazil has not explained 
why this Panel should ignore this important evidence.  72. In any event, what the data show is quite different from what Brazil has asserted about the 
allegedly "economically irrational business of grow ing cotton in the United States within marketing 
loan and CCP subsidies."
107  Even without considering those payments, it is clear that U.S. farmers 
can – and do – meet their variable costs of produc tion.  Moreover, under the circumstances, upland 
cotton is often the most economically rational choi ce among the available competing crops.  Where it 
has not been, declines in acreag e have ordinarily resulted. 
 
c. U.S. farmers actually met a nd exceeded variable costs and even 
total cash costs in most years under the FSRI Act of 2002 
 
73. Finally, the United States recalls that total co sts may be a relevant c onsideration in more long-
term decisions such as whether or not to exit farming altogether ( i.e., not year-to-year planting 
decisions).108  However, Brazil's consideration of total costs of growing upland cotton suffers from a 
number of flaws.  74. First, Brazil considers total costs of growing upland cotton as the only consideration for a 
farmer in deciding whether to continue to exit farmin g altogether.  This is not accurate.  Indeed, as the 
economic literature confirms, w hole-farm costs and revenues – including off-farm revenue and 
revenue from other sources – are also important cons iderations in making those kinds of decisions.
109  
Brazil's attempts to show that U.S. producers would have exited upland cotton production in the long-
term solely on the basis of a comparison of costs and revenues for cotton are, thus, not sound.  Brazil 
has never been able to submit any literature, study, report, or empirical evidence to contradict the 
evidence submitted by the United States regarding the consideration of whole-farm costs and 
revenues.  Nor has Brazil provided any evidence that takes into account whole-farm costs and 
revenues, and that shows that, absent the marke ting loan and counter-cyclical payment programs, 
U.S. upland cotton producers would have exited upland cotton farming. 
 75. Second, Brazil includes in its assessment imput ed opportunity costs.  These are not actual 
expenditures, but instead are an economic concept u sed to capture the altern ative uses of the land, 
unpaid family labour and capital;  for example, how  much a farmer would pay himself for his own 
labour.  These are not like year-to-year cash cost s without which a farmer would be unable to 
continue on in business.  It is only through the incl usion of such imputed costs that Brazil seeks to 
show returns less than total costs.  
76. The fact is that even if one includes addition al fixed cash costs, which are not part of 
variable costs, the outcome remains much the same as for variable costs;  that is, in most years 
the market revenues from cotton cover variable plus fixed cash costs.   As shown below, in most 
years, U.S. farmers are able to meet and exceed their total cash costs.  Therefore, Brazil's claims of 
                                                     
 
106 February 2007 World Agricultural Supply and Demand Estimates (WASDE) Report 
(Exhibit US-114). 
107 Brazil Oral Statement, para. 57 and paras. 57-91. 
108 U.S. First Written Submission, paras. 295-297. 
109 See e.g.,  Hoppe, Robert A. and Korb, Penni.  Understanding U.S. Farm Exits.  Economic Research 
Report 21.  June 2006, p. 20 (Exhibit US-46) ("Off-farm  work has become important to farm operators.  About 
one-third of farmers have worked off the farm at least 200 days per year—essentially full-time—since 1978.  
Off-farm work could hypothetically affect exits in two wa ys.  First, off-farm work may be the first step in an 
exit from farming, which would be reflected in higher exits for farms the operators of which work off-farm.  
Second, off-farm work might lower the probability of ex it by providing farm operator households with another 
source of income.") WT/DS267/RW   
Page D-72  
 
widespread bankruptcies in the absence of market ing loan and counter-cyclical payments are not 
realistic.
110 
 
 
77. Moreover, Brazil has claimed on several occasi ons that a large cost-revenue gap exists for 
U.S. cotton producers, such that except for U.S. subs idies, farmers would not plant cotton.  Examining 
the cost data properly for the period 2000-2005, instead of the cumulative $663 deficit per acre 
asserted by Brazil, the cumulative returns over the same period were a positive return of $161 per 
acre.  Moreover, for MY 2000-2006, instead of the $837 deficit  per acre alleged by Brazil, the 
cumulative net returns were a positive $133 per acre. 
 
d. Conclusion 
 
78. Notwithstanding Brazil attempts to skew the co st data, that data show clearly that U.S. 
producers actually meet – and, in fact, exceed – their variable costs of producing upland cotton.  
Moreover, in most years, a relative consideration of  variable costs and expected returns shows upland 
cotton to be the most attractive among competing cr ops.  Where it is not, U.S. farmers behave in 
exactly the way they would be expected to behave gi ven the particular market signals – they pull back 
on production except where other considerations (for ex ample, concerns regarding weather, pests or 
disease) suggest a different approach.  
 
3. The Sumner II Model Is Oversimplified and Relies on Arbitrary 
Parameters and Assumptions That Have No Basis in the Economic 
Literature  
 79. The third piece of allegedly "key evidence" re ferenced by Brazil in support of its claims of 
present significant price suppression are the results of the Sumner II model that Brazil commissioned for purposes of this proceeding.  As the United States has explained, that model suffers from 
substantial flaws, both in its structure and opera tion and in the parameters and assumptions used 
therein.
111  As a result, the model is overly simp lified and produces grossly biased results.   
 
                                                      
110 The United States notes that this chart and the b ack-up spreadsheets were submitted to the Panel and 
Brazil during the meeting with the Panel.  See Exhibit US-124. 
111 See e.g.,  U.S. First Written Submission, Annex I and U.S. Rebuttal Submission, Annex I.  WT/DS267/RW 
 Page D-73 
 
 
80. Indeed, despite Brazil's efforts to explain it away, Dr. Sumner's own critical assessment of the 
model – made outside this proceeding – stands.  "The  simple model" laid out in the 2005 CATO paper 
– which is virtually identical to the one Brazil h as presented in this proceeding – "does not represent 
the depth of analysis that would be appropriate to support a trade remedy proceeding or a serious 
prejudice claim before a WTO panel."112  As Dr. Sumner acknowledged, much of the fault lies with 
the oversimplifications in the model itself, whic h "abstract from many complexities that would be 
important to get more precise estimates."113  Unfortunately, Dr. Sumner substantially compounded 
these flaws through his deliberate selection of mode ling assumptions and parameters that exaggerate 
any possible effects of the counter-cyclical and ma rketing loan programs.  As the United States 
demonstrated at the meeting with the Panel and as shown in the table below, between the original 
panel proceeding and this Article 21.5 panel proceeding, Dr. Sumner changed every single elasticity 
estimate in his modeling exercise, except one (U.S. mill demand elasticity).  And, in each one of these 
cases , he substituted an elasticity th at would produce even greater impacts on production and prices 
than would even the elasticities used for purposes of the original modeling exercise.114 
 Supply and Demand Elasticities Used in Sumner I and II 
 
Parameter Effects of change to Sumner II 
elasticity (impact on world price due 
to removal of marketing loans and 
counter-cyclical payments) Sumner I(FAPRI) Sumner II(CATO) 
U.S. cotton supply elasticity INCREASED IMPACT 0.361 - 0.466 0.80 
ROW cotton supply elasticity INCREASED IMPACT 0.30 0.20 
US mill demand elasticity no change -0.20 -0.20 
US stocks demand elasticity INCREASED IMPACT -1.40* no 
ROW mill demand elasticity INCREASED IMPACT -0.25 -0.20 
ROW stocks demand elasticity INCREASED IMPACT -0.463* no 
* Parameter estimate not presented in original Sumner model;  estimates drawn from FAPRI model 
documentation discussed in Annex I to the US Rebutal Submission, paras 23-25. (Exhibit US-56, 
Exhibit US-109, Exhibit US-65) 
 
81. In Brazil's "oral" presentation, it offers no jus tification for the flaws in the Sumner II model's 
structure or its arbitrary and unfounded elasticity assumptions.  Nonetheless, the United States addresses below a few of the key aspects of Brazi l's "oral" presentation regarding its modeling 
exercise. 
 82. First, the United States notes that Brazil con tinues to attempt to discredit the FAPRI model 
that it relied upon in the original proceedi ng (and that Brazil goes as far as to assert the original panel  
relied upon).
115  Now, for example, Brazil derides the  years of research embodied in the FAPRI 
framework and parameters by characterizing it as "piece-mill development."  This is presumably 
intended to establish the superiority of Brazil's model, which was developed by Dr. Sumner alone 
                                                      
112 Daniel A. Sumner.  "Boxed In: Conflicts Betw een U.S. Farm Policies and WTO Obligations." 
Center for Trade Policy Studie s, The Cato Institute, Decem ber 2005.  (Exhibit US-108) 
113 Daniel A. Sumner.  "Boxed In: Conflicts Betw een U.S. Farm Policies and WTO Obligations." 
Center for Trade Policy Studie s, The Cato Institute, Decem ber 2005.  (Exhibit US-108) 
114 Of course, many of the elasticities in the model us ed for purposes of the original proceeding were 
already overstated. 
115 See e.g.,  Brazil Rebuttal Submission, para. 292.  Brazil neglects to mention, however, that the 
original panel expressly stated that "[w]e have taken note of the outcomes of the simulations submitted by 
Brazil1, and the parties' exchanges of  views thereon. We have not relied upon the quantitative results of the 
modelling exercise – in terms of estimating any numerical value for the effects of th e United States subsidies, 
nor, indirectly, in our examination of the causal link required under Articles 5 and 6.3(c) of the 
SCM Agreement ." WT/DS267/RW   
Page D-74  
 
after the original panel proceeding and which has never been subjected to any peer review or 
examination.  Brazil's criticisms are remarkable given that – in an effort to have the original panel 
accept its allegedly FAPRI-based model in the origin al proceeding – Brazil specifically lauded the 
fact that FAPRI "continually update[d] [its] anal ytical capabilities and . . .  market intelligence."
116  
Thus, the fact that Brazil's new Sumner II model h as not been subjected to the same kind of peer 
review and development renders it less – not more – reliable than the FAPRI framework. 
 83. Second, Brazil now claims that FAPRI para meters are inappropriate for analyzing the 
"permanent" removal of payments such as the marketing loan and counter-cyclical payments.
117  
However, in the original proceeding Brazil asserted that "FAPRI is the most influential organization 
in the United States analyzing farm policy and its e ffects on U.S. and world commodity markets, i.e., 
that has the highest reputation and experience in answering the kind of "but for" questions faced by 
this Panel ,"118 Indeed, as Brazil expressly acknowledged in the original proceeding: 
 
The FAPRI model has been widely used fo r policy analysis in the United States and 
elsewhere for almost 20 years.  U.S. commodity groups, including the U.S. cotton 
industry, have regularly used the FAPRI model to analyze farm commodity program options.  The FAPRI model is also the key model used by the U.S. Congress in considering farm program options.  For almost two decades the U.S. Congress has provided special appropriations to support th e continued use and development of the 
FAPRI model.  In both the 1996 and the 2002 Farm Bill processes, the FAPRI model 
provided the most influential projections of  likely program impacts.  FAPRI received 
the USDA highest honour for its analysis of  certain proposals leading to the adoption 
of the 2002 FSRI Act.
119 
84. FAPRI has used their modeling system to analyze the removal of domestic subsidies under 
trade liberalization scenarios and the reduction of farm subsidies under various farm bill scenarios, 
including the "permanent" removal of payments.  I ndeed, in attempting to argue that elimination of 
the Step 2 program has had no effects on exports or prices, Brazil itself submitted and repeatedly cites to a FAPRI assessment of the effects of eliminating that program.
120  FAPRI economists did not find it 
necessary to change their model or modeling parame ters to address that question (involving a total 
and permanent removal of payments).  And Brazil did not complain that the FAPRI assessment of 
eliminating the Step 2 program was "biased downwards ."  To the contrary, in that context, Brazil 
wants the Panel to accept that FAPRI allegedly shows "r elatively modest effects from the removal of 
the Step 2 subsidy."  Brazil argues that the Panel should rely on FAPRI's analysis of that scenario in 
assessing the effects of eliminating the Step 2 program.  Yet Brazil asserts that the same FAPRI analysis is somehow inappropriate for analyzing th e counterfactual situation without marketing loan 
and counter-cyclical payments.
121  Brazil's arguments in this regard are internally inconsistent and 
lack credibility. 
85. Third, the United States notes that Brazil h as applied a long-run elasticity for U.S. supply 
response while imposing very conservative short-r un elasticities for international supply and demand 
response.  If the analysis is to be performed in the long run – and the United States considers that it 
must for the reasons explained at the meeting w ith the Panel – then long-run elasticities must be 
                                                      
116 Answers of Brazil to Questions from the Panel After 2nd Meeting, para 21 (22 December 2003). 
117 Brazil Oral Statement, para. 103. 
118 Answers of Brazil to Questions from the Panel After 2nd Meeting, para 24 (22 December 2003) 
(emphasis added). 
119 Brazil Further Submission, para. 214 (9 September 2003). 
120 See Brazil First Written Submission, para. 203 (a ddressing FAPRI, "Impacts of Commodity and 
Conservation Reserve Program Provisions in Hous e and Senate Reconciliation Bills," FAPRI-UMC 
Report #15-05, December 2005(Exhibit Bra-484).) 
121 Brazil Oral Statement, para. 103.  WT/DS267/RW 
 Page D-75 
 
 
assumed throughout the model.  In that time, fore ign cotton producers will make full adjustments and 
respond as well.  Similarly, over the long-term , U.S. and foreign mill demand become more 
responsive to permanent price changes.  There is no basis whatsoever for the kind of mix-and-match 
approach that Brazil has adopted in an effort to ex aggerate any possible effects of the marketing loan 
and counter-cyclical payments. 
 
86. Fourth, another key source of bias in Dr. Su mner's analysis is the fact that it does not 
incorporate, either explicitly or  implicitly, any stock behaviour.122  Yet, stock adjustments may have 
important effects on overall price movements in the short-run.  As future prices increase relative to current prices, warehouses will tend to carry more i nventory, choosing to sell their cotton in future 
periods when prices are higher.  Likewise, if current  prices are high relative to futures prices, sellers 
find it more attractive to market their cotton rather th an holding it for sale in the future.  In this way, 
stocks act to buffer prices.  If prices fall, potential sellers will sell less and hold more in stock, thus 
bolstering prices. If prices rise, inventory holders will sell stocks, thus dampening prices.  Ignoring 
stockholding behaviour in the kind of predominantly  short-run assessment that Brazil attempts to 
conduct exacerbates any possible effects of rem oval of marketing loans and counter-cyclical 
payments on world price.  87. Fifth, the United States contests Brazil's effort s to explain away the fact that it uses counter-
cyclical payments rates that are in excess of the statutory maximum.  According to Dr. Sumner, this 
results from calculation of counter-cyclical pa yment rates on a per-pound of production basis
123:  
"[The Sumner II model] uses the CCP rate per pound of production for each year.  Since cotton 
production is smaller than cotton base, the CCP rate per pound of production can exceed 13.73 cents 
per pound when the CCP rate per pound of base remains at the maximum."124  In other words, Brazil 
admits that it attempts to attribute to upland cotton production all counter-cyclical payments made in 
respect of upland cotton base acres regardless of whether upland cotton or some other crop was 
grown.  More precisely, Brazil attempts to attribute cotton production-inducing effects in respect of 
payments even when the payments were made on farms that did not produce upland cotton or on 
farms where other crops were grown, instead of upland cotton, on acres historically planted to cotton.  
This is an illogical approach that serves no purpose other than to inflate the results of the modeling 
exercise.  
88. In sum, the evidence and arguments before th e Panel show that the Sumner II model lacks the 
rigor or detail to address the complexities of the glob al fiber market.  Moreover, the model's choice of 
elasticities introduces biased results.  Even ignoring the structural i ssues with the model, the United 
States has demonstrated that the use of more reas onable, independent elasticities produce dramatically 
smaller impacts on world price.     
 
IV. C
ONCLUSION  
 
89. The United States has implemented the DSB's recommendations and rulings in this dispute and that it has done so consistently with its WTO obligations.  The United States has eliminated two 
export credit guarantee programs entirely.  And th e United States has substantially overhauled the 
third, lowest-risk program.  The United States h as also eliminated a third program, the Step 2 
program, payments under which were claimed by Braz il to be prohibited export subsidies, among the 
most distortive of subsidy measures.    
90. Moreover, substantial evidence confirms that  payments under the marketing loan and counter-
cyclical payment programs are not causing present significant price suppression, as Brazil alleges.  
                                                     
 
122 The absence of such an analysis is especially remarkable given Brazil's new theory that it is stocks – 
not exports – that are suppressing world market prices. 
123 Brazil Oral Statement, para. 120. 
124 Brazil Oral Statement, para. 120. WT/DS267/RW   
Page D-76  
 
Brazil has not been able to rebut this evidence.  Rather, it continues to rely on the heavily biased 
results of the modeling exercise commissioned for pu rposes of this dispute.  The United States has 
shown that exercise to be unreliable and, as its author  has noted in another context, not "appropriate to 
support [Brazil's] serious prejudice claim before [this] WTO panel."
125 
 
91. Finally, the United States again would like to thank the Panel for providing this opportunity to 
comment on Brazil's "oral" statement.  While we recognize that such an opportunity is unusual in 
WTO panel proceedings, the approach taken by Braz il to the Panel meeting was, itself, unusual.  
Brazil's approach had the unfortuna te consequence of limiting the chance for an oral dialogue with the 
Panel to a single afternoon.  Fortunately, by a llowing this opportunity for comment, the Panel has 
allowed the dialogue to take place, albeit in written form. 
                                                      
125 Daniel A. Sumner.  "Boxed In: Conflicts Betw een U.S. Farm Policies and WTO Obligations." 
Center for Trade Policy Studie s, The Cato Institute, Decem ber 2005.  (Exhibit US-108)  WT/DS267/RW 
 Page D-77 
 
 
ANNEX 
 
CALCULATION OF EXPECTED MARKET NET RETURNS ABOVE VARIABLE COSTS  
 
1.  Expected Market Prices: 
 
For upland cotton, soybeans and corn, the expected  market price is based on the January-March 
average of the relevant harvest-time (futures) contract .  This is the expected market price most likely 
to be relied upon by a producer.  For 2007, since da ta are not available for the full month of March, 
the average reflects January 1 through March 2.  The source for those prices is the New York Board 
of Trade for cotton futures; Chicago Bo ard of Trade for corn and soybeans. 
 Using the relevant harvest-time contract, the expect ed market price is derived by subtracting an 
average basis from the futures pri ce. In the case of cotton, the basis used is $0.05 per pound. For 
soybeans and corn, a basis of $0.14 is used for each.  The basis was taken from analysis by 
USDA/ERS that projects market prices and counte r-cyclical payment rates from futures prices. 
Models can be found at http://www.ers.usda.gov/Data/PriceForecast/
. 
 For cottonseed, in the absence of a futures market to determine price expectations, expected market 
prices are set at lagged prices. 
 
2.  Expected Yields 
 
For all crops, expected yields are determined b ased on a linear trend equation applied to USDA/NASS 
data for actual yields for the period 1995-2006.  Fo r upland cotton and cottonseed, the expected yield 
represents an average yield across the 17 cotton-pr oducing states. For soybeans and corn, average 
yields across the Cotton Belt are also used, with th e exception of data for Missouri and Kansas. Both 
states are relatively small producers of cotton and la rge producers of corn and soybeans. However, the 
majority of corn and soybeans are grown in parts of  the states too far north to be suitable for cotton 
production.  Corn and soybean yields in those regions , therefore, are not directly applicable to corn 
and soybean yields that would be expected in the cotton producing regions of those states. 
 
3.  Variable Costs 
 
Data for variable costs are taken from USDA/ERS co sts of production data.  For each crop, operating 
costs and hired labor are included as variable costs.  For cotton, the costs represent the average across 
the Cotton Belt.  In the case of competing crops, re gional data are used to calculate average costs 
across the cotton-producing states to most clo sely match the costs faced by U.S. farmers.
1  Projected 
cotton-belt costs for corn and soybeans are derive d from USDA/ERS projections of national costs. 
 
4.  Expected Market Net Returns 
 
For 2002 through 2007, expected market returns a bove variable costs are calculated as follows:  
 (a) For cotton, variable costs (including USDA- designated costs assigned to ginning that exceed 
revenue from cottonseed and hired labor) are subt racted from market returns for cotton lint. 
(b) For soybeans and corn, variable costs are s ubtracted from market returns for each of the 
crops.
                                                     
 
1 The United States does not use national average co sts for corn and soybeans since those costs are 
heavily influenced by the Midwestern United States.  Although the majority of corn and soybean production 
occurs there, it is an area that is not suitable for cotton production.  Therefore, the costs for those regions are not 
the costs ordinarily faced by U.S. cotton farmers. WT/DS267/RW   
Page D-78  
 
ANNEX D-6 
 
RESPONSES OF BRAZIL TO THE PANEL'S FIRST SET  
OF QUESTIONS (SECTIONS A-C) 
 
(26 February 2007) 
 
 
TABLE OF CONTENTS 
 
Page   
TABLE
 OF CASES       79 
 A. G
ENERAL QUESTIONS   81 
 
 Questions to both parties  81 
 B. Q
UESTIONS WITH RESPECT TO BRAZIL 'S REQUEST UNDER ARTICLE 13.1  DSU    82 
  Questions to the US 
 82 
 
 Question to Brazil   83 
 
C. QUESTIONS CONCERNING THE PRELIMINARY OBJECTIONS RAISED BY THE 
UNITED STATES    83 
 1. Preliminary objections of the United States in respect of claims of Brazil 
regarding export credit guarantees in respect of pig meat and poultry meat   
 83 
  Question to both parties 
  83 
  Questions to Brazil 
  94 
 
 Question to the US   97 
 
2. Preliminary objections of the United States with respect to claims of Brazil 
regarding marketing loan and counter-cyclical payment programs    97 
 
 Questions to Brazil   97 
  Questions to the United States 
  110 
 3. Claim of Brazil regarding the failure of the United States to comply with the 
DSB recommendations between 21 September 2005 and 1 August 2006   
 111 
  Questions to Brazil 
  111 
  Question to the United States 
113  WT/DS267/RW 
 Page D-79 
 
 
TABLE OF CASES  
Short Title Full Case Title and Citation 
Australia – Leather 
(21.5) Panel Report, Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather, WT/DS126/RW, adopted 11 February 2000, DSR 2000:III, 
1189. 
Australia – Salmon (Article 21.5 – Canada) Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse to 
Article 21.5 of the DSU by Canada , WT/DS18/RW, adopted 20 March 2000, 
DSR 2000:IV, 2031. 
Canada – Aircraft (21.5) Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft – Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/AB/RW, 
adopted 4 August 2000, DSR 2000:IX, 4299. 
Canada – Dairy (21.5) Appellate Body Report, Canada – Measures Affecting the Importation of Milk and 
the Exportation of Dairy Products – Recourse to Article 21.5 of the DSU by New 
Zealand and the United States , WT/DS103/AB/RW, WT/DS113/AB/RW, adopted 
18 December 2001, DSR 2001:XIII, 6829. 
Chile – PBS (21.5) Panel Report, Chile – Price Band System and Safeguard Measures Relating to 
Certain Agricultural Products – Recourse to  Article 21.5 of the DSU by Argentina , 
WT/DS207/RW, circulated to WTO Members 8 December 2006. 
EC – Bed Linen (21.5) Appellate Body Report, European Communities – Anti-Dumping Duties on Imports 
of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by 
India , WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965. 
EC – Bed Linen (21.5) Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-
Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by India , 
WT/DS141/RW, adopted 24 April 2003, modified by Appellate Body Report, WT/DS141/AB/RW, DSR 2003:IV, 1269. 
EC – Selected Customs Matters  Appellate Body Report, European Communities – Selected Customs Matters , 
WT/DS315/AB/R, adopted 11 December 2006. 
Mexico – Corn Syrup (21.5) 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, 6675. 
U.S. – Certain EC 
Products (21.5) Panel Report, United States – Import Measures  on Certain Products from the 
European Communities , WT/DS165/R and Add.1, adopted 10 January 2001, 
modified by Appellate Body Report, WT/DS165/AB/R, DSR 2001:II, 413. 
U.S. – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 1619. 
U.S. – FSC (21.5 II) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Arti cle 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW2, adopted 14 March 2006. 
U.S. – FSC (21.5 II) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations"
 – Second Recourse to Article 21.5 of  the DSU by the European Communities , 
WT/DS108/RW2, adopted 14 March 2006, upheld by Appellate Body Report, 
WT/DS108/AB/RW2. 
U.S. – Shrimp (21.5) Appellate Body Report, United States – Import Prohibition of Certain Shrimp
 and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6481. 
U.S. – Softwood Lumber IV (21.5) Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada – Recourse by Canada to 
Article 21.5 of the DSU , WT/DS257/AB/RW, adopted 20 December 2005. WT/DS267/RW   
Page D-80  
 
Short Title Full Case Title and Citation 
U.S. – Softwood 
Lumber IV (Article 21.5) Panel Report, United States – Final Countervailing Duty Determination with 
Respect to Certain Softwood Lumber from Canada – Recourse by Canada to Article 21.5 [of the DSU] , WT/DS257/RW, adopted 20 December 2005, upheld by 
Appellate Body Report, WT/DS257/AB/RW. 
US – Softwood Lumber V Appellate Body Report, United States – Final Dumping Determination on Softwood 
Lumber from Canada , WT/DS264/AB/R, adopted 31 August 2004, DSR 2004:V, 
1875. 
US – Softwood 
Lumber VI (21.5) Appellate Body Report, United States – Investigation of the International Trade 
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the 
DSU by Canada , WT/DS277/AB/RW, adopted 9 May 2006. 
U.S. – OCTG Sunset 
Reviews (21.5) Panel Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil 
Country Tubular Goods from Argentina – Recourse to Article 21.5 of the DSU by 
Argentina , WT/DS268/RW, circulated to WTO Members 30 November 2006. 
US – OCTG Sunset 
Reviews (Argentina) Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures 
on Oil Country Tubular Goods from Argentina , WT/DS268/AB/R, adopted 
17 December 2004, DSR 2004:VII, 3257. 
U.S. – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005. 
U.S. – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, and 
Corr.1, adopted 21 March 2005, modified by Appellate Body Report, 
WT/DS267/AB/R. 
  WT/DS267/RW 
 Page D-81 
 
 
A. G ENERAL QUESTIONS  
 
Questions to both parties  
 
1. Is Brazil/US of the view that a party to a dispute referred to a panel established under 
Article 21.5 of the DSU (a party in a compliance pan el) can make the same legal argument as it did 
in the original Panel proceedings?   
1. Brazil notes that a party's arguments  in WTO dispute settlement are distinct from the claims  
identified by the complaining Member in th e request for the establishment of a panel.
1  Although there 
are certain limitations on the claims  that can be brought by the complainant in Article 21.5 
proceedings, the complaining and respondent Members are free to make whatever legal arguments  
they wish.    
2. Could each party explain its view on the ques tion of whether, and to what extent, this Panel 
must rely on the legal and factual analysis underlyi ng the original panel's findings?  What are the 
relevant provisions of the DSU in this regard?   
2. According to Article 3.2 of the DSU, dis pute settlement is a central element in providing 
"security and predictability  to the multilateral trading system".  In developing a dispute settlement 
system that contributes to securing this objective, pa nels and the Appellate Body have taken care to 
ensure that disputes involving the same or similar f actual and legal questions are resolved in the same 
way.  The Appellate Body has articulated principles in  this regard that seek to further the goals of 
security and predictability.
2  
 3. First , prior adopted panel and Appellate Body re ports create "legitimate expectations" among 
WTO Members, and should be taken into account by panels when they are relevant to the resolution 
of a dispute.
3  Second , where the issues before a panel are the same as those previously examined by 
the Appellate Body, it is "not only appropriate," but to "be expected," that the panel would follow the 
Appellate Body's earlier conclusions.4 
 4. The Appellate Body has also clarified that  the objective of "security and predictability" 
applies with particular force in Article 21.5 proceed ings.  As Brazil noted in previous submissions, the 
Appellate Body has stated that "Article 21.5 procee dings do not occur in isolation but are part of a 
'continuum of events .'"
5  The Appellate Body observed that "doubts could arise about the objective 
nature  of an Article 21.5 panel's assessment if, on a specific issue, that panel were to deviate  from the 
reasoning in the original panel report in the ab sence of any change in the underlying evidence."6   
 
5. In this passage, the Appella te Body linked the need for consistent decision-making by a 
compliance panel to that panel's duty to make  an "objective assessment" of the matter under 
Article 11 of the DSU.  If a compliance panel "deviate[d]" from the original panel's findings on a "specific issue", without a fundamental change in the domestic legal fr amework and/or facts 
warranting this deviation, it would suggest that th e compliance panel is acting in an arbitrary fashion 
that does not meet the requirements of an "objectiv e assessment".  Accordingly, in the progression of 
                                                     
 
1 See, e.g., Appellate Body Report, EC – Selected Customs Matters , para. 153. 
2 See Appellate Body Report, US – Softwood Lumber V , para. 111, where the Appellate Body expressly 
relied on Article 3.2 of the DSU. 
3 Appellate Body Report, US – Softwood Lumber V , para. 111. 
4 Appellate Body Report, US – OCTG Sunset Reviews (Argentina) , para. 188. 
5 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 103 (emphasis added) citing 
Appellate Body Report, Mexico – Corn Syrup (21.5) , para. 121.   See Brazil's First Written Submission, 
para. 28. 
6 Appellate Body Report, US – Softwood Lumber VI (21.5) , para. 103 (emphasis added). WT/DS267/RW   
Page D-82  
 
"events" within a single dispute, it is especially  important for the compliance panel to respect the 
findings of the panel and the Appellate  Body in the original proceedings. 
 6. In this compliance dispute, with respect to Brazil's claims of adverse effects, many of the 
legal questions have already been addressed by th e original panel and the Appellate Body.  The 
structure, design and operation of the contested subs idy programs has not altered, nor has the general 
order of the magnitude of these subsidies.  Indeed, the magnitude of the subsidies has increased .  
Further, the evidence relating to the effect of the contested subsidies in the marketplace is also very 
much the same.  In these circum stances, the requirements of "security and predictability," and an 
"objective assessment", require the compliance Panel to follow the relevant findings of the original 
panel and the Appellate Body. 
 7. Although a compliance panel should follow the findings of the original panel and Appellate 
Body when the factual and legal questions are th e same, the questions that arise in compliance 
proceedings may differ.  This is because a comp liance panel "is not confined to examining the 
'measures taken to comply' from the perspective of  the claims, arguments and factual circumstances 
that related to the measure that was th e subject of the original proceedings."
7    
 8. With respect to the claims regarding export credit guarantees, the factual and legal questions 
relating to the existence of a "benefit" under Article 1.1(b) of the SCM Agreement  were not addressed 
by the panel in the original proceedings.  Thus , there are no findings on these questions that the 
compliance panel should follow.  Brazil notes, howeve r, that prior panel reports address how to assess 
the "benefit" from loan guarantees
8; those reports create "legitimate expectations" among 
WTO Members on this specific issue, and should be taken into account by the compliance panel.9  
The factual and legal questions relating to item (j) of  the Illustrative List of Export Subsidies have 
been thoroughly explored in the original proceedings.  To ensure "security and predictability", the 
compliance panel should follow the earlier findings in its interpretation of item (j) and in its treatment 
of the evidence.         
B. Q
UESTIONS WITH RESPECT TO BRAZIL 'S REQUEST UNDER ARTICLE 13.1  DSU 
 
Questions to the US  
 
3. Is the United States arguing that Brazil must identify the subsidized product for each of the 
types of subsidies from which it claims serious p rejudice? Is the United States arguing that payments 
which permit planting flexibility are not tied to the production of upland cotton, so that they must be allocated by Brazil across the total va lue of production of each recipient?  
 
4. Does the United States contest the accura cy of the figures for 2003 – 2005 cited in 
"Table 6"
10 of Brazil's first submission and "Table 5"11 of Brazil's rebuttal submission? If so, please 
provide the accurate figures, or the fig ures the US deems to be more accurate. 
 
                                                      
7 Appellate Body Report, Canada – Aircraft (21.5) , para. 41.  See also  Panel Report, Chile – 
PBS (21.5) , paras. 7.129, 7.136-7.137.  The Appellate Body la ter confirmed that this statement applied in the 
context of "a new claim challenging a new component of the measure taken to comply which was not part of the 
original measure."  Appellate Body Report, EC – Bed Linen (21.5) , para. 88. 
8 See Panel Report, EC – CVDs on DRAMs , paras. 7.189, 7.190;  Panel Report, Canada – Aircraft 
Credits and Guarantees , para. 7.345. 
9 Appellate Body Report, US – Softwood Lumber V , para. 111. 
10  Immediately preceding para. 112 of  Brazil's First Written Submission.  
11  Immediately following para. 173 of Brazil's Rebuttal Submission.  WT/DS267/RW 
 Page D-83 
 
 
Question to Brazil  
 
5. The Panel refers to Brazil's communica tion dated 22 January 2007 concerning its request 
in relation to Article 13.1 of the DSU. Is it correct for the Panel to understand that as far as data for 2005 is concerned, data included in Exhibit US -64 satisfies all of the requests Brazil made in 
Part A of Annex 1 of its 1 November communication? 
 
9. The Panel is correct in understanding that the data included in Exhibit US-64, as far as 
marketing year 2005 is concerned, satisfies Part A of Brazil's 1 November 2006 request.  The data 
enables Brazil to calculate the amount of counte r-cyclical payments allocated to upland cotton under 
the "Cotton-to-Cotton Methodology" and under "Brazil' s Methodology."  Brazil presents the results of 
its calculation as part of its Opening Statement to the compliance Panel.    
C. Q
UESTIONS CONCERNING THE PRELIMINARY OBJE CTIONS RAISED BY THE UNITED STATES  
 
1. Preliminary objections of the United States in respect of claims of Brazil regarding 
export credit guarantees in respect of pig meat and poultry meat 
 
Question to both parties  
 
6. The parties disagree with respect to whether in a proceeding under Article 21.5 of the DSU 
a party may present a claim that was raised in the original proceeding but on which no finding of 
WTO-inconsistency was made due to the fact that  the Appellate Body was unable to complete the 
analysis.  
a) Could the parties explain the legal basis in the text of Article 21.5 of the DSU and 
other relevant provisions of the DSU for their position on this question? 
 
b) Could the parties explain whether and how their position on this issue is consistent 
with prior panel and A ppellate Body reports?  
 
 A. Introduction
 
 
10. Brazil claims that the amended GSM 102 program  has been applied to circumvent U.S. export 
subsidy commitments on pig meat and poultry meat, in contravention of Articles 10.1 and 8 of the 
Agreement on Agriculture  (and in consequence, of Ar ticles 3.1(a) and 3.2 of the SCM Agreement ).  In 
its response to this question, Brazil will demonstr ate that under the relevant provisions of the DSU 
and the jurisprudence, its claims are properly wi thin the scope of these Article 21.5 proceedings.  
Brazil will address the limits placed by the DSU and prior jurisprudence on both the measures  that 
may be challenged in Article 21.5 proceedings, and the claims  that can be raised against those 
measures.  Brazil will then demonstrate that its claims, and the measure subject to those claims, 
observe those limits.  
 B. Background
  
 11. The treatment of Brazil's claims in the orig inal proceedings is important to the compliance 
Panel's assessment of the United States' preliminar y objection.  In the original proceedings, the 
measure at issue was the original GSM 102 progra m, which had general te rms and conditions that 
applied on a non-product-specific basis to many ag ricultural products.  Brazil claimed that this 
measure involved export subsidies applied in a ma nner that circumvented the United States' export 
subsidy commitments for all thirteen of its sche duled products and for unscheduled products, under 
Article 10.1 of the Agreement on Agriculture .   
 WT/DS267/RW   
Page D-84  
 
12. The original panel found that Brazil had dem onstrated application by the United States of 
GSM 102 to circumvent U.S. export subsidy comm itments for "unscheduled" products and for one 
"scheduled" product – rice.  On appeal, Brazil challe nged the original panel's failure to find that the 
export credit guarantees ("ECG") programs were applie d in a manner which results in circumvention 
of U.S. export subsidy commitments for three othe r scheduled products – pig meat, poultry meat and 
vegetable oil.
12  At the oral hearing, Brazil withdrew its appeal with respect to vegetable oil.13 
 13. On review, the Appellate Body reversed the original panel's finding that Brazil had failed to 
demonstrate actual circumvention with respect to pig meat and poultry meat.    
14. However, the Appellate Body concluded that there were insufficient uncontested facts of 
record to enable it to complete the analysis.
14  Because the Appellate Body was unable to complete the 
analysis, there is no adopted finding that the orig inal GSM 102 program is applied in a manner that 
circumvents the United States' commitments with resp ect to pig meat and poultry meat.  At the same 
time, however, there is also no adopted finding that  the original GSM 102 program, again with respect 
to pig meat and poultry meat, is not  inconsistent with Article 10.1 of the Agreement on Agriculture . 
 15. During implementation, the United States c ould have taken steps to amend the GSM 102 
program exclusively with respect to the terms a nd conditions applicable to rice and unscheduled 
products.  However, it did not do so.  Instead, it revised the general terms and conditions of the 
program, including the guarantee fee schedule, adopting an amended GSM 102 program that still 
applies on a non-product-specific basis.  In adopting an amended GSM 102 program, the United 
States was obliged to ensure that this new measur e respected all of the United States' obligations 
under the covered agreements.    16. In these compliance proceedings, Brazil claims that the amended GSM 102 program is not 
consistent with the United States' obligati ons under, among others, Article 10.1 of the Agreement on 
Agriculture  because this new measure is applied in a ma nner that circumvents U.S. obligations with 
respect to three scheduled products – pig meat, poultry meat and rice – and unscheduled products.      17. There is no dispute between the Parties that this claim is included in Brazil's request for 
establishment, which states, in relevant part, as follows: 
 
... [S]ubsequent to 1 July 2005, ECGs [export credit guarantees] under the GSM 102 
and SCGP [Supplier Credit Guarantee] program s have been applied to circumvent US 
export subsidy commitments, within the meaning of Article 10.1 of the Agreement on 
Agriculture .  Brazil is concerned that ECGs  under the GSM 102 and SCGP programs 
have been provided subsequent  to 1 July 2005 to support the export of:  upland cotton 
and other unscheduled products;  and, rice, pigmeat and poultry meat
, in excess of 
US reduction commitment levels for those products.15 
18. Brazil now turns to consider whether th ere are any limitations in these compliance 
proceedings on its right (1) to challenge the am ended GSM 102 program in these proceedings as a 
"measure taken to comply" or (2) to claim that th is new measure circumvents the United States' export 
subsidy commitments for pig meat and poultry meat.   
 19. The DSU contains limits on:  (i) the measures
 that may properly be subject to review in 
Article 21.5 proceedings;  and, (ii) the claims  that may properly be subject to review in Article 21.5 
proceedings.  Brazil will address these two limits – on measures, and on claims – separately.   
                                                      
12 Appellate Body Report, U.S. – Upland Cotton , para. 683. 
13 Appellate Body Report, U.S. – Upland Cotton , para. 683. 
14 Appellate Body Report, U.S. – Upland Cotton , paras. 689-694. 
15 WT/DS267/30, para. 27 (emphasis added).  WT/DS267/RW 
 Page D-85 
 
 
 20. The distinction between measures
 and claims  is important, given the basis for the 
United States' objection. 
C. Measures  
 
  1. Limits on measures  subject to Article 21.5 review  
 21. Article 21.5 enables a compliance panel to re view claims regarding the existence, or the 
consistency with the covered agre ements, of "measures taken to comply" with the recommendations 
and rulings of the DSB.  Measures that are not "taken to comply" with the DSB's recommendations 
and rulings may not be pursued  in Article 21.5 proceedings.
16 
 22. According to the Appellate Body, the phrase "measure taken to comply" in Article 21.5 
includes a new measure "in its totality".
17  Exactly what constitutes the bounds of a "measure taken to 
comply" varies according to the circumstances of the dispute, however. 
 
2. Erroneous basis for U.S. objection and the relevance of that objection for 
assessment of "measures"  
 23. In these proceedings, Brazil has fully obser ved the limits on the measures subject to 
Article 21.5 review.  
 
24. In its Rebuttal Submission, the United States clarifies that Brazil's claim is not properly within the scope of these Article 21.5 proceedings  because it relates to a measure that is not a 
"measure taken to comply".  The United States desc ribes the "measure" subject to Brazil's claim as 
"pig meat and poultry meat GSM 102 guarantees".
18  The United States argu es that such a "measure" 
could not be a "measure taken to comply", because there was no recommendation compelling action 
with respect to "pig meat and poultry meat GSM 102 guarantees".19   
 25. With these statements, the United States confounds Brazil's claim
, and the measure  that is the 
subject of that claim.   
26. As noted above, Brazil's claims
 of inconsistency are product-specific  with respect to 
scheduled products, as they must be.20  Article 10.1 prohibits the use of export subsidies not listed in 
                                                      
16 Appellate Body Report, Canada – Aircraft (21.5) , para. 36 ("Proceedings under Article 21.5 do not 
concern just any measure of a Member of the WTO;  rather, Article 21.5 proceedings are limited to those 
'measures taken to comply  with the recommendations and rulings' of the DSB.  In our view, the phrase 'measures 
taken to comply' refers to measures which have been, or which should be, adopted by a Member to bring about 
compliance with the recommendations and rulings of the DSB.  In principle, a measure which has been 'taken to comply with the recommendations and rulings' of the DSB will not be the same measure as the measure which was 
the subject of the original dispute, so that, in principle, there would be two separate and distinct measures:  the 
original measure which gave rise to the recommendations and rulings of the DSB, and the 'measures taken to 
comply' which are – or should be – adopted to implement  those recommendations and rulings."). 
17 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 67;  Appellate Body Report, U.S. – 
Shrimp (21.5) , para. 87. 
18 U.S. Rebuttal Submission, para. 10 ("In other words, as Brazil expressly concedes, there have never  
been any findings of WTO inconsistency against the pig meat and poultry meat GSM 102 guarantees , and 
consequently there were no DSB recommenda tions and rulings against these measures  with which the 
United States was obligated to comply.") (emphasis added).  See also  Id., paras. 14, 15. 
19 U.S. Rebuttal Submission, para. 10. 
20 See also  Brazil's Rebuttal Submission, para. 378.  Consistent with its request for establishment, 
Brazil's claims concerning GSM 102 ECGs for unscheduled  products are also produc t-specific, since they are 
limited to any unscheduled product that has received GSM 102 support subsequent to 1 July 2005. WT/DS267/RW   
Page D-86  
 
Article 9.1 of the Agreement to circumvent (or threaten to circumvent) "export subsidy 
commitments".  The first clause of Article 3.3 of the Agreement on Agriculture specifies that with 
respect to scheduled products, those "export subs idy commitments" include the commitment not to 
provide export subsidies "in excess of the budge tary outlay and quantity commitments levels 
specified" in its Schedule.
21   
 
27. To establish its product-specific claims of circ umvention with respect to scheduled products, 
Brazil has established:  (i) that in FY 2006, th e United States provided GSM 102 ECGs to support the 
export of rice, pig meat and poultry meat in excess of its annual quantity commitment levels for those 
products;  and, (ii) that during the period 1 Ju ly – 30 September 2005, the United States provided 
GSM 102 ECGs to support the export of rice and poultry meat in excess of its annual quantity 
commitment levels for those products.22 
 28. In contrast, the measure
 subject to Brazil's claims of inconsistency with the covered 
agreements is not product-specific, as the United States asserts.  The measure subject to 
Brazil's claims of inconsistency, "in its totality"23, is the GSM 102 program as amended by the 
United States' "measures taken to comply" – the modification of the GSM 102 fee schedule (including 
the removal of certain risk categories from eligibility).24 
 29. There is no factual basis for the United States to characterize the measure
 subject to Brazil's 
claims of inconsistency as "the pig meat and poultry meat GSM 102 guarantees".25  No such 
"measure" exists.  Neither the amended GSM 1 02 program in its totality, nor the individual 
amendments, set out terms or conditions that differ as between different eligible products: 
 
• Fees under the amended GSM 102 schedule eff ective 1 July 2005 differ according to 
country risk, repayment term a nd repayment frequency, but not  according to the 
eligible products involved.26 
 
• The regulations relating to the GSM 102 program do not set out differing terms and 
conditions for GSM 102 ECGs depending on th e specific eligible product at issue.27 
• The USDA FAS press release announcing amendments to the ECG programs 
effective 1 July 2005 does not indicate that  those amendments apply differently to 
different eligible products28; 
                                                      
21 See Appellate Body Report, U.S. – FSC , para. 145.  In an export subsidy dispute involving products 
listed in Annex I to the Agreement on Agriculture , Article 3 of the SCM Agreement  also applies on a product-
specific basis.  The chapeau to Article 3.1 prohibits export subsidies "[e]xcept as provided in the Agreement on 
Agriculture".  If export subsidies are provided for products listed in Annex I to the Agreement on Agriculture  
within the limits of a Member's "export subsidy commitments" – meaning, for scheduled products, below the 
Member's budgetary outlay and quantity commitments levels specified in its Schedule – the safe harbour in the chapeau  to Article 3.1 applies. 
22 Exhibits Bra-552, Bra-553 and Bra-554.  See also  Brazil's First Written Submission, para. 452. 
23 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 67;  Appellate Body Report, U.S. – 
Shrimp (21.5) , para. 87. 
24 See WT/DS267/30, paras. 8 ((ii) and (iii)), 26.  Throughout its response, Brazil will refer to the 
measure subject to its claims as "t he GSM 102 program as amended by the modified GSM 102 fee schedule". 
25 U.S. Rebuttal Submission, para. 10. 
26 Exhibit Bra-504 ("USDA changes its fees to risk -based method for the GSM-102 and Supplier Credit 
Guarantee programs," USDA FAS Online News Re lease, 30 June 2005, acce ssed November 2006 at 
http://www.fas.usda.gov/scriptsw/PressRel ease/pressrel_dout.asp?PrNum=0093-05 );  Exhibit Bra-505 
(GSM-102 Guarantee Fee Rate Schedule, US DA FAS Online, accessed September 2006 at 
www.fas.usda.gov/excredits/gsm102fees.html). 
27 Exhibit Bra-519 (7 C.F.R. Part 1493, Subparts A and B, GPO Access Onlin e, January 2006, accessed 
July 2006 at http://www.gpoaccess.gov/cfr/index.html).  WT/DS267/RW 
 Page D-87 
 
 
 
• USDA FAS "FAQs" issued with the announcem ent of the amendments to the ECG 
programs effective 1 July 2005 does not indicate that those amendments apply 
differently to different eligible products29; 
 
• The USDA FAS "fact sheet" describing the amendments to the ECG programs 
effective 1 July 2005 does not indicate that  those amendments apply differently to 
different eligible products.30 
 
30. The measure  subject to Brazil's claims in this di spute, and the GSM 102-related "measures 
taken to comply", are identical – namely, the GSM 102 program as amended by the modified GSM 102 fee schedule.  The measure does not apply on a product-specific basis;  the terms and conditions for ECGs under the GS M 102 program as amended by the modified GSM 102 fee schedule 
are the same for pig meat, poultry meat, and all other eligible scheduled  as well as unscheduled 
products.  While Brazil's claims
 regarding the consistency of the GSM 102 program as amended by 
the modified GSM 102 fee schedule are product-specific, the measure at issue is not.   
 31. The United States' objection to the inclusion of Brazil's Article 10.1 claims concerning pig meat and poultry meat within the scope of these Artic le 21.5 proceedings, is that those claims identify 
a product-specific  measure
.  That objection is mispla ced and should be rejected.31  By challenging the 
amended GSM 102 program, Brazil is in full complia nce with the limits imposed by Article 21.5 on 
the measures  that may properly be subject to Article 21.5 review. 
  D. Claims
 
 
1. Erroneous basis for U.S. objection and the relevance of that objection for 
assessment of " claims " 
 32. As noted, the contested measure taken to comply  – the GSM 102 program as amended by the modified GSM 102 fee schedule – applies uniformly and without variation to all eligible products.  In 
these Article 21.5 proceedings, Brazil's claims a pply to GSM 102 support for only some of those 
eligible products – unscheduled products and th ree scheduled products – rice, pig meat and poultry 
meat.    33. Given the Appellate Body's inability to comple te the analysis with respect to Brazil's product-
specific claims concerning support for exports of pig meat and poultry meat
32, there is no final 
resolution  to Brazil's claims regarding the original  GSM 102 program.  Specifically, there are no 
adopted findings that the ECG programs, with respect  to pig meat and poultry meat, are inconsistent 
with Article 10.1 of the Agreement on Agriculture , and there are no adopted findings that the ECG 
programs, again with respect to pig meat and poultry meat, are not  inconsistent with Article 10.1. 
                                                                                                                                                                     
28 Exhibit Bra-502 ("USDA announces changes to export credit guarantee programs to comply with 
WTO Findings," USDA FAS Online News Releas e, 30 June 2005, accessed November 2006 at 
http://www.fas.usda.gov/scriptsw/PressRelea se/pressrel_dout.asp?PrNum=0092-05).   
29 Exhibit Bra-501 ("FAQs:  Risk-Based Fees,"  Foreign Agriculture Service, USDA, accessed 
November 2006 at www.fas.usda.gov/excredits/faqs.html). 
30 Exhibit Bra-520 ("Export Credit Guarantee Pr ogram," USDA FAS Fact Sheet, March 2006, accessed 
November 2006 at http ://www.fas.usda.g ov/info/factsheets/gsm102-03.asp). 
31 As a result, the manifestations of "potential procedural unfairness" identified by the compliance 
Panel in U.S. – Certain EC Products (21.5) , which arose from the fact that the EC was bringing a new claim 
against an aspect of the original m easure that remained unchanged following adoption by the United States of its 
"measures taken to comply", do not arise in th e current compliance proceedings.  Panel Report, U.S. – Certain 
EC Products (21.5) , para. 7.75 (note 294). 
32 Appellate Body Report, U.S. – Upland Cotton , paras. 689-694. WT/DS267/RW   
Page D-88  
 
 34. The United States does not appear to ch allenge the "final resolution" standard per se .  That is, 
the basis for the United States' objection is not
 that Brazil is prohibited from pursuing the same claims  
that it maintained in the original proceedings, wh ere there has not been final resolution of those 
claims.  Rather, as discussed above, the United Stat es argues that Brazil is prohibited from pursuing 
those same claims in these Article 21.5 pro ceedings, because the claims concern a measure  that is not 
a "measure taken to comply".    35. Brazil has demonstrated above  that its claims concern a new "measure taken to comply" that 
replaces the original measure.  That is, the or iginal GSM 102 program has been replaced by the 
amended GSM 102 program, including a modified guara ntee fee schedule.  In the situation where the 
Article 21.5 proceedings concern a new aspect of a new measure, there are no limits on the scope of 
Brazil's claims in these proceedings.  The text of  Article 21.5 allows claims regarding both the 
existence
 of measures taken to comply, and the consistency of  those measures with all of the 
United States' obligations under the covered agreements.   
 
36. The situation in these Article 21.5 proceedings is very similar to the situation that arose in the 
Article 21.5 proceedings in Canada – Aircraft .  In that dispute, Canada amended the terms and 
conditions of an e xport subsidy program.33  The Appellate Body held th at the "measure taken to 
comply" was "a new  measure, the revised  TPC program", which was "separate and distinct " from the 
original  TPC program.34  In this dispute, the United States al so amended the terms and conditions of 
an export subsidy program.  The "measure taken to comply" is, therefore, "a new  measure, the revised  
[GSM 102] program".  37. With respect to a new measure, the Appellate  Body held that a compliance panel operating 
under the authority of Article 21.5 "is not confined to examining the 'measures taken to comply' from 
the perspective of the claims, arguments and factua l circumstances that related to the measure that 
was the subject of the original proceedings."
35  Thus, a compliance panel can assess any  claims made 
with respect to the new measure.  The Appella te Body expressly endorsed the view that the 
complaining Member can make the " same " claims that were made in the original proceedings.36 
 38. Thus, in these compliance proceedings, Brazil is entitled to claim that the amended GSM 102 
program is applied in a manner that circumvents the United States' commitments for pig meat and 
poultry meat.    39. The compliance Panel's asks Brazil to justify its position – that it may pursue, in Article 21.5 
proceedings, the same claim that it maintained in the original proceedings, where there has not been 
final resolution of that claim – under the DSU, as interpreted by panels and the Appellate Body.  
Brazil explores the limits on claims that can be made in compliance proceedings in the paragraphs that follow.  
                                                     
 
33 Appellate Body Report, Canada – Aircraft (21.5) , para. 34.   
34 Appellate Body Report, Canada – Aircraft (21.5) , para. 36 (italics in original, underlining added).   
35 Appellate Body Report, Canada – Aircraft (21.5) , para. 41. 
36 Appellate Body Report, Canada – Aircraft (21.5) , footnote 35 (emphasis in original) ("We note that 
the claim made by Brazil relating to the revised TP C program, in this Article 21.5 dispute, is the same as the 
claim made by Brazil in the original proceedings in rela tion to the TPC program as previously constituted.  In 
both cases, Brazil complained that the measure at i ssue was inconsistent with  Article 3.1(a) of the 
SCM Agreement .  These proceedings do not, therefore, involve a claim under a provision of the 
SCM Agreement , or, even, a claim under a covered agreement,  that was not examined in the original 
proceedings in Canada - Aircraft .") (emphasis in original).  WT/DS267/RW 
 Page D-89 
 
 
2. Limits on claims  subject to Article 21.5 review  
 
a. Limits concerning "new"  claims  
 40. Several disputes have explor ed limits on the ability in Article 21.5 proceedings to pursue new
 
claims regarding unchanged  components of the original  measure that were not pursued in the original 
proceedings.  Panels have determined that a complaining Member may not, in Article 21.5 
proceedings, pursue a new  claim on an aspect of the original measure that remains unchanged  from 
the original proceedings, and that was not challenged  in the original proceedings.37    
 
41. This line of jurisprudence is not relevant to the issue currently before  the compliance Panel.  
The United States' objection does not relate to a new  claim made by Brazil in these Article 21.5 
proceedings, but instead relates to the same  Brazilian claim made first in the original proceedings, and 
again in these Article 21.5 proceedings.  This line of  case-law is also irrelevant in this proceeding 
because Brazil's claims relate to the changed  guarantee fee schedule of the amended GSM 102 
program, and not to an unchanged  aspect of the original measure. 
 
b. Limits concerning the "same"  claims:  "final resolution" standard  
 42. Another line of disputes addresses limits on a complaining Member's ability to pursue the 
same
 claim, in Article 21.5 proceedings, that it had pr eviously pursued in the original proceedings.  
On several occasions, the Appellate Body and comp liance panels have explored the limits on the 
ability in Article 21.5 proceedings to pursue the same  claims previously pursued in the original 
proceedings regarding an unchange d aspect of the original measure. 
 43. In EC – Bed Linen (21.5) , the Appellate Body concluded that
38 
 
an unappealed finding included in a panel report that is adopted  by the DSB must be 
treated as a final resolution to a dispute between the parties in respect of the 
particular  claim and the specific component of a measure that is the subject of that 
claim.39   
44. As noted in Brazil's 16 January submission40, the situation posed by the Appellate Body is 
different from the circumstances in the present dis pute.  To recap, the original panel limited its 
findings regarding circumvention to  unscheduled products and one sch eduled product – rice.  Brazil 
                                                      
37 Panel Report, Chile – PBS (21.5) , paras. 7.141, 7.147, 7.152;  Panel Report, U.S. – Certain EC 
Products (21.5) , para. 7.74;  Panel Report, EC – Bed Linen (21.5) , para. 6.43. 
38 In U.S. – Softwood Lumber VI (21.5) , the Appellate Body concisely described this aspect of its 
conclusion in EC – Bed Linen (21.5)  in the following terms:  "a party cannot make the same claim of 
inconsistency against the same measure (or component of a measure) in an Article 21.5 proceeding if … the original panel found that the complaining party had not made out its claim with respect to the measure (or 
component of a measure (Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 92-93 and 99)."  
Appellate Body Report, U.S. – Softwood Lumber VI (21.5) , para. 102 (note 150). 
39 Appellate Body Report, EC – Bed Linen (21.5) , para. 93 (emphasis in original).  The original panel 
in that dispute stated that:  "The issue before us is whether India should be allowed to raise, in this Article 21.5 
proceeding, claims with respect to Article 3.5 which it could and did  raise before the original panel, but which 
it did not pursue, and which the Panel dismissed for failure to present a prima facie  case of violation."  Panel 
Report, EC – Bed Linen (21.5) , para. 6.48  (emphasis in original).  On review, the Appellate Body held that "the 
effect, for the parties, of findings adopted by the DSB as part of a panel report is the same, regardless of whether 
a panel found that the complainant failed to establish a prima facie  case that the measure is inconsistent with 
WTO obligations, that the Panel found that the measure is fully consistent with WTO obligations, or that the Panel found that the measure is not consistent with WTO obligations."  Appellate Body Report, EC – Bed 
Linen (21.5) , para. 96. 
40 Brazil's 16 January Submission, para. 12. WT/DS267/RW   
Page D-90  
 
did not, as was the case for India in EC – Bed Linen , leave this finding unappealed.  Rather, Brazil 
successfully appealed the original panel's finding.  The Appellate Body reversed the original panel's 
finding that Brazil had failed to demonstrate actua l circumvention with respect to pig meat and 
poultry meat, but was unable to complete the analys is given insufficient uncontested facts of record.
41 
 
45. The Appellate Body's reversal of the origin al panel's ruling, joined with its inability to 
complete the analysis, left the parties without final resolution of Brazil's claims regarding the 
provision of ECGs for exports of pig meat and poultry meat in excess of U.S. reduction commitments for those two products.  This situation constitutes th e effective equivalent of the exercise of false 
judicial economy, to which the Appellate Body also spoke in EC – Bed Linen (21.5) : 
 
The issue raised in this appeal is diffe rent from a situation where a panel, on its own 
initiative, exercises "judicial economy" by not  ruling on the substance of a claim.  …  
We believe that in a situation where a panel,  in declining to rule on a certain claim, 
has provided only a partial resolution of the matter at issue, a complainant should not 
be held responsible for the panel's false exercise of judicial economy, such that a 
complainant would not be prevented fro m raising the claim in a subsequent 
proceeding.
42 
46. The circumstances in the present dispute are sim ilar.  The original panel erroneously excluded 
ECGs for pig meat and poultry meat from its findi ngs regarding Brazil's circumvention claims.  As a 
result of the original panel's failure to make the necessary factual findings, the Appellate Body, while 
reversing the original panel's conclusion as a matter of  law, was unable to complete the analysis and 
offer Brazil satisfaction on its claims, through no fa ult of Brazil.  In these circumstances, Brazil 
"should not be held responsible" for the lack of final resolution of its claims43, and should be 
permitted, in these Article 21.5 proceedings, to re new its claims that the amended GSM 102 program 
has been applied to circumvent U.S. export s ubsidy commitments on pig meat and poultry meat. 
 
47. In short, the circumstances that prevented I ndia from renewing, in Article 21.5 proceedings in 
EC – Bed Linen , the same claim it had pursued in the original proceedings, are not  present in the 
current dispute.  Moreover, circumstances highlight ed by the Appellate Body as not indicating final 
resolution of a claim are  present in the current dispute. 
 
                                                      
41 Appellate Body Report, U.S. – Upland Cotton , paras. 689-694. 
42 Appellate Body Report, EC – Bed Linen (21.5) , para. 96 (note 115) (emphasis in original).  In the 
past, the Appellate Body's use of the term "false judici al economy" has only been a ttached to an exercise of 
judicial economy that has been reversed  on appeal.  Thus, the Appellate Body's  use of the phrase "false judicial 
economy" in EC – Bed Linen (21.5) suggests that in the circumstances it envisions, the complaining party will, 
in the original proceedings, have successfully appealed a nd secured reversal of that exercise of false judicial 
economy, therefore preserving its rights in the Article 21.5 proceedings.  The compliance panel in U.S. – OCTG 
Sunset Reviews (21.5) faced a slightly different situation.  In the Article 21.5 proceedings in that dispute, the 
compliance panel was asked whether an unappealed exercise of judicial economy in the original proceedings 
precludes review in Article 21.5 proceedings of the same  claim raised with respect to a changed element of the 
measure.  The compliance panel concluded that it did not: 
The fact that a panel, in an  original dispute settlement pr oceeding, did not make findings 
[due to judicial economy] regarding certain issues relating to the investigating authorities' 
determination that were raised and argued before the panel, can not preclude a compliance panel, in its assessment under Article 21.5 of the DSU of the measures taken 
to comply with the DSB recommendations an d rulings, from reviewing those aspects 
which have been incorporated by the authorities in the measure taken to comply."   Panel Report, U.S. – OCTG Sunset Reviews (21.5) , para. 7.92.  This issue is currently on appeal.  
WT/DS268/19, para. 2. 
43 Appellate Body Report, EC – Bed Linen (21.5) , para. 96 (note 115) (emphasis in original).  WT/DS267/RW 
 Page D-91 
 
 
48. In U.S. – Shrimp (21.5) , the Appellate Body similarly addr essed limitations on the ability of a 
complaining Member to seek review, at the Article 21.5 phase, of the same  claim addressed in the 
original proceedings.  The Appella te Body concluded that a compla ining Member can not pursue such 
a claim if it involved an unchanged  aspect of the original measure th at, in the original proceedings, 
had been found to be WTO-consistent .44 
 
49. The situation confronted by the Appellate Body in U.S. – Shrimp (21.5) is different from the 
circumstances in the present dispute, for at least two reasons.45   
 50. First, in the original proceedings in the present dispute, the Appellate Body reversed the 
original panel's finding that Brazil had failed to demo nstrate actual circumvention with respect to pig 
meat and poultry meat, but was unable to complete th e analysis given insufficient uncontested facts of 
record.
46  There is, therefore, no finding of WTO-consistency  with respect to Brazil's circumvention 
claims on pig meat and poultry meat, in stark contr ast to the situation faced by the compliance panel 
and Appellate Body in U.S. – Shrimp (21.5) . 
 
51. Second, as explained above, Brazil's claims of  circumvention with respect to pig meat and 
poultry meat are not against an unchanged aspect  of the same measure reviewed in the original 
proceedings.  The measure subject to Brazil's cl aims, and the GSM 102-related "measures taken to 
comply" in this dispute, are the amendments to the GSM 102 fee schedule, and the amended GSM 102 program in its totality.  Those measures ta ken to comply do not apply on a product-specific 
basis;  in other words, the amended GSM 102 f ee schedule makes no distin ction between pig meat, 
poultry meat, other scheduled produc ts, or unscheduled products. 
 52. The United States' attempt to distinguish  the situation in the current Article 21.5 proceedings 
from relevant aspects of the second Article 21.5 proceedings in Canada – Dairy  confirms the 
similarity between the two cases.  As the United Stat es notes, the United States and New Zealand 
requested a second Article 21.5 proceeding in Canada – Dairy  "where the Appella te Body was unable 
to reach a decision in [an earlier proceeding] rega rding the WTO-consistency of certain Canadian 
measure taken to comply because of a lack of sufficient facts."
47  That is precisely the situation in 
which Brazil finds itself.  In the original proceedings , the Appellate Body reversed the original panel's 
finding that Brazil had failed to demonstrate actua l circumvention with respect to pig meat and 
poultry meat, but was unable to complete the analysis given a lack of sufficient facts.48   
 53. While the United States possibly means to di stinguish the two disputes with its observation 
that in Canada – Dairy (21.5) , the complaining Members' claims concerned "measures taken to 
comply", while in the present dispute, Brazil's clai ms do not, Brazil has already demonstrated that its 
claims are indeed with respect to  a "measure taken to comply". 
 
                                                     
 
44 Appellate Body Report, U.S. – Shrimp (21.5) , paras. 89, 96 ("89.  ...  Ma laysia seems to suggest ... 
that a panel must re-examine, for WTO-consistency, even those aspects of a new measure that were part of a 
previous measure that was the subject of a dispute, and were found by the Appellate Body to be WTO-consistent 
in that dispute, and that remain unc hanged as a part of the new measure.  ....  96.  [T]he Panel ... rightly 
concluded that our ruling in United States – Shrimp  with respect to the consistency of [the unchanged aspect of 
the measure], therefore, still stands"). 
45 In U.S. – Softwood Lumber VI (21.5) , the Appellate Body concisely described this aspect of its 
conclusion in U.S. – Shrimp (21.5) in the following terms:  "a party cannot make the same claim of 
inconsistency against the same measure (or component of  a measure) in an Article  21.5 proceeding if the 
original panel and Appellate Body found the measure to be consistent with the obligation at issue (Appellate 
Body Report, U.S. – Shrimp (Article 21.5 – Malaysia) , paras. 89-99) ...."  Appellate Body Report, U.S. – 
Softwood Lumber VI (21.5) , para. 102 (note 150). 
46 Appellate Body Report, U.S. – Upland Cotton , paras. 689-694. 
47 U.S. Rebuttal Submission, para. 13 (note 19). 
48 Appellate Body Report, U.S. – Upland Cotton , paras. 689-694. WT/DS267/RW   
Page D-92  
 
54. Finally, a further reason that the circum stances of this dispute differ from those in EC – Bed 
Linen (21.5)  and U.S. – Shrimp (21.5)  is that Brazil's claims do not concern an unchanged  aspect of 
the original measure.  Rather, as noted, Brazil's claims concern the changed  guarantee fee schedule of 
the amended GSM 102 program.   
c. Interpretive bases for limits on claims
 
 55. Based on the jurisprudence, Brazil has demonstrated that its claims of circumvention with respect to pig meat and poultry meat are legiti mately within the scope of these Article 21.5 
proceedings.  To respond to part (a) of the co mpliance Panel's question, Brazil now reviews the 
interpretive basis for the various limitations on the right of a complaining Member to assert particular 
claims in Article 21.5 proceedings.  56. First, Brazil addresses the interpretive basis for the limits on new
 claims discussed above.  
According to panels, allowing any and all new claims in expedited compliance proceedings, without 
imposition of the limits discussed above in respect of an unchanged  aspect of the original measure, 
would jeopardize the "security and predictabilit y" of the WTO dispute settlement system, in 
contravention of Article 3.2 of the DSU49, and the principles of fundamental fairness and due process 
inherent to dispute settlement50, as well as the object and purpose of Article 21.5.51 
 57. Second, Brazil addresses the interpretive basis for the limits discussed above on the ability of 
a complaining Member to bring the same
 claim it had pursued in the original proceedings regarding 
an unchanged aspect of the original measure.  Th e interpretive basis for these limits is somewhat 
richer, and is based on reading Article 21.5 in the c ontext of Articles 16.4, 19.1, 21.1, 21.3 and 22.1 of 
the DSU.  The Appellate Body's interpreta tion is best developed in its report in EC – Bed 
Linen (21.5) : 
 
Where a panel concludes that a measure is inconsistent with a covered agreement, 
that panel shall recommend , according to Article 19.1, that the Member concerned 
bring that measure into conformity with th at agreement.  A panel report, including the 
recommendations  contained therein, shall be adopted  by the DSB within the time 
period specified in Article 16.4 – unless appealed.  Members are to comply  with 
recommendations and rulings adopted by the DSB promptly, or within a reasonable 
period of time, in accordance with paragraphs  1 and 3 of Article 21 of the DSU.  A 
Member that does not comply with the r ecommendations and rulings adopted by the 
DSB within these time periods must face th e consequences set out in Article 22.1, 
relating to compensation and suspension of concessions.  Thus, a reading of 
Articles 16.4 and 19.1, paragraphs 1 and 3 of Article 21, and Article 22.1, taken 
together, makes it abundantly clear that a panel finding which is not appealed, and which is included in a panel report adopted  by the DSB, must be accepted by the 
parties as a final resolution to the dispute between them, in the same way and with the 
same finality as a finding included in an A ppellate Body Report adopted by the DSB 
– with respect to the particular claim and the specific component of the measure that 
is the subject of the claim.
52 
58. These interpretive elements do not bar the compliance Panel from considering Brazil's claims 
of circumvention with respect to pig meat and poultr y meat.  As observed above , Brazil's claims relate 
to the changed guarantee fee schedule of the ame nded GSM 102 program, which is not an unchanged 
aspect of the original measure.  Brazil's claims al so do not involve a panel finding that was "not 
                                                      
49 Panel Report, Chile – PBS (21.5) , para. 7.152.  
50 Panel Report, U.S. – Certain EC Products (21.5) , para. 7.75 
51 Panel Report, EC – Bed Linen (21.5) , para. 6.43. 
52 Appellate Body Report, EC – Bed Linen (21.5) , para. 93 (emphasis in original).  WT/DS267/RW 
 Page D-93 
 
 
appealed", that was "included in a panel report adopted by the DSB", and that must therefore, as a 
result of Articles 16.4, 19.1, 21.1, 21.3 and 22.1 of the DSU, be accepted by Brazil "as a final 
resolution" of the claim.  59. As support for its conclu sion on the limits announced in EC – Bed Linen (21.5) , the Appellate 
Body also referred to the object and purpose of the DSU, noting that 
 
Article 3.3 provides that the prompt settlement of disputes is "essential to the 
effective functioning of the WTO".  Article 21.5 advances the purpose of achieving a prompt settlement of disputes by providing an expeditious procedure to establish 
whether a Member has fully complied with  the recommendations and rulings of the 
DSB.
   For that purpose, an Article 21.5 panel is  to complete its work within 90 days, 
whereas a panel in an original dispute is to  complete its work within 9 months of its 
establishment, or within 6 months of its co mposition.  It would be incompatible with 
the function and purpose of the WTO dispute settlement system if a claim could be 
reasserted in Article 21.5 proceedings after the original panel or the Appellate Body 
has made a finding that the challenged aspect of the original measure is not 
inconsistent with WTO obligations, and that report has been adopted by the DSB.  At 
some point, disputes must be viewed as definitely settled by the WTO dispute 
settlement system.53 
60. These interpretive elements do not bar the compliance Panel from considering Brazil's claims 
of circumvention with respect to pig meat and pou ltry meat.   As observed above, Brazil's claims do 
not involve reassertion of the same claim in Artic le 21.5 proceedings regarding an unchanged aspect 
of the original measure, following a finding by the original panel or the Appellate Body "that the 
challenged aspect of the original measure is not inconsistent with WTO obligations";  indeed, the 
Appellate Body reversed the original panel's findi ng that the ECG programs with respect to pig meat 
and poultry meat were not inconsistent w ith the export subsidy provisions of the Agreement on 
Agriculture and the SCM Agreement . 
   E. Conclusion
 
 61. In its response to this question, Brazil has de monstrated that the measures and claims subject 
to the United States' ECG-related request for pre liminary ruling pertain to a "measure taken to 
comply".  Specifically, Brazil has demonstrated that its challenge relates to a new
 aspect of a new  
measure – the modified fee schedule that is part  of the amended GSM 102 program.  Brazil's answer 
demonstrates that in these circumstances, its challenge  adheres to the textual and jurisprudential limits 
on the measures  that may properly be challenged in Article 21.5 proceedings.   
 
62. Separately, Brazil has demonstrated that  in these proceedings, it is raising the same  claims 
that it raised in the original pro ceedings, with respect to this new  aspect of a new  measure.  
Specifically, Brazil has demonstrated that its claims relate to the application of the amended GSM 102 
to circumvent U.S. export subsidy commitments on  pig meat and poultry meat;  in the original 
proceedings, Brazil similarly claimed that the old  GSM 102 was applied to circumvent U.S. export 
subsidy commitments on these two products.  No final resolution was achieved, even with respect to 
this now-changed  aspect of the old  measure.  Brazil's answer demonstrates that in these 
circumstances, its challenge adheres to the te xtual and jurisprudential limits on the claims  that may 
properly be subject to review under Article 21.5.  
                                                     
 
53 Appellate Body Report, EC – Bed Linen (21.5) , para. 98 (emphasis in original).  See also  Panel 
Report, Chile – PBS (21.5) , para. 7.135. WT/DS267/RW   
Page D-94  
 
Questions to Brazil
 
 
7. Is Brazil of the view that it is only in the circumstances identified by the Appellate Body in 
EC – Bed Linen (Article 21.5 – India) that the scope  of Article 21.5 proceedings is limited by the 
scope of the original proceedings?  [Paragraph s 11-15 of Submission of Brazil to the Panel 
Regarding US Requests for Preliminary Ruling]  
 
63. No.  As discussed in Brazil's response to qu estion 6, panels and the Appellate Body have 
addressed a number of circumstances in which the sc ope of Article 21.5 proceedings is limited by the 
scope of the original proceedings.  None of these apply to Brazil's claims regarding the modified 
guarantee fee schedule of the amended GSM 102 program. 
 
8. How does Brazil respond to the arguments of  the United States that Brazil "incorrectly 
assumes that the standard is one of whether there has been a 'final resolution' of the issue in the 
original proceeding" and that Brazil misreads  the Appellate Body report in EC – Bed Linen 
(Article 21.5 – India) and confuses the issue of "the scope of a compliance proceeding pursuant to 
Article 21.5 of the DSU" and the distinct issue of "when a claim against a specific measure or aspect of a measure can be considered to be  'finally resolved' for purposes of WTO dispute 
settlement"? [Paragraphs 8 and 12 of the Rebuttal Submission of the United States]    
64. Brazil agrees that assessing the proper scope of an Article 21.5 proceeding requires separate determinations that (i) the measure
 at issue is a "measure taken to comply", and (ii) the claims  levied 
by the complaining Member with respect to that  measure are subject to review in compliance 
proceedings.  65. In its submissions to the compliance Panel, the United States does not appear to challenge the 
"final resolution" standard per se , as a means of assessing the question in part (ii).  That is, the basis 
for the United States' preliminary objection is not
 that Brazil is prohibited from pursuing the same 
claims  that it maintained in the original proceedings, where there has not been final resolution of those 
claims.    66. Rather, as discussed in Brazil's response to qu estion 6, the United States' ECG-related request 
for preliminary ruling concerns solely part (i) of the assessment.  Specifically, the United States 
argues that Brazil is prohibited from pursuing those same claims in these Article 21.5 proceedings, because the claims concern a measure
 that is allegedly not a "measu re taken to comply".  In its 
response to question 6, Brazil has demonstrated that its claims do indeed concern a "measure taken to 
comply". 
 
9. What are the comments of Brazil on the arguments in footnote 22 of the United States' 
rebuttal submission?   
67. Brazil's first comment is that the United St ates has never addressed the fact that Brazil's 
claims in this dispute pertain to the modified guarantee fee schedule  of the amended  GSM 102 
program.  Thus, the limitations in Article 21.5 on ra ising claims in compliance proceedings regarding 
an unchanged  aspect of the original  measure do not apply. 
 68. There are several arguments raised by the United States in footnote 22 of its Rebuttal Submission.   
69. The United States appears to argue, first, that where the Appellate Body has reversed an 
original panel's finding of WTO-inconsistency with respect to a particular claim, but found itself  WT/DS267/RW 
 Page D-95 
 
 
unable to complete the analysis given a lack of suffi cient facts, that claim can not be considered by a 
compliance panel in subsequent proceedings.54   
 70. The U.S. argument is inconsistent with EC – Bed Linen (21.5)
55, in which the Appellate Body 
concluded that the exercise of judicial economy w ith respect to a claim ra ised in the original 
proceedings does not bar a complaining Member from reasserting that same claim in Article 21.5 
proceedings.56 
 71. In some respects, the situation in the current di spute is the effective equivalent of the exercise 
of judicial economy described by the Appellate B ody as presenting no bar to consideration of a claim 
in subsequent Article 21.5 proceedings.  The origin al panel erroneously excluded ECGs for pig meat 
and poultry meat from its findings regarding Brazil's ci rcumvention claims.  As a result of the original 
panel's failure to make the necessary factual findings , the Appellate Body, while reversing the original 
panel's conclusion as a matter of law, was unable to complete the analysis and offer Brazil satisfaction 
on its claims, through no fault of Brazil.  In these circumstances, Brazil "should not be held 
responsible" for the lack of final resolution of its claims regarding the original  measure
57, and should 
be permitted, in these Article 21.5 proceed ings, to renew its claims that the amended  GSM 102 
program has been applied to circumvent U.S. export subsidy commitments on pig meat and poultry 
meat.  72. Second , implicit in the United States' argument is an assertion that "the measures" subject to 
Brazil's claims remain unchanged from the original proceedings.  As demonstrated in response to 
questions 6 and 8, however, Braz il's ECG-related claims of in consistency with the covered 
agreements do indeed involve a new "measure taken to comply" a nd, in particular, the modified 
guarantee fee schedule in that new measure.  The m easure subject to Brazil's claims is a "measure 
taken to comply" – the GSM 102 program as amended by the modified GSM 102 fee schedule. 
 
73. Third , in arguing that "Brazil would have this compliance Panel assume that the Appellate 
Body had made a finding of WTO-inconsistency with r espect to the pig meat and poultry meat 
GSM 102 guarantees and had made a recommendation that the United States bring these measures 
into compliance,"
58 the United States reveals a misunderstandi ng of the compliance Panel's task.  The 
Appellate Body has clarified that the task of a compliance panel operating un der Article 21.5 is not 
limited to the issue whether the defending Memb er has implemented the recommendations of the 
DSB.59  Instead, the compliance Pa nel must examine whether the revised  measure is consistent with 
all of the implementing Member's WTO obligations  – including the United States' export subsidy 
commitments for pig meat and poultry meat. 
                                                      
54 U.S. Rebuttal Submission, para. 14 (note 22) ("Br azil is effectively asking the Panel to render 
meaningless the fact that the Appellate Body declined to make any finding of WTO-inconsistency with respect 
to the measures because it did not  find uncontested facts showing th at the measures were provided 
inconsistently with any U.S. WTO obligations.  Brazil w ould have this Panel assume that the Appellate Body 
had made a finding of WTO-inconsistency with respect to  the pig meat and poultry meat GSM 102 guarantees 
and had made a recommendation that the United States bring these measures in to compliance with the 
obligations assumed to be breach [sic] (and further to assume that this recommendation was adopted by 
the DSB).  None of these things happened, and Brazil has no basis for asking the Panel to pretend otherwise."). 
55 As described in Brazil's response to question 6, the U.S. argument would similarly have prevented it 
from bringing the claims asserted in the second Article 21.5 proceeding in Canada – Dairy . 
56 Appellate Body Report, EC – Bed Linen (21.5) , para. 96 (note 115).  See also Panel Report, U.S. – 
OCTG Sunset Reviews (21.5) , para. 7.92 (currently on appeal). 
57 Appellate Body Report, EC – Bed Linen (21.5) , para. 96 (note 115) (emphasis in original). 
58 U.S. Rebuttal Submission, para. 14 (note 22). 
59 See, e.g., Appellate Body Report, Canada – Aircraft (21.5) , paras. 40-41.  See also Panel Report, 
Chile – PBS (21.5) , paras. 7.136-7.137. WT/DS267/RW   
Page D-96  
 
74. Fourth , and finally, the United States argues that, if Brazil is permitted to pursue its claim 
against U.S. use of the amended GSM 102 program to circumvent U.S. export subsidy commitments 
for pig meat and poultry meat, in the absence of a fi nding by the original panel or the Appellate Body 
of circumvention with respect to pig meat and pou ltry meat, and in the consequent absence of a DSB 
recommendation concerning circumvention with respect to pig meat and poultry meat, the 
United States could be "deprived of a reasonable period of time to bring any measures found to be 
WTO-inconsistent into compliance with its obligat ions", "where a measure (that is not a measure 
taken to comply ) is found to be WTO-inconsistent for th e first time in an Article 21.5 proceeding."60 
 75. The underlined portion of this statement rev eals the fundamental error in the United States' 
reasoning.  As demonstrated in response to ques tions 6 and 8, Brazil's ECG-related claims of 
inconsistency with the covered ag reements do indeed involve a "measure taken to comply".  The 
measure subject to Brazil's claims is the "measu re taken to comply" – the GSM 102 program as 
amended by the modified GSM 102 fee schedule.  
76. For systemic reasons, Brazil would like to a ddress the relevance of the potential "deprivation" 
highlighted by the United States, as suming that the measure at issue is
 a "measure taken to comply" 
(and, thus, assuming that the underlined parenthetical  is stricken from the United States' statement). 
 77. In that case, the potential "deprivation" not ed by the United States is inherent to the 
Article 21.5 process.  Where a Member adopts a "measure  taken to comply", it is subject to review, 
under the expedited procedures of Article 21.5, for "c onsistency with a covered agreement".  The text 
of Article 21.5 does not specify that consistency must be judged with reference to the particular 
provisions of the particular covered agreement und er which a violation was found in the original 
proceedings.  As noted above, the compliance Panel' s mandate is to review the consistency of the 
measure with the covered agreements, and not
 with the specific recommendations made by the DSB.   
 
78. If the Member's "measure taken to comply" is  found to be WTO-inconsistent, the Member is 
not accorded an additional "reasonable period of time" to bring its measure into compliance.  This has 
been confirmed by the Appellate Body and the compliance panel in U.S. – FSC (21.5 II) , another 
dispute involving recommendations under Article 4.7 of the SCM Agreement .  The Appellate Body 
noted that if findings of violation in Article 21.5 proceedings "were to result in an extension of the 
time period set for" compliance,  
 
compliance proceedings could have the e ffect of extending implementation periods 
… in successive Article 21.5 proceedings.  This could lead to a potentially "never-ending cycle" of dispute settlement proceedings and inordi nate delays in the 
implementation of recommendations and rulings of the DSB.
61 
79. The compliance panel in that dispute in fact noted a problem that the United States ignores – 
allowing Members to secure additional time to im plement recommendations through the Article 21.5 
process would give them an incentive to adopt non-compliant "measures taken to comply": 
 
Nowhere do we find any indication in the text or context of Article 21.1/21.5 of the 
DSU or of Article 4.7 of the SCM Agreement , nor in the object or purpose of the DSU 
(nor, for that matter, the SCM Agreement ) that would require repeated extensions of 
the implementation period in Article 21.5 DSU compliance proceedings.  Indeed, 
such an interpretation would reduce the textual treaty terms "prompt compliance" and "without delay" to redundancy and inutility.   We are not permitted to adopt such an 
                                                     
 
60 U.S. Rebuttal Submission, para. 14 (note 22) (emphasis added). 
61 Appellate Body Report, U.S. – FSC (21.5 II) , para. 86, quoting  Panel Report, U.S. – FSC (21.5 II) , 
para. 7.46.  
   WT/DS267/RW 
 Page D-97 
 
 
interpretation.  Such an approach migh t lead to a potentially never-ending cycle, 
whereby a Member continues to adopt non-compliant measures in order to win more 
time to comply with adopted DSB recommendations and rulings .  This would entirely 
undermine the effective operation of the WTO dispute settlement system.62 
80. The potential "deprivation" of which the United States speaks is not unique to the current 
Article 21.5 proceeding;  it is inherent to Artic le 21.5 proceedings gene rally, and is why it is 
incumbent on a defending Member, having already been found to be in violation of its WTO 
obligations, to adopt "measures taken to comply" th at are fully WTO-consistent.  No more time for 
implementation is, or should be, accorded.  Having al ready been found to be in violation of its WTO 
obligations, the defending Member's curative "measur es taken to comply" viol ate its obligations and 
commitments at its peril.  As noted by the compliance panel in U.S. – FSC (21.5) , 
 
Article 21.5 comes after the "recommendation" provision in Article 19 of the DSU , 
and the principle of "prompt compliance" in Article 21.1, as part of the WTO dispute settlement process.  The title of Article 21 – "Surveillance of recommendations and 
rulings" –  is telling.  It informs us that the proceedings are to follow the 
implementation of recommendations and rulings  that have been made.  This finds 
further support in the particular nature and purpose of compliance panel 
proceedings.
63 
81. Using the Article 21.5 process to "add[] to the 'non-implementing' Member's rights under the 
covered agreements through an extension of the time-period for implementa tion" would undermine 
the object and purpose of compliance proceedings.64 
 
82. The rights and obligations of complaini ng and defending Members in Article 21.5 
proceedings are finely balanced.  The potential "d eprivation" noted by the United States is a burden a 
defending Member in an Article 21.5 proceedings must bear, as a result of the terms of Article 21.5 and the object and purpose of compliance proceedings.  Similarly, Brazil has described in detail (in its 
response to question 6) the limits imposed on comp laining Members in Article 21.5 disputes – they 
may challenge only "measures taken to comply", and they may pursue only those claims not yet 
subject to final resolution.
 
 
Question to the US  
 
10. Could the United States explain why it cons iders that what it describes as the "final 
resolution" standard is not the correct standard to decide whether Brazil's claims regarding export 
credit guarantees for pig meat and poultry meat a re within the scope of this proceeding?  
 
2. Preliminary objections of the United States with respect to claims of Brazil regarding 
marketing loan and counter-cyclical payment programs 
 
Questions to Brazil  
 
11. Is Brazil of the view that a finding under Article 6 of the SCM Agreement that a "subsidy" 
is causing serious prejudice necessarily always applies to both the subsidy "payments" and the 
subsidy "program"? [Paragraphs 31-35 of Submission of Brazil Regarding US Requests for 
Preliminary Ruling and paragraph 38 of the Rebuttal Submission of Brazil]   
                                                     
 
62 Panel Report, U.S. – FSC (21.5 II) , para. 7.46 (emphasis added). 
63 Panel Report, U.S. – FSC (21.5 II) , para. 7.42. 
64 Panel Report, U.S. – FSC (21.5 II) , para. 7.45. WT/DS267/RW   
Page D-98  
 
83. Brazil considers that the answer to this qu estion depends on the particular facts before a 
panel.  Brazil recognizes that there might be situa tions where a Member makes subsidy "payments" in 
the absence of a subsidy "program".  In that case, a finding of serious prejudice could be made regarding payments alone.  However, if a Member  challenges "payments" that are mandated by a 
program, a finding regarding the payments necessarily implicates the program. 
 
84. There may also be situations where a Member challenges subsidy "programs".  In that event, 
a finding of serious prejudice necessarily applies to payments mandated under the program.  When a subsidy program mandates cer tain subsidy payments, an examination of the " effects " of the program 
necessarily includes an assessment of the circumstan ces in which mandatory payments are made;  the 
nature of those payments, including their general am ount and the intended reci pients;  and the impact 
of those payments in the marketplace.  In short,  the WTO-consistency of a program under Article 6 of 
the SCM Agreement  cannot be artificially separated from the WTO-consistency of payments 
mandated by a program.  
85. Turning to the specific facts of this case, in  the original proceedings, Brazil challenged both 
the subsidy "programs" and the subsidy "payments" mandated under those programs.  As a result, the original panel's findings under Article 6 apply to bo th.  This is confirmed by the original panel's 
description of the contested measures;  its examina tion of those measures;  and its conclusion that 
those measures cause serious prejudice.  
86. The original panel's findings regarding its te rms of reference illustrate that the contested 
measures found to be WTO-inconsis tent included the subsidy programs  in the FSRI Act of 2002 and 
the payments mandated by them.  The United States contended that the pane l's terms of reference 
excluded payments made after the date of the panel' s establishment.  The original panel rejected this 
argument, stressing that: 
 
The programs and legislation identified [in Brazil's request for establishment of a 
panel] include  payments made before the date of establishment of the Panel, and those 
made subsequently .  All such payments were and are m ade under the same legislative 
and regulatory provisions which entered into effect prior to the consultations and have 
remained in place throughout th e Panel proceeding.  Therefore , the Panel rules that 
payments under programs and legislation w ithin the Panel's terms of reference , made 
after the date on which the Panel was est ablished … are within its terms of 
reference .
65  
 87. The original panel, therefore, foun d that the contested measures included " programs and 
legislation " identified in the panel request, together with " payments " made under the contested 
programs at any time during the panel proceedings .  Thus, the original panel viewed the mandatory 
payments as intrinsic to the contested programs, and as part of its terms of refe rence.  Nothing in this 
finding suggests that the original panel artificially  separated the subsidy programs from mandatory 
payments made pursuant to those programs.  Further,  the original panel stated no temporal limitations 
on the subsidy measures examined.  The United States did not appeal these findings. 
 
88. In making this finding, the original pane l opined that it would undermine the object and 
purpose of the SCM Agreement  if a Member were unable to cha llenge subsidies "until they were 
actually paid".
66  The panel, therefore, had in mind that  a subsidy program mandating payments could 
cause adverse effects, even before payments are disbursed.  In this regard, the original panel found 
                                                      
65 Panel Report, U.S. – Upland Cotton , para. 7.187.   
66 Panel Report, U.S. – Upland Cotton , para. 7.191.  WT/DS267/RW 
 Page D-99 
 
 
that "it is clear that the existing subsidy programs ar e currently envisaged to re main in effect between 
MY 2003-MY 2007."67    
89. Having found that its terms of reference en compassed the subsidy programs and past, present 
and future payments mandated by those programs, the original panel also stated expressly, in 
paragraph 7.1107 of its report, that the measures at issue in Brazil's "present" serious prejudice 
included the " legislative and regulatory provisions currently  providing " for marketing loan, CCP, and 
Step 2 payments, as well as the "payments" mandate d by those legislative and regulatory provisions.68  
Again, the original panel stated no general tem poral limitation on the scope of the measures and, 
again, these findings were not a ppealed by the United States. 
 
90. Significantly, the original panel noted that  the measures involved in Brazil's present serious 
prejudice claims included cottonseed payments limited to  the "2000 crop".69  This is a clear temporal 
limitation on a subsidy measure.  Thus, any findings by  the original panel would have been restricted 
to the effects of cottonseed payments made in MY 2000.70  However, no such temporal limitation is 
placed on any of the other meas ures listed in paragraph 7.1107.71 
 
91. Immediately after listing the "legislative a nd regulatory provisions" as measures that were 
part of the present  serious prejudice analysis, the original panel cross-referenced to Brazil's "per se" 
claims.  It used the phrase " see also Brazil's per se actionable subsidy claims in Section VII:I."72  
Contrary to the U.S. argument, this cross-reference,  and the use of the word "also", confirms that the 
"legislative and regulatory provisions" of the FSRI Act of 2002 were included in the present serious 
prejudice analysis and "also" in the per se  claims.   
 92. The original panel then chose a "reference period" for assessing the effects of the contested 
subsidy programs and mandatory payments.  A lthough the original panel chose MY 2002 as an 
appropriate "reference period", it declared that it would be "inappropriate" to focus its analysis on 
MY 2002 alone.  It found that subsidies have b een provided "over a longer period of time than one 
year" and that consideration of developments over a period longer provided a more robust basis for its 
conclusion.
73  The original panel, therefore, sought to put the effects of the contested subsidy 
programs into "a broader temporal context".74  This is also consistent with the fact that its terms of 
reference extended to mandatory payments  made throughout the panel proceedings. 
 
93. Thus, the choice of MY 2002 served as a methodological tool  to marshal and examine 
evidence relating to the "effects" of the contested subsidy programs.  Moreover, the original panel's 
use of that tool was not exhaustive, but was comp lemented by an examination of data from other 
periods.  Also, in selecting a "reference period", th e panel did not make a jurisdictional decision that 
the measures at issue were limited to payments within the "reference period".  Indeed, any such 
finding would have contradicted the panel's conclusion that the measures at issue included the 
"legislative and regulatory provisions" establishi ng the subsidy programs, as well as all payments 
made under these programs "throug hout the Panel proceeding".75 
 
                                                      
67 Panel Report, U.S. – Upland Cotton , para. 7.1500.   
68 Panel Report, U.S. – Upland Cotton , paras, 7.1107.   
69 Panel Report, U.S. – Upland Cotton , para. 7.1107(viii).   
70 The original panel did not find that cottonseed payments caused significant price suppression.   
71  Further, Brazil has explained in its answer to Question 11 that the panel's cross-reference using the 
phrase "see  also  Brazil's per se actionable subsidy claims in S ection VII:1" confirms that the panel examined 
both the payments and programs in making its present serious prejudice findings. 
72 Panel Report, U.S. – Upland Cotton , para. 7.1107, note 1247.  
73 Panel Report, U.S. – Upland Cotton , para. 7.1199.   
74 Panel Report, U.S. – Upland Cotton , para. 7.1199.   
75 Panel Report, U.S. – Upland Cotton , para. 7.187.   WT/DS267/RW   
Page D-100  
 
94. The United States' contention that the original panel's findings were confined to "payments" is 
further contradicted by that panel's treatment of "p ayments" in its reasoning.  The United States tried, 
but failed, to demonstrate that Brazil was required to quantify precisely the amount of the payments 
made.
76  The original panel dismissed these arguments,  holding that there was no duty to quantify the 
amount of the payments nor to trace payments to particular recipients and/or products.77  
 
95. Instead, the original panel undertook an analys is of the "effects" of the contested subsidy 
programs by focusing on their " structure , design and operation ".78  It stated that this " qualitative " 
analysis was to be complemented, "to some extent", by a "quantitative analysis" of the "general order 
of magnitude of the subsidies" ( i.e., the general level of payments).79  The Appellate Body bolstered 
this qualitative aspect of the original panel' s approach, noting the importance of the " nature  of the 
subsidy" to an assessment of the subs idy's effects under Article 6 of the SCM Agreement .80 
 96. If the original panel's findings had relate d to "payments" alone, and not to the subsidy 
programs, its reasoning would have been very di fferent indeed.  The panel would have required 
precise identification of the contested subsidy payments, including their amount, and the recipients 
and products receiving them, because these would have been the measures at issue.  A precise quantitative examination of the magnitude of "payme nts" would have been of central importance and 
not merely conducted "to some extent", as a comple ment to the qualitative examination.  Moreover, 
the qualitative  examination of the "structure, design and operation" of the measures would have been 
meaningless because the dollar amount of payments do no t have "structure", "design" or "operation".   
 
97. The focus by the original pa nel on "programs" in its present serious prejudice analysis is 
illustrated in its finding that the price suppression in  the world market was "significant."  It reasoned 
as follows:    
During the period under consideration, given the relative magnitude of United States 
production and exports, the overall price trends  we identified in the world market, and 
the nature of the mandatory United States subsidies in question – in particular
, the 
market-price contingent , countercyclical , nature of the marketing loan program , the 
user marketing (Step 2) program , MLA payments , and CCP payments  - and the 
readily available evidence of the order of ma gnitude of the subsidies, we are certainly 
not, by any means, looking at an insignificant or unimportant world price 
phenomenon.81 
98. This is a crucial finding because it was the basi s for the determination that the amount of price 
suppression in the world market was high enough to cause a violation of Article 6.3(c) ("significant" price suppression).  And the nature of the mandatory , price-contingent marketing loan program  was a 
vital factor in the original panel's finding.  The passage shows, again, that the subsidy measures found 
by the original panel to be WTO-inconsistent included " mandatory " subsidy " programs ", and not just 
                                                     
 
76 Panel Report, U.S. – Upland Cotton , paras 7.1159-7.1174.   
77 Panel Report, U.S. – Upland Cotton , para. 7.1173. 
78 Panel Report, U.S. – Upland Cotton , para 7.1194. 
79 Panel Report, U.S. – Upland Cotton , para 7.1173;  see also Appellate Body Report, U.S. – Upland 
Cotton , para. 467 ("a panel should have regard to the magnitude of the challenged subsidy and its relationship to 
prices of the product in the relevant market when analyzing whether the effect of a subsidy is significant price 
suppression";  the issue of when prices are low enough to trigger the subsidies is part of the design and operation 
of the subsidy program set out in a legislative and regulatory framework).  
80 Appellate Body Report, U.S. – Upland Cotton , para. 450 ("The nature  of a subsidy plays an 
important role in any analysis of whether the effect of the subsidy is significant price suppression under 
Article 6.3(c)."). 
81 Panel Report, U.S. – Upland Cotton , para. 7.1332 (emphasis added).    WT/DS267/RW 
 Page D-101 
 
 
"payments".  These findings were also consistent with extensive evidence of the price suppressing 
effects of the price-contingent "programs"  presented by Brazil to the original panel.82      
 99. Given all of these findings, it is of no surp rise that in describing its conclusions on present 
serious prejudice, the original panel confirmed th at the WTO-inconsistent measures causing serious 
prejudice included the "present statutory and regulatory framework" of the FSRI Act of 2002:   
 
Because the Panel's "present" serious prejudice findings include findings of inconsistency that deal with the FSRI Act of 2002 and subsidies granted thereunder in 
MY 2002, the United States is obliged to take action concerning its present statutory 
and regulatory framework as a result of our "present" serious prejudice finding .  We 
recall that, pursuant to Article 7.8 of the SCM Agreement , the United States is under 
an obligation to "take appropriate steps to remove the adverse e ffects or ... withdraw 
the subsidy.83 
100. In paragraph 7.1503 of its report, the origin al panel confirmed that, during implementation, 
the United States was required to " significantly transform[] " the contested subsidy programs such 
that, after implementation, any subsidy program s maintained by the United States would be 
"manifestly different " from those originally contested.  The United States never appealed these 
findings.  101. These findings were crucial to the original panel's decision that there was no need for the 
original panel to address Brazil's claims of threat of  serious prejudice.  The original panel noted that 
Brazil's threat claims extended throughout "the remaining period of application of the FSRI Act 
of 2002";  that is, through MY 2007.
84  Because the United States was obliged by the present serious 
prejudice findings to "significantly transform" the "present statutory and regulatory framework" of the 
FSRI Act of 2002, there was no need for the panel to  consider a threat of serious prejudice through 
MY 2007 .   
 102. Thus, the original panel held that the United States was obliged to take action to modify, or 
withdraw, the contested subsidy programs to elimin ate present serious prejudice that would otherwise 
persist throughout  "the remaining period of app lication of the FSRI Act of 2002".85  On any other 
view, the original panel would have examined Brazil's claims of a threat of serious prejudice in 
MY 2007. 
 103. This is also confirmed by paragraph 8.1(g)(i) of the original panel report, in which the panel 
concludes that " mandatory price-contingent  United States subsidy measures " are inconsistent with 
Article 5(c) and 6.3(c) of the SCM Agreement .  The reference to "mandatory price-contingent" 
measures refers to the contested subsidy programs  that mandate payments on price-contingent basis.  
This expression does not encompass payments of  specific dollar amounts made during a defined 
period of time because the payments do not mandate anything.     104. Thus, the original panel's description of the measures, its reasoning regarding present and 
threat of serious prejudice, and its conclusions, demonstrate that the measures found to be causing 
significant price suppression in the world market included the "statutory and regulatory framework" 
establishing the subsidy programs, as well as the continual flow payments mandated under these 
programs year after year through until MY 2007.    
                                                     
 
82 Brazil Submission Regarding the U.S. Request for Preliminary Ruling, para. 38, note 47.   
83 Panel Report, U.S. – Upland Cotton , para. 7.1501.   
84 Panel Report, U.S. – Upland Cotton , para. 7.1500.   
85 Panel Report, U.S. – Upland Cotton , para. 7.1500.   WT/DS267/RW   
Page D-102  
 
105. Thus, given the original panel's finding in pa ragraph 7.1501, any "appropriate steps" that the 
United States was obligated to take must have  included changes to its "present statutory and 
regulatory framework".    106. Indeed, the United States took one such "statuto ry and regulatory" step (albeit insufficient).  
Brazil has observed that statements by the United St ates on the significance of the repeal of the Step 2 
program – itself set forth in the FSRI Act of 2002 – demonstrate that the United States itself 
considered that it was required "to take acti on concerning its present statutory and regulatory 
framework as a result of our 'present' serious prejudice finding ."86  In August 2006, a USTR 
spokeswoman, Gretchen Hamil, stated that "rep eal of the Step 2 program ... addresses [the] ... 
actionable subsidy findings in the dispute."87  The U.S. Department of Agri culture also stated that the 
"legislative action" to repeal the Step 2 progr am "addresses a WTO finding regarding suppression of 
world cotton prices."88 
 107. It is only in these compliance proceedings th at the United States has, for the first time, 
espoused the view that compliance required it to ta ke no action whatsoever to change the contested 
subsidy programs, and instead perm itted it to eliminate the effects of "payments" by payments of 
billions more dollars under the very same programs.   108. In conclusion, the compliance Panel inquire d whether a finding under Article 6 of the 
SCM Agreement  always necessarily applies to subsidy "payments" and subsidy "programs".   As 
observed in Brazil's response, there might be situations in which a Member makes subsidy 
"payments" in the absence of a subsidy "program";  in that case, a finding of serious prejudice could be made regarding subsidy "payments" alone.  Howe ver, Brazil has demonstrated above that in this 
dispute, the findings of the original panel applied to both subsidy "payments" and subsidy "programs". 
 12. In paragraph 44 of its Rebuttal Submission, Brazil states:  
"Accordingly, there is no need for Brazil to challenge per se the FSRI Act of 2002.  
Nor does it assert an 'as applied' challenge to the FSRI Act of 2002.  Rather, Brazil 
challenges the counter-cyclical and marketing loan programs in the FSRI Act of 2002 and the payments that such programs require to U.S. upland cotton farmers, 
as they cause adverse effects."  (emphasis added)  
Could Brazil please explain: 
 
a) How its 
claims  against "programs and payments... as they cause adverse effects" 
differ from claims against programs as such? 
 
109. As explained in reply to Question 11, in th e context of claims regarding the "effects" of 
subsidy programs that mandate  subsidy payments, Brazil does not see any practical difference 
between challenging the programs and payments, a nd challenging the programs as such.  Nor does 
Brazil see any difference in terms of a finding that  the United States has not complied with Article 7.8 
of the SCM Agreement.     
 
110. Brazil's request for establishment of a panel in this Article 21.5 proceeding identifies the 
contested measures as the marketing loan and counter -cyclical "programs" and the marketing loan and 
counter-cyclical "payments."   The use of the te rms "program" and "payments" describes collectively 
                                                      
86 Panel Report, U.S. – Upland Cotton , para. 7.1501.   
87 Exhibit Bra-438 ("U.S. Trade Officials Say Disappointed With Brazil's WTO Request Over Cotton 
Flap," Daily Report for Executives, 21 August 2006).   
88 Exhibit Bra-436 (Cotton and Wo ol Outlook, USDA, 13 March 2006 , p. 4, accessed October 2006 at 
http://usda.mannlib.cornell.edu/usda/ers /CWS//2000s/2006/CWS-03-13-2006.pdf).  WT/DS267/RW 
 Page D-103 
 
 
the "subsidy" measures involved in this dispute.  Braz il's claims relate to the effects of the marketing 
loan and counter-cyclical subsidy programs and the payments mandated by those programs.  
 111. Brazil has demonstrated that these two subs idy programs, and the payments they mandate, 
cause significant price suppression in the world market  for upland cotton as well as an increase in the 
U.S. world market share of upland cotton in MY 2005.  The evidence and arguments set forth by 
Brazil establishes that the United States has failed to  take appropriate steps to either withdraw the 
marketing loan and counter-cyclical subsidies or to remove the adverse effects caused by these 
subsidies.    
112. While Brazil has challenged the marketing lo an and counter-cyclical "programs" and their 
mandatory, price-contingent "payments", to the ex tent they cause adverse effects, it has not asserted 
an "as such" claim regarding the marketing loan and counter-cyclical payment programs in the FSRI 
Act of 2002.  As explained in reply to Question 11,  if Brazil had made such a claim (which Brazil 
believes is unnecessary in view of the original pa nel's findings), the compliance Panel's examination 
of the " effects " of the program would necessarily have included an assessment of the terms and 
conditions under which payments are mandated;  the nature of those payments, including their general 
amount, and the intended recipients and/or produc ts benefiting from them;  and the impact (or 
"effect") of those payments in the marketplace.  113. If Brazil's "as such" claim had been success ful, the result would be a finding by the 
compliance Panel that the United States failed to take  appropriate steps, pursuant to Article 7.8 of the 
SCM Agreement  to withdraw the marketing loan and count er-cyclical subsidies, or to remove the 
adverse effects caused by these subsidies.  Theref ore, the ultimate conclusion of this compliance 
Panel would be the same whether the compliance Pa nel were to find that the "subsidies" cause present 
serious prejudice, or whether the marketing loan a nd counter-cyclical payment "program" is "as such" 
inconsistent with the SCM Agreement . 
 114. Finally, Brazil agrees with the United States' observation in EC – Selected Customs Matters  
that certain claims under the covered agreements are "not readily classifiable in the categories of 'as 
such' and 'as applied.'"
89  An "as such" claim is typically unders tood to involve an examination of a 
general rule or norm in the abstract .  However, as the original panel found, an examination of the 
"effects " of the general statutory and regulatory provisions establishing a subsidy program " cannot be 
conducted in the abstract " because they must be considered in li ght of the market-based effects of the 
measures.90  Thus, Brazil considers that serious prej udice claims are among those that cannot be 
readily classifiable as "as such" and "as applied."  
b) How these claims differ from claims against programs as applied? 
 
115. As explained below, there is no practical difference in terms of this compliance Panel's 
ultimate finding that the United States has not complied with Article 7.8 of the SCM Agreement.   
 116. While Brazil's request for the establishment of a panel does not make an explicit "as applied" 
claim, that request is broad enough to encompass a claim described in these terms, if this compliance 
Panel were to deem it necessary to affix an "as app lied" label to it.  As noted above, Brazil's claims 
challenge, inter alia , the marketing loan and counter-cyclical subsidies, to the extent they cause 
adverse effects.  Brazil sets out evidence and argum ent addressing the effects of the subsidy programs, 
including reference to the operation (or applicati on) of the programs in the prior periods.  If the 
compliance Panel finds that the marketing loan a nd counter-cyclical subsidies cause present serious 
prejudice, then the compliance Panel would find that the United States has not taken appropriate steps to withdraw the subsidies or to remove their adverse effects.   
                                                     
 
89 Appellate Body Report, EC – Selected Customs Matters , para. 165. 
90 Panel Report, U.S. – Upland Cotton , para. 7.1198. WT/DS267/RW   
Page D-104  
 
117. If the compliance Panel were to label Brazil's claims as "as applied" adverse effects claims, 
then presumably those claims would be cast in terms of whether the application of the marketing loan 
and counter-cyclical payment "programs" cause se rious prejudice.  Assuming the compliance Panel 
were to find that the application of the marketi ng loan and counter-cyclical "programs" (presumably 
accomplished through the means of mandatory and price-contingent "payments") causes serious 
prejudice, the compliance Panel would find that the Un ited States had failed, pursuant to Article 7.8 of 
the SCM Agreement , to take appropriate steps to withdraw the marketing loan and counter-cyclical 
program subsidies or to remove their adverse effects.  118. Brazil again expresses its agreement w ith the United States' observation in EC – Selected 
Customs Matters  that certain claims under the covered agre ements are "not readily classifiable in the 
categories of 'as such' and 'as applied.'"
91   
 
13. In paragraph 45 of its Rebuttal Submission, Braz il refers to the failure of the United States 
"to implement the original recommendation of the DSB requiring the United States to take actions 
concerning its present statutory and regulatory framework providing for marketing loan and 
counter-cyclical payments".    
a) Does Brazil consider that the statement in paragraph 7.1501 of the original panel 
report that "the United States is obliged to take action concerning its present statutory and regulatory framework..." forms an integral part of the 
recommendation made by the original pane l in paragraph 8.3(d) of its report?  
 
119. Yes, Brazil considers that the statement in pa ragraph 7.1501 of the orig inal panel report forms 
an integral part of the recommendation made by the or iginal panel in paragraph 8.3(d) of its report.  
The statement in paragraph 7.1501 is part of the assessment of the matter undertaken by the original 
panel and is found in the portion of the origin al panel report dealing with "findings."  In 
paragraph 8.1, the original panel stated that, "[i]n light of the findings above, we conclude as 
follows …."  The original panel then listed its c onclusions, including its conc lusions regarding present 
serious prejudice.  In paragraph 8.3, the original  panel sets forth its recommendations "[i]n light of 
these conclusions."  This demonstrates that also th e original panel considered its findings – including 
its statement in paragraph 7.1501 – to form an inte gral part of, and basis for, its conclusions and 
recommendations.  As noted, these findings were  never appealed by the United States.  
 
b) Does Brazil consider that the absence of actions by the United States "concerning 
its present statutory and regulatory framew ork providing for marketing loan and 
counter-cyclical payments" is in itself a suffi cient basis for this Panel to find that 
the United States has not complied with the DSB recommendation under Article 7.8 
of the SCM Agreement? 
 
120. Yes, Brazil considers that the absence of ac tions by the United States "concerning its present 
statutory and regulatory framework providing for mark eting loan and counter-cyc lical payments" is in 
itself a sufficient basis for the compliance Panel to find that the United States has not complied with 
the DSB recommendation under Article 7.8 of the SCM Agreement .   
 121. However, Brazil also demonstrates that the marketing loan and counter-cyclical payments 
programs, as well as payments mandated thereunder, cau se adverse effects in violation of Article 5(c) 
and 6.3 of the SCM Agreement .  In other words, following the U.S. repeal of the Step 2 subsidy, the 
new basket of measures involving these two s ubsidies causes significant price suppression in the 
world market for upland cotton and an increase in the U.S. world market share, in violation of Articles 5(c) and 6.3(c) and (d).  In establishi ng these violations, Brazil provides evidence on the 
structure, design and operation of the subsidy progr ams, including the nature and magnitude of the 
                                                     
 
91 Appellate Body Report, EC – Selected Customs Matters , para. 165.  WT/DS267/RW 
 Page D-105 
 
 
payments mandated by them, as well as the relevant conditions of competition in the world market for 
upland cotton.92   
 122. Should the compliance Panel find that the absence of actions by the United States is a sufficient basis to conclude that the United Stat es has not complied with the DSB recommendation 
under Article 7.8 of the SCM Agreement , Brazil nevertheless requests that the compliance Panel make 
factual findings that these subsidies continue to cause significant price suppression and an increase in 
the U.S. world market share, in th e event that these factual findings prove to be relevant for an appeal. 
 
c) Is there any difference , in Brazil's view , between , on the one hand , the nature of 
the action the United States was obliged to take with respect to its statutory and 
regulatory framework as a consequence of the recommendation in paragraph 8.3(d) of the original panel report and , on the other , the nature of the 
action the United States would have been obliged to take if the original panel had found that the relevant provisions of this statutory and regulatory framework were 
WTO-inconsistent as such?  
 
123. No, the action required by the United Stat es would have been the same in both cases. 
 124. The scope of the United States' implementa tion obligations turns on the identity of the 
measures that the original panel found to be WTO-inc onsistent.  In this dispute, as explained in reply 
to Question 11, the entirety of the original panel' s findings demonstrate that the measures found to be 
WTO-inconsistent included the "statutory and regulatory framework" establishing the contested 
subsidy programs.  As a result, the United States' implementation obligations required it to take action 
to amend or repeal this statutory and regulatory framework.  
125. The original panel expressly stated that the contested measures  included " current legislative 
and regulatory provisions  providing for the payment" of the cont ested subsidies, as well as payments 
mandated by the programs through out the panel proceedings.
93  Consistent with this statement, the 
original panel's examination of the contested measures "focus[ed]" on the design , structure and 
operation  of the contested programs , as set forth in the statutory and regulatory framework 
establishing the programs.94  In contrast, the original panel found that it was not necessary to quantify 
precisely the level of payments made under the contested programs.95  Instead, as part of a 
"quantitative" assessment of the programs, it consid ered, "to some extent", the "general order of 
magnitude" of the payments made under the programs.96 
 126. In keeping with the description of the cont ested measures, and the examination of those 
measures, the original panel held , in paragraph 7.1501, that the measures causing "adverse effects" 
included the " statutory and regulatory framework " establishing the contested subsidy programs .   
 127. Immediately after making this statement, in paragraph 7.1503, the original panel also emphasized that, during implementation, the United States was required to " significantly transform[] " 
the contested subsidy programs such that, after im plementation, any subsidy programs maintained by 
the United States would be " manifestly different " from those originally contest ed.  For this reason, the 
original panel found that there was no need to ex amine whether the contested programs threatened 
serious prejudice during "the remaining period of application of the FSRI Act of 2002", that is 
                                                     
 
92 Brazil's First Written Submission, Sections 7-9;  Br azil's Rebuttal Submission, Sections 2.3-2.4.  In 
its Opening Statement at today's meeting with the compliance Panel, Brazil will present further rebuttal 
evidence.  
93 Panel Report, U.S. – Upland Cotton , paras. 7.187 and 7.337. 
94 Panel Report, U.S. – Upland Cotton , para. 7.1194. 
95 Panel Report, U.S. – Upland Cotton , paras. 7.1173 and 7.1194. 
96 Panel Report, U.S. – Upland Cotton , paras. 7.1173 and 7.1194. WT/DS267/RW   
Page D-106  
 
through MY 2007.
97  In short, the United States was required to make future payments under 
"manifestly different" "statutory and regulatory frame w o r k " ,  o r  n o t  m a k e  t h e m  a t  a l l .   N o r  w a s  i t  
necessary, for the same reasons, to rule on the WTO-inconsistency of th e subsidy programs "as 
such".98 
 
128. The findings or the original panel, in paragr aphs 7.1501 and 7.1503 of  its report, demonstrate 
that the measures found to be WTO-inconsistent included the " statutory and regulatory framework " 
establishing the contested subsidy programs . 
 129. This is also confirmed by paragraph 8.1(g)(i) of the original panel report, in which the Panel 
concludes that " mandatory price-contingent  United States subsidy measures " are inconsistent with 
Article 5(c) and 6.3(c) of the SCM Agreement .  As noted in reply to Question 11, the measures 
referenced in this paragraph are the subsidy pr ograms, including mandatory payments, and not the 
"payments" on their own, because "payments" alone do not mandate anything.    
130. The action required by the United States to "significantly transform" – or withdraw – the 
"statutory and regulatory framework " establishing the contested subsid y programs is the same as the 
action that the United States would have been obliged to take if the measures had been found to be "as 
such" WTO-inconsistent.  
14. Could Brazil please explain how this Panel should interpret the relationship between the 
three categories of measures identified in paragraph 3.1(v),(vii) and (viii) of the original panel 
report?  Is it the view of Brazil that "subsidies provided" or "subsidies mandated to be provided" 
must be interpreted to encompass both payment s of subsidies and the regulatory provisions 
pursuant to which such payments were "provi ded" or "mandated to be provided"?   
 
131. The compliance Panel's question refers to  three categories of measure identified in 
paragraphs 3.1 (v)
, (vii) and (viii).  Brazil believes that the Panel's question is intended to refer to 
paragraphs 3.1 (vi), (vii) and (viii), and answers on that basis. 
 132. The measures identified in pa ragraphs 3.1(vi) and 3.1(vii) mu st be interpreted to encompass 
the statutory and legislative framework establishi ng the contested subsidy programs, as well as 
payments mandated by those programs.  Under para graph 3.1(viii), the measures encompass simply 
the statutory and legislative framework establishing the contested programs.  Brazil notes that its goal in defining these different categories of measures was to be over-inclusive  in identifying 
comprehensively the range and combination of measu res included in the original panel's terms of 
reference. 
 
133. As explained in answers to Questions 11 a nd 13(c), the original panel found "present" serious 
prejudice with respect to the measures in paragraph 3.1(vi), that is the statutory and regulatory  
framework establishing the contested subsidy pr ograms, as well as payments mandated by those 
programs.  As the original panel stated in para graphs 7.1501 and 7.1503 of its report, the United 
States' implementation obligations re quired it, therefore, to take action with respect to that framework 
to staunch the flow of the mandated payments. 
 
15. Does Brazil agree or disagree with the United States that the listing of certain legislative 
and regulatory provisions in paragraph 7.1107 of the original panel report reflects the original 
panel's view that "payments under a pr ogram constitute programs 'as applied' "? 
[Paragraphs 46-47 of the Rebuttal Submission of the United States]  
 
                                                     
 
97 Panel Report, U.S. – Upland Cotton , para. 7.1500.   
98 Panel Report, U.S. – Upland Cotton , para. 7.1511.  WT/DS267/RW 
 Page D-107 
 
 
134. Brazil does not agree with the United States  that the listing of certain legislative and 
regulatory provisions in paragraph 7.11 07 of the original panel report reflects the original panel's view 
that "payments under a program constitute programs 'as applied.'"  In fact, the original panel report 
indicated that the original panel did not make "as applied" findings (either expressly or by implication).   
 
135. The United States attempts to rewrite the orig inal panel report such that its implementation 
obligation would be limited to removing adverse effects of Step 2, marketing loan, and 
counter-cyclical payment subsidies for MY 1999-MY 2002.  Brazil has set forth in detail its position 
regarding the original panel's findings in its Res ponse to U.S. Requests for Preliminary Rulings.  It 
reiterates those arguments together with its answ ers to the compliance Panel's earlier questions, in 
particular question 11,  above.  Brazil sets out additional explanation for its views below.  
 136. The United States' "as applied" argument incorr ectly transforms the original panel's decision 
to use MY 2002, and the longer period of MY 1 999-MY 2002, as "reference periods", into a period 
that circumscribes the measures  involved in Brazil's present serious prejudice claims.   Yet, as 
explained in reply to Question 11, the "reference period"
99 was merely a methodological tool used to 
marshal evidence and assess data.  Nothing suggests th at the original panel intended to restrict its 
conclusions and recommendations to any historical period of "effects".     137. Had the original panel intended to limit the m easures at issue, as a jurisdictional matter, to 
payments in a particular historical period, any such  finding would have contradicted its ruling that its 
terms of reference included mandatory payments made throughout the original panel proceedings.
100  
Also, if the original panel's present serious prej udice findings were limited to payments made in 
MY 2002, or any other historical period, this would contradict its conclusion,  in paragraph 7.1501 of 
its report, that changes to statutory framework resulting from its present  serious prejudice obviated the 
need for examination of a threat  of serious prejudice through MY 2007.      
 138. Moreover, the original panel's serious prejudi ce conclusion, set out in paragraph 8.1(g)(i) of 
its report, did not reference any time period.  The original panel concluded that:   
 
(g) Concerning serious prejudice to the interests of Brazil: 
 
(i) the effect of the mandatory price-contingent United States subsidy measures – marketing loan program payments, user marketing (Step 2) payments, MLA payments and CCP payments – is significant price suppression in the same world market within the meaning of Article 6.3(c) of the SCM Agreement constituting 
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the 
SCM Agreement.   
139. The United States claims that  this conclusion is limited to the effects caused by mandatory 
price-contingent United States subsidy payments made only during MY 2002 , or effects caused by 
mandatory price-contingent subsidy payments made only during MY 1999-2002.  However, if 
applicable, any such temporal limitation would have  been set out expressly in both the description of 
the measures at issue in paragraph 7.1107, and the pa nel's conclusion in paragraph 8.1(g)(i).  Yet, as a 
jurisdictional matter, there is no temporal limita tion on the measures at issue in these or any other 
paragraph of the original panel report.  140. Further, the final panel report was issued  to the parties on 18 June 2004 – 10 ½ months after 
MY 2002 ended and only six weeks before MY 2003 ended.  By the time the Dispute Settlement 
Body adopted the "present" serious prejudice findings, conclusions and recommendations on 
                                                     
 
99 Panel Report, U.S. – Upland Cotton , para. 7.1195 (heading title for Section VII.G.3(e)).   
100 Panel Report, U.S. – Upland Cotton , para. 7.187.   WT/DS267/RW   
Page D-108  
 
21 March 2005, almost two-thirds of MY 2004 had been  completed.  If the intention of the original 
panel had been to make an "as applied" finding limited to serious prejudice caused only in MY 2002 
or only in MY 1999-2002, it would have used the past tense in its conclusions in paragraph 8.1(g)(i) 
of its report.  Instead, it used the present tense:  "the effect of manda tory price-contingent United 
States subsidy measures … is
 significant price suppression ….").  That conclusion and the 
accompanying recommendation in paragraph 8.3 – alo ng with the U.S. obligation under Article 7.8 to 
take appropriate steps to remove the adverse effe cts or withdraw the subsidy – continues to be 
applicable today.        141. Significantly, the original panel's findings th at the United States was obligated to take action 
concerning its "present statutory and regulatory framework" existing in MY 2003 as a result of the 
panel's "present" serious prejudice findings also is  inconsistent with the U.S. argument that the 
original panel made an "as applied" finding.  The or iginal panel found that "it is clear that the existing 
subsidy programs are currently envisaged to rema in in effect between MY 2003-MY 2007."  And 
immediately after making this finding, the original panel held:   
 
Because the Panel's "present" serious prejudice findings include findings of inconsistency that deal with the FSRI Act of 2002 and subsidies granted thereunder in 
MY 2002, the United States is obligated to take action concerning its present statutory and regulatory framework as a result of our "present" serious prejudice findings.  We recall that, pursuant to Article 7.8 of the SCM Agreement , the United 
States is under an obligation to "take appropr iate steps to remove the adverse effects 
or … withdraw the subsidy.
101 
142. If the original panel had made an "as applied" finding limited to only past effects of past 
mandatory and price-contingent payments, then ther e would be no reason for the original panel to 
state in June of 2004 that " the United States is obligated to take action concerning its present 
statutory and regulatory framework as a result of our "present" serious prejudice finding s."  
Moreover, there would also have been every reason for the original panel to examine a threat of 
serious prejudice through MY 2007.    143. Instead, under the U.S. theory, because the orig inal panel made only "as applied" findings of 
present serious prejudice for past payments, and b ecause it neglected to make any "threat" findings, 
the United States had every right to continue making massive future mandatory and price-contingent 
payments during MY 2003, MY 2004, and MY 2005.   On this view, when the United States was 
required to "take appropriate steps" in MY 2005  to withdraw the adverse effects of payments made in 
MY 1999-MY 2002, the United States could credibly asser t that the $5.4 billion paid out in marketing 
loan counter-cyclical subsidies in MY 2003-2005
102 were not subject to any implementation 
obligations, and were the intervening cause of significant price suppression in MY 2005.      
 144. In conclusion, the original panel never described its findings, conclusions or 
recommendations as being "as applied."  Nor did the original panel conclude that Brazil's present 
serious prejudice claims constituted only "as applie d" claims limited to payments made within a 
specified period.  As demonstrated above, neither  the panel's terms of reference, the measures the 
original panel found to be applicable to Brazil's ser ious prejudice claims in paragraph 7.1107 of its 
report, or the measures the original panel concluded cause significant price suppression were so limited.  145. Finally, even assuming that the original panel's findings of present serious prejudice were "as 
applied" findings limited to marketing loan and co unter-cyclical payments made during a particular 
                                                     
 
101 Panel Report, U.S. – Upland Cotton , para. 7.1501. 
102 Exhibit Bra-471 (Table 6 in Detail).  WT/DS267/RW 
 Page D-109 
 
 
historical period ( quod non ), subsequent payments made under th e same program are also subject to 
the United States' implementation obligations.  146. In U.S. – Softwood Lumber IV (21.5) , Canada challenged a periodic review measure that was 
not declared by the United States to be a "measure taken to comply".  The effect of the periodic 
review was to render nugatory the declared me asure taken to comply.  Following findings in Australia 
– Leather (21.5)  and EC – Bed Linen (21.5) , the Appellate Body upheld the compliance panel's 
finding that the review measure was a WTO- inconsistent "measure taken to comply": 
 
Some measures with a particularly close re lationship to the declared "measure taken 
to comply", and to the recommendations and rulings of the DSB , may also be 
susceptible to review by a panel acting under Article 21.5.
103 
147. In this dispute, subsequent  payments made by the United States pursuant to the marketing 
loan and counter-cyclical payment programs have such  a close relationship to measures subject to the 
original proceedings, and to the DSB's recommendati ons and rulings, that they are susceptible to 
review by this compliance Panel.  In particular , the payments collectively constitute an unbroken 
stream of identical subsidies.  The payments s ubject to the DSB's recommendations and the payments 
subject to these proceedings are mandated by the very  same subsidy programs;  they are made to the 
very same recipients;  they support the very same crops;  and they are granted on the very same terms 
and conditions.  The subsequent pa yments are, therefore, "clearly connected" and "inextricably 
linked" to the measures found to be WTO-in consistent in the original proceedings.104   
 
148. Indeed, the connection between the payments is  much closer than the connection between the 
measures at issue in U.S. – Softwood Lumber IV (21.5) , Australia – Leather (21.5)  and EC – Bed 
Linen (21.5) .  In sum, Brazil's dispute with the Unite d States in these proceedings regarding the 
adverse effects of marketing loan and counter-cyclical  subsidies is identical to its dispute regarding 
precisely the same subsidies in the original proceedi ngs.  The only significant change is that the level 
of the subsidies has increased  with time. 
 149. Similar to the U.S. arguments in U.S. – Softwood Lumber IV (21.5) , if the U.S. view that 
subsequent marketing loan and counter-cyclical payments are not subject to this compliance Panel's 
review, the U.S. grant of recurring subsidies become " a moving target that escape from [the WTO 
subsidy] disciplines ".
105  Subsequent mandatory payments woul d always have to be subject to new 
dispute settlement proceedings, and by the time these proceedings were completed, the effects of the 
latest payments would be superseded by yet more payments, which could in turn only be challenged 
in yet another original panel process.  WTO disput e would dissolve into a "Groundhog Day" situation, 
with no remedy available to Members suffering adverse effects.106 
 
150. Thus, even if the United States were correct ( quod non ), that the DSB's recommendations 
pertain solely to marketing loan and counter-cyc lical payments made during a defined historical 
period, Brazil is entitled to challenge subsequent marketing loan and counte r-cyclical payments in 
these compliance proceedings because these payments are "inextricably linked".             
 16. Could Brazil clarify whether or not its clai m in this Article 21.5 proceeding regarding a 
threat of serious prejudice caused by marketing lo an and counter-cyclical payments is a claim with 
respect to the marketing loan and count er-cyclical payment programs as such? 
[Paragraphs 237-314 of the First Written Submission of Brazil] 
                                                     
 
103 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 77. 
104 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 79. 
105 Panel Report, U.S. – Softwood Lumber IV (Article 21.5 – Canada) , para. 4.30. 
106 Panel Report, U.S. – Softwood Lumber IV (Article 21.5 – Canada) , para. 4.30, quoting  arguments of 
the European Communities. WT/DS267/RW   
Page D-110  
 
151. The scope of the compliance Panel's terms of reference in these proceedings is determined by 
the Brazil's Request for the Establishment of a Panel.
107  Paragraph 20 of the Panel Request specifies:   
 
Specifically, Brazil believes that the US ma rketing loan and counter-cyclical payment 
programs under the FSRI Act of 2002, as amended, as well as payments mandated to 
be made thereunder , threaten to cause significant price suppression in the world 
market for upland cotton in marketing years 2006 and until the expiry or repeal of these programs.
108 
Thus, Brazil claims that the contested subsidy prog rams, as well as payments to be made under those 
programs, threaten to cause serious prejudice. 
 
152. To examine this claim, following the appro ach of the original panel, as upheld by the 
Appellate Body, the compliance Panel must consider the structure , design and operation  of the 
contested programs , as set forth in the statutory and regulatory framework establishing the 
programs.109  In addition, along with other evidence, the compliance Panel may also consider the 
general order of the magnitude of payments made un der the contested programs in the past.  On this 
basis, the compliance Panel may establish whether the effect of the contested programs is to threaten 
serious prejudice in the future.110 
 153. Brazil recalls its agreement with  the United States' observation in EC – Selected Customs 
Matters  that certain claims under the covered agreements  are "not readily classifiable in the categories 
of 'as such' and 'as applied.'"
111  Brazil considers that serious pr ejudice claims are among those that 
cannot be readily classifiable as "as such" and "as applied."  Questions to the United States
 
 17. The United States argues in paragraph 16 of its Rebuttal Submission that "[a]ccording to 
Brazil, its claims apply not only to the marketi ng loan and counter-cyclical payment programs, as 
such, but to the programs in addition to all pay ments authorized under the programs" (original 
emphasis).  The United States also argues in this resp ect that "it is abundantly clear that the original 
panel did not make any finding under Article 5(c)  and 6.3(c) of the SCM Agreement against the 
marketing loan and counter-cyclical payment programs,  as such, whether alone or in addition to 
payments".  [Paragraph 43 of Rebuttal Submission of the United States]  
a) How does the United States respond to the argument of Brazil that the United States 
mischaracterizes Brazil's claims in these proceed ings in that Brazil is not challenging 
the subsidy programs at issue as such? [P aragraph 31 of Submission of Brazil to the 
Panel Regarding US Requests for Prelimi nary Ruling;  paragraph 33 of Rebuttal 
Submission of Brazil] 
 
b) Could the United States also commen t in this regard on the arguments in 
paragraph 31 of the Third Party Submission of Chad?  Does the United States agree or disagree with the propos ition that statutory or regul atory provisions can be 
challenged on an as applied basis and that Br azil's claims in the original proceeding 
"were as applied claims regarding measures that included legislative and regulatory 
provisions"?   
 
                                                     
 
107 WT/DS267/30. 
108 WT/DS267/30 (footnote omitted). 
109 Panel Report, U.S. – Upland Cotton , para. 7.1194. 
110 Panel Report, U.S. – Upland Cotton , paras. 7.1173 and 7.1194. 
111 Appellate Body Report, EC – Selected Customs Matters , para. 165.  WT/DS267/RW 
 Page D-111 
 
 
18. The United States submits that the only meas ures subject to the DS B's recommendation under 
Article 7.8 of the SCM Agreement are payments m ade under the Step 2, marketing loan, and counter-
cyclical payment programs in 1999-2002.  The United St ates also asserts, in this regard, that Brazil 
fails to submit evidence "as to the present effects,  if any, of the measures that were subject to the 
original panel's actionable subsidy finding".   
 
a) Do these statements mean that th e United States considers that the DSB 
recommendation under Article 7.8 of the SCM Agreement only obliged the 
United States to ensure that payments made in 1999-2002 would no longer have any adverse effects?  
 
b) Could the United States comment on the argument of New Zealand in paragraph 4.08 
of the Third Party Submission of New Zealand?  
 19. Regarding the argument of the United States that the marketing loan and counter-cyclical 
payments programs are not measures "taken to comp ly", is it the view of the United States that 
Article 21.5 of the DSU only applies to measures ac tually taken by a party to comply and does not 
apply to measures that a Member should have taken to comply?  20. How does the United States respond to the argument in the Third Party Submission of Japan that the Appellate Body report in EC – Bed Linen (Article 21.5 – India) does not support the argument 
of the United States that the marketing loan and counter-cyclical payments programs are not within 
the scope of this Article 21.5 proceeding?  
 
3. Claim of Brazil regarding the failure of th e United States to comply with the DSB 
recommendations between 21 September 2005 and 1 August 2006 
 
Questions to Brazil
 
 
21. Could Brazil please explain whether its request for a finding that the United States failed to 
comply with the DSB recommendations between  21 September 2005 an d 1 August 2006 is 
supported by prior panel practice in Article 21.5 proceedings? [Paragraph 68 of the Rebuttal 
Submission of the United States] 
 
154. In Australia – Salmon( 21.5) , Canada made claims similar to those advanced by Brazil in this 
dispute on the non-existence of compliance measure during a specified period following the end of the implementation period.  In that dispute, Austra lia adopted certain compliance measures after the 
expiry of the reasonable period of time on 6 July  1999.  Canada claimed that, during the period 
between 6 July 1999 and the adoption of the complia nce measures, no compliance measures existed.  
The compliance panel found as follows:  
[T]he date of entry into force of the ne w measures varies according to the products 
covered.  In all cases, the entry into force – and thus the "existence" of the measures 
taken to comply – occurred subsequent to 6 July 1999, the date of expiry of the 
reasonable period of time given to Australia to implement the DSB recommendations and rulings.  Since, in this case, Australi a was under an obligation to implement the 
DSB recommendations and rulings by the end of the reasonable period of time,
154 we 
find that for the period of time that the new measures did not and will not apply 
subsequent to 6 July 1999, no measures taken to comply existed or will exist in the 
sense of Article 21.5. _________ 
154 Since Australia and Canada could so far not agree on compensation as a temporary 
measure pursuant to Article 22.1 of the DSU, Australia was under an obligation to comply WT/DS267/RW   
Page D-112  
 
with DSB recommendations and rulings by the end of the reasonable period of time.  If it did 
not do so, Australia could face suspension of  concessions or other obligations under 
Article 22.6 of the DSU.112  
155. The findings of the compliance panel in Australia – Salmon (21.5) , therefore, support fully 
Brazil's claims.    156. Brazil notes that, in this dispute, there are two arbitrations pending under Article 22.6 of the 
DSU and Articles 4.11 and 7.10 of the SCM Agreement respectively.  Thus, similarly to the situation 
in Australia – Salmon 21.5 , the United States could face countermeasures or suspension of 
concessions or other obligations under those provisi ons with respect to non-implementation by the 
end of the implementation period.   157. Finally, Brazil notes that no such arbitration was pending in the two cases cited by the 
United States:  EC – Bed Linen (21.5)  and U.S. – Shrimp (21.5) . 
 
22. How does Brazil respond to the argument of the European Communities that "the lack of 
positive action taken by the United States to comply with the panel and Appellate Body's findings 
and recommendations between the implementation date of 21 September 2005 and 31 July 2006 is 
not necessarily fatal to its defence"? [Paragraph 48  of the Third Party Submission of the European 
Communities]  
158. Brazil disagrees that a subsidizing Member implementing pursuant to Article 7.8 of the 
SCM Agreement can do nothing and be in compliance with the findings, conclusions, and 
recommendations of panels and the Appellate B ody.  By 21 September 2005, the United States was 
required to take affirmative action under Article 7.8 of the SCM Agreement.  But it did nothing.   
 159. Article 7.8 requires action, not inaction, no la ter than the end of the six-month implementation 
period following adoption by the DSB of the pane l or Appellate Body report contemplated by 
Article 7.9 of the SCM Agreement.  Read together, these two Articles impose an obligation that a 
subsidizing Member "shall take appr opriate steps to remove the adverse effects or shall withdraw the 
subsidy" during that six-month period.    160. During this period, a Member may choose to withdraw the subsidy.  That involves some type of statutory, regulatory, or executive action to eliminate a subsidy.   
 
161. The second part of Article 7.8 provides that a Member "shall take appropriate steps  to remove 
the adverse effects."  The ordinary meaning of th e term "take" is "to undertake and perform (a 
specified function, service, etc.)" or "to perform, make, or do (an act, movement, etc.)".
113  In turn, the 
ordinary meaning of "step" is "the action, measure, or proceeding, especially one of a series, which leads towards a result."
114  Thus, to "take" appropriate "steps" means to undertake action  that fully 
removes the adverse effects to the interests of  another Member.  What constitutes the specific 
"appropriate" steps to be taken will vary according to  the particular facts in a given situation.  
Nonetheless, taking steps, or undertaking some affi rmative action, to remove the adverse effects of 
"any subsidy" is required by this  part of Article 7.8.  Doing nothing is not undertaking action. 
162. Having taken no action whatsoever by 21 September 2005, the United States had "not taken 
appropriate steps to remove the adverse effects of  the subsidy or withdraw the subsidy within six 
months from the date when the DSB adopts the panel report and the A ppellate Body report". 
                                                      
112 Panel Report, Australia – Salmon (Article 21.5 – Canada) , para. 7.30.  See, also , para. 8.1(i) of the 
Panel's findings and conclusions.  Underlining added. 
113 New Shorter Oxford English Dictionary, 1993 Edition, Vol. 2, pp. 3207, 3208. 
114 New Shorter Oxford English Dictionary, 1993 Edition, Vol. 2, p. 3050.    WT/DS267/RW 
 Page D-113 
 
 
163. In its responses to questions 24 and 25, du e to the Panel on 6 March, Brazil will explore 
further the proper interpretation of Article 7.8, alone and in conjunction with Article 21.5 of the DSU.  
Those responses will bear on the matter c overed by the Panel in question 22.   
 Question to the United States
 
 
23. Does the United States consider that the text of Article 21.5 of the DSU should be interpreted 
to mean that a compliance panel may only review the "existence" or "consistency" with a covered 
agreement of measures taken to comp ly as of the date that the matter was referred to the panel and 
not as of the date of the end of the implementation period? [Paragraph 68 of the Rebuttal Submission 
of the United States] 
 WT/DS267/RW  
Page D-114  
 
ANNEX D-7 
 
RESPONSES OF BRAZIL TO THE PANEL'S FIRST SET  
OF QUESTIONS (SECTIONS D&E) 
 
(6 March 2007) 
  
TABLE OF CONTENTS 
 
Page
 
 
TABLE  OF CASES   115 
 
D. C LAIMS OF BRAZIL REGARDING PRESENT SERIOUS PREJUDICE  116 
 
1. General  116 
 
2. The structure, design and operation of the countercyclical and marketing loan 
payment programs  122 
 3. Economic simulation model  
123 
 E. E
XPORT CREDIT GUARANTEES  124 
 
1. Permissibility of an a contrario  interpretation of item (j) of the Illustrative List  124 
 2. Outstanding export credit guaran tees / measures taken to comply  
125 
 
3. "Benefit" under Articles 1 and 3.1(a) of the SCM Agreement   126 
 4. Claims under item (j) of the Illustrative List  
131 
  WT/DS267/RW 
 Page D-115 
 
 
TABLE OF CASES 
Short Title Full Case Title and Citation 
Brazil – Aircraft (21.5) Appellate Body Report, Brazil – Export Financing Program for Aircraft 
 – Recourse by Canada to Article 21.5 of the DSU , WT/DS46/AB/RW, adopted 
4 August 2000, DSR 2000:VIII, 4067. 
Brazil – Aircraft (21.5) 
 Panel Report, Brazil – Export Financing Program for Aircraft – Recourse by 
Canada to Article 21.5 of the DSU , WT/DS46/RW, adopted 4 August 2000, 
modified by Appellate Body Report, WT/DS46/AB/RW, DSR 2000:IX, 4093. 
Brazil – Aircraft (21.5 II) Panel Report, Brazil – Export Financing Program for Aircraft – Second 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/RW/2, adopted 23 
August 2001, DSR 2001:X, 5481. 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377. 
Canada – Aircraft (21.5)  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft – Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/AB/RW, 
adopted 4 August 2000, DSR 2000:IX, 4299. 
Canada – Aircraft Credits 
and Guarantees Panel Report,  Canada – Export Credits and Loan Guarantees for Regional 
Aircraft , WT/DS222/R and Corr.1, adopted 19 February 2002, DSR 2002:III, 
849. 
U.S. – FSC (21.5) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Articl e 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, 55. 
U.S. – FSC (21.5 II) Appellate Body Report, United States – Tax Treatment for “Foreign Sales 
Corporations” – Second Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW2, adopted 14 March 2006. 
U.S. – Shrimp (21.5) Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6481. 
U.S. – 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, 571. 
U.S. – Softwood Lumber IV 
(21.5) Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from Canada – 
Recourse by Canada to Article 21.5 of the DSU , WT/DS257/AB/RW, adopted 
20 December 2005. 
U.S. – Softwood Lumber VI 
(21.5) Appellate Body Report, United States – Investigation of the International Trade 
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the 
DSU by Canada , WT/DS277/AB/RW, adopted 9 May 2006. 
U.S. – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, and 
Corr.1, adopted 21 March 2005, modified by Appellate Body Report, 
WT/DS/267/AB/R. 
 WT/DS267/RW  
Page D-116  
 
D. C
LAIMS OF BRAZIL REGARDING PRESENT SERIOUS PREJUDICE  
 1. General  
 Questions to both parties
 
 
24. Could the parties explain how they interpret  the phrases "take appropriate steps to remove 
the adverse effects" and "withdraw the subsidy" in Article 7.8 of the SCM Agreement?  
1. The phrases "take appropriate steps to remove the adverse effects" and "withdraw the 
subsidy" in Article 7.8 of the SCM Agreement require action that secures the full and complete 
removal of any adverse  effects, or the full withdrawal of any actionable subsidy found to cause 
adverse effects.    2. As Brazil stated in its answer to Questi on 22, the terms used in Article 7.8 require action by a 
defending Member, rather than inaction , and that removal of the adver se effects or withdrawal of the 
subsidy must be complete , rather than partial .    
 3. Before addressing this interpretive question,  Brazil notes a threshold question that must be 
addressed by a compliance Panel confronted with recommendations under Article 7.8 of the 
SCM Agreement  – what is the "subsidy" to be withdrawn,  or the adverse effects of which must be 
removed in the present dispute?    4. In its 26 February response to question 11, Br azil explained that the subsidy subject to the 
Article 7.8 recommendation includes both the legisl ative and regulatory subsidy programs in the FSRI 
Act of 2002 and the price-contingent and mandatory  payments made under those programs.  In its 
26 February response to question 15, Brazil explained that even if the original panel's findings of 
present serious prejudice were limited to marketing loan and counter-cyclical payments ("CCP") made 
during a particular historical period ( quod non ), subsequent payments made under the same program 
are also subject to the United States' implementation obligations.
 1    
 
5. Article 7.8 has two implementation elements set out in the phrases "take appropriate steps to 
remove the adverse effects" and "withdraw the subs idy", and demonstrates that action, rather than 
inaction, is required of an implementing Member.    6. The ordinary meaning of the term "take" is "to undertake and perform (a specified function, 
service, etc.)" or "to perform, make, or do (an act, movement, etc.)".
2  In turn, the ordinary meaning of 
"step" is "the action, measure, or proceeding, especially one of a series, which leads towards a result."
3  Because the object of the action is "adverse effects", the "appropriate " "steps" must involve 
action that removes the adverse effects to the interests of another Member.   7. What constitutes the specific "appropriate" step s to take to remove the adverse effects will 
vary according to the facts of each case.   Fundame ntally, steps can only be "appropriate" if they 
achieve full and permanent removal of the adverse eff ects.  For example, the original panel identified 
the particular appropriate step under Article 7.8 that the United States must take regarding the 
"basket" of price-contingent and mandatory subs idies found to cause present significant price 
suppression:   
 
                                                     
 
1 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 77 ("Some measures with a 
particularly close relationship to the declared 'measure taken to comply', and to the recommendations and 
rulings of the DSB , may also be susceptible to review by a panel acting under Article 21.5."). 
2 New Shorter Oxford English Dictionary, 1993 Edition, Vol. 2, pp. 3207, 3208. 
3 New Shorter Oxford English Dictionary, 1993 Edition, Vol. 2, p. 3050.    WT/DS267/RW 
 Page D-117 
 
 
[b]ecause the Panel's "present"' serious  prejudice findings in clude findings of 
inconsistency that deal with the FSRI Act of 2002 and subsidies granted hereunder in 
MY 2002, the United States is obliged to take action concerning its present statutory 
and regulatory framework as a result of our "present" serious prejudice findings.  We 
recall that, pursuant to Article 7.8 of the SCM Agreement, the United States is under 
an obligation to "take appropriate steps to remove the adverse effects or … withdraw the subsidy .
4   
8. At no time did the original panel suggest that  an "appropriate step" to remove the adverse 
effects could involve doing nothing other than waiting for the effects of past payments to dissipate.  
As Article 7.8 requires action, rather than inacti on, to do so would have rendered both Articles 6.3 
and 7.8 of the SCM Agreement inutile.  Any objective reading of the original panel's findings 
demonstrates that it expected the United States to ta ke action to ensure that present serious prejudice 
would not continue during the remaining life of the FSRI Act of 2002.5   
 9. The second relevant phrase found in Article 7.8 is  "withdraw the subsidy."  The structure and 
placement of the phrase "take appropriate steps," as confirmed by both the French and Spanish 
versions of the official texts,
6 indicates that it only qualifies a nd refers to the phrase "remove the 
adverse effects" – not "withdraw the subsidy."      10. In examining the meaning of the identical phr ase "withdraw the subsidy" in Article 4.7 of the 
SCM Agreement , the Appellate Body, in Brazil – Aircraft (21.5) , required affirmative action by the 
defending Member:  
 
Turning to the ordinary meaning of "withdraw ", we observe first that this word has 
been defined as "remove" or "take away", and as "to take away what has been enjoyed; to take from."  This definition s uggests that "withdrawal" of a subsidy, under 
Article 4.7 of the SCM Agreement ,  refers to the "removal" or "taking away" of that 
subsidy.
7  
11. Given the identity of this aspect of Articles 4.7 and 7.8, the Appellate Body's finding 
regarding the meaning and action required to "withdr aw the subsidy" in Article 4.7 applies also to 
Article 7.8.    
12. A subsidy could be "removed" or "taken away" by the implementing Member enacting new 
legislation or taking regulatory steps to cease opera tion or disbursements of payments under the terms 
of the subsidy measure.  As demons trated above, Article 7.8 requires affirmative action  to remove the 
adverse effects or withdraw the subsidy.  Inaction is not sufficient.  
13. Moreover, full removal of the adverse effects or full withdrawal of the subsidy is also 
required.  As noted by the Appellate Body, "full withdrawal  of a prohibited subsidy within the 
meaning of Article 4.7 of the SCM Agreement cannot be achieved by a 'measure taken to comply' that 
replaces the original subsidy with yet a nother subsidy found to be prohibited."
8  The same reasoning 
should apply to Article 7.8.  Removing the advers e effects of a subsidy measure or withdrawing a 
                                                      
4 Panel Report, U.S. – Upland Cotton , para. 7.1501.  
5 Panel Report, U.S. – Upland Cotton , paras. 7.1499-7.1503, 8.1(g)(i).   
6 The Spanish text states:  "… el Miembro que otorgue o mantenga esa subvención adoptará las 
medidas apropiadas para eliminar los efectos desfavorables o retirará la subv ención."  The French text states:  
"... le Membre qui accorde ou maintie nt cette subvention prendra des mesu res appropriées pour eliminer les 
effets défavorables ou retirera la subvention." 
7Appellate Body Report, Brazil – Aircraft (21.5) , para. 45 (footnotes omitted). 
8 Appellate Body Report, U.S. – FSC (21.5 II) , para. 83. WT/DS267/RW  
Page D-118  
 
subsidy measure found to cause adve rse effects, and subsequently replacing  it with another subsidy 
measure that causes adverse effects, is not sufficient. 
14. Even assuming, arguendo , that the only finding by the origin al panel was with respect to 
adverse effects flowing from MY 1999-2002 payments, it is insufficient for the United States to satisfy its obligation to remove the adverse effect s or withdraw the subsidy by simply allowing the 
effects of MY 1999-2002 payments to wane and die a natural death, only to be replaced by even 
higher price-contingent and mandatory payments  during the period MY 2003-2005.  Brazil has 
demonstrated that these "replacement" payments cause similar, if not even greater, significant price suppression in the world market for upland cotton.  25. How do the parties interpret the relationship between Article 7.8 of the SCM Agreement and Article 21.5 of the DSU?  
15. Brazil refers the Panel to its answer to Qu estion 24, above, which sets forth the particular 
characteristics of Article 7.8 of the SCM Agreement.   
 
16. Article 7.8 of the SCM Agreement is a special and additional  rule, under Appendix 2 of 
the DSU.  Because there is no conflict between Article 7.8 and Article 21.5 of the DSU, Article 7.8 does not replace Article 21.5 in compliance proceedings, but instead supplements  Article 21.5.    
 17. An Article 21.5 compliance panel assessi ng implementation under Article 7.8 plays two, 
overlapping roles.  First, the compliance panel assesses whether an implementing Member has taken 
affirmative action constituting either appropriate steps to remove the a dverse effects, or withdrawal of 
the subsidy causing those adverse effects.  S econd, the compliance panel assesses whether any 
measures taken to comply exist, and if they ex ist, whether those measures, in their totality
9, are 
consistent with the covered agreements.  
 
18. As a practical matter, these two assessments  can overlap, and may involve the same evidence.   
But there may be instances in which a Member has, e.g., "withdrawn the subsidy" under Article 7.8 
but, nevertheless, is not in compliance with Articles 5 and 6 of the SCM Agreement .  For example, an 
actionable subsidy found to cause adverse effects may be withdrawn within a period of six months in 
apparent compliance with Articles 7.8 and 7.9 thereo f.   However, if the implementing Member later 
enacts a replacement subsidy of a relatively simila r nature, structure, design and operation as the older 
subsidy, then an Article 21.5 panel would be re quired to determine (a) whether the replacement 
subsidy is taken to comply with  the recommendations and rulings, a nd (b) whether this new measure 
taken to comply – the replacement subsidy – is c onsistent with the covere d agreements and does not 
cause adverse effects.  Such an interpretation is necessary to avoid a Member simply withdrawing one 
subsidy and replacing it somewhat la ter with a similar subsidy.   
 19. In this case, the compliance Panel, under Article 7.8 of the SCM Agreement and Article 21.5 
of the DSU , must first assess Brazil's claim that no measur es taken to comply exist with respect to the 
period 21 September 2005 and 1 August 2006.  Second, the compliance Panel must assess whether the 
United States took action constituting full removal of the adverse effect s caused by the basket of three 
price-contingent and mandatory measures, or fully withdrew those measures.  Third, the compliance 
Panel must determine whether the measure taken to comply, i.e., the limited amendment of the FSRI 
Act of 2002, is inconsistent with Artic les 5(c), 6.3(c) and 6.3(d) of the SCM Agreement .  In this case, 
steps two and three above involve the same proof, i.e., that Brazil suffers serious prejudice by reason 
of the collective effect of marketing loan and CCP subsidies.     
 
                                                     
 
9 Appellate Body Report, U.S. – Softwood Lumber IV (21.5) , para. 67;  Appellate Body Report, U.S. – 
Shrimp (21.5) , para. 87.  WT/DS267/RW 
 Page D-119 
 
 
26. Could the parties explain whether they agree or disagree with the arguments of 
New Zealand in its Third Party Submission that Article 7.8 of the SCM Agreement has certain consequences for the burden of proof in an Ar ticle 21.5 proceeding? [Paragraphs 5.04-5.06 of the 
Third party Submission of New Zealand] 
20. Brazil does not agree entirely with New Zeal and's "burden of proof" arguments.  In the 
particular circumstances of this case, the original  panel found that the "basket" of marketing loan, 
Step 2, and CCP subsidies caused significant price suppression in the world market for upland cotton.  
However, the United States repealed one of those three measures – the Step 2 legislation in the FSRI 
Act of 2002.  In view of these particular facts and as set out in Answer to Question 25, Brazil has the burden of demonstrating under Article 7.8 that the United States did not take appropriate steps to 
remove the adverse effects caused by the original basket of measures.  Viewed from the Article 21.5 
perspective, Brazil has the burden of demonstrati ng that the revised FSRI Act of 2002 providing for 
marketing loan and CCP subsidies and mandatory and price-contingent payments was a measure 
taken to comply that is inconsiste nt with Articles 5 and 6.3 of the SCM Agreement.   
 
21. Where no changes to the basket of measures found to cause collectively adverse effects have 
been made, then a complaining member would have th e right to proceed immediately to Article 7.9 of 
the SCM Agreement and Article 22.2 of the DSU .  The rationale for this right is set forth in Brazil's 
answer to Question 24 above, i.e., that Article 7.8, at a minimum, requires an implementing Member 
to take some action.   
 
22. However, if arguendo , a complaining member was required to challenge in an Article 21.5 
proceeding the fact that an unchanged  basket of measures continued to cause significant price 
suppression, then Brazil agrees with New Zealand that it might be appropriate to permit the complaining Member to establish a prima facie case simply by demonstrating the absence of any 
change in the measures.  Further, for the reasons  set forth in Brazil's Answer to Question 30, a 
complaining party would be entitled to rely in an Ar ticle 21. 5 proceeding on the prior findings of a 
panel.  This is particularly the case where the sa me basket of measures found to cause adverse effects 
continues to exist, unchanged, at the tim e of the Article 21.5 proceeding.     
 
27. Could the parties comment on the followi ng statement of the European Communities: 
 
"The text of Article 7.8 of the SCM Agreement  does not state expressly that a Member 
that has been requested by the DSB to implement its recommendations and rulings 
under Article 7.8 of the SCM Agreement  has to do anything" (original emphasis)   
 
23. Brazil disagrees with this assertion of the Eur opean Communities for the reasons set forth in 
Brazil's Answer to Panel Questions 22, 24, and 25. 
 
28. The parties present divergent views with resp ect to the relevant marketing year to be 
considered by the panel in its analysis of Brazil's serious prejudice claims.   
a) Could the parties explain what they consid er to be the relevant legal considerations 
by which the Panel should be guided in determining whether MY 2005 or MY 2006 
is the appropriate marketing year?  
 
24. In assessing the effects of marketing loan and CCP subsidies, the Panel should use the 
methodological tool of a "reference period."
10  The appropriate reference period is MY 2005, the last 
recent marketing year for which essentially complete data exists.11  It may also be appropriate to use 
partial MY 2006 data where the data has particular indicia of reliability and credibility.  However, 
                                                      
10 Panel Report, U.S. – Upland Cotton , paras. 7.1195-1.1201. 
11 Panel Report, U.S. – Upland Cotton , para. 7.1198.   WT/DS267/RW  
Page D-120  
 
partial year data should be used with caution because historical data shows that there have been fairly 
significant shifts of prices, demand, supply based on a number of different factors.    25. The relevant legal considera tions for selecting a representative period of time, or a "reference 
period," to assess the existence of serious prejudice were  discussed by the original panel as follows:   
Article 5(c) and 6(c) of the SCM Agreement do not refer to any specific time period 
within which we must conduct our evaluation.  …  The Panel concurs with the United States assertion that MY 2002 is a relevant year for our serious prejudice inquiry.  It represents a recent period for wh ich essentially complete data exists.  The 
identification of "significant price suppression" flowing from the "effect of the 
subsidy" calls for an evaluation of this  effects-based phenomenon that cannot be 
conducted in the abstract.  Rather, discerning adverse effects of subsidies seems to us 
to require reference to a recent historical  period.  We believe, however, that it is 
important for the establishment of "current" serious prejudice that such prejudice would be established to exist up to, and including, a recent point in time.
12  
26. The original panel also found that "considera tion of developments over a period longer than 
one year [is] not necessarily required (at least for Ar ticles 5(c) and 6.3(c))," but that a longer period 
"provides a more robust basis for a serious prej udice evaluation than merely paying attention to 
developments in a single year."13   
 27. As the original panel noted, there is no speci fic guidance for selecting a reference period for 
assessing price suppression claims.  However, context fo r interpreting Article 6.3(c) is found in other 
provisions of Part III of the SCM Agreement .  Paragraph 2 of Annex IV provides that in "determining 
whether the overall rate of subsidization exceed s 5 percent of the value of the product … the 
"12-month period, for which sales data is availabl e, preceding the period in which the subsidy is 
granted" be used.  Similarly, para graph 5 of Annex IV provides that the "rate of inflation experienced 
in the 12 months preceding the month in which the subsidy is to be given" be used.   
 28. Article 6.4 of the SCM Agreement provides in respect of claims of displacement or impedance 
under Article 6.3(b) that "an appropriate representative period  sufficient to demonstrate clear trends 
in the development of the market for the product co ncerned … in normal circumstances, shall be at 
least one year."  Article 6.7 refers to "the relevant  period" for the purpose of Article 6.3(a) and 6.3(b) 
claims.  Article 6.3(d) provides for the assessmen t of an increase in the world market share by 
comparing data from one year with "the previous  period of three years and this increase follows a 
consistent trend over a period when subsidies have  been granted."  Less specific time periods are 
referred to regarding price undercutting claims under Articles 6.3(c) and 6.5 where the comparison of 
prices "shall be made … at comparable times."   
 
29. These various provisions indicate that some period of time should be used to assess various 
forms of serious prejudice.  While Article 6.3 provides for no particular time period for the 
assessment of significant price suppression, Brazil agrees with the original panel that significant price 
suppression in the same market requires an examin ation of some representative time period to assess 
trends, data, and evidence in order to con duct the necessary counter-factual analysis.   
 
30. However, the use of such a "reference period"  to determine whether serious prejudice exists, 
does not limit the "measures" at issue to that refere nce period.  As Brazil demonstrated in its answers 
to Questions 11 and 15, challenges to subsidies causing serious prejudice are not "as applied" or 
"per se " claims.  Rather, they are challenges based on the "effects" of "any subsidy."  By contrast, the 
                                                     
 
12 Panel Report, U.S. – Upland Cotton , para. 7.1198.  
13 Panel Report, U.S. – Upland Cotton , para. 7.1199. 
  WT/DS267/RW 
 Page D-121 
 
 
United States seeks to turn the "reference period" for assessing serious prejudice into a jurisdictional 
limitation on the measures themselves.  The Unite d States is incorrect.  The necessary use of a 
reference period has no implications for the implem entation obligations of a subsidizing Member – 
and certainly does not limit those obligations to onl y payments made in the past during the reference 
period.  Rather, the finding of adverse effects creat es an implementation obligation to ensure that the 
use of the subsidy in the future does not cause adverse effects.   
 31. In sum, this compliance Panel should use the reference period of MY 2005 to assess whether 
serious prejudice exists from the new basket of meas ures.  Partial MY 2006 data should also be used 
when it can be considered reliable and credible.  
 
b) Do the parties agree or disagree with the argument of the European Communities 
that in a dispute involving a claim of present serious prejudice the parties must provide the "most recent reasonably avail able" data?  [Paragraphs 43 and 54-55 of 
the Third Party Submission of the European Communities] 
 32. Brazil disagrees with European Communities to  the extent that the European Communities 
asserts that panel considering serious prejudice challe nges should rely on any partial year data simply 
because it is the most recent, regardless of its reliab ility in allowing an assessment of trends.  As set 
out in Brazil's answer to Question 28(a), above, in  assessing the effects of marketing loan and CCP 
subsidies, the compliance Panel should use th e methodological tool of a "reference period."
14  The 
appropriate reference period is MY 2005, the last recent marketing year for which essentially 
complete data exists.15  However, to assess effects, the comp liance Panel can also use data throughout 
the lifetime of the FSRI Act of 2002.  This permits the Panel to assess the continued relevance of the 
numerous findings of fact made by the original  panel based on the earlier reference period MY 2002 
and MY 1999-2002.  The data to be assessed includ es annual marketing year data regarding planted 
and harvested acreage, yields, production, exports, various futures and actual prices, production costs 
and the magnitude of subsidies in a given marketing year.  Single week, month, or even partial year data do not provide as clear a picture because data  on supply, demand, exports, prices, and price-
contingent subsidies changes over time.    33. However, the reference peri od could be expanded to allow the assessment of evidence after 
the end of MY 2005.  This is particularly the case given the fact that marketing loan and 
CCP programs in the FSRI Act of 2002 result in an une nding stream of price-contingent subsidies that 
cause, with no clear dividing line, present serious prejudice today and a threat thereof tomorrow, and in the years ahead.  Mandated marketing loan and CCP  subsidies are paid today, and will continue to 
be paid months from now when the compliance Panel issues its report.  In fact, current projections 
by USDA indicate that they will be paid every da y until the FSRI Act of 2002 is repealed.  Brazil's 
various serious prejudice claims in this proceeding, as before the original panel, involve past, present 
and future serious prejudice from this unending river of subsidies mandated by the FSRI Act of 2002.  
It is, therefore, appropriate for the compliance Pane l to assess, with caution and only where it finds it 
credible and reliable, evidence concerning reference periods after 31 July 2006.    
 
Questions to the United States
 
 
29. Does the United States contest the fact that a "strong positive relationship between upland 
cotton (base acre) producers receiving annual payments and upland cotton production" exists?16 In 
particular, does the US disagree with the following statements17:  
                                                      
14 Panel Report, U.S. – Upland Cotton , paras. 7.1195-1.1201. 
15 Panel Report, U.S. – Upland Cotton , para. 7.1198.   
16  See para. 131 of Brazil's First Submission. The Panel clarifies that this phrase refers to the fact that 
"the recipients who hold upland cotton base acres" and "those who continue to plant upland cotton" overlap with WT/DS267/RW  
Page D-122  
 
• a very large proportion of farms with upland cotton base acres continue to plant 
upland cotton in the year of payment;   
 
• the overwhelming majority of farms enro lled in the programs which plant upland 
cotton also hold upland cotton base? 
 
Question to Brazil  
 
30. How does Brazil respond to the argument of the United States that "whether or not the 
marketing loan and counter-cyclical payment pr ograms or payments under the programs cause 
significant price suppression is a question of first impression"?  [Rebuttal Submission of the United States, paragraph 219]  
34. Brazil agrees that it is a question of "first impression" whether the new basket of price-
contingent subsidy measures – consisting of mark eting loan and CCP subsidies – causes significant 
price suppression in the world market for upland cott on.  The original panel made its overall price 
suppression and causation findings largely based on the collective effects of the "basket of measures" 
that included Step 2, marketing loan, and CCP subsidies.    35. But this does not mean, as the United States argues, that all findings of the original panel 
regarding the individual effects of marketing loan a nd CCP subsidies, or even some of the collective 
effects of the original basket of measures are irrele vant.  Brazil fully agrees with the United States that  
the original panel's findings "are taken as a gi ven for purposes of this Article 21.5 proceeding."
18  As 
the Appellate Body stated, a compliance panel should apply the findings of the original panel "in the 
absence of any change in the underlying ev idence in the record and explanations."19     
 
36. In making a new assessment of whether marke ting loan and CCP subsid ies collectively cause 
serious prejudice, the compliance Panel can and must rely on the many findings of the original panel that isolated and examined separately the text, nature, magnitude, and effects of marketing loan and 
CCP subsidies.
20  The statutory and regulatory framework of these subsidies has not changed.  Other 
unchanged findings involve the existence of Brazilian and U.S. cotton in the same world market, the 
continued relevance of the large world market sh are of U.S. supply, and the resulting substantial 
proportionate influence of U.S. production and export s on the world market price for cotton.  Because 
the conditions of competition have not changed in  any fundamental way since the original panel's 
reference period of MY 2002, the compliance Panel should rely on these earlier findings in making its 
new assessment of whether marketing loan and CCP  subsidies cause significant price suppression in 
the world market for upland cotton.      
 
2. The structure, design and operation of the countercyclical and marketing loan payment 
programs 
 
Question to the United States  
 
31. Brazil claims that the structure, desi gn and operation of US counter-cyclical payments 
stimulate US upland cotton production.  Both Brazil and the United States have referred to the 
                                                                                                                                                                     
each other to a great extent.  (See pa ra. 7.637 of the report of the origin al panel.) The Panel understands that 
Brazil uses this phrase in the same sense.  
17  These passages are reproduced from para. 7.636 of the report of the original panel.  
18 U.S. First Written Submission, para. 180. 
19 Appellate Body Report, U.S. – Softwood Lumber VI (21.5) , para. 103.   
20 Brazil First Submission, Sections 7.3 and 7.8;   Brazil's Rebuttal Submission, Section 2.3.1.    WT/DS267/RW 
 Page D-123 
 
 
Westcott (2005)21 study to provide support for their opposing analysis of the possible production 
impact of counter-cyclical payments.  In its rebut tal, Brazil quotes the following passage from 
Westcott:  
So where do CCPs fit compared with other farm commodity programs in the 2002 Farm Act?  Marketing loans are fully coupled since they are available on all production and their link to 
market prices means they affect production decisi ons of farmers.  Direct payments are mostly 
decoupled, since they are paid on a fixed, hi storically-based quantity rather than on current 
production and are not dependent on market pr ices or other factors that would affect 
production.  … 
 
CCPs fall in between these two programs, having some properties similar to mostly decoupled direct payments and other properties similar to fully coupled marketing loans.  
Like direct payments, CCPs do not depend on current production since they are paid on a fixed, historically-based quantity.  However, similar to marketing loans, CCPs are linked to 
market prices so there may be some influe nce on current production decisions of farmers, 
which would potentially make CCPs at least partially or somewhat coupled
. 
 
a) Does the United States agree with this characterization of the CCP?   
 
b) How would the United States respond to the argument that, by design, counter-
cyclical payments are in some measure coupl ed to production decisions because part 
of the payments is contingent on the actual realization of market prices?  
 3. Economic simulation model 
 Question to the United States
 
 
32. Brazil has presented a partial e quilibrium model to simulate the effects of eliminating US 
upland cotton payments, particularly  the marketing loan and counter-cyclical payments.  In both its 
submission and rebuttal, the United States has prov ided reactions to the simulation model.   
 
a) Would it be accurate to describe the Un ited States' response as constituting a general 
acceptance of the framework of analysis adopted by Brazil but contesting the assumptions made regarding the values of  the parameters, the supply and demand 
elasticities and the "coupling factor", used in the model?  (The coupling factor is the amount by which the expected price is increa sed by each dollar per unit of subsidy 
payments.)   
 b) In its First Written Submission and Rebuttal Submission, the United States uses the 
same value of 1 that Brazil adopts for the coupling factor assigned to marketing loan payments.  Does this imply an acceptan ce by the United States that, by design, 
marketing loan payments provide a one-for-one incentive to upland cotton 
production?  
 c) In its First Written Submission and Rebuttal Submission, the United States used a 
non-zero value of 0.25 (not much lower from the 0.4 that Brazil adopts) for the coupling factor assigned to counter-cyclical payments.  Does this imply an 
acceptance by the United States that, by  design, counter-cyclical payments are 
partially tied to upland cotton production, and of  a magnitude (25 cents to a dollar of 
                                                     
 
21 Paul A. Westcott, "Counter-Cyclical Payments Under the 2002 Farm Act: Production Effects Likely 
to be Limited" (Exhibit US-35). WT/DS267/RW  
Page D-124  
 
counter-cyclical payments) not very far from Brazil's own estimate (of 40 cents to a 
dollar of counter-cyclical payments)? 
 E. E
XPORT CREDIT GUARANTEES  
 
1. Permissibility of an a contrario  interpretation of item (j) of the Illustrative List 
 
Questions to the United States  
 33. Please discuss whether (and if so, how) the panel rulings in Korea – Vessels and Brazil - 
Aircraft (21.5) (I and II) affect the United States' a pproach to the interpreta tion of the relationship 
between item (j) of the Illustrative List and Article 3.1(a) of the SCM Agreement. 
 34. Does the United States considers that item (j) of th e Illustrative List is one of the provisions to 
which footnote 5 of the SCM Agreement applies? W hat impact does this have for the United States' 
interpretation of the interaction between item (j) of  the Illustrative List and Article 3.1(a) of the 
SCM Agreement?   35. How does the United States address Brazil's ar gument that permitting an a contrario reading 
of item (j) would prevent a Member from challengi ng specific export credit guarantees or cohorts of 
such guarantees granted by a Member, as oppo sed to export credit guarantee programs? [see 
paragraphs 472 ff. of Brazil's Rebuttal]  
Questions to Brazil
 
 36. What is Brazil's reading  of the Appellate Body's statement in paragraph 80 of its Report in 
Brazil – Aircraft (21.5) that it "... would have been  prepared to find that the payments made under 
the revised PROEX are justified under item (k) of the Illustrative List"?  Should the Panel take this 
statement into account in deciding wheth er item (j) can be interpreted a contrario? 
 
37. Brazil has explained that, in its view, footnote 5 of the SCM Agreement expressly identifies 
the only circumstances in which the Illustrative List  can be relied upon to identify measures that are 
not
 prohibited—namely, where the me asures are "referred to…as not constituting export subsidies."  
This is also the view adopted, after extensive analysis, by the panels in Brazil – Aircraft (21.5)  and 
Korea – Vessels , the latter of which concluded on this basis that item (j) of the Illustrative List does 
not meet the requirements of footnote 5 and therefore cannot be interpreted a contrario .  
 
38. This position is not inconsistent with  the Appellate Body's statement, in dicta  in Brazil – 
Aircraft (21.5) , that it "would have been prepared," in effect, to accept an a contrario reading of the 
first paragraph of item (k) of the Illustrative List.22   
 39. As a threshold matter, it must be noted that  the Appellate Body's statement appeared in dicta , 
and was accompanied by an express reserv ation that the Appellate Body did not purport to interpret or 
apply footnote 5 to this question.   The Appellate Body was very clear on this point:  "[W]e wish to 
emphasize that we are not interpreting footnote 5 of the SCM Agreement , and we do not opine on the 
scope of footnote 5…"
23  Accordingly, the analysis of footnote 5 by the panel in Brazil – 
Aircraft (21.5)  and, subsequently, by the panel in Korea – Vessels , stands unaffected by the Appellate 
Body's statement.  The Korea –Vessels  panel expressly considered the Appellate Body's statement on 
                                                      
22 Appellate Body Report, Brazil – Aircraft (21.5) , para. 80. 
23 Appellate Body Report, Brazil – Aircraft (21.5) , para. 80 (emphasis added).  WT/DS267/RW 
 Page D-125 
 
 
item (k), first paragraph.  It concluded that that statement posed no bar to the panel's analysis, which 
relied on footnote 5 to preclude an a contrario  reading of item (j).24 
40. Furthermore, item (k) is substantively distinct from other Illustrative List items.  That is, even 
if the Appellate Body could be unders tood to have contemplated a possible a contrario reading of the 
first paragraph of item (k) notwithstanding footnote 5,  such license would not extend beyond item (k). 
 
41. As Brazil explained to the original panel25, the first paragraph of item (k) is not like item (j).  
Paragraph 1 of item (k) calls for an analysis of "m aterial advantage," which is closely related to the 
"benefit" standard under Article 1.1.26  Both focus on an assessment of  the "benefit to the recipient."  
An a contrario  reading of the first paragraph of item (k) would not supplant the "benefit to recipient" 
standard in Article 1.1(b).   
 42. Not so with an a contrario  reading of item (j).  A determination that an ECG program breaks 
even tells one nothing about whether ECGs confer  benefits on recipients relative to market 
benchmarks.  Yet an a contrario application of item (j) would definitively eliminate any consideration 
of that "benefit".  As such, it cannot be contemplated, whether or not an a contrario application of 
item (k), first paragraph, might conceivably be available.   
 43. Again, however, Brazil does not understa nd the Appellate Body's statement in Brazil – 
Aircraft (21.5)  to have embraced an a contrario  reading of item (k), because the Appellate Body did 
not carry out an analysis addressing the impact of footnote 5 on that question.  To the contrary, the 
Appellate Body insisted that it was not taking that step, leaving the question entirely open to this 
compliance Panel.  
2. Outstanding export credit guarantees / measures taken to comply 
 Questions to Brazil
 
 
37. Brazil relies on the panel and Appellate Body Reports in Brazil – Aircraft (21.5) in support 
of its arguments that the United States has not "withdrawn" the subsidy and is, "[a]t a minimum... prohibited from making 'payments' on claims against" any outstanding export credit guarantees 
[Paragraph 397 of Brazil's Rebuttal Submission].  Please discuss how the findings of the panel and 
Appellate Body in that case apply to the provis ion of the US export credit guarantees at issue.  
 
44. Brazil's claim is supported by two elements  of the compliance panel and Appellate Body 
reports in Brazil – Aircraft (21.5) .   
 
45. First, these reports conclude d that in continuing, after
 the implementation deadline, to 
perform on financial commitments undertaken before  adoption of the DSB's recommendation, Brazil 
was not fully withdrawing the subsidy.27  Analogously, in continuing, after  the implementation 
deadline, to perform on ECGs issued before  adoption of the DSB's recommendation, the United States 
has not fully withdrawn the subsidy.  
                                                     
 
24 Panel Report, Korea – Commercial Vessels , para. 7.197. 
25 Panel Report, U.S. - Upland Cotton , Annex I-1 (Answers of Brazil to Questions from the Panel, 
11 August 2003), paras. 143-149.  
26 Appellate Body Report, Brazil – Aircraft (21.5) , para. 61 ("We ruled [...] that the determination of 
whether a payment is 'used to secure a material adva ntage' calls for a comparis on between the export credit 
terms available under the measure at issue and some other 'market benchmark'.").  
27 Appellate Body Report, Brazil – Aircraft (21.5) , para. 45.  See also Panel Report, Brazil – 
Aircraft (21.5) , para. 6.17.  The compliance panel considered that "the obligation to cease performing illegal 
acts in the future is a fundamentally prospective remedy."  Panel Report, Brazil – Aircraft (21.5 I) , para. 6.15. WT/DS267/RW  
Page D-126  
 
46. Second, continuing to perform on ECGs outstanding on 1 July 2005 does not satisfy the 
definition of "withdraw" offere d by the Appellate Body in Brazil – Aircraft (21.5) .  The original panel 
found that the ECG programs were export subsidies within the meaning of item (j).  The recommendation that the United States "withdraw the subsidy" therefore applied to the ECG 
programs.  However, the recommendation also includ es the subsidiary obligation not to perform on 
certain outstanding ECGs issued under those programs  (i.e., those ECGs issued for export transactions 
involving unscheduled products and rice).
28  The Appellate Body defined the term "withdraw" as to 
"remove" or "take away" the subsidy.29  Paying a claim on default of a GSM 102 credit subject to the 
DSB's recommendation to "withdraw the subsidy" does not "remove" or "take away" that subsidy.  3. "Benefit" under Articles 1 and 3.1(a) of the SCM Agreement  
 
Question to the United States
 
 
38. Please discuss the relevance of the original panel's characterization, in paragraph 6.31 of its 
report, of Brazil's reliance on Articles 1 and 3.1(a) of the SCM Agreement as "not a separate claim, 
but merely another argument" on the United States' view  in this respect (and notably the United States 
statement, in paragraph 67 of its First Written Submission, that "... the panel in the original 
proceeding specifically declined to  address Brazil's alleged 'claim' under Articles 1 and 3.1(a) of the 
SCM Agreement")?   
Questions to Brazil
 
 
39. The Panel understands the United States to argu e that it has relied on the Panel's findings 
under item (j) to implement the DSB recommendations  with respect to export credit guarantees. 
How would this, in Brazil's view, affect the comp liance panel's role in this proceeding?  Was the 
United States also expected to implement change s in order to make its export credit guarantee 
programs consistent with article 1.1 and 3.1(a) of the SCM Agreement, even though there were no 
findings of the original panel in this respect?  
47. The United States' "reliance" on the original Panel's findings under item (j) should not affect 
the compliance Panel's role in these Article 21.5 proceedings. 
 
48. The United States cannot escape the export subsidy disciplines of the Agreement on 
Agriculture  and the SCM Agreement  by arguing that it somehow relied on the factual and legal basis 
for the original panel's finding that the GSM 102 program constitutes an export subsidy – to wit, 
item (j) of the Illustrative List.  The question in  these compliance proceedings is not limited to 
whether the United States has cured the basis on wh ich the original panel found a violation.  The 
Appellate Body has stated that in Article 21.5 pro ceedings, "a panel is not confined to examining the 
'measures taken to comply' from the perspective of  the claims, arguments and factual circumstances 
that related to the measure that was th e subject of the original proceedings."
30   
 49. Brazil thus understands that the compliance Panel is charged with reviewing the "new" 
measure – the amended GSM 102 program – from the perspective of the claims and arguments (as 
well as the facts) put before it in these
 proceedings, and not the claims and arguments before it in the 
original proceedings, with r espect to the "old" measure. 
                                                      
28 Appellate Body Report, U.S. – FSC (21.5) , paras. 223-231 (recommendation to withdraw a subsidy 
in the form of an overarching measur e, the FSC, includes the obligation to stop making pre-committed payments 
to existing FSCs);  Appellate Body Report, Brazil – Aircraft (21.5) , para. 45 ("… to continue to make payments 
under an export subsidy measure found to be prohibited is not consistent with the obligation to 'withdraw' prohibited export subsidies, in the sense of 'removing' or 'taking away'."). 
29 Appellate Body Report, Brazil – Aircraft (21.5) , para. 45. 
30 Appellate Body Report, Canada – Aircraft (21.5) , para. 41.  See also Id ., para. 40.  WT/DS267/RW 
 Page D-127 
 
 
50. Moreover, the United States could not legitima tely have "relied on" the original panel's 
findings under item (j) as the bounds of its implemen tation obligations.  The United States is surely 
aware that under the Appellate Body's interpretati on of Article 21.5, any U.S. "measure taken to 
comply" would be a new measure subject to review from the perspective of claims, arguments and factual circumstances that may differ from the origin al proceedings.  This new measure must be fully 
consistent with every relevant pr ovision of the covered agreements. 
 51. In fact, in the original proceedings, Braz il urged the original panel to make findings on 
Brazil's extensive evidence and argument that under the "old" measure, GSM 102 ECGs confer 
"benefits" and constitute e xport subsidies under Articles 1.1 and 3.1(a) of the SCM Agreement .
31  
While Brazil repeatedly urged it not to do so32, the original panel exercised judicial economy with 
respect to the evidence and argument offered by Brazil under Articles 1.1 and 3.1(a).  Nonetheless, the arguments are familiar to the United St ates, and should have been anticipated. 
 52. As emphasized in Brazil's oral statement at th e meeting with the compliance Panel, all of this 
is not to say that the DSB's recommendations are irrelevant in implementation proceedings 
implicating prohibited subsidies and Article 4.7 of the SCM Agreement .  As noted by the Appellate 
Body, "full withdrawal of a prohibited subsidy within the meaning of Article 4.7 of the 
SCM Agreement cannot be achieved by a 'measure taken to comply' that replaces the original subsidy 
with yet another subsidy found to be prohibited."
33 
 
53. Thus, even if the United States has withdr awn the elements of the GSM 102 program that 
made it an export subsidy under item (j) (a prop osition with which Brazil does not agree), it has 
"replace[d] the original subsidy with yet anot her" prohibited subsidy – the provision of export-
contingent GSM 102 ECGs at below-market fees.  It has, therefore, failed to achieve "full withdrawal" 
of the subsidy, consistent with the Article 4.7 recommendation. In urging the Panel not to examine 
whether its replacement measure confers export- contingent "benefits", the United States seeks 
precisely to escape its obligation under that provision to fully  withdraw the prohibited subsidy. 
 
40. In paragraph 410 of its Rebuttal, Brazil ref ers to paragraph. 7.398 of the Panel Report in 
Canada – Aircraft II.  The Panel notes, howeve r, that in the same paragraph, the Canada – 
Aircraft II panel also indicated that there woul d be a "'benefit' when the cost-saving for a 
Bombardier customer for securing a loan with an IQ  loan guarantee is not offset by IQ's fees".  
Please discuss, in light of this sentence, wheth er the Panel should read the Canada – Aircraft II 
panel as having rejected the "total cost of fund s" as the proper benchmark under Article 14(c) of 
the SCM Agreement. 
                                                      
 31 In addition to Brazil's exhibits in the original proceedings, see Brazil's 18 February 2004 Comments 
on U.S. Answers to Additional Questions, para. 65 (Panel Report, U.S. – Upland Cotton , Annex I-20);  Brazil's 
28 January 2004 Comments on U.S. Answers to Questions, paras. 139-144 (Panel Report, U.S. – Upland 
Cotton , Annex I-13);  Brazil's 20 January 2004 Answers to Additional Questions, para. 14 (Panel Report, U.S. – 
Upland Cotton , Annex I-10);  Brazil's 18 November 2003 Further Rebuttal Submission, U.S. – Upland Cotton , 
paras. 229-242;  Brazil's 7 October 2003 Oral Statement, U.S. – Upland Cotton , para. 72;  Brazil's 
27 August 2003 Comments on U.S. Rebuttal Submission, paras. 68-80 (Panel Report, U.S. – Upland Cotton , 
Annex D-3);  Brazil's 22 August 2003 Rebuttal Submission, U.S. – Upland Cotton , paras. 102-107;  Brazil's 
11 August 2003 Answers to Questions, paras. 139-140, 152-157, 182-189, 192-196 (Panel Report, U.S. – 
Upland Cotton , Annex I-1);  Brazil's 22 July 2003 Oral Statement, U.S. – Upland Cotton , para. 116;  Brazil's 
24 June 2003 First Submission, U.S. – Upland Cotton , paras. 287-294. 
 32 See Brazil's 2 November 2004 Other Appellant Submission, U.S. – Upland Cotton , para. 19;  Brazil's 
17 May 2004 Interim Comments, U.S. – Upland Cotton , paras. 19-23;  Brazil's 28 January 2004 Comments on 
U.S. Answers, para. 145 (Panel Report, U.S. – Upland Cotton , Annex I-13);  Brazil's 18 November 2003 Further 
Rebuttal Submission, U.S. – Upland Cotton , para. 228;  Brazil's 11 August 2003 Answers to Questions, 
para. 150 (Panel Report, U.S. – Upland Cotton , Annex I-1).  
33 Appellate Body Report, U.S. – FSC (21.5 II) , para. 83 (italic emphasis in original;  underlining 
supplied). WT/DS267/RW  
Page D-128  
 
54. The sentence quoted by the compliance Panel from the report in Canada – Aircraft Credits 
and Guarantees  appears to be a rough approximation of what the United States characterizes as a 
"total cost of funds" approach to Article 14(c).
34  Brazil does not believe that the panel in that dispute 
rejected the "total cost of funds" approach, or Article  14(c) in general, in s ubsequently concluding that 
"it is safe to assume that such cost difference would not be covered by [guarantee] fees if it is 
established that [the guarantee] fees are not market-based."35  Rather, consistent with the proper 
interpretation of the provision, the panel merely dec lined to apply it rigidly, without consideration of 
the factual circumstances at hand.  55. At the United States' urging, the Appellate Body has rejected a "r igid" approach to the 
quantification methodologies included in Article 14, even for disputes regarding countervailing 
measures, to which the provision expressly applies.   Quoting from a U.S. submission, the Appellate 
Body in  U.S. – Softwood Lumber IV  noted "that the use of the term 'guidelines' in Article 14 suggests 
that paragraphs (a) through (d) shoul d not be interpreted as 'rigid rules that purport to contemplate 
every conceivable factual circumstance'."
36  Absent flexibility in Article 14, the Appellate Body 
worried that "the subsidy disciplines in the SCM Agreement  . . . could be undermined or 
circumvented."37 
 56. Canada – Aircraft Credits and Guarantees was an export subsidy dispute under Part II of the 
SCM Agreement , to which Article 14 applies, but as context for a conclusion that Article 1.1(b) 
involves a "benefit to recipient", rather than a "cost to government", standard.
38  As noted above, even 
in the context of countervailing measures disputes, Article 14 admits of flexibility; the Appellate 
Body has cautioned against applying the provision too rigidly, without reference to the particular factual circumstances at hand.  Outside  the context of countervailing measures disputes, the 
SCM Agreement  does not mandate that the existence of a "b enefit" under Article 1.1(b) be established 
using a particular quantification methodology.  Indeed, unlike in countervailing duty proceedings, 
where a duty must be calculated, disputes under Part II of the SCM Agreement  do not require precise 
quantification of the "benefit" found under Article 1.1(b).  57. Thus, while the panel in Canada – Aircraft Credits and Guarantees  was correct in 
acknowledging the relevance of the "total cost of f unds" approach in Article 14(c) at some level, 
declining to follow it rigidly was entirely appropriat e in the factual circumstances of that dispute.  
Unlike in countervailing duty proceedings, where a duty must be calculated as a function of the 
amount of "benefit" conferred by government suppor t, no such precise calculation of the "benefit" 
flowing from government support is required for an export subsidy dispute.  In Canada – Aircraft 
Credits and Guarantees , all Brazil, as the complaining Member, was required to show, was that some  
"benefit" was conferred.  The pane l in that dispute concluded that some  "benefit" would have been 
conferred were fees for the government gua rantee to be shown to be below-market.
39  Doing so did 
not constitute "rejection" of Article 14(c), but instead , was consistent with the proper interpretation of 
Article 14, and constituted a flexible approach called for by the factual circumstances at hand. 
                                                      
34 U.S. First Written Submission, para. 138. 
35 Panel Report, Canada – Aircraft Credits and Guarantees , para. 7.345. 
36 Appellate Body Report, U.S. – Softwood Lumber IV , para. 92.  See also U.S. Appellant's Submission, 
U.S. – Softwood Lumber IV , para. 25, accessed February 2007 at 
http://www.ustr.gov/assets/Trade_Agreements/Monitori ng_Enforcement/Dispute_Settlement/WTO/Dispute_Set
tlement_Listings/asset_upload_file760_6326.pdf  ("[T]he provisions of Article 14 are explicitly designated as 
"guidelines" and they must be interpreted in accordance wi th the ordinary meaning of that word.  A "guideline" 
is "a directing or standardizing principle laid down as a guide" to procedure or policy.    The fact that Members 
are obligated to follow the guidelines in Article 14 does  not alter their character.  Members have specifically 
designated the provisions in Article 14 as "guides" or "principles," not rigid rules that purport to contemplate 
every conceivable factual circumstance."). 
37 Appellate Body Report, U.S. – Softwood Lumber IV , para. 100. 
38 Appellate Body Report , Canada – Aircraft , para. 155. 
39 Panel Report, Canada – Aircraft Credits and Guarantees , para. 7.345.  WT/DS267/RW 
 Page D-129 
 
 
Questions to both parties  
 
41. What are the relevant considerations to gu ide the Panel in the selection of a market 
benchmark in this case?:  
a) That the institution that provides the product is, on the whole, or on a program or 
product-specific basis, profitable? If so, is "any" profit sufficient to qualify an institution/product/program as a releva nt "market benchmark" or must the 
institution/product/program achieve a cert ain level of profit? Must the Panel 
conduct an examination of the level of profit achieved by commercial or private 
actors operating in the field? 
 b) Are the institution/program/products' stated goals relevant in assessing whether 
they can be used as a "market benchmark"? 
 
c) Is the "governance" of the institution relevant?  
 d) What other factors are relevant? 
 
58. When assessing a benchmark drawn from an en tity that is truly a participant in the 
"marketplace"
40 – meaning an entity the financial indepe ndence of which is not "[]distorted by 
government intervention"41 – a panel need not review the entity's profitability, goals or governance.  If 
the entity is truly a participant in the market place, the terms on which it offers its products are the 
market, by definition.  In those circumstances, it is not relevant for a panel to inquire into the entity's 
profitability, goals or governance (unless those elemen ts are alleged to reveal that the entity is not 
truly a participant in the marketplace). 
 
59. In these proceedings, Brazil has demonstrated  that there is no credit protection product 
available in the marketplace that is comparable to a GSM 102 ECG.42  Accordingly, the GSM 102 
program offers a unique financial instrument without  any parallel at market, and therefore confers 
"benefits" per se .  Where other Members' measures were at issue, the United States has agreed.43 
 
60. In addition, Brazil has offered evidence de monstrating that GSM 102 fees are considerably 
below those charged for virtually identical products offe red by an entity that is not a participant in the 
marketplace – the U.S. Export-Import Bank ("ExIm Bank").  Benchmarking to fees charged by an 
entity that is not a participant in the marketpl ace likely understates the extent of the "benefit" 
conferred by a GSM 102 ECG, for reasons expressed  in Brazil's submissi ons to the compliance 
Panel.44  In the circumstances of these particular proceedings, Brazil is willing to accept that 
understatement.  The Panel will recall that in a prohib ited subsidies dispute, unlike in a countervailing 
measures dispute, quantification of the pr ecise amount of "benefit" is not required. 
                                                      
40 Appellate Body Report, Canada – Aircraft , para. 157 ("In our view, th e marketplace provides an 
appropriate basis for comparison in determining whethe r a 'benefit' has been 'conferred', because the trade-
distorting potential of a 'financial contribution' can be identified by determining whether the recipient has 
received a 'financial contribution' on te rms more favourable than those availabl e to the recipient in the market."). 
41 Panel Report, Brazil – Aircraft (21.5 II) , para. 5.29. 
42 Brazil's First Written Submission, paras. 377-378.  See also Id ., Annex III (Statement of Professor 
Rangarajan Sundaram), paras. 8-9. 
43 Panel Report, Canada – Aircraft Credits and Guarantees , Annex C-2 (para. 7) ("If the commercial 
market does not offer a particular borrower the exact terms offered by a government, then the government is 
providing a benefit to the recipient whenever those terms are more favorable than the terms that are available in 
the market.  A government entity "operating on commercial principles" is still a government entity.  It is not the 
commercial market."). 
44 See, e.g., Brazil's Oral Statement, paras. 188-192. WT/DS267/RW  
Page D-130  
 
61. In a dispute under Part II of the SCM Agreement , a defending Member may not, however, 
justify the terms on which it offers a challenged fina ncial contribution with reference to a benchmark 
associated with a product offered by a government/ public entity.  Brazil believes that the compliance 
Panel's question is whether, in these circumstan ces, the defending Member could appeal to the 
profitability, goals or governance of that governme nt/public entity, to show that even if the entity is 
not truly a participant in the marketplace, the product serving as the proposed benchmark is offered on 
market terms.    62. In Brazil's view, the answer must be in the negative, to avoid circumvention of the disciplines 
in the SCM Agreement . 
 
63. Brazil addressed the issue of "profitability"  of a government/public entity in its opening 
statement at the meeting with the compliance Panel.
45  The original panel in this dispute observed that 
public entities tend to borrow from government treasur ies, or enjoy a guarantee flowing from the full 
faith and credit of governments.46  As a result, government/public entities tend to enjoy a lower cost 
of funds than their market-based counterparts.  Other immunities enjoyed by government/public 
entities – from taxation, in particular – lower costs even further.47  The United States made this point 
forcefully in Canada – Aircraft Credits and Guarantees : 
 
. . . [T]he competitive pressures on financ ial actors in the marketplace generate 
financing offers that reflect any internal co st advantages enjoyed by a particular actor.  
For wholly commercial actors, however, th e ability and willingness to compete is 
constrained by such factors as balance sheets, true market-determined borrowing 
costs, arms-length shareholder lending po licies, arms-length business costs, and the 
disciplines imposed by the need to provide  returns to owners.  [Government/public 
entity's] operations are largely free of these c onstraints, and thus are in a position to 
confer benefits by exceeding, if sometimes only in a small way, what purely market-
based financial institutions can (or may be willing to) offer.  Their ability to do so explains their existence, since there would otherwise be no reason for [government/public entity operations] to exist in  parallel with private financial market 
actors, much less any logical reason for governments to limit their [entities'] activities to nationals.
48 
64. Whatever the definition of the term, making a "profit" does not mean that fees charged by a 
government/public entity are consistent with mark et.  A government/public entity can charge below-
market fees and still make a "profit", particularly  because its costs are be low those faced by its 
market-based counterparts.  A mark et-based entity must go a step furthe r to survive:  it must charge 
fees high enough to make a profit on costs higher than those faced by its government/public 
counterpart, and the profit must offer a sufficien t return to attract ca pital from investors.  
"Profitability" of a government/public entity does not provide a relevant or sufficient measure of the 
"benefit" conferred by a government financial contribution.  
                                                     
 
45 Brazil's Oral Statement, paras. 188-192.  To show the conservative nature of its ExIm Bank exercise, 
Brazil has discussed the extent to which ExIm Bank is loss-making.  See Brazil's First Written Submission, 
para. 384 and Annex III (Statement of Professor Rangarajan Sundaram), paras. 17-24.  ExIm Bank's fees are 
apparently not high enough to turn a "profit" on the low cost of funds it enjoys as  a U.S. government agency 
backed by the full faith and credit of the United States Treasury. 
46 Panel Report, U.S. – Upland Cotton , para. 7.858. 
47 Brazil's Rebuttal Submission, paras. 439 (IFC immune from taxation), 441 (EBRD immune from 
taxation), 442 (IDB immune from taxation). 
48 Panel Report, Canada – Aircraft Credits and Guarantees , Annex C-2 (Third Party Submission of the 
United States), para. 5.  WT/DS267/RW 
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65. The United States made this point in the panel Korea –Vessels .  The panel asked whether the 
United States considered it relevant, in assessing "b enefit", that a Korean government bank, KEXIM, 
"operated at a profit".  The United States responded as follows: 
No.  …  [T]he benefit-to-recipient approach must be applied to KEXIM financing.  
That approach, in turn, requires a compar ison of KEXIM financing to a market-based 
benchmark;  i.e., comparable commercial financing.  Evidence that KEXIM earned a 
profit would be irrelevant to this exercise, because it would not prove that KEXIM 
was charging market rates .49 
66. A government/public entity's stated goal of  offering products consistent with market is 
equally irrelevant, as such a goal can be considered  little more than self-serving.  The governance of a 
government/public entity will tend, as noted by the original panel50, to demonstrate access enjoyed by 
the entity to low-cost funds or government guarantees,  which in turn highlight the irrelevance of the 
entity's ability to turn a profit.  
4. Claims under item (j) of the Illustrative List 
 
Questions to the United States
 
 
42. How does the United States address Brazil's argum ents with respect to the MPRs under the 
OECD Arrangement?  
Question to Brazil
 
 
43. What is Brazil's reaction to paragr aph 25 of Japan's Third Party Submission? 
 
67. As the Panel will recall, Braz il has demonstrated that fees ch arged by the United States in the 
GSM 102 program are significantly lower than the minimum premium rates ("MPRs") of the OECD 
Arrangement on Officially Supported Export Credits  (the "OECD Arrangement") for similar risk 
categories, tenors and repayment profiles.  Brazil offers this comparison as additional evidence that GSM 102 fees are not structured and designed to co ver the long-term costs and losses of the program, 
because the OECD Arrangement MPRs are set with the objective of ensuring "that Participants…charge premium rates in addition to in terest charges that…are not inadequate to cover 
long-term operating costs and losses."
51  
 68. In paragraph 25 of its Third Party Submissi on, Japan objects to Brazil's invocation of the 
OECD Arrangement in this context.  Japan's objections rest on the premise that the OECD 
Arrangement is factually inapposite for a comparison to GSM 102 ECGs, because the OECD 
Arrangement does not cover export credits for agri cultural commodities such as upland cotton and it 
applies to export credits with different tenors than those offered under GSM 102.    69. Japan's objection appears to stem from a misunderstanding of the purpose for which Brazil 
has invoked the OECD Arrangement's MPRs.  Brazil  acknowledges these factual differences between 
the GSM 102 program and the OECD Arrangement, and indeed did so in its own submissions.
52   
These distinctions, however, do not undermine the value of the comparison between GSM 102 fees 
                                                      
49 Response of the United States to Questions from the Parties, Korea – Measures Affecting Trade in 
Commercial Vessels , 22 March 2004, paras. 6-7 (emphasi s added), accessed February 2007 at 
http://www.ustr.gov/assets/Trade_Agreements/Monitori ng_Enforcement/Dispute_Settlement/WTO/Dispute_Set
tlement_Listings/asset_upload_file769_5561.pdf . 
50 Panel Report, U.S. – Upland Cotton , para. 7.858. 
51 Exhibit Bra-547 (OECD Document TD/PG(2004)10/FINAL, 6 July 2004, para. 1). 
52 Brazil's First Written Submission, para. 442. WT/DS267/RW  
Page D-132  
 
and the MPRs to this Panel's analysis under item (j).   This is because Brazil does not contend that the 
OECD MPRs constitute a strict quantitative benchm ark for analysis of the U.S. upland cotton ECG 
fees.  Brazil is not, for example, proposing the kind of direct quantitative comparison that would be triggered under item (k), second paragraph, of the Illu strative List.  Rather, this comparison offers the 
compliance Panel a qualitative  reference point for appreciating th e degree to which GSM 102 fees fall 
below internationally-accepted standards for EC G programs that are, according to the OECD, 
structured and designed to break even.  70. Brazil turns to Japan's specific objections .  As Brazil explained in its First Written 
Submission, comparing GSM 102 fees for agricultural ECGs to the OECD MPRs for industrial ECGs 
is, if anything, conservative.  As Japan itself no tes, "the risks of financing arrangements" for 
agricultural products are "substantial."  As Brazil has noted, the perishability of agricultural products 
diminishes their value as security for lenders.
53  Japan echoes Brazil's argument that in these 
circumstances, GSM 102's extended coverage is unique; Japan acknowledges that in normal 
circumstances, even non-market entities like ExIm Bank cap coverage  under similar credit protection 
products "at 180 days for bulk agricultural products."54 If the OECD Arrangement were to cover 
export credits for agricultural products, the MPRs  would certainly not be lower; the gap between 
MPRs and GSM 102 fees would not decrease, and would likely increase.  71. Nor does Japan's objection concerning the dive rgence between tenors for credits covered by 
GSM 102 and credits subject to OECD MPRs undermi ne Brazil's reference to the latter, for two 
reasons.   
 72. First, although the OECD Arrangement forma lly covers export credits  with a tenor of two 
years or more, it provides a formula that a llowed Brazil to extrapolate the MPRs that would be  
applicable to export credit guarantees with terms of l ess than two years.  This permits an "apples-to-
apples" comparison with respect to fees for cred its with tenors of less than two years.   
 73. Second, the comparison provided by Brazil spans GSM 102 ECGs with tenors ranging as long 
as 36 months.
55  Even if one were to accept a premise that GSM 102 fees may be compared only to 
MPRs for export credits with terms of two years or more, the comparison points at 24, 30 and 36 months would all remain valid.
56  Those points of comparison, in turn, reveal not only a wide gap 
between GSM 102 fees and MPRs, but a gap that grow s as the tenor – and, correspondingly, the risk – 
of the transaction increases.  This same pattern app eared in Brazil's comparison of GSM 102 fees and 
fees charged by the U.S. Export-Import Bank.  As the risks of the transactions increase, the 
inadequacy of the GSM 102 fees as compared to the MPRs (or to ExIm's fees) becomes even more 
pronounced. 
 
                                                      
53 Brazil's First Written Submission, para. 443. 
54 See Japan's Third Party Submission, para. 25, citing  Brazil's First Written Submission, 
paras. 387, 389. 
55 Exhibits Bra-548 (MPR and CCC Annual Compar ison) and Bra-549 (MPR and CCC Semi-Annual 
Comparison). 
56 See Exhibits Bra-548 (MPR and CCC Annual Co mparison) and Bra-549 (MPR and CCC Semi-
Annual Comparison).  WT/DS267/RW 
 Page D-133 
 
 
74. Accordingly, Brazil maintains that a compar ison of the fees charged in the GSM 102 program 
with the MPRs set under the OECD Arrangement constitutes a useful reference point for this 
compliance Panel.  The factual differences noted by Jap an in fact suggest that the reference point is a 
conservative one, such that it is even more clea r that the GSM 102 program is not structured and 
designed to charge fees that cover its long-term operating costs and losses.