WT/DS108/RW2 
 Page B-1 
 
 
  
ANNEX B 
  
SECOND SUBMISSIONS  OF THE PARTIES 
 
 
Contents Page 
Annex B-1 Second Written Submission of the European Communities B-2 
Annex B-2 Second Written Submission of the United States B-8 
 WT/DS108/RW2 
Page B-2  
 
ANNEX B-1 
  
SECOND WRITTEN SU BMISSION OF THE 
EUROPEAN COMMUNITIES 
 
 
(16 June 2005) 
  
TABLE OF CONTENTS 
 
Page
 
 
I. INTRODUCTION ............................................................................................................. B-3  
II. LEGAL AR GUMENT....................................................................................................... B-3 
A. INTRODUCTION ............................................................................................................... B -3 
B. WHETHER THE UNITED STATES MAY MAINTAIN THE ETI SCHEME ................. B-3 
1. The DSB adopted rulings co ncerning the ETI  scheme................................................... B-4 
2. Article 4.7 of the SCM Agreement ................................................................................... B-4 
C. WHETHER SECTION 5 OF THE ETI ACT IS WITHIN THE PANEL’S  
 TERMS OF REFERENCE .................................................................................................. B-6 
III. CONC LUSION ................................................................................................................ .. B-7 
  WT/DS108/RW2 
 Page B-3 
 
 
 
I. INTRODUCTION 
 
1. The US First Written Submission in this pro ceeding does not call for a long reply on the part 
of the European Communities.   
 
2. The United States has not contested the substance of the EC claims.  It does not argue that the JOBS Act is WTO-compatible in respect of any of  the claims advanced by  the European Communities 
(although it makes certain unsubstant iated and irrelevant assertions as to the "understanding" by the 
US Congress and others about the "EC’s concer ns" on which the European Communities will not 
comment further).
1  Rather, the United States confines itself to raising two procedural arguments.  As 
demonstrated below, those arguments are without merit and should be dismissed.    3. The European Communities will first examine the US argument according to which, in the 
absence of a recommendation under Article 4.7 of the SCM Agreement expressly addressing the ETI 
Act, the United States can keep the transition and "grandfathering" provisions of the JOBS Act in 
force.  It will then turn to the United States argument that section 5 of the ETI Act is not before the 
Panel.    
II. LEGAL ARGUMENT 
 
A. INTRODUCTION 
 4. The United States does not contest the substance of the EC claims.  In particular it does not 
contest that, by partially maintaining in force the ETI Act and the FSC provisions, even after the 
promulgation of the JOBS Act, it continues to viol ate a number of obligations which it has under the 
WTO Agreement (specifically, under Articles 3.1(a) and 3.2 of the SCM Agreement, Articles 10.1, 8 
and 3.3 of the Agreement on Agricultu re, and Article III:4 of the GATT 1994).
2   
 5. The United States also does not contest the violation of Articles 19.1 and 21.1 of the DSU.  B. WHETHER THE UNITED STATES MAY MAINTAIN THE ETI SCHEME 
 
6. The focus of the US procedural defen ce is the extraordinary proposition that  
 
in the absence of any recommendation or ruling of withdrawal under Article 4.7, this Panel cannot find that the United States has failed to comply with a DSB 
recommendation or ruling to withdraw its pr ohibited subsidies within the meaning of 
Article 4.7 of the SCM Agreement
3 
 and that  
 
the United States has not failed to comp ly with the DSB’s recommendations and 
rulings, and the transition provisions of the AJCA are not inconsistent with 
Article 4.7 of the SCM Agreement, for the simple reason that, as explained below, 
there was no DSB recommendation or ruling under Article 4.7  to withdraw the 
subsidy insofar as the ETI Act tax exclusion is concerned .4 
 
                                                      
1 US First Written Submission, para. 6.   
2 EC First Written Submission, para. 55. 
3 US First Written Submission, para. 2. 
4 US First Written Submission, para. 10 (emphasis added). WT/DS108/RW2 
Page B-4  
 
1. The DSB adopted rulings concerning the ETI scheme 
 
7. The United States is rather playing with words in making this procedural objection.  For one thing, even if the DSB did not make a new recommendation, it certainly made rulings by adopting the reports of the Panel and the Appe llate Body containing findings to the effect that the ETI Act is 
inconsistent with the SCM Agreement, the Ag reement on Agriculture and the GATT 1994.  These 
rulings comprise in particular the findings set out in paragraph 9.1(a)-(d) of the Article 21.5 Panel 
Report and upheld in paragraph 256 (b)-(e) of the Article 21.5 Appellate Body Report.  If the reports 
did not contain the necessary findings or recommendations, it would mean that the DSB achieved nothing at its special meeting convened to adopt  the reports which was held on 29 January 2002.
5  
 
8. The United States does not contest that section 101 of the JOBS Act was adopted to comply with these rulings.    
2. Article 4.7 of the SCM Agreement  
 
9. The US position quoted above also seems to erroneously assume that a recommendation 
under Article 4.7 of the SCM Agreement specifically  addressing the ETI Act, and additional to the 
original recommendation under the same provision concerning the withdrawal of the FSC subsidy scheme, is necessary in order for it to be under an obligation to withdraw the ETI subsidy scheme.   
 
10. This position misunderstands th e function of the Article 21.5 proceedings.  Such proceedings, 
as noted by the United States elsewhere in its submission
6, concern measures taken to comply with 
recommendations and rulings.7  Thus, it logically follows that in the first Article 21.5 proceeding it 
was sufficient for the Panel to find that, by promulgating the ETI Act, the United States has not withdrawn its prohibited subsidy (in other words, that the United States had not complied with the 
original recommendation to withdraw the prohibited subsidy).   
 11. Precisely because a measure challenged in an Article 21.5 proceeding is "taken to comply" 
with earlier recommendations and rulin gs, and because "compliance" is the focus of such proceeding, 
a panel is not required to also make a new r ecommendation under Article 4.7 specifically concerned 
with the measure "taken to comply" (although it will need to make findings concerning the 
consistency of the new measure w ith the covered agreements).   
 12. In the same way, if the measure under revi ew in  such a proceeding is found not to be 
"consistent with a covered agreem ent", the defaulting Member is not entitled to a new deadline to 
"withdraw the subsidy without delay" within the meaning of Article 4.7 of the SCM Agreement, 
contrary to what the United States seems to suggest.
8  Otherwise, the defaulting Member would be 
rewarded for its continuing non-compliance.  Therefore, a new recommendation would also not 
perform any function additional to that performed  by the one in the original proceeding.   
 13. The Appellate Body confirmed this approach  in its Report in the original Article 21.5 
proceedings and, contrary to the US assumption,
9 the fact that the Panel or the Appellate Body did not 
                                                      
5 WT/DSB/M/118, 18 February 2002. 
6 US First Written Submission, para. 17.  
7 Even though, as clarified by the Appellate Body in its Article 21.5 Report in Canada - Aircraft 
(Article 21.5) , a panel is not confined to examining the “measures taken to comply” from the perspective of the 
claims, arguments and factual circum stances relating to the measure originally challenged, but may also 
examine further claims which are pertinent to the “measure taken to comply” under review (Appellate B ody 
Report, Canada – Measures Affecting the Export of Civilian Airc raft – Recourse by Brazil to Article 21.5 of the 
DSU , WT/DS70/AB/RW, adopted 4 August 2000 (“ Canada - Aircraft – Article 21.5 ”), DSR 2000:IX, 4299, para. 
41). 
8 US First Written Submission, para. 16. 
9 US First Written Submission, para. 15.  WT/DS108/RW2 
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make a new recommendation under Article 4.7 does not help the US case.  First, as recalled in the EC 
First Written Submission, the Appellate Body clearly  upheld the Panel’s finding that the transition and 
"grandfathering" clauses of the ETI Act do not conform with the original recommendation and rulings.
10  Moreover, the Appellate Body closely linke d its findings on the ETI Act and the original 
recommendation under Article 4.7 of the SC M Agreement, in the following terms: 
 
257. The Appellate Body recommends  that the DSB request the United States to 
bring the ETI measure, found in this Report,  and in the Panel Report as modified by 
this Report, to be inconsistent with its  obligations under Article 3.1(a) of the SCM 
Agreement , under Articles 3.3, 8 and 10.1 of the Agreement on Agriculture , and under 
Article III:4 of the GATT 1994, into confor mity with its obligations under those 
Agreements, and that the DSB request th e United States to implement fully the 
recommendations and rulings of the DSB in  US – FSC,  made pursuant to Article 4.7 
of the SCM Agreement .11 
14. Had a new recommendation under Article 4.7 been needed, the Appellate Body would not 
have come to such conclusion.  The reason why the Appellate Body did not come to a different 
conclusion is that the findings on a measure "taken to comply" within the meaning of Article 21.5 of the DSU and the recommendations and rulings of the DS B, the compliance with which is at issue, are 
inextricably linked.
12   
 15. Furthermore, as recalled by the European Communities in its First Written Submission
13, the 
Appellate Body found that Article 4.7 of the SC M Agreement requires prohibited subsidies to be 
withdrawn "without delay" (while it mandates pane ls to specify the time-period prescribed for the 
withdrawal).  The Appellate Body’s recognition th at, by passing the ETI Act, the United States had 
not withdrawn its prohibited subsid y, and thus had not complied wi th the recommendation and rulings 
under Article 4.7 of the SCM Agreement contained in  the original Panel Report, rules out that the 
United States is authorized to keep the ETI scheme in place.  If the US argument were correct, then 
the partial repeal of the ETI scheme would repres ent an act of generosity vis-à-vis other WTO 
Members which was not sufficiently publicised by the US authorities to their constituencies.   
 16. In reality, the repeal of the ETI scheme has c onsistently been presented by the US legislator 
as a necessary action to bring an end to a violation of US WTO obligations.
14  The fact that the 
United States itself has found that repeal of the ETI  scheme is required in order to fulfil US treaty 
obligations may be considered "subsequent practice"  within the meaning of Article 31 of the Vienna 
Convention on the Law of Treaties.15 
 17. The United States also suggests that in comme nting on the interim Panel Report in the first 
Article 21.5 proceeding the European Community  asked that the Panel make no recommendation.
16  It 
does so to explain the fact that the Article 21. 5 Panel Report does not contain a new recommendation 
under Article 4.7 of the SCM Agreement.  In rea lity, the passage of the Article 21.5 Panel Report 
referenced by the United States records that th e European Communities pointed out that a new 
                                                      
10 Article 21.5 Appellate Body Report, paras. 230-2 31 and 256(f), referred to in EC First Written 
Submission, para. 57 and footnote 27. 
11 Article 21.5 Appellate Body Report, para. 257 (emphasis added). 
12 See also Panel Report, Canada – Measures Affecting the Export of  Civilian Aircraft – Recourse by 
Brazil to Article 21.5 of the DSU , WT/DS70/RW, adopted 4 August 2000, as modified by the Appellate Body 
Report, WT/DS70/AB/RW ( Canada - Aircraft – Article 21.5 ), DSR 2000:IX, 4315, paras. 6.1 and 6.2. 
13 EC First Written Submission, para. 29, quoting the Article 21.5 Appellate Body Report, para. 229.  
14 See e.g. the background to the JOBS Act, as described in the Conference Report (Exhibit EC-3, p. 
262).   
15 Concluded at Vienna on 23 May 1969, United Nations Treaty Series , Vol. 1155, I-18232. 
16 US First Written Submission, para. 14 and footnote 12, referring to para. 7.5 of the Article 21.5 
Panel Report. WT/DS108/RW2 
Page B-6  
 
recommendation under Article 19 of the DSU was not  needed (and that the Panel followed this 
approach, noting that several other earlier Panel reports also did so).
17  The United States also 
conveniently omits to recall that to the extent it fe lt this was required, the Appellate Body did make a 
recommendation to the DSB that it request the United  States to bring the ETI Act into conformity 
with its obligations.18   
 
18. As a last remark, it should be recalled that panels are required to make the recommendations 
which are necessary under Article 4.7 of the SCM Agreement19 and that panels and the Appellate 
Body are required to make the recommendations whic h are necessary under Article 19 of the DSU, if 
they have found a violation of Article 3 of th e SCM Agreement or other "covered agreements" 
respectively.  These recommendations must thus be made irrespective of a specific request of the 
complaining party.    C. WHETHER SECTION 5 OF THE ETI ACT IS WITHIN THE PANEL’S TERMS OF 
REFERENCE 
 
19. The other procedural argument brought forward by the United States is that section 5 of the 
ETI Act does not fall within the Panel’s terms of re ference.  The reason for this position seems to be 
that the United States considers the subsections of the JOBS Act expressly mentioned in a particular part of the request for the establishment of the Panel
20 to be the sole subject of litigation in this 
proceeding.21   
 
20. The European Communities cannot accept th e US approach, which is unduly reducing the 
content of its request in this proceeding.  To be gin with, section 2 of its re quest for establishment of 
the Panel only summarizes the text of the part of  the JOBS Act which are pertinent to this panel 
proceeding.  However, the EC request for findings by the Panel is contained in section 3, which is 
inextricably linked to section 2.  Section 3 contai ns a clear reference to the original recommendation 
under Article 4.7 of the SCM Agreement and to the findings made in the first Article 21.5 proceeding 
in respect of the ETI Act.  Amongst these are, as indicated above, findings that the ETI Act partly keeps in force the FSC scheme through its "grandfathering" provision.    21. In fact, elsewhere in its submission, the United States admits that Article 21.5 proceedings are 
concerned with measures taken to comply with (earlier) recommendations and rulings.
22  As found by 
the Panel and confirmed by the Appellate Body in th e first Article 21.5 proceedings in this dispute, 
the ETI Act did not achieve compliance with the recommendations and rulings in the original proceedings, including the recommendation under Article 4.7 of the SCM Agreement.
23  Quite to the 
contrary, by passing the ETI Act the United States continued to violate a number of WTO provisions, 
                                                      
17 See e.g. Article 21.5 Panel Report, Australia - Subsidies Provided to Producers and Exporters of 
Automotive Leather - Recourse to Article 21.5 of the DSU by the United States , WT/DS126/RW, adopted 
20 March 2000; Article 21.5 Panel Report, Brazil – Export Financing Programme for Aircraft - Recourse By 
Canada To Article 21.5 of the DSU , WT/DS46/RW, adopted 4 August 2000; Article 21.5 Panel Report, Canada 
– Measures Affecting the Export of Civilian Aircraft , Recourse by Brazil to Article 21.5 of the DSU , adopted 
4 August 2000, WT/DS70/RW), all quoted in the Article 21.5 Panel Report, footnote 44. 
18 Article 21.5 Appellate Body Report, para. 257. 
19 See also e.g. Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, and Corr.1, 
8 September 2004 (“ US – Upland Cotton ”), para. 8.3(b); Panel Report, Canada – Measures Affecting the Export 
of Civilian Aircraft , WT/DS70/R, adopted 20 August 1999, as upheld by the Appellate Body Report, 
WT/DS70/AB/R (“ Canada - Aircraft ”), DSR 1999:IV, 1443, para. 8.3; Panel Report, Korea – Measures affecting 
trade in commercial vessels , WT/DS273/R, 7 March 2005 (“ Korea – Vessels ”), para. 8.4. 
20 WT/DS108/29. 
21 US First Written Submission, para. 20.  
22 US First Written Submission, para. 17. 
23 See in particular Article 21.5 Appellate Body Report, paras. 228-231 and the passages of the 
Article 21.5 Panel Report referenced therein.  WT/DS108/RW2 
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and also the recommendation under Article 4.7 of the SCM Agreement to withdraw the FSC scheme 
without delay.  As a result, effective withdraw al of the FSC scheme under the SCM Agreement also 
required withdrawal of the measure that ( inter alia ) maintained the FSC scheme in effect.  The 
European Communities is precisely compla ining about the US failure to do so.24 
 
22. Article 21.5 proceedings concern not only wh at the defaulting Member has done, but also, 
and primarily, what it has failed to do.  They cove r not only the question of whether what has been 
done is consistent with the covered agreements.  They also cover the question of whether measures 
which ought to have been taken to comply exist.    
23. Since the United States has failed to take any ac tion to repeal section 5 of the ETI Act, there 
is no provision in the JOBS Act that the European  Communities could have quoted in its request for 
establishment of the Panel in connection with this fa ilure.  It was no more necessary to explicitly cite 
section 5 of the ETI Act in the request than it woul d have been necessary to cite any other provision 
of the ETI Act or the FSC legislation that rema ins partially applicable today contrary to the 
obligations of the United States. 
 24. Furthermore, the EC would recall that the fact that the ETI Act, including section 5 thereof, is 
inconsistent with the obligations of the United States under the WTO is res iudicata  between the 
parties to this dispute.
25  The United States has an obligation to withdraw it and does not contest that it 
has not done so.   
 
25. Even assuming, quod non , that the only relevant part of th e EC request for establishment of 
the Panel is the one contained in section 2 thereof,  that section also includes a general reference to 
certain contracts which are kept in force by the JOBS  Act.  Section 2 of the request clearly indicates 
that  
 
the European Communities considers that Section 101 of the JOBS Act contains provisions which allow US exporters to c ontinue benefiting from the tax exemptions
 
already found to be WTO incompatible  … (b) for an indefinite period with respect to 
certain contracts .26   
26. The language quoted above covers both the c ontracts benefiting from the ETI scheme which 
are expressly "grandfathered" by the JOBS Act and the "older" contracts benefiting from the FSC 
scheme which were "grandfathered" by the ETI Ac t through section 5.  The United States does not 
contest that the JOBS Act allows section 5 of the ETI  Act to remain in effect.  And there is no doubt 
that the FSC and ETI schemes were alre ady "found to be WTO incompatible". 
 III. CONCLUSION   
27. For the reasons above the European Communiti es maintains its request to the Panel and its 
conclusions set out in its First Written Submission.   
                                                     
 
24 WT/DS108/29, p. 2. 
25 EC First Written Submission, para. 67. 
26 WT/DS108/29, p. 2 (emphasis added). WT/DS108/RW2 
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ANNEX B-2 
  
SECOND WRITTEN SU BMISSION OF THE 
UNITED STATES 
 
 
(16 June 2005) 
 
 Dear Mr. Chairman: 
 
In our First Written Submission of 2 June 2005, in the dispute United States – Tax Treatment 
for "Foreign Sales Corporations":  Second Recourse to Article 21.5 of the DSU by the European 
Communities  (WT/DS108), the United States responded to the arguments of the European 
Communities ("EC") set forth in its First Written S ubmission of 19 May 2005.  Since then, there have 
been no further arguments submitted by the EC for th e United States to rebut.  Therefore, this letter 
constitutes the United States rebuttal submission.  Of course, should the EC rebuttal submission 
contain new arguments, the United States will respond to  them at the 30 June 2005, meeting with the 
Panel.  
The United States is providing a copy of this s ubmission directly to the EC, Australia, Brazil, 
and China.